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,
2010
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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
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13-4075851
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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200 Park Avenue, New York, N.Y.
(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
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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 28, 2010, 820,439,008 shares of the
registrants common stock, $0.01 par value per share,
were outstanding.
As used in this
Form 10-Q,
MetLife, the Company, we,
our and us refer to MetLife, Inc., a
Delaware corporation incorporated in 1999 (the Holding
Company), and its subsidiaries, including Metropolitan
Life Insurance Company (MLIC).
Note
Regarding Forward-Looking Statements
This 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.
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 U.S. Securities and Exchange
Commission (the SEC). These factors include:
(1) any delay or failure to complete the acquisition of
American Life Insurance Company (Alico), a
subsidiary of ALICO Holdings LLC (Alico Holdings)
and Delaware American Life Insurance Company (DelAm)
(collectively, the Acquisition); (2) the
imposition of onerous conditions following the Acquisition;
(3) difficulties in integrating the business acquired in
the Acquisition (the Alico Business);
(4) uncertainty with respect to the outcome of the closing
agreement entered into between Alico and the United States
Internal Revenue Service in connection with the Acquisition;
(5) uncertainty with respect to the making of elections
under Section 338 of the U.S. Internal Revenue Code of
1986, as amended, and any benefits therefrom; (6) an
inability to manage the growth of the Alico Business; (7) a
writedown of the goodwill established in connection with the
Acquisition; (8) exchange rate fluctuations; (9) an
inability to predict the financial impact of the Acquisition on
MetLifes business and financial results; (10) events
relating to American International Group, Inc. (AIG)
that could adversely affect the Alico Business or MetLife;
(11) the dilutive impact on MetLife, Inc.s
stockholders resulting from the issuance of equity securities to
Alico Holdings in connection with the Acquisition; (12) a
decrease in MetLife, Inc.s stock price as a result of
Alico Holdings ability to sell its equity securities;
(13) the conditional payment obligation of approximately
$300 million to Alico Holdings if the conversion of
MetLife, Inc.s Series B Contingent Convertible Junior
Participating Non-Cumulative Perpetual Preferred Stock
(Series B Preferred Stock) issued to Alico
Holdings in connection with the Acquisition into MetLife,
Inc.s common stock is not approved; (14) change of
control provisions in the Alico Business agreements;
(15) effects of guarantees within certain of the Alico
Business variable life and annuity products;
(16) regulatory action in the financial services industry
affecting the combined business; (17) financial instability
in Europe and possible writedowns of sovereign debt of European
nations; (18) difficult conditions in the global capital
markets; (19) increased volatility and disruption of the
capital and credit markets, which may affect MetLifes
ability to seek financing or access its credit facilities;
(20) uncertainty about the effectiveness of the
U.S. governments programs to stabilize the financial
system, the imposition of fees relating thereto, or the
promulgation of additional regulations; (21) impact of
comprehensive financial services regulation reform on MetLife;
(22) exposure to financial and capital market risk;
(23) changes in general economic conditions, including the
performance of financial markets and interest rates, which may
affect MetLifes ability to raise capital, generate fee
income and market-related revenue and finance statutory reserve
requirements and may require MetLife to pledge collateral or
make payments related to declines in value of specified assets;
(24) potential liquidity and other risks resulting from
MetLifes participation in a securities lending program and
other transactions; (25) investment losses and defaults,
and changes to investment valuations; (26) impairments of
goodwill and realized losses or market value impairments to
illiquid assets; (27) defaults on MetLifes mortgage
loans; (28) the impairment of other financial institutions;
(29) MetLifes ability to address unforeseen
liabilities, asset impairments or rating actions arising from
any future acquisitions, including the Acquisition, and to
successfully integrate acquired businesses with
3
minimal disruption; (30) economic, political, currency and
other risks relating to MetLifes international operations;
(31) 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;
(32) downgrades in MetLife, Inc.s and its
affiliates claims paying ability, financial strength or
credit ratings; (33) ineffectiveness of risk management
policies and procedures; (34) availability and
effectiveness of reinsurance or indemnification arrangements, as
well as default or failure of counterparties to perform;
(35) discrepancies between actual claims experience and
assumptions used in setting prices for MetLifes products
and establishing the liabilities for MetLifes obligations
for future policy benefits and claims; (36) catastrophe
losses; (37) heightened competition, including with respect
to pricing, entry of new competitors, consolidation of
distributors, the development of new products by new and
existing competitors, distribution of amounts available under
U.S. government programs, and for personnel;
(38) unanticipated changes in industry trends;
(39) changes in accounting standards, practices
and/or
policies; (40) changes in assumptions related to deferred
policy acquisition costs (DAC), deferred sales
inducements (DSI), value of business acquired
(VOBA) or goodwill; (41) increased expenses
relating to pension and postretirement benefit plans, as well as
health care and other employee benefits; (42) exposure to
losses related to variable annuity guarantee benefits, including
from significant and sustained downturns or extreme volatility
in equity markets, reduced interest rates, unanticipated
policyholder behavior, mortality or longevity, and the
adjustment for nonperformance risk; (43) deterioration in
the experience of the closed block established in
connection with the reorganization of MLIC; (44) adverse
results or other consequences from litigation, arbitration or
regulatory investigations; (45) discrepancies between
actual experience and assumptions used in establishing
liabilities related to other contingencies or obligations;
(46) regulatory, legislative or tax changes relating to
MetLifes insurance, banking, international, or other
operations that may affect the cost of, or demand for,
MetLifes products or services, impair its ability to
attract and retain talented and experienced management and other
employees, or increase the cost or administrative burdens of
providing benefits to employees; (47) the effects of
business disruption or economic contraction due to terrorism,
other hostilities, or natural catastrophes; (48) the
effectiveness of MetLifes programs and practices in
avoiding giving its associates incentives to take excessive
risks; (49) other risks and uncertainties described from
time to time in MetLife, Inc.s filings with the SEC; and
(50) any of the foregoing factors as they relate to the
Alico Business and its operations.
MetLife, Inc. does not undertake any obligation to publicly
correct or update any forward-looking statement if MetLife, Inc.
later becomes aware that such statement is not likely to be
achieved. Please consult any further disclosures MetLife, Inc.
makes on related subjects in reports to the SEC.
Note
Regarding Reliance on Statements in Our Contracts
In reviewing the agreements included as exhibits to this
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 SEC website at www.sec.gov.
4
Part I
Financial Information
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Item 1.
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Financial
Statements
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MetLife,
Inc.
Interim
Condensed Consolidated Balance Sheets
June 30, 2010 (Unaudited) and
December 31, 2009
(In millions, except share and per share data)
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June 30,
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December 31,
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2010
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2009
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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: $238,877 and $229,709,
respectively; includes $3,256 and $3,171, respectively, relating
to variable interest entities)
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$
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246,348
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$
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227,642
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Equity securities
available-for-sale,
at estimated fair value (cost: $2,956 and $3,187, respectively)
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2,741
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3,084
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Trading securities, at estimated fair value (cost: $3,183 and
$2,249, respectively; includes $257 and $0, respectively,
relating to variable interest entities)
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3,158
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2,384
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Mortgage loans:
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Held-for-investment,
at amortized cost (net of valuation allowances of $734 and $721,
respectively; includes $7,107 and $0, respectively, relating to
variable interest entities)
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55,601
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48,181
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Held-for-sale,
principally at estimated fair value
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2,650
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2,728
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Mortgage loans, net
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58,251
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50,909
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Policy loans
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10,180
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10,061
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Real estate and real estate joint ventures
held-for-investment
(includes $19 and $18, respectively, relating to variable
interest entities)
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6,832
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6,852
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Real estate
held-for-sale
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9
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44
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Other limited partnership interests (includes $197 and $236,
respectively, relating to variable interest entities)
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5,856
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5,508
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Short-term investments
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9,746
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8,374
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Other invested assets (includes $105 and $137, respectively,
relating to variable interest entities)
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15,584
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12,709
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Total investments
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358,705
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327,567
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Cash and cash equivalents (includes $103 and $68, respectively,
relating to variable interest entities)
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10,702
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10,112
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Accrued investment income (includes $38 and $0, respectively,
relating to variable interest entities)
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3,249
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3,173
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Premiums, reinsurance and other receivables
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18,177
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16,752
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Deferred policy acquisition costs and value of business acquired
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17,720
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19,256
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Current income tax recoverable
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243
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316
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Deferred income tax assets
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1,228
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Goodwill
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5,037
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5,047
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Other assets (includes $7 and $16, respectively, relating to
variable interest entities)
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6,712
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6,822
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Separate account assets
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153,362
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149,041
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Total assets
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$
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573,907
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$
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539,314
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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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140,239
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$
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135,879
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Policyholder account balances
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142,822
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138,673
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Other policyholder funds
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8,660
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8,446
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Policyholder dividends payable
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775
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761
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Policyholder dividend obligation
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1,080
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Payables for collateral under securities loaned and other
transactions
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29,772
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24,196
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Bank deposits
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9,790
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10,211
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Short-term debt
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879
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912
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Long-term debt (includes $7,187 and $64, respectively, relating
to variable interest entities)
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20,647
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13,220
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Collateral financing arrangements
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5,297
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5,297
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Junior subordinated debt securities
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3,191
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3,191
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Deferred income tax liability
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2,050
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Other liabilities (includes $79 and $26, respectively, relating
to variable interest entities)
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15,619
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15,989
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Separate account liabilities
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153,362
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149,041
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Total liabilities
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534,183
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505,816
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Contingencies, Commitments and Guarantees (Note 8)
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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; 823,590,958 and
822,359,818 shares issued at June 30, 2010 and
December 31, 2009, respectively; 820,397,071 and
818,833,810 shares outstanding at June 30, 2010 and
December 31, 2009, respectively
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8
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8
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Additional paid-in capital
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16,896
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16,859
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Retained earnings
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21,820
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19,501
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Treasury stock, at cost; 3,193,887 and 3,526,008 shares at
June 30, 2010 and December 31, 2009, respectively
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(172
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(190
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)
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Accumulated other comprehensive income (loss)
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822
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(3,058
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Total MetLife, Inc.s stockholders equity
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39,375
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33,121
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Noncontrolling interests
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349
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377
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Total equity
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39,724
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33,498
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Total liabilities and stockholders equity
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$
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573,907
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$
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539,314
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See accompanying notes to the
interim condensed consolidated financial statements.
5
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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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2010
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2009
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2010
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2009
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Revenues
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Premiums
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$
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6,662
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$
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6,576
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$
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13,516
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$
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12,698
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Universal life and investment-type product policy fees
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1,485
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1,216
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2,892
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2,399
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Net investment income
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4,087
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3,730
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8,431
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6,991
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Other revenues
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544
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572
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1,057
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1,126
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Net investment gains (losses):
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Other-than-temporary
impairments on fixed maturity securities
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(244
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)
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(566
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)
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(395
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)
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(1,119
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)
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Other-than-temporary
impairments on fixed maturity securities transferred to other
comprehensive income (loss)
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98
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234
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157
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234
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Other net investment gains (losses), net
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1,614
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(3,497
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1,778
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(3,850
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Total net investment gains (losses)
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1,468
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(3,829
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1,540
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(4,735
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Total revenues
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14,246
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8,265
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27,436
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18,479
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Expenses
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Policyholder benefits and claims
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7,018
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6,946
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14,555
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13,528
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Interest credited to policyholder account balances
|
|
|
1,049
|
|
|
|
1,229
|
|
|
|
2,192
|
|
|
|
2,397
|
|
Policyholder dividends
|
|
|
388
|
|
|
|
434
|
|
|
|
765
|
|
|
|
858
|
|
Other expenses
|
|
|
3,420
|
|
|
|
2,031
|
|
|
|
6,362
|
|
|
|
5,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
11,875
|
|
|
|
10,640
|
|
|
|
23,874
|
|
|
|
21,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before provision for
income tax
|
|
|
2,371
|
|
|
|
(2,375
|
)
|
|
|
3,562
|
|
|
|
(3,337
|
)
|
Provision for income tax expense (benefit)
|
|
|
830
|
|
|
|
(956
|
)
|
|
|
1,188
|
|
|
|
(1,333
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of income tax
|
|
|
1,541
|
|
|
|
(1,419
|
)
|
|
|
2,374
|
|
|
|
(2,004
|
)
|
Income (loss) from discontinued operations, net of income tax
|
|
|
6
|
|
|
|
1
|
|
|
|
7
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
1,547
|
|
|
|
(1,418
|
)
|
|
|
2,381
|
|
|
|
(1,966
|
)
|
Less: Net income (loss) attributable to noncontrolling interests
|
|
|
(10
|
)
|
|
|
(16
|
)
|
|
|
(11
|
)
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to MetLife, Inc.
|
|
|
1,557
|
|
|
|
(1,402
|
)
|
|
|
2,392
|
|
|
|
(1,946
|
)
|
Less: Preferred stock dividends
|
|
|
31
|
|
|
|
31
|
|
|
|
61
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to MetLife, Inc.s common
shareholders
|
|
$
|
1,526
|
|
|
$
|
(1,433
|
)
|
|
$
|
2,331
|
|
|
$
|
(2,007
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of income tax,
available to MetLife, Inc.s common shareholders per common
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.84
|
|
|
$
|
(1.74
|
)
|
|
$
|
2.82
|
|
|
$
|
(2.51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
1.83
|
|
|
$
|
(1.74
|
)
|
|
$
|
2.80
|
|
|
$
|
(2.51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to MetLife, Inc.s common
shareholders per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.85
|
|
|
$
|
(1.74
|
)
|
|
$
|
2.83
|
|
|
$
|
(2.46
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
1.84
|
|
|
$
|
(1.74
|
)
|
|
$
|
2.81
|
|
|
$
|
(2.46
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the interim condensed consolidated
financial statements.
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
Foreign
|
|
|
Defined
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Treasury
|
|
|
Unrealized
|
|
|
Other-Than-
|
|
|
Currency
|
|
|
Benefit
|
|
|
MetLife, Inc.s
|
|
|
|
|
|
|
|
|
|
Preferred
|
|
|
Common
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Stock
|
|
|
Investment
|
|
|
Temporary
|
|
|
Translation
|
|
|
Plans
|
|
|
Stockholders
|
|
|
Noncontrolling
|
|
|
Total
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
at Cost
|
|
|
Gains (Losses)
|
|
|
Impairments
|
|
|
Adjustments
|
|
|
Adjustment
|
|
|
Equity
|
|
|
Interests
|
|
|
Equity
|
|
|
Balance at December 31, 2009
|
|
$
|
1
|
|
|
$
|
8
|
|
|
$
|
16,859
|
|
|
$
|
19,501
|
|
|
$
|
(190
|
)
|
|
$
|
(817
|
)
|
|
$
|
(513
|
)
|
|
$
|
(183
|
)
|
|
$
|
(1,545
|
)
|
|
$
|
33,121
|
|
|
$
|
377
|
|
|
$
|
33,498
|
|
Cumulative effect of change in accounting principle, net of
income tax (Note 1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
31
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2010
|
|
|
1
|
|
|
|
8
|
|
|
|
16,859
|
|
|
|
19,489
|
|
|
|
(190
|
)
|
|
|
(786
|
)
|
|
|
(502
|
)
|
|
|
(183
|
)
|
|
|
(1,545
|
)
|
|
|
33,151
|
|
|
|
377
|
|
|
|
33,528
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
37
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55
|
|
|
|
|
|
|
|
55
|
|
Dividends on preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(61
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(61
|
)
|
|
|
|
|
|
|
(61
|
)
|
Change in equity of noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18
|
)
|
|
|
(18
|
)
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,392
|
|
|
|
(11
|
)
|
|
|
2,381
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on derivative instruments, net of
income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
435
|
|
|
|
|
|
|
|
435
|
|
Unrealized investment gains (losses), net of related offsets and
income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,469
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
3,485
|
|
|
|
|
|
|
|
3,485
|
|
Foreign currency translation adjustments, net of income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(151
|
)
|
|
|
|
|
|
|
(151
|
)
|
|
|
1
|
|
|
|
(150
|
)
|
Defined benefit plans adjustment, net of income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69
|
|
|
|
69
|
|
|
|
|
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,838
|
|
|
|
1
|
|
|
|
3,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,230
|
|
|
|
(10
|
)
|
|
|
6,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2010
|
|
$
|
1
|
|
|
$
|
8
|
|
|
$
|
16,896
|
|
|
$
|
21,820
|
|
|
$
|
(172
|
)
|
|
$
|
3,118
|
|
|
$
|
(486
|
)
|
|
$
|
(334
|
)
|
|
$
|
(1,476
|
)
|
|
$
|
39,375
|
|
|
$
|
349
|
|
|
$
|
39,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the
interim condensed consolidated financial statements.
7
MetLife,
Inc.
Interim Condensed Consolidated Statements of
Stockholders Equity
(Continued)
For the Six Months Ended June 30, 2009 (Unaudited)
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
Foreign
|
|
|
Defined
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Treasury
|
|
|
Unrealized
|
|
|
Other-Than-
|
|
|
Currency
|
|
|
Benefit
|
|
|
MetLife, Inc.s
|
|
|
|
|
|
|
|
|
|
Preferred
|
|
|
Common
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Stock
|
|
|
Investment
|
|
|
Temporary
|
|
|
Translation
|
|
|
Plans
|
|
|
Stockholders
|
|
|
Noncontrolling
|
|
|
Total
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
at Cost
|
|
|
Gains (Losses)
|
|
|
Impairments
|
|
|
Adjustments
|
|
|
Adjustment
|
|
|
Equity
|
|
|
Interests
|
|
|
Equity
|
|
|
Balance at December 31, 2008
|
|
$
|
1
|
|
|
$
|
8
|
|
|
$
|
15,811
|
|
|
$
|
22,403
|
|
|
$
|
(236
|
)
|
|
$
|
(12,564
|
)
|
|
$
|
|
|
|
$
|
(246
|
)
|
|
$
|
(1,443
|
)
|
|
$
|
23,734
|
|
|
$
|
251
|
|
|
$
|
23,985
|
|
Cumulative effect of change in accounting principle, net of
income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
8
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
3,928
|
|
|
$
|
(1,227
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Sales, maturities and repayments of:
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
|
38,035
|
|
|
|
31,711
|
|
Equity securities
|
|
|
690
|
|
|
|
1,154
|
|
Mortgage loans
|
|
|
2,715
|
|
|
|
3,015
|
|
Real estate and real estate joint ventures
|
|
|
87
|
|
|
|
7
|
|
Other limited partnership interests
|
|
|
251
|
|
|
|
640
|
|
Purchases of:
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
|
(47,014
|
)
|
|
|
(47,052
|
)
|
Equity securities
|
|
|
(364
|
)
|
|
|
(1,102
|
)
|
Mortgage loans
|
|
|
(2,878
|
)
|
|
|
(2,076
|
)
|
Real estate and real estate joint ventures
|
|
|
(305
|
)
|
|
|
(213
|
)
|
Other limited partnership interests
|
|
|
(452
|
)
|
|
|
(413
|
)
|
Cash received in connection with freestanding derivatives
|
|
|
986
|
|
|
|
2,810
|
|
Cash paid in connection with freestanding derivatives
|
|
|
(1,077
|
)
|
|
|
(3,582
|
)
|
Sales of businesses, net of cash disposed of $0 and $180,
respectively
|
|
|
|
|
|
|
(46
|
)
|
Net change in policy loans
|
|
|
(119
|
)
|
|
|
(105
|
)
|
Net change in short-term investments
|
|
|
(1,334
|
)
|
|
|
5,761
|
|
Net change in other invested assets
|
|
|
754
|
|
|
|
713
|
|
Other, net
|
|
|
(95
|
)
|
|
|
(103
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(10,120
|
)
|
|
|
(8,881
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Policyholder account balances:
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
34,213
|
|
|
|
45,763
|
|
Withdrawals
|
|
|
(32,390
|
)
|
|
|
(46,389
|
)
|
Net change in bank deposits
|
|
|
(497
|
)
|
|
|
840
|
|
Net change in payables for collateral under securities loaned
and other transactions
|
|
|
5,576
|
|
|
|
(6,452
|
)
|
Net change in short-term debt
|
|
|
(33
|
)
|
|
|
2,098
|
|
Long-term debt issued
|
|
|
678
|
|
|
|
2,225
|
|
Long-term debt repaid
|
|
|
(511
|
)
|
|
|
(134
|
)
|
Collateral financing arrangements issued
|
|
|
|
|
|
|
105
|
|
Cash received in connection with collateral financing
arrangements
|
|
|
|
|
|
|
400
|
|
Cash paid in connection with collateral financing arrangements
|
|
|
|
|
|
|
(400
|
)
|
Debt issuance costs
|
|
|
(1
|
)
|
|
|
(17
|
)
|
Common stock issued to settle stock forward contracts
|
|
|
|
|
|
|
1,035
|
|
Dividends on preferred stock
|
|
|
(61
|
)
|
|
|
(61
|
)
|
Other, net
|
|
|
(113
|
)
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
6,861
|
|
|
|
(1,002
|
)
|
|
|
|
|
|
|
|
|
|
Effect of change in foreign currency exchange rates on cash
balances
|
|
|
(79
|
)
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents
|
|
|
590
|
|
|
|
(11,026
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
10,112
|
|
|
|
24,239
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
10,702
|
|
|
$
|
13,213
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, subsidiaries
held-for-sale,
beginning of period
|
|
$
|
|
|
|
$
|
32
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, subsidiaries
held-for-sale,
end of period
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, from continuing operations, beginning
of period
|
|
$
|
10,112
|
|
|
$
|
24,207
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, from continuing operations, end of
period
|
|
$
|
10,702
|
|
|
$
|
13,213
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Net cash paid (received) during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
744
|
|
|
$
|
475
|
|
|
|
|
|
|
|
|
|
|
Income tax
|
|
$
|
(11
|
)
|
|
$
|
195
|
|
|
|
|
|
|
|
|
|
|
Non-cash transactions during the period:
|
|
|
|
|
|
|
|
|
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
|
|
$
|
10
|
|
|
$
|
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, Asia Pacific and Europe, Middle East and
India regions. Through its subsidiaries and affiliates, MetLife
offers life insurance, annuities, auto and homeowners insurance,
retail banking and other financial services to individuals, as
well as group insurance and retirement & savings
products and services to corporations and other institutions.
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.
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, and variable interest entities
(VIEs) for which the Company is the primary
beneficiary. See Adoption of New Accounting
Pronouncements. 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 6. Intercompany accounts and transactions
have been eliminated.
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 2010 presentation. Such
reclassifications include $840 million reclassified from
policyholder account balances to net change in bank deposits
within cash flows from financing activities in the interim
condensed consolidated statement of cash flows for the six
months ended June 30, 2009. In addition,
$2,810 million and ($3,582) million were reclassified
from net change in other invested assets to cash received in
connection with freestanding derivatives and cash paid in
connection with freestanding derivatives, respectively, within
cash flows from investing activities in the interim condensed
consolidated statement of cash flows for the six months ended
June 30, 2009. See also Note 14 for reclassifications
related to discontinued operations.
The accompanying interim condensed consolidated financial
statements reflect all adjustments (including normal recurring
adjustments) necessary to present fairly the consolidated
financial position of the Company at June 30, 2010, its
consolidated results of operations for the three months and six
months ended June 30, 2010 and 2009, its consolidated cash
flows for the six months ended June 30, 2010 and 2009, and
its consolidated statements of stockholders equity for the
six months ended June 30, 2010 and 2009, in conformity with
GAAP. Interim results are not necessarily indicative of full
year performance. The December 31, 2009 consolidated
balance sheet data was
10
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
derived from audited consolidated financial statements included
in MetLifes Annual Report on
Form 10-K
for the year ended December 31, 2009 (the 2009 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 2009 Annual Report.
Adoption
of New Accounting Pronouncements
Financial
Instruments
Effective January 1, 2010, the Company adopted new guidance
related to financial instrument transfers and consolidation of
VIEs. The financial instrument transfer guidance eliminates the
concept of a qualified special purpose entity
(QSPE), eliminates the guaranteed mortgage
securitization exception, changes the criteria for achieving
sale accounting when transferring a financial asset and changes
the initial recognition of retained beneficial interests. The
new consolidation guidance changes the definition of the primary
beneficiary as well as the method of determining whether an
entity is a primary beneficiary of a VIE from a quantitative
model to a qualitative model. Under the new qualitative model,
the entity that has both the ability to direct the most
significant activities of the VIE and the obligation to absorb
losses or receive benefits that could be significant to the VIE
is considered to be the primary beneficiary of the VIE. The
guidance requires reassessment on a quarterly basis, as well as
enhanced disclosures, including the effects of a companys
involvement with VIEs on its financial statements.
As a result of the adoption of this guidance, the Company
consolidated certain former QSPEs that were previously accounted
for as fixed maturity commercial mortgage-backed securities and
equity security collateralized debt obligations. The Company
also elected the fair value option for all of the consolidated
assets and liabilities of these entities. Upon consolidation,
the Company recorded $278 million of securities classified
as trading securities, $6,769 million of commercial
mortgage loans and $6,822 million of long-term debt based
on estimated fair values at January 1, 2010 and
de-recognized $179 million in fixed maturity securities and
less than $1 million in equity securities. The
consolidation also resulted in a decrease in retained earnings
of $12 million, net of income tax, and an increase in
accumulated other comprehensive income (loss) of
$42 million, net of income tax, at January 1, 2010.
For the three months and six months ended June 30, 2010,
the Company recorded $109 million and $218 million,
respectively, of net investment income on the consolidated
assets, $103 million and $209 million, respectively,
of interest expense in other expenses on the related long-term
debt, and ($2) million and $8 million, respectively,
in net investment gains (losses) to remeasure the assets and
liabilities at their estimated fair values at June 30, 2010.
In addition, the Company also deconsolidated certain
partnerships for which the Company does not have the power to
direct activities and for which the Company has concluded it is
no longer the primary beneficiary. These deconsolidations did
not result in a cumulative effect adjustment to retained
earnings and did not have a material impact on the
Companys consolidated financial statements.
Also effective January 1, 2010, the Company adopted new
guidance that indefinitely defers the above changes relating to
the Companys interests in entities that have all the
attributes of an investment company or for which it is industry
practice to apply measurement principles for financial reporting
that are consistent with those applied by an investment company.
As a result of the deferral, the above guidance did not apply to
certain real estate joint ventures and other limited partnership
interests held by the Company.
Fair
Value
Effective January 1, 2010, the Company adopted new guidance
that requires new disclosures about significant transfers in
and/or out
of Levels 1 and 2 of the fair value hierarchy and activity
in Level 3 (Accounting Standards Update (ASU)
2010-06,
Fair Value Measurements and Disclosures (Topic 820):
Improving Disclosures about Fair Value Measurements). In
addition, this guidance provides clarification of existing
disclosure requirements
11
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
about level of disaggregation and inputs and valuation
techniques. The adoption of this guidance did not have an impact
on the Companys consolidated financial statements.
Future
Adoption of New Accounting Pronouncements
In July 2010, Financial Accounting Standards Board
(FASB) issued new guidance regarding disclosures
about the credit quality of financing receivables and the
allowance for credit losses ASU
2010-20,
Disclosures about the Credit Quality of Financing Receivables
and the Allowance for Credit Losses). This guidance requires
additional disclosures about the credit quality of financing
receivables, such as aging information and credit quality
indicators. In addition, disclosures must be disaggregated by
portfolio segment or class based on how a company develops its
allowance for credit losses and how it manages its credit
exposure. Most of the requirements are effective for the fourth
quarter of 2010 with certain additional disclosures required for
the first quarter of 2011. The Company is currently evaluating
the impact of this guidance on its consolidated financial
statements.
In April 2010, the FASB issued new guidance regarding accounting
for investment funds determined to be VIEs (ASU
2010-15,
How Investments Held through Separate Accounts Affect an
Insurers Consolidation Analysis of Those Investments).
Under this guidance, an insurance entity would not be required
to consolidate a voting-interest investment fund when it holds
the majority of the voting interests of the fund through its
separate accounts. In addition, an insurance entity would not
consider the interests held through separate accounts for the
benefit of policyholders in the insurers evaluation of its
economics in a VIE, unless the separate account contract holder
is a related party. The guidance is effective for the first
quarter of 2011. The Company does not expect the adoption of
this new guidance to have a material impact on its consolidated
financial statements.
In March 2010, the FASB issued new guidance regarding accounting
for embedded credit derivatives within structured securities
(ASU
2010-11,
Scope Exception Related to Embedded Credit Derivatives).
This guidance clarifies the type of embedded credit derivative
that is exempt from embedded derivative bifurcation
requirements. Specifically, embedded credit derivatives
resulting only from subordination of one financial instrument to
another continue to qualify for the scope exception. Embedded
credit derivative features other than subordination must be
analyzed to determine if they require bifurcation and separate
accounting. The guidance is effective for the third quarter of
2010. The Company does not expect the adoption of this new
guidance to have a material impact on its consolidated financial
statements.
|
|
2.
|
Pending
Acquisition and Disposition
|
Pending
Acquisition
On March 7, 2010, the Holding Company entered into a stock
purchase agreement (the Stock Purchase Agreement)
with Alico Holdings LLC (Alico Holdings) and
American International Group, Inc., pursuant to which the
Holding Company agreed to acquire all of the issued and
outstanding capital stock of American Life Insurance Company
(Alico) and Delaware American Life Insurance
Company. The transaction is expected to close by the end of
2010, subject to certain regulatory approvals and
determinations, as well as other customary closing conditions.
Pursuant to the Stock Purchase Agreement, the Holding Company
will (i) pay $6.8 billion to Alico Holdings in cash,
and (ii) issue to Alico Holdings
(a) 78,239,712 shares of its common stock,
(b) 6,857,000 shares of Series B Contingent
Convertible Junior Participating Non-Cumulative Perpetual
Preferred Stock of the Holding Company, which will be
convertible into approximately 68,570,000 shares of the
Holding Companys common stock (subject to anti-dilution
adjustments) upon a favorable vote of the Holding Companys
common stockholders and (c) $3.0 billion aggregate
stated amount of equity units of the Holding Company (together,
the Securities), initially consisting of
(x) forward purchase contracts obligating the holder to
purchase a variable number of shares of the Holding
Companys common stock on each of three specified future
settlement dates (expected to be approximately two, three and
four years after closing), for a fixed amount per purchase
contract, (an aggregate of
12
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
$1 billion each settlement date) and (y) an interest
in shares of the Holding Companys preferred stock. At a
future date, the interest in the preferred stock forming part of
the equity units will be mandatorily exchanged for an interest
in debt securities of the Company, which will be subject to
remarketing and sold to investors. Holders of the equity units
who elect to include their debt securities in a remarketing can
use the proceeds thereof to meet their obligations under the
forward purchase contracts. The aggregate amount of the Holding
Companys common stock to be issued to Alico Holdings in
connection with the transaction is expected to be
214.6 million to 231.5 million shares, consisting of
78.2 million shares to be issued at closing,
68.6 million shares to be issued upon conversion of the
Series B Contingent Convertible Junior Participating
Non-Cumulative Perpetual Preferred Stock (with the stockholder
vote on such conversion to be held within one year after the
closing) and between 67.8 million and 84.7 million
shares of common stock, in total, issuable upon settlement of
the purchase contracts forming part of the equity units (in
three tranches approximately two, three and four years after the
closing). The ownership of the Securities is subject to an
investor rights agreement, which grants to Alico Holdings
certain rights and sets forth certain agreements with respect to
Alico Holdings ownership, voting and transfer of the
Securities. Alico Holdings has indicated that it intends to
monetize the Securities over time, subject to market conditions,
following the lapse of
agreed-upon
minimum holding periods. See Note 7 for discussion of a
related commitment letter signed by the Holding Company with
various financial institutions for a senior credit facility.
Pending
Disposition
During the second quarter of 2010, the Company entered into a
definitive agreement with a third party to sell MetLife Taiwan
Insurance Company Limited (MetLife Taiwan) for
approximately $113 million in cash consideration. The total
equity of MetLife Taiwan was $234 million, including
accumulated other comprehensive income (loss) of
$65 million, at June 30, 2010. The Company has not
classified the assets and liabilities of MetLife Taiwan as
held-for-sale
and its operations as discontinued for the periods presented in
the interim condensed consolidated financial statements due to
anticipated delays in the approval process in Taiwan.
13
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 include the noncredit loss component of
other-than-temporary
impairment (OTTI) loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
|
Cost or
|
|
|
Gross Unrealized
|
|
|
Estimated
|
|
|
|
|
|
|
Amortized
|
|
|
|
|
|
Temporary
|
|
|
OTTI
|
|
|
Fair
|
|
|
% of
|
|
|
|
Cost
|
|
|
Gain
|
|
|
Loss
|
|
|
Loss
|
|
|
Value
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
Fixed Maturity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
73,787
|
|
|
$
|
4,812
|
|
|
$
|
1,743
|
|
|
$
|
8
|
|
|
$
|
76,848
|
|
|
|
31.2
|
%
|
Residential mortgage-backed securities (RMBS)
|
|
|
42,632
|
|
|
|
1,941
|
|
|
|
1,225
|
|
|
|
598
|
|
|
|
42,750
|
|
|
|
17.3
|
|
Foreign corporate securities
|
|
|
39,586
|
|
|
|
2,441
|
|
|
|
1,164
|
|
|
|
|
|
|
|
40,863
|
|
|
|
16.6
|
|
U.S. Treasury, agency and government guaranteed securities (1)
|
|
|
30,810
|
|
|
|
2,139
|
|
|
|
87
|
|
|
|
|
|
|
|
32,862
|
|
|
|
13.3
|
|
Commercial mortgage-backed securities (CMBS)
|
|
|
15,903
|
|
|
|
568
|
|
|
|
486
|
|
|
|
1
|
|
|
|
15,984
|
|
|
|
6.5
|
|
Asset-backed securities (ABS)
|
|
|
15,110
|
|
|
|
312
|
|
|
|
804
|
|
|
|
199
|
|
|
|
14,419
|
|
|
|
5.9
|
|
Foreign government securities
|
|
|
12,110
|
|
|
|
1,517
|
|
|
|
68
|
|
|
|
|
|
|
|
13,559
|
|
|
|
5.5
|
|
State and political subdivision securities
|
|
|
8,924
|
|
|
|
376
|
|
|
|
252
|
|
|
|
|
|
|
|
9,048
|
|
|
|
3.7
|
|
Other fixed maturity securities
|
|
|
15
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities (2),(3)
|
|
$
|
238,877
|
|
|
$
|
14,107
|
|
|
$
|
5,830
|
|
|
$
|
806
|
|
|
$
|
246,348
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
1,483
|
|
|
$
|
53
|
|
|
$
|
21
|
|
|
$
|
|
|
|
$
|
1,515
|
|
|
|
55.3
|
%
|
Non-redeemable preferred stock (2)
|
|
|
1,473
|
|
|
|
52
|
|
|
|
299
|
|
|
|
|
|
|
|
1,226
|
|
|
|
44.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities (4)
|
|
$
|
2,956
|
|
|
$
|
105
|
|
|
$
|
320
|
|
|
$
|
|
|
|
$
|
2,741
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
Cost or
|
|
|
Gross Unrealized
|
|
|
Estimated
|
|
|
|
|
|
|
Amortized
|
|
|
|
|
|
Temporary
|
|
|
OTTI
|
|
|
Fair
|
|
|
% of
|
|
|
|
Cost
|
|
|
Gain
|
|
|
Loss
|
|
|
Loss
|
|
|
Value
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
Fixed Maturity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
72,075
|
|
|
$
|
2,821
|
|
|
$
|
2,699
|
|
|
$
|
10
|
|
|
$
|
72,187
|
|
|
|
31.7
|
%
|
RMBS
|
|
|
45,343
|
|
|
|
1,234
|
|
|
|
1,957
|
|
|
|
600
|
|
|
|
44,020
|
|
|
|
19.3
|
|
Foreign corporate securities
|
|
|
37,254
|
|
|
|
2,011
|
|
|
|
1,226
|
|
|
|
9
|
|
|
|
38,030
|
|
|
|
16.7
|
|
U.S. Treasury, agency and government guaranteed securities (1)
|
|
|
25,712
|
|
|
|
745
|
|
|
|
1,010
|
|
|
|
|
|
|
|
25,447
|
|
|
|
11.2
|
|
CMBS
|
|
|
16,555
|
|
|
|
191
|
|
|
|
1,106
|
|
|
|
18
|
|
|
|
15,622
|
|
|
|
6.9
|
|
ABS
|
|
|
14,272
|
|
|
|
189
|
|
|
|
1,077
|
|
|
|
222
|
|
|
|
13,162
|
|
|
|
5.8
|
|
Foreign government securities
|
|
|
11,010
|
|
|
|
1,076
|
|
|
|
139
|
|
|
|
|
|
|
|
11,947
|
|
|
|
5.2
|
|
State and political subdivision securities
|
|
|
7,468
|
|
|
|
151
|
|
|
|
411
|
|
|
|
|
|
|
|
7,208
|
|
|
|
3.2
|
|
Other fixed maturity securities
|
|
|
20
|
|
|
|
1
|
|
|
|
2
|
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities (2),(3)
|
|
$
|
229,709
|
|
|
$
|
8,419
|
|
|
$
|
9,627
|
|
|
$
|
859
|
|
|
$
|
227,642
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
1,537
|
|
|
$
|
92
|
|
|
$
|
8
|
|
|
$
|
|
|
|
$
|
1,621
|
|
|
|
52.6
|
%
|
Non-redeemable preferred stock (2)
|
|
|
1,650
|
|
|
|
80
|
|
|
|
267
|
|
|
|
|
|
|
|
1,463
|
|
|
|
47.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities (4)
|
|
$
|
3,187
|
|
|
$
|
172
|
|
|
$
|
275
|
|
|
$
|
|
|
|
$
|
3,084
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
(1) |
|
The Company has classified within the U.S. Treasury, agency and
government guaranteed securities caption certain corporate fixed
maturity securities issued by U.S. financial institutions that
were guaranteed by the Federal Deposit Insurance Corporation
(FDIC) pursuant to the FDICs Temporary
Liquidity Guarantee Program of $315 million and
$407 million at estimated fair value with unrealized gains
of $5 million and $2 million at June 30, 2010 and
December 31, 2009, respectively. |
|
(2) |
|
Upon acquisition, the Company classifies perpetual securities
that have attributes of both debt and equity as fixed maturity
securities if the security has an interest rate
step-up
feature which, when combined with other qualitative factors,
indicates that the security has more debt-like characteristics.
The Company classifies perpetual securities with an interest
rate step-up
feature which, when combined with other qualitative factors,
indicates that the security has more equity-like
characteristics, as equity securities within non-redeemable
preferred stock. Many of such securities have been issued by
non-U.S.
financial institutions that are accorded Tier 1 and Upper
Tier 2 capital treatment by their respective regulatory
bodies and are commonly referred to as perpetual hybrid
securities. The following table presents the perpetual
hybrid securities held by the Company at: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
December 31, 2009
|
|
|
|
|
|
|
Estimated
|
|
Estimated
|
Classification
|
|
Fair
|
|
Fair
|
Consolidated Balance Sheets
|
|
Sector Table
|
|
Primary Issuers
|
|
Value
|
|
Value
|
|
|
|
|
|
|
(In millions)
|
|
Equity securities
|
|
Non-redeemable preferred stock
|
|
Non-U.S. financial institutions
|
|
$
|
967
|
|
|
$
|
988
|
|
Equity securities
|
|
Non-redeemable preferred stock
|
|
U.S. financial institutions
|
|
$
|
243
|
|
|
$
|
349
|
|
Fixed maturity securities
|
|
Foreign corporate securities
|
|
Non-U.S. financial institutions
|
|
$
|
2,343
|
|
|
$
|
2,626
|
|
Fixed maturity securities
|
|
U.S. corporate securities
|
|
U.S. financial institutions
|
|
$
|
96
|
|
|
$
|
91
|
|
|
|
|
(3) |
|
Redeemable preferred stock with stated maturity dates are
included in the U.S. corporate securities sector within fixed
maturity securities. These securities, commonly referred to as
capital securities, are primarily issued by U.S.
financial institutions and have cumulative interest deferral
features. The Company held $2.4 billion and
$2.5 billion at estimated fair value of such securities at
June 30, 2010 and December 31, 2009, respectively. |
|
(4) |
|
Equity securities primarily consist of investments in common and
preferred stocks, including certain perpetual hybrid securities
and mutual fund interests. Privately-held equity securities were
$1.1 billion and $1.0 billion at estimated fair value
at June 30, 2010 and December 31, 2009, respectively. |
The below investment grade and non-income producing amounts
presented below are based on rating agency designations and
equivalent designations of the National Association of Insurance
Commissioners (NAIC), with the exception of
non-agency RMBS held by the Companys domestic insurance
subsidiaries. Non-agency RMBS, including RMBS backed by
sub-prime
mortgage loans reported within ABS, held by the Companys
domestic insurance subsidiaries are presented based on final
ratings from the revised NAIC rating methodology (i.e., NAIC
1 6) which became effective December 31,
2009 (which may not correspond to rating agency designations).
All NAIC designation amounts and percentages presented herein
are based on the revised NAIC methodology described above. All
rating agency designation (i.e., Aaa/AAA) amounts and
percentages presented herein are based on rating agency
designations without adjustment for the revised NAIC methodology
described above. Rating agency designations (i.e., Aaa/AAA) are
based on availability of applicable ratings from rating agencies
on the NAIC acceptable rating organization list, including
Moodys Investors Service (Moodys),
Standard & Poors Ratings Services
(S&P) and Fitch Ratings (Fitch).
15
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The following table presents selected information about certain
fixed maturity securities held by the Company at:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
(In millions)
|
|
|
Below investment grade or non-rated fixed maturity securities:
|
|
|
|
|
|
|
|
|
Estimated fair value
|
|
$
|
20,793
|
|
|
$
|
20,201
|
|
Net unrealized loss
|
|
$
|
1,996
|
|
|
$
|
2,609
|
|
Non-income producing fixed maturity securities:
|
|
|
|
|
|
|
|
|
Estimated fair value
|
|
$
|
186
|
|
|
$
|
312
|
|
Net unrealized loss
|
|
$
|
17
|
|
|
$
|
31
|
|
Fixed maturity securities credit enhanced by financial guarantor
insurers by sector at estimated fair
value:
|
|
|
|
|
|
|
|
|
State and political subdivision securities
|
|
$
|
2,249
|
|
|
$
|
2,154
|
|
U.S. corporate securities
|
|
|
1,845
|
|
|
|
1,750
|
|
ABS
|
|
|
801
|
|
|
|
803
|
|
Other
|
|
|
53
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities credit enhanced by financial
guarantor insurers
|
|
$
|
4,948
|
|
|
$
|
4,750
|
|
|
|
|
|
|
|
|
|
|
Ratings of the financial guarantor insurers providing the credit
enhancement:
|
|
|
|
|
|
|
|
|
Portion rated Aa/AA
|
|
|
19
|
%
|
|
|
18
|
%
|
|
|
|
|
|
|
|
|
|
Portion rated A
|
|
|
2
|
%
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
Portion rated Baa/BBB
|
|
|
36
|
%
|
|
|
36
|
%
|
|
|
|
|
|
|
|
|
|
Concentrations of Credit Risk (Fixed Maturity
Securities) Summary. The following
section contains a summary of the concentrations of credit risk
related to fixed maturity securities holdings.
The Company was not exposed to any concentrations of credit risk
of any single issuer greater than 10% of the Companys
stockholders equity, other than the U.S. and Mexican
government securities described below. The Companys
holdings in U.S. Treasury, agency and government guaranteed
fixed maturity securities at estimated fair value were
$32.9 billion and $25.4 billion at June 30, 2010
and December 31, 2009, respectively. The Companys
holdings in Mexican government and certain Mexican government
agency fixed maturity securities at estimated fair value were
$4.7 billion and $4.8 billion at June 30, 2010
and December 31, 2009, respectively.
Concentrations of Credit Risk (Fixed Maturity
Securities) U.S. and Foreign Corporate
Securities. The Company maintains a diversified
portfolio of corporate fixed maturity securities across
industries and issuers. This portfolio does not have exposure to
any single issuer in excess of 1% of total investments. The
tables below present
16
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
the major industry types that comprise the corporate fixed
maturity securities holdings, the largest exposure to a single
issuer and the combined holdings in the ten issuers to which it
had the largest exposure at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
Fair
|
|
|
% of
|
|
|
Fair
|
|
|
% of
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Corporate fixed maturity securities by industry type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign (1)
|
|
$
|
40,863
|
|
|
|
34.7
|
%
|
|
$
|
38,030
|
|
|
|
34.5
|
%
|
Consumer
|
|
|
19,176
|
|
|
|
16.3
|
|
|
|
16,924
|
|
|
|
15.4
|
|
Industrial
|
|
|
18,794
|
|
|
|
16.0
|
|
|
|
17,246
|
|
|
|
15.6
|
|
Utility
|
|
|
16,271
|
|
|
|
13.8
|
|
|
|
14,785
|
|
|
|
13.4
|
|
Finance
|
|
|
12,937
|
|
|
|
11.0
|
|
|
|
13,756
|
|
|
|
12.5
|
|
Communications
|
|
|
6,563
|
|
|
|
5.6
|
|
|
|
6,580
|
|
|
|
6.0
|
|
Other
|
|
|
3,107
|
|
|
|
2.6
|
|
|
|
2,896
|
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
117,711
|
|
|
|
100.0
|
%
|
|
$
|
110,217
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes U.S. dollar-denominated debt obligations of foreign
obligors and other foreign fixed maturity security investments. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
December 31, 2009
|
|
|
Estimated
|
|
|
|
Estimated
|
|
|
|
|
Fair
|
|
% of Total
|
|
Fair
|
|
% of Total
|
|
|
Value
|
|
Investments
|
|
Value
|
|
Investments
|
|
|
|
|
(In millions)
|
|
|
|
Concentrations within corporate fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Largest exposure to a single issuer
|
|
$
|
915
|
|
|
|
0.3
|
%
|
|
$
|
1,038
|
|
|
|
0.3
|
%
|
Holdings in ten issuers with the largest exposures
|
|
$
|
7,021
|
|
|
|
2.0
|
%
|
|
$
|
7,506
|
|
|
|
2.3
|
%
|
Concentrations of Credit Risk (Fixed Maturity
Securities) RMBS. The table below
presents the Companys RMBS holdings and portion rated
Aaa/AAA and portion rated NAIC 1 at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
Fair
|
|
|
% of
|
|
|
Fair
|
|
|
% of
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
By security type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligations
|
|
$
|
23,318
|
|
|
|
54.5
|
%
|
|
$
|
24,480
|
|
|
|
55.6
|
%
|
Pass-through securities
|
|
|
19,432
|
|
|
|
45.5
|
|
|
|
19,540
|
|
|
|
44.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total RMBS
|
|
$
|
42,750
|
|
|
|
100.0
|
%
|
|
$
|
44,020
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By risk profile:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
$
|
32,148
|
|
|
|
75.2
|
%
|
|
$
|
33,334
|
|
|
|
75.7
|
%
|
Prime
|
|
|
6,433
|
|
|
|
15.0
|
|
|
|
6,775
|
|
|
|
15.4
|
|
Alternative residential mortgage loans
|
|
|
4,169
|
|
|
|
9.8
|
|
|
|
3,911
|
|
|
|
8.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total RMBS
|
|
$
|
42,750
|
|
|
|
100.0
|
%
|
|
$
|
44,020
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portion rated Aaa/AAA
|
|
$
|
34,103
|
|
|
|
79.8
|
%
|
|
$
|
35,626
|
|
|
|
80.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portion rated NAIC 1
|
|
$
|
37,186
|
|
|
|
87.0
|
%
|
|
$
|
38,464
|
|
|
|
87.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Collateralized mortgage obligations are a type of
mortgage-backed security structured by dividing the cash flows
of mortgages into separate pools or tranches of risk that create
multiple classes of bonds with varying maturities and priority
of payments. Pass-through mortgage-backed securities are a type
of asset-backed security that is secured by a mortgage or
collection of mortgages. The monthly mortgage payments from
homeowners pass from the originating bank through an
intermediary, such as a government agency or investment bank,
which collects the payments, and for a fee, remits or passes
these payments through to the holders of the pass-through
securities.
Prime residential mortgage lending includes the origination of
residential mortgage loans to the most creditworthy borrowers
with high quality credit profiles. Alternative residential
mortgage loans (Alt-A) are a classification of
mortgage loans where the risk profile of the borrower falls
between prime and
sub-prime.
Sub-prime
mortgage lending is the origination of residential mortgage
loans to borrowers with weak credit profiles.
The following tables present the Companys investment in
Alt-A RMBS by vintage year (vintage year refers to the year of
origination and not to the year of purchase) and certain other
selected data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
Fair
|
|
|
% of
|
|
|
Fair
|
|
|
% of
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Vintage Year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 & Prior
|
|
$
|
72
|
|
|
|
1.7
|
%
|
|
$
|
109
|
|
|
|
2.8
|
%
|
2005
|
|
|
1,518
|
|
|
|
36.4
|
|
|
|
1,395
|
|
|
|
35.7
|
|
2006
|
|
|
974
|
|
|
|
23.4
|
|
|
|
825
|
|
|
|
21.1
|
|
2007
|
|
|
848
|
|
|
|
20.3
|
|
|
|
814
|
|
|
|
20.8
|
|
2008
|
|
|
6
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
718
|
|
|
|
17.2
|
|
|
|
768
|
|
|
|
19.6
|
|
2010
|
|
|
33
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,169
|
|
|
|
100.0
|
%
|
|
$
|
3,911
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
Amount
|
|
|
Total
|
|
|
Amount
|
|
|
Total
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Net unrealized loss
|
|
$
|
956
|
|
|
|
|
|
|
$
|
1,248
|
|
|
|
|
|
Rated Aa/AA or better
|
|
|
|
|
|
|
20.2
|
%
|
|
|
|
|
|
|
26.3
|
%
|
Rated NAIC 1
|
|
|
|
|
|
|
33.6
|
%
|
|
|
|
|
|
|
31.3
|
%
|
By collateral type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate mortgage loans collateral
|
|
|
|
|
|
|
90.3
|
%
|
|
|
|
|
|
|
89.3
|
%
|
Hybrid adjustable rate mortgage loans collateral
|
|
|
|
|
|
|
9.7
|
|
|
|
|
|
|
|
10.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Alt-A RMBS
|
|
|
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Concentrations of Credit Risk (Fixed Maturity
Securities) CMBS. The Companys
holdings in CMBS were $16.0 billion and $15.6 billion
at estimated fair value at June 30, 2010 and
December 31, 2009, respectively. The Company had no
exposure to CMBS index securities at June 30, 2010 and
December 31, 2009. The Company held commercial real estate
collateralized debt obligations securities of $120 million
and $111 million at estimated fair value at June 30,
2010 and December 31, 2009, respectively.
18
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The following tables present the Companys holdings of CMBS
by rating agency designation and by vintage year at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Below
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
|
|
|
|
Aaa
|
|
|
Aa
|
|
|
A
|
|
|
Baa
|
|
|
Grade
|
|
|
Total
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 & Prior
|
|
$
|
7,477
|
|
|
$
|
7,701
|
|
|
$
|
272
|
|
|
$
|
268
|
|
|
$
|
119
|
|
|
$
|
113
|
|
|
$
|
55
|
|
|
$
|
49
|
|
|
$
|
22
|
|
|
$
|
15
|
|
|
$
|
7,945
|
|
|
$
|
8,146
|
|
2004
|
|
|
2,024
|
|
|
|
2,145
|
|
|
|
123
|
|
|
|
117
|
|
|
|
52
|
|
|
|
43
|
|
|
|
88
|
|
|
|
69
|
|
|
|
64
|
|
|
|
50
|
|
|
|
2,351
|
|
|
|
2,424
|
|
2005
|
|
|
2,616
|
|
|
|
2,723
|
|
|
|
41
|
|
|
|
40
|
|
|
|
63
|
|
|
|
50
|
|
|
|
69
|
|
|
|
51
|
|
|
|
3
|
|
|
|
5
|
|
|
|
2,792
|
|
|
|
2,869
|
|
2006
|
|
|
1,568
|
|
|
|
1,571
|
|
|
|
45
|
|
|
|
41
|
|
|
|
51
|
|
|
|
39
|
|
|
|
28
|
|
|
|
24
|
|
|
|
86
|
|
|
|
66
|
|
|
|
1,778
|
|
|
|
1,741
|
|
2007
|
|
|
754
|
|
|
|
586
|
|
|
|
126
|
|
|
|
93
|
|
|
|
117
|
|
|
|
88
|
|
|
|
26
|
|
|
|
25
|
|
|
|
10
|
|
|
|
8
|
|
|
|
1,033
|
|
|
|
800
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
2010
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
14,443
|
|
|
$
|
14,730
|
|
|
$
|
607
|
|
|
$
|
559
|
|
|
$
|
402
|
|
|
$
|
333
|
|
|
$
|
266
|
|
|
$
|
218
|
|
|
$
|
185
|
|
|
$
|
144
|
|
|
$
|
15,903
|
|
|
$
|
15,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratings Distribution
|
|
|
|
|
|
|
92.1
|
%
|
|
|
|
|
|
|
3.5
|
%
|
|
|
|
|
|
|
2.1
|
%
|
|
|
|
|
|
|
1.4
|
%
|
|
|
|
|
|
|
0.9
|
%
|
|
|
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The June 30, 2010 table reflects ratings assigned by
nationally recognized rating agencies including Moodys,
S&P, Fitch and Realpoint, LLC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Below
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
|
|
|
|
Aaa
|
|
|
Aa
|
|
|
A
|
|
|
Baa
|
|
|
Grade
|
|
|
Total
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 & Prior
|
|
$
|
6,836
|
|
|
$
|
6,918
|
|
|
$
|
394
|
|
|
$
|
365
|
|
|
$
|
162
|
|
|
$
|
140
|
|
|
$
|
52
|
|
|
$
|
41
|
|
|
$
|
36
|
|
|
$
|
18
|
|
|
$
|
7,480
|
|
|
$
|
7,482
|
|
2004
|
|
|
2,240
|
|
|
|
2,255
|
|
|
|
200
|
|
|
|
166
|
|
|
|
114
|
|
|
|
71
|
|
|
|
133
|
|
|
|
87
|
|
|
|
88
|
|
|
|
58
|
|
|
|
2,775
|
|
|
|
2,637
|
|
2005
|
|
|
2,956
|
|
|
|
2,853
|
|
|
|
144
|
|
|
|
108
|
|
|
|
85
|
|
|
|
65
|
|
|
|
39
|
|
|
|
24
|
|
|
|
57
|
|
|
|
51
|
|
|
|
3,281
|
|
|
|
3,101
|
|
2006
|
|
|
1,087
|
|
|
|
1,009
|
|
|
|
162
|
|
|
|
139
|
|
|
|
380
|
|
|
|
323
|
|
|
|
187
|
|
|
|
129
|
|
|
|
123
|
|
|
|
48
|
|
|
|
1,939
|
|
|
|
1,648
|
|
2007
|
|
|
432
|
|
|
|
314
|
|
|
|
13
|
|
|
|
12
|
|
|
|
361
|
|
|
|
257
|
|
|
|
234
|
|
|
|
153
|
|
|
|
35
|
|
|
|
13
|
|
|
|
1,075
|
|
|
|
749
|
|
2008
|
|
|
5
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
5
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
13,556
|
|
|
$
|
13,354
|
|
|
$
|
913
|
|
|
$
|
790
|
|
|
$
|
1,102
|
|
|
$
|
856
|
|
|
$
|
645
|
|
|
$
|
434
|
|
|
$
|
339
|
|
|
$
|
188
|
|
|
$
|
16,555
|
|
|
$
|
15,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratings Distribution
|
|
|
|
|
|
|
85.4
|
%
|
|
|
|
|
|
|
5.1
|
%
|
|
|
|
|
|
|
5.5
|
%
|
|
|
|
|
|
|
2.8
|
%
|
|
|
|
|
|
|
1.2
|
%
|
|
|
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The December 31, 2009 table reflects ratings assigned by
nationally recognized rating agencies including Moodys,
S&P and Fitch.
Concentrations of Credit Risk (Fixed Maturity
Securities) ABS. The Companys
holdings in ABS were $14.4 billion and $13.2 billion
at estimated fair value at June 30, 2010 and
December 31, 2009, respectively. The Companys ABS are
diversified both by collateral type and by issuer.
19
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The following table presents the collateral type and certain
other information about ABS held by the Company at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
Fair
|
|
|
% of
|
|
|
Fair
|
|
|
% of
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
By collateral type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card loans
|
|
$
|
7,212
|
|
|
|
50.0
|
%
|
|
$
|
7,057
|
|
|
|
53.6
|
%
|
Student loans
|
|
|
2,460
|
|
|
|
17.1
|
|
|
|
1,855
|
|
|
|
14.1
|
|
RMBS backed by
sub-prime
mortgage loans
|
|
|
1,077
|
|
|
|
7.5
|
|
|
|
1,044
|
|
|
|
7.9
|
|
Automobile loans
|
|
|
712
|
|
|
|
4.9
|
|
|
|
963
|
|
|
|
7.3
|
|
Other loans
|
|
|
2,958
|
|
|
|
20.5
|
|
|
|
2,243
|
|
|
|
17.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
14,419
|
|
|
|
100.0
|
%
|
|
$
|
13,162
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portion rated Aaa/AAA
|
|
$
|
10,480
|
|
|
|
72.7
|
%
|
|
$
|
9,354
|
|
|
|
71.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portion rated NAIC 1
|
|
$
|
12,779
|
|
|
|
88.6
|
%
|
|
$
|
11,573
|
|
|
|
87.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMBS backed by
sub-prime
mortgage loans portion credit enhanced by financial
guarantor insurers
|
|
|
|
|
|
|
39.0
|
%
|
|
|
|
|
|
|
37.6
|
%
|
Of the 39.0% and 37.6% credit enhanced, the financial guarantor
insurers were rated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By financial guarantor insurers rated Aa/AA
|
|
|
|
|
|
|
22.9
|
%
|
|
|
|
|
|
|
17.2
|
%
|
By financial guarantor insurers rated A
|
|
|
|
|
|
|
8.3
|
%
|
|
|
|
|
|
|
7.9
|
%
|
The following tables present the Companys holdings of ABS
supported by
sub-prime
mortgage loans by rating agency designation and by vintage year
at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Below
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
|
|
|
|
Aaa
|
|
|
Aa
|
|
|
A
|
|
|
Baa
|
|
|
Grade
|
|
|
Total
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 & Prior
|
|
$
|
47
|
|
|
$
|
42
|
|
|
$
|
66
|
|
|
$
|
55
|
|
|
$
|
14
|
|
|
$
|
12
|
|
|
$
|
7
|
|
|
$
|
6
|
|
|
$
|
94
|
|
|
$
|
58
|
|
|
$
|
228
|
|
|
$
|
173
|
|
2004
|
|
|
88
|
|
|
|
67
|
|
|
|
310
|
|
|
|
233
|
|
|
|
31
|
|
|
|
24
|
|
|
|
10
|
|
|
|
6
|
|
|
|
44
|
|
|
|
29
|
|
|
|
483
|
|
|
|
359
|
|
2005
|
|
|
58
|
|
|
|
47
|
|
|
|
103
|
|
|
|
85
|
|
|
|
44
|
|
|
|
31
|
|
|
|
117
|
|
|
|
104
|
|
|
|
214
|
|
|
|
117
|
|
|
|
536
|
|
|
|
384
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
63
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
4
|
|
|
|
99
|
|
|
|
66
|
|
|
|
174
|
|
|
|
103
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
78
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
|
|
|
|
17
|
|
|
|
107
|
|
|
|
58
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
193
|
|
|
$
|
156
|
|
|
$
|
620
|
|
|
$
|
447
|
|
|
$
|
89
|
|
|
$
|
67
|
|
|
$
|
146
|
|
|
$
|
120
|
|
|
$
|
480
|
|
|
$
|
287
|
|
|
$
|
1,528
|
|
|
$
|
1,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratings Distribution
|
|
|
|
|
|
|
14.5
|
%
|
|
|
|
|
|
|
41.5
|
%
|
|
|
|
|
|
|
6.2
|
%
|
|
|
|
|
|
|
11.1
|
%
|
|
|
|
|
|
|
26.7
|
%
|
|
|
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Below
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
|
|
|
|
Aaa
|
|
|
Aa
|
|
|
A
|
|
|
Baa
|
|
|
Grade
|
|
|
Total
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 & Prior
|
|
$
|
57
|
|
|
$
|
48
|
|
|
$
|
73
|
|
|
$
|
58
|
|
|
$
|
11
|
|
|
$
|
8
|
|
|
$
|
7
|
|
|
$
|
6
|
|
|
$
|
98
|
|
|
$
|
56
|
|
|
$
|
246
|
|
|
$
|
176
|
|
2004
|
|
|
99
|
|
|
|
68
|
|
|
|
316
|
|
|
|
222
|
|
|
|
39
|
|
|
|
27
|
|
|
|
24
|
|
|
|
15
|
|
|
|
31
|
|
|
|
15
|
|
|
|
509
|
|
|
|
347
|
|
2005
|
|
|
64
|
|
|
|
45
|
|
|
|
226
|
|
|
|
144
|
|
|
|
40
|
|
|
|
26
|
|
|
|
24
|
|
|
|
18
|
|
|
|
209
|
|
|
|
139
|
|
|
|
563
|
|
|
|
372
|
|
2006
|
|
|
6
|
|
|
|
6
|
|
|
|
62
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
5
|
|
|
|
115
|
|
|
|
72
|
|
|
|
205
|
|
|
|
105
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
78
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
|
|
|
|
16
|
|
|
|
114
|
|
|
|
44
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
226
|
|
|
$
|
167
|
|
|
$
|
755
|
|
|
$
|
474
|
|
|
$
|
90
|
|
|
$
|
61
|
|
|
$
|
77
|
|
|
$
|
44
|
|
|
$
|
489
|
|
|
$
|
298
|
|
|
$
|
1,637
|
|
|
$
|
1,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratings Distribution
|
|
|
|
|
|
|
16.0
|
%
|
|
|
|
|
|
|
45.4
|
%
|
|
|
|
|
|
|
5.8
|
%
|
|
|
|
|
|
|
4.2
|
%
|
|
|
|
|
|
|
28.6
|
%
|
|
|
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The rating distribution of the Companys ABS supported by
sub-prime
mortgage loans were as follows at:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
NAIC 1
|
|
|
69.2
|
%
|
|
|
69.1
|
%
|
NAIC 2
|
|
|
8.4
|
%
|
|
|
4.2
|
%
|
NAIC 3
|
|
|
12.3
|
%
|
|
|
12.2
|
%
|
NAIC 4
|
|
|
6.8
|
%
|
|
|
6.2
|
%
|
NAIC 5
|
|
|
3.2
|
%
|
|
|
8.3
|
%
|
NAIC 6
|
|
|
0.1
|
%
|
|
|
|
%
|
Concentrations of Credit Risk (Equity
Securities). The Company was not exposed to any
concentrations of credit risk in its equity securities holdings
of any single issuer greater than 10% of the Companys
stockholders equity at June 30, 2010 and
December 31, 2009.
Maturities of Fixed Maturity Securities. The
amortized cost and estimated fair value of fixed maturity
securities, by contractual maturity date (excluding scheduled
sinking funds), were as follows at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Due in one year or less
|
|
$
|
9,482
|
|
|
$
|
9,556
|
|
|
$
|
6,845
|
|
|
$
|
6,924
|
|
Due after one year through five years
|
|
|
41,725
|
|
|
|
42,908
|
|
|
|
38,408
|
|
|
|
39,399
|
|
Due after five years through ten years
|
|
|
44,589
|
|
|
|
47,295
|
|
|
|
40,448
|
|
|
|
41,568
|
|
Due after ten years
|
|
|
69,436
|
|
|
|
73,436
|
|
|
|
67,838
|
|
|
|
66,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
165,232
|
|
|
|
173,195
|
|
|
|
153,539
|
|
|
|
154,838
|
|
RMBS, CMBS and ABS
|
|
|
73,645
|
|
|
|
73,153
|
|
|
|
76,170
|
|
|
|
72,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
238,877
|
|
|
$
|
246,348
|
|
|
$
|
229,709
|
|
|
$
|
227,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual maturities may differ from contractual maturities due to
the exercise of call or prepayment options. Fixed maturity
securities not due at a single maturity date have been included
in the above table in the year of final contractual maturity.
RMBS, CMBS and ABS are shown separately in the table, as they
are not due at a single maturity.
21
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Evaluating
Available-for-Sale
Securities for
Other-Than-Temporary
Impairment
As described more fully in Note 1 of the Notes to the
Consolidated Financial Statements included in the 2009 Annual
Report, the Company performs a regular evaluation, on a
security-by-security
basis, of its
available-for-sale
securities holdings in accordance with its impairment policy in
order to evaluate whether such investments are
other-than-temporarily
impaired. As described more fully in Note 1 of the Notes to
the Consolidated Financial Statements included in the 2009
Annual Report, effective April 1, 2009, the Company adopted
new OTTI guidance that amends the methodology for determining
for fixed maturity securities whether an OTTI exists, and for
certain fixed maturity securities, changes how the amount of the
OTTI loss that is charged to earnings is determined. There was
no change in the OTTI methodology for equity securities.
With respect to fixed maturity securities, the Company
considers, among other impairment criteria, whether it has the
intent to sell a particular impaired fixed maturity security.
The Companys intent to sell a particular impaired fixed
maturity security considers broad portfolio management
objectives such as asset/liability duration management, issuer
and industry segment exposures, interest rate views and the
overall total return focus. In following these portfolio
management objectives, changes in facts and circumstances that
were present in past reporting periods may trigger a decision to
sell securities that were held in prior reporting periods.
Decisions to sell are based on current conditions or the
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 estimated fair value below amortized
cost. In such instances, the fixed maturity security will be
deemed
other-than-temporarily
impaired in the period during which it was determined more
likely than not that the security will be required to be sold
and an OTTI loss will be recorded in earnings. If the Company
does not have the intent to sell (i.e., has not made the
decision to sell) and it does not believe that it is more likely
than not that it will be required to sell the security before
recovery of its amortized cost, an impairment assessment is
made, as described in Note 1 of the Notes to the
Consolidated Financial Statements included in the 2009 Annual
Report. Prior to April 1, 2009, the Companys
assessment of OTTI for fixed maturity securities was performed
in the same manner as 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. Decisions to sell equity securities are based on current
conditions in relation to the same broad portfolio management
considerations in a manner consistent with that described above
for fixed maturity securities.
With respect to perpetual hybrid securities, some of which are
classified as fixed maturity securities and some of which are
classified as equity securities, within non-redeemable preferred
stock, the Company considers in its OTTI analysis whether there
has been any deterioration in credit of the issuer and the
likelihood of recovery in value of the securities that are in a
severe and extended unrealized loss position. The Company also
considers whether any perpetual hybrid securities with an
unrealized loss, regardless of credit rating, have deferred any
dividend payments.
22
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Net
Unrealized Investment Gains (Losses)
The components of net unrealized investment gains (losses),
included in accumulated other comprehensive income (loss), were
as follows at:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
(In millions)
|
|
|
Fixed maturity securities that were temporarily impaired
|
|
$
|
8,277
|
|
|
$
|
(1,208
|
)
|
Fixed maturity securities with noncredit OTTI losses in other
comprehensive income (loss)
|
|
|
(806
|
)
|
|
|
(859
|
)
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
|
7,471
|
|
|
|
(2,067
|
)
|
Equity securities
|
|
|
(215
|
)
|
|
|
(103
|
)
|
Derivatives
|
|
|
530
|
|
|
|
(144
|
)
|
Other
|
|
|
105
|
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
7,891
|
|
|
|
(2,243
|
)
|
|
|
|
|
|
|
|
|
|
Amounts allocated from:
|
|
|
|
|
|
|
|
|
Insurance liability loss recognition
|
|
|
(1,773
|
)
|
|
|
(118
|
)
|
DAC and VOBA related to noncredit OTTI losses recognized in
other comprehensive income (loss)
|
|
|
57
|
|
|
|
71
|
|
DAC and VOBA
|
|
|
(1,186
|
)
|
|
|
145
|
|
Policyholder dividend obligation
|
|
|
(1,080
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
(3,982
|
)
|
|
|
98
|
|
Deferred income tax benefit (expense) related to noncredit OTTI
losses recognized in other comprehensive income (loss)
|
|
|
263
|
|
|
|
275
|
|
Deferred income tax benefit (expense)
|
|
|
(1,541
|
)
|
|
|
539
|
|
|
|
|
|
|
|
|
|
|
Net unrealized investment gains (losses)
|
|
|
2,631
|
|
|
|
(1,331
|
)
|
Net unrealized investment gains (losses) attributable to
noncontrolling interests
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Net unrealized investment gains (losses) attributable to
MetLife, Inc.
|
|
$
|
2,632
|
|
|
$
|
(1,330
|
)
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities with noncredit OTTI losses in
accumulated other comprehensive income (loss), as presented
above, of ($806) million at June 30, 2010, includes
($859) million recognized prior to January 1, 2010,
($98) million and ($157) million (($61) million
and ($162) million, net of DAC) of noncredit losses
recognized in the three months and six months ended
June 30, 2010, respectively, $16 million transferred
to retained earnings in connection with the adoption of new
guidance related to the consolidation of VIEs (see
Note 1) for the six months ended June 30, 2010,
$37 million and $54 million, related to securities
sold during the three months and six months ended June 30,
2010, respectively, for which a noncredit loss was previously
recognized in accumulated other comprehensive income (loss) and
$46 million and $140 million of subsequent increases
in estimated fair value during the three months and six months
ended June 30, 2010, respectively, on such securities for
which a noncredit loss was previously recognized in accumulated
other comprehensive income (loss).
Fixed maturity securities with noncredit OTTI losses in
accumulated other comprehensive income (loss), as presented
above, of ($859) million at December 31, 2009,
includes ($126) million related to the transition
adjustment recorded in 2009 upon the adoption of new guidance on
the recognition and presentation of OTTI, ($939) million
(($857) million, net of DAC) of noncredit losses recognized
in the year ended December 31, 2009 (as more fully
described in Note 1 of the Notes to the Consolidated
Financial Statements included in the 2009 Annual Report),
$20 million related to securities sold during the year
ended December 31, 2009 for which a noncredit loss was
previously recognized in accumulated comprehensive income (loss)
and $186 million of subsequent increases
23
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
in estimated fair value during the year ended December 31,
2009 on such securities for which a noncredit loss was
previously recognized in accumulated other comprehensive income
(loss).
The changes in net unrealized investment gains (losses) were as
follows:
|
|
|
|
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
|
June 30, 2010
|
|
|
|
(In millions)
|
|
|
Balance, beginning of period
|
|
$
|
(1,330
|
)
|
Cumulative effect of change in accounting principle, net of
income tax
|
|
|
42
|
|
Fixed maturity securities on which noncredit OTTI losses have
been recognized
|
|
|
37
|
|
Unrealized investment gains (losses) during the period
|
|
|
10,033
|
|
Unrealized investment gains (losses) relating to:
|
|
|
|
|
Insurance liability gain (loss) recognition
|
|
|
(1,655
|
)
|
DAC and VOBA related to noncredit OTTI losses recognized in
other comprehensive income (loss)
|
|
|
(14
|
)
|
DAC and VOBA
|
|
|
(1,331
|
)
|
Policyholder dividend obligation
|
|
|
(1,080
|
)
|
Deferred income tax benefit (expense) related to noncredit OTTI
losses recognized in other comprehensive income (loss)
|
|
|
(7
|
)
|
Deferred income tax benefit (expense)
|
|
|
(2,063
|
)
|
|
|
|
|
|
Net unrealized investment gains (losses)
|
|
|
2,632
|
|
Net unrealized investment gains (losses) attributable to
noncontrolling interests
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
2,632
|
|
|
|
|
|
|
Change in net unrealized investment gains (losses)
|
|
$
|
3,962
|
|
Change in net unrealized investment gains (losses) attributable
to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
Change in net unrealized investment gains (losses) attributable
to MetLife, Inc.
|
|
$
|
3,962
|
|
|
|
|
|
|
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 include the noncredit component of OTTI loss.
Fixed maturity securities on which a noncredit OTTI loss has
been recognized in accumulated other comprehensive income (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
24
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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, 2010
|
|
|
|
|
|
|
Equal to or Greater
|
|
|
|
|
|
|
Less than 12 Months
|
|
|
than 12 Months
|
|
|
Total
|
|
|
|
Estimated
|
|
|
Gross
|
|
|
Estimated
|
|
|
Gross
|
|
|
Estimated
|
|
|
Gross
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
|
|
|
|
(In millions, except number of securities)
|
|
|
|
|
|
Fixed Maturity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
5,828
|
|
|
$
|
271
|
|
|
$
|
12,282
|
|
|
$
|
1,480
|
|
|
$
|
18,110
|
|
|
$
|
1,751
|
|
RMBS
|
|
|
953
|
|
|
|
78
|
|
|
|
7,835
|
|
|
|
1,745
|
|
|
|
8,788
|
|
|
|
1,823
|
|
Foreign corporate securities
|
|
|
4,939
|
|
|
|
303
|
|
|
|
5,189
|
|
|
|
861
|
|
|
|
10,128
|
|
|
|
1,164
|
|
U.S. Treasury, agency and government guaranteed securities
|
|
|
2,595
|
|
|
|
1
|
|
|
|
2,348
|
|
|
|
86
|
|
|
|
4,943
|
|
|
|
87
|
|
CMBS
|
|
|
1,044
|
|
|
|
7
|
|
|
|
2,109
|
|
|
|
480
|
|
|
|
3,153
|
|
|
|
487
|
|
ABS
|
|
|
1,709
|
|
|
|
60
|
|
|
|
3,941
|
|
|
|
943
|
|
|
|
5,650
|
|
|
|
1,003
|
|
Foreign government securities
|
|
|
501
|
|
|
|
10
|
|
|
|
550
|
|
|
|
58
|
|
|
|
1,051
|
|
|
|
68
|
|
State and political subdivision securities
|
|
|
740
|
|
|
|
22
|
|
|
|
1,558
|
|
|
|
230
|
|
|
|
2,298
|
|
|
|
252
|
|
Other fixed maturity securities
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
1
|
|
|
|
5
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
18,309
|
|
|
$
|
752
|
|
|
$
|
35,817
|
|
|
$
|
5,884
|
|
|
$
|
54,126
|
|
|
$
|
6,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
227
|
|
|
|
19
|
|
|
|
9
|
|
|
|
2
|
|
|
|
236
|
|
|
|
21
|
|
Non-redeemable preferred stock
|
|
|
36
|
|
|
|
5
|
|
|
|
905
|
|
|
|
294
|
|
|
|
941
|
|
|
|
299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
263
|
|
|
$
|
24
|
|
|
$
|
914
|
|
|
$
|
296
|
|
|
$
|
1,177
|
|
|
$
|
320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total number of securities in an unrealized loss position
|
|
|
2,422
|
|
|
|
|
|
|
|
2,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
Equal to or Greater
|
|
|
|
|
|
|
Less than 12 Months
|
|
|
than 12 Months
|
|
|
Total
|
|
|
|
Estimated
|
|
|
Gross
|
|
|
Estimated
|
|
|
Gross
|
|
|
Estimated
|
|
|
Gross
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
|
|
|
|
(In millions, except number of securities)
|
|
|
|
|
|
Fixed Maturity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
8,641
|
|
|
$
|
395
|
|
|
$
|
18,004
|
|
|
$
|
2,314
|
|
|
$
|
26,645
|
|
|
$
|
2,709
|
|
RMBS
|
|
|
5,623
|
|
|
|
119
|
|
|
|
10,268
|
|
|
|
2,438
|
|
|
|
15,891
|
|
|
|
2,557
|
|
Foreign corporate securities
|
|
|
3,786
|
|
|
|
139
|
|
|
|
7,282
|
|
|
|
1,096
|
|
|
|
11,068
|
|
|
|
1,235
|
|
U.S. Treasury, agency and government guaranteed securities
|
|
|
15,051
|
|
|
|
990
|
|
|
|
51
|
|
|
|
20
|
|
|
|
15,102
|
|
|
|
1,010
|
|
CMBS
|
|
|
2,052
|
|
|
|
29
|
|
|
|
5,435
|
|
|
|
1,095
|
|
|
|
7,487
|
|
|
|
1,124
|
|
ABS
|
|
|
1,259
|
|
|
|
143
|
|
|
|
5,875
|
|
|
|
1,156
|
|
|
|
7,134
|
|
|
|
1,299
|
|
Foreign government securities
|
|
|
2,318
|
|
|
|
55
|
|
|
|
507
|
|
|
|
84
|
|
|
|
2,825
|
|
|
|
139
|
|
State and political subdivision securities
|
|
|
2,086
|
|
|
|
94
|
|
|
|
1,843
|
|
|
|
317
|
|
|
|
3,929
|
|
|
|
411
|
|
Other fixed maturity securities
|
|
|
6
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
40,822
|
|
|
$
|
1,966
|
|
|
$
|
49,265
|
|
|
$
|
8,520
|
|
|
$
|
90,087
|
|
|
$
|
10,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
56
|
|
|
|
7
|
|
|
|
14
|
|
|
|
1
|
|
|
|
70
|
|
|
|
8
|
|
Non-redeemable preferred stock
|
|
|
66
|
|
|
|
41
|
|
|
|
930
|
|
|
|
226
|
|
|
|
996
|
|
|
|
267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
122
|
|
|
$
|
48
|
|
|
$
|
944
|
|
|
$
|
227
|
|
|
$
|
1,066
|
|
|
$
|
275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total number of securities in an unrealized loss position
|
|
|
2,210
|
|
|
|
|
|
|
|
3,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 income (loss), gross unrealized loss as a
percentage of cost or amortized cost and number of securities
for fixed maturity and equity securities where
26
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
the estimated fair value had declined and remained below cost or
amortized cost by less than 20%, or 20% or more at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
|
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
|
|
$
|
15,620
|
|
|
$
|
2,383
|
|
|
$
|
404
|
|
|
$
|
595
|
|
|
|
1,534
|
|
|
|
216
|
|
Six months or greater but less than nine months
|
|
|
2,120
|
|
|
|
350
|
|
|
|
125
|
|
|
|
134
|
|
|
|
213
|
|
|
|
30
|
|
Nine months or greater but less than twelve months
|
|
|
926
|
|
|
|
210
|
|
|
|
70
|
|
|
|
59
|
|
|
|
78
|
|
|
|
17
|
|
Twelve months or greater
|
|
|
31,188
|
|
|
|
7,965
|
|
|
|
2,471
|
|
|
|
2,778
|
|
|
|
1,950
|
|
|
|
490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
49,854
|
|
|
$
|
10,908
|
|
|
$
|
3,070
|
|
|
$
|
3,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of amortized cost
|
|
|
|
|
|
|
|
|
|
|
6
|
%
|
|
|
33
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than six months
|
|
$
|
224
|
|
|
$
|
468
|
|
|
$
|
9
|
|
|
$
|
129
|
|
|
|
544
|
|
|
|
173
|
|
Six months or greater but less than nine months
|
|
|
11
|
|
|
|
1
|
|
|
|
2
|
|
|
|
1
|
|
|
|
22
|
|
|
|
|
|
Nine months or greater but less than twelve months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
1
|
|
Twelve months or greater
|
|
|
411
|
|
|
|
382
|
|
|
|
54
|
|
|
|
125
|
|
|
|
44
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
646
|
|
|
$
|
851
|
|
|
$
|
65
|
|
|
$
|
255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of cost
|
|
|
|
|
|
|
|
|
|
|
10
|
%
|
|
|
30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
Cost or Amortized Cost
|
|
|
Gross Unrealized Loss
|
|
|
Number of Securities
|
|
|
|
Less than
|
|
|
20% or
|
|
|
Less than
|
|
|
20% or
|
|
|
Less than
|
|
|
20% or
|
|
|
|
20%
|
|
|
more
|
|
|
20%
|
|
|
more
|
|
|
20%
|
|
|
more
|
|
|
|
|
|
|
(In millions, except number of securities)
|
|
|
|
|
|
Fixed Maturity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than six months
|
|
$
|
35,163
|
|
|
$
|
2,658
|
|
|
$
|
933
|
|
|
$
|
713
|
|
|
|
1,725
|
|
|
|
186
|
|
Six months or greater but less than nine months
|
|
|
4,908
|
|
|
|
674
|
|
|
|
508
|
|
|
|
194
|
|
|
|
124
|
|
|
|
49
|
|
Nine months or greater but less than twelve months
|
|
|
1,723
|
|
|
|
1,659
|
|
|
|
167
|
|
|
|
517
|
|
|
|
106
|
|
|
|
79
|
|
Twelve months or greater
|
|
|
41,721
|
|
|
|
12,067
|
|
|
|
3,207
|
|
|
|
4,247
|
|
|
|
2,369
|
|
|
|
724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
83,515
|
|
|
$
|
17,058
|
|
|
$
|
4,815
|
|
|
$
|
5,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of amortized cost
|
|
|
|
|
|
|
|
|
|
|
6
|
%
|
|
|
33
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than six months
|
|
$
|
66
|
|
|
$
|
63
|
|
|
$
|
7
|
|
|
$
|
14
|
|
|
|
199
|
|
|
|
8
|
|
Six months or greater but less than nine months
|
|
|
6
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
15
|
|
|
|
2
|
|
Nine months or greater but less than twelve months
|
|
|
13
|
|
|
|
94
|
|
|
|
2
|
|
|
|
39
|
|
|
|
8
|
|
|
|
6
|
|
Twelve months or greater
|
|
|
610
|
|
|
|
488
|
|
|
|
73
|
|
|
|
138
|
|
|
|
50
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
695
|
|
|
$
|
646
|
|
|
$
|
83
|
|
|
$
|
192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of cost
|
|
|
|
|
|
|
|
|
|
|
12
|
%
|
|
|
30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities with a gross unrealized loss of 20% or more
for twelve months or greater decreased from $138 million at
December 31, 2009 to $125 million at June 30,
2010. As shown in the section Evaluating Temporarily
Impaired
Available-for-Sale
Securities below, the $124 million of equity
securities with a gross unrealized loss of 20% or more for
twelve months or greater at June 30, 2010 were investment
grade non-redeemable preferred stock, of which $120 million
were financial services industry investment grade non-redeemable
preferred stock, of which 79% were rated A or better.
Concentration
of Gross Unrealized Loss and OTTI Loss for Fixed Maturity and
Equity Securities
Available-for-Sale
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 income (loss) of
28
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
$7.0 billion and $10.8 billion at June 30, 2010
and December 31, 2009, respectively, were concentrated,
calculated as a percentage of gross unrealized loss and OTTI
loss, by sector and industry as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
Sector:
|
|
|
|
|
|
|
|
|
RMBS
|
|
|
26
|
%
|
|
|
24
|
%
|
U.S. corporate securities
|
|
|
25
|
|
|
|
25
|
|
Foreign corporate securities
|
|
|
17
|
|
|
|
11
|
|
ABS
|
|
|
14
|
|
|
|
12
|
|
CMBS
|
|
|
7
|
|
|
|
10
|
|
State and political subdivision securities
|
|
|
4
|
|
|
|
4
|
|
U.S. Treasury, agency and government guaranteed securities
|
|
|
1
|
|
|
|
9
|
|
Other
|
|
|
6
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
Industry:
|
|
|
|
|
|
|
|
|
Mortgage-backed
|
|
|
33
|
%
|
|
|
34
|
%
|
Finance
|
|
|
25
|
|
|
|
22
|
|
Asset-backed
|
|
|
14
|
|
|
|
12
|
|
Consumer
|
|
|
6
|
|
|
|
4
|
|
Utility
|
|
|
5
|
|
|
|
4
|
|
State and political subdivision securities
|
|
|
4
|
|
|
|
4
|
|
Communications
|
|
|
3
|
|
|
|
2
|
|
Industrial
|
|
|
2
|
|
|
|
1
|
|
U.S. Treasury, agency and government guaranteed securities
|
|
|
1
|
|
|
|
9
|
|
Other
|
|
|
7
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
Evaluating
Temporarily Impaired
Available-for-Sale
Securities
The following table presents the Companys fixed maturity
and equity securities, each with a gross unrealized loss of
greater than $10 million, the number of securities, total
gross unrealized loss and percentage of total gross unrealized
loss at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
Fixed Maturity
|
|
|
Equity
|
|
|
Fixed Maturity
|
|
|
Equity
|
|
|
|
Securities
|
|
|
Securities
|
|
|
Securities
|
|
|
Securities
|
|
|
|
(In millions, except number of securities)
|
|
|
Number of securities
|
|
|
133
|
|
|
|
12
|
|
|
|
223
|
|
|
|
9
|
|
Total gross unrealized loss
|
|
$
|
2,437
|
|
|
$
|
186
|
|
|
$
|
4,465
|
|
|
$
|
132
|
|
Percentage of total gross unrealized loss
|
|
|
37
|
%
|
|
|
58
|
%
|
|
|
43
|
%
|
|
|
48
|
%
|
Fixed maturity and equity securities, each with a gross
unrealized loss greater than $10 million, decreased
$2.0 billion during the six months ended June 30,
2010. The cause of the decline in, or improvement in, gross
unrealized losses for the six months ended June 30, 2010,
was primarily attributable to a decrease in interest rates.
These securities were included in the Companys OTTI review
process. Based upon the Companys current evaluation of
these securities and other
available-for-sale
securities in an unrealized loss position in accordance with its
impairment policy, and the Companys current intentions and
assessments (as applicable to the type of
29
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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
and severity of an unrealized loss position for equity
securities is given greater weight and consideration than for
fixed maturity securities. An extended and severe unrealized
loss position on a fixed maturity security may not have any
impact on the ability of the issuer to service all scheduled
interest and principal payments and the 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.
The following table presents certain information about the
Companys equity securities
available-for-sale
with a gross unrealized loss of 20% or more at June 30,
2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Redeemable Preferred Stock
|
|
|
|
|
|
|
All Types of
|
|
|
|
|
|
|
|
|
|
All Equity
|
|
|
Non-Redeemable
|
|
|
Investment Grade
|
|
|
|
Securities
|
|
|
Preferred Stock
|
|
|
All Industries
|
|
|
Financial Services Industry
|
|
|
|
Gross
|
|
|
Gross
|
|
|
% of All
|
|
|
Gross
|
|
|
% of All
|
|
|
Gross
|
|
|
|
|
|
% A
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Equity
|
|
|
Unrealized
|
|
|
Non-Redeemable
|
|
|
Unrealized
|
|
|
% of All
|
|
|
Rated or
|
|
|
|
Loss
|
|
|
Loss
|
|
|
Securities
|
|
|
Loss
|
|
|
Preferred Stock
|
|
|
Loss
|
|
|
Industries
|
|
|
Better
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
Less than six months
|
|
$
|
129
|
|
|
$
|
118
|
|
|
|
91
|
%
|
|
$
|
118
|
|
|
|
100
|
%
|
|
$
|
118
|
|
|
|
100
|
%
|
|
|
58
|
%
|
Six months or greater but less than twelve months
|
|
|
1
|
|
|
|
1
|
|
|
|
100
|
%
|
|
|
1
|
|
|
|
100
|
%
|
|
|
1
|
|
|
|
100
|
%
|
|
|
20
|
%
|
Twelve months or greater
|
|
|
125
|
|
|
|
124
|
|
|
|
99
|
%
|
|
|
124
|
|
|
|
100
|
%
|
|
|
120
|
|
|
|
97
|
%
|
|
|
79
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All equity securities with a gross unrealized loss of 20% or more
|
|
$
|
255
|
|
|
$
|
243
|
|
|
|
95
|
%
|
|
$
|
243
|
|
|
|
100
|
%
|
|
$
|
239
|
|
|
|
98
|
%
|
|
|
68
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In connection with the equity securities impairment review
process, the Company evaluated its holdings in non-redeemable
preferred stock, particularly those companies in the financial
services industry. The Company considered several factors
including whether there has been any deterioration in credit of
the issuer and the likelihood of recovery in value of
non-redeemable preferred stock with a severe or an extended
unrealized loss. The Company also considered whether any issuers
of non-redeemable preferred stock with an unrealized loss held
by the Company, regardless of credit rating, have deferred any
dividend payments. No such dividend payments were deferred.
With respect to common stock holdings, the Company considered
the duration and severity of the unrealized losses for
securities in an unrealized loss position of 20% or more; and
the duration of unrealized losses for securities in an
unrealized loss position of less than 20% in an extended
unrealized loss position (i.e., 12 months or greater).
Future OTTIs will depend primarily on economic fundamentals,
issuer performance (including changes in the present value of
future cash flows expected to be collected), changes in credit
rating, changes in collateral valuation, changes in interest
rates and changes in credit spreads. If economic fundamentals
and any of the above factors deteriorate, additional OTTIs may
be incurred in upcoming quarters.
30
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Net
Investment Gains (Losses)
As described more fully in Note 1 of the Notes to the
Consolidated Financial Statements included in the 2009 Annual
Report, effective April 1, 2009, the Company adopted new
guidance on the recognition and presentation of OTTI that amends
the methodology to determine for fixed maturity securities
whether an OTTI exists, and for certain fixed maturity
securities, changes how OTTI losses that are charged to earnings
are measured. There was no change in the methodology for
identification and measurement of OTTI losses charged to
earnings for impaired equity securities.
The components of net investment gains (losses) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Total losses on fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OTTI losses recognized
|
|
$
|
(244
|
)
|
|
$
|
(566
|
)
|
|
$
|
(395
|
)
|
|
$
|
(1,119
|
)
|
Less: Noncredit portion of OTTI losses transferred to and
recognized in other comprehensive income (loss)
|
|
|
98
|
|
|
|
234
|
|
|
|
157
|
|
|
|
234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net OTTI losses on fixed maturity securities recognized in
earnings
|
|
|
(146
|
)
|
|
|
(332
|
)
|
|
|
(238
|
)
|
|
|
(885
|
)
|
Fixed maturity securities net gains (losses) on
sales and disposals
|
|
|
20
|
|
|
|
(46
|
)
|
|
|
45
|
|
|
|
(102
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total losses on fixed maturity securities
|
|
|
(126
|
)
|
|
|
(378
|
)
|
|
|
(193
|
)
|
|
|
(987
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other net investment gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
74
|
|
|
|
(108
|
)
|
|
|
101
|
|
|
|
(377
|
)
|
Mortgage loans
|
|
|
11
|
|
|
|
(125
|
)
|
|
|
(17
|
)
|
|
|
(271
|
)
|
Commercial mortgage loans held by consolidated securitization
entities fair value option
|
|
|
172
|
|
|
|
|
|
|
|
653
|
|
|
|
|
|
Real estate and real estate joint ventures
|
|
|
(27
|
)
|
|
|
(68
|
)
|
|
|
(49
|
)
|
|
|
(93
|
)
|
Other limited partnership interests
|
|
|
(10
|
)
|
|
|
(247
|
)
|
|
|
(11
|
)
|
|
|
(344
|
)
|
Freestanding derivatives
|
|
|
3,680
|
|
|
|
(3,637
|
)
|
|
|
3,199
|
|
|
|
(4,687
|
)
|
Embedded derivatives
|
|
|
(2,199
|
)
|
|
|
793
|
|
|
|
(1,677
|
)
|
|
|
2,010
|
|
Trading securities held by consolidated securitization
entities fair value option
|
|
|
(17
|
)
|
|
|
|
|
|
|
(21
|
)
|
|
|
|
|
Long-term debt of consolidated securitization
entities related to trading securities
fair value option
|
|
|
(1
|
)
|
|
|
|
|
|
|
11
|
|
|
|
|
|
Long-term debt of consolidated securitization
entities related to mortgage loans fair
value option
|
|
|
(156
|
)
|
|
|
|
|
|
|
(635
|
)
|
|
|
|
|
Other
|
|
|
67
|
|
|
|
(59
|
)
|
|
|
179
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net investment gains (losses)
|
|
$
|
1,468
|
|
|
$
|
(3,829
|
)
|
|
$
|
1,540
|
|
|
$
|
(4,735
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Variable Interest Entities for
discussion of consolidated securitization entities included in
the table above.
Proceeds from sales or disposals of fixed maturity and equity
securities and the components of fixed maturity and equity
securities net investment gains (losses) were as shown below.
Investment gains and losses on sales of securities are
determined on a specific identification basis.
31
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
Fixed Maturity Securities
|
|
|
Equity Securities
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Proceeds
|
|
$
|
13,500
|
|
|
$
|
7,573
|
|
|
$
|
300
|
|
|
$
|
195
|
|
|
$
|
13,800
|
|
|
$
|
7,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross investment gains
|
|
|
215
|
|
|
|
189
|
|
|
|
76
|
|
|
|
13
|
|
|
|
291
|
|
|
|
202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross investment losses
|
|
|
(195
|
)
|
|
|
(235
|
)
|
|
|
(1
|
)
|
|
|
(49
|
)
|
|
|
(196
|
)
|
|
|
(284
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OTTI losses recognized in earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit-related
|
|
|
(146
|
)
|
|
|
(287
|
)
|
|
|
|
|
|
|
|
|
|
|
(146
|
)
|
|
|
(287
|
)
|
Other (1)
|
|
|
|
|
|
|
(45
|
)
|
|
|
(1
|
)
|
|
|
(72
|
)
|
|
|
(1
|
)
|
|
|
(117
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OTTI losses recognized in earnings
|
|
|
(146
|
)
|
|
|
(332
|
)
|
|
|
(1
|
)
|
|
|
(72
|
)
|
|
|
(147
|
)
|
|
|
(404
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment gains (losses)
|
|
$
|
(126
|
)
|
|
$
|
(378
|
)
|
|
$
|
74
|
|
|
$
|
(108
|
)
|
|
$
|
(52
|
)
|
|
$
|
(486
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
Fixed Maturity Securities
|
|
|
Equity Securities
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Proceeds
|
|
$
|
21,878
|
|
|
$
|
19,351
|
|
|
$
|
445
|
|
|
$
|
253
|
|
|
$
|
22,323
|
|
|
$
|
19,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross investment gains
|
|
|
379
|
|
|
|
545
|
|
|
|
107
|
|
|
|
20
|
|
|
|
486
|
|
|
|
565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross investment losses
|
|
|
(334
|
)
|
|
|
(647
|
)
|
|
|
(4
|
)
|
|
|
(67
|
)
|
|
|
(338
|
)
|
|
|
(714
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OTTI losses recognized in earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit-related
|
|
|
(232
|
)
|
|
|
(743
|
)
|
|
|
|
|
|
|
|
|
|
|
(232
|
)
|
|
|
(743
|
)
|
Other (1)
|
|
|
(6
|
)
|
|
|
(142
|
)
|
|
|
(2
|
)
|
|
|
(330
|
)
|
|
|
(8
|
)
|
|
|
(472
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OTTI losses recognized in earnings
|
|
|
(238
|
)
|
|
|
(885
|
)
|
|
|
(2
|
)
|
|
|
(330
|
)
|
|
|
(240
|
)
|
|
|
(1,215
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment gains (losses)
|
|
$
|
(193
|
)
|
|
$
|
(987
|
)
|
|
$
|
101
|
|
|
$
|
(377
|
)
|
|
$
|
(92
|
)
|
|
$
|
(1,364
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Other OTTI losses recognized in earnings include impairments on
equity securities, impairments on perpetual hybrid securities
classified within fixed maturity securities where the primary
reason for the impairment was the severity and/or the duration
of an unrealized loss position and fixed maturity securities
where there is an intent to sell or it is more likely than not
that the Company will be required to sell the security before
recovery of the decline in estimated fair value. |
32
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Fixed maturity security OTTI losses recognized in earnings
related to the following sectors and industries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Sector:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. and foreign corporate securities by industry:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance
|
|
$
|
20
|
|
|
$
|
67
|
|
|
$
|
28
|
|
|
$
|
188
|
|
Consumer
|
|
|
1
|
|
|
|
74
|
|
|
|
23
|
|
|
|
164
|
|
Communications
|
|
|
|
|
|
|
61
|
|
|
|
3
|
|
|
|
203
|
|
Utility
|
|
|
3
|
|
|
|
43
|
|
|
|
3
|
|
|
|
76
|
|
Industrial
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
20
|
|
Other industries
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. and foreign corporate securities
|
|
|
24
|
|
|
|
250
|
|
|
|
57
|
|
|
|
677
|
|
ABS
|
|
|
44
|
|
|
|
28
|
|
|
|
63
|
|
|
|
94
|
|
RMBS
|
|
|
27
|
|
|
|
20
|
|
|
|
57
|
|
|
|
78
|
|
CMBS
|
|
|
51
|
|
|
|
34
|
|
|
|
61
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
146
|
|
|
$
|
332
|
|
|
$
|
238
|
|
|
$
|
885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity security OTTI losses recognized in earnings related to
the following sectors and industries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Sector:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
1
|
|
|
$
|
12
|
|
|
|
2
|
|
|
$
|
50
|
|
Non-redeemable preferred stock
|
|
|
|
|
|
|
60
|
|
|
|
|
|
|
|
280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1
|
|
|
$
|
72
|
|
|
$
|
2
|
|
|
$
|
330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industry:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial services industry:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Perpetual hybrid securities
|
|
$
|
|
|
|
$
|
60
|
|
|
$
|
|
|
|
$
|
260
|
|
Common and remaining non-redeemable preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial services industry
|
|
|
|
|
|
|
60
|
|
|
|
|
|
|
|
290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other industries
|
|
|
1
|
|
|
|
12
|
|
|
|
2
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1
|
|
|
$
|
72
|
|
|
$
|
2
|
|
|
$
|
330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
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 Income
(Loss)
The table below presents a rollforward of the cumulative credit
loss component of OTTI loss recognized in earnings on fixed
maturity securities still held by the Company at June 30,
2010 for which a portion of the OTTI loss was recognized in
other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
424
|
|
|
$
|
|
|
|
$
|
581
|
|
|
$
|
|
|
Credit loss component of OTTI loss not reclassified to other
comprehensive income (loss) in the cumulative effect transition
adjustment
|
|
|
|
|
|
|
230
|
|
|
|
|
|
|
|
230
|
|
Additions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial impairments credit loss OTTI recognized on
securities not previously impaired
|
|
|
62
|
|
|
|
152
|
|
|
|
81
|
|
|
|
152
|
|
Additional impairments credit loss OTTI recognized
on securities previously impaired
|
|
|
39
|
|
|
|
5
|
|
|
|
70
|
|
|
|
5
|
|
Reductions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to sales (maturities, pay downs or prepayments) during the
period of securities previously credit loss OTTI impaired
|
|
|
(30
|
)
|
|
|
(7
|
)
|
|
|
(134
|
)
|
|
|
(7
|
)
|
Due to securities de-recognized in connection with the adoption
of new guidance related to the consolidation of VIEs
|
|
|
|
|
|
|
|
|
|
|
(100
|
)
|
|
|
|
|
Due to increases in cash flows accretion of previous
credit loss OTTI
|
|
|
(4
|
)
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
491
|
|
|
$
|
380
|
|
|
$
|
491
|
|
|
$
|
380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Net
Investment Income
The components of net investment income were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Fixed maturity securities
|
|
$
|
3,033
|
|
|
$
|
2,936
|
|
|
$
|
6,106
|
|
|
$
|
5,754
|
|
Equity securities
|
|
|
39
|
|
|
|
55
|
|
|
|
64
|
|
|
|
93
|
|
Trading securities
|
|
|
(56
|
)
|
|
|
130
|
|
|
|
23
|
|
|
|
147
|
|
Trading securities held by consolidated securitization entities
|
|
|
4
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
Mortgage loans
|
|
|
696
|
|
|
|
696
|
|
|
|
1,369
|
|
|
|
1,378
|
|
Commercial mortgage loans held by consolidated securitization
entities
|
|
|
105
|
|
|
|
|
|
|
|
210
|
|
|
|
|
|
Policy loans
|
|
|
159
|
|
|
|
161
|
|
|
|
337
|
|
|
|
318
|
|
Real estate and real estate joint ventures
|
|
|
141
|
|
|
|
(72
|
)
|
|
|
189
|
|
|
|
(159
|
)
|
Other limited partnership interests
|
|
|
161
|
|
|
|
72
|
|
|
|
426
|
|
|
|
(181
|
)
|
Cash, cash equivalents and short-term investments
|
|
|
20
|
|
|
|
34
|
|
|
|
38
|
|
|
|
82
|
|
International joint ventures (1)
|
|
|
(97
|
)
|
|
|
(77
|
)
|
|
|
(80
|
)
|
|
|
(70
|
)
|
Other
|
|
|
102
|
|
|
|
44
|
|
|
|
188
|
|
|
|
119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment income
|
|
|
4,307
|
|
|
|
3,979
|
|
|
|
8,878
|
|
|
|
7,481
|
|
Less: Investment expenses
|
|
|
220
|
|
|
|
249
|
|
|
|
447
|
|
|
|
490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
4,087
|
|
|
$
|
3,730
|
|
|
$
|
8,431
|
|
|
$
|
6,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts are presented net of changes in estimated fair value of
derivatives related to economic hedges of the Companys
investment in these equity method international joint
investments that do not qualify for hedge accounting of
$109 million and $77 million for the three months and
six months ended June 30, 2010, respectively, and
($92) million and ($116) million for the three months
and six months ended June 30, 2009, respectively. |
See Variable Interest Entities for
discussion of consolidated securitization entities included in
the table above.
Securities
Lending
The Company participates in securities lending programs whereby
blocks of securities, which are included in fixed maturity
securities and short-term investments, are loaned to third
parties, primarily brokerage firms and commercial banks. These
transactions are treated as financing arrangements and the
associated liability is recorded at the amount of the cash
received. The Company generally obtains collateral in an amount
equal to 102% of the estimated fair value of the securities
loaned. Securities loaned under such transactions may be sold or
repledged by the transferee. The Company is liable to return to
its counterparties the cash collateral under its control, the
amounts of which by aging category are presented below.
35
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Elements of the securities lending programs are presented below
at:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
(In millions)
|
|
|
Securities on loan:
|
|
|
|
|
|
|
|
|
Cost or amortized cost
|
|
$
|
22,561
|
|
|
$
|
21,012
|
|
Estimated fair value
|
|
$
|
23,965
|
|
|
$
|
20,949
|
|
Aging of cash collateral liability:
|
|
|
|
|
|
|
|
|
Open (1)
|
|
$
|
2,682
|
|
|
$
|
3,290
|
|
Less than thirty days
|
|
|
13,578
|
|
|
|
13,605
|
|
Thirty days or greater but less than sixty days
|
|
|
5,541
|
|
|
|
3,534
|
|
Sixty days or greater but less than ninety days
|
|
|
314
|
|
|
|
92
|
|
Ninety days or greater
|
|
|
2,141
|
|
|
|
995
|
|
|
|
|
|
|
|
|
|
|
Total cash collateral liability
|
|
$
|
24,256
|
|
|
$
|
21,516
|
|
|
|
|
|
|
|
|
|
|
Security collateral on deposit from counterparties
|
|
$
|
236
|
|
|
$
|
6
|
|
|
|
|
|
|
|
|
|
|
Reinvestment portfolio estimated fair value
|
|
$
|
23,409
|
|
|
$
|
20,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Open meaning that the related loaned security could
be returned to the Company on the next business day requiring
the Company to immediately return the cash collateral. |
The estimated fair value of the securities on loan related to
the cash collateral on open at June 30, 2010 was
$2,613 million, of which $2,029 million were
U.S. Treasury, agency and government guaranteed securities
which, if put to the Company, can be immediately sold to satisfy
the cash requirements. The remainder of the securities on loan
was primarily U.S. Treasury, agency and government
guaranteed securities, and very liquid RMBS. The reinvestment
portfolio acquired with the cash collateral consisted
principally of fixed maturity securities (including
U.S. Treasury, agency and government guaranteed,
U.S. corporate, RMBS, ABS and CMBS securities).
Security collateral on deposit from counterparties in connection
with the securities lending transactions may not be sold or
repledged, unless the counterparty is in default, and is not
reflected in the consolidated financial statements. Separately,
the Company had $49 million and $46 million, at
estimated fair value, of cash and security collateral on deposit
from a counterparty to secure its interest in a pooled
investment that is held by a third party trustee, as custodian,
at June 30, 2010 and December 31, 2009, respectively.
This pooled investment is included within fixed maturity
securities and had an estimated fair value of $57 million
and $51 million at June 30, 2010 and December 31,
2009, respectively.
Invested
Assets on Deposit, Held in Trust and Pledged as
Collateral
The invested assets on deposit, invested assets held in trust
and invested assets pledged as collateral are presented in the
table below. The amounts presented in the table below are at
estimated fair value for cash and cash equivalents, short-term
investments, fixed maturity, trading and equity securities and
at carrying value for mortgage loans.
36
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
(In millions)
|
|
|
Invested assets on deposit:
|
|
|
|
|
|
|
|
|
Regulatory agencies (1)
|
|
$
|
1,482
|
|
|
$
|
1,383
|
|
Invested assets held in trust:
|
|
|
|
|
|
|
|
|
Collateral financing arrangements (2)
|
|
|
5,799
|
|
|
|
5,653
|
|
Reinsurance arrangements (3)
|
|
|
2,986
|
|
|
|
2,719
|
|
Invested assets pledged as collateral:
|
|
|
|
|
|
|
|
|
Funding agreements and advances FHLB of NY (4)
|
|
|
21,321
|
|
|
|
20,612
|
|
Funding agreements FHLB of Boston (4)
|
|
|
408
|
|
|
|
419
|
|
Funding agreements Farmer Mac (5)
|
|
|
2,871
|
|
|
|
2,871
|
|
Federal Reserve Bank of New York (6)
|
|
|
1,763
|
|
|
|
1,537
|
|
Collateral financing arrangements (7)
|
|
|
189
|
|
|
|
80
|
|
Derivative transactions (8)
|
|
|
1,370
|
|
|
|
1,671
|
|
Short sale agreements (9)
|
|
|
463
|
|
|
|
496
|
|
|
|
|
|
|
|
|
|
|
Total invested assets on deposit, held in trust and pledged as
collateral
|
|
$
|
38,652
|
|
|
$
|
37,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Company had investment assets on deposit with regulatory
agencies consisting primarily of cash and cash equivalents,
fixed maturity and equity securities and short-term investments. |
|
(2) |
|
The Company held in trust cash and securities, primarily fixed
maturity and equity securities, to satisfy collateral
requirements. |
|
(3) |
|
The Company has pledged certain investments, primarily fixed
maturity securities, in connection with certain reinsurance
transactions. |
|
(4) |
|
The Company has pledged fixed maturity securities and mortgage
loans in support of its funding agreements with, and advances
from, the Federal Home Loan Bank of New York (FHLB of
NY) and has pledged fixed maturity securities in support
of its funding agreements with the Federal Home Loan Bank of
Boston (FHLB of Boston). The nature of these Federal
Home Loan Bank arrangements is described in Note 7 herein
and Note 8 of the Notes to the Consolidated Financial
Statements included in the 2009 Annual Report. |
|
(5) |
|
The Company has pledged certain agricultural real estate
mortgage loans in connection with funding agreements issued to
certain special purpose entities that have issued securities
guaranteed by the Federal Agricultural Mortgage Corporation
(Farmer Mac). The nature of these Farmer Mac
arrangements is described in Note 8 of the Notes to the
Consolidated Financial Statements included in the 2009 Annual
Report. |
|
(6) |
|
The Company has pledged qualifying mortgage loans and fixed
maturity 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 11 of the Notes to the
Consolidated Financial Statements included in the 2009 Annual
Report. |
|
(7) |
|
The Holding Company has pledged certain collateral in support of
the collateral financing arrangements described in Note 12
of the Notes to the Consolidated Financial Statements included
in the 2009 Annual Report. |
|
(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 and cash and
cash equivalents are pledged to secure liabilities associated
with short sale agreements in the trading securities portfolio
as described in the following section. |
37
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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. See
Variable Interest Entities for assets of
certain consolidated securitization entities that can only be
used to settle liabilities of such entities.
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. In addition, the Company classifies
securities held within consolidated securitization entities as
trading securities, with changes in estimated fair value
recorded as net investment gains (losses).
The tables below present certain information about the
Companys trading securities portfolios:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
(In millions)
|
|
|
Trading securities at estimated fair value
|
|
$
|
2,901
|
|
|
$
|
2,384
|
|
Securities held by consolidated securitization
entities at estimated fair value
|
|
|
257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading securities at estimated fair value
|
|
$
|
3,158
|
|
|
$
|
2,384
|
|
|
|
|
|
|
|
|
|
|
Short sale agreement liabilities at estimated fair
value (included in other liabilities)
|
|
$
|
47
|
|
|
$
|
106
|
|
Investments pledged to secure short sale agreement liabilities
|
|
$
|
463
|
|
|
$
|
496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Trading securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (1)
|
|
$
|
(56
|
)
|
|
$
|
130
|
|
|
$
|
23
|
|
|
$
|
147
|
|
Changes in estimated fair value included in net investment income
|
|
$
|
(90
|
)
|
|
$
|
141
|
|
|
$
|
(29
|
)
|
|
$
|
143
|
|
Securities held by consolidated securitization entities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (2)
|
|
$
|
4
|
|
|
$
|
|
|
|
$
|
8
|
|
|
$
|
|
|
Changes in estimated fair value included in net investment
gains (losses) (3)
|
|
$
|
(17
|
)
|
|
$
|
|
|
|
$
|
(21
|
)
|
|
$
|
|
|
|
|
|
(1) |
|
Includes interest and dividends earned on trading securities, in
addition to the net realized gains (losses) and changes in
estimated fair value subsequent to purchase, recognized on the
trading securities and the related short sale agreement
liabilities. |
|
(2) |
|
Includes interest and dividends earned on securities held by
consolidated securitization entities. |
|
(3) |
|
Includes net realized gains (losses) and changes in estimated
fair value subsequent to consolidation recognized on securities
held by consolidated securitization entities
accounted for under the fair value option. |
See Variable Interest Entities for
discussion of consolidated securitization entities included in
the tables above.
38
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Mortgage
Loans
Mortgage loans, net of valuation allowances, are categorized as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
Carrying
|
|
|
% of
|
|
|
Carrying
|
|
|
% of
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Mortgage loans
held-for-investment,
net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage loans
|
|
$
|
34,421
|
|
|
|
59.1
|
%
|
|
$
|
34,587
|
|
|
|
67.9
|
%
|
Agricultural mortgage loans
|
|
|
12,284
|
|
|
|
21.1
|
|
|
|
12,140
|
|
|
|
23.8
|
|
Residential and consumer loans
|
|
|
1,789
|
|
|
|
3.1
|
|
|
|
1,454
|
|
|
|
2.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal mortgage loans
held-for-investment,
net
|
|
|
48,494
|
|
|
|
83.3
|
%
|
|
|
48,181
|
|
|
|
94.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage loans held by consolidated securitization
entities fair value option
|
|
|
7,107
|
|
|
|
12.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans
held-for-investment,
net
|
|
|
55,601
|
|
|
|
95.5
|
%
|
|
|
48,181
|
|
|
|
94.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans
held-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential fair value option
|
|
|
2,043
|
|
|
|
3.5
|
|
|
|
2,470
|
|
|
|
4.9
|
|
Commercial and residential lower of amortized cost
or estimated fair value
|
|
|
607
|
|
|
|
1.0
|
|
|
|
258
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans
held-for-sale
|
|
|
2,650
|
|
|
|
4.5
|
|
|
|
2,728
|
|
|
|
5.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans, net
|
|
$
|
58,251
|
|
|
|
100.0
|
%
|
|
$
|
50,909
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Variable Interest Entities for
discussion of consolidated securitization entities included in
the table above.
Additions (reductions) to the mortgage valuation allowance
charged to net investment gains (losses) were ($9) million
and $34 million for the three months and six months ended
June 30, 2010, respectively, and $144 million and
$275 million for the three months and six months ended
June 30, 2009, respectively.
39
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Commercial Mortgage Loans by Geographic Region and Property
Type The Company diversifies its mortgage loans
by both geographic region and property type to reduce the risk
of concentration. The following table presents the distribution
across geographic regions and property types for commercial
mortgage loans at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
Carrying
|
|
|
% of
|
|
|
Carrying
|
|
|
% of
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pacific
|
|
$
|
8,346
|
|
|
|
24.2
|
%
|
|
$
|
8,684
|
|
|
|
25.1
|
%
|
South Atlantic
|
|
|
7,485
|
|
|
|
21.7
|
|
|
|
7,342
|
|
|
|
21.2
|
|
Middle Atlantic
|
|
|
5,980
|
|
|
|
17.4
|
|
|
|
5,948
|
|
|
|
17.2
|
|
International
|
|
|
3,564
|
|
|
|
10.4
|
|
|
|
3,564
|
|
|
|
10.3
|
|
West South Central
|
|
|
2,963
|
|
|
|
8.6
|
|
|
|
2,870
|
|
|
|
8.3
|
|
East North Central
|
|
|
2,460
|
|
|
|
7.1
|
|
|
|
2,487
|
|
|
|
7.2
|
|
New England
|
|
|
1,400
|
|
|
|
4.1
|
|
|
|
1,414
|
|
|
|
4.1
|
|
Mountain
|
|
|
892
|
|
|
|
2.6
|
|
|
|
944
|
|
|
|
2.7
|
|
West North Central
|
|
|
629
|
|
|
|
1.9
|
|
|
|
641
|
|
|
|
1.9
|
|
East South Central
|
|
|
452
|
|
|
|
1.3
|
|
|
|
443
|
|
|
|
1.3
|
|
Other
|
|
|
250
|
|
|
|
0.7
|
|
|
|
250
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
34,421
|
|
|
|
100.0
|
%
|
|
$
|
34,587
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property Type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
|
|
$
|
15,020
|
|
|
|
43.6
|
%
|
|
$
|
14,986
|
|
|
|
43.3
|
%
|
Retail
|
|
|
7,900
|
|
|
|
23.0
|
|
|
|
7,870
|
|
|
|
22.8
|
|
Apartments
|
|
|
3,607
|
|
|
|
10.5
|
|
|
|
3,696
|
|
|
|
10.7
|
|
Hotel
|
|
|
3,037
|
|
|
|
8.8
|
|
|
|
2,947
|
|
|
|
8.5
|
|
Industrial
|
|
|
2,847
|
|
|
|
8.3
|
|
|
|
2,759
|
|
|
|
8.0
|
|
Other
|
|
|
2,010
|
|
|
|
5.8
|
|
|
|
2,329
|
|
|
|
6.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
34,421
|
|
|
|
100.0
|
%
|
|
$
|
34,587
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Mortgage
Servicing Rights
The following table presents the carrying value and changes in
capitalized mortgage servicing rights (MSRs), which
are included in other invested assets:
|
|
|
|
|
|
|
|
|
|
|
At or For the
|
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Estimated fair value, beginning of period
|
|
$
|
878
|
|
|
$
|
191
|
|
Acquisition of MSRs
|
|
|
|
|
|
|
117
|
|
Origination of MSRs
|
|
|
106
|
|
|
|
289
|
|
Reductions due to loan payments
|
|
|
(43
|
)
|
|
|
(61
|
)
|
Reductions due to loan sales
|
|
|
(43
|
)
|
|
|
|
|
Changes in estimated fair value due to:
|
|
|
|
|
|
|
|
|
Changes in valuation model inputs or assumptions
|
|
|
(238
|
)
|
|
|
133
|
|
Other changes in estimated fair value
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Estimated fair value, end of period
|
|
$
|
660
|
|
|
$
|
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 Note 5 for further information about how the
estimated fair value of MSRs 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 was
$9.7 billion and $8.4 billion at June 30, 2010
and December 31, 2009, respectively. The Company is exposed
to concentrations of credit risk related to securities of the
U.S. government and certain U.S. government agencies
included within short-term investments, which were
$9.0 billion and $7.5 billion at June 30, 2010 and
December 31, 2009, respectively.
Cash
Equivalents
The carrying value of cash equivalents, which include
investments with an original or remaining maturity of three
months or less, at the time of acquisition was $8.4 billion
at both June 30, 2010 and December 31, 2009. The
Company is exposed to concentrations of credit risk related to
securities of the U.S. government and certain
U.S. government agencies included within cash equivalents,
which were $5.9 billion and $6.0 billion at
June 30, 2010 and December 31, 2009, respectively.
Variable
Interest Entities
The Company holds investments in certain entities that are VIEs.
In certain instances, the Company holds both the power to direct
the most significant activities of the entity, as well as an
economic interest in the entity and, as such, consistent with
the new guidance described in Note 1, is deemed to be the
primary beneficiary or consolidator of the entity. 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, 2010 and
December 31, 2009. Creditors or beneficial interest holders
of VIEs where the
41
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Company is the primary beneficiary have no recourse to the
general credit of the Company, as the Companys obligation
to the VIEs is limited to the amount of its committed investment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
Total
|
|
|
Total
|
|
|
Total
|
|
|
Total
|
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Assets
|
|
|
Liabilities
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Consolidated securitization entities (1)
|
|
$
|
7,429
|
|
|
$
|
7,191
|
|
|
$
|
|
|
|
$
|
|
|
MRSC collateral financing arrangement (2)
|
|
|
3,324
|
|
|
|
|
|
|
|
3,230
|
|
|
|
|
|
Other limited partnership interests
|
|
|
204
|
|
|
|
58
|
|
|
|
367
|
|
|
|
72
|
|
Other invested assets
|
|
|
110
|
|
|
|
1
|
|
|
|
27
|
|
|
|
1
|
|
Real estate joint ventures
|
|
|
22
|
|
|
|
16
|
|
|
|
22
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,089
|
|
|
$
|
7,266
|
|
|
$
|
3,646
|
|
|
$
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As discussed in Note 1, upon the adoption of new guidance
effective January 1, 2010, the Company consolidated former
QSPEs that are structured as CMBS and former QSPEs that are
structured as collateralized debt obligations. At June 30,
2010, these entities held total assets of $7,429 million
consisting of $257 million of securities classified by the
Company as trading securities, $7,107 million of commercial
mortgage loans, $38 million of accrued investment income
and $27 million of cash. These entities had total
liabilities of $7,191 million, consisting of
$7,129 million of long-term debt and $62 million of
other liabilities. The assets of these entities can only be used
to settle their respective liabilities, and under no
circumstances is the Company or any of its subsidiaries or
affiliates liable for any principal or interest shortfalls
should any arise. The Companys exposure is limited to that
of its remaining investment in the former QSPEs of
$200 million at estimated fair value at June 30, 2010.
The long-term debt referred to above bears interest at primarily
fixed rates ranging from 2.25% to 5.57%, payable primarily on a
monthly basis and is expected to be repaid over the next
7 years. Interest expense related to these obligations,
included in other expenses, was $103 million and
$209 million for the three months and six months ended
June 30, 2010, respectively. |
|
(2) |
|
See Note 12 of the Notes to the Consolidated Financial
Statements included in the 2009 Annual Report for a description
of the MetLife Reinsurance Company of South Carolina
(MRSC) collateral financing arrangement. At
June 30, 2010 and December 31, 2009, these assets
consist of the following, at estimated fair value: |
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
December 31, 2009
|
|
|
(In millions)
|
|
Fixed maturity securities
available-for-sale:
|
|
|
|
|
|
|
|
|
ABS
|
|
$
|
1,212
|
|
|
$
|
963
|
|
U.S. corporate securities
|
|
|
927
|
|
|
|
1,049
|
|
RMBS
|
|
|
559
|
|
|
|
672
|
|
CMBS
|
|
|
386
|
|
|
|
348
|
|
Foreign corporate securities
|
|
|
106
|
|
|
|
80
|
|
U.S. Treasury, agency and government guaranteed securities
|
|
|
31
|
|
|
|
33
|
|
State and political subdivision securities
|
|
|
30
|
|
|
|
21
|
|
Foreign government securities
|
|
|
5
|
|
|
|
5
|
|
Cash and cash equivalents (including cash held in trust of $0
and less than $1 million, respectively)
|
|
|
68
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,324
|
|
|
$
|
3,230
|
|
|
|
|
|
|
|
|
|
|
42
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, 2010
|
|
|
December 31, 2009
|
|
|
|
|
|
|
Maximum
|
|
|
|
|
|
Maximum
|
|
|
|
Carrying
|
|
|
Exposure
|
|
|
Carrying
|
|
|
Exposure
|
|
|
|
Amount
|
|
|
to Loss (1)
|
|
|
Amount
|
|
|
to Loss (1)
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Fixed maturity securities
available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMBS (2)
|
|
$
|
42,750
|
|
|
$
|
42,750
|
|
|
$
|
|
|
|
$
|
|
|
CMBS (2)
|
|
|
15,984
|
|
|
|
15,984
|
|
|
|
|
|
|
|
|
|
ABS (2)
|
|
|
14,419
|
|
|
|
14,419
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
|
1,799
|
|
|
|
1,799
|
|
|
|
1,216
|
|
|
|
1,216
|
|
Foreign corporate securities
|
|
|
1,392
|
|
|
|
1,392
|
|
|
|
1,254
|
|
|
|
1,254
|
|
Other limited partnership interests
|
|
|
4,063
|
|
|
|
6,255
|
|
|
|
2,543
|
|
|
|
2,887
|
|
Other invested assets
|
|
|
499
|
|
|
|
520
|
|
|
|
416
|
|
|
|
409
|
|
Real estate joint ventures
|
|
|
13
|
|
|
|
62
|
|
|
|
30
|
|
|
|
30
|
|
Equity securities
available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock
|
|
|
|
|
|
|
|
|
|
|
31
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
80,919
|
|
|
$
|
83,181
|
|
|
$
|
5,490
|
|
|
$
|
5,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The maximum exposure to loss relating to the fixed maturity and
equity securities
available-for-sale
is equal to the carrying amounts or carrying amounts of retained
interests. The maximum exposure to loss relating to the other
limited partnership interests and real estate joint ventures 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 amounts guaranteed by third
parties of $212 million and $232 million at
June 30, 2010 and December 31, 2009, respectively. |
|
(2) |
|
As discussed in Note 1, the Company adopted new guidance
effective January 1, 2010 which eliminated the concept of a
QSPE. As a result, the Company concluded it held variable
interests in RMBS, CMBS and ABS. For these interests, the
Companys involvement is limited to that of a passive
investor. |
As described in Note 8, the Company makes commitments to
fund partnership investments in the normal course of business.
Excluding these commitments, the Company did not provide
financial or other support to investees designated as VIEs
during the six months ended June 30, 2010.
|
|
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 risks
relating to its ongoing business. To a lesser extent, the
Company uses credit derivatives, such as credit default swaps,
to synthetically replicate investment risks and returns which
are not readily available in the cash market. The Company also
purchases certain securities, issues certain insurance policies
and investment contracts and engages in certain reinsurance
contracts that have embedded derivatives.
43
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Freestanding derivatives are carried on the Companys
consolidated balance sheets either as assets within other
invested assets or as liabilities within other liabilities at
estimated fair value as determined through the use of quoted
market prices for exchange-traded derivatives and interest rate
forwards to sell certain to-be-announced securities or through
the use of pricing models for
over-the-counter
derivatives. The determination of estimated fair value, when
quoted market values are not available, is based on market
standard valuation methodologies and inputs that are assumed to
be consistent with what other market participants would use when
pricing the instruments. Derivative valuations can be affected
by changes in interest rates, foreign currency exchange rates,
financial indices, credit spreads, default risk (including the
counterparties to the contract), volatility, liquidity and
changes in estimates and assumptions used in the pricing models.
The Company does not offset the fair value amounts recognized
for derivatives executed with the same counterparty under the
same master netting agreement.
If a derivative is not designated as an accounting hedge or its
use in managing risk does not qualify for hedge accounting,
changes in the estimated fair value of the derivative are
generally reported in net investment gains (losses) except for
those (i) in policyholder benefits and claims for economic
hedges of variable annuity guarantees included in future policy
benefits; (ii) in net investment income for economic hedges
of equity method investments in joint ventures, or for all
derivatives held in relation to the trading portfolios;
(iii) in other revenues for derivatives held in connection
with the Companys mortgage banking activities; and
(iv) in other expenses for economic hedges of foreign
currency exposure related to the Companys international
subsidiaries. The fluctuations in estimated fair value of
derivatives which have not been designated for hedge accounting
can result in significant volatility in net income.
To qualify for hedge accounting, at the inception of the hedging
relationship, the Company formally documents its risk management
objective and strategy for undertaking the hedging transaction,
as well as its designation of the hedge as either (i) a
hedge of the estimated fair value of a recognized asset or
liability (fair value hedge); (ii) a hedge of a
forecasted transaction or of the variability of cash flows to be
received or paid related to a recognized asset or liability
(cash flow hedge); or (iii) a hedge of a net
investment in a foreign operation. In this documentation, the
Company sets forth how the hedging instrument is expected to
hedge the designated risks related to the hedged item and sets
forth the method that will be used to retrospectively and
prospectively assess the hedging 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 guidance continue to evolve in practice.
Judgment is applied in determining the availability and
application of hedge accounting designations and the appropriate
accounting treatment under such accounting guidance. If it was
determined that hedge accounting designations were not
appropriately applied, reported net income could be materially
affected. Differences in judgment as to the availability and
application of hedge accounting designations and the appropriate
accounting treatment may result in a differing impact in the
consolidated financial statements of the Company from that
previously reported.
Under a fair value hedge, changes in the estimated fair value of
the hedging derivative, including amounts measured as
ineffectiveness, and changes in the estimated fair value of the
hedged item related to the designated risk being hedged, are
reported within net investment gains (losses). The estimated
fair values of the hedging derivatives are exclusive of any
accruals that are separately reported in the consolidated
statement of operations within interest income or interest
expense to match the location of the hedged item. However,
accruals that are not scheduled to settle until maturity are
included in the estimated fair value of derivatives in the
consolidated balance sheets.
44
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Under a cash flow hedge, changes in the estimated fair value of
the hedging derivative measured as effective are reported within
other comprehensive income (loss), a separate component of
stockholders equity and the deferred gains or losses on
the derivative are reclassified into the consolidated statement
of operations when the 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 operations within interest income
or interest expense to match the location of the hedged item.
However, accruals that are not scheduled to settle until
maturity are included in the estimated fair value of derivatives
in the consolidated balance sheets.
In a hedge of a net investment in a foreign operation, changes
in the estimated fair value of the hedging derivative that are
measured as effective are reported within other comprehensive
income (loss) consistent with the translation adjustment for the
hedged net investment in the foreign operation. Changes in the
estimated fair value of the hedging instrument measured as
ineffectiveness are reported within net investment gains
(losses).
The Company discontinues hedge accounting prospectively when:
(i) it is determined that the derivative is no longer
highly effective in offsetting changes in the estimated fair
value or cash flows of a hedged item; (ii) the derivative
expires, is sold, terminated, or exercised; (iii) it is no
longer probable that the hedged forecasted transaction will
occur; or (iv) the derivative is de-designated as a hedging
instrument.
When hedge accounting is discontinued because it is determined
that the derivative is not highly effective in offsetting
changes in the estimated fair value or cash flows of a hedged
item, the derivative continues to be carried in the consolidated
balance sheets at its estimated fair value, with changes in
estimated fair value recognized currently in net investment
gains (losses). The carrying value of the hedged recognized
asset or liability under a fair value hedge is no longer
adjusted for changes in its estimated fair value due to the
hedged risk, and the cumulative adjustment to its carrying value
is amortized into income over the remaining life of the hedged
item. Provided the hedged forecasted transaction is still
probable of occurrence, the changes in estimated fair value of
derivatives recorded in other comprehensive income (loss)
related to discontinued cash flow hedges are released into the
consolidated statement of operations when the 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 on the
anticipated date or within two months of that date, the
derivative continues to be carried in the consolidated balance
sheets at its estimated fair value, with changes in estimated
fair value recognized currently in net investment gains
(losses). Deferred gains and losses of a derivative recorded in
other comprehensive income (loss) pursuant to the discontinued
cash flow hedge of a forecasted transaction that is no longer
probable are recognized immediately in net investment gains
(losses).
In all other situations in which hedge accounting is
discontinued, the derivative is carried at its estimated fair
value in the consolidated balance sheets, with changes in its
estimated fair value recognized in the current period as net
investment gains (losses).
The Company is also a party to financial instruments that
contain terms which are deemed to be embedded derivatives. The
Company assesses each identified embedded derivative to
determine whether it is required to be bifurcated. If the
instrument would not be accounted for in its entirety at
estimated fair value and it is determined that the terms of the
embedded derivative are not clearly and closely related to the
economic characteristics of the host contract, and that a
separate instrument with the same terms would qualify as a
derivative instrument, the embedded derivative is bifurcated
from the host contract and accounted for as a freestanding
derivative. Such embedded derivatives are carried in the
consolidated balance sheets at estimated fair value with the
host contract and changes in their estimated fair value are
generally reported in net investment gains (losses) except for
those in policyholder benefits and claims related to ceded
reinsurance of guaranteed minimum income benefits. If the
Company is unable to properly identify and measure an embedded
derivative for separation from its host contract,
45
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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 5 for information about the fair value hierarchy
for derivatives.
Primary
Risks Managed by Derivative Financial Instruments and
Non-Derivative Financial Instruments
The Company is exposed to various risks relating to its ongoing
business operations, including interest rate risk, foreign
currency risk, credit risk and equity market risk. The Company
uses a variety of strategies to manage these risks, including
the use of derivative instruments. The following table presents
the notional amount, estimated fair value and primary underlying
risk exposure of the Companys derivative financial
instruments, excluding embedded derivatives held at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
Estimated Fair
|
|
|
|
|
|
Estimated Fair
|
|
Primary Underlying
|
|
|
|
Notional
|
|
|
Value (1)
|
|
|
Notional
|
|
|
Value (1)
|
|
Risk Exposure
|
|
Instrument Type
|
|
Amount
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Amount
|
|
|
Assets
|
|
|
Liabilities
|
|
|
|
|
|
(In millions)
|
|
|
Interest rate
|
|
Interest rate swaps
|
|
$
|
43,142
|
|
|
$
|
3,553
|
|
|
$
|
1,049
|
|
|
$
|
38,152
|
|
|
$
|
1,570
|
|
|
$
|
1,255
|
|
|
|
Interest rate floors
|
|
|
24,191
|
|
|
|
772
|
|
|
|
77
|
|
|
|
23,691
|
|
|
|
461
|
|
|
|
37
|
|
|
|
Interest rate caps
|
|
|
30,266
|
|
|
|
92
|
|
|
|
1
|
|
|
|
28,409
|
|
|
|
283
|
|
|
|
|
|
|
|
Interest rate futures
|
|
|
7,441
|
|
|
|
21
|
|
|
|
7
|
|
|
|
7,563
|
|
|
|
8
|
|
|
|
10
|
|
|
|
Interest rate options
|
|
|
2,192
|
|
|
|
40
|
|
|
|
16
|
|
|
|
4,050
|
|
|
|
117
|
|
|
|
57
|
|
|
|
Interest rate forwards
|
|
|
9,526
|
|
|
|
62
|
|
|
|
88
|
|
|
|
9,921
|
|
|
|
66
|
|
|
|
27
|
|
|
|
Synthetic GICs
|
|
|
4,343
|
|
|
|
|
|
|
|
|
|
|
|
4,352
|
|
|
|
|
|
|
|
|
|
Foreign currency
|
|
Foreign currency swaps
|
|
|
17,388
|
|
|
|
1,578
|
|
|
|
1,043
|
|
|
|
16,879
|
|
|
|
1,514
|
|
|
|
1,392
|
|
|
|
Foreign currency forwards
|
|
|
7,774
|
|
|
|
263
|
|
|
|
50
|
|
|
|
6,485
|
|
|
|
83
|
|
|
|
57
|
|
|
|
Currency options
|
|
|
398
|
|
|
|
39
|
|
|
|
2
|
|
|
|
822
|
|
|
|
18
|
|
|
|
|
|
|
|
Non-derivative hedging instruments (2)
|
|
|
169
|
|
|
|
|
|
|
|
169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit
|
|
Credit default swaps
|
|
|
7,456
|
|
|
|
81
|
|
|
|
102
|
|
|
|
6,723
|
|
|
|
74
|
|
|
|
130
|
|
|
|
Credit forwards
|
|
|
180
|
|
|
|
14
|
|
|
|
2
|
|
|
|
220
|
|
|
|
2
|
|
|
|
6
|
|
Equity market
|
|
Equity futures
|
|
|
8,957
|
|
|
|
98
|
|
|
|
40
|
|
|
|
7,405
|
|
|
|
44
|
|
|
|
21
|
|
|
|
Equity options
|
|
|
31,598
|
|
|
|
2,563
|
|
|
|
621
|
|
|
|
27,175
|
|
|
|
1,712
|
|
|
|
1,018
|
|
|
|
Variance swaps
|
|
|
16,883
|
|
|
|
545
|
|
|
|
78
|
|
|
|
13,654
|
|
|
|
181
|
|
|
|
58
|
|
|
|
Total rate of return swaps
|
|
|
1,025
|
|
|
|
|
|
|
|
67
|
|
|
|
376
|
|
|
|
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
212,929
|
|
|
$
|
9,721
|
|
|
$
|
3,412
|
|
|
$
|
195,877
|
|
|
$
|
6,133
|
|
|
$
|
4,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
46
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Interest rate swaps are used by the Company primarily to reduce
market risks from changes in interest rates and to alter
interest rate exposure arising from mismatches between assets
and liabilities (duration mismatches). In an interest rate swap,
the Company agrees with another party to exchange, at specified
intervals, the difference between fixed rate and floating rate
interest amounts as calculated by reference to an agreed
notional principal amount. These transactions are entered into
pursuant to master agreements that provide for a single net
payment to be made by the counterparty at each due date. The
Company utilizes interest rate swaps in fair value, cash flow
and non-qualifying hedging relationships.
The Company also enters into basis swaps to better match the
cash flows from assets and related liabilities. In a basis swap,
both legs of the swap are floating with each based on a
different index. Generally, no cash is exchanged at the outset
of the contract and no principal payments are made by either
party. A single net payment is usually made by one counterparty
at each due date. Basis swaps are included in interest rate
swaps in the preceding table. The Company utilizes basis swaps
in non-qualifying hedging relationships.
Inflation swaps are used as an economic hedge to reduce
inflation risk generated from inflation-indexed liabilities.
Inflation swaps are included in interest rate swaps in the
preceding table. The Company utilizes inflation swaps in
non-qualifying hedging relationships.
Implied volatility swaps are used by the Company primarily as
economic hedges of interest rate risk associated with the
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 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 and
invested assets. A swaption is an option to enter into a swap
with a forward starting effective date. In certain instances,
the Company locks in the economic impact of existing purchased
swaptions by entering into offsetting written swaptions. The
Company pays a premium for purchased swaptions and receives a
premium for written swaptions. Swaptions are included in
interest rate options in the preceding table. The Company
utilizes swaptions in non-qualifying hedging relationships.
The Company writes covered call options on its portfolio of
U.S. Treasuries as an income generation strategy. In a
covered call transaction, the Company receives a premium at the
inception of the contract in exchange for giving the derivative
counterparty the right to purchase the referenced security from
the Company at a
47
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
predetermined price. The call option is covered
because the Company owns the referenced security over the term
of the option. Covered call options are included in interest
rate options in the preceding table. The Company utilizes
covered call options in non-qualifying hedging relationships.
The Company enters into interest rate forwards to buy and sell
securities. The price is agreed upon at the time of the contract
and payment for such a contract is made at a specified future
date. The Company also uses interest rate forwards to sell to be
announced securities as economic hedges against the risk of
changes in the fair value of mortgage loans
held-for-sale
and interest rate lock commitments. The Company utilizes
interest rate forwards in cash flow and non-qualifying hedging
relationships.
Interest rate lock commitments are short-term commitments to
fund mortgage loan applications in process (the pipeline) for a
fixed term at a fixed price. During the term of an interest rate
lock commitment, the Company is exposed to the risk that
interest rates will change from the rate quoted to the potential
borrower. Interest rate lock commitments to fund mortgage loans
that will be
held-for-sale
are considered derivative instruments. Interest rate lock
commitments are included in interest rate forwards in the
preceding table. Interest rate lock commitments are not
designated as hedging instruments.
A synthetic GIC is a contract that simulates the performance of
a traditional guaranteed interest contract through the use of
financial instruments. Under a synthetic GIC, the policyholder
owns the underlying assets. The Company guarantees a rate return
on those assets for a premium. Synthetic GICs are not designated
as hedging instruments.
Foreign currency derivatives, including foreign currency swaps,
foreign currency forwards and currency option contracts, are
used by the Company to reduce the risk from fluctuations in
foreign currency exchange rates associated with its assets and
liabilities denominated in foreign currencies. The Company also
uses foreign currency forwards and swaps to hedge the foreign
currency risk associated with certain of its net investments in
foreign operations.
In a foreign currency swap transaction, the Company agrees with
another party to exchange, at specified intervals, the
difference between one currency and another at a fixed exchange
rate, generally set at inception, calculated by reference to an
agreed upon principal amount. The principal amount of each
currency is exchanged at the inception and termination of the
currency swap by each party. The Company utilizes foreign
currency swaps in fair value, cash flow, net investment in
foreign operations and non-qualifying hedging relationships.
In a foreign currency forward transaction, the Company agrees
with another party to deliver a specified amount of an
identified currency at a specified future date. The price is
agreed upon at the time of the contract and payment for such a
contract is made in a different currency at the specified future
date. The Company utilizes foreign currency forwards in net
investment in foreign operations and non-qualifying hedging
relationships.
The Company enters into currency option contracts that give it
the right, but not the obligation, to sell the foreign currency
amount in exchange for a functional currency amount within a
limited time at a contracted price. The contracts may also be
net settled in cash, based on differentials in the foreign
exchange rate and the strike price. The Company uses currency
options to hedge against the foreign currency exposure inherent
in certain of its variable annuity products. The Company also
uses currency options as an economic hedge of foreign currency
exposure related to the Companys international
subsidiaries. The Company utilizes currency options in
non-qualifying hedging relationships.
The Company uses certain of its foreign currency denominated
funding agreements to hedge portions of its net investments in
foreign operations against adverse movements in exchange rates.
Such contracts are included in non-derivative hedging
instruments in the preceding table.
Swap spreadlocks are used by the Company to hedge invested
assets on an economic basis against the risk of changes in
credit spreads. Swap spreadlocks are forward transactions
between two parties whose underlying reference index is a
forward starting interest rate swap where the Company agrees to
pay a coupon based on a
48
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
predetermined reference swap spread in exchange for receiving a
coupon based on a floating rate. The Company has the option to
cash settle with the counterparty in lieu of maintaining the
swap after the effective date. The Company utilizes swap
spreadlocks in non-qualifying hedging relationships.
Certain credit default swaps are used by the Company to hedge
against credit-related changes in the value of its investments
and to diversify its credit risk exposure in certain portfolios.
In a credit default swap transaction, the Company agrees with
another party, at specified intervals, to pay a premium to hedge
credit risk. If a credit event, as defined by the contract,
occurs, generally the contract will require the swap to be
settled gross by the delivery of par quantities of the
referenced investment equal to the specified swap notional in
exchange for the payment of cash amounts by the counterparty
equal to the par value of the investment surrendered. The
Company utilizes credit default swaps in non-qualifying hedging
relationships.
Credit default swaps are also used to synthetically create
investments that are either more expensive to acquire or
otherwise unavailable in the cash markets. These transactions
are a combination of a derivative and a cash instrument such as
a U.S. Treasury or Agency security. The Company also enters
into certain credit default swaps held in relation to trading
portfolios for the purpose of generating profits on short-term
differences in price. These credit default swaps are not
designated as hedging instruments.
The Company enters into forwards to lock in the price to be paid
for forward purchases of certain securities. The price is agreed
upon at the time of the contract and payment for the contract is
made at a specified future date. When the primary purpose of
entering into these transactions is to hedge against the risk of
changes in purchase price due to changes in credit spreads, the
Company designates these as credit forwards. The Company
utilizes credit forwards in cash flow hedging relationships.
In exchange-traded equity futures transactions, the Company
agrees to purchase or sell a specified number of contracts, the
value of which is determined by the different classes of equity
securities, and to post variation margin on a daily basis in an
amount equal to the difference in the daily market values of
those contracts. The Company enters into exchange-traded futures
with regulated futures commission merchants that are members of
the exchange. Exchange-traded equity futures are used primarily
to hedge liabilities embedded in certain variable annuity
products offered by the Company. The Company utilizes
exchange-traded equity futures in non-qualifying hedging
relationships.
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 London Inter-Bank Offer Rate
(LIBOR), calculated by reference to an agreed
notional principal amount. No cash is exchanged at the outset of
the contract. Cash is paid and received over the life of the
contract based on the terms of the swap. These transactions are
entered into pursuant to master agreements that provide for a
single net payment to be made by the counterparty at each due
date. The Company uses TRRs to hedge its equity market
guarantees in
49
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
certain of its insurance products. TRRs can be used as hedges or
to synthetically create investments. The Company utilizes TRRs
in non-qualifying hedging relationships.
Hedging
The following table presents the notional amount and estimated
fair value of derivatives designated as hedging instruments by
type of hedge designation at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
Notional
|
|
|
Estimated Fair Value
|
|
|
Notional
|
|
|
Estimated Fair Value
|
|
Derivatives Designated as Hedging Instruments
|
|
Amount
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Amount
|
|
|
Assets
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
Fair Value Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency swaps
|
|
$
|
4,764
|
|
|
$
|
578
|
|
|
$
|
199
|
|
|
$
|
4,807
|
|
|
$
|
854
|
|
|
$
|
132
|
|
Interest rate swaps
|
|
|
4,946
|
|
|
|
1,020
|
|
|
|
102
|
|
|
|
4,824
|
|
|
|
500
|
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
9,710
|
|
|
|
1,598
|
|
|
|
301
|
|
|
|
9,631
|
|
|
|
1,354
|
|
|
|
207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency swaps
|
|
|
5,087
|
|
|
|
418
|
|
|
|
268
|
|
|
|
4,108
|
|
|
|
127
|
|
|
|
347
|
|
Interest rate swaps
|
|
|
2,635
|
|
|
|
250
|
|
|
|
20
|
|
|
|
1,740
|
|
|
|
|
|
|
|
48
|
|
Interest rate forwards
|
|
|
700
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit forwards
|
|
|
180
|
|
|
|
14
|
|
|
|
2
|
|
|
|
220
|
|
|
|
2
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
8,602
|
|
|
|
682
|
|
|
|
305
|
|
|
|
6,068
|
|
|
|
129
|
|
|
|
401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Operations Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forwards
|
|
|
2,400
|
|
|
|
49
|
|
|
|
23
|
|
|
|
1,880
|
|
|
|
27
|
|
|
|
13
|
|
Non-derivative hedging instruments
|
|
|
169
|
|
|
|
|
|
|
|
169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
2,569
|
|
|
|
49
|
|
|
|
192
|
|
|
|
1,880
|
|
|
|
27
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Qualifying Hedges
|
|
$
|
20,881
|
|
|
$
|
2,329
|
|
|
$
|
798
|
|
|
$
|
17,579
|
|
|
$
|
1,510
|
|
|
$
|
621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
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 were not designated or do not
qualify as hedging instruments by derivative type at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
Derivatives Not Designated or Not
|
|
Notional
|
|
|
Estimated Fair Value
|
|
|
Notional
|
|
|
Estimated Fair Value
|
|
Qualifying as Hedging Instruments
|
|
Amount
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Amount
|
|
|
Assets
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
35,561
|
|
|
$
|
2,283
|
|
|
$
|
927
|
|
|
$
|
31,588
|
|
|
$
|
1,070
|
|
|
$
|
1,132
|
|
Interest rate floors
|
|
|
24,191
|
|
|
|
772
|
|
|
|
77
|
|
|
|
23,691
|
|
|
|
461
|
|
|
|
37
|
|
Interest rate caps
|
|
|
30,266
|
|
|
|
92
|
|
|
|
1
|
|
|
|
28,409
|
|
|
|
283
|
|
|
|
|
|
Interest rate futures
|
|
|
7,441
|
|
|
|
21
|
|
|
|
7
|
|
|
|
7,563
|
|
|
|
8
|
|
|
|
10
|
|
Interest rate options
|
|
|
2,192
|
|
|
|
40
|
|
|
|
16
|
|
|
|
4,050
|
|
|
|
117
|
|
|
|
57
|
|
Interest rate forwards
|
|
|
8,826
|
|
|
|
62
|
|
|
|
73
|
|
|
|
9,921
|
|
|
|
66
|
|
|
|
27
|
|
Synthetic GICs
|
|
|
4,343
|
|
|
|
|
|
|
|
|
|
|
|
4,352
|
|
|
|
|
|
|
|
|
|
Foreign currency swaps
|
|
|
7,537
|
|
|
|
582
|
|
|
|
576
|
|
|
|
7,964
|
|
|
|
533
|
|
|
|
913
|
|
Foreign currency forwards
|
|
|
5,374
|
|
|
|
214
|
|
|
|
27
|
|
|
|
4,605
|
|
|
|
56
|
|
|
|
44
|
|
Currency options
|
|
|
398
|
|
|
|
39
|
|
|
|
2
|
|
|
|
822
|
|
|
|
18
|
|
|
|
|
|
Credit default swaps
|
|
|
7,456
|
|
|
|
81
|
|
|
|
102
|
|
|
|
6,723
|
|
|
|
74
|
|
|
|
130
|
|
Equity futures
|
|
|
8,957
|
|
|
|
98
|
|
|
|
40
|
|
|
|
7,405
|
|
|
|
44
|
|
|
|
21
|
|
Equity options
|
|
|
31,598
|
|
|
|
2,563
|
|
|
|
621
|
|
|
|
27,175
|
|
|
|
1,712
|
|
|
|
1,018
|
|
Variance swaps
|
|
|
16,883
|
|
|
|
545
|
|
|
|
78
|
|
|
|
13,654
|
|
|
|
181
|
|
|
|
58
|
|
Total rate of return swaps
|
|
|
1,025
|
|
|
|
|
|
|
|
67
|
|
|
|
376
|
|
|
|
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-designated or non-qualifying derivatives
|
|
$
|
192,048
|
|
|
$
|
7,392
|
|
|
$
|
2,614
|
|
|
$
|
178,298
|
|
|
$
|
4,623
|
|
|
$
|
3,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the settlement payments recorded in
income for the:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Qualifying hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
18
|
|
|
$
|
10
|
|
|
$
|
41
|
|
|
$
|
27
|
|
Interest credited to policyholder account balances
|
|
|
52
|
|
|
|
55
|
|
|
|
113
|
|
|
|
97
|
|
Other expenses
|
|
|
(2
|
)
|
|
|
3
|
|
|
|
(4
|
)
|
|
|
(1
|
)
|
Non-qualifying hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
(2
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
(1
|
)
|
Net investment gains (losses)
|
|
|
143
|
|
|
|
33
|
|
|
|
173
|
|
|
|
63
|
|
Other revenues
|
|
|
27
|
|
|
|
14
|
|
|
|
56
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
236
|
|
|
$
|
115
|
|
|
$
|
377
|
|
|
$
|
207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value Hedges
The Company designates and accounts for the following as fair
value hedges when they have met the requirements of fair value
hedging: (i) interest rate swaps to convert fixed rate
investments to floating rate investments; (ii) interest
rate swaps to convert fixed rate liabilities to floating rate
liabilities; and (iii) foreign currency swaps to hedge the
foreign currency fair value exposure of foreign currency
denominated investments and liabilities.
51
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ineffectiveness
|
|
|
|
|
|
Net Investment Gains (Losses)
|
|
|
Net Investment Gains
|
|
|
Recognized in
|
|
Derivatives in Fair Value
|
|
Hedged Items in Fair Value
|
|
Recognized
|
|
|
(Losses) Recognized
|
|
|
Net Investment
|
|
Hedging Relationships
|
|
Hedging Relationships
|
|
for Derivatives
|
|
|
for Hedged Items
|
|
|
Gains (Losses)
|
|
|
|
|
|
(In millions)
|
|
|
For the Three Months Ended June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps:
|
|
Fixed maturity securities
|
|
$
|
(20
|
)
|
|
$
|
19
|
|
|
$
|
(1
|
)
|
|
|
Policyholder account balances (1)
|
|
|
433
|
|
|
|
(421
|
)
|
|
|
12
|
|
Foreign currency swaps:
|
|
Foreign-denominated fixed maturity securities
|
|
|
5
|
|
|
|
(6
|
)
|
|
|
(1
|
)
|
|
|
Foreign-denominated policyholder account balances (2)
|
|
|
(209
|
)
|
|
|
195
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
209
|
|
|
$
|
(213
|
)
|
|
$
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Six Months Ended June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps:
|
|
Fixed maturity securities
|
|
$
|
(25
|
)
|
|
$
|
25
|
|
|
$
|
|
|
|
|
Policyholder account balances (1)
|
|
|
466
|
|
|
|
(454
|
)
|
|
|
12
|
|
Foreign currency swaps:
|
|
Foreign-denominated fixed maturity securities
|
|
|
16
|
|
|
|
(17
|
)
|
|
|
(1
|
)
|
|
|
Foreign-denominated policyholder account balances (2)
|
|
|
(368
|
)
|
|
|
344
|
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
89
|
|
|
$
|
(102
|
)
|
|
$
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
Cash
Flow Hedges
The Company designates and accounts for the following as cash
flow hedges when they have met the requirements of cash flow
hedging: (i) interest rate swaps to convert floating rate
investments to fixed rate investments; (ii) interest rate
swaps to convert floating rate liabilities to fixed rate
liabilities; (iii) foreign currency swaps to hedge the
foreign currency cash flow exposure of foreign currency
denominated investments and liabilities; (iv) interest rate
forwards and credit forwards to lock in the price to be paid for
forward purchases of investments; (v) interest rate swaps
to hedge the forecasted purchases of fixed-rate investments; and
(vi) interest rate swaps and interest rate forwards to
hedge forecasted fixed-rate borrowings.
For the three months and six months ended June 30, 2010,
the Company recognized $2 million and $5 million,
respectively, of net investment gains which represented the
ineffective portion of all cash flow hedges. 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. All components
of each derivatives gain or loss were
52
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
included in the assessment of hedge effectiveness. In certain
instances, the Company discontinued cash flow hedge accounting
because the forecasted transactions did not occur on the
anticipated date or within two months of that date. The net
amounts reclassified into net investment gains (losses) for the
three months and six months ended June 30, 2010 related to
such discontinued cash flow hedges were insignificant. 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. At June 30, 2010 and
December 31, 2009, the maximum length of time over which
the Company was hedging its exposure to variability in future
cash flows for forecasted transactions did not exceed eight
years and five years, respectively.
The following table presents the components of other
comprehensive income (loss), before income tax, related to cash
flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Other comprehensive income (loss), balance at beginning of period
|
|
$
|
44
|
|
|
$
|
113
|
|
|
$
|
(76
|
)
|
|
$
|
82
|
|
Gains (losses) deferred in other comprehensive income (loss) on
the effective portion of cash flow hedges
|
|
|
566
|
|
|
|
(97
|
)
|
|
|
617
|
|
|
|
(105
|
)
|
Amounts reclassified to net investment gains (losses)
|
|
|
(17
|
)
|
|
|
(6
|
)
|
|
|
51
|
|
|
|
33
|
|
Amounts reclassified to net investment income
|
|
|
1
|
|
|
|
4
|
|
|
|
2
|
|
|
|
6
|
|
Amounts reclassified to other expenses
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Amortization of transition adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), balance at end of period
|
|
$
|
593
|
|
|
$
|
13
|
|
|
$
|
593
|
|
|
$
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2010, $40 million of deferred net gains on
derivatives accumulated in other comprehensive income (loss) was
expected to be reclassified to earnings within the next
12 months.
53
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The following tables present the effects of derivatives in cash
flow hedging relationships on the interim condensed consolidated
statements of operations and the interim condensed consolidated
statements of stockholders equity for the three months and
six months ended June 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gains
|
|
|
Amount and Location
|
|
|
|
|
|
|
(Losses) Deferred
|
|
|
of Gains (Losses)
|
|
|
Amount and Location
|
|
|
|
in Accumulated Other
|
|
|
Reclassified from
|
|
|
of Gains (Losses)
|
|
Derivatives in Cash Flow
|
|
Comprehensive Income
|
|
|
Accumulated Other Comprehensive
|
|
|
Recognized in Income (Loss)
|
|
Hedging Relationships
|
|
(Loss) on Derivatives
|
|
|
Income (Loss) into Income (Loss)
|
|
|
on Derivatives
|
|
|
|
|
|
|
|
|
|
(Ineffective Portion and
|
|
|
|
|
|
|
|
|
|
Amount Excluded from
|
|
|
|
(Effective Portion)
|
|
|
(Effective Portion)
|
|
|
Effectiveness Testing)
|
|
|
|
|
|
|
Net Investment
|
|
|
Net Investment
|
|
|
Other
|
|
|
Net Investment
|
|
|
Net Investment
|
|
|
|
|
|
|
Gains (Losses)
|
|
|
Income
|
|
|
Expenses
|
|
|
Gains (Losses)
|
|
|
Income
|
|
|
|
(In millions)
|
|
|
For the Three Months Ended June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
275
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Foreign currency swaps
|
|
|
292
|
|
|
|
6
|
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
2
|
|
|
|
|
|
Interest rate forwards
|
|
|
(15
|
)
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit forwards
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
566
|
|
|
$
|
17
|
|
|
$
|
(1
|
)
|
|
$
|
1
|
|
|
$
|
2
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Six Months Ended June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
276
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2
|
|
|
$
|
|
|
Foreign currency swaps
|
|
|
339
|
|
|
|
(62
|
)
|
|
|
(3
|
)
|
|
|
1
|
|
|
|
3
|
|
|
|
|
|
Interest rate forwards
|
|
|
(15
|
)
|
|
|
11
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit forwards
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
617
|
|
|
$
|
(51
|
)
|
|
$
|
(2
|
)
|
|
$
|
1
|
|
|
$
|
5
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedges
of Net Investments in Foreign Operations
The Company uses foreign exchange contracts, which may include
foreign currency swaps, forwards and options, to hedge portions
of its net investments in foreign operations against adverse
movements in exchange rates. The Company measures
ineffectiveness on these contracts based upon the change in
forward rates. In addition, the Company may also use
non-derivative financial instruments to hedge portions of its
net investments in foreign
54
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
operations against adverse movements in exchange rates. The
Company measures ineffectiveness on non-derivative financial
instruments based upon the change in spot rates.
When net investments in foreign operations are sold or
substantially liquidated, the amounts in accumulated other
comprehensive income (loss) are reclassified to the consolidated
statements of operations, while a pro rata portion will be
reclassified upon partial sale of the net investments in foreign
operations.
The following table presents the effects of derivatives and
non-derivative financial instruments in net investment hedging
relationships in the interim condensed consolidated statements
of operations and the interim condensed consolidated statements
of stockholders equity for the three months and six months
ended June 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount and Location
|
|
|
|
|
|
|
of Gains (Losses)
|
|
|
|
|
|
|
Reclassified From Accumulated Other
|
|
|
|
Amount of Gains (Losses)
|
|
|
Comprehensive Income
|
|
|
|
Deferred in Accumulated
|
|
|
(Loss) into Income (Loss)
|
|
Derivatives and Non-Derivative Hedging Instruments in Net
|
|
Other Comprehensive Income (Loss)
|
|
|
(Effective Portion)
|
|
Investment Hedging Relationships (1),(2)
|
|
(Effective Portion)
|
|
|
Net Investment Gains (Losses)
|
|
|
|
(In millions)
|
|
|
For the Three Months Ended June 30, 2010:
|
|
|
|
|
|
|
|
|
Foreign currency forwards
|
|
$
|
37
|
|
|
$
|
|
|
Foreign currency swaps
|
|
|
|
|
|
|
|
|
Non-derivative hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
37
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
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 Six Months Ended June 30, 2010:
|
|
|
|
|
|
|
|
|
Foreign currency forwards
|
|
$
|
27
|
|
|
$
|
|
|
Foreign currency swaps
|
|
|
|
|
|
|
|
|
Non-derivative hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
27
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2009:
|
|
|
|
|
|
|
|
|
Foreign currency forwards
|
|
$
|
(149
|
)
|
|
$
|
|
|
Foreign currency swaps
|
|
|
(10
|
)
|
|
|
|
|
Non-derivative hedging instruments
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(179
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 income (loss) into earnings during the periods
presented. |
|
(2) |
|
There was no ineffectiveness recognized for the Companys
hedges of net investments in foreign operations. |
55
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
At June 30, 2010 and December 31, 2009, the cumulative
foreign currency translation gain (loss) recorded in accumulated
other comprehensive income (loss) related to hedges of net
investments in foreign operations was ($13) million and
($40) million, respectively.
Non-Qualifying
Derivatives and Derivatives for Purposes Other Than
Hedging
The Company enters into the following derivatives that do not
qualify for hedge accounting or for purposes other than hedging:
(i) interest rate swaps, implied volatility swaps, caps and
floors and interest rate futures to economically hedge its
exposure to interest rates; (ii) foreign currency forwards,
swaps and option contracts to economically hedge its exposure to
adverse movements in exchange rates; (iii) credit default
swaps to economically hedge exposure to adverse movements in
credit; (iv) equity futures, equity index options, interest
rate futures, TRRs and equity variance swaps to economically
hedge liabilities embedded in certain variable annuity products;
(v) swap spreadlocks to economically hedge invested assets
against the risk of changes in credit spreads;
(vi) interest rate forwards to buy and sell securities to
economically hedge its exposure to interest rates;
(vii) credit default swaps and TRRs to synthetically create
investments; (viii) basis swaps to better match the cash
flows of assets and related liabilities; (ix) credit
default swaps held in relation to trading portfolios;
(x) swaptions to hedge interest rate risk;
(xi) inflation swaps to reduce risk generated from
inflation-indexed liabilities; (xii) covered call options
for income generation; (xiii) interest rate lock
commitments; (xiv) synthetic GICs; and (xv) equity
options to economically hedge certain invested assets against
adverse changes in equity indices.
56
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The following tables present the amount and location of gains
(losses) recognized in income for derivatives that were not
designated or qualifying as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
Net
|
|
|
Policyholder
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
Investment
|
|
|
Benefits
|
|
|
Other
|
|
|
Other
|
|
|
|
Gains (Losses)
|
|
|
Income (1)
|
|
|
and Claims (2)
|
|
|
Revenues (3)
|
|
|
Expenses (4)
|
|
|
|
(In millions)
|
|
|
For the Three Months Ended June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
962
|
|
|
$
|
4
|
|
|
$
|
36
|
|
|
$
|
199
|
|
|
$
|
|
|
Interest rate floors
|
|
|
281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate caps
|
|
|
(98
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate futures
|
|
|
87
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
Equity futures
|
|
|
(87
|
)
|
|
|
21
|
|
|
|
159
|
|
|
|
|
|
|
|
|
|
Foreign currency swaps
|
|
|
288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forwards
|
|
|
266
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency options
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity options
|
|
|
1,366
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate options
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
Interest rate forwards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(53
|
)
|
|
|
|
|
Variance swaps
|
|
|
450
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit default swaps
|
|
|
12
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total rate of return swaps
|
|
|
(31
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,560
|
|
|
$
|
127
|
|
|
$
|
195
|
|
|
$
|
144
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total rate of return swaps
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(3,636
|
)
|
|
$
|
(95
|
)
|
|
$
|
(210
|
)
|
|
$
|
(95
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
Net
|
|
|
Policyholder
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
Investment
|
|
|
Benefits
|
|
|
Other
|
|
|
Other
|
|
|
|
Gains (Losses)
|
|
|
Income (1)
|
|
|
and Claims (2)
|
|
|
Revenues (3)
|
|
|
Expenses (4)
|
|
|
|
(In millions)
|
|
|
For the Six Months Ended June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
1,043
|
|
|
$
|
3
|
|
|
$
|
39
|
|
|
$
|
256
|
|
|
$
|
|
|
Interest rate floors
|
|
|
274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate caps
|
|
|
(211
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate futures
|
|
|
67
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
Equity futures
|
|
|
(169
|
)
|
|
|
10
|
|
|
|
71
|
|
|
|
|
|
|
|
|
|
Foreign currency swaps
|
|
|
346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forwards
|
|
|
325
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency options
|
|
|
17
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
Equity options
|
|
|
984
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate options
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
Interest rate forwards
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
(86
|
)
|
|
|
|
|
Variance swaps
|
|
|
330
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit default swaps
|
|
|
15
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total rate of return swaps
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,060
|
|
|
$
|
92
|
|
|
$
|
110
|
|
|
$
|
166
|
|
|
$
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total rate of return swaps
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(4,732
|
)
|
|
$
|
(123
|
)
|
|
$
|
(97
|
)
|
|
$
|
(102
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Changes in estimated fair value related to economic hedges of
equity method investments in joint ventures, and changes in
estimated fair value related to derivatives held in relation to
trading portfolios. |
|
(2) |
|
Changes in estimated fair value related to economic hedges of
variable annuity guarantees included in future policy benefits. |
|
(3) |
|
Changes in estimated fair value related to derivatives held in
connection with the Companys mortgage banking activities. |
|
(4) |
|
Changes in estimated fair value related to economic hedges of
foreign currency exposure associated with the Companys
international subsidiaries. |
58
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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 occurs, as defined by the contract, 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 $4,054 million
and $3,101 million at June 30, 2010 and
December 31, 2009, 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, 2010 and
December 31, 2009, the Company would have received
$10 million and $53 million, respectively, to
terminate all of these contracts.
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, 2010 and
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
|
|
|
Maximum
|
|
|
|
|
|
|
|
|
Maximum
|
|
|
|
|
|
|
Estimated
|
|
|
Amount
|
|
|
|
|
|
Estimated
|
|
|
Amount of
|
|
|
|
|
|
|
Fair Value
|
|
|
of Future
|
|
|
Weighted
|
|
|
Fair Value
|
|
|
Future
|
|
|
Weighted
|
|
|
|
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)
|
|
$
|
2
|
|
|
$
|
320
|
|
|
|
4.3
|
|
|
$
|
5
|
|
|
$
|
175
|
|
|
|
4.3
|
|
Credit default swaps referencing indices
|
|
|
19
|
|
|
|
2,528
|
|
|
|
4.1
|
|
|
|
46
|
|
|
|
2,676
|
|
|
|
3.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
21
|
|
|
|
2,848
|
|
|
|
4.2
|
|
|
|
51
|
|
|
|
2,851
|
|
|
|
3.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Baa
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single name credit default swaps (corporate)
|
|
|
(3
|
)
|
|
|
525
|
|
|
|
4.7
|
|
|
|
2
|
|
|
|
195
|
|
|
|
4.8
|
|
Credit default swaps referencing indices
|
|
|
(6
|
)
|
|
|
611
|
|
|
|
5.0
|
|
|
|
|
|
|
|
10
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
(9
|
)
|
|
|
1,136
|
|
|
|
4.9
|
|
|
|
2
|
|
|
|
205
|
|
|
|
4.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ba
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single name credit default swaps (corporate)
|
|
|
(1
|
)
|
|
|
50
|
|
|
|
4.8
|
|
|
|
|
|
|
|
25
|
|
|
|
5.0
|
|
Credit default swaps referencing indices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
(1
|
)
|
|
|
50
|
|
|
|
4.8
|
|
|
|
|
|
|
|
25
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single name credit default swaps (corporate)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit default swaps referencing indices
|
|
|
(1
|
)
|
|
|
20
|
|
|
|
5.0
|
|
|
|
|
|
|
|
20
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
(1
|
)
|
|
|
20
|
|
|
|
5.0
|
|
|
|
|
|
|
|
20
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10
|
|
|
$
|
4,054
|
|
|
|
4.4
|
|
|
$
|
53
|
|
|
$
|
3,101
|
|
|
|
3.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
(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
an internally developed 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. |
The Company has also entered into credit default swaps to
purchase credit protection on certain of the referenced credit
obligations in the table above. As a result, the maximum amounts
of potential future recoveries available to offset the
$4,054 million and $3,101 million from the table above
were $145 million and $31 million at June 30,
2010 and December 31, 2009, respectively.
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
affected 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 5
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,
2010 and December 31, 2009, the Company was obligated to
return cash collateral under its control of $5,516 million
and $2,680 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, 2010 and December 31, 2009, the Company had
also accepted collateral consisting of various securities with a
fair market value of $233 million and $221 million,
respectively, which were held in separate custodial accounts.
The Company is permitted by contract to sell or repledge this
collateral, but at June 30, 2010, 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
60
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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 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. Derivatives
that are not subject to collateral agreements are not included
in the scope of this table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Incremental Collateral
|
|
|
|
|
|
|
|
|
|
Provided Upon:
|
|
|
|
|
|
|
|
|
|
|
|
|
Downgrade in the
|
|
|
|
|
|
|
Estimated
|
|
|
One Notch
|
|
|
Companys Credit Rating
|
|
|
|
|
|
|
Fair Value of
|
|
|
Downgrade
|
|
|
to a Level that Triggers
|
|
|
|
Estimated
|
|
|
Collateral
|
|
|
in the
|
|
|
Full Overnight
|
|
|
|
Fair Value (1) of
|
|
|
Provided
|
|
|
Companys
|
|
|
Collateralization or
|
|
|
|
Derivatives in Net
|
|
|
Fixed Maturity
|
|
|
Credit
|
|
|
Termination
|
|
|
|
Liability Position
|
|
|
Securities (2)
|
|
|
Rating
|
|
|
of the Derivative Position
|
|
|
|
(In millions)
|
|
|
At June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives subject to credit-contingent provisions
|
|
$
|
605
|
|
|
$
|
566
|
|
|
$
|
67
|
|
|
$
|
149
|
|
Derivatives not subject to credit-contingent provisions
|
|
|
79
|
|
|
|
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
684
|
|
|
$
|
631
|
|
|
$
|
67
|
|
|
$
|
149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives subject to credit-contingent provisions
|
|
$
|
1,163
|
|
|
$
|
1,017
|
|
|
$
|
90
|
|
|
$
|
218
|
|
Derivatives not subject to credit-contingent provisions
|
|
|
48
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,211
|
|
|
$
|
1,059
|
|
|
$
|
90
|
|
|
$
|
218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
After taking into consideration the existence of netting
agreements. |
|
(2) |
|
Included in fixed maturity securities in the consolidated
balance sheets. The counterparties are permitted by contract to
sell or repledge this collateral. At both June 30, 2010 and
December 31, 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, 2010 was
$1,181 million. At June 30, 2010, the Company provided
securities collateral of $566 million in connection with
these derivatives. In the unlikely event that both: (i) the
Companys credit rating was downgraded to a level that
triggers full overnight collateralization or termination of all
derivative positions; and (ii) the Companys netting
agreements were 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, 2010 would be
$615 million. This amount does not consider gross
derivative assets of $576 million for which the Company has
the contractual right of offset.
The Company also has exchange-traded futures, which require the
pledging of collateral. At June 30, 2010 and
December 31, 2009, the Company pledged securities
collateral for exchange-traded futures of $40 million and
$50 million, respectively, which is included in fixed
maturity securities. The counterparties are permitted by
contract to sell or repledge this collateral. At June 30,
2010 and December 31, 2009, the Company provided cash
collateral for exchange-traded futures of $705 million and
$562 million, respectively, which is included in premiums,
reinsurance and other receivables.
61
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Embedded
Derivatives
The Company has certain embedded derivatives that are required
to be separated from their host contracts and accounted for as
derivatives. These host contracts principally include: variable
annuities with guaranteed minimum benefits, including guaranteed
minimum withdrawal benefits (GMWBs), guaranteed
minimum accumulation benefits (GMABs) and certain
guaranteed minimum income benefits (GMIBs); ceded
reinsurance contracts of guaranteed minimum benefits related to
GMABs and certain GMIBs; and funding agreements with equity or
bond indexed crediting rates.
The following table presents the estimated fair value of the
Companys embedded derivatives at:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
(In millions)
|
|
|
Net embedded derivatives within asset host contracts:
|
|
|
|
|
|
|
|
|
Ceded guaranteed minimum benefits
|
|
$
|
124
|
|
|
$
|
76
|
|
Call options in equity securities
|
|
|
(32
|
)
|
|
|
(37
|
)
|
|
|
|
|
|
|
|
|
|
Net embedded derivatives within asset host contracts
|
|
$
|
92
|
|
|
$
|
39
|
|
|
|
|
|
|
|
|
|
|
Net embedded derivatives within liability host contracts:
|
|
|
|
|
|
|
|
|
Direct guaranteed minimum benefits
|
|
$
|
3,381
|
|
|
$
|
1,500
|
|
Other
|
|
|
5
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
Net embedded derivatives within liability host contracts
|
|
$
|
3,386
|
|
|
$
|
1,505
|
|
|
|
|
|
|
|
|
|
|
The following table presents changes in estimated fair value
related to embedded derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
Six Months
|
|
|
Ended
|
|
Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
|
|
(In millions)
|
|
|
|
Net investment gains (losses) (1)
|
|
$
|
(2,199
|
)
|
|
$
|
793
|
|
|
$
|
(1,677
|
)
|
|
$
|
2,010
|
|
Policyholder benefits and claims
|
|
$
|
67
|
|
|
$
|
(84
|
)
|
|
$
|
46
|
|
|
$
|
(68
|
)
|
|
|
|
(1) |
|
The valuation of guaranteed minimum benefits includes an
adjustment for nonperformance risk. Included in net investment
gains (losses), in connection with this adjustment, were gains
(losses) of $776 million and $690 million, for the
three months and six months ended June 30, 2010,
respectively, and gains (losses) of ($1,538) million and
($710) million, for the three months and six months ended
June 30, 2009, respectively. The net investment gains
(losses) for the three months and six months ended June 30,
2010 included a loss of $955 million relating to a
refinement for estimating nonperformance risk in fair value
measurements implemented at June 30, 2010. See Note 5. |
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.
62
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Fair
Value of Financial Instruments
Amounts related to the Companys financial instruments were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
Notional
|
|
|
Carrying
|
|
|
Fair
|
|
June 30, 2010
|
|
Amount
|
|
|
Value
|
|
|
Value
|
|
|
|
(In millions)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
|
|
|
|
$
|
246,348
|
|
|
$
|
246,348
|
|
Equity securities
|
|
|
|
|
|
$
|
2,741
|
|
|
$
|
2,741
|
|
Trading securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
|
|
|
|
$
|
2,901
|
|
|
$
|
2,901
|
|
Trading securities held by consolidated securitization entities
|
|
|
|
|
|
|
257
|
|
|
|
257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading securities
|
|
|
|
|
|
$
|
3,158
|
|
|
$
|
3,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-for-investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans
|
|
|
|
|
|
$
|
48,494
|
|
|
$
|
50,060
|
|
Mortgage loans held by consolidated securitization entities
|
|
|
|
|
|
|
7,107
|
|
|
|
7,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans
held-for-investment
|
|
|
|
|
|
$
|
55,601
|
|
|
$
|
57,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-for-sale
|
|
|
|
|
|
$
|
2,650
|
|
|
$
|
2,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans, net
|
|
|
|
|
|
$
|
58,251
|
|
|
$
|
59,822
|
|
Policy loans
|
|
|
|
|
|
$
|
10,180
|
|
|
$
|
11,926
|
|
Real estate joint ventures (1)
|
|
|
|
|
|
$
|
102
|
|
|
$
|
121
|
|
Other limited partnership interests (1)
|
|
|
|
|
|
$
|
1,557
|
|
|
$
|
1,746
|
|
Short-term investments
|
|
|
|
|
|
$
|
9,746
|
|
|
$
|
9,746
|
|
Other invested assets: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets: (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
95,607
|
|
|
$
|
4,540
|
|
|
$
|
4,540
|
|
Foreign currency contracts
|
|
|
17,597
|
|
|
|
1,880
|
|
|
|
1,880
|
|
Credit contracts
|
|
|
4,757
|
|
|
|
95
|
|
|
|
95
|
|
Equity market contracts
|
|
|
39,676
|
|
|
|
3,206
|
|
|
|
3,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative assets
|
|
$
|
157,637
|
|
|
$
|
9,721
|
|
|
$
|
9,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights
|
|
|
|
|
|
$
|
660
|
|
|
$
|
660
|
|
Other
|
|
|
|
|
|
$
|
864
|
|
|
$
|
864
|
|
Cash and cash equivalents
|
|
|
|
|
|
$
|
10,702
|
|
|
$
|
10,702
|
|
Accrued investment income
|
|
|
|
|
|
$
|
3,249
|
|
|
$
|
3,249
|
|
Premiums, reinsurance and other receivables (1)
|
|
|
|
|
|
$
|
3,409
|
|
|
$
|
3,904
|
|
Other assets (1)
|
|
|
|
|
|
$
|
425
|
|
|
$
|
386
|
|
Separate account assets
|
|
|
|
|
|
$
|
153,362
|
|
|
$
|
153,362
|
|
Net embedded derivatives within asset host contracts (3)
|
|
|
|
|
|
$
|
124
|
|
|
$
|
124
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder account balances (1)
|
|
|
|
|
|
$
|
98,469
|
|
|
$
|
101,652
|
|
Payables for collateral under securities loaned and other
transactions
|
|
|
|
|
|
$
|
29,772
|
|
|
$
|
29,772
|
|
Bank deposits
|
|
|
|
|
|
$
|
9,790
|
|
|
$
|
9,857
|
|
Short-term debt
|
|
|
|
|
|
$
|
879
|
|
|
$
|
879
|
|
Long-term debt: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
$
|
13,484
|
|
|
$
|
14,222
|
|
Long-term debt of consolidated securitization entities
|
|
|
|
|
|
|
7,129
|
|
|
|
7,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
|
|
|
$
|
20,613
|
|
|
$
|
21,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateral financing arrangements
|
|
|
|
|
|
$
|
5,297
|
|
|
$
|
2,384
|
|
Junior subordinated debt securities
|
|
|
|
|
|
$
|
3,191
|
|
|
$
|
3,169
|
|
Other liabilities: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities: (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
25,494
|
|
|
$
|
1,238
|
|
|
$
|
1,238
|
|
Foreign currency contracts
|
|
|
7,963
|
|
|
|
1,095
|
|
|
|
1,095
|
|
Credit contracts
|
|
|
2,879
|
|
|
|
104
|
|
|
|
104
|
|
Equity market contracts
|
|
|
18,787
|
|
|
|
806
|
|
|
|
806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative liabilities
|
|
$
|
55,123
|
|
|
$
|
3,243
|
|
|
$
|
3,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading liabilities
|
|
|
|
|
|
$
|
47
|
|
|
$
|
47
|
|
Other
|
|
|
|
|
|
$
|
2,602
|
|
|
$
|
2,602
|
|
Separate account liabilities (1)
|
|
|
|
|
|
$
|
35,124
|
|
|
$
|
35,124
|
|
Net embedded derivatives within liability host contracts (3)
|
|
|
|
|
|
$
|
3,386
|
|
|
$
|
3,386
|
|
Commitments (4)
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loan commitments
|
|
$
|
2,705
|
|
|
$
|
|
|
|
$
|
(2
|
)
|
Commitments to fund bank credit facilities, bridge loans and
private corporate bond investments
|
|
$
|
2,329
|
|
|
$
|
|
|
|
$
|
43
|
|
See Note 3 for discussion of consolidated securitization
entities included in the table above.
63
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
Notional
|
|
|
Carrying
|
|
|
Fair
|
|
December 31, 2009
|
|
Amount
|
|
|
Value
|
|
|
Value
|
|
|
|
(In millions)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
|
|
|
|
$
|
227,642
|
|
|
$
|
227,642
|
|
Equity securities
|
|
|
|
|
|
$
|
3,084
|
|
|
$
|
3,084
|
|
Trading securities
|
|
|
|
|
|
$
|
2,384
|
|
|
$
|
2,384
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-for-investment
|
|
|
|
|
|
$
|
48,181
|
|
|
$
|
46,315
|
|
Held-for-sale
|
|
|
|
|
|
|
2,728
|
|
|
|
2,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans, net
|
|
|
|
|
|
$
|
50,909
|
|
|
$
|
49,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policy loans
|
|
|
|
|
|
$
|
10,061
|
|
|
$
|
11,294
|
|
Real estate joint ventures (1)
|
|
|
|
|
|
$
|
115
|
|
|
$
|
127
|
|
Other limited partnership interests (1)
|
|
|
|
|
|
$
|
1,571
|
|
|
$
|
1,581
|
|
Short-term investments
|
|
|
|
|
|
$
|
8,374
|
|
|
$
|
8,374
|
|
Other invested assets: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets (2)
|
|
$
|
122,156
|
|
|
$
|
6,133
|
|
|
$
|
6,133
|
|
Mortgage servicing rights
|
|
|
|
|
|
$
|
878
|
|
|
$
|
878
|
|
Other
|
|
|
|
|
|
$
|
1,241
|
|
|
$
|
1,284
|
|
Cash and cash equivalents
|
|
|
|
|
|
$
|
10,112
|
|
|
$
|
10,112
|
|
Accrued investment income
|
|
|
|
|
|
$
|
3,173
|
|
|
$
|
3,173
|
|
Premiums, reinsurance and other receivables (1)
|
|
|
|
|
|
$
|
3,375
|
|
|
$
|
3,532
|
|
Other assets (1)
|
|
|
|
|
|
$
|
425
|
|
|
$
|
440
|
|
Separate account assets
|
|
|
|
|
|
$
|
149,041
|
|
|
$
|
149,041
|
|
Net embedded derivatives within asset host contracts (3)
|
|
|
|
|
|
$
|
76
|
|
|
$
|
76
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder account balances (1)
|
|
|
|
|
|
$
|
97,131
|
|
|
$
|
96,735
|
|
Payables for collateral under securities loaned and other
transactions
|
|
|
|
|
|
$
|
24,196
|
|
|
$
|
24,196
|
|
Bank deposits
|
|
|
|
|
|
$
|
10,211
|
|
|
$
|
10,300
|
|
Short-term debt
|
|
|
|
|
|
$
|
912
|
|
|
$
|
912
|
|
Long-term debt (1)
|
|
|
|
|
|
$
|
13,185
|
|
|
$
|
13,831
|
|
Collateral financing arrangements
|
|
|
|
|
|
$
|
5,297
|
|
|
$
|
2,877
|
|
Junior subordinated debt securities
|
|
|
|
|
|
$
|
3,191
|
|
|
$
|
3,167
|
|
Other liabilities: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities (2)
|
|
$
|
73,721
|
|
|
$
|
4,115
|
|
|
$
|
4,115
|
|
Trading liabilities
|
|
|
|
|
|
$
|
106
|
|
|
$
|
106
|
|
Other
|
|
|
|
|
|
$
|
1,788
|
|
|
$
|
1,788
|
|
Separate account liabilities (1)
|
|
|
|
|
|
$
|
32,171
|
|
|
$
|
32,171
|
|
Net embedded derivatives within liability host contracts (3)
|
|
|
|
|
|
$
|
1,505
|
|
|
$
|
1,505
|
|
Commitments (4)
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loan commitments
|
|
$
|
2,220
|
|
|
$
|
|
|
|
$
|
(48
|
)
|
Commitments to fund bank credit facilities, bridge loans and
private corporate bond investments
|
|
$
|
1,261
|
|
|
$
|
|
|
|
$
|
(52
|
)
|
64
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
(1) |
|
Carrying values presented herein differ from those presented in
the consolidated balance sheets because certain items within the
respective financial statement caption are not considered
financial instruments. Financial statement captions excluded
from the table above are not considered financial instruments. |
|
(2) |
|
Derivative assets are presented within other invested assets and
derivative liabilities are presented within other liabilities.
At June 30, 2010 and December 31, 2009, certain
non-derivative hedging instruments of $169 million and $0,
respectively, which are carried at amortized cost, are included
with the liabilities total in Note 4 but excluded from
derivative liabilities in the table above as they are not
derivative instruments. |
|
(3) |
|
Net embedded derivatives within asset host contracts are
presented within premiums, reinsurance and other receivables.
Net embedded derivatives within liability host contracts are
presented primarily within policyholder account balances. At
June 30, 2010 and December 31, 2009, equity securities
also included embedded derivatives of ($32) million and
($37) 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
inputs in applying these market standard valuation methodologies
include, but are not limited to: interest rates, credit standing
of the issuer or counterparty, industry sector of the issuer,
coupon rate, call provisions, sinking fund requirements,
maturity and managements assumptions regarding estimated
duration, 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 markets, quoted
prices in markets that are not active and observable yields and
spreads in the market.
When observable inputs are not available, the market standard
valuation methodologies for determining the estimated fair value
of certain types of securities that trade infrequently, and
therefore have little or no price transparency, rely on inputs
that are significant to the estimated fair value that are not
observable in the market or cannot be derived principally from
or corroborated by observable market data. These unobservable
inputs can be based in large part on management judgment or
estimation and cannot be supported by reference to market
activity. Even though unobservable, these inputs are assumed to
be consistent with what other market participants would use when
pricing such securities and are considered appropriate given the
circumstances.
The estimated fair value of trading securities held by
consolidated securitization entities is determined on a basis
consistent with the methodologies described herein for trading
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 Loans The Company originates
mortgage loans for both investment purposes and with the
intention to sell them to third parties. Commercial and
agricultural mortgage loans are originated for investment
65
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
purposes and are primarily carried at amortized cost.
Residential mortgage and consumer loans are generally purchased
from third parties for investment purposes and are primarily
carried at amortized cost. Mortgage loans
held-for-sale
consist principally of residential mortgage loans for which the
Company has elected the fair value option and which are carried
at estimated fair value and to a significantly lesser degree
certain mortgage loans which were previously
held-for-investment
but where the Company has changed its intention as it relates to
holding them for investment. In addition, as discussed in
Note 1, the Company adopted new guidance effective
January 1, 2010 and consolidated certain securitization
entities that hold commercial mortgage loans. The estimated fair
values of these mortgage loans are determined as follows:
Mortgage Loans
Held-for-Investment. For
mortgage loans
held-for-investment
and carried at amortized cost, estimated fair value was
primarily determined by estimating expected future cash flows
and discounting them using current interest rates for similar
mortgage loans with similar credit risk.
Mortgage Loans Held by Consolidated Securitization
Entities. For commercial mortgage loans held by
the Companys consolidated securitization entities, the
Company has determined that the principal market for these
commercial loan portfolios is the securitization market. The
Company uses the securitization market price of the obligations
of the consolidated securitization entities to determine the
estimated fair value of these commercial loan portfolios, which
is provided primarily by independent pricing services using
observable inputs.
Mortgage Loans
Held-for-Sale. Mortgage
loans
held-for-sale
principally include residential mortgage loans for which the
fair value option was elected and which are carried at estimated
fair value. Generally, quoted market prices are not available
for residential mortgage loans
held-for-sale;
accordingly, the estimated fair values of such assets are
determined based on observable pricing of residential mortgage
loans
held-for-sale
with similar characteristics, or observable pricing for
securities backed by similar types of mortgage loans, adjusted
to convert the securities prices to mortgage loan prices. When
observable pricing for similar loans or securities that are
backed by similar loans are not available, the estimated fair
values of residential mortgage loans
held-for-sale
are determined using independent broker quotations or valuation
models, which are intended to approximate the amounts that would
be received from third parties. Certain other mortgage loans
previously classified as
held-for-investment
have also been designated as
held-for-sale.
For these mortgage loans, estimated fair value is determined
using independent broker quotations or, when the mortgage loan
is in foreclosure or otherwise determined to be collateral
dependent, the fair value of the underlying collateral is
estimated using internal models.
Policy Loans For policy loans with fixed
interest rates, estimated fair values are determined using a
discounted cash flow model applied to groups of similar policy
loans determined by the nature of the underlying insurance
liabilities. Cash flow estimates are developed applying a
weighted-average interest rate to the outstanding principal
balance of the respective group of policy loans and an estimated
average maturity determined through experience studies of the
past performance of policyholder repayment behavior for similar
loans. These cash flows are discounted using current risk-free
interest rates with no adjustment for borrower credit risk as
these loans are fully collateralized by the cash surrender value
of the underlying insurance policy. The estimated fair value for
policy loans with variable interest rates approximates carrying
value due to the absence of borrower credit risk and the short
time period between interest rate resets, which presents minimal
risk of a material change in estimated fair value due to changes
in market interest rates.
Real Estate Joint Ventures and Other Limited Partnership
Interests Real estate joint ventures and other
limited partnership interests included in the preceding tables
consist of those investments accounted for using the cost
method. The remaining carrying value recognized in the
consolidated balance sheets represents investments in real
estate or real estate joint ventures and other limited
partnership interests accounted for using the equity method,
which do not meet the definition of financial instruments for
which fair value is required to be disclosed.
66
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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 NAV by a premium or discount when it
has sufficient evidence to support applying such adjustments.
Short-term Investments Certain short-term
investments do not qualify as securities and are recognized at
amortized cost in the consolidated balance sheets. For these
instruments, the Company believes that there is minimal risk of
material changes in interest rates or credit of the issuer such
that estimated fair value approximates carrying value. In light
of recent market conditions, short-term investments have been
monitored to ensure there is sufficient demand and maintenance
of issuer credit quality and the Company has determined
additional adjustment is not required. Short-term investments
that meet the definition of a security are recognized at
estimated fair value in the consolidated balance sheets in the
same manner described above for similar instruments that are
classified within captions of other major investment classes.
Other Invested Assets Other invested assets
in the consolidated balance sheets are principally comprised of
freestanding derivatives with positive estimated fair values,
leveraged leases, joint venture investments, investments in tax
credit partnerships, investment in a funding agreement, MSRs,
funds withheld and various interest-bearing assets held in
foreign subsidiaries. Leveraged leases and investments in tax
credit partnerships and joint venture investments, which are
accounted for under the equity method or under the effective
yield method, are not financial instruments subject to fair
value disclosure. Accordingly, they have been excluded from the
preceding table.
The estimated fair value of derivatives with
positive and negative estimated fair values is
described in the section labeled Derivatives which
follows.
Although MSRs are not financial instruments, the Company has
included them in the preceding table as a result of its election
to carry MSRs at estimated fair value. As sales of MSRs tend to
occur in private transactions where the precise terms and
conditions of the sales are typically not readily available,
observable market valuations are limited. As such, the Company
relies primarily on a discounted cash flow model to estimate the
fair value of the MSRs. The model requires inputs such as type
of loan (fixed vs. variable and agency vs. other), age of loan,
loan interest rates and current market interest rates that are
generally observable. The model also requires the use of
unobservable inputs including assumptions regarding estimates of
discount rates, loan prepayments and servicing costs.
The estimated fair value of the investment in funding agreements
is estimated by discounting the expected future cash flows using
current market rates and the credit risk of the note issuer. For
funds withheld 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.
67
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Premiums, Reinsurance and Other Receivables
Premiums, reinsurance and other receivables in the
consolidated balance sheets are principally comprised of
premiums due and unpaid for insurance contracts, amounts
recoverable under reinsurance contracts, amounts on deposit with
financial institutions to facilitate daily settlements related
to certain derivative positions, amounts receivable for
securities sold but not yet settled, fees and general operating
receivables and embedded derivatives related to the ceded
reinsurance of certain variable annuity guarantees.
Premiums receivable and those amounts recoverable under
reinsurance treaties determined to transfer sufficient risk are
not financial instruments subject to disclosure and thus have
been excluded from the amounts presented in the preceding table.
Amounts recoverable under ceded reinsurance contracts, which the
Company has determined do not transfer sufficient risk such that
they are accounted for using the deposit method of accounting,
have been included in the preceding table with the estimated
fair value determined as the present value of expected future
cash flows under the related contracts discounted using an
interest rate determined to reflect the appropriate credit
standing of the assuming counterparty.
The amounts on deposit for derivative settlements essentially
represent the equivalent of demand deposit balances and amounts
due for securities sold are generally received over short
periods such that the estimated fair value approximates carrying
value. In light of recent market conditions, the Company has
monitored the solvency position of the financial institutions
and has determined additional adjustments are not required.
Embedded derivatives recognized in connection with ceded
reinsurance of certain variable annuity guarantees are included
in this caption in the consolidated financial statements but
excluded from this caption in the preceding table as they are
separately presented. The estimated fair value of these embedded
derivatives is described in the section labeled Embedded
Derivatives within Asset and Liability Host Contracts
which follows.
Other Assets Other assets in the consolidated
balance sheets are principally comprised of prepaid expenses,
amounts held under corporate owned life insurance, fixed assets,
capitalized software, deferred sales inducements, value of
distribution agreements and value of customer relationships
acquired. Also included within other assets is a receivable for
cash paid to an unaffiliated financial institution under the
MetLife Reinsurance Company of Charleston (MRC)
collateral financing arrangement as described in Note 12 of
the Notes to the Consolidated Financial Statements included in
the 2009 Annual Report. With the exception of the receivable for
cash paid to the unaffiliated financial institution, other
assets are not considered financial instruments subject to
disclosure. Accordingly, the amount presented in the preceding
table represents the receivable for the cash paid to the
unaffiliated financial institution under the MRC collateral
financing arrangement for which the estimated fair value was
determined by discounting the expected future cash flows using a
discount rate that reflects the credit rating of the
unaffiliated financial institution.
Separate Account Assets Separate account
assets are carried at estimated fair value and reported as a
summarized total on the consolidated balance sheets. The
estimated fair value of separate account assets are based on the
estimated fair value of the underlying assets owned by the
separate account. Assets within the 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 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 and mutual 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.
68
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Policyholder Account Balances Policyholder
account balances in the tables above include investment
contracts. Embedded derivatives on investment contracts and
certain variable annuity guarantees accounted for as embedded
derivatives are included in this caption in the consolidated
financial statements but excluded from this caption in the
tables above as they are separately presented therein. The
remaining difference between the amounts reflected as
policyholder account balances in the preceding table and those
recognized in the consolidated balance sheets represents those
amounts due under contracts that satisfy the definition of
insurance contracts and are not considered financial instruments.
The investment contracts primarily include certain funding
agreements, fixed deferred annuities, modified guaranteed
annuities, fixed term payout annuities and total control
accounts. The fair values for these investment contracts are
estimated by discounting best estimate future cash flows using
current market risk-free interest rates and adding a spread to
reflect the nonperformance risk in the liability.
Payables for Collateral Under Securities Loaned and Other
Transactions The estimated fair value for
payables for collateral under securities loaned and other
transactions approximates carrying value. The related agreements
to loan securities are short-term in nature such that the
Company believes there is limited risk of a material change in
market interest rates. Additionally, because borrowers are
cross-collateralized by the borrowed securities, the Company
believes no additional consideration for changes in
nonperformance risk are necessary.
Bank Deposits Due to frequency of interest
rate resets on customer bank deposits held in money market
accounts, the Company believes that there is minimal risk of a
material change in interest rates such that the estimated fair
value approximates carrying value. For time deposits, estimated
fair values are estimated by discounting the expected cash flows
to maturity using a discount rate based on an average market
rate for certificates of deposit being offered by a
representative group of large financial institutions at the date
of the valuation.
Short-term and Long-term Debt, Collateral Financing
Arrangements and Junior Subordinated Debt Securities
The estimated fair value for short-term debt
approximates carrying value due to the short-term nature of
these obligations. The estimated fair values of long-term debt,
collateral financing arrangements and junior subordinated debt
securities are generally determined by discounting expected
future cash flows using market rates currently available for
debt with similar remaining maturities and reflecting the credit
risk of the Company including inputs, when available, from
actively traded debt of the Company or other companies with
similar types of borrowing arrangements. Risk-adjusted discount
rates applied to the expected future cash flows can vary
significantly based upon the specific terms of each individual
arrangement, including, but not limited to: subordinated rights;
contractual interest rates in relation to current market rates;
the structuring of the arrangement; and the nature and
observability of the applicable valuation inputs. Use of
different risk-adjusted discount rates could result in different
estimated fair values.
The carrying value of long-term debt presented in the table
above differs from the amounts presented in the consolidated
balance sheets as it does not include capital leases which are
not required to be disclosed at estimated fair value.
Long-term Debt Obligations of Consolidated Securitization
Entities The estimated fair value of the
long-term debt obligations of the Companys consolidated
securitization entities are based on their quoted prices when
traded as assets in active markets, or if not available, based
on market standard valuation methodologies, consistent with the
Companys methods and assumptions used to estimate the fair
value of comparable fixed maturity securities.
Other Liabilities Other liabilities in the
consolidated balance sheets are principally comprised of
freestanding derivatives with negative estimated fair values;
securities trading liabilities; tax and litigation contingency
liabilities; obligations for employee-related benefits; interest
due on the Companys debt obligations and on cash
collateral held in relation to securities lending; dividends
payable; amounts due for
69
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
securities purchased but not yet settled; amounts due under
assumed reinsurance contracts; and general operating accruals
and payables.
The estimated fair value of derivatives with
positive and negative estimated fair values and
embedded derivatives within asset and liability host contracts
are described in the sections labeled Derivatives
and Embedded Derivatives within Asset and Liability Host
Contracts which follow.
The remaining other amounts included in the table above reflect
those other liabilities that satisfy the definition of financial
instruments subject to disclosure. These items consist primarily
of securities trading liabilities; interest and dividends
payable; amounts due for securities purchased but not yet
settled; and amounts payable under certain assumed reinsurance
contracts recognized using the deposit method of accounting. The
Company evaluates the specific terms, facts and circumstances of
each instrument to determine the appropriate estimated fair
values, which were not materially different from the recognized
carrying values.
Separate Account Liabilities Separate account
liabilities included in the table above represent those balances
due to policyholders under contracts that are classified as
investment contracts. The difference between the separate
account liabilities reflected above and the amounts presented in
the consolidated balance sheets represents those contracts
classified as insurance contracts which do not satisfy the
criteria of financial instruments for which estimated fair value
is to be disclosed.
Separate account liabilities classified as investment contracts
primarily represent variable annuities with no significant
mortality risk to the Company such that the death benefit is
equal to the account balance; funding agreements related to
group life contracts; and certain contracts that provide for
benefit funding.
Separate account liabilities, whether related to investment or
insurance contracts, are recognized in the consolidated balance
sheets at an equivalent summary total of the separate account
assets. Separate account assets, which equal net deposits, net
investment income and realized and unrealized capital gains and
losses, are fully offset by corresponding amounts credited to
the contractholders liability which is reflected in
separate account liabilities. Since separate account liabilities
are fully funded by cash flows from the separate account assets
which are recognized at estimated fair value as described above,
the Company believes the value of those assets approximates the
estimated fair value of the related separate account liabilities.
Derivatives The estimated fair value of
derivatives is determined through the use of quoted market
prices for exchange-traded derivatives and interest rate
forwards to sell certain to be announced securities, or through
the use of pricing models for
over-the-counter
derivatives. The determination of estimated fair value, when
quoted market values are not available, is based on market
standard valuation methodologies and inputs that are assumed to
be consistent with what other market participants would use when
pricing the instruments. Derivative valuations can be affected
by changes in interest rates, foreign currency exchange rates,
financial indices, credit spreads, default risk (including the
counterparties to the contract), volatility, liquidity and
changes in estimates and assumptions used in the pricing models.
The significant inputs to the pricing models for most
over-the-counter
derivatives are inputs that are observable in the market or can
be derived principally from or corroborated by observable market
data. Significant inputs that are observable generally include:
interest rates, foreign currency exchange rates, interest rate
curves, credit curves and volatility. However, certain
over-the-counter
derivatives may rely on inputs that are significant to the
estimated fair value that are not observable in the market or
cannot be derived principally from or corroborated by observable
market data. Significant inputs that are unobservable generally
include: independent broker quotes, credit correlation
assumptions, references to emerging market currencies and inputs
that are outside the observable portion of the interest rate
curve, credit curve, volatility or other relevant market
measure. These unobservable inputs may involve significant
management judgment or estimation. Even though unobservable,
these inputs are based on assumptions deemed appropriate given
the circumstances and are assumed to be consistent with what
other market participants would use when pricing such
instruments.
70
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The credit risk of both the counterparty and the Company are
considered in determining the estimated fair value for all
over-the-counter
derivatives, and any potential credit adjustment is based on the
net exposure by counterparty after taking into account the
effects of netting agreements and collateral arrangements. The
Company values its derivative positions using the standard swap
curve which includes a spread over the risk free rate. This
credit spread is appropriate for those parties that execute
trades at pricing levels consistent with the standard swap
curve. As the Company and its significant derivative
counterparties consistently execute trades at such pricing
levels, additional credit risk adjustments are not currently
required in the valuation process. The 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 additional credit risk
adjustments is performed by the Company each reporting period.
Most inputs for
over-the-counter
derivatives are mid market inputs but, in certain cases, bid
level inputs are used when they are deemed more representative
of exit value. Market liquidity, as well as the use of different
methodologies, assumptions and inputs, may have a material
effect on the estimated fair values of the Companys
derivatives and could materially affect net income.
Embedded Derivatives within Asset and Liability Host
Contracts Embedded derivatives principally
include certain direct, assumed and ceded variable annuity
guarantees and certain equity or bond indexed crediting rates
within funding agreements. Embedded derivatives are recorded in
the financial statements at estimated fair value with changes in
estimated fair value reported in net income.
The Company issues certain variable annuity products with
guaranteed minimum benefit guarantees. GMWBs, GMABs and certain
GMIBs are embedded derivatives, which are measured at estimated
fair value separately from the host variable annuity contract,
with changes in estimated fair value reported in net investment
gains (losses). These embedded derivatives are classified within
policyholder account balances.
The fair value for these guarantees are estimated using the
present value of future benefits minus the present value of
future fees using actuarial and capital market assumptions
related to the projected cash flows over the expected lives of
the contracts. A risk neutral valuation methodology is used
under which the cash flows from the guarantees are projected
under multiple capital market scenarios using observable risk
free rates, currency exchange rates and observable and estimated
implied volatilities.
The valuation of these guarantee liabilities includes
adjustments for nonperformance risk and for a risk margin
related to non-capital market inputs. Both of these adjustments
are captured as components of the spread which, when combined
with the risk free rate, is used to discount the cash flows of
the liability for purposes of determining its fair value.
The nonperformance adjustment is determined by taking into
consideration publicly available information relating to spreads
in the secondary market for the Holding Companys debt,
including related credit default swaps. These observable spreads
are then adjusted, as necessary, to reflect the priority of
these liabilities and the claims paying ability of the issuing
insurance subsidiaries compared to the Holding Company.
As part of its regular review of critical accounting estimates,
the Company periodically assesses inputs for estimating
nonperformance risk (commonly referred to as own
credit) in fair value measurements. During the second
quarter of 2010, the Company completed a study that aggregated
and evaluated data, including historical recovery rates of
insurance companies as well as policyholder behavior observed
over the past two years as the recent financial crisis evolved.
As a result, at the end of the second quarter of 2010, the
Company refined the way in which its insurance subsidiaries
incorporate expected recovery rates into the nonperformance risk
adjustment for purposes of estimating the fair value of
investment-type contracts and embedded derivatives within
insurance contracts. For the three months ended June 30,
2010, the Company recognized income of $305 million, net of
DAC and income tax, relating to the change in fair value
associated with nonperformance risk for embedded derivatives
within insurance contracts. The impact included a loss of
$577 million, net of DAC and income tax, relating to
implementing the refinement at June 30, 2010. The
refinement reduced basic and diluted net income available to
71
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
MetLife, Inc.s common shareholders per common share by
$0.70 and $0.69, respectively, for the three months ended
June 30, 2010. The refinement reduced both basic and
diluted net income available to MetLife, Inc.s common
shareholders per common share by $0.70 for the six months ended
June 30, 2010.
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, including assumptions of the
amount and cost of capital needed to cover the guarantees. These
guarantees may be more costly than expected in volatile or
declining equity markets. Market conditions including, but not
limited to, changes in interest rates, equity indices, market
volatility and foreign currency exchange rates; changes in
nonperformance risk; and variations in actuarial assumptions
regarding policyholder behavior, mortality and risk margins
related to non-capital market inputs may result in significant
fluctuations in the estimated fair value of the guarantees that
could materially affect net income.
The Company ceded the risk associated with certain of the GMIB
and GMAB described in the preceding paragraph. These reinsurance
contracts contain embedded derivatives which are included in
premiums, reinsurance and other receivables with changes in
estimated fair value reported in net investment gains (losses)
or policyholder benefit and claims depending on the statement of
operations classification of the direct risk. The value of the
embedded derivatives on the ceded risk is determined using a
methodology consistent with that described previously for the
guarantees directly written by the Company.
The estimated fair value of the embedded derivatives within
funds withheld related to certain ceded reinsurance is
determined based on the change in estimated fair value of the
underlying assets held by the Company in a reference portfolio
backing the funds withheld liability. The estimated fair value
of the underlying assets is determined as described above in
Fixed Maturity Securities, Equity Securities and Trading
Securities and Short-term Investments. The
estimated fair value of these embedded derivatives is included,
along with their funds withheld hosts, in other liabilities with
changes in estimated fair value recorded in net investment gains
(losses). Changes in the credit spreads on the underlying
assets, interest rates and market volatility may result in
significant fluctuations in the estimated fair value of these
embedded derivatives that could materially affect net income.
The estimated fair value of the embedded equity and bond indexed
derivatives contained in certain funding agreements is
determined using market standard swap valuation models and
observable market inputs, including an adjustment for
nonperformance risk. The estimated fair value of these embedded
derivatives are included, along with their funding agreements
host, within policyholder account balances with changes in
estimated fair value recorded in net investment gains (losses).
Changes in equity and bond indices, interest rates and the
Companys credit standing may result in significant
fluctuations in the estimated fair value of these embedded
derivatives that could materially affect net income.
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 tables 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.
72
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
|
|
|
Significant
|
|
|
Total
|
|
|
|
Identical Assets
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
Estimated
|
|
|
|
and Liabilities
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
|
Fair
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Value
|
|
|
|
(In millions)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
|
|
|
$
|
69,675
|
|
|
$
|
7,173
|
|
|
$
|
76,848
|
|
RMBS
|
|
|
|
|
|
|
40,898
|
|
|
|
1,852
|
|
|
|
42,750
|
|
Foreign corporate securities
|
|
|
|
|
|
|
36,263
|
|
|
|
4,600
|
|
|
|
40,863
|
|
U.S. Treasury, agency and government guaranteed securities
|
|
|
15,545
|
|
|
|
17,280
|
|
|
|
37
|
|
|
|
32,862
|
|
CMBS
|
|
|
|
|
|
|
15,714
|
|
|
|
270
|
|
|
|
15,984
|
|
ABS
|
|
|
|
|
|
|
10,921
|
|
|
|
3,498
|
|
|
|
14,419
|
|
Foreign government securities
|
|
|
240
|
|
|
|
13,039
|
|
|
|
280
|
|
|
|
13,559
|
|
State and political subdivision securities
|
|
|
|
|
|
|
8,947
|
|
|
|
101
|
|
|
|
9,048
|
|
Other fixed maturity securities
|
|
|
|
|
|
|
10
|
|
|
|
5
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
|
15,785
|
|
|
|
212,747
|
|
|
|
17,816
|
|
|
|
246,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
306
|
|
|
|
1,048
|
|
|
|
161
|
|
|
|
1,515
|
|
Non-redeemable preferred stock
|
|
|
|
|
|
|
381
|
|
|
|
845
|
|
|
|
1,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
|
306
|
|
|
|
1,429
|
|
|
|
1,006
|
|
|
|
2,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
|
2,375
|
|
|
|
490
|
|
|
|
36
|
|
|
|
2,901
|
|
Trading securities held by consolidated securitization entities
|
|
|
|
|
|
|
257
|
|
|
|
|
|
|
|
257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading securities
|
|
|
2,375
|
|
|
|
747
|
|
|
|
36
|
|
|
|
3,158
|
|
Short-term investments (1)
|
|
|
3,922
|
|
|
|
5,582
|
|
|
|
52
|
|
|
|
9,556
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans held by consolidated securitization entities
|
|
|
|
|
|
|
7,107
|
|
|
|
|
|
|
|
7,107
|
|
Mortgage loans
held-for-sale
(2)
|
|
|
|
|
|
|
2,017
|
|
|
|
26
|
|
|
|
2,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans
|
|
|
|
|
|
|
9,124
|
|
|
|
26
|
|
|
|
9,150
|
|
Derivative assets: (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
31
|
|
|
|
4,431
|
|
|
|
78
|
|
|
|
4,540
|
|
Foreign currency contracts
|
|
|
|
|
|
|
1,835
|
|
|
|
45
|
|
|
|
1,880
|
|
Credit contracts
|
|
|
|
|
|
|
49
|
|
|
|
46
|
|
|
|
95
|
|
Equity market contracts
|
|
|
98
|
|
|
|
2,397
|
|
|
|
711
|
|
|
|
3,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative assets
|
|
|
129
|
|
|
|
8,712
|
|
|
|
880
|
|
|
|
9,721
|
|
Net embedded derivatives within asset host contracts (4)
|
|
|
|
|
|
|
|
|
|
|
124
|
|
|
|
124
|
|
MSRs (5)
|
|
|
|
|
|
|
|
|
|
|
660
|
|
|
|
660
|
|
Separate account assets (6)
|
|
|
20,036
|
|
|
|
131,633
|
|
|
|
1,693
|
|
|
|
153,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
42,553
|
|
|
$
|
369,974
|
|
|
$
|
22,293
|
|
|
$
|
434,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities: (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
76
|
|
|
$
|
1,145
|
|
|
$
|
17
|
|
|
$
|
1,238
|
|
Foreign currency contracts
|
|
|
|
|
|
|
1,078
|
|
|
|
17
|
|
|
|
1,095
|
|
Credit contracts
|
|
|
|
|
|
|
89
|
|
|
|
15
|
|
|
|
104
|
|
Equity market contracts
|
|
|
40
|
|
|
|
688
|
|
|
|
78
|
|
|
|
806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative liabilities
|
|
|
116
|
|
|
|
3,000
|
|
|
|
127
|
|
|
|
3,243
|
|
Net embedded derivatives within liability host contracts (4)
|
|
|
|
|
|
|
(34
|
)
|
|
|
3,420
|
|
|
|
3,386
|
|
Long-term debt of consolidated securitization entities
|
|
|
|
|
|
|
6,908
|
|
|
|
221
|
|
|
|
7,129
|
|
Trading liabilities (7)
|
|
|
15
|
|
|
|
32
|
|
|
|
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
131
|
|
|
$
|
9,906
|
|
|
$
|
3,768
|
|
|
$
|
13,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
|
|
|
Significant
|
|
|
Total
|
|
|
|
Identical Assets
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
Estimated
|
|
|
|
and Liabilities
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
|
Fair
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Value
|
|
|
|
(In millions)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
|
|
|
$
|
65,493
|
|
|
$
|
6,694
|
|
|
$
|
72,187
|
|
RMBS
|
|
|
|
|
|
|
42,180
|
|
|
|
1,840
|
|
|
|
44,020
|
|
Foreign corporate securities
|
|
|
|
|
|
|
32,738
|
|
|
|
5,292
|
|
|
|
38,030
|
|
U.S. Treasury, agency and government guaranteed securities
|
|
|
10,951
|
|
|
|
14,459
|
|
|
|
37
|
|
|
|
25,447
|
|
CMBS
|
|
|
|
|
|
|
15,483
|
|
|
|
139
|
|
|
|
15,622
|
|
ABS
|
|
|
|
|
|
|
10,450
|
|
|
|
2,712
|
|
|
|
13,162
|
|
Foreign government securities
|
|
|
306
|
|
|
|
11,240
|
|
|
|
401
|
|
|
|
11,947
|
|
State and political subdivision securities
|
|
|
|
|
|
|
7,139
|
|
|
|
69
|
|
|
|
7,208
|
|
Other fixed maturity securities
|
|
|
|
|
|
|
13
|
|
|
|
6
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
|
11,257
|
|
|
|
199,195
|
|
|
|
17,190
|
|
|
|
227,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
490
|
|
|
|
995
|
|
|
|
136
|
|
|
|
1,621
|
|
Non-redeemable preferred stock
|
|
|
|
|
|
|
359
|
|
|
|
1,104
|
|
|
|
1,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
|
490
|
|
|
|
1,354
|
|
|
|
1,240
|
|
|
|
3,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
|
1,886
|
|
|
|
415
|
|
|
|
83
|
|
|
|
2,384
|
|
Short-term investments (1)
|
|
|
5,650
|
|
|
|
2,500
|
|
|
|
23
|
|
|
|
8,173
|
|
Mortgage loans (2)
|
|
|
|
|
|
|
2,445
|
|
|
|
25
|
|
|
|
2,470
|
|
Derivative assets (3)
|
|
|
103
|
|
|
|
5,600
|
|
|
|
430
|
|
|
|
6,133
|
|
Net embedded derivatives within asset host contracts (4)
|
|
|
|
|
|
|
|
|
|
|
76
|
|
|
|
76
|
|
MSRs (5)
|
|
|
|
|
|
|
|
|
|
|
878
|
|
|
|
878
|
|
Separate account assets (6)
|
|
|
17,601
|
|
|
|
129,545
|
|
|
|
1,895
|
|
|
|
149,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
36,987
|
|
|
$
|
341,054
|
|
|
$
|
21,840
|
|
|
$
|
399,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities (3)
|
|
$
|
51
|
|
|
$
|
3,990
|
|
|
$
|
74
|
|
|
$
|
4,115
|
|
Net embedded derivatives within liability host contracts (4)
|
|
|
|
|
|
|
(26
|
)
|
|
|
1,531
|
|
|
|
1,505
|
|
Trading liabilities (7)
|
|
|
106
|
|
|
|
|
|
|
|
|
|
|
|
106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
157
|
|
|
$
|
3,964
|
|
|
$
|
1,605
|
|
|
$
|
5,726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Short-term investments as presented in the tables above differ
from the amounts presented in the consolidated balance sheets
because certain short-term investments are not measured at
estimated fair value (e.g. time deposits, etc.). |
74
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
(2) |
|
Mortgage loans
held-for-sale
as presented in the tables above differ from the amount
presented in the consolidated balance sheets as these tables
only include residential mortgage loans
held-for-sale
measured at estimated fair value on a recurring basis. |
|
(3) |
|
Derivative assets are presented within other invested assets and
derivative liabilities are presented within other liabilities.
The amounts are presented gross in the tables above to reflect
the presentation in the consolidated balance sheets, but are
presented net for purposes of the rollforward in the following
tables. At June 30, 2010 and December 31, 2009,
certain non-derivative hedging instruments of $169 million
and $0, respectively, which carried at amortized cost, are
included with the liabilities total in Note 4 but excluded
from derivative liabilities in the tables above as they are not
derivative instruments. |
|
(4) |
|
Net embedded derivatives within asset host contracts are
presented within premiums, reinsurance and other receivables.
Net embedded derivatives within liability host contracts are
presented primarily within policyholder account balances. At
June 30, 2010 and December 31, 2009, equity securities
also included embedded derivatives of ($32) million and
($37) million, respectively. |
|
(5) |
|
MSRs are presented within other invested assets. |
|
(6) |
|
Separate account assets are measured at estimated fair value.
Investment performance related to separate account assets is
fully offset by corresponding amounts credited to
contractholders whose liability is reflected within separate
account liabilities. Separate account liabilities are set equal
to the estimated fair value of separate account assets. |
|
(7) |
|
Trading liabilities are presented within other liabilities. |
The Company has categorized its assets and liabilities into the
three-level fair value hierarchy based upon the priority of the
inputs to the respective valuation technique. The following
summarizes the types of assets and liabilities included within
the three-level fair value hierarchy presented in the preceding
table.
|
|
|
|
Level 1
|
This category includes certain U.S. Treasury, agency and
government guaranteed fixed maturity securities, certain foreign
government fixed maturity securities; exchange-traded common
stock; certain trading securities; and certain short-term money
market securities. As it relates to derivatives, this level
includes exchange-traded equity and interest rate futures, as
well as interest rate forwards to sell certain to be announced
securities. Separate account assets classified within this level
are similar in nature to those classified in this level for the
general account.
|
|
|
Level 2
|
This category includes fixed maturity and equity securities
priced principally by independent pricing services using
observable inputs. Fixed maturity securities classified as
Level 2 include most U.S. Treasury, agency and
government guaranteed securities, as well as the majority of
U.S. and foreign corporate securities, RMBS, CMBS, state
and political subdivision securities, foreign government
securities and ABS. Equity securities classified as Level 2
securities consist principally of common stock and
non-redeemable preferred stock where market quotes are available
but are not considered actively traded. Short-term investments
and trading securities included within Level 2 are of a
similar nature to these fixed maturity and equity securities.
Mortgage loans included in Level 2 include mortgage loans
held by consolidated securitization entities and residential
mortgage loans
held-for-sale.
Mortgage loans held by consolidated securitization entities are
priced using the securitization market price of the obligations
of the consolidated securitization entities, which are priced
principally by independent pricing services using observable
inputs. Residential mortgage loans
held-for-sale
are priced using readily available observable pricing for
similar loans or securities backed by similar loans and the
unobservable adjustments to such prices are insignificant. As it
relates to derivatives, this level includes all types of
derivative instruments utilized by the Company with the
exception of exchange-traded futures and interest rate forwards
to sell certain to be announced securities included within
Level 1 and those derivative instruments with unobservable
inputs as described in Level 3. Separate account assets
classified within this level are generally similar to those
classified within this level for the general account, with the
exception of
|
75
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
certain mutual funds and hedge funds without readily
determinable fair values given prices are not published
publicly. Embedded derivatives classified within this level
include embedded equity and bond indexed derivatives contained
in certain funding agreements. Long-term debt of consolidated
securitization entities included in this level includes
obligations priced principally by independent pricing services
using observable inputs.
|
|
|
|
|
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; RMBS and
ABS including all of those supported by
sub-prime
mortgage loans. Equity securities classified as Level 3
securities consist principally of non-redeemable preferred stock
and common stock of companies that are privately held or of
companies for which there has been very limited trading activity
or where less price transparency exists around the inputs to the
valuation. Short-term investments and trading securities
included within Level 3 are of a similar nature to these
fixed maturity and equity securities. Mortgage loans included in
Level 3 include residential mortgage loans
held-for-sale
for which pricing for similar loans or securities backed by
similar loans is not observable and the estimated fair value is
determined using unobservable independent broker quotations or
valuation models. As it relates to derivatives this category
includes: swap spreadlocks with maturities which extend beyond
observable periods; interest rate forwards with maturities which
extend beyond the observable portion of the yield curve;
interest rate lock commitments with certain unobservable inputs,
including pull-through rates; equity variance swaps with
unobservable volatility inputs or that are priced via
independent broker quotations; foreign currency swaps which are
cancelable and priced through independent broker quotations;
interest rate swaps with maturities which extend beyond the
observable portion of the yield curve; credit default swaps
based upon baskets of credits having unobservable credit
correlations, as well as credit default swaps with maturities
which extend beyond the observable portion of the credit curves
and credit default swaps priced through independent broker
quotations; foreign currency forwards priced via independent
broker quotations or with liquidity adjustments; interest rate
caps and floors referencing unobservable yield curves
and/or which
include liquidity and volatility adjustments; implied volatility
swaps with unobservable volatility inputs; currency options
based upon baskets of currencies having unobservable currency
correlations; credit forwards having unobservable repurchase
rates; and equity options with unobservable volatility inputs.
Separate account assets classified within this level are
generally similar to those classified within this level for the
general account; however, they also include mortgage loans and
other limited partnership interests. Embedded derivatives
classified within this level primarily include embedded
derivatives associated with certain variable annuity guarantees.
This category also includes MSRs which are carried at estimated
fair value and have multiple significant unobservable inputs
including discount rates, estimates of loan prepayments and
servicing costs. Long-term debt of consolidated securitization
entities included in this level includes obligations 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.
|
76
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Valuation Techniques and Inputs by Level Within the
Three-Level Fair Value Hierarchy by Major Classes of Assets
and Liabilities.
A description of the significant valuation techniques and inputs
to the determination of estimated fair value for the more
significant asset and liability classes measured at fair value
on a recurring basis is as follows:
The Company determines the estimated fair value of its
investments using primarily the market approach and the income
approach. The use of quoted prices for identical assets and
matrix pricing or other similar techniques are examples of
market approaches, while the use of discounted cash flow
methodologies is an example of the income approach. The Company
attempts to maximize the use of observable inputs and minimize
the use of unobservable inputs in selecting whether the market
or income approach is used.
While certain investments have been classified as Level 1
from the use of unadjusted quoted prices for identical
investments supported by high volumes of trading activity and
narrow bid/ask spreads, most investments have been classified as
Level 2 because the significant inputs used to measure the
fair value on a recurring basis of the same or similar
investment are market observable or can be corroborated using
market observable information for the full term of the
investment. Level 3 investments include those where
estimated fair values are based on significant unobservable
inputs that are supported by little or no market activity and
may reflect our own assumptions about what factors market
participants would use in pricing these investments.
Level 1
Measurements:
Fixed maturity securities Comprised of
U.S. Treasury securities and foreign government securities.
Valuation based on unadjusted quoted prices in active markets
that are readily and regularly available.
Equity securities common stock
Comprised of exchange-traded U.S. and international common
stock. Valuation based on unadjusted quoted prices in active
markets that are readily and regularly available.
Trading securities Comprised of securities
that are similar in nature to the fixed maturity and equity
securities referred to above. Valuation based on unadjusted
quoted prices in active markets that are readily and regularly
available.
Short-term investments Comprised of
short-term money market securities, including U.S. Treasury
bills. Valuation based on unadjusted quoted prices in active
markets that are readily and regularly available.
Derivative assets and derivative liabilities
Comprised of exchange-traded equity and interest rate futures,
as well as interest rate forwards to sell certain to be
announced securities. Valuation based on unadjusted quoted
prices in active markets that are readily and regularly
available.
Separate account assets Comprised of
securities that are similar in nature to the fixed maturity
securities, equity securities and short-term investments
referred to above; and certain exchange-traded derivatives,
including financial futures and owned options. Valuation based
on unadjusted quoted prices in active markets that are readily
and regularly available.
Level 2
Measurements:
U.S. corporate and foreign corporate fixed maturity
securities These securities are principally
valued using the market and income approaches. Valuation based
primarily on quoted prices in markets that are not active, or
using matrix pricing or other similar techniques that use
standard market observable inputs such as a benchmark yields,
spreads off benchmark yields, new issuances, issuer rating,
duration, and trades of identical or comparable securities.
Investment grade privately placed securities are valued using a
discounted cash flow methodologies using standard market
observable inputs, and inputs derived from, or corroborated by,
market observable data including market yield curve, duration,
call provisions, observable prices and spreads for similar
publicly traded or privately traded issues that incorporate the
credit quality and industry sector of the issuer.
77
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Structured securities comprised of RMBS, CMBS and ABS fixed
maturity securities These securities are
principally valued using the market approach. Valuation based
primarily on matrix pricing or other similar techniques using
standard market inputs including spreads for actively traded
securities, spreads off benchmark yields, expected prepayment
speeds and volumes, current and forecasted loss severity,
rating, weighted average coupon, weighted average maturity,
average delinquency rates, geographic region, debt-service
coverage ratios and issuance-specific information including:
collateral type, payment terms of the underlying assets, payment
priority within the tranche, structure of the security, deal
performance and vintage of loans, etc.
U.S. Treasury, agency and government guaranteed fixed
maturity securities These securities are
principally valued using the market approach. Valuation based
primarily on quoted prices in markets that are not active, or
using matrix pricing or other similar techniques using standard
market observable inputs such as benchmark U.S. Treasury
yield curve, the spread off the U.S. Treasury curve for the
identical security and comparable securities that are actively
traded.
Foreign government and state and political subdivision fixed
maturity securities These securities are
principally valued using the market approach. Valuation based
primarily on matrix pricing or other similar techniques using
standard market observable inputs including benchmark
U.S. Treasury or other yields, issuer ratings,
broker-dealer quotes, issuer spreads and reported trades of
similar securities, including those within the same
sub-sector
or with a similar maturity or credit rating.
Equity securities common and non-redeemable
preferred stock These securities are principally
valued using the market approach. Valuation is based principally
on observable inputs including quoted prices in markets that are
not considered active.
Trading securities and short-term investments
Trading securities and short-term investments are of a
similar nature to Level 2 fixed maturity and equity
securities; accordingly the valuation techniques and significant
market standard observable inputs used in their valuation are
similar to those described above for fixed maturity and equity
securities.
Mortgage loans of consolidated securitization
entities These loans are principally valued
using the market approach. The principal market for these
commercial loan portfolios is the securitization market. The
Company uses the quoted securitization market price of the
obligations of the consolidated securitization entities to
determine the estimated fair value of these commercial loan
portfolios.
Mortgage loans
held-for-sale
These loans are principally valued using the market approach.
These residential mortgage loans
held-for-sale
are valued primarily using readily available observable pricing
for similar loans or securities backed by similar loans. The
unobservable adjustments to such prices are insignificant.
Non-option based interest rate derivative assets and
derivative liabilities These derivatives are
principally valued using an income approach. Valuations are
based on present value techniques, which utilize significant
inputs that may include the swap yield curve, LIBOR basis
curves, and repurchase rates.
Option based interest rate derivative assets and derivative
liabilities These derivatives are principally
valued using an income approach. Valuations are based on option
pricing models, which utilize significant inputs that may
include the swap yield curve, LIBOR basis curves, and interest
rate volatility.
Non-option based foreign currency derivative assets and
derivative liabilities These derivatives are
principally valued using an income approach. Valuations are
based on present value techniques, which utilize significant
inputs that may include the swap yield curve, LIBOR basis
curves, currency spot rates, and cross currency basis curves.
Option based foreign currency derivative assets and
derivative liabilities These derivatives are
principally valued using an income approach. Valuations are
based on option pricing models, which utilize significant inputs
78
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
that may include the swap yield curve, LIBOR basis curves,
currency spot rates, cross currency basis curves, and currency
volatility.
Non-option based credit derivative assets and derivative
liabilities These derivatives are principally
valued using an income approach. Valuations are based on present
value techniques, which utilize significant inputs that may
include the swap yield curve, credit curves, and recovery rates.
Non-option based equity market derivative assets and
derivative liabilities These derivatives are
principally valued using an income approach. Valuations are
based on present value techniques, which utilize significant
inputs that may include the swap yield curve, spot equity index
levels, and dividend yield curves.
Option based equity market derivative assets and derivative
liabilities These derivatives are principally
valued using an income approach. Valuations are based on option
pricing models, which utilize significant inputs that may
include the swap yield curve, spot equity index levels, dividend
yield curves, and equity volatility.
Embedded derivatives contained in certain funding
agreements These derivatives are principally
valued using an income approach. Valuations are based on present
value techniques, which utilize significant inputs that may
include the swap yield curve and the spot equity and bond index
level.
Separate account assets These assets are
comprised of securities that are similar in nature to the fixed
maturity securities, equity securities, short-term investments
and derivatives referred to above. Also included are certain
mutual funds and hedge funds with non-readily determinable fair
values given prices are not published publicly. Valuation of the
mutual funds and hedge funds is based upon quoted prices or
reported NAVs provided by the fund managers.
Long-term debt obligations of consolidated securitization
entities The estimated fair value of the
long-term debt obligations of the Companys consolidated
securitization entities are based on their quoted prices when
traded as assets in active markets, or if not available, based
on market standard valuation methodologies, consistent with the
Companys methods and assumptions used to estimate the fair
value of comparable fixed maturity securities.
Level 3
Measurements:
In general, investments classified within Level 3 use many
of the same valuation techniques and inputs as described above.
However, if key inputs are unobservable, or if the investments
are less liquid and there is very limited trading activity, the
investments are generally classified as Level 3. The use of
independent non-binding broker quotations to value investments
generally indicates there is a lack of liquidity or the general
lack of transparency in the process to develop the valuation
estimates generally causing these investments to be classified
in Level 3.
U.S. corporate and foreign corporate
securities These securities, including financial
services industry hybrid securities classified within fixed
maturity securities, are principally valued using the market and
income approaches. Valuations are based primarily on matrix
pricing or other similar techniques that utilize unobservable
inputs or cannot be derived principally from, or corroborated
by, observable market data, including illiquidity premiums and
spread adjustments to reflect industry trends or specific
credit-related issues. Valuations may be based on independent
non-binding broker quotations. Generally, below investment grade
privately placed or distressed securities included in this level
are valued using discounted cash flow methodologies which rely
upon significant, unobservable inputs and inputs that cannot be
derived principally from, or corroborated by, observable market
data.
Structured securities comprised of RMBS, CMBS and ABS fixed
maturity securities These securities are
principally valued using the market approach. Valuation is based
primarily on matrix pricing or other similar techniques that
utilize inputs that are unobservable or cannot be derived
principally from, or corroborated by, observable market data, or
are based on independent non-binding broker quotations. Below
investment grade securities and ABS supported by
sub-prime
mortgage loans included in this level are valued based on inputs
including quoted prices for identical or similar securities that
are less liquid and based on lower levels of trading
79
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
activity than securities classified in Level 2, and certain
of these securities are valued based on independent non-binding
broker quotations.
Foreign government and state and political subdivision fixed
maturity securities These securities are
principally valued using the market approach. Valuation is based
primarily on matrix pricing or other similar techniques, however
these securities are less liquid and certain of the inputs are
based on very limited trading activity.
Equity securities common and non-redeemable
preferred stock These securities, including
privately held securities and financial services industry hybrid
securities classified within equity securities, are principally
valued using the market and income approaches. Valuations are
based primarily on matrix pricing or other similar techniques
using inputs such as comparable credit rating and issuance
structure. Equity securities valuations determined with
discounted cash flow methodologies use inputs such as earnings
multiples based on comparable public companies, and
industry-specific non-earnings based multiples. Certain of these
securities are valued based on independent non-binding broker
quotations.
Trading securities and short-term
investments. Trading securities and short-term
investments are of a similar nature to Level 3 fixed
maturity and equity securities; accordingly, the valuation
techniques and significant market standard observable inputs
used in their valuation are similar to those described above for
fixed maturity and equity securities.
Non-option based interest rate derivative assets and
derivative liabilities These derivatives are
principally valued using an income approach. Valuations are
based on present value techniques, which generally utilize the
same inputs as described in the section above for Level 2
measurements of non-option based interest rate derivatives.
However, these derivatives result in Level 3 classification
because one or more of the significant inputs are not observable
in the market or cannot be derived principally from, or
corroborated by, observable market data. Significant
unobservable inputs may include pull through rates on interest
rate lock commitments and the extrapolation beyond observable
limits of the swap yield curve and LIBOR basis curves.
Option based interest rate derivative assets and derivative
liabilities These derivatives are principally
valued using an income approach. Valuations are based on option
pricing models, which generally utilize the same inputs as
described in the section above for Level 2 measurements of
option based interest rate derivatives. However, these
derivatives result in Level 3 classification because one or
more of the significant inputs are not observable in the market
or cannot be derived principally from, or corroborated by,
observable market data. Significant unobservable inputs may
include the extrapolation beyond observable limits of the swap
yield curve, LIBOR basis curves, and interest rate volatility.
Non-option based foreign currency derivative assets and
derivative liabilities These derivatives are
principally valued using an income approach. Valuations are
based on present value techniques, which generally utilize the
same inputs as described in the section above for Level 2
measurements of non-option based foreign currency derivatives.
However, these derivatives result in Level 3 classification
because one or more of the significant inputs are not observable
in the market or cannot be derived principally from, or
corroborated by, observable market data. Significant
unobservable inputs may include the extrapolation beyond
observable limits of the swap yield curve, LIBOR basis curves
and cross currency basis curves. Certain of these derivatives
are valued based on independent non-binding broker quotations.
Option based foreign currency derivative assets and
derivative liabilities These derivatives are
principally valued using an income approach. Valuations are
based on option pricing models, which generally utilize the same
inputs as described in the section above for Level 2
measurements of option based foreign currency derivatives.
However, these derivatives result in Level 3 classification
because one or more of the significant inputs are not observable
in the market or cannot be derived principally from, or
corroborated by, observable market data. Significant
unobservable inputs may include currency correlation and the
extrapolation beyond observable limits of the swap yield curve,
LIBOR basis curves, cross currency basis curves and currency
volatility.
80
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Non-option based credit derivative assets and derivative
liabilities These derivatives are principally
valued using an income approach. Valuations are based on present
value techniques, which generally utilize the same inputs as
described in the section above for Level 2 measurements of
non-option based credit derivatives. However, these derivatives
result in Level 3 classification because one or more of the
significant inputs are not observable in the market or cannot be
derived principally from, or corroborated by, observable market
data. Significant unobservable inputs may include credit
correlation, repurchase rates, and the extrapolation beyond
observable limits of the swap yield curve and credit curves.
Certain of these derivatives are valued based on independent
non-binding broker quotations.
Non-option based equity market derivative assets and
derivative liabilities These derivatives are
principally valued using an income approach. Valuations are
based on present value techniques, which generally utilize the
same inputs as described in the section above for Level 2
measurements of non-option based equity market derivatives.
However, these derivatives result in Level 3 classification
because one or more of the significant inputs are not observable
in the market or cannot be derived principally from, or
corroborated by, observable market data. Significant
unobservable inputs may include the extrapolation beyond
observable limits of dividend yield curves.
Option based equity market derivative assets and derivative
liabilities These derivatives are principally
valued using an income approach. Valuations are based on option
pricing models, which generally utilize the same inputs as
described in the section above for Level 2 measurements of
option based equity market derivatives. However, these
derivatives result in Level 3 classification because one or
more of the significant inputs are not observable in the market
or cannot be derived principally from, or corroborated by,
observable market data. Significant unobservable inputs may
include the extrapolation beyond observable limits of dividend
yield curves and equity volatility.
Guaranteed minimum benefit guarantees These
embedded derivatives are principally valued using an income
approach. Valuations are based on option pricing techniques,
which utilize significant inputs that may include swap yield
curve, currency exchange rates and implied volatilities. These
embedded derivatives result in Level 3 classification
because one or more of the significant inputs are not observable
in the market or cannot be derived principally from, or
corroborated by, observable market data. Significant
unobservable inputs generally include: the extrapolation beyond
observable limits of the swap yield curve and implied
volatilities, actuarial assumptions for policyholder behavior
and mortality and the potential variability in policyholder
behavior and mortality, nonperformance risk and cost of capital
for purposes of calculating the risk margin.
Reinsurance ceded on certain guaranteed minimum benefit
guarantees These embedded derivatives are
principally valued using an income approach. Valuations are
based on option pricing techniques, which utilize significant
inputs that may include swap yield curve, currency exchange
rates and implied volatilities. These embedded derivatives
result in Level 3 classification because one or more of the
significant inputs are not observable in the market or cannot be
derived principally from, or corroborated by, observable market
data. Significant unobservable inputs generally include: the
extrapolation beyond observable limits of the swap yield curve
and implied volatilities, actuarial assumptions for policyholder
behavior and mortality and the potential variability in
policyholder behavior and mortality, counterparty credit spreads
and cost of capital for purposes of calculating the risk margin.
Embedded derivatives within funds withheld related to certain
ceded reinsurance These derivatives are
principally valued using an income approach. Valuations are
based on present value techniques, which utilize significant
inputs that may include the swap yield curve and the fair value
of assets within the reference portfolio. These embedded
derivatives result in Level 3 classification because one or
more of the significant inputs are not observable in the market
or cannot be derived principally from, or corroborated by,
observable market data. Significant unobservable inputs
generally include: the fair value of certain assets within the
reference portfolio which are not observable in the market and
cannot be derived principally from, or corroborated by,
observable market data.
81
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Separate account assets These securities
consist of fixed maturity securities, equity securities and
derivatives referred to above. Separate account assets within
this level also include mortgage loans and other limited
partnership interests. 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.
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, 2010 and 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs
(Level 3)
|
|
|
|
|
|
|
Total Realized/Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (Losses) included in:
|
|
|
Purchases,
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
|
|
|
|
|
|
Other
|
|
|
Sales,
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of
|
|
|
|
|
|
Comprehensive
|
|
|
Issuances and
|
|
|
Transfer Into
|
|
|
Transfer Out
|
|
|
Balance,
|
|
|
|
Period
|
|
|
Earnings (1), (2)
|
|
|
Income (Loss)
|
|
|
Settlements (3)
|
|
|
Level 3 (4)
|
|
|
of Level 3 (4)
|
|
|
End of Period
|
|
|
|
(In millions)
|
|
|
For the Three Months Ended June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
6,339
|
|
|
$
|
12
|
|
|
$
|
97
|
|
|
$
|
362
|
|
|
$
|
518
|
|
|
$
|
(155
|
)
|
|
$
|
7,173
|
|
RMBS
|
|
|
1,927
|
|
|
|
13
|
|
|
|
(6
|
)
|
|
|
98
|
|
|
|
31
|
|
|
|
(211
|
)
|
|
|
1,852
|
|
Foreign corporate securities
|
|
|
5,378
|
|
|
|
(15
|
)
|
|
|
(139
|
)
|
|
|
(371
|
)
|
|
|
292
|
|
|
|
(545
|
)
|
|
|
4,600
|
|
U.S. Treasury, agency and government guaranteed securities
|
|
|
36
|
|
|
|
|
|
|
|
2
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
37
|
|
CMBS
|
|
|
225
|
|
|
|
1
|
|
|
|
47
|
|
|
|
(20
|
)
|
|
|
117
|
|
|
|
(100
|
)
|
|
|
270
|
|
ABS
|
|
|
2,823
|
|
|
|
(12
|
)
|
|
|
80
|
|
|
|
483
|
|
|
|
130
|
|
|
|
(6
|
)
|
|
|
3,498
|
|
Foreign government securities
|
|
|
222
|
|
|
|
(3
|
)
|
|
|
16
|
|
|
|
69
|
|
|
|
|
|
|
|
(24
|
)
|
|
|
280
|
|
State and political subdivision securities
|
|
|
101
|
|
|
|
|
|
|
|
3
|
|
|
|
19
|
|
|
|
|
|
|
|
(22
|
)
|
|
|
101
|
|
Other fixed maturity securities
|
|
|
6
|
|
|
|
|
|
|
|
1
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
17,057
|
|
|
$
|
(4
|
)
|
|
$
|
101
|
|
|
$
|
637
|
|
|
$
|
1,088
|
|
|
$
|
(1,063
|
)
|
|
$
|
17,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
159
|
|
|
$
|
3
|
|
|
$
|
(15
|
)
|
|
$
|
22
|
|
|
$
|
|
|
|
$
|
(8
|
)
|
|
$
|
161
|
|
Non-redeemable preferred stock
|
|
|
1,008
|
|
|
|
46
|
|
|
|
(51
|
)
|
|
|
(153
|
)
|
|
|
|
|
|
|
(5
|
)
|
|
|
845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
1,167
|
|
|
$
|
49
|
|
|
$
|
(66
|
)
|
|
$
|
(131
|
)
|
|
$
|
|
|
|
$
|
(13
|
)
|
|
$
|
1,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
$
|
40
|
|
|
$
|
(3
|
)
|
|
$
|
|
|
|
$
|
(1
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
36
|
|
Short-term investments
|
|
$
|
97
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
41
|
|
|
$
|
|
|
|
$
|
(86
|
)
|
|
$
|
52
|
|
Mortgage loans
|
|
$
|
28
|
|
|
$
|
(1
|
)
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
6
|
|
|
$
|
(8
|
)
|
|
$
|
26
|
|
Net derivatives: (5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
34
|
|
|
$
|
54
|
|
|
$
|
(15
|
)
|
|
$
|
(12
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
61
|
|
Foreign currency contracts
|
|
|
74
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
28
|
|
Credit contracts
|
|
|
47
|
|
|
|
(22
|
)
|
|
|
15
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
31
|
|
Equity market contracts
|
|
|
80
|
|
|
|
547
|
|
|
|
4
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net derivatives
|
|
$
|
235
|
|
|
$
|
569
|
|
|
$
|
4
|
|
|
$
|
(55
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights (6), (7)
|
|
$
|
859
|
|
|
$
|
(183
|
)
|
|
$
|
|
|
|
$
|
(16
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
660
|
|
Separate account assets (8)
|
|
$
|
1,798
|
|
|
$
|
(5
|
)
|
|
$
|
|
|
|
$
|
70
|
|
|
$
|
12
|
|
|
$
|
(182
|
)
|
|
$
|
1,693
|
|
Net embedded derivatives (9)
|
|
$
|
(994
|
)
|
|
$
|
(2,149
|
)
|
|
$
|
(75
|
)
|
|
$
|
(78
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(3,296
|
)
|
Long-term debt of consolidated securitization entities (10)
|
|
$
|
220
|
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
221
|
|
82
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs
(Level 3)
|
|
|
|
|
|
|
Total Realized/Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (Losses) included in:
|
|
|
Purchases,
|
|
|
|
|
|
|
|
|
|
Balance,
|
|
|
|
|
|
Other
|
|
|
Sales,
|
|
|
Transfer In
|
|
|
|
|
|
|
Beginning of
|
|
|
|
|
|
Comprehensive
|
|
|
Issuances and
|
|
|
and/or Out
|
|
|
Balance,
|
|
|
|
Period
|
|
|
Earnings (1),(2)
|
|
|
Income (Loss)
|
|
|
Settlements (3)
|
|
|
of Level 3 (4)
|
|
|
End of 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
|
|
RMBS
|
|
|
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
|
|
CMBS
|
|
|
243
|
|
|
|
(12
|
)
|
|
|
21
|
|
|
|
(4
|
)
|
|
|
3
|
|
|
|
251
|
|
ABS
|
|
|
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 loans
|
|
$
|
211
|
|
|
$
|
(7
|
)
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
(69
|
)
|
|
$
|
136
|
|
Net derivatives (5)
|
|
$
|
2,585
|
|
|
$
|
(987
|
)
|
|
$
|
20
|
|
|
$
|
123
|
|
|
$
|
25
|
|
|
$
|
1,766
|
|
Mortgage servicing rights (6), (7)
|
|
$
|
405
|
|
|
$
|
131
|
|
|
$
|
|
|
|
$
|
134
|
|
|
$
|
|
|
|
$
|
670
|
|
Separate account assets (8)
|
|
$
|
1,500
|
|
|
$
|
(61
|
)
|
|
$
|
|
|
|
$
|
114
|
|
|
$
|
1
|
|
|
$
|
1,554
|
|
Net embedded derivatives (9)
|
|
$
|
(1,812
|
)
|
|
$
|
743
|
|
|
$
|
(16
|
)
|
|
$
|
(23
|
)
|
|
$
|
|
|
|
$
|
(1,108
|
)
|
Trading liabilities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(59
|
)
|
|
$
|
|
|
|
$
|
(59
|
)
|
83
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, 2010 and 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs
(Level 3)
|
|
|
|
|
|
|
Total Realized/Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (Losses) included in:
|
|
|
Purchases,
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
|
|
|
|
|
|
Other
|
|
|
Sales,
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of
|
|
|
|
|
|
Comprehensive
|
|
|
Issuances and
|
|
|
Transfer Into
|
|
|
Transfer Out
|
|
|
Balance,
|
|
|
|
Period
|
|
|
Earnings (1), (2)
|
|
|
Income (Loss)
|
|
|
Settlements (3)
|
|
|
Level 3 (4)
|
|
|
of Level 3 (4)
|
|
|
End of Period
|
|
|
|
(In millions)
|
|
|
For the Six Months Ended June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
6,694
|
|
|
$
|
22
|
|
|
$
|
322
|
|
|
$
|
(270
|
)
|
|
$
|
602
|
|
|
$
|
(197
|
)
|
|
$
|
7,173
|
|
RMBS
|
|
|
1,840
|
|
|
|
26
|
|
|
|
13
|
|
|
|
51
|
|
|
|
54
|
|
|
|
(132
|
)
|
|
|
1,852
|
|
Foreign corporate securities
|
|
|
5,292
|
|
|
|
(9
|
)
|
|
|
76
|
|
|
|
(502
|
)
|
|
|
345
|
|
|
|
(602
|
)
|
|
|
4,600
|
|
U.S. Treasury, agency and government guaranteed securities
|
|
|
37
|
|
|
|
|
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
37
|
|
CMBS
|
|
|
139
|
|
|
|
(1
|
)
|
|
|
58
|
|
|
|
(15
|
)
|
|
|
122
|
|
|
|
(33
|
)
|
|
|
270
|
|
ABS
|
|
|
2,712
|
|
|
|
(28
|
)
|
|
|
197
|
|
|
|
739
|
|
|
|
91
|
|
|
|
(213
|
)
|
|
|
3,498
|
|
Foreign government securities
|
|
|
401
|
|
|
|
(6
|
)
|
|
|
20
|
|
|
|
24
|
|
|
|
|
|
|
|
(159
|
)
|
|
|
280
|
|
State and political subdivision securities
|
|
|
69
|
|
|
|
|
|
|
|
9
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
101
|
|
Other fixed maturity securities
|
|
|
6
|
|
|
|
|
|
|
|
1
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
17,190
|
|
|
$
|
4
|
|
|
$
|
698
|
|
|
$
|
46
|
|
|
$
|
1,214
|
|
|
$
|
(1,336
|
)
|
|
$
|
17,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
136
|
|
|
$
|
3
|
|
|
$
|
(10
|
)
|
|
$
|
42
|
|
|
$
|
|
|
|
$
|
(10
|
)
|
|
$
|
161
|
|
Non-redeemable preferred stock
|
|
|
1,104
|
|
|
|
47
|
|
|
|
(33
|
)
|
|
|
(265
|
)
|
|
|
|
|
|
|
(8
|
)
|
|
|
845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
1,240
|
|
|
$
|
50
|
|
|
$
|
(43
|
)
|
|
$
|
(223
|
)
|
|
$
|
|
|
|
$
|
(18
|
)
|
|
$
|
1,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
$
|
83
|
|
|
$
|
(4
|
)
|
|
$
|
|
|
|
$
|
(25
|
)
|
|
$
|
|
|
|
$
|
(18
|
)
|
|
$
|
36
|
|
Short-term investments
|
|
$
|
23
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
29
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
52
|
|
Mortgage loans
|
|
$
|
25
|
|
|
$
|
(1
|
)
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
7
|
|
|
$
|
(6
|
)
|
|
$
|
26
|
|
Net derivatives: (5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
7
|
|
|
$
|
81
|
|
|
$
|
(15
|
)
|
|
$
|
(12
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
61
|
|
Foreign currency contracts
|
|
|
108
|
|
|
|
(30
|
)
|
|
|
(1
|
)
|
|
|
(49
|
)
|
|
|
|
|
|
|
|
|
|
|
28
|
|
Credit contracts
|
|
|
42
|
|
|
|
(22
|
)
|
|
|
17
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
31
|
|
Equity market contracts
|
|
|
199
|
|
|
|
420
|
|
|
|
5
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net derivatives
|
|
$
|
356
|
|
|
$
|
449
|
|
|
$
|
6
|
|
|
$
|
(58
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights (6), (7)
|
|
$
|
878
|
|
|
$
|
(238
|
)
|
|
$
|
|
|
|
$
|
20
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
660
|
|
Separate account assets (8)
|
|
$
|
1,895
|
|
|
$
|
39
|
|
|
$
|
|
|
|
$
|
(68
|
)
|
|
$
|
49
|
|
|
$
|
(222
|
)
|
|
$
|
1,693
|
|
Net embedded derivatives (9)
|
|
$
|
(1,455
|
)
|
|
$
|
(1,630
|
)
|
|
$
|
(65
|
)
|
|
$
|
(146
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(3,296
|
)
|
Long-term debt of consolidated securitization entities (10)
|
|
$
|
|
|
|
$
|
(11
|
)
|
|
$
|
|
|
|
$
|
232
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
221
|
|
84
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs
(Level 3)
|
|
|
|
|
|
|
Total Realized/Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (Losses) included in:
|
|
|
Purchases,
|
|
|
|
|
|
|
|
|
|
Balance,
|
|
|
|
|
|
Other
|
|
|
Sales,
|
|
|
Transfer In
|
|
|
|
|
|
|
Beginning of
|
|
|
|
|
|
Comprehensive
|
|
|
Issuances and
|
|
|
and/or Out
|
|
|
Balance,
|
|
|
|
Period
|
|
|
Earnings (1), (2)
|
|
|
Income (Loss)
|
|
|
Settlements (3)
|
|
|
of Level 3 (4)
|
|
|
End of 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
|
|
RMBS
|
|
|
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
|
|
CMBS
|
|
|
260
|
|
|
|
(12
|
)
|
|
|
17
|
|
|
|
(16
|
)
|
|
|
2
|
|
|
|
251
|
|
ABS
|
|
|
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 loans
|
|
$
|
177
|
|
|
$
|
(7
|
)
|
|
$
|
|
|
|
$
|
32
|
|
|
$
|
(66
|
)
|
|
$
|
136
|
|
Net derivatives (5)
|
|
$
|
2,547
|
|
|
$
|
(965
|
)
|
|
$
|
(62
|
)
|
|
$
|
221
|
|
|
$
|
25
|
|
|
$
|
1,766
|
|
Mortgage servicing rights (6), (7)
|
|
$
|
191
|
|
|
$
|
134
|
|
|
$
|
|
|
|
$
|
345
|
|
|
$
|
|
|
|
$
|
670
|
|
Separate account assets (8)
|
|
$
|
1,758
|
|
|
$
|
(270
|
)
|
|
$
|
|
|
|
$
|
55
|
|
|
$
|
11
|
|
|
$
|
1,554
|
|
Net embedded derivatives (9)
|
|
$
|
(2,929
|
)
|
|
$
|
1,844
|
|
|
$
|
25
|
|
|
$
|
(48
|
)
|
|
$
|
|
|
|
$
|
(1,108
|
)
|
Trading liabilities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(59
|
)
|
|
$
|
|
|
|
$
|
(59
|
)
|
|
|
|
(1) |
|
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 on
securities, certain derivatives and certain mortgage loans are
included within net investment gains (losses) which are reported
within the earnings caption of total gains (losses); while
impairments on certain derivatives, certain mortgage loans and
MSRs are charged to other revenues. Lapses associated with
embedded derivatives are included with the earnings caption of
total gains (losses). |
|
(2) |
|
Interest and dividend accruals, as well as cash interest coupons
and dividends received, are excluded from the rollforward. |
|
(3) |
|
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. |
85
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
(4) |
|
Total gains and losses (in earnings and other comprehensive
income (loss)) are calculated assuming transfers in and/or out
of Level 3 occurred at the beginning of the period. Items
transferred in and out in the same period are excluded from the
rollforward. |
|
(5) |
|
Freestanding derivative assets and liabilities are presented net
for purposes of the rollforward. |
|
(6) |
|
The additions and reductions (due to loan payments and sales)
affecting MSRs were $47 million and ($63) million,
respectively, for the three months ended June 30, 2010 and
$106 million and ($86) million, respectively, for the
six months ended June 30, 2010. 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, for the six months ended
June 30, 2009. |
|
(7) |
|
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 ($183) million and $0,
respectively, for the three months ended June 30, 2010, and
($238) million and $0, respectively, for the six months
ended June 30, 2010. 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. |
|
(8) |
|
Investment performance related to separate account assets is
fully offset by corresponding amounts credited to
contractholders whose liability is reflected within separate
account liabilities. |
|
(9) |
|
Embedded derivative assets and liabilities are presented net for
purposes of the rollforward. |
|
(10) |
|
The long-term debt at January 1, 2010 of the consolidated
securitization entities is reported within the purchases, sales,
issuances and settlements activity column of the rollforward. |
Transfers between Levels 1 and 2 During
the three months and six months ended June 30, 2010,
transfers between Levels 1 and 2 were not significant.
Transfers in or out of Level 3 Overall,
transfers in
and/or out
of Level 3 are attributable to a change in the
observability of inputs. Assets and liabilities are transferred
into Level 3 when a significant input cannot be
corroborated with market observable data. This occurs when
market activity decreases significantly and transparency to
underlying inputs cannot be observed, current prices are not
available, and when there are significant variances in quoted
prices. Assets and liabilities are transferred out of
Level 3 when circumstances change such that significant
inputs can be corroborated with market observable data. This may
be due to a significant increase in market activity, a specific
event, or one or more significant input(s) becoming observable.
Transfers in
and/or out
of any level are assumed to occur at the beginning of the
period. Significant transfers in
and/or out
of Level 3 assets and liabilities for the three months and
six months ended June 30, 2010 are summarized below.
During the three months and six months ended June 30, 2010,
fixed maturity securities transfers into Level 3 of
$1,088 million and $1,214 million, respectively, and
separate account assets transfers into Level 3 of
$12 million and $49 million, respectively, resulted
primarily from current market conditions characterized by a lack
of trading activity, decreased liquidity and credit ratings
downgrades (e.g., from investment grade to below investment
grade). These current market conditions have resulted in
decreased transparency of valuations and an increased use of
broker quotations and unobservable inputs to determine estimated
fair value principally for certain CMBS, ABS and private
placements included in U.S. and foreign corporate
securities.
During the three months and six months ended June 30, 2010,
fixed maturity securities transfers out of Level 3 of
$1,063 million and $1,336 million, respectively, and
separate account assets transfers out of Level 3 of
$182 million and $222 million, respectively, resulted
primarily from increased transparency of both new issuances that
subsequent to issuance and establishment of trading activity,
became priced by pricing services and existing issuances that,
over time, the Company was able to corroborate pricing received
from independent pricing services with observable inputs or
increases in market activity and upgraded credit ratings
primarily for certain U.S. and foreign corporate
securities, ABS and RMBS.
86
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The tables below summarize both realized and unrealized gains
and losses for the three months ended June 30, 2010 and
2009 due to changes in estimated fair value recorded in earnings
for Level 3 assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Gains and Losses
|
|
|
|
Classification of Realized/Unrealized Gains
|
|
|
|
(Losses) included in Earnings
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
Investment
|
|
|
|
|
|
Policyholder
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
Gains
|
|
|
Other
|
|
|
Benefits and
|
|
|
Other
|
|
|
|
|
|
|
Income
|
|
|
(Losses)
|
|
|
Revenues
|
|
|
Claims
|
|
|
Expenses
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
For the Three Months Ended June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
12
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
12
|
|
RMBS
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
Foreign corporate securities
|
|
|
3
|
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15
|
)
|
U.S. Treasury, agency and government guaranteed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMBS
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
ABS
|
|
|
8
|
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12
|
)
|
Foreign government securities
|
|
|
2
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
State and political subdivision securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other fixed maturity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
38
|
|
|
$
|
(42
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
|
|
|
$
|
3
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3
|
|
Non-redeemable preferred stock
|
|
|
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
|
|
|
$
|
49
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
$
|
(3
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(3
|
)
|
Short-term investments
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Mortgage loans
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(1
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(1
|
)
|
Net derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
|
|
|
$
|
21
|
|
|
$
|
33
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
54
|
|
Foreign currency contracts
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10
|
)
|
Credit contracts
|
|
|
|
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22
|
)
|
Equity market contracts
|
|
|
12
|
|
|
|
535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net derivatives
|
|
$
|
12
|
|
|
$
|
524
|
|
|
$
|
33
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(183
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(183
|
)
|
Net embedded derivatives
|
|
$
|
|
|
|
$
|
(2,216
|
)
|
|
$
|
|
|
|
$
|
67
|
|
|
$
|
|
|
|
$
|
(2,149
|
)
|
Long-term debt of consolidated securitization entities
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1
|
|
87
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Gains and Losses
|
|
|
|
Classification of Realized/Unrealized Gains
|
|
|
|
(Losses) included in Earnings
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
Investment
|
|
|
|
|
|
Policyholder
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
Gains
|
|
|
Other
|
|
|
Benefits and
|
|
|
Other
|
|
|
|
|
|
|
Income
|
|
|
(Losses)
|
|
|
Revenues
|
|
|
Claims
|
|
|
Expenses
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
For the Three Months Ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
3
|
|
|
$
|
(43
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(40
|
)
|
RMBS
|
|
|
2
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53
|
|
Foreign corporate securities
|
|
|
(2
|
)
|
|
|
(75
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(77
|
)
|
U.S. Treasury, agency and government guaranteed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMBS
|
|
|
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12
|
)
|
ABS
|
|
|
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
|
|
Short-term investments
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Mortgage loans
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(7
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(7
|
)
|
Net derivatives
|
|
$
|
(51
|
)
|
|
$
|
(885
|
)
|
|
$
|
(51
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(987
|
)
|
Mortgage servicing rights
|
|
$
|
|
|
|
$
|
|
|
|
$
|
131
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
131
|
|
Net embedded derivatives
|
|
$
|
|
|
|
$
|
827
|
|
|
$
|
|
|
|
$
|
(84
|
)
|
|
$
|
|
|
|
$
|
743
|
|
88
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The tables below summarize both realized and unrealized gains
and losses for the six months ended June 30, 2010 and 2009
due to changes in estimated fair value recorded in earnings for
Level 3 assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Gains and Losses
|
|
|
|
Classification of Realized/Unrealized Gains
|
|
|
|
(Losses) included in Earnings
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
Investment
|
|
|
|
|
|
Policyholder
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
Gains
|
|
|
Other
|
|
|
Benefits and
|
|
|
Other
|
|
|
|
|
|
|
Income
|
|
|
(Losses)
|
|
|
Revenues
|
|
|
Claims
|
|
|
Expenses
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
For the Six Months Ended June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
17
|
|
|
$
|
5
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
22
|
|
RMBS
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
|
|
Foreign corporate securities
|
|
|
3
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
U.S. Treasury, agency and government guaranteed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMBS
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
ABS
|
|
|
19
|
|
|
|
(47
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28
|
)
|
Foreign government securities
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
State and political subdivision securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other fixed maturity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
65
|
|
|
$
|
(61
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
|
|
|
$
|
3
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3
|
|
Non-redeemable preferred stock
|
|
|
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
|
|
|
$
|
50
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
$
|
(4
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(4
|
)
|
Short-term investments
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Mortgage loans
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(1
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(1
|
)
|
Net derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
|
|
|
$
|
34
|
|
|
$
|
47
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
81
|
|
Foreign currency contracts
|
|
|
|
|
|
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
(30
|
)
|
Credit contracts
|
|
|
|
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22
|
)
|
Equity market contracts
|
|
|
8
|
|
|
|
412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net derivatives
|
|
$
|
8
|
|
|
$
|
397
|
|
|
$
|
47
|
|
|
$
|
|
|
|
$
|
(3
|
)
|
|
$
|
449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(238
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(238
|
)
|
Net embedded derivatives
|
|
$
|
|
|
|
$
|
(1,676
|
)
|
|
$
|
|
|
|
$
|
46
|
|
|
$
|
|
|
|
$
|
(1,630
|
)
|
Long-term debt of consolidated securitization entities
|
|
$
|
|
|
|
$
|
(11
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(11
|
)
|
89
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Gains and Losses
|
|
|
|
Classification of Realized/Unrealized Gains
|
|
|
|
(Losses) included in Earnings
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
Investment
|
|
|
|
|
|
Policyholder
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
Gains
|
|
|
Other
|
|
|
Benefits and
|
|
|
Other
|
|
|
|
|
|
|
Income
|
|
|
(Losses)
|
|
|
Revenues
|
|
|
Claims
|
|
|
Expenses
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
For the Six Months Ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
7
|
|
|
$
|
(215
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(208
|
)
|
RMBS
|
|
|
2
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
|
|
Foreign corporate securities
|
|
|
(3
|
)
|
|
|
(234
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(237
|
)
|
U.S. Treasury, agency and government guaranteed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMBS
|
|
|
1
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12
|
)
|
ABS
|
|
|
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 loans
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(7
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(7
|
)
|
Net derivatives
|
|
$
|
(71
|
)
|
|
$
|
(874
|
)
|
|
$
|
(20
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(965
|
)
|
Mortgage servicing rights
|
|
$
|
|
|
|
$
|
|
|
|
$
|
134
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
134
|
|
Net embedded derivatives
|
|
$
|
|
|
|
$
|
1,912
|
|
|
$
|
|
|
|
$
|
(68
|
)
|
|
$
|
|
|
|
$
|
1,844
|
|
90
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The tables below summarize the portion of unrealized gains and
losses recorded in earnings for the three months ended
June 30, 2010 and 2009 for Level 3 assets and
liabilities that were still held at June 30, 2010 and 2009,
respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Unrealized Gains (Losses)
|
|
|
|
Relating to Assets and Liabilities Held at June 30, 2010
and 2009
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
Investment
|
|
|
|
|
|
Policyholder
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
Gains
|
|
|
Other
|
|
|
Benefits and
|
|
|
Other
|
|
|
|
|
|
|
Income
|
|
|
(Losses)
|
|
|
Revenues
|
|
|
Claims
|
|
|
Expenses
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
For the Three Months Ended June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
6
|
|
|
$
|
(6
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
RMBS
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
Foreign corporate securities
|
|
|
3
|
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13
|
)
|
U.S. Treasury, agency and government guaranteed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMBS
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
ABS
|
|
|
8
|
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12
|
)
|
Foreign government securities
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
State and political subdivision securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other fixed maturity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
32
|
|
|
$
|
(41
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
|
|
|
$
|
(1
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(1
|
)
|
Non-redeemable preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
|
|
|
$
|
(1
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
$
|
(3
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(3
|
)
|
Short-term investments
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Mortgage loans
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(1
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(1
|
)
|
Net derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
|
|
|
$
|
22
|
|
|
$
|
51
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
73
|
|
Foreign currency contracts
|
|
|
|
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18
|
)
|
Credit contracts
|
|
|
|
|
|
|
(23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23
|
)
|
Equity market contracts
|
|
|
11
|
|
|
|
534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net derivatives
|
|
$
|
11
|
|
|
$
|
515
|
|
|
$
|
51
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(155
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(155
|
)
|
Net embedded derivatives
|
|
$
|
|
|
|
$
|
(2,218
|
)
|
|
$
|
|
|
|
$
|
67
|
|
|
$
|
|
|
|
$
|
(2,151
|
)
|
Long-term debt of consolidated securitization entities
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1
|
|
91
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Unrealized Gains (Losses)
|
|
|
|
Relating to Assets and Liabilities Held at June 30, 2010
and 2009
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
Investment
|
|
|
|
|
|
Policyholder
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
Gains
|
|
|
Other
|
|
|
Benefits and
|
|
|
Other
|
|
|
|
|
|
|
Income
|
|
|
(Losses)
|
|
|
Revenues
|
|
|
Claims
|
|
|
Expenses
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
For the Three Months Ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
4
|
|
|
$
|
(65
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(61
|
)
|
RMBS
|
|
|
2
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53
|
|
Foreign corporate securities
|
|
|
(2
|
)
|
|
|
(61
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(63
|
)
|
U.S. Treasury, agency and government guaranteed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMBS
|
|
|
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25
|
)
|
ABS
|
|
|
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 loans
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(7
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(7
|
)
|
Net derivatives
|
|
$
|
(51
|
)
|
|
$
|
(895
|
)
|
|
$
|
14
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(932
|
)
|
Mortgage servicing rights
|
|
$
|
|
|
|
$
|
|
|
|
$
|
109
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
109
|
|
Net embedded derivatives
|
|
$
|
|
|
|
$
|
823
|
|
|
$
|
|
|
|
$
|
(84
|
)
|
|
$
|
|
|
|
$
|
739
|
|
92
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The tables below summarize the portion of unrealized gains and
losses recorded in earnings for the six months ended
June 30, 2010 and 2009 for Level 3 assets and
liabilities that were still held at June 30, 2010 and 2009,
respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Unrealized Gains (Losses)
|
|
|
|
Relating to Assets and Liabilities Held at June 30, 2010
and 2009
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
Investment
|
|
|
|
|
|
Policyholder
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
Gains
|
|
|
Other
|
|
|
Benefits and
|
|
|
Other
|
|
|
|
|
|
|
Income
|
|
|
(Losses)
|
|
|
Revenues
|
|
|
Claims
|
|
|
Expenses
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
For the Six Months Ended June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
10
|
|
|
$
|
(17
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(7
|
)
|
RMBS
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
|
|
Foreign corporate securities
|
|
|
4
|
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12
|
)
|
U.S. Treasury, agency and government guaranteed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMBS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABS
|
|
|
19
|
|
|
|
(47
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28
|
)
|
Foreign government securities
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
State and political subdivision securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other fixed maturity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
63
|
|
|
$
|
(80
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
|
|
|
$
|
(1
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(1
|
)
|
Non-redeemable preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
|
|
|
$
|
(1
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
$
|
(4
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(4
|
)
|
Short-term investments
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Mortgage loans
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(1
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(1
|
)
|
Net derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
|
|
|
$
|
35
|
|
|
$
|
51
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
86
|
|
Foreign currency contracts
|
|
|
|
|
|
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(30
|
)
|
Credit contracts
|
|
|
|
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21
|
)
|
Equity market contracts
|
|
|
8
|
|
|
|
418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net derivatives
|
|
$
|
8
|
|
|
$
|
403
|
|
|
$
|
51
|
|
|
$
|
|
|
|
$
|
(1
|
)
|
|
$
|
461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(224
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(224
|
)
|
Net embedded derivatives
|
|
$
|
|
|
|
$
|
(1,682
|
)
|
|
$
|
|
|
|
$
|
46
|
|
|
$
|
|
|
|
$
|
(1,636
|
)
|
Long-term debt of consolidated securitization entities
|
|
$
|
|
|
|
$
|
(11
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(11
|
)
|
93
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Unrealized Gains (Losses)
|
|
|
|
Relating to Assets and Liabilities Held at June 30, 2010
and 2009
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
Investment
|
|
|
|
|
|
Policyholder
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
Gains
|
|
|
Other
|
|
|
Benefits and
|
|
|
Other
|
|
|
|
|
|
|
Income
|
|
|
(Losses)
|
|
|
Revenues
|
|
|
Claims
|
|
|
Expenses
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
For the Six Months Ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
7
|
|
|
$
|
(226
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(219
|
)
|
RMBS
|
|
|
2
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53
|
|
Foreign corporate securities
|
|
|
(3
|
)
|
|
|
(213
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(216
|
)
|
U.S. Treasury, agency and government guaranteed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMBS
|
|
|
1
|
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25
|
)
|
ABS
|
|
|
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 loans
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(8
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(8
|
)
|
Net derivatives
|
|
$
|
(71
|
)
|
|
$
|
(822
|
)
|
|
$
|
17
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(876
|
)
|
Mortgage servicing rights
|
|
$
|
|
|
|
$
|
|
|
|
$
|
121
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
121
|
|
Net embedded derivatives
|
|
$
|
|
|
|
$
|
1,899
|
|
|
$
|
|
|
|
$
|
(68
|
)
|
|
$
|
|
|
|
$
|
1,831
|
|
94
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Fair
Value Option Mortgage Loans
Held-For-Sale
The Company has elected fair value accounting for certain
residential mortgage loans
held-for-sale.
The following table presents residential mortgage loans
held-for-sale
carried under the fair value option at:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
(In millions)
|
|
|
Unpaid principal balance
|
|
$
|
1,945
|
|
|
$
|
2,418
|
|
Excess of estimated fair value over unpaid principal balance
|
|
|
98
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
Carrying value at estimated fair value
|
|
$
|
2,043
|
|
|
$
|
2,470
|
|
|
|
|
|
|
|
|
|
|
Loans in non-accrual status
|
|
$
|
2
|
|
|
$
|
4
|
|
Loans more than 90 days past due
|
|
$
|
3
|
|
|
$
|
2
|
|
Loans in non-accrual status or more than 90 days past due,
or both difference between aggregate estimated fair
value and unpaid principal balance
|
|
$
|
(1
|
)
|
|
$
|
(2
|
)
|
Residential mortgage loans
held-for-sale
accounted for under the fair value option are initially measured
at estimated fair value. Interest income on residential mortgage
loans
held-for-sale
is recorded based on the stated rate of the loan and is recorded
in net investment income. Gains and losses from initial
measurement, subsequent changes in estimated fair value and
gains or losses on sales are recognized in other revenues, and
such changes in estimated fair value were due to the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Instrument-specific credit risk based on changes in credit
spreads for non-agency loans and adjustments in individual loan
quality
|
|
$
|
(1
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(1
|
)
|
Other changes in estimated fair value
|
|
|
134
|
|
|
|
122
|
|
|
|
261
|
|
|
|
307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gains (losses) recognized in other revenues
|
|
$
|
133
|
|
|
$
|
122
|
|
|
$
|
261
|
|
|
$
|
306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value Option Consolidated Securitization
Entities
As discussed in Note 1, upon the adoption of new guidance
effective January 1, 2010, the Company has elected fair
value accounting for commercial mortgage loans and securities
classified as trading securities held by and the related
long-term debt of the consolidated securitization entities.
Information on the fair value of the securities classified as
trading securities is presented in Note 3. The following
table presents these commercial mortgage loans carried under the
fair value option at:
|
|
|
|
|
|
|
June 30, 2010
|
|
|
|
(In millions)
|
|
|
Unpaid principal balance
|
|
$
|
7,009
|
|
Excess of estimated fair value over unpaid principal balance
|
|
|
98
|
|
|
|
|
|
|
Carrying value at estimated fair value
|
|
$
|
7,107
|
|
|
|
|
|
|
95
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The following table presents the long-term debt carried under
the fair value option related to both the commercial mortgage
loans and securities classified as trading securities at:
|
|
|
|
|
|
|
June 30, 2010
|
|
|
|
(In millions)
|
|
|
Contractual principal balance
|
|
$
|
6,978
|
|
Excess of estimated fair value over contractual principal balance
|
|
|
151
|
|
|
|
|
|
|
Carrying value at estimated fair value
|
|
$
|
7,129
|
|
|
|
|
|
|
Interest income on both commercial mortgage loans and securities
classified as trading securities held by consolidated
securitization entities is recorded in net investment income.
Interest expense on long-term debt of consolidated
securitization entities is recorded in other expenses. Gains and
losses from initial measurement, subsequent changes in estimated
fair value and gains or losses on sales of both the commercial
mortgage loans and long-term debt are recognized in net
investment gains (losses), which is summarized in Note 3.
Non-Recurring
Fair Value Measurements
Certain assets are measured at estimated fair value on a
non-recurring basis and are not included in the tables above.
The amounts below relate to certain investments measured at
estimated fair value during the period and still held at the
reporting dates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
|
|
|
Value Prior to
|
|
|
Value After
|
|
|
Gains
|
|
|
Value Prior to
|
|
|
Value After
|
|
|
Gains
|
|
|
|
Impairment
|
|
|
Impairment
|
|
|
(Losses)
|
|
|
Impairment
|
|
|
Impairment
|
|
|
(Losses)
|
|
|
|
(In millions)
|
|
|
Mortgage loans: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-for-investment
|
|
$
|
69
|
|
|
$
|
83
|
|
|
$
|
14
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Held-for-sale
|
|
|
90
|
|
|
|
84
|
|
|
|
(6
|
)
|
|
|
13
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans, net
|
|
$
|
159
|
|
|
$
|
167
|
|
|
$
|
8
|
|
|
$
|
13
|
|
|
$
|
13
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other limited partnership interests (2)
|
|
$
|
25
|
|
|
$
|
17
|
|
|
$
|
(8
|
)
|
|
$
|
655
|
|
|
$
|
410
|
|
|
$
|
(245
|
)
|
Real estate joint ventures (3)
|
|
$
|
7
|
|
|
$
|
3
|
|
|
$
|
(4
|
)
|
|
$
|
137
|
|
|
$
|
69
|
|
|
$
|
(68
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
|
|
|
Value Prior to
|
|
|
Value After
|
|
|
Gains
|
|
|
Value Prior to
|
|
|
Value After
|
|
|
Gains
|
|
|
|
Impairment
|
|
|
Impairment
|
|
|
(Losses)
|
|
|
Impairment
|
|
|
Impairment
|
|
|
(Losses)
|
|
|
|
(In millions)
|
|
|
Mortgage loans: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-for-investment
|
|
$
|
148
|
|
|
$
|
138
|
|
|
$
|
(10
|
)
|
|
$
|
137
|
|
|
$
|
111
|
|
|
$
|
(26
|
)
|
Held-for-sale
|
|
|
89
|
|
|
|
83
|
|
|
|
(6
|
)
|
|
|
13
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans, net
|
|
$
|
237
|
|
|
$
|
221
|
|
|
$
|
(16
|
)
|
|
$
|
150
|
|
|
$
|
124
|
|
|
$
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other limited partnership interests (2)
|
|
$
|
25
|
|
|
$
|
17
|
|
|
$
|
(8
|
)
|
|
$
|
823
|
|
|
$
|
482
|
|
|
$
|
(341
|
)
|
Real estate joint ventures (3)
|
|
$
|
33
|
|
|
$
|
8
|
|
|
$
|
(25
|
)
|
|
$
|
137
|
|
|
$
|
69
|
|
|
$
|
(68
|
)
|
96
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
(1) |
|
Mortgage Loans The impaired mortgage loans
presented above were written down to their estimated fair values
at the date the impairments were recognized and are reported as
losses above. Subsequent improvements in estimated fair value on
previously impaired loans recorded through a reduction in the
previously established valuation allowance are reported as gains
above. Estimated fair values for impaired mortgage loans are
based on observable market prices or, if the loans are in
foreclosure or are otherwise determined to be collateral
dependent, on the estimated fair value of the underlying
collateral, or the present value of the expected future cash
flows. Impairments to estimated fair value and decreases in
previous impairments from subsequent improvements in estimated
fair value represent non-recurring fair value measurements that
have been categorized as Level 3 due to the lack of price
transparency inherent in the limited markets for such mortgage
loans. |
|
(2) |
|
Other Limited Partnership Interests The
impaired investments presented above were accounted for using
the cost basis. Impairments on these cost basis investments were
recognized at estimated fair value determined from information
provided in the financial statements of the underlying entities
in the period in which the impairment was incurred. These
impairments to estimated fair value represent non-recurring fair
value measurements that have been classified as Level 3 due
to the limited activity and price transparency inherent in the
market for such investments. This category includes several
private equity and debt funds that typically invest primarily in
a diversified pool of investments across certain investment
strategies including domestic and international leveraged buyout
funds; power, energy, timber and infrastructure development
funds; venture capital funds; below investment grade debt and
mezzanine debt funds. The estimated fair values of these
investments have been determined using the NAV of the
Companys ownership interest in the partners capital.
Distributions from these investments will be generated from
investment gains, from operating income from the underlying
investments of the funds and from liquidation of the underlying
assets of the funds. It is estimated that the underlying assets
of the funds will be liquidated over the next 2 to
10 years. Unfunded commitments for these investments were
$23 million at June 30, 2010. |
|
(3) |
|
Real Estate Joint Ventures The impaired
investments presented above were accounted for using the cost
basis. Impairments on these cost basis investments were
recognized at estimated fair value determined from information
provided in the financial statements of the underlying entities
in the period in which the impairment was incurred. These
impairments to estimated fair value represent non-recurring fair
value measurements that have been classified as Level 3 due
to the limited activity and price transparency inherent in the
market for such investments. This category includes several real
estate funds that typically invest primarily in commercial real
estate. The estimated fair values of these investments have been
determined using the NAV of the Companys ownership
interest in the partners capital. Distributions from these
investments will be generated from investment gains, from
operating income from the underlying investments of the funds
and from liquidation of the underlying assets of the funds. It
is estimated that the underlying assets of the funds will be
liquidated over the next 2 to 10 years. Unfunded
commitments for these investments were $11 million at
June 30, 2010. |
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.
Experience within the closed block, in particular mortality and
investment yields, as well as realized and unrealized gains and
losses, directly impact the policyholder dividend obligation.
The policyholder dividend obligation increased to
$1,080 million at June 30, 2010, from zero at
December 31, 2009, as a result of recent unrealized gains
in the closed block. Amortization of the closed block DAC, which
resides outside of the closed
97
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
block, is based upon cumulative actual and expected earnings
within the closed block. Accordingly, the Companys net
income continues to be sensitive to the actual performance of
the closed block.
Information regarding the closed block liabilities and assets
designated to the closed block was as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
(In millions)
|
|
|
Closed Block Liabilities
|
|
|
|
|
|
|
|
|
Future policy benefits
|
|
$
|
43,449
|
|
|
$
|
43,576
|
|
Other policyholder funds
|
|
|
306
|
|
|
|
307
|
|
Policyholder dividends payable
|
|
|
646
|
|
|
|
615
|
|
Policyholder dividend obligation
|
|
|
1,080
|
|
|
|
|
|
Other liabilities
|
|
|
572
|
|
|
|
576
|
|
|
|
|
|
|
|
|
|
|
Total closed block liabilities
|
|
|
46,053
|
|
|
|
45,074
|
|
|
|
|
|
|
|
|
|
|
Assets Designated to the Closed Block
|
|
|
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
|
|
|
Fixed maturity securities
available-for-sale,
at estimated fair value (amortized cost: $27,323 and $27,129,
respectively)
|
|
|
29,230
|
|
|
|
27,375
|
|
Equity securities
available-for-sale,
at estimated fair value (cost: $111 and $204, respectively)
|
|
|
87
|
|
|
|
218
|
|
Mortgage loans
|
|
|
5,989
|
|
|
|
6,200
|
|
Policy loans
|
|
|
4,590
|
|
|
|
4,538
|
|
Real estate and real estate joint ventures
held-for-investment
|
|
|
311
|
|
|
|
321
|
|
Short-term investments
|
|
|
|
|
|
|
1
|
|
Other invested assets
|
|
|
584
|
|
|
|
463
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
|
40,791
|
|
|
|
39,116
|
|
Cash and cash equivalents
|
|
|
249
|
|
|
|
241
|
|
Accrued investment income
|
|
|
521
|
|
|
|
489
|
|
Premiums, reinsurance and other receivables
|
|
|
98
|
|
|
|
78
|
|
Current income tax recoverable
|
|
|
49
|
|
|
|
112
|
|
Deferred income tax assets
|
|
|
374
|
|
|
|
612
|
|
|
|
|
|
|
|
|
|
|
Total assets designated to the closed block
|
|
|
42,082
|
|
|
|
40,648
|
|
|
|
|
|
|
|
|
|
|
Excess of closed block liabilities over assets designated to the
closed block
|
|
|
3,971
|
|
|
|
4,426
|
|
|
|
|
|
|
|
|
|
|
Amounts included in accumulated other comprehensive income
(loss):
|
|
|
|
|
|
|
|
|
Unrealized investment gains (losses), net of income tax of $661
and $89, respectively
|
|
|
1,226
|
|
|
|
166
|
|
Unrealized gains (losses) on derivative instruments, net of
income tax of $10 and ($3), respectively
|
|
|
18
|
|
|
|
(5
|
)
|
Allocated to policyholder dividend obligation, net of income tax
of ($378) and $0, respectively
|
|
|
(702
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amounts included in accumulated other comprehensive income
(loss)
|
|
|
542
|
|
|
|
161
|
|
|
|
|
|
|
|
|
|
|
Maximum future earnings to be recognized from closed block
assets and liabilities
|
|
$
|
4,513
|
|
|
$
|
4,587
|
|
|
|
|
|
|
|
|
|
|
Information regarding the closed block policyholder dividend
obligation was as follows:
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
Year
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
(In millions)
|
|
|
Balance, beginning of period
|
|
$
|
|
|
|
$
|
|
|
Change in unrealized investment and derivative gains (losses)
|
|
|
1,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
1,080
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
98
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Information regarding the closed block revenues and expenses was
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
608
|
|
|
$
|
669
|
|
|
$
|
1,183
|
|
|
$
|
1,304
|
|
Net investment income
|
|
|
560
|
|
|
|
553
|
|
|
|
1,143
|
|
|
|
1,086
|
|
Net investment gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-than-temporary
impairments on fixed maturity securities
|
|
|
(18
|
)
|
|
|
(21
|
)
|
|
|
(18
|
)
|
|
|
(57
|
)
|
Other-than-temporary
impairments on fixed maturity securities transferred to other
comprehensive income (loss)
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
8
|
|
Other net investment gains (losses), net
|
|
|
41
|
|
|
|
(82
|
)
|
|
|
53
|
|
|
|
108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net investment gains (losses)
|
|
|
23
|
|
|
|
(95
|
)
|
|
|
35
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,191
|
|
|
|
1,127
|
|
|
|
2,361
|
|
|
|
2,449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims
|
|
|
771
|
|
|
|
826
|
|
|
|
1,504
|
|
|
|
1,612
|
|
Policyholder dividends
|
|
|
324
|
|
|
|
373
|
|
|
|
645
|
|
|
|
739
|
|
Other expenses
|
|
|
51
|
|
|
|
52
|
|
|
|
101
|
|
|
|
104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1,146
|
|
|
|
1,251
|
|
|
|
2,250
|
|
|
|
2,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues, net of expenses before provision for income tax
expense (benefit)
|
|
|
45
|
|
|
|
(124
|
)
|
|
|
111
|
|
|
|
(6
|
)
|
Provision for income tax expense (benefit)
|
|
|
15
|
|
|
|
(44
|
)
|
|
|
37
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues, net of expenses and provision for income tax expense
(benefit)
|
|
$
|
30
|
|
|
$
|
(80
|
)
|
|
$
|
74
|
|
|
$
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The change in the maximum future earnings of the closed block
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Balance, end of period
|
|
$
|
4,513
|
|
|
$
|
4,521
|
|
|
$
|
4,513
|
|
|
$
|
4,521
|
|
Balance, beginning of period
|
|
|
4,543
|
|
|
|
4,441
|
|
|
|
4,587
|
|
|
|
4,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change during period
|
|
$
|
(30
|
)
|
|
$
|
80
|
|
|
$
|
(74
|
)
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
7.
|
Long-term
and Short-term Debt
|
The following represents significant changes in debt from the
amounts reported in Note 11 of the Notes to the
Consolidated Financial Statements included in the 2009 Annual
Report. See Note 3 for discussion of long-term debt of
consolidated securitization entities.
99
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Advances
from the Federal Home Loan Bank of New York
MetLife Bank, National Association (MetLife Bank) is
a member of the FHLB of NY and held $148 million and
$124 million of common stock of the FHLB of NY at
June 30, 2010 and December 31, 2009, respectively,
which is included in equity securities. MetLife Bank has also
entered into an advances agreement with the FHLB of NY whereby
MetLife Bank has received cash advances and under 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 repayment obligations. Upon
any event of default by MetLife Bank, the FHLB of NYs
recovery is limited to the amount of MetLife Banks
liability under the advances agreement. The amount of MetLife
Banks liability for advances from the FHLB of NY was
$2.9 billion and $2.4 billion at June 30, 2010
and December 31, 2009, 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,
2010 and 2009, MetLife Bank received advances related to
long-term borrowings totaling $678 million and
$550 million, respectively, from the FHLB of NY. MetLife
Bank made repayments to the FHLB of NY of $169 million and
$120 million related to long-term borrowings for the six
months ended June 30, 2010 and 2009, respectively. The
advances related to both long-term and short-term debt were
collateralized by residential mortgages, mortgage loans
held-for-sale,
commercial mortgages and mortgage-backed securities with
estimated fair values of $6.3 billion and $5.5 billion
at June 30, 2010 and December 31, 2009, respectively.
Credit
and Committed Facilities
Concurrently with the entry into the Stock Purchase Agreement
(see Note 2), the Holding Company signed a commitment
letter (amended and restated on March 16, 2010) with
various financial institutions for a senior credit facility in
an aggregate principal amount of up to $5.0 billion. At the
Holding Companys option, any loan under the senior credit
facility will bear interest at a rate equal to (i) LIBOR
plus the Applicable Margin (the Applicable Margin is 2.00% for
the first 89 days after the closing date and, beginning on
the 90th day after the closing date, is calculated using
credit default swap rates on the Companys senior unsecured
obligations plus a margin that increases with the amount of time
that has passed since the closing), or (ii) the Base Rate
(to be defined as the highest of (a) the Bank of America
prime rate, (b) the Federal Funds rate plus 0.50% and
(c) one month LIBOR plus 1.00%) plus the Applicable Margin.
In addition, on the 90th, 180th and 270th day after
the closing, the Company must pay a fee (increasing over time)
equal to a percentage of the amounts outstanding under the
credit facility on those dates. During the continuance of any
default under the senior credit facility, the Applicable Margin
on obligations owing thereunder shall increase by 2% per annum
(subject, in all cases other than an insolvency default or
default in the payment of principal when due, to the request of
the Required Lenders (as defined therein)). The senior credit
facility will be used to finance any portion of the cash
component of the purchase price of the Alico transaction that is
not financed with sales of the Companys securities. Any
borrowings under the senior credit facility must be repaid by
the 364th day following the closing of the Alico
transaction. Conditions precedent to closing of the senior
credit facility are typical for transactions of this type,
including (in addition to certain conditions precedent contained
in the Stock Purchase Agreement): (i) no Material Adverse
Effect (as defined in the commitment letter) since
December 31, 2009 relating to the Holding Company and its
subsidiaries, or November 30, 2009 relating to the
Transferred Businesses (as defined in the commitment letter);
(ii) long-term indebtedness of the Holding Company must be
at or above a specified level as of closing; (iii) without
consent of the lead arrangers, no change materially adverse to
the lenders may be made in terms of the sources of funding for
the transaction; and (iv) no term in the Stock Purchase
Agreement may be waived adversely to the lenders without the
consent of the lead arrangers.
100
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
8.
|
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 Company to pay damages or make other
expenditures or establish accruals in amounts that could not be
estimated at June 30, 2010.
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.
101
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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 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 2009 Annual Report, MLIC received
approximately 3,910 asbestos-related claims in 2009. During the
six months ended June 30, 2010 and 2009, MLIC received
approximately 2,076 and 1,726 new asbestos-related claims,
respectively. See Note 16 of the Notes to the Consolidated
Financial Statements included in the 2009 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.
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
102
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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, 2010.
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. On
April 15, 2010, the Company and the Office of the
U.S. Attorney for the Southern District of California
signed an agreement that resolved the U.S. Attorneys
investigation concerning payments that the Company had made to
the insurance broker Universal Life Resources prior to 2005.
Among other things, the agreement required the Company to make a
$13.5 million payment, which it made in April 2010. The
Florida insurance regulator has initiated discussions with the
Company regarding its investigation of contingent payments made
to brokers. The Company has been cooperating fully in these
inquiries.
The Environmental Protection Agency (EPA) issued
Notices of Violation in June 2008 and May 2010 (the
NOVs) to EME Homer City Generation LLC (EME
Homer City), Homer City OL6 LLC, and other respondents
regarding the operations of the Homer City Generating Station,
an electrical generation facility. 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. The NOVs allege, among
other things, that the electrical generation facility is being
operated in violation of certain federal and state Clean Air Act
requirements. The NOVs identify the injunctive, monetary and
criminal penalties that a court may impose if the EPA prosecutes
actions for the specified violations. On July 20, 2010, the
State of New York and the Pennsylvania Department of
Environmental Protection notified Homer City OL6 and other
parties that they intend to bring an action against the owners
of the Homer City Generating Station and other parties for
alleged violations of the Clean Air Act. The violations
described in the July 20 notice are similar to the violations
that the NOVs describe. EME Homer City has acknowledged its
obligation to indemnify Homer City OL6 LLC for any claims
relating to the NOVs.
Regulatory authorities in a small number of states and FINRA,
and occasionally the SEC, have had investigations or inquiries
relating to sales of individual life insurance policies or
annuities or other products by MLIC, MetLife Insurance Company
of Connecticut, New England Life Insurance Company and General
American Life Insurance Company, and the four Company
broker-dealers, which are MetLife Securities, Inc.
(MSI), New England Securities Corporation, Walnut
Street Securities, Inc. and Tower Square Securities, Inc. These
investigations often focus on the conduct of particular
financial services representatives and the sale of unregistered
or unsuitable products or the misuse of client assets. Over the
past several years, these and a number of investigations by
other regulatory authorities were resolved for monetary payments
and certain other relief, including restitution payments. The
Company may continue to resolve investigations in a similar
manner.
In July 2010, MSI tentatively resolved two regulatory matters
that had been brought by the Illinois Department of Securities.
MSI signed a stipulation as to the first matter and a settlement
agreement as to the second matter with the Illinois Department
of Securities. In January 2008, MSI had received notice of the
commencement of an administrative action by the Illinois
Department of Securities asserting possible violations of the
Illinois Securities Act. In December 2008, MSI had received a
Notice of Hearing from the Illinois Department of Securities
also asserting possible violations of the Illinois Securities
Act.
103
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Retained
Asset Account Matters
MetLife offers as a settlement option under its individual and
group life insurance policies a retained asset account for death
benefit payments called a Total Control Account
(TCA). When a TCA is established for a beneficiary,
the Company retains the death benefit proceeds in the general
account and pays interest on those proceeds at a rate set by
reference to objective indices. Additionally, the accounts enjoy
a guaranteed minimum interest rate. Beneficiaries can withdraw
all of the funds or a portion of the funds held in the account
at any time.
The New York Attorney General recently announced that his office
had launched a major fraud investigation into the life insurance
industry for practices related to the use of retained asset
accounts and that subpoenas requesting comprehensive data
related to retained asset accounts have been served on MetLife
and other insurance carriers. We received the subpoena on
July 30, 2010. It is possible that other state and federal
regulators or legislative bodies may pursue similar
investigations or make related inquiries. We cannot predict what
effect any such investigations might have on our earnings or the
availability of the TCA, but we believe that our financial
statements taken as a whole would not be materially affected. We
believe that any allegations that information about the TCA is
not adequately disclosed or that the accounts are fraudulent or
otherwise violate state or federal laws are without merit.
MLIC is a defendant in lawsuits related to the TCA. The lawsuits
include claims of breach of contract, breach of a common law
fiduciary duty or a quasi-fiduciary duty such as a confidential
or special relationship, or breach of a fiduciary duty under
ERISA.
Clark, et al. v. Metropolitan Life Insurance Company (D.
Nev., filed March 28, 2008). This putative
class action lawsuit alleges breach of contract and breach of a
common law fiduciary
and/or
quasi-fiduciary duty arising from use of the TCA to pay life
insurance policy death benefits. As damages, plaintiffs seek
disgorgement of the difference between the interest paid to the
account holders and the investment earnings on the assets
backing the accounts. In March 2009, the court granted in part
and denied in part MLICs motion to dismiss,
dismissing the fiduciary duty and unjust enrichment claims but
allowing a breach of contract claim and a special or
confidential relationship claim to go forward. In December 2009,
MLIC filed a motion for summary judgment and plaintiff filed a
motion seeking class certification.
Faber, et al. v. Metropolitan Life Insurance Company (S.D.N.
Y., filed December 4, 2008). This putative
class action lawsuit alleges that MLICs use of the TCA as
the settlement option under group life insurance policies
violates MLICs fiduciary duties under ERISA. As damages,
plaintiffs seek disgorgement of the difference between the
interest paid to the account holders and the investment earnings
on the assets backing the accounts. On October 23, 2009,
the court granted MLICs motion to dismiss with prejudice.
On November 24, 2009, plaintiffs filed a Notice of Appeal
to the U.S. Court of Appeals for the Second Circuit.
Demutualization
Actions
The Company was a defendant in two lawsuits challenging the
fairness of the Plan and the adequacy and accuracy of
MLICs disclosure to policyholders regarding the Plan. The
plaintiffs in the consolidated state court class action,
Fiala, et al. v. Metropolitan Life Ins. Co., et al. (Sup.
Ct., N.Y. County, filed March 17, 2000), sought
compensatory relief and punitive damages against MLIC, the
Holding Company, and individual directors. The court certified a
litigation class of present and former policyholders on
plaintiffs claim that defendants violated
section 7312 of the New York Insurance Law. The plaintiffs
in the consolidated federal court class action, In re MetLife
Demutualization Litig. (E.D.N.Y., filed April 18, 2000),
sought rescission and compensatory damages against MLIC and
the Holding Company. Plaintiffs asserted violations of the
Securities Act of 1933 and the Securities Exchange Act of 1934
in connection with the Plan, claiming that the Policyholder
Information Booklets failed to disclose certain material facts
and contained certain material misstatements. The court
certified a litigation class of present and former
policyholders. The parties to these two lawsuits entered into a
settlement agreement in November 2009. The federal and state
courts respectively approved the settlement in orders issued on
February 12, 2010 and March 3, 2010. On March 2,
2010 and March 23, 2010, the federal and state courts
entered final
104
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
judgments confirming their approval of the settlement and
dismissing the actions. On March 15, 2010, an objector
filed a notice of appeal of the federal courts order
approving the settlement. On June 28, 2010, the United
States Court of Appeals for the Second Circuit dismissed the
only notice of appeal filed with respect to the settlement.
Other
Litigation
Travelers Ins. Co., et al. v. Banc of America Securities
LLC (S.D.N.Y., filed December 13, 2001). On
January 6, 2009, after a jury trial, the district
court entered a judgment in favor of The Travelers Insurance
Company, now known as MetLife Insurance Company of Connecticut
(MICC), 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 July 20, 2010, the United
States Court of Appeals for the Second Circuit issued an order
affirming the district courts judgment in favor of MICC
and the district courts order denying defendants
post-trial motions. As a final judgment has not yet been entered
in MICCs favor 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. Simon v.
Metropolitan Property and Casualty Ins. Co. (W.D. Okla., filed
September 23, 2008), a third putative nationwide class
action lawsuit relating to payment of medical providers, is
pending in federal court in Oklahoma. The Company is vigorously
defending against the claims in these matters.
The American Dental Association, et al. v. MetLife Inc., et
al. (S.D. Fla., filed May 19, 2003). The
American Dental Association and three individual providers had
sued the Holding Company, MLIC and other non-affiliated
insurance companies in a putative class action lawsuit. The
plaintiffs purported to represent a nationwide class of
in-network
providers who alleged that their claims were being wrongfully
reduced by downcoding, bundling, and the improper use and
programming of software. The complaint alleged federal
racketeering and various state law theories of liability. All of
plaintiffs claims except for breach of contract claims
were dismissed with prejudice on March 2, 2009. By order
dated March 20, 2009, the district court declined to retain
jurisdiction over the remaining breach of contract claims and
dismissed the lawsuit. On April 17, 2009, plaintiffs filed
a notice of appeal from this order. On May 14, 2010, the
United States Court of Appeals for the Eleventh Circuit issued a
decision affirming the district courts dismissal of the
lawsuit.
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.
105
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Roberts, et al. v. Tishman Speyer Properties, et al. (Sup.
Ct., N.Y. County, filed January 22,
2007). This lawsuit was filed by a putative class
of market rate tenants at Stuyvesant Town and Peter Cooper
Village against parties including Metropolitan Tower Life
Insurance Company and Metropolitan Insurance and Annuity
Company. These tenants claim that the Company, as former owner,
and the current owner improperly deregulated apartments while
receiving J-51 tax abatements. The lawsuit seeks declaratory
relief and damages for rent overcharges. In August 2007, the
trial court granted the Companys motion to dismiss. In
March 2009, New Yorks intermediate appellate court
reversed the trial courts decision and reinstated the
lawsuit. The defendants appealed this ruling to the New York
State Court of Appeals, which in October 2009 issued an opinion
affirming the ruling of the intermediate appellate court. The
action has been remanded to the trial court for further
proceedings. Plaintiffs have filed an amended complaint and the
Company has filed a motion to dismiss. The current owner is
pursuing potential settlement of the claims against it.
Thomas, et al. v. Metropolitan Life Ins. Co., et al. (W.D.
Okla., filed January 31, 2007). A putative
class action complaint was filed against MLIC and MSI.
Plaintiffs asserted legal theories of violations of the federal
securities laws and violations of state laws with respect to the
sale of certain proprietary products by the Companys
agency distribution group. Plaintiffs sought rescission,
compensatory damages, interest, punitive damages and
attorneys fees and expenses. In August 2009, the court
granted defendants motion for summary judgment. On
September 29, 2009, plaintiffs filed a notice of appeal
from the courts order dismissing the lawsuit.
Sales Practices Claims. Over the past several
years, the Company has faced numerous claims, including class
action lawsuits, alleging improper marketing or sales of
individual life insurance policies, annuities, mutual funds or
other products. Some of the current cases seek substantial
damages, including punitive and treble damages and
attorneys fees. 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, mortgage lending bank, 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.
106
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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 $3.8 billion and $4.1 billion at
June 30, 2010 and December 31, 2009, 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
$3.6 billion and $2.7 billion at June 30, 2010
and December 31, 2009, respectively. The Company intends to
sell the majority of these originated residential mortgage
loans. Interest rate lock commitments to fund mortgage loans
that will be
held-for-sale
are considered derivatives and their estimated fair value and
notional amounts are included within interest rate forwards in
Note 4.
The Company also commits to lend funds under certain other
mortgage loan commitments that will be
held-for-investment.
The amounts of these mortgage loan commitments were
$2.7 billion and $2.2 billion at June 30, 2010
and December 31, 2009, 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 $2.3 billion and
$1.3 billion at June 30, 2010 and December 31,
2009, respectively.
Guarantees
During the six months ended June 30, 2010, the Company did
not record any additional liabilities for indemnities,
guarantees and commitments. The Companys recorded
liabilities were $5 million at both June 30, 2010 and
December 31, 2009, for indemnities, guarantees and
commitments.
|
|
9.
|
Employee
Benefit Plans
|
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 other
postretirement benefit plan assets, which are invested primarily
in separate accounts sponsored by the Subsidiaries. A December
31 measurement date is used for all of the Subsidiaries
defined benefit pension and other postretirement benefit plans.
107
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The components of net periodic benefit cost 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,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Service cost
|
|
$
|
44
|
|
|
$
|
43
|
|
|
$
|
88
|
|
|
$
|
86
|
|
|
$
|
5
|
|
|
$
|
5
|
|
|
$
|
9
|
|
|
$
|
11
|
|
Interest cost
|
|
|
100
|
|
|
|
98
|
|
|
|
199
|
|
|
|
198
|
|
|
|
28
|
|
|
|
31
|
|
|
|
56
|
|
|
|
63
|
|
Expected return on plan assets
|
|
|
(112
|
)
|
|
|
(108
|
)
|
|
|
(224
|
)
|
|
|
(220
|
)
|
|
|
(21
|
)
|
|
|
(18
|
)
|
|
|
(40
|
)
|
|
|
(37
|
)
|
Settlements and curtailments
|
|
|
7
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net actuarial (gains) losses
|
|
|
49
|
|
|
|
56
|
|
|
|
98
|
|
|
|
113
|
|
|
|
10
|
|
|
|
11
|
|
|
|
19
|
|
|
|
21
|
|
Amortization of prior service cost (credit)
|
|
|
1
|
|
|
|
2
|
|
|
|
3
|
|
|
|
4
|
|
|
|
(20
|
)
|
|
|
(9
|
)
|
|
|
(41
|
)
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
89
|
|
|
$
|
91
|
|
|
$
|
171
|
|
|
$
|
181
|
|
|
$
|
2
|
|
|
$
|
20
|
|
|
$
|
3
|
|
|
$
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of net periodic benefit cost amortized from
accumulated other comprehensive income (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,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Amortization of net actuarial (gains) losses
|
|
$
|
49
|
|
|
$
|
56
|
|
|
$
|
98
|
|
|
$
|
113
|
|
|
$
|
10
|
|
|
$
|
11
|
|
|
$
|
19
|
|
|
$
|
21
|
|
Amortization of prior service cost (credit)
|
|
|
1
|
|
|
|
2
|
|
|
|
3
|
|
|
|
4
|
|
|
|
(20
|
)
|
|
|
(9
|
)
|
|
|
(41
|
)
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
50
|
|
|
|
58
|
|
|
|
101
|
|
|
|
117
|
|
|
|
(10
|
)
|
|
|
2
|
|
|
|
(22
|
)
|
|
|
3
|
|
Deferred income tax expense (benefit)
|
|
|
(18
|
)
|
|
|
(19
|
)
|
|
|
(36
|
)
|
|
|
(40
|
)
|
|
|
28
|
|
|
|
(1
|
)
|
|
|
26
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of net periodic benefit cost amortized from
accumulated other comprehensive income (loss), net of income tax
|
|
$
|
32
|
|
|
$
|
39
|
|
|
$
|
65
|
|
|
$
|
77
|
|
|
$
|
18
|
|
|
$
|
1
|
|
|
$
|
4
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As disclosed in Note 17 of the Notes to the Consolidated
Financial Statements included in the 2009 Annual Report, no
contributions are required to be made to the Subsidiaries
qualified pension plans during 2010; however, the Subsidiaries
expected to make discretionary contributions of up to
$150 million to the plans during 2010. At June 30,
2010, no discretionary contributions have yet been made to those
plans. The Subsidiaries fund benefit payments for their
non-qualified pension and other postretirement plans as due
through their general assets.
108
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Stock-Based
Compensation Plans
Payout of
2007-2009
Performance Shares
Beginning in 2005, certain members of management were awarded
Performance Shares under (and as defined in) the MetLife, Inc.
2005 Stock and Incentive Compensation 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 based on measurements of the Holding
Companys performance. Performance Share awards normally
vest in their entirety at the end of the three-year performance
period (subject to certain contingencies). Vested awards are
payable in shares of the Holding Companys common stock.
The performance factor for the January 1, 2007
December 31, 2009 performance period was 94%. This factor
has been applied to the 807,750 Performance Shares associated
with that performance period that vested on December 31,
2009, and as a result 759,285 shares of the Holding
Companys common stock (less withholding for taxes and
other items, as applicable) were paid (aside from shares that
payees earlier chose to defer) during the second quarter of
2010. The performance factor applied for the January 1,
2007 December 31, 2009 performance period was
determined based on measurements of the Holding Companys
performance that included: (i) the change in annual net
operating earnings per share, as defined in the applicable award
agreements; and (ii) the proportionate total shareholder
return, as defined in the applicable award agreements, each with
reference to the applicable three-year performance period
relative to other Fortune 500 companies in the S&P
Insurance Index with reference to the same three-year period.
Information on other expenses was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Compensation
|
|
$
|
960
|
|
|
$
|
1,017
|
|
|
$
|
1,892
|
|
|
$
|
1,930
|
|
Commissions
|
|
|
845
|
|
|
|
867
|
|
|
|
1,660
|
|
|
|
1,723
|
|
Interest and debt issue costs
|
|
|
378
|
|
|
|
260
|
|
|
|
758
|
|
|
|
515
|
|
Interest credited to bank deposits
|
|
|
36
|
|
|
|
40
|
|
|
|
75
|
|
|
|
83
|
|
Capitalization of DAC
|
|
|
(767
|
)
|
|
|
(757
|
)
|
|
|
(1,511
|
)
|
|
|
(1,543
|
)
|
Amortization of DAC and VOBA
|
|
|
1,020
|
|
|
|
(293
|
)
|
|
|
1,622
|
|
|
|
636
|
|
Rent, net of sublease income
|
|
|
96
|
|
|
|
103
|
|
|
|
195
|
|
|
|
216
|
|
Insurance tax
|
|
|
141
|
|
|
|
143
|
|
|
|
256
|
|
|
|
268
|
|
Other
|
|
|
711
|
|
|
|
651
|
|
|
|
1,415
|
|
|
|
1,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
$
|
3,420
|
|
|
$
|
2,031
|
|
|
$
|
6,362
|
|
|
$
|
5,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and Debt Issue Costs
Includes interest expense related to consolidated securitization
entities of $103 million and $209 million, for the
three months and six months ended June 30, 2010,
respectively, and $0 and $0, for the three months and six months
ended June 30, 2009, respectively, (see Note 3), and
interest expense on tax audits of $9 million and
$19 million, for the three months and six months ended
June 30, 2010, respectively, and $4 million and
$14 million, for the three months and six months ended
June 30, 2009, respectively.
109
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Costs
Related to Pending Acquisition
Related to the pending acquisition of Alico discussed in
Note 2, the Company incurred $15 million and
$42 million of transaction costs, which primarily consisted
of investment banking and legal fees, for the three months and
six months ended June 30, 2010, respectively. Such costs
were included in other expenses.
Integration related expenses incurred for the three months and
six months ended June 30, 2010 and included in other
expenses were $40 million and $42 million,
respectively. Integration of Alico is an enterprise-wide
initiative, and the expenses were incurred within Banking,
Corporate & Other.
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. These restructuring costs were included in other
expenses. As the expenses relate to an enterprise-wide
initiative, they were incurred within Banking,
Corporate & Other. Estimated restructuring costs may
change as 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,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Balance, beginning of period
|
|
$
|
25
|
|
|
$
|
39
|
|
|
$
|
36
|
|
|
$
|
86
|
|
Severance charges
|
|
|
2
|
|
|
|
16
|
|
|
|
13
|
|
|
|
38
|
|
Change in severance charge estimates
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
(1
|
)
|
Cash payments
|
|
|
(7
|
)
|
|
|
(19
|
)
|
|
|
(31
|
)
|
|
|
(87
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
20
|
|
|
$
|
36
|
|
|
$
|
20
|
|
|
$
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges incurred in current period
|
|
$
|
2
|
|
|
$
|
16
|
|
|
$
|
15
|
|
|
$
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring charges incurred since inception of program
|
|
$
|
192
|
|
|
$
|
138
|
|
|
$
|
192
|
|
|
$
|
138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months and six months ended June 30, 2010,
the change in severance charge estimates of $0 and
$2 million, respectively, and for the three months and six
months ended June 30, 2009, of $0 and ($1) million,
respectively, was due to changes in estimates for variable
incentive compensation, COBRA benefits, employee outplacement
services and for employees whose severance status changed.
In addition to the above charges, the Company has recognized
lease charges of $28 million associated with the
consolidation of office space since inception of the program.
Management anticipates further restructuring charges including
severance, lease and asset impairments will be incurred during
the year ending December 31, 2010. However, such
restructuring plans were not sufficiently developed to enable
the Company to make an estimate of such restructuring charges at
June 30, 2010.
110
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
12.
|
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,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions, except share and per common share data)
|
|
|
Weighted Average Shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common stock outstanding for basic earnings per
common share
|
|
|
822,905,671
|
|
|
|
821,594,380
|
|
|
|
822,407,969
|
|
|
|
815,068,638
|
|
Incremental common shares from assumed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise or issuance of stock-based awards (1)
|
|
|
7,567,202
|
|
|
|
|
|
|
|
6,766,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common stock outstanding for diluted earnings
per common share
|
|
|
830,472,873
|
|
|
|
821,594,380
|
|
|
|
829,174,792
|
|
|
|
815,068,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Continuing Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of income tax
|
|
$
|
1,541
|
|
|
$
|
(1,419
|
)
|
|
$
|
2,374
|
|
|
$
|
(2,004
|
)
|
Less: Income (loss) from continuing operations, net of income
tax, attributable to noncontrolling interests
|
|
|
(10
|
)
|
|
|
(16
|
)
|
|
|
(11
|
)
|
|
|
(20
|
)
|
Less: Preferred stock dividends
|
|
|
31
|
|
|
|
31
|
|
|
|
61
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of income tax,
available to MetLife, Inc.s common shareholders
|
|
$
|
1,520
|
|
|
$
|
(1,434
|
)
|
|
$
|
2,324
|
|
|
$
|
(2,045
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.84
|
|
|
$
|
(1.74
|
)
|
|
$
|
2.82
|
|
|
$
|
(2.51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
1.83
|
|
|
$
|
(1.74
|
)
|
|
$
|
2.80
|
|
|
$
|
(2.51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Discontinued Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of income tax
|
|
$
|
6
|
|
|
$
|
1
|
|
|
$
|
7
|
|
|
$
|
38
|
|
Less: Income (loss) from discontinued operations, net of income
tax, attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of income tax,
available to MetLife, Inc.s common shareholders
|
|
$
|
6
|
|
|
$
|
1
|
|
|
$
|
7
|
|
|
$
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.01
|
|
|
$
|
|
|
|
$
|
0.01
|
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.01
|
|
|
$
|
|
|
|
$
|
0.01
|
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
1,547
|
|
|
$
|
(1,418
|
)
|
|
$
|
2,381
|
|
|
$
|
(1,966
|
)
|
Less: Net income (loss) attributable to noncontrolling interests
|
|
|
(10
|
)
|
|
|
(16
|
)
|
|
|
(11
|
)
|
|
|
(20
|
)
|
Less: Preferred stock dividends
|
|
|
31
|
|
|
|
31
|
|
|
|
61
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to MetLife, Inc.s common
shareholders
|
|
$
|
1,526
|
|
|
$
|
(1,433
|
)
|
|
$
|
2,331
|
|
|
$
|
(2,007
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.85
|
|
|
$
|
(1.74
|
)
|
|
$
|
2.83
|
|
|
$
|
(2.46
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
1.84
|
|
|
$
|
(1.74
|
)
|
|
$
|
2.81
|
|
|
$
|
(2.46
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
(1) |
|
For the three months and six months ended June 30, 2009,
3,505,464 shares and 2,592,460 shares, respectively,
related to the assumed exercise or issuance of stock-based
awards have been excluded from the calculation of diluted
earnings per common share as these assumed shares are
anti-dilutive. |
|
|
13.
|
Business
Segment Information
|
The Companys business is currently divided into five
operating segments. The Companys U.S. Business
operations consist of the Insurance Products, Retirement
Products, Corporate Benefit Funding and Auto & Home
segments. The Company also has an International segment. In
addition, the Company reports certain of its results of
operations in Banking, Corporate & Other.
Insurance Products offers a broad range of protection products
and services to individuals, corporations and other
institutions, and is organized into three distinct businesses:
Group Life, Individual Life and Non-Medical Health. Group Life
insurance products and services include variable life, universal
life and term life. Individual Life includes variable life,
universal life, term life and whole life insurance products.
Non-Medical Health includes short- and long-term disability,
long-term care, dental insurance, and other insurance products.
Retirement Products offers asset accumulation and income
products, including a wide variety of annuities. Corporate
Benefit Funding offers pension risk solutions, structured
settlements, stable value and investment products and other
benefit funding products. Auto & Home provides
personal lines property and casualty insurance, including
private passenger automobile, homeowners and personal excess
liability insurance.
International provides life insurance, accident and health
insurance, annuities and retirement products to both individuals
and groups.
Banking, Corporate & Other contains the excess capital
not allocated to the business segments, the results of
operations of MetLife Bank, various
start-up
entities and run-off entities, as well as interest expense
related to the majority of the Companys outstanding debt
and expenses associated with certain legal proceedings and
income tax audit issues. Banking, Corporate & Other
also includes the elimination of intersegment amounts, which
generally relate to intersegment loans, which bear interest
rates commensurate with related borrowings.
Operating earnings is the measure of segment profit or loss the
Company uses to evaluate segment performance and allocate
resources. Consistent with GAAP accounting guidance for segment
reporting, it is the Companys measure of segment
performance reported below. Operating earnings does not equate
to income (loss) from continuing operations, net of income tax
or net income (loss) as determined in accordance with GAAP and
should not be viewed as a substitute for those GAAP measures.
The Company believes the presentation of operating earnings
herein as the Company measures it for management purposes
enhances the understanding of its performance by highlighting
the results from operations and the underlying profitability
drivers of the businesses.
Operating earnings is defined as operating revenues less
operating expenses, net of income tax.
Operating revenues is defined as GAAP revenues (i) less net
investment gains (losses); (ii) less amortization of
unearned revenue related to net investment gains (losses);
(iii) plus scheduled periodic settlement payments on
derivatives that are hedges of investments but do not qualify
for hedge accounting treatment; (iv) plus income from
discontinued real estate operations; and (v) plus, for
operating joint ventures reported under the equity method of
accounting, the aforementioned adjustments, those identified in
the definition of operating expenses and changes in fair value
of hedges of operating joint venture liabilities, all net of
income tax.
Operating expenses is defined as GAAP expenses (i) less
changes in policyholder benefits associated with asset value
fluctuations related to experience-rated contractholder
liabilities and certain inflation-indexed liabilities;
(ii) less costs related to business combinations (since
January 1, 2009) and noncontrolling interests;
(iii) less amortization of DAC and VOBA and changes in the
policyholder dividend obligation related to net
112
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
investment gains (losses); and (iv) plus scheduled periodic
settlement payments on derivatives that are hedges of
policyholder account balances but do not qualify for hedge
accounting treatment.
In addition, operating revenues and operating expenses do not
reflect the consolidation of certain securitization vehicles
that are VIEs as required under GAAP.
Set forth in the tables below is certain financial information
with respect to the Companys segments, as well as Banking,
Corporate & Other for the three months and six months
ended June 30, 2010 and 2009. The accounting policies of
the segments are the same as those of the Company, except for
the method of capital allocation and the accounting for gains
(losses) from intercompany sales, which are eliminated in
consolidation. Economic capital is an internally developed risk
capital model, the purpose of which is to measure the risk in
the business and to provide a basis upon which capital is
deployed. The economic capital model accounts for the unique and
specific nature of the risks inherent in the Companys
businesses. As a part of the economic capital process, a portion
of net investment income is credited to the segments based on
the level of allocated equity. The Company allocates certain
non-recurring items, such as expenses associated with certain
legal proceedings, to Banking, Corporate & Other.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Earnings
|
|
|
|
|
|
|
|
|
|
U.S. Business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
Auto
|
|
|
|
|
|
|
|
|
Banking,
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Insurance
|
|
|
Retirement
|
|
|
Benefit
|
|
|
&
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Total
|
|
June 30, 2010
|
|
Products
|
|
|
Products
|
|
|
Funding
|
|
|
Home
|
|
|
Total
|
|
|
International
|
|
|
& Other
|
|
|
Total
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
4,317
|
|
|
$
|
151
|
|
|
$
|
573
|
|
|
$
|
723
|
|
|
$
|
5,764
|
|
|
$
|
895
|
|
|
$
|
3
|
|
|
$
|
6,662
|
|
|
$
|
|
|
|
$
|
6,662
|
|
Universal life and investment- type product policy fees
|
|
|
546
|
|
|
|
561
|
|
|
|
56
|
|
|
|
|
|
|
|
1,163
|
|
|
|
315
|
|
|
|
|
|
|
|
1,478
|
|
|
|
7
|
|
|
|
1,485
|
|
Net investment income
|
|
|
1,495
|
|
|
|
763
|
|
|
|
1,313
|
|
|
|
52
|
|
|
|
3,623
|
|
|
|
297
|
|
|
|
223
|
|
|
|
4,143
|
|
|
|
(56
|
)
|
|
|
4,087
|
|
Other revenues
|
|
|
188
|
|
|
|
54
|
|
|
|
59
|
|
|
|
8
|
|
|
|
309
|
|
|
|
4
|
|
|
|
231
|
|
|
|
544
|
|
|
|
|
|
|
|
544
|
|
Net investment gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,468
|
|
|
|
1,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
6,546
|
|
|
|
1,529
|
|
|
|
2,001
|
|
|
|
783
|
|
|
|
10,859
|
|
|
|
1,511
|
|
|
|
457
|
|
|
|
12,827
|
|
|
|
1,419
|
|
|
|
14,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
4,721
|
|
|
|
49
|
|
|
|
1,143
|
|
|
|
506
|
|
|
|
6,419
|
|
|
|
839
|
|
|
|
(2
|
)
|
|
|
7,256
|
|
|
|
150
|
|
|
|
7,406
|
|
Interest credited to policyholder account balances
|
|
|
237
|
|
|
|
405
|
|
|
|
364
|
|
|
|
|
|
|
|
1,006
|
|
|
|
42
|
|
|
|
|
|
|
|
1,048
|
|
|
|
1
|
|
|
|
1,049
|
|
Interest credited to bank deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
|
|
|
|
36
|
|
|
|
|
|
|
|
36
|
|
Capitalization of DAC
|
|
|
(217
|
)
|
|
|
(262
|
)
|
|
|
(3
|
)
|
|
|
(117
|
)
|
|
|
(599
|
)
|
|
|
(168
|
)
|
|
|
|
|
|
|
(767
|
)
|
|
|
|
|
|
|
(767
|
)
|
Amortization of DAC and VOBA
|
|
|
206
|
|
|
|
372
|
|
|
|
4
|
|
|
|
111
|
|
|
|
693
|
|
|
|
115
|
|
|
|
|
|
|
|
808
|
|
|
|
212
|
|
|
|
1,020
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
|
|
262
|
|
|
|
266
|
|
|
|
103
|
|
|
|
369
|
|
Other expenses
|
|
|
1,031
|
|
|
|
599
|
|
|
|
125
|
|
|
|
193
|
|
|
|
1,948
|
|
|
|
493
|
|
|
|
273
|
|
|
|
2,714
|
|
|
|
48
|
|
|
|
2,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
5,978
|
|
|
|
1,163
|
|
|
|
1,635
|
|
|
|
693
|
|
|
|
9,469
|
|
|
|
1,323
|
|
|
|
569
|
|
|
|
11,361
|
|
|
|
514
|
|
|
|
11,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
199
|
|
|
|
128
|
|
|
|
128
|
|
|
|
17
|
|
|
|
472
|
|
|
|
43
|
|
|
|
(102
|
)
|
|
|
413
|
|
|
|
417
|
|
|
|
830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
369
|
|
|
$
|
238
|
|
|
$
|
238
|
|
|
$
|
73
|
|
|
$
|
918
|
|
|
$
|
145
|
|
|
$
|
(10
|
)
|
|
|
1,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,419
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
(514
|
)
|
|
|
|
|
|
|
|
|
Provision for income tax (expense) benefit
|
|
|
(417
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of income
tax
|
|
$
|
1,541
|
|
|
|
|
|
|
$
|
1,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Earnings
|
|
|
|
|
|
|
|
|
|
U.S. Business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
Auto
|
|
|
|
|
|
|
|
|
Banking,
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Insurance
|
|
|
Retirement
|
|
|
Benefit
|
|
|
&
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Total
|
|
June 30, 2009
|
|
Products
|
|
|
Products
|
|
|
Funding
|
|
|
Home
|
|
|
Total
|
|
|
International
|
|
|
& Other
|
|
|
Total
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
4,235
|
|
|
$
|
139
|
|
|
$
|
695
|
|
|
$
|
726
|
|
|
$
|
5,795
|
|
|
$
|
777
|
|
|
$
|
4
|
|
|
$
|
6,576
|
|
|
$
|
|
|
|
$
|
6,576
|
|
Universal life and investment- type product policy fees
|
|
|
543
|
|
|
|
397
|
|
|
|
61
|
|
|
|
|
|
|
|
1,001
|
|
|
|
226
|
|
|
|
|
|
|
|
1,227
|
|
|
|
(11
|
)
|
|
|
1,216
|
|
Net investment income
|
|
|
1,413
|
|
|
|
724
|
|
|
|
1,179
|
|
|
|
49
|
|
|
|
3,365
|
|
|
|
359
|
|
|
|
135
|
|
|
|
3,859
|
|
|
|
(129
|
)
|
|
|
3,730
|
|
Other revenues
|
|
|
181
|
|
|
|
34
|
|
|
|
69
|
|
|
|
5
|
|
|
|
289
|
|
|
|
2
|
|
|
|
281
|
|
|
|
572
|
|
|
|
|
|
|
|
572
|
|
Net investment gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,829
|
)
|
|
|
(3,829
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
6,372
|
|
|
|
1,294
|
|
|
|
2,004
|
|
|
|
780
|
|
|
|
10,450
|
|
|
|
1,364
|
|
|
|
420
|
|
|
|
12,234
|
|
|
|
(3,969
|
)
|
|
|
8,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
4,700
|
|
|
|
353
|
|
|
|
1,240
|
|
|
|
492
|
|
|
|
6,785
|
|
|
|
600
|
|
|
|
3
|
|
|
|
7,388
|
|
|
|
(8
|
)
|
|
|
7,380
|
|
Interest credited to policyholder account balances
|
|
|
233
|
|
|
|
428
|
|
|
|
409
|
|
|
|
|
|
|
|
1,070
|
|
|
|
159
|
|
|
|
|
|
|
|
1,229
|
|
|
|
|
|
|
|
1,229
|
|
Interest credited to bank deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
|
|
|
|
40
|
|
|
|
|
|
|
|
40
|
|
Capitalization of DAC
|
|
|
(213
|
)
|
|
|
(285
|
)
|
|
|
(6
|
)
|
|
|
(113
|
)
|
|
|
(617
|
)
|
|
|
(140
|
)
|
|
|
|
|
|
|
(757
|
)
|
|
|
|
|
|
|
(757
|
)
|
Amortization of DAC and VOBA
|
|
|
161
|
|
|
|
(44
|
)
|
|
|
4
|
|
|
|
111
|
|
|
|
232
|
|
|
|
98
|
|
|
|
2
|
|
|
|
332
|
|
|
|
(625
|
)
|
|
|
(293
|
)
|
Interest expense
|
|
|
2
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
1
|
|
|
|
252
|
|
|
|
256
|
|
|
|
|
|
|
|
256
|
|
Other expenses
|
|
|
1,061
|
|
|
|
621
|
|
|
|
122
|
|
|
|
194
|
|
|
|
1,998
|
|
|
|
436
|
|
|
|
331
|
|
|
|
2,765
|
|
|
|
20
|
|
|
|
2,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
5,944
|
|
|
|
1,074
|
|
|
|
1,769
|
|
|
|
684
|
|
|
|
9,471
|
|
|
|
1,154
|
|
|
|
628
|
|
|
|
11,253
|
|
|
|
(613
|
)
|
|
|
10,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
143
|
|
|
|
77
|
|
|
|
80
|
|
|
|
20
|
|
|
|
320
|
|
|
|
52
|
|
|
|
(145
|
)
|
|
|
227
|
|
|
|
(1,183
|
)
|
|
|
(956
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
285
|
|
|
$
|
143
|
|
|
$
|
155
|
|
|
$
|
76
|
|
|
$
|
659
|
|
|
$
|
158
|
|
|
$
|
(63
|
)
|
|
|
754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
(3,969
|
)
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
613
|
|
|
|
|
|
|
|
|
|
Provision for income tax (expense) benefit
|
|
|
1,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of income
tax
|
|
$
|
(1,419
|
)
|
|
|
|
|
|
$
|
(1,419
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
114
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Earnings
|
|
|
|
|
|
|
|
|
|
U.S. Business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
Auto
|
|
|
|
|
|
|
|
|
Banking,
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
Insurance
|
|
|
Retirement
|
|
|
Benefit
|
|
|
&
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Total
|
|
June 30, 2010
|
|
Products
|
|
|
Products
|
|
|
Funding
|
|
|
Home
|
|
|
Total
|
|
|
International
|
|
|
& Other
|
|
|
Total
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
8,640
|
|
|
$
|
274
|
|
|
$
|
1,374
|
|
|
$
|
1,437
|
|
|
$
|
11,725
|
|
|
$
|
1,788
|
|
|
$
|
3
|
|
|
$
|
13,516
|
|
|
$
|
|
|
|
$
|
13,516
|
|
Universal life and investment- type product policy fees
|
|
|
1,095
|
|
|
|
1,074
|
|
|
|
111
|
|
|
|
|
|
|
|
2,280
|
|
|
|
606
|
|
|
|
|
|
|
|
2,886
|
|
|
|
6
|
|
|
|
2,892
|
|
Net investment income
|
|
|
2,999
|
|
|
|
1,536
|
|
|
|
2,583
|
|
|
|
105
|
|
|
|
7,223
|
|
|
|
747
|
|
|
|
466
|
|
|
|
8,436
|
|
|
|
(5
|
)
|
|
|
8,431
|
|
Other revenues
|
|
|
377
|
|
|
|
102
|
|
|
|
123
|
|
|
|
6
|
|
|
|
608
|
|
|
|
5
|
|
|
|
444
|
|
|
|
1,057
|
|
|
|
|
|
|
|
1,057
|
|
Net investment gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,540
|
|
|
|
1,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
13,111
|
|
|
|
2,986
|
|
|
|
4,191
|
|
|
|
1,548
|
|
|
|
21,836
|
|
|
|
3,146
|
|
|
|
913
|
|
|
|
25,895
|
|
|
|
1,541
|
|
|
|
27,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
9,568
|
|
|
|
403
|
|
|
|
2,505
|
|
|
|
1,000
|
|
|
|
13,476
|
|
|
|
1,677
|
|
|
|
(7
|
)
|
|
|
15,146
|
|
|
|
174
|
|
|
|
15,320
|
|
Interest credited to policyholder account balances
|
|
|
471
|
|
|
|
811
|
|
|
|
719
|
|
|
|
|
|
|
|
2,001
|
|
|
|
193
|
|
|
|
|
|
|
|
2,194
|
|
|
|
(2
|
)
|
|
|
2,192
|
|
Interest credited to bank deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75
|
|
|
|
75
|
|
|
|
|
|
|
|
75
|
|
Capitalization of DAC
|
|
|
(423
|
)
|
|
|
(496
|
)
|
|
|
(11
|
)
|
|
|
(221
|
)
|
|
|
(1,151
|
)
|
|
|
(360
|
)
|
|
|
|
|
|
|
(1,511
|
)
|
|
|
|
|
|
|
(1,511
|
)
|
Amortization of DAC and VOBA
|
|
|
445
|
|
|
|
505
|
|
|
|
8
|
|
|
|
218
|
|
|
|
1,176
|
|
|
|
220
|
|
|
|
|
|
|
|
1,396
|
|
|
|
226
|
|
|
|
1,622
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
|
|
3
|
|
|
|
523
|
|
|
|
530
|
|
|
|
209
|
|
|
|
739
|
|
Other expenses
|
|
|
2,023
|
|
|
|
1,153
|
|
|
|
249
|
|
|
|
372
|
|
|
|
3,797
|
|
|
|
1,015
|
|
|
|
547
|
|
|
|
5,359
|
|
|
|
78
|
|
|
|
5,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
12,084
|
|
|
|
2,376
|
|
|
|
3,474
|
|
|
|
1,369
|
|
|
|
19,303
|
|
|
|
2,748
|
|
|
|
1,138
|
|
|
|
23,189
|
|
|
|
685
|
|
|
|
23,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
360
|
|
|
|
213
|
|
|
|
251
|
|
|
|
34
|
|
|
|
858
|
|
|
|
102
|
|
|
|
(171
|
)
|
|
|
789
|
|
|
|
399
|
|
|
|
1,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
667
|
|
|
$
|
397
|
|
|
$
|
466
|
|
|
$
|
145
|
|
|
$
|
1,675
|
|
|
$
|
296
|
|
|
$
|
(54
|
)
|
|
|
1,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,541
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
(685
|
)
|
|
|
|
|
|
|
|
|
Provision for income tax (expense) benefit
|
|
|
(399
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of income
tax
|
|
$
|
2,374
|
|
|
|
|
|
|
$
|
2,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Earnings
|
|
|
|
|
|
|
|
|
|
U.S. Business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
Auto
|
|
|
|
|
|
|
|
|
Banking,
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
Insurance
|
|
|
Retirement
|
|
|
Benefit
|
|
|
&
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Total
|
|
June 30, 2009
|
|
Products
|
|
|
Products
|
|
|
Funding
|
|
|
Home
|
|
|
Total
|
|
|
International
|
|
|
& Other
|
|
|
Total
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
8,436
|
|
|
$
|
291
|
|
|
$
|
1,019
|
|
|
$
|
1,448
|
|
|
$
|
11,194
|
|
|
$
|
1,498
|
|
|
$
|
6
|
|
|
$
|
12,698
|
|
|
$
|
|
|
|
$
|
12,698
|
|
Universal life and investment- type product policy fees
|
|
|
1,126
|
|
|
|
753
|
|
|
|
101
|
|
|
|
|
|
|
|
1,980
|
|
|
|
436
|
|
|
|
|
|
|
|
2,416
|
|
|
|
(17
|
)
|
|
|
2,399
|
|
Net investment income
|
|
|
2,694
|
|
|
|
1,347
|
|
|
|
2,290
|
|
|
|
89
|
|
|
|
6,420
|
|
|
|
527
|
|
|
|
186
|
|
|
|
7,133
|
|
|
|
(142
|
)
|
|
|
6,991
|
|
Other revenues
|
|
|
358
|
|
|
|
64
|
|
|
|
138
|
|
|
|
14
|
|
|
|
574
|
|
|
|
4
|
|
|
|
548
|
|
|
|
1,126
|
|
|
|
|
|
|
|
1,126
|
|
Net investment gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,735
|
)
|
|
|
(4,735
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
12,614
|
|
|
|
2,455
|
|
|
|
3,548
|
|
|
|
1,551
|
|
|
|
20,168
|
|
|
|
2,465
|
|
|
|
740
|
|
|
|
23,373
|
|
|
|
(4,894
|
)
|
|
|
18,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
9,448
|
|
|
|
678
|
|
|
|
2,119
|
|
|
|
971
|
|
|
|
13,216
|
|
|
|
1,148
|
|
|
|
3
|
|
|
|
14,367
|
|
|
|
19
|
|
|
|
14,386
|
|
Interest credited to policyholder account balances
|
|
|
464
|
|
|
|
830
|
|
|
|
868
|
|
|
|
|
|
|
|
2,162
|
|
|
|
237
|
|
|
|
|
|
|
|
2,399
|
|
|
|
(2
|
)
|
|
|
2,397
|
|
Interest credited to bank deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83
|
|
|
|
83
|
|
|
|
|
|
|
|
83
|
|
Capitalization of DAC
|
|
|
(419
|
)
|
|
|
(614
|
)
|
|
|
(8
|
)
|
|
|
(217
|
)
|
|
|
(1,258
|
)
|
|
|
(285
|
)
|
|
|
|
|
|
|
(1,543
|
)
|
|
|
|
|
|
|
(1,543
|
)
|
Amortization of DAC and VOBA
|
|
|
371
|
|
|
|
282
|
|
|
|
9
|
|
|
|
221
|
|
|
|
883
|
|
|
|
193
|
|
|
|
2
|
|
|
|
1,078
|
|
|
|
(442
|
)
|
|
|
636
|
|
Interest expense
|
|
|
3
|
|
|
|
1
|
|
|
|
2
|
|
|
|
|
|
|
|
6
|
|
|
|
3
|
|
|
|
492
|
|
|
|
501
|
|
|
|
|
|
|
|
501
|
|
Other expenses
|
|
|
2,084
|
|
|
|
1,240
|
|
|
|
227
|
|
|
|
381
|
|
|
|
3,932
|
|
|
|
772
|
|
|
|
618
|
|
|
|
5,322
|
|
|
|
34
|
|
|
|
5,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
11,951
|
|
|
|
2,417
|
|
|
|
3,217
|
|
|
|
1,356
|
|
|
|
18,941
|
|
|
|
2,068
|
|
|
|
1,198
|
|
|
|
22,207
|
|
|
|
(391
|
)
|
|
|
21,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
223
|
|
|
|
13
|
|
|
|
111
|
|
|
|
43
|
|
|
|
390
|
|
|
|
108
|
|
|
|
(247
|
)
|
|
|
251
|
|
|
|
(1,584
|
)
|
|
|
(1,333
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
440
|
|
|
$
|
25
|
|
|
$
|
220
|
|
|
$
|
152
|
|
|
$
|
837
|
|
|
$
|
289
|
|
|
$
|
(211
|
)
|
|
|
915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
(4,894
|
)
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
391
|
|
|
|
|
|
|
|
|
|
Provision for income tax (expense) benefit
|
|
|
1,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of income
tax
|
|
$
|
(2,004
|
)
|
|
|
|
|
|
$
|
(2,004
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents total assets with respect to the
Companys segments, as well as Banking,
Corporate & Other, at:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
(In millions)
|
|
|
U.S. Business:
|
|
|
|
|
|
|
|
|
Insurance Products
|
|
$
|
138,854
|
|
|
$
|
132,717
|
|
Retirement Products
|
|
|
152,096
|
|
|
|
148,756
|
|
Corporate Benefit Funding
|
|
|
167,280
|
|
|
|
159,270
|
|
Auto & Home
|
|
|
5,659
|
|
|
|
5,517
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
463,889
|
|
|
|
446,260
|
|
International
|
|
|
36,726
|
|
|
|
33,923
|
|
Banking, Corporate & Other
|
|
|
73,292
|
|
|
|
59,131
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
573,907
|
|
|
$
|
539,314
|
|
|
|
|
|
|
|
|
|
|
116
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Net investment income is based upon the actual results of each
segments specifically identifiable asset portfolio
adjusted for allocated equity. Other costs are allocated to each
of the segments based upon: (i) a review of the nature of
such costs; (ii) time studies analyzing the amount of
employee compensation costs incurred by each segment; and
(iii) cost estimates included in the Companys product
pricing.
Revenues derived from any customer did not exceed 10% of
consolidated revenues for the three months and six months ended
June 30, 2010 and 2009. Revenues from U.S. operations
were $12.5 billion and $23.7 billion for the three
months and six months ended June 30, 2010, respectively,
which represented 87% and 86%, respectively, of consolidated
revenues. 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.
|
|
14.
|
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. Income from discontinued
real estate operations, net of income tax, was $6 million
and $7 million for the three months and six months ended
June 30, 2010, respectively, and $1 million and
$2 million for the three months and six months ended
June 30, 2009, respectively.
The carrying value of real estate related to discontinued
operations was $9 million and $44 million at
June 30, 2010 and December 31, 2009, respectively.
Operations
Texas
Life Insurance Company
During the fourth quarter of 2008, the Holding Company entered
into an agreement to sell its wholly-owned subsidiary, Cova
Corporation (Cova), the parent company of Texas Life
Insurance Company, to a third-party and the sale occurred in
March 2009. The following table presents the amounts related to
the operations of Cova that have been reflected as discontinued
operations in the interim condensed consolidated statements of
operations:
|
|
|
|
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Total revenues
|
|
$
|
25
|
|
Total expenses
|
|
|
19
|
|
|
|
|
|
|
Income before provision for income tax
|
|
|
6
|
|
Provision for income tax
|
|
|
2
|
|
|
|
|
|
|
Income from operations of discontinued operations, net of income
tax
|
|
|
4
|
|
Gain on disposal, net of income tax
|
|
|
32
|
|
|
|
|
|
|
Income from discontinued operations, net of income tax
|
|
$
|
36
|
|
|
|
|
|
|
117
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
For purposes of this discussion, MetLife, the
Company, we, our and
us 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, 2009 (2009 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 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. Actual results could differ
materially from those expressed or implied in the
forward-looking statements. See Note Regarding
Forward-Looking Statements.
The following discussion includes references to our performance
measures operating earnings and operating earnings available to
common shareholders, that are not based on generally accepted
accounting principles in the United States of America
(GAAP). Operating earnings is the measure of segment
profit or loss we use to evaluate segment performance and
allocate resources and, consistent with GAAP accounting guidance
for segment reporting, is our measure of segment performance.
Operating earnings is also a measure by which our senior
managements and many other employees performance is
evaluated for the purposes of determining their compensation
under applicable compensation plans. Operating earnings is
defined as operating revenues less operating expenses, net of
income tax. Operating earnings available to common shareholders,
which is used to evaluate the performance of Banking,
Corporate & Other, as well as MetLife, is defined as
operating earnings less preferred stock dividends.
Operating revenues is defined as GAAP revenues (i) less net
investment gains (losses); (ii) less amortization of
unearned revenue related to net investment gains (losses);
(iii) plus scheduled periodic settlement payments on
derivatives that are hedges of investments but do not qualify
for hedge accounting treatment; (iv) plus income from
discontinued real estate operations; and (v) plus, for
operating joint ventures reported under the equity method of
accounting, the aforementioned adjustments, those identified in
the definition of operating expenses and changes in fair value
of hedges of operating joint venture liabilities, all net of
income tax.
Operating expenses is defined as GAAP expenses (i) less
changes in policyholder benefits associated with asset value
fluctuations related to experience-rated contractholder
liabilities and certain inflation-indexed liabilities;
(ii) less costs related to business combinations (since
January 1, 2009) and noncontrolling interests;
(iii) less amortization of deferred policy acquisition
costs (DAC) and value of business acquired
(VOBA) and changes in the policyholder dividend
obligation related to net investment gains (losses); and
(iv) plus scheduled periodic settlement payments on
derivatives that are hedges of policyholder account balances but
do not qualify for hedge accounting treatment.
In addition, operating revenues and operating expenses do not
reflect the consolidation of certain securitization vehicles
that are variable interest entities (VIEs) as
required under GAAP.
We believe the presentation of operating earnings and operating
earnings available to common shareholders as we measure it for
management purposes enhances the understanding of our
performance by highlighting the results of operations and the
underlying profitability drivers of our businesses. Operating
earnings and operating earnings available to common shareholders
should not be viewed as substitutes for GAAP income (loss) from
continuing operations, net of income tax. Reconciliations of
operating earnings and operating earnings available to common
118
shareholders to GAAP income (loss) from continuing operations,
net of income tax, the most directly comparable GAAP measure,
are included in Consolidated Results of
Operations.
Executive
Summary
MetLife is a leading provider of insurance, employee benefits
and financial services with operations throughout the United
States and the Latin America, Asia Pacific and Europe, Middle
East and India (EMEI) regions. Through its
subsidiaries and affiliates, MetLife offers life insurance,
annuities, auto and homeowners insurance, retail banking and
other financial services to individuals, as well as group
insurance and retirement & savings products and
services to corporations and other institutions. MetLife is
organized into five operating segments: Insurance Products,
Retirement Products, Corporate Benefit Funding and
Auto & Home (collectively,
U.S. Business) and International. In addition,
the Company reports certain of its results of operations in
Banking, Corporate & Other, which is comprised of
MetLife Bank, National Association (MetLife Bank)
and other business activities.
On March 7, 2010, the Holding Company entered into a stock
purchase agreement (the Stock Purchase Agreement)
with ALICO Holdings LLC (Alico Holdings) and
American International Group, Inc., pursuant to which the
Holding Company agreed to acquire all of the issued and
outstanding capital stock of American Life Insurance Company
(Alico) and Delaware American Life Insurance
Company. The transaction is expected to close by the end of
2010, subject to certain regulatory approvals and
determinations, as well as other customary closing conditions.
See Liquidity and Capital
Resources Overview.
As the U.S. and global financial markets continue to
recover, we have experienced a significant improvement in net
investment income and a favorable change in net investment gains
(losses). We also continue to experience an increase in market
share and sales in some of our businesses, in part, from a
flight to quality in the industry. These positive factors were
somewhat dampened by declining equity markets during the second
quarter of 2010 and the negative impact of general economic
conditions, including high levels of unemployment, on the demand
for certain of our products.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Income (loss) from continuing operations, net of income tax
|
|
$
|
1,541
|
|
|
$
|
(1,419
|
)
|
|
$
|
2,374
|
|
|
$
|
(2,004
|
)
|
Less: Net investment gains (losses)
|
|
|
1,468
|
|
|
|
(3,829
|
)
|
|
|
1,540
|
|
|
|
(4,735
|
)
|
Less: Adjustments to continuing operations (1)
|
|
|
(563
|
)
|
|
|
473
|
|
|
|
(684
|
)
|
|
|
232
|
|
Less: Provision for income tax (expense) benefit
|
|
|
(417
|
)
|
|
|
1,183
|
|
|
|
(399
|
)
|
|
|
1,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
|
1,053
|
|
|
|
754
|
|
|
|
1,917
|
|
|
|
915
|
|
Less: Preferred stock dividends
|
|
|
31
|
|
|
|
31
|
|
|
|
61
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings available to common shareholders
|
|
$
|
1,022
|
|
|
$
|
723
|
|
|
$
|
1,856
|
|
|
$
|
854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See definitions of operating revenues and operating expenses for
the components of such adjustments. |
Three
Months Ended June 30, 2010 Compared with the Three Months
Ended June 30, 2009
Unless otherwise stated, all amounts discussed below are net of
income tax.
During the three months ended June 30, 2010, MetLifes
income (loss) from continuing operations, net of income tax,
increased $3.0 billion to income of $1.6 billion from
a loss of $1.4 billion in the comparable 2009 period. The
change was predominantly due to a $5.3 billion favorable
change in net investment gains (losses) before income tax: gains
of $1.5 billion in the second quarter of 2010 compared to
losses of $3.8 billion in the 2009 period. Offsetting
this variance were unfavorable changes in adjustments related to
net investment gains (losses) of $819 million before income
tax, principally associated with DAC and VOBA amortization, and
$1.6 billion of income tax, resulting in a total favorable
variance related to net investment gains (losses), net of
related adjustments, of $2.9 billion. In addition,
operating earnings available to common shareholders increased
$299 million to $1.0 billion in the current year
period from $723 million in the prior year period.
119
The favorable change in net investment gains (losses) of
$2.9 billion, net of related adjustments, was primarily
driven by net gains on freestanding and embedded derivatives in
the current period as compared to net losses in the prior period.
The improvement in the financial markets, which began in the
second quarter of 2009 and continued into 2010, was a key driver
of the $299 million increase in operating earnings
available to common shareholders. Such market improvement was
most evident in higher net investment income and policy fees as
well as a decrease in variable annuity guarantee benefit costs.
In addition, a decrease in other expenses reflected the
favorable impact of Operational Excellence, our enterprise-wide
cost reduction and revenue enhancement initiative. These
increases were partially offset by an increase in amortization
of DAC, VOBA and deferred sales inducements (DSI) as
a result of the declining equity markets during the three months
ended June 30, 2010.
Six
Months Ended June 30, 2010 compared with the Six Months
Ended June 30, 2009
Unless otherwise stated, all amounts discussed below are net of
income tax.
During the six months ended June 30, 2010, MetLifes
income (loss) from continuing operations, net of income tax,
increased $4.4 billion to income of $2.4 billion from a
loss of $2.0 billion in the comparable 2009 period. The
change was predominantly due to a $6.3 billion favorable
change in net investment gains (losses) before income tax: gains
of $1.6 billion in the first six months of 2010 compared to
losses of $4.7 billion in the 2009 period. Offsetting this
variance were unfavorable changes in adjustments related to net
investment gains (losses) of $634 million before income
tax, principally associated with DAC and VOBA amortization, and
$2.0 billion of income tax, resulting in a total favorable
variance related to net investment gains (losses), net of
related adjustments, of $3.7 billion. In addition,
operating earnings available to common shareholders increased
$1.0 billion to $1.9 billion in the current year
period from $854 million in the prior year period.
The favorable change in net investment gains (losses) of
$3.7 billion, net of related adjustments, was primarily
driven by net gains on freestanding and embedded derivatives in
the current period compared to net losses in the prior period, a
decrease in impairments and lower additions to the mortgage loan
valuation allowance.
The improvement in the financial markets, which began in the
second quarter of 2009 and continued into 2010, was a key driver
of the $1.0 billion increase in operating earnings
available to common shareholders. Such market improvement was
most evident in higher net investment income and policy fees as
well as a decrease in variable annuity guarantee benefit costs.
These increases were partially offset by higher amortization of
DAC, VOBA and DSI, as a result of the declining equity markets,
as well as a net increase in other expenses. The favorable
impact of Operational Excellence was more than offset by an
increase in other expenses related to our International
business, which primarily stemmed from the impact of a benefit
recorded in the prior year period related to the specification
in Argentina, as well as current period business growth in the
segment.
Consolidated
Company Outlook
In 2009, the general economic conditions of the marketplace,
particularly in the early part of the year, continued to be
volatile and negatively impacted the results of the Company. In
2010, as discussed in our 2009 Annual Report, we continue to see
meaningful earnings recovery for the Company, driven primarily
by the following:
|
|
|
|
|
Continued growth in premiums, fees & other revenues
for the full year of 2010 of approximately 5% over 2009
primarily from the following businesses:
|
|
|
|
|
|
Higher fees earned on separate accounts, as the recovery in the
equity market continues, relative to the prior year, thereby
increasing the value of those separate accounts;
|
|
|
|
Increased sales in the pension closeout business, as the demand
for these products rebounds from the lower levels seen in 2009;
|
|
|
|
Increased growth in our International segment, due to improved
results from ongoing investments and enhancements in the various
distribution and service operations throughout the
regions; and
|
120
|
|
|
|
|
Modest growth in Insurance Products. Our growth continues to be
impacted by the current higher levels of unemployment and it is
possible that certain customers may further reduce or eliminate
coverages in response to the financial pressures they are
experiencing.
|
|
|
|
Offsetting these growth areas, MetLife Banks premiums,
fees & other revenues are lower than the 2009 levels,
in line with current market expectations.
|
|
|
|
|
|
Higher returns on the investment portfolio, as returns on
alternative investment classes improve and we reinvest cash and
U.S. Treasuries into higher yielding asset classes.
|
|
|
|
Improvement in net investment gains (losses) from the large
losses encountered in 2009 on our investment portfolio. We
continue to see a significant improvement in net investment
gains (losses) on our investment portfolio as the financial
markets stabilize across asset classes. More difficult to
predict is the impact of potential changes in fair value of
derivative instruments as even relatively small movements in
market variables, including interest rates, equity levels and
volatility, can have a large impact on the fair value of
derivatives. Additionally, changes in value of embedded
derivatives within certain insurance liabilities may have a
material impact on net investment gains (losses) related to the
inclusion of an adjustment for nonperformance risk.
|
|
|
|
Reduced volatility in guarantee-related liabilities. Certain
annuity and life benefit guarantees are tied to market
performance, which when markets are depressed, may require us to
establish additional liabilities, even though these guarantees
are significantly hedged. In line with the assumptions discussed
above, we continue to see a reduction in the volatility of these
items in 2010 compared to 2009.
|
|
|
|
Focus on disciplined underwriting. We continue to see no
significant changes to the underlying trends that drive
underwriting results and anticipate solid results in 2010. While
we did begin to see the negative impact of the economy on the
non-medical health business in 2009, we expect to see
improvement in our results in 2010 as the economy continues to
improve.
|
|
|
|
Focus on expense management. We continue to see focus on expense
control throughout the Company, as well the continuing impact of
specific initiatives such as Operational Excellence (our
enterprise-wide cost reduction and revenue enhancement
initiative), contribute to increased profitability.
|
|
|
|
Pending acquisition of Alico. This transaction is expected to
close by the end of 2010, subject to certain regulatory
approvals and determinations, as well as other customary closing
conditions. Given the expected closing time frame and the
integration expenses incurred in relation to the acquisition of
Alico, the Company does not anticipate that the impact on
MetLifes 2010 financial results will be material.
|
Industry
Trends
The Companys segments continue to be influenced by the
unstable financial and economic environment that affects the
industry.
Financial and Economic Environment. Our
business and results of operations are materially affected by
conditions in the global capital markets and the economy,
generally, both in the United States and elsewhere around the
world. The global economy and markets are now recovering from a
period of significant stress that began in the second half of
2007 and substantially increased through the first quarter of
2009. This disruption adversely affected the financial services
industry, in particular. The U.S. economy entered a
recession in January 2008. Although many economists believe this
recession ended in the third quarter of 2009, after a brief
rebound, the recovery has slowed, and the unemployment rate is
expected to remain high for some time. In addition, inflation
has fallen over the last several years and remains at very low
levels. Some economists believe that disinflation and deflation
risk remains in the economy.
Although the disruption in the global financial markets that
began in late 2007 has moderated, not all global financial
markets are functioning normally, and some remain reliant upon
government intervention and liquidity. Throughout 2008 and
continuing in 2009, Congress, the Federal Reserve Bank of New
York, the Federal Deposit Insurance Corporation
(FDIC), 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
121
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.
These programs have largely run their course or been
discontinued. More likely to be relevant to MetLife, Inc. are
the monetary policy by the Federal Reserve Board and the
Dodd-Frank Wall Street Reform and Consumer Protection Act
(Dodd-Frank), which was recently signed by President
Obama and will significantly change financial regulation in the
U.S. in a number of areas that could affect MetLife.
It is not certain what effect the enactment of Dodd-Frank will
have on the financial markets, the availability of credit, asset
prices and MetLifes operations. We cannot predict whether
the funds made available by the U.S. federal government and
its agencies will be enough to continue stabilizing or to
further revive the financial markets or, if additional amounts
are necessary, whether Congress will be willing to make the
necessary appropriations, what the 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.
The choices made by the U.S. Treasury, the Federal Reserve
Board and the FDIC in their distribution of funds under EESA and
any future asset purchase programs, as well as any decisions
made regarding the imposition of additional regulation on large
financial institutions may have, over time, the effect of
supporting some aspects of the financial services industry more
than others. Some of our competitors have received, or may in
the future receive, benefits under one or more of the federal
governments programs. This could adversely affect our
competitive position.
The economic crisis and the resulting recession have had and
could continue to have an adverse effect on the financial
results of companies in the financial services industry,
including MetLife. The financial markets and economic conditions
continue to impact 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 benefits. See
Consolidated Results of Operations and
Liquidity and Capital Resources.
Summary
of Critical Accounting Estimates
The preparation of financial statements in conformity with 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 and the
application of the consolidation rules to certain investments;
|
|
|
(iv)
|
the estimated fair value of and accounting for freestanding
derivatives and the existence and estimated fair value of
embedded derivatives requiring bifurcation;
|
|
|
(v)
|
the capitalization and amortization of DAC and the establishment
and amortization of VOBA;
|
|
|
(vi)
|
the measurement of goodwill and related impairment, if any;
|
|
|
(vii)
|
the liability for future policyholder benefits and the
accounting for reinsurance contracts;
|
|
|
(viii)
|
accounting for income taxes and the valuation of deferred tax
assets;
|
|
|
(ix)
|
accounting for employee benefit plans; and
|
|
|
(x)
|
the liability for litigation and regulatory matters.
|
In applying the Companys accounting policies, we make
subjective and complex judgments that frequently require
estimates about matters that are inherently uncertain. Many of
these policies, estimates and related judgments are common in
the insurance and financial services industries; others are
specific to the Companys businesses and operations. Actual
results could differ from these estimates.
122
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 the Notes
to the Consolidated Financial Statements in the 2009 Annual
Report. Effective January 1, 2010, the Company adopted new
accounting guidance relating to the consolidation of VIEs. See
Note 1 of the Notes to the Interim Condensed Consolidated
Financial Statements. As part of its regular review of critical
accounting estimates, the Company periodically assesses inputs
for estimating nonperformance risk (commonly referred to as
own credit) in fair value measurements. During the
second quarter of 2010, the Company completed a study that
aggregated and evaluated data, including historical recovery
rates of insurance companies as well as policyholder behavior
observed over the past two years as the recent financial crisis
evolved. As a result, at the end of the second quarter of 2010,
the Company refined the manner in which its insurance
subsidiaries incorporate expected recovery rates into the
nonperformance risk adjustment for purposes of estimating the
fair value of investment-type contracts and embedded derivatives
within insurance contracts. The refinement impacted the
Companys income from continuing operations, net of income
tax, with no effect on operating earnings. See Note 5 of
the Notes to the Interim Condensed Consolidated Financial
Statements.
Economic
Capital
Economic capital is an internally developed risk capital model,
the purpose of which is to measure the risk in the business and
to provide a basis upon which capital is deployed. The economic
capital model accounts for the unique and specific nature of the
risks inherent in 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 (RBC) formula, which is not as refined in
its risk calculations with respect to the nuances of the
Companys businesses.
Results
of Operations
Three
Months Ended June 30, 2010 compared with the Three Months
Ended June 30, 2009
Consolidated
Results
We have experienced growth and an increase in market share in
several of our businesses, especially in the traditional life
and structured settlement businesses. Sales volume continues to
grow in our pension closeout business in the United Kingdom;
however, the domestic pension closeout business has been
impacted by a combination of poor equity returns and lower
interest rates. Overall market conditions improved compared to
conditions a year ago positively impacting our results, most
significantly through increased net cash flows, improved yields
on our investment portfolio and increased policy fee income.
Sales of our domestic annuity products were down 11% driven by a
decline in fixed annuity sales compared with the prior period.
The unusually high level of domestic fixed annuity sales
experienced in the second quarter of 2009 were in response to
the market disruption and dislocation at that time and, as
expected, were not sustained in the current period reflecting
the stabilization of the financial markets. Higher levels of
unemployment continued to impact certain group businesses as a
decrease in covered payrolls dampened growth and general
economic conditions negatively impacted revenues, particularly
in our non-medical health business. An improvement in the global
financial markets contributed to a recovery of sales in most of
our international regions and resulted in improved investment
performance in some regions during the second quarter of 2010.
For much of the second quarter of 2010, mortgage interest rates
were above levels prevailing in the second quarter of 2009 and
mortgage refinancing activity began a return to more moderate
levels compared to the unusually high level experienced in 2009
in response to the low interest rate environment.
123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
% Change
|
|
|
|
(In millions)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
6,662
|
|
|
$
|
6,576
|
|
|
$
|
86
|
|
|
|
1.3
|
%
|
Universal life and investment-type product policy fees
|
|
|
1,485
|
|
|
|
1,216
|
|
|
|
269
|
|
|
|
22.1
|
%
|
Net investment income
|
|
|
4,087
|
|
|
|
3,730
|
|
|
|
357
|
|
|
|
9.6
|
%
|
Other revenues
|
|
|
544
|
|
|
|
572
|
|
|
|
(28
|
)
|
|
|
(4.9
|
)%
|
Net investment gains (losses)
|
|
|
1,468
|
|
|
|
(3,829
|
)
|
|
|
5,297
|
|
|
|
138.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
14,246
|
|
|
|
8,265
|
|
|
|
5,981
|
|
|
|
72.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
7,406
|
|
|
|
7,380
|
|
|
|
26
|
|
|
|
0.4
|
%
|
Interest credited to policyholder account balances
|
|
|
1,049
|
|
|
|
1,229
|
|
|
|
(180
|
)
|
|
|
(14.6
|
)%
|
Interest credited to bank deposits
|
|
|
36
|
|
|
|
40
|
|
|
|
(4
|
)
|
|
|
(10.0
|
)%
|
Capitalization of DAC
|
|
|
(767
|
)
|
|
|
(757
|
)
|
|
|
(10
|
)
|
|
|
(1.3
|
)%
|
Amortization of DAC and VOBA
|
|
|
1,020
|
|
|
|
(293
|
)
|
|
|
1,313
|
|
|
|
448.1
|
%
|
Interest expense
|
|
|
369
|
|
|
|
256
|
|
|
|
113
|
|
|
|
44.1
|
%
|
Other expenses
|
|
|
2,762
|
|
|
|
2,785
|
|
|
|
(23
|
)
|
|
|
(0.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
11,875
|
|
|
|
10,640
|
|
|
|
1,235
|
|
|
|
11.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before provision for
income tax
|
|
|
2,371
|
|
|
|
(2,375
|
)
|
|
|
4,746
|
|
|
|
199.8
|
%
|
Provision for income tax expense (benefit)
|
|
|
830
|
|
|
|
(956
|
)
|
|
|
1,786
|
|
|
|
186.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of income tax
|
|
|
1,541
|
|
|
|
(1,419
|
)
|
|
|
2,960
|
|
|
|
208.6
|
%
|
Income (loss) from discontinued operations, net of income tax
|
|
|
6
|
|
|
|
1
|
|
|
|
5
|
|
|
|
500.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (loss)
|
|
|
1,547
|
|
|
|
(1,418
|
)
|
|
|
2,965
|
|
|
|
209.1
|
%
|
Less: Net income (loss) attributable to noncontrolling interests
|
|
|
(10
|
)
|
|
|
(16
|
)
|
|
|
6
|
|
|
|
37.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to MetLife, Inc.
|
|
|
1,557
|
|
|
|
(1,402
|
)
|
|
|
2,959
|
|
|
|
211.1
|
%
|
Less: Preferred stock dividends
|
|
|
31
|
|
|
|
31
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to MetLife, Inc.s common
shareholders
|
|
$
|
1,526
|
|
|
$
|
(1,433
|
)
|
|
$
|
2,959
|
|
|
|
206.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unless otherwise stated, all amounts discussed below are net of
income tax.
During the three months ended June 30, 2010, MetLifes
income (loss) from continuing operations, net of income tax
increased $3.0 billion to income of $1.6 billion from
a loss of $1.4 billion in the comparable 2009 period. The
period over period change was largely due to a $5.3 billion
favorable change in net investment gains (losses) before income
tax: gains of $1.5 billion in the second quarter of 2010
compared to losses of $3.8 billion in the 2009 period.
Offsetting this variance were unfavorable changes in adjustments
related to net investment gains (losses) of $819 million,
before income tax, principally associated with DAC and VOBA
amortization, and $1.6 billion of income tax, resulting in
a total favorable variance related to net investment gains
(losses), net of related adjustments, of $2.9 billion.
We manage our investment portfolio using disciplined
Asset/Liability Management (ALM) principles,
focusing on cash flow and duration to support our current and
future liabilities. Our intent is to match the timing and amount
of liability cash outflows with invested assets that have cash
inflows of comparable timing and amount, while optimizing
risk-adjusted net investment income and risk-adjusted total
return. Our investment portfolio is heavily weighted toward
fixed income investments, with over 80% of our portfolio
invested in fixed maturity securities and mortgage loans. These
securities and loans have varying maturities and other
characteristics which cause them to be generally well suited for
matching the cash flow and duration of insurance liabilities.
Other invested asset classes including, but not limited to,
equity securities, other limited partnership interests and real
estate and real estate joint ventures, provide additional
diversification and opportunity for
long-term
yield enhancement in addition to supporting the cash flow and
duration objectives of our investment portfolio. We
124
also use derivatives as an integral part of our management of
the investment portfolio to hedge certain risks, including
changes in interest rates, foreign currencies, credit spreads
and equity market levels. Additional considerations for our
investment portfolio include current and expected market
conditions and expectations for changes within our mix of
products and business segments.
The composition of the investment portfolio of each business
segment is tailored to the particular characteristics of its
insurance liabilities, causing certain portfolios to be shorter
in duration than others. Accordingly, certain portfolios are
more heavily weighted in fixed maturity securities, or certain
sub-sectors
of fixed maturity securities, than other portfolios.
Investments are purchased to support our insurance liabilities
and not to generate net investment gains and losses. However net
investment gains and losses are generated and can change
significantly from period to period, due to changes in external
influences, including movements in interest rates, equity
markets, foreign currencies and credit spreads; counterparty
specific factors such as financial performance, credit rating
and collateral valuation; and internal factors such as portfolio
rebalancing. As an investor in the fixed income, equity
security, mortgage loan and certain other invested asset
classes, we are exposed to the above stated risks, which can
lead to both impairments and credit-related losses.
The favorable variance in net investment gains (losses) of
$2.9 billion, net of related adjustments, from losses of
$2.1 billion in 2009 to gains of $821 million in 2010
was primarily driven by a favorable change in freestanding
derivatives of $4.8 billion: from losses in the prior
period of $2.4 billion to gains in the current period of
$2.4 billion. In addition, lower impairments, lower net
realized losses from sales and disposals of investments across
most asset classes and lower additions to the mortgage loan
valuation allowance together contributed $551 million to
the improvement. This favorable experience was partially offset
by an unfavorable change in embedded derivatives primarily
associated with variable annuity minimum benefit guarantees of
$2.1 billion: from gains in the prior period of
$515 million to losses in the current period of
$1.6 billion.
We use freestanding interest rate, currency, credit and equity
derivatives to provide economic hedges of certain invested
assets and insurance liabilities, including embedded derivatives
within certain of our variable annuity minimum benefit
guarantees. The $4.8 billion favorable variance in
freestanding derivatives was primarily attributable to market
factors, including declining equity markets, falling
long- and
mid-term interest rates, a strengthening U.S. dollar and
widening corporate credit spreads. Declining equity markets and
increased equity volatility in the current period as compared to
rising equity markets and decreased equity volatility in the
prior period had a positive impact of $2.3 billion on our
equity derivatives, which we use to hedge variable annuity
minimum benefit guarantees. In addition, falling long-term and
mid-term interest rates in the current period compared to rising
interest rates in the prior period had a positive impact of
$1.8 billion on our interest rate derivatives,
$1.0 billion of which is attributable to hedges of variable
annuity minimum benefit guarantees. The U.S. dollar
strengthening had a positive impact of $544 million on
certain of our foreign currency derivatives, which are used to
hedge foreign-denominated asset and liability exposures.
Finally, widening corporate credit spreads had a positive impact
of $197 million on our purchased protection credit
derivatives.
The variable annuity products with minimum benefit guarantees
containing embedded derivatives are measured at fair value
separately from the host variable annuity contract, with changes
in estimated fair value reported in net investment gains
(losses). The estimated fair value of these embedded derivatives
also includes an adjustment for nonperformance risk. The
$2.1 billion unfavorable change in embedded derivatives was
primarily attributable to market factors, including declining
equity markets and increased equity volatility, falling interest
rates, and foreign currency movements. Declining equity markets
in the current period as compared to rising equity markets in
the prior period had a negative impact of $1.2 billion.
Falling interest rates in the current period compared to rising
interest rates in the prior period also had a negative impact of
$1.2 billion. In addition, increased equity volatility in
the current period and the impact of foreign currency movements
resulted in unfavorable variances of $737 million and
$237 million, respectively. The unfavorable impact from
these hedged risks was partially offset by a favorable change
related to the adjustment for nonperformance risk of
$1.5 billion: from losses of $1.0 billion in 2009 to
gains of $504 million in the current period. The foregoing
$504 million gain was net of a $621 million loss
relating to a refinement in estimating the spreads used in the
adjustment for nonperformance risk. Gains on the freestanding
derivatives that hedge these embedded derivative risks
substantially offset the change in
125
liabilities attributable to market factors, excluding the
adjustment for the change in nonperformance risk, which is
unhedged.
Improved market conditions across several invested asset classes
and sectors as compared to the prior period resulted in
decreases in impairments and net realized losses from sales and
disposals of investments in fixed maturity securities, equity
securities, real estate and real estate joint ventures and other
limited partnership interests. These decreases, coupled with a
decrease in the additions to the mortgage loan valuation
allowance, which is also attributed to the improved market
conditions, resulted in a $551 million improvement in net
investment gains (losses).
Income from continuing operations, net of income tax for the
second quarter of 2010 includes $23 million of expenses
related to the pending acquisition and integration of Alico.
This expense, which primarily consisted of investment banking
and legal fees, is recorded in Banking, Corporate &
Other. This expense is not included as a component of operating
earnings.
As more fully described in the discussion of performance
measures above, we use operating earnings, which does not equate
to income (loss) from continuing operations as determined in
accordance with GAAP, to analyze our performance, evaluate
segment performance, and allocate resources. Operating earnings
is also a measure by which senior managements and many
other employees performance is evaluated for the purpose
of determining their compensation under applicable compensation
plans. We believe that the presentation of operating earnings,
as we measure it for management purposes, enhances the
understanding of our performance by highlighting the results of
operations and the underlying profitability drivers of the
business. Operating earnings should not be viewed as a
substitute for GAAP income (loss) from continuing operations,
net of income tax. Operating earnings available to common
shareholders increased by $299 million to $1.0 billion
in the second quarter of 2010 from $723 million in the
comparable 2009 period.
Reconciliation
of income (loss) from continuing operations, net of income tax
to operating earnings available to common
shareholders
Three
Months Ended June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Banking
|
|
|
|
|
|
|
Insurance
|
|
|
Retirement
|
|
|
Benefit
|
|
|
Auto &
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
Products
|
|
|
Products
|
|
|
Funding
|
|
|
Home
|
|
|
International
|
|
|
& Other
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Income (loss) from continuing operations, net of income tax
|
|
$
|
715
|
|
|
$
|
333
|
|
|
$
|
398
|
|
|
$
|
72
|
|
|
$
|
72
|
|
|
$
|
(49
|
)
|
|
$
|
1,541
|
|
Less: Net investment gains (losses)
|
|
|
601
|
|
|
|
387
|
|
|
|
246
|
|
|
|
(2
|
)
|
|
|
266
|
|
|
|
(30
|
)
|
|
|
1,468
|
|
Less: Adjustments to continuing operations (1)
|
|
|
(67
|
)
|
|
|
(238
|
)
|
|
|
8
|
|
|
|
|
|
|
|
(233
|
)
|
|
|
(33
|
)
|
|
|
(563
|
)
|
Less: Provision for income tax (expense) benefit
|
|
|
(188
|
)
|
|
|
(54
|
)
|
|
|
(94
|
)
|
|
|
1
|
|
|
|
(106
|
)
|
|
|
24
|
|
|
|
(417
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
369
|
|
|
$
|
238
|
|
|
$
|
238
|
|
|
$
|
73
|
|
|
$
|
145
|
|
|
|
(10
|
)
|
|
|
1,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings available to common shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(41
|
)
|
|
$
|
1,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126
Three
Months Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Banking
|
|
|
|
|
|
|
Insurance
|
|
|
Retirement
|
|
|
Benefit
|
|
|
Auto &
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
Products
|
|
|
Products
|
|
|
Funding
|
|
|
Home
|
|
|
International
|
|
|
& Other
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Income (loss) from continuing operations, net of income tax
|
|
$
|
(255
|
)
|
|
$
|
(267
|
)
|
|
$
|
(367
|
)
|
|
$
|
71
|
|
|
$
|
(214
|
)
|
|
$
|
(387
|
)
|
|
$
|
(1,419
|
)
|
Less: Net investment gains (losses)
|
|
|
(878
|
)
|
|
|
(1,120
|
)
|
|
|
(821
|
)
|
|
|
(8
|
)
|
|
|
(501
|
)
|
|
|
(501
|
)
|
|
|
(3,829
|
)
|
Less: Adjustments to continuing operations (1)
|
|
|
48
|
|
|
|
489
|
|
|
|
17
|
|
|
|
|
|
|
|
(72
|
)
|
|
|
(9
|
)
|
|
|
473
|
|
Less: Provision for income tax (expense) benefit
|
|
|
290
|
|
|
|
221
|
|
|
|
282
|
|
|
|
3
|
|
|
|
201
|
|
|
|
186
|
|
|
|
1,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
285
|
|
|
$
|
143
|
|
|
$
|
155
|
|
|
$
|
76
|
|
|
$
|
158
|
|
|
|
(63
|
)
|
|
|
754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings available to common shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(94
|
)
|
|
$
|
723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See definitions of operating revenues and operating expenses for
the components of such adjustments. |
Reconciliation
of GAAP revenues to operating revenues and GAAP expenses to
operating expenses
Three
Months Ended June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Banking
|
|
|
|
|
|
|
Insurance
|
|
|
Retirement
|
|
|
Benefit
|
|
|
Auto &
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
Products
|
|
|
Products
|
|
|
Funding
|
|
|
Home
|
|
|
International
|
|
|
& Other
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Total revenues
|
|
$
|
7,119
|
|
|
$
|
1,850
|
|
|
$
|
2,292
|
|
|
$
|
781
|
|
|
$
|
1,666
|
|
|
$
|
538
|
|
|
$
|
14,246
|
|
Less: Net investment gains (losses)
|
|
|
601
|
|
|
|
387
|
|
|
|
246
|
|
|
|
(2
|
)
|
|
|
266
|
|
|
|
(30
|
)
|
|
|
1,468
|
|
Less: Adjustments related to net investment gains (losses)
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
Less: Other adjustments to revenues (1)
|
|
|
(35
|
)
|
|
|
(66
|
)
|
|
|
45
|
|
|
|
|
|
|
|
(111
|
)
|
|
|
111
|
|
|
|
(56
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
$
|
6,546
|
|
|
$
|
1,529
|
|
|
$
|
2,001
|
|
|
$
|
783
|
|
|
$
|
1,511
|
|
|
$
|
457
|
|
|
$
|
12,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
$
|
6,017
|
|
|
$
|
1,335
|
|
|
$
|
1,672
|
|
|
$
|
693
|
|
|
$
|
1,445
|
|
|
$
|
713
|
|
|
$
|
11,875
|
|
Less: Adjustments related to net investment gains (losses)
|
|
|
40
|
|
|
|
172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
212
|
|
Less: Other adjustments to expenses (1)
|
|
|
(1
|
)
|
|
|
|
|
|
|
37
|
|
|
|
|
|
|
|
122
|
|
|
|
144
|
|
|
|
302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
5,978
|
|
|
$
|
1,163
|
|
|
$
|
1,635
|
|
|
$
|
693
|
|
|
$
|
1,323
|
|
|
$
|
569
|
|
|
$
|
11,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127
Three
Months Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Banking
|
|
|
|
|
|
|
Insurance
|
|
|
Retirement
|
|
|
Benefit
|
|
|
Auto &
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
Products
|
|
|
Products
|
|
|
Funding
|
|
|
Home
|
|
|
International
|
|
|
& Other
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Total revenues
|
|
$
|
5,464
|
|
|
$
|
119
|
|
|
$
|
1,227
|
|
|
$
|
772
|
|
|
$
|
762
|
|
|
$
|
(79
|
)
|
|
$
|
8,265
|
|
Less: Net investment gains (losses)
|
|
|
(878
|
)
|
|
|
(1,120
|
)
|
|
|
(821
|
)
|
|
|
(8
|
)
|
|
|
(501
|
)
|
|
|
(501
|
)
|
|
|
(3,829
|
)
|
Less: Adjustments related to net investment gains (losses)
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11
|
)
|
Less: Other adjustments to revenues (1)
|
|
|
(19
|
)
|
|
|
(55
|
)
|
|
|
44
|
|
|
|
|
|
|
|
(101
|
)
|
|
|
2
|
|
|
|
(129
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
$
|
6,372
|
|
|
$
|
1,294
|
|
|
$
|
2,004
|
|
|
$
|
780
|
|
|
$
|
1,364
|
|
|
$
|
420
|
|
|
$
|
12,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
$
|
5,866
|
|
|
$
|
530
|
|
|
$
|
1,796
|
|
|
$
|
684
|
|
|
$
|
1,125
|
|
|
$
|
639
|
|
|
$
|
10,640
|
|
Less: Adjustments related to net investment gains (losses)
|
|
|
(81
|
)
|
|
|
(544
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(625
|
)
|
Less: Other adjustments to expenses (1)
|
|
|
3
|
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
(29
|
)
|
|
|
11
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
5,944
|
|
|
$
|
1,074
|
|
|
$
|
1,769
|
|
|
$
|
684
|
|
|
$
|
1,154
|
|
|
$
|
628
|
|
|
$
|
11,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See definitions of operating revenues and operating expenses for
the components of such adjustments. |
Relative changes in financial markets had divergent impacts on
our financial results, but remain the significant driver of the
increase in our operating earnings. While markets did improve
from the prior period, they declined during the current quarter
resulting in a decrease in variable annuity guarantee benefit
costs, which improved earnings. However, this market decline,
coupled with the impact of improving market conditions during
the second quarter of 2009, also resulted in increased
amortization of DAC, VOBA and DSI, which negatively impacted
earnings. The market improvement from the prior period resulted
in higher net investment income. Such improvement also drove
higher average separate account balances and, as a result,
increased policy fee income.
One of the favorable impacts of the volatile markets on our
operating earnings was a $236 million decrease in variable
annuity guarantee benefit costs. This decrease was primarily due
to gains on the related hedging programs, which also are
included in policyholder benefits. The various hedging
strategies in place to offset the risk associated with these
variable annuity guarantee benefits were more sensitive to
market movements than the liability for the guaranteed benefit.
Market volatility, declines in the equity markets, and lower
interest rates in the current period as compared to the prior
period, produced gains on these hedging strategies. These
hedging strategies, which are a key part of our risk management,
performed as anticipated and were somewhat offset by an increase
in annuity guarantee benefit liabilities, which was primarily
due to the declines in the equity markets.
The increase in net investment income of $185 million was
due to a $105 million increase from growth in average
invested assets and an $80 million increase from higher
yields. Growth in the investment portfolio was primarily due to
positive net flows from growth in our domestic individual life
businesses as well as our international businesses and increased
bank deposits. Such inflows were invested primarily in fixed
maturity securities and mortgage loans. Yields were positively
impacted by the effects of stabilizing real estate markets,
which began in the first quarter of 2010, and improving private
equity markets period over period on real estate joint ventures
and other limited partnership interests. These improvements in
yield were partially offset by the reinvestment of proceeds from
maturities and sales during this lower interest rate environment
and from decreased income on trading and similar securities due
to declining equity markets in the current period as compared to
rising equity markets in the prior period. We continued to
reposition the accumulated liquidity in our portfolio to longer
duration and higher yielding investments. Since many of our
products are interest spread-based, higher investment income is
typically offset by higher interest credited expense. However,
interest credited expense decreased $118 million, primarily
in response to the decline in our trading securities portfolio
in International which backs unit-linked policyholder
liabilities. In addition, our domestic funding agreement
business experienced lower crediting rates combined with lower
average account balances. Certain crediting rates can move
consistent with the underlying market indices, primarily LIBOR
rates, which have decreased significantly since the second
quarter of 2009.
128
During the second quarter of 2010, results reflected increased,
or accelerated, DAC, VOBA and DSI amortization of
$336 million, primarily stemming from a decline in the
market value of our separate account balances. A factor that
determines the amount of amortization is expected future
earnings, which in the annuity business are derived, in part,
from fees earned on separate account balances. The market value
of our separate account balances declined during the second
quarter of 2010, resulting in a decrease in the expected future
gross profits, triggering an acceleration of amortization.
During the second quarter of 2009, the market value of our
separate account balances increased due primarily to improved
equity market conditions, resulting in an increase in the
expected future gross profits and a corresponding lower level of
amortization. Although our separate account values declined
during the current period, the average value of the accounts has
increased compared to the prior period. This rise in the average
account balance resulted in a $163 million increase in
policy fees. With mortgage interest rates declining during the
current quarter, mortgage loan production increased. However,
the decline in production in the latter part of 2009 and the
early part of 2010 resulted in a $41 million decrease in
operating earnings, $11 million of which is reflected in
net investment income, with the remainder largely attributable
to a reduction in fee income. This was partially offset by a
$24 million increase in operating earnings from the
$12.5 billion increase in the serviced residential mortgage
loan portfolio.
Mortality and morbidity experience varied by business, but did
not, in total, have a significant impact on our operating
earnings. Most notably, our group life business experienced
excellent mortality and our dental business benefited from
improved claim experience, while our traditional life,
structured settlement and pension closeout businesses
experienced solid, but less favorable mortality than the prior
period. Our disability business continued to be challenged by
both an increase in severity and frequency of claims. Operating
earnings were dampened by $20 million as a result of the
impact of prior period favorable liability refinements in the
domestic pension closeout and structured settlement businesses.
Operating earnings also benefited from decreases in other
expenses, which were primarily driven by a $25 million
decline in market driven expenses, predominantly pension and
post retirement benefit, letter of credit and reinsurance costs.
In addition, other human resources expenses, such as corporate
owned life insurance and deferred compensation costs, were down
$19 million. Our discretionary spending, such as consulting
and post employment related costs, declined $18 million. A
$6 million decrease in variable expenses, primarily
commissions and separate account advisory fees, includes a
$29 million decrease in commissions resulting from the
$6.1 billion decline in mortgage loan production. A portion
of the variance in commissions is offset by DAC capitalization.
These declines were partially offset by $7 million of
continued investment in our International business
infrastructure. Finally, the current period includes
$3 million of costs associated with the pending acquisition
and integration of Alico.
129
Insurance
Products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
% Change
|
|
|
|
(In millions)
|
|
|
OPERATING REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
4,317
|
|
|
$
|
4,235
|
|
|
$
|
82
|
|
|
|
1.9
|
%
|
Universal life and investment-type product policy fees
|
|
|
546
|
|
|
|
543
|
|
|
|
3
|
|
|
|
0.6
|
%
|
Net investment income
|
|
|
1,495
|
|
|
|
1,413
|
|
|
|
82
|
|
|
|
5.8
|
%
|
Other revenues
|
|
|
188
|
|
|
|
181
|
|
|
|
7
|
|
|
|
3.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
6,546
|
|
|
|
6,372
|
|
|
|
174
|
|
|
|
2.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
4,721
|
|
|
|
4,700
|
|
|
|
21
|
|
|
|
0.4
|
%
|
Interest credited to policyholder account balances
|
|
|
237
|
|
|
|
233
|
|
|
|
4
|
|
|
|
1.7
|
%
|
Capitalization of DAC
|
|
|
(217
|
)
|
|
|
(213
|
)
|
|
|
(4
|
)
|
|
|
(1.9
|
)%
|
Amortization of DAC and VOBA
|
|
|
206
|
|
|
|
161
|
|
|
|
45
|
|
|
|
28.0
|
%
|
Interest expense
|
|
|
|
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
(100.0
|
)%
|
Other expenses
|
|
|
1,031
|
|
|
|
1,061
|
|
|
|
(30
|
)
|
|
|
(2.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
5,978
|
|
|
|
5,944
|
|
|
|
34
|
|
|
|
0.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
199
|
|
|
|
143
|
|
|
|
56
|
|
|
|
39.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
369
|
|
|
$
|
285
|
|
|
$
|
84
|
|
|
|
29.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unless otherwise stated, all amounts discussed below are net of
income tax.
Although volatile, the global financial markets have continued
to improve in 2010. The steady improvement has had a positive
impact on net investment income which is contributing to the
increase in operating earnings for our Insurance Products
segment. In addition, we experienced overall modest revenue
growth, which varied by business in this challenging
environment. Our individual life business revenues grew 1.0%
versus the prior period. The traditional life business
experienced 10% growth in the open block of business, but this
was more than offset by the impact of the expected run-off in
the closed block. Our dental business benefited from pricing
increases and more stable utilization and benefits costs. In
non-medical health, revenues were essentially flat year over
year. High levels of unemployment continue to depress growth
across our group insurance businesses due to lower covered
payrolls.
The significant components of the $84 million increase in
operating earnings were the aforementioned improvement in net
investment income, the favorable impact of a reduction in
dividends to certain policyholders and net favorable claim
experience. In addition, the decrease in other expenses and the
increase in DAC capitalization were more than offset by an
increase in DAC amortization.
The increase in net investment income of $53 million was
due to a $39 million increase from growth in average
invested assets and a $14 million increase from higher
yields. Growth in the investment portfolio was from an increase
in net cash flows from our individual life businesses which were
invested primarily in fixed maturity securities. Yields were
positively impacted by the effects of the stabilizing real
estate markets and improving private equity markets on real
estate joint ventures and other limited partnership interests,
which were partially offset by a slight decrease in yields on
fixed maturity securities from the reinvestment of proceeds from
maturities and sales in this lower interest rate environment. To
manage the needs of our intermediate to longer-term liabilities,
our portfolio consists primarily of investment grade corporate
fixed maturity securities, structured finance securities
(comprised of mortgage and asset-backed securities), mortgage
loans and U.S. Treasury, agency and government guaranteed
fixed maturity securities and, to a lesser extent, certain other
invested asset classes including other limited partnership
interests, real estate joint ventures and other invested assets
to provide additional diversification and opportunity for
long-term yield enhancement.
130
The dividend scale reduction in the fourth quarter of 2009
resulted in a $29 million decrease in policyholder
dividends in the traditional life business in the current period.
Claims experience was mixed and contributed $16 million to
operating earnings for Insurance Products. While the group life
business benefited from excellent mortality experience and the
results of the dental business were positively impacted by
pricing actions as well as the impact of improved claim
experience in the current period, the traditional life business
experienced solid, but less favorable mortality and the
disability business was negatively impacted by unfavorable
claims experience due to higher incidence and severity in the
current period.
Other expenses decreased $20 million primarily from a
decline of $17 million in other human resources expenses,
such as corporate owned life insurance and deferred compensation
expense, and a $14 million decrease in pension and post
retirement benefit costs. Partially offsetting these expense
reductions was a $9 million increase in variable expenses,
such as commissions, a portion of which is offset by DAC
capitalization.
DAC amortization increased $29 million primarily due to the
impact of an unusually low level of amortization in the prior
period.
Retirement
Products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
% Change
|
|
|
|
(In millions)
|
|
|
OPERATING REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
151
|
|
|
$
|
139
|
|
|
$
|
12
|
|
|
|
8.6
|
%
|
Universal life and investment-type product policy fees
|
|
|
561
|
|
|
|
397
|
|
|
|
164
|
|
|
|
41.3
|
%
|
Net investment income
|
|
|
763
|
|
|
|
724
|
|
|
|
39
|
|
|
|
5.4
|
%
|
Other revenues
|
|
|
54
|
|
|
|
34
|
|
|
|
20
|
|
|
|
58.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
1,529
|
|
|
|
1,294
|
|
|
|
235
|
|
|
|
18.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
49
|
|
|
|
353
|
|
|
|
(304
|
)
|
|
|
(86.1
|
)%
|
Interest credited to policyholder account balances
|
|
|
405
|
|
|
|
428
|
|
|
|
(23
|
)
|
|
|
(5.4
|
)%
|
Capitalization of DAC
|
|
|
(262
|
)
|
|
|
(285
|
)
|
|
|
23
|
|
|
|
8.1
|
%
|
Amortization of DAC and VOBA
|
|
|
372
|
|
|
|
(44
|
)
|
|
|
416
|
|
|
|
945.5
|
%
|
Interest expense
|
|
|
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
(100.0
|
)%
|
Other expenses
|
|
|
599
|
|
|
|
621
|
|
|
|
(22
|
)
|
|
|
(3.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,163
|
|
|
|
1,074
|
|
|
|
89
|
|
|
|
8.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
128
|
|
|
|
77
|
|
|
|
51
|
|
|
|
66.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
238
|
|
|
$
|
143
|
|
|
$
|
95
|
|
|
|
66.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unless otherwise stated, all amounts discussed below are net of
income tax.
During the second quarter of 2010, overall annuity sales
decreased 11% when compared to the second quarter of 2009,
primarily due to a decline in our fixed annuity sales. The
financial market turmoil in early 2009 resulted in greater
customer demand for fixed annuity products in the second quarter
of 2009. Surrender rates for both our variable and fixed
annuities remained low during the second quarter of 2010 as our
customers continue to value our products compared to other
alternatives in the marketplace. Average separate account
balances are $25 billion higher than the previous year,
driven by higher variable annuity sales and favorable investment
performance resulting from improved market conditions since the
second quarter of 2009. This has resulted in higher policy fees
and other revenues, which are based on daily asset balances in
the policyholders separate accounts.
131
Relative changes in the financial markets were the primary
driver of the $95 million increase in operating earnings,
with the largest impacts resulting from a decrease in variable
annuity guarantee benefit costs of $236 million and a
$120 million increase in policy fees and other revenues,
partially offset by a $297 million increase in DAC, VOBA
and DSI amortization expense.
The $236 million decrease in variable annuity guarantee benefit
costs is primarily due to gains on the related hedging programs.
The various hedging strategies in place to offset the risk
associated with these variable annuity guarantee benefits were
more sensitive to market movements than the liability for the
guaranteed benefit. Market volatility, declines in the equity
markets, and lower interest rates in current period as compared
to prior period, produced gains on these hedging strategies.
These hedging strategies, which are a key part of our risk
management strategy, performed as anticipated and were somewhat
offset by an increase in annuity guarantee benefit liabilities,
which was primarily due to the declines in the equity markets.
Policy fees and other revenues increased by $120 million,
mainly due to the impact of higher average separate account
balances in the current period compared to the prior period. The
average separate account balance has increased for the reasons
discussed above.
During the second quarter of 2010, results reflected increased,
or accelerated, DAC, VOBA and DSI amortization of
$297 million, primarily stemming from a current period
decline in the market value of our separate account balances. A
factor that determines the amount of amortization is expected
future earnings which in the annuity business are derived, in
part, from fees earned on separate account balances. The market
value of our separate account balances declined during the
second quarter of 2010, resulting in a decrease in the expected
future gross profits, triggering an acceleration of
amortization. During the second quarter of 2009, the market
value of our separate account balances increased due primarily
to improved equity market conditions, resulting in an increase
in the expected future gross profits and a corresponding lower
level of amortization.
Also contributing to the increase in operating earnings were a
modest increase in net investment income, a decrease in interest
crediting rates and a decrease in other expenses, partially
offset by a decrease in DAC capitalization.
The increase in net investment income of $25 million was
due to a $57 million increase from higher yields and a
decrease of $32 million from a reduction in average
invested assets. Yields were positively impacted by the effects
of stabilizing real estate markets on real estate joint ventures
and improved yields on fixed maturity securities from the
repositioning of accumulated liquidity in our portfolio to
longer duration and higher yielding investments. A reduction in
the general account investment portfolio was due to the impact
of more customers gaining confidence in the equity markets and,
as a result, electing to transfer funds into our separate
account products as market conditions improved. To manage the
needs of our intermediate to longer-term liabilities, our
portfolio consists primarily of investment grade corporate fixed
maturity securities, structured finance securities, mortgage
loans and U.S. Treasury, agency and government guaranteed
fixed maturity securities and, to a lesser extent, certain other
invested asset classes, including other limited partnership
interests and real estate joint ventures, in order to provide
additional diversification and opportunity for long-term yield
enhancement.
Interest credited expenses decreased by $15 million
primarily due to lower average crediting rates on fixed
annuities.
Other expenses decreased by $14 million primarily due to a
decline of $18 million in pension and post retirement
benefit costs and letter of credit fees. This decrease was
partially offset by a $6 million increase in variable
expenses, such as commissions and separate account advisory
fees, a portion of which is offset by DAC capitalization. The
favorable impact of the reduction in other expenses was offset
by a $15 million decrease in DAC capitalization.
132
Corporate
Benefit Funding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
% Change
|
|
|
|
(In millions)
|
|
|
OPERATING REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
573
|
|
|
$
|
695
|
|
|
$
|
(122
|
)
|
|
|
(17.6
|
)%
|
Universal life and investment-type product policy fees
|
|
|
56
|
|
|
|
61
|
|
|
|
(5
|
)
|
|
|
(8.2
|
)%
|
Net investment income
|
|
|
1,313
|
|
|
|
1,179
|
|
|
|
134
|
|
|
|
11.4
|
%
|
Other revenues
|
|
|
59
|
|
|
|
69
|
|
|
|
(10
|
)
|
|
|
(14.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
2,001
|
|
|
|
2,004
|
|
|
|
(3
|
)
|
|
|
(0.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
1,143
|
|
|
|
1,240
|
|
|
|
(97
|
)
|
|
|
(7.8
|
)%
|
Interest credited to policyholder account balances
|
|
|
364
|
|
|
|
409
|
|
|
|
(45
|
)
|
|
|
(11.0
|
)%
|
Capitalization of DAC
|
|
|
(3
|
)
|
|
|
(6
|
)
|
|
|
3
|
|
|
|
50.0
|
%
|
Amortization of DAC and VOBA
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
|
|
|
%
|
Interest expense
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
100.0
|
%
|
Other expenses
|
|
|
125
|
|
|
|
122
|
|
|
|
3
|
|
|
|
2.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,635
|
|
|
|
1,769
|
|
|
|
(134
|
)
|
|
|
(7.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
128
|
|
|
|
80
|
|
|
|
48
|
|
|
|
60.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
238
|
|
|
$
|
155
|
|
|
$
|
83
|
|
|
|
53.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unless otherwise stated, all amounts discussed below are net of
income tax.
Corporate Benefit Funding benefited in the second quarter of
2010 as a flight to quality continued to help increase our
market share, especially in the structured settlement business,
where we experienced a 9% increase in premiums. In addition, an
improvement in the economic environment led to an increase in
annuity purchases and, as a result, premiums in our income
annuities business increased $51 million before income tax.
Our pension closeout business in the United Kingdom continues to
expand as sales volume increased in the second quarter of 2010
compared to the second quarter of 2009 despite a decrease in
premiums of $271 million, before income tax. Although
improving, a combination of poor equity returns and lower
interest rates have contributed to pension plans being
underfunded, which reduces our customers flexibility to
engage in transactions such as pension closeouts. Our
customers plans funded status may be affected by a variety
of factors, including the ongoing phased implementation of the
Pension Protection Act of 2006. For each of these businesses,
the movement in premiums is almost entirely offset by the
related change in policyholder benefits. The insurance liability
that is established at the time we assume the risk under these
contracts is typically equivalent to the premium recognized.
A lower demand for several of our investment-type products
continued as a result of the ongoing unfavorable economic
conditions. The decrease in sales of these investment-type
products is not necessarily evident in our results of operations
as the transactions related to these products are recorded
through the balance sheet. Our funding agreement products,
primarily the LIBOR-based contracts, experienced the most
significant impact from the volatile financial market
conditions, as evidenced by a $3.3 billion decrease in
policyholder account balances due to scheduled maturities and a
lack of new issuances. We believe that as companies seek greater
liquidity, investment managers are refraining from purchasing
new contracts with us when they mature and are opting for more
liquid investments.
The $83 million increase in operating earnings was
primarily driven by an improvement in net investment income and
the impact of lower crediting rates, partially offset by the
impact of prior period favorable liability refinements.
133
The increase in net investment income of $87 million was
due to a $103 million increase from higher yields,
partially offset by a decrease of $16 million from a
reduction in average invested assets. Yields were positively
impacted by the effects of stabilizing real estate markets and
recovering private equity markets on real estate joint ventures
and other limited partnership interests. These improvements in
yield were partially offset by decreased yields on fixed
maturity securities due to the reinvestment of proceeds from
maturities and sales during this lower interest rate
environment. The reduction in the investment portfolio was
driven by the maturing of certain funding agreements which were
not replaced by new issuances. To manage the needs of our
longer-term liabilities, our portfolio consists primarily of
investment grade corporate fixed maturity securities, mortgage
loans, U.S. Treasury, agency and government guaranteed
securities, structured finance securities and, to a lesser
extent, certain other invested asset classes including other
limited partnership interests and real estate joint ventures in
order to provide additional diversification and opportunity for
long-term yield enhancement. For our shorter-term obligations,
we invest primarily in structured finance securities, mortgage
loans and investment grade corporate fixed maturity securities.
The yields on these shorter-term investments have moved
consistent with the underlying market indices, primarily LIBOR
and U.S. Treasury, on which they are based.
As many of our products are interest spread-based, changes in
net investment income are typically offset by a corresponding
change in interest credited expense. However, interest credited
expense decreased $29 million, primarily related to the
funding agreement business, as a result of lower crediting rates
combined with lower average account balances. Certain crediting
rates can move consistent with the underlying market indices,
primarily LIBOR rates, which have decreased significantly since
the second quarter of 2009. Interest credited related to the
structured settlement business increased $10 million as a
result of the increase in the average policyholder liabilities.
Current period results were negatively impacted by prior period
favorable liability refinements in both the pension closeouts
and structured settlement businesses, which decreased 2010
operating earnings by $20 million.
Auto &
Home
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
% Change
|
|
|
|
(In millions)
|
|
|
OPERATING REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
723
|
|
|
$
|
726
|
|
|
$
|
(3
|
)
|
|
|
(0.4
|
)%
|
Net investment income
|
|
|
52
|
|
|
|
49
|
|
|
|
3
|
|
|
|
6.1
|
%
|
Other revenues
|
|
|
8
|
|
|
|
5
|
|
|
|
3
|
|
|
|
60.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
783
|
|
|
|
780
|
|
|
|
3
|
|
|
|
0.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
506
|
|
|
|
492
|
|
|
|
14
|
|
|
|
2.8
|
%
|
Capitalization of DAC
|
|
|
(117
|
)
|
|
|
(113
|
)
|
|
|
(4
|
)
|
|
|
(3.5
|
)%
|
Amortization of DAC and VOBA
|
|
|
111
|
|
|
|
111
|
|
|
|
|
|
|
|
|
%
|
Other expenses
|
|
|
193
|
|
|
|
194
|
|
|
|
(1
|
)
|
|
|
(0.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
693
|
|
|
|
684
|
|
|
|
9
|
|
|
|
1.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
17
|
|
|
|
20
|
|
|
|
(3
|
)
|
|
|
(15.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
73
|
|
|
$
|
76
|
|
|
$
|
(3
|
)
|
|
|
(3.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unless otherwise stated, all amounts discussed below are net of
income tax.
The declining housing market, the deterioration of the new auto
sales market and the lack of consumer credit availability, all
of which negatively impacted Auto & Home in 2009, have
continued to moderate in 2010. Sales of new policies increased
in the second quarter of 2010 compared to the same period in
2009 for both the auto and homeowners lines of business.
However, new sales were not sufficient to offset the impact of
policies that were not renewed resulting in a slight decrease in
earned exposures, which caused a decline in premiums for auto,
slightly
134
offset by an increase in premiums for the homeowners line of
business. Average premiums per policy for the second quarter of
2010 were down slightly when compared to 2009.
The primary driver of the $3 million decrease in operating
earnings was unfavorable claim experience, partially offset by
an increase in net investment income and a reduction in other
expenses.
Catastrophe-related losses increased $20 million compared
to the second quarter of 2009 due to increased storm activity in
the middle of the country. Non-catastrophe losses and adjusting
expenses decreased $11 million compared to the second
quarter of 2009. This decrease was primarily due to
$9 million of additional favorable development of prior
year losses and a $2 million decrease in current period
claim costs, driven by lower claim severity in our auto line of
business, partially offset by higher severities in our
homeowners line as well as higher claim frequency in both our
auto and homeowners lines of business.
The impact of the items discussed above can be seen in the
favorable change in the combined ratio, excluding catastrophes,
to 85.5% in the second quarter of 2010 from 88.0% in the second
quarter of 2009 and the unfavorable change in the combined
ratio, including catastrophes, to 95.3% in the second quarter of
2010 from 93.5% in the second quarter of 2009.
A $2 million increase in net investment income also
partially offset the declines in operating earnings discussed
above. Net investment income was higher as a result of an
increase of $7 million due to an increase in average
invested assets and a $5 million decrease from lower
yields. This portfolio is comprised primarily of high quality
municipal bonds.
A $3 million decrease in other expenses, including the net
change in DAC, partially offset the declines in operating
earnings discussed above.
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
% Change
|
|
|
|
(In millions)
|
|
|
OPERATING REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
895
|
|
|
$
|
777
|
|
|
$
|
118
|
|
|
|
15.2
|
%
|
Universal life and investment-type product policy fees
|
|
|
315
|
|
|
|
226
|
|
|
|
89
|
|
|
|
39.4
|
%
|
Net investment income
|
|
|
297
|
|
|
|
359
|
|
|
|
(62
|
)
|
|
|
(17.3
|
)%
|
Other revenues
|
|
|
4
|
|
|
|
2
|
|
|
|
2
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
1,511
|
|
|
|
1,364
|
|
|
|
147
|
|
|
|
10.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
839
|
|
|
|
600
|
|
|
|
239
|
|
|
|
39.8
|
%
|
Interest credited to policyholder account balances
|
|
|
42
|
|
|
|
159
|
|
|
|
(117
|
)
|
|
|
(73.6
|
)%
|
Capitalization of DAC
|
|
|
(168
|
)
|
|
|
(140
|
)
|
|
|
(28
|
)
|
|
|
(20.0
|
)%
|
Amortization of DAC and VOBA
|
|
|
115
|
|
|
|
98
|
|
|
|
17
|
|
|
|
17.3
|
%
|
Interest expense
|
|
|
2
|
|
|
|
1
|
|
|
|
1
|
|
|
|
100.0
|
%
|
Other expenses
|
|
|
493
|
|
|
|
436
|
|
|
|
57
|
|
|
|
13.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,323
|
|
|
|
1,154
|
|
|
|
169
|
|
|
|
14.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
43
|
|
|
|
52
|
|
|
|
(9
|
)
|
|
|
(17.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
145
|
|
|
$
|
158
|
|
|
$
|
(13
|
)
|
|
|
(8.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unless otherwise stated, all amounts discussed below are net of
income tax and on a constant currency basis. The constant
currency basis amounts for both periods are calculated using the
average foreign currency exchange rates of the second quarter of
2010.
135
The improvement in the global financial markets has resulted in
continued growth in our retirement and savings products across
all regions, with the exception of Japan in the Asia Pacific
region, and was the primary driver of a 29% increase in sales in
the current quarter compared to the prior period. Excluding
Japan, sales in our Asia Pacific region were up 16%, primarily
due to higher variable universal life sales in South Korea and
strong bank channel sales in China. Sales in Japan declined 58%,
mainly driven by a shift in consumer preferences from variable
annuities to Yen-denominated fixed products. Our Latin America
region experienced solid growth in all countries, with a 22%
increase in sales over the prior period. Such growth was most
evident in our pension and universal life products in Mexico,
our fixed annuities in Chile, and our pension business in
Brazil. Sales in the EMEI region were up 53% from the prior
period, primarily due to growth in the variable annuity business
in Europe, partially offset by a decline in sales in India due
to the loss of a major distribution channel.
The decrease in reported operating earnings includes the
positive impact of changes in foreign currency exchange rates in
the second quarter of 2010. This improved reported operating
earnings by $8 million for the second quarter compared to
the prior period. Excluding the impact of changes in foreign
currency exchange rates, operating earnings decreased
$21 million from the prior period. This decrease was
primarily driven by the Asia Pacific region, partially offset by
higher core operating earnings in the Latin America region.
Asia Pacific Region. The unfavorable change in
market trends in Japan was the primary driver of the
$33 million decrease in operating earnings for our Asia
Pacific region, as operating earnings from our Japan reinsurance
business declined by $17 million and the results of our
Japan joint venture were down $16 million compared to the
prior period.
Net investment income in the region decreased by
$82 million primarily due to an $83 million decline in
income from our trading portfolio as a result of declining
equity markets in the current period coupled with improving
equity markets in the prior period. A corresponding decline in
the related insurance liabilities entirely offset the negative
impact of this decrease. Net investment income was also lower as
a result of a $14 million decrease in the results of our
operating joint ventures, including the Japan joint venture
discussed above. Excluding Japan, business growth in the region
resulted in an increase in our investment portfolio, which
improved net investment income by $10 million, but also led
to a corresponding increase in policyholder benefits. Higher
yields resulted in a $2 million improvement in net
investment income for the region.
Latin America Region. The primary driver of
the $13 million increase in operating earnings for the
region was an $8 million increase resulting from growth in
our businesses facilitated by improved market conditions. A
reduction in benefits and expenses in Argentina and the net
favorable impact of inflation each contributed $5 million
to the improvement in operating earnings for the region. These
increases were partially offset by the favorable impact in the
prior year period of $7 million resulting from a group
policy cancellation.
Net investment income in the region increased by
$27 million primarily due to increases of $28 million
from inflation and $8 million due to an increase in average
invested assets, partially offset by a decrease of
$7 million from decreased trading portfolio results and a
decline of $3 million from lower yields. The increase in
inflation, primarily in Chile and Argentina, was largely offset
by an increase of $23 million in the related insurance
liabilities. The increase in the investment portfolio is the
result of growth in our businesses. The decrease in income from
the trading portfolio was due to declining equity markets in the
current period coupled with rising equity markets in the prior
period, and was entirely offset by a decrease in the related
insurance liabilities.
Other expenses for the region increased by $9 million,
mainly due to business growth in Mexico and Brazil, partially
offset by lower expenses in Argentina resulting from the release
of a pesification liability.
EMEI Region. Operating earnings for the EMEI
region were essentially unchanged as the improvement in
premiums, fees and other revenues was largely offset by
increased expenses in both India and Ireland as a result of
business growth.
136
Banking,
Corporate & Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
% Change
|
|
|
|
(In millions)
|
|
|
OPERATING REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
3
|
|
|
$
|
4
|
|
|
$
|
(1
|
)
|
|
|
(25.0
|
)%
|
Net investment income
|
|
|
223
|
|
|
|
135
|
|
|
|
88
|
|
|
|
65.2
|
%
|
Other revenues
|
|
|
231
|
|
|
|
281
|
|
|
|
(50
|
)
|
|
|
(17.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
457
|
|
|
|
420
|
|
|
|
37
|
|
|
|
8.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
(2
|
)
|
|
|
3
|
|
|
|
(5
|
)
|
|
|
(166.7
|
)%
|
Interest credited to bank deposits
|
|
|
36
|
|
|
|
40
|
|
|
|
(4
|
)
|
|
|
(10.0
|
)%
|
Amortization of DAC and VOBA
|
|
|
|
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
(100.0
|
)%
|
Interest expense
|
|
|
262
|
|
|
|
252
|
|
|
|
10
|
|
|
|
4.0
|
%
|
Other expenses
|
|
|
273
|
|
|
|
331
|
|
|
|
(58
|
)
|
|
|
(17.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
569
|
|
|
|
628
|
|
|
|
(59
|
)
|
|
|
(9.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
(102
|
)
|
|
|
(145
|
)
|
|
|
43
|
|
|
|
29.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
|
(10
|
)
|
|
|
(63
|
)
|
|
|
53
|
|
|
|
84.1
|
%
|
Preferred stock dividends
|
|
|
31
|
|
|
|
31
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings available to common shareholders
|
|
$
|
(41
|
)
|
|
$
|
(94
|
)
|
|
$
|
53
|
|
|
|
56.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unless otherwise stated, all amounts discussed below are net of
income tax.
For much of the second quarter of 2010, mortgage interest rates
were above levels prevailing in the second quarter of 2009 and
the mortgage refinancing activity began a return to more
moderate levels compared to the unusually high level experienced
in 2009 due to the low interest rate environment. Consistent
with these market conditions, we experienced a $6.1 billion
decline in residential mortgage production during the second
quarter of 2010, while our serviced residential mortgage loans
increased $12.5 billion, which is net of the sale of
$4.8 billion of serviced loans to Federal National Mortgage
Association (FNMA) in the second quarter of 2010.
The increase in serviced loans is due to the high production
levels throughout 2009, as well as lower run-off of existing
business which was 11% in the second quarter of 2010 compared to
25% in the second quarter of 2009.
The Holding Company completed three debt issuances in 2009 in
response to the economic crisis. The Holding Company issued $397
million of floating rate senior notes in March 2009,
$1.3 billion of senior notes in May 2009, and
$500 million of junior subordinated debt securities in July
2009. The proceeds from these debt issuances were used for
general corporate purposes and have resulted in increased
investments and cash and cash equivalents held within Banking,
Corporate & Other.
Operating earnings available to common shareholders improved by
$53 million, primarily due to an increase in net investment
income coupled with a reduction in expenses, partially offset by
lower fees earned on residential mortgage loans.
Net investment income increased $57 million, which was due
to an increase of $53 million from growth in average
invested assets and an increase of $4 million from higher
yields. Growth in the investment portfolio was primarily due to
cash flows from debt issuances in 2009, increased bank deposits
and an increase in excess capital from the segments which was
invested primarily in fixed maturity securities. Yields were
positively impacted by the effects of improving private equity
markets and stabilizing real estate markets on other limited
partnership interests and real estate joint ventures. These
improvements in yield were partially offset by the reinvestment
of proceeds from maturities and sales during this lower interest
rate environment and from decreased income on trading securities
due to declining equity markets in the current period as
compared to rising equity markets in the prior period. Our
investments primarily include structured finance securities,
investment grade corporate fixed maturity securities,
137
mortgage loans and U.S. Treasury, agency and government
guaranteed fixed maturity securities. In addition, our
investment portfolio includes the excess capital not allocated
to the segments. Accordingly, it includes a higher allocation to
certain other invested asset classes to provide additional
diversification and opportunity for long-term yield enhancement
including leveraged leases, other limited partnership interests,
real estate, real estate joint ventures, trading securities and
equity securities.
The $6.1 billion decline in residential mortgage loan
production resulted in a $41 million decrease in operating
earnings, $11 million of which is reflected in net
investment income, with the remainder largely attributable to a
reduction in fee income. This was partially offset by a
$24 million increase in operating earnings from the
$12.5 billion increase in the serviced residential mortgage
loan portfolio.
Interest expense increased $7 million as a result of the
debt issuances in 2009, partially offset by the impact of lower
interest rates on variable rate collateral financing
arrangements.
Also contributing to the increase in operating earnings was a
decrease in operating expenses, stemming primarily from lower
discretionary spending, such as consulting and post employment
related cost, which, reduced other expenses by $18 million
reflecting the impact of our Operational Excellence initiative.
In addition, other human resource expenses, such as deferred
compensation costs, were down $8 million. These savings
were partially offset by $10 million of expenses associated
with internal resources committed to the pending Alico
acquisition.
The decrease in other expenses includes lower commission
expenses of $29 million as a result of the aforementioned
decline in residential mortgage loan production.
Banking, Corporate & Other benefited from a lower
effective tax rate in the second quarter of 2010. The lower
effective tax rate provided an increased benefit of
$3 million from the prior period which was the result of
increased utilization of tax preferenced investments, which
provide tax credits and deductions. This benefit was more than
offset by a charge related to the Patient Protection and
Affordable Care Act and the Health Care and Education
Reconciliation Act of 2010 (together, the Health Care
Act). The Health Care Act amended Internal Revenue Code
Section 162(m) as a result of which MetLife would be
considered a healthcare provider, as defined, and would be
subject to limits on tax deductibility of certain types of
compensation. This change negatively impacted the results for
the second quarter of 2010 by $12 million, which includes a
$6 million
catch-up for
the first quarter of 2010.
138
Six
Months Ended June 30, 2010 compared with the Six Months
Ended June 30, 2009
Consolidated
Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
% Change
|
|
|
|
(In millions)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
13,516
|
|
|
$
|
12,698
|
|
|
$
|
818
|
|
|
|
6.4
|
%
|
Universal life and investment-type product policy fees
|
|
|
2,892
|
|
|
|
2,399
|
|
|
|
493
|
|
|
|
20.6
|
%
|
Net investment income
|
|
|
8,431
|
|
|
|
6,991
|
|
|
|
1,440
|
|
|
|
20.6
|
%
|
Other revenues
|
|
|
1,057
|
|
|
|
1,126
|
|
|
|
(69
|
)
|
|
|
(6.1
|
)%
|
Net investment gains (losses)
|
|
|
1,540
|
|
|
|
(4,735
|
)
|
|
|
6,275
|
|
|
|
132.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
27,436
|
|
|
|
18,479
|
|
|
|
8,957
|
|
|
|
48.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
15,320
|
|
|
|
14,386
|
|
|
|
934
|
|
|
|
6.5
|
%
|
Interest credited to policyholder account balances
|
|
|
2,192
|
|
|
|
2,397
|
|
|
|
(205
|
)
|
|
|
(8.6
|
)%
|
Interest credited to bank deposits
|
|
|
75
|
|
|
|
83
|
|
|
|
(8
|
)
|
|
|
(9.6
|
)%
|
Capitalization of DAC
|
|
|
(1,511
|
)
|
|
|
(1,543
|
)
|
|
|
32
|
|
|
|
2.1
|
%
|
Amortization of DAC and VOBA
|
|
|
1,622
|
|
|
|
636
|
|
|
|
986
|
|
|
|
155.0
|
%
|
Interest expense
|
|
|
739
|
|
|
|
501
|
|
|
|
238
|
|
|
|
47.5
|
%
|
Other expenses
|
|
|
5,437
|
|
|
|
5,356
|
|
|
|
81
|
|
|
|
1.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
23,874
|
|
|
|
21,816
|
|
|
|
2,058
|
|
|
|
9.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before provision for
income tax
|
|
|
3,562
|
|
|
|
(3,337
|
)
|
|
|
6,899
|
|
|
|
206.7
|
%
|
Provision for income tax expense (benefit)
|
|
|
1,188
|
|
|
|
(1,333
|
)
|
|
|
2,521
|
|
|
|
189.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of income tax
|
|
|
2,374
|
|
|
|
(2,004
|
)
|
|
|
4,378
|
|
|
|
218.5
|
%
|
Income (loss) from discontinued operations, net of income tax
|
|
|
7
|
|
|
|
38
|
|
|
|
(31
|
)
|
|
|
(81.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (loss)
|
|
|
2,381
|
|
|
|
(1,966
|
)
|
|
|
4,347
|
|
|
|
221.1
|
%
|
Less: Net income (loss) attributable to noncontrolling interests
|
|
|
(11
|
)
|
|
|
(20
|
)
|
|
|
9
|
|
|
|
45.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to MetLife, Inc.
|
|
|
2,392
|
|
|
|
(1,946
|
)
|
|
|
4,338
|
|
|
|
222.9
|
%
|
Less: Preferred stock dividends
|
|
|
61
|
|
|
|
61
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to MetLife, Inc.s common
shareholders
|
|
$
|
2,331
|
|
|
$
|
(2,007
|
)
|
|
$
|
4,338
|
|
|
|
216.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unless otherwise stated, all amounts discussed below are net of
income tax.
During the six months ended June 30, 2010, MetLifes
income (loss) from continuing operations, net of income tax
increased $4.4 billion to income of $2.4 billion from
a loss of $2.0 billion in the comparable 2009 period. The
change was largely due to a $6.3 billion favorable change
in net investment gains (losses) before income tax: gains of
$1.6 billion in the first half of 2010 compared to losses
of $4.7 billion in the 2009 period. Offsetting this
variance were changes in adjustments related to net investment
gains (losses) of $634 million, before income tax,
principally associated with DAC and VOBA amortization, and
$2.0 billion of income tax, resulting in a total favorable
variance related to net investment gains (losses), net of
related adjustments, of $3.7 billion.
The favorable variance in net investment gains (losses) of
$3.7 billion, net of related adjustments, from losses of
$2.8 billion in 2009 to gains of $858 million in 2010
was primarily driven by a favorable change in freestanding
derivatives of $5.1 billion: from losses in the prior
period of $3.0 billion to gains in the current period of
$2.1 billion.
139
In addition, lower impairments, lower net realized losses from
sales and disposals of investments across most asset classes and
lower additions to the mortgage loan valuation allowance
together contributed $1.2 billion to the improvement. This
favorable experience was partially offset by an unfavorable
change in embedded derivatives primarily associated with
variable annuity minimum benefit guarantees of
$2.5 billion: from gains in the prior period of
$1.3 billion to losses in the current period of
$1.2 billion.
We use freestanding interest rate, currency, credit and equity
derivatives to provide economic hedges of certain invested
assets and insurance liabilities, including embedded derivatives
within certain of our variable annuity minimum benefit
guarantees. The $5.1 billion favorable variance in
freestanding derivatives was primarily attributable to market
factors, including falling long- and mid-term interest rates,
declining equity markets and increased equity volatility, a
strengthening U.S. dollar and widening corporate credit spreads.
Falling long-term and mid-term interest rates in the current
period compared to rising interest rates in the prior period had
a positive impact of $2.9 billion on our interest rate
derivatives, $1.1 billion of which is attributable to
hedges of variable annuity minimum benefit guarantees. In
addition, declining equity markets and increased equity
volatility in the current period compared to rising equity
markets and decreased equity volatility in the prior period had
a positive impact of $1.6 billion on our equity
derivatives, which we use to hedge variable annuity minimum
benefit guarantees. The U.S. dollar strengthening had a
positive impact of $560 million on certain of our foreign
currency derivatives, which are used to hedge
foreign-denominated asset and liability exposures. Finally,
widening corporate credit spreads had a positive impact of
$88 million on our purchased protection credit derivatives.
The variable annuity products with minimum benefit guarantees
containing embedded derivatives are measured at fair value
separately from the host variable annuity contract, with changes
in estimated fair value reported in net investment gains
(losses). The estimated fair value of these embedded derivatives
also includes an adjustment for nonperformance risk of the
related liabilities carried at estimated fair value. The
$2.4 billion unfavorable change in embedded derivatives was
primarily attributable to market factors, including falling
interest rates, declining equity markets, increased equity
market volatility and foreign currency movements. Falling
interest rates in the current period compared to rising interest
rates in the prior period had a negative impact of
$1.5 billion. In addition, increased equity volatility in
the current period compared to decreased equity volatility in
the prior period had a negative impact of $690 million and
declining equity markets in the current period compared to
rising equity markets in the prior period had a negative impact
of $468 million. Finally, the impact of foreign currency
movements had a negative impact of $585 million. The
unfavorable impact from these hedged risks was partially offset
by a favorable change related to the adjustment for
nonperformance risk of $910 million: from losses of
$461 million in 2009 to gains of $449 million in the
current period. The foregoing $449 million gain was net of
a $621 million loss relating to a refinement in estimating
the spreads used in the adjustment for nonperformance risk.
Gains on the freestanding derivatives that hedge these embedded
derivative risks substantially offset the change in liabilities
attributable to market factors, excluding the adjustment for the
change in nonperformance risk, which is unhedged.
Improved market conditions across several invested asset classes
and sectors as compared to the prior period resulted in
decreases in impairments and in net realized losses from sales
and disposals of investments in fixed maturity securities,
equity securities, real estate and real estate joint ventures
and other limited partnership interests. These decreases,
coupled with a decrease in the additions to the mortgage loan
valuation allowance, which is also attributed to the improved
market conditions, resulted in a $1.2 billion improvement
in net investment gains (losses).
Income from continuing operations, net of income tax, for the
first six months of 2010 includes $42 million of expenses
related to the pending acquisition and integration of Alico.
This expense, which primarily consisted of investment banking
and legal fees, is recorded in Banking, Corporate &
Other. This expense is not included as a component of operating
earnings.
As more fully described in the discussion of performance
measures above, we use operating earnings, which does not equate
to income (loss) from continuing operations as determined in
accordance with GAAP, to analyze our performance, evaluate
segment performance, and allocate resources. Operating earnings
is also a measure by which senior managements and many
other employees performance is evaluated for the purpose
of determining their compensation under applicable compensation
plans. We believe that the presentation of operating earnings,
as we measure it for management purposes, enhances the
understanding of our performance by highlighting the results of
operations and the underlying profitability drivers of the
business. Operating earnings should not be viewed as a
140
substitute for GAAP income (loss) from continuing operations,
net of income tax. Operating earnings available to common
shareholders increased by $1.0 billion to $1.9 billion
for the first six months of 2010 from $854 million for the
comparable 2009 period.
Reconciliation
of income (loss) from continuing operations, net of income tax
to operating earnings available to common
shareholders
Six
Months Ended June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Banking
|
|
|
|
|
|
|
Insurance
|
|
|
Retirement
|
|
|
Benefit
|
|
|
Auto &
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
Products
|
|
|
Products
|
|
|
Funding
|
|
|
Home
|
|
|
International
|
|
|
& Other
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Income (loss) from continuing operations, net of income tax
|
|
$
|
1,004
|
|
|
$
|
513
|
|
|
$
|
654
|
|
|
$
|
143
|
|
|
$
|
183
|
|
|
$
|
(123
|
)
|
|
$
|
2,374
|
|
Less: Net investment gains (losses)
|
|
|
634
|
|
|
|
488
|
|
|
|
241
|
|
|
|
(3
|
)
|
|
|
237
|
|
|
|
(57
|
)
|
|
|
1,540
|
|
Less: Adjustments to continuing operations (1)
|
|
|
(114
|
)
|
|
|
(307
|
)
|
|
|
58
|
|
|
|
|
|
|
|
(268
|
)
|
|
|
(53
|
)
|
|
|
(684
|
)
|
Less: Provision for income tax (expense) benefit
|
|
|
(183
|
)
|
|
|
(65
|
)
|
|
|
(111
|
)
|
|
|
1
|
|
|
|
(82
|
)
|
|
|
41
|
|
|
|
(399
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
667
|
|
|
$
|
397
|
|
|
$
|
466
|
|
|
$
|
145
|
|
|
$
|
296
|
|
|
|
(54
|
)
|
|
|
1,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings available to common shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(115
|
)
|
|
$
|
1,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Banking
|
|
|
|
|
|
|
Insurance
|
|
|
Retirement
|
|
|
Benefit
|
|
|
Auto &
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
Products
|
|
|
Products
|
|
|
Funding
|
|
|
Home
|
|
|
International
|
|
|
& Other
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Income (loss) from continuing operations, net of income tax
|
|
$
|
(828
|
)
|
|
$
|
(409
|
)
|
|
$
|
(806
|
)
|
|
$
|
167
|
|
|
$
|
221
|
|
|
$
|
(349
|
)
|
|
$
|
(2,004
|
)
|
Less: Net investment gains (losses)
|
|
|
(1,914
|
)
|
|
|
(970
|
)
|
|
|
(1,630
|
)
|
|
|
23
|
|
|
|
(47
|
)
|
|
|
(197
|
)
|
|
|
(4,735
|
)
|
Less: Adjustments to continuing operations (1)
|
|
|
(34
|
)
|
|
|
304
|
|
|
|
54
|
|
|
|
|
|
|
|
(73
|
)
|
|
|
(19
|
)
|
|
|
232
|
|
Less: Provision for income tax (expense) benefit
|
|
|
680
|
|
|
|
232
|
|
|
|
550
|
|
|
|
(8
|
)
|
|
|
52
|
|
|
|
78
|
|
|
|
1,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
440
|
|
|
$
|
25
|
|
|
$
|
220
|
|
|
$
|
152
|
|
|
$
|
289
|
|
|
|
(211
|
)
|
|
|
915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings available to common shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(272
|
)
|
|
$
|
854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See definitions of operating revenues and operating expenses for
the components of such adjustments. |
141
Reconciliation
of GAAP revenues to operating revenues and GAAP expenses to
operating expenses
Six
Months Ended June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Banking
|
|
|
|
|
|
|
Insurance
|
|
|
Retirement
|
|
|
Benefit
|
|
|
Auto &
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
Products
|
|
|
Products
|
|
|
Funding
|
|
|
Home
|
|
|
International
|
|
|
& Other
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Total revenues
|
|
$
|
13,681
|
|
|
$
|
3,343
|
|
|
$
|
4,527
|
|
|
$
|
1,545
|
|
|
$
|
3,259
|
|
|
$
|
1,081
|
|
|
$
|
27,436
|
|
Less: Net investment gains (losses)
|
|
|
634
|
|
|
|
488
|
|
|
|
241
|
|
|
|
(3
|
)
|
|
|
237
|
|
|
|
(57
|
)
|
|
|
1,540
|
|
Less: Adjustments related to net investment gains (losses)
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
Less: Other adjustments to revenues (1)
|
|
|
(70
|
)
|
|
|
(131
|
)
|
|
|
95
|
|
|
|
|
|
|
|
(124
|
)
|
|
|
225
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
$
|
13,111
|
|
|
$
|
2,986
|
|
|
$
|
4,191
|
|
|
$
|
1,548
|
|
|
$
|
3,146
|
|
|
$
|
913
|
|
|
$
|
25,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
$
|
12,134
|
|
|
$
|
2,552
|
|
|
$
|
3,511
|
|
|
$
|
1,369
|
|
|
$
|
2,892
|
|
|
$
|
1,416
|
|
|
$
|
23,874
|
|
Less: Adjustments related to net investment gains (losses)
|
|
|
50
|
|
|
|
176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
226
|
|
Less: Other adjustments to expenses (1)
|
|
|
|
|
|
|
|
|
|
|
37
|
|
|
|
|
|
|
|
144
|
|
|
|
278
|
|
|
|
459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
12,084
|
|
|
$
|
2,376
|
|
|
$
|
3,474
|
|
|
$
|
1,369
|
|
|
$
|
2,748
|
|
|
$
|
1,138
|
|
|
$
|
23,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Banking
|
|
|
|
|
|
|
Insurance
|
|
|
Retirement
|
|
|
Benefit
|
|
|
Auto &
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
Products
|
|
|
Products
|
|
|
Funding
|
|
|
Home
|
|
|
International
|
|
|
& Other
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Total revenues
|
|
$
|
10,640
|
|
|
$
|
1,380
|
|
|
$
|
1,999
|
|
|
$
|
1,574
|
|
|
$
|
2,342
|
|
|
$
|
544
|
|
|
$
|
18,479
|
|
Less: Net investment gains (losses)
|
|
|
(1,914
|
)
|
|
|
(970
|
)
|
|
|
(1,630
|
)
|
|
|
23
|
|
|
|
(47
|
)
|
|
|
(197
|
)
|
|
|
(4,735
|
)
|
Less: Adjustments related to net investment gains (losses)
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17
|
)
|
Less: Other adjustments to revenues (1)
|
|
|
(43
|
)
|
|
|
(105
|
)
|
|
|
81
|
|
|
|
|
|
|
|
(76
|
)
|
|
|
1
|
|
|
|
(142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
$
|
12,614
|
|
|
$
|
2,455
|
|
|
$
|
3,548
|
|
|
$
|
1,551
|
|
|
$
|
2,465
|
|
|
$
|
740
|
|
|
$
|
23,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
$
|
11,925
|
|
|
$
|
2,008
|
|
|
$
|
3,244
|
|
|
$
|
1,356
|
|
|
$
|
2,065
|
|
|
$
|
1,218
|
|
|
$
|
21,816
|
|
Less: Adjustments related to net investment gains (losses)
|
|
|
(22
|
)
|
|
|
(409
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(431
|
)
|
Less: Other adjustments to expenses (1)
|
|
|
(4
|
)
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
20
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
11,951
|
|
|
$
|
2,417
|
|
|
$
|
3,217
|
|
|
$
|
1,356
|
|
|
$
|
2,068
|
|
|
$
|
1,198
|
|
|
$
|
22,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See definitions of operating revenues and operating expenses for
the components of such adjustments. |
Relative changes in financial markets had divergent impacts on
our financial results. The market improvement from the prior
period resulted in higher net investment income. Such
improvement also drove higher account balances and, as a result,
increased policy fee income. While markets improved from the
prior period, they declined during the second quarter of 2010,
triggering a decrease in variable annuity benefit costs, which
improved earnings and also resulted in increased amortization of
DAC, VOBA and DSI, which negatively impacted earnings. The
increase in DAC, VOBA and DSI amortization in the second quarter
of 2010 more than offset the decline in amortization that was
previously recognized as a result of the improving market
conditions that began in the second quarter of 2009 and
continued through the first quarter of 2010.
The increase in net investment income of $847 million was
due to a $715 million increase from higher yields and a
$132 million increase from growth in average invested
assets. Yields were positively impacted by the effects of
improving private equity markets period over period and
stabilizing real estate markets, which began in the first
quarter of 2010, on other limited partnership interests and real
estate joint ventures. These improvements in yield were
partially offset by the reinvestment of proceeds from maturities
and sales during this lower interest rate
142
environment and from decreased income on trading and similar
securities due to declining equity markets during the current
period as compared to rising equity markets during the prior
period. Growth in the investment portfolio was primarily due to
positive net cash flows, which was reinvested primarily in fixed
maturity securities and mortgage loans. We continued to
reposition the accumulated liquidity in our portfolio to longer
duration and higher yielding investments. Since many of our
products are interest spread-based, higher investment income is
typically offset by higher interest credited expense. However,
interest credited expense decreased $133 million, primarily
in response to the decline in our trading securities portfolio
in International which backs unit-linked policyholder
liabilities. In addition, our domestic funding agreement
business experienced lower crediting rates combined with lower
average account balances. Certain crediting rates can move
consistent with the underlying market indices, primarily LIBOR
rates, which have decreased significantly since the second
quarter of 2009.
Improving financial markets contributed to the $306 million
increase in policy fees primarily by raising our average
separate account balances in the first six months of 2010
compared to the prior period, most notably in our Retirement
Products segment. The financial market conditions also resulted
in a $189 million decrease in variable annuity guarantee
benefit costs, which was primarily due to gains on the related
hedging programs. The various hedging strategies in place to
offset the risk associated with these variable annuity guarantee
benefits were more sensitive to market movements than the
liability for the guaranteed benefit. Market volatility,
declines in the equity markets, and lower interest rates in the
current period as compared to the prior period produced gains on
these hedging strategies. These hedging strategies, which are a
key part of our risk management, performed as anticipated and
were somewhat offset by an increase in annuity guarantee benefit
liabilities, which was primarily due to the declines in the
equity markets.
During the first half of 2010, results reflected increased, or
accelerated, DAC, VOBA and DSI amortization of
$222 million, primarily stemming from a decline in the
market value of our separate account balances. A factor that
determines the amount of amortization is expected future
earnings, which in the annuity business are derived, in part,
from fees earned on separate account balances. The market value
of our separate account balances declined during the second
quarter of 2010, resulting in a decrease in the expected future
gross profits, triggering an acceleration of amortization.
Although the market values declined during the second quarter of
2010, the average separate balances remained higher than the
average in the prior year period. In 2009, the increase in the
market value of our separate account balances was due to
improved market conditions, resulting in an increase in the
expected future gross profits and a corresponding lower level of
amortization.
Residential mortgage loan production declined by $12.5 billion
resulting in an $86 million decrease in operating earnings,
$21 million of which is reflected in net investment income,
with the remainder largely attributable to a reduction in fee
income. This was partially offset by a $39 million increase
in operating earnings from a $12.5 billion increase in the
serviced residential mortgage loan portfolio.
Operating earnings also benefited from decreases in other
expenses, which were primarily driven by a $54 million
reduction in discretionary spending, such as consulting, rent,
printing and post employment related costs. In addition, we
experienced a $34 million decline in market driven expenses,
primarily pension and post retirement benefit, letter of credit
and reinsurance costs. A $30 million decrease in variable
expenses, primarily commissions, separate account advisory fees
and premium taxes, licenses and fees, includes a
$61 million decrease in commissions resulting from the
$12.5 billion decline in mortgage loan production. A portion of
the variance in commissions is offset by DAC capitalization.
Other human resources expenses, such as corporate owned life
insurance and deferred compensation costs, were down $12
million. These declines were offset by the impact of a $95
million benefit recorded in the prior period related to the
pesification in Argentina as well as $9 million of continued
investment in our International business infrastructure.
Finally, the current period includes a $26 million contribution
to MetLife Foundation and $5 million of costs associated with
the pending acquisition and integration of Alico. A $21 million
reduction in DAC capitalization negatively impacted operating
earnings, primarily as a result of decreased annuity sales.
A lower effective tax rate provided an increased benefit of
$85 million from the first six months of 2009. This benefit
was the result of increased utilization of tax preferenced
investments, which provide tax credits and deductions. This
benefit was more than offset by $87 million of charges
related to the Health Care Act. The federal government currently
provides a Medicare Part D subsidy. The Health Care Act
reduces the tax deductibility of retiree health care costs to
the extent of any Medicare Part D subsidy received
beginning in 2013. Because the
143
deductibility of future retiree health care costs is reflected
in our financial statements, the entire future impact of this
change in law was required to be recorded as a charge in the
period in which the legislation was enacted. As a result, we
incurred a $75 million charge in the first quarter of 2010.
The Health Care Act also amended Internal Revenue Code
Section 162(m) as a result of which MetLife would be
considered a healthcare provider, as defined, and would be
subject to limits on tax deductibility of some types of
compensation. This change negatively impacted the results for
the first six months of 2010 by $12 million.
Insurance
Products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
% Change
|
|
|
|
(In millions)
|
|
|
OPERATING REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
8,640
|
|
|
$
|
8,436
|
|
|
$
|
204
|
|
|
|
2.4
|
%
|
Universal life and investment-type product policy fees
|
|
|
1,095
|
|
|
|
1,126
|
|
|
|
(31
|
)
|
|
|
(2.8
|
)%
|
Net investment income
|
|
|
2,999
|
|
|
|
2,694
|
|
|
|
305
|
|
|
|
11.3
|
%
|
Other revenues
|
|
|
377
|
|
|
|
358
|
|
|
|
19
|
|
|
|
5.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
13,111
|
|
|
|
12,614
|
|
|
|
497
|
|
|
|
3.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
9,568
|
|
|
|
9,448
|
|
|
|
120
|
|
|
|
1.3
|
%
|
Interest credited to policyholder account balances
|
|
|
471
|
|
|
|
464
|
|
|
|
7
|
|
|
|
1.5
|
%
|
Capitalization of DAC
|
|
|
(423
|
)
|
|
|
(419
|
)
|
|
|
(4
|
)
|
|
|
(1.0
|
)%
|
Amortization of DAC and VOBA
|
|
|
445
|
|
|
|
371
|
|
|
|
74
|
|
|
|
19.9
|
%
|
Interest expense
|
|
|
|
|
|
|
3
|
|
|
|
(3
|
)
|
|
|
(100.0
|
)%
|
Other expenses
|
|
|
2,023
|
|
|
|
2,084
|
|
|
|
(61
|
)
|
|
|
(2.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
12,084
|
|
|
|
11,951
|
|
|
|
133
|
|
|
|
1.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
360
|
|
|
|
223
|
|
|
|
137
|
|
|
|
61.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
667
|
|
|
$
|
440
|
|
|
$
|
227
|
|
|
|
51.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unless otherwise stated, all amounts discussed below are net of
income tax.
The significant components of the $227 million increase in
operating earnings were an improvement in net investment income
and the impact of a reduction in dividends to certain
policyholders, partially offset by net unfavorable claims
experience across several of our businesses.
The increase in net investment income of $198 million was
due to a $114 million increase from higher yields and an
$84 million increase from growth in average invested
assets. Yields were positively impacted by the effects of
improving private equity markets and stabilizing real estate
markets on other limited partnership interests and real estate
joint ventures, which was partially offset by a slight decrease
in yields on fixed maturity securities. Growth in the investment
portfolio was from an increase in net cash flows from our
individual life, non-medical health, and group life businesses
which were invested primarily in fixed maturity securities.
The dividend scale reduction in the fourth quarter of 2009
resulted in a $59 million decrease in policyholder
dividends in the traditional life business in the current
period. This benefit was partially offset by $15 million of
net unfavorable claim experience across several of our
businesses. This result stemmed primarily from solid, but less
favorable mortality in our individual life business coupled with
higher incidence and severity of group and individual disability
claims. The impact of this experience was somewhat offset by
excellent mortality results in our group life business and
favorable claim experience in both the long-term care and dental
businesses. The improved dental results are driven by pricing
actions as well as improved claim experience in the current
period.
Other expenses decreased $40 million primarily from a
decline of $20 million in pension and post retirement
benefit costs and $18 million in other human resources
expenses, such as corporate owned life insurance and deferred
compensation expense. In addition, an $18 million reduction
in discretionary spending such as printing and professional
services costs contributed to the improvement in operating
earnings. Partially offsetting these
144
expense reductions was a $10 million increase in variable
expenses, such as commissions and premium taxes, licenses and
fees, a portion of which is offset by DAC capitalization.
DAC amortization increased $48 million primarily driven by
the impact of higher current period gross margins in the closed
block and the impact of an unusually low level of amortization
in the prior period.
Retirement
Products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
% Change
|
|
|
|
(In millions)
|
|
|
OPERATING REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
274
|
|
|
$
|
291
|
|
|
$
|
(17
|
)
|
|
|
(5.8
|
)%
|
Universal life and investment-type product policy fees
|
|
|
1,074
|
|
|
|
753
|
|
|
|
321
|
|
|
|
42.6
|
%
|
Net investment income
|
|
|
1,536
|
|
|
|
1,347
|
|
|
|
189
|
|
|
|
14.0
|
%
|
Other revenues
|
|
|
102
|
|
|
|
64
|
|
|
|
38
|
|
|
|
59.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
2,986
|
|
|
|
2,455
|
|
|
|
531
|
|
|
|
21.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
403
|
|
|
|
678
|
|
|
|
(275
|
)
|
|
|
(40.6
|
)%
|
Interest credited to policyholder account balances
|
|
|
811
|
|
|
|
830
|
|
|
|
(19
|
)
|
|
|
(2.3
|
)%
|
Capitalization of DAC
|
|
|
(496
|
)
|
|
|
(614
|
)
|
|
|
118
|
|
|
|
19.2
|
%
|
Amortization of DAC and VOBA
|
|
|
505
|
|
|
|
282
|
|
|
|
223
|
|
|
|
79.1
|
%
|
Interest expense
|
|
|
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
(100.0
|
)%
|
Other expenses
|
|
|
1,153
|
|
|
|
1,240
|
|
|
|
(87
|
)
|
|
|
(7.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
2,376
|
|
|
|
2,417
|
|
|
|
(41
|
)
|
|
|
(1.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
213
|
|
|
|
13
|
|
|
|
200
|
|
|
|
1538.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
397
|
|
|
$
|
25
|
|
|
$
|
372
|
|
|
|
1488.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unless otherwise stated, all amounts discussed below are net of
income tax.
Relative changes in the financial markets were the primary
driver of the $372 million increase in operating earnings,
with the largest impacts resulting from a $233 million
increase in policy fees and other revenues, a $189 million
decrease in variable annuity guarantee benefit costs and a
$123 million increase in net investment income, partially
offset by a $160 million increase in DAC, VOBA and DSI
amortization.
Policy fees and other revenues increased by $233 million,
mainly due to higher average separate account balances in the
current period as compared to the prior period. The higher
average separate account balances are largely attributable to
favorable market performance resulting from improved market
conditions since the second quarter of 2009 and positive net
cash flows from the annuity business.
During the first six months of 2010, results reflected
increased, or accelerated, DAC, VOBA and DSI amortization of
$160 million, primarily stemming from increased investment
income, as well as from a decline in the market value of our
separate account balances. A factor that determines the amount
of amortization is expected future earnings which in the annuity
business are derived, in part, from fees earned on separate
account balances. During the first six months of 2009, the
market value of our separate account balances increased due
primarily to improved equity market conditions, resulting in an
increase in the expected future gross profits and a
corresponding lower level of amortization.
The decrease in variable annuity benefit costs is primarily due
to gains on the related hedging programs, which positively
impacted operating earnings by $189 million. The various
hedging strategies in place to offset the risk associated with
these variable annuity guarantee benefits were more sensitive to
market movements than the liability for the guaranteed benefit.
Market volatility, declines in the equity markets, and lower
interest rates in the current period as compared to the prior
period, produced gains on these hedging strategies. These
hedging strategies, which are a key part of our risk management
strategy, performed as anticipated and were somewhat offset by
an increase in annuity guarantee benefit liabilities, which was
primarily due to the declines in the equity markets.
145
The increase in net investment income of $123 million was
due to a $189 million increase from higher yields and a
$66 million decrease from a decline in average invested
assets. Yields were positively impacted by the effects of
stabilizing real estate markets and improving private equity
markets on real estate joint ventures and other limited
partnership interests and the effects of the continued
repositioning of the accumulated liquidity in the portfolio to
longer duration, higher yielding assets, particularly
investment-grade corporate fixed maturity securities. A
reduction in the general account investment portfolio was due to
the impact of more customers gaining confidence in the equity
markets and, as a result, electing to transfer funds into our
separate account products as market conditions improved.
Other expenses decreased $57 million primarily due to a
decline of $30 million in variable expenses, such as
commissions, a portion of which is offset by DAC capitalization,
and a decline of $28 million in pension and post retirement
benefit costs and letter of credit fees. In addition, declines
in travel and printing expenses of $4 million reflect the
impact of the Companys Operational Excellence initiative.
In addition, interest credited expenses decreased
$12 million driven by a $28 million decline resulting
from lower average crediting rates on fixed annuities partially
offset by a $16 million increase due to growth in our fixed
annuity policyholder account balances. The favorable impact of
the reductions in interest credited and other expenses was more
than offset by a $77 million decrease in DAC capitalization.
Corporate
Benefit Funding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
% Change
|
|
|
|
(In millions)
|
|
|
OPERATING REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
1,374
|
|
|
$
|
1,019
|
|
|
$
|
355
|
|
|
|
34.8
|
%
|
Universal life and investment-type product policy fees
|
|
|
111
|
|
|
|
101
|
|
|
|
10
|
|
|
|
9.9
|
%
|
Net investment income
|
|
|
2,583
|
|
|
|
2,290
|
|
|
|
293
|
|
|
|
12.8
|
%
|
Other revenues
|
|
|
123
|
|
|
|
138
|
|
|
|
(15
|
)
|
|
|
(10.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
4,191
|
|
|
|
3,548
|
|
|
|
643
|
|
|
|
18.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
2,505
|
|
|
|
2,119
|
|
|
|
386
|
|
|
|
18.2
|
%
|
Interest credited to policyholder account balances
|
|
|
719
|
|
|
|
868
|
|
|
|
(149
|
)
|
|
|
(17.2
|
)%
|
Capitalization of DAC
|
|
|
(11
|
)
|
|
|
(8
|
)
|
|
|
(3
|
)
|
|
|
(37.5
|
)%
|
Amortization of DAC and VOBA
|
|
|
8
|
|
|
|
9
|
|
|
|
(1
|
)
|
|
|
(11.1
|
)%
|
Interest expense
|
|
|
4
|
|
|
|
2
|
|
|
|
2
|
|
|
|
100.0
|
%
|
Other expenses
|
|
|
249
|
|
|
|
227
|
|
|
|
22
|
|
|
|
9.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
3,474
|
|
|
|
3,217
|
|
|
|
257
|
|
|
|
8.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
251
|
|
|
|
111
|
|
|
|
140
|
|
|
|
126.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
466
|
|
|
$
|
220
|
|
|
$
|
246
|
|
|
|
111.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
146
Unless otherwise stated, all amounts discussed below are net of
income tax.
The $246 million increase in operating earnings was
primarily driven by an improvement in net investment income and
the impact of lower crediting rates, partially offset by the
impact of prior period favorable liability refinements and an
increase in other expenses.
The primary driver of the $246 million increase in
operating earnings was higher net investment income of
$190 million reflecting a $247 million increase from
higher yields, partially offset by a $57 million decrease
from a reduction in average invested assets. Yields were
positively impacted by the effects of improving private equity
markets and stabilizing real estate markets on other limited
partnership interests and real estate joint ventures. These
improvements in yield were partially offset by decreased yields
on fixed maturity securities due to the reinvestment of proceeds
from maturities and sales during this lower interest rate
environment. The reduction in the investment portfolio was
driven by the maturing of certain funding agreements which were
not replaced by new issuances.
As many of our products are interest spread-based, changes in
net investment income are typically offset by a corresponding
change in interest credited expense. However, interest credited
expense decreased $97 million, primarily related to the
funding agreement business as a result of lower crediting rates
combined with lower average account balances. Certain crediting
rates can move consistent with the underlying market indices,
primarily LIBOR rates, which have decreased significantly since
the second quarter of 2009. Interest credited related to the
structured settlement businesses increased $21 million as a
result of the increase in the average policyholder liabilities.
The increase in operating earnings was somewhat dampened by the
impact of $24 million of prior period favorable liability
refinements in both the pension closeouts and structured
settlement businesses. Favorable liability refinements in the
current period, primarily in the structured settlements and
income annuities businesses, improved operating earnings by
$7 million.
In addition, other expenses increased $14 million primarily
due to an increase of $11 million in variable expenses,
such as commissions and separate account advisory fees, a
portion of which is offset by DAC capitalization, as well as an
increase in information technology related expenses of
$3 million. These increases were partially offset by a
$3 million decrease in market driven expenses, primarily
pension and post retirement benefit costs.
Auto &
Home
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
% Change
|
|
|
|
(In millions)
|
|
|
OPERATING REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
1,437
|
|
|
$
|
1,448
|
|
|
$
|
(11
|
)
|
|
|
(0.8
|
)%
|
Net investment income
|
|
|
105
|
|
|
|
89
|
|
|
|
16
|
|
|
|
18.0
|
%
|
Other revenues
|
|
|
6
|
|
|
|
14
|
|
|
|
(8
|
)
|
|
|
(57.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
1,548
|
|
|
|
1,551
|
|
|
|
(3
|
)
|
|
|
(0.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
1,000
|
|
|
|
971
|
|
|
|
29
|
|
|
|
3.0
|
%
|
Capitalization of DAC
|
|
|
(221
|
)
|
|
|
(217
|
)
|
|
|
(4
|
)
|
|
|
(1.8
|
)%
|
Amortization of DAC and VOBA
|
|
|
218
|
|
|
|
221
|
|
|
|
(3
|
)
|
|
|
(1.4
|
)%
|
Other expenses
|
|
|
372
|
|
|
|
381
|
|
|
|
(9
|
)
|
|
|
(2.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,369
|
|
|
|
1,356
|
|
|
|
13
|
|
|
|
1.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
34
|
|
|
|
43
|
|
|
|
(9
|
)
|
|
|
(20.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
145
|
|
|
$
|
152
|
|
|
$
|
(7
|
)
|
|
|
(4.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
147
Unless otherwise stated, all amounts discussed below are net of
income tax.
The primary driver of the $7 million decrease in operating
earnings was unfavorable claim experience, partially offset by
higher net investment income and a decrease in other expenses.
Catastrophe-related losses increased by $25 million
compared to the first six months of 2009 due to increased storm
activity and we recorded $3 million less of a benefit in
the first six months of 2010 from favorable development of prior
year non-catastrophe losses. The negative impact of these items
was partially offset by a $9 million decrease in current
period claim costs driven primarily by lower claim frequencies
in our auto and homeowners lines of business, somewhat offset by
slightly higher severities in both lines. In the first six
months of 2010, we experienced a slight decline in insured
exposures, which contributed $2 million to the decrease in
operating earnings. While this decrease in exposures had a
positive impact on the amount of claims, it was more than offset
by the negative impact on premiums.
The impact of the items discussed above can be seen in the
favorable change in the combined ratio, excluding catastrophes,
to 87.2% in the first half of 2010 from 88.1% in the first half
of 2009 and the unfavorable change in the combined ratio,
including catastrophes, to 94.7% in the first half of 2010 from
93.0% in the first half of 2009.
In addition, the write-off of an equity interest in a mandatory
state underwriting pool required by a change in legislation
drove a $5 million decrease in other revenues.
A $10 million increase in net investment income partially
offset the declines in operating earnings discussed above. Net
investment income was higher primarily as a result of an
increase in average invested assets. This portfolio is comprised
primarily of high quality municipal bonds.
A $10 million decrease in other expenses, including the net
change in DAC, also partially offset the declines in operating
earnings discussed above. The decrease in expenses resulted from
lower compensation-related expenses of $4 million, a
$2 million decrease in sales and infrastructure-related
expenses and from minor fluctuations in a number of expense
categories.
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
% Change
|
|
|
|
(In millions)
|
|
|
OPERATING REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
1,788
|
|
|
$
|
1,498
|
|
|
$
|
290
|
|
|
|
19.4
|
%
|
Universal life and investment-type product policy fees
|
|
|
606
|
|
|
|
436
|
|
|
|
170
|
|
|
|
39.0
|
%
|
Net investment income
|
|
|
747
|
|
|
|
527
|
|
|
|
220
|
|
|
|
41.7
|
%
|
Other revenues
|
|
|
5
|
|
|
|
4
|
|
|
|
1
|
|
|
|
25.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
3,146
|
|
|
|
2,465
|
|
|
|
681
|
|
|
|
27.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
1,677
|
|
|
|
1,148
|
|
|
|
529
|
|
|
|
46.1
|
%
|
Interest credited to policyholder account balances
|
|
|
193
|
|
|
|
237
|
|
|
|
(44
|
)
|
|
|
(18.6
|
)%
|
Capitalization of DAC
|
|
|
(360
|
)
|
|
|
(285
|
)
|
|
|
(75
|
)
|
|
|
(26.3
|
)%
|
Amortization of DAC and VOBA
|
|
|
220
|
|
|
|
193
|
|
|
|
27
|
|
|
|
14.0
|
%
|
Interest expense
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
|
|
|
%
|
Other expenses
|
|
|
1,015
|
|
|
|
772
|
|
|
|
243
|
|
|
|
31.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
2,748
|
|
|
|
2,068
|
|
|
|
680
|
|
|
|
32.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
102
|
|
|
|
108
|
|
|
|
(6
|
)
|
|
|
(5.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
296
|
|
|
$
|
289
|
|
|
$
|
7
|
|
|
|
2.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unless otherwise stated, all amounts discussed below are net of
income tax and on a constant currency basis. The constant
currency basis amounts for both periods are calculated using the
average foreign currency exchange rates of the first half of
2010.
148
An improvement in the global financial markets and continued
growth in our retirement and savings products across all
regions, with the exception of Japan in our Asia Pacific region,
resulted in a 33% increase in sales in the first six months of
2010 compared to the prior period. Excluding Japan, sales in our
Asia Pacific region were up 30%, primarily due to higher fixed
annuity and variable universal life sales in South Korea. Sales
in Japan declined 54%, mainly driven by a shift in consumer
preference from variable annuities to Yen-denominated fixed
products. Our Latin America region experienced solid growth in
all countries, with a 22% increase in sales from the prior
period. Such growth was most evident in our pension and
universal life products in Mexico, our fixed annuities in Chile,
and our pension business in Brazil. Sales in the EMEI region
were up 54% from the prior period primarily due to growth in the
variable annuity business in Europe, partially offset by a
decline in sales in India due to the loss of a major
distribution channel.
The increase in reported operating earnings includes the
positive impact of changes in foreign currency exchange rates in
2010. This improved reported operating earnings by
$22 million for the six months ended June 2010 relative to
the prior period. Excluding the impact of changes in foreign
currency exchange rates, operating earnings decreased by
$15 million, or 5%, from the prior period. This decrease
was primarily driven by the prior period impact of pesification
in Argentina and a change in the foreign controlled corporation
tax provision, partially offset by higher operating earnings in
the Latin America and Asia Pacific regions.
Asia Pacific Region. The primary driver of the
$10 million increase in operating earnings was the overall
improvement in the financial markets, partially offset by a
change in the foreign controlled corporation tax provision.
Despite the overall improvement in the financial markets,
declines in the equity markets during the current period coupled
with improving equity markets in the prior period resulted in an
$82 million decrease in income from our trading portfolio,
reducing net investment income for the region by
$32 million. The reduction in the results of our trading
portfolio is entirely offset by a corresponding decrease in the
related insurance liabilities and therefore had no impact on
operating earnings. Business growth in the region resulted in an
increase in our investment portfolio, which improved net
investment income by $20 million, but also resulted in a
corresponding increase in policyholder benefits. Net investment
income from operating joint ventures increased by
$19 million, primarily due to favorable results driven by
the equity market recovery in the first quarter of 2010,
partially offset by the declines in the equity markets in the
second quarter of 2010. In addition, net investment income
increased by $4 million as a result of higher yields. The
region was negatively impacted by an $8 million decrease
due to the non-renewal of a foreign controlled corporation tax
provision in the current period, partially offset by one-time
tax benefits in both the current and prior periods.
Latin America Region. The $29 million
decrease in operating earnings was primarily driven by
pesification in Argentina which favorably impacted reported
earnings by $95 million in the first quarter of 2009. This
prior period benefit was due to a reassessment of our approach
in managing existing and potential future claims related to
certain social security pension annuity contract holders in
Argentina resulting in a liability release. The region was also
negatively impacted by $12 million due to the non-renewal
of a foreign controlled corporate tax provision, partially
offset by a change in liabilities for tax uncertainties, as well
as the favorable impact in the prior year of $7 million
resulting from a group policy cancellation. These items more
than offset the positive impact of increased operating earnings
in Argentina, Mexico and Chile totaling $36 million. Higher
investment yields resulting from portfolio restructuring was the
primary driver for the improvement in Argentina. Growth in our
variable universal life and pension products improved results in
Mexico, and growth in our single premium annuity products
improved results in Chile. In addition, the region benefited by
$34 million due to the unfavorable impact in the prior
period from a change in assumption regarding the repatriation of
earnings. Operating earnings also increased by $15 million
due to inflation.
Net investment income in the region increased by
$123 million primarily due to increases of
$114 million from inflation and $16 million due to an
increase in average invested assets resulting from business
growth, partially offset by a decline of $2 million due to
lower yields. The increase in inflation in the current period,
as compared to decreasing inflation in the prior period, was
offset by a $99 million increase in the related insurance
liabilities due to higher inflation. Business growth drove the
increase in the investment portfolio.
EMEI Region. Operating earnings for the EMEI
region were essentially unchanged as the improvement in
premiums, fees and other revenues was largely offset by
increased expenses in both India and Ireland as a result of
business growth.
149
Banking,
Corporate & Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
% Change
|
|
|
|
(In millions)
|
|
|
OPERATING REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
3
|
|
|
$
|
6
|
|
|
$
|
(3
|
)
|
|
|
(50.0
|
)%
|
Net investment income
|
|
|
466
|
|
|
|
186
|
|
|
|
280
|
|
|
|
150.5
|
%
|
Other revenues
|
|
|
444
|
|
|
|
548
|
|
|
|
(104
|
)
|
|
|
(19.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
913
|
|
|
|
740
|
|
|
|
173
|
|
|
|
23.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
(7
|
)
|
|
|
3
|
|
|
|
(10
|
)
|
|
|
(333.3
|
)%
|
Interest credited to bank deposits
|
|
|
75
|
|
|
|
83
|
|
|
|
(8
|
)
|
|
|
(9.6
|
)%
|
Amortization of DAC and VOBA
|
|
|
|
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
(100.0
|
)%
|
Interest expense
|
|
|
523
|
|
|
|
492
|
|
|
|
31
|
|
|
|
6.3
|
%
|
Other expenses
|
|
|
547
|
|
|
|
618
|
|
|
|
(71
|
)
|
|
|
(11.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,138
|
|
|
|
1,198
|
|
|
|
(60
|
)
|
|
|
(5.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
(171
|
)
|
|
|
(247
|
)
|
|
|
76
|
|
|
|
30.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
|
(54
|
)
|
|
|
(211
|
)
|
|
|
157
|
|
|
|
74.4
|
%
|
Preferred stock dividends
|
|
|
61
|
|
|
|
61
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings available to common shareholders
|
|
$
|
(115
|
)
|
|
$
|
(272
|
)
|
|
$
|
157
|
|
|
|
57.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unless otherwise stated, all amounts discussed below are net of
income tax.
Operating earnings available to common shareholders improved by
$157 million, primarily due to an increase in net
investment income, a lower effective tax rate and a decrease in
other expenses, partially offset by lower fees earned on
residential mortgage loans and an increase in interest expense.
Net investment income increased $182 million, which was due
to increases of $102 million from growth in average
invested assets and $80 million from higher yields. Growth
in the investment portfolio was due to cash flows from debt
issuances in 2009, increased bank deposits and an increase in
excess capital from the segments, which was invested primarily
in fixed maturity securities. Yields were positively impacted by
the effects of improving private equity markets and stabilizing
real estate markets on other limited partnership interests and
real estate joint ventures. These improvements in yield were
partially offset by the reinvestment of proceeds from maturities
and sales during this lower interest rate environment and from
decreased income on trading securities due to declining equity
markets in the current period as compared to rising equity
markets in the prior period.
Banking, Corporate & Other also benefited from a lower
effective tax rate. The lower effective tax rate provided an
increased benefit of $94 million from the first six months
of 2009. This benefit was the result of increased utilization of
tax preferenced investments, which provide tax credits and
deductions. This benefit was largely offset by $87 million
of charges related to the Health Care Act. The federal
government currently provides a Medicare Part D subsidy.
The Health Care Act reduces the tax deductibility of retiree
health care costs to the extent of any Medicare Part D
subsidy received beginning in 2013. Because the deductibility of
future retiree health care costs is reflected in our financial
statements, the entire future impact of this change in law was
required to be recorded as a charge in the period in which the
legislation was enacted. As a result, we incurred a
$75 million charge in the first quarter of 2010. The Health
Care Act also amended Internal Revenue Code Section 162(m)
as a result of which MetLife would be considered a healthcare
provider, as defined, and would be subject to limits on tax
150
deductibility of certain types of compensation. This change
negatively impacted the results for the first six months of 2010
by $12 million.
Residential mortgage loan production declined by $12.5 billion
resulting in an $86 million decrease in operating earnings,
$21 million of which is reflected in net investment income,
with the remainder largely attributable to a reduction in fee
income. This was partially offset by a $39 million increase
in operating earnings from a $12.5 billion increase in the
serviced residential mortgage loan portfolio.
Interest expense increased $20 million as a result of the
debt issuances in 2009, partially offset by the impact of lower
interest rates on variable rate collateral financing
arrangements.
During the first quarter of 2010, we made a $26 million
contribution to MetLife Foundation, while no contribution was
made in the first six months of 2009. In the current period, we
allocated $12 million of internal resource costs for
associates committed to the pending acquisition of Alico. These
higher expenses were partially offset by a $32 million
reduction in costs associated with the Companys
Operational Excellence initiative. Other expenses includes a
$61 million decrease in commissions as a result of the
decline in mortgage loan production.
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, relating to the variability in the
estimated fair value of investments associated with changes in
market factors such as credit spreads.
|
The Company manages risk through in-house fundamental analysis
of the underlying obligors, issuers, transaction structures and
real estate properties. The Company also manages credit risk,
market valuation risk and liquidity risk through industry and
issuer diversification and asset allocation. For real estate and
agricultural assets, the Company manages credit risk and market
valuation risk through geographic, property type and product
type diversification and asset allocation. The Company manages
interest rate risk as part of its asset and liability management
strategies; product design, such as the use of market value
adjustment features and surrender charges; and proactive
monitoring and management of certain non-guaranteed elements of
its products, such as the resetting of credited interest and
dividend rates for policies that permit such adjustments. The
Company also uses certain derivative instruments in the
management of credit, interest rate, currency and equity market
risks.
Current Environment. The global economy and
markets are now recovering from a period of significant stress
that began in the second half of 2007 and substantially
increased through the first quarter of 2009. This disruption
adversely affected the financial services industry, in
particular. The U.S. economy entered a recession in January
2008. Although many economists believe this recession ended in
the third quarter of 2009, after a brief rebound, the recovery
has slowed, and the unemployment rate is expected to remain high
for some time. In addition, inflation has fallen over the last
several years and remains at very low levels. Some economists
believe that disinflation and deflation risk remains in the
economy. Although the disruption in the global financial markets
that began in late 2007 has moderated, not all global financial
markets are functioning normally, and some remain reliant upon
government intervention and liquidity. The Companys
sovereign debt exposure to Portugal, Ireland, Italy, Greece and
Spain, commonly referred to as Europes perimeter
region, was approximately $41 million, with no
sovereign debt exposure to Portugal at June 30, 2010.
151
During the six months ended June 30, 2010, the net
unrealized loss position on fixed maturity and equity securities
improved from a net unrealized loss of $2.2 billion at
December 31, 2009 to a net unrealized gain of
$7.3 billion at June 30, 2010, as a result of
improvement in market conditions, and a decrease in interest
rates.
Investment Outlook. Although the volatility in
the equity, credit and real estate markets has moderated in
2010, it could continue to impact net investment income and the
related yields on private equity funds, hedge funds and real
estate joint ventures, included within our other limited
partnership interests and real estate and real estate joint
venture portfolios. Further, in light of the slow economic
recovery, liquidity will be reinvested in a prudent manner and
invested according to our ALM discipline in appropriate assets
over time. We will maintain a sufficient level of liquidity to
meet business needs. Net investment income may be adversely
affected if excess liquidity is required over an extended period
of time to meet changing business needs.
152
Composition
of Investment Portfolio and Investment Portfolio
Results
The following table (yield table) illustrates the
investment income, investment gains (losses), annualized yields
on average ending assets and ending carrying value for each of
the asset classes within the Companys investment
portfolio, as well as investment income for the investment
portfolio as a whole:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or For the
|
|
|
At or For the
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Fixed Maturity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield (1)
|
|
|
5.33
|
%
|
|
|
5.91
|
%
|
|
|
5.53
|
%
|
|
|
5.81
|
%
|
Investment income (2), (3)
|
|
$
|
2,959
|
|
|
$
|
3,036
|
|
|
$
|
6,093
|
|
|
$
|
5,836
|
|
Investment gains (losses) (3)
|
|
$
|
(126
|
)
|
|
$
|
(378
|
)
|
|
$
|
(193
|
)
|
|
$
|
(987
|
)
|
Ending carrying value (2), (3)
|
|
$
|
249,249
|
|
|
$
|
213,034
|
|
|
$
|
249,249
|
|
|
$
|
213,034
|
|
Mortgage Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield (1)
|
|
|
5.55
|
%
|
|
|
5.37
|
%
|
|
|
5.47
|
%
|
|
|
5.35
|
%
|
Investment income (3), (4)
|
|
$
|
695
|
|
|
$
|
694
|
|
|
$
|
1,367
|
|
|
$
|
1,374
|
|
Investment gains (losses) (3)
|
|
$
|
11
|
|
|
$
|
(125
|
)
|
|
$
|
(17
|
)
|
|
$
|
(271
|
)
|
Ending carrying value (3)
|
|
$
|
51,144
|
|
|
$
|
52,500
|
|
|
$
|
51,144
|
|
|
$
|
52,500
|
|
Real Estate and Real Estate Joint Ventures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield (1)
|
|
|
3.15
|
%
|
|
|
(8.83
|
)%
|
|
|
0.52
|
%
|
|
|
(9.01
|
)%
|
Investment income
|
|
$
|
54
|
|
|
$
|
(162
|
)
|
|
$
|
18
|
|
|
$
|
(334
|
)
|
Investment gains (losses)
|
|
$
|
(17
|
)
|
|
$
|
(68
|
)
|
|
$
|
(39
|
)
|
|
$
|
(93
|
)
|
Ending carrying value
|
|
$
|
6,841
|
|
|
$
|
7,296
|
|
|
$
|
6,841
|
|
|
$
|
7,296
|
|
Policy Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield (1)
|
|
|
6.25
|
%
|
|
|
6.51
|
%
|
|
|
6.64
|
%
|
|
|
6.45
|
%
|
Investment income
|
|
$
|
159
|
|
|
$
|
161
|
|
|
$
|
337
|
|
|
$
|
318
|
|
Ending carrying value
|
|
$
|
10,180
|
|
|
$
|
9,907
|
|
|
$
|
10,180
|
|
|
$
|
9,907
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield (1)
|
|
|
5.40
|
%
|
|
|
6.01
|
%
|
|
|
4.37
|
%
|
|
|
4.94
|
%
|
Investment income
|
|
$
|
39
|
|
|
$
|
54
|
|
|
$
|
64
|
|
|
$
|
91
|
|
Investment gains (losses)
|
|
$
|
74
|
|
|
$
|
(108
|
)
|
|
$
|
101
|
|
|
$
|
(377
|
)
|
Ending carrying value
|
|
$
|
2,741
|
|
|
$
|
3,045
|
|
|
$
|
2,741
|
|
|
$
|
3,045
|
|
Other Limited Partnership Interests:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield (1)
|
|
|
11.13
|
%
|
|
|
5.46
|
%
|
|
|
14.93
|
%
|
|
|
(6.59
|
)%
|
Investment income
|
|
$
|
161
|
|
|
$
|
72
|
|
|
$
|
426
|
|
|
$
|
(181
|
)
|
Investment gains (losses)
|
|
$
|
(10
|
)
|
|
$
|
(247
|
)
|
|
$
|
(11
|
)
|
|
$
|
(344
|
)
|
Ending carrying value
|
|
$
|
5,856
|
|
|
$
|
5,193
|
|
|
$
|
5,856
|
|
|
$
|
5,193
|
|
Cash and Short-Term Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield (1)
|
|
|
0.37
|
%
|
|
|
0.45
|
%
|
|
|
0.37
|
%
|
|
|
0.47
|
%
|
Investment income
|
|
$
|
15
|
|
|
$
|
24
|
|
|
$
|
28
|
|
|
$
|
60
|
|
Investment gains (losses)
|
|
$
|
|
|
|
$
|
2
|
|
|
$
|
1
|
|
|
$
|
|
|
Ending carrying value (3)
|
|
$
|
20,421
|
|
|
$
|
21,330
|
|
|
$
|
20,421
|
|
|
$
|
21,330
|
|
Other Invested Assets: (5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income
|
|
$
|
166
|
|
|
$
|
98
|
|
|
$
|
320
|
|
|
$
|
190
|
|
Investment gains (losses)
|
|
$
|
1,389
|
|
|
$
|
(3,033
|
)
|
|
$
|
1,490
|
|
|
$
|
(2,800
|
)
|
Ending carrying value
|
|
$
|
15,584
|
|
|
$
|
13,071
|
|
|
$
|
15,584
|
|
|
$
|
13,071
|
|
Total Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross investment income yield (1)
|
|
|
5.23
|
%
|
|
|
5.02
|
%
|
|
|
5.38
|
%
|
|
|
4.63
|
%
|
Investment fees and expenses yield
|
|
|
(0.13
|
)
|
|
|
(0.15
|
)
|
|
|
(0.13
|
)
|
|
|
(0.14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Income Yield (3)
|
|
|
5.10
|
%
|
|
|
4.87
|
%
|
|
|
5.25
|
%
|
|
|
4.49
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross investment income
|
|
$
|
4,248
|
|
|
$
|
3,977
|
|
|
$
|
8,653
|
|
|
$
|
7,354
|
|
Investment fees and expenses
|
|
|
(105
|
)
|
|
|
(118
|
)
|
|
|
(217
|
)
|
|
|
(221
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Income (3), (6)
|
|
$
|
4,143
|
|
|
$
|
3,859
|
|
|
$
|
8,436
|
|
|
$
|
7,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Carrying Value (3)
|
|
$
|
362,016
|
|
|
$
|
325,376
|
|
|
$
|
362,016
|
|
|
$
|
325,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross investment gains (3)
|
|
$
|
396
|
|
|
$
|
263
|
|
|
$
|
796
|
|
|
$
|
834
|
|
Gross investment losses (3)
|
|
|
(253
|
)
|
|
|
(546
|
)
|
|
|
(464
|
)
|
|
|
(1,081
|
)
|
Writedowns
|
|
|
(172
|
)
|
|
|
(846
|
)
|
|
|
(321
|
)
|
|
|
(1,887
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
$
|
(29
|
)
|
|
$
|
(1,129
|
)
|
|
$
|
11
|
|
|
$
|
(2,134
|
)
|
Derivatives gains (losses)
|
|
|
1,350
|
|
|
|
(2,828
|
)
|
|
|
1,321
|
|
|
|
(2,738
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Gains (Losses) (3), (6)
|
|
$
|
1,321
|
|
|
$
|
(3,957
|
)
|
|
$
|
1,332
|
|
|
$
|
(4,872
|
)
|
Investment gains (losses) income tax (expense) benefit
|
|
|
(554
|
)
|
|
|
1,394
|
|
|
|
(563
|
)
|
|
|
1,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Gains (Losses), Net of Income Tax
|
|
$
|
767
|
|
|
$
|
(2,563
|
)
|
|
$
|
769
|
|
|
$
|
(3,153
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
153
|
|
|
(1) |
|
Yields are based on average of quarterly average asset carrying
values, excluding recognized and unrealized investment gains
(losses), and for yield calculation purposes, average of
quarterly ending assets exclude collateral received from
counterparties associated with the Companys securities
lending program and exclude the effects of consolidating under
GAAP certain VIEs that are treated as consolidated
securitization entities (CSEs). |
|
(2) |
|
Fixed maturity securities include $2,901 million and
$1,471 million at estimated fair value of trading
securities at June 30, 2010 and 2009, respectively. Fixed
maturity securities include ($56) million and
$23 million of investment income (loss) related to trading
securities for the three months and six months ended
June 30, 2010, respectively, and $130 million and
$147 million of investment income related to trading
securities for the three months and six months ended
June 30, 2009, respectively. |
|
(3) |
|
Ending carrying values, investment income (loss), and investment
gains (losses) as presented herein, exclude the effects of
consolidating under GAAP certain VIEs that are treated as CSEs.
The adjustment to investment income and investment gains
(losses) in the aggregate are as shown in footnote (6) to this
yield table. The adjustments to ending carrying value,
investment income and investment gains (losses) by invested
asset class are presented below. Both the invested assets and
long-term debt of the CSEs are accounted for under the fair
value option. The adjustment to investment gains (losses)
presented below and in footnote (6) to this yield table
includes the effects of remeasuring both the invested assets and
long-term debt in accordance with the fair value option. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or For the Three Months Ended June 30, 2010
|
|
At or For the Six Months Ended June 30, 2010
|
|
|
|
|
Impact of
|
|
|
|
|
|
Impact of
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
Consolidated
|
|
|
|
|
As Reported in the
|
|
Securitization
|
|
Total
|
|
As Reported in the
|
|
Securitization
|
|
Total
|
|
|
Yield Table
|
|
Entities
|
|
With CSEs
|
|
Yield Table
|
|
Entities
|
|
With CSEs
|
|
|
(In millions)
|
|
Trading Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending carrying value
|
|
$
|
2,901
|
|
|
$
|
257
|
|
|
$
|
3,158
|
|
|
$
|
2,901
|
|
|
$
|
257
|
|
|
$
|
3,158
|
|
Investment income
|
|
$
|
(56
|
)
|
|
$
|
4
|
|
|
$
|
(52
|
)
|
|
$
|
23
|
|
|
$
|
8
|
|
|
$
|
31
|
|
Investment gains (losses)
|
|
$
|
|
|
|
$
|
(18
|
)
|
|
$
|
(18
|
)
|
|
$
|
|
|
|
$
|
(10
|
)
|
|
$
|
(10
|
)
|
Mortgage Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending carrying value
|
|
$
|
51,144
|
|
|
$
|
7,107
|
|
|
$
|
58,251
|
|
|
$
|
51,144
|
|
|
$
|
7,107
|
|
|
$
|
58,251
|
|
Investment income
|
|
$
|
695
|
|
|
$
|
105
|
|
|
$
|
800
|
|
|
$
|
1,367
|
|
|
$
|
210
|
|
|
$
|
1,577
|
|
Investment gains (losses)
|
|
$
|
11
|
|
|
$
|
16
|
|
|
$
|
27
|
|
|
$
|
(17
|
)
|
|
$
|
18
|
|
|
$
|
1
|
|
Cash and Short-Term Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending carrying value
|
|
$
|
20,421
|
|
|
$
|
27
|
|
|
$
|
20,448
|
|
|
$
|
20,421
|
|
|
$
|
27
|
|
|
$
|
20,448
|
|
Total Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending carrying value
|
|
$
|
362,016
|
|
|
$
|
7,391
|
|
|
$
|
369,407
|
|
|
$
|
362,016
|
|
|
$
|
7,391
|
|
|
$
|
369,407
|
|
|
|
|
(4) |
|
Investment income from mortgage loans includes prepayment fees. |
|
(5) |
|
Other invested assets are principally comprised of freestanding
derivatives with positive estimated fair values and leveraged
leases. Freestanding derivatives with negative estimated fair
values are included within other liabilities. However, the
accruals of settlement payments in other liabilities are
included in net investment income as shown in Note 4 of the
Notes to the Interim Condensed Consolidated Financial Statements. |
154
|
|
|
(6) |
|
Investment income (loss) and investment gains (losses) presented
in this yield table vary from the most directly comparable
measures presented in the GAAP interim condensed consolidated
statements of operations due to certain reclassifications
affecting net investment income (NII), net
investment gains (losses) (NIGL), and policyholder
account balances (PABs) to exclude the effects of
consolidating under GAAP certain VIEs that are treated as CSEs.
Such reclassifications are presented in the tables below. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Investment income in the above yield table
|
|
$
|
4,143
|
|
|
$
|
3,859
|
|
|
$
|
8,436
|
|
|
$
|
7,133
|
|
Real estate discontinued operations deduct
from NII
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
(3
|
)
|
Scheduled periodic settlement payments on derivatives not
qualifying for hedge accounting deduct from NII, add
to NIGL
|
|
|
(61
|
)
|
|
|
(32
|
)
|
|
|
(110
|
)
|
|
|
(63
|
)
|
Equity method operating joint ventures add to NII,
deduct from NIGL
|
|
|
(97
|
)
|
|
|
(96
|
)
|
|
|
(102
|
)
|
|
|
(76
|
)
|
Incremental net investment income from consolidated
securitization entities add to NII
|
|
|
103
|
|
|
|
|
|
|
|
209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income GAAP consolidated statements
of operations
|
|
$
|
4,087
|
|
|
$
|
3,730
|
|
|
$
|
8,431
|
|
|
$
|
6,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment gains (losses) in the above yield table
|
|
$
|
1,321
|
|
|
$
|
(3,957
|
)
|
|
$
|
1,332
|
|
|
$
|
(4,872
|
)
|
Real estate discontinued operations deduct
from NIGL
|
|
|
(10
|
)
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
Scheduled periodic settlement payments on derivatives not
qualifying for hedge accounting add to NIGL, deduct
from NII
|
|
|
61
|
|
|
|
32
|
|
|
|
110
|
|
|
|
63
|
|
Scheduled periodic settlement payments on derivatives not
qualifying for hedge accounting add to NIGL, deduct
from interest credited to PABs
|
|
|
1
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
Equity method operating joint ventures add to NII,
deduct from NIGL
|
|
|
97
|
|
|
|
96
|
|
|
|
102
|
|
|
|
76
|
|
Investment gains (losses) related to consolidated securitization
entities add to NIGL
|
|
|
(2
|
)
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment gains (losses) GAAP consolidated
statements of operations
|
|
$
|
1,468
|
|
|
$
|
(3,829
|
)
|
|
$
|
1,540
|
|
|
$
|
(4,735
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Consolidated Results of
Operations Three Months Ended June 30, 2010
compared with the Three Months Ended June 30,
2009 Revenues and Expenses Net
Investment Income and Net Investment Gains (Losses) and
Consolidated Results of Operations
Six Months Ended June 30, 2010 compared with the Six Months
Ended June 30, 2009 Revenues and
Expenses Net Investment Income and Net Investment
Gains (Losses) for an analysis of the period over period
changes in net investment income and net investment gains
(losses).
Fixed
Maturity and Equity Securities
Available-for-Sale
Fixed maturity securities, which consisted principally of
publicly-traded and privately placed fixed maturity securities,
were $246.3 billion and $227.6 billion, each
representing 67% of total cash and invested assets at estimated
fair value, at June 30, 2010 and December 31, 2009,
respectively. Publicly-traded fixed maturity securities
represented $208.7 billion and $191.4 billion, or 85%
and 84% of total fixed maturity securities at estimated fair
value, at June 30, 2010 and December 31, 2009,
respectively. Privately placed fixed maturity securities
represented $37.6 billion and $36.2 billion, or 15%
and 16% of total fixed maturity securities at estimated fair
value, at June 30, 2010 and December 31, 2009,
respectively.
155
Equity securities, which consisted principally of
publicly-traded and privately-held common and preferred stocks,
including certain perpetual hybrid securities and mutual fund
interests, were $2.7 billion and $3.1 billion, or 0.7%
and 0.9% of total cash and invested assets at estimated fair
value, at June 30, 2010 and December 31, 2009,
respectively. Publicly-traded equity securities represented
$1.6 billion and $2.1 billion, or 59% and 68% of total
equity securities at estimated fair value, at June 30, 2010
and December 31, 2009, respectively. Privately-held equity
securities represented $1.1 billion and $1.0 billion,
or 41% and 32% of total equity securities at estimated fair
value, at June 30, 2010 and December 31, 2009,
respectively.
See Managements Discussion and Analysis of Financial
Condition and Results of Operations
Investments Fixed Maturity and Equity Securities
Available-for-Sale
Valuation of Securities in the 2009 Annual Report for a
general discussion of the process we use to value securities; a
general discussion of the process we use to determine the
placement of securities in the fair value hierarchy; a general
discussion of valuation techniques and inputs used; and a
general discussion of the controls systems for ensuring that
observable market prices and market-based parameters are used
for valuation, wherever possible; including our review of
liquidity, the volume and level of trading activity, and
identifying transactions that are not orderly.
Fair Value Hierarchy. Fixed maturity
securities and equity securities measured at estimated fair
value on a recurring basis and their corresponding fair value
pricing sources and fair value hierarchy are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
|
Fixed Maturity
|
|
|
Equity
|
|
|
|
Securities
|
|
|
Securities
|
|
|
|
(In millions)
|
|
|
Level 1:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted prices in active markets for identical assets
|
|
$
|
15,785
|
|
|
|
6.4
|
%
|
|
$
|
306
|
|
|
|
11.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Independent pricing source
|
|
|
183,528
|
|
|
|
74.5
|
|
|
|
440
|
|
|
|
16.0
|
|
Internal matrix pricing or discounted cash flow techniques
|
|
|
29,219
|
|
|
|
11.9
|
|
|
|
989
|
|
|
|
36.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant other observable inputs
|
|
|
212,747
|
|
|
|
86.4
|
|
|
|
1,429
|
|
|
|
52.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Independent pricing source
|
|
|
7,920
|
|
|
|
3.2
|
|
|
|
876
|
|
|
|
32.0
|
|
Internal matrix pricing or discounted cash flow techniques
|
|
|
7,408
|
|
|
|
3.0
|
|
|
|
118
|
|
|
|
4.3
|
|
Independent broker quotations
|
|
|
2,488
|
|
|
|
1.0
|
|
|
|
12
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant unobservable inputs
|
|
|
17,816
|
|
|
|
7.2
|
|
|
|
1,006
|
|
|
|
36.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total estimated fair value
|
|
$
|
246,348
|
|
|
|
100.0
|
%
|
|
$
|
2,741
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
|
Fair Value Measurements Using
|
|
|
|
Quoted Prices
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
Total
|
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
Estimated
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Fair Value
|
|
|
|
(In millions)
|
|
|
Fixed Maturity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
|
|
|
$
|
69,675
|
|
|
$
|
7,173
|
|
|
$
|
76,848
|
|
Residential mortgage-backed securities (RMBS)
|
|
|
|
|
|
|
40,898
|
|
|
|
1,852
|
|
|
|
42,750
|
|
Foreign corporate securities
|
|
|
|
|
|
|
36,263
|
|
|
|
4,600
|
|
|
|
40,863
|
|
U.S. Treasury, agency and government guaranteed securities
|
|
|
15,545
|
|
|
|
17,280
|
|
|
|
37
|
|
|
|
32,862
|
|
Commercial mortgage-backed securities (CMBS)
|
|
|
|
|
|
|
15,714
|
|
|
|
270
|
|
|
|
15,984
|
|
Asset-backed securities (ABS)
|
|
|
|
|
|
|
10,921
|
|
|
|
3,498
|
|
|
|
14,419
|
|
Foreign government securities
|
|
|
240
|
|
|
|
13,039
|
|
|
|
280
|
|
|
|
13,559
|
|
State and political subdivision securities
|
|
|
|
|
|
|
8,947
|
|
|
|
101
|
|
|
|
9,048
|
|
Other fixed maturity securities
|
|
|
|
|
|
|
10
|
|
|
|
5
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
15,785
|
|
|
$
|
212,747
|
|
|
$
|
17,816
|
|
|
$
|
246,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
306
|
|
|
$
|
1,048
|
|
|
$
|
161
|
|
|
$
|
1,515
|
|
Non-redeemable preferred stock
|
|
|
|
|
|
|
381
|
|
|
|
845
|
|
|
|
1,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
306
|
|
|
$
|
1,429
|
|
|
$
|
1,006
|
|
|
$
|
2,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The composition of fair value pricing sources for and
significant changes in Level 3 securities at June 30,
2010 are as follows:
|
|
|
|
|
The majority of the Level 3 fixed maturity and equity
securities (91%, as presented above) were concentrated in four
sectors: U.S. and foreign corporate securities, ABS and
RMBS.
|
|
|
|
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 alternative residential mortgage loan
RMBS and less liquid prime RMBS, below investment grade private
placements and less liquid investment grade corporate securities
(included in U.S. and foreign corporate securities) and
less liquid ABS including securities supported by
sub-prime
mortgage loans (included in ABS).
|
|
|
|
During the three months ended June 30, 2010, Level 3
fixed maturity securities increased by $759 million, or 5%.
The increase was driven by net purchases in excess of sales,
increases in estimated fair value recognized in other
comprehensive income (loss) and net transfers in. The net
transfers into Level 3 are described in the discussion
following the rollforward table below. Net purchases in excess
of sales of fixed maturity securities were concentrated in
U.S. corporate securities and ABS. The increase in
estimated fair value in fixed maturity securities was
concentrated in U.S. corporate securities, ABS (including
RMBS backed by
sub-prime
mortgage loans), and CMBS due to improving market conditions
including an improvement in liquidity coupled with the effect of
decreased interest rates on such securities.
|
|
|
|
During the six months ended June 30, 2010, Level 3
fixed maturity securities increased by $626 million, or 4%.
This increase was driven by increases in estimated fair value
recognized in other comprehensive income (loss) which were
partially offset by net transfers out of Level 3. The net
transfers out of Level 3 are described in the discussion
following the rollforward table below. The increase in estimated
fair value in
|
157
|
|
|
|
|
fixed maturity securities was concentrated in U.S. and
foreign corporate securities and ABS (including RMBS backed by
sub-prime
mortgage loans) due to improving market conditions including an
improvement in liquidity coupled with the effect of decreased
interest rates on such 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 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30, 2010
|
|
|
June 30, 2010
|
|
|
|
Fixed Maturity
|
|
|
Equity
|
|
|
Fixed Maturity
|
|
|
Equity
|
|
|
|
Securities
|
|
|
Securities
|
|
|
Securities
|
|
|
Securities
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
17,057
|
|
|
$
|
1,167
|
|
|
$
|
17,190
|
|
|
$
|
1,240
|
|
Total realized/unrealized gains (losses) included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
|
|
|
(4
|
)
|
|
|
49
|
|
|
|
4
|
|
|
|
50
|
|
Other comprehensive income (loss)
|
|
|
101
|
|
|
|
(66
|
)
|
|
|
698
|
|
|
|
(43
|
)
|
Purchases, sales, issuances and settlements
|
|
|
637
|
|
|
|
(131
|
)
|
|
|
46
|
|
|
|
(223
|
)
|
Transfers in and/or out of Level 3
|
|
|
25
|
|
|
|
(13
|
)
|
|
|
(122
|
)
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
17,816
|
|
|
$
|
1,006
|
|
|
$
|
17,816
|
|
|
$
|
1,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
An analysis of transfers in
and/or out
of Level 3 for the three months and six months ended
June 30, 2010 is as follows:
|
|
|
|
|
Total gains and losses in earnings and other comprehensive
income (loss) are calculated assuming transfers in or out of
Level 3 occurred at the beginning of the period. Items
transferred in and out for the same period are excluded from the
rollforward.
|
|
|
|
Total gains and losses for fixed maturity securities included in
earnings of $1 million and ($15) million, and other
comprehensive income (loss) of ($21) million and
$14 million, were incurred for transfers subsequent to
their transfer to Level 3, for the three months and six
months ended June 30, 2010, respectively.
|
|
|
|
Net transfers in
and/or out
of Level 3 for fixed maturity securities were
$25 million and ($122) million, and were comprised of
transfers in of $1,088 million and $1,214 million, and
transfers out of ($1,063) million and ($1,336) million
for the three months and six months ended June 30, 2010,
respectively.
|
Overall, transfers in
and/or out
of Level 3 are attributable to a change in the
observability of inputs. Assets and liabilities are transferred
into Level 3 when a significant input cannot be
corroborated with market observable data. This occurs when
market activity decreases significantly and transparency to
underlying inputs cannot be observed, current prices are not
available, and when there are significant variances in quoted
prices. Assets and liabilities are transferred out of
Level 3 when circumstances change such that significant
inputs can be corroborated with market observable data. This may
be due to a significant increase in market activity, a specific
event, or one or more significant input(s) becoming observable.
Transfers in
and/or out
of any level are assumed to occur at the beginning of the
period. Significant transfers in
and/or out
of Level 3 fixed maturity and equity securities for the
three months and six months ended June 30, 2010 are
summarized as follows:
|
|
|
|
|
During the three months and six months ended June 30, 2010,
fixed maturity securities transfers into Level 3 of
$1,088 million and $1,214 million, respectively,
resulted primarily from current market conditions characterized
by a lack of trading activity, decreased liquidity and credit
ratings downgrades (e.g., from investment grade to below
investment grade). These current market conditions have resulted
in decreased transparency of valuations and an increased use of
broker quotations and unobservable inputs to determine estimated
fair value, principally for certain CMBS, ABS and private
placements included in U.S. and foreign corporate
securities.
|
|
|
|
During the three months and six months ended June 30, 2010,
fixed maturity securities transfers out of Level 3 of
($1,063) million and ($1,336) million, respectively,
resulted primarily from increased transparency of both new
issuances that subsequent to issuance and establishment of
trading activity,
|
158
|
|
|
|
|
became priced by pricing services and existing issuances that,
over time, the Company was able to corroborate pricing received
from independent pricing services with observable inputs, or
there were increases in market activity and upgraded credit
ratings primarily for certain U.S. and foreign corporate
securities, ABS and RMBS.
|
See Managements Discussion and Analysis of Financial
Condition and Results of Operations Summary of
Critical Accounting Estimates Estimated Fair Value
of Investments included in the 2009 Annual Report for
further information on the estimates and assumptions that affect
the amounts reported above.
See Fair Value Assets and Liabilities Measured
at Fair Value Recurring Fair Value
Measurements Valuation Techniques and Inputs by
Level Within the Three-Level Fair Value Hierarchy by
Major Classes of Assets and Liabilities in Note 5 of
the Notes to the Interim Condensed Consolidated Financial
Statements for further information about the valuation
techniques and inputs by level by major classes of invested
assets that affect the amounts reported above.
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 and capital
assessment purposes and assigns securities to one of six credit
quality categories called NAIC designations. The
NAIC ratings are generally similar to the designations of the
Nationally Recognized Statistical Ratings Organizations
(NRSROs) for marketable fixed maturity securities,
called rating agency designations. NAIC ratings 1
and 2 include fixed maturity securities generally considered
investment grade (i.e., rated Baa3 or better by
Moodys Investors Service (Moodys) or
rated BBB or better by Standard &
Poors Ratings Services (S&P) and Fitch
Ratings (Fitch) by such rating organizations. NAIC
ratings 3 through 6 include fixed maturity securities generally
considered below investment grade (i.e., rated Ba1
or lower by Moodys or rated BB+ or lower by
S&P and Fitch) by such rating organizations.
The NAIC adopted a revised rating methodology for non-agency
RMBS that became effective December 31, 2009. The
NAICs objective with the revised rating methodology for
non-agency RMBS was to increase the accuracy in assessing
expected losses, and to use the improved assessment to determine
a more appropriate capital requirement for non-agency RMBS. The
revised methodology reduces regulatory reliance on rating
agencies and allows for greater regulatory input into the
assumptions used to estimate expected losses from non-agency
RMBS.
The below investment grade and non-income producing amounts
presented below, are based on rating agency designations and
equivalent designations of the NAIC, with the exception of
non-agency RMBS held by the Companys domestic insurance
subsidiaries. Non-agency RMBS, including RMBS backed by
sub-prime
mortgage loans reported within ABS, held by the Companys
domestic insurance subsidiaries are presented based on final
ratings from the revised NAIC rating methodology described above
(which may not correspond to rating agency designations). All
NAIC designation amounts and percentages presented herein are
based on the revised NAIC methodology described above. All
rating agency designation (e.g., Aaa/AAA) amounts and
percentages presented herein are based on rating agency
designations without adjustment for the revised NAIC methodology
described above.
The following three tables present information about the
Companys fixed maturity securities holdings by credit
quality ratings. Comparisons between NAIC ratings and rating
agency designations are published by the NAIC. Rating agency
designations are based on availability of applicable ratings
from rating agencies on the NAIC acceptable rating organizations
list, including Moodys, S&P, Fitch and Realpoint. If
no rating is available from a rating agency, then an internally
developed rating is used.
159
The following table presents the Companys total fixed
maturity securities by NRSRO designation and the equivalent
designations of the NAIC, as well as the percentage, based on
estimated fair value, that each designation is comprised of at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
NAIC
|
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
% of
|
|
|
Amortized
|
|
|
Fair
|
|
|
% of
|
|
Rating
|
|
|
Rating Agency Designation
|
|
Cost
|
|
|
Value
|
|
|
Total
|
|
|
Cost
|
|
|
Value
|
|
|
Total
|
|
|
|
|
|
|
(In millions)
|
|
|
|
1
|
|
|
Aaa/Aa/A
|
|
$
|
157,731
|
|
|
$
|
164,338
|
|
|
|
66.7
|
%
|
|
$
|
151,391
|
|
|
$
|
151,136
|
|
|
|
66.4
|
%
|
|
2
|
|
|
Baa
|
|
|
58,357
|
|
|
|
61,217
|
|
|
|
24.8
|
|
|
|
55,508
|
|
|
|
56,305
|
|
|
|
24.7
|
|
|
3
|
|
|
Ba
|
|
|
13,582
|
|
|
|
12,773
|
|
|
|
5.2
|
|
|
|
13,184
|
|
|
|
12,003
|
|
|
|
5.3
|
|
|
4
|
|
|
B
|
|
|
7,879
|
|
|
|
6,924
|
|
|
|
2.8
|
|
|
|
7,474
|
|
|
|
6,461
|
|
|
|
2.9
|
|
|
5
|
|
|
Caa and lower
|
|
|
1,124
|
|
|
|
910
|
|
|
|
0.4
|
|
|
|
1,809
|
|
|
|
1,425
|
|
|
|
0.6
|
|
|
6
|
|
|
In or near default
|
|
|
204
|
|
|
|
186
|
|
|
|
0.1
|
|
|
|
343
|
|
|
|
312
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
238,877
|
|
|
$
|
246,348
|
|
|
|
100.0
|
%
|
|
$
|
229,709
|
|
|
$
|
227,642
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
designations of the NAIC, that each designation is comprised of
at June 30, 2010 and December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Maturity Securities by Sector & Credit
Quality Rating at June 30, 2010
|
|
NAIC Rating:
|
|
1
|
|
|
2
|
|
|
3
|
|
|
4
|
|
|
5
|
|
|
6
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Caa and
|
|
|
In or Near
|
|
|
Estimated
|
|
Rating Agency Designation:
|
|
Aaa/Aa/A
|
|
|
Baa
|
|
|
Ba
|
|
|
B
|
|
|
Lower
|
|
|
Default
|
|
|
Fair Value
|
|
|
|
(In millions)
|
|
|
U.S. corporate securities
|
|
$
|
33,066
|
|
|
$
|
32,784
|
|
|
$
|
7,062
|
|
|
$
|
3,459
|
|
|
$
|
425
|
|
|
$
|
52
|
|
|
$
|
76,848
|
|
RMBS
|
|
|
37,186
|
|
|
|
1,652
|
|
|
|
2,156
|
|
|
|
1,433
|
|
|
|
229
|
|
|
|
94
|
|
|
|
42,750
|
|
Foreign corporate securities
|
|
|
18,237
|
|
|
|
18,823
|
|
|
|
2,243
|
|
|
|
1,394
|
|
|
|
153
|
|
|
|
13
|
|
|
|
40,863
|
|
U.S. Treasury, agency and government guaranteed securities
|
|
|
32,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,862
|
|
CMBS
|
|
|
15,622
|
|
|
|
218
|
|
|
|
75
|
|
|
|
49
|
|
|
|
20
|
|
|
|
|
|
|
|
15,984
|
|
ABS
|
|
|
12,779
|
|
|
|
1,113
|
|
|
|
295
|
|
|
|
122
|
|
|
|
83
|
|
|
|
27
|
|
|
|
14,419
|
|
Foreign government securities
|
|
|
6,352
|
|
|
|
5,851
|
|
|
|
902
|
|
|
|
454
|
|
|
|
|
|
|
|
|
|
|
|
13,559
|
|
State and political subdivision securities
|
|
|
8,234
|
|
|
|
766
|
|
|
|
40
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
9,048
|
|
Other fixed maturity securities
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
164,338
|
|
|
$
|
61,217
|
|
|
$
|
12,773
|
|
|
$
|
6,924
|
|
|
$
|
910
|
|
|
$
|
186
|
|
|
$
|
246,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of total
|
|
|
66.7
|
%
|
|
|
24.8
|
%
|
|
|
5.2
|
%
|
|
|
2.8
|
%
|
|
|
0.4
|
%
|
|
|
0.1
|
%
|
|
|
100.0
|
%
|
160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Maturity Securities by Sector &
Credit Quality Rating at December 31, 2009
|
|
NAIC Rating:
|
|
1
|
|
|
2
|
|
|
3
|
|
|
4
|
|
|
5
|
|
|
6
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Caa and
|
|
|
In or Near
|
|
|
Estimated
|
|
Rating Agency Designation:
|
|
Aaa/Aa/A
|
|
|
Baa
|
|
|
Ba
|
|
|
B
|
|
|
Lower
|
|
|
Default
|
|
|
Fair Value
|
|
|
|
(In millions)
|
|
|
U.S. corporate securities
|
|
$
|
31,848
|
|
|
$
|
30,266
|
|
|
$
|
6,319
|
|
|
$
|
2,965
|
|
|
$
|
616
|
|
|
$
|
173
|
|
|
$
|
72,187
|
|
RMBS
|
|
|
38,464
|
|
|
|
1,563
|
|
|
|
2,260
|
|
|
|
1,391
|
|
|
|
339
|
|
|
|
3
|
|
|
|
44,020
|
|
Foreign corporate securities
|
|
|
16,678
|
|
|
|
17,393
|
|
|
|
2,067
|
|
|
|
1,530
|
|
|
|
281
|
|
|
|
81
|
|
|
|
38,030
|
|
U.S. Treasury, agency and government guaranteed securities
|
|
|
25,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,447
|
|
CMBS
|
|
|
15,000
|
|
|
|
434
|
|
|
|
152
|
|
|
|
22
|
|
|
|
14
|
|
|
|
|
|
|
|
15,622
|
|
ABS
|
|
|
11,573
|
|
|
|
1,033
|
|
|
|
275
|
|
|
|
124
|
|
|
|
117
|
|
|
|
40
|
|
|
|
13,162
|
|
Foreign government securities
|
|
|
5,786
|
|
|
|
4,841
|
|
|
|
890
|
|
|
|
415
|
|
|
|
|
|
|
|
15
|
|
|
|
11,947
|
|
State and political subdivision securities
|
|
|
6,337
|
|
|
|
765
|
|
|
|
40
|
|
|
|
8
|
|
|
|
58
|
|
|
|
|
|
|
|
7,208
|
|
Other fixed maturity securities
|
|
|
3
|
|
|
|
10
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
151,136
|
|
|
$
|
56,305
|
|
|
$
|
12,003
|
|
|
$
|
6,461
|
|
|
$
|
1,425
|
|
|
$
|
312
|
|
|
$
|
227,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of total
|
|
|
66.4
|
%
|
|
|
24.7
|
%
|
|
|
5.3
|
%
|
|
|
2.9
|
%
|
|
|
0.6
|
%
|
|
|
0.1
|
%
|
|
|
100.0
|
%
|
Fixed Maturity and Equity Securities
Available-for-Sale. See
Investments Fixed Maturity and Equity
Securities
Available-for-Sale
in Note 3 of the Notes to the Interim Condensed
Consolidated Financial Statements for tables summarizing the
cost or amortized cost, gross unrealized gains and losses,
including noncredit loss component of OTTI loss, and estimated
fair value of fixed maturity and equity securities on a sector
basis, and selected information about certain fixed maturity
securities held by the Company that were below investment grade
or non-rated, non-income producing, credit enhanced by financial
guarantor insurers by sector, and the ratings of the
financial guarantor insurers providing the credit enhancement at
June 30, 2010 and December 31, 2009.
Concentrations of Credit Risk (Equity
Securities). The Company was not exposed to any
significant concentrations of credit risk in its equity
securities portfolio of any single issuer greater than 10% of
the Companys stockholders equity at June 30,
2010 and December 31, 2009.
Concentrations of Credit Risk (Fixed Maturity
Securities) Summary. See
Investments Fixed Maturity Securities
Available-for-Sale
Concentrations of Credit Risk (Fixed Maturity
Securities) Summary in Note 3 of the
Notes to the Interim Condensed Consolidated Financial Statements
for a summary of the concentrations of credit risk related to
fixed maturity securities holdings.
Corporate Fixed Maturity Securities. The
Company maintains a diversified portfolio of corporate fixed
maturity securities across industries and issuers. This
portfolio does not have exposure to any single issuer in excess
of 1% of the total investments. See
Investments Fixed Maturity and Equity
Securities
Available-for-Sale
Concentrations of Credit Risk (Fixed Maturity
Securities) U.S. and Foreign Corporate
Securities in Note 3 of the Notes to the Interim
Condensed Consolidated Financial Statements for the tables that
present the major industry types that comprise the corporate
fixed maturity securities holdings, the largest exposure to a
single issuer and the combined holdings in the ten issuers to
which it had the largest exposure at June 30, 2010 and
December 31, 2009.
161
Structured Securities. The following table
presents the types and portion rated Aaa/AAA, and portion rated
NAIC 1 for RMBS and ABS backed by
sub-prime
mortgage loans, of structured securities the Company held at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
Fair
|
|
|
% of
|
|
|
Fair
|
|
|
% of
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
RMBS
|
|
$
|
42,750
|
|
|
|
58.4
|
%
|
|
$
|
44,020
|
|
|
|
60.5
|
%
|
CMBS
|
|
|
15,984
|
|
|
|
21.9
|
|
|
|
15,622
|
|
|
|
21.4
|
|
ABS
|
|
|
14,419
|
|
|
|
19.7
|
|
|
|
13,162
|
|
|
|
18.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total structured securities
|
|
$
|
73,153
|
|
|
|
100.0
|
%
|
|
$
|
72,804
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratings profile:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMBS rated Aaa/AAA
|
|
$
|
34,103
|
|
|
|
79.8
|
%
|
|
$
|
35,626
|
|
|
|
80.9
|
%
|
RMBS rated NAIC 1
|
|
$
|
37,186
|
|
|
|
87.0
|
%
|
|
$
|
38,464
|
|
|
|
87.4
|
%
|
CMBS rated Aaa/AAA
|
|
$
|
14,730
|
|
|
|
92.2
|
%
|
|
$
|
13,354
|
|
|
|
85.5
|
%
|
ABS rated Aaa/AAA
|
|
$
|
10,480
|
|
|
|
72.7
|
%
|
|
$
|
9,354
|
|
|
|
71.1
|
%
|
ABS rated NAIC 1
|
|
$
|
12,779
|
|
|
|
88.6
|
%
|
|
$
|
11,573
|
|
|
|
87.9
|
%
|
RMBS. See Investments Fixed
Maturity and Equity Securities
Available-for-Sale
Concentrations of Credit Risk (Fixed Maturity
Securities) RMBS in Note 3 of the Notes
to the Interim Condensed Consolidated Financial Statements for
the tables that present the Companys RMBS holdings by
security type and risk profile at June 30, 2010 and
December 31, 2009.
The majority of RMBS held by the Company was rated Aaa/AAA by
Moodys, S&P or Fitch; and the majority was rated NAIC
1 by the NAIC at June 30, 2010 and December 31, 2009,
as presented above. Effective December 31, 2009, the NAIC
adopted a revised rating methodology for non-agency RMBS based
on the NAICs estimate of expected losses from non-agency
RMBS. The majority of the agency RMBS held by the Company was
guaranteed or otherwise supported by the FNMA, the Federal Home
Loan Mortgage Corporation (FHLMC) or the Government
National Mortgage Association (GNMA). Non-agency
RMBS includes prime and alternative residential mortgage loans
(Alt-A) RMBS. Prime residential mortgage lending
includes the origination of residential mortgage loans to the
most creditworthy borrowers with high quality credit profiles.
Alt-A is a classification of mortgage loans where the risk
profile of the borrower falls between prime and
sub-prime.
Sub-prime
mortgage lending is the origination of residential mortgage
loans to borrowers with weak credit profiles.
The Companys Alt-A securities portfolio has superior
structure to the overall Alt-A market. At June 30, 2010 and
December 31, 2009, the Companys Alt-A securities
portfolio has no exposure to option adjustable rate mortgages
(ARMs) and a minimal exposure to hybrid ARMs. The
Companys Alt-A securities portfolio is comprised primarily
of fixed rate mortgages which have performed better than both
option ARMs and hybrid ARMs in the overall Alt-A market.
Additionally, 85% and 90% at June 30, 2010 and
December 31, 2009, respectively, of the Companys
Alt-A securities portfolio has super senior credit enhancement,
which typically provides double the credit enhancement of a
standard Aaa/AAA rated fixed maturity security. See
Investments Fixed Maturity Securities
Available-for-Sale
RMBS in Note 3 of the Notes to the Interim Condensed
Consolidated Financial Statements for a table that presents the
estimated fair value of Alt-A securities held by the Company by
vintage year, net unrealized loss, portion of holdings rated
Aa/AA or better by Moodys, S&P or Fitch, portion
rated NAIC 1 by the NAIC, and portion of holdings that are
backed by fixed rate collateral or hybrid ARM collateral at
June 30, 2010 and December 31, 2009. Based upon the
analysis of the Companys exposure to RMBS, including Alt-A
RMBS, that are considered temporarily impaired, the Company
expects to receive payments in accordance with the contractual
terms of the securities. Any securities where the present value
of projected future cash flows expected to be collected is less
than amortized cost are impaired in accordance with our
impairment policy.
CMBS. There have been disruptions in the CMBS
market due to market perceptions that default rates will
increase in part as result of weakness in commercial real estate
market fundamentals and in part to relaxed
162
underwriting standards by some originators of commercial
mortgage loans within the more recent vintage years (i.e., 2006
and later). These factors caused a pull-back in market
liquidity, increased credit spreads and repricing of risk, which
has led to higher levels of unrealized losses as compared to
historical levels through the first quarter of 2010. However, in
the second quarter of 2010, market conditions continued to
improve and interest rates decreased, causing our portfolio to
be in an unrealized gain position of 1% of amortized cost at
June 30, 2010. Based upon the analysis of the
Companys exposure to CMBS in the 2006 and 2007 vintage
years that are considered temporarily impaired the Company
expects to receive payments in accordance with the contractual
terms of the securities. Any securities where the present value
of projected future cash flows expected to be collected is less
than amortized cost are impaired in accordance with our
impairment policy.
The Companys holdings in CMBS were $16.0 billion and
$15.6 billion, at estimated fair value at June 30,
2010 and December 31, 2009, respectively. See
Investments Fixed Maturity and Equity
Securities
Available-for-Sale
Concentrations of Credit Risk (Fixed Maturity
Securities) CMBS in Note 3 of the Notes
to the Interim Condensed Consolidated Financial Statements for
tables that present the amortized cost and estimated fair value,
rating agency designation by Moodys, S&P, Fitch or
Realpoint, LLC and holdings by vintage year of such securities
held by the Company at June 30, 2010 and December 31,
2009. The Company had no exposure to CMBS index securities at
June 30, 2010 or December 31, 2009. The Companys
holdings of commercial real estate collateralized debt
obligations securities were $120 million and
$111 million at estimated fair value at June 30, 2010
and December 31, 2009, respectively. The weighted average
credit enhancement of the Companys CMBS holdings was 26%
and 25% at June 30, 2010 and December 31, 2009,
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.
See Investments Fixed Maturity and Equity
Securities
Available-for-Sale
Concentrations of Credit Risk (Fixed Maturity
Securities) CMBS in Note 3 of the Notes
to the Interim Condensed Consolidated Financial Statements for
tables that present the Companys holdings of CMBS by
rating agency designation and by vintage year at June 30,
2010 and December 31, 2009.
ABS. The Companys ABS are diversified
both by collateral type and by issuer. See
Investments Fixed Maturity and Equity
Securities
Available-for-Sale
Concentrations of Credit Risk (Fixed Maturity
Securities) ABS in Note 3 of the Notes to
the Interim Condensed Consolidated Financial Statements for a
table that presents the Companys ABS by collateral type,
portion rated Aaa/AAA and portion credit enhanced held by the
Company at June 30, 2010 and December 31, 2009.
The slowing U.S. housing market, greater use of affordable
mortgage products and relaxed underwriting standards for some
originators of
sub-prime
loans have recently led to higher delinquency and loss rates,
especially within the 2006 and 2007 vintage years. These factors
have caused a pull-back in market liquidity and repricing of
risk, which has led to higher levels of unrealized losses on
securities backed by
sub-prime
mortgage loans as compared to historical levels. However, in the
six months ended June 30, 2010, market conditions improved,
credit spreads narrowed on mortgage-backed and asset-backed
securities and unrealized losses decreased from 36% to 30% of
amortized cost from December 31, 2009 to June 30,
2010. Based upon the analysis of the Companys
sub-prime
mortgage loans through its exposure to ABS, the Company expects
to receive payments in accordance with the contractual terms of
the securities that are considered temporarily impaired. Any
securities where the present value of projected future cash
flows expected to be collected is less than amortized cost are
impaired in accordance with our impairment policy.
See Investments Fixed Maturity and Equity
Securities
Available-for-Sale
Concentrations of Credit Risk (Fixed Maturity
Securities) ABS in Note 3 of the Notes to
the Interim Condensed Consolidated Financial Statements for
tables that present the Companys holdings of ABS supported
by sub-prime
mortgage loans by rating agency designation and by vintage year
and by NAIC rating at June 30, 2010 and December 31,
2009.
The Company had ABS supported by
sub-prime
mortgage loans with estimated fair values of $1,077 million
and $1,044 million and unrealized losses of
$451 million and $593 million at June 30, 2010
and December 31, 2009, respectively. Approximately 56% of
this portfolio was rated Aa or better, of which 88% was in
vintage year
163
2005 and prior at June 30, 2010. Approximately 61% of this
portfolio was rated Aa or better, of which 91% was in vintage
year 2005 and prior at December 31, 2009. These older
vintages from 2005 and prior benefit from better underwriting,
improved enhancement levels and higher residential property
price appreciation. All of the $1,077 million and
$1,044 million of ABS supported by
sub-prime
mortgage loans were classified as Level 3 fixed maturity
securities in the fair value hierarchy at June 30, 2010 and
December 31, 2009, respectively.
ABS also include collateralized debt obligations backed by
sub-prime
mortgage loans at an aggregate cost of $21 million with an
estimated fair value of $8 million at June 30, 2010
and an aggregate cost of $22 million with an estimated fair
value of $8 million at December 31, 2009.
Evaluating
Available-for-Sale
Securities for
Other-Than-Temporary
Impairment
See Investments Evaluating
Available-for-Sale
Securities for
Other-Than-Temporary
Impairment in Note 3 of the Notes to the Interim
Condensed Consolidated Financial Statements for a discussion of
the regular evaluation of
available-for-sale
securities holdings in accordance with our impairment policy,
whereby we evaluate whether such investments are
other-than-temporarily
impaired, new OTTI guidance adopted in 2009 and factors
considered by security classification in the regular OTTI
evaluation.
See also Managements Discussion and Analysis of
Financial Condition and Results of Operations
Summary of Critical Accounting Estimates included the 2009
Annual Report.
Net
Unrealized Investment Gains (Losses)
See Investments Net Unrealized Investment
Gains (Losses) in Note 3 of the Notes to the Interim
Condensed Consolidated Financial Statements for the components
of net unrealized investment gains (losses), included in
accumulated other comprehensive income (loss) and the changes in
net unrealized investment gains (losses) at June 30, 2010
and December 31, 2009 and for the three months and six
months ended June 30, 2010.
Fixed maturity securities with noncredit OTTI losses in
accumulated other comprehensive income (loss) of
($806) million at June 30, 2010, includes
($859) million recognized prior to January 1, 2010,
($98) million and ($157) million (($61) million
and ($162) million, net of DAC) of noncredit losses
recognized in the three months and six months ended
June 30, 2010, respectively, $16 million transferred
to retained earnings in connection with the adoption of new
guidance related to the consolidation of VIEs (see Note 1
of the Notes to the Interim Consolidated Financial Statements)
for the six months ended June 30, 2010, $37 million
and $54 million related to securities sold during the three
months and six months ended June 30, 2010, respectively,
for which a noncredit loss was previously recognized in
accumulated other comprehensive income (loss) and
$46 million and $140 million of subsequent increases
in estimated fair value during the three months and six months
ended June 30, 2010, respectively, on such securities for
which a noncredit loss was previously recognized in accumulated
other comprehensive income (loss).
Fixed maturity securities with noncredit OTTI losses in
accumulated other comprehensive income (loss) of
($859) million at December 31, 2009, includes
($126) million related to the transition adjustment
recorded in 2009 upon the adoption of new guidance on the
recognition and presentation of OTTI, ($939) million
(($857) million, net of DAC) of noncredit losses recognized
in the year ended December 31, 2009 (as more fully
described in Note 1 of the Notes to the Consolidated
Financial Statements included in the 2009 Annual Report),
$20 million related to securities sold during the year
ended December 31, 2009 for which a noncredit loss was
previously recognized in accumulated other comprehensive income
(loss) and $186 million of subsequent increases in
estimated fair value during the year ended December 31,
2009 on such securities for which a noncredit loss was
previously recognized in accumulated other comprehensive income
(loss).
Aging
of Gross Unrealized Loss and OTTI Loss for Fixed Maturity and
Equity Securities
Available-for-Sale
See Investments Aging of Gross Unrealized Loss
and OTTI Loss for Fixed Maturity and Equity Securities
Available-for-Sale
in Note 3 of the Notes to the Interim Condensed
Consolidated Financial Statements for the tables that present
the cost or amortized cost, gross unrealized loss, including the
portion of OTTI loss on fixed maturity securities recognized in
accumulated other comprehensive income (loss) at June 30,
2010, gross
164
unrealized loss as a percentage of cost or amortized cost and
number of securities for fixed maturity and equity securities
where the estimated fair value had declined and remained below
cost or amortized cost by less than 20%, or 20% or more at
June 30, 2010 and December 31, 2009.
Concentration
of Gross Unrealized Loss and OTTI Loss for Fixed Maturity and
Equity Securities
Available-for-Sale
See Investments Concentration of Gross
Unrealized Loss and OTTI Loss for Fixed Maturity and Equity
Securities
Available-for-Sale
in Note 3 of the Notes to the Interim Condensed
Consolidated Financial Statements for the tables that present
the concentration by sector and industry of 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 income
(loss) of $7.0 billion and $10.8 billion at
June 30, 2010 and December 31, 2009, respectively.
Evaluating
Temporarily Impaired
Available-for-Sale
Securities
The following table presents the Companys fixed maturity
and equity securities each with a gross unrealized loss of
greater than $10 million, the number of securities, total
gross unrealized loss and percentage of total gross unrealized
loss at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
Fixed Maturity
|
|
|
Equity
|
|
|
Fixed Maturity
|
|
|
Equity
|
|
|
|
Securities
|
|
|
Securities
|
|
|
Securities
|
|
|
Securities
|
|
|
|
(In millions, except number of securities)
|
|
|
Number of securities
|
|
|
133
|
|
|
|
12
|
|
|
|
223
|
|
|
|
9
|
|
Total gross unrealized loss
|
|
$
|
2,437
|
|
|
$
|
186
|
|
|
$
|
4,465
|
|
|
$
|
132
|
|
Percentage of total gross unrealized loss
|
|
|
37
|
%
|
|
|
58
|
%
|
|
|
43
|
%
|
|
|
48
|
%
|
Fixed maturity and equity securities, each with a gross
unrealized loss greater than $10 million, decreased
$2.0 billion during the six months ended June 30,
2010. The cause of the decline in, or improvement in, gross
unrealized losses for the six months ended June 30, 2010
was primarily attributable to a decrease in interest rates.
These securities were included in the Companys OTTI review
process. Based upon the Companys current evaluation of
these securities in accordance with its impairment policy and
the Companys 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
and severity of an unrealized loss position for equity
securities is given greater weight and consideration than for
fixed maturity securities. An extended and severe unrealized
loss position on a fixed maturity security may not have any
impact on the ability of the issuer to service all scheduled
interest and principal payments and the 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.
165
The following table presents certain information about the
Companys equity securities
available-for-sale
with a gross unrealized loss of 20% or more at June 30,
2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Redeemable Preferred Stock
|
|
|
|
|
|
|
All Types of
|
|
|
|
|
|
|
|
|
|
All Equity
|
|
|
Non-Redeemable
|
|
|
Investment Grade
|
|
|
|
Securities
|
|
|
Preferred Stock
|
|
|
All Industries
|
|
|
Financial Services Industry
|
|
|
|
Gross
|
|
|
Gross
|
|
|
% of All
|
|
|
Gross
|
|
|
% of All
|
|
|
Gross
|
|
|
|
|
|
% A
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Equity
|
|
|
Unrealized
|
|
|
Non-Redeemable
|
|
|
Unrealized
|
|
|
% of All
|
|
|
Rated or
|
|
|
|
Loss
|
|
|
Loss
|
|
|
Securities
|
|
|
Loss
|
|
|
Preferred Stock
|
|
|
Loss
|
|
|
Industries
|
|
|
Better
|
|
|
|
(In millions)
|
|
|
Less than six months
|
|
$
|
129
|
|
|
$
|
118
|
|
|
|
91
|
%
|
|
$
|
118
|
|
|
|
100
|
%
|
|
$
|
118
|
|
|
|
100
|
%
|
|
|
58
|
%
|
Six months or greater but less than twelve months
|
|
|
1
|
|
|
|
1
|
|
|
|
100
|
%
|
|
|
1
|
|
|
|
100
|
%
|
|
|
1
|
|
|
|
100
|
%
|
|
|
20
|
%
|
Twelve months or greater
|
|
|
125
|
|
|
|
124
|
|
|
|
99
|
%
|
|
|
124
|
|
|
|
100
|
%
|
|
|
120
|
|
|
|
97
|
%
|
|
|
79
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All equity securities with a gross unrealized loss of 20% or more
|
|
$
|
255
|
|
|
$
|
243
|
|
|
|
95
|
%
|
|
$
|
243
|
|
|
|
100
|
%
|
|
$
|
239
|
|
|
|
98
|
%
|
|
|
68
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In connection with the equity securities impairment review
process at June 30, 2010, the Company evaluated its
holdings in non-redeemable preferred stock, particularly those
of financial services companies. The Company considered several
factors including whether there has been any deterioration in
credit of the issuer and the likelihood of recovery in value of
non-redeemable preferred stock with a severe or an extended
unrealized loss. The Company also considered whether any
non-redeemable preferred stock with an unrealized loss held by
the Company, regardless of credit rating, have deferred any
dividend payments. No such dividend payments were deferred.
With respect to common stock holdings, the Company considered
the duration and severity of the unrealized losses for
securities in an unrealized loss position of 20% or more and the
duration of unrealized losses for securities in an unrealized
loss position of less than 20% in an extended unrealized loss
position (i.e., for 12 months or greater).
Future
other-than-temporary
impairments will depend primarily on economic fundamentals,
issuer performance (including changes in the present value of
future cash flows expected to be collected), changes in credit
rating, changes in collateral valuation, changes in interest
rates and changes in credit spreads. If economic fundamentals
and any of the above factors deteriorate, additional
other-than-temporary
impairments may be incurred in upcoming quarters.
Net
Investment Gains (Losses) Including OTTI Losses Recognized in
Earnings
Effective April 1, 2009, the Company adopted new guidance
on the recognition and presentation of OTTI that amends the
methodology to determine for fixed maturity securities whether
an OTTI exists, and for certain fixed maturity securities,
changes how OTTI losses that are charged to earnings are
measured. There was no change in the methodology for
identification and measurement of OTTI losses charged to
earnings for impaired equity securities.
166
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
Fixed Maturity Securities
|
|
|
Equity Securities
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Proceeds
|
|
$
|
13,500
|
|
|
$
|
7,573
|
|
|
$
|
300
|
|
|
$
|
195
|
|
|
$
|
13,800
|
|
|
$
|
7,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross investment gains
|
|
|
215
|
|
|
|
189
|
|
|
|
76
|
|
|
|
13
|
|
|
|
291
|
|
|
|
202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross investment losses
|
|
|
(195
|
)
|
|
|
(235
|
)
|
|
|
(1
|
)
|
|
|
(49
|
)
|
|
|
(196
|
)
|
|
|
(284
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OTTI losses recognized in earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit-related
|
|
|
(146
|
)
|
|
|
(287
|
)
|
|
|
|
|
|
|
|
|
|
|
(146
|
)
|
|
|
(287
|
)
|
Other (1)
|
|
|
|
|
|
|
(45
|
)
|
|
|
(1
|
)
|
|
|
(72
|
)
|
|
|
(1
|
)
|
|
|
(117
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OTTI losses recognized in
earnings
|
|
|
(146
|
)
|
|
|
(332
|
)
|
|
|
(1
|
)
|
|
|
(72
|
)
|
|
|
(147
|
)
|
|
|
(404
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment gains (losses)
|
|
$
|
(126
|
)
|
|
$
|
(378
|
)
|
|
$
|
74
|
|
|
$
|
(108
|
)
|
|
$
|
(52
|
)
|
|
$
|
(486
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
Fixed Maturity Securities
|
|
|
Equity Securities
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Proceeds
|
|
$
|
21,878
|
|
|
$
|
19,351
|
|
|
$
|
445
|
|
|
$
|
253
|
|
|
$
|
22,323
|
|
|
$
|
19,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross investment gains
|
|
|
379
|
|
|
|
545
|
|
|
|
107
|
|
|
|
20
|
|
|
|
486
|
|
|
|
565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross investment losses
|
|
|
(334
|
)
|
|
|
(647
|
)
|
|
|
(4
|
)
|
|
|
(67
|
)
|
|
|
(338
|
)
|
|
|
(714
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OTTI losses recognized in earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit-related
|
|
|
(232
|
)
|
|
|
(743
|
)
|
|
|
|
|
|
|
|
|
|
|
(232
|
)
|
|
|
(743
|
)
|
Other (1)
|
|
|
(6
|
)
|
|
|
(142
|
)
|
|
|
(2
|
)
|
|
|
(330
|
)
|
|
|
(8
|
)
|
|
|
(472
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OTTI losses recognized in earnings
|
|
|
(238
|
)
|
|
|
(885
|
)
|
|
|
(2
|
)
|
|
|
(330
|
)
|
|
|
(240
|
)
|
|
|
(1,215
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment gains (losses)
|
|
$
|
(193
|
)
|
|
$
|
(987
|
)
|
|
$
|
101
|
|
|
$
|
(377
|
)
|
|
$
|
(92
|
)
|
|
$
|
(1,364
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Other OTTI losses recognized in earnings include impairments on
equity securities, impairments on perpetual hybrid securities
classified within fixed maturity securities where the primary
reason for the impairment was the severity and/or the duration
of an unrealized loss position and fixed maturity securities
where there is an intent to sell or it is more likely than not
that the Company will be required to sell the security before
recovery of the decline in estimated fair value. |
Overview of Fixed Maturity and Equity Security OTTI Losses
Recognized in Earnings. Impairments of fixed
maturity and equity securities were $147 million and
$240 million for the three months and six months ended
June 30, 2010, respectively, and $404 million and
$1,215 million for the three months and six months ended
June 30, 2009, respectively. Impairments of fixed maturity
securities were $146 million and $238 million for the
three months and six months ended June 30, 2010,
respectively, and $332 million and $885 million for
the three months and six months ended June 30, 2009,
respectively. Impairments of equity securities were
$1 million and $2 million for the three months and six
months ended June 30, 2010, respectively, and
$72 million and $330 million for the three months and
six months ended June 30, 2009, respectively.
The Companys credit-related impairments of fixed maturity
securities were $146 million and $232 million for the
three months and six months ended June 30, 2010,
respectively, and $287 million and $743 million for
the three months and six months ended June 30, 2009,
respectively.
167
The Companys three largest impairments totaled
$57 million and $63 million for the three months and
six months ended June 30, 2010, respectively, and
$91 million and $320 million for the three months and
six months ended June 30, 2009, 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
$3.5 billion and $6.7 billion during the three months
and six months ended June 30, 2010, respectively, and
$1.9 billion and $5.3 billion for the three months and
six months ended June 30, 2009, respectively. Gross losses
excluding impairments for fixed maturity and equity securities
were $196 million and $338 million for the three
months and six months ended June 30, 2010, respectively,
and $284 million and $714 million for the three months
and six months ended June 30, 2009, respectively.
Explanations of period over period changes in fixed maturity and
equity securities impairments are as follows:
Three months ended June 30, 2010 compared to the three
months ended June 30, 2009 Overall OTTI
losses recognized in earnings on fixed maturity and equity
securities were $147 million for the three months ended
June 30, 2010 as compared to $404 million in the
comparable prior year period. Improving market conditions across
all sectors and industries of U.S. and foreign corporate
securities, particularly the financial services industry, as
compared to the prior year period when there was significant
stress in the global financial markets, resulted in a higher
level of impairments in fixed maturity and equity securities in
the prior year period. The most significant decrease in the
current year period, as compared to the prior year period, was
in the Companys financial services industry holdings which
comprised $127 million in fixed maturity and equity
impairments in three months ended June 30, 2009, as
compared to $20 million in impairments for the three months
ended June 30, 2010. The financial services industry
impairments for the three months ended June 30, 2009
included $60 million of impairments on equity security
perpetual hybrid securities, which were impaired as 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 on these securities. Impairments in the three
months ended June 30, 2010 were concentrated in the RMBS,
ABS and CMBS sectors reflecting current economic conditions
including higher unemployment levels and continued weakness
within the residential and commercial real estate markets. Of
the fixed maturity and equity securities impairments of
$147 million and $404 million in the three months
ended June 30, 2010 and 2009, respectively,
$122 million and $82 million, respectively, were in
the Companys RMBS, ABS and CMBS holdings.
Six months ended June 30, 2010 compared to the six
months ended June 30, 2009 Overall OTTI
losses recognized in earnings on fixed maturity and equity
securities were $240 million for the six months ended
June 30, 2010 as compared to $1,215 million in the
comparable prior year period. Improving market conditions across
all sectors and industries, particularly the financial services
industry, as compared to the prior year period when there was
significant stress in the global financial markets, resulted in
a higher level of impairments in fixed maturity and equity
securities in the prior year period. The most significant
decrease in the current year period, as compared to the prior
year period, was in the Companys financial services
industry holdings which comprised $478 million in fixed
maturity and equity impairments in six months ended
June 30, 2009, as compared to $28 million in
impairments for the six months ended June 30, 2010. Of the
$478 million in financial services industry impairments for
the six months ended June 30, 2009, $290 million were
in equity securities, of which $260 million were in
financial services industry perpetual hybrid securities which
were impaired as 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 on these securities.
Impairments in the six months ended June 30, 2010 were
concentrated in the RMBS, ABS and CMBS sectors reflecting
current economic conditions including higher unemployment levels
and continued weakness within the real estate markets. Of the
fixed maturity and equity securities impairments of
$240 million and $1,215 million in the six months
ended June 30, 2010 and 2009, respectively,
$181 million and $208 million, respectively, were in
the Companys RMBS, ABS and CMBS holdings.
168
Fixed maturity security OTTI losses recognized in earnings
relate to the following sectors and industries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
U.S. and foreign corporate securities by industry:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance
|
|
$
|
20
|
|
|
$
|
67
|
|
|
$
|
28
|
|
|
$
|
188
|
|
Consumer
|
|
|
1
|
|
|
|
74
|
|
|
|
23
|
|
|
|
164
|
|
Communications
|
|
|
|
|
|
|
61
|
|
|
|
3
|
|
|
|
203
|
|
Utility
|
|
|
3
|
|
|
|
43
|
|
|
|
3
|
|
|
|
76
|
|
Other industries
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
26
|
|
Industrial
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. and foreign corporate securities
|
|
|
24
|
|
|
|
250
|
|
|
|
57
|
|
|
|
677
|
|
ABS
|
|
|
44
|
|
|
|
28
|
|
|
|
63
|
|
|
|
94
|
|
RMBS
|
|
|
27
|
|
|
|
20
|
|
|
|
57
|
|
|
|
78
|
|
CMBS
|
|
|
51
|
|
|
|
34
|
|
|
|
61
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
146
|
|
|
$
|
332
|
|
|
$
|
238
|
|
|
$
|
885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity security OTTI losses recognized in earnings relate to the
following sectors and industries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Sector:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
1
|
|
|
$
|
12
|
|
|
$
|
2
|
|
|
$
|
50
|
|
Non-redeemable preferred stock
|
|
|
|
|
|
|
60
|
|
|
|
|
|
|
|
280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1
|
|
|
$
|
72
|
|
|
$
|
2
|
|
|
$
|
330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industry:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial services industry:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Perpetual hybrid securities
|
|
$
|
|
|
|
$
|
60
|
|
|
$
|
|
|
|
$
|
260
|
|
Common and remaining non-redeemable preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
|
|
Total financial services industry
|
|
|
|
|
|
|
60
|
|
|
|
|
|
|
|
290
|
|
Other industries
|
|
|
1
|
|
|
|
12
|
|
|
|
2
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1
|
|
|
$
|
72
|
|
|
$
|
2
|
|
|
$
|
330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future Impairments. Future
other-than-temporary
impairments will depend primarily on economic fundamentals,
issuer performance, changes in credit ratings, changes in
collateral valuation, changes in interest rates and changes in
credit spreads. If economic fundamentals and other of the above
factors deteriorate, additional
other-than-temporary
impairments may be incurred in upcoming periods. See also
Investments Fixed Maturity and
Equity Securities
Available-for-Sale
Net Unrealized Investment Gains (Losses).
Credit
Loss Rollforward Rollforward of the Cumulative
Credit Loss Component of OTTI Loss Recognized in Earnings on
Fixed Maturity Securities Still Held for Which a Portion of the
OTTI Loss was Recognized in Other Comprehensive Income
(Loss)
See Investments Credit Loss
Rollforward Rollforward of the Cumulative Credit
Loss Component of OTTI Loss Recognized in Earnings on Fixed
Maturity Securities Still Held for Which a Portion of the OTTI
Loss was Recognized in Other Comprehensive Income (Loss)
in Note 3 of the Notes to the Interim Condensed
169
Consolidated Financial Statements for the table that presents a
rollforward of the cumulative credit loss component of OTTI loss
recognized in earnings on fixed maturity securities still held
by the Company at June 30, 2010 and 2009 for which a
portion of the OTTI loss was recognized in other comprehensive
income (loss) for the three months and six months ended
June 30, 2010 and 2009, 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 brokerage firms and commercial banks. These
transactions are treated as financing arrangements and the
associated liability recorded at the amount of the cash
received. The Company generally obtains collateral in an amount
equal to 102% of the estimated fair value of the loaned
securities, which is obtained at the inception of a loan and
maintained at a level greater than or equal to 100% for the
duration of the loan. Securities loaned under such transactions
may be sold or repledged by the transferee. The Company is
liable to return to its counterparties the cash collateral under
its control.
Elements of the securities lending program are presented in
Note 3 of the Notes to the Interim Condensed Consolidated
Financial Statements under Investments
Securities Lending.
The estimated fair value of the securities on loan related to
the cash collateral on open at June 30, 2010 was
$2.6 billion of which $2.0 billion were
U.S. Treasury, agency and government guaranteed securities
which, if put to the Company, can be immediately sold to satisfy
the cash requirements. The remainder of the securities on loan
were primarily U.S. Treasury, agency, and government
guaranteed securities, and very liquid RMBS. The
U.S. Treasury securities on loan are primarily holdings of
on-the-run
U.S. Treasury securities, the most liquid
U.S. Treasury securities available. If these high quality
securities that are on loan are put back to the Company, the
proceeds from immediately selling these securities can be used
to satisfy the related cash requirements. The reinvestment
portfolio acquired with the cash collateral consisted
principally of fixed maturity securities (including
U.S. Treasury, agency and government guaranteed,
U.S. corporate, RMBS, ABS and CMBS securities). If the on
loan securities or the reinvestment portfolio become less
liquid, the Company has the liquidity resources of most of its
general account available to meet any potential cash demands
when securities are put back to the Company.
Security collateral on deposit from counterparties in connection
with the securities lending transactions may not be sold or
repledged, unless the counterparty is in default, and is not
reflected in the interim condensed consolidated financial
statements. Separately, the Company had $49 million and
$46 million, at estimated fair value, of cash and security
collateral on deposit from a counterparty to secure its interest
in a pooled investment that is held by a third party trustee, as
custodian, at June 30, 2010 and December 31, 2009,
respectively. This pooled investment is included within fixed
maturity securities and had an estimated fair value of
$57 million and $51 million at June 30, 2010 and
December 31, 2009, respectively.
Invested
Assets on Deposit, Held in Trust and Pledged as
Collateral
See Investments Invested Assets on Deposit,
Held in Trust and Pledged as Collateral in Note 3 of
the Notes to the Interim Condensed Consolidated Financial
Statements for a table of the invested assets on deposit,
invested assets held in trust and invested assets pledged as
collateral at June 30, 2010 and December 31, 2009.
See also Investments Securities
Lending for the amount of the Companys cash and
invested assets received from and due back to counterparties
pursuant to its securities lending program.
Trading
Securities
The Company has trading securities to support investment
strategies that involve the active and frequent purchase and
sale of securities, the execution of short sale agreements and
asset and liability matching strategies for certain insurance
products. In addition, the Company classifies securities held by
consolidated securitization entities as trading securities, with
changes in estimated fair value recorded as net investment gains
(losses). Trading securities which consisted principally of
publicly-traded fixed maturity and equity securities, were
$3.2 billion and $2.4 billion, or 0.9% and 0.7% of
total cash and invested assets at estimated fair value, at
June 30, 2010 and
170
December 31, 2009, respectively. See
Investments Trading Securities in
Note 3 of the Notes to the Interim Condensed Consolidated
Financial Statements for tables which present information about
the trading securities, related short sale agreement
liabilities, investments pledged to secure short sale agreement
liabilities, net investment income, changes in estimated fair
value included in net investment income for trading securities
and changes in estimated fair value included in net investment
gains (losses) for securities held by consolidated
securitization entities at June 30, 2010 and
December 31, 2009, and for the three months and six months
ended June 30, 2010 and 2009.
Trading securities, securities held by consolidated
securitization entities and trading (short sale agreement)
liabilities, measured at estimated fair value on a recurring
basis and their corresponding fair value hierarchy, are
presented as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
|
Trading
|
|
|
Trading
|
|
|
|
Securities
|
|
|
Liabilities
|
|
|
|
(In millions)
|
|
|
Quoted prices in active markets for identical assets and
liabilities (Level 1)
|
|
$
|
2,375
|
|
|
|
75
|
%
|
|
$
|
15
|
|
|
|
32
|
%
|
Significant other observable inputs (Level 2)(1)
|
|
|
747
|
|
|
|
24
|
|
|
|
32
|
|
|
|
68
|
|
Significant unobservable inputs (Level 3)
|
|
|
36
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total estimated fair value
|
|
$
|
3,158
|
|
|
|
100
|
%
|
|
$
|
47
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
All trading securities held by consolidated securitization
entities are classified as Level 2. |
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, 2010, is as
follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30, 2010
|
|
|
June 30, 2010
|
|
|
|
(In millions)
|
|
|
Balance, beginning of period
|
|
$
|
40
|
|
|
$
|
83
|
|
Total realized/unrealized gains (losses) included in:
|
|
|
|
|
|
|
|
|
Earnings
|
|
|
(3
|
)
|
|
|
(4
|
)
|
Purchases, sales, issuances and settlements
|
|
|
(1
|
)
|
|
|
(25
|
)
|
Transfer in and/or out of Level 3
|
|
|
|
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
36
|
|
|
$
|
36
|
|
|
|
|
|
|
|
|
|
|
See Managements Discussion and Analysis of Financial
Condition and Results of Operations Summary of
Critical Accounting Estimates included in the 2009 Annual
Report for further information on the estimates and assumptions
that affect the amounts reported above.
Mortgage
Loans
The Companys mortgage loans are principally collateralized
by commercial, agricultural and residential properties, as well
as automobiles. The carrying value of mortgage loans was
$58.3 billion and $50.9 billion, or 15.8% and 15.1% of
total cash and invested assets at June 30, 2010 and
December 31, 2009, respectively. See
Investments Mortgage Loans in
Note 3 of the Notes to the Interim Condensed Consolidated
Financial Statements for a table that presents the
Companys mortgage loans
held-for-investment
of $48.5 billion and $48.2 billion by type at
June 30, 2010 and December 31, 2009, respectively, as
well as the components of the mortgage loans
held-for-sale
of $2.7 billion and $2.7 billion at June 30, 2010
and December 31, 2009, respectively. The information
presented on Mortgage Loans herein excludes the effects of
consolidating under GAAP certain VIEs that are treated as
consolidated securitization entities. Such amounts are presented
in the aforementioned table in the section that presents total
mortgage loans
held-for-investment.
171
Mortgage Loans by Geographic Region and Property
Type. The Company diversifies its commercial
mortgage loans by both geographic region and property type to
reduce the risk of concentration. See
Investments Mortgage Loans
Mortgage Loans by Geographic Region and Property Type in
Note 3 of the Notes to the Interim Condensed Consolidated
Financial Statements for tables that present the distribution
across geographic regions and property types for commercial
mortgage loans
held-for-investment
at June 30, 2010 and December 31, 2009.
Mortgage Loan Credit Quality Restructured,
Potentially Delinquent, Delinquent or Under
Foreclosure. The Company monitors its mortgage
loan investments on an ongoing basis, including reviewing loans
that are restructured, potentially delinquent, and delinquent or
under foreclosure. These loan classifications are consistent
with those used in industry practice.
The Company defines restructured mortgage loans as loans in
which the Company, for economic or legal reasons related to the
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 in the
near term. The Company defines delinquent mortgage loans,
consistent with industry practice, as loans in which two or more
interest or principal payments are past due. The Company defines
mortgage loans under foreclosure as loans in which foreclosure
proceedings have formally commenced.
The following table presents the amortized cost and valuation
allowance (amortized cost is carrying value before valuation
allowances) for commercial mortgage loans, agricultural mortgage
loans, and residential and consumer loans
held-for-investment
distributed by loan classification at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
Amortized
|
|
|
% of
|
|
|
Valuation
|
|
|
Amortized
|
|
|
Amortized
|
|
|
% of
|
|
|
Valuation
|
|
|
Amortized
|
|
|
|
Cost
|
|
|
Total
|
|
|
Allowance
|
|
|
Cost
|
|
|
Cost
|
|
|
Total
|
|
|
Allowance
|
|
|
Cost
|
|
|
|
(In millions)
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing
|
|
$
|
34,721
|
|
|
|
99.1
|
%
|
|
$
|
566
|
|
|
|
1.6
|
%
|
|
$
|
35,066
|
|
|
|
99.7
|
%
|
|
$
|
548
|
|
|
|
1.6
|
%
|
Restructured
|
|
|
88
|
|
|
|
0.3
|
|
|
|
9
|
|
|
|
10.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
Potentially delinquent
|
|
|
96
|
|
|
|
0.3
|
|
|
|
23
|
|
|
|
24.0
|
%
|
|
|
102
|
|
|
|
0.3
|
|
|
|
41
|
|
|
|
40.2
|
%
|
Delinquent or under foreclosure
|
|
|
137
|
|
|
|
0.3
|
|
|
|
23
|
|
|
|
16.8
|
%
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
35,042
|
|
|
|
100.0
|
%
|
|
$
|
621
|
|
|
|
1.8
|
%
|
|
$
|
35,176
|
|
|
|
100.0
|
%
|
|
$
|
589
|
|
|
|
1.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing
|
|
$
|
12,094
|
|
|
|
97.6
|
%
|
|
$
|
33
|
|
|
|
0.3
|
%
|
|
$
|
11,950
|
|
|
|
97.5
|
%
|
|
$
|
33
|
|
|
|
0.3
|
%
|
Restructured
|
|
|
46
|
|
|
|
0.4
|
|
|
|
14
|
|
|
|
30.4
|
%
|
|
|
36
|
|
|
|
0.3
|
|
|
|
10
|
|
|
|
27.8
|
%
|
Potentially delinquent
|
|
|
109
|
|
|
|
0.9
|
|
|
|
20
|
|
|
|
18.3
|
%
|
|
|
128
|
|
|
|
1.0
|
|
|
|
34
|
|
|
|
26.6
|
%
|
Delinquent or under foreclosure
|
|
|
131
|
|
|
|
1.1
|
|
|
|
29
|
|
|
|
22.1
|
%
|
|
|
141
|
|
|
|
1.2
|
|
|
|
38
|
|
|
|
27.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
12,380
|
|
|
|
100.0
|
%
|
|
$
|
96
|
|
|
|
0.8
|
%
|
|
$
|
12,255
|
|
|
|
100.0
|
%
|
|
$
|
115
|
|
|
|
0.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential and Consumer (2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing
|
|
$
|
1,719
|
|
|
|
95.1
|
%
|
|
$
|
16
|
|
|
|
0.9
|
%
|
|
$
|
1,389
|
|
|
|
94.4
|
%
|
|
$
|
16
|
|
|
|
1.2
|
%
|
Restructured
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
1
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
%
|
Potentially delinquent
|
|
|
10
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
%
|
|
|
10
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
%
|
Delinquent or under foreclosure
|
|
|
77
|
|
|
|
4.3
|
|
|
|
1
|
|
|
|
1.3
|
%
|
|
|
71
|
|
|
|
4.8
|
|
|
|
1
|
|
|
|
1.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,806
|
|
|
|
100.0
|
%
|
|
$
|
17
|
|
|
|
|
%
|
|
$
|
1,471
|
|
|
|
100.0
|
%
|
|
$
|
17
|
|
|
|
1.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Company diversifies its agricultural mortgage loans
held-for-investment
by both geographic region and product type. Of the
$12,380 million of agricultural mortgage loans outstanding
at June 30, 2010, 54% were subject to rate resets prior to
maturity. A substantial portion of these loans has been
successfully renegotiated and remains outstanding to maturity. |
|
(2) |
|
Residential and consumer loans consist of primarily residential
mortgage loans, home equity lines of credit, and automobile
loans
held-for-investment. |
172
Mortgage Loan Credit Quality Monitoring
Process Commercial and Agricultural
Loans. The Company reviews all commercial
mortgage loans on an ongoing basis. These reviews may include an
analysis of the property financial statements and rent roll,
lease rollover analysis, property inspections, market analysis,
estimated valuations of the underlying collateral,
loan-to-value
ratios, debt service coverage ratios, and tenant
creditworthiness. The monitoring process focuses on higher risk
loans, which include those that are classified as restructured,
potentially delinquent, delinquent or in foreclosure, as well as
loans with higher
loan-to-value
ratios and lower debt service coverage ratios. The monitoring
process for agricultural loans is generally similar, with a
focus on higher risk loans, including reviews of the portfolio
on a geographic and sector basis.
Loan-to-value
ratios and debt service coverage ratios are common measures in
the assessment of the quality of commercial mortgage loans.
Loan-to-value
ratios compare the amount of the loan to the estimated fair
value of the underlying collateral. A
loan-to-value
ratio greater than 100% indicates that the loan amount is
greater than the collateral value. A
loan-to-value
ratio of less than 100% indicates an excess of collateral value
over the loan amount. The debt service coverage ratio compares a
propertys net operating income to amounts needed to
service the principal and interest due under the loan. For
commercial loans, the average
loan-to-value
ratio was 68% at both June 30, 2010 and December 31,
2009, and the average debt service coverage ratio was 2.4x, as
compared to 2.2x at December 31, 2009. The values utilized
in calculating these ratios are developed in connection with our
review of the commercial loan portfolio, and are updated
routinely, including a periodic quality rating process and an
evaluation of the estimated fair value of the underlying
collateral.
Mortgage Loan Credit Quality Monitoring
Process Residential and Consumer
Loans. The Company has a conservative residential
and consumer loan portfolio and does not hold any option ARMs,
sub-prime,
low teaser rate, or loans with a
loan-to-value
ratio of 100% or more. Higher risk loans include those that are
classified as restructured, potentially delinquent, delinquent
or in foreclosure, as well as loans with higher
loan-to-value
ratios and interest-only loans. The Companys investment in
residential junior lien loans and residential loans with a
loan-to-value
ratio of 80% or more was $70 million at June 30, 2010,
and the majority of the higher
loan-to-value
loans have mortgage insurance coverage which reduces the
loan-to-value
ratio to less than 80%. Additionally, the Companys
investment in traditional residential interest-only loans was
$478 million at June 30, 2010.
Mortgage Loans Valuation Allowances. Recent
economic events causing deteriorating market conditions, low
levels of liquidity and credit spread widening have all
adversely impacted the mortgage loan markets. As a result,
commercial real estate and residential and consumer loan market
fundamentals, and fundamentals in certain sectors of the
agricultural loan market, have weakened. The Company expects
continued pressure on these fundamentals, including but not
limited to declining rent growth, increased vacancies, and
rising delinquencies. These deteriorating factors have been
considered in the Companys ongoing, systematic and
comprehensive review of the commercial, agricultural and
residential and consumer mortgage loan portfolios, resulting in
higher valuation allowances at June 30, 2010 as compared to
the prior periods.
The Companys valuation allowances are established both on
a loan specific basis for those loans considered impaired where
a property specific or market specific risk has been identified
that could likely result in a future loss, as well as for pools
of loans with similar risk characteristics where a property
specific or market specific risk has not been identified, but
for which the Company expects to incur a loss. Accordingly, a
valuation allowance is provided to absorb these estimated
probable credit losses. The Company records additions to and
decreases in its valuation allowances and gains and losses from
the sale of loans in net investment gains (losses).
The Company records valuation allowances for loans considered to
be impaired when it is probable that, based upon current
information and events, the Company will be unable to collect
all amounts due under the contractual terms of the loan
agreement. Based on the facts and circumstances of the
individual loans being impaired, loan specific valuation
allowances are established for the excess carrying value of the
loan over either: (i) the present value of expected future
cash flows discounted at the loans original effective
interest rate; (ii) the estimated fair value of the
loans underlying collateral if the loan is in the process
of foreclosure or otherwise collateral dependent; or
(iii) the loans observable market price.
The Company also establishes valuation allowances for loan
losses for pools of loans with similar risk characteristics,
such as property types,
loan-to-value
ratios and debt service coverage ratios when, based on past
experience, it is probable that a credit event has occurred and
the amount of loss can be reasonably estimated. These
173
valuation allowances are based on loan risk characteristics,
historical default rates and loss severities, real estate market
fundamentals and outlook as well as other relevant factors.
The determination of the amount of, and additions or decreases
to, valuation allowances is based upon the Companys
periodic evaluation and assessment of known and inherent risks
associated with its loan portfolios. Such evaluations and
assessments are based upon several factors, including the
Companys experience for loan losses, defaults and loss
severity, and loss expectations for loans with similar risk
characteristics. These evaluations and assessments are revised
as conditions change and new information becomes available. We
update our evaluations regularly, which can cause the valuation
allowances to increase or decrease over time as such evaluations
are revised, and such changes in the valuation allowance are
also recorded in net investment gains (losses). A net decrease
in the valuation allowance recorded to net investment gains
(losses) is reflected as negative additions in the following
tables.
The following tables present the changes in valuation allowances
for commercial, agricultural and residential and consumer loans
held-for-investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
|
|
|
|
|
Commercial
|
|
|
Agricultural
|
|
|
Consumer
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
For the Three Months Ended June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
624
|
|
|
$
|
110
|
|
|
$
|
17
|
|
|
$
|
751
|
|
Additions
|
|
|
(2
|
)
|
|
|
(7
|
)
|
|
|
2
|
|
|
|
(7
|
)
|
Deductions
|
|
|
(1
|
)
|
|
|
(7
|
)
|
|
|
(2
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, at end of period
|
|
$
|
621
|
|
|
$
|
96
|
|
|
$
|
17
|
|
|
$
|
734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
328
|
|
|
$
|
85
|
|
|
$
|
15
|
|
|
$
|
428
|
|
Additions
|
|
|
119
|
|
|
|
22
|
|
|
|
3
|
|
|
|
144
|
|
Deductions
|
|
|
(15
|
)
|
|
|
(11
|
)
|
|
|
(3
|
)
|
|
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, at end of period
|
|
$
|
432
|
|
|
$
|
96
|
|
|
$
|
15
|
|
|
$
|
543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
589
|
|
|
$
|
115
|
|
|
$
|
17
|
|
|
$
|
721
|
|
Additions
|
|
|
33
|
|
|
|
(1
|
)
|
|
|
2
|
|
|
|
34
|
|
Deductions
|
|
|
(1
|
)
|
|
|
(18
|
)
|
|
|
(2
|
)
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, at end of period
|
|
$
|
621
|
|
|
$
|
96
|
|
|
$
|
17
|
|
|
$
|
734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
232
|
|
|
$
|
61
|
|
|
$
|
11
|
|
|
$
|
304
|
|
Additions
|
|
|
218
|
|
|
|
50
|
|
|
|
7
|
|
|
|
275
|
|
Deductions
|
|
|
(18
|
)
|
|
|
(15
|
)
|
|
|
(3
|
)
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, at end of period
|
|
$
|
432
|
|
|
$
|
96
|
|
|
$
|
15
|
|
|
$
|
543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the Companys valuation
allowances for loans by type of credit loss at:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
(In millions)
|
|
|
Specific credit losses
|
|
$
|
119
|
|
|
$
|
123
|
|
Non-specifically identified credit losses
|
|
|
615
|
|
|
|
598
|
|
|
|
|
|
|
|
|
|
|
Total valuation allowances
|
|
$
|
734
|
|
|
$
|
721
|
|
|
|
|
|
|
|
|
|
|
174
The Company held $221 million and $210 million in
mortgage loans which are carried at estimated fair value based
on the value of the underlying collateral or independent broker
quotations, if lower, of which $138 million and
$202 million relate to impaired mortgage loans
held-for-investment
and $83 million and $8 million to certain mortgage
loans
held-for-sale,
at June 30, 2010 and December 31, 2009, respectively.
These impaired mortgage loans were recorded at estimated fair
value and represent a nonrecurring fair value measurement. The
estimated fair value is categorized as Level 3. Included
within net investment gains (losses) for such impaired mortgage
loans were net impairment gains (losses) of $8 million and
($16) million for the three months and six months ended
June 30, 2010, respectively, and less than
($1) million and ($26) million for the three months
and six months ended June 30, 2009, respectively.
Subsequent improvements in estimated fair value on previously
impaired loans recorded through a reduction in the previously
established valuation allowance are reported as gains above.
Real
Estate Holdings
The Companys real estate holdings consist of commercial
properties located primarily in the United States. The Company
diversifies its real estate holdings by both geographic region
and property type to reduce risk of concentration. The carrying
value of the Companys real estate, real estate joint
ventures and real estate
held-for-sale
was $6.8 billion, or 1.8%, and $6.9 billion, or 1.9%,
of total cash and invested assets at June 30, 2010 and
December 31, 2009, respectively.
Real estate holdings by type consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
Carrying
|
|
|
% of
|
|
|
Carrying
|
|
|
% of
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Real estate
|
|
$
|
5,496
|
|
|
|
80.4
|
%
|
|
$
|
5,435
|
|
|
|
78.8
|
%
|
Accumulated depreciation
|
|
|
(1,472
|
)
|
|
|
(21.5
|
)
|
|
|
(1,408
|
)
|
|
|
(20.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net real estate
|
|
|
4,024
|
|
|
|
58.9
|
|
|
|
4,027
|
|
|
|
58.4
|
|
Real estate joint ventures and funds
|
|
|
2,657
|
|
|
|
38.8
|
|
|
|
2,698
|
|
|
|
39.1
|
|
Foreclosed real estate
|
|
|
151
|
|
|
|
2.2
|
|
|
|
127
|
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
held-for-investment
|
|
|
6,832
|
|
|
|
99.9
|
%
|
|
|
6,852
|
|
|
|
99.4
|
%
|
Real estate
held-for-sale
|
|
|
9
|
|
|
|
0.1
|
|
|
|
44
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate holdings
|
|
$
|
6,841
|
|
|
|
100.0
|
%
|
|
$
|
6,896
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairments of real estate and real estate joint ventures
held-for-investment
were $26 million and $47 million for the three months
and six months ended June 30, 2010, respectively, and
$68 million and $91 million for the three months and
six months ended June 30, 2009, respectively. There were no
impairments recognized on real estate
held-for-sale
for the three months and six months ended June 30, 2010,
and 2009. The Companys carrying value of real estate
held-for-sale
as presented above has been reduced by impairments recorded
prior to 2009 of $1 million at both June 30, 2010 and
December 31, 2009.
The impaired cost basis real estate joint ventures were recorded
at estimated fair value and represent a non-recurring fair value
measurement. The estimated fair value was categorized as
Level 3. Impairments to estimated fair value for such cost
basis real estate joint ventures of $4 million and
$25 million for the three months and six months ended
June 30, 2010, respectively, were recognized within net
investment gains (losses) and are included in the
$26 million and $47 million of impairments on real
estate and real estate joint ventures for the three months and
six months ended June 30, 2010, respectively. There were no
cost basis real estate joint ventures impairments to estimated
fair value included in the $68 million of impairments on
real estate and real estate joint ventures for the three months
ended June 30, 2009. There were $68 million of
impairments to estimated fair value for such cost basis real
estate joint ventures for the six months ended June 30,
2009 which were recognized in net investment gains (losses) and
are included in the $91 million of impairments on real
estate and real estate joint ventures for the six months ended
June 30, 2009. The estimated fair value of the impaired
real estate joint ventures after these impairments was
$8 million at June 30, 2010 and $69 million at
June 30, 2009.
175
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
$5.9 billion and $5.5 billion, or 1.6% of total cash
and invested assets at June 30, 2010 and December 31,
2009, respectively. Included within other limited partnership
interests was $1.0 billion, at both June 30, 2010 and
December 31, 2009 of investments in hedge funds.
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
$8 million and $245 million for the three months ended
June 30, 2010 and 2009, respectively, and $8 million
and $341 million for the six months ended June 30,
2010 and 2009, respectively, were recognized within net
investment gains (losses). The estimated fair value of the
impaired other limited partnership interests after these
impairments was $17 million and $410 million at
June 30, 2010 and 2009, respectively. These impairments to
estimated fair value represent non-recurring fair value
measurements that have been classified as Level 3 due to
the limited activity and price transparency inherent in the
market for such investments.
Other
Invested Assets
The following table presents the carrying value of the
Companys other invested assets by type at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
Carrying
|
|
|
% of
|
|
|
Carrying
|
|
|
% of
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Freestanding derivatives with positive fair values
|
|
$
|
9,721
|
|
|
|
62.4
|
%
|
|
$
|
6,133
|
|
|
|
48.2
|
%
|
Leveraged leases, net of non-recourse debt
|
|
|
2,184
|
|
|
|
14.0
|
|
|
|
2,227
|
|
|
|
17.5
|
|
Joint venture investments
|
|
|
897
|
|
|
|
5.8
|
|
|
|
977
|
|
|
|
7.7
|
|
Tax credit partnerships
|
|
|
745
|
|
|
|
4.8
|
|
|
|
719
|
|
|
|
5.7
|
|
MSRs
|
|
|
660
|
|
|
|
4.2
|
|
|
|
878
|
|
|
|
6.9
|
|
Funds withheld at interest
|
|
|
524
|
|
|
|
3.4
|
|
|
|
505
|
|
|
|
4.0
|
|
Funding agreements
|
|
|
|
|
|
|
|
|
|
|
409
|
|
|
|
3.2
|
|
Other
|
|
|
853
|
|
|
|
5.4
|
|
|
|
861
|
|
|
|
6.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
15,584
|
|
|
|
100.0
|
%
|
|
$
|
12,709
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Note 4 of the Notes to the Interim Condensed
Consolidated Financial Statements for information regarding the
freestanding derivatives with positive estimated fair values.
See Investments Mortgage Servicing
Rights in Note 3 of the Notes to the Interim
Condensed Consolidated Financial Statements for information on
MSRs. Joint venture investments are accounted for under the
equity method and represent the Companys 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 income tax
credits, and are accounted for under the equity method or under
the effective yield method. Funds withheld at interest represent
amounts contractually withheld by ceding companies in accordance
with reinsurance agreements. Funding agreements represent
arrangements where the Company has long-term interest bearing
amounts on deposit with third parties and are generally stated
at amortized cost.
Short-term
Investments
The carrying value of short-term investments, which include
investments with remaining maturities of one year or less, but
greater than three months, at the time of acquisition was
$9.7 billion and $8.4 billion, or 2.6% and 2.5% of
total cash and invested assets at June 30, 2010 and
December 31, 2009, respectively. The Company is
176
exposed to concentrations of credit risk related to securities
of the U.S. government and certain U.S. government
agencies included within short-term investments, which were
$9.0 billion and $7.5 billion at June 30, 2010
and December 31, 2009, respectively.
Cash
Equivalents
The carrying value of cash equivalents, which include
investments with an original or remaining maturity of three
months or less, at the time of acquisition was $8.4 billion
at both June 30, 2010 and December 31, 2009. The
Company is exposed to concentrations of credit risk related to
securities of the U.S. government and certain
U.S. government agencies included within cash equivalents,
which were $5.9 billion and $6.0 billion at
June 30, 2010 and December 31, 2009, 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.
|
|
|
|
Information about the notional amount, estimated fair value, and
primary underlying risk exposure of Companys derivative
financial instruments, excluding embedded derivatives held at
June 30, 2010 and December 31, 2009.
|
Hedging. See Note 4 of the Notes to the
Interim Condensed Consolidated Financial Statements for
information about:
|
|
|
|
|
The notional amount and estimated fair value of derivatives and
non-derivative instruments designated as hedging instruments by
type of hedge designation at June 30, 2010 and
December 31, 2009.
|
|
|
|
The notional amount and estimated fair value of derivatives that
are not designated or do not qualify as hedging instruments by
derivative type at June 30, 2010 and December 31, 2009.
|
|
|
|
The statement of operations effects of derivatives in cash flow,
fair value, or non-qualifying hedge relationships for the three
months and six months ended June 30, 2010 and 2009.
|
See Quantitative and Qualitative Disclosures About Market
Risk Management of Market Risk Exposures
Hedging Activities for more information about the
Companys use of derivatives by major hedge program.
Fair Value Hierarchy. Derivatives measured at
estimated fair value on a recurring basis and their
corresponding fair value hierarchy, are presented as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
|
Derivative Assets
|
|
|
Derivative Liabilities
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Quoted prices in active markets for identical assets and
liabilities (Level 1)
|
|
$
|
129
|
|
|
|
1
|
%
|
|
$
|
116
|
|
|
|
4
|
%
|
Significant other observable inputs (Level 2)
|
|
|
8,712
|
|
|
|
90
|
|
|
|
3,000
|
|
|
|
92
|
|
Significant unobservable inputs (Level 3)
|
|
|
880
|
|
|
|
9
|
|
|
|
127
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total estimated fair value
|
|
$
|
9,721
|
|
|
|
100
|
%
|
|
$
|
3,243
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The valuation of Level 3 derivatives involves the use of
significant unobservable inputs and generally requires a higher
degree of management judgment or estimation than the valuations
of Level 1 and Level 2 derivatives. Although
Level 3 inputs are based on assumptions deemed appropriate
given the circumstances and are assumed to be consistent with
what other market participants would use when pricing such
instruments, the use of different
177
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, 2010
include: interest rate forwards with maturities which extend
beyond the observable portion of the yield curve; 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; currency options based upon baskets of
currencies having unobservable currency correlations; and credit
forwards having unobservable repurchase rates.
At June 30, 2010 and December 31, 2009, 1.3% and 5.5%,
respectively, 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, 2010 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30, 2010
|
|
|
June 30, 2010
|
|
|
|
(In millions)
|
|
|
Balance, beginning of period
|
|
$
|
235
|
|
|
$
|
356
|
|
Total realized/unrealized gains (losses) included in:
|
|
|
|
|
|
|
|
|
Earnings
|
|
|
569
|
|
|
|
449
|
|
Other comprehensive income (loss)
|
|
|
4
|
|
|
|
6
|
|
Purchases, sales, issuances and settlements
|
|
|
(55
|
)
|
|
|
(58
|
)
|
Transfer in and/or out of Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
753
|
|
|
$
|
753
|
|
|
|
|
|
|
|
|
|
|
See Managements Discussion and Analysis of Financial
Condition and Results of Operations Summary of
Critical Accounting Estimates Derivative Financial
Instruments in the 2009 Annual Report for further
information on the estimates and assumptions that affect the
amounts reported above.
Credit Risk. See Note 4 of the Notes to
the Interim Condensed Consolidated Financial Statements for
information about how the Company manages credit risk related to
its freestanding derivatives, including the use of master
netting agreements and collateral arrangements.
Credit Derivatives. See Note 4 of the
Notes to the Interim Condensed Consolidated Financial Statements
for information about the estimated fair value and maximum
amount at risk related to the Companys written credit
default swaps.
178
Embedded Derivatives. The embedded derivatives
measured at estimated fair value on a recurring basis and their
corresponding fair value hierarchy, are presented as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
|
Net Embedded Derivatives Within
|
|
|
|
Asset Host Contracts
|
|
|
Liability Host Contracts
|
|
|
|
(In millions)
|
|
|
Quoted prices in active markets for identical assets and
liabilities (Level 1)
|
|
$
|
|
|
|
|
|
%
|
|
$
|
|
|
|
|
|
%
|
Significant other observable inputs (Level 2)
|
|
|
|
|
|
|
|
|
|
|
(34
|
)
|
|
|
(1
|
)
|
Significant unobservable inputs (Level 3)
|
|
|
124
|
|
|
|
100
|
|
|
|
3,420
|
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total estimated fair value
|
|
$
|
124
|
|
|
|
100
|
%
|
|
$
|
3,386
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A rollforward of the fair value measurements for net embedded
derivatives measured at estimated fair value on a recurring
basis using significant unobservable (Level 3) inputs
is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30, 2010
|
|
|
June 30, 2010
|
|
|
|
(In millions)
|
|
|
Balance, beginning of period
|
|
$
|
(994
|
)
|
|
$
|
(1,455
|
)
|
Total realized/unrealized gains (losses) included in:
|
|
|
|
|
|
|
|
|
Earnings
|
|
|
(2,149
|
)
|
|
|
(1,630
|
)
|
Other comprehensive income (loss)
|
|
|
(75
|
)
|
|
|
(65
|
)
|
Purchases, sales, issuances and settlements
|
|
|
(78
|
)
|
|
|
(146
|
)
|
Transfer in and/or out of Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
(3,296
|
)
|
|
$
|
(3,296
|
)
|
|
|
|
|
|
|
|
|
|
The valuation of guaranteed minimum benefits includes an
adjustment for nonperformance risk. Included in net investment
gains (losses) for the three months and six months ended
June 30, 2010 were gains (losses) of $776 million and
$690 million, respectively, in connection with this
adjustment. These amounts are net of a loss of $955 million
relating to a refinement for estimating nonperformance risk in
fair value measurements implemented at June 30, 2010. See
Summary of Critical Accounting Estimates.
See also Managements Discussion and Analysis of
Financial Condition and Results of Operations
Summary of Critical Accounting Estimates Embedded
Derivatives included in the 2009 Annual Report for further
information on the estimates and assumptions that affect the
amounts reported above.
Off-Balance
Sheet Arrangements
Commitments
to Fund Partnership Investments
The Company makes commitments to fund partnership investments in
the normal course of business for the purpose of enhancing the
Companys total return on its investment portfolio. The
amounts of these unfunded commitments were $3.8 billion and
$4.1 billion at June 30, 2010 and December 31,
2009, 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
$3.6 billion and $2.7 billion at June 30, 2010
and December 31, 2009, respectively. The Company intends to
sell the majority of these originated residential mortgage
loans. Interest rate lock commitments to fund mortgage loans
that will be
held-for-sale
are considered derivatives pursuant to the guidance on
derivatives and hedging, and their estimated fair value and
notional amounts are included within interest rate forwards.
179
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
$2.7 billion and $2.2 billion at June 30, 2010
and December 31, 2009, 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 $2.3 billion and
$1.3 billion at June 30, 2010 and December 31,
2009, 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, information technology and
other equipment. The Companys commitments under such lease
agreements are included within the contractual obligations
table. See Managements Discussion and Analysis of
Financial Condition and Results of
Operations Liquidity and Capital
Resources The Company Liquidity and
Capital Uses Contractual Obligations in the
2009 Annual Report.
Credit
Facilities, Committed Facilities and Letters of
Credit
The Company maintains committed and unsecured credit facilities
and letters of credit with various financial institutions. See
Liquidity and Capital Resources
The Company Liquidity and Capital
Sources Credit and Committed Facilities, for
further descriptions of such arrangements.
Guarantees
During the six months ended June 30, 2010, the Company did
not record any additional liabilities for indemnities,
guarantees and commitments. The Companys recorded
liabilities were $5 million at both June 30, 2010 and
December 31, 2009, for indemnities, guarantees and
commitments.
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 $236 million and
$6 million at June 30, 2010 and December 31,
2009, respectively.
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. Conditions in the financial markets
have materially improved, but financial institutions may have to
pay higher spreads over benchmark U.S. Treasury securities
than before the market disruption began. There is still some
uncertainty as to whether the stressed conditions that prevailed
during the market disruption could recur, which could affect the
Companys ability to meet liquidity needs and obtain
capital. The following discussion supplements the discussion in
the 2009 Annual Report under the caption Managements
Discussion and Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources.
Liquidity Management. Based upon the strength
of its franchise, diversification of its businesses and strong
financial fundamentals, we continue to believe that the Company
has ample liquidity to meet business requirements under current
market conditions and unlikely but reasonably possible stress
scenarios. The Companys short-term
180
liquidity position (cash, and cash equivalents and short-term
investments, excluding cash collateral received under the
Companys securities lending program that has been
reinvested in cash, cash equivalents, short-term investments and
publicly-traded securities and cash collateral received from
counterparties in connection with derivative instruments) was
$11.4 billion and $11.7 billion at June 30, 2010
and December 31, 2009, respectively. We continuously
monitor and adjust our liquidity and capital plans for the
Holding Company and its subsidiaries in light of changing needs
and opportunities.
Pending Acquisition. On March 7, 2010,
the Holding Company entered into a stock purchase agreement (the
Stock Purchase Agreement) with Alico Holdings and
American International Group, Inc., pursuant to which the
Holding Company agreed to acquire all of the issued and
outstanding capital stock of Alico and Delaware American Life
Insurance Company. The transaction is expected to close by the
end of 2010, subject to certain regulatory approvals and
determinations, as well as other customary closing conditions.
Pursuant to the Stock Purchase Agreement, the Holding Company
will (i) pay $6.8 billion to Alico Holdings in cash,
and (ii) issue to Alico Holdings
(a) 78,239,712 shares of its common stock,
(b) 6,857,000 shares of Series B Contingent
Convertible Junior Participating Non-Cumulative Perpetual
Preferred Stock of the Holding Company, which will be
convertible into approximately 68,570,000 shares of the
Holding Companys common stock (subject to anti-dilution
adjustments) upon a favorable vote of the Holding Companys
common stockholders and (c) $3.0 billion aggregate
stated amount of equity units of the Holding Company (together,
the Securities), initially consisting of
(x) forward purchase contracts obligating the holder to
purchase a variable number of shares of the Holding
Companys common stock on each of three specified future
settlement dates (expected to be approximately two, three and
four years after closing), for a fixed amount per purchase
contract (an aggregate of $1 billion each settlement date)
and (y) an interest in shares of the Holding Companys
preferred stock. At a future date, the interest in the preferred
stock forming part of the equity units will be mandatorily
exchanged for an interest in debt securities of the Company,
which will be subject to remarketing and sold to investors.
Holders of the equity units who elect to include their debt
securities in a remarketing can use the proceeds thereof to meet
their obligations under the forward purchase contracts. As
permitted by the terms of Stock Purchase Agreement, MetLife,
Inc. may seek to modify the terms of the equity units, including
by replacing the preferred stock of the Holding Company with a
different host security, in order to achieve the desired equity
treatment from the rating agencies. See Risk
Factors A Downgrade or a Potential Downgrade in Our
Financial Strength or Credit Ratings Could Result in a Loss of
Business and Materially Adversely Affect Our Financial Condition
and Results of Operations. The aggregate amount of the
Holding Companys common stock to be issued to Alico
Holdings in connection with the transaction is expected to be
214.6 million to 231.5 million shares, consisting of
78.2 million shares to be issued at closing,
68.6 million shares to be issued upon conversion of the
Series B Contingent Convertible Junior Participating
Non-Cumulative Perpetual Preferred Stock (with the stockholder
vote on such conversion to be held within one year after the
closing) and between 67.8 million and 84.7 million
shares of common stock, in total, issuable upon settlement of
the purchase contracts forming part of the equity units (in
three tranches approximately two, three and four years after the
closing). The ownership of the Securities is subject to an
investor rights agreement, which grants to Alico Holdings
certain rights and sets forth certain agreements with respect to
Alico Holdings ownership, voting and transfer of the
Securities. Alico Holdings has indicated that it intends to
monetize the Securities over time, subject to market conditions,
following the lapse of
agreed-upon
minimum holding periods.
Concurrently with the entry into the Stock Purchase Agreement,
the Holding Company signed a commitment letter (amended and
restated on March 16, 2010) with various financial
institutions for a senior credit facility in an aggregate
principal amount of up to $5.0 billion. At the Holding
Companys option, any loan under the senior credit facility
will bear interest at a rate equal to (i) LIBOR plus the
Applicable Margin (the Applicable Margin is 2.00% for the first
89 days after the closing date and, beginning on the
90th day after the closing date, is calculated using credit
default swap rates on the Companys senior unsecured
obligations plus a margin that increases with the amount of time
that has passed since the closing), or (ii) the Base Rate
(to be defined as the highest of (a) the Bank of America
prime rate, (b) the Federal Funds rate plus 0.50% and
(c) one month LIBOR plus 1.00%) plus the Applicable Margin.
In addition, on the 90th, 180th and 270th day after
the closing, the Company must pay a fee (increasing over time)
equal to a percentage of the amounts outstanding under the
credit facility on those dates. During the continuance of any
default under the senior credit facility, the Applicable Margin
on obligations owing thereunder shall increase by 2% per annum
(subject, in all cases other than an insolvency default or
default in the
181
payment of principal when due, to the request of the Required
Lenders (as defined therein)). The senior credit facility will
be used to finance any portion of the cash component of the
purchase price of the Alico transaction that is not financed
with sales of the Companys securities. Any borrowings
under the senior credit facility must be repaid by the
364th day following the closing of the Alico transaction.
Conditions precedent to closing of the senior credit facility
are typical for transactions of this type, including (in
addition to certain conditions precedent contained in the Stock
Purchase Agreement): (i) no Material Adverse Effect (as
defined in the commitment letter) since December 31, 2009
relating to the Holding Company and its subsidiaries, or
November 30, 2009 relating to the Transferred Businesses
(as defined in the commitment letter); (ii) long-term
indebtedness of the Holding Company must be at or above a
specified level as of closing; (iii) without consent of the
lead arrangers, no change materially adverse to the lenders may
be made in terms of the sources of funding for the transaction;
and (iv) no term in the Stock Purchase Agreement may be
waived adversely to the lenders without the consent of the lead
arrangers.
The
Company
Capital
The Companys capital position is managed to maintain its
financial strength and credit ratings and is supported by its
ability to generate strong cash flows at the operating
companies, borrow funds at competitive rates and raise
additional capital to meet its operating and growth needs.
While the Company raised new capital from its debt issuances
during the difficult market conditions prevailing since the
second half of 2008, the increase in credit spreads experienced
since then has resulted in an increase in the cost of such new
capital. As a result of reductions in interest rates, the
Companys interest expense and dividends on floating rate
securities have been lower; however, the increase in the
Companys credit spreads since the second half of 2008 has
caused the Companys credit facility fees to increase.
Rating Agencies. Rating agencies assign
insurer financial strength ratings to the Companys
domestic life insurance subsidiaries and credit ratings to the
Holding Company and certain of its subsidiaries. The level and
composition of 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 addition to heightening
the level of scrutiny that they apply to insurance companies,
rating agencies have increased and may continue to 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.
We believe that the rating agencies will continue to review our
ratings in light of the pending Alico transaction and may take
further action at, or in anticipation of, the consummation of
the Acquisition.
A downgrade in the credit or insurer financial strength ratings
of the Company or its subsidiaries would likely impact the cost
and availability of financing for the Company and its
subsidiaries and result in additional collateral requirements or
other required payments under certain agreements, which are
eligible to be satisfied in cash or by posting securities held
by the subsidiaries subject to the agreements.
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 the Holding Company or other parent entities is constrained
by the amount of surplus we hold to maintain our ratings and
provides an additional margin for risk protection and investment
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.
182
Summary of Primary Sources and Uses of Liquidity and
Capital. The Companys primary sources and
uses of liquidity and capital are described below, and
summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Sources:
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
3,928
|
|
|
$
|
|
|
Net cash provided by changes in policyholder account balances
|
|
|
1,823
|
|
|
|
|
|
Net cash provided by changes in bank deposits
|
|
|
|
|
|
|
840
|
|
Net cash provided by changes in payables for collateral under
securities loaned and other transactions
|
|
|
5,576
|
|
|
|
|
|
Net cash provided by short-term debt issuances
|
|
|
|
|
|
|
2,098
|
|
Long-term debt issued, net of issuance costs
|
|
|
677
|
|
|
|
2,208
|
|
Collateral financing arrangements issued
|
|
|
|
|
|
|
105
|
|
Common stock issued to settle stock forward contracts
|
|
|
|
|
|
|
1,035
|
|
Cash provided by the effect of change in foreign currency
exchange rates
|
|
|
|
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
Total sources
|
|
|
12,004
|
|
|
|
6,370
|
|
|
|
|
|
|
|
|
|
|
Uses:
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
|
|
|
|
1,227
|
|
Net cash used in investing activities
|
|
|
10,120
|
|
|
|
8,881
|
|
Net cash used for changes in policyholder account balances
|
|
|
|
|
|
|
626
|
|
Net cash used for changes in bank deposits
|
|
|
497
|
|
|
|
|
|
Net cash used for changes in payables for collateral under
securities loaned and other transactions
|
|
|
|
|
|
|
6,452
|
|
Net cash used for short-term debt repayments
|
|
|
33
|
|
|
|
|
|
Long-term debt repaid
|
|
|
511
|
|
|
|
134
|
|
Dividends on preferred stock
|
|
|
61
|
|
|
|
61
|
|
Net cash used in other, net
|
|
|
113
|
|
|
|
15
|
|
Cash used in the effect of change in foreign currency exchange
rates
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total uses
|
|
|
11,414
|
|
|
|
17,396
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
590
|
|
|
$
|
(11,026
|
)
|
|
|
|
|
|
|
|
|
|
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.
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
volatility. The Company closely monitors and manages these risks
through its credit risk management process.
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
183
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, 2010 and December 31,
2009, the Company had $170.6 billion and
$158.4 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
Invested Assets on Deposit, Held in Trust and Pledged as
Collateral.
Global Funding Sources. Liquidity is also
provided by a variety of short-term instruments, including
funding agreements and commercial paper. Capital is provided by
a variety of instruments, including medium- and long-term debt,
junior subordinated debt securities, capital securities and
equity securities. The diversity of the Companys funding
sources enhances funding flexibility, limits dependence on any
one source of funds and generally lowers the cost of funds. The
Companys global funding sources are set forth below:
|
|
|
|
|
The Holding Company and MetLife Funding, Inc. (MetLife
Funding) each have commercial paper programs supported by
our $2.85 billion general corporate credit facility.
MetLife Funding, a subsidiary of MLIC, serves as a centralized
finance unit for the Company. Pursuant to a support agreement,
MLIC has agreed to cause MetLife Funding to have a tangible net
worth of at least one dollar. At both June 30, 2010 and
December 31, 2009, MetLife Funding had a tangible net worth
of $12 million. MetLife Funding raises cash from various
funding sources and uses the proceeds to extend loans, through
MetLife Credit Corp., another subsidiary of MLIC, to the Holding
Company, MLIC and other affiliates in order to enhance the
financial flexibility and liquidity of these companies. At
June 30, 2010 and December 31, 2009, MetLife Funding
had total outstanding liabilities for its commercial paper
program, including accrued interest payable, of
$304 million and $319 million, respectively.
|
|
|
|
MetLife Bank is a depository institution that is approved to use
the Federal Reserve Bank of New York Discount Window borrowing
privileges and participate in the Federal Reserve Bank of New
York Term Auction Facility. To utilize these facilities, MetLife
Bank has pledged qualifying loans and investment securities to
the Federal Reserve Bank of New York as collateral. At both
June 30, 2010 and December 31, 2009, MetLife Bank had
no liability for advances from the Federal Reserve Bank of New
York under these facilities.
|
|
|
|
As a member of the FHLB of NY, MetLife Bank has received
advances from the FHLB of NY on both short- and long-term bases,
with a total liability of $2.9 billion and
$2.4 billion at June 30, 2010 and December 31,
2009, respectively.
|
|
|
|
In addition, the Company had obligations under funding
agreements with the FHLB of NY of $12.0 billion and
$13.7 billion at June 30, 2010 and December 31,
2009, respectively, for MLIC and with the FHLB of Boston of
$100 million and $326 million at June 30, 2010
and December 31, 2009, respectively, for MetLife Insurance
Company of Connecticut (MICC). See Note 8 of
the Notes to the Consolidated Financial Statements included in
the 2009 Annual Report.
|
|
|
|
The Holding Company and MetLife Bank elected to participate in
the debt guarantee component of the FDICs Temporary
Liquidity Guarantee Program (the FDIC Program). On
March 26, 2009, the Holding Company issued
$397 million of floating-rate senior notes due June 2012
under the FDIC Program, representing all of the Holding
Companys capacity under the FDIC Program. MetLife Bank let
its capacity to issue up to $178 million of guaranteed debt
under the FDIC Program expire unused when the program ended on
October 31, 2009.
|
Outstanding Debt. The following table
summarizes the outstanding debt of the Company at:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
(In millions)
|
|
|
Short-term debt
|
|
$
|
879
|
|
|
$
|
912
|
|
Long-term debt (1)
|
|
$
|
13,460
|
|
|
$
|
13,156
|
|
Collateral financing arrangements
|
|
$
|
5,297
|
|
|
$
|
5,297
|
|
Junior subordinated debt securities
|
|
$
|
3,191
|
|
|
$
|
3,191
|
|
184
|
|
|
(1) |
|
Excludes $7,187 million and $64 million at
June 30, 2010 and December 31, 2009, respectively, of
long-term debt relating to variable interest entities. See
Note 3 of the Notes to the Interim Condensed Consolidated
Financial Statements. |
Credit and Committed Facilities. The Company
maintains unsecured credit facilities and committed facilities,
which aggregated $3.2 billion and $12.8 billion,
respectively, at June 30, 2010. When drawn upon, these
facilities bear interest at varying rates in accordance with the
respective agreements.
Information on the unsecured credit facilities used for general
corporate purposes is as follows at June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Letter of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit
|
|
|
|
|
|
Unused
|
|
Borrower(s)
|
|
Expiration
|
|
Capacity
|
|
|
Issuances
|
|
|
Drawdowns
|
|
|
Commitments
|
|
|
|
|
|
(In millions)
|
|
|
MetLife, Inc. and MetLife Funding, Inc.
|
|
June 2012 (1)
|
|
$
|
2,850
|
|
|
$
|
65
|
|
|
$
|
|
|
|
$
|
2,785
|
|
MetLife Bank, N.A
|
|
August 2010
|
|
|
300
|
|
|
|
|
|
|
|
|
|
|
|
300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
3,150
|
|
|
$
|
65
|
|
|
$
|
|
|
|
$
|
3,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
Information on the committed facilities used for collateral for
certain of the Companys affiliated reinsurance liabilities
is as follows at June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Letter of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit
|
|
|
|
|
|
Unused
|
|
|
Maturity
|
|
Account Party/Borrower(s)
|
|
Expiration
|
|
Capacity
|
|
|
Issuances
|
|
|
Drawdowns
|
|
|
Commitments
|
|
|
(Years)
|
|
|
|
|
|
(In millions)
|
|
|
MetLife, Inc.
|
|
August 2010
|
|
$
|
300
|
|
|
$
|
300
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
MetLife, Inc.
|
|
December 2010
|
|
|
1,500
|
|
|
|
872
|
|
|
|
|
|
|
|
628
|
|
|
|
|
|
Exeter Reassurance Company Ltd., MetLife, Inc., & Missouri
Reinsurance (Barbados), Inc.
|
|
June 2016 (1)
|
|
|
500
|
|
|
|
490
|
|
|
|
|
|
|
|
10
|
|
|
|
6
|
|
Exeter Reassurance Company Ltd.
|
|
December 2027 (2)
|
|
|
650
|
|
|
|
490
|
|
|
|
|
|
|
|
160
|
|
|
|
17
|
|
MetLife Reinsurance Company of South Carolina &
MetLife, Inc.
|
|
June 2037
|
|
|
3,500
|
|
|
|
|
|
|
|
2,797
|
|
|
|
703
|
|
|
|
27
|
|
MetLife Reinsurance Company of Vermont & MetLife,
Inc.
|
|
December 2037 (2)
|
|
|
2,896
|
|
|
|
1,543
|
|
|
|
|
|
|
|
1,353
|
|
|
|
27
|
|
MetLife Reinsurance Company of Vermont & MetLife,
Inc.
|
|
September 2038 (2)
|
|
|
3,500
|
|
|
|
1,774
|
|
|
|
|
|
|
|
1,726
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
12,846
|
|
|
$
|
5,469
|
|
|
$
|
2,797
|
|
|
$
|
4,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Letters of credit and replacements or renewals thereof issued
under this facility of $280 million, $10 million and
$200 million are set to expire no later than December 2015,
March 2016 and June 2016, respectively. |
|
(2) |
|
The Holding Company is a guarantor under this agreement. |
Concurrently with the entry into the Stock Purchase Agreement,
the Holding Company signed a commitment letter (amended and
restated on March 16, 2010) with various financial
institutions for a senior credit facility in an aggregate
principal amount of up to $5.0 billion. The senior credit
facility will be used to finance any portion of the cash
component of the purchase price of the Alico transaction that is
not financed with sales of the Companys securities. See
Liquidity and Capital Resources
Overview.
185
We have no reason to believe that our lending counterparties
will be unable to fulfill their respective contractual
obligations under these facilities. As commitments associated
with letters of credit and financing arrangements may expire
unused, these amounts do not necessarily reflect the
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 was in compliance with all
covenants at June 30, 2010 and December 31, 2009.
Common Stock. During the six months ended
June 30, 2010, the Holding Company issued 1,231,140 new
shares of its common stock for $44 million, and
332,121 shares of common stock from treasury stock for
consideration of $18 million, to satisfy various stock
option exercises.
Liquidity
and Capital Uses
Debt Repayments. During the six months ended
June 30, 2010 and 2009, MetLife Bank made repayments of
$169 million and $120 million, respectively, to the
FHLB of NY related to long-term borrowings. During the six
months ended June 30, 2010 and 2009, MetLife Bank made
repayments to the FHLB of NY related to short-term borrowings of
$2.4 billion and $16.0 billion, respectively. During
the six months ended June 30, 2009, MetLife Bank made
repayments related to short-term borrowings to the Federal
Reserve Bank of New York of $8.1 billion. No repayments
were made to the Federal Reserve Bank of New York during the six
months ended June 30, 2010. During the six months ended
June 30, 2009, MICC made repayments of $300 million to
the FHLB of Boston related to short-term borrowings. No
repayments were made to the FHLB of Boston during the six months
ended June 30, 2010.
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. For annuity or deposit type
products, surrender or lapse product behavior differs somewhat
by segment. In the Retirement Products segment, which includes
individual annuities, lapses and surrenders tend to occur in the
normal course of business. During the six months ended
June 30, 2010 and 2009, general account surrenders and
withdrawals from annuity products were $1,681 million and
$2,336 million, respectively. In the Corporate Benefit
Funding segment, which includes pension closeouts, bank owned
life insurance and other fixed annuity contracts, as well as
funding agreements and other capital market products (including
funding agreements with the FHLB of NY and the FHLB of Boston),
most of the products offered have fixed maturities or fairly
predictable surrenders or withdrawals. With regard to Corporate
Benefit Funding liabilities that provide customers with limited
liquidity rights, at June 30, 2010 there were
$1,606 million of funding agreements and other capital
market products that could be put back to the Company after a
period of notice. Of these liabilities, $1,565 million were
subject to notice periods between 15 and 90 days. The
remainder of the balance was subject to a notice period of
6 months. An additional $438 million of Corporate
Benefit Funding liabilities were subject to credit ratings
downgrade triggers that permit early termination subject to a
notice period of 90 days.
Dividends. Common stock dividend decisions are
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. The payment of
dividends and other distributions to the Holding Company by its
insurance subsidiaries is regulated by insurance laws and
regulations.
186
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 6.500% Non-Cumulative Preferred Stock,
Series B is as follows for the six months ended
June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 17, 2010
|
|
May 31, 2010
|
|
June 15, 2010
|
|
$
|
0.2555555
|
|
|
$
|
7
|
|
|
$
|
0.4062500
|
|
|
$
|
24
|
|
March 5, 2010
|
|
February 28, 2010
|
|
March 15, 2010
|
|
$
|
0.2500000
|
|
|
|
6
|
|
|
$
|
0.4062500
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13
|
|
|
|
|
|
|
$
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Mortgage Loans
Held-for-Sale. At
June 30, 2010, the Company held $2,650 million in
residential mortgage loans
held-for-sale,
compared with $2,728 million at December 31, 2009, a
decrease of $78 million. From time to time, MetLife Bank
has an increased cash need to fund mortgage loans that it
generally holds for a relatively short period before selling
them to one of the government-sponsored enterprises such as FNMA
or FHLMC. To meet these increased funding requirements, as well
as to increase overall liquidity, MetLife Bank takes advantage
of collateralized borrowing opportunities with the Federal
Reserve Bank of New York and the FHLB of NY. For further detail
on MetLife Banks use of these funding sources, see
The Company Liquidity and Capital
Sources Global Funding Sources.
Investment and Other. Additional cash outflows
include those related to obligations of securities lending
activities, investments in real estate, limited partnerships and
joint ventures, as well as litigation-related liabilities. Also,
the Company pledges collateral to, and has collateral pledged to
it by, counterparties under the Companys current
derivative transactions. With respect to derivative transactions
with credit ratings downgrade triggers, a two-notch downgrade
would have increased the Companys derivative collateral
requirements by $117 million at June 30, 2010. In
addition, the Company has pledged collateral and has had
collateral pledged to it, and may be required from time to time
to pledge additional collateral or be entitled to have
additional collateral pledged to it, in connection with
collateral financing arrangements related to the reinsurance of
closed block liabilities and universal life secondary guarantee
liabilities.
Securities Lending. The Company participates
in a securities lending program whereby blocks of securities,
which are included in fixed maturity securities and short-term
investments, are loaned to third parties, primarily brokerage
firms and commercial banks, and the Company receives cash
collateral from the borrower, which must be returned to the
borrower when the loaned securities are returned to the Company.
Under the Companys securities lending program, the Company
was liable for cash collateral under its control of
$24.3 billion and $21.5 billion at June 30, 2010
and December 31, 2009, respectively. Of these amounts,
$2.7 billion and $3.3 billion at June 30, 2010
and December 31, 2009, respectively, were on open terms,
meaning that the related loaned security could be returned to
the Company on the next business day upon return of cash
collateral. Of the $2.6 billion of estimated fair value of
the securities related to the cash collateral on open terms at
June 30, 2010, $2.0 billion were U.S. Treasury,
agency and government guaranteed securities which, if put to the
Company, can be immediately sold to satisfy the cash
requirements. See Investments
Securities Lending for further information.
Contractual Obligations. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and
Capital Resources The Company Liquidity
and Capital Uses Contractual Obligations in
the 2009 Annual Report for additional information on the
Companys contractual obligations.
On March 7, 2010, the Holding Company entered into the
Stock Purchase Agreement, pursuant to which the Holding Company
agreed to acquire all of the issued and outstanding capital
stock of Alico and Delaware American Life Insurance Company. See
Liquidity and Capital Resources
Overview.
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
187
provide, upon the occurrence of certain contingencies,
reinsurance for such entitys insurance liabilities. We
anticipate that in the event that these arrangements place
demands upon the Company, there will be sufficient liquidity and
capital to enable the Company to meet anticipated demands. See
Liquidity and Capital Resources
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, mortgage lending
bank, 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.
The
Holding Company
Capital
Restrictions and Limitations on Bank Holding Companies and
Financial Holding Companies. The Holding Company
and its insured depository institution subsidiary, MetLife Bank,
are subject to risk-based and leverage capital guidelines issued
by the federal banking regulatory agencies for banks and
financial holding companies. The federal banking regulatory
agencies are required by law to take specific prompt corrective
actions with respect to institutions that do not meet minimum
capital standards. At their most recently filed reports with the
federal banking regulatory agencies, the Holding Company and
MetLife Bank met the minimum capital standards as per federal
banking regulatory agencies with all of MetLife Banks
risk-based and leverage capital ratios meeting the federal
banking regulatory agencies well capitalized
standards and all of the Holding Companys risk-based and
leverage capital ratios meeting the adequately
capitalized standards.
Liquidity
and Capital Sources
Dividends from Subsidiaries. The Holding
Company relies in part on dividends from its subsidiaries to
meet its cash requirements. The Holding 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 end of the immediately preceding
calendar year and statutory net gain from operations for the
immediately preceding calendar year. Statutory accounting
practices, as prescribed by insurance regulators of various
states in which the Company conducts business, differ in certain
respects from accounting principles used in financial statements
prepared in conformity with GAAP. The significant differences
relate to the treatment of DAC, certain deferred income tax,
required investment liabilities, statutory reserve calculation
assumptions, goodwill and surplus notes. Management of the
Holding Company cannot provide assurances that the Holding
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:
|
|
|
|
|
|
|
2010
|
|
|
|
Permitted w/o
|
|
Company
|
|
Approval (1)
|
|
|
|
(In millions)
|
|
|
Metropolitan Life Insurance Company
|
|
$
|
1,262
|
|
MetLife Insurance Company of Connecticut
|
|
$
|
659
|
|
Metropolitan Tower Life Insurance Company
|
|
$
|
93
|
|
Metropolitan Property and Casualty Insurance Company
|
|
$
|
|
|
|
|
|
(1) |
|
Reflects dividend amounts that may be paid during 2010 without
prior regulatory approval. However, because dividend tests may
be based on dividends previously paid over rolling
12-month
periods, if paid before a specified date during 2010, some or
all of such dividends may require regulatory approval. None of
these available amounts have been paid as of June 30, 2010.
During the six months ended June 30, 2010, the Holding
Company received dividends of $54 million from other
subsidiaries, all of which represented returns of capital. |
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 both June 30, 2010 and December 31,
2009, the Holding Company had $3.8 billion in liquid
assets. In addition, the Holding Company has pledged collateral
and has had collateral pledged to it, and may be required from
time to time to pledge additional collateral or be entitled to
have additional collateral pledged to it. At June 30, 2010
and December 31, 2009, the Holding Company had pledged
$478 million and $289 million, respectively, of liquid
assets under collateral support agreements.
Global Funding Sources. Liquidity is also
provided by a variety of short-term instruments, including
commercial paper. Capital is provided by a variety of
instruments, including medium- and long-term debt, junior
subordinated debt securities, collateral financing arrangements,
capital securities and stockholders equity. The diversity
of the Holding Companys funding sources enhances funding
flexibility, 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.
The Holding Company has an effective shelf registration
statement. Subject to applicable regulatory restrictions or
approvals, the Holding Company may issue an unlimited amount of
debt and equity securities pursuant to this registration
statement. The terms of any offering will be established at the
time of the offering.
We continuously monitor and adjust our liquidity and capital
plans for the Holding Company and its subsidiaries in light of
changing requirements and market conditions.
Outstanding Debt. The following table
summarizes the outstanding debt of the Holding Company at:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
(In millions)
|
|
|
Long-term debt unaffiliated
|
|
$
|
10,372
|
|
|
$
|
10,458
|
|
Long-term debt affiliated
|
|
$
|
500
|
|
|
$
|
500
|
|
Collateral financing arrangements
|
|
$
|
2,797
|
|
|
$
|
2,797
|
|
Junior subordinated debt securities
|
|
$
|
1,748
|
|
|
$
|
1,748
|
|
Credit and Committed Facilities. The Holding
Company, along with MetLife Funding, maintains a
$2.85 billion unsecured credit facility, as amended in
2008, the proceeds of which are available to be used for general
corporate purposes. At June 30, 2010, the Holding Company
had outstanding $65 million in letters of credit and no
drawdowns against this facility. Remaining unused commitments
were $2.8 billion at June 30, 2010.
189
The Holding Company maintains committed facilities with a
capacity of $1.8 billion. At June 30, 2010, the
Holding Company had outstanding $1.2 billion in letters of
credit and no drawdowns against these facilities. Remaining
unused commitments were $628 million at June 30, 2010.
In addition, the Holding Company is a party to committed
facilities of certain of its subsidiaries, which aggregated
$11.0 billion at June 30, 2010. The committed
facilities are used as collateral for certain of the
Companys affiliated reinsurance liabilities.
See The Company Liquidity and
Capital Sources Credit and Committed
Facilities for further detail on these facilities.
Concurrently with the entry into the Stock Purchase Agreement,
the Holding Company signed a commitment letter (amended and
restated on March 16, 2010) with various financial
institutions for a senior credit facility in an aggregate
principal amount of up to $5.0 billion. The senior credit
facility will be used to finance any portion of the cash
component of the purchase price of the Alico transaction that is
not financed with sales of the Companys securities. See
Liquidity and Capital Resources
Overview.
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 was in
compliance with all covenants at June 30, 2010 and
December 31, 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 and acquisitions. Based on our analysis and
comparison of our current and future cash inflows from the
dividends we receive from subsidiaries that are permitted to be
paid without prior insurance regulatory approval, our asset
portfolio and other cash flows and anticipated access to the
capital markets, we believe there will be sufficient liquidity
and capital to enable the Holding Company to make payments on
debt, make cash dividend payments on its common and preferred
stock, contribute capital to its subsidiaries, pay all operating
expenses and meet its cash needs.
Affiliated Capital Transactions. During the
six months ended June 30, 2010 and 2009, the Holding
Company invested an aggregate of $102 million and
$755 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, 2010
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
(In millions)
|
|
|
Metropolitan Life Insurance Company
|
|
6-month LIBOR + 1.80%
|
|
December 31, 2011
|
|
$
|
775
|
|
|
$
|
775
|
|
Metropolitan Life Insurance Company
|
|
6-month LIBOR + 1.80%
|
|
December 31, 2011
|
|
|
300
|
|
|
|
300
|
|
Metropolitan Life Insurance Company
|
|
7.13%
|
|
December 15, 2032
|
|
|
400
|
|
|
|
400
|
|
Metropolitan Life Insurance Company
|
|
7.13%
|
|
January 15, 2033
|
|
|
100
|
|
|
|
100
|
|
MetLife Chile Seguros De Vida S.A.
|
|
6-month LIBOR + 2.73%
|
|
April 28, 2015
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
1,620
|
|
|
$
|
1,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt Repayments. None of the Holding
Companys debt is due before December 2011, so there is no
near-term debt refinancing risk.
Support Agreements. The Holding Company has
guaranteed the obligations of its subsidiary, Missouri
Reinsurance (Barbados) Inc. (MoRe), under a
retrocession agreement with RGA Reinsurance (Barbados) Inc.,
pursuant to which MoRe retrocedes certain group term life
insurance issued by MLIC. For further information on support
agreements entered into by the Holding Company, see
The Company Liquidity and Capital
Uses Support Agreements and
Managements Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and
Capital Resources The Holding Company
Liquidity and Capital Uses Support Agreements
in the 2009 Annual Report.
190
Adoption
of New Accounting Pronouncements
See Adoption of New Accounting Pronouncements in
Note 1 of the Notes to the Interim Condensed Consolidated
Financial Statements.
Future
Adoption of New Accounting Pronouncements
See Future Adoption of New Accounting Pronouncements
in Note 1 of the Notes to the Interim Condensed
Consolidated Financial Statements.
|
|
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 values 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. Further enhancing its committee
structure, during the second quarter of 2010, MetLife created an
Enterprise Risk Committee made up of the following voting
members: the Chief Financial Officer, the Chief Investment
Officer, the President of U.S. Business, the President of
International Business and the Chief Risk Officer. This
committee is responsible for reviewing all material risks to the
enterprise and deciding on actions if necessary, in the event
risks exceed desirable targets, taking into consideration best
practices to resolve or mitigate those risks.
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;
|
|
|
|
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.
|
Asset/Liability Management. 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
191
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 ALM 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.
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 on
variable annuities with guaranteed minimum benefits which have
the same type of interest rate exposure (medium- and long-term
interest rates) as fixed maturity securities. The Company
employs product design, pricing and asset/liability management
strategies to reduce the adverse effects of interest rate
movements. Product design and pricing strategies include the use
of surrender charges or restrictions on withdrawals in some
products and the ability to reset credited rates for certain
products. Asset/liability management strategies include the use
of derivatives and duration mismatch limits. See Risk
Factors Changes in Market Interest Rates May
Significantly Affect Our Profitability.
Foreign Currency Exchange Rates. The
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
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 and the
Canadian dollar. The principal currencies that create foreign
currency exchange risk in the Companys liabilities are the
British pound, the Euro and the Swiss franc. Selectively, the
Company uses U.S. dollar assets to support certain long
duration foreign currency liabilities. Through its investments
in foreign subsidiaries and joint ventures, the Company is
primarily exposed to the Mexican peso, the Japanese yen, the
South Korean won, the Canadian dollar, the British pound, the
Chilean peso, the Australian dollar, the Argentine peso and the
Hong Kong dollar. In addition to hedging with foreign currency
swaps, forwards and options, local surplus in some countries is
held entirely or in part in U.S. dollar assets which
further minimizes exposure to foreign currency exchange rate
fluctuation risk. The Company has matched much of its foreign
currency liabilities in its foreign subsidiaries with their
respective foreign currency assets, thereby reducing its risk to
foreign currency exchange rate fluctuation.
Equity Prices. The Company has exposure to
equity prices through certain liabilities that involve long-term
guarantees on equity performance such as net embedded
derivatives on variable annuities with guaranteed minimum
benefits, certain policyholder account balances along with
investments in equity securities. We manage this risk on an
integrated basis with other risks through our asset/liability
management strategies including the dynamic hedging of certain
variable annuity guarantee benefits. The Company also manages
equity price risk incurred in its investment portfolio through
the use of derivatives. Equity exposures associated with other
limited partnership interests are excluded from this section as
they are not considered financial instruments under GAAP.
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.
192
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.
|
|
|
|
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 and equity securities. These derivatives include
exchange-traded equity futures, equity index options contracts
and equity variance swaps. 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
193
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 Guarantee Benefits The
Company uses a wide range of derivative contracts to hedge the
risk associated with variable annuity living guarantee benefits.
These hedges include equity and interest rate futures, interest
rate swaps, currency futures/forwards, equity indexed options
and interest rate option contracts and equity variance swaps.
|
|
|
|
Minimum Interest Rate Guarantees For certain Company
liability contracts, the Company provides the contractholder a
guaranteed minimum interest rate. These contracts include
certain fixed annuities and other insurance liabilities. The
Company purchases interest rate floors to reduce risk associated
with these liability guarantees.
|
|
|
|
Reinvestment Risk in Long Duration Liability
Contracts Derivatives are used to hedge interest
rate risk related to certain long duration liability contracts,
such as long-term care. Hedges include zero coupon interest rate
swaps and swaptions.
|
|
|
|
Foreign Currency Risk The Company uses currency
swaps and forwards to hedge foreign currency risk. These hedges
primarily swap foreign currency denominated bonds, investments
in foreign subsidiaries or equity exposures to U.S. 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, 2010. The sensitivity analysis
separately calculates each of the Companys market risk
exposures (interest rate, equity price and foreign currency
exchange rate) relating to its trading and non trading assets
and liabilities. The Company modeled the impact of changes in
market rates and prices on the estimated fair values of its
market sensitive assets and liabilities as follows:
|
|
|
|
|
the net present values of its interest rate sensitive exposures
resulting from a 10% change (increase or decrease) in interest
rates;
|
|
|
|
the U.S. dollar equivalent estimated fair values of the
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;
|
|
|
|
for the derivatives that qualify as hedges, the impact on
reported earnings may be materially different from the change in
market values;
|
194
|
|
|
|
|
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, 2010:
|
|
|
|
|
|
|
June 30, 2010
|
|
|
|
(In millions)
|
|
|
Non-trading:
|
|
|
|
|
Interest rate risk
|
|
$
|
3,905
|
|
Foreign currency exchange rate risk
|
|
$
|
827
|
|
Equity price risk
|
|
$
|
35
|
|
Trading:
|
|
|
|
|
Interest rate risk
|
|
$
|
5
|
|
Foreign currency exchange rate risk
|
|
$
|
137
|
|
195
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, 2010 by type of asset or liability:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
|
|
|
|
|
|
|
Assuming a
|
|
|
|
|
|
|
Estimated
|
|
|
10% Increase
|
|
|
|
Notional
|
|
|
Fair
|
|
|
in the Yield
|
|
|
|
Amount
|
|
|
Value (3)
|
|
|
Curve
|
|
|
|
(In millions)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
|
|
|
|
$
|
246,348
|
|
|
$
|
(4,250
|
)
|
Equity securities
|
|
|
|
|
|
|
2,741
|
|
|
|
|
|
Trading securities
|
|
|
|
|
|
|
3,158
|
|
|
|
(6
|
)
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-for-investment
|
|
|
|
|
|
|
57,167
|
|
|
|
(286
|
)
|
Held-for-sale
|
|
|
|
|
|
|
2,655
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans, net
|
|
|
|
|
|
|
59,822
|
|
|
|
(291
|
)
|
Policy loans
|
|
|
|
|
|
|
11,926
|
|
|
|
(174
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate joint ventures (1)
|
|
|
|
|
|
|
121
|
|
|
|
|
|
Other limited partnership interests (1)
|
|
|
|
|
|
|
1,746
|
|
|
|
|
|
Short-term investments
|
|
|
|
|
|
|
9,746
|
|
|
|
(1
|
)
|
Other invested assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights
|
|
|
|
|
|
|
660
|
|
|
|
71
|
|
Other
|
|
|
|
|
|
|
864
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
10,702
|
|
|
|
|
|
Accrued investment income
|
|
|
|
|
|
|
3,249
|
|
|
|
|
|
Premiums, reinsurance and other receivables
|
|
|
|
|
|
|
3,904
|
|
|
|
(358
|
)
|
Other assets
|
|
|
|
|
|
|
386
|
|
|
|
(10
|
)
|
Net embedded derivatives within asset host contracts (2)
|
|
|
|
|
|
|
124
|
|
|
|
(17
|
)
|
Mortgage loan commitments
|
|
$
|
2,705
|
|
|
|
(2
|
)
|
|
|
(3
|
)
|
Commitments to fund bank credit facilities, bridge loans and
private corporate bond investments
|
|
$
|
2,329
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
|
|
|
|
|
|
|
$
|
(5,039
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder account balances
|
|
|
|
|
|
$
|
101,652
|
|
|
$
|
637
|
|
Payables for collateral under securities loaned and other
transactions
|
|
|
|
|
|
|
29,772
|
|
|
|
|
|
Bank deposits
|
|
|
|
|
|
|
9,857
|
|
|
|
3
|
|
Short-term debt
|
|
|
|
|
|
|
879
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
21,351
|
|
|
|
230
|
|
Collateral financing arrangements
|
|
|
|
|
|
|
2,384
|
|
|
|
(18
|
)
|
Junior subordinated debt securities
|
|
|
|
|
|
|
3,169
|
|
|
|
133
|
|
Other liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading liabilities
|
|
|
|
|
|
|
47
|
|
|
|
1
|
|
Other
|
|
|
|
|
|
|
2,602
|
|
|
|
|
|
Net embedded derivatives within liability host contracts (2)
|
|
|
|
|
|
|
3,386
|
|
|
|
1,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
|
|
|
|
|
|
|
$
|
2,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
43,142
|
|
|
$
|
2,504
|
|
|
$
|
(925
|
)
|
Interest rate floors
|
|
$
|
24,191
|
|
|
|
695
|
|
|
|
(87
|
)
|
Interest rate caps
|
|
$
|
30,266
|
|
|
|
91
|
|
|
|
35
|
|
Interest rate futures
|
|
$
|
7,441
|
|
|
|
14
|
|
|
|
(19
|
)
|
Interest rate options
|
|
$
|
2,192
|
|
|
|
24
|
|
|
|
(5
|
)
|
Interest rate forwards
|
|
$
|
9,526
|
|
|
|
(26
|
)
|
|
|
9
|
|
Synthetic GICs
|
|
$
|
4,343
|
|
|
|
|
|
|
|
|
|
Foreign currency swaps
|
|
$
|
17,388
|
|
|
|
535
|
|
|
|
(20
|
)
|
Foreign currency forwards
|
|
$
|
7,774
|
|
|
|
213
|
|
|
|
1
|
|
Currency options
|
|
$
|
398
|
|
|
|
37
|
|
|
|
|
|
Non-derivative hedging instruments
|
|
$
|
169
|
|
|
|
(169
|
)
|
|
|
|
|
Credit default swaps
|
|
$
|
7,456
|
|
|
|
(21
|
)
|
|
|
|
|
Credit forwards
|
|
$
|
180
|
|
|
|
12
|
|
|
|
|
|
Equity futures
|
|
$
|
8,957
|
|
|
|
58
|
|
|
|
|
|
Equity options
|
|
$
|
31,598
|
|
|
|
1,942
|
|
|
|
(84
|
)
|
Variance swaps
|
|
$
|
16,883
|
|
|
|
467
|
|
|
|
(17
|
)
|
Total rate of return swaps
|
|
$
|
1,025
|
|
|
|
(67
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivative Instruments
|
|
|
|
|
|
|
|
|
|
$
|
(1,117
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change
|
|
|
|
|
|
|
|
|
|
$
|
(3,910
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
196
|
|
|
(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
$147 million, or 4%, to $3,910 million at
June 30, 2010 from $4,057 million at December 31,
2009. The decrease in interest rate risk was partially
attributed to a decrease in interest rates across the long end
of the Swaps and U.S. Treasury curves resulting in a
decrease of $770 million. Additionally, net embedded
derivatives within liability host contracts increased by $266
million, partially due to a change made in the second quarter of
2010 related to how the Company estimates the spread over the
swap curve for purposes of determining the discount rate used to
value those derivatives, which caused a corresponding decrease
in risk. This decrease in risk was partially offset by a change
in the net assets and liabilities bases of $394 million. In
addition, an offset of $491 million was due to the use of
derivatives employed by the Company ($155 million), an
increase in premiums and receivables ($147 million), a
decrease in long term debt ($128 million) and an increase
in the duration of the investment portfolio ($61 million).
The remainder of the fluctuation is attributable to numerous
immaterial items.
197
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, 2010 by type of asset or
liability:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
|
|
|
|
|
|
|
Assuming a
|
|
|
|
|
|
|
Estimated
|
|
|
10% Increase
|
|
|
|
Notional
|
|
|
Fair
|
|
|
in the Foreign
|
|
|
|
Amount
|
|
|
Value (1)
|
|
|
Exchange Rate
|
|
|
|
(In millions)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
|
|
|
|
$
|
246,348
|
|
|
$
|
(2,196
|
)
|
Equity securities
|
|
|
|
|
|
|
2,741
|
|
|
|
(5
|
)
|
Trading securities
|
|
|
|
|
|
|
3,158
|
|
|
|
(137
|
)
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-for-investment
|
|
|
|
|
|
|
57,167
|
|
|
|
(311
|
)
|
Held-for-sale
|
|
|
|
|
|
|
2,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans, net
|
|
|
|
|
|
|
59,822
|
|
|
|
(311
|
)
|
Policy loans
|
|
|
|
|
|
|
11,926
|
|
|
|
(40
|
)
|
Short-term investments
|
|
|
|
|
|
|
9,746
|
|
|
|
(46
|
)
|
Other invested assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights
|
|
|
|
|
|
|
660
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
864
|
|
|
|
(46
|
)
|
Cash and cash equivalents
|
|
|
|
|
|
|
10,702
|
|
|
|
(105
|
)
|
Accrued investment income
|
|
|
|
|
|
|
3,249
|
|
|
|
(8
|
)
|
Premiums, reinsurance and other receivables
|
|
|
|
|
|
|
3,904
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
|
|
|
|
|
|
|
$
|
(2,896
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder account balances
|
|
|
|
|
|
$
|
101,652
|
|
|
$
|
1,206
|
|
Bank deposits
|
|
|
|
|
|
|
9,857
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
21,351
|
|
|
|
37
|
|
Net embedded derivatives within liability host contracts (2)
|
|
|
|
|
|
|
3,386
|
|
|
|
342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
|
|
|
|
|
|
|
$
|
1,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
43,142
|
|
|
$
|
2,504
|
|
|
$
|
(11
|
)
|
Interest rate floors
|
|
$
|
24,191
|
|
|
|
695
|
|
|
|
|
|
Interest rate caps
|
|
$
|
30,266
|
|
|
|
91
|
|
|
|
|
|
Interest rate futures
|
|
$
|
7,441
|
|
|
|
14
|
|
|
|
(4
|
)
|
Interest rate options
|
|
$
|
2,192
|
|
|
|
24
|
|
|
|
|
|
Interest rate forwards
|
|
$
|
9,526
|
|
|
|
(26
|
)
|
|
|
|
|
Synthetic GICs
|
|
$
|
4,343
|
|
|
|
|
|
|
|
|
|
Foreign currency swaps
|
|
$
|
17,388
|
|
|
|
535
|
|
|
|
212
|
|
Foreign currency forwards
|
|
$
|
7,774
|
|
|
|
213
|
|
|
|
248
|
|
Currency options
|
|
$
|
398
|
|
|
|
37
|
|
|
|
5
|
|
Non-derivative hedging instruments
|
|
$
|
169
|
|
|
|
(169
|
)
|
|
|
|
|
Credit default swaps
|
|
$
|
7,456
|
|
|
|
(21
|
)
|
|
|
|
|
Credit forwards
|
|
$
|
180
|
|
|
|
12
|
|
|
|
|
|
Equity futures
|
|
$
|
8,957
|
|
|
|
58
|
|
|
|
(2
|
)
|
Equity options
|
|
$
|
31,598
|
|
|
|
1,942
|
|
|
|
(99
|
)
|
Variance swaps
|
|
$
|
16,883
|
|
|
|
467
|
|
|
|
(2
|
)
|
Total rate of return swaps
|
|
$
|
1,025
|
|
|
|
(67
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivative Instruments
|
|
|
|
|
|
|
|
|
|
$
|
347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change
|
|
|
|
|
|
|
|
|
|
$
|
(964
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
$73 million, or 8%, to $964 million at June 30,
2010 from $891 million at December 31, 2009. This
change was due to an increase in exchange rate risk relating to
fixed maturity securities of $180 million due to higher
exposures primarily within the British pound and the Euro.
Additionally, a decrease in the foreign exposure related to
policyholder account balances and long-term debt contributed
$70 million and $66 million, respectively, to the
increase. This was partially offset by an increase in the
foreign exposure related to net embedded derivatives within
liability host contracts of $220 million. The remainder of
the fluctuation is attributable to numerous immaterial items.
198
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, 2010 by type of asset or
liability:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
|
|
|
|
|
|
|
Assuming a
|
|
|
|
|
|
|
Estimated
|
|
|
10% Decrease
|
|
|
|
Notional
|
|
|
Fair
|
|
|
in Equity
|
|
|
|
Amount
|
|
|
Value (1)
|
|
|
Prices
|
|
|
|
(In millions)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
|
|
|
$
|
2,741
|
|
|
$
|
(328
|
)
|
Other invested assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net embedded derivatives within asset host contracts (2)
|
|
|
|
|
|
|
124
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
|
|
|
|
|
|
|
$
|
(315
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder account balances
|
|
|
|
|
|
$
|
101,652
|
|
|
$
|
|
|
Bank deposits
|
|
|
|
|
|
|
9,857
|
|
|
|
|
|
Other liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net embedded derivatives within liability host contracts (2)
|
|
|
|
|
|
|
3,386
|
|
|
|
(488
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
|
|
|
|
|
|
|
$
|
(488
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
43,142
|
|
|
$
|
2,504
|
|
|
$
|
|
|
Interest rate floors
|
|
$
|
24,191
|
|
|
|
695
|
|
|
|
|
|
Interest rate caps
|
|
$
|
30,266
|
|
|
|
91
|
|
|
|
|
|
Interest rate futures
|
|
$
|
7,441
|
|
|
|
14
|
|
|
|
|
|
Interest rate options
|
|
$
|
2,192
|
|
|
|
24
|
|
|
|
|
|
Interest rate forwards
|
|
$
|
9,526
|
|
|
|
(26
|
)
|
|
|
|
|
Synthetic GICs
|
|
$
|
4,343
|
|
|
|
|
|
|
|
|
|
Foreign currency swaps
|
|
$
|
17,388
|
|
|
|
535
|
|
|
|
|
|
Foreign currency forwards
|
|
$
|
7,774
|
|
|
|
213
|
|
|
|
|
|
Currency options
|
|
$
|
398
|
|
|
|
37
|
|
|
|
|
|
Credit default swaps
|
|
$
|
7,456
|
|
|
|
(21
|
)
|
|
|
|
|
Non-derivative hedging instruments
|
|
$
|
169
|
|
|
|
(169
|
)
|
|
|
|
|
Credit forwards
|
|
$
|
180
|
|
|
|
12
|
|
|
|
|
|
Equity futures
|
|
$
|
8,957
|
|
|
|
58
|
|
|
|
87
|
|
Equity options
|
|
$
|
31,598
|
|
|
|
1,942
|
|
|
|
634
|
|
Variance swaps
|
|
$
|
16,883
|
|
|
|
467
|
|
|
|
|
|
Total rate of return swaps
|
|
$
|
1,025
|
|
|
|
(67
|
)
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivative Instruments
|
|
|
|
|
|
|
|
|
|
$
|
768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change
|
|
|
|
|
|
|
|
|
|
$
|
(35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
199
|
|
|
(3) |
|
During the second quarter of 2010 the analysis of the impact of
a 10% change (increase or decrease) in equity market rates
determined that a decrease of 10% had the most adverse effect on
our equity risk while the prior year ends analysis of
equity market rates shows an increase of 10% had the most
adverse effect. |
Equity price risk decreased by $183 million to
$35 million at June 30, 2010 from $218 million at
December 31, 2009. This decrease is primarily due to a
change of $1,738 million attributed to the use of
derivatives employed by the Company to hedge its equity
exposures. This was partially offset by a decrease in the net
exposures related to net embedded derivatives within liability
host contracts of $902 million and a decrease of
$665 million in equity securities. 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)
as of the end of the period covered by this report. Based on
that evaluation, the Chief Executive Officer and Chief Financial
Officer have concluded that these disclosure controls and
procedures are effective.
There were no changes to the Companys internal control
over financial reporting as defined in Exchange Act
Rule 13a-15(f)
during the three months ended June 30, 2010 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 2009 Annual Report;
(ii) Part II, Item 1 of MetLifes Quarterly
Report on
Form 10-Q
for the quarter ended March 31, 2010; and
(iii) Note 8 of the Notes to the Interim Condensed
Consolidated Financial Statements in Part I of this report.
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 2009 Annual Report, MLIC received
approximately 3,910 asbestos-related claims in 2009. During the
six months ended June 30, 2010 and 2009, MLIC received
approximately 2,076 and 1,726 new asbestos-related claims,
respectively. See Note 16 of the Notes to the Consolidated
Financial Statements included in the 2009 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.
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, 2010.
Regulatory
Matters
The Environmental Protection Agency (EPA) issued
Notices of Violation in June 2008 and May 2010 (the
NOVs) to EME Homer City Generation LLC (EME
Homer City), Homer City OL6 LLC, and other respondents
regarding the operations of the Homer City Generating Station,
an electrical generation facility. Homer City OL6
200
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. The NOVs
allege, among other things, that the electrical generation
facility is being operated in violation of certain federal and
state Clean Air Act requirements. The NOVs identify the
injunctive, monetary and criminal penalties that a court may
impose if the EPA prosecutes actions for the specified
violations. On July 20, 2010, the State of New York and the
Pennsylvania Department of Environmental Protection notified
Homer City OL6 and other parties that they intend to bring an
action against the owners of the Homer City Generating Station
and other parties for alleged violations of the Clean Air Act.
The violations described in the July 20 notice are similar to
the violations that the NOVs describe. EME Homer City has
acknowledged its obligation to indemnify Homer City OL6 LLC for
any claims relating to the NOVs.
In July 2010, MetLife Securities, Inc. (MSI)
tentatively resolved two regulatory matters that had been
brought by the Illinois Department of Securities. MSI signed a
stipulation as to the first matter and a settlement agreement as
to the second matter with the Illinois Department of Securities.
In January 2008, MSI had received notice of the commencement of
an administrative action by the Illinois Department of
Securities asserting possible violations of the Illinois
Securities Act. In December 2008, MSI had received a Notice of
Hearing from the Illinois Department of Securities also
asserting possible violations of the Illinois Securities Act.
Retained
Asset Account Matters
MetLife offers as a settlement option under its individual and
group life insurance policies a retained asset account for death
benefit payments called a Total Control Account
(TCA). When a TCA is established for a beneficiary,
the Company retains the death benefit proceeds in the general
account and pays interest on those proceeds at a rate set by
reference to objective indices. Additionally, the accounts enjoy
a guaranteed minimum interest rate. Beneficiaries can withdraw
all of the funds or a portion of the funds held in the account
at any time.
The New York Attorney General recently announced that his office
had launched a major fraud investigation into the life insurance
industry for practices related to the use of retained asset
accounts and that subpoenas requesting comprehensive data
related to retained asset accounts have been served on MetLife
and other insurance carriers. We received the subpoena on
July 30, 2010. It is possible that other state and federal
regulators or legislative bodies may pursue similar
investigations or make related inquiries. We cannot predict what
effect any such investigations might have on our earnings or the
availability of the TCA, but we believe that our financial
statements taken as a whole would not be materially affected. We
believe that any allegations that information about the TCA is
not adequately disclosed or that the accounts are fraudulent or
otherwise violate state or federal laws are without merit.
MLIC is a defendant in lawsuits related to the TCA. The lawsuits
include claims of breach of contract, breach of a common law
fiduciary duty or a quasi-fiduciary duty such as a confidential
or special relationship, or breach of a fiduciary duty under
ERISA.
Clark, et al. v. Metropolitan Life Insurance Company (D.
Nev., filed March 28, 2008). This putative
class action lawsuit alleges breach of contract and breach of a
common law fiduciary
and/or
quasi-fiduciary duty arising from use of the TCA to pay life
insurance policy death benefits. As damages, plaintiffs seek
disgorgement of the difference between the interest paid to the
account holders and the investment earnings on the assets
backing the accounts. In March 2009, the court granted in part
and denied in part MLICs motion to dismiss,
dismissing the fiduciary duty and unjust enrichment claims but
allowing a breach of contract claim and a special or
confidential relationship claim to go forward. In December 2009,
MLIC filed a motion for summary judgment and plaintiff filed a
motion seeking class certification.
Faber, et al. v. Metropolitan Life Insurance Company (S.D.N.
Y., filed December 4, 2008). This putative
class action lawsuit alleges that MLICs use of the TCA as
the settlement option under group life insurance policies
violates MLICs fiduciary duties under ERISA. As damages,
plaintiffs seek disgorgement of the difference between the
interest paid to the account holders and the investment earnings
on the assets backing the accounts. On October 23, 2009,
the court granted MLICs motion to dismiss with prejudice.
On November 24, 2009, plaintiffs filed a Notice of Appeal
to the U.S. Court of Appeals for the Second Circuit.
201
Demutualization
Actions
The Company was a defendant in two lawsuits challenging the
fairness of the Plan and the adequacy and accuracy of
MLICs disclosure to policyholders regarding the Plan. The
plaintiffs in the consolidated state court class action,
Fiala, et al. v. Metropolitan Life Ins. Co., et al.
(Sup. Ct., N.Y. County, filed March 17, 2000), sought
compensatory relief and punitive damages against MLIC, the
Holding Company, and individual directors. The court certified a
litigation class of present and former policyholders on
plaintiffs claim that defendants violated
section 7312 of the New York Insurance Law. The plaintiffs
in the consolidated federal court class action, In re MetLife
Demutualization Litig. (E.D.N.Y., filed April 18, 2000),
sought rescission and compensatory damages against MLIC and
the Holding Company. Plaintiffs asserted violations of the
Securities Act of 1933 and the Securities Exchange Act of 1934
in connection with the Plan, claiming that the Policyholder
Information Booklets failed to disclose certain material facts
and contained certain material misstatements. The court
certified a litigation class of present and former
policyholders. The parties to these two lawsuits entered into a
settlement agreement in November 2009. The federal and state
courts respectively approved the settlement in orders issued on
February 12, 2010 and March 3, 2010. On March 2,
2010 and March 23, 2010, the federal and state courts
entered final judgments confirming their approval of the
settlement and dismissing the actions. On March 15, 2010,
an objector filed a notice of appeal of the federal courts
order approving the settlement. On June 28, 2010, the
United States Court of Appeals for the Second Circuit dismissed
the only notice of appeal filed with respect to the settlement.
Other
Litigation
Travelers Ins. Co., et al. v. Banc of America Securities
LLC (S.D.N.Y., filed December 13, 2001). On
January 6, 2009, after a jury trial, the district
court entered a judgment in favor of The Travelers Insurance
Company, now known as MetLife Insurance Company of Connecticut
(MICC), 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 July 20, 2010, the United
States Court of Appeals for the Second Circuit issued an order
affirming the district courts judgment in favor of MICC
and the district courts order denying defendants
post-trial motions. As a final judgment has not yet been entered
in MICCs favor and the Company has not collected any
portion of the judgment, the Company has not recognized any
award amount in its consolidated financial statements.
The American Dental Association, et al. v. MetLife Inc., et
al. (S.D. Fla., filed May 19, 2003). The
American Dental Association and three individual providers had
sued the Holding Company, MLIC and other non-affiliated
insurance companies in a putative class action lawsuit. The
plaintiffs purported to represent a nationwide class of
in-network
providers who alleged that their claims were being wrongfully
reduced by downcoding, bundling, and the improper use and
programming of software. The complaint alleged federal
racketeering and various state law theories of liability. All of
plaintiffs claims except for breach of contract claims
were dismissed with prejudice on March 2, 2009. By order
dated March 20, 2009, the district court declined to retain
jurisdiction over the remaining breach of contract claims and
dismissed the lawsuit. On April 17, 2009, plaintiffs filed
a notice of appeal from this order. On May 14, 2010, the
United States Court of Appeals for the Eleventh Circuit issued a
decision affirming the district courts dismissal of the
lawsuit.
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, mortgage lending bank, 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
202
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 amends and restates the factors that may affect
the Companys business or operations described under
Risk Factors in Part I, Item 1A, of the
2009 Annual Report, and the Risk Factors in
Part II, Item 1A, of the Companys Quarterly
Report on
Form 10-Q
for the quarter ended March 31, 2010.
Risks
Related to Our Business
The Alico Business is similar to our own business in many
respects, and the Acquisition will increase our exposure to many
of the risks described below.
Difficult Conditions in the Global Capital Markets and the
Economy Generally May Materially Adversely Affect Our Business
and Results of Operations and These Conditions May Not Improve
in the Near Future
Our business and results of operations are materially affected
by conditions in the global capital markets and the economy
generally, both in the United States and elsewhere around the
world. Stressed conditions, volatility and disruptions in global
capital markets or in particular markets or financial asset
classes can have an adverse effect on us, in part because we
have a large investment portfolio. Disruptions in one market or
asset class can also spread to other markets or asset classes.
Although the disruption in the global financial markets that
began in late 2007 has moderated, not all global financial
markets are functioning normally, and some remain reliant upon
government intervention and liquidity. Upheavals in the
financial markets can also affect our business through their
effects on general levels of economic activity, employment and
customer behavior. Although many economists believe the recent
recession ended in the third quarter of 2009, after a brief
rebound, the recovery has slowed, and the unemployment rate is
expected to remain high for some time. In addition, inflation
has fallen over the last several years and remains at very low
levels. Some economists believe that disinflation and deflation
risk remains in the economy. Our revenues are likely to remain
under pressure in such circumstances and our profit margins
could erode. Also, in the event of extreme prolonged market
events, such as the recent global credit crisis, we could incur
significant capital or operating losses. Even in the absence of
a market downturn, we are exposed to substantial risk of loss
due to market volatility.
We are a significant writer of variable annuity products. The
account values of these products decrease as a result of
downturns in capital markets. Decreases in account values reduce
the fees generated by our variable annuity products, cause the
amortization of deferred acquisition costs to accelerate and
could increase the level of liabilities we must carry to support
those variable annuities issued with any associated guarantees.
Factors such as consumer spending, business investment,
government spending, the volatility and strength of the capital
markets, and inflation all affect the business and economic
environment and, ultimately, the amount and profitability of our
business. In an economic downturn characterized by higher
unemployment, lower family income, lower corporate earnings,
lower business investment and lower consumer spending, the
demand for our financial and insurance products could be
adversely affected. Group insurance, in particular, is affected
by the higher unemployment rate. In addition, we may experience
an elevated incidence of claims and lapses or surrenders of
policies. Our policyholders may choose to defer paying insurance
premiums or stop paying insurance premiums altogether. Adverse
changes in the economy could affect earnings negatively and
could have a material adverse effect on our business, results of
operations and financial condition. The recent market turmoil
has precipitated, and may continue to raise the possibility of,
legislative, regulatory and governmental actions. We cannot
predict whether or when such actions may occur, or what impact,
if any, such actions could have on our business, results of
operations and financial condition. See
Actions of the U.S. Government, Federal
Reserve Bank of New York and Other Governmental and Regulatory
Bodies for the Purpose of Stabilizing and Revitalizing the
Financial Markets and Protecting Investors and Consumers May Not
Achieve the Intended Effect or Could Adversely Affect
MetLifes Competitive Position,
President Obama Recently Signed a Bill
Providing for Comprehensive Reform of Financial Services
Regulation in the United States, Various Aspects of Which Could
Impact Our
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Business Operations, Capital Requirements and Profitability and
Limit Our Growth, Our Insurance and
Banking Businesses Are Heavily Regulated, and Changes in
Regulation May Reduce Our Profitability and Limit Our
Growth and Competitive Factors May
Adversely Affect Our Market Share and Profitability.
Adverse Capital and Credit Market Conditions May
Significantly Affect Our Ability to Meet Liquidity Needs, Access
to Capital and Cost of Capital
The capital and credit markets are sometimes subject to periods
of extreme volatility and disruption. Such volatility and
disruption could cause liquidity and credit capacity for certain
issuers to be limited.
We need liquidity to pay our operating expenses, interest on our
debt and dividends on our capital stock, maintain our securities
lending activities and replace certain maturing liabilities.
Without sufficient liquidity, we will be forced to curtail our
operations, and our business will suffer. The principal sources
of our liquidity are insurance premiums, annuity considerations,
deposit funds, and cash flow from our investment portfolio and
assets, consisting mainly of cash or assets that are readily
convertible into cash. Sources of liquidity in normal markets
also include short-term instruments such as funding agreements
and commercial paper. Sources of capital in normal markets
include long-term instruments, medium- and long-term debt,
junior subordinated debt securities, capital securities and
equity securities.
In the event market or other conditions have an adverse impact
on our capital and liquidity beyond expectations and our current
resources do not satisfy our needs, we may have to seek
additional financing. The availability of additional financing
will depend on a variety of factors such as market conditions,
regulatory considerations, the general availability of credit,
the volume of trading activities, the overall availability of
credit to the financial services industry, our credit ratings
and credit capacity, as well as the possibility that customers
or lenders could develop a negative perception of our long- or
short-term financial prospects if we incur large investment
losses or if the level of our business activity decreases due to
a market downturn. Similarly, our access to funds may be
impaired if regulatory authorities or rating agencies take
negative actions against us. Our internal sources of liquidity
may prove to be insufficient and, in such case, we may not be
able to successfully obtain additional financing on favorable
terms, or at all.
Our liquidity requirements may change if, among other things, we
are required to return significant amounts of cash collateral on
short notice under securities lending agreements.
Disruptions, uncertainty or volatility in the capital and credit
markets may also limit our access to capital required to operate
our business, most significantly our insurance operations. Such
market conditions may limit our ability to replace, in a timely
manner, maturing liabilities; satisfy statutory capital
requirements; and access the capital necessary to grow our
business. As such, we may be forced to delay raising capital,
issue different types of securities than we would otherwise,
less effectively deploy such capital, issue shorter tenor
securities than we prefer, or bear an unattractive cost of
capital which could decrease our profitability and significantly
reduce our financial flexibility. Our results of operations,
financial condition, cash flows and statutory capital position
could be materially adversely affected by disruptions in the
financial markets.
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
The Emergency Economic Stabilization Act of 2008
(EESA) gave the U.S. Treasury the authority to,
among other things, purchase up to $700.0 billion of
securities (including newly issued preferred shares and
subordinated debt) from financial institutions for the purpose
of stabilizing the financial markets. The U.S. federal
government, the Federal Reserve Bank of New York, the FDIC and
other governmental and regulatory bodies also took other actions
to address the financial crisis. For example, the Federal
Reserve Bank of New York made funds available to commercial and
financial companies under a number of programs, including the
Commercial Paper Funding Facility, which expired in early 2010.
The U.S. Treasury 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. Although such actions appear to have provided some
stability to the financial markets, our business, financial
condition and results of operations and the trading price of
MetLife, Inc.s common stock could be materially and
adversely affected to the extent that credit availability and
prices for financial assets revert to their low levels of late
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2008 and early 2009 or do not improve further. These programs
have largely run their course or been discontinued. More likely
to be relevant to MetLife, Inc. are the monetary policy by the
Federal Reserve Board and the Dodd-Frank which was recently
signed by President Obama and will significantly change
financial regulation in the U.S. in a number of areas that
could affect MetLife. We cannot predict what impact, if any,
this could have on our business, results of operations and
financial condition.
It is not certain what effect the enactment of Dodd-Frank will
have on the financial markets, the availability of credit, asset
prices and MetLifes operations. See
President Obama Recently Signed a Bill
Providing for Comprehensive Reform of Financial Services
Regulation in the United States, Various Aspects of Which Could
Impact Our Business Operations, Capital Requirements and
Profitability and Limit Our Growth. Furthermore, Congress
has considered, and may consider in the future, legislative
proposals that could impact the estimated fair value of mortgage
loans, such as legislation that would permit bankruptcy courts
to rewrite the terms of a mortgage contract, including reducing
the principal balance of mortgage loans owed by bankrupt
borrowers, or legislation that requires loan modifications. If
such legislation is enacted, it could cause loss of principal on
certain of our non-agency prime residential mortgage-backed
security (RMBS) holdings and could cause a ratings
downgrade in such holdings which, in turn, would cause an
increase in unrealized losses on such securities and increase
the risk-based capital that we must hold to support such
securities. See We Are Exposed to Significant
Financial and Capital Markets Risk Which May Adversely Affect
Our Results of Operations, Financial Condition and Liquidity,
and Our Net Investment Income Can Vary from Period to
Period. In addition, the U.S. federal government
(including the FDIC) and private lenders have instituted
programs to reduce the monthly payment obligations of mortgagors
and/or
reduce the principal payable on residential mortgage loans. As a
result of such programs or of any legislation requiring loan
modifications, we may need to maintain or increase our
engagement in similar activities in order to comply with program
or statutory requirements and to remain competitive. We cannot
predict whether the funds made available by the
U.S. federal government and its agencies will be enough to
continue stabilizing or to further revive the financial markets
or, if additional amounts are necessary, whether Congress will
be willing to make the necessary appropriations, what the
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.
The choices made by the U.S. Treasury, the Federal Reserve
Board and the FDIC in their distribution of funds under EESA and
any future asset purchase programs, as well as any decisions
made regarding the imposition of additional regulation on large
financial institutions may have, over time, the effect of
supporting some aspects of the financial services industry more
than others. Some of our competitors have received, or may in
the future receive, benefits under one or more of the federal
governments programs. This could adversely affect our
competitive position. See Competitive Factors
May Adversely Affect Our Market Share and Profitability.
See also New and Impending Compensation and
Corporate Governance Regulations Could Hinder or Prevent Us From
Attracting and Retaining Management and Other Employees with the
Talent and Experience to Manage and Conduct Our Business
Effectively and Our Insurance and
Banking Businesses Are Heavily Regulated, and Changes in
Regulation May Reduce Our Profitability and Limit Our
Growth.
Our Insurance and Banking Businesses Are Heavily
Regulated, and Changes in Regulation May Reduce Our
Profitability and Limit Our Growth
Our insurance operations are subject to a wide variety of
insurance and other laws and regulations. See
Business Regulation Insurance
Regulation in the 2009 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 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 2009 Annual Report.
State insurance regulators and the NAIC regularly reexamine
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. Others have enacted
laws or proposed disclosure regulations which, under differing
circumstances, require disclosure of specific compensation
earned by a producer on the sale of an insurance or annuity
product. We cannot predict how many states may promulgate the
NAIC amendment or alternative regulations or the extent to which
these regulations may have a material adverse impact on our
business.
Currently, the U.S. federal government does not directly
regulate the business of insurance. However, federal legislation
and administrative policies in several areas can significantly
and adversely affect insurance companies. These areas include
financial services regulation, securities regulation, pension
regulation, health care regulation, privacy, tort reform
legislation and taxation. In addition, various forms of direct
and indirect federal regulation of insurance have been proposed
from time to time, including proposals for the establishment of
an optional federal charter for insurance companies. As part of
a comprehensive reform of financial services regulation,
Dodd-Frank creates an office within the federal government to
collect information about the insurance industry, recommend
prudential standards, and represent the United States in
dealings with foreign insurance regulators. Other aspects of our
insurance operations could also be affected by Dodd-Frank. For
example, Dodd-Frank imposes new restrictions on the ability of
affiliates of insured depository institutions (such as MetLife
Bank) to engage in proprietary trading or sponsor or invest in
hedge funds or private equity funds. See
President Obama Recently Signed a Bill
Providing for Comprehensive Reform of Financial Services
Regulation in the United States, Various Aspects of Which Could
Impact Our Business Operations, Capital Requirements and
Profitability and Limit Our Growth.
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As a federally chartered national association, MetLife Bank is
subject to a wide variety of banking laws, regulations and
guidelines. Federal banking laws regulate most aspects of the
business of MetLife Bank, but certain state laws may apply as
well. MetLife Bank is principally regulated by the OCC, the
Federal Reserve and the FDIC.
Federal banking laws and regulations address various aspects of
MetLife Banks business and operations with respect to,
among other things:
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chartering to carry on business as a bank;
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maintaining minimum capital ratios;
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capital management in relation to the banks assets;
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safety and soundness standards;
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loan loss and other related liabilities;
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liquidity;
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financial reporting and disclosure standards;
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counterparty credit concentration;
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restrictions on related party and affiliate transactions;
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lending limits (and, in addition, Dodd-Frank includes the credit
exposures arising from securities lending by MetLife Bank within
lending limits otherwise applicable to loans);
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payment of interest;
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unfair or deceptive acts or practices;
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privacy; and
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bank holding company and bank change of control.
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In addition, the ability of MetLife Bank to pay dividends could
be reduced by any additional capital requirements that might be
imposed as a result of the enactment of Dodd-Frank.
Furthermore, Dodd-Frank establishes a new Consumer Financial
Protection Bureau that would supervise and regulate institutions
providing certain financial products and services to consumers.
Although the consumer financial services to which this
legislation would apply would exclude certain insurance
business, the new Bureau would have authority to regulate
consumer services provided by MetLife Bank. Federal pre-emption
of state consumer protection laws applicable to banking services
would be significantly restricted under the bills, which would
increase the regulatory and compliance burden on MetLife Bank
and could adversely affect its business and results of
operations. Dodd-Frank also includes provisions on mortgage
lending, anti-predatory lending and other regulatory and
supervisory provisions that could impact the business and
operations of MetLife Bank.
In addition, bank regulatory agencies have issued proposed
interagency guidance for funding and liquidity risk management
that would apply to MetLife, Inc. as a bank holding company. The
FDIC has the right to assess FDIC-insured banks for funds to
help pay the obligations of insolvent banks to depositors.
Because the amount and timing of an assessment is beyond our
control, the liabilities that we have currently established for
these potential liabilities may not be adequate.
In addition, Dodd-Frank will result in increased assessment for
banks with assets of $10 billion or more, which includes
MetLife Bank. Federal and state banking regulators regularly
re-examine existing laws and regulations applicable to banks and
their products. Changes in these laws and regulations, or in
interpretations thereof, are often made for the benefit of the
consumer at the expense of the bank and, thus, could have a
material adverse effect on the financial condition and results
of operations of MetLife Bank.
Our international operations are subject to regulation in the
jurisdictions in which they operate, which in many ways is
similar to that of the state regulation outlined above. This
regulation may impact many of our customers and independent
sales intermediaries. Changes in the regulations that affect
their operations also may affect our
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business relationships with them and their ability to purchase
or distribute our products. Accordingly, these changes could
have a material adverse effect on our financial condition and
results of operations. See Our International
Operations Face Political, Legal, Operational and Other Risks,
Including Exposure to Local and Regional Economic Conditions,
that Could Negatively Affect Those Operations or Our
Profitability.
Compliance with applicable laws and regulations is time
consuming and personnel-intensive, and changes in these laws and
regulations may materially increase our direct and indirect
compliance and other expenses of doing business, thus having a
material adverse effect on our financial condition and results
of operations.
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 and may in the future
become subject to additional regulations. See
Business Regulation in the 2009 Annual
Report.
President Obama Recently Signed a Bill Providing for
Comprehensive Reform of Financial Services Regulation in the
United States, Various Aspects of Which Could Impact Our
Business Operations, Capital Requirements and Profitability and
Limit Our Growth
On July 21, 2010, President Obama signed Dodd-Frank.
Various provisions of Dodd-Frank could affect our business
operations and our profitability and limit our growth. For
example:
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As a large, interconnected bank holding company with assets of
$50 billion or more, or possibly as an otherwise
systemically important financial company, MetLife, Inc. will be
subject to enhanced prudential standards imposed on systemically
significant financial companies. Enhanced standards will be
applied to risk-based capital, liquidity, leverage (unless
another, similar, standard is appropriate for the company),
resolution plan and credit exposure reporting, concentration
limits, and risk management. Off-balance sheet activities are
required to be accounted for in meeting capital requirements. In
addition, if it was determined that MetLife posed a grave threat
to U.S. financial stability, the applicable federal
regulators would have the right to require it to take one or
more other mitigating actions to reduce that risk, including
limiting its ability to merge with or acquire another company,
terminating activities, restricting its ability to offer
financial products or requiring it to sell assets or off-balance
sheet items to unaffiliated entities. Enhanced standards would
also permit, but not require, regulators to establish
requirements with respect to contingent capital, enhanced public
disclosures and short term debt limits. These standards are
described as being more stringent than those otherwise imposed
on bank holding companies; however, the Federal Reserve Board is
permitted to apply them on an
institution-by-institution
basis, depending on its determination of the institutions
riskiness. In addition, under Dodd-Frank, all bank holding
companies that have elected to be treated as financial holding
companies, such as MetLife, Inc., will be required to be
well capitalized and well managed as
defined by the Federal Reserve Board, on a consolidated basis
and not just at their depository institution(s), a higher
standard than is applicable to financial holding companies under
current law.
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MetLife, Inc., as a bank holding company, will have to meet
minimum leverage ratio and risk-based capital requirements on a
consolidated basis to be established by the Federal Reserve
Board that are not less than those applicable to insured
depository institutions under so-called prompt corrective action
regulations as in effect on the date of the enactment of the
legislation. One consequence of these new rules will ultimately
be the inability of bank holding companies to include
trust-preferred securities as part of their Tier 1 capital.
Because of the phase-in period for these new rules, they should
have little practical effect on MetLifes ability to treat
its currently outstanding trust-preferred securities as part of
its Tier 1 capital, but they could have an effect on
securities to be used as part of the consideration for the
Acquisition, since the new rules apply immediately to
instruments issued after May 19, 2010.
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Under the provisions of Dodd-Frank relating to the resolution or
liquidation of certain types of financial institutions,
including bank holding companies, if MetLife, Inc. were to
become insolvent or were in danger
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of defaulting on its obligations, it could be compelled to
undergo liquidation with the FDIC as receiver. For this new
regime to be applicable, a number of determinations would have
to be made, including that a default by the affected company
would have serious adverse effects on financial stability in the
United States. If the FDIC were to be appointed as the receiver
for such a company, the liquidation of that company would occur
under the provisions of the new liquidation authority, and not
under the Bankruptcy Code. In such a liquidation, the holders of
such companys debt could in certain a respects be treated
differently than under the Bankruptcy Code. In particular,
unsecured creditors and shareholders are intended to bear the
losses of the company being liquidated. The FDIC is authorized
to establish rules for the priority of creditors claims
and, under certain circumstances, to treat similarly situated
creditors differently. Dodd-Frank also provides for the
assessment of bank holding companies with assets of
$50.0 billion or more, non-bank financial companies
supervised by the Federal Reserve Bank, and other financial
companies with assets of $50.0 billion or more to cover the
costs of liquidating any financial company subject to the new
liquidation authority. Although it is not possible to assess the
full impact of the liquidation authority at this time, it could
affect the funding costs of large bank holding companies or
financial companies that might be viewed as systemically
significant. It could also lead to an increase in secured
financings.
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Dodd-Frank also includes a new framework of regulation of the
OTC derivatives markets which could require clearing of certain
types of transactions currently traded
over-the-counter
and potentially impose additional costs, including new capital
and margin requirements and additional regulation on the
Company. Increased margin requirements on MetLife, Inc.s
part could reduce its liquidity and narrow the range of
securities in which it invests. However, increased margin
requirements on MetLife, Inc.s counterparties could reduce
MetLife, Inc.s exposure to its counterparties
default. MetLife, Inc. uses derivatives to mitigate the impact
of increased benefit exposures from our annuity products that
offer guaranteed benefits. The derivative clearing requirements
of Dodd-Frank could increase the cost of such mitigation. In
addition, we are subject to the risk that hedging and other
management procedures prove ineffective in reducing the risks to
which insurance policies expose us or that unanticipated
policyholder behavior or mortality, combined with adverse market
events, produces economic losses beyond the scope of the risk
management techniques employed. Any such losses could be
increased by any higher costs of writing derivatives or the
potentially greater difficulty in customizing derivatives that
might result from the enactment of Dodd-Frank.
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Dodd-Frank restricts the ability of insured depository
institutions and of companies, such as MetLife, Inc., that
control an insured depository institution and their affiliates,
to engage in proprietary trading and to sponsor or invest in
funds (referred to in the bill as hedge funds and private equity
funds) that rely on certain exemptions from the Investment
Company Act of 1940, as amended (the Investment Company
Act). Dodd-Frank provides an exemption for investment
activity by a regulated insurance company or its affiliate
solely for the general account of such insurance company if such
activity is in compliance with the insurance company investments
laws of the state or jurisdiction in which such company is
domiciled and the appropriate Federal regulators after
consultation with relevant insurance commissioners have not
jointly determined such laws to be insufficient to protect the
safety and soundness of the institution or the financial
stability of the United States. Notwithstanding the foregoing,
the appropriate Federal regulatory authorities are permitted
under the legislation to impose, as part of rulemaking,
additional capital requirements and other restrictions on any
exempted activity. Dodd-Frank provides for a period of study and
rule making during which the effects of the statutory language
may be clarified. Among other considerations, the study is to
assess and include recommendations so as to appropriately
accommodate the business of insurance within an insurance
company subject to regulation in accordance with relevant
insurance company investments laws. While these provisions of
Dodd-Frank are supposed to accommodate the business of
insurance, until the related study and rulemaking are complete,
it is unclear whether MetLife, Inc. may have to alter any of its
future investment activities to comply.
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Until various studies are completed and final regulations are
promulgated pursuant to Dodd-Frank, the full impact of
Dodd-Frank on the investments and investment activities of
MetLife, Inc. and its subsidiaries remain unclear. Besides
directly limiting our future investment activities, Dodd-Frank
could potentially negatively impact the market for, the returns
from, or liquidity in, primary and secondary investments in
private equity funds and hedge funds that are affiliated with an
insured depository institution. The number of
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sponsors of such funds going forward may diminish, which may
impact our available fund investment opportunities. Although
Dodd-Frank provides for various transition periods for coming
into compliance, fund sponsors that are subject to Dodd-Frank,
and whose funds we have invested in, may have to spin off their
funds business or reduce their ownership stakes in their funds,
thereby potentially impacting our related investments in such
funds. In addition, should such funds be required or choose to
liquidate or sell their underlying assets, the market value and
liquidity of such assets or the broader related asset classes
could negatively be affected, including securities and real
estate assets that MetLife, Inc. and its subsidiaries hold or
may plan to sell. Our existing derivatives counterparties and
the financial institutions subject to Dodd-Frank in which we
have invested also could be negatively impacted by Dodd-Frank.
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In addition, Dodd-Frank statutorily imposes the requirement that
MetLife, Inc. serve as a source of strength for MetLife Bank.
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The addition of a new regulatory regime over MetLife, Inc. and
its subsidiaries, the likelihood of additional regulations, and
the other changes discussed above could require changes to
MetLife, Inc.s operations. Whether such changes would
affect our competitiveness in comparison to other institutions
is uncertain, since it is possible that at least some of our
competitors, for example insurance holding companies that
control thrifts, rather than banks, will be similarly affected.
Competitive effects are possible, however, if MetLife, Inc. were
required to pay any new or increased assessments and capital
requirements are imposed, and to the extent any new prudential
supervisory standards are imposed on MetLife, Inc. but not on
its competitors. We cannot predict whether other proposals will
be adopted, or what impact, if any, the adoption of Dodd-Frank
or other proposals and the resulting studies and regulations
could have on our business, financial condition or results of
operations or on our dealings with other financial companies.
See also New and Impending Compensation and
Corporate Governance Regulations 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.
Moreover, Dodd-Frank potentially affects such a wide range of
the activities and markets in which MetLife, Inc. and its
subsidiaries engage and participate that it may not be possible
to anticipate all of the ways in which it could affect us. For
example, many of our methods for managing risk and exposures are
based upon the use of observed historical market behavior or
statistics based on historical models. Historical market
behavior may be altered by the enactment of Dodd-Frank. As a
result of this enactment and otherwise, these methods may not
fully predict future exposures, which can be significantly
greater than our historical measures indicate.
We Are Exposed to Significant Financial and Capital
Markets Risk Which May Adversely Affect Our Results of
Operations, Financial Condition and Liquidity, and Our Net
Investment Income Can Vary from Period to Period
We are exposed to significant financial and capital markets
risk, including changes in interest rates, credit spreads,
equity prices, real estate markets, foreign currency exchange
rates, market volatility, the performance of the economy in
general, the performance of the specific obligors included in
our portfolio and other factors outside our control.
Our exposure to interest rate risk relates primarily to the
market price and cash flow variability associated with changes
in interest rates. A rise in interest rates will increase the
net unrealized loss position of our fixed income investment
portfolio and, if long-term interest rates rise dramatically
within a six to twelve month time period, certain of our life
insurance businesses may be exposed to disintermediation risk.
Disintermediation risk refers to the risk that our policyholders
may surrender their contracts in a rising interest rate
environment, requiring us to liquidate fixed income investments
in an unrealized loss position. Due to the long-term nature of
the liabilities associated with certain of our life insurance
businesses, guaranteed benefits on variable annuities, and
structured settlements, sustained declines in long-term interest
rates may subject us to reinvestment risks and increased hedging
costs. In other situations, declines in interest rates may
result in increasing the duration of certain life insurance
liabilities, creating asset-liability duration mismatches.
Our investment portfolio also contains interest rate sensitive
instruments, such as fixed income securities, which may be
adversely affected by changes in interest rates from
governmental monetary policies, domestic and international
economic and political conditions and other factors beyond our
control. A rise in interest rates would increase the net
unrealized loss position of our fixed income investment
portfolio, offset by our ability to earn higher rates of return
on funds reinvested. Conversely, a decline in interest rates
would decrease the net unrealized loss position of our fixed
income investment portfolio, offset by lower rates of return on
funds reinvested. Our mitigation
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efforts with respect to interest rate risk are primarily focused
towards maintaining an investment portfolio with diversified
maturities that has a weighted average duration that is
approximately equal to the duration of our estimated liability
cash flow profile. However, our estimate of the liability cash
flow profile may be inaccurate and we may be forced to liquidate
fixed income investments prior to maturity at a loss in order to
cover the liability. Although we take measures to manage the
economic risks of investing in a changing interest rate
environment, we may not be able to mitigate the interest rate
risk of our fixed income investments relative to our
liabilities. See also Changes in Market
Interest Rates May Significantly Affect Our Profitability.
Our exposure to credit spreads primarily relates to market price
and cash flow variability associated with changes in credit
spreads. A widening of credit spreads will increase the net
unrealized loss position of the fixed-income investment
portfolio, will increase losses associated with credit-based
non-qualifying derivatives where we assume credit exposure, and,
if issuer credit spreads increase significantly or for an
extended period of time, will likely result in higher
other-than-temporary
impairments. Credit spread tightening will reduce net investment
income associated with new purchases of fixed maturity
securities. In addition, market volatility can make it difficult
to value certain of our securities if trading becomes less
frequent. As such, valuations may include assumptions or
estimates that may have significant period to period changes
which could have a material adverse effect on our consolidated
results of operations or financial condition. Credit spreads on
both corporate and structured securities widened significantly
during 2008, resulting in continuing depressed pricing. As a
result of improved conditions, credit spreads narrowed in 2009
and have changed minimally in 2010. If there is a resumption of
significant volatility in the markets, it could cause changes in
credit spreads and defaults and a lack of pricing transparency
which, individually or in tandem, could have a material adverse
effect on our consolidated results of operations, financial
condition, liquidity or cash flows through realized investment
losses, impairments, and changes in unrealized loss positions.
Our primary exposure to equity risk relates to the potential for
lower earnings associated with certain of our insurance
businesses where fee income is earned based upon the estimated
fair value of the assets under management. Equity market
downturns and volatility may discourage purchases of separate
account products, such as variable annuities and variable life
insurance that have underlying mutual funds with returns linked
to the performance of the equity markets, and may cause some of
our existing customers to withdraw or reduce investments in
those products. In addition, downturns and volatility in equity
markets can have a material adverse effect on the revenues and
returns from our savings and investment products and services.
Because these products and services generate fees related
primarily to the value of assets under management, a decline in
the equity markets could reduce our revenues from the reduction
in the value of the investments we manage. The retail annuity
business in particular is highly sensitive to equity markets,
and a sustained weakness in the equity markets could decrease
revenues and earnings in variable annuity products. Furthermore,
certain of our annuity products offer guaranteed benefits which
increase our potential benefit exposure should equity markets
decline. MetLife, Inc. uses derivatives to mitigate the impact
of such increased potential benefit exposures. We are also
exposed to interest rate and equity risk based upon the discount
rate and expected long-term rate of return assumptions
associated with our pension and other postretirement benefit
obligations. Sustained declines in long-term interest rates or
equity returns likely would have a negative effect on the funded
status of these plans. Lastly, we invest a portion of our
investments in equity securities, leveraged buy-out funds, hedge
funds and other private equity funds and the estimated fair
value of such investments may be impacted by downturns or
volatility in equity markets.
Our primary exposure to real estate risk relates to commercial
and agricultural real estate. Our exposure to commercial and
agricultural real estate risk stems from various factors. These
factors include, but are not limited to, market conditions
including the demand and supply of space, creditworthiness of
tenants and partners, capital markets volatility and the
inherent interest rate movement. In addition, our real estate
joint venture development program is subject to risks,
including, but not limited to, reduced property sales and
decreased availability of financing which could adversely impact
the joint venture developments
and/or
operations. The state of the economy and speed of recovery in
fundamental and capital market conditions in the commercial and
agricultural real estate sectors will continue to influence the
performance of our investments in these sectors. These factors
and others beyond our control could have a material adverse
effect on our consolidated results of operations, financial
condition, liquidity or cash flows through net investment
income, realized investment losses and impairments.
Our primary foreign currency exchange risks are described under
Fluctuations in Foreign Currency Exchange
Rates Could Negatively Affect Our Profitability.
Significant declines in equity prices, changes in
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U.S. interest rates, changes in credit spreads, and changes
in foreign currency exchange rates could have a material adverse
effect on our consolidated results of operations, financial
condition or liquidity. Changes in these factors, which are
significant risks to us, can affect our net investment income in
any period, and such changes can be substantial. A portion of
our investments are made in leveraged buy-out funds, hedge funds
and other private equity funds reported within other limited
partnership interests, many of which make private equity
investments. The amount and timing of net investment income from
such investment funds tends to be uneven as a result of the
performance of the underlying investments, including private
equity investments. The timing of distributions from the funds,
which depends on particular events relating to the underlying
investments, as well as the funds schedules for making
distributions and their needs for cash, can be difficult to
predict. As a result, the amount of net investment income that
we record from these investments can vary substantially from
quarter to quarter. Recent equity, real estate and credit market
volatility have further reduced net investment income and
related yields for these types of investments and we may
continue to experience reduced net investment income due to
continued volatility in the equity, real estate and credit
markets in 2010. Although the disruption in the global financial
markets has moderated, not all global financial markets are
functioning normally and some remain reliant upon government
intervention and liquidity. Continuing challenges include
continued weakness in the U.S. real estate market and
increased mortgage loan delinquencies, investor anxiety over the
U.S. and European economies, rating agency downgrades of
various structured products and financial issuers, unresolved
issues with structured investment vehicles and monoline
financial guarantee insurers, deleveraging of financial
institutions and hedge funds and a serious dislocation in the
inter-bank market. If there is a resumption of significant
volatility in the markets, it could cause changes in interest
rates, declines in equity prices, and the strengthening or
weakening of foreign currencies against the U.S. dollar
which, individually or in tandem, could have a material adverse
effect on our consolidated results of operations, financial
condition, liquidity or cash flows through realized investment
losses, impairments, and changes in unrealized loss positions.
Changes
in Market Interest Rates May Significantly Affect Our
Profitability
Some of our products, principally traditional whole life
insurance, fixed annuities and guaranteed interest contracts,
expose us to the risk that changes in interest rates will reduce
our investment margin or spread, or the difference
between the amounts that we are required to pay under the
contracts in our general account and the rate of return we are
able to earn on general account investments intended to support
obligations under the contracts. Our spread is a key component
of our net income.
As interest rates decrease or remain at low levels, we may be
forced to reinvest proceeds from investments that have matured
or have been prepaid or sold at lower yields, reducing our
investment margin. Moreover, borrowers may prepay or redeem the
fixed income securities, commercial or agricultural mortgage
loans and mortgage-backed securities in our investment portfolio
with greater frequency in order to borrow at lower market rates,
which exacerbates this risk. Lowering interest crediting rates
can help offset decreases in investment margins on some
products. However, our ability to lower these rates could be
limited by competition or contractually guaranteed minimum rates
and may not match the timing or magnitude of changes in asset
yields. As a result, our spread could decrease or potentially
become negative. Our expectation for future spreads is an
important component in the amortization of DAC and VOBA, and
significantly lower spreads may cause us to accelerate
amortization, thereby reducing net income in the affected
reporting period. In addition, during periods of declining
interest rates, life insurance and annuity products may be
relatively more attractive investments to consumers, resulting
in increased premium payments on products with flexible premium
features, repayment of policy loans and increased persistency,
or a higher percentage of insurance policies remaining in force
from year to year, during a period when our new investments
carry lower returns. A decline in market interest rates could
also reduce our return on investments that do not support
particular policy obligations. Accordingly, declining interest
rates may materially adversely affect our results of operations,
financial position and cash flows and significantly reduce our
profitability.
The sufficiency of our life insurance statutory reserves in
Taiwan is highly sensitive to interest rates and other related
assumptions. This is due to the sustained low interest rate
environment in Taiwan coupled with long-term interest rate
guarantees of approximately 6% embedded in the life and health
contracts sold prior to 2003 and the lack of availability of
long-duration investments in the Taiwanese capital markets to
match such long-duration
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liabilities. The key assumptions include current Taiwan
government bond yield rates increasing from current levels of
1.8% to 3.0% over the next ten years, a modest increase in lapse
rates, mortality and morbidity levels remaining consistent with
recent experience, and U.S. dollar-denominated investments
making up 35% of total assets backing life insurance statutory
reserves. Current statutory reserve adequacy analysis shows that
provisions are adequate; however, adverse changes in key
assumptions for interest rates, lapse experience and mortality
and morbidity levels could lead to a need to strengthen
reserves. See Note 2 of the Notes to the Interim Condensed
Consolidated Financial Statements.
Increases in market interest rates could also negatively affect
our profitability. In periods of rapidly increasing interest
rates, we may not be able to replace, in a timely manner, the
investments in MetLifes general account with higher
yielding investments needed to fund the higher crediting rates
necessary to keep interest sensitive products competitive. We,
therefore, may have to accept a lower spread and, thus, lower
profitability or face a decline in sales and greater loss of
existing contracts and related assets. In addition, policy
loans, surrenders and withdrawals may tend to increase as
policyholders seek investments with higher perceived returns as
interest rates rise. This process may result in cash outflows
requiring that we sell investments at a time when the prices of
those investments are adversely affected by the increase in
market interest rates, which may result in realized investment
losses. Unanticipated withdrawals and terminations may cause us
to accelerate the amortization of DAC and VOBA, which reduces
net income. An increase in market interest rates could also have
a material adverse effect on the value of our investment
portfolio, for example, by decreasing the estimated fair values
of the fixed income securities that comprise a substantial
portion of our investment portfolio. Lastly, an increase in
interest rates could result in decreased fee income associated
with a decline in the value of variable annuity account balances
invested in fixed income funds.
Some of Our Investments Are Relatively Illiquid and Are in
Asset Classes That Have Been Experiencing Significant
Market Valuation Fluctuations
We hold certain investments that may lack liquidity, such as
privately-placed fixed maturity securities; mortgage loans;
policy loans and leveraged leases; equity real estate, including
real estate joint ventures and funds; and other limited
partnership interests. These asset classes represented 31.5% of
the carrying value of our total cash and investments at
June 30, 2010. Even some of our very high quality
investments have been more illiquid as a result of the current
market conditions. If we require significant amounts of cash on
short notice in excess of normal cash requirements or are
required to post or return cash collateral in connection with
our investment portfolio, derivatives transactions or securities
lending program, we may have difficulty selling these
investments in a timely manner, be forced to sell them for less
than we otherwise would have been able to realize, or both. The
reported value of our relatively illiquid types of investments,
our investments in the asset classes described above and, at
times, our high quality, generally liquid asset classes, do not
necessarily reflect the lowest current market price for the
asset. If we were forced to sell certain of our investments in
the current market, there can be no assurance that we will be
able to sell them for the prices at which we have recorded them
and we could be forced to sell them at significantly lower
prices.
Our
Participation in a Securities Lending Program Subjects Us to
Potential Liquidity and Other Risks
We participate in a securities lending program whereby blocks of
securities, which are included in fixed maturity securities and
short-term investments, are loaned to third parties, primarily
brokerage firms and commercial banks. We generally obtain
collateral in an amount equal to 102% of the estimated fair
value of the loaned securities, which is obtained at the
inception of a loan and maintained at a level greater than or
equal to 100% for the duration of the loan. Returns of loaned
securities by the third parties would require us to return the
cash collateral associated with such loaned securities. In
addition, in some cases, the maturity of the securities held as
invested collateral (i.e., securities that we have purchased
with cash collateral received from the third parties) may exceed
the term of the related securities on loan and the estimated
fair value may fall below the amount of cash received as
collateral and invested. If we are required to return
significant amounts of cash collateral on short notice and we
are forced to sell securities to meet the return obligation, we
may have difficulty selling such collateral that is invested in
securities in a timely manner, be forced to sell securities in a
volatile or illiquid market for less than we otherwise would
have been able to realize under normal market conditions, or
both. In addition, under stressful capital market and economic
conditions, liquidity broadly deteriorates, which may further
restrict our ability to sell
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securities. If we decrease the amount of our securities lending
activities over time, the amount of net investment income
generated by these activities will also likely decline. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations
Investments Securities Lending.
Our Requirements to Pledge Collateral or Make Payments
Related to Declines in Estimated Fair Value of Specified Assets
May Adversely Affect Our Liquidity and Expose Us to Counterparty
Credit Risk
Some of our transactions with financial and other institutions
specify the circumstances under which the parties are required
to pledge collateral related to any decline in the estimated
fair value of the specified assets. In addition, under the terms
of some of our transactions, we may be required to make payments
to our counterparties related to any decline in the estimated
fair value of the specified assets. The amount of collateral we
may be required to pledge and the payments we may be required to
make under these agreements may increase under certain
circumstances, which could adversely affect our liquidity. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and
Capital Resources The Company Liquidity
and Capital Sources Collateral Financing
Arrangements and Note 12 of the Notes to the
Consolidated Financial Statements in the 2009 Annual Report.
Gross Unrealized Losses on Fixed Maturity and Equity
Securities May Be Realized or Result in Future Impairments,
Resulting in a Reduction in Our Net Income
Fixed maturity and equity securities classified as
available-for-sale,
except trading securities, are reported at their estimated fair
value. Unrealized gains or losses on
available-for-sale
securities are recognized as a component of other comprehensive
income (loss) and are, therefore, excluded from net income. Our
gross unrealized losses on fixed maturity and equity securities
at June 30, 2010 were $7.0 billion. The portion of the
$7.0 billion of gross unrealized losses for fixed maturity
and equity securities where the estimated fair value has
declined and remained below amortized cost or cost by 20% or
more for six months or greater was $3.1 billion at
June 30, 2010. The accumulated change in estimated fair
value of these
available-for-sale
securities is recognized in net income when the gain or loss is
realized upon the sale of the security or in the event that the
decline in estimated fair value is determined to be
other-than-temporary
and an impairment charge to earnings is taken. Realized losses
or impairments may have a material adverse effect on our net
income in a particular quarterly or annual period.
The Determination of the Amount of Allowances and
Impairments Taken on Our Investments is Highly Subjective and
Could Materially Impact Our Results of Operations or Financial
Position
The determination of the amount of allowances and impairments
varies by investment type and is based upon our periodic
evaluation and assessment of known and inherent risks associated
with the respective asset class. Such evaluations and
assessments are revised as conditions change and new information
becomes available. We update our evaluations regularly and
reflect changes in allowances and impairments in net investment
losses as such evaluations are revised. There can be no
assurance that we have accurately assessed the level of
impairments taken and allowances provided as reflected in our
consolidated financial statements. Furthermore, additional
impairments may need to be taken or allowances provided for in
the future. Historical trends may not be indicative of future
impairments or allowances.
For example, the cost of our fixed maturity and equity
securities is adjusted for impairments deemed to be
other-than-temporary
that are charged to earnings in the period in which the
determination is made. The assessment of whether impairments
have occurred is based on our
case-by-case
evaluation of the underlying reasons for the decline in
estimated fair value. The review of our fixed maturity and
equity securities for impairments includes an analysis of the
total gross unrealized losses by three categories of securities:
(i) securities where the estimated fair value has declined
and remained below cost or amortized cost by less than 20%;
(ii) securities where the estimated fair value has declined
and remained below cost or amortized cost by 20% or more for
less than six months; and (iii) securities where the
estimated fair value has declined and remained below cost or
amortized cost by 20% or more for six months or greater.
Additionally, we consider a wide range of factors about the
security issuer and use our best judgment in evaluating the
cause of the decline in the estimated fair value of the security
and in assessing the prospects for near term recovery. Inherent
in our evaluation of the security are assumptions and estimates
about the operations of the issuer and its future earnings
potential. Considerations in the impairment evaluation process
include, but are not
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limited to: (i) the length of time and the extent to which
the estimated fair value has been below cost or amortized cost;
(ii) the potential for impairments of securities when the
issuer is experiencing significant financial difficulties;
(iii) the potential for impairments in an entire industry
sector or
sub-sector;
(iv) the potential for impairments in certain economically
depressed geographic locations; (v) the potential for
impairments of securities where the issuer, series of issuers or
industry has suffered a catastrophic type of loss or has
exhausted natural resources; (vi) with respect to fixed
maturity securities, whether we have the intent to sell or will
more likely than not be required to sell a particular security
before recovery of the decline in estimated fair value below
amortized cost; (vii) with respect to equity securities,
whether we have the ability and intent to hold a particular
security for a period of time sufficient to allow for the
recovery of its estimated fair value to an amount at least equal
to its cost; (viii) unfavorable changes in forecasted cash
flows on mortgage-backed and asset-backed securities; and
(ix) other subjective factors, including concentrations and
information obtained from regulators and rating agencies.
Defaults on Our Mortgage Loans and Volatility in
Performance May Adversely Affect Our Profitability
Our mortgage loans face default risk and are principally
collateralized by commercial, agricultural and residential
properties, as well as automobiles. The carrying value of
mortgage loans is stated at original cost net of repayments,
amortization of premiums, accretion of discounts and valuation
allowances, except for residential mortgage loans
held-for-sale
accounted for under the fair value option which are carried at
estimated fair value, as determined on a recurring basis, and
certain commercial and residential mortgage loans carried at the
lower of cost or estimated fair value, as determined on a
nonrecurring basis. We establish valuation allowances for
estimated impairments at the balance sheet date. Such valuation
allowances are based on the excess carrying value of the loan
over the present value of expected future cash flows discounted
at the loans original effective interest rate, the
estimated fair value of the loans collateral if the loan
is in the process of foreclosure or otherwise collateral
dependent, or the loans observable market price. We also
establish valuation allowances for loan losses for pools of
loans with similar risk characteristics, such as property types,
or loans having similar
loan-to-value
ratios and debt service coverage ratios, when based on past
experience, it is probable that a credit event has occurred and
the amount of the loss can be reasonably estimated. These
valuation allowances are based on loan risk characteristics,
historical default rates and loss severities, real estate market
fundamentals and outlook as well as other relevant factors. At
June 30, 2010, loans that were either delinquent or in the
process of foreclosure totaled less than 0.7% of our mortgage
loan investments. The performance of our mortgage loan
investments, however, may fluctuate in the future. In addition,
substantially all of our mortgage loans
held-for-investment
have balloon payment maturities. An increase in the default rate
of our mortgage loan investments could have a material adverse
effect on our business, results of operations and financial
condition through realized investment losses or increases in our
valuation allowances.
Further, any geographic or sector concentration of our mortgage
loans may have adverse effects on our investment portfolios and
consequently on our consolidated results of operations or
financial condition. While we seek to mitigate this risk by
having a broadly diversified portfolio, events or developments
that have a negative effect on any particular geographic region
or sector may have a greater adverse effect on the investment
portfolios to the extent that the portfolios are concentrated.
Moreover, our ability to sell assets relating to such particular
groups of related assets may be limited if other market
participants are seeking to sell at the same time. In addition,
legislative proposals that would allow or require modifications
to the terms of mortgage loans could be enacted. We cannot
predict whether these proposals will be adopted, or what impact,
if any, such proposals or, if enacted, such laws, could have on
our business or investments. See Managements
Discussion and Analysis of Financial Condition and Results of
Operations Investments Mortgage
Loans.
The
Impairment of Other Financial Institutions Could Adversely
Affect Us
We have exposure to many different industries and
counterparties, and routinely execute transactions with
counterparties in the financial services industry, including
brokers and dealers, commercial banks, investment banks, hedge
funds and other investment funds and other institutions. Many of
these transactions expose us to credit risk in the event of
default of our counterparty. In addition, with respect to
secured transactions, our credit risk may be exacerbated when
the collateral held by us cannot be realized or is liquidated at
prices not sufficient to recover the full amount of the loan or
derivative exposure due to us. We also have exposure to these
financial institutions in the form of unsecured debt
instruments, non-redeemable and redeemable preferred securities,
derivative
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transactions, joint venture, hedge fund and equity investments.
Further, potential action by governments and regulatory bodies
in response to the financial crisis affecting the global banking
system and financial markets, such as investment,
nationalization, conservatorship, receivership and other
intervention, whether under existing legal authority or any new
authority that may be created, could negatively impact these
instruments, securities, transactions and investments. There can
be no assurance that any such losses or impairments to the
carrying value of these investments would not materially and
adversely affect our business and results of operations.
We Face Unforeseen Liabilities, Asset Impairments or
Rating Actions Arising from Possible Acquisitions and
Dispositions of Businesses or Difficulties Integrating Such
Businesses
We have engaged in dispositions and acquisitions of businesses
in the past, and expect to continue to do so in the future. We
entered into the Stock Purchase Agreement dated as of
March 7, 2010 to acquire the Alico Business. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and
Capital Resources Overview and Note 2 of
the Notes to the Interim Condensed Consolidated Financial
Statements. There could be unforeseen liabilities or asset
impairments, including goodwill impairments, that arise in
connection with the businesses that we may sell or the
businesses that we may acquire in the future. In addition, there
may be liabilities or asset impairments that we fail, or are
unable, to discover in the course of performing due diligence
investigations on each business that we have acquired or may
acquire. Furthermore, the use of our own funds as consideration
in any acquisition would consume capital resources that would no
longer be available for other corporate purposes. We also may
not be able to raise sufficient funds to consummate an
acquisition if, for example, we are unable to sell our
securities or close related bridge credit facilities. Moreover,
as a result of uncertainty and risks associated with potential
acquisitions and dispositions of businesses, rating agencies may
take certain actions with respect to the ratings assigned to
MetLife, Inc.
and/or its
subsidiaries.
Our ability to achieve certain benefits we anticipate from any
acquisitions of businesses will depend in large part upon our
ability to successfully integrate such businesses in an
efficient and effective manner. We may not be able to integrate
such businesses smoothly or successfully, and the process may
take longer than expected. The integration of operations may
require the dedication of significant management resources,
which may distract managements attention from
day-to-day
business. If we are unable to successfully integrate the
operations of such acquired businesses, we may be unable to
realize the benefits we expect to achieve as a result of such
acquisitions and our business and results of operations may be
less than expected. See Risks Relating to the
Acquisition of the Alico Business and
We May Experience Difficulties in Integrating the Alico
Business, Including Its Joint Venture and Other Arrangements
with Third Parties.
Fluctuations
in Foreign Currency Exchange Rates Could Negatively Affect Our
Profitability
We are exposed to risks associated with fluctuations in foreign
currency exchange rates against the U.S. dollar resulting
from our holdings of
non-U.S. dollar
denominated investments, investments in foreign subsidiaries and
net income from foreign operations and issuance of
non-U.S. dollar
denominated instruments, including guaranteed interest contracts
and funding agreements. These risks relate to potential
decreases in estimated fair value and income resulting from a
strengthening or weakening in foreign exchange rates versus the
U.S. dollar. In general, the weakening of foreign
currencies versus the U.S. dollar will adversely affect the
estimated fair value of our
non-U.S. dollar
denominated investments, our investments in foreign
subsidiaries, and our net income from foreign operations.
Although we use foreign currency swaps and forward contracts to
mitigate foreign currency exchange rate risk, we cannot provide
assurance that these methods will be effective or that our
counterparties will perform their obligations. See
Quantitative and Qualitative Disclosures About Market
Risk.
From time to time, various emerging market countries have
experienced severe economic and financial disruptions, including
significant devaluations of their currencies. Our exposure to
foreign exchange rate risk is exacerbated by our investments in
certain emerging markets.
Historically, we have matched substantially all of our foreign
currency liabilities in our foreign subsidiaries with
investments denominated in their respective foreign currency,
which limits the effect of currency exchange rate fluctuation on
local operating results; however, fluctuations in such rates
affect the translation of these results into our
U.S. dollar basis consolidated financial statements.
Although we take certain actions to address this risk, foreign
currency exchange rate fluctuation could materially adversely
affect our reported results due to unhedged
216
positions or the failure of hedges to effectively offset the
impact of the foreign currency exchange rate fluctuation. See
Quantitative and Qualitative Disclosures About Market
Risk.
The Acquisition will increase our exposure to risks associated
with fluctuations in foreign currency exchange rates against the
U.S. dollar and increase our exposure to emerging markets.
Fluctuations in the yen/ U.S. dollar exchange rate can have
a significant effect on our reported financial position and
results of operations following the Acquisition because the
Alico Business has substantial operations in Japan and a
significant portion of its premiums and investment income are
received in yen. Claims and expenses are also paid in yen and
the Alico Business primarily purchases yen-denominated assets to
support yen-denominated policy liabilities. These and other
yen-denominated financial statement items are, however,
translated into U.S. dollars for financial reporting
purposes. Accordingly, fluctuations in the yen/U.S. dollar
exchange rate can have a significant effect on our reported
financial position and results of operations following the
Acquisition. See Risks Relating to the
Acquisition of the Alico Business We Are and,
Following the Acquisition, Will Be Subject to the Risk of
Exchange Rate Fluctuations Owing to the Geographical Diversity
of Our Combined Business.
Our International Operations Face Political, Legal,
Operational and Other Risks, Including Exposure to Local and
Regional Economic Conditions, That Could Negatively Affect Those
Operations or Our Profitability
Our international operations face political, legal, operational
and other risks that we do not face in our domestic operations.
We face the risk of discriminatory regulation, nationalization
or expropriation of assets, price controls and exchange controls
or other restrictions that prevent us from transferring funds
from these operations out of the countries in which they operate
or converting local currencies we hold into U.S. dollars or
other currencies. Some of our foreign insurance operations are,
and are likely to continue to be, in emerging markets where
these risks are heightened. See Quantitative and
Qualitative Disclosures About Market Risk. In addition, we
rely on local sales forces in these countries and may encounter
labor problems resulting from workers associations and
trade unions in some countries. In Japan, China and India we
operate with local business partners with the resulting risk of
managing partner relationships to the business objectives. If
our business model is not successful in a particular country, we
may lose all or most of our investment in building and training
the sales force in that country. The Acquisition will increase
our exposure to these risks. See Managements
Discussion and Analysis of Financial Condition and Results of
Operations Liquidity and Capital
Resources Overview and Note 2 of the
Notes to the Interim Condensed Consolidated Financial Statements.
We are expanding our international operations in certain markets
where we operate and in selected new markets. This may require
considerable management time, as well as
start-up
expenses for market development before any significant revenues
and earnings are generated. Operations in new foreign markets
may achieve low margins or may be unprofitable, and expansion in
existing markets may be affected by local economic and market
conditions. Therefore, as we expand internationally, we may not
achieve expected operating margins and our results of operations
may be negatively impacted.
In addition, in recent years, the operating environment in
Argentina has been very challenging. In Argentina, we were
formerly principally engaged in the pension business. In
December 2008, the Argentine government nationalized private
pensions and seized the pension funds investments,
eliminating the private pensions business in Argentina. As a
result, we have experienced and will continue to experience
reductions in the operations revenues and cash flows. The
Argentine government now controls all assets which previously
were managed by our Argentine pension operations. Further
governmental or legal actions related to our operations in
Argentina could negatively impact our operations in Argentina
and result in future losses.
Following the Acquisition, we will have market presence in 64
different countries, up from 17, at present, and increased
exposure to risks posed by local and regional economic
conditions. Europe has recently experienced a deep recession and
countries such as Italy, Spain, Portugal, Ireland and, in
particular, Greece, have been particularly affected by the
recession, resulting in increased national debts and depressed
economic activity. The Alico Business has significant operations
and investments in these countries which could be adversely
affected by economic developments such as higher taxes, growing
inflation, decreasing government spending, rising unemployment
and currency instability.
217
In addition to fluctuations in the yen/U.S. dollar exchange
rate discussed above, we will face increased exposure to the
Japanese markets after completion of the Acquisition as a result
of the Alico Business considerable presence there.
Deterioration in Japans economic recovery could have an
adverse effect on our results of operations and financial
condition following the Acquisition.
The Alico Business also has significant operations in the Middle
East where the legal systems and regulatory frameworks are still
evolving. Following the completion of the Acquisition, lack of
legal certainty in the region will expose our operations to
increased risk of adverse or unpredictable actions by regulators
and may make it more difficult for us to enforce our contracts,
which may negatively impact our business in this region. See
also Changes in Market Interest Rates May
Significantly Affect Our Profitability regarding the
impact of low interest rates on our Taiwanese operations.
As a Holding Company, MetLife, Inc. Depends on the Ability
of Its Subsidiaries to Transfer Funds to It to Meet Its
Obligations and Pay Dividends
MetLife, Inc. is a holding company for its insurance and
financial subsidiaries and does not have any significant
operations of its own. Dividends from its subsidiaries and
permitted payments to it under its tax sharing arrangements with
its subsidiaries are its principal sources of cash to meet its
obligations and to pay preferred and common stock dividends. If
the cash MetLife, Inc. receives from its subsidiaries is
insufficient for it to fund its debt service and other holding
company obligations, MetLife, Inc. may be required to raise cash
through the incurrence of debt, the issuance of additional
equity or the sale of assets.
The payment of dividends and other distributions to MetLife,
Inc. by its insurance subsidiaries is regulated by insurance
laws and regulations. In general, dividends in excess of
prescribed limits require insurance regulatory approval. In
addition, insurance regulators may prohibit the payment of
dividends or other payments by its insurance subsidiaries to
MetLife, Inc. if they determine that the payment could be
adverse to our policyholders or contractholders. The payment of
dividends and other distributions by insurance companies is also
influenced by business conditions and rating agency
considerations. See Business
Regulation Insurance Regulation in the 2009
Annual Report and Managements Discussion and
Analysis of Financial Condition and Results of
Operations Liquidity and Capital
Resources The Holding Company Liquidity
and Capital Sources Dividends from
Subsidiaries.
Any payment of interest, dividends, distributions, loans or
advances by our foreign subsidiaries to MetLife, Inc. could be
subject to taxation or other restrictions on dividends or
repatriation of earnings under applicable law, monetary transfer
restrictions and foreign currency exchange regulations in the
jurisdiction in which such foreign subsidiaries operate. See
Our International Operations Face Political,
Legal, Operational and Other Risks, Including Exposure to Local
and Regional Economic Conditions That Could Negatively Affect
Those Operations or Our Profitability.
A
Downgrade or a Potential Downgrade in Our Financial Strength or
Credit Ratings Could Result in a Loss of Business and Materially
Adversely Affect Our Financial Condition and Results of
Operations
Financial strength ratings, which various NRSRO publish as
indicators of an insurance companys ability to meet
contractholder and policyholder obligations, are important to
maintaining public confidence in our products, our ability to
market our products and our competitive position.
Downgrades in our financial strength ratings could have a
material adverse effect on our financial condition and results
of operations in many ways, including:
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reducing new sales of insurance products, annuities and other
investment products;
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adversely affecting our relationships with our sales force and
independent sales intermediaries;
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materially increasing the number or amount of policy surrenders
and withdrawals by contractholders and policyholders;
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requiring us to reduce prices for many of our products and
services to remain competitive; and
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adversely affecting our ability to obtain reinsurance at
reasonable prices or at all.
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218
In addition to the financial strength ratings of our insurance
subsidiaries, various NRSROs also publish credit ratings for
MetLife, Inc. and several of its subsidiaries. Credit ratings
are indicators of a debt issuers ability to meet the terms
of debt obligations in a timely manner and are important factors
in our overall funding profile and ability to access certain
types of liquidity. Downgrades in our credit ratings could have
a material adverse effect on our financial condition and results
of operations in many ways, including adversely limiting our
access to capital markets, potentially increasing the cost of
debt, and requiring us to post collateral. For example, with
respect to derivative transactions with credit ratings downgrade
triggers, a one-notch downgrade would have increased our
derivative collateral requirements by $67 million at
June 30, 2010. Also, $438 million of liabilities
associated with funding agreements and other capital market
products were subject to credit ratings downgrade triggers that
permit early termination subject to a notice period of
90 days.
In view of the difficulties experienced during 2008 and 2009 by
many financial institutions, including our competitors in the
insurance industry, we believe it is possible that the NRSROs
will continue to heighten the level of scrutiny that they apply
to such institutions, will continue to increase the frequency
and scope of their credit reviews, will continue to request
additional information from the companies that they rate, and
may adjust upward the capital and other requirements employed in
the NRSRO models for maintenance of certain ratings levels.
Rating agencies use an outlook statement of
positive, stable, negative
or developing to indicate a medium- or long-term
trend in credit fundamentals which, if continued, may lead to a
ratings change. A rating may have a stable outlook
to indicate that the rating is not expected to change; however,
a stable rating does not preclude a rating agency
from changing a rating at any time, without notice. Certain
rating agencies assign rating modifiers such as
CreditWatch or Under Review to indicate
their opinion regarding the potential direction of a rating.
These ratings modifiers are generally assigned in connection
with certain events such as potential mergers and acquisitions,
or material changes in a companys results, in order for
the rating agencies to perform their analyses to fully determine
the rating implications of the event. Certain rating agencies
have recently implemented rating actions, including downgrades,
outlook changes and modifiers, for MetLife, Inc.s and
certain of its subsidiaries insurer financial strength and
credit ratings.
In February 2010, Fitch Ratings downgraded by one notch the
ratings of MetLife, Inc. and its subsidiaries. In February 2010,
Standard & Poors Ratings Services, a
Standard & Poors Financial Services LLC
business, and A.M. Best each placed the ratings of MetLife,
Inc. and its subsidiaries on CreditWatch with negative
implications and Under Review with negative
implications, respectively, based on the announcement of
the Acquisition. In March 2010, Moodys changed the ratings
outlook of MetLife, Inc. and its subsidiaries from stable to
negative outlook. We believe that all the NRSROs will continue
to review our ratings in light of the Acquisition and may take
further action at, or in anticipation of, the consummation of
the Acquisition.
On July 1, 2010, Moodys published revised guidance
called Revisions to Moodys Hybrid Tool Kit
(the Guidance) for assigning equity credit to
so-called hybrid securities, i.e., securities with both debt and
equity characteristics (Hybrids). Moodys
evaluates Hybrids using certain specified criteria and then
places each such security into a basket, with a
specific percentage of debt and equity being associated with
each basket, which is then used to adjust full sets of financial
statements for purposes of, among other things, calculating the
issuing companys financial leverage. Under the Guidance,
Hybrids are one element that Moodys considers within the
context of an issuers overall credit profile. We currently
have approximately $5.3 billion of Hybrids outstanding,
which includes approximately $3.2 billion of junior
subordinated debt securities and $2.1 billion of preferred
stock. Application of the Guidance will likely result in
Moodys significantly reducing the amount of equity credit
it assigns to these securities and to the equity units to be
issued to Alico Holdings in connection with the Acquisition. We
do not expect at this time, as a result of the Guidance, a
reduction in Moodys equity treatment of our existing
Hybrids or, once issued, the equity units, would result in any
material negative impact on MetLife, Inc.s credit rating
or the financial strength ratings of its insurance company
subsidiaries. However, if we decided to increase our adjusted
capital as a result of the application of the Guidance, we may
seek to (i) issue additional common equity or higher equity
content Hybrids satisfying the Guidances revised rating
criteria, (ii) redeem, repurchase or restructure existing
Hybrids,
and/or
(iii) modify the terms of the equity units in order to
achieve the desired equity treatment or otherwise take into
account the application of the Guidance. Any sale of additional
common equity would have a dilutive effect on our common
stockholders and any modification of the terms of the equity
units could involve negotiations with Alico Holdings, AIG and
the lenders in our bridge loan facility.
219
We cannot predict what actions rating agencies may take, or what
actions we may take in response to the actions of rating
agencies, which could adversely affect our business. As with
other companies in the financial services industry, our ratings
could be downgraded at any time and without any notice by any
NRSRO.
An Inability to Access Our Credit Facilities Could Result
in a Reduction in Our Liquidity and Lead to Downgrades in Our
Credit and Financial Strength Ratings
We have a $2.85 billion five-year revolving credit facility
that matures in June 2012, as well as other facilities which we
enter into in the ordinary course of business. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and
Capital Resources The Holding Company
Liquidity and Capital Sources Credit and Committed
Facilities and Note 11 of the Notes to the
Consolidated Financial Statements in the 2009 Annual Report. In
addition, concurrently with our entry into the agreement to
acquire the Alico Business, we signed a commitment letter
(amended and restated on March 16, 2010) with various
financial institutions for a senior credit facility in an
aggregate principal amount of up to $5.0 billion (the
Senior Credit Facility). The Senior Credit Facility
will be used to finance any portion of the cash component of the
purchase price of the Acquisition that is not financed with
sales of MetLife, Inc.s securities or cash on hand. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and
Capital Resources Overview and Note 2 of
the Notes to the Interim Condensed Consolidated Financial
Statements. An amount equal to 100% of the proceeds of sales of
MetLife, Inc.s securities, less certain ordinary-course
transactions, will be applied to prepay any loans under the
Senior Credit Facility and, if such proceeds or commitments are
received on or prior to the date of the closing of the
Acquisition, will permanently reduce
dollar-for-dollar
the commitments, if any, of the lenders under the Senior Credit
Facility.
We rely on our credit facilities as a potential source of
liquidity. The availability of these facilities could be
critical to our credit and financial strength ratings and our
ability to meet our obligations as they come due in a market
when alternative sources of credit are tight. The credit
facilities contain certain administrative, reporting, legal and
financial covenants. We must comply with covenants under our
credit facilities (including the $2.85 billion five-year
revolving credit facility), including a requirement to maintain
a specified minimum consolidated net worth.
Our right to make borrowings under these facilities is subject
to the fulfillment of certain important conditions, including
our compliance with all covenants, and our ability to borrow
under these facilities is also subject to the continued
willingness and ability of the lenders that are parties to the
facilities to provide funds. Our failure to comply with the
covenants in the credit facilities or fulfill the conditions to
borrowings, or the failure of lenders to fund their lending
commitments (whether due to insolvency, illiquidity or other
reasons) in the amounts provided for under the terms of the
facilities, would restrict our ability to access these credit
facilities when needed and, consequently, could have a material
adverse effect on our financial condition and results of
operations.
Defaults, Downgrades or Other Events Impairing the
Carrying Value of Our Fixed Maturity or Equity Securities
Portfolio May Reduce Our Earnings
We are subject to the risk that the issuers, or guarantors, of
fixed maturity securities we own may default on principal and
interest payments they owe us. We are also subject to the risk
that the underlying collateral within loan-backed securities,
including mortgage-backed securities, may default on principal
and interest payments causing an adverse change in cash flows
paid to our investment. Fixed maturity securities represent a
significant portion of our investment portfolio. The occurrence
of a major economic downturn, acts of corporate malfeasance,
widening risk spreads, or other events that adversely affect the
issuers, guarantors or underlying collateral of these securities
could cause the estimated fair value of our fixed maturity
securities portfolio and our earnings to decline and the default
rate of the fixed maturity securities in our investment
portfolio to increase. A ratings downgrade affecting issuers or
guarantors of particular securities, or similar trends that
could worsen the credit quality of issuers, such as the
corporate issuers of securities in our investment portfolio,
could also have a similar effect. With economic uncertainty,
credit quality of issuers or guarantors could be adversely
affected. Similarly, a ratings downgrade affecting ABS we hold
could indicate the credit quality of that security has
deteriorated and could increase the capital we must hold to
support that security to maintain our risk-based capital levels.
Any event reducing the estimated fair value of these securities
other than on a temporary basis could have a material adverse
effect on our business, results of operations and financial
condition. Levels of writedowns or impairments are
220
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 Risk Management Policies and Procedures May Leave Us
Exposed to Unidentified or Unanticipated Risk, Which Could
Negatively Affect Our Business
Management of risk requires, among other things, policies and
procedures to record properly and verify a large number of
transactions and events. We have devoted significant resources
to develop our risk management policies and procedures and
expect to continue to do so in the future. Nonetheless, our
policies and procedures may not be comprehensive. Many of our
methods for managing risk and exposures are based upon the use
of observed historical market behavior or statistics based on
historical models. As a result, these methods may not fully
predict future exposures, which can be significantly greater
than our historical measures indicate. Other risk management
methods depend upon the evaluation of information regarding
markets, clients, catastrophe occurrence or other matters that
is publicly available or otherwise accessible to us. This
information may not always be accurate, complete,
up-to-date
or properly evaluated. See Quantitative and Qualitative
Disclosures About Market Risk.
Reinsurance
May Not Be Available, Affordable or Adequate to Protect Us
Against Losses
As part of our overall risk management strategy, we purchase
reinsurance for certain risks underwritten by our various
business segments. See Business Reinsurance
Activity in the 2009 Annual Report. While reinsurance
agreements generally bind the reinsurer for the life of the
business reinsured at generally fixed pricing, market conditions
beyond our control determine the availability and cost of the
reinsurance protection for new business. In certain
circumstances, the price of reinsurance for business already
reinsured may also increase. Any decrease in the amount of
reinsurance will increase our risk of loss and any increase in
the cost of reinsurance will, absent a decrease in the amount of
reinsurance, reduce our earnings. Accordingly, we may be forced
to incur additional expenses for reinsurance or may not be able
to obtain sufficient reinsurance on acceptable terms, which
could adversely affect our ability to write future business or
result in the assumption of more risk with respect to those
policies we issue.
If the Counterparties to Our Reinsurance or
Indemnification Arrangements or to the Derivative Instruments We
Use to Hedge Our Business Risks Default or Fail to Perform, We
May Be Exposed to Risks We Had Sought to Mitigate, Which Could
Materially Adversely Affect Our Financial Condition and Results
of Operations
We use reinsurance, indemnification and derivative instruments
to mitigate our risks in various circumstances. In general,
reinsurance does not relieve us of our direct liability to our
policyholders, even when the reinsurer is liable to us.
Accordingly, we bear credit risk with respect to our reinsurers
and indemnitors. We cannot provide assurance that our reinsurers
will pay the reinsurance recoverables owed to us or that
indemnitors will honor their obligations now or in the future or
that they will pay these recoverables on a timely basis. A
reinsurers or indemnitors insolvency, inability or
unwillingness to make payments under the terms of reinsurance
agreements or indemnity agreements with us could have a material
adverse effect on our financial condition and results of
operations.
In addition, we use derivative instruments to hedge various
business risks. We enter into a variety of derivative
instruments, including options, forwards, interest rate, credit
default and currency swaps with a number of counterparties. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations
Investments. If our counterparties fail or refuse to honor
their obligations under these derivative instruments, our hedges
of the related risk will be ineffective. This is a more
pronounced risk to us in view of the stresses suffered by
financial institutions over the past two years. Such failure
could have a material adverse effect on our financial condition
and results of operations.
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Differences Between Actual Claims Experience and
Underwriting and Reserving Assumptions May Adversely Affect Our
Financial Results
Our earnings significantly depend upon the extent to which our
actual claims experience is consistent with the assumptions we
use in setting prices for our products and establishing
liabilities for future policy benefits and claims. Our
liabilities for future policy benefits and claims are
established based on estimates by actuaries of how much we will
need to pay for future benefits and claims. For life insurance
and annuity products, we calculate these liabilities based on
many assumptions and estimates, including estimated premiums to
be received over the assumed life of the policy, the timing of
the event covered by the insurance policy, the amount of
benefits or claims to be paid and the investment returns on the
investments we make with the premiums we receive. We establish
liabilities for property and casualty claims and benefits based
on assumptions and estimates of damages and liabilities
incurred. To the extent that actual claims experience is less
favorable than the underlying assumptions we used in
establishing such liabilities, we could be required to increase
our liabilities.
Due to the nature of the underlying risks and the high degree of
uncertainty associated with the determination of liabilities for
future policy benefits and claims, we cannot determine precisely
the amounts which we will ultimately pay to settle our
liabilities. Such amounts may vary from the estimated amounts,
particularly when those payments may not occur until well into
the future. We evaluate our liabilities periodically based on
accounting requirements, which change from time to time, the
assumptions used to establish the liabilities, as well as our
actual experience. We charge or credit changes in our
liabilities to expenses in the period the liabilities are
established or re-estimated. If the liabilities originally
established for future benefit payments prove inadequate, we
must increase them. Such increases could affect earnings
negatively and have a material adverse effect on our business,
results of operations and financial condition.
Catastrophes
May Adversely Impact Liabilities for Policyholder Claims and
Reinsurance Availability
Our life insurance operations are exposed to the risk of
catastrophic mortality, such as a pandemic or other event that
causes a large number of deaths. Significant influenza pandemics
have occurred three times in the last century, but neither the
likelihood, timing, nor the severity of a future pandemic can be
predicted. A significant pandemic could have a major impact on
the global economy or the economies of particular countries or
regions, including travel, trade, tourism, the health system,
food supply, consumption, overall economic output and,
eventually, on the financial markets. In addition, a pandemic
that affected our employees or the employees of our distributors
or of other companies with which we do business could disrupt
our business operations. The effectiveness of external parties,
including governmental and non-governmental organizations, in
combating the spread and severity of such a pandemic could have
a material impact on the losses experienced by us. In our group
insurance operations, a localized event that affects the
workplace of one or more of our group insurance customers could
cause a significant loss due to mortality or morbidity claims.
These events could cause a material adverse effect on our
results of operations in any period and, depending on their
severity, could also materially and adversely affect our
financial condition.
Our Auto & Home business has experienced, and will
likely in the future experience, catastrophe losses that may
have a material adverse impact on the business, results of
operations and financial condition of the Auto & Home
segment. Although Auto & Home makes every effort to
manage our exposure to catastrophic risks through volatility
management and reinsurance programs, these efforts do not
eliminate all risk. Catastrophes can be caused by various
events, including pandemics, hurricanes, windstorms,
earthquakes, hail, tornadoes, explosions, severe winter weather
(including snow, freezing water, ice storms and blizzards),
fires and man-made events such as terrorist attacks.
Historically, substantially all of our catastrophe-related
claims have related to homeowners coverages. However,
catastrophes may also affect other Auto & Home
coverages. Due to their nature, we cannot predict the incidence,
timing and severity of catastrophes. In addition, changing
climate conditions, primarily rising global temperatures, may be
increasing, or may in the future increase, the frequency and
severity of natural catastrophes such as hurricanes.
Hurricanes and earthquakes are of particular note for our
homeowners coverages. Areas of major hurricane exposure include
coastal sections of the northeastern United States (including
lower New York, Connecticut, Rhode Island and Massachusetts),
the Gulf Coast (including Alabama, Mississippi, Louisiana and
Texas) and Florida. We
222
also have some earthquake exposure, primarily along the New
Madrid fault line in the central United States and in the
Pacific Northwest.
The extent of losses from a catastrophe is a function of both
the total amount of insured exposure in the area affected by the
event and the severity of the event. Most catastrophes are
restricted to small geographic areas; however, pandemics,
hurricanes, earthquakes and man-made catastrophes may produce
significant damage or loss of life in larger areas, especially
those that are heavily populated. Claims resulting from natural
or man-made catastrophic events could cause substantial
volatility in our financial results for any fiscal quarter or
year and could materially reduce our profitability or harm our
financial condition. Also, catastrophic events could harm the
financial condition of our reinsurers and thereby increase the
probability of default on reinsurance recoveries. Our ability to
write new business could also be affected. It is possible that
increases in the value, caused by the effects of inflation or
other factors, and geographic concentration of insured property,
could increase the severity of claims from catastrophic events
in the future.
Most of the jurisdictions in which our insurance subsidiaries
are admitted to transact business require life and property and
casualty insurers doing business within the jurisdiction to
participate in guaranty associations, which are organized to pay
contractual benefits owed pursuant to insurance policies issued
by impaired, insolvent or failed insurers. These associations
levy assessments, up to prescribed limits, on all member
insurers in a particular state on the basis of the proportionate
share of the premiums written by member insurers in the lines of
business in which the impaired, insolvent or failed insurer is
engaged. In addition, certain states have government owned or
controlled organizations providing life and property and
casualty insurance to their citizens. The activities of such
organizations could also place additional stress on the adequacy
of guaranty fund assessments. Many of these organizations also
have the power to levy assessments similar to those of the
guaranty associations described above. Some states permit member
insurers to recover assessments paid through full or partial
premium tax offsets. See Business
Regulation Insurance Regulation Guaranty
Associations and Similar Arrangements in the 2009 Annual
Report.
While in the past five years, the aggregate assessments levied
against MetLife, Inc.s insurance subsidiaries have not
been material, it is possible that a large catastrophic event
could render such guaranty funds inadequate and we may be called
upon to contribute additional amounts, which may have a material
impact on our financial condition or results of operations in a
particular period. We have established liabilities for guaranty
fund assessments that we consider adequate for assessments with
respect to insurers that are currently subject to insolvency
proceedings, but additional liabilities may be necessary. See
Note 16 of the Notes to the Consolidated Financial
Statements in the 2009 Annual Report.
Consistent with industry practice and accounting standards, we
establish liabilities for claims arising from a catastrophe only
after assessing the probable losses arising from the event. We
cannot be certain that the liabilities we have established will
be adequate to cover actual claim liabilities. From time to
time, states have passed legislation that has the effect of
limiting the ability of insurers to manage risk, such as
legislation restricting an insurers ability to withdraw
from catastrophe-prone areas. While we attempt to limit our
exposure to acceptable levels, subject to restrictions imposed
by insurance regulatory authorities, a catastrophic event or
multiple catastrophic events could have a material adverse
effect on our business, results of operations and financial
condition.
Our ability to manage this risk and the profitability of our
property and casualty and life insurance businesses depends in
part on our ability to obtain catastrophe reinsurance, which may
not be available at commercially acceptable rates in the future.
See Reinsurance May Not Be Available,
Affordable or Adequate to Protect Us Against Losses.
Our Statutory Reserve Financings May Be Subject to Cost
Increases and New Financings May Be Subject to Limited Market
Capacity
To support statutory reserves for several products, including,
but not limited to, our level premium term life and universal
life with secondary guarantees and MLICs closed block, we
currently utilize capital markets solutions for financing a
portion of our statutory reserve requirements. While we have
financing facilities in place for our previously written
business and have remaining capacity in existing facilities to
support writings through the
223
end of 2010 or later, certain of these facilities are subject to
cost increases upon the occurrence of specified ratings
downgrades of MetLife or are subject to periodic repricing. Any
resulting cost increases could negatively impact our financial
results.
Future capacity for these statutory reserve funding structures
in the marketplace is not guaranteed. If capacity becomes
unavailable for a prolonged period of time, hindering our
ability to obtain funding for these new structures, our ability
to write additional business in a cost effective manner may be
impacted.
Competitive
Factors May Adversely Affect Our Market Share and
Profitability
Our business segments are subject to intense competition. We
believe that this competition is based on a number of factors,
including service, product features, scale, price, financial
strength, claims-paying ratings, credit ratings,
e-business
capabilities and name recognition. We compete with a large
number of other insurers, as well as non-insurance financial
services companies, such as banks, broker-dealers and asset
managers, for individual consumers, employers and other group
customers and agents and other distributors of insurance and
investment products. Some of these companies offer a broader
array of products, have more competitive pricing or more
attractive features in their products or, with respect to other
insurers, have higher claims paying ability ratings. Some may
also have greater financial resources with which to compete.
National banks, which may sell annuity products of life insurers
in some circumstances, also have pre-existing customer bases for
financial services products. Many of our group insurance
products are underwritten annually, and, accordingly, there is a
risk that group purchasers may be able to obtain more favorable
terms from competitors rather than renewing coverage with us.
The effect of competition may, as a result, adversely affect the
persistency of these and other products, as well as our ability
to sell products in the future.
In addition, the investment management and securities brokerage
businesses have relatively few barriers to entry and continually
attract new entrants. See Business
Competition in the 2009 Annual Report.
Finally, the choices made by the U.S. Treasury in the
administration of EESA and in its distribution of amounts
available thereunder may have had the effect of supporting some
parts of the financial system more than others, and the new
requirements imposed on the financial industry by Dodd-Frank
could similarly have differential effects. See
Actions of the U.S. Government, Federal
Reserve Bank of New York and Other Governmental and Regulatory
Bodies for the Purpose of Stabilizing and Revitalizing the
Financial Markets and Protecting Investors and Consumers May Not
Achieve the Intended Effect or Could Adversely Affect
MetLifes Competitive Position and
President Obama Recently Signed a Bill
Providing for Comprehensive Reform of Financial Services
Regulation in the United States, Various Aspects of Which Could
Impact Our Business Operations, Capital Requirements and
Profitability and Limit Our Growth.
Industry
Trends Could Adversely Affect the Profitability of Our
Businesses
Our business segments continue to be influenced by a variety of
trends that affect the insurance industry, including competition
with respect to product features, price, distribution
capability, customer service and information technology. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations Industry
Trends. The impact on our business and on the life
insurance industry generally of the volatility and instability
of the financial markets is difficult to predict, and our
business plans, financial condition and results of operations
may be negatively impacted or affected in other unexpected ways.
In addition, the life insurance industry is subject to state
regulation, and, as complex products are introduced, regulators
may refine capital requirements and introduce new reserving
standards. Furthermore, regulators have undertaken market and
sales practices reviews of several markets or products,
including variable annuities and group products. The market
environment may also lead to changes in regulation that may
benefit or disadvantage us relative to some of our competitors.
See Business Competition in the 2009
Annual Report and Competitive Factors May
Adversely Affect Our Market Share and Profitability.
Consolidation of Distributors of Insurance Products May
Adversely Affect the Insurance Industry and the Profitability of
Our Business
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The insurance industry distributes many of its individual
products through other financial institutions such as banks and
broker-dealers. An increase in bank and broker-dealer
consolidation activity may negatively impact the industrys
sales, and such consolidation could increase competition for
access to distributors, result in greater distribution expenses
and impair our ability to market insurance products to our
current customer base or to expand our customer base.
Consolidation of distributors
and/or other
industry changes may also increase the likelihood that
distributors will try to renegotiate the terms of any existing
selling agreements to terms less favorable to us.
Our Valuation of Fixed Maturity, Equity and Trading
Securities and Short-Term Investments May Include Methodologies,
Estimations and Assumptions Which Are Subject to Differing
Interpretations and Could Result in Changes to Investment
Valuations That May Materially Adversely Affect Our Results of
Operations or Financial Condition
Fixed maturity, equity, and trading securities and short-term
investments which are reported at estimated fair value on the
consolidated balance sheets represent the majority of our total
cash and investments. We have categorized these securities into
a three-level hierarchy, based on the priority of the inputs to
the respective valuation technique.
The fair value hierarchy gives the highest priority to quoted
prices in active markets for identical assets or liabilities
(Level 1) and the lowest priority to unobservable
inputs (Level 3). An asset or liabilitys
classification within the fair value hierarchy is based on the
lowest level of significant input to its valuation. The input
levels are as follows:
Level 1 Unadjusted quoted prices in active
markets for identical assets or liabilities. We define active
markets based on average trading volume for equity securities.
The size of the bid/ask spread is used as an indicator of market
activity for fixed maturity securities.
Level 2 Quoted prices in markets that are not
active or inputs that are observable either directly or
indirectly. Level 2 inputs include quoted prices for
similar assets or liabilities other than quoted prices in
Level 1; quoted prices in markets that are not active; or
other inputs that are observable or can be derived principally
from or corroborated by observable market data for substantially
the full term of the assets or liabilities.
Level 3 Unobservable inputs that are supported
by little or no market activity and are significant to the fair
value of the assets or liabilities. Unobservable inputs reflect
the reporting entitys own assumptions about the
assumptions that market participants would use in pricing the
asset or liability. Level 3 assets and liabilities include
financial instruments whose values are determined using pricing
models, discounted cash flow methodologies, or similar
techniques, as well as instruments for which the determination
of fair value requires significant management judgment or
estimation.
At June 30, 2010, 8.6%, 84.2% and 7.2% of these securities
represented Level 1, Level 2 and Level 3,
respectively. The Level 1 securities primarily consist of
certain U.S. Treasury, agency and government guaranteed
fixed maturity securities; certain foreign government fixed
maturity securities; exchange-traded common stock; certain
trading securities; and certain short-term investments. The
Level 2 assets include fixed maturity and equity securities
priced principally through independent pricing services using
observable inputs. These fixed maturity securities include most
U.S. Treasury, agency and government guaranteed securities,
as well as the majority of U.S. and foreign corporate
securities, RMBS, CMBS, state and political subdivision
securities, foreign government securities, and ABS. Equity
securities classified as Level 2 primarily consist of
non-redeemable preferred securities and certain equity
securities where market quotes are available but are not
considered actively traded and are priced by independent pricing
services. We review the valuation methodologies used by the
independent pricing services on an ongoing basis and ensure that
any changes to valuation methodologies are justified.
Level 3 assets include fixed maturity securities priced
principally through independent non-binding broker quotations or
market standard valuation methodologies using inputs that are
not market observable or cannot be derived principally from or
corroborated by observable market data. Level 3 consists of
less liquid fixed maturity securities with very limited trading
activity or where less price transparency exists around the
inputs to the valuation methodologies including: U.S. and
foreign corporate securities including below
investment grade private placements; RMBS; CMBS; and
ABS including all of those supported by
sub-prime
mortgage loans. Equity securities classified as Level 3
securities consist principally of nonredeemable preferred stock
and common stock of companies that are privately
225
held or companies for which there has been very limited trading
activity or where less price transparency exists around the
inputs to the valuation.
Prices provided by independent pricing services and independent
non-binding broker quotations can vary widely even for the same
security.
The determination of estimated fair values by management in the
absence of quoted market prices is based on: (i) valuation
methodologies; (ii) securities we deem to be comparable;
and (iii) assumptions deemed appropriate given the
circumstances. The fair value estimates are made at a specific
point in time, based on available market information and
judgments about financial instruments, including estimates of
the timing and amounts of expected future cash flows and the
credit standing of the issuer or counterparty. Factors
considered in estimating fair value include: coupon rate,
maturity, estimated duration, call provisions, sinking fund
requirements, credit rating, industry sector of the issuer, and
quoted market prices of comparable securities. The use of
different methodologies and assumptions may have a material
effect on the estimated fair value amounts.
During periods of market disruption including periods of
significantly rising or high interest rates, rapidly widening
credit spreads or illiquidity, it may be difficult to value
certain of our securities, for example
sub-prime
mortgage-backed securities, mortgage-backed securities where the
underlying loans are Alt-A and CMBS, if trading becomes less
frequent
and/or
market data becomes less observable. In times of financial
market disruption, certain asset classes that were in active
markets with significant observable data may become illiquid. In
such cases, more securities may fall to Level 3 and thus
require more subjectivity and management judgment. As such,
valuations may include inputs and assumptions that are less
observable or require greater estimation, as well as valuation
methods which are more sophisticated or require greater
estimation thereby resulting in estimated fair values which may
be greater or less than the amount at which the investments may
be ultimately sold. Further, rapidly changing and unprecedented
credit and equity market conditions could materially impact the
valuation of securities as reported within our consolidated
financial statements and the
period-to-period
changes in estimated fair value could vary significantly.
Decreases in value may have a material adverse effect on our
results of operations or financial condition.
If Our
Business Does Not Perform Well, We May Be Required to Recognize
an Impairment of Our Goodwill or Other Long-Lived Assets or to
Establish a Valuation Allowance Against the Deferred Income Tax
Asset, Which Could Adversely Affect Our Results of Operations or
Financial Condition
Goodwill represents the excess of the amounts we paid to acquire
subsidiaries and other businesses over the estimated fair value
of their net assets at the date of acquisition. See
If the Alico Business Does Not Perform
Well or We Do Not Integrate It Successfully, We May Incur
Significant Charges to Write Down the Goodwill Established in
the Acquisition. We test goodwill at least annually for
impairment. Impairment testing is performed based upon estimates
of the estimated fair value of the reporting unit to
which the goodwill relates. The reporting unit is the operating
segment or a business one level below that operating segment if
discrete financial information is prepared and regularly
reviewed by management at that level. The estimated fair value
of the reporting unit is impacted by the performance of the
business. The performance of our businesses may be adversely
impacted by prolonged market declines. If it is determined that
the goodwill has been impaired, we must write down the goodwill
by the amount of the impairment, with a corresponding charge to
net income. Such writedowns could have an adverse effect on our
results of operations or financial position. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations Summary of
Critical Accounting Estimates Goodwill in the
2009 Annual Report.
Long-lived assets, including assets such as real estate, also
require impairment testing to determine whether changes in
circumstances indicate that MetLife will be unable to recover
the carrying amount of the asset group through future operations
of that asset group or market conditions that will impact the
estimated fair value of those assets. Such writedowns could have
a material adverse effect on our results of operations or
financial position. Deferred income tax represents the tax
effect of the differences between the book and tax basis of
assets and liabilities.
Deferred tax assets are assessed periodically by management to
determine if they are realizable. Factors in managements
determination include the performance of the business including
the ability to generate future taxable income. If based on
available information, it is more likely than not that the
deferred income tax asset will
226
not be realized then a valuation allowance must be established
with a corresponding charge to net income. Such charges could
have a material adverse effect on our results of operations or
financial position.
If Our Business Does Not Perform Well or if Actual
Experience Versus Estimates Used in Valuing and Amortizing DAC,
DSI and VOBA Vary Significantly, We May Be Required to
Accelerate the Amortization
and/or
Impair the DAC, DSI and VOBA Which Could Adversely Affect Our
Results of Operations or Financial Condition
We incur significant costs in connection with acquiring new and
renewal business. Those costs that vary with and are primarily
related to the production of new and renewal business are
deferred and referred to as DAC. Bonus amounts credited to
certain policyholders, either immediately upon receiving a
deposit or as excess interest credits for a period of time, are
referred to as DSI. The recovery of DAC and DSI is dependent
upon the future profitability of the related business. The
amount of future profit or margin is dependent principally on
investment returns in excess of the amounts credited to
policyholders, mortality, morbidity, persistency, interest
crediting rates, dividends paid to policyholders, expenses to
administer the business, creditworthiness of reinsurance
counterparties and certain economic variables, such as
inflation. Of these factors, we anticipate that investment
returns are most likely to impact the rate of amortization of
such costs. The aforementioned factors enter into
managements estimates of gross profits or margins, which
generally are used to amortize such costs.
If the estimates of gross profits or margins were overstated,
then the amortization of such costs would be accelerated in the
period the actual experience is known and would result in a
charge to income. Significant or sustained equity market
declines could result in an acceleration of amortization of the
DAC and DSI related to variable annuity and variable universal
life contracts, resulting in a charge to income. Such
adjustments could have a material adverse effect on our results
of operations or financial condition.
VOBA reflects the estimated fair value of in-force contracts in
a life insurance company acquisition and represents the portion
of the purchase price that is allocated to the value of the
right to receive future cash flows from the insurance and
annuity contracts in-force at the acquisition date. VOBA is
based on actuarially determined projections. Actual experience
may vary from the projections. Revisions to estimates result in
changes to the amounts expensed in the reporting period in which
the revisions are made and could result in a charge to income.
Also, as VOBA is amortized similarly to DAC and DSI, an
acceleration of the amortization of VOBA would occur if the
estimates of gross profits or margins were overstated.
Accordingly, the amortization of such costs would be accelerated
in the period in which the actual experience is known and would
result in a charge to net income. Significant or sustained
equity market declines could result in an acceleration of
amortization of the VOBA related to variable annuity and
variable universal life contracts, resulting in a charge to
income. Such adjustments could have a material adverse effect on
our results of operations or financial condition. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations Summary of
Critical Accounting Estimates Deferred Policy
Acquisition Costs and Value of Business Acquired in the
2009 Annual Report for further consideration of DAC and VOBA.
Changes in Accounting Standards Issued by the Financial
Accounting Standards Board or Other Standard- Setting Bodies May
Adversely Affect Our Financial Statements
Our financial statements are subject to the application of GAAP,
which is periodically revised
and/or
expanded. Accordingly, from time to time we are required to
adopt new or revised accounting standards issued by recognized
authoritative bodies, including the Financial Accounting
Standards Board. Market conditions have prompted accounting
standard setters to expose new guidance which further interprets
or seeks to revise accounting pronouncements related to
financial instruments, structures or transactions, as well as to
issue new standards expanding disclosures. The impact of
accounting pronouncements that have been issued but not yet
implemented is disclosed in our annual and quarterly reports on
Form 10-K
and
Form 10-Q.
An assessment of proposed standards is not provided as such
proposals are subject to change through the exposure process
and, therefore, the effects on our financial statements cannot
be meaningfully assessed. It is possible that future accounting
standards we are required to adopt could change the current
accounting treatment that we apply to our consolidated financial
statements and that such changes could have a material adverse
effect on our financial condition and results of operations.
227
Changes in Our Discount Rate, Expected Rate of Return and
Expected Compensation Increase Assumptions for Our Pension and
Other Postretirement Benefit Plans May Result in Increased
Expenses and Reduce Our Profitability
We determine our pension and other postretirement benefit plan
costs based on our best estimates of future plan experience.
These assumptions are reviewed regularly and include discount
rates, expected rates of return on plan assets and expected
increases in compensation levels and expected medical inflation.
Changes in these assumptions may result in increased expenses
and reduce our profitability. See Note 17 of the Notes to
the Consolidated Financial Statements in the 2009 Annual Report
for details on how changes in these assumptions would affect
plan costs.
Guarantees Within Certain of Our Products that Protect
Policyholders Against Significant Downturns in Equity Markets
May Decrease Our Earnings, Increase the Volatility of Our
Results if Hedging or Risk Management Strategies Prove
Ineffective, Result in Higher Hedging Costs and Expose Us to
Increased Counterparty Risk
Certain of our variable annuity products include guaranteed
benefits. These include guaranteed death benefits, guaranteed
withdrawal benefits, lifetime withdrawal guarantees, guaranteed
minimum accumulation benefits, and guaranteed minimum income
benefits. Periods of significant and sustained downturns in
equity markets, increased equity volatility, or reduced interest
rates could result in an increase in the valuation of the future
policy benefit or policyholder account balance liabilities
associated with such products, resulting in a reduction to net
income. We use reinsurance in combination with derivative
instruments to mitigate the liability exposure and the
volatility of net income associated with these liabilities, and
while we believe that these and other actions have mitigated the
risks related to these benefits, we remain liable for the
guaranteed benefits in the event that reinsurers or derivative
counterparties are unable or unwilling to pay. In addition, we
are subject to the risk that hedging and other management
procedures prove ineffective or that unanticipated policyholder
behavior or mortality, combined with adverse market events,
produces economic losses beyond the scope of the risk management
techniques employed. These, individually or collectively, may
have a material adverse effect on net income, financial
condition or liquidity. We are also subject to the risk that the
cost of hedging these guaranteed minimum benefits increases,
resulting in a reduction to net income.
The valuation of certain of the foregoing liabilities (carried
at fair value) includes an adjustment for nonperformance risk
that reflects the credit standing of the issuing entity. This
adjustment, which is not hedged, is based in part on publicly
available information regarding credit spreads related to the
Holding Companys debt, including credit default swaps. In
periods of extreme market volatility, movements in these credit
spreads can have a significant impact on net income.
We May Need to Fund Deficiencies in Our Closed Block;
Assets Allocated to the Closed Block Benefit Only the Holders of
Closed Block Policies
MLICs plan of reorganization, as amended (the
Plan), required that we establish and operate an
accounting mechanism, known as a closed block, to ensure that
the reasonable dividend expectations of policyholders who own
certain individual insurance policies of MLIC are met. See
Note 10 of the Notes to the Consolidated Financial
Statements in the 2009 Annual Report. We allocated assets to the
closed block in an amount that will produce cash flows which,
together with anticipated revenue from the policies included in
the closed block, are reasonably expected to be sufficient to
support obligations and liabilities relating to these policies,
including, but not limited to, provisions for the payment of
claims and certain expenses and tax, and to provide for the
continuation of the policyholder dividend scales in effect for
1999, if the experience underlying such scales continues, and
for appropriate adjustments in such scales if the experience
changes. We cannot provide assurance that the closed block
assets, the cash flows generated by the closed block assets and
the anticipated revenue from the policies included in the closed
block will be sufficient to provide for the benefits guaranteed
under these policies. If they are not sufficient, we must fund
the shortfall. Even if they are sufficient, we may choose, for
competitive reasons, to support policyholder dividend payments
with our general account funds.
The closed block assets, the cash flows generated by the closed
block assets and the anticipated revenue from the policies in
the closed block will benefit only the holders of those
policies. In addition, to the extent that these amounts are
greater than the amounts estimated at the time the closed block
was funded, dividends payable in
228
respect of the policies included in the closed block may be
greater than they would be in the absence of a closed block. Any
excess earnings will be available for distribution over time
only to closed block policyholders.
Litigation and Regulatory Investigations Are Increasingly
Common in Our Businesses and May Result in Significant Financial
Losses and Harm to Our Reputation
We face a significant risk of litigation and regulatory
investigations and actions in the ordinary course of operating
our businesses, including the risk of class action lawsuits. Our
pending legal and regulatory actions include proceedings
specific to us and others generally applicable to business
practices in the industries in which we operate. In connection
with our insurance operations, plaintiffs lawyers may
bring or are bringing class actions and individual suits
alleging, among other things, issues relating to sales or
underwriting practices, claims payments and procedures, product
design, disclosure, administration, denial or delay of benefits
and breaches of fiduciary or other duties to customers.
Plaintiffs in class action and other lawsuits against us may
seek very large or indeterminate amounts, including punitive and
treble damages, and the damages claimed and the amount of any
probable and estimable liability, if any, may remain unknown for
substantial periods of time. See Note 8 of the Notes to the
Interim Condensed Consolidated Financial Statements.
Due to the vagaries of litigation, the outcome of a litigation
matter and the amount or range of potential loss at particular
points in time may be inherently impossible to ascertain with
any degree of certainty. Inherent uncertainties can include how
fact finders will view individually and in their totality
documentary evidence, the credibility and effectiveness of
witnesses testimony, and how trial and appellate courts
will apply the law in the context of the pleadings or evidence
presented, whether by motion practice, or at trial or on appeal.
Disposition valuations are also subject to the uncertainty of
how opposing parties and their counsel will themselves view the
relevant evidence and applicable law.
On a quarterly and annual basis, we review relevant information
with respect to litigation and contingencies to be reflected in
our consolidated financial statements. The review includes
senior legal and financial personnel. Unless stated elsewhere
herein, estimates of possible losses or ranges of loss for
particular matters cannot in the ordinary course be made with a
reasonable degree of certainty. Liabilities are established when
it is probable that a loss has been incurred and the amount of
the loss can be reasonably estimated.
Liabilities have been established for a number of matters noted
in Note 8 of the Notes to the Interim Condensed
Consolidated Financial Statements. It is possible that some of
the matters could require us to pay damages or make other
expenditures or establish accruals in amounts that could not be
estimated at June 30, 2010.
MLIC and its affiliates are currently defendants in numerous
lawsuits including class actions and individual suits, alleging
improper marketing or sales of individual life insurance
policies, annuities, mutual funds or other products.
In addition, MLIC is a defendant in a large number of lawsuits
seeking compensatory and punitive damages for personal injuries
allegedly caused by exposure to asbestos or asbestos-containing
products. These lawsuits principally have focused on allegations
with respect to certain research, publication and other
activities of one or more of MLICs employees during the
period from the 1920s through approximately the
1950s and have alleged that MLIC learned or should have
learned of certain health risks posed by asbestos and, among
other things, improperly publicized or failed to disclose those
health risks. Additional litigation relating to these matters
may be commenced in the future. The ability of MLIC to estimate
its ultimate asbestos exposure is subject to considerable
uncertainty, and the conditions impacting its liability can be
dynamic and subject to change. The availability of reliable data
is limited and it is difficult to predict with any certainty the
numerous variables that can affect liability estimates,
including the number of future claims, the cost to resolve
claims, the disease mix and severity of disease in pending and
future claims, the impact of the number of new claims filed in a
particular jurisdiction and variations in the law in the
jurisdictions in which claims are filed, the possible impact of
tort reform efforts, the willingness of courts to allow
plaintiffs to pursue claims against MLIC when exposure took
place after the dangers of asbestos exposure were well known,
and the impact of any possible future adverse verdicts and their
amounts. The number of asbestos cases that may be brought or the
aggregate amount of any liability that MLIC may incur, and the
total amount paid in settlements in any given year are uncertain
and may vary significantly from year to year. Accordingly, it is
reasonably possible that our total exposure to asbestos claims
may be materially greater than
229
the liability recorded by us in our consolidated financial
statements and that future charges to income may be necessary.
The potential future charges could be material in the particular
quarterly or annual periods in which they are recorded.
We are also subject to various regulatory inquiries, such as
information requests, subpoenas and books and record
examinations, from state and federal regulators and other
authorities. A substantial legal liability or a significant
regulatory action against us could have a material adverse
effect on our business, financial condition and results of
operations. Moreover, even if we ultimately prevail in the
litigation, regulatory action or investigation, we could suffer
significant reputational harm, which could have a material
adverse effect on our business, financial condition and results
of operations, including our ability to attract new customers,
retain our current customers and recruit and retain employees.
Regulatory inquiries and litigation may cause volatility in the
price of stocks of companies in our industry.
The New York Attorney General recently announced that his office
had launched a major fraud investigation into the life insurance
industry for practices related to the use of retained asset
accounts and that subpoenas requesting comprehensive data
related to retained asset accounts have been served on MetLife
and other insurance carriers. We received the subpoena on
July 30, 2010. We offer a retained asset account for death
benefit payments called a Total Control Account
(TCA) as a settlement option under our individual
and group life insurance policies. When a TCA is established for
a beneficiary, we retain the death benefit proceeds in the
general account and pay interest on those proceeds at a rate set
by reference to objective indices. Additionally, the accounts
enjoy a guaranteed minimum interest rate. Beneficiaries can
withdraw all of the funds or a portion of the funds held in the
account at any time. It is possible that other state and federal
regulators or legislative bodies may pursue similar
investigations or make related inquiries. We cannot predict what
effect any such investigations might have on our earnings or the
availability of the TCA, but we believe that our financial
statements taken as a whole would not be materially affected. We
believe that any allegations that information about the TCA is
not adequately disclosed or that the accounts are fraudulent or
violate state or federal laws are without merit.
We cannot give assurance that current claims, litigation,
unasserted claims probable of assertion, investigations and
other proceedings against us will not have a material adverse
effect on our business, financial condition or results of
operations. It is also possible that related or unrelated
claims, litigation, unasserted claims probable of assertion,
investigations and proceedings may be commenced in the future,
and we could become subject to further investigations and have
lawsuits filed or enforcement actions initiated against us. In
addition, increased regulatory scrutiny and any resulting
investigations or proceedings could result in new legal actions
and precedents and industry-wide regulations that could
adversely affect our business, financial condition and results
of operations.
New and Impending Compensation and Corporate Governance
Regulations 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
The compensation and corporate governance practices of financial
institutions will become subject to increasing regulation and
scrutiny. Dodd-Frank includes new requirements that will affect
our corporate governance and compensation practices, including
some that are likely to lead to shareholders having the limited
right to use MetLife, Inc.s proxy statement to solicit
proxies to vote for their own candidates for director, impose
additional requirements for membership on Board committees,
require additional shareholder votes on compensation matters,
require policies to recover compensation previously paid to
certain executives under certain circumstances, eliminate broker
discretionary voting on compensation matters, require additional
performance and compensation disclosure, and other requirements.
See President Obama Recently Signed a Bill
Providing for Comprehensive Reform of Financial Services
Regulation in the United States, Various Aspects of Which Could
Impact Our Business Operations, Capital Requirements and
Profitability and Limit Our Growth. In addition, the
Federal Reserve Board, the FDIC and other U.S. bank
regulators have released guidelines on incentive compensation
that may apply to or impact MetLife, Inc. as a bank holding
company.
These requirements and restrictions, and others Congress or
regulators may propose or implement, 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. Other new rules, such as the Health Care
Act (as defined below),
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could also limit our tax deductions for certain compensation
paid to executive officers and other employees in excess of
specified amounts. We may also be subject to requirements and
restrictions on our business if we participate in some of the
programs established in whole or in part under EESA.
Although AIG, the ultimate parent company of the Alico Business,
has received assurances from the TARP Special Master for
Executive Compensation that neither we nor the Alico Business
will be subject to compensation related requirements and
restrictions under programs established in whole or in part
under EESA, there can be no assurance that the Acquisition will
not lead to greater public or governmental scrutiny, regulation,
or restrictions on our compensation practices as a result of the
Acquisition and expansion into new markets outside the United
States, whether in connection with AIGs having received
U.S. government funding or as a result of other factors.
Legislative and Regulatory Activity in Health Care and
Other Employee Benefits Could Increase the Costs or
Administrative Burdens of Providing Benefits to Our Employees or
Hinder or Prevent Us From Attracting and Retaining Employees, or
Affect our Profitability As a Provider of Life Insurance,
Annuities, and Non-Medical Health Insurance Benefit
Products.
The Patient Protection and Affordable Care Act, signed into law
on March 23, 2010, and The Health Care and Education
Reconciliation Act of 2010, signed into law on March 30,
2010 (together, the Health Care Act), may lead to
fundamental changes in the way that employers, including us,
provide health care benefits, other benefits, and other forms of
compensation to their employees and former employees. Among
other changes, and subject to various effective dates, the
Health Care Act generally restricts certain limits on benefits,
mandates coverage for certain kinds of care, extends the
required coverage of dependent children through age 26,
eliminates pre-existing condition exclusions or limitations,
requires cost reporting and, in some cases, requires premium
rebates to participants under certain circumstances, limits
coverage waiting periods, establishes several penalties on
employers who fail to offer sufficient coverage to their
full-time employees, and requires employers under certain
circumstances to provide employees with vouchers to purchase
their own health care coverage. The Health Care Act also
provides for increased taxation of high cost
coverage, restricts the tax deductibility of certain
compensation paid by health care and some other insurers,
reduces the tax deductibility of retiree health care costs to
the extent of any retiree prescription drug benefit subsidy
provided to the employer by the federal government, increases
Medicare taxes on certain high earners, and establishes health
insurance exchanges for individual purchases of
health insurance.
The impact of the Health Care Act on us as an employer and on
the benefit plans we sponsor for employees or retirees and their
dependents, whether those benefits remain competitive or
effective in meeting their business objectives, and our costs to
provide such benefits and our tax liabilities in connection with
benefits or compensation, cannot be predicted. Furthermore, we
cannot predict the impact of choices that will be made by
various regulators, including the United States Treasury, the
Internal Revenue Service (IRS), the United States
Department of Health and Human Services, and state regulators,
to promulgate regulations or guidance, or to make determinations
under or related to the Health Care Act. Either the Health Care
Act or any of these regulatory actions could adversely affect
our ability to attract, retain, and motivate talented
associates. They could also result in increased or unpredictable
costs to provide employee benefits, and could harm our
competitive position if we are subject to fees, penalties, tax
provisions or other limitations in the Health Care Act and our
competitors are not.
The Health Care Act also imposes requirements on us as a
provider of life insurance, annuities, and non-medical health
insurance benefit products, subject to various effective dates.
It also imposes requirements on the purchasers of certain of
these products. We cannot predict the impact of the Act or of
regulations, guidance or determinations made by various
regulators, on the various products that we offer. Either the
Health Care Act or any of these regulatory actions could
adversely affect our ability to offer certain of these products
in the same manner as we do today. They could also result in
increased or unpredictable costs to provide certain products,
and could harm our competitive position if the Health Care Act
has a disparate impact on our products compared to products
offered by our competitors.
The Preservation of Access to Care for Medicare Beneficiaries
and Pension Relief Act of 2010 also includes certain provisions
for defined benefit pension plan funding relief. These
provisions may impact the likelihood
and/or
timing of corporate plan sponsors terminating their plans
and/or
engaging in transactions to partially or fully transfer pension
obligations to an insurance company. As part of our Corporate
Benefit Funding segment, we offer
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general account and separate account group annuity products that
enable a plan sponsor to transfer these risks, often in
connection with the termination of defined benefit pension
plans. Consequently, this legislation could indirectly affect
the mix of our business, with fewer closeouts and more
non-guaranteed funding products, and adversely impact our
results of operations.
Changes in U.S. Federal and State Securities Laws and
Regulations May Affect Our Operations and Our
Profitability
Federal and state securities laws and regulations apply to
insurance products that are also securities,
including variable annuity contracts and variable life insurance
policies. As a result, some of MetLife, Inc.s subsidiaries
and their activities in offering and selling variable insurance
contracts and policies are subject to extensive regulation under
these securities laws. These subsidiaries issue variable annuity
contracts and variable life insurance policies through separate
accounts that are registered with the SEC as investment
companies under the Investment Company Act. Each registered
separate account is generally divided into
sub-accounts,
each of which invests in an underlying mutual fund which is
itself a registered investment company under the Investment
Company Act. In addition, the variable annuity contracts and
variable life insurance policies issued by the separate accounts
are registered with the SEC under the Securities Act. Other
subsidiaries are registered with the SEC as broker-dealers under
the Exchange Act, and are members of, and subject to, regulation
by Financial Industry Regulatory Authority, Inc.
(FINRA). Further, some of our subsidiaries are
registered as investment advisers with the SEC under the
Investment Advisers Act of 1940, and are also registered as
investment advisers in various states, as applicable.
Federal and state securities laws and regulations are primarily
intended to ensure the integrity of the financial markets and to
protect investors in the securities markets, as well as protect
investment advisory or brokerage clients. These laws and
regulations generally grant regulatory agencies broad rulemaking
and enforcement powers, including the power to limit or restrict
the conduct of business for failure to comply with the
securities laws and regulations. A number of changes have
recently been suggested to the laws and regulations that govern
the conduct of our variable insurance products business that
could have a material adverse effect on our financial condition
and results of operations. For example, Dodd-Frank authorizes
the SEC to establish a standard of conduct applicable to brokers
and dealers when providing personalized investment advice to
retail and other customers. This standard of conduct would be to
act in the best interest of the customer without regard to the
financial or other interest of the broker or dealer providing
the advice. In addition, the NAIC has adopted a revised
Suitability in Annuity Transactions Model Regulation, that will,
if enacted by the states, place new responsibilities upon
issuing insurance companies with respect to the suitability of
annuity sales, including responsibilities for training agents.
Changes in Tax Laws, Tax Regulations, or Interpretations
of Such Laws or Regulations Could Increase Our Corporate Taxes;
Changes in Tax Laws Could Make Some of Our Products Less
Attractive to Consumers
Changes in tax laws, Treasury and other regulations promulgated
thereunder, or interpretations of such laws or regulations could
increase our corporate taxes. The Obama Administration has
proposed corporate tax changes. Changes in corporate tax rates
could affect the value of deferred tax assets and deferred tax
liabilities. Furthermore, the value of deferred tax assets could
be impacted by future earnings levels.
Changes in tax laws could make some of our products less
attractive to consumers. A shift away from life insurance and
annuity contracts and other tax-deferred products would reduce
our income from sales of these products, as well as the assets
upon which we earn investment income. The Obama Administration
has proposed certain changes to individual income tax rates and
rules applicable to certain policies.
We cannot predict whether any tax legislation impacting
corporate taxes or insurance products will be enacted, what the
specific terms of any such legislation will be or whether, if at
all, any legislation would have a material adverse effect on our
financial condition and results of operations.
We May
Be Unable to Attract and Retain Sales Representatives for Our
Products
We must attract and retain productive sales representatives to
sell our insurance, annuities and investment products. Strong
competition exists among insurers for sales representatives with
demonstrated ability. In addition,
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there is competition for representatives with other types of
financial services firms, such as independent broker-dealers.
We compete with other insurers for sales representatives
primarily on the basis of our financial position, support
services and compensation and product features. We continue to
undertake several initiatives to grow our career agency force
while continuing to enhance the efficiency and production of our
existing sales force. We cannot provide assurance that these
initiatives will succeed in attracting and retaining new agents.
Sales of individual insurance, annuities and investment products
and our results of operations and financial condition could be
materially adversely affected if we are unsuccessful in
attracting and retaining agents. See Business
Competition in the 2009 Annual Report.
MetLife, Inc.s Board of Directors May Control the
Outcome of Stockholder Votes on Many Matters Due to the Voting
Provisions of the MetLife Policyholder Trust
Under the Plan, we established the MetLife Policyholder Trust
(the Trust) to hold the shares of MetLife, Inc.
common stock allocated to eligible policyholders not receiving
cash or policy credits under the plan. At July 28, 2010,
the Trust held 226,995,571 shares, or 27.7%, of the
outstanding shares of MetLife, Inc. common stock. Because of the
number of shares held in the Trust and the voting provisions of
the Trust, the Trust may affect the outcome of matters brought
to a stockholder vote.
Except on votes regarding certain fundamental corporate actions
described below, the trustee will vote all of the shares of
common stock held in the Trust in accordance with the
recommendations given by MetLife, Inc.s Board of Directors
to its stockholders or, if the board gives no such
recommendations, as directed by the board. As a result of the
voting provisions of the Trust, the Board of Directors may be
able to control votes on matters submitted to a vote of
stockholders, excluding those fundamental corporate actions, so
long as the Trust holds a substantial number of shares of common
stock.
If the vote relates to fundamental corporate actions specified
in the Trust, the trustee will solicit instructions from the
Trust beneficiaries and vote all shares held in the Trust in
proportion to the instructions it receives. These actions
include:
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an election or removal of directors in which a stockholder has
properly nominated one or more candidates in opposition to a
nominee or nominees of MetLife, Inc.s Board of Directors
or a vote on a stockholders proposal to oppose a board
nominee for director, remove a director for cause or fill a
vacancy caused by the removal of a director by stockholders,
subject to certain conditions;
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a merger or consolidation, a sale, lease or exchange of all or
substantially all of the assets, or a recapitalization or
dissolution, of MetLife, Inc., in each case requiring a vote of
stockholders under applicable Delaware law;
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any transaction that would result in an exchange or conversion
of shares of common stock held by the Trust for cash, securities
or other property; and
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any proposal requiring MetLife, Inc.s Board of Directors
to amend or redeem the rights under MetLife, Inc.s
stockholder rights plan, other than a proposal with respect to
which we have received advice of nationally- recognized legal
counsel to the effect that the proposal is not a proper subject
for stockholder action under Delaware law. MetLife, Inc. does
not currently have a stockholder rights plan.
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If a vote concerns any of these fundamental corporate actions,
the trustee will vote all of the shares of common stock held by
the Trust in proportion to the instructions it received, which
will give disproportionate weight to the instructions actually
given by Trust beneficiaries.
State Laws, Federal Laws, Our Certificate of Incorporation
and Our By-Laws May Delay, Deter or Prevent Takeovers and
Business Combinations that Stockholders Might Consider in Their
Best Interests
State laws and our certificate of incorporation and by-laws may
delay, deter or prevent a takeover attempt that stockholders
might consider in their best interests. For instance, they may
prevent stockholders from receiving the benefit from any premium
over the market price of MetLife, Inc.s common stock
offered by a bidder in a takeover context. Even in the absence
of a takeover attempt, the existence of these provisions may
adversely affect the
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prevailing market price of MetLife, Inc.s common stock if
they are viewed as discouraging takeover attempts in the future.
Any person seeking to acquire a controlling interest in us would
face various regulatory obstacles which may delay, deter or
prevent a takeover attempt that stockholders of MetLife, Inc.
might consider in their best interests. First, the insurance
laws and regulations of the various states in which MetLife,
Inc.s insurance subsidiaries are organized may delay or
impede a business combination involving us. State insurance laws
prohibit an entity from acquiring control of an insurance
company without the prior approval of the domestic insurance
regulator. Under most states statutes, an entity is
presumed to have control of an insurance company if it owns,
directly or indirectly, 10% or more of the voting stock of that
insurance company or its parent company. We are also subject to
banking regulations, and may in the future become subject to
additional regulations. Dodd-Frank contains provisions that
could restrict or impede consolidation, mergers and acquisitions
by systemically significant firms
and/or large
bank holding companies. In addition, the Investment Company Act
would require approval by the contract owners of our variable
contracts in order to effectuate a change of control of any
affiliated investment adviser to a mutual fund underlying our
variable contracts. Finally, FINRA approval would be necessary
for a change of control of any FINRA registered broker-dealer
that is a direct or indirect subsidiary of MetLife, Inc.
In addition, Section 203 of the Delaware General
Corporation Law may affect the ability of an interested
stockholder to engage in certain business combinations,
including mergers, consolidations or acquisitions of additional
shares, for a period of three years following the time that the
stockholder becomes an interested stockholder. An
interested stockholder is defined to include persons
owning, directly or indirectly, 15% or more of the outstanding
voting stock of a corporation.
MetLife, Inc.s certificate of incorporation and by-laws
also contain provisions that may delay, deter or prevent a
takeover attempt that stockholders might consider in their best
interests. These provisions may adversely affect prevailing
market prices for MetLife, Inc.s common stock and include:
classification of MetLife, Inc.s Board of Directors into
three classes; a prohibition on the calling of special meetings
by stockholders; advance notice procedures for the nomination of
candidates to the Board of Directors and stockholder proposals
to be considered at stockholder meetings; and supermajority
voting requirements for the amendment of certain provisions of
the certificate of incorporation and by-laws.
The Continued Threat of Terrorism and Ongoing Military
Actions May Adversely Affect the Level of Claim Losses We Incur
and the Value of Our Investment Portfolio
The continued threat of terrorism, both within the United States
and abroad, ongoing military and other actions and heightened
security measures in response to these types of threats may
cause significant volatility in global financial markets and
result in loss of life, property damage, additional disruptions
to commerce and reduced economic activity. Some of the assets in
our investment portfolio may be adversely affected by declines
in the credit and equity markets and reduced economic activity
caused by the continued threat of terrorism. We cannot predict
whether, and the extent to which, companies in which we maintain
investments may suffer losses as a result of financial,
commercial or economic disruptions, or how any such disruptions
might affect the ability of those companies to pay interest or
principal on their securities or mortgage loans. The continued
threat of terrorism also could result in increased reinsurance
prices and reduced insurance coverage and potentially cause us
to retain more risk than we otherwise would retain if we were
able to obtain reinsurance at lower prices. Terrorist actions
also could disrupt our operations centers in the United States
or abroad. In addition, the occurrence of terrorist actions
could result in higher claims under our insurance policies than
anticipated. See Difficult Conditions in the
Global Capital Markets and the Economy Generally May Materially
Adversely Affect Our Business and Results of Operations and
These Conditions May Not Improve in the Near Future.
The Occurrence of Events Unanticipated in Our Disaster
Recovery Systems and Management Continuity Planning Could Impair
Our Ability to Conduct Business Effectively
In the event of a disaster such as a natural catastrophe, an
epidemic, an industrial accident, a blackout, a computer virus,
a terrorist attack or war, unanticipated problems with our
disaster recovery systems could have a material adverse impact
on our ability to conduct business and on our results of
operations and financial position, particularly if those
problems affect our computer-based data processing,
transmission, storage and retrieval
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systems and destroy valuable data. We depend heavily upon
computer systems to provide reliable service. Despite our
implementation of a variety of security measures, our computer
systems could be subject to physical and electronic break-ins,
and similar disruptions from unauthorized tampering. In
addition, in the event that a significant number of our managers
were unavailable in the event of a disaster, our ability to
effectively conduct business could be severely compromised.
These interruptions also may interfere with our suppliers
ability to provide goods and services and our employees
ability to perform their job responsibilities.
Our
Associates May Take Excessive Risks Which Could Negatively
Affect Our Financial Condition and Business
As an insurance enterprise, we are in the business of being paid
to accept certain risks. The associates who conduct our
business, including executive officers and other members of
management, sales managers, investment professionals, product
managers, sales agents, and other associates, do so in part by
making decisions and choices that involve exposing us to risk.
These include decisions such as setting underwriting guidelines
and standards, product design and pricing, determining what
assets to purchase for investment and when to sell them, which
business opportunities to pursue, and other decisions. Although
we endeavor, in the design and implementation of our
compensation programs and practices, to avoid giving our
associates incentives to take excessive risks, associates may
take such risks regardless of the structure of our compensation
programs and practices. Similarly, although we employ controls
and procedures designed to monitor associates business
decisions and prevent us from taking excessive risks, there can
be no assurance that these controls and procedures are or may be
effective. If our associates take excessive risks, the impact of
those risks could have a material adverse effect on our
financial condition or business operations.
Risks
Relating to the Acquisition of the Alico Business
The
Acquisition of the Alico Business May Not Be Completed Within
the Expected Timeframe, or At All
Completion of the Acquisition is subject to the satisfaction (or
waiver) of a number of conditions precedent, including relevant
antitrust and regulatory clearances. Any relevant regulatory
agency may refuse its approval or seek to make its approval
subject to compliance with unanticipated or onerous conditions.
The Acquisition is also subject to a number of other conditions
beyond our control that may prevent, delay or otherwise
negatively affect its completion. We cannot predict whether and
when these other conditions will be satisfied. Failure to
complete the Acquisition would, and any delay in completing the
Acquisition could, prevent us from realizing the benefits that
we expect from the Acquisition.
Regulatory
Agencies in Certain Jurisdictions May Impose Onerous Conditions
Following the Acquisition
In certain jurisdictions, although consent may not be required
from the relevant regulator, there is a risk that the regulator
may impose onerous requirements on the Alico Business or MetLife
following the Acquisition. These conditions could have the
effect, among other things, of imposing significant additional
costs, limiting our revenues, requiring divestitures of certain
assets, reducing the anticipated benefits of the Acquisition or
imposing other operating restrictions.
We May
Experience Difficulties in Integrating the Alico Business,
Including Its Joint Ventures and Other Arrangements with Third
Parties
Our ability to achieve the benefits we anticipate from the
Acquisition will depend in large part upon whether we are able
to integrate the Alico Business into our business in an
efficient and effective manner. We may not be able to integrate
the Alico Business smoothly or successfully and the process may
take longer than expected. The integration of certain operations
and the differences in operational culture following the
Acquisition will require the dedication of significant
management resources, which may distract managements
attention from
day-to-day
business operations. Integration planning has already required
significant management resources. If we are unable to
successfully integrate the operations of the Alico Business into
MetLife, we may be unable to realize the cross-selling and other
distribution benefits, revenue growth and other anticipated
benefits we expect to achieve as a result of the Acquisition and
our business and results of operations could be adversely
affected.
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The success with which we are able to integrate the Alico
Business will depend on our ability to manage a variety of
issues, including the following:
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Loss of key personnel or higher than expected employee attrition
rates could adversely affect the performance of the Alico
Business and our ability to integrate it successfully.
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Customers of the Alico Business may reduce, delay or defer
decisions concerning their use of the products and services of
the Alico Business as a result of the Acquisition or
uncertainties related to the consummation of the Acquisition,
including any potential unfamiliarity with the MetLife brand in
regions where MetLife has not had a market presence prior to the
time of the Acquisition.
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The Alico Business relies in part upon independent distributors
to distribute its products. Unaffiliated distributors typically
distribute products for many different financial institutions
and may not continue to generate the same volume of business for
MetLife after the Acquisition. Independent distributors may
reexamine the scope of their relationship with the Alico
Business as a result of the Acquisition and decide to curtail or
eliminate distribution of its products.
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Integrating the Alico Business with our existing operations will
require us to coordinate geographically separated organizations,
address possible differences in corporate culture and management
philosophies, merge financial processes and risk and compliance
procedures, combine separate information technology platforms
and integrate the Alico Business operations that were
previously closely tied to other AIG service providers.
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There is the risk that MetLife, Inc. will be exposed to
obligations and liabilities of the Alico Business that are not
adequately covered, in amount, scope or duration, by the
indemnification provisions in the Stock Purchase Agreement or
reflected or reserved for in the Alico Business historical
financial statements, and there is the risk that such historical
financial statements may contain errors. The Stock Purchase
Agreement provides that Alico Holdings will indemnify MetLife,
Inc. for losses arising out of inaccuracies or breaches of
representations or warranties, or the breach or failure to
perform covenants or agreements set forth in the Stock Purchase
Agreement, in addition to losses arising out of certain matters
identified during MetLifes due diligence review of the
Alico Business. However, the survival periods for bringing, and
the monetary limitations imposed on, certain indemnification
claims may result in insufficient protection from all potential
losses that MetLife, Inc. may suffer in connection with the
Acquisition. For example, pursuant to the terms of the Stock
Purchase Agreement, Alico Holdings has agreed to indemnify
MetLife, Inc. against losses arising out of a breach of a
representation and warranty relating to the absence of
undisclosed liabilities. However, in the event that MetLife,
Inc. suffers a loss because of the existence of a liability of
the Alico Business that was not disclosed by Alico Holdings to
MetLife, Inc., we cannot be certain that indemnification by
Alico Holdings will be, among other things, collectible or
sufficient in amount, scope or duration to fully offset any such
loss since losses arising from any such breach will be subject
to a
21-month
survival period and an indemnification deductible and cap.
MetLife, Inc. is indemnified under the Stock Purchase Agreement
for various tax matters, including U.S. federal income
taxes attributable to periods during which the Alico Business
was included in AIGs consolidated federal income tax
return. We cannot be certain that any such indemnification will
ultimately be fully collectible. We may also become exposed to
obligations and liabilities that were undiscovered in the course
of performing due diligence of the Alico Business in connection
with the Acquisition and, therefore, may not be adequately
addressed in the Stock Purchase Agreement. Any of these
liabilities, individually or in the aggregate, could have a
material adverse effect on our business, financial condition or
results of operations.
We expect to incur significant one-time costs in connection with
the Acquisition and the related integration of the Alico
Business. The costs and liabilities actually incurred in
connection with the Acquisition and subsequent integration
process may exceed those anticipated.
In addition, we and the Alico Business operate in certain
markets through joint ventures. Our ability to exercise
management control or influence over these joint venture
operations and our investment in them will depend on the
continued cooperation between the joint venture participants and
on the terms of the joint venture agreements, which allocate
control among the joint venture participants. We may face
financial or other exposure in the event that any of these joint
venture partners fail to meet their obligations under the joint
venture, encounter financial difficulty or elect to alter,
modify or terminate the relationship. In addition, a significant
proportion of the Alico Business product distribution is
and will be carried out through arrangements with third parties
not controlled by the Alico Business and
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is dependent upon continuation of these relationships. A
temporary or permanent disruption to these distribution
arrangements could adversely affect the combined business
results of operations following the Acquisition.
There Can Be No Assurance That the Closing Agreement Alico
Entered Into With the IRS Will Achieve Its Intended Effect, or
That Alico Will Be Able to Comply with the Related Agreed Upon
Plan
On March 4, 2010, Alico entered into a closing agreement
with the Commissioner of the IRS with respect to a
U.S. withholding tax issue arising from payments by foreign
branches of a life insurance company incorporated under
U.S. law. IRS Revenue Ruling
2004-75,
effective January 1, 2005, requires foreign branches of
U.S. life insurance companies in certain circumstances to
withhold U.S. income taxes on payments of taxable income
made with respect to certain insurance and annuity products paid
to customers resident in a foreign country. The closing
agreement provides transitional relief under
Section 7805(b) of the Code to Alico, such that
Alicos foreign branches will not be required to withhold
U.S. income tax on the income portion of payments made
pursuant to Alicos life insurance and annuity contracts
(Covered Payments) under IRS Revenue Ruling
2004-75 for
any tax periods beginning on January 1, 2005 and ending on
December 31, 2013 (the Deferral Period). The
closing agreement provides that Alico will submit a plan to the
IRS within 90 days after the close of the Acquisition,
indicating the steps Alico will take (on a country by country
basis) to ensure that no substantial amount of
U.S. withholding tax will arise from Covered Payments made
by Alicos foreign branches to foreign customers after the
Deferral Period. In addition, the closing agreement requires
that such plan be updated in quarterly filings with the IRS. The
closing agreement is final and binding upon Alico and the IRS;
provided, however, that the agreement can be
reopened in the event of malfeasance, fraud or a
misrepresentation of a material fact, and is subject to change
of law risk that occurs after the effective date of the closing
agreement (with certain exceptions). In addition, the closing
agreement provides that no legislative amendment to
Section 861(a)(1)(A) of the Code shall shorten the Deferral
Period, regardless of when such amendment is enacted. We expect
that the plan Alico is required to deliver to the IRS may
involve the transfer of businesses from certain of the foreign
branches of Alico to one or more existing or newly-formed
foreign affiliates of Alico; however, Alico has not completed
this plan. Although it is not known at this time, there could be
potentially significant costs associated with the implementation
of the plan and, in addition, there can be no assurance that
Alico will achieve the plan presented to the IRS within the
required time frame of December 31, 2013 because of
regulatory approvals and other requirements. Failure to achieve
the plan in a timely manner could cause Alico to be required to
withhold U.S. income taxes on the taxable portion of
payments made by Alicos foreign branches after
December 31, 2013 to customers resident in a foreign
country, which could put Alico at a competitive disadvantage
with its competitors that sell similar products through foreign
entities and could have a material adverse effect on
Alicos future revenues or expenses or both.
There Can Be No Assurance That Any Elections Under
Section 338 of the Code Will Be Made or That Any
Incremental Benefit Will Result From Such Elections, If
Made
Alico Holdings is making elections under Section 338(g) of
the Code (and, as appropriate, Section 338(h)(10) of the
Code) (collectively, 338 Elections) with respect to
Alico Holdings acquisition of Alico and certain of its
subsidiaries in 2009. As a result of these elections, Alico is
expected to realize certain tax benefits in the future. In
addition, MetLife, Inc. has the right under the Stock Purchase
Agreement to have 338 Elections made, at its option, with
respect to its acquisition of Alico and its subsidiaries. The
incremental benefit of these additional 338 Elections, if made,
will depend on the value of MetLife, Inc.s stock at the
time of the closing of the Acquisition that is issued to Alico
Holdings as part of the purchase price for Alico and the
effectiveness of such elections, among other things. It has been
assumed that additional 338 Elections will be made and that
Alico and its subsidiaries will have additional amortizable
basis in their assets for U.S. tax purposes as a result of
such additional elections. No assurance can be given, however,
that such additional elections will be made or as to the
incremental benefit, if any, that will result from such
elections, if made.
Following the Acquisition, the Prospects of the Combined
Business May Be Materially and Adversely Affected if We Are Not
Able to Manage the Growth of the Alico Business Operations
Successfully
The life insurance markets in many of the international markets
in which the Alico Business operates have experienced
significant growth in recent years. Management of the Alico
Business growth to date has required significant
management and operational resources and is likely to continue
to do so. Future growth of our combined business will require,
among other things, the continued development of adequate
underwriting and claim handling capabilities and skills,
sufficient capital base, increased marketing and sales
activities, and the hiring and training of new personnel.
237
There can be no assurance that we will be successful in managing
future growth. In particular, there may be difficulties in
hiring and training sufficient numbers of customer service
personnel and agents to keep pace with any future growth in the
number of customers in our developing or developed markets. In
addition, we may experience difficulties in upgrading,
developing and expanding information technology systems quickly
enough to accommodate any future growth. If we are unable to
manage future growth following the Acquisition, our prospects
may be materially and adversely affected.
If the Alico Business Does Not Perform Well or We Do Not
Integrate It Successfully, We May Incur Significant Charges to
Write Down the Goodwill Established in the Acquisition
As a result of the Acquisition, we expect goodwill will increase
substantially. Under applicable accounting guidance, we must
test our goodwill annually for impairment and, if we determine
that the goodwill has been impaired, we must write down the
goodwill by the amount of the impairment, with a corresponding
charge to net income. If the Alico Business does not perform
well or we do not integrate it successfully, the reporting units
containing parts of the Alico Business may have fair values
lower than their respecting carrying values, which would result
in a write down of goodwill and, consequently, it could have a
material adverse effect on our results of operations.
We Are and, Following the Acquisition, Will Be Subject to
the Risk of Exchange Rate Fluctuations Owing to the Geographical
Diversity of Our Combined Business
Due to our geographical diversity and the Alico Business
significant international operations, following the Acquisition
we will be subject to increased risk of exchange rate
fluctuations. In particular, in periods when any foreign
currency in which we derive our revenues (such as the Japanese
yen) weakens, translating amounts expressed in that currency
into U.S. dollars causes fewer U.S. dollars to be
reported. When the relevant foreign currency strengthens,
translating such currency into U.S. dollars causes more
U.S. dollars to be reported. Between March 31, 2010
and June 30, 2010, the Japanese yen has strengthened
against the U.S. dollar, which fluctuated from a low point
of ¥88.45 to the U.S. dollar on June 29, 2010 to
a high point of ¥94.67 to the U.S. dollar on
April 2, 2010, which has been somewhat offset by the
weakening of the euro, which fluctuated from a high point of
0.8382 euro to the U.S. dollar on June 7, 2010, to
0.7339 euro to the U.S. dollar on April 14, 2010. Any
unrealized foreign currency translation adjustments are reported
in accumulated other comprehensive income (loss). The weakening
of a foreign currency relative to the U.S. dollar will
generally adversely affect the value of investments in
U.S. dollar terms and reduce the level of reserves
denominated in that currency. See Risks
Related to Our Business Fluctuations in Foreign
Currency Exchange Rates Could Negatively Affect Our
Profitability below.
Events
Relating to AIG Could Continue to Harm the Alico Business and
Its Reputation and Could Also Harm Our Business and
Reputation
Following the financial difficulties involving AIG, the Alico
Business customers, agents and employees, regulators and
business counterparties expressed concerns about the business
and financial condition of AIG and, consequently, the Alico
Business. As a result, the Alico Business experienced certain
adverse consequences to its business and reputation, including a
temporary increase in policy surrenders and withdrawals and a
reduction in new business, primarily attributable to a perceived
reduction in its financial strength. In addition, any perception
of additional instability surrounding AIG or other events
related or relating to AIG may adversely impact the reputation
of the Alico Business. Furthermore, following the completion of
the Acquisition, the Alico Business will continue to have
relationships with AIG, including the receipt and provision of
services. There is also a risk that following the Acquisition,
our association with the Alico Business (and therefore AIG) may
cause our business to suffer. For example, we may face higher
withdrawals, lower new business sales, a negative impact on
relations with creditors, a negative impact on our credit
ratings or restrictions on the ability of the Alico Business to
pay dividends or transfer assets in certain jurisdictions.
The Issuance of Certain Equity Securities to Alico
Holdings in Connection with the Acquisition Will Have a Dilutive
Impact on MetLife, Inc.s Stockholders
As part of the consideration to be paid to Alico Holdings
pursuant to the terms of the Stock Purchase Agreement, and
subject to certain purchase price adjustments, MetLife, Inc.
will issue to Alico Holdings (A) 78,239,712 shares of
its common stock, (B) 6,857,000 shares of the
Series B Preferred Stock, which will be convertible into
approximately 68,570,000 shares of MetLife, Inc.s
common stock (subject to anti-dilution adjustments) upon a
favorable vote of
238
MetLife, Inc.s common stockholders, and
(C) $3.0 billion aggregate stated amount of the equity
units, which, as currently structured, will initially consist of
(x) forward purchase contracts obligating the holder to
purchase a variable number of shares of MetLife, Inc.s
common stock on each of three specified future settlement dates
(expected to be approximately two, three and four years after
the closing of the Acquisition) for a fixed amount per purchase
contract (an aggregate of $1.0 billion on each settlement
date) (the Stock Purchase Contracts) and (y) an
interest in shares of the Holding Companys preferred
stock. The aggregate amount of MetLife, Inc.s common stock
expected to be issued to Alico Holdings in connection with the
Acquisition (including shares of common stock issuable upon
conversion of the Series B Preferred Stock and shares of
common stock issuable upon settlement of the Stock Purchase
Contracts) is expected to be approximately 214,600,000 to
231,500,000 shares.
As a result of the issuance of these securities, more shares of
common stock will be outstanding and each existing stockholder
will own a smaller percentage of our common stock then
outstanding. In addition, MetLife, Inc. expects to issue common
stock in a public offering in order to finance a portion of the
cash purchase price in the Acquisition. MetLife, Inc. may need
to issue more common stock than expected if its common stock
price is low at the time of such offering, which may increase
the dilutive effect on our common stockholders.
Subject to Certain Limitations, Alico Holdings Will Be
Able to Sell MetLife, Inc.s Equity Securities at Any Time
From and After the Date 270 Days After the Closing of the
Acquisition, Which Could Cause MetLife, Inc.s Stock Price
to Decrease
Alico Holdings will agree in accordance with the terms of the
Investor Rights Agreement to be entered into at the closing of
the Acquisition, not to transfer any of MetLife, Inc.s
securities received pursuant to the terms of the Stock Purchase
Agreement, at any time up to the date 270 days after the
closing of the Acquisition. However, from and after such date,
Alico Holdings will be able to transfer up to half of such
equity securities, and from and after the first anniversary of
the closing of the Acquisition, Alico Holdings will be able to
transfer all of such securities, subject in each case to certain
limited volume and timing restrictions set forth in the Investor
Rights Agreement. Moreover, Alico Holdings will agree to use
commercially reasonable efforts to transfer, and it will cause
its affiliates to so transfer, all of MetLife, Inc.s
securities received in connection with the Acquisition prior to
the later of (i) the fifth anniversary of the closing of
the Acquisition, and (ii) the first anniversary of the
third stock purchase date under the Stock Purchase Contracts.
Subject to certain conditions, we have agreed to register the
resale of MetLife, Inc.s equity and other securities to be
issued to Alico Holdings under the Securities Act of 1933, as
amended (the Securities Act). The sale or transfer
of a substantial number of these securities within a short
period of time could cause MetLife, Inc.s stock price to
decrease, make it more difficult for us to raise funds through
future offerings of MetLife, Inc.s common stock or acquire
other businesses using MetLife, Inc.s common stock as
consideration.
If MetLife, Inc.s Stockholders Do Not Vote to
Approve the Conversion of the Series B Preferred Stock Into
Common Stock, MetLife, Inc. Will Be Required to Pay
Approximately $300 Million to Alico Holdings
Alico Holdings will receive shares of the Series B
Preferred Stock at the date of completion of the Acquisition.
Each share of Series B Preferred Stock will convert into
10 shares of MetLife, Inc.s common stock if
conversion is approved by MetLife, Inc.s common
stockholders. If we fail to obtain such approval prior to the
first anniversary of the closing of the Acquisition, MetLife,
Inc. will be required to pay approximately $300 million to
Alico Holdings, assuming no purchase price adjustments, and list
the Series B Preferred Stock on the New York Stock Exchange.
Change of Control Provisions in the Alico Business
Agreements May Be Triggered Upon the Completion of the
Acquisition and May Lead to Adverse Consequences
We and the Alico Business are party to contracts, agreements and
instruments, including reinsurance contracts, that contain
change of control provisions that may be triggered upon the
completion of the Acquisition. Agreements with change of control
provisions typically provide for, or permit the termination of,
the agreement upon the occurrence of a change of control of one
of the parties or, in the case of debt instruments, require
repayment of the outstanding indebtedness. Usually these
provisions, if any, may be waived with the consent of the other
party, and we will consider whether to seek these waivers. In
the absence of these waivers, the operation of the change of
control provisions, if any, could result in the loss of
significant contractual rights and benefits, the termination of
significant agreements, the payment of a termination fee or the
need to renegotiate financing agreements. In
239
addition, employment agreements or other employee benefit
arrangements may contain change of control provisions providing
for additional payments following a change of control.
Guarantees Within Certain of Alico Business Variable
Life and Annuity Products That Protect Policyholders Against
Significant Downturns in Equity Markets May Increase the
Volatility of Results, Increase Alicos Exposure to Foreign
Exchange Risk, and Decrease Alico Business Earnings
The Alico Business has certain variable life and annuity
products with little or no cash value that contain guaranteed
death benefits. If policyholder lapses are less than expected or
if investment performance is worse than expected, these
guarantees will become more valuable, increasing liabilities,
resulting in a reduction in net income. Also, the Alico Business
has funding agreement liabilities that guarantee payment of the
highest fund value over the life of the funding agreement,
protecting the policyholder even if the fund value declines at
the maturity date. If fund values decline, the value of these
guarantees will increase, increasing the liabilities associated
with these contracts, resulting in a reduction of net income. In
addition, certain products are exposed to foreign exchange risk.
Payments under these contracts may be required to be made in
different currencies, depending on the circumstances. Therefore,
payments may be required in a different currency than the
currency upon which the liability valuation is based. If the
currency upon which expected future payments are made
strengthens relative to the currency upon which the liability
valuation is based, the liability valuation may increase,
resulting in a reduction of net income.
The Resolution of Several Issues Affecting the Financial
Services Industry Could Have a Negative Impact on Our Reported
Results and, Following the Acquisition, the Combined
Business Reported Results or on Its Relations with Current
and Potential Customers
Both we and the Alico Business are and, following the
Acquisition, will continue to be subject to legal and regulatory
actions in the ordinary course of our business, both in the
United States and internationally. This could result in a review
of business sold in the past under previously acceptable market
practices at the time. Regulators are increasingly interested in
the approach that product providers use to select third-party
distributors and to monitor the appropriateness of sales made by
them. In some cases, product providers can be held responsible
for the deficiencies of third-party distributors.
In the United States, federal and state regulators have focused
on, and continue to devote substantial attention to, the mutual
fund, fixed, index and variable annuity and insurance product
industries. This includes new regulations in respect of the
suitability of broker-dealers sales of certain products.
As a result of publicity relating to widespread perceptions of
industry abuses, there have been numerous regulatory inquiries
and proposals for legislative and regulatory reforms.
In Asia, where the Alico Business derives and will continue to
derive a significant portion of its income, regulatory regimes
are developing at different speeds, driven by a combination of
global factors and local considerations. New requirements may be
introduced that are retrospectively applied to sales made prior
to their introduction. See Risks Related to
Our Business 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.
The Alico Business Investment Portfolio Contains a
Substantial Amount of Sovereign Debt of European Nations, Which
May Be Written Down as a Result of Financial Instability in
Europe
The Alico Business investment portfolio contains
investments in government bonds issued by European nations.
Recently, the European Union member states have experienced
above average public debt, inflation and unemployment as the
global economic downturn has developed. A number of member
states are significantly impacted by the economies of their more
influential neighbors, such as Germany. In addition, financial
troubles of one nation can trigger a domino effect on others. In
particular, a number of large European banks hold significant
amounts of sovereign financial institution debt of other
European nations and could experience difficulties as a result
of defaults or declines in the value of such debt.
In response to the financial crises affecting certain member
states, including Greece, Spain, Ireland and Portugal, on
May 10, 2010, the European Union, the European Central Bank
and the International Monetary Fund
240
announced a rescue package of up to 750 billion, or
approximately $1 trillion, for European nations in the euro
area. Although the rescue package is intended to stabilize these
economies, there can be no assurance that such package
ultimately will be successful. Recent sovereign debt issuances
have been well received by investors, but, to the extent that
the rescue package does not achieve its intended effect,
European nations such as Greece could continue to incur widening
credit spreads and depressed asset valuations. In such case, the
Alico Business may be forced to write down the value of the
Greek bonds contained in its investment portfolio, and it could
experience similar results with respect to its investments in
securities issued by other countries in the region.
|
|
Item 2.
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Unregistered
Sales of Equity Securities and Use of Proceeds
|
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, 2010 are
set forth below:
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|
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|
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(c) Total Number
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(d) Maximum Number
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|
|
|
|
|
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|
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of Shares
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(or Approximate
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|
|
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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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|
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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, 2010
|
|
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3,256
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$
|
44.83
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$
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1,260,735,127
|
|
May 1 May 31, 2010
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|
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671
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$
|
44.87
|
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$
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1,260,735,127
|
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June 1 June 30, 2010
|
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14,971
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$
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40.87
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$
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1,260,735,127
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(1) |
|
During the period April 1 through April 30, 2010, May 1
through May 31, 2010 and June 1 through June 30, 2010,
separate account affiliates of the Company purchased
3,256 shares, 671 shares and 14,971 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. |
|
(2) |
|
At June 30, 2010, 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, 2010.
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 2010. |
(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.)
241
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Exhibit
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No.
|
|
Description
|
|
|
10
|
.1
|
|
Employment Agreement, effective as of April 30, 2010, by
and between James L. Lipscomb and MetLife, Inc.
|
|
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.
|
242
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
|
Operations and Chief Accounting Officer
(Authorized Signatory and Principal
Accounting Officer)
Date: August 2, 2010
243
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.)
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
10
|
.1
|
|
Employment Agreement, effective as of April 30, 2010, by
and between James L. Lipscomb and MetLife, Inc.
|
|
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