e10vq
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
|
|
|
(Mark One)
|
|
|
|
þ
|
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
|
|
|
|
|
FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 2011
|
OR
|
o
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
|
|
|
|
|
FOR THE TRANSITION PERIOD
FROM TO
|
Commission file number:
001-15787
MetLife, Inc.
(Exact name of registrant as
specified in its charter)
|
|
|
Delaware
|
|
13-4075851
|
(State or other jurisdiction
of
incorporation or organization)
|
|
(I.R.S. Employer
Identification No.)
|
|
|
|
200 Park Avenue, New York, N.Y.
|
|
10166-0188
|
(Address of principal executive
offices)
|
|
(Zip Code)
|
(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):
|
|
|
Large accelerated filer
þ
|
|
Accelerated filer
o
|
Non-accelerated filer
o (Do
not check if a smaller reporting company)
|
|
Smaller reporting company
o
|
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 29, 2011, 1,057,493,527 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), its subsidiaries and affiliates.
Note
Regarding Forward-Looking Statements
This Quarterly Report on
Form 10-Q,
including Managements Discussion and Analysis of Financial
Condition and Results of Operations, may contain or incorporate
by reference information that includes or is based upon
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking
statements give expectations or forecasts of future events.
These statements can be identified by the fact that they do not
relate strictly to historical or current facts. They use words
such as anticipate, estimate,
expect, project, intend,
plan, believe and other words and terms
of similar meaning in connection with a discussion of future
operating or financial performance. In particular, these include
statements relating to future actions, prospective services or
products, future performance or results of current and
anticipated services or products, sales efforts, expenses, the
outcome of contingencies such as legal proceedings, trends in
operations and financial results.
Any or all forward-looking statements may turn out to be wrong.
They can be affected by inaccurate assumptions or by known or
unknown risks and uncertainties. Many such factors will be
important in determining the actual future results of MetLife,
Inc., its subsidiaries and affiliates. 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) difficult conditions in the global capital markets;
(2) the delay by Congress in raising the statutory debt
limit of the U.S.; (3) increased volatility and disruption
of the capital and credit markets, which may affect our ability
to seek financing or access our credit facilities;
(4) 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; (5) impact of
comprehensive financial services regulation reform on us;
(6) exposure to financial and capital market risk;
(7) changes in general economic conditions, including the
performance of financial markets and interest rates, which may
affect our ability to raise capital, generate fee income and
market-related revenue and finance statutory reserve
requirements and may require us to pledge collateral or make
payments related to declines in value of specified assets;
(8) potential liquidity and other risks resulting from our
participation in a securities lending program and other
transactions; (9) investment losses and defaults, and
changes to investment valuations; (10) impairments of
goodwill and realized losses or market value impairments to
illiquid assets; (11) defaults on our mortgage loans;
(12) the impairment of other financial institutions that
could adversely affect our investments or business;
(13) our ability to address unforeseen liabilities, asset
impairments, loss of key contractual relationships, or rating
actions arising from acquisitions or dispositions, including our
acquisition of American Life Insurance Company (American
Life), a subsidiary of AM Holdings LLC (formerly known as
ALICO Holdings LLC) (AM Holdings), and Delaware
American Life Insurance Company (DelAm, together
with American Life, collectively, ALICO) (the
Acquisition) and to successfully integrate and
manage the growth of acquired businesses with minimal
disruption; (14) uncertainty with respect to the outcome of
the closing agreement entered into with the United States
Internal Revenue Service in connection with the Acquisition;
(15) uncertainty with respect to any incremental tax
benefits resulting from the elections made for ALICO and certain
of its subsidiaries under Section 338 of the
U.S. Internal Revenue Code of 1986, as amended;
(16) the dilutive impact on our stockholders resulting from
the issuance of equity securities in connection with the
Acquisition or otherwise; (17) economic, political,
currency and other risks relating to our international
operations, including with respect to fluctuations of exchange
rates; (18) our primary reliance, as a holding company, on
dividends from our subsidiaries to meet debt payment obligations
and the applicable regulatory restrictions on the ability of the
subsidiaries to pay such dividends; (19) downgrades in our
claims paying ability, financial strength or credit ratings;
(20) ineffectiveness of risk management policies and
procedures; (21) availability and effectiveness of
reinsurance or indemnification arrangements, as well as default
or failure of counterparties to perform; (22) discrepancies
between actual claims experience and assumptions used in setting
prices for our products and establishing the liabilities for our
obligations for future policy benefits and claims;
(23) catastrophe losses;
3
(24) 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;
(25) unanticipated changes in industry trends;
(26) changes in accounting standards, practices
and/or
policies; (27) changes in assumptions related to deferred
policy acquisition costs, deferred sales inducements, value of
business acquired or goodwill; (28) increased expenses
relating to pension and postretirement benefit plans, as well as
health care and other employee benefits; (29) 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; (30) deterioration in
the experience of the closed block established in
connection with the reorganization of Metropolitan Life
Insurance Company; (31) adverse results or other
consequences from litigation, arbitration or regulatory
investigations; (32) inability to protect our intellectual
property rights or claims of infringement of the intellectual
property rights of others; (33) discrepancies between
actual experience and assumptions used in establishing
liabilities related to other contingencies or obligations;
(34) regulatory, legislative or tax changes relating to our
insurance, banking, international, or other operations that may
affect the cost of, or demand for, our products or services,
impair our ability to attract and retain talented and
experienced management and other employees, or increase the cost
or administrative burdens of providing benefits to employees;
(35) the effects of business disruption or economic
contraction due to terrorism, other hostilities, or natural
catastrophes, including any related impact on our disaster
recovery systems and management continuity planning which could
impair our ability to conduct business effectively;
(36) the effectiveness of our programs and practices in
avoiding giving our associates incentives to take excessive
risks; and (37) other risks and uncertainties described
from time to time in MetLife, Inc.s filings with the SEC.
MetLife, Inc. does not undertake any obligation to publicly
correct or update any forward-looking statement if MetLife, Inc.
later becomes aware that such statement is not likely to be
achieved. Please consult any further disclosures MetLife, Inc.
makes on related subjects in reports to the SEC.
Note
Regarding Reliance on Statements in Our Contracts
In reviewing the agreements included as exhibits to this
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 affiliates, 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:
|
|
|
|
|
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;
|
|
|
|
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;
|
|
|
|
may apply standards of materiality in a way that is different
from what may be viewed as material to investors; and
|
|
|
|
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., its subsidiaries and affiliates 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
|
|
Item 1.
|
Financial
Statements
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
|
|
|
Fixed maturity securities
available-for-sale,
at estimated fair value (amortized cost: $330,903 and $317,617,
respectively;
includes $3,357 and $3,330, respectively,
relating to variable interest entities)
|
|
$
|
341,744
|
|
|
$
|
324,797
|
|
Equity securities
available-for-sale,
at estimated fair value (cost: $3,128 and $3,621, respectively)
|
|
|
3,238
|
|
|
|
3,602
|
|
Trading and other securities, at estimated fair value (includes
$560 and $463, respectively, of actively traded securities;
and $359 and $387, respectively, relating to
variable interest entities)
|
|
|
19,700
|
|
|
|
18,589
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
Held-for-investment,
principally at amortized cost (net of valuation allowances of
$566 and $664, respectively; includes
$6,697 and $6,840, respectively, at estimated
fair value, relating to variable interest entities)
|
|
|
60,819
|
|
|
|
58,976
|
|
Held-for-sale,
principally at estimated fair value
|
|
|
2,805
|
|
|
|
3,321
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans, net
|
|
|
63,624
|
|
|
|
62,297
|
|
Policy loans
|
|
|
11,858
|
|
|
|
11,761
|
|
Real estate and real estate joint ventures (includes $15 and
$10, respectively, relating to variable interest entities)
|
|
|
8,234
|
|
|
|
8,030
|
|
Other limited partnership interests (includes $331 and $298,
respectively, relating to variable interest entities)
|
|
|
6,453
|
|
|
|
6,416
|
|
Short-term investments, principally at estimated fair value
|
|
|
12,419
|
|
|
|
9,384
|
|
Other invested assets, principally at estimated fair value
(includes $98 and $104, respectively, relating to variable
interest entities)
|
|
|
14,900
|
|
|
|
15,430
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
|
482,170
|
|
|
|
460,306
|
|
Cash and cash equivalents, principally at estimated fair value
(includes $65 and $69, respectively, relating to variable
interest entities)
|
|
|
9,628
|
|
|
|
12,957
|
|
Accrued investment income (includes $34 and $34, respectively,
relating to variable interest entities)
|
|
|
4,341
|
|
|
|
4,328
|
|
Premiums, reinsurance and other receivables (includes $2 and $2,
respectively, relating to variable interest entities)
|
|
|
21,070
|
|
|
|
19,799
|
|
Deferred policy acquisition costs and value of business acquired
|
|
|
28,241
|
|
|
|
27,092
|
|
Goodwill
|
|
|
12,036
|
|
|
|
11,781
|
|
Other assets (includes $7 and $6, respectively, relating to
variable interest entities)
|
|
|
8,246
|
|
|
|
8,174
|
|
Assets of subsidiaries
held-for-sale
|
|
|
3,369
|
|
|
|
3,331
|
|
Separate account assets
|
|
|
202,382
|
|
|
|
183,138
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
771,483
|
|
|
$
|
730,906
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Future policy benefits
|
|
$
|
176,353
|
|
|
$
|
170,912
|
|
Policyholder account balances
|
|
|
217,597
|
|
|
|
210,757
|
|
Other policy-related balances
|
|
|
15,456
|
|
|
|
15,750
|
|
Policyholder dividends payable
|
|
|
853
|
|
|
|
830
|
|
Policyholder dividend obligation
|
|
|
1,281
|
|
|
|
876
|
|
Payables for collateral under securities loaned and other
transactions
|
|
|
30,079
|
|
|
|
27,272
|
|
Bank deposits
|
|
|
10,022
|
|
|
|
10,316
|
|
Short-term debt
|
|
|
102
|
|
|
|
306
|
|
Long-term debt (includes $6,569 and $6,902, respectively, at
estimated fair value, relating to variable interest entities)
|
|
|
28,269
|
|
|
|
27,586
|
|
Collateral financing arrangements
|
|
|
5,297
|
|
|
|
5,297
|
|
Junior subordinated debt securities
|
|
|
3,192
|
|
|
|
3,191
|
|
Current income tax payable
|
|
|
133
|
|
|
|
297
|
|
Deferred income tax liability
|
|
|
3,764
|
|
|
|
1,856
|
|
Other liabilities (includes $82 and $93, respectively, relating
to variable interest entities)
|
|
|
19,707
|
|
|
|
20,366
|
|
Liabilities of subsidiaries
held-for-sale
|
|
|
3,163
|
|
|
|
3,043
|
|
Separate account liabilities
|
|
|
202,382
|
|
|
|
183,138
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
717,650
|
|
|
|
681,793
|
|
|
|
|
|
|
|
|
|
|
Contingencies, Commitments and Guarantees (Note 8)
|
|
|
|
|
|
|
|
|
Redeemable noncontrolling interests in partially owned
consolidated subsidiaries
|
|
|
124
|
|
|
|
117
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
MetLife, Inc.s stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, par value $0.01 per share;
200,000,000 shares authorized:
|
|
|
|
|
|
|
|
|
Preferred stock, 84,000,000 shares issued and outstanding;
$2,100 aggregate liquidation preference
|
|
|
1
|
|
|
|
1
|
|
Convertible preferred stock, 0 and 6,857,000 shares issued
and outstanding at June 30, 2011 and December 31,
2010,
respectively
|
|
|
|
|
|
|
|
|
Common stock, par value $0.01 per share;
3,000,000,000 shares authorized; 1,060,584,995 and
989,031,704 shares issued
at June 30, 2011 and December 31,
2010, respectively; 1,057,391,108 and 985,837,817 shares
outstanding at June 30, 2011 and
December 31, 2010, respectively
|
|
|
11
|
|
|
|
10
|
|
Additional paid-in capital
|
|
|
26,714
|
|
|
|
26,423
|
|
Retained earnings
|
|
|
23,399
|
|
|
|
21,363
|
|
Treasury stock, at cost; 3,193,887 shares at June 30,
2011 and December 31, 2010
|
|
|
(172
|
)
|
|
|
(172
|
)
|
Accumulated other comprehensive income (loss)
|
|
|
3,356
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
Total MetLife, Inc.s stockholders equity
|
|
|
53,309
|
|
|
|
48,625
|
|
Noncontrolling interests
|
|
|
400
|
|
|
|
371
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
53,709
|
|
|
|
48,996
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
771,483
|
|
|
$
|
730,906
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the
interim condensed consolidated financial statements.
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
9,294
|
|
|
$
|
6,584
|
|
|
$
|
17,848
|
|
|
$
|
13,372
|
|
Universal life and investment-type product policy fees
|
|
|
1,969
|
|
|
|
1,482
|
|
|
|
3,858
|
|
|
|
2,887
|
|
Net investment income
|
|
|
5,098
|
|
|
|
4,061
|
|
|
|
10,414
|
|
|
|
8,381
|
|
Other revenues
|
|
|
592
|
|
|
|
544
|
|
|
|
1,158
|
|
|
|
1,057
|
|
Net investment gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-than-temporary
impairments on fixed maturity securities
|
|
|
(298
|
)
|
|
|
(244
|
)
|
|
|
(430
|
)
|
|
|
(395
|
)
|
Other-than-temporary
impairments on fixed maturity securities transferred to other
comprehensive income (loss)
|
|
|
175
|
|
|
|
98
|
|
|
|
184
|
|
|
|
157
|
|
Other net investment gains (losses)
|
|
|
(32
|
)
|
|
|
132
|
|
|
|
(8
|
)
|
|
|
256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net investment gains (losses)
|
|
|
(155
|
)
|
|
|
(14
|
)
|
|
|
(254
|
)
|
|
|
18
|
|
Net derivative gains (losses)
|
|
|
352
|
|
|
|
1,481
|
|
|
|
37
|
|
|
|
1,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
17,150
|
|
|
|
14,138
|
|
|
|
33,061
|
|
|
|
27,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims
|
|
|
9,119
|
|
|
|
6,930
|
|
|
|
17,350
|
|
|
|
14,394
|
|
Interest credited to policyholder account balances
|
|
|
1,442
|
|
|
|
1,048
|
|
|
|
3,366
|
|
|
|
2,190
|
|
Policyholder dividends
|
|
|
374
|
|
|
|
388
|
|
|
|
746
|
|
|
|
765
|
|
Other expenses
|
|
|
4,495
|
|
|
|
3,409
|
|
|
|
8,397
|
|
|
|
6,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
15,430
|
|
|
|
11,775
|
|
|
|
29,859
|
|
|
|
23,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before provision for
income tax
|
|
|
1,720
|
|
|
|
2,363
|
|
|
|
3,202
|
|
|
|
3,547
|
|
Provision for income tax expense (benefit)
|
|
|
519
|
|
|
|
827
|
|
|
|
947
|
|
|
|
1,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of income tax
|
|
|
1,201
|
|
|
|
1,536
|
|
|
|
2,255
|
|
|
|
2,364
|
|
Income (loss) from discontinued operations, net of income tax
|
|
|
29
|
|
|
|
11
|
|
|
|
(12
|
)
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
1,230
|
|
|
|
1,547
|
|
|
|
2,243
|
|
|
|
2,381
|
|
Less: Net income (loss) attributable to noncontrolling interests
|
|
|
(7
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to MetLife, Inc.
|
|
|
1,237
|
|
|
|
1,557
|
|
|
|
2,243
|
|
|
|
2,392
|
|
Less: Preferred stock dividends
|
|
|
31
|
|
|
|
31
|
|
|
|
61
|
|
|
|
61
|
|
Preferred stock redemption premium
|
|
|
|
|
|
|
|
|
|
|
146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to MetLife, Inc.s common
shareholders
|
|
$
|
1,206
|
|
|
$
|
1,526
|
|
|
$
|
2,036
|
|
|
$
|
2,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of income tax,
available to MetLife, Inc.s common shareholders per common
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.11
|
|
|
$
|
1.84
|
|
|
$
|
1.93
|
|
|
$
|
2.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
1.10
|
|
|
$
|
1.83
|
|
|
$
|
1.91
|
|
|
$
|
2.79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to MetLife, Inc.s common
shareholders per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.14
|
|
|
$
|
1.85
|
|
|
$
|
1.92
|
|
|
$
|
2.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
1.13
|
|
|
$
|
1.84
|
|
|
$
|
1.90
|
|
|
$
|
2.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the interim condensed consolidated
financial statements.
6
MetLife,
Inc.
For
the Six Months Ended June 30, 2011 (Unaudited)
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
Foreign
|
|
|
Defined
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Treasury
|
|
|
Unrealized
|
|
|
Other-Than-
|
|
|
Currency
|
|
|
Benefit
|
|
|
MetLife, Inc.s
|
|
|
|
|
|
|
|
|
|
Preferred
|
|
|
Preferred
|
|
|
Common
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Stock
|
|
|
Investment
|
|
|
Temporary
|
|
|
Translation
|
|
|
Plans
|
|
|
Stockholders
|
|
|
Noncontrolling
|
|
|
Total
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
at Cost
|
|
|
Gains (Losses)
|
|
|
Impairments
|
|
|
Adjustments
|
|
|
Adjustment
|
|
|
Equity
|
|
|
Interests (1)
|
|
|
Equity
|
|
|
Balance at December 31, 2010
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
10
|
|
|
$
|
26,423
|
|
|
$
|
21,363
|
|
|
$
|
(172
|
)
|
|
$
|
3,356
|
|
|
$
|
(366
|
)
|
|
$
|
(541
|
)
|
|
$
|
(1,449
|
)
|
|
$
|
48,625
|
|
|
$
|
371
|
|
|
$
|
48,996
|
|
Redemption of convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,805
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,805
|
)
|
|
|
|
|
|
|
(2,805
|
)
|
Preferred stock redemption premium
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(146
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(146
|
)
|
|
|
|
|
|
|
(146
|
)
|
Common stock issuance newly issued shares
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
2,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,950
|
|
|
|
|
|
|
|
2,950
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
147
|
|
|
|
|
|
|
|
147
|
|
Dividends on preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(61
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(61
|
)
|
|
|
|
|
|
|
(61
|
)
|
Change in equity of noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38
|
|
|
|
38
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,243
|
|
|
|
(4
|
)
|
|
|
2,239
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on derivative instruments, net of
income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(69
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(69
|
)
|
|
|
|
|
|
|
(69
|
)
|
Unrealized investment gains (losses), net of related offsets and
income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,837
|
|
|
|
(94
|
)
|
|
|
|
|
|
|
|
|
|
|
1,743
|
|
|
|
(5
|
)
|
|
|
1,738
|
|
Foreign currency translation adjustments, net of income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
639
|
|
|
|
|
|
|
|
639
|
|
|
|
|
|
|
|
639
|
|
Defined benefit plans adjustment, net of income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
|
|
|
|
43
|
|
|
|
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,356
|
|
|
|
(5
|
)
|
|
|
2,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,599
|
|
|
|
(9
|
)
|
|
|
4,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2011
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
11
|
|
|
$
|
26,714
|
|
|
$
|
23,399
|
|
|
$
|
(172
|
)
|
|
$
|
5,124
|
|
|
$
|
(460
|
)
|
|
$
|
98
|
|
|
$
|
(1,406
|
)
|
|
$
|
53,309
|
|
|
$
|
400
|
|
|
$
|
53,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Net income (loss) attributable to noncontrolling interests
excludes gains (losses) of redeemable noncontrolling interests
in partially owned consolidated subsidiaries of $4 million. |
See accompanying notes to the interim condensed consolidated
financial statements.
7
MetLife,
Inc.
Interim Condensed Consolidated Statements of Equity
(Continued)
For the Six Months Ended June 30, 2010
(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, 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
Net cash provided by operating activities
|
|
$
|
6,793
|
|
|
$
|
3,928
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Sales, maturities and repayments of:
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
|
54,958
|
|
|
|
38,035
|
|
Equity securities
|
|
|
1,027
|
|
|
|
690
|
|
Mortgage loans
|
|
|
5,152
|
|
|
|
2,715
|
|
Real estate and real estate joint ventures
|
|
|
268
|
|
|
|
87
|
|
Other limited partnership interests
|
|
|
676
|
|
|
|
251
|
|
Purchases of:
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
|
(66,861
|
)
|
|
|
(47,014
|
)
|
Equity securities
|
|
|
(489
|
)
|
|
|
(364
|
)
|
Mortgage loans
|
|
|
(6,686
|
)
|
|
|
(2,878
|
)
|
Real estate and real estate joint ventures
|
|
|
(417
|
)
|
|
|
(305
|
)
|
Other limited partnership interests
|
|
|
(576
|
)
|
|
|
(452
|
)
|
Cash received in connection with freestanding derivatives
|
|
|
1,470
|
|
|
|
986
|
|
Cash paid in connection with freestanding derivatives
|
|
|
(2,632
|
)
|
|
|
(1,077
|
)
|
Sale of interest in joint venture
|
|
|
269
|
|
|
|
|
|
Net change in policy loans
|
|
|
(77
|
)
|
|
|
(119
|
)
|
Net change in short-term investments
|
|
|
(2,896
|
)
|
|
|
(1,334
|
)
|
Net change in other invested assets
|
|
|
(6
|
)
|
|
|
754
|
|
Other, net
|
|
|
(78
|
)
|
|
|
(95
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(16,898
|
)
|
|
|
(10,120
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Policyholder account balances:
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
44,671
|
|
|
|
34,213
|
|
Withdrawals
|
|
|
(40,842
|
)
|
|
|
(32,390
|
)
|
Net change in payables for collateral under securities loaned
and other transactions
|
|
|
2,807
|
|
|
|
5,576
|
|
Net change in bank deposits
|
|
|
(341
|
)
|
|
|
(497
|
)
|
Net change in short-term debt
|
|
|
(204
|
)
|
|
|
(33
|
)
|
Long-term debt issued
|
|
|
1,221
|
|
|
|
678
|
|
Long-term debt repaid
|
|
|
(715
|
)
|
|
|
(511
|
)
|
Cash received in connection with collateral financing
arrangements
|
|
|
100
|
|
|
|
|
|
Debt issuance costs
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Common stock issued, net of issuance costs
|
|
|
2,950
|
|
|
|
|
|
Stock options exercised
|
|
|
73
|
|
|
|
26
|
|
Redemption of convertible preferred stock
|
|
|
(2,805
|
)
|
|
|
|
|
Preferred stock redemption premium
|
|
|
(146
|
)
|
|
|
|
|
Dividends on preferred stock
|
|
|
(61
|
)
|
|
|
(61
|
)
|
Other, net
|
|
|
(121
|
)
|
|
|
(139
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
6,586
|
|
|
|
6,861
|
|
|
|
|
|
|
|
|
|
|
Effect of change in foreign currency exchange rates on cash and
cash equivalents balances
|
|
|
146
|
|
|
|
(79
|
)
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents
|
|
|
(3,373
|
)
|
|
|
590
|
|
Cash and cash equivalents, beginning of period
|
|
|
13,046
|
|
|
|
10,112
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
9,673
|
|
|
$
|
10,702
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, subsidiaries
held-for-sale,
beginning of period
|
|
$
|
89
|
|
|
$
|
88
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, subsidiaries
held-for-sale,
end of period
|
|
$
|
45
|
|
|
$
|
38
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, from continuing operations, beginning
of period
|
|
$
|
12,957
|
|
|
$
|
10,024
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, from continuing operations, end of
period
|
|
$
|
9,628
|
|
|
$
|
10,664
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Net cash paid (received) during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
834
|
|
|
$
|
744
|
|
|
|
|
|
|
|
|
|
|
Income tax
|
|
$
|
586
|
|
|
$
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
Non-cash transactions during the period:
|
|
|
|
|
|
|
|
|
Real estate and real estate joint ventures acquired in
satisfaction of debt
|
|
$
|
74
|
|
|
$
|
10
|
|
|
|
|
|
|
|
|
|
|
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), its subsidiaries and affiliates.
MetLife is a leading global provider of insurance, annuities and
employee benefit programs throughout the United States
(U.S.), Japan, Latin America, Asia Pacific, Europe
and the Middle East. Through its subsidiaries and affiliates,
MetLife offers life insurance, annuities, auto and homeowners
insurance, mortgage and deposit products 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 six segments: Insurance Products,
Retirement Products, Corporate Benefit Funding and
Auto & Home (collectively,
U.S. Business), and Japan and Other
International Regions (collectively, International).
See Note 13 for further business segment information.
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.
On November 1, 2010 (the Acquisition Date),
MetLife, Inc. completed the acquisition of American Life
Insurance Company (American Life) from AM Holdings
LLC (formerly known as ALICO Holdings LLC) (AM
Holdings), a subsidiary of American International Group,
Inc. (AIG), and Delaware American Life Insurance
Company (DelAm) from AIG (American Life, together
with DelAm, collectively, ALICO) (the
Acquisition). The Acquisition was accounted for
using the acquisition method of accounting. ALICOs fiscal
year-end is November 30. Accordingly, the Companys
interim condensed consolidated financial statements reflect the
assets and liabilities of ALICO as of May 31, 2011 and the
operating results of ALICO for the three months and six months
ended May 31, 2011. The accounting policies of ALICO were
conformed to those of MetLife upon the Acquisition. See
Note 2.
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. 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.
10
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Certain amounts in the prior year periods interim
condensed consolidated financial statements have been
reclassified to conform with the 2011 presentation. Such
reclassifications include:
|
|
|
|
|
Reclassification from other net investment gains (losses) of
$1,481 million and $1,522 million to net derivative
gains (losses) in the interim condensed consolidated statements
of operations for the three months and six months ended
June 30, 2010, respectively;
|
|
|
|
Realignment that affected assets, liabilities and results of
operations on a segment basis with no impact to the consolidated
results. See Note 13;
|
|
|
|
Reclassifications related to operating revenues and expenses
that affected results of operations on a segment and
consolidated basis. See Note 13; and
|
|
|
|
Reclassifications related to discontinued operations. See
Note 14.
|
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, 2011, its
consolidated results of operations for the three months and six
months ended June 30, 2011 and 2010, its consolidated
statements of equity for the six months ended June 30, 2011
and 2010, and its consolidated statements of cash flows for the
six months ended June 30, 2011 and 2010, in conformity with
GAAP. Interim results are not necessarily indicative of full
year performance. The December 31, 2010 consolidated
balance sheet data was derived from audited consolidated
financial statements included in MetLife, Inc.s Annual
Report on
Form 10-K
for the year ended December 31, 2010, as amended by
MetLife, Inc.s
Form 10-K/A
dated March 1, 2011 (as amended, the 2010 Annual
Report), filed with the U.S. Securities and Exchange
Commission (SEC), which include 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 2010 Annual Report.
Adoption
of New Accounting Pronouncements
Effective January 1, 2011, the Company adopted new guidance
that addresses when a business combination should be assumed to
have occurred for the purpose of providing pro forma disclosure.
Under the new guidance, if an entity presents comparative
financial statements, the entity should disclose revenue and
earnings of the combined entity as though the business
combination that occurred during the current year had occurred
as of the beginning of the comparable prior annual reporting
period. The guidance also expands the supplemental pro forma
disclosures to include additional narratives. The adoption did
not have an impact on the Companys consolidated financial
statements.
Effective January 1, 2011, the Company adopted new guidance
regarding goodwill impairment testing. This guidance modifies
Step 1 of the goodwill impairment test for reporting units with
zero or negative carrying amounts. For those reporting units, an
entity would be required to perform Step 2 of the test if
qualitative factors indicate that it is more likely than not
that goodwill impairment exists. The adoption did not have an
impact on the Companys consolidated financial statements.
Effective January 1, 2011, the Company adopted new guidance
regarding accounting for investment funds determined to be VIEs.
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 contractholder
is a related party. The adoption did not have a material impact
on the Companys consolidated financial statements.
11
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Future
Adoption of New Accounting Pronouncements
In July 2011, the Financial Accounting Standards Board
(FASB) issued new guidance on other expenses
(Accounting Standards Update (ASU)
2011-06,
Other Expenses (Topic 720): Fees Paid to the Federal
Government by Health Insurers), effective for calendar years
beginning after December 31, 2013. The objective of this
standard is to address how health insurers should recognize and
classify in their income statements fees mandated by the Patient
Protection and Affordable Care Act as amended by the Health Care
and Education Reconciliation Act. The amendments in this
standard specify that the liability for the fee should be
estimated and recorded in full once the entity provides
qualifying health insurance in the applicable calendar year in
which the fee is payable with a corresponding deferred cost that
is amortized to expense using the straight-line method of
allocation unless another method better allocates the fee over
the calendar year that it is payable. The Company is currently
evaluating the impact of this guidance on its consolidated
financial statements.
In June 2011, the FASB issued new guidance regarding
comprehensive income (ASU
2011-05,
Comprehensive Income (Topic 220): Presentation of
Comprehensive Income), effective for fiscal years, and
interim periods within those years, beginning after
December 15, 2011. The guidance should be applied
retrospectively and early adoption is permitted. The new
guidance provides companies with the option to present the total
of comprehensive income, components of net income, and the
components of other comprehensive income either in a single
continuous statement of comprehensive income or in two separate
but consecutive statements. The objective of the standard is to
increase the prominence of items reported in other comprehensive
income and to facilitate convergence of GAAP and International
Financial Reporting Standards (IFRS). The standard
eliminates the option to present components of other
comprehensive income as part of the statement of changes in
stockholders equity. The Company is currently evaluating
the impact of this guidance on its consolidated financial
statements.
In May 2011, the FASB issued new guidance regarding fair value
measurement (ASU
2011-04,
Fair Value Measurements (Topic 820): Amendments to Achieve
Common Fair Value Measurement and Disclosure Requirements in
U.S. GAAP and IFRSs), effective for the first interim
or annual period beginning after December 15, 2011. The
guidance should be applied prospectively. The amendments in this
ASU are intended to establish common requirements for measuring
fair value and for disclosing information about fair value
measurements in accordance with GAAP and IFRS. Some of the
amendments clarify the FASBs intent on the application of
existing fair value measurement requirements. Other amendments
change a particular principle or requirement for measuring fair
value or for disclosing information about fair value
measurements. The Company is currently evaluating the impact of
this guidance on its consolidated financial statements.
In April 2011, the FASB issued new guidance regarding effective
control in repurchase agreements (ASU
2011-03,
Transfers and Servicing (Topic 860): Reconsideration of
Effective Control for Repurchase Agreements), effective for
the first interim or annual period beginning on or after
December 15, 2011. The guidance should be applied
prospectively to transactions or modifications of existing
transactions that occur on or after the effective date. The
amendments in this ASU remove from the assessment of effective
control the criterion requiring the transferor to have the
ability to repurchase or redeem the financial assets. The
Company is currently evaluating the impact of this guidance on
its consolidated financial statements.
In April 2011, the FASB issued new guidance regarding accounting
for troubled debt restructuring (ASU
2011-02,
Receivables (Topic 310): A Creditors Determination of
Whether a Restructuring Is a Troubled Debt Restructuring),
effective for the first interim or annual period beginning on or
after June 15, 2011 and which should be applied
retrospectively to the beginning of the annual period of
adoption. This guidance clarifies whether a creditor has granted
a concession and whether a debtor is experiencing financial
difficulties for the purpose of determining when a restructuring
constitutes a troubled debt restructuring. The Company does not
expect the adoption of this guidance to have a material impact
on its consolidated financial statements and related disclosures.
In October 2010, the FASB issued new guidance regarding
accounting for deferred acquisition costs (ASU
2010-26,
Financial Services Insurance (Topic 944):
Accounting for Costs Associated with Acquiring or
12
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Renewing Insurance Contracts) effective for fiscal years,
and interim periods within those fiscal years, beginning after
December 15, 2011. The guidance should be applied
prospectively upon adoption. Retrospective application to all
prior periods presented upon the date of adoption also is
permitted, but not required. This guidance clarifies the costs
that should be deferred by insurance entities when issuing and
renewing insurance contracts. The guidance also specifies that
only costs related directly to successful acquisition of new or
renewal contracts can be capitalized. All other
acquisition-related costs should be expensed as incurred. The
Company is currently evaluating the impact of this guidance on
its consolidated financial statements and related disclosures.
|
|
2.
|
Acquisitions
and Dispositions
|
2010
Acquisition of ALICO
Description
of Transaction
On the Acquisition Date, MetLife, Inc. acquired all of the
issued and outstanding capital stock of American Life from AM
Holdings, a subsidiary of AIG, and DelAm from AIG for a total
purchase price of $16.4 billion. The Acquisition has
significantly broadened the Companys diversification by
product, distribution and geography, will meaningfully
accelerate MetLifes global growth strategy, and creates
the opportunity to build an international franchise leveraging
the key strengths of ALICO.
On March 8, 2011, AM Holdings sold, in public offering
transactions, all the shares of common stock and common equity
units it received as consideration from MetLife in connection
with the Acquisition. The Company did not receive any of the
proceeds from the sale of either the shares of common stock held
by AM Holdings or the common equity units owned by AM Holdings.
On March 8, 2011, MetLife, Inc. issued
68,570,000 shares of common stock for gross proceeds of
$3.0 billion, which were used to repurchase and cancel
6,857,000 shares of convertible preferred stock received by
AM Holdings from MetLife in connection with the Acquisition. See
Note 10 herein and Note 2 of the Notes to the
Consolidated Financial Statements included in the 2010 Annual
Report.
Goodwill
Goodwill is calculated as the excess of the consideration
transferred over the net assets recognized and represents the
future economic benefits arising from other assets acquired and
liabilities assumed that could not be individually identified.
The goodwill recorded as part of the Acquisition includes the
expected synergies and other benefits that management believes
will result from combining the operations of ALICO with the
operations of MetLife, including further diversification in
geographic mix and product offerings and an increase in
distribution strength. Of the $7.0 billion in goodwill
resulting from the Acquisition, $5.2 billion was allocated
to the reporting unit in the Japan segment and $1.8 billion
was allocated to reporting units in the Other International
Regions segment.
Negative
Value of Business Acquired (VOBA)
For certain acquired blocks of business, the estimated fair
value of acquired liabilities exceeded the initial policy
reserves assumed at November 1, 2010, resulting in negative
VOBA of $4.4 billion recorded at the Acquisition Date.
Negative VOBA is recorded in other policy-related balances. The
following summarizes the major blocks of business, all included
within the Japan segment, for which negative VOBA was recorded
and describes why the fair value of the liabilities associated
with these blocks of business exceeded the initial policy
reserves assumed:
|
|
|
|
|
Fixed Annuities - This block of business provides a fixed
rate of return to the policyholders. A decrease in market
interest rates since the time of issuance was the primary driver
that resulted in the fair value of the liabilities associated
with this block being significantly greater than the initial
policy reserves assumed at the Acquisition Date.
|
13
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
Interest Sensitive Whole Life and Retirement Savings Products
- These contracts contain guaranteed minimum benefit
features. The recorded reserves for these guarantees increase
ratably over the life of the policies in relation to future
gross revenues. In contrast, the fair value of the guaranteed
minimum benefit component of the initial policy reserves assumed
represents the amount that would be required to be transferred
to a market participant to assume the full liability at the
acquisition date, implicitly incorporating market participant
views as to all expected future cash flows. This results in a
fair value significantly in excess of the initial guaranteed
minimum benefit liability assumed at the Acquisition Date.
|
The weighted average amortization period for negative VOBA as of
the Acquisition Date was 6.0 years. The estimated future
amortization of credit to expenses recorded in other expenses
for the first full five years after the Acquisition Date for
negative VOBA is $711 million in 2011, $628 million in
2012, $561 million in 2013, $475 million in 2014 and
$385 million in 2015.
Contingent
Consideration
American Life has guaranteed that the fair value of a fund of
assets backing certain United Kingdom unit-linked contracts will
have a value of at least £1 per unit on July 1, 2012.
If the shortfall between the aggregate guaranteed amount and the
fair value of the fund exceeds £106 million, AIG will
pay the difference to American Life and, conversely, if the
shortfall at July 1, 2012 is less than
£106 million, American Life will pay the difference to
AIG. The Company believes that the fair value of the fund will
equal or exceed the guaranteed amount by July 1, 2012. The
contingent consideration liability was $135 million at
June 30, 2011 and $88 million as of the Acquisition
Date. The increase in the contingent consideration liability
amount as of June 30, 2011 was recorded in net derivative
gains (losses) in the interim condensed consolidated statement
of operations.
Current
and Deferred Income Tax
The future tax effects of temporary differences between
financial reporting and tax bases of assets and liabilities are
measured at the balance sheet dates and are recorded as deferred
income tax assets and liabilities, with certain exceptions such
as certain temporary differences relating to goodwill under
purchase accounting.
For federal income tax purposes, in July 2011, MetLife, Inc. and
AM Holdings made elections under Section 338 of the
U.S. Internal Revenue Code of 1986, as amended (the
Section 338 Elections) with respect to American
Life and certain of its subsidiaries. In addition, in July 2011,
MetLife, Inc. and AIG made a Section 338 Election with
respect to DelAm. Under such elections, the U.S. tax basis
of the assets deemed acquired and liabilities assumed of ALICO
were adjusted as of the Acquisition Date to reflect the
consequences of the Section 338 Elections.
During the three months ended June 30, 2011, the Company
revised its deferred taxes as of the Acquisition Date to
recognize $671 million of a U.S. deferred tax asset
related to the reversal of temporary differences (between
financial reporting and U.S. tax bases of assets and
liabilities) of American Lifes foreign branches. However,
the Company has also recorded a valuation allowance on this
U.S. deferred tax asset of $671 million, resulting in
no net change to the consolidated balance sheet as of the
Acquisition Date. The valuation allowance reflects
managements assessment, based on available information,
that it is more likely than not that the U.S. deferred tax
asset will not be realized.
At June 30, 2011, ALICOs current and deferred income
tax liabilities were provisional and not yet finalized.
Therefore, current income taxes may be adjusted pending the
resolution of the amount of taxes resulting from the
Section 338 Elections and the filing of income tax returns.
Deferred income taxes may be adjusted as a result of changes in
estimates and assumptions relating to the reversal of
U.S. temporary differences prior to the completion of the
anticipated restructuring of American Lifes foreign
branches, the filing of income tax returns and as additional
information becomes available during the measurement period. The
Company expects to finalize these amounts as soon as possible
but no later than one year from the Acquisition Date.
14
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Costs
Related to Acquisition
Transaction and Integration-Related
Expenses. The Company incurred transaction costs
of $0 and $2 million for the three months and six months
ended June 30, 2011, respectively, and $15 million and
$42 million for the three months and six months ended
June 30, 2010, respectively. Transaction costs represent
costs directly related to effecting the Acquisition and
primarily include banking and legal expenses. Such costs have
been expensed as incurred and are included in other expenses.
These expenses have been reported within Banking,
Corporate & Other.
Integration-related expenses were $102 million and
$170 million for the three months and six months ended
June 30, 2011, respectively, and $40 million and
$42 million for the three months and six months ended
June 30, 2010, respectively. Integration-related costs
represent incremental costs directly related to integrating
ALICO, including expenses for consulting, rebranding and the
integration of information systems. Such expenses have been
expensed as incurred and are included in other expenses. As the
integration of ALICO is an enterprise-wide initiative, these
expenses have been reported within Banking,
Corporate & Other.
Restructuring Costs and Other Charges. As part
of the integration of ALICOs operations, management has
initiated restructuring plans focused on increasing productivity
and improving the efficiency of the Companys operations.
These restructuring costs were included in other expenses and
have been reported within Banking, Corporate & Other.
Estimated restructuring costs may change as management continues
to execute its restructuring plans. Management anticipates
further restructuring charges, including severance, contract
termination costs and other associated costs through the year
ended December 31, 2011. However, such restructuring plans
are not sufficiently developed to enable management to make an
estimate of such restructuring charges at June 30, 2011.
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2011
|
|
|
|
(In millions)
|
|
|
Balance, beginning of period
|
|
$
|
13
|
|
|
$
|
10
|
|
Restructuring charges
|
|
|
7
|
|
|
|
24
|
|
Cash payments
|
|
|
(11
|
)
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
9
|
|
|
$
|
9
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges incurred in current period
|
|
$
|
7
|
|
|
$
|
24
|
|
|
|
|
|
|
|
|
|
|
Total restructuring charges incurred since inception of program
|
|
$
|
34
|
|
|
$
|
34
|
|
|
|
|
|
|
|
|
|
|
2011
Disposition
On April 1, 2011, the Company sold its 50% interest in
Mitsui Sumitomo MetLife Insurance Co., Ltd. (MSI
MetLife), a Japan domiciled life insurance company, to its
joint venture partner, MS&AD Insurance Group Holdings, Inc.
(MS&AD), for $269 million
(¥22.5 billion) in cash consideration, less
$4 million (¥310 million) to reimburse MS&AD
for specific expenses incurred related to the transaction. The
accumulated other comprehensive losses in the foreign currency
translation adjustment component of equity resulting from the
hedges of the Companys investment in the joint venture of
$46 million, net of income tax, were released upon sale but
did not impact net income for the three months ended
June 30, 2011 as such losses were considered in the overall
impairment evaluation of the investment prior to the sale.
During the three months and six months ended June 30, 2011,
the Company recorded a loss of $5 million and
$57 million, net of income tax, respectively, in net
investment gains (losses) within the interim condensed
consolidated statements of operations. The Companys
operating earnings relating to its investment in MSI MetLife
were included in the Other International Regions segment.
15
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
2011
Pending Disposition
During the first quarter of 2011, the Company entered into a
definitive agreement with a third party to sell its wholly-owned
subsidiary, MetLife Taiwan Insurance Company Limited
(MetLife Taiwan) for $180 million in cash
consideration. The transaction is expected to close no later
than December 31, 2011. As a part of the sale agreement,
the Company received a deposit of $10 million from the
third party which is included in other liabilities in the
interim condensed consolidated balance sheet at June 30,
2011. The deposit, which is refundable in certain cases, will be
applied against the final purchase price. As a result of
recording MetLife Taiwans net assets at the lower of cost
or fair value as assets and liabilities
held-for-sale,
the Company recognized a net investment loss in discontinued
operations of $7 million and $74 million, net of
income tax, for the three months and six months ended
June 30, 2011, respectively. Income from the operations of
MetLife Taiwan of $8 million and $14 million, net of
income tax, for the three months and six months ended
June 30, 2011, respectively, and $4 million and
$7 million, net of income tax, for the three months and six
months ended June 30, 2010, respectively, were also
recorded in discontinued operations.
Fixed
Maturity and Equity Securities
Available-for-Sale
The following tables present the cost or amortized cost, gross
unrealized gains and losses, 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) losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
|
Cost or
|
|
|
Gross Unrealized
|
|
|
Estimated
|
|
|
|
|
|
|
Amortized
|
|
|
|
|
|
Temporary
|
|
|
OTTI
|
|
|
Fair
|
|
|
% of
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Losses
|
|
|
Value
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Fixed Maturity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
92,677
|
|
|
$
|
5,244
|
|
|
$
|
1,124
|
|
|
$
|
|
|
|
$
|
96,797
|
|
|
|
28.3
|
%
|
Foreign corporate securities (1)
|
|
|
67,518
|
|
|
|
3,877
|
|
|
|
858
|
|
|
|
(1
|
)
|
|
|
70,538
|
|
|
|
20.6
|
|
Foreign government securities
|
|
|
47,750
|
|
|
|
2,046
|
|
|
|
389
|
|
|
|
161
|
|
|
|
49,246
|
|
|
|
14.4
|
|
Residential mortgage-backed securities (RMBS)
|
|
|
42,845
|
|
|
|
1,870
|
|
|
|
652
|
|
|
|
513
|
|
|
|
43,550
|
|
|
|
12.8
|
|
U.S. Treasury and agency securities
|
|
|
34,691
|
|
|
|
1,462
|
|
|
|
588
|
|
|
|
|
|
|
|
35,565
|
|
|
|
10.4
|
|
Commercial mortgage-backed securities (CMBS) (1)
|
|
|
18,782
|
|
|
|
906
|
|
|
|
176
|
|
|
|
(6
|
)
|
|
|
19,518
|
|
|
|
5.7
|
|
Asset-backed securities (ABS)
|
|
|
15,082
|
|
|
|
330
|
|
|
|
483
|
|
|
|
72
|
|
|
|
14,857
|
|
|
|
4.4
|
|
State and political subdivision securities
|
|
|
11,554
|
|
|
|
443
|
|
|
|
328
|
|
|
|
|
|
|
|
11,669
|
|
|
|
3.4
|
|
Other fixed maturity securities
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities (2),(3)
|
|
$
|
330,903
|
|
|
$
|
16,178
|
|
|
$
|
4,598
|
|
|
$
|
739
|
|
|
$
|
341,744
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
1,959
|
|
|
$
|
142
|
|
|
$
|
11
|
|
|
$
|
|
|
|
$
|
2,090
|
|
|
|
64.5
|
%
|
Non-redeemable preferred stock (2)
|
|
|
1,169
|
|
|
|
83
|
|
|
|
104
|
|
|
|
|
|
|
|
1,148
|
|
|
|
35.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
3,128
|
|
|
$
|
225
|
|
|
$
|
115
|
|
|
$
|
|
|
|
$
|
3,238
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
Cost or
|
|
|
Gross Unrealized
|
|
|
Estimated
|
|
|
|
|
|
|
Amortized
|
|
|
|
|
|
Temporary
|
|
|
OTTI
|
|
|
Fair
|
|
|
% of
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Losses
|
|
|
Value
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Fixed Maturity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
88,905
|
|
|
$
|
4,469
|
|
|
$
|
1,602
|
|
|
$
|
|
|
|
$
|
91,772
|
|
|
|
28.3
|
%
|
Foreign corporate securities
|
|
|
65,487
|
|
|
|
3,326
|
|
|
|
925
|
|
|
|
|
|
|
|
67,888
|
|
|
|
20.9
|
|
Foreign government securities
|
|
|
40,871
|
|
|
|
1,733
|
|
|
|
602
|
|
|
|
|
|
|
|
42,002
|
|
|
|
12.9
|
|
RMBS
|
|
|
44,468
|
|
|
|
1,652
|
|
|
|
917
|
|
|
|
470
|
|
|
|
44,733
|
|
|
|
13.8
|
|
U.S. Treasury and agency securities
|
|
|
32,469
|
|
|
|
1,394
|
|
|
|
559
|
|
|
|
|
|
|
|
33,304
|
|
|
|
10.2
|
|
CMBS
|
|
|
20,213
|
|
|
|
740
|
|
|
|
266
|
|
|
|
12
|
|
|
|
20,675
|
|
|
|
6.4
|
|
ABS
|
|
|
14,722
|
|
|
|
274
|
|
|
|
590
|
|
|
|
119
|
|
|
|
14,287
|
|
|
|
4.4
|
|
State and political subdivision securities
|
|
|
10,476
|
|
|
|
171
|
|
|
|
518
|
|
|
|
|
|
|
|
10,129
|
|
|
|
3.1
|
|
Other fixed maturity securities
|
|
|
6
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities (2),(3)
|
|
$
|
317,617
|
|
|
$
|
13,760
|
|
|
$
|
5,979
|
|
|
$
|
601
|
|
|
$
|
324,797
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
2,059
|
|
|
$
|
146
|
|
|
$
|
12
|
|
|
$
|
|
|
|
$
|
2,193
|
|
|
|
60.9
|
%
|
Non-redeemable preferred stock (2)
|
|
|
1,562
|
|
|
|
76
|
|
|
|
229
|
|
|
|
|
|
|
|
1,409
|
|
|
|
39.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
3,621
|
|
|
$
|
222
|
|
|
$
|
241
|
|
|
$
|
|
|
|
$
|
3,602
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
OTTI losses as presented above represent the noncredit portion
of OTTI losses that is included in accumulated other
comprehensive income (loss). OTTI losses include both the
initial recognition of noncredit losses, and the effects of
subsequent increases and decreases in estimated fair value for
those fixed maturity securities that were previously noncredit
loss impaired. The noncredit loss component of OTTI losses for
foreign corporate securities and CMBS were in an unrealized gain
(loss) position of $1 million and $6 million,
respectively, at June 30, 2011 due to increases in
estimated fair value subsequent to initial recognition of
noncredit losses on such securities. See also
Net Unrealized Investment Gains (Losses). |
|
(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;
while those with more equity-like characteristics, are
classified as equity securities within non-redeemable preferred
stock. Many of such securities have been issued by
non-U.S.
financial institutions that are accorded Tier 1 and Upper
Tier 2 capital treatment by their respective regulatory
bodies and are commonly referred to as perpetual hybrid
securities. The following table presents the perpetual
hybrid securities held by the Company at: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
Estimated
|
|
|
Estimated
|
|
Classification
|
|
Fair
|
|
|
Fair
|
|
Consolidated Balance Sheets
|
|
Sector Table
|
|
Primary Issuers
|
|
Value
|
|
|
Value
|
|
|
|
|
|
|
|
(In millions)
|
|
|
Fixed maturity securities
|
|
Foreign corporate securities
|
|
Non-U.S. financial institutions
|
|
$
|
1,094
|
|
|
$
|
2,008
|
|
Fixed maturity securities
|
|
U.S. corporate securities
|
|
U.S. financial institutions
|
|
$
|
77
|
|
|
$
|
83
|
|
Equity securities
|
|
Non-redeemable preferred stock
|
|
Non-U.S. financial institutions
|
|
$
|
841
|
|
|
$
|
1,043
|
|
Equity securities
|
|
Non-redeemable preferred stock
|
|
U.S. financial institutions
|
|
$
|
227
|
|
|
$
|
236
|
|
|
|
|
(3) |
|
The Companys holdings in redeemable preferred stock with
stated maturity dates, commonly referred to as capital
securities, were primarily issued by U.S. financial
institutions and have cumulative interest deferral features. The
Company held $2.2 billion and $2.7 billion at
estimated fair value of such securities at June 30, 2011
and December 31, 2010, respectively, which are included in
the U.S. and foreign corporate securities sectors within fixed
maturity securities. |
17
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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 certain
structured securities described below held by the Companys
insurance subsidiaries that file NAIC statutory financial
statements. Non-agency RMBS, CMBS and ABS held by the
Companys insurance subsidiaries that file NAIC statutory
financial statements are presented based on final ratings from
the revised NAIC rating methodologies for structured securities
(which may not correspond to rating agency designations). All
NAIC designation (e.g., NAIC 1 6) amounts and
percentages presented herein are based on the revised NAIC
methodologies. 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
methodologies described above. Rating agency designations 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).
The following table presents selected information about certain
fixed maturity securities held by the Company at:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
December 31, 2010
|
|
|
(In millions)
|
|
Below investment grade or non-rated fixed maturity securities:
|
|
|
|
|
|
|
|
|
Estimated fair value
|
|
$
|
25,941
|
|
|
$
|
24,870
|
|
Net unrealized gains (losses)
|
|
$
|
(819
|
)
|
|
$
|
(696
|
)
|
Non-income producing fixed maturity securities:
|
|
|
|
|
|
|
|
|
Estimated fair value
|
|
$
|
43
|
|
|
$
|
130
|
|
Net unrealized gains (losses)
|
|
$
|
(32
|
)
|
|
$
|
(23
|
)
|
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
equity, other than the government securities summarized in the
table below. The par value and amortized cost of the
Companys holdings in sovereign fixed maturity securities
of Portugal, Ireland, Italy, Greece and Spain, commonly referred
to as Europes perimeter region, was
$1,178 million and $934 million at June 30, 2011,
respectively, and $1,912 million and $1,644 million at
December 31, 2010, respectively. The estimated fair value
of such holdings was $761 million and $1,562 million
prior to considering net purchased credit default swap
protection at June 30, 2011 and December 31, 2010,
respectively. The estimated fair value of these Europe perimeter
region sovereign fixed maturity securities represented 1.4% and
3.2% of the Companys equity at June 30, 2011 and
December 31, 2010, respectively, and 0.2% and 0.3% of total
cash and invested assets at June 30, 2011 and
December 31, 2010, respectively.
18
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Concentrations of Credit Risk (Government and Agency
Securities). The following section contains a
summary of the concentrations of credit risk related to
government and agency fixed maturity and fixed-income securities
holdings, which were greater than 10% of the Companys
equity at:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
Carrying Value (1)
|
|
|
|
(In millions)
|
|
|
Government and agency fixed maturity securities:
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
35,565
|
|
|
$
|
33,304
|
|
Japan
|
|
$
|
18,216
|
|
|
$
|
15,591
|
|
Mexico
|
|
$
|
5,573
|
|
|
$
|
5,050
|
|
U.S. Treasury and agency fixed-income securities included in:
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
$
|
8,616
|
|
|
$
|
4,048
|
|
Cash equivalents
|
|
$
|
1,570
|
|
|
$
|
5,762
|
|
|
|
|
(1) |
|
Represents estimated fair value for fixed maturity securities;
amortized cost, which approximates estimated fair value or
estimated fair value, if available, for short-term investments;
and amortized cost, which approximates estimated fair value, for
cash equivalents. |
Concentrations of Credit Risk (Fixed Maturity
Securities) U.S. and Foreign Corporate
Securities. The Company maintains a diversified
portfolio of corporate fixed maturity securities across
industries and issuers. This portfolio does not have an exposure
to any single issuer in excess of 1% of total investments. The
tables below present information for U.S. and foreign
corporate securities at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
Fair
|
|
|
% of
|
|
|
Fair
|
|
|
% of
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Corporate fixed maturity securities by sector:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign corporate fixed maturity securities (1)
|
|
$
|
70,538
|
|
|
|
42.2
|
%
|
|
$
|
67,888
|
|
|
|
42.5
|
%
|
U.S. corporate fixed maturity securities by industry:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial
|
|
|
24,270
|
|
|
|
14.5
|
|
|
|
22,070
|
|
|
|
13.8
|
|
Consumer
|
|
|
22,910
|
|
|
|
13.7
|
|
|
|
21,482
|
|
|
|
13.5
|
|
Finance
|
|
|
20,397
|
|
|
|
12.2
|
|
|
|
20,785
|
|
|
|
13.0
|
|
Utility
|
|
|
18,242
|
|
|
|
10.9
|
|
|
|
16,902
|
|
|
|
10.6
|
|
Communications
|
|
|
7,733
|
|
|
|
4.6
|
|
|
|
7,335
|
|
|
|
4.6
|
|
Other
|
|
|
3,245
|
|
|
|
1.9
|
|
|
|
3,198
|
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
167,335
|
|
|
|
100.0
|
%
|
|
$
|
159,660
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes U.S. dollar-denominated debt obligations of foreign
obligors and other foreign fixed maturity securities. |
19
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
December 31, 2010
|
|
|
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
|
|
$
|
2,207
|
|
|
|
0.5
|
%
|
|
$
|
2,291
|
|
|
|
0.5
|
%
|
Holdings in ten issuers with the largest exposures
|
|
$
|
13,328
|
|
|
|
2.8
|
%
|
|
$
|
14,247
|
|
|
|
3.1
|
%
|
Concentrations of Credit Risk (Fixed Maturity
Securities) RMBS. The table below
presents information on the Companys RMBS holdings at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
Fair
|
|
|
% of
|
|
|
Fair
|
|
|
% of
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
By security type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligations
|
|
$
|
23,011
|
|
|
|
52.8
|
%
|
|
$
|
22,303
|
|
|
|
49.9
|
%
|
Pass-through securities
|
|
|
20,539
|
|
|
|
47.2
|
|
|
|
22,430
|
|
|
|
50.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total RMBS
|
|
$
|
43,550
|
|
|
|
100.0
|
%
|
|
$
|
44,733
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By risk profile:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
$
|
32,774
|
|
|
|
75.3
|
%
|
|
$
|
34,254
|
|
|
|
76.6
|
%
|
Prime
|
|
|
6,016
|
|
|
|
13.8
|
|
|
|
6,258
|
|
|
|
14.0
|
|
Alternative residential mortgage loans
|
|
|
4,760
|
|
|
|
10.9
|
|
|
|
4,221
|
|
|
|
9.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total RMBS
|
|
$
|
43,550
|
|
|
|
100.0
|
%
|
|
$
|
44,733
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rated Aaa/AAA
|
|
$
|
34,105
|
|
|
|
78.3
|
%
|
|
$
|
36,085
|
|
|
|
80.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rated NAIC 1
|
|
$
|
37,484
|
|
|
|
86.1
|
%
|
|
$
|
38,984
|
|
|
|
87.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Note 3 Investments
Concentrations of Credit Risk (Fixed Maturity
Securities) RMBS of the Notes to the
Consolidated Financial Statements included in the 2010 Annual
Report for a description of the security types and risk profile.
20
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The following tables present information on the Companys
investment in alternative residential mortgage loans
(Alt-A) RMBS at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
Fair
|
|
|
% of
|
|
|
Fair
|
|
|
% of
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Vintage Year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 & Prior
|
|
$
|
1,704
|
|
|
|
35.8
|
%
|
|
$
|
1,576
|
|
|
|
37.3
|
%
|
2006
|
|
|
1,376
|
|
|
|
28.9
|
|
|
|
1,013
|
|
|
|
24.0
|
|
2007
|
|
|
1,016
|
|
|
|
21.3
|
|
|
|
922
|
|
|
|
21.8
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
0.2
|
|
2009 (1)
|
|
|
627
|
|
|
|
13.2
|
|
|
|
671
|
|
|
|
15.9
|
|
2010 (1)
|
|
|
37
|
|
|
|
0.8
|
|
|
|
32
|
|
|
|
0.8
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,760
|
|
|
|
100.0
|
%
|
|
$
|
4,221
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
All of the Companys Alt-A RMBS holdings in the 2009 and
2010 vintage years are resecuritization of real estate mortgage
investment conduit (Re-REMIC) Alt-A RMBS that were
purchased in 2009 and 2010 and are comprised of original issue
vintage year 2005 through 2007 Alt-A RMBS. All of the
Companys Re-REMIC Alt-A RMBS holdings are NAIC 1 rated. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
Amount
|
|
|
Total
|
|
|
Amount
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Net unrealized gains (losses)
|
|
$
|
(680
|
)
|
|
|
|
|
|
$
|
(670
|
)
|
|
|
|
|
Rated Aa/AA or better
|
|
|
|
|
|
|
12.4
|
%
|
|
|
|
|
|
|
15.9
|
%
|
Rated NAIC 1
|
|
|
|
|
|
|
39.4
|
%
|
|
|
|
|
|
|
39.5
|
%
|
Distribution of holdings at estimated fair
value by collateral type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate mortgage loans collateral
|
|
|
|
|
|
|
92.3
|
%
|
|
|
|
|
|
|
90.7
|
%
|
Hybrid adjustable rate mortgage loans collateral
|
|
|
|
|
|
|
7.7
|
|
|
|
|
|
|
|
9.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Alt-A RMBS
|
|
|
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Concentrations of Credit Risk (Fixed Maturity
Securities) CMBS. The following
tables present the Companys holdings of CMBS by rating
agency designation and by vintage year at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
6,311
|
|
|
$
|
6,481
|
|
|
$
|
184
|
|
|
$
|
186
|
|
|
$
|
105
|
|
|
$
|
103
|
|
|
$
|
63
|
|
|
$
|
61
|
|
|
$
|
21
|
|
|
$
|
20
|
|
|
$
|
6,684
|
|
|
$
|
6,851
|
|
2004
|
|
|
3,693
|
|
|
|
3,858
|
|
|
|
462
|
|
|
|
483
|
|
|
|
117
|
|
|
|
115
|
|
|
|
91
|
|
|
|
92
|
|
|
|
76
|
|
|
|
66
|
|
|
|
4,439
|
|
|
|
4,614
|
|
2005
|
|
|
2,905
|
|
|
|
3,141
|
|
|
|
363
|
|
|
|
389
|
|
|
|
307
|
|
|
|
325
|
|
|
|
169
|
|
|
|
175
|
|
|
|
37
|
|
|
|
29
|
|
|
|
3,781
|
|
|
|
4,059
|
|
2006
|
|
|
1,480
|
|
|
|
1,584
|
|
|
|
155
|
|
|
|
157
|
|
|
|
86
|
|
|
|
94
|
|
|
|
153
|
|
|
|
165
|
|
|
|
157
|
|
|
|
155
|
|
|
|
2,031
|
|
|
|
2,155
|
|
2007
|
|
|
674
|
|
|
|
687
|
|
|
|
369
|
|
|
|
342
|
|
|
|
155
|
|
|
|
151
|
|
|
|
43
|
|
|
|
44
|
|
|
|
117
|
|
|
|
115
|
|
|
|
1,358
|
|
|
|
1,339
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
|
|
|
|
30
|
|
|
|
26
|
|
|
|
30
|
|
2009
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
2010
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
56
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59
|
|
|
|
64
|
|
2011
|
|
|
402
|
|
|
|
404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
402
|
|
|
|
404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
15,470
|
|
|
$
|
16,160
|
|
|
$
|
1,533
|
|
|
$
|
1,557
|
|
|
$
|
826
|
|
|
$
|
849
|
|
|
$
|
519
|
|
|
$
|
537
|
|
|
$
|
434
|
|
|
$
|
415
|
|
|
$
|
18,782
|
|
|
$
|
19,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratings Distribution
|
|
|
|
|
|
|
82.8
|
%
|
|
|
|
|
|
|
8.0
|
%
|
|
|
|
|
|
|
4.3
|
%
|
|
|
|
|
|
|
2.8
|
%
|
|
|
|
|
|
|
2.1
|
%
|
|
|
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 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
|
|
$
|
7,411
|
|
|
$
|
7,640
|
|
|
$
|
282
|
|
|
$
|
282
|
|
|
$
|
228
|
|
|
$
|
227
|
|
|
$
|
74
|
|
|
$
|
71
|
|
|
$
|
28
|
|
|
$
|
24
|
|
|
$
|
8,023
|
|
|
$
|
8,244
|
|
2004
|
|
|
3,489
|
|
|
|
3,620
|
|
|
|
277
|
|
|
|
273
|
|
|
|
216
|
|
|
|
209
|
|
|
|
181
|
|
|
|
175
|
|
|
|
91
|
|
|
|
68
|
|
|
|
4,254
|
|
|
|
4,345
|
|
2005
|
|
|
3,113
|
|
|
|
3,292
|
|
|
|
322
|
|
|
|
324
|
|
|
|
286
|
|
|
|
280
|
|
|
|
263
|
|
|
|
255
|
|
|
|
73
|
|
|
|
66
|
|
|
|
4,057
|
|
|
|
4,217
|
|
2006
|
|
|
1,463
|
|
|
|
1,545
|
|
|
|
159
|
|
|
|
160
|
|
|
|
168
|
|
|
|
168
|
|
|
|
385
|
|
|
|
398
|
|
|
|
166
|
|
|
|
156
|
|
|
|
2,341
|
|
|
|
2,427
|
|
2007
|
|
|
840
|
|
|
|
791
|
|
|
|
344
|
|
|
|
298
|
|
|
|
96
|
|
|
|
95
|
|
|
|
119
|
|
|
|
108
|
|
|
|
122
|
|
|
|
133
|
|
|
|
1,521
|
|
|
|
1,425
|
|
2008
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
2009
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
3
|
|
2010
|
|
|
8
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
16,329
|
|
|
$
|
16,901
|
|
|
$
|
1,384
|
|
|
$
|
1,337
|
|
|
$
|
998
|
|
|
$
|
983
|
|
|
$
|
1,022
|
|
|
$
|
1,007
|
|
|
$
|
480
|
|
|
$
|
447
|
|
|
$
|
20,213
|
|
|
$
|
20,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratings Distribution
|
|
|
|
|
|
|
81.7
|
%
|
|
|
|
|
|
|
6.4
|
%
|
|
|
|
|
|
|
4.8
|
%
|
|
|
|
|
|
|
4.9
|
%
|
|
|
|
|
|
|
2.2
|
%
|
|
|
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The tables above reflect rating agency designations assigned by
nationally recognized rating agencies including Moodys,
S&P, Fitch and Realpoint, LLC.
The NAIC rating distribution of the Companys holdings of
CMBS was as follows at:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
December 31, 2010
|
|
NAIC 1
|
|
|
94.1
|
%
|
|
|
93.7
|
%
|
NAIC 2
|
|
|
3.7
|
%
|
|
|
3.2
|
%
|
NAIC 3
|
|
|
1.2
|
%
|
|
|
1.8
|
%
|
NAIC 4
|
|
|
0.9
|
%
|
|
|
1.0
|
%
|
NAIC 5
|
|
|
0.1
|
%
|
|
|
0.3
|
%
|
NAIC 6
|
|
|
|
%
|
|
|
|
%
|
22
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Concentrations of Credit Risk (Fixed Maturity
Securities) ABS. The Companys
ABS are diversified both by collateral type and by issuer. The
following table presents information about ABS held by the
Company at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
Fair
|
|
|
% of
|
|
|
Fair
|
|
|
% of
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
By collateral type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card loans
|
|
$
|
5,202
|
|
|
|
35.0
|
%
|
|
$
|
6,027
|
|
|
|
42.2
|
%
|
Student loans
|
|
|
2,903
|
|
|
|
19.5
|
|
|
|
2,416
|
|
|
|
16.9
|
|
Collateralized debt obligations
|
|
|
2,447
|
|
|
|
16.5
|
|
|
|
1,798
|
|
|
|
12.6
|
|
RMBS backed by
sub-prime
mortgage loans
|
|
|
1,065
|
|
|
|
7.2
|
|
|
|
1,119
|
|
|
|
7.8
|
|
Automobile loans
|
|
|
836
|
|
|
|
5.6
|
|
|
|
605
|
|
|
|
4.2
|
|
Other loans
|
|
|
2,404
|
|
|
|
16.2
|
|
|
|
2,322
|
|
|
|
16.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
14,857
|
|
|
|
100.0
|
%
|
|
$
|
14,287
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rated Aaa/AAA
|
|
$
|
9,809
|
|
|
|
66.0
|
%
|
|
$
|
10,411
|
|
|
|
72.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rated NAIC 1
|
|
$
|
13,683
|
|
|
|
92.1
|
%
|
|
$
|
13,133
|
|
|
|
91.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company had ABS supported by
sub-prime
mortgage loans with estimated fair values of $1,065 million
and $1,119 million and unrealized losses of
$284 million and $317 million at June 30, 2011
and December 31, 2010, respectively. Approximately 27% of
this portfolio was rated Aa or better, of which 73% was in
vintage year 2005 and prior at June 30, 2011. Approximately
54% of this portfolio was rated Aa or better, of which 88% was
in vintage year 2005 and prior at December 31, 2010. These
older vintages from 2005 and prior benefit from better
underwriting, improved credit enhancement levels and higher
residential property price appreciation. Approximately 63% and
66% of this portfolio was rated NAIC 2 or better at
June 30, 2011 and December 31, 2010, respectively.
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
equity or 1% of total investments at June 30, 2011 and
December 31, 2010.
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, 2011
|
|
|
December 31, 2010
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
|
(In millions)
|
|
|
Due in one year or less
|
|
$
|
10,716
|
|
|
$
|
10,857
|
|
|
$
|
8,580
|
|
|
$
|
8,702
|
|
Due after one year through five years
|
|
|
69,032
|
|
|
|
71,319
|
|
|
|
65,143
|
|
|
|
66,796
|
|
Due after five years through ten years
|
|
|
82,006
|
|
|
|
86,268
|
|
|
|
76,508
|
|
|
|
79,571
|
|
Due after ten years
|
|
|
92,440
|
|
|
|
95,375
|
|
|
|
87,983
|
|
|
|
90,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
254,194
|
|
|
|
263,819
|
|
|
|
238,214
|
|
|
|
245,102
|
|
RMBS, CMBS and ABS
|
|
|
76,709
|
|
|
|
77,925
|
|
|
|
79,403
|
|
|
|
79,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
330,903
|
|
|
$
|
341,744
|
|
|
$
|
317,617
|
|
|
$
|
324,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Actual maturities may differ from contractual maturities due to
the exercise of call or prepayment options. Fixed maturity
securities not due at a single maturity date have been included
in the above table in the year of final contractual maturity.
RMBS, CMBS and ABS are shown separately in the table, as they
are not due at a single maturity.
Evaluating
Available-for-Sale
Securities for
Other-Than-Temporary
Impairment
As described more fully in Note 1 of the Notes to the
Consolidated Financial Statements included in the 2010 Annual
Report, the Company performs a regular evaluation, on a
security-by-security
basis, of its
available-for-sale
securities holdings, including fixed maturity securities, equity
securities and perpetual hybrid securities, in accordance with
its impairment policy in order to evaluate whether such
investments are
other-than-temporarily
impaired.
Net
Unrealized Investment Gains (Losses)
The components of net unrealized investment gains (losses),
included in accumulated other comprehensive income (loss), were
as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
(In millions)
|
|
|
Fixed maturity securities
|
|
$
|
11,576
|
|
|
$
|
7,817
|
|
Fixed maturity securities with noncredit OTTI losses in
accumulated other comprehensive income (loss)
|
|
|
(739
|
)
|
|
|
(601
|
)
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
|
10,837
|
|
|
|
7,216
|
|
Equity securities
|
|
|
132
|
|
|
|
(3
|
)
|
Derivatives
|
|
|
(165
|
)
|
|
|
(59
|
)
|
Other
|
|
|
(5
|
)
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
10,799
|
|
|
|
7,196
|
|
|
|
|
|
|
|
|
|
|
Amounts allocated from:
|
|
|
|
|
|
|
|
|
Insurance liability loss recognition
|
|
|
(1,061
|
)
|
|
|
(672
|
)
|
DAC and VOBA related to noncredit OTTI losses recognized in
accumulated other comprehensive income (loss)
|
|
|
34
|
|
|
|
38
|
|
DAC and VOBA
|
|
|
(1,430
|
)
|
|
|
(1,205
|
)
|
Policyholder dividend obligation
|
|
|
(1,281
|
)
|
|
|
(876
|
)
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
(3,738
|
)
|
|
|
(2,715
|
)
|
Deferred income tax benefit (expense) related to noncredit OTTI
losses recognized in accumulated other comprehensive income
(loss)
|
|
|
245
|
|
|
|
197
|
|
Deferred income tax benefit (expense)
|
|
|
(2,651
|
)
|
|
|
(1,692
|
)
|
|
|
|
|
|
|
|
|
|
Net unrealized investment gains (losses)
|
|
|
4,655
|
|
|
|
2,986
|
|
Net unrealized investment gains (losses) attributable to
noncontrolling interests
|
|
|
9
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
Net unrealized investment gains (losses) attributable to
MetLife, Inc.
|
|
$
|
4,664
|
|
|
$
|
2,990
|
|
|
|
|
|
|
|
|
|
|
24
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The changes in fixed maturity securities with noncredit OTTI
losses in accumulated other comprehensive income (loss), were as
follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
(In millions)
|
|
|
Balance, beginning of period
|
|
$
|
(601
|
)
|
|
$
|
(859
|
)
|
Noncredit OTTI losses recognized (1)
|
|
|
(184
|
)
|
|
|
(212
|
)
|
Transferred to retained earnings (2)
|
|
|
|
|
|
|
16
|
|
Securities sold with previous noncredit OTTI loss
|
|
|
77
|
|
|
|
137
|
|
Subsequent changes in estimated fair value
|
|
|
(31
|
)
|
|
|
317
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
(739
|
)
|
|
$
|
(601
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Noncredit OTTI losses recognized, net of deferred policy
acquisition costs (DAC), were ($188) million
and ($202) million for the periods ended June 30, 2011
and December 31, 2010, respectively. |
|
(2) |
|
Amounts transferred to retained earnings were in connection with
the adoption of guidance related to the consolidation of VIEs as
described in Note 1 of the Notes to the Consolidated
Financial Statements included in the 2010 Annual Report. |
The changes in net unrealized investment gains (losses) were as
follows:
|
|
|
|
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
|
June 30, 2011
|
|
|
|
(In millions)
|
|
|
Balance, beginning of period
|
|
$
|
2,990
|
|
Fixed maturity securities on which noncredit OTTI losses have
been recognized
|
|
|
(138
|
)
|
Unrealized investment gains (losses) during the period
|
|
|
3,741
|
|
Unrealized investment gains (losses) relating to:
|
|
|
|
|
Insurance liability gain (loss) recognition
|
|
|
(389
|
)
|
DAC and VOBA related to noncredit OTTI losses recognized in
accumulated other comprehensive income (loss)
|
|
|
(4
|
)
|
DAC and VOBA
|
|
|
(225
|
)
|
Policyholder dividend obligation
|
|
|
(405
|
)
|
Deferred income tax benefit (expense) related to noncredit OTTI
losses recognized in accumulated other comprehensive income
(loss)
|
|
|
48
|
|
Deferred income tax benefit (expense)
|
|
|
(959
|
)
|
|
|
|
|
|
Net unrealized investment gains (losses)
|
|
|
4,659
|
|
Net unrealized investment gains (losses) attributable to
noncontrolling interests
|
|
|
5
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
4,664
|
|
|
|
|
|
|
Change in net unrealized investment gains (losses)
|
|
$
|
1,669
|
|
Change in net unrealized investment gains (losses) attributable
to noncontrolling interests
|
|
|
5
|
|
|
|
|
|
|
Change in net unrealized investment gains (losses) attributable
to MetLife, Inc.
|
|
$
|
1,674
|
|
|
|
|
|
|
25
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Continuous
Gross Unrealized Losses and OTTI Losses for Fixed Maturity and
Equity Securities
Available-for-Sale
by Sector
The following tables present the estimated fair value and gross
unrealized losses 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 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, 2011
|
|
|
|
|
|
|
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
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
|
(In millions, except number of securities)
|
|
|
Fixed Maturity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
15,021
|
|
|
$
|
289
|
|
|
$
|
6,662
|
|
|
$
|
835
|
|
|
$
|
21,683
|
|
|
$
|
1,124
|
|
Foreign corporate securities
|
|
|
17,137
|
|
|
|
592
|
|
|
|
1,953
|
|
|
|
265
|
|
|
|
19,090
|
|
|
|
857
|
|
Foreign government securities
|
|
|
21,463
|
|
|
|
539
|
|
|
|
153
|
|
|
|
11
|
|
|
|
21,616
|
|
|
|
550
|
|
RMBS
|
|
|
5,742
|
|
|
|
159
|
|
|
|
5,540
|
|
|
|
1,006
|
|
|
|
11,282
|
|
|
|
1,165
|
|
U.S. Treasury and agency securities
|
|
|
11,586
|
|
|
|
562
|
|
|
|
108
|
|
|
|
26
|
|
|
|
11,694
|
|
|
|
588
|
|
CMBS
|
|
|
1,606
|
|
|
|
32
|
|
|
|
926
|
|
|
|
138
|
|
|
|
2,532
|
|
|
|
170
|
|
ABS
|
|
|
2,212
|
|
|
|
22
|
|
|
|
2,723
|
|
|
|
533
|
|
|
|
4,935
|
|
|
|
555
|
|
State and political subdivision securities
|
|
|
2,684
|
|
|
|
96
|
|
|
|
1,000
|
|
|
|
232
|
|
|
|
3,684
|
|
|
|
328
|
|
Other fixed maturity securities
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
77,453
|
|
|
$
|
2,291
|
|
|
$
|
19,065
|
|
|
$
|
3,046
|
|
|
$
|
96,518
|
|
|
$
|
5,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
96
|
|
|
$
|
11
|
|
|
$
|
23
|
|
|
$
|
|
|
|
$
|
119
|
|
|
$
|
11
|
|
Non-redeemable preferred stock
|
|
|
174
|
|
|
|
6
|
|
|
|
462
|
|
|
|
98
|
|
|
|
636
|
|
|
|
104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
270
|
|
|
$
|
17
|
|
|
$
|
485
|
|
|
$
|
98
|
|
|
$
|
755
|
|
|
$
|
115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total number of securities in an
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
unrealized loss position
|
|
|
4,834
|
|
|
|
|
|
|
|
1,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 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
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
|
(In millions, except number of securities)
|
|
|
Fixed Maturity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
22,954
|
|
|
$
|
447
|
|
|
$
|
8,319
|
|
|
$
|
1,155
|
|
|
$
|
31,273
|
|
|
$
|
1,602
|
|
Foreign corporate securities
|
|
|
22,415
|
|
|
|
410
|
|
|
|
3,976
|
|
|
|
515
|
|
|
|
26,391
|
|
|
|
925
|
|
Foreign government securities
|
|
|
26,659
|
|
|
|
585
|
|
|
|
189
|
|
|
|
17
|
|
|
|
26,848
|
|
|
|
602
|
|
RMBS
|
|
|
7,588
|
|
|
|
212
|
|
|
|
6,700
|
|
|
|
1,175
|
|
|
|
14,288
|
|
|
|
1,387
|
|
U.S. Treasury and agency securities
|
|
|
13,401
|
|
|
|
530
|
|
|
|
118
|
|
|
|
29
|
|
|
|
13,519
|
|
|
|
559
|
|
CMBS
|
|
|
3,787
|
|
|
|
29
|
|
|
|
1,363
|
|
|
|
249
|
|
|
|
5,150
|
|
|
|
278
|
|
ABS
|
|
|
2,713
|
|
|
|
42
|
|
|
|
3,026
|
|
|
|
667
|
|
|
|
5,739
|
|
|
|
709
|
|
State and political subdivision securities
|
|
|
5,061
|
|
|
|
246
|
|
|
|
988
|
|
|
|
272
|
|
|
|
6,049
|
|
|
|
518
|
|
Other fixed maturity securities
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
104,579
|
|
|
$
|
2,501
|
|
|
$
|
24,679
|
|
|
$
|
4,079
|
|
|
$
|
129,258
|
|
|
$
|
6,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
89
|
|
|
$
|
12
|
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
90
|
|
|
$
|
12
|
|
Non-redeemable preferred stock
|
|
|
191
|
|
|
|
9
|
|
|
|
824
|
|
|
|
220
|
|
|
|
1,015
|
|
|
|
229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
280
|
|
|
$
|
21
|
|
|
$
|
825
|
|
|
$
|
220
|
|
|
$
|
1,105
|
|
|
$
|
241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total number of securities in an
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
unrealized loss position
|
|
|
5,609
|
|
|
|
|
|
|
|
1,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Aging
of Gross Unrealized Losses and OTTI Losses for Fixed Maturity
and Equity Securities
Available-for-Sale
The following tables present the cost or amortized cost, gross
unrealized losses, including the portion of OTTI loss on fixed
maturity securities recognized in accumulated other
comprehensive income (loss), gross unrealized losses 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, 2011
|
|
|
|
Cost or Amortized Cost
|
|
|
Gross Unrealized Losses
|
|
|
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
|
|
$
|
26,453
|
|
|
$
|
2,874
|
|
|
$
|
367
|
|
|
$
|
825
|
|
|
|
1,963
|
|
|
|
167
|
|
Six months or greater but less than nine months
|
|
|
50,011
|
|
|
|
420
|
|
|
|
1,329
|
|
|
|
104
|
|
|
|
2,639
|
|
|
|
31
|
|
Nine months or greater but less than twelve months
|
|
|
1,985
|
|
|
|
186
|
|
|
|
130
|
|
|
|
64
|
|
|
|
260
|
|
|
|
12
|
|
Twelve months or greater
|
|
|
16,861
|
|
|
|
3,065
|
|
|
|
1,489
|
|
|
|
1,029
|
|
|
|
1,025
|
|
|
|
196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
95,310
|
|
|
$
|
6,545
|
|
|
$
|
3,315
|
|
|
$
|
2,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of amortized cost
|
|
|
|
|
|
|
|
|
|
|
3
|
%
|
|
|
31
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than six months
|
|
$
|
132
|
|
|
$
|
8
|
|
|
$
|
6
|
|
|
$
|
4
|
|
|
|
74
|
|
|
|
16
|
|
Six months or greater but less than nine months
|
|
|
144
|
|
|
|
1
|
|
|
|
6
|
|
|
|
|
|
|
|
32
|
|
|
|
9
|
|
Nine months or greater but less than twelve months
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
Twelve months or greater
|
|
|
355
|
|
|
|
229
|
|
|
|
30
|
|
|
|
69
|
|
|
|
23
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
631
|
|
|
$
|
239
|
|
|
$
|
42
|
|
|
$
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of cost
|
|
|
|
|
|
|
|
|
|
|
7
|
%
|
|
|
31
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
Cost or Amortized Cost
|
|
|
Gross Unrealized Losses
|
|
|
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
|
|
$
|
105,301
|
|
|
$
|
1,403
|
|
|
$
|
2,348
|
|
|
$
|
368
|
|
|
|
5,320
|
|
|
|
121
|
|
Six months or greater but less than nine months
|
|
|
1,125
|
|
|
|
376
|
|
|
|
29
|
|
|
|
102
|
|
|
|
104
|
|
|
|
29
|
|
Nine months or greater but less than twelve months
|
|
|
371
|
|
|
|
89
|
|
|
|
28
|
|
|
|
27
|
|
|
|
50
|
|
|
|
9
|
|
Twelve months or greater
|
|
|
21,627
|
|
|
|
5,546
|
|
|
|
1,863
|
|
|
|
1,815
|
|
|
|
1,245
|
|
|
|
311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
128,424
|
|
|
$
|
7,414
|
|
|
$
|
4,268
|
|
|
$
|
2,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of amortized cost
|
|
|
|
|
|
|
|
|
|
|
3
|
%
|
|
|
31
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than six months
|
|
$
|
247
|
|
|
$
|
94
|
|
|
$
|
10
|
|
|
$
|
22
|
|
|
|
106
|
|
|
|
33
|
|
Six months or greater but less than nine months
|
|
|
29
|
|
|
|
65
|
|
|
|
5
|
|
|
|
16
|
|
|
|
3
|
|
|
|
2
|
|
Nine months or greater but less than twelve months
|
|
|
6
|
|
|
|
47
|
|
|
|
|
|
|
|
16
|
|
|
|
3
|
|
|
|
2
|
|
Twelve months or greater
|
|
|
518
|
|
|
|
340
|
|
|
|
56
|
|
|
|
116
|
|
|
|
35
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
800
|
|
|
$
|
546
|
|
|
$
|
71
|
|
|
$
|
170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of cost
|
|
|
|
|
|
|
|
|
|
|
9
|
%
|
|
|
31
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities with gross unrealized losses of 20% or more
for twelve months or greater decreased from $116 million at
December 31, 2010 to $69 million at June 30,
2011. As shown in the section Evaluating
Temporarily Impaired
Available-for-Sale
Securities below, all of the equity securities with gross
unrealized losses of 20% or more for twelve months or greater at
June 30, 2011 were financial services industry investment
grade non-redeemable preferred stock, of which 72% were rated A
or better.
29
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Concentration
of Gross Unrealized Losses and OTTI Losses 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
losses on fixed maturity securities recognized in accumulated
other comprehensive income (loss) were $5.5 billion and
$6.8 billion at June 30, 2011 and December 31,
2010, respectively. The concentration, calculated as a
percentage of gross unrealized losses (including OTTI losses),
by sector and industry was as follows at:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
Sector:
|
|
|
|
|
|
|
|
|
RMBS
|
|
|
21
|
%
|
|
|
20
|
%
|
U.S. corporate securities
|
|
|
21
|
|
|
|
23
|
|
Foreign corporate securities
|
|
|
16
|
|
|
|
14
|
|
U.S. Treasury and agency securities
|
|
|
11
|
|
|
|
8
|
|
ABS
|
|
|
10
|
|
|
|
10
|
|
Foreign government securities
|
|
|
10
|
|
|
|
9
|
|
State and political subdivision securities
|
|
|
6
|
|
|
|
8
|
|
CMBS
|
|
|
3
|
|
|
|
4
|
|
Other
|
|
|
2
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
Industry:
|
|
|
|
|
|
|
|
|
Mortgage-backed
|
|
|
24
|
%
|
|
|
24
|
%
|
Finance
|
|
|
15
|
|
|
|
21
|
|
U.S. Treasury and agency securities
|
|
|
11
|
|
|
|
8
|
|
Asset-backed
|
|
|
10
|
|
|
|
10
|
|
Foreign government securities
|
|
|
10
|
|
|
|
9
|
|
Utility
|
|
|
10
|
|
|
|
5
|
|
State and political subdivision securities
|
|
|
6
|
|
|
|
8
|
|
Consumer
|
|
|
4
|
|
|
|
4
|
|
Communications
|
|
|
2
|
|
|
|
2
|
|
Industrial
|
|
|
1
|
|
|
|
2
|
|
Other
|
|
|
7
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
30
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Evaluating
Temporarily Impaired
Available-for-Sale
Securities
The following table presents the Companys fixed maturity
and equity securities, each with gross unrealized losses of
greater than $10 million, the number of securities, total
gross unrealized losses and percentage of total gross unrealized
losses at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
Fixed Maturity
|
|
|
Equity
|
|
|
Fixed Maturity
|
|
|
Equity
|
|
|
|
Securities
|
|
|
Securities
|
|
|
Securities
|
|
|
Securities
|
|
|
|
(In millions, except number of securities)
|
|
|
Number of securities
|
|
|
88
|
|
|
|
3
|
|
|
|
107
|
|
|
|
6
|
|
Total gross unrealized losses
|
|
$
|
1,846
|
|
|
$
|
43
|
|
|
$
|
2,014
|
|
|
$
|
103
|
|
Percentage of total gross unrealized losses
|
|
|
35
|
%
|
|
|
37
|
%
|
|
|
31
|
%
|
|
|
43
|
%
|
Fixed maturity and equity securities, each with gross unrealized
losses greater than $10 million, decreased
$228 million during the six months ended June 30,
2011. The decline in, or improvement in, gross unrealized losses
for the six months ended June 30, 2011 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 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 are given greater weight and consideration than for
fixed maturity securities. An extended and severe unrealized
loss position on a fixed maturity security may not have any
impact on the ability of the issuer to service all scheduled
interest and principal payments and the Companys
evaluation of recoverability of all contractual cash flows or
the ability to recover an amount at least equal to its amortized
cost based on the present value of the expected future cash
flows to be collected. In contrast, for an equity security,
greater weight and consideration are given by the Company to a
decline in market value and the likelihood such market value
decline will recover.
The following table presents certain information about the
Companys equity securities
available-for-sale
with gross unrealized losses of 20% or more at June 30,
2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
Losses
|
|
|
Losses
|
|
|
Securities
|
|
|
Losses
|
|
|
Preferred Stock
|
|
|
Losses
|
|
|
Industries
|
|
|
Better
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
Less than six months
|
|
$
|
4
|
|
|
$
|
|
|
|
|
|
%
|
|
$
|
|
|
|
|
|
%
|
|
$
|
|
|
|
|
|
%
|
|
|
|
%
|
Six months or greater but less than twelve months
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
|
|
|
%
|
Twelve months or greater
|
|
|
69
|
|
|
|
69
|
|
|
|
100
|
%
|
|
|
69
|
|
|
|
100
|
%
|
|
|
69
|
|
|
|
100
|
%
|
|
|
72
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All equity securities with gross unrealized losses of 20% or more
|
|
$
|
73
|
|
|
$
|
69
|
|
|
|
95
|
%
|
|
$
|
69
|
|
|
|
100
|
%
|
|
$
|
69
|
|
|
|
100
|
%
|
|
|
72
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In connection with the equity securities impairment review
process, the Company evaluated its holdings in non-redeemable
preferred stock, particularly those 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
31
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Company, regardless of credit rating, have deferred any dividend
payments. No such dividend payments had been 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
ratings, 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.
Net
Investment Gains (Losses)
The components of net investment gains (losses) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
(In millions)
|
|
|
Total gains (losses) on fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OTTI losses recognized
|
|
$
|
(298
|
)
|
|
$
|
(244
|
)
|
|
$
|
(430
|
)
|
|
$
|
(395
|
)
|
Less: Noncredit portion of OTTI losses transferred to and
recognized in other comprehensive income (loss)
|
|
|
175
|
|
|
|
98
|
|
|
|
184
|
|
|
|
157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net OTTI losses on fixed maturity securities recognized in
earnings
|
|
|
(123
|
)
|
|
|
(146
|
)
|
|
|
(246
|
)
|
|
|
(238
|
)
|
Fixed maturity securities net gains (losses) on
sales and disposals
|
|
|
18
|
|
|
|
19
|
|
|
|
(22
|
)
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gains (losses) on fixed maturity securities
|
|
|
(105
|
)
|
|
|
(127
|
)
|
|
|
(268
|
)
|
|
|
(193
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other net investment gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
(70
|
)
|
|
|
74
|
|
|
|
(34
|
)
|
|
|
101
|
|
Mortgage loans
|
|
|
68
|
|
|
|
11
|
|
|
|
115
|
|
|
|
(17
|
)
|
Real estate and real estate joint ventures
|
|
|
4
|
|
|
|
(27
|
)
|
|
|
5
|
|
|
|
(49
|
)
|
Other limited partnership interests
|
|
|
5
|
|
|
|
(10
|
)
|
|
|
8
|
|
|
|
(11
|
)
|
Other investment portfolio gains (losses)
|
|
|
(6
|
)
|
|
|
17
|
|
|
|
(2
|
)
|
|
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal investment portfolio gains (losses)
|
|
|
(104
|
)
|
|
|
(62
|
)
|
|
|
(176
|
)
|
|
|
(93
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value option (FVO) consolidated securitization
entities changes in estimated fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage loans
|
|
|
7
|
|
|
|
172
|
|
|
|
25
|
|
|
|
653
|
|
Securities
|
|
|
39
|
|
|
|
(17
|
)
|
|
|
(1
|
)
|
|
|
(21
|
)
|
Long-term debt related to commercial mortgage loans
|
|
|
(8
|
)
|
|
|
(156
|
)
|
|
|
(8
|
)
|
|
|
(635
|
)
|
Long-term debt related to securities
|
|
|
(54
|
)
|
|
|
(1
|
)
|
|
|
(7
|
)
|
|
|
11
|
|
Other gains (losses) (1)
|
|
|
(35
|
)
|
|
|
50
|
|
|
|
(87
|
)
|
|
|
103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal FVO consolidated securitization entities and other
gains (losses)
|
|
|
(51
|
)
|
|
|
48
|
|
|
|
(78
|
)
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net investment gains (losses)
|
|
$
|
(155
|
)
|
|
$
|
(14
|
)
|
|
$
|
(254
|
)
|
|
$
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
(1) |
|
Other gains (losses) for the three months and six months ended
June 30, 2011 includes a loss of $7 million and
$87 million, respectively, related to the sale of the
Companys investment in MSI MetLife. See Note 2. |
See Variable Interest Entities for
discussion of consolidated securitization entities
(CSEs) included in the table above.
Gains (losses) from foreign currency transactions included
within net investment gains (losses) were ($49) million and
($14) million for the three months and six months ended
June 30, 2011, respectively, and $56 million and
$206 million for the three months and six months ended
June 30, 2010, respectively.
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
Fixed Maturity Securities
|
|
|
Equity Securities
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Proceeds
|
|
$
|
19,316
|
|
|
$
|
13,466
|
|
|
$
|
489
|
|
|
$
|
298
|
|
|
$
|
19,805
|
|
|
$
|
13,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross investment gains
|
|
$
|
235
|
|
|
$
|
214
|
|
|
$
|
26
|
|
|
$
|
76
|
|
|
$
|
261
|
|
|
$
|
290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross investment losses
|
|
|
(217
|
)
|
|
|
(195
|
)
|
|
|
(49
|
)
|
|
|
(1
|
)
|
|
|
(266
|
)
|
|
|
(196
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OTTI losses recognized in earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit-related
|
|
|
(70
|
)
|
|
|
(146
|
)
|
|
|
|
|
|
|
|
|
|
|
(70
|
)
|
|
|
(146
|
)
|
Other (1)
|
|
|
(53
|
)
|
|
|
|
|
|
|
(47
|
)
|
|
|
(1
|
)
|
|
|
(100
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OTTI losses recognized in earnings
|
|
|
(123
|
)
|
|
|
(146
|
)
|
|
|
(47
|
)
|
|
|
(1
|
)
|
|
|
(170
|
)
|
|
|
(147
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment gains (losses)
|
|
$
|
(105
|
)
|
|
$
|
(127
|
)
|
|
$
|
(70
|
)
|
|
$
|
74
|
|
|
$
|
(175
|
)
|
|
$
|
(53
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
Fixed Maturity Securities
|
|
|
Equity Securities
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Proceeds
|
|
$
|
35,848
|
|
|
$
|
21,838
|
|
|
$
|
805
|
|
|
$
|
443
|
|
|
$
|
36,653
|
|
|
$
|
22,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross investment gains
|
|
$
|
428
|
|
|
$
|
378
|
|
|
$
|
74
|
|
|
$
|
107
|
|
|
$
|
502
|
|
|
$
|
485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross investment losses
|
|
|
(450
|
)
|
|
|
(333
|
)
|
|
|
(55
|
)
|
|
|
(4
|
)
|
|
|
(505
|
)
|
|
|
(337
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OTTI losses recognized in earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit-related
|
|
|
(113
|
)
|
|
|
(232
|
)
|
|
|
|
|
|
|
|
|
|
|
(113
|
)
|
|
|
(232
|
)
|
Other (1)
|
|
|
(133
|
)
|
|
|
(6
|
)
|
|
|
(53
|
)
|
|
|
(2
|
)
|
|
|
(186
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OTTI losses recognized in earnings
|
|
|
(246
|
)
|
|
|
(238
|
)
|
|
|
(53
|
)
|
|
|
(2
|
)
|
|
|
(299
|
)
|
|
|
(240
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment gains (losses)
|
|
$
|
(268
|
)
|
|
$
|
(193
|
)
|
|
$
|
(34
|
)
|
|
$
|
101
|
|
|
$
|
(302
|
)
|
|
$
|
(92
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 |
33
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
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. |
Fixed maturity security OTTI losses recognized in earnings
related to the following sectors and industries within the
U.S. and foreign corporate securities sector:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
(In millions)
|
|
|
Sector:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. and foreign corporate securities by industry:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance
|
|
$
|
40
|
|
|
$
|
20
|
|
|
$
|
41
|
|
|
$
|
28
|
|
Consumer
|
|
|
27
|
|
|
|
1
|
|
|
|
29
|
|
|
|
23
|
|
Communications
|
|
|
1
|
|
|
|
|
|
|
|
14
|
|
|
|
3
|
|
Utility
|
|
|
|
|
|
|
3
|
|
|
|
1
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. and foreign corporate securities
|
|
|
68
|
|
|
|
24
|
|
|
|
85
|
|
|
|
57
|
|
Foreign government securities
|
|
|
13
|
|
|
|
|
|
|
|
89
|
|
|
|
|
|
RMBS
|
|
|
36
|
|
|
|
27
|
|
|
|
54
|
|
|
|
57
|
|
ABS
|
|
|
6
|
|
|
|
44
|
|
|
|
15
|
|
|
|
63
|
|
CMBS
|
|
|
|
|
|
|
51
|
|
|
|
3
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
123
|
|
|
$
|
146
|
|
|
$
|
246
|
|
|
$
|
238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity security OTTI losses recognized in earnings related to
the following sectors and industries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
(In millions)
|
|
|
Sector:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock
|
|
$
|
38
|
|
|
$
|
|
|
|
$
|
38
|
|
|
$
|
|
|
Common stock
|
|
|
9
|
|
|
|
1
|
|
|
|
15
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
47
|
|
|
$
|
1
|
|
|
$
|
53
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industry:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial services industry perpetual hybrid
securities
|
|
$
|
38
|
|
|
$
|
|
|
|
$
|
38
|
|
|
$
|
|
|
Other industries
|
|
|
9
|
|
|
|
1
|
|
|
|
15
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
47
|
|
|
$
|
1
|
|
|
$
|
53
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
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 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,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
(In millions)
|
|
|
Balance, beginning of period
|
|
$
|
389
|
|
|
$
|
424
|
|
|
$
|
443
|
|
|
$
|
581
|
|
Additions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial impairments credit loss OTTI recognized on
securities not previously impaired
|
|
|
18
|
|
|
|
62
|
|
|
|
26
|
|
|
|
81
|
|
Additional impairments credit loss OTTI recognized
on securities previously impaired
|
|
|
24
|
|
|
|
39
|
|
|
|
40
|
|
|
|
70
|
|
Reductions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to sales (maturities, pay downs or prepayments) during the
period of securities previously credit loss OTTI impaired
|
|
|
(26
|
)
|
|
|
(30
|
)
|
|
|
(55
|
)
|
|
|
(134
|
)
|
Due to securities de-recognized in connection with the adoption
of new guidance related to the consolidation of VIEs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(100
|
)
|
Due to securities impaired to net present value of expected
future cash flows
|
|
|
|
|
|
|
|
|
|
|
(44
|
)
|
|
|
|
|
Due to increases in cash flows accretion of previous
credit loss OTTI
|
|
|
(4
|
)
|
|
|
(4
|
)
|
|
|
(9
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
401
|
|
|
$
|
491
|
|
|
$
|
401
|
|
|
$
|
491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
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,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
(In millions)
|
|
|
Investment income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
$
|
3,791
|
|
|
$
|
3,013
|
|
|
$
|
7,474
|
|
|
$
|
6,066
|
|
Equity securities
|
|
|
48
|
|
|
|
39
|
|
|
|
78
|
|
|
|
64
|
|
Trading and other securities Actively Traded
Securities and FVO general account securities (1)
|
|
|
16
|
|
|
|
(4
|
)
|
|
|
44
|
|
|
|
11
|
|
Mortgage loans
|
|
|
766
|
|
|
|
695
|
|
|
|
1,525
|
|
|
|
1,368
|
|
Policy loans
|
|
|
160
|
|
|
|
157
|
|
|
|
320
|
|
|
|
333
|
|
Real estate and real estate joint ventures
|
|
|
200
|
|
|
|
135
|
|
|
|
354
|
|
|
|
179
|
|
Other limited partnership interests
|
|
|
159
|
|
|
|
161
|
|
|
|
402
|
|
|
|
426
|
|
Cash, cash equivalents and short-term investments
|
|
|
44
|
|
|
|
20
|
|
|
|
90
|
|
|
|
38
|
|
International joint ventures (2)
|
|
|
9
|
|
|
|
(97
|
)
|
|
|
(10
|
)
|
|
|
(80
|
)
|
Other
|
|
|
101
|
|
|
|
102
|
|
|
|
69
|
|
|
|
188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
5,294
|
|
|
|
4,221
|
|
|
|
10,346
|
|
|
|
8,593
|
|
Less: Investment expenses
|
|
|
260
|
|
|
|
217
|
|
|
|
511
|
|
|
|
442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal, net
|
|
|
5,034
|
|
|
|
4,004
|
|
|
|
9,835
|
|
|
|
8,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading and other securities FVO
contractholder-directed unit-linked investments (1)
|
|
|
(32
|
)
|
|
|
(52
|
)
|
|
|
387
|
|
|
|
12
|
|
FVO consolidated securitization entities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage loans
|
|
|
96
|
|
|
|
105
|
|
|
|
191
|
|
|
|
210
|
|
Securities
|
|
|
|
|
|
|
4
|
|
|
|
1
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
64
|
|
|
|
57
|
|
|
|
579
|
|
|
|
230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
5,098
|
|
|
$
|
4,061
|
|
|
$
|
10,414
|
|
|
$
|
8,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Changes in estimated fair value subsequent to purchase included
in net investment income were: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading and other securities Actively Traded
Securities and FVO general account securities
|
|
$
|
|
|
|
$
|
(19
|
)
|
|
$
|
21
|
|
|
$
|
(15
|
)
|
Trading and other securities FVO
contractholder-directed unit-linked investments
|
|
$
|
(84
|
)
|
|
$
|
(71
|
)
|
|
$
|
232
|
|
|
$
|
(14
|
)
|
|
|
|
(2) |
|
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 venture
investments that do not qualify for hedge accounting of less
than $1 million and $23 million for the three months
and six months ended June 30, 2011, respectively, and
$109 million and $77 million for the three months and
six months ended June 30, 2010, respectively. |
See Variable Interest Entities for
discussion of CSEs included in the table above.
36
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Securities
Lending
The Company participates in a securities lending program whereby
blocks of securities, which are included in fixed maturity
securities and short-term investments, are loaned to third
parties, primarily brokerage firms and commercial banks. The
Company generally obtains collateral, generally cash, in an
amount equal to 102% of the estimated fair value of the
securities loaned, 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. These transactions are treated as financing
arrangements and the associated liability is recorded at the
amount of the cash received.
Elements of the securities lending program are presented below
at:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
(In millions)
|
|
|
Securities on loan:
|
|
|
|
|
|
|
|
|
Amortized cost
|
|
$
|
25,336
|
|
|
$
|
23,715
|
|
Estimated fair value
|
|
$
|
25,938
|
|
|
$
|
24,230
|
|
Aging of cash collateral liability:
|
|
|
|
|
|
|
|
|
Open (1)
|
|
$
|
3,477
|
|
|
$
|
2,752
|
|
Less than thirty days
|
|
|
15,609
|
|
|
|
12,301
|
|
Thirty days or greater but less than sixty days
|
|
|
5,351
|
|
|
|
4,399
|
|
Sixty days or greater but less than ninety days
|
|
|
1,020
|
|
|
|
2,291
|
|
Ninety days or greater
|
|
|
1,124
|
|
|
|
2,904
|
|
|
|
|
|
|
|
|
|
|
Total cash collateral liability
|
|
$
|
26,581
|
|
|
$
|
24,647
|
|
|
|
|
|
|
|
|
|
|
Security collateral on deposit from counterparties
|
|
$
|
22
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Reinvestment portfolio estimated fair value
|
|
$
|
26,482
|
|
|
$
|
24,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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, 2011 was
$3.4 billion, of which $2.9 billion were
U.S. Treasury and agency 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 and agency securities, and very
liquid RMBS. The U.S. Treasury securities on loan were
primarily holdings of
on-the-run
U.S. Treasury securities, the most liquid
U.S. Treasury securities available. If these high quality
securities that are on loan are put back to the Company, the
proceeds from immediately selling these securities can be used
to satisfy the related cash requirements. The reinvestment
portfolio acquired with the cash collateral consisted
principally of fixed maturity securities (including RMBS,
U.S. Treasury and agency securities, U.S. corporate
securities, ABS, foreign corporate securities and CMBS). If the
on loan securities or the reinvestment portfolio become less
liquid, the Company has the liquidity resources of most of its
general account available to meet any potential cash demands
when securities are put back to the Company.
Security collateral on deposit from counterparties in connection
with the securities lending transactions may not be sold or
repledged, unless the counterparty is in default, and is not
reflected in the consolidated financial statements.
37
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Invested
Assets on Deposit, Held in Trust and Pledged as
Collateral
Invested assets on deposit, held in trust and pledged as
collateral are presented below at estimated fair value for cash
and cash equivalents, short-term investments, fixed maturity,
equity, trading and other securities and at carrying value for
mortgage loans.
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
(In millions)
|
|
|
Invested assets on deposit:
|
|
|
|
|
|
|
|
|
Regulatory agencies
|
|
$
|
1,950
|
|
|
$
|
2,110
|
|
Invested assets held in trust:
|
|
|
|
|
|
|
|
|
Collateral financing arrangements
|
|
|
5,408
|
|
|
|
5,340
|
|
Reinsurance arrangements
|
|
|
2,971
|
|
|
|
3,090
|
|
Invested assets pledged as collateral:
|
|
|
|
|
|
|
|
|
Funding agreements and advances Federal Home Loan
Bank (FHLB) of New York
|
|
|
20,589
|
|
|
|
21,975
|
|
Funding agreements Federal Agricultural Mortgage
Corporation
|
|
|
3,160
|
|
|
|
3,159
|
|
Funding agreements FHLB of Des Moines
|
|
|
850
|
|
|
|
|
|
Funding agreements FHLB of Boston
|
|
|
534
|
|
|
|
211
|
|
Federal Reserve Bank of New York
|
|
|
1,654
|
|
|
|
1,822
|
|
Collateral financing arrangements
|
|
|
93
|
|
|
|
112
|
|
Derivative transactions
|
|
|
971
|
|
|
|
1,726
|
|
Short sale agreements
|
|
|
568
|
|
|
|
465
|
|
|
|
|
|
|
|
|
|
|
Total invested assets on deposit, held in trust and pledged as
collateral
|
|
$
|
38,748
|
|
|
$
|
40,010
|
|
|
|
|
|
|
|
|
|
|
See Note 3 Investments
Invested Assets on Deposit, Held in Trust and Pledged as
Collateral of the Notes to the Consolidated Financial
Statements included in the 2010 Annual Report for a description
of the types of invested assets on deposit, held in trust and
pledged as collateral and selected other information about the
related program or counterparty. In 2011, the Company pledged
fixed maturity securities in support of its funding agreements
with the FHLB of Des Moines. See Note 8 of the Notes to the
Consolidated Financial Statements included in the 2010 Annual
Report for a description of the nature of these funding
agreements.
See also Securities Lending for the
amount of the Companys cash received from and due back to
counterparties pursuant to the Companys securities lending
program. See also Variable Interest
Entities for assets of certain CSEs that can only be used
to settle liabilities of such entities.
38
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Trading
and Other Securities
The table below presents certain information about the
Companys trading securities that are actively purchased
and sold (Actively Traded Securities) and other
securities for which the FVO has been elected:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
(In millions)
|
|
|
Actively Traded Securities
|
|
$
|
560
|
|
|
$
|
463
|
|
FVO general account securities
|
|
|
303
|
|
|
|
131
|
|
FVO contractholder-directed unit-linked investments
|
|
|
18,690
|
|
|
|
17,794
|
|
FVO securities held by consolidated securitization entities
|
|
|
147
|
|
|
|
201
|
|
|
|
|
|
|
|
|
|
|
Total trading and other securities at estimated fair
value
|
|
$
|
19,700
|
|
|
$
|
18,589
|
|
|
|
|
|
|
|
|
|
|
Actively Traded Securities at estimated fair value
|
|
$
|
560
|
|
|
$
|
463
|
|
Short sale agreement liabilities at estimated fair
value
|
|
|
(54
|
)
|
|
|
(46
|
)
|
|
|
|
|
|
|
|
|
|
Net long/short position at estimated fair value
|
|
$
|
506
|
|
|
$
|
417
|
|
|
|
|
|
|
|
|
|
|
Investments pledged to secure short sale agreement liabilities
|
|
$
|
568
|
|
|
$
|
465
|
|
|
|
|
|
|
|
|
|
|
See Note 1 of the Notes to the Consolidated Financial
Statements included in the 2010 Annual Report for discussion of
FVO contractholder-directed unit-linked investments and
Variable Interest Entities for
discussion of CSEs included in the table above. See
Net Investment Income and
Net Investment Gains (Losses) for the
net investment income recognized on trading and other securities
and the related changes in estimated fair value subsequent to
purchase included in net investment income and net investment
gains (losses), as applicable.
Mortgage
Loans
Mortgage loans are summarized as follows at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
Carrying
|
|
|
% of
|
|
|
Carrying
|
|
|
% of
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Mortgage loans
held-for-investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
39,050
|
|
|
|
61.4
|
%
|
|
$
|
37,818
|
|
|
|
60.7
|
%
|
Agricultural
|
|
|
12,981
|
|
|
|
20.4
|
|
|
|
12,751
|
|
|
|
20.4
|
|
Residential
|
|
|
2,657
|
|
|
|
4.2
|
|
|
|
2,231
|
|
|
|
3.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
54,688
|
|
|
|
86.0
|
|
|
|
52,800
|
|
|
|
84.8
|
|
Valuation allowances
|
|
|
(566
|
)
|
|
|
(0.9
|
)
|
|
|
(664
|
)
|
|
|
(1.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal mortgage loans
held-for-investment,
net
|
|
|
54,122
|
|
|
|
85.1
|
|
|
|
52,136
|
|
|
|
83.7
|
|
Commercial mortgage loans held by consolidated securitization
entities FVO
|
|
|
6,697
|
|
|
|
10.5
|
|
|
|
6,840
|
|
|
|
11.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans
held-for-investment,
net
|
|
|
60,819
|
|
|
|
95.6
|
|
|
|
58,976
|
|
|
|
94.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans
held-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential FVO
|
|
|
1,863
|
|
|
|
2.9
|
|
|
|
2,510
|
|
|
|
4.0
|
|
Agricultural and residential mortgage loans lower of
amortized cost or estimated fair value
|
|
|
942
|
|
|
|
1.5
|
|
|
|
811
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans
held-for-sale
|
|
|
2,805
|
|
|
|
4.4
|
|
|
|
3,321
|
|
|
|
5.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans, net
|
|
$
|
63,624
|
|
|
|
100.0
|
%
|
|
$
|
62,297
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Variable Interest Entities for
discussion of CSEs included in the table above.
39
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Concentration of Credit Risk. The Company
diversifies its mortgage loan portfolio by both geographic
region and property type to reduce the risk of concentration.
The majority, 91%, of the Companys commercial and
agricultural mortgage loans are collateralized by properties
located in the U.S., with the remaining 9% collateralized by
properties located outside the U.S., calculated as a percent of
total mortgage loans
held-for-investment
(excluding commercial mortgage loans held by CSEs) at
June 30, 2011. The carrying value of the Companys
commercial and agricultural mortgage loans located in
California, New York and Illinois were 19%, 9% and 7%,
respectively, of total mortgage loans
held-for-investment
(excluding commercial mortgage loans held by CSEs) at
June 30, 2011. Additionally, the Company manages risk when
originating commercial and agricultural mortgage loans by
generally lending only up to 75% of the estimated fair value of
the underlying real estate.
Certain of the Companys real estate joint ventures have
mortgage loans with the Company. The carrying values of such
mortgage loans were $286 million and $283 million at
June 30, 2011 and December 31, 2010, respectively.
The following tables present the recorded investment in mortgage
loans
held-for-investment,
by portfolio segment, by method of evaluation of credit loss,
and the related valuation allowances, by type of credit loss, at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
Agricultural
|
|
|
Residential
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
June 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Evaluated individually for credit losses
|
|
$
|
126
|
|
|
$
|
128
|
|
|
$
|
11
|
|
|
$
|
265
|
|
Evaluated collectively for credit losses
|
|
|
38,924
|
|
|
|
12,853
|
|
|
|
2,646
|
|
|
|
54,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans
|
|
|
39,050
|
|
|
|
12,981
|
|
|
|
2,657
|
|
|
|
54,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specific credit losses
|
|
|
28
|
|
|
|
43
|
|
|
|
1
|
|
|
|
72
|
|
Non-specifically identified credit losses
|
|
|
441
|
|
|
|
36
|
|
|
|
17
|
|
|
|
494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total valuation allowances
|
|
|
469
|
|
|
|
79
|
|
|
|
18
|
|
|
|
566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans, net of valuation allowance
|
|
$
|
38,581
|
|
|
$
|
12,902
|
|
|
$
|
2,639
|
|
|
$
|
54,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Evaluated individually for credit losses
|
|
$
|
120
|
|
|
$
|
146
|
|
|
$
|
13
|
|
|
$
|
279
|
|
Evaluated collectively for credit losses
|
|
|
37,698
|
|
|
|
12,605
|
|
|
|
2,218
|
|
|
|
52,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans
|
|
|
37,818
|
|
|
|
12,751
|
|
|
|
2,231
|
|
|
|
52,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specific credit losses
|
|
|
36
|
|
|
|
52
|
|
|
|
|
|
|
|
88
|
|
Non-specifically identified credit losses
|
|
|
526
|
|
|
|
36
|
|
|
|
14
|
|
|
|
576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total valuation allowances
|
|
|
562
|
|
|
|
88
|
|
|
|
14
|
|
|
|
664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans, net of valuation allowance
|
|
$
|
37,256
|
|
|
$
|
12,663
|
|
|
$
|
2,217
|
|
|
$
|
52,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The following tables present the changes in the valuation
allowance, by portfolio segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Loan Valuation Allowances
|
|
|
|
Commercial
|
|
|
Agricultural
|
|
|
Residential
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
For the Three Months Ended June 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
532
|
|
|
$
|
76
|
|
|
$
|
13
|
|
|
$
|
621
|
|
Provision (release)
|
|
|
(63
|
)
|
|
|
3
|
|
|
|
5
|
|
|
|
(55
|
)
|
Charge-offs, net of recoveries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
469
|
|
|
$
|
79
|
|
|
$
|
18
|
|
|
$
|
566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
624
|
|
|
$
|
110
|
|
|
$
|
17
|
|
|
$
|
751
|
|
Provision (release)
|
|
|
(3
|
)
|
|
|
(7
|
)
|
|
|
2
|
|
|
|
(8
|
)
|
Charge-offs, net of recoveries
|
|
|
|
|
|
|
(7
|
)
|
|
|
(2
|
)
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
621
|
|
|
$
|
96
|
|
|
$
|
17
|
|
|
$
|
734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
562
|
|
|
$
|
88
|
|
|
$
|
14
|
|
|
$
|
664
|
|
Provision (release)
|
|
|
(93
|
)
|
|
|
(6
|
)
|
|
|
5
|
|
|
|
(94
|
)
|
Charge-offs, net of recoveries
|
|
|
|
|
|
|
(3
|
)
|
|
|
(1
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
469
|
|
|
$
|
79
|
|
|
$
|
18
|
|
|
$
|
566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
589
|
|
|
$
|
115
|
|
|
$
|
17
|
|
|
$
|
721
|
|
Provision (release)
|
|
|
32
|
|
|
|
(1
|
)
|
|
|
2
|
|
|
|
33
|
|
Charge-offs, net of recoveries
|
|
|
|
|
|
|
(18
|
)
|
|
|
(2
|
)
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
621
|
|
|
$
|
96
|
|
|
$
|
17
|
|
|
$
|
734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Commercial Mortgage Loans by Credit
Quality Indicators with Estimated Fair
Value. Presented below for the commercial
mortgage loans
held-for-investment
is the recorded investment, prior to valuation allowances, by
the indicated
loan-to-value
ratio categories and debt service coverage ratio categories and
estimated fair value of such mortgage loans by the indicated
loan-to-value
ratio categories at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
Recorded Investment
|
|
|
|
|
|
|
|
|
|
Debt Service Coverage Ratios
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
> 1.20x
|
|
|
1.00x - 1.20x
|
|
|
< 1.00x
|
|
|
Total
|
|
|
% of Total
|
|
|
Fair Value
|
|
|
% of Total
|
|
|
|
(In millions)
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
June 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan-to-value
ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 65%
|
|
$
|
20,130
|
|
|
$
|
480
|
|
|
$
|
432
|
|
|
$
|
21,042
|
|
|
|
53.9
|
%
|
|
$
|
22,463
|
|
|
|
55.2
|
%
|
65% to 75%
|
|
|
9,292
|
|
|
|
520
|
|
|
|
478
|
|
|
|
10,290
|
|
|
|
26.4
|
|
|
|
10,811
|
|
|
|
26.6
|
|
76% to 80%
|
|
|
2,528
|
|
|
|
131
|
|
|
|
53
|
|
|
|
2,712
|
|
|
|
6.9
|
|
|
|
2,748
|
|
|
|
6.8
|
|
Greater than 80%
|
|
|
3,432
|
|
|
|
931
|
|
|
|
643
|
|
|
|
5,006
|
|
|
|
12.8
|
|
|
|
4,638
|
|
|
|
11.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
35,382
|
|
|
$
|
2,062
|
|
|
$
|
1,606
|
|
|
$
|
39,050
|
|
|
|
100.0
|
%
|
|
$
|
40,660
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan-to-value
ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 65%
|
|
$
|
16,663
|
|
|
$
|
125
|
|
|
$
|
483
|
|
|
$
|
17,271
|
|
|
|
45.7
|
%
|
|
$
|
18,183
|
|
|
|
46.9
|
%
|
65% to 75%
|
|
|
9,022
|
|
|
|
765
|
|
|
|
513
|
|
|
|
10,300
|
|
|
|
27.2
|
|
|
|
10,685
|
|
|
|
27.6
|
|
76% to 80%
|
|
|
3,033
|
|
|
|
304
|
|
|
|
135
|
|
|
|
3,472
|
|
|
|
9.2
|
|
|
|
3,535
|
|
|
|
9.1
|
|
Greater than 80%
|
|
|
4,155
|
|
|
|
1,813
|
|
|
|
807
|
|
|
|
6,775
|
|
|
|
17.9
|
|
|
|
6,374
|
|
|
|
16.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
32,873
|
|
|
$
|
3,007
|
|
|
$
|
1,938
|
|
|
$
|
37,818
|
|
|
|
100.0
|
%
|
|
$
|
38,777
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural Mortgage Loans by Credit Quality
Indicator. The recorded investment in
agricultural mortgage loans
held-for-investment,
prior to valuation allowances, by credit quality indicator, is
as shown below. The estimated fair value of agricultural
mortgage loans
held-for-investment
was $13.3 billion and $12.9 billion at June 30,
2011 and December 31, 2010, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
Recorded Investment
|
|
|
% of Total
|
|
|
Recorded Investment
|
|
|
% of Total
|
|
|
|
(In millions)
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Loan-to-value
ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 65%
|
|
$
|
11,639
|
|
|
|
89.7
|
%
|
|
$
|
11,483
|
|
|
|
90.1
|
%
|
65% to 75%
|
|
|
888
|
|
|
|
6.8
|
|
|
|
885
|
|
|
|
6.9
|
|
76% to 80%
|
|
|
12
|
|
|
|
0.1
|
|
|
|
48
|
|
|
|
0.4
|
|
Greater than 80%
|
|
|
442
|
|
|
|
3.4
|
|
|
|
335
|
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
12,981
|
|
|
|
100.0
|
%
|
|
$
|
12,751
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Residential Mortgage Loans by Credit Quality
Indicator. The recorded investment in residential
mortgage loans
held-for-investment,
prior to valuation allowances, by credit quality indicator, is
as shown below. The estimated fair value of residential mortgage
loans
held-for-investment
was $2.7 billion and $2.3 billion at June 30,
2011 and December 31, 2010, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
Recorded Investment
|
|
|
% of Total
|
|
|
Recorded Investment
|
|
|
% of Total
|
|
|
|
(In millions)
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Performance indicators:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing
|
|
$
|
2,584
|
|
|
|
97.3
|
%
|
|
$
|
2,149
|
|
|
|
96.3
|
%
|
Nonperforming
|
|
|
73
|
|
|
|
2.7
|
|
|
|
82
|
|
|
|
3.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,657
|
|
|
|
100.0
|
%
|
|
$
|
2,231
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Past Due and Interest Accrual Status of Mortgage
Loans. The Company has a high quality, well
performing, mortgage loan portfolio, with approximately 99% of
all mortgage loans classified as performing at both
June 30, 2011 and December 31, 2010. The Company
defines delinquent mortgage loans consistent with industry
practice, when interest and principal payments are past due as
follows: commercial mortgage loans 60 days or
more past due; agricultural mortgage loans
90 days or more past due; and residential mortgage
loans 60 days or more past due. The recorded
investment in mortgage loans
held-for-investment,
prior to valuation allowances, past due according to these aging
categories, greater than 90 days past due and still
accruing interest and in nonaccrual status, by portfolio
segment, were as follows at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greater than 90 Days Past Due
|
|
|
|
|
|
|
Past Due
|
|
|
Still Accruing Interest
|
|
|
Nonaccrual Status
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
(In millions)
|
|
|
Commercial
|
|
$
|
161
|
|
|
$
|
58
|
|
|
$
|
115
|
|
|
$
|
1
|
|
|
$
|
41
|
|
|
$
|
7
|
|
Agricultural
|
|
|
161
|
|
|
|
159
|
|
|
|
17
|
|
|
|
13
|
|
|
|
147
|
|
|
|
177
|
|
Residential
|
|
|
35
|
|
|
|
79
|
|
|
|
10
|
|
|
|
11
|
|
|
|
28
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
357
|
|
|
$
|
296
|
|
|
$
|
142
|
|
|
$
|
25
|
|
|
$
|
216
|
|
|
$
|
209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Mortgage Loans. The unpaid principal
balance, recorded investment, valuation allowances and carrying
value, net of valuation allowances, for impaired mortgage loans
held-for-investment,
by portfolio segment, were as follows at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Mortgage Loans
|
|
|
|
|
|
|
Loans without
|
|
|
|
|
|
|
Loans with a Valuation Allowance
|
|
|
a Valuation Allowance
|
|
|
All Impaired Loans
|
|
|
|
Unpaid
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid
|
|
|
|
|
|
Unpaid
|
|
|
|
|
|
|
Principal
|
|
|
Recorded
|
|
|
Valuation
|
|
|
Carrying
|
|
|
Principal
|
|
|
Recorded
|
|
|
Principal
|
|
|
Carrying
|
|
|
|
Balance
|
|
|
Investment
|
|
|
Allowances
|
|
|
Value
|
|
|
Balance
|
|
|
Investment
|
|
|
Balance
|
|
|
Value
|
|
|
|
(In millions)
|
|
|
June 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
126
|
|
|
$
|
126
|
|
|
$
|
28
|
|
|
$
|
98
|
|
|
$
|
105
|
|
|
$
|
95
|
|
|
$
|
231
|
|
|
$
|
193
|
|
Agricultural
|
|
|
131
|
|
|
|
128
|
|
|
|
43
|
|
|
|
85
|
|
|
|
105
|
|
|
|
100
|
|
|
|
236
|
|
|
|
185
|
|
Residential
|
|
|
11
|
|
|
|
11
|
|
|
|
1
|
|
|
|
10
|
|
|
|
15
|
|
|
|
15
|
|
|
|
26
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
268
|
|
|
$
|
265
|
|
|
$
|
72
|
|
|
$
|
193
|
|
|
$
|
225
|
|
|
$
|
210
|
|
|
$
|
493
|
|
|
$
|
403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
120
|
|
|
$
|
120
|
|
|
$
|
36
|
|
|
$
|
84
|
|
|
$
|
99
|
|
|
$
|
87
|
|
|
$
|
219
|
|
|
$
|
171
|
|
Agricultural
|
|
|
146
|
|
|
|
146
|
|
|
|
52
|
|
|
|
94
|
|
|
|
123
|
|
|
|
119
|
|
|
|
269
|
|
|
|
213
|
|
Residential
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
|
|
16
|
|
|
|
16
|
|
|
|
19
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
269
|
|
|
$
|
269
|
|
|
$
|
88
|
|
|
$
|
181
|
|
|
$
|
238
|
|
|
$
|
222
|
|
|
$
|
507
|
|
|
$
|
403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Unpaid principal balance is generally prior to any charge-off.
The average investment in impaired mortgage loans
held-for-investment,
and the related interest income, by portfolio segment was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Mortgage Loans
|
|
|
|
Average Investment
|
|
|
Interest Income Recognized
|
|
|
|
|
|
|
Cash Basis
|
|
|
Accrual Basis
|
|
|
|
(In millions)
|
|
|
For the Three Months Ended June 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
292
|
|
|
$
|
|
|
|
$
|
|
|
Agricultural
|
|
|
255
|
|
|
|
|
|
|
|
1
|
|
Residential
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
579
|
|
|
$
|
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
182
|
|
|
$
|
2
|
|
|
$
|
|
|
Agricultural
|
|
|
278
|
|
|
|
2
|
|
|
|
|
|
Residential
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
467
|
|
|
$
|
4
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
264
|
|
|
$
|
3
|
|
|
$
|
1
|
|
Agricultural
|
|
|
268
|
|
|
|
2
|
|
|
|
1
|
|
Residential
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
560
|
|
|
$
|
5
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
156
|
|
|
$
|
4
|
|
|
$
|
1
|
|
Agricultural
|
|
|
289
|
|
|
|
3
|
|
|
|
|
|
Residential
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
452
|
|
|
$
|
7
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Equivalents
Cash equivalents, which include investments with an original or
remaining maturity of three months or less at the time of
purchase, were $4.9 billion and $9.6 billion at
June 30, 2011 and December 31, 2010, respectively.
Purchased
Credit Impaired Investments
Investments acquired with evidence of credit quality
deterioration since origination and for which it is probable at
the acquisition date that the Company will be unable to collect
all contractually required payments are classified as purchased
credit impaired investments. For each investment, the excess of
the cash flows expected to be collected as of the acquisition
date over its acquisition date fair value is referred to as the
accretable yield and is recognized as net investment income on
an effective yield basis. If subsequently, based on current
information and events, it is probable that there is a
significant increase in cash flows previously expected to be
collected or if actual cash flows are significantly greater than
cash flows previously expected to be collected, the accretable
yield is adjusted prospectively. The excess of the contractually
required payments (including interest) as of the acquisition
44
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
date over the cash flows expected to be collected as of the
acquisition date is referred to as the nonaccretable difference,
and this amount is not expected to be realized as net investment
income. Decreases in cash flows expected to be collected can
result in OTTI or the recognition of mortgage loan valuation
allowances.
The table below presents the purchased credit impaired
investments, by invested asset class, held at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Maturity Securities
|
|
|
Mortgage Loans
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
(In millions)
|
|
|
Outstanding principal and interest balance (1)
|
|
$
|
3,360
|
|
|
$
|
1,548
|
|
|
$
|
510
|
|
|
$
|
504
|
|
Carrying value (2)
|
|
$
|
2,377
|
|
|
$
|
1,050
|
|
|
$
|
205
|
|
|
$
|
195
|
|
|
|
|
(1) |
|
Represents the contractually required payments which is the sum
of contractual principal, whether or not currently due, and
accrued interest. |
|
(2) |
|
Estimated fair value plus accrued interest for fixed maturity
securities and amortized cost, plus accrued interest, less any
valuation allowances, for mortgage loans. |
The following table presents information about purchased credit
impaired investments acquired during the periods, as of their
respective acquisition dates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Maturity Securities
|
|
|
Mortgage Loans
|
|
|
|
Six Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
(In millions)
|
|
|
Contractually required payments (including interest)
|
|
$
|
4,651
|
|
|
$
|
1,083
|
|
|
$
|
|
|
|
$
|
|
|
Cash flows expected to be collected (1)
|
|
$
|
2,724
|
|
|
$
|
1,021
|
|
|
$
|
|
|
|
$
|
|
|
Fair value of investments acquired
|
|
$
|
1,503
|
|
|
$
|
633
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
(1) |
|
Represents undiscounted principal and interest cash flow
expectations at the date of acquisition. |
The following table presents activity for the accretable yield
on purchased credit impaired investments for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Maturity Securities
|
|
|
Mortgage Loans
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
(In millions)
|
|
|
Accretable yield, beginning of period
|
|
$
|
708
|
|
|
$
|
70
|
|
|
$
|
541
|
|
|
$
|
|
|
|
$
|
176
|
|
|
$
|
|
|
|
$
|
170
|
|
|
$
|
|
|
Investments purchased
|
|
|
1,089
|
|
|
|
317
|
|
|
|
1,221
|
|
|
|
388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion recognized in net investment income
|
|
|
(32
|
)
|
|
|
(6
|
)
|
|
|
(49
|
)
|
|
|
(7
|
)
|
|
|
(20
|
)
|
|
|
|
|
|
|
(32
|
)
|
|
|
|
|
Disposals
|
|
|
(18
|
)
|
|
|
|
|
|
|
(69
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification (to) from nonaccretable difference
|
|
|
144
|
|
|
|
(12
|
)
|
|
|
247
|
|
|
|
(12
|
)
|
|
|
102
|
|
|
|
|
|
|
|
120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretable yield, end of period
|
|
$
|
1,891
|
|
|
$
|
369
|
|
|
$
|
1,891
|
|
|
$
|
369
|
|
|
$
|
258
|
|
|
$
|
|
|
|
$
|
258
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
45
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
such, 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 at June 30, 2011 and December 31, 2010.
Creditors or beneficial interest holders of VIEs where the
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, 2011
|
|
|
December 31, 2010
|
|
|
|
Total
|
|
|
Total
|
|
|
Total
|
|
|
Total
|
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Assets
|
|
|
Liabilities
|
|
|
|
(In millions)
|
|
|
Consolidated securitization entities (1)
|
|
$
|
6,899
|
|
|
$
|
6,606
|
|
|
$
|
7,114
|
|
|
$
|
6,892
|
|
MRSC collateral financing arrangement (2)
|
|
|
3,381
|
|
|
|
|
|
|
|
3,333
|
|
|
|
|
|
Other limited partnership interests
|
|
|
354
|
|
|
|
26
|
|
|
|
319
|
|
|
|
85
|
|
Trading and other securities
|
|
|
212
|
|
|
|
|
|
|
|
186
|
|
|
|
|
|
Other invested assets
|
|
|
102
|
|
|
|
1
|
|
|
|
108
|
|
|
|
1
|
|
Real estate joint ventures
|
|
|
17
|
|
|
|
18
|
|
|
|
20
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,965
|
|
|
$
|
6,651
|
|
|
$
|
11,080
|
|
|
$
|
6,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Company consolidated former qualified special purpose
entities (QSPEs) that are structured as CMBS and
former QSPEs that are structured as collateralized debt
obligations. 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 was limited to that of its remaining
investment in the former QSPEs of $280 million and
$201 million at estimated fair value at June 30, 2011
and December 31, 2010, respectively. The long-term debt
referred to below 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 $92 million and $184 million for the
three months and six months ended June 30, 2011,
respectively, and $103 million and $209 million for
the three months and six months ended June 30, 2010,
respectively. The assets and liabilities of these CSEs were as
follows at: |
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
(In millions)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Mortgage loans
held-for-investment
(commercial mortgage loans)
|
|
$
|
6,697
|
|
|
$
|
6,840
|
|
Trading and other securities
|
|
|
147
|
|
|
|
201
|
|
Cash and cash equivalents
|
|
|
21
|
|
|
|
39
|
|
Accrued investment income
|
|
|
34
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
6,899
|
|
|
$
|
7,114
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
6,547
|
|
|
$
|
6,820
|
|
Other liabilities
|
|
|
59
|
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
6,606
|
|
|
$
|
6,892
|
|
|
|
|
|
|
|
|
|
|
46
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
(2) |
|
See Note 12 of the Notes to the Consolidated Financial
Statements included in the 2010 Annual Report for a description
of the MetLife Reinsurance Company of South Carolina
(MRSC) collateral financing arrangement. These
assets consist of the following, at estimated fair value at: |
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
(In millions)
|
|
|
Fixed maturity securities
available-for-sale:
|
|
|
|
|
|
|
|
|
ABS
|
|
$
|
1,447
|
|
|
$
|
1,333
|
|
U.S. corporate securities
|
|
|
745
|
|
|
|
893
|
|
RMBS
|
|
|
547
|
|
|
|
547
|
|
CMBS
|
|
|
412
|
|
|
|
383
|
|
Foreign corporate securities
|
|
|
166
|
|
|
|
139
|
|
State and political subdivision securities
|
|
|
40
|
|
|
|
30
|
|
Foreign government securities
|
|
|
|
|
|
|
5
|
|
Cash and cash equivalents
|
|
|
24
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,381
|
|
|
$
|
3,333
|
|
|
|
|
|
|
|
|
|
|
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, 2011
|
|
|
December 31, 2010
|
|
|
|
|
|
|
Maximum
|
|
|
|
|
|
Maximum
|
|
|
|
Carrying
|
|
|
Exposure
|
|
|
Carrying
|
|
|
Exposure
|
|
|
|
Amount
|
|
|
to Loss (1)
|
|
|
Amount
|
|
|
to Loss (1)
|
|
|
|
(In millions)
|
|
|
Fixed maturity securities
available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMBS (2)
|
|
$
|
43,550
|
|
|
$
|
43,550
|
|
|
$
|
44,733
|
|
|
$
|
44,733
|
|
CMBS (2)
|
|
|
19,518
|
|
|
|
19,518
|
|
|
|
20,675
|
|
|
|
20,675
|
|
ABS (2)
|
|
|
14,857
|
|
|
|
14,857
|
|
|
|
14,287
|
|
|
|
14,287
|
|
Foreign corporate securities
|
|
|
3,350
|
|
|
|
3,350
|
|
|
|
2,950
|
|
|
|
2,950
|
|
U.S. corporate securities
|
|
|
2,610
|
|
|
|
2,610
|
|
|
|
2,435
|
|
|
|
2,435
|
|
Other limited partnership interests
|
|
|
4,381
|
|
|
|
6,180
|
|
|
|
4,383
|
|
|
|
6,479
|
|
Trading and other securities
|
|
|
784
|
|
|
|
784
|
|
|
|
789
|
|
|
|
789
|
|
Other invested assets
|
|
|
582
|
|
|
|
909
|
|
|
|
576
|
|
|
|
773
|
|
Mortgage loans
|
|
|
475
|
|
|
|
475
|
|
|
|
350
|
|
|
|
350
|
|
Real estate joint ventures
|
|
|
58
|
|
|
|
104
|
|
|
|
40
|
|
|
|
108
|
|
Equity securities
available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock
|
|
|
33
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
90,198
|
|
|
$
|
92,370
|
|
|
$
|
91,218
|
|
|
$
|
93,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The maximum exposure to loss relating to the fixed maturity,
equity and trading and other securities 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 of the Company.
Such a maximum loss would be expected to occur only upon
bankruptcy of the issuer or investee. The maximum exposure to
loss relating to the mortgage loans is equal to |
47
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
the carrying amounts plus any unfunded commitments of the
Company. For certain of its investments in other invested
assets, the Companys return is in the form of income 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
income tax credits guaranteed by third parties of
$333 million and $231 million at June 30, 2011
and December 31, 2010, respectively. |
|
(2) |
|
For these variable 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, 2011.
|
|
4.
|
Derivative
Financial Instruments
|
Accounting
for Derivative Financial Instruments
Derivatives are financial instruments whose values are derived
from interest rates, foreign currency exchange rates, credit
spreads
and/or other
financial indices. Derivatives may be exchange-traded or
contracted in the
over-the-counter
(OTC) market. The Company uses a variety of
derivatives, including swaps, forwards, futures and option
contracts, to manage various risks relating to its ongoing
business. To a lesser extent, the Company uses credit
derivatives, such as credit default swaps, to synthetically
replicate investment risks and returns which are not readily
available in the cash market. The Company also purchases certain
securities, issues certain insurance policies and investment
contracts and engages in certain reinsurance contracts that have
embedded derivatives.
Freestanding derivatives are carried on the 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 OTC 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 derivative 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
(a) economic hedges of equity method investments in joint
ventures, (b) all derivatives held in relation to the
trading portfolios, and (c) derivatives held within
contractholder-directed unit-linked investments; (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
48
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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.
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 derivative gains (losses). The estimated
fair values of the hedging derivatives are exclusive of any
accruals that are separately reported in the consolidated
statement of operations within interest income or interest
expense to match the location of the hedged item. However,
accruals that are not scheduled to settle until maturity are
included in the estimated fair value of derivatives in the
consolidated balance sheets.
Under a cash flow hedge, changes in the estimated fair value of
the hedging derivative measured as effective are reported within
other comprehensive income (loss), a separate component of
stockholders equity, and the deferred gains or losses on
the derivative are reclassified into the consolidated statement
of operations when the 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 derivative 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 derivative 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 derivative
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
49
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
consolidated balance sheets at its estimated fair value, with
changes in estimated fair value recognized currently in net
derivative 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 derivative 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
derivative 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 derivative gains (losses) except for
those in policyholder benefits and claims related to ceded
reinsurance of guaranteed minimum income benefits
(GMIBs). If the Company is unable to properly
identify and measure an embedded derivative for separation from
its host contract, the entire contract is carried on the balance
sheet at estimated fair value, with changes in estimated fair
value recognized in the current period in net investment gains
(losses) or net investment income. 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 net investment income if that contract contains an
embedded derivative that requires bifurcation.
See Note 5 for information about the fair value hierarchy
for derivatives.
50
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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 gross notional amount, estimated fair value and primary
underlying risk exposure of the Companys derivative
financial instruments, excluding embedded derivatives, held at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
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
|
|
$
|
69,893
|
|
|
$
|
3,112
|
|
|
$
|
1,349
|
|
|
$
|
54,803
|
|
|
$
|
2,654
|
|
|
$
|
1,516
|
|
|
|
Interest rate floors
|
|
|
23,866
|
|
|
|
623
|
|
|
|
78
|
|
|
|
23,866
|
|
|
|
630
|
|
|
|
66
|
|
|
|
Interest rate caps
|
|
|
37,726
|
|
|
|
189
|
|
|
|
|
|
|
|
35,412
|
|
|
|
176
|
|
|
|
1
|
|
|
|
Interest rate futures
|
|
|
12,770
|
|
|
|
45
|
|
|
|
36
|
|
|
|
9,385
|
|
|
|
43
|
|
|
|
17
|
|
|
|
Interest rate options
|
|
|
16,635
|
|
|
|
186
|
|
|
|
49
|
|
|
|
8,761
|
|
|
|
144
|
|
|
|
23
|
|
|
|
Interest rate forwards
|
|
|
8,637
|
|
|
|
31
|
|
|
|
125
|
|
|
|
10,374
|
|
|
|
106
|
|
|
|
135
|
|
|
|
Synthetic GICs
|
|
|
4,392
|
|
|
|
|
|
|
|
|
|
|
|
4,397
|
|
|
|
|
|
|
|
|
|
Foreign currency
|
|
Foreign currency swaps
|
|
|
17,455
|
|
|
|
1,404
|
|
|
|
1,391
|
|
|
|
17,626
|
|
|
|
1,616
|
|
|
|
1,282
|
|
|
|
Foreign currency forwards
|
|
|
10,038
|
|
|
|
80
|
|
|
|
84
|
|
|
|
10,443
|
|
|
|
119
|
|
|
|
91
|
|
|
|
Currency futures
|
|
|
525
|
|
|
|
4
|
|
|
|
4
|
|
|
|
493
|
|
|
|
2
|
|
|
|
|
|
|
|
Currency options
|
|
|
2,191
|
|
|
|
16
|
|
|
|
1
|
|
|
|
5,426
|
|
|
|
50
|
|
|
|
|
|
|
|
Non-derivative hedging instruments (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
169
|
|
|
|
|
|
|
|
185
|
|
Credit
|
|
Credit default swaps
|
|
|
12,266
|
|
|
|
159
|
|
|
|
94
|
|
|
|
10,957
|
|
|
|
173
|
|
|
|
104
|
|
|
|
Credit forwards
|
|
|
121
|
|
|
|
2
|
|
|
|
3
|
|
|
|
90
|
|
|
|
2
|
|
|
|
3
|
|
Equity market
|
|
Equity futures
|
|
|
6,015
|
|
|
|
10
|
|
|
|
94
|
|
|
|
8,794
|
|
|
|
21
|
|
|
|
9
|
|
|
|
Equity options
|
|
|
16,330
|
|
|
|
1,679
|
|
|
|
342
|
|
|
|
33,688
|
|
|
|
1,843
|
|
|
|
1,197
|
|
|
|
Variance swaps
|
|
|
18,719
|
|
|
|
152
|
|
|
|
169
|
|
|
|
18,022
|
|
|
|
198
|
|
|
|
118
|
|
|
|
Total rate of return swaps
|
|
|
1,862
|
|
|
|
1
|
|
|
|
2
|
|
|
|
1,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
259,441
|
|
|
$
|
7,693
|
|
|
$
|
3,821
|
|
|
$
|
254,253
|
|
|
$
|
7,777
|
|
|
$
|
4,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The estimated fair value of all derivatives in an asset position
is reported within other invested assets in the consolidated
balance sheets and the estimated fair value of all derivatives
in a liability position is reported within other liabilities in
the consolidated balance sheets. |
|
(2) |
|
The estimated fair value of non-derivative hedging instruments
represents the amortized cost of the instruments, as adjusted
for foreign currency transaction gains or losses. Non-derivative
hedging instruments are reported within policyholder account
balances in the consolidated balance sheets. |
Interest rate swaps are used by the Company primarily to reduce
market risks from changes in interest rates and to alter
interest rate exposure arising from mismatches between assets
and liabilities (duration mismatches). In an interest rate swap,
the Company agrees with another party to exchange, at specified
intervals, the difference between fixed rate and floating rate
interest amounts as calculated by reference to an agreed
notional principal amount. These transactions are entered into
pursuant to master agreements that provide for a single net
payment to be made by the counterparty at each due date. The
Company utilizes interest rate swaps in fair value, cash flow
and non-qualifying hedging relationships.
The Company also enters into basis swaps to better match the
cash flows from assets and related liabilities. In a basis swap,
both legs of the swap are floating with each based on a
different index. Generally, no cash is exchanged
51
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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 uses structured interest rate swaps 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, agency, or other fixed maturity security.
Structured interest rate swaps are included in interest rate
swaps in the preceding table. Structured interest rate swaps are
not designated as hedging instruments.
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 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.
52
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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 for a fixed rate or spread. 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, currency options, and currency
futures 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.
In exchange-traded currency futures transactions, the Company
agrees to purchase or sell a specified number of contracts, the
value of which is determined by referenced currencies, 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 currency futures are used primarily to hedge
currency mismatches between assets and liabilities. The Company
utilizes exchange-traded currency futures in 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.
53
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Swap spreadlocks are used by the Company to hedge invested
assets on an economic basis against the risk of changes in
credit spreads. Swap spreadlocks are forward transactions
between two parties whose underlying reference index is a
forward starting interest rate swap where the Company agrees to
pay a coupon based on a predetermined reference swap spread in
exchange for receiving a coupon based on a floating rate. The
Company has the option to cash settle with the counterparty in
lieu of maintaining the swap after the effective date. The
Company utilizes swap spreadlocks in non-qualifying hedging
relationships.
Certain credit default swaps are used by the Company to hedge
against credit-related changes in the value of its investments
and to diversify its credit risk exposure in certain portfolios.
In a credit default swap transaction, the Company agrees with
another party, at specified intervals, to pay a premium to hedge
credit risk. If a credit event, as defined by the contract,
occurs, generally the contract will require the swap to be
settled gross by the delivery of par quantities of the
referenced investment equal to the specified swap notional in
exchange for the payment of cash amounts by the counterparty
equal to the par value of the investment surrendered. The
Company utilizes credit default swaps in non-qualifying hedging
relationships.
Credit default swaps are also used to synthetically create
investments that are either more expensive to acquire or
otherwise unavailable in the cash markets. These transactions
are a combination of a derivative and a cash instrument such as
a U.S. Treasury or agency security. The Company also enters
into certain credit default swaps held in relation to trading
portfolios for the purpose of generating profits on short-term
differences in price. These credit default swaps are not
designated as hedging instruments.
The Company enters into forwards to lock in the price to be paid
for forward purchases of certain securities. The price is agreed
upon at the time of the contract and payment for the contract is
made at a specified future date. When the primary purpose of
entering into these transactions is to hedge against the risk of
changes in purchase price due to changes in credit spreads, the
Company designates these as credit forwards. The Company
utilizes credit forwards in cash flow hedging relationships.
In exchange-traded equity futures transactions, the Company
agrees to purchase or sell a specified number of contracts, the
value of which is determined by the different classes of equity
securities, and to post variation margin on a daily basis in an
amount equal to the difference in the daily market values of
those contracts. The Company enters into exchange-traded futures
with regulated futures commission merchants that are members of
the exchange. Exchange-traded equity futures are used primarily
to hedge liabilities embedded in certain variable annuity
products offered by the Company. The Company utilizes
exchange-traded equity futures in non-qualifying hedging
relationships.
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.
Certain of these contracts may also contain settlement
provisions linked to interest rates. 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 the London Inter-Bank Offer
Rate (LIBOR), calculated by reference to an agreed
notional principal amount. No cash
54
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
is exchanged at the outset of the contract. Cash is paid and
received over the life of the contract based on the terms of the
swap. These transactions are entered into pursuant to master
agreements that provide for a single net payment to be made by
the counterparty at each due date. The Company uses TRRs to
hedge its equity market guarantees in certain of its insurance
products. TRRs can be used as hedges or to synthetically create
investments. The Company utilizes TRRs in non-qualifying hedging
relationships.
Hedging
The following table presents the gross notional amount and
estimated fair value of derivatives designated as hedging
instruments by type of hedge designation at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
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
|
|
$
|
3,753
|
|
|
$
|
951
|
|
|
$
|
67
|
|
|
$
|
4,524
|
|
|
$
|
907
|
|
|
$
|
145
|
|
Interest rate swaps
|
|
|
5,310
|
|
|
|
919
|
|
|
|
161
|
|
|
|
5,108
|
|
|
|
823
|
|
|
|
169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
9,063
|
|
|
|
1,870
|
|
|
|
228
|
|
|
|
9,632
|
|
|
|
1,730
|
|
|
|
314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency swaps
|
|
|
6,459
|
|
|
|
168
|
|
|
|
430
|
|
|
|
5,556
|
|
|
|
213
|
|
|
|
347
|
|
Interest rate swaps
|
|
|
5,060
|
|
|
|
113
|
|
|
|
107
|
|
|
|
3,562
|
|
|
|
102
|
|
|
|
116
|
|
Interest rate forwards
|
|
|
1,140
|
|
|
|
|
|
|
|
101
|
|
|
|
1,140
|
|
|
|
|
|
|
|
107
|
|
Credit forwards
|
|
|
121
|
|
|
|
2
|
|
|
|
3
|
|
|
|
90
|
|
|
|
2
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
12,780
|
|
|
|
283
|
|
|
|
641
|
|
|
|
10,348
|
|
|
|
317
|
|
|
|
573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign operations hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forwards
|
|
|
1,763
|
|
|
|
5
|
|
|
|
17
|
|
|
|
1,935
|
|
|
|
9
|
|
|
|
26
|
|
Non-derivative hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
169
|
|
|
|
|
|
|
|
185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
1,763
|
|
|
|
5
|
|
|
|
17
|
|
|
|
2,104
|
|
|
|
9
|
|
|
|
211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total qualifying hedges
|
|
$
|
23,606
|
|
|
$
|
2,158
|
|
|
$
|
886
|
|
|
$
|
22,084
|
|
|
$
|
2,056
|
|
|
$
|
1,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The following table presents the gross 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, 2011
|
|
|
December 31, 2010
|
|
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
|
|
$
|
59,523
|
|
|
$
|
2,080
|
|
|
$
|
1,081
|
|
|
$
|
46,133
|
|
|
$
|
1,729
|
|
|
$
|
1,231
|
|
Interest rate floors
|
|
|
23,866
|
|
|
|
623
|
|
|
|
78
|
|
|
|
23,866
|
|
|
|
630
|
|
|
|
66
|
|
Interest rate caps
|
|
|
37,726
|
|
|
|
189
|
|
|
|
|
|
|
|
35,412
|
|
|
|
176
|
|
|
|
1
|
|
Interest rate futures
|
|
|
12,770
|
|
|
|
45
|
|
|
|
36
|
|
|
|
9,385
|
|
|
|
43
|
|
|
|
17
|
|
Interest rate options
|
|
|
16,635
|
|
|
|
186
|
|
|
|
49
|
|
|
|
8,761
|
|
|
|
144
|
|
|
|
23
|
|
Interest rate forwards
|
|
|
7,497
|
|
|
|
31
|
|
|
|
24
|
|
|
|
9,234
|
|
|
|
106
|
|
|
|
28
|
|
Synthetic GICs
|
|
|
4,392
|
|
|
|
|
|
|
|
|
|
|
|
4,397
|
|
|
|
|
|
|
|
|
|
Foreign currency swaps
|
|
|
7,243
|
|
|
|
285
|
|
|
|
894
|
|
|
|
7,546
|
|
|
|
496
|
|
|
|
790
|
|
Foreign currency forwards
|
|
|
8,275
|
|
|
|
75
|
|
|
|
67
|
|
|
|
8,508
|
|
|
|
110
|
|
|
|
65
|
|
Currency futures
|
|
|
525
|
|
|
|
4
|
|
|
|
4
|
|
|
|
493
|
|
|
|
2
|
|
|
|
|
|
Currency options
|
|
|
2,191
|
|
|
|
16
|
|
|
|
1
|
|
|
|
5,426
|
|
|
|
50
|
|
|
|
|
|
Credit default swaps
|
|
|
12,266
|
|
|
|
159
|
|
|
|
94
|
|
|
|
10,957
|
|
|
|
173
|
|
|
|
104
|
|
Equity futures
|
|
|
6,015
|
|
|
|
10
|
|
|
|
94
|
|
|
|
8,794
|
|
|
|
21
|
|
|
|
9
|
|
Equity options
|
|
|
16,330
|
|
|
|
1,679
|
|
|
|
342
|
|
|
|
33,688
|
|
|
|
1,843
|
|
|
|
1,197
|
|
Variance swaps
|
|
|
18,719
|
|
|
|
152
|
|
|
|
169
|
|
|
|
18,022
|
|
|
|
198
|
|
|
|
118
|
|
Total rate of return swaps
|
|
|
1,862
|
|
|
|
1
|
|
|
|
2
|
|
|
|
1,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-designated or non-qualifying derivatives
|
|
$
|
235,835
|
|
|
$
|
5,535
|
|
|
$
|
2,935
|
|
|
$
|
232,169
|
|
|
$
|
5,721
|
|
|
$
|
3,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Derivative Gains (Losses)
The components of net derivative gains (losses) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
(In millions)
|
|
|
Derivatives and hedging gains (losses) (1)
|
|
$
|
746
|
|
|
$
|
3,680
|
|
|
$
|
(512
|
)
|
|
$
|
3,199
|
|
Embedded derivatives
|
|
|
(394
|
)
|
|
|
(2,199
|
)
|
|
|
549
|
|
|
|
(1,677
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net derivative gains (losses)
|
|
$
|
352
|
|
|
$
|
1,481
|
|
|
$
|
37
|
|
|
$
|
1,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes foreign currency transaction gains (losses) on hedged
items in cash flow and non-qualifying hedge relationships, which
are not presented elsewhere in this note. |
56
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The following table presents the settlement payments recorded in
income for the:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
(In millions)
|
|
|
Qualifying hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
20
|
|
|
$
|
18
|
|
|
$
|
42
|
|
|
$
|
41
|
|
Interest credited to policyholder account balances
|
|
|
57
|
|
|
|
52
|
|
|
|
118
|
|
|
|
113
|
|
Other expenses
|
|
|
|
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
(4
|
)
|
Non-qualifying hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
(3
|
)
|
|
|
(2
|
)
|
|
|
(4
|
)
|
|
|
(2
|
)
|
Other revenues
|
|
|
18
|
|
|
|
27
|
|
|
|
33
|
|
|
|
56
|
|
Net derivative gains (losses)
|
|
|
32
|
|
|
|
143
|
|
|
|
5
|
|
|
|
173
|
|
Policyholder benefits and claims
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
122
|
|
|
$
|
236
|
|
|
$
|
193
|
|
|
$
|
377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
57
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 derivative
gains (losses). The following table represents the amount of
such net derivative gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Derivative
|
|
|
Net Derivative
|
|
|
Ineffectiveness
|
|
|
|
|
|
Gains (Losses)
|
|
|
Gains (Losses)
|
|
|
Recognized in
|
|
Derivatives in Fair Value
|
|
Hedged Items in Fair Value
|
|
Recognized
|
|
|
Recognized for
|
|
|
Net Derivative
|
|
Hedging Relationships
|
|
Hedging Relationships
|
|
for Derivatives
|
|
|
Hedged Items
|
|
|
Gains (Losses)
|
|
|
|
|
|
(In millions)
|
|
|
For the Three Months Ended June 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps:
|
|
Fixed maturity securities
|
|
$
|
(16
|
)
|
|
$
|
15
|
|
|
$
|
(1
|
)
|
|
|
Policyholder account balances (1)
|
|
|
157
|
|
|
|
(150
|
)
|
|
|
7
|
|
Foreign currency swaps:
|
|
Foreign-denominated fixed maturity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign-denominated policyholder account balances (2)
|
|
|
158
|
|
|
|
(155
|
)
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
299
|
|
|
$
|
(290
|
)
|
|
$
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Six Months Ended June 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps:
|
|
Fixed maturity securities
|
|
$
|
(5
|
)
|
|
$
|
5
|
|
|
$
|
|
|
|
|
Policyholder account balances (1)
|
|
|
43
|
|
|
|
(34
|
)
|
|
|
9
|
|
Foreign currency swaps:
|
|
Foreign-denominated fixed maturity securities
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
|
|
|
|
Foreign-denominated policyholder account balances (2)
|
|
|
235
|
|
|
|
(242
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
272
|
|
|
$
|
(270
|
)
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
and interest rate forwards to hedge the forecasted purchases of
fixed-rate investments; and (vi) interest rate swaps and
interest rate forwards to hedge forecasted fixed-rate borrowings.
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 derivative gains (losses) for the
three months and six months ended June 30, 2011 related to
such discontinued cash flow hedges were ($1) million and
($14) million, respectively. The net amounts reclassified
into net derivative gains (losses) for the three months and six
months ended June 30, 2010 related to such discontinued
cash flow hedges were insignificant. At June 30, 2011 and
December 31, 2010, the maximum
58
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
length of time over which the Company was hedging its exposure
to variability in future cash flows for forecasted transactions
did not exceed ten years and seven years, respectively.
The following table presents the components of accumulated other
comprehensive income (loss), before income tax, related to cash
flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
(In millions)
|
|
|
Accumulated other comprehensive income (loss), balance at
beginning of period
|
|
$
|
(237
|
)
|
|
$
|
44
|
|
|
$
|
(59
|
)
|
|
$
|
(76
|
)
|
Gains (losses) deferred in other comprehensive income (loss) on
the effective portion of cash flow hedges
|
|
|
82
|
|
|
|
566
|
|
|
|
(103
|
)
|
|
|
617
|
|
Amounts reclassified to net derivative gains (losses)
|
|
|
(12
|
)
|
|
|
(17
|
)
|
|
|
(8
|
)
|
|
|
51
|
|
Amounts reclassified to net investment income
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
2
|
|
Amounts reclassified to other expenses
|
|
|
2
|
|
|
|
(1
|
)
|
|
|
4
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss), balance at end of
period
|
|
$
|
(165
|
)
|
|
$
|
593
|
|
|
$
|
(165
|
)
|
|
$
|
593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2011, ($39) million of deferred net gains
(losses) on derivatives in accumulated other comprehensive
income (loss) was expected to be reclassified to earnings within
the next 12 months.
59
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The following table presents the effects of derivatives in cash
flow hedging relationships on the interim condensed consolidated
statements of operations and the interim condensed consolidated
statements of equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Derivative
|
|
|
Net Investment
|
|
|
Other
|
|
|
Net Derivative
|
|
|
Net Investment
|
|
|
|
|
|
|
Gains (Losses)
|
|
|
Income
|
|
|
Expenses
|
|
|
Gains (Losses)
|
|
|
Income
|
|
|
|
(In millions)
|
|
|
For the Three Months Ended June 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
80
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
(2
|
)
|
|
$
|
2
|
|
|
$
|
|
|
Foreign currency swaps
|
|
|
(36
|
)
|
|
|
(11
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
Interest rate forwards
|
|
|
33
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
(13
|
)
|
|
|
|
|
Credit forwards
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
82
|
|
|
$
|
12
|
|
|
$
|
|
|
|
$
|
(2
|
)
|
|
$
|
(12
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Six Months Ended June 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
17
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
(4
|
)
|
|
$
|
2
|
|
|
$
|
|
|
Foreign currency swaps
|
|
|
(140
|
)
|
|
|
(15
|
)
|
|
|
(3
|
)
|
|
|
1
|
|
|
|
(2
|
)
|
|
|
|
|
Interest rate forwards
|
|
|
18
|
|
|
|
22
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
(11
|
)
|
|
|
|
|
Credit forwards
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(103
|
)
|
|
$
|
8
|
|
|
$
|
(1
|
)
|
|
$
|
(4
|
)
|
|
$
|
(11
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All components of each derivatives gain or loss were
included in the assessment of hedge effectiveness.
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
60
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Company may also use non-derivative financial instruments to
hedge portions of its net investments in foreign operations
against adverse movements in exchange rates. The Company
measures ineffectiveness on 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 equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2011:
|
|
|
|
|
|
|
|
|
Foreign currency forwards
|
|
$
|
(57
|
)
|
|
$
|
|
|
Non-derivative hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(57
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, 2010:
|
|
|
|
|
|
|
|
|
Foreign currency forwards
|
|
$
|
37
|
|
|
$
|
|
|
Non-derivative hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
37
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2011:
|
|
|
|
|
|
|
|
|
Foreign currency forwards
|
|
$
|
(113
|
)
|
|
$
|
|
|
Non-derivative hedging instruments
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(107
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2010:
|
|
|
|
|
|
|
|
|
Foreign currency forwards
|
|
$
|
27
|
|
|
$
|
|
|
Non-derivative hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
27
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
During the six months ended June 30, 2011, the Company sold
its interest in its Japanese joint venture, which was a hedged
item in a net investment hedging relationship. See Note 2.
As a result, the Company released losses of $71 million
from accumulated other comprehensive income (loss) upon the
sale. This release did not impact net income for the three
months ended June 30, 2011 as such losses were considered
in the overall impairment evaluation of the investment prior to
sale. During the three months and six months ended June 30,
2010, 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. |
|
(2) |
|
There was no ineffectiveness recognized for the Companys
hedges of net investments in foreign operations. |
61
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
At June 30, 2011 and December 31, 2010, the cumulative
foreign currency translation gain (loss) recorded in accumulated
other comprehensive income (loss) related to hedges of net
investments in foreign operations was ($259) million and
($223) 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, option contracts and future 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, TRRs, and structured
interest rate swaps 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.
62
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
|
|
|
|
|
|
|
|
|
|
Derivative
|
|
|
Investment
|
|
|
Benefits and
|
|
|
Other
|
|
|
Other
|
|
|
|
Gains (Losses)
|
|
|
Income (1)
|
|
|
Claims (2)
|
|
|
Revenues (3)
|
|
|
Expenses (4)
|
|
|
|
(In millions)
|
|
|
For the Three Months Ended June 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
644
|
|
|
$
|
(1
|
)
|
|
$
|
|
|
|
$
|
72
|
|
|
$
|
|
|
Interest rate floors
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate caps
|
|
|
(73
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate futures
|
|
|
(47
|
)
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
Equity futures
|
|
|
1
|
|
|
|
10
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
Foreign currency swaps
|
|
|
(71
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forwards
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency futures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency options
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity options
|
|
|
52
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate options
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
Interest rate forwards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31
|
)
|
|
|
|
|
Variance swaps
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit default swaps
|
|
|
31
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total rate of return swaps
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
660
|
|
|
$
|
4
|
|
|
$
|
(6
|
)
|
|
$
|
43
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
Net
|
|
|
Policyholder
|
|
|
|
|
|
|
|
|
|
Derivative
|
|
|
Investment
|
|
|
Benefits and
|
|
|
Other
|
|
|
Other
|
|
|
|
Gains (Losses)
|
|
|
Income (1)
|
|
|
Claims (2)
|
|
|
Revenues (3)
|
|
|
Expenses (4)
|
|
|
|
(In millions)
|
|
|
For the Six Months Ended June 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
374
|
|
|
$
|
(2
|
)
|
|
$
|
|
|
|
$
|
24
|
|
|
$
|
|
|
Interest rate floors
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate caps
|
|
|
(82
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate futures
|
|
|
(49
|
)
|
|
|
1
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
Equity futures
|
|
|
55
|
|
|
|
3
|
|
|
|
(108
|
)
|
|
|
|
|
|
|
|
|
Foreign currency swaps
|
|
|
(192
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forwards
|
|
|
(140
|
)
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency futures
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency options
|
|
|
(45
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity options
|
|
|
(367
|
)
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate options
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
Interest rate forwards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39
|
)
|
|
|
|
|
Variance swaps
|
|
|
(91
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit default swaps
|
|
|
(14
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total rate of return swaps
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(575
|
)
|
|
$
|
(22
|
)
|
|
$
|
(108
|
)
|
|
$
|
(22
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Changes in estimated fair value related to economic hedges of
equity method investments in joint ventures; changes in
estimated fair value related to derivatives held in relation to
trading portfolios; and changes in estimated fair value related
to derivatives held within contractholder-directed unit-linked
investments. |
|
(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. |
64
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
(4) |
|
Changes in estimated fair value related to economic hedges of
foreign currency exposure associated with the Companys
international subsidiaries. |
Credit
Derivatives
In connection with synthetically created investment transactions
and credit default swaps held in relation to the trading
portfolio, the Company writes credit default swaps for which it
receives a premium to insure credit risk. Such credit
derivatives are included within the non-qualifying derivatives
and derivatives for purposes other than hedging table. If a
credit event 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 $6,490 million
and $5,089 million at June 30, 2011 and
December 31, 2010, 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, 2011 and
December 31, 2010, the Company would have received
$58 million and $62 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, 2011
|
|
|
December 31, 2010
|
|
|
|
|
|
|
Maximum
|
|
|
|
|
|
|
|
|
Maximum
|
|
|
|
|
|
|
Estimated
|
|
|
Amount
|
|
|
|
|
|
Estimated
|
|
|
Amount
|
|
|
|
|
|
|
Fair Value
|
|
|
of Future
|
|
|
Weighted
|
|
|
Fair Value
|
|
|
of 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)
|
|
$
|
7
|
|
|
$
|
740
|
|
|
|
3.9
|
|
|
$
|
5
|
|
|
$
|
470
|
|
|
|
3.8
|
|
Credit default swaps referencing indices
|
|
|
42
|
|
|
|
2,813
|
|
|
|
3.5
|
|
|
|
45
|
|
|
|
2,928
|
|
|
|
3.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
49
|
|
|
|
3,553
|
|
|
|
3.6
|
|
|
|
50
|
|
|
|
3,398
|
|
|
|
3.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Baa
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single name credit default swaps (corporate)
|
|
|
2
|
|
|
|
1,155
|
|
|
|
4.3
|
|
|
|
5
|
|
|
|
735
|
|
|
|
4.3
|
|
Credit default swaps referencing indices
|
|
|
7
|
|
|
|
1,752
|
|
|
|
5.0
|
|
|
|
7
|
|
|
|
931
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
9
|
|
|
|
2,907
|
|
|
|
4.8
|
|
|
|
12
|
|
|
|
1,666
|
|
|
|
4.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ba
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single name credit default swaps (corporate)
|
|
|
|
|
|
|
30
|
|
|
|
4.2
|
|
|
|
|
|
|
|
25
|
|
|
|
4.4
|
|
Credit default swaps referencing indices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
|
|
|
|
30
|
|
|
|
4.2
|
|
|
|
|
|
|
|
25
|
|
|
|
4.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
58
|
|
|
$
|
6,490
|
|
|
|
4.1
|
|
|
$
|
62
|
|
|
$
|
5,089
|
|
|
|
4.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
65
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
(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
$6,490 million and $5,089 million from the table above
were $105 million and $120 million at June 30,
2011 and December 31, 2010, 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 OTC 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 and options are
effected through regulated exchanges, and positions are marked
to market on a daily basis, the Company has minimal exposure to
credit-related losses in the event of nonperformance by
counterparties to such derivative instruments. See Note 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,
2011 and December 31, 2010, the Company was obligated to
return cash collateral under its control of $3,498 million
and $2,625 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, 2011 and December 31, 2010, the Company had
also accepted collateral consisting of various securities with a
fair market value of $1,578 million and $984 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, 2011, none of the collateral
had been sold or repledged.
The Companys collateral arrangements for its OTC
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 OTC derivatives that are in a net liability
position after considering the effect of netting agreements,
together with the estimated fair value and balance sheet
location of the collateral pledged. The table also presents the
incremental collateral that the Company would be required to
provide if there was a one notch downgrade in the Companys
credit rating at the reporting date or if the Companys
credit rating sustained a downgrade to a level that triggered
full overnight collateralization or
66
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
termination of the derivative position at the reporting date.
Derivatives that are not subject to collateral agreements are
not included in the scope of this table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Fair Value of
|
|
|
Fair Value of Incremental
|
|
|
|
|
|
|
Collateral Provided:
|
|
|
Collateral Provided Upon:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Downgrade in the
|
|
|
|
|
|
|
|
|
|
|
|
|
One Notch
|
|
|
Companys Credit Rating
|
|
|
|
|
|
|
|
|
|
|
|
|
Downgrade
|
|
|
to a Level that Triggers
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
in the
|
|
|
Full Overnight
|
|
|
|
Fair Value (1) of
|
|
|
|
|
|
|
|
|
Companys
|
|
|
Collateralization or
|
|
|
|
Derivatives in Net
|
|
|
Fixed Maturity
|
|
|
|
|
|
Credit
|
|
|
Termination of
|
|
|
|
Liability Position
|
|
|
Securities (2)
|
|
|
Cash (3)
|
|
|
Rating
|
|
|
the Derivative Position
|
|
|
|
(In millions)
|
|
|
June 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives subject to credit- contingent provisions
|
|
$
|
693
|
|
|
$
|
404
|
|
|
$
|
|
|
|
$
|
93
|
|
|
$
|
223
|
|
Derivatives not subject to credit- contingent provisions
|
|
|
4
|
|
|
|
8
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
697
|
|
|
$
|
412
|
|
|
$
|
1
|
|
|
$
|
93
|
|
|
$
|
223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives subject to credit- contingent provisions
|
|
$
|
1,167
|
|
|
$
|
1,024
|
|
|
$
|
|
|
|
$
|
99
|
|
|
$
|
231
|
|
Derivatives not subject to credit- contingent provisions
|
|
|
22
|
|
|
|
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,189
|
|
|
$
|
1,024
|
|
|
$
|
43
|
|
|
$
|
99
|
|
|
$
|
231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
|
(3) |
|
Included in premiums, reinsurance and other receivables in the
consolidated balance sheets. |
Without considering the effect of netting agreements, the
estimated fair value of the Companys OTC derivatives with
credit-contingent provisions that were in a gross liability
position at June 30, 2011 was $1,034 million. At
June 30, 2011, the Company provided securities collateral
of $404 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, 2011 would be $630 million. This amount
does not consider gross derivative assets of $341 million
for which the Company has the contractual right of offset.
The Company also has exchange-traded futures and options, which
require the pledging of collateral. At both June 30, 2011
and December 31, 2010, the Company pledged securities
collateral for exchange-traded futures and options of
$40 million, which is included in fixed maturity
securities. The counterparties are permitted by contract to sell
or repledge this collateral. At June 30, 2011 and
December 31, 2010, the Company provided cash collateral for
exchange-traded futures and options of $518 million and
$662 million, respectively, which is included in premiums,
reinsurance and other receivables.
67
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
GMIBs; ceded reinsurance contracts of guaranteed minimum
benefits related to GMABs and certain GMIBs; assumed reinsurance
contracts of guaranteed minimum benefits related to GMWBs and
GMABs; funding agreements with equity or bond indexed crediting
rates; and options embedded in debt or equity securities.
The following table presents the estimated fair value of the
Companys embedded derivatives at:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
(In millions)
|
|
|
Net embedded derivatives within asset host contracts:
|
|
|
|
|
|
|
|
|
Ceded guaranteed minimum benefits
|
|
$
|
194
|
|
|
$
|
185
|
|
Options embedded in debt or equity securities
|
|
|
(68
|
)
|
|
|
(57
|
)
|
Other
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net embedded derivatives within asset host contracts
|
|
$
|
130
|
|
|
$
|
128
|
|
|
|
|
|
|
|
|
|
|
Net embedded derivatives within liability host contracts:
|
|
|
|
|
|
|
|
|
Direct guaranteed minimum benefits
|
|
$
|
(49
|
)
|
|
$
|
370
|
|
Assumed guaranteed minimum benefits (1)
|
|
|
2,244
|
|
|
|
2,186
|
|
Other
|
|
|
90
|
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
Net embedded derivatives within liability host contracts
|
|
$
|
2,285
|
|
|
$
|
2,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Assumed reinsurance contracts of guaranteed minimum benefits
related to GMWBs and GMABs of the Japanese joint venture
interest, which was sold during the second quarter of 2011, have
been separately presented in the current period. See
Note 2. Comparative prior year balances, which were
previously presented in direct guaranteed minimum benefits, have
been conformed to the current period presentation. |
The following table presents changes in estimated fair value
related to embedded derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
Six Months
|
|
|
Ended
|
|
Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
|
|
|
|
(In millions)
|
|
|
|
Net derivative gains (losses) (1)
|
|
$
|
(394
|
)
|
|
$
|
(2,199
|
)
|
|
$
|
549
|
|
|
$
|
(1,677
|
)
|
Policyholder benefits and claims
|
|
$
|
10
|
|
|
$
|
67
|
|
|
$
|
(8
|
)
|
|
$
|
46
|
|
|
|
|
(1) |
|
The valuation of guaranteed minimum benefits includes an
adjustment for nonperformance risk. The amounts included in net
derivative gains (losses), in connection with this adjustment,
were $108 million and $34 million for the three months
and six months ended June 30, 2011, respectively, and
$776 million and $690 million for the three months and
six months ended June 30, 2010, respectively. The net
derivative gains (losses) for the three months and six months
ended June 30, 2010 included ($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.
68
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 FVO, were determined as described below. These
estimated fair values and their corresponding placement in the
fair value hierarchy are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Significant
|
|
|
Total
|
|
|
|
Identical Assets
|
|
|
Observable
|
|
|
Unobservable
|
|
|
Estimated
|
|
|
|
and Liabilities
|
|
|
Inputs
|
|
|
Inputs
|
|
|
Fair
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Value
|
|
|
|
(In millions)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
|
|
|
$
|
89,926
|
|
|
$
|
6,871
|
|
|
$
|
96,797
|
|
Foreign corporate securities
|
|
|
|
|
|
|
64,694
|
|
|
|
5,844
|
|
|
|
70,538
|
|
Foreign government securities
|
|
|
82
|
|
|
|
46,003
|
|
|
|
3,161
|
|
|
|
49,246
|
|
RMBS
|
|
|
|
|
|
|
43,116
|
|
|
|
434
|
|
|
|
43,550
|
|
U.S. Treasury and agency securities
|
|
|
19,812
|
|
|
|
15,727
|
|
|
|
26
|
|
|
|
35,565
|
|
CMBS
|
|
|
|
|
|
|
18,737
|
|
|
|
781
|
|
|
|
19,518
|
|
ABS
|
|
|
|
|
|
|
12,406
|
|
|
|
2,451
|
|
|
|
14,857
|
|
State and political subdivision securities
|
|
|
|
|
|
|
11,580
|
|
|
|
89
|
|
|
|
11,669
|
|
Other fixed maturity securities
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
|
19,894
|
|
|
|
302,191
|
|
|
|
19,659
|
|
|
|
341,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
685
|
|
|
|
1,100
|
|
|
|
305
|
|
|
|
2,090
|
|
Non-redeemable preferred stock
|
|
|
|
|
|
|
494
|
|
|
|
654
|
|
|
|
1,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
|
685
|
|
|
|
1,594
|
|
|
|
959
|
|
|
|
3,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading and other securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actively Traded Securities
|
|
|
|
|
|
|
558
|
|
|
|
2
|
|
|
|
560
|
|
FVO general account securities
|
|
|
|
|
|
|
249
|
|
|
|
54
|
|
|
|
303
|
|
FVO contractholder-directed unit-linked investments
|
|
|
7,622
|
|
|
|
10,445
|
|
|
|
623
|
|
|
|
18,690
|
|
FVO securities held by consolidated securitization entities
|
|
|
|
|
|
|
147
|
|
|
|
|
|
|
|
147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading and other securities
|
|
|
7,622
|
|
|
|
11,399
|
|
|
|
679
|
|
|
|
19,700
|
|
Short-term investments (1)
|
|
|
4,265
|
|
|
|
6,764
|
|
|
|
732
|
|
|
|
11,761
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans held by consolidated securitization entities
|
|
|
|
|
|
|
6,697
|
|
|
|
|
|
|
|
6,697
|
|
Mortgage loans
held-for-sale
(2)
|
|
|
|
|
|
|
1,831
|
|
|
|
32
|
|
|
|
1,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans
|
|
|
|
|
|
|
8,528
|
|
|
|
32
|
|
|
|
8,560
|
|
Other invested assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MSRs
|
|
|
|
|
|
|
|
|
|
|
964
|
|
|
|
964
|
|
Other investments
|
|
|
362
|
|
|
|
122
|
|
|
|
|
|
|
|
484
|
|
Derivative assets: (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
55
|
|
|
|
4,087
|
|
|
|
44
|
|
|
|
4,186
|
|
Foreign currency contracts
|
|
|
4
|
|
|
|
1,451
|
|
|
|
49
|
|
|
|
1,504
|
|
Credit contracts
|
|
|
|
|
|
|
114
|
|
|
|
47
|
|
|
|
161
|
|
Equity market contracts
|
|
|
14
|
|
|
|
1,581
|
|
|
|
247
|
|
|
|
1,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative assets
|
|
|
73
|
|
|
|
7,233
|
|
|
|
387
|
|
|
|
7,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other invested assets
|
|
|
435
|
|
|
|
7,355
|
|
|
|
1,351
|
|
|
|
9,141
|
|
Net embedded derivatives within asset host contracts (4)
|
|
|
|
|
|
|
2
|
|
|
|
196
|
|
|
|
198
|
|
Separate account assets (5)
|
|
|
28,099
|
|
|
|
172,447
|
|
|
|
1,836
|
|
|
|
202,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
61,000
|
|
|
$
|
510,280
|
|
|
$
|
25,444
|
|
|
$
|
596,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities: (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
54
|
|
|
$
|
1,472
|
|
|
$
|
111
|
|
|
$
|
1,637
|
|
Foreign currency contracts
|
|
|
4
|
|
|
|
1,476
|
|
|
|
|
|
|
|
1,480
|
|
Credit contracts
|
|
|
|
|
|
|
92
|
|
|
|
5
|
|
|
|
97
|
|
Equity market contracts
|
|
|
95
|
|
|
|
320
|
|
|
|
192
|
|
|
|
607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative liabilities
|
|
|
153
|
|
|
|
3,360
|
|
|
|
308
|
|
|
|
3,821
|
|
Net embedded derivatives within liability host contracts (4)
|
|
|
|
|
|
|
15
|
|
|
|
2,270
|
|
|
|
2,285
|
|
Long-term debt of consolidated securitization entities
|
|
|
|
|
|
|
6,413
|
|
|
|
134
|
|
|
|
6,547
|
|
Trading liabilities (6)
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
207
|
|
|
$
|
9,788
|
|
|
$
|
2,712
|
|
|
$
|
12,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Significant
|
|
|
Total
|
|
|
|
Identical Assets
|
|
|
Observable
|
|
|
Unobservable
|
|
|
Estimated
|
|
|
|
and Liabilities
|
|
|
Inputs
|
|
|
Inputs
|
|
|
Fair
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Value
|
|
|
|
(In millions)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
|
|
|
$
|
84,623
|
|
|
$
|
7,149
|
|
|
$
|
91,772
|
|
Foreign corporate securities
|
|
|
|
|
|
|
62,162
|
|
|
|
5,726
|
|
|
|
67,888
|
|
Foreign government securities
|
|
|
149
|
|
|
|
38,719
|
|
|
|
3,134
|
|
|
|
42,002
|
|
RMBS
|
|
|
274
|
|
|
|
43,037
|
|
|
|
1,422
|
|
|
|
44,733
|
|
U.S. Treasury and agency securities
|
|
|
14,602
|
|
|
|
18,623
|
|
|
|
79
|
|
|
|
33,304
|
|
CMBS
|
|
|
|
|
|
|
19,664
|
|
|
|
1,011
|
|
|
|
20,675
|
|
ABS
|
|
|
|
|
|
|
10,142
|
|
|
|
4,145
|
|
|
|
14,287
|
|
State and political subdivision securities
|
|
|
|
|
|
|
10,083
|
|
|
|
46
|
|
|
|
10,129
|
|
Other fixed maturity securities
|
|
|
|
|
|
|
3
|
|
|
|
4
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
|
15,025
|
|
|
|
287,056
|
|
|
|
22,716
|
|
|
|
324,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
831
|
|
|
|
1,094
|
|
|
|
268
|
|
|
|
2,193
|
|
Non-redeemable preferred stock
|
|
|
|
|
|
|
504
|
|
|
|
905
|
|
|
|
1,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
|
831
|
|
|
|
1,598
|
|
|
|
1,173
|
|
|
|
3,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading and other securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actively Traded Securities
|
|
|
|
|
|
|
453
|
|
|
|
10
|
|
|
|
463
|
|
FVO general account securities
|
|
|
|
|
|
|
54
|
|
|
|
77
|
|
|
|
131
|
|
FVO contractholder-directed unit-linked investments
|
|
|
6,270
|
|
|
|
10,789
|
|
|
|
735
|
|
|
|
17,794
|
|
FVO securities held by consolidated securitization entities
|
|
|
|
|
|
|
201
|
|
|
|
|
|
|
|
201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading and other securities
|
|
|
6,270
|
|
|
|
11,497
|
|
|
|
822
|
|
|
|
18,589
|
|
Short-term investments (1)
|
|
|
3,026
|
|
|
|
4,681
|
|
|
|
858
|
|
|
|
8,565
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans held by consolidated securitization entities
|
|
|
|
|
|
|
6,840
|
|
|
|
|
|
|
|
6,840
|
|
Mortgage loans
held-for-sale
(2)
|
|
|
|
|
|
|
2,486
|
|
|
|
24
|
|
|
|
2,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans
|
|
|
|
|
|
|
9,326
|
|
|
|
24
|
|
|
|
9,350
|
|
Other invested assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MSRs
|
|
|
|
|
|
|
|
|
|
|
950
|
|
|
|
950
|
|
Other investments
|
|
|
373
|
|
|
|
121
|
|
|
|
|
|
|
|
494
|
|
Derivative assets: (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
131
|
|
|
|
3,583
|
|
|
|
39
|
|
|
|
3,753
|
|
Foreign currency contracts
|
|
|
2
|
|
|
|
1,711
|
|
|
|
74
|
|
|
|
1,787
|
|
Credit contracts
|
|
|
|
|
|
|
125
|
|
|
|
50
|
|
|
|
175
|
|
Equity market contracts
|
|
|
23
|
|
|
|
1,757
|
|
|
|
282
|
|
|
|
2,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative assets
|
|
|
156
|
|
|
|
7,176
|
|
|
|
445
|
|
|
|
7,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other invested assets
|
|
|
529
|
|
|
|
7,297
|
|
|
|
1,395
|
|
|
|
9,221
|
|
Net embedded derivatives within asset host contracts (4)
|
|
|
|
|
|
|
|
|
|
|
185
|
|
|
|
185
|
|
Separate account assets (5)
|
|
|
25,566
|
|
|
|
155,589
|
|
|
|
1,983
|
|
|
|
183,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
51,247
|
|
|
$
|
477,044
|
|
|
$
|
29,156
|
|
|
$
|
557,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities: (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
35
|
|
|
$
|
1,598
|
|
|
$
|
125
|
|
|
$
|
1,758
|
|
Foreign currency contracts
|
|
|
|
|
|
|
1,372
|
|
|
|
1
|
|
|
|
1,373
|
|
Credit contracts
|
|
|
|
|
|
|
101
|
|
|
|
6
|
|
|
|
107
|
|
Equity market contracts
|
|
|
10
|
|
|
|
1,174
|
|
|
|
140
|
|
|
|
1,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative liabilities
|
|
|
45
|
|
|
|
4,245
|
|
|
|
272
|
|
|
|
4,562
|
|
Net embedded derivatives within liability host contracts (4)
|
|
|
|
|
|
|
11
|
|
|
|
2,623
|
|
|
|
2,634
|
|
Long-term debt of consolidated securitization entities
|
|
|
|
|
|
|
6,636
|
|
|
|
184
|
|
|
|
6,820
|
|
Trading liabilities (6)
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
91
|
|
|
$
|
10,892
|
|
|
$
|
3,079
|
|
|
$
|
14,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.), and therefore
are excluded from the tables presented above. |
70
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 liabilities are presented within other liabilities in
the consolidated balance sheets. 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 Fair Value Measurements Using
Significant Unobservable Inputs (Level 3) tables which
follow. At June 30, 2011 and December 31, 2010,
certain non-derivative hedging instruments of $0 and
$185 million, respectively, which are 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 primarily within premiums, reinsurance and other
receivables in the consolidated balance sheets. Net embedded
derivatives within liability host contracts are presented
primarily within policyholder account balances in the
consolidated balance sheets. At June 30, 2011, fixed
maturity securities and equity securities also included embedded
derivatives of $6 million and ($74) million,
respectively. At December 31, 2010, fixed maturity
securities and equity securities included embedded derivatives
of $5 million and ($62) million, respectively. |
|
(5) |
|
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. |
|
(6) |
|
Trading liabilities are presented within other liabilities in
the consolidated balance sheets. |
See Variable Interest Entities in
Note 3 for discussion of CSEs included in the tables above.
The methods and assumptions used to estimate the fair value of
financial instruments are summarized as follows:
Fixed
Maturity Securities, Equity Securities, Trading and Other
Securities and Short-term Investments
When available, the estimated fair value of the Companys
fixed maturity securities, equity securities, trading and other
securities and short-term investments 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 managements 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
71
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
cannot be derived principally from or corroborated by observable
market data. These unobservable inputs can be based in large
part on managements 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 FVO securities held by CSEs is
determined on a basis consistent with the methodologies
described herein for fixed maturity securities and equity
securities. The Company consolidates certain securitization
entities that hold securities that have been accounted for under
the FVO and classified within trading and other 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
Mortgage loans presented in the tables above consist of
commercial mortgage loans held by CSEs and residential mortgage
loans
held-for-sale
for which the Company has elected the FVO and which are carried
at estimated fair value. The Company consolidates certain
securitization entities that hold commercial mortgage loans. See
Valuation Techniques and Inputs by
Level Within the Three-Level Fair Value Hierarchy by
Major Classes of Assets and Liabilities below for a
discussion of the methods and assumptions used to estimate the
fair value of these financial instruments.
Mortgage
Servicing Rights (MSRs)
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. See
Valuation Techniques and Inputs by
Level Within the Three-Level Fair Value Hierarchy by
Major Classes of Assets and Liabilities below for a
discussion of the methods and assumptions used to estimate the
fair value of these financial instruments.
Other
Investments
Other investments is primarily comprised of investment funds.
The estimated fair value of these investment funds is determined
on a basis consistent with the methodologies described herein
for trading and other securities.
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 OTC
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 OTC
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 OTC
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
72
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
involve significant management judgment or estimation. Even
though unobservable, these inputs are based on assumptions
deemed appropriate given the circumstances and are assumed to be
consistent with what other market participants would use when
pricing such instruments.
The credit risk of both the counterparty and the Company are
considered in determining the estimated fair value for all OTC
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 to 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 OTC 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.
Net
Embedded Derivatives Within Asset and Liability Host
Contracts
Embedded derivatives principally include certain direct, assumed
and ceded variable annuity guarantees and equity or bond indexed
crediting rates within certain funding agreements. Embedded
derivatives are recorded at estimated fair value with changes in
estimated fair value reported in net income.
The Company issues and assumes certain variable annuity products
with guaranteed minimum benefits. 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 derivative gains
(losses). These embedded derivatives are classified within
policyholder account balances in the consolidated balance sheets.
The fair value of these guarantees is estimated using the
present value of future benefits minus the present value of
future fees using actuarial and capital market assumptions
related to the projected cash flows over the expected lives of
the contracts. A risk neutral valuation methodology is used
under which the cash flows from the 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.
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
73
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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 GMIBs
and GMABs previously described. These reinsurance contracts
contain embedded derivatives which are included within premiums,
reinsurance and other receivables in the consolidated balance
sheets with changes in estimated fair value reported in net
derivative gains (losses) or policyholder benefits 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.
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 prior 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
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.
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 previously described
in Fixed Maturity Securities, Equity
Securities, Trading and Other Securities and Short-term
Investments. The estimated fair value of these embedded
derivatives is included, along with their funds withheld hosts,
in other liabilities in the consolidated balance sheets with
changes in estimated fair value recorded in net derivative 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 derivative 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.
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 is
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. See
Valuation Techniques and
74
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Inputs by Level Within the Three-Level Fair Value
Hierarchy by Major Classes of Assets and Liabilities below
for a discussion of the methods and assumptions used to estimate
the fair value of these financial instruments.
Long-term
Debt of CSEs
The Company has elected the FVO for the long-term debt of CSEs,
which are carried at estimated fair value. See
Valuation Techniques and Inputs by
Level Within the Three-Level Fair Value Hierarchy by
Major Classes of Assets and Liabilities below for a
discussion of the methods and assumptions used to estimate the
fair value of these financial instruments.
Trading
Liabilities
Trading liabilities are recorded at estimated fair value with
subsequent changes in estimated fair value recognized in net
investment income. The estimated fair value of trading
liabilities is determined on a basis consistent with the
methodologies described in Fixed Maturity
Securities, Equity Securities, Trading and Other Securities and
Short-term Investments.
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, Equity Securities, Trading and Other
Securities and Short-term Investments
These securities are comprised of U.S. Treasury and agency
securities, foreign government securities, RMBS principally
to-be-announced securities, exchange traded common stock,
exchange traded registered mutual fund interests included in
trading and other securities and short-term money market
securities, including U.S. Treasury bills. Valuation of
these securities is based on unadjusted quoted prices in active
markets that are readily and regularly available.
Contractholder-directed unit-linked investments reported within
trading and other securities include certain registered mutual
fund interests priced using daily net asset value
(NAV) provided by the fund managers.
Derivative
Assets and Derivative Liabilities
These assets and liabilities are comprised of exchange-traded
derivatives, as well as interest rate forwards to sell certain
to-be-announced securities. Valuation of these assets and
liabilities is based on unadjusted quoted prices in active
markets that are readily and regularly available.
75
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Separate
Account Assets
These assets are comprised of (i) securities that are
similar in nature to the fixed maturity securities, equity
securities and short-term investments referred to above; and
(ii) certain exchange-traded derivatives, including
financial futures and owned options. Valuation of these assets
is based on unadjusted quoted prices in active markets that are
readily and regularly available.
Level 2
Measurements:
Fixed
Maturity Securities, Equity Securities, Trading and Other
Securities and Short-term Investments
This level includes fixed maturity securities and equity
securities priced principally by independent pricing services
using observable inputs. Trading and other securities and
short-term investments within this level are of a similar nature
and class to the Level 2 securities described below.
Contractholder-directed unit-linked investments reported within
trading and other securities include certain mutual fund
interests without readily determinable fair values given prices
are not published publicly. Valuation of these mutual funds is
based upon quoted prices or reported NAV provided by the fund
managers, which were based on observable inputs.
U.S. corporate and foreign corporate
securities. These securities are principally
valued using the market and income approaches. Valuation is
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 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
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. This level
also includes certain below investment grade privately placed
fixed maturity securities priced by independent pricing services
that use observable inputs.
Structured securities comprised of RMBS, CMBS and
ABS. These securities are principally valued
using the market approach. Valuation is 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, but not limited to:
collateral type, payment terms of the underlying assets, payment
priority within the tranche, structure of the security, deal
performance and vintage of loans.
U.S. Treasury and agency
securities. These securities are principally
valued using the market approach. Valuation is 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
securities. These securities are principally
valued using the market approach. Valuation is 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.
Common and non-redeemable preferred
stock. These securities are principally valued
using the market approach where market quotes are available but
are not considered actively traded. Valuation is based
principally on observable inputs including quoted prices in
markets that are not considered active.
76
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Mortgage
Loans Held by CSEs
These commercial mortgage 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
CSEs to determine the estimated fair value of these commercial
loan portfolios. These market prices are determined principally
by independent pricing services using observable inputs.
Mortgage
Loans
Held-For-Sale
Residential mortgage loans
held-for-sale
are principally valued using the market approach. Valuation is
based primarily on readily available observable pricing for
similar loans or securities backed by similar loans. The
unobservable adjustments to such prices are insignificant.
Derivative
Assets and Derivative Liabilities
This level includes all types of derivative instruments utilized
by the Company with the exception of exchange-traded derivatives
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. These derivatives are principally valued using an
income approach.
Interest
rate contracts.
Non-option-based 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 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.
Foreign
currency contracts.
Non-option-based 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 Valuations are based on option pricing
models, which utilize significant inputs that may include the
swap yield curve, LIBOR basis curves, currency spot rates, cross
currency basis curves and currency volatility.
Credit
contracts.
Non-option-based Valuations are based on present
value techniques, which utilize significant inputs that may
include the swap yield curve, credit curves and recovery rates.
Equity
market contracts.
Non-option-based 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 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.
77
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Separate
Account Assets
These assets are comprised of investments that are similar in
nature to the fixed maturity securities, equity securities,
short-term investments and derivative assets referred to above.
Also included are certain mutual funds and hedge funds without
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 NAV provided by the fund managers.
Long-term
Debt of CSEs
The estimated fair value of the long-term debt of the
Companys CSEs is based on 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 in
Level 2 Measurements. 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 a lack of transparency in the process
to develop the valuation estimates generally causing these
investments to be classified in Level 3.
Fixed
Maturity Securities, Equity Securities, Trading and Other
Securities and Short-term Investments
This level includes fixed maturity securities and equity
securities priced principally by 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. Trading and other
securities and short-term investments within this level are of a
similar nature and class to the Level 3 securities
described below; accordingly, the valuation techniques and
significant market standard observable inputs used in their
valuation are also similar to those described below.
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. 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 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
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.
78
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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.
Mortgage
Loans
Mortgage loans 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.
MSRs
MSRs, which are valued using an income approach, are carried at
estimated fair value and have multiple significant unobservable
inputs including assumptions regarding estimates of discount
rates, loan prepayments and servicing costs. Sales of MSRs tend
to occur in private transactions where the precise terms and
conditions of the sales are typically not readily available and
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.
Derivative
Assets and Derivative Liabilities
These derivatives are principally valued using an income
approach. Valuations of non-option-based derivatives utilize
present value techniques, whereas valuations of option-based
derivatives utilize option pricing models. These valuation
methodologies generally use the same inputs as described in the
corresponding sections above for Level 2 measurements of
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.
Interest
rate contracts.
Non-option-based 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 Significant unobservable inputs may
include the extrapolation beyond observable limits of the swap
yield curve, LIBOR basis curves and interest rate volatility.
Foreign
currency contracts.
Non-option-based 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 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.
79
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Credit
contracts.
Non-option-based 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.
Equity
market contracts.
Non-option-based Significant unobservable inputs may
include the extrapolation beyond observable limits of dividend
yield curves.
Option-based Significant unobservable inputs may
include the extrapolation beyond observable limits of dividend
yield curves and equity volatility. Certain of these derivatives
are valued based on independent non-binding broker quotations.
Direct
and Assumed Guaranteed Minimum Benefits
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 Benefits
These embedded derivatives are principally valued using an
income approach. The valuation techniques and significant market
standard unobservable inputs used in their valuation are similar
to those previously described for Direct and Assumed Guaranteed
Minimum Benefits and also include counterparty credit spreads.
Embedded
Derivatives Within Funds Withheld Related to Certain Ceded
Reinsurance
These embedded 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.
Separate
Account Assets
These assets are comprised of investments that are similar in
nature to the fixed maturity securities, equity securities and
derivative assets 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.
80
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Long-term
Debt of CSEs
The estimated fair value of the long-term debt of the
Companys CSEs are priced principally through independent
broker quotations or market standard valuation methodologies
using inputs that are not market observable or cannot be derived
from or corroborated by observable market data.
Transfers
between Levels 1 and 2:
During the three months and six months ended June 30, 2011
and 2010, transfers between Levels 1 and 2 were not
significant.
Transfers
into or out of Level 3:
Overall, transfers into
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 underlying inputs
cannot be observed, current prices are not available,
and/or when
there are significant variances in quoted prices, thereby
affecting transparency. Assets and liabilities are transferred
out of Level 3 when circumstances change such that a
significant input 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 into
and/or out
of any level are assumed to occur at the beginning of the
period. Significant transfers into
and/or out
of Level 3 assets and liabilities for the three months and
six months ended June 30, 2011 and 2010 are summarized
below.
Transfers into Level 3 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) which have resulted
in decreased transparency of valuations and an increased use of
broker quotations and unobservable inputs to determine estimated
fair value.
During the three months and six months ended June 30, 2011,
transfers into Level 3 for fixed maturity securities of
$756 million and $653 million, respectively, and
transfers into Level 3 for separate account assets of
$1 million and $9 million, respectively, were
principally comprised of certain RMBS, foreign government
securities and ABS. During the three months and six months ended
June 30, 2010, transfers into Level 3 for fixed
maturity securities of $1,088 million and
$1,214 million, respectively, and transfers into
Level 3 for separate account assets of $12 million and
$49 million, respectively, were principally comprised of
certain CMBS, ABS and U.S. and foreign corporate securities.
Transfers out of Level 3 resulted primarily from increased
transparency of both new issuances that subsequent to issuance
and establishment of trading activity, became priced by
independent pricing services and existing issuances that, over
time, the Company was able to obtain pricing from, or
corroborate pricing received from, independent pricing services
with observable inputs or increases in market activity and
upgraded credit ratings. With respect to derivatives, transfers
out of Level 3 resulted primarily from increased
transparency related to the observable portion of the swap yield
curve or the observable portion of the equity volatility surface.
During the three months and six months ended June 30, 2011,
transfers out of Level 3 for fixed maturity securities of
$3,210 million and $4,594 million, respectively, and
transfers out of Level 3 for separate account assets of
$122 million and $196 million, respectively, were
principally comprised of certain ABS, RMBS and U.S. and
foreign corporate securities. During the six months ended
June 30, 2011, transfers out of Level 3 for
derivatives of $108 million were principally comprised of
interest rate swaps, foreign currency forwards, and equity
options. There were no transfers out of Level 3 for
derivatives for the three months ended June 30, 2011.
During the three months and six months ended June 30, 2010,
transfers out of Level 3 for fixed maturity securities of
$1,063 million and $1,336 million, respectively, and
transfers out of Level 3 for separate account assets of
$182 million and $222 million, respectively, were
principally comprised of certain U.S. and foreign corporate
securities, ABS and RMBS.
81
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The following tables summarize the change of all assets and
(liabilities) measured at estimated fair value on a recurring
basis using significant unobservable inputs (Level 3),
including realized and unrealized gains (losses) of all assets
and (liabilities) and realized and unrealized gains (losses) of
all assets and (liabilities) still held at the end of the
respective time periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs
(Level 3)
|
|
|
|
Fixed Maturity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
|
|
|
|
|
|
State and
|
|
|
Other
|
|
|
|
U.S.
|
|
|
Foreign
|
|
|
Foreign
|
|
|
|
|
|
Treasury
|
|
|
|
|
|
|
|
|
Political
|
|
|
Fixed
|
|
|
|
Corporate
|
|
|
Corporate
|
|
|
Government
|
|
|
|
|
|
and Agency
|
|
|
|
|
|
|
|
|
Subdivision
|
|
|
Maturity
|
|
|
|
Securities
|
|
|
Securities
|
|
|
Securities
|
|
|
RMBS
|
|
|
Securities
|
|
|
CMBS
|
|
|
ABS
|
|
|
Securities
|
|
|
Securities
|
|
|
|
(In millions)
|
|
|
Three Months Ended June 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
6,861
|
|
|
$
|
5,534
|
|
|
$
|
3,186
|
|
|
$
|
271
|
|
|
$
|
76
|
|
|
$
|
791
|
|
|
$
|
4,506
|
|
|
$
|
46
|
|
|
$
|
4
|
|
Total realized/unrealized gains (losses) included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings: (1),(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
2
|
|
|
|
(3
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
Net investment gains (losses)
|
|
|
(15
|
)
|
|
|
(30
|
)
|
|
|
(5
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
22
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
Net derivative gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
91
|
|
|
|
105
|
|
|
|
(50
|
)
|
|
|
8
|
|
|
|
|
|
|
|
(12
|
)
|
|
|
(2
|
)
|
|
|
(6
|
)
|
|
|
|
|
Purchases (3)
|
|
|
434
|
|
|
|
1,553
|
|
|
|
178
|
|
|
|
21
|
|
|
|
1
|
|
|
|
171
|
|
|
|
139
|
|
|
|
43
|
|
|
|
|
|
Sales (3)
|
|
|
(313
|
)
|
|
|
(960
|
)
|
|
|
(129
|
)
|
|
|
(37
|
)
|
|
|
(1
|
)
|
|
|
(116
|
)
|
|
|
(263
|
)
|
|
|
|
|
|
|
(2
|
)
|
Issuances (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlements (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers into Level 3 (4)
|
|
|
64
|
|
|
|
53
|
|
|
|
199
|
|
|
|
298
|
|
|
|
|
|
|
|
24
|
|
|
|
108
|
|
|
|
10
|
|
|
|
|
|
Transfers out of Level 3 (4)
|
|
|
(253
|
)
|
|
|
(408
|
)
|
|
|
(217
|
)
|
|
|
(126
|
)
|
|
|
(50
|
)
|
|
|
(117
|
)
|
|
|
(2,035
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
6,871
|
|
|
$
|
5,844
|
|
|
$
|
3,161
|
|
|
$
|
434
|
|
|
$
|
26
|
|
|
$
|
781
|
|
|
$
|
2,451
|
|
|
$
|
89
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in unrealized gains (losses) relating to assets and
liabilities still held at June 30, 2011 included in
earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
2
|
|
|
$
|
7
|
|
|
$
|
9
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
17
|
|
|
$
|
8
|
|
|
$
|
|
|
|
$
|
|
|
Net investment gains (losses)
|
|
$
|
(27
|
)
|
|
$
|
(18
|
)
|
|
$
|
(1
|
)
|
|
$
|
(1
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(7
|
)
|
|
$
|
|
|
|
$
|
|
|
Net derivative gains (losses)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Other revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Policyholder benefits and claims
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Other expenses
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
82
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs
(Level 3)
|
|
|
|
Equity Securities:
|
|
|
Trading and Other Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FVO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
FVO
|
|
|
Contractholder-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
redeemable
|
|
|
Actively
|
|
|
General
|
|
|
directed
|
|
|
|
|
|
Mortgage
|
|
|
|
|
|
|
Common
|
|
|
Preferred
|
|
|
Traded
|
|
|
Account
|
|
|
Unit-linked
|
|
|
Short-term
|
|
|
Loans Held-
|
|
|
MSRs
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Securities
|
|
|
Securities
|
|
|
Investments
|
|
|
Investments
|
|
|
for-sale
|
|
|
(5),(6)
|
|
|
|
(In millions)
|
|
|
Three Months Ended June 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
359
|
|
|
$
|
946
|
|
|
$
|
40
|
|
|
$
|
62
|
|
|
$
|
566
|
|
|
$
|
742
|
|
|
$
|
25
|
|
|
$
|
1,029
|
|
Total realized/unrealized gains (losses) included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings: (1),(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
22
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
Net investment gains (losses)
|
|
|
3
|
|
|
|
(70
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net derivative gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(75
|
)
|
Policyholder benefits and claims
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
8
|
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
Purchases (3)
|
|
|
27
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
315
|
|
|
|
333
|
|
|
|
1
|
|
|
|
|
|
Sales (3)
|
|
|
(12
|
)
|
|
|
(295
|
)
|
|
|
(23
|
)
|
|
|
(12
|
)
|
|
|
(305
|
)
|
|
|
(351
|
)
|
|
|
|
|
|
|
|
|
Issuances (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
|
|
Settlements (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27
|
)
|
Transfers into Level 3 (4)
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
|
|
|
|
3
|
|
|
|
9
|
|
|
|
|
|
Transfers out of Level 3 (4)
|
|
|
(82
|
)
|
|
|
|
|
|
|
(15
|
)
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
305
|
|
|
$
|
654
|
|
|
$
|
2
|
|
|
$
|
54
|
|
|
$
|
623
|
|
|
$
|
732
|
|
|
$
|
32
|
|
|
$
|
964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in unrealized gains (losses) relating to assets and
liabilities still held at June 30, 2011 included in
earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2
|
|
|
$
|
23
|
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
|
|
Net investment gains (losses)
|
|
$
|
(4
|
)
|
|
$
|
(32
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Net derivative gains (losses)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Other revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(1
|
)
|
|
$
|
(73
|
)
|
Policyholder benefits and claims
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Other expenses
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
83
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs
(Level 3)
|
|
|
|
Net Derivatives: (7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term Debt
|
|
|
|
Interest
|
|
|
Foreign
|
|
|
|
|
|
Equity
|
|
|
Net
|
|
|
Separate
|
|
|
of Consolidated
|
|
|
|
Rate
|
|
|
Currency
|
|
|
Credit
|
|
|
Market
|
|
|
Embedded
|
|
|
Account
|
|
|
Securitization
|
|
|
|
Contracts
|
|
|
Contracts
|
|
|
Contracts
|
|
|
Contracts
|
|
|
Derivatives (8)
|
|
|
Assets (9)
|
|
|
Entities
|
|
|
|
(In millions)
|
|
|
Three Months Ended June 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
(89
|
)
|
|
$
|
39
|
|
|
$
|
43
|
|
|
$
|
(16
|
)
|
|
$
|
(1,538
|
)
|
|
$
|
2,004
|
|
|
$
|
(138
|
)
|
Total realized/unrealized gains (losses) included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings: (1),(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
(53
|
)
|
Net derivative gains (losses)
|
|
|
5
|
|
|
|
1
|
|
|
|
(2
|
)
|
|
|
(17
|
)
|
|
|
(383
|
)
|
|
|
|
|
|
|
|
|
Other revenues
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
Other expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
19
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
Purchases (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88
|
|
|
|
|
|
|
|
160
|
|
|
|
|
|
Sales (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(203
|
)
|
|
|
|
|
Issuances (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlements (3)
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
(113
|
)
|
|
|
|
|
|
|
57
|
|
Transfers into Level 3 (4)
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
Transfers out of Level 3 (4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(122
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
(67
|
)
|
|
$
|
49
|
|
|
$
|
42
|
|
|
$
|
55
|
|
|
$
|
(2,074
|
)
|
|
$
|
1,836
|
|
|
$
|
(134
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in unrealized gains (losses) relating to assets and
liabilities still held at June 30, 2011 included in
earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Net investment gains (losses)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(53
|
)
|
Net derivative gains (losses)
|
|
$
|
4
|
|
|
$
|
1
|
|
|
$
|
(3
|
)
|
|
$
|
(17
|
)
|
|
$
|
(387
|
)
|
|
$
|
|
|
|
$
|
|
|
Other revenues
|
|
$
|
11
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Policyholder benefits and claims
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
10
|
|
|
$
|
|
|
|
$
|
|
|
Other expenses
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
84
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs
(Level 3)
|
|
|
|
Fixed Maturity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
|
|
|
|
|
|
State and
|
|
|
Other
|
|
|
|
U.S.
|
|
|
Foreign
|
|
|
Foreign
|
|
|
|
|
|
Treasury
|
|
|
|
|
|
|
|
|
Political
|
|
|
Fixed
|
|
|
|
Corporate
|
|
|
Corporate
|
|
|
Government
|
|
|
|
|
|
and Agency
|
|
|
|
|
|
|
|
|
Subdivision
|
|
|
Maturity
|
|
|
|
Securities
|
|
|
Securities
|
|
|
Securities
|
|
|
RMBS
|
|
|
Securities
|
|
|
CMBS
|
|
|
ABS
|
|
|
Securities
|
|
|
Securities
|
|
|
|
(In millions)
|
|
|
Three Months Ended June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
6,339
|
|
|
$
|
5,330
|
|
|
$
|
199
|
|
|
$
|
1,927
|
|
|
$
|
36
|
|
|
$
|
225
|
|
|
$
|
2,813
|
|
|
$
|
101
|
|
|
$
|
6
|
|
Total realized/unrealized gains (losses) included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings: (1),(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
12
|
|
|
|
3
|
|
|
|
2
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
Net investment gains (losses)
|
|
|
|
|
|
|
(18
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
Net derivative gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
97
|
|
|
|
(139
|
)
|
|
|
16
|
|
|
|
(6
|
)
|
|
|
2
|
|
|
|
47
|
|
|
|
81
|
|
|
|
3
|
|
|
|
1
|
|
Purchases, sales, issuances and settlements (3)
|
|
|
362
|
|
|
|
(371
|
)
|
|
|
69
|
|
|
|
98
|
|
|
|
(1
|
)
|
|
|
(20
|
)
|
|
|
483
|
|
|
|
19
|
|
|
|
(2
|
)
|
Transfers into Level 3 (4)
|
|
|
518
|
|
|
|
292
|
|
|
|
|
|
|
|
31
|
|
|
|
|
|
|
|
117
|
|
|
|
130
|
|
|
|
|
|
|
|
|
|
Transfers out of Level 3 (4)
|
|
|
(155
|
)
|
|
|
(545
|
)
|
|
|
(24
|
)
|
|
|
(211
|
)
|
|
|
|
|
|
|
(100
|
)
|
|
|
(6
|
)
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
7,173
|
|
|
$
|
4,552
|
|
|
$
|
257
|
|
|
$
|
1,852
|
|
|
$
|
37
|
|
|
$
|
270
|
|
|
$
|
3,489
|
|
|
$
|
101
|
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in unrealized gains (losses) relating to assets and
liabilities still held at June 30, 2010 included in
earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
6
|
|
|
$
|
3
|
|
|
$
|
2
|
|
|
$
|
13
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
8
|
|
|
$
|
|
|
|
$
|
|
|
Net investment gains (losses)
|
|
$
|
(6
|
)
|
|
$
|
(16
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
(20
|
)
|
|
$
|
|
|
|
$
|
|
|
Net derivative gains (losses)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Other revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Policyholder benefits and claims
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Other expenses
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
85
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs
(Level 3)
|
|
|
|
Equity Securities:
|
|
|
Trading and Other Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FVO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
FVO
|
|
|
Contractholder-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
redeemable
|
|
|
Actively
|
|
|
General
|
|
|
directed
|
|
|
|
|
|
Mortgage
|
|
|
|
|
|
|
Common
|
|
|
Preferred
|
|
|
Traded
|
|
|
Account
|
|
|
Unit-linked
|
|
|
Short-term
|
|
|
Loans Held-
|
|
|
MSRs
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Securities
|
|
|
Securities
|
|
|
Investments
|
|
|
Investments
|
|
|
for-sale
|
|
|
(5),(6)
|
|
|
|
(In millions)
|
|
|
Three Months Ended June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
159
|
|
|
$
|
1,005
|
|
|
$
|
8
|
|
|
$
|
32
|
|
|
$
|
|
|
|
$
|
92
|
|
|
$
|
28
|
|
|
$
|
859
|
|
Total realized/unrealized gains (losses) included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings: (1),(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment gains (losses)
|
|
|
3
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net derivative gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(183
|
)
|
Policyholder benefits and claims
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
(15
|
)
|
|
|
(51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases, sales, issuances and settlements (3)
|
|
|
22
|
|
|
|
(153
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
46
|
|
|
|
1
|
|
|
|
(16
|
)
|
Transfers into Level 3 (4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
Transfers out of Level 3 (4)
|
|
|
(8
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(86
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
161
|
|
|
$
|
845
|
|
|
$
|
7
|
|
|
$
|
29
|
|
|
$
|
|
|
|
$
|
52
|
|
|
$
|
26
|
|
|
$
|
660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in unrealized gains (losses) relating to assets and
liabilities still held at June 30, 2010 included in
earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(3
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Net investment gains (losses)
|
|
$
|
(1
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Net derivative gains (losses)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Other revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(1
|
)
|
|
$
|
(155
|
)
|
Policyholder benefits and claims
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Other expenses
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
86
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs
(Level 3)
|
|
|
|
Net Derivatives: (7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term Debt
|
|
|
|
Interest
|
|
|
Foreign
|
|
|
|
|
|
Equity
|
|
|
Net
|
|
|
Separate
|
|
|
of Consolidated
|
|
|
|
Rate
|
|
|
Currency
|
|
|
Credit
|
|
|
Market
|
|
|
Embedded
|
|
|
Account
|
|
|
Securitization
|
|
|
|
Contracts
|
|
|
Contracts
|
|
|
Contracts
|
|
|
Contracts
|
|
|
Derivatives (8)
|
|
|
Assets (9)
|
|
|
Entities (10)
|
|
|
|
(In millions)
|
|
|
Three Months Ended June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
34
|
|
|
$
|
74
|
|
|
$
|
47
|
|
|
$
|
80
|
|
|
$
|
(994
|
)
|
|
$
|
1,702
|
|
|
$
|
(220
|
)
|
Total realized/unrealized gains (losses) included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings: (1),(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
(1
|
)
|
Net derivative gains (losses)
|
|
|
21
|
|
|
|
(10
|
)
|
|
|
(22
|
)
|
|
|
535
|
|
|
|
(2,216
|
)
|
|
|
|
|
|
|
|
|
Other revenues
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67
|
|
|
|
|
|
|
|
|
|
Other expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
(15
|
)
|
|
|
|
|
|
|
15
|
|
|
|
4
|
|
|
|
(75
|
)
|
|
|
1
|
|
|
|
|
|
Purchases, sales, issuances and settlements (3)
|
|
|
(12
|
)
|
|
|
(36
|
)
|
|
|
(9
|
)
|
|
|
2
|
|
|
|
(78
|
)
|
|
|
70
|
|
|
|
|
|
Transfers into Level 3 (4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
Transfers out of Level 3 (4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(182
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
61
|
|
|
$
|
28
|
|
|
$
|
31
|
|
|
$
|
633
|
|
|
$
|
(3,296
|
)
|
|
$
|
1,604
|
|
|
$
|
(221
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in unrealized gains (losses) relating to assets and
liabilities still held at June 30, 2010 included in
earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
11
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Net investment gains (losses)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(1
|
)
|
Net derivative gains (losses)
|
|
$
|
22
|
|
|
$
|
(18
|
)
|
|
$
|
(23
|
)
|
|
$
|
534
|
|
|
$
|
(2,218
|
)
|
|
$
|
|
|
|
$
|
|
|
Other revenues
|
|
$
|
51
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Policyholder benefits and claims
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
67
|
|
|
$
|
|
|
|
$
|
|
|
Other expenses
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
87
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs
(Level 3)
|
|
|
|
Fixed Maturity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
|
|
|
|
|
|
State and
|
|
|
Other
|
|
|
|
U.S.
|
|
|
Foreign
|
|
|
Foreign
|
|
|
|
|
|
Treasury
|
|
|
|
|
|
|
|
|
Political
|
|
|
Fixed
|
|
|
|
Corporate
|
|
|
Corporate
|
|
|
Government
|
|
|
|
|
|
and Agency
|
|
|
|
|
|
|
|
|
Subdivision
|
|
|
Maturity
|
|
|
|
Securities
|
|
|
Securities
|
|
|
Securities
|
|
|
RMBS
|
|
|
Securities
|
|
|
CMBS
|
|
|
ABS
|
|
|
Securities
|
|
|
Securities
|
|
|
|
(In millions)
|
|
|
Six Months Ended June 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
7,149
|
|
|
$
|
5,726
|
|
|
$
|
3,134
|
|
|
$
|
1,422
|
|
|
$
|
79
|
|
|
$
|
1,011
|
|
|
$
|
4,145
|
|
|
$
|
46
|
|
|
$
|
4
|
|
Total realized/unrealized gains (losses) included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings: (1),(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
5
|
|
|
|
3
|
|
|
|
8
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
11
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
Net investment gains (losses)
|
|
|
(12
|
)
|
|
|
(18
|
)
|
|
|
(23
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
68
|
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
Net derivative gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
138
|
|
|
|
186
|
|
|
|
24
|
|
|
|
16
|
|
|
|
|
|
|
|
87
|
|
|
|
103
|
|
|
|
(7
|
)
|
|
|
|
|
Purchases (3)
|
|
|
778
|
|
|
|
1,817
|
|
|
|
385
|
|
|
|
37
|
|
|
|
1
|
|
|
|
171
|
|
|
|
283
|
|
|
|
45
|
|
|
|
|
|
Sales (3)
|
|
|
(534
|
)
|
|
|
(1,463
|
)
|
|
|
(228
|
)
|
|
|
(57
|
)
|
|
|
(1
|
)
|
|
|
(508
|
)
|
|
|
(419
|
)
|
|
|
(3
|
)
|
|
|
(2
|
)
|
Issuances (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlements (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers into Level 3 (4)
|
|
|
54
|
|
|
|
39
|
|
|
|
133
|
|
|
|
263
|
|
|
|
|
|
|
|
45
|
|
|
|
109
|
|
|
|
10
|
|
|
|
|
|
Transfers out of Level 3 (4)
|
|
|
(707
|
)
|
|
|
(446
|
)
|
|
|
(272
|
)
|
|
|
(1,245
|
)
|
|
|
(53
|
)
|
|
|
(104
|
)
|
|
|
(1,765
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
6,871
|
|
|
$
|
5,844
|
|
|
$
|
3,161
|
|
|
$
|
434
|
|
|
$
|
26
|
|
|
$
|
781
|
|
|
$
|
2,451
|
|
|
$
|
89
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in unrealized gains (losses) relating to assets and
liabilities still held at June 30, 2011 included in
earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
5
|
|
|
$
|
13
|
|
|
$
|
16
|
|
|
$
|
(1
|
)
|
|
$
|
|
|
|
$
|
11
|
|
|
$
|
19
|
|
|
$
|
|
|
|
$
|
|
|
Net investment gains (losses)
|
|
$
|
(27
|
)
|
|
$
|
(19
|
)
|
|
$
|
(10
|
)
|
|
$
|
(1
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(15
|
)
|
|
$
|
|
|
|
$
|
|
|
Net derivative gains (losses)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Other revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Policyholder benefits and claims
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Other expenses
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
88
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs
(Level 3)
|
|
|
|
Equity Securities:
|
|
|
Trading and Other Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FVO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
FVO
|
|
|
Contractholder-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
redeemable
|
|
|
Actively
|
|
|
General
|
|
|
directed
|
|
|
|
|
|
Mortgage
|
|
|
|
|
|
|
Common
|
|
|
Preferred
|
|
|
Traded
|
|
|
Account
|
|
|
Unit-linked
|
|
|
Short-term
|
|
|
Loans Held-
|
|
|
MSRs
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Securities
|
|
|
Securities
|
|
|
Investments
|
|
|
Investments
|
|
|
for-sale
|
|
|
(5),(6)
|
|
|
|
(In millions)
|
|
|
Six Months Ended June 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
268
|
|
|
$
|
905
|
|
|
$
|
10
|
|
|
$
|
77
|
|
|
$
|
735
|
|
|
$
|
858
|
|
|
$
|
24
|
|
|
$
|
950
|
|
Total realized/unrealized gains (losses) included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings: (1),(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
54
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
Net investment gains (losses)
|
|
|
5
|
|
|
|
(70
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
Net derivative gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
(18
|
)
|
Policyholder benefits and claims
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
(13
|
)
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
Purchases (3)
|
|
|
67
|
|
|
|
3
|
|
|
|
|
|
|
|
1
|
|
|
|
325
|
|
|
|
618
|
|
|
|
1
|
|
|
|
|
|
Sales (3)
|
|
|
(18
|
)
|
|
|
(296
|
)
|
|
|
(8
|
)
|
|
|
(32
|
)
|
|
|
(450
|
)
|
|
|
(754
|
)
|
|
|
|
|
|
|
|
|
Issuances (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
92
|
|
Settlements (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(60
|
)
|
Transfers into Level 3 (4)
|
|
|
1
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
124
|
|
|
|
3
|
|
|
|
13
|
|
|
|
|
|
Transfers out of Level 3 (4)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(165
|
)
|
|
|
(6
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
305
|
|
|
$
|
654
|
|
|
$
|
2
|
|
|
$
|
54
|
|
|
$
|
623
|
|
|
$
|
732
|
|
|
$
|
32
|
|
|
$
|
964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in unrealized gains (losses) relating to assets and
liabilities still held at June 30, 2011 included in
earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5
|
|
|
$
|
47
|
|
|
$
|
3
|
|
|
$
|
|
|
|
$
|
|
|
Net investment gains (losses)
|
|
$
|
(4
|
)
|
|
$
|
(32
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Net derivative gains (losses)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Other revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(3
|
)
|
|
$
|
(18
|
)
|
Policyholder benefits and claims
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Other expenses
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
89
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs
(Level 3)
|
|
|
|
Net Derivatives: (7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term Debt
|
|
|
|
Interest
|
|
|
Foreign
|
|
|
|
|
|
Equity
|
|
|
Net
|
|
|
Separate
|
|
|
of Consolidated
|
|
|
|
Rate
|
|
|
Currency
|
|
|
Credit
|
|
|
Market
|
|
|
Embedded
|
|
|
Account
|
|
|
Securitization
|
|
|
|
Contracts
|
|
|
Contracts
|
|
|
Contracts
|
|
|
Contracts
|
|
|
Derivatives (8)
|
|
|
Assets (9)
|
|
|
Entities
|
|
|
|
(In millions)
|
|
|
Six Months Ended June 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
(86
|
)
|
|
$
|
73
|
|
|
$
|
44
|
|
|
$
|
142
|
|
|
$
|
(2,438
|
)
|
|
$
|
1,983
|
|
|
$
|
(184
|
)
|
Total realized/unrealized gains (losses) included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings: (1),(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
|
|
|
|
(7
|
)
|
Net derivative gains (losses)
|
|
|
12
|
|
|
|
(4
|
)
|
|
|
4
|
|
|
|
(110
|
)
|
|
|
592
|
|
|
|
|
|
|
|
|
|
Other revenues
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
Other expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
7
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
Purchases (3)
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
106
|
|
|
|
|
|
|
|
358
|
|
|
|
|
|
Sales (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(364
|
)
|
|
|
|
|
Issuances (3)
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlements (3)
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
|
(218
|
)
|
|
|
|
|
|
|
57
|
|
Transfers into Level 3 (4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
Transfers out of Level 3 (4)
|
|
|
(7
|
)
|
|
|
(26
|
)
|
|
|
|
|
|
|
(75
|
)
|
|
|
|
|
|
|
(196
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
(67
|
)
|
|
$
|
49
|
|
|
$
|
42
|
|
|
$
|
55
|
|
|
$
|
(2,074
|
)
|
|
$
|
1,836
|
|
|
$
|
(134
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in unrealized gains (losses) relating to assets and
liabilities still held at June 30, 2011 included in
earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Net investment gains (losses)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(7
|
)
|
Net derivative gains (losses)
|
|
$
|
11
|
|
|
$
|
(4
|
)
|
|
$
|
4
|
|
|
$
|
(110
|
)
|
|
$
|
581
|
|
|
$
|
|
|
|
$
|
|
|
Other revenues
|
|
$
|
12
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Policyholder benefits and claims
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(8
|
)
|
|
$
|
|
|
|
$
|
|
|
Other expenses
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
90
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs
(Level 3)
|
|
|
|
Fixed Maturity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
|
|
|
|
|
|
State and
|
|
|
Other
|
|
|
|
U.S.
|
|
|
Foreign
|
|
|
Foreign
|
|
|
|
|
|
Treasury
|
|
|
|
|
|
|
|
|
Political
|
|
|
Fixed
|
|
|
|
Corporate
|
|
|
Corporate
|
|
|
Government
|
|
|
|
|
|
and Agency
|
|
|
|
|
|
|
|
|
Subdivision
|
|
|
Maturity
|
|
|
|
Securities
|
|
|
Securities
|
|
|
Securities
|
|
|
RMBS
|
|
|
Securities
|
|
|
CMBS
|
|
|
ABS
|
|
|
Securities
|
|
|
Securities
|
|
|
|
(In millions)
|
|
|
Six Months Ended June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
6,694
|
|
|
$
|
5,244
|
|
|
$
|
378
|
|
|
$
|
1,840
|
|
|
$
|
37
|
|
|
$
|
139
|
|
|
$
|
2,703
|
|
|
$
|
69
|
|
|
$
|
6
|
|
Total realized/unrealized gains (losses) included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings: (1),(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
17
|
|
|
|
3
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
Net investment gains (losses)
|
|
|
5
|
|
|
|
(12
|
)
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(47
|
)
|
|
|
|
|
|
|
|
|
Net derivative gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
322
|
|
|
|
76
|
|
|
|
20
|
|
|
|
13
|
|
|
|
2
|
|
|
|
58
|
|
|
|
197
|
|
|
|
9
|
|
|
|
1
|
|
Purchases, sales, issuances and settlements (3)
|
|
|
(270
|
)
|
|
|
(502
|
)
|
|
|
24
|
|
|
|
51
|
|
|
|
(2
|
)
|
|
|
(15
|
)
|
|
|
739
|
|
|
|
23
|
|
|
|
(2
|
)
|
Transfers into Level 3 (4)
|
|
|
602
|
|
|
|
345
|
|
|
|
|
|
|
|
54
|
|
|
|
|
|
|
|
122
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
Transfers out of Level 3 (4)
|
|
|
(197
|
)
|
|
|
(602
|
)
|
|
|
(159
|
)
|
|
|
(132
|
)
|
|
|
|
|
|
|
(33
|
)
|
|
|
(213
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
7,173
|
|
|
$
|
4,552
|
|
|
$
|
257
|
|
|
$
|
1,852
|
|
|
$
|
37
|
|
|
$
|
270
|
|
|
$
|
3,489
|
|
|
$
|
101
|
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in unrealized gains (losses) relating to assets and
liabilities still held at June 30, 2010 included in
earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
10
|
|
|
$
|
4
|
|
|
$
|
4
|
|
|
$
|
26
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
19
|
|
|
$
|
|
|
|
$
|
|
|
Net investment gains (losses)
|
|
$
|
(17
|
)
|
|
$
|
(16
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(47
|
)
|
|
$
|
|
|
|
$
|
|
|
Net derivative gains (losses)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Other revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Policyholder benefits and claims
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Other expenses
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
91
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs
(Level 3)
|
|
|
|
Equity Securities:
|
|
|
Trading and Other Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FVO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
FVO
|
|
|
Contractholder-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
redeemable
|
|
|
Actively
|
|
|
General
|
|
|
directed
|
|
|
|
|
|
Mortgage
|
|
|
|
|
|
|
Common
|
|
|
Preferred
|
|
|
Traded
|
|
|
Account
|
|
|
Unit-linked
|
|
|
Short-term
|
|
|
Loans Held-
|
|
|
MSRs
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Securities
|
|
|
Securities
|
|
|
Investments
|
|
|
Investments
|
|
|
for-sale
|
|
|
(5),(6)
|
|
|
|
(In millions)
|
|
|
Six Months Ended June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
136
|
|
|
$
|
1,102
|
|
|
$
|
32
|
|
|
$
|
51
|
|
|
$
|
|
|
|
$
|
18
|
|
|
$
|
25
|
|
|
$
|
878
|
|
Total realized/unrealized gains (losses) included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings: (1),(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment gains (losses)
|
|
|
3
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net derivative gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(238
|
)
|
Policyholder benefits and claims
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
(10
|
)
|
|
|
(33
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases, sales, issuances and settlements (3)
|
|
|
42
|
|
|
|
(265
|
)
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
34
|
|
|
|
1
|
|
|
|
20
|
|
Transfers into Level 3 (4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
Transfers out of Level 3 (4)
|
|
|
(10
|
)
|
|
|
(6
|
)
|
|
|
|
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
161
|
|
|
$
|
845
|
|
|
$
|
7
|
|
|
$
|
29
|
|
|
$
|
|
|
|
$
|
52
|
|
|
$
|
26
|
|
|
$
|
660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in unrealized gains (losses) relating to assets and
liabilities still held at June 30, 2010 included in
earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(4
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Net investment gains (losses)
|
|
$
|
(1
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Net derivative gains (losses)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Other revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(1
|
)
|
|
$
|
(224
|
)
|
Policyholder benefits and claims
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Other expenses
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
92
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs
(Level 3)
|
|
|
|
Net Derivatives: (7)
|
|
|
|
|
|
|
|
|
Long-term Debt
|
|
|
|
Interest
|
|
|
Foreign
|
|
|
|
|
|
Equity
|
|
|
Net
|
|
|
Separate
|
|
|
of Consolidated
|
|
|
|
Rate
|
|
|
Currency
|
|
|
Credit
|
|
|
Market
|
|
|
Embedded
|
|
|
Account
|
|
|
Securitization
|
|
|
|
Contracts
|
|
|
Contracts
|
|
|
Contracts
|
|
|
Contracts
|
|
|
Derivatives (8)
|
|
|
Assets (9)
|
|
|
Entities (10)
|
|
|
|
(In millions)
|
|
|
Six Months Ended June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
7
|
|
|
$
|
108
|
|
|
$
|
42
|
|
|
$
|
199
|
|
|
$
|
(1,455
|
)
|
|
$
|
1,797
|
|
|
$
|
|
|
Total realized/unrealized gains (losses) included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings: (1),(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
|
|
|
|
11
|
|
Net derivative gains (losses)
|
|
|
34
|
|
|
|
(27
|
)
|
|
|
(22
|
)
|
|
|
412
|
|
|
|
(1,676
|
)
|
|
|
|
|
|
|
|
|
Other revenues
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
Other expenses
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
(15
|
)
|
|
|
(1
|
)
|
|
|
17
|
|
|
|
5
|
|
|
|
(65
|
)
|
|
|
|
|
|
|
|
|
Purchases, sales, issuances and settlements (3)
|
|
|
(12
|
)
|
|
|
(49
|
)
|
|
|
(6
|
)
|
|
|
9
|
|
|
|
(146
|
)
|
|
|
(68
|
)
|
|
|
(232
|
)
|
Transfers into Level 3 (4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49
|
|
|
|
|
|
Transfers out of Level 3 (4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(222
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
61
|
|
|
$
|
28
|
|
|
$
|
31
|
|
|
$
|
633
|
|
|
$
|
(3,296
|
)
|
|
$
|
1,604
|
|
|
$
|
(221
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in unrealized gains (losses) relating to assets and
liabilities still held at June 30, 2010 included in
earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
8
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Net investment gains (losses)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
11
|
|
Net derivative gains (losses)
|
|
$
|
35
|
|
|
$
|
(29
|
)
|
|
$
|
(21
|
)
|
|
$
|
418
|
|
|
$
|
(1,682
|
)
|
|
$
|
|
|
|
$
|
|
|
Other revenues
|
|
$
|
51
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Policyholder benefits and claims
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
46
|
|
|
$
|
|
|
|
$
|
|
|
Other expenses
|
|
$
|
|
|
|
$
|
(1
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
(1) |
|
Amortization of premium/discount is included within net
investment income. Impairments charged to earnings on securities
and certain mortgage loans are included within net investment
gains (losses) while changes in estimated fair value of certain
mortgage loans and MSRs are recorded in other revenues. Lapses
associated with embedded derivatives are included within net
derivative 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 or issuance price and the sales or
settlement proceeds based upon the actual date purchased or
issued and sold or settled, respectively. Items purchased/issued
and sold/settled in the same period are excluded from the
rollforward. For the three months and six months ended
June 30, 2011, fees attributed to net embedded derivatives
are included within settlements. For the three months and six
months ended June 30, 2010, fees attributed to net embedded
derivatives are included within purchases, sales, issuances and
settlements. |
|
(4) |
|
Total gains and losses (in earnings and other comprehensive
income (loss)) are calculated assuming transfers into and/or out
of Level 3 occurred at the beginning of the period. Items
transferred into and out of Level 3 in the same period are
excluded from the rollforward. |
|
(5) |
|
The additions for purchases, originations and issuances and the
reductions for loan payments, sales and settlements, affecting
MSRs were $37 million and ($27) million, respectively,
for the three months ended |
93
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
June 30, 2011 and $92 million and ($60) million,
respectively, for the six months ended June 30, 2011. The
additions for purchases, originations and issuances and the
reductions for loan payments, sales and settlements, 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. |
|
(6) |
|
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 ($75) million and
($18) million for the three months and six months ended
June 30, 2011, respectively. 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 ($238) million for the three months
and six months ended June 30, 2010, respectively. |
|
(7) |
|
Freestanding derivative assets and liabilities are presented net
for purposes of the rollforward. |
|
(8) |
|
Embedded derivative assets and liabilities are presented net for
purposes of the rollforward. |
|
(9) |
|
Investment performance related to separate account assets is
fully offset by corresponding amounts credited to
contractholders within separate account liabilities. Therefore,
such changes in estimated fair value are not recorded in net
income. For the purpose of this disclosure, these changes are
presented within net investment gains (losses). |
|
(10) |
|
The long-term debt of the CSEs at January 1, 2010 is
reported within the purchases, sales, issuances and settlements
caption of the rollforward. |
FVO
Mortgage Loans
Held-For-Sale
The following table presents residential mortgage loans
held-for-sale
carried under the FVO at:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
(In millions)
|
|
|
Unpaid principal balance
|
|
$
|
1,799
|
|
|
$
|
2,473
|
|
Excess of estimated fair value over unpaid principal balance
|
|
|
64
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
Carrying value at estimated fair value
|
|
$
|
1,863
|
|
|
$
|
2,510
|
|
|
|
|
|
|
|
|
|
|
Loans in non-accrual status
|
|
$
|
3
|
|
|
$
|
2
|
|
Loans more than 90 days past due
|
|
$
|
2
|
|
|
$
|
3
|
|
Loans in non-accrual status or more than 90 days past due,
or both difference between aggregate estimated fair
value and unpaid principal balance
|
|
$
|
(2
|
)
|
|
$
|
(1
|
)
|
Residential mortgage loans
held-for-sale
accounted for under the FVO 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. Such
changes in estimated fair value for these loans were due to the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
(In millions)
|
|
|
Instrument-specific credit risk based on changes in credit
spreads for non-agency loans and adjustments in individual loan
quality
|
|
$
|
(2
|
)
|
|
$
|
(1
|
)
|
|
$
|
(3
|
)
|
|
$
|
|
|
Other changes in estimated fair value
|
|
|
115
|
|
|
|
134
|
|
|
|
179
|
|
|
|
261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gains (losses) recognized in other revenues
|
|
$
|
113
|
|
|
$
|
133
|
|
|
$
|
176
|
|
|
$
|
261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
FVO
Consolidated Securitization Entities
The Company has elected the FVO for the following assets and
liabilities held by CSEs: commercial mortgage loans, securities
and long-term debt. Information on the estimated fair value of
the securities classified as trading and other securities is
presented in Note 3. The following table presents these
commercial mortgage loans carried under the FVO at:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
(In millions)
|
|
|
Unpaid principal balance
|
|
$
|
6,468
|
|
|
$
|
6,636
|
|
Excess of estimated fair value over unpaid principal balance
|
|
|
229
|
|
|
|
204
|
|
|
|
|
|
|
|
|
|
|
Carrying value at estimated fair value
|
|
$
|
6,697
|
|
|
$
|
6,840
|
|
|
|
|
|
|
|
|
|
|
The following table presents the long-term debt carried under
the FVO related to both the commercial mortgage loans and
securities classified as trading and other securities at:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
(In millions)
|
|
|
Contractual principal balance
|
|
$
|
6,329
|
|
|
$
|
6,619
|
|
Excess of estimated fair value over contractual principal balance
|
|
|
218
|
|
|
|
201
|
|
|
|
|
|
|
|
|
|
|
Carrying value at estimated fair value
|
|
$
|
6,547
|
|
|
$
|
6,820
|
|
|
|
|
|
|
|
|
|
|
Interest income on both commercial mortgage loans and securities
classified as trading and other securities held by CSEs is
recorded in net investment income. Interest expense on long-term
debt of CSEs 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 investments are measured at estimated fair value on a
non-recurring basis and are not included in the tables presented
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,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
Estimated
|
|
|
Net
|
|
|
|
|
|
Estimated
|
|
|
Net
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Investment
|
|
|
Carrying
|
|
|
Fair
|
|
|
Investment
|
|
|
|
Value Prior to
|
|
|
Value After
|
|
|
Gains
|
|
|
Value Prior to
|
|
|
Value After
|
|
|
Gains
|
|
|
|
Measurement
|
|
|
Measurement
|
|
|
(Losses)
|
|
|
Measurement
|
|
|
Measurement
|
|
|
(Losses)
|
|
|
|
(In millions)
|
|
|
Mortgage loans: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-for-investment
|
|
$
|
174
|
|
|
$
|
182
|
|
|
$
|
8
|
|
|
$
|
69
|
|
|
$
|
83
|
|
|
$
|
14
|
|
Held-for-sale
|
|
|
47
|
|
|
|
47
|
|
|
|
|
|
|
|
90
|
|
|
|
84
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans, net
|
|
$
|
221
|
|
|
$
|
229
|
|
|
$
|
8
|
|
|
$
|
159
|
|
|
$
|
167
|
|
|
$
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other limited partnership interests (2)
|
|
$
|
13
|
|
|
$
|
10
|
|
|
$
|
(3
|
)
|
|
$
|
25
|
|
|
$
|
17
|
|
|
$
|
(8
|
)
|
Real estate joint ventures (3)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
7
|
|
|
$
|
3
|
|
|
$
|
(4
|
)
|
95
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
Estimated
|
|
|
Net
|
|
|
|
|
|
Estimated
|
|
|
Net
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Investment
|
|
|
Carrying
|
|
|
Fair
|
|
|
Investment
|
|
|
|
Value Prior to
|
|
|
Value After
|
|
|
Gains
|
|
|
Value Prior to
|
|
|
Value After
|
|
|
Gains
|
|
|
|
Measurement
|
|
|
Measurement
|
|
|
(Losses)
|
|
|
Measurement
|
|
|
Measurement
|
|
|
(Losses)
|
|
|
|
(In millions)
|
|
|
Mortgage loans: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-for-investment
|
|
$
|
165
|
|
|
$
|
182
|
|
|
$
|
17
|
|
|
$
|
148
|
|
|
$
|
138
|
|
|
$
|
(10
|
)
|
Held-for-sale
|
|
|
48
|
|
|
|
47
|
|
|
|
(1
|
)
|
|
|
89
|
|
|
|
83
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans, net
|
|
$
|
213
|
|
|
$
|
229
|
|
|
$
|
16
|
|
|
$
|
237
|
|
|
$
|
221
|
|
|
$
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other limited partnership interests (2)
|
|
$
|
13
|
|
|
$
|
10
|
|
|
$
|
(3
|
)
|
|
$
|
25
|
|
|
$
|
17
|
|
|
$
|
(8
|
)
|
Real estate joint ventures (3)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
33
|
|
|
$
|
8
|
|
|
$
|
(25
|
)
|
|
|
|
(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 method. Impairments on these cost method 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
using certain investment strategies including domestic and
international leveraged buyout funds; power, energy, timber and
infrastructure development funds; venture capital funds; and
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 less than $1 million
and $23 million at June 30, 2011 and 2010,
respectively. |
|
(3) |
|
Real estate joint ventures The impaired
investments presented above were accounted for using the cost
method. Impairments on these cost method 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 |
96
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
underlying assets of the funds will be liquidated over the next
2 to 10 years. There were no unfunded commitments for these
investments at June 30, 2011. Unfunded commitments for
these investments were $11 million at June 30, 2010. |
Fair
Value of Financial Instruments
Amounts related to the Companys financial instruments that
were not measured at fair value on a recurring basis were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
December 31, 2010
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
Notional
|
|
Carrying
|
|
Fair
|
|
Notional
|
|
Carrying
|
|
Fair
|
|
|
Amount
|
|
Value
|
|
Value
|
|
Amount
|
|
Value
|
|
Value
|
|
|
(In millions)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-for-investment
|
|
|
|
|
|
$
|
54,122
|
|
|
$
|
56,641
|
|
|
|
|
|
|
$
|
52,136
|
|
|
$
|
53,927
|
|
Held-for-sale
|
|
|
|
|
|
|
942
|
|
|
|
942
|
|
|
|
|
|
|
|
811
|
|
|
|
811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans, net
|
|
|
|
|
|
$
|
55,064
|
|
|
$
|
57,583
|
|
|
|
|
|
|
$
|
52,947
|
|
|
$
|
54,738
|
|
Policy loans
|
|
|
|
|
|
$
|
11,858
|
|
|
$
|
13,381
|
|
|
|
|
|
|
$
|
11,761
|
|
|
$
|
13,253
|
|
Real estate joint ventures (2)
|
|
|
|
|
|
$
|
505
|
|
|
$
|
558
|
|
|
|
|
|
|
$
|
451
|
|
|
$
|
482
|
|
Other limited partnership interests (2)
|
|
|
|
|
|
$
|
1,364
|
|
|
$
|
1,651
|
|
|
|
|
|
|
$
|
1,539
|
|
|
$
|
1,619
|
|
Short-term investments (3)
|
|
|
|
|
|
$
|
658
|
|
|
$
|
658
|
|
|
|
|
|
|
$
|
819
|
|
|
$
|
819
|
|
Other invested assets (2)
|
|
|
|
|
|
$
|
1,480
|
|
|
$
|
1,480
|
|
|
|
|
|
|
$
|
1,490
|
|
|
$
|
1,490
|
|
Cash and cash equivalents
|
|
|
|
|
|
$
|
9,628
|
|
|
$
|
9,628
|
|
|
|
|
|
|
$
|
12,957
|
|
|
$
|
12,957
|
|
Accrued investment income
|
|
|
|
|
|
$
|
4,341
|
|
|
$
|
4,341
|
|
|
|
|
|
|
$
|
4,328
|
|
|
$
|
4,328
|
|
Premiums, reinsurance and other receivables (2)
|
|
|
|
|
|
$
|
3,090
|
|
|
$
|
3,314
|
|
|
|
|
|
|
$
|
3,752
|
|
|
$
|
4,048
|
|
Other assets (2)
|
|
|
|
|
|
$
|
527
|
|
|
$
|
501
|
|
|
|
|
|
|
$
|
466
|
|
|
$
|
453
|
|
Assets of subsidiaries
held-for-sale
(2)
|
|
|
|
|
|
$
|
3,204
|
|
|
$
|
3,204
|
|
|
|
|
|
|
$
|
3,068
|
|
|
$
|
3,068
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder account balances (2)
|
|
|
|
|
|
$
|
151,345
|
|
|
$
|
158,635
|
|
|
|
|
|
|
$
|
146,822
|
|
|
$
|
152,745
|
|
Payables for collateral under securities loaned and other
transactions
|
|
|
|
|
|
$
|
30,079
|
|
|
$
|
30,079
|
|
|
|
|
|
|
$
|
27,272
|
|
|
$
|
27,272
|
|
Bank deposits
|
|
|
|
|
|
$
|
10,022
|
|
|
$
|
10,078
|
|
|
|
|
|
|
$
|
10,316
|
|
|
$
|
10,371
|
|
Short-term debt
|
|
|
|
|
|
$
|
102
|
|
|
$
|
102
|
|
|
|
|
|
|
$
|
306
|
|
|
$
|
306
|
|
Long-term debt (2),(4)
|
|
|
|
|
|
$
|
21,683
|
|
|
$
|
22,962
|
|
|
|
|
|
|
$
|
20,734
|
|
|
$
|
21,892
|
|
Collateral financing arrangements
|
|
|
|
|
|
$
|
5,297
|
|
|
$
|
4,867
|
|
|
|
|
|
|
$
|
5,297
|
|
|
$
|
4,757
|
|
Junior subordinated debt securities
|
|
|
|
|
|
$
|
3,192
|
|
|
$
|
3,588
|
|
|
|
|
|
|
$
|
3,191
|
|
|
$
|
3,461
|
|
Other liabilities (2)
|
|
|
|
|
|
$
|
2,959
|
|
|
$
|
2,962
|
|
|
|
|
|
|
$
|
2,777
|
|
|
$
|
2,777
|
|
Separate account liabilities (2)
|
|
|
|
|
|
$
|
48,925
|
|
|
$
|
48,925
|
|
|
|
|
|
|
$
|
42,160
|
|
|
$
|
42,160
|
|
Liabilities of subsidiaries
held-for-sale
(2)
|
|
|
|
|
|
$
|
127
|
|
|
$
|
127
|
|
|
|
|
|
|
$
|
105
|
|
|
$
|
105
|
|
Commitments: (5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loan commitments
|
|
$
|
4,362
|
|
|
$
|
|
|
|
$
|
(20
|
)
|
|
$
|
3,754
|
|
|
$
|
|
|
|
$
|
(17
|
)
|
Commitments to fund bank credit facilities, bridge loans and
private corporate bond investments
|
|
$
|
2,342
|
|
|
$
|
|
|
|
$
|
(22
|
)
|
|
$
|
2,437
|
|
|
$
|
|
|
|
$
|
|
|
97
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
(1) |
|
Mortgage loans
held-for-investment
as presented in the table above differs from the amounts
presented in the consolidated balance sheets because this table
does not include commercial mortgage loans held by CSEs, which
are accounted for under the FVO. Mortgage loans
held-for-sale
as presented in the table above differs from the amounts
presented in the consolidated balance sheets because this table
does not include residential mortgage loans
held-for-sale
that are accounted for under the FVO. |
|
(2) |
|
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. |
|
(3) |
|
Short-term investments as presented in the table above differ
from the amounts presented in the consolidated balance sheets
because this table does not include short-term investments that
meet the definition of a security, which are measured at
estimated fair value on a recurring basis. |
|
(4) |
|
Long-term debt as presented in the table above does not include
long-term debt of CSEs, which are accounted for under the FVO. |
|
(5) |
|
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:
The assets and liabilities measured at estimated fair value on a
recurring basis include: fixed maturity securities, equity
securities, trading and other securities, certain short-term
investments, mortgage loans held by CSEs, mortgage loans
held-for-sale
accounted for under the FVO, MSRs, derivative assets and
liabilities, net embedded derivatives within asset and liability
host contracts, separate account assets, long-term debt of CSEs
and trading liabilities. These assets and liabilities are
described in the section Recurring Fair Value
Measurements and, therefore, are excluded from the table
above. The estimated fair value for these financial instruments
approximates carrying value.
Mortgage
Loans
These mortgage loans are principally comprised of commercial and
agricultural mortgage loans, which are originated for investment
purposes and are primarily carried at amortized cost.
Residential mortgage and consumer loans are generally purchased
from third parties for investment purposes and are principally
carried at amortized cost, while those originated for sale and
not carried under the FVO are carried at the lower of cost or
estimated fair value. The estimated fair values of these
mortgage loans are determined as follows:
Mortgage loans
held-for-investment.
For commercial and agricultural 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. For residential
mortgage loans
held-for-investment
and carried at amortized cost, estimated fair value is primarily
determined from observable pricing for similar loans.
Mortgage loans
held-for-sale.
Certain mortgage loans previously classified as
held-for-investment
have 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. For residential mortgage loans
originated for sale, the estimated fair value is determined
principally from observable market pricing or from internal
models.
98
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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 table 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 carried at cost less
accumulated depreciation, or real estate joint ventures and
other limited partnership interests accounted for using the
equity method, which do not meet the definition of financial
instruments for which fair value is required to be disclosed.
The estimated fair values for real estate joint ventures and
other limited partnership interests accounted for under the cost
method are generally based on the Companys share of the
NAV as provided in the financial statements of the investees. In
certain circumstances, management may adjust the NAV by a
premium or discount when it has sufficient evidence to support
applying such adjustments.
Short-term
Investments
Certain short-term investments do not qualify as securities and
are recognized at amortized cost in the consolidated balance
sheets. For these instruments, the Company believes that there
is minimal risk of material changes in interest rates or credit
of the issuer such that estimated fair value approximates
carrying value. In light of recent market conditions, short-term
investments have been monitored to ensure there is sufficient
demand and maintenance of issuer credit quality and the Company
has determined additional adjustment is not required.
Other
Invested Assets
Other invested assets within the preceding table are principally
comprised of funds withheld, various interest-bearing assets
held in foreign subsidiaries and certain amounts due under
contractual indemnifications.
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.
99
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Accrued
Investment Income
Due to the short term until settlement of accrued investment
income, the Company believes there is minimal risk of material
changes in interest rates or credit of the issuer such that
estimated fair value approximates carrying value. In light of
recent market conditions, the Company has monitored the credit
quality of the issuers and has determined additional adjustment
is not required.
Premiums,
Reinsurance and Other Receivables
Premiums, reinsurance and other receivables in the preceding
table are principally comprised of certain amounts recoverable
under reinsurance contracts, amounts on deposit with financial
institutions to facilitate daily settlements related to certain
derivative positions and amounts receivable for securities sold
but not yet settled.
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. The estimated fair
value is determined as the present value of expected future cash
flows under the related contracts, which were 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.
Other
Assets
Other assets in the preceding table are composed of 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 2010 Annual Report. The estimated fair value of the
receivable for the cash paid to the unaffiliated financial
institution under the MRC collateral financing arrangement is
determined by discounting the expected future cash flows using a
discount rate that reflects the credit rating of the
unaffiliated financial institution. The amounts excluded from
the preceding table are not considered financial instruments
subject to disclosure.
Policyholder
Account Balances
Policyholder account balances in the table above include
investment contracts. Embedded derivatives on investment
contracts and certain variable annuity guarantees accounted for
as embedded derivatives are included in this caption in the
consolidated financial statements but excluded from this caption
in the table above as they are separately presented in
Recurring Fair Value Measurements. 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.
100
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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 the 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.
Other
Liabilities
Other liabilities included in the table above reflect those
other liabilities that satisfy the definition of financial
instruments subject to disclosure. These items consist primarily
of interest and dividends payable; amounts due for securities
purchased but not yet settled; funds withheld amounts payable
which were contractually withheld by the Company in accordance
with the terms of the reinsurance agreements and amounts payable
under certain assumed reinsurance treaties accounted for as
deposit type treaties. 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 carrying values, with the exception of
certain deposit type reinsurance payables. For these reinsurance
payables, the estimated fair value is determined as the present
value of expected future cash flows under the related contracts,
which are discounted using an interest rate determined to
reflect the appropriate credit standing of the assuming
counterparty.
Separate
Account Liabilities
Separate account liabilities included in the preceding table
represents those balances due to policyholders under contracts
that are classified as investment contracts. The remaining
amounts presented in the consolidated balance sheets represent
those contracts classified as insurance contracts, which do not
satisfy the definition of financial instruments.
101
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Separate account liabilities classified as investment contracts
primarily represent variable annuities with no significant
mortality risk to the Company such that the death benefit is
equal to the account balance; funding agreements related to
group life contracts; and certain contracts that provide for
benefit funding.
Separate account liabilities are recognized in the consolidated
balance sheets at an equivalent value of the related separate
account assets. Separate account assets, which equal net
deposits, net investment income and realized and unrealized
investment 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 in the section Recurring
Fair Value Measurements, the Company believes the value of
those assets approximates the estimated fair value of the
related separate account liabilities.
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 that
will be held for investment and commitments to fund bank credit
facilities, bridge loans and private corporate bonds that will
be held for investment reflected in the above table represents
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 commitments.
Assets
and Liabilities of Subsidiaries
Held-For-Sale
The carrying values of the assets and liabilities of
subsidiaries
held-for-sale
reflect those assets and liabilities which were previously
determined to be financial instruments and which were reflected
in other financial statement captions in the comparable table
above in previous periods but have been reclassified to these
captions to reflect the discontinued nature of the operations.
The estimated fair value of the assets and liabilities of
subsidiaries
held-for-sale
have been determined on a basis consistent with the assets and
liabilities as described herein.
On April 7, 2000 (the Demutualization Date),
Metropolitan Life Insurance Company (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.
Amortization of the closed block DAC, which resides outside of
the closed 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.
102
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Information regarding the closed block liabilities and assets
designated to the closed block was as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
(In millions)
|
|
|
Closed Block Liabilities
|
|
|
|
|
|
|
|
|
Future policy benefits
|
|
$
|
43,265
|
|
|
$
|
43,456
|
|
Other policy-related balances
|
|
|
297
|
|
|
|
316
|
|
Policyholder dividends payable
|
|
|
603
|
|
|
|
579
|
|
Policyholder dividend obligation
|
|
|
1,281
|
|
|
|
876
|
|
Current income tax payable
|
|
|
3
|
|
|
|
178
|
|
Other liabilities
|
|
|
765
|
|
|
|
627
|
|
|
|
|
|
|
|
|
|
|
Total closed block liabilities
|
|
|
46,214
|
|
|
|
46,032
|
|
|
|
|
|
|
|
|
|
|
Assets Designated to the Closed Block
|
|
|
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
|
|
|
Fixed maturity securities
available-for-sale,
at estimated fair value (amortized cost: $27,199 and $27,067,
respectively)
|
|
|
29,294
|
|
|
|
28,768
|
|
Equity securities
available-for-sale,
at estimated fair value (cost: $59 and $110, respectively)
|
|
|
61
|
|
|
|
102
|
|
Mortgage loans
|
|
|
6,021
|
|
|
|
6,253
|
|
Policy loans
|
|
|
4,623
|
|
|
|
4,629
|
|
Real estate and real estate joint ventures
held-for-investment
|
|
|
337
|
|
|
|
328
|
|
Short-term investments
|
|
|
|
|
|
|
1
|
|
Other invested assets
|
|
|
682
|
|
|
|
729
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
|
41,018
|
|
|
|
40,810
|
|
Cash and cash equivalents
|
|
|
310
|
|
|
|
236
|
|
Accrued investment income
|
|
|
520
|
|
|
|
518
|
|
Premiums, reinsurance and other receivables
|
|
|
87
|
|
|
|
95
|
|
Deferred income tax assets
|
|
|
452
|
|
|
|
474
|
|
|
|
|
|
|
|
|
|
|
Total assets designated to the closed block
|
|
|
42,387
|
|
|
|
42,133
|
|
|
|
|
|
|
|
|
|
|
Excess of closed block liabilities over assets designated to the
closed block
|
|
|
3,827
|
|
|
|
3,899
|
|
|
|
|
|
|
|
|
|
|
Amounts included in accumulated other comprehensive income
(loss):
|
|
|
|
|
|
|
|
|
Unrealized investment gains (losses), net of income tax of $736
and $594, respectively
|
|
|
1,366
|
|
|
|
1,101
|
|
Unrealized gains (losses) on derivative instruments, net of
income tax of $0 and $5, respectively
|
|
|
|
|
|
|
10
|
|
Allocated to policyholder dividend obligation, net of income tax
of ($449) and ($307), respectively
|
|
|
(832
|
)
|
|
|
(569
|
)
|
|
|
|
|
|
|
|
|
|
Total amounts included in accumulated other comprehensive income
(loss)
|
|
|
534
|
|
|
|
542
|
|
|
|
|
|
|
|
|
|
|
Maximum future earnings to be recognized from closed block
assets and liabilities
|
|
$
|
4,361
|
|
|
$
|
4,441
|
|
|
|
|
|
|
|
|
|
|
Information regarding the closed block policyholder dividend
obligation was as follows:
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
Year
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
(In millions)
|
|
|
Balance, beginning of period
|
|
$
|
876
|
|
|
$
|
|
|
Change in unrealized investment and derivative gains (losses)
|
|
|
405
|
|
|
|
876
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
1,281
|
|
|
$
|
876
|
|
|
|
|
|
|
|
|
|
|
103
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,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
(In millions)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
568
|
|
|
$
|
608
|
|
|
$
|
1,103
|
|
|
$
|
1,183
|
|
Net investment income
|
|
|
581
|
|
|
|
560
|
|
|
|
1,145
|
|
|
|
1,143
|
|
Net investment gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-than-temporary
impairments on fixed maturity securities
|
|
|
(6
|
)
|
|
|
(18
|
)
|
|
|
(7
|
)
|
|
|
(18
|
)
|
Other-than-temporary
impairments on fixed maturity securities transferred to other
comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other net investment gains (losses)
|
|
|
9
|
|
|
|
26
|
|
|
|
17
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net investment gains (losses)
|
|
|
3
|
|
|
|
8
|
|
|
|
10
|
|
|
|
21
|
|
Net derivative gains (losses)
|
|
|
4
|
|
|
|
15
|
|
|
|
(14
|
)
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,156
|
|
|
|
1,191
|
|
|
|
2,244
|
|
|
|
2,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims
|
|
|
746
|
|
|
|
771
|
|
|
|
1,435
|
|
|
|
1,504
|
|
Policyholder dividends
|
|
|
296
|
|
|
|
324
|
|
|
|
593
|
|
|
|
645
|
|
Other expenses
|
|
|
49
|
|
|
|
51
|
|
|
|
98
|
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1,091
|
|
|
|
1,146
|
|
|
|
2,126
|
|
|
|
2,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues, net of expenses before provision for income tax
expense (benefit)
|
|
|
65
|
|
|
|
45
|
|
|
|
118
|
|
|
|
111
|
|
Provision for income tax expense (benefit)
|
|
|
21
|
|
|
|
15
|
|
|
|
38
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues, net of expenses and provision for income tax expense
(benefit)
|
|
$
|
44
|
|
|
$
|
30
|
|
|
$
|
80
|
|
|
$
|
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The change in the maximum future earnings of the closed block
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
(In millions)
|
|
|
Balance, end of period
|
|
$
|
4,361
|
|
|
$
|
4,513
|
|
|
$
|
4,361
|
|
|
$
|
4,513
|
|
Balance, beginning of period
|
|
|
4,405
|
|
|
|
4,543
|
|
|
|
4,441
|
|
|
|
4,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change during period
|
|
$
|
(44
|
)
|
|
$
|
(30
|
)
|
|
$
|
(80
|
)
|
|
$
|
(74
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
104
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
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 2010 Annual
Report. See Note 3 for discussion of long-term debt of CSEs.
Advances
from the Federal Home Loan Bank of New York
MetLife Bank, National Association (MetLife Bank) is
a member of the FHLB of New York (FHLB of NY) and
held $221 million and $187 million of common stock of
the FHLB of NY at June 30, 2011 and December 31, 2010,
respectively, which is included in equity securities. MetLife
Bank has also entered into advances agreements 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 mortgage loans, mortgage
loans
held-for-sale,
commercial mortgage loans 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 agreements. The amount of MetLife
Banks liability for advances from the FHLB of NY was
$4.5 billion and $3.8 billion at June 30, 2011
and December 31, 2010, 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,
2011 and 2010, MetLife Bank received advances related to
long-term borrowings totaling $1,205 million and
$678 million, respectively, from the FHLB of NY. MetLife
Bank made repayments to the FHLB of NY of $340 million and
$169 million related to long-term borrowings for the six
months ended June 30, 2011 and 2010, respectively. The
advances related to both long-term and short-term debt were
collateralized by residential mortgage loans, mortgage loans
held-for-sale,
commercial mortgage loans and mortgage-backed securities with
estimated fair values of $7.1 billion and $7.8 billion
at June 30, 2011 and December 31, 2010, respectively.
Credit
and Committed Facilities
The Company maintains unsecured credit facilities and committed
facilities, which aggregated $4.0 billion and
$12.8 billion, respectively, at June 30, 2011. When
drawn upon, these facilities bear interest at varying rates in
accordance with the respective agreements.
The unsecured credit facilities are used for general corporate
purposes, to support the borrowers commercial paper
programs and for the issuance of letters of credit. At
June 30, 2011, the Company had outstanding
$1.5 billion in letters of credit and no drawdowns against
these facilities. Remaining unused commitments were
$2.5 billion at June 30, 2011.
The committed facilities are used for collateral for certain of
the Companys affiliated reinsurance liabilities. At
June 30, 2011, the Company had outstanding
$6.1 billion in letters of credit and $2.8 billion in
aggregate drawdowns against these facilities. Remaining unused
commitments were $3.9 billion at June 30, 2011. In
February 2011, the Holding Company entered into a one-year
$350 million committed facility with a third-party bank to
provide letters of credit for the benefit of Missouri
Reinsurance (Barbados) Inc., a captive reinsurance subsidiary.
Under this facility, one letter of credit of $305 million
was outstanding at June 30, 2011. Both this letter of
credit and the facility were canceled on July 1, 2011.
|
|
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
105
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
U.S. 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, demonstrates to management that the
monetary relief which may be specified in a lawsuit or claim
bears little relevance to its merits or disposition value.
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 difficult to ascertain.
Uncertainties can include how fact finders will evaluate
documentary evidence and the credibility and effectiveness of
witness 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.
The Company establishes liabilities for litigation and
regulatory loss contingencies 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, 2011. 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.
Matters
as to Which an Estimate Can Be Made
For some of the matters disclosed below, the Company is able to
estimate a reasonably possible range of loss. For such matters
where a loss is believed to be reasonably possible, but not
probable, no accrual has been made. As of June 30, 2011,
the Company estimates the aggregate range of reasonably possible
losses in excess of amounts accrued for these matters to be
approximately $0 to $355 million.
Matters
as to Which an Estimate Cannot Be Made
For other matters disclosed below, the Company is not currently
able to estimate the reasonably possible loss or range of loss.
The Company is often unable to estimate the possible loss or
range of loss until developments in such matters have provided
sufficient information to support an assessment of the range of
possible loss, such as quantification of a damage demand from
plaintiffs, discovery from other parties and investigation of
factual allegations, rulings by the court on motions or appeals,
analysis by experts, and the progress of settlement
negotiations. On a quarterly and annual basis, the Company
reviews relevant information with respect to litigation
contingencies and updates its accruals, disclosures and
estimates of reasonably possible losses or ranges of loss based
on such reviews.
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.
106
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
MLIC believes that it should not have legal liability in these
cases. The outcome of most asbestos litigation matters, however,
is uncertain and can be impacted by numerous variables,
including differences in legal rulings in various jurisdictions,
the nature of the alleged injury and factors unrelated to the
ultimate legal merit of the claims asserted against MLIC. MLIC
employs a number of resolution strategies to manage its asbestos
loss exposure, including seeking resolution of pending
litigation by judicial rulings and settling individual or groups
of claims or lawsuits under appropriate circumstances.
Claims asserted against MLIC have included negligence,
intentional tort and conspiracy concerning the health risks
associated with asbestos. MLICs defenses (beyond denial of
certain factual allegations) include that: (i) MLIC owed no
duty to the plaintiffs it had no special
relationship with the plaintiffs and did not manufacture,
produce, distribute or sell the asbestos products that allegedly
injured plaintiffs; (ii) plaintiffs did not rely on any
actions of MLIC; (iii) MLICs conduct was not the
cause of the plaintiffs injuries;
(iv) plaintiffs 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 2010 Annual Report, MLIC received
approximately 5,670 asbestos-related claims in 2010. During the
six months ended June 30, 2011 and 2010, MLIC received
approximately 2,306 and 2,076 new asbestos-related claims,
respectively. See Note 16 of the Notes to the Consolidated
Financial Statements included in the 2010 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 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. To the
extent the Company can estimate reasonably possible losses in
excess of amounts accrued, it has been included in the aggregate
estimate of reasonably possible loss provided above. 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
107
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
analysis of the adequacy of its recorded liability with respect
to asbestos litigation include: (i) the number of future
claims; (ii) the cost to resolve claims; and (iii) the
cost to defend claims.
MLIC reevaluates on a quarterly and annual basis its exposure
from asbestos litigation, including studying its claims
experience, reviewing external literature regarding asbestos
claims experience in the U.S., 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, 2011.
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. The Company cooperates in these inquiries.
MetLife Bank Mortgage Servicing Regulatory and Law
Enforcement Authorities Inquiries. Since
2008, MetLife, through its affiliate, MetLife Bank, has
significantly increased its mortgage servicing activities by
acquiring servicing portfolios. Currently, MetLife Bank services
approximately 1% of the aggregate principal amount of the
mortgage loans serviced in the U.S. State and federal
regulatory and law enforcement authorities have initiated
various inquiries, investigations or examinations of alleged
irregularities in the foreclosure practices of the residential
mortgage servicing industry. Mortgage servicing practices have
also been the subject of Congressional attention. Authorities
have publicly stated that the scope of the investigations
extends beyond foreclosure documentation practices to include
mortgage loan modification and loss mitigation practices.
MetLife Banks mortgage servicing has been the subject of
recent inquiries and requests by such authorities. MetLife Bank
is cooperating with the authorities review of this
business. On April 13, 2011, the Office of the Comptroller
of the Currency (OCC) entered into consent decrees
with several banks, including MetLife Bank. The consent decrees
require an independent review of foreclosure practices and set
forth new residential mortgage servicing standards, including a
requirement for a designated point of contact for a borrower
during the loss mitigation process. In addition, the Board of
Governors of the Federal Reserve System (Federal
Reserve) entered into consent decrees with the affiliated
bank holding companies of these banks, including MetLife, Inc.,
to enhance the supervision of the mortgage servicing activities
of their banking subsidiaries. Neither of the consent decrees
includes monetary penalties. In a press release, the Federal
Reserve stated that it plans to announce monetary penalties with
respect to the consent orders. The OCC stated in its press
release that the actions do not preclude assessment of civil
money penalties, which the OCC is holding in abeyance. MetLife
Bank has also had an initial meeting with the Department of
Justice regarding mortgage servicing and foreclosure practices.
These consent decrees as well as the inquiries or investigations
referred to above could adversely affect MetLifes
reputation or result in material fines, penalties, equitable
remedies or other enforcement actions, and result in significant
legal costs in responding to governmental investigations or
other litigation. In addition, the changes to the mortgage
servicing business required by the consent decrees and the
resolution of any other inquiries or investigations may affect
the profitability of such business. The Company is unable to
estimate the reasonably possible loss or range of loss arising
from the MetLife Bank regulatory matters. Management believes
that the Companys consolidated financial statements as a
whole will not be materially affected by the MetLife Bank
regulatory matters.
108
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
United States of America v. EME Homer City Generation,
L.P., et al. (W.D. Pa., filed January 4,
2011). On January 4, 2011, the
U.S. commenced a civil action in United States District
Court for the Western District of Pennsylvania against EME Homer
City Generation L.P. (EME Homer City), Homer City
OL6 LLC, and other defendants regarding the operations of the
Homer City Generating Station, an electricity generating
facility. Homer City OL6 LLC, an entity owned by MLIC, is a
passive investor with a noncontrolling interest in the
electricity generating facility, which is solely operated by the
lessee, EME Homer City. The complaint seeks injunctive relief
and assessment of civil penalties for alleged violations of the
federal Clean Air Act and Pennsylvanias State
Implementation Plan. The alleged violations were the subject of
Notices of Violations (NOVs) that the Environmental
Protection Agency (EPA) issued to EME Homer City,
Homer City OL6 LLC, and others in June 2008 and May 2010. On
January 7, 2011, the United States District Court for the
Western District of Pennsylvania granted the motion by the
Pennsylvania Department of Environmental Protection and the
State of New York to intervene in the lawsuit as additional
plaintiffs. On February 16, 2011, the State of New Jersey
filed an Intervenors Complaint in the lawsuit. On
January 7, 2011, two plaintiffs filed a putative class
action titled Scott Jackson and Maria Jackson v. EME Homer
City Generation L.P., et al. in the United States District Court
for the Western District of Pennsylvania on behalf of a putative
class of persons who have allegedly incurred damage to their
persons
and/or
property because of the violations alleged in the action brought
by the U.S. Homer City OL6 LLC is a defendant in this
action. EME Homer City has acknowledged its obligation to
indemnify Homer City OL6 LLC for any claims relating to the
NOVs. Due to the acknowledged indemnification obligation, this
matter is not included in the aggregate estimate of range of
reasonably possible loss.
In the Matter of Chemform, Inc. Site, Pompano Beach, Broward
County, Florida. In July 2010, the EPA advised
MLIC that it believed payments were due under two settlement
agreements, known as Administrative Orders on
Consent, that New England Mutual Life Insurance Company
(New England Mutual) signed in 1989 and 1992 with
respect to the cleanup of a Superfund site in Florida (the
Chemform Site). The EPA originally contacted MLIC
(as successor to New England Mutual) and a third party in 2001,
and advised that they owed additional
clean-up
costs for the Chemform Site. The matter was not resolved at that
time. The EPA is requesting payment of an amount under
$1 million from MLIC and a third party for past costs and
an additional amount for future environmental testing costs at
the Chemform Site. The Company estimates that the aggregate cost
to resolve this matter will not exceed $1 million.
Unclaimed Property Inquiries. More than 30
U.S. jurisdictions are auditing MetLife, Inc. and certain
of its affiliates for compliance with unclaimed property laws.
Additionally, MLIC and certain of its affiliates have received
subpoenas and other regulatory inquiries from certain regulators
and other officials relating to claims-payment practices and
compliance with unclaimed property laws. On July 5, 2011,
the New York Insurance Department issued a letter requiring life
insurers doing business in New York to use data available on the
U.S. Social Security Administrations Death Master
File or a similar database to identify instances where death
benefits under life insurance policies, annuities, and retained
asset accounts are payable, to locate and pay beneficiaries
under such contracts, and to report the results of the use of
the data. It is possible that other jurisdictions may pursue
similar investigations or inquiries, or issue directives similar
to the New York Insurance Departments letter. It is
possible that the audits and related activity may result in
additional payments to beneficiaries, additional escheatment of
funds deemed abandoned under state laws, administrative
penalties, and changes to the Companys procedures for the
identification and escheatment of abandoned property. The
Company is not currently able to estimate the reasonably
possible amount of any such additional payments or the
reasonably possible cost of any such changes in procedures, but
it is possible that such costs may be substantial.
Sales Practices Regulatory Matters. 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 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
109
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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. The Company believes
adequate provision has been made in its consolidated financial
statements for all probable and reasonably estimable losses for
these sales practices-related investigations or inquiries.
Total
Control Accounts Litigation
MLIC is a defendant in lawsuits related to its use of retained
asset accounts, known as Total Control Accounts
(TCA), as a settlement option for death benefits.
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 the Employee Retirement Income Security Act of 1974
(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. On
September 9, 2010, the court granted MLICs motion for
summary judgment. On September 20, 2010, plaintiff filed a
Notice of Appeal to the United States Court of Appeals for the
Ninth Circuit.
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 United States Court of Appeals for the Second
Circuit.
Keife, et al. v. Metropolitan Life Insurance Company (D.
Nev., filed in state court on July 30, 2010 and removed to
federal court on September 7, 2010). This
putative class action lawsuit raises a breach of contract claim
arising from MLICs use of the TCA to pay life insurance
benefits under the Federal Employees Group Life Insurance
program. 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
September 2010, plaintiffs filed a motion for class
certification of the breach of contract claim, which the court
has stayed. On April 28, 2011, the court denied MLICs
motion to dismiss.
The Company is unable to estimate the reasonably possible loss
or range of loss arising from the TCA matters.
Other
U.S. Litigation
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 (MTL) and Metropolitan Insurance
and Annuity Company. Metropolitan Insurance and Annuity Company
has merged into MTL and no longer exists as a separate entity.
These tenants claim that MTL, 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. Although the tenants allege over
$200 million in damages in the complaint, MTL strongly
disputes the tenants damages amounts. In October 2009, the
New York State Court of Appeals issued an opinion denying
MTLs motion to dismiss the complaint. The lawsuit has
returned to the trial court where MTL continues to vigorously
defend against the claims. The Company believes adequate
provision has been made in its consolidated financial
110
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
statements for all probable and reasonably estimable losses for
this lawsuit. It is reasonably possible that the Companys
total exposure may be greater than the liability currently
accrued and that future charges to income may be necessary.
Management believes that the Companys consolidated
financial statements as a whole will not be materially affected
by any such future charges.
Merrill Haviland, et al. v. Metropolitan Life Insurance
Company (Mich. Cir. Ct., Wayne County, filed June 22,
2011). This lawsuit was filed by 45 retired
General Motors (GM) employees against MLIC and
includes claims for conversion, unjust enrichment, breach of
contract, fraud, intentional infliction of emotional distress,
fraudulent insurance acts, and unfair trade practices, based
upon GMs 2009 reduction of the employees life
insurance coverage under GMs ERISA-governed plan. The
complaint includes a count seeking class action status. MLIC is
the insurer of GMs group life insurance plan and
administers claims under the plan. According to the complaint,
MLIC had previously provided plaintiffs with a written
guarantee that their life insurance benefits under the GM
plan would not be reduced for the rest of their lives. The
Company has removed the case to federal court based upon
complete ERISA preemption of the state law claims and intends to
vigorously defend this action.
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.
International
Litigation
Sun Life Assurance Company of Canada v. Metropolitan
Life Ins. Co. (Super. Ct., Ontario, October
2006). In 2006, Sun Life Assurance Company of
Canada (Sun Life), as successor to the purchaser of
MLICs Canadian operations, filed this lawsuit in Toronto,
seeking a declaration that MLIC remains liable for market
conduct claims related to certain individual life
insurance policies sold by MLIC and that have been transferred
to Sun Life. Sun Life had asked that the court require MLIC to
indemnify Sun Life for these claims pursuant to indemnity
provisions in the sale agreement for the sale of MLICs
Canadian operations entered into in June of 1998. In January
2010, the court found that Sun Life had given timely notice of
its claim for indemnification but, because it found that Sun
Life had not yet incurred an indemnifiable loss, granted
MLICs motion for summary judgment. Both parties appealed.
In September 2010, Sun Life notified MLIC that a purported class
action lawsuit was filed against Sun Life in Toronto,
Kang v. Sun Life Assurance Co. (Super. Ct., Ontario,
September 2010), alleging sales practices claims regarding the
same individual policies sold by MLIC and transferred to Sun
Life. An amended class action complaint was served on Sun Life,
again without naming MLIC as a party. Sun Life contends that
MLIC is obligated to indemnify Sun Life for some or all of the
claims in this lawsuit. The Company is unable to estimate the
reasonably possible loss or range of loss arising from this
litigation.
Italy Fund Redemption Suspension Complaints and
Litigation. As a result of suspension of
withdrawals and diminution in value in certain funds offered
within certain unit-linked policies sold by the Italian branch
of Alico Life International, Ltd. (ALIL), a number
of policyholders invested in those funds have either commenced
or threatened litigation against ALIL, alleging
misrepresentation, inadequate disclosures and other related
claims. These policyholders contacted ALIL beginning in July
2009 alleging that the funds operated at variance to the
published prospectus and that prospectus risk disclosures were
allegedly wrong, unclear, and misleading. The limited number of
lawsuits that have been filed to date have either been resolved
or are proceeding through litigation. In March 2011, ALIL began
implementing a plan to resolve policyholder claims. Under the
plan, ALIL will provide liquidity to the suspended funds so that
policyholders may withdraw investments in these funds, and ALIL
will offer policyholders amounts in addition to the liquidation
value of the suspended funds based on the performance of other
relevant financial products. The settlement program achieved a
96% acceptance rate. Those policyholders who did not accept the
settlement may still pursue other remedies or commence
individual litigation.
111
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The formal investigation opened by the Milan public prosecutor,
into the actions of ALIL employees as well as of employees of
ALILs major distributor, has been dismissed by the court.
Under the terms of the stock purchase agreement dated as of
March 7, 2010, as amended, by and among MetLife, Inc., AIG
and AM Holdings, AIG has agreed to indemnify MetLife, Inc. and
its affiliates for third party claims and regulatory fines
associated with ALILs suspended funds. Due to the
acknowledged indemnification obligation, this matter is not
included in the aggregate estimate of range of reasonably
possible loss.
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. 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.
Commitments
Commitments
to Fund Partnership Investments
The Company makes commitments to fund partnership investments in
the normal course of business. The amounts of these unfunded
commitments were $4.0 billion and $3.8 billion at
June 30, 2011 and December 31, 2010, respectively. The
Company anticipates that these amounts will be invested in
partnerships over the next five years.
Mortgage
Loan Commitments
The Company has issued interest rate lock commitments on certain
residential mortgage loan applications totaling
$2.9 billion and $2.5 billion at June 30, 2011
and December 31, 2010, 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
$4.4 billion and $3.8 billion at June 30, 2011
and December 31, 2010, 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
$2.4 billion at June 30, 2011 and December 31,
2010, respectively.
112
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Guarantees
During the six months ended June 30, 2011, the Company did
not record any additional liabilities for indemnities,
guarantees and commitments. The Companys recorded
liabilities were $5 million at both June 30, 2011 and
December 31, 2010 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 U.S. 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
U.S. pension and other postretirement benefit plan assets,
which are invested primarily in separate accounts sponsored by
the Subsidiaries.
In connection with the Acquisition, the Company acquired certain
pension plans sponsored by American Life. The net periodic
benefit costs and related amortizations from accumulated other
comprehensive income (loss) into the costs associated with these
plans are included in the disclosure below.
Measurement dates used for all of the Subsidiaries defined
benefit pension and other postretirement benefit plans
correspond with the fiscal year ends of sponsoring Subsidiaries,
which are December 31 for most Subsidiaries and November 30 for
American Life.
The components of net periodic benefit costs were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Other Postretirement Benefits
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
Service costs
|
|
$
|
63
|
|
|
$
|
44
|
|
|
$
|
126
|
|
|
$
|
88
|
|
|
$
|
4
|
|
|
$
|
5
|
|
|
$
|
9
|
|
|
$
|
9
|
|
Interest costs
|
|
|
105
|
|
|
|
100
|
|
|
|
210
|
|
|
|
199
|
|
|
|
27
|
|
|
|
28
|
|
|
|
54
|
|
|
|
56
|
|
Expected return on plan assets
|
|
|
(113
|
)
|
|
|
(112
|
)
|
|
|
(227
|
)
|
|
|
(224
|
)
|
|
|
(19
|
)
|
|
|
(21
|
)
|
|
|
(39
|
)
|
|
|
(40
|
)
|
Settlement and curtailment costs
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net actuarial (gains) losses
|
|
|
48
|
|
|
|
49
|
|
|
|
97
|
|
|
|
98
|
|
|
|
10
|
|
|
|
10
|
|
|
|
21
|
|
|
|
19
|
|
Amortization of prior service costs (credit)
|
|
|
1
|
|
|
|
1
|
|
|
|
2
|
|
|
|
3
|
|
|
|
(27
|
)
|
|
|
(20
|
)
|
|
|
(54
|
)
|
|
|
(41
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit costs
|
|
$
|
104
|
|
|
$
|
89
|
|
|
$
|
208
|
|
|
$
|
171
|
|
|
$
|
(5
|
)
|
|
$
|
2
|
|
|
$
|
(9
|
)
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The components of net periodic benefit costs amortized from
accumulated other comprehensive income (loss) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Other Postretirement Benefits
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
(In millions)
|
|
|
Amortization of net actuarial (gains) losses
|
|
$
|
48
|
|
|
$
|
49
|
|
|
$
|
97
|
|
|
$
|
98
|
|
|
$
|
10
|
|
|
$
|
10
|
|
|
$
|
21
|
|
|
$
|
19
|
|
Amortization of prior service costs (credit)
|
|
|
1
|
|
|
|
1
|
|
|
|
2
|
|
|
|
3
|
|
|
|
(27
|
)
|
|
|
(20
|
)
|
|
|
(54
|
)
|
|
|
(41
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
49
|
|
|
|
50
|
|
|
|
99
|
|
|
|
101
|
|
|
|
(17
|
)
|
|
|
(10
|
)
|
|
|
(33
|
)
|
|
|
(22
|
)
|
Deferred income tax expense (benefit)
|
|
|
(15
|
)
|
|
|
(18
|
)
|
|
|
(34
|
)
|
|
|
(36
|
)
|
|
|
7
|
|
|
|
28
|
|
|
|
11
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of net periodic benefit costs amortized from
accumulated other comprehensive income (loss), net of income tax
|
|
$
|
34
|
|
|
$
|
32
|
|
|
$
|
65
|
|
|
$
|
65
|
|
|
$
|
(10
|
)
|
|
$
|
18
|
|
|
$
|
(22
|
)
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As disclosed in Note 17 of the Notes to the Consolidated
Financial Statements included in the 2010 Annual Report, no
contributions are required to be made to the Subsidiaries
U.S. qualified pension plans during 2011; however, the
Subsidiaries expected to make discretionary contributions of
$175 million to the U.S. plans during 2011. At
June 30, 2011, no discretionary contributions have yet been
made to those plans. The Subsidiaries fund benefit payments for
their U.S. non-qualified pension and other postretirement
plans as due through their general assets. At June 30,
2011, $28 million have been contributed to its
non-U.S. pension
plans.
Convertible
Preferred Stock
In connection with the financing of the Acquisition in November
2010, MetLife, Inc. issued to AM Holdings 6,857,000 shares
of convertible preferred stock with a $0.01 par value per
share, a liquidation preference of $0.01 per share and a fair
value of $2,805 million. On March 8, 2011, MetLife,
Inc. repurchased and canceled all of the convertible preferred
stock for $2,951 million in cash, which resulted in a
preferred stock redemption premium of $146 million. See
Note 2.
Common
Stock
On March 8, 2011, MetLife, Inc. issued 68,570,000 new
shares of its common stock at a price of $43.25 per share for
gross proceeds of $3.0 billion. In connection with the
offering of common stock, MetLife, Inc. incurred
$16 million of issuance costs which have been recorded as a
reduction of additional paid-in capital. The proceeds were used
to repurchase the convertible preferred stock issued to AM
Holdings in November 2010. See Note 2.
Stock-Based
Compensation Plans
Payout of
2008 2010 Performance Shares
Performance Shares are units that, if they vest, are multiplied
by a performance factor to produce a number of final Performance
Shares which are payable in shares of MetLife, Inc. common
stock. Performance Shares are accounted for as equity awards,
but are not credited with dividend-equivalents for actual
dividends paid on MetLife, Inc. common stock during the
performance period. Accordingly, the estimated fair value of
Performance Shares is
114
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
based upon the closing price of MetLife, Inc. common stock on
the date of grant, reduced by the present value of estimated
dividends to be paid on that stock during the performance period.
Performance Share awards normally vest in their entirety at the
end of the three-year performance period. Vesting is subject to
continued service, except for employees who are retirement
eligible and in certain other limited circumstances. Vested
Performance Shares are multiplied by a performance factor of 0.0
to 2.0 based largely on MetLife, Inc.s performance in
change in annual net operating earnings and total shareholder
return over the applicable three-year performance period
compared to the performance of its competitors.
The performance factor was 0.90 for the January 1,
2008 December 31, 2010 performance period. This
factor has been applied to the 824,825 Performance Shares
associated with that performance period that vested on
December 31, 2010, and as a result 742,343 shares of
MetLife, Inc.s common stock (less withholding for taxes
and other items, as applicable) were issued (aside from shares
that payees earlier chose to defer) during the second quarter of
2011.
Information on other expenses was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Compensation
|
|
$
|
1,329
|
|
|
$
|
878
|
|
|
$
|
2,656
|
|
|
$
|
1,722
|
|
Pension, postretirement & postemployment benefit costs
|
|
|
95
|
|
|
|
96
|
|
|
|
190
|
|
|
|
187
|
|
Commissions
|
|
|
1,587
|
|
|
|
835
|
|
|
|
3,003
|
|
|
|
1,639
|
|
Volume-related costs
|
|
|
91
|
|
|
|
100
|
|
|
|
174
|
|
|
|
193
|
|
Interest credited to bank deposits
|
|
|
23
|
|
|
|
36
|
|
|
|
46
|
|
|
|
75
|
|
Capitalization of DAC
|
|
|
(1,698
|
)
|
|
|
(756
|
)
|
|
|
(3,267
|
)
|
|
|
(1,489
|
)
|
Amortization of DAC and VOBA
|
|
|
1,381
|
|
|
|
1,014
|
|
|
|
2,437
|
|
|
|
1,611
|
|
Amortization of negative VOBA
|
|
|
(183
|
)
|
|
|
|
|
|
|
(366
|
)
|
|
|
|
|
Interest expense on debt and debt issue costs
|
|
|
420
|
|
|
|
369
|
|
|
|
835
|
|
|
|
739
|
|
Premium taxes, licenses & fees
|
|
|
142
|
|
|
|
133
|
|
|
|
277
|
|
|
|
250
|
|
Professional services
|
|
|
400
|
|
|
|
229
|
|
|
|
683
|
|
|
|
429
|
|
Rent, net of sublease income
|
|
|
113
|
|
|
|
71
|
|
|
|
220
|
|
|
|
146
|
|
Other
|
|
|
795
|
|
|
|
404
|
|
|
|
1,509
|
|
|
|
839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
$
|
4,495
|
|
|
$
|
3,409
|
|
|
$
|
8,397
|
|
|
$
|
6,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Expense on Debt and Debt Issue Costs
Interest expense on debt and debt issue costs includes interest
expense related to CSEs of $92 million and
$184 million for the three months and six months ended
June 30, 2011, respectively, and $103 million and
$209 million for the three months and six months ended
June 30, 2010, respectively. See Note 3.
Costs
Related to the Acquisition
See Note 2 for transaction and integration-related expenses
related to the Acquisition which were included in other expenses.
115
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,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
(In millions, except share and per share data)
|
|
|
Weighted Average Shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common stock outstanding for basic earnings per
common share
|
|
|
1,059,751,486
|
|
|
|
822,905,671
|
|
|
|
1,058,795,981
|
|
|
|
822,407,969
|
|
Incremental common shares from assumed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock purchase contracts underlying common equity units (1)
|
|
|
4,015,640
|
|
|
|
|
|
|
|
3,282,889
|
|
|
|
|
|
Exercise or issuance of stock-based awards
|
|
|
7,208,779
|
|
|
|
7,567,202
|
|
|
|
7,832,099
|
|
|
|
6,766,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common stock outstanding for diluted earnings
per common share
|
|
|
1,070,975,905
|
|
|
|
830,472,873
|
|
|
|
1,069,910,969
|
|
|
|
829,174,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Continuing Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of income tax
|
|
$
|
1,201
|
|
|
$
|
1,536
|
|
|
$
|
2,255
|
|
|
$
|
2,364
|
|
Less: Income (loss) from continuing operations, net of income
tax, attributable to noncontrolling interests
|
|
|
(7
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
(11
|
)
|
Less: Preferred stock dividends
|
|
|
31
|
|
|
|
31
|
|
|
|
61
|
|
|
|
61
|
|
Preferred stock redemption premium
|
|
|
|
|
|
|
|
|
|
|
146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of income tax,
available to MetLife, Inc.s common shareholders
|
|
$
|
1,177
|
|
|
$
|
1,515
|
|
|
$
|
2,048
|
|
|
$
|
2,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.11
|
|
|
$
|
1.84
|
|
|
$
|
1.93
|
|
|
$
|
2.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
1.10
|
|
|
$
|
1.83
|
|
|
$
|
1.91
|
|
|
$
|
2.79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Discontinued Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of income tax
|
|
$
|
29
|
|
|
$
|
11
|
|
|
$
|
(12
|
)
|
|
$
|
17
|
|
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
|
|
$
|
29
|
|
|
$
|
11
|
|
|
$
|
(12
|
)
|
|
$
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.03
|
|
|
$
|
0.01
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.03
|
|
|
$
|
0.01
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
1,230
|
|
|
$
|
1,547
|
|
|
$
|
2,243
|
|
|
$
|
2,381
|
|
Less: Net income (loss) attributable to noncontrolling interests
|
|
|
(7
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
(11
|
)
|
Less: Preferred stock dividends
|
|
|
31
|
|
|
|
31
|
|
|
|
61
|
|
|
|
61
|
|
Preferred stock redemption premium
|
|
|
|
|
|
|
|
|
|
|
146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to MetLife, Inc.s common
shareholders
|
|
$
|
1,206
|
|
|
$
|
1,526
|
|
|
$
|
2,036
|
|
|
$
|
2,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.14
|
|
|
$
|
1.85
|
|
|
$
|
1.92
|
|
|
$
|
2.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
1.13
|
|
|
$
|
1.84
|
|
|
$
|
1.90
|
|
|
$
|
2.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See Note 14 of the Notes to the Consolidated Financial
Statements included in the 2010 Annual Report for a description
of the Companys common equity units. |
116
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
13.
|
Business
Segment Information
|
MetLife is organized into six segments: Insurance Products,
Retirement Products, Corporate Benefit Funding and
Auto & Home (collectively,
U.S. Business), and Japan and Other
International Regions (collectively, International).
In the first quarter of 2011, the Company began reporting the
results from its international operations in two separate
segments to reflect a change in the manner in which the
financial results are reviewed and evaluated by executive
management. The assets, liabilities and the operating results
relating to the Acquisition are included in Japan and Other
International Regions segments. In addition, the Company reports
certain of its results of operations in Banking,
Corporate & Other, which includes MetLife Bank and
other business activities. Prior period results have been
adjusted to conform to this new presentation of segments.
Insurance Products offers a broad range of protection products
and services to individuals and corporations, as well as other
institutions and their respective employees, 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 products.
Individual Life insurance products and services include variable
life, universal life, term life and whole life products.
Non-Medical Health products and services include dental
insurance, short- and long-term disability, long-term care 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. In the fourth quarter of 2010,
management realigned certain income annuity products within the
Companys segments to better conform to the way it manages
and assesses its business and began reporting such product
results in the Retirement Products segment, previously reported
in the Corporate Benefit Funding segment. Accordingly, prior
period results for these segments have been adjusted by
$3 million of operating earnings, net of $2 million of
income tax, and $11 million of operating earnings, net of
$6 million of income tax, for the three months and six
months ended June 30, 2010, respectively, to reflect such
product reclassifications.
Japan life insurance products include whole life, term life,
variable life and universal life products. Japan also provides
accident and health insurance, fixed and variable annuities and
endowment products. These products are offered to both
individuals and groups. Other International Regions provide life
insurance, accident and health insurance, non medical health
insurance, credit insurance, annuities, endowment and
retirement & savings products to both individuals and
groups.
Banking, Corporate & Other contains the excess capital
not allocated to the segments, the results of operations of
MetLife Bank, the internal resource costs for associates
committed to the Acquisition, 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 and, consistent with GAAP accounting guidance for
segment reporting, it is the Companys measure of segment
performance and is reported below. Operating earnings should not
be viewed as a substitute for GAAP income (loss) from continuing
operations, net of income tax. The Company believes the
presentation of operating earnings 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 business.
Operating earnings is defined as operating revenues less
operating expenses, both net of income tax.
117
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Operating revenues exclude net investment gains (losses) and net
derivative gains (losses). The following additional adjustments
are made to GAAP revenues, in the line items indicated, in
calculating operating revenues:
|
|
|
|
|
Universal life and investment-type product policy fees exclude
the amortization of unearned revenue related to net investment
gains (losses) and net derivative gains (losses) and certain
variable annuity GMIB fees (GMIB Fees);
|
|
|
|
Net investment income: (i) includes amounts for scheduled
periodic settlement payments and amortization of premium on
derivatives that are hedges of investments but do not qualify
for hedge accounting treatment, (ii) includes income from
discontinued real estate operations, (iii) excludes
post-tax operating earnings adjustments relating to insurance
joint ventures accounted for under the equity method,
(iv) excludes certain amounts related to
contractholder-directed unit-linked investments, and
(v) excludes certain amounts related to securitization
entities that are VIEs consolidated under GAAP; and
|
|
|
|
Other revenues are adjusted for settlements of foreign currency
earnings hedges.
|
The following adjustments are made to GAAP expenses, in the line
items indicated, in calculating operating expenses:
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
exclude: (i) changes in the policyholder dividend
obligation related to net investment gains (losses) and net
derivative gains (losses), (ii) inflation-indexed benefit
adjustments associated with contracts backed by
inflation-indexed investments and amounts associated with
periodic crediting rate adjustments based on the total return of
a contractually referenced pool of assets, (iii) benefits
and hedging costs related to GMIBs (GMIB Costs), and
(iv) market value adjustments associated with surrenders or
terminations of contracts (Market Value Adjustments);
|
|
|
|
Interest credited to policyholder account balances includes
adjustments for scheduled periodic settlement payments and
amortization of premium on derivatives that are hedges of
policyholder account balances but do not qualify for hedge
accounting treatment and amounts related to net investment
income earned on contractholder-directed unit-linked investments;
|
|
|
|
Amortization of DAC and value of business acquired
(VOBA) excludes amounts related to: (i) net
investment gains (losses) and net derivative gains (losses),
(ii) GMIB Fees and GMIB Costs, and (iii) Market Value
Adjustments;
|
|
|
|
Amortization of negative VOBA excludes amounts related to Market
Value Adjustments;
|
|
|
|
Interest expense on debt excludes certain amounts related to
securitization entities that are VIEs consolidated under
GAAP; and
|
|
|
|
Other expenses exclude costs related to: (i) noncontrolling
interests, (ii) implementation of new insurance regulatory
requirements, and (iii) business combinations.
|
In the first quarter of 2011, management modified its definition
of operating earnings to exclude impacts related to certain
variable annuity guarantees and Market Value Adjustments to
better conform to the way it manages and assesses its business.
Accordingly, such results are no longer reported in operating
earnings. Consequently, prior period results for Retirement
Products and total consolidated operating earnings have been
reduced by $105 million, net of $56 million of income
tax, and $71 million, net of $38 million of income
tax, for the three months and six months ended June 30,
2010, respectively.
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, 2011 and 2010. 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.
118
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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 business.
Effective January 1, 2011, the Company updated its economic
capital model to align segment allocated equity with emerging
standards and consistent risk principles. Such changes to the
Companys economic capital model are applied prospectively.
Segment net investment income is also credited or charged based
on the level of allocated equity; however, changes in allocated
equity do not impact the Companys consolidated net
investment income, operating earnings or income (loss) from
continuing operations, net of income tax.
119
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Earnings
|
|
|
|
|
|
|
|
|
|
U.S. Business
|
|
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
Auto
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
Banking,
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance
|
|
|
Retirement
|
|
|
Benefit
|
|
|
&
|
|
|
|
|
|
|
|
|
International
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Total
|
|
Three Months Ended June 30, 2011
|
|
Products
|
|
|
Products
|
|
|
Funding
|
|
|
Home
|
|
|
Total
|
|
|
Japan
|
|
|
Regions
|
|
|
Total
|
|
|
& Other
|
|
|
Total
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
4,268
|
|
|
$
|
240
|
|
|
$
|
781
|
|
|
$
|
748
|
|
|
$
|
6,037
|
|
|
$
|
1,602
|
|
|
$
|
1,653
|
|
|
$
|
3,255
|
|
|
$
|
2
|
|
|
$
|
9,294
|
|
|
$
|
|
|
|
$
|
9,294
|
|
Universal life and investment-type product policy fees
|
|
|
565
|
|
|
|
622
|
|
|
|
58
|
|
|
|
|
|
|
|
1,245
|
|
|
|
195
|
|
|
|
470
|
|
|
|
665
|
|
|
|
|
|
|
|
1,910
|
|
|
|
59
|
|
|
|
1,969
|
|
Net investment income
|
|
|
1,572
|
|
|
|
792
|
|
|
|
1,325
|
|
|
|
51
|
|
|
|
3,740
|
|
|
|
517
|
|
|
|
539
|
|
|
|
1,056
|
|
|
|
297
|
|
|
|
5,093
|
|
|
|
5
|
|
|
|
5,098
|
|
Other revenues
|
|
|
204
|
|
|
|
75
|
|
|
|
61
|
|
|
|
7
|
|
|
|
347
|
|
|
|
4
|
|
|
|
35
|
|
|
|
39
|
|
|
|
202
|
|
|
|
588
|
|
|
|
4
|
|
|
|
592
|
|
Net investment gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(155
|
)
|
|
|
(155
|
)
|
Net derivative gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
352
|
|
|
|
352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
6,609
|
|
|
|
1,729
|
|
|
|
2,225
|
|
|
|
806
|
|
|
|
11,369
|
|
|
|
2,318
|
|
|
|
2,697
|
|
|
|
5,015
|
|
|
|
501
|
|
|
|
16,885
|
|
|
|
265
|
|
|
|
17,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
4,634
|
|
|
|
402
|
|
|
|
1,292
|
|
|
|
719
|
|
|
|
7,047
|
|
|
|
1,019
|
|
|
|
1,218
|
|
|
|
2,237
|
|
|
|
1
|
|
|
|
9,285
|
|
|
|
208
|
|
|
|
9,493
|
|
Interest credited to policyholder account balances
|
|
|
246
|
|
|
|
395
|
|
|
|
330
|
|
|
|
|
|
|
|
971
|
|
|
|
388
|
|
|
|
152
|
|
|
|
540
|
|
|
|
|
|
|
|
1,511
|
|
|
|
(69
|
)
|
|
|
1,442
|
|
Interest credited to bank deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
|
|
23
|
|
|
|
|
|
|
|
23
|
|
Capitalization of DAC
|
|
|
(214
|
)
|
|
|
(400
|
)
|
|
|
(6
|
)
|
|
|
(117
|
)
|
|
|
(737
|
)
|
|
|
(519
|
)
|
|
|
(442
|
)
|
|
|
(961
|
)
|
|
|
|
|
|
|
(1,698
|
)
|
|
|
|
|
|
|
(1,698
|
)
|
Amortization of DAC and VOBA
|
|
|
214
|
|
|
|
238
|
|
|
|
5
|
|
|
|
113
|
|
|
|
570
|
|
|
|
371
|
|
|
|
312
|
|
|
|
683
|
|
|
|
|
|
|
|
1,253
|
|
|
|
128
|
|
|
|
1,381
|
|
Amortization of negative VOBA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(141
|
)
|
|
|
(23
|
)
|
|
|
(164
|
)
|
|
|
|
|
|
|
(164
|
)
|
|
|
(19
|
)
|
|
|
(183
|
)
|
Interest expense on debt
|
|
|
|
|
|
|
1
|
|
|
|
2
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
325
|
|
|
|
328
|
|
|
|
92
|
|
|
|
420
|
|
Other expenses
|
|
|
1,038
|
|
|
|
784
|
|
|
|
118
|
|
|
|
198
|
|
|
|
2,138
|
|
|
|
823
|
|
|
|
1,109
|
|
|
|
1,932
|
|
|
|
337
|
|
|
|
4,407
|
|
|
|
145
|
|
|
|
4,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
5,918
|
|
|
|
1,420
|
|
|
|
1,741
|
|
|
|
913
|
|
|
|
9,992
|
|
|
|
1,941
|
|
|
|
2,326
|
|
|
|
4,267
|
|
|
|
686
|
|
|
|
14,945
|
|
|
|
485
|
|
|
|
15,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
242
|
|
|
|
108
|
|
|
|
170
|
|
|
|
(51
|
)
|
|
|
469
|
|
|
|
132
|
|
|
|
109
|
|
|
|
241
|
|
|
|
(130
|
)
|
|
|
580
|
|
|
|
(61
|
)
|
|
|
519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
449
|
|
|
$
|
201
|
|
|
$
|
314
|
|
|
$
|
(56
|
)
|
|
$
|
908
|
|
|
$
|
245
|
|
|
$
|
262
|
|
|
$
|
507
|
|
|
$
|
(55
|
)
|
|
|
1,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
265
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
(485
|
)
|
|
|
|
|
|
|
|
|
Provision for income tax (expense) benefit
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of income
tax
|
|
$
|
1,201
|
|
|
|
|
|
|
$
|
1,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Earnings
|
|
|
|
|
|
|
|
|
|
U.S. Business
|
|
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
Auto
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
Banking,
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance
|
|
|
Retirement
|
|
|
Benefit
|
|
|
&
|
|
|
|
|
|
|
|
|
International
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Total
|
|
Three Months Ended June 30, 2010
|
|
Products
|
|
|
Products
|
|
|
Funding
|
|
|
Home
|
|
|
Total
|
|
|
Japan
|
|
|
Regions
|
|
|
Total
|
|
|
& Other
|
|
|
Total
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
4,317
|
|
|
$
|
250
|
|
|
$
|
474
|
|
|
$
|
723
|
|
|
$
|
5,764
|
|
|
$
|
|
|
|
$
|
817
|
|
|
$
|
817
|
|
|
$
|
3
|
|
|
$
|
6,584
|
|
|
$
|
|
|
|
$
|
6,584
|
|
Universal life and investment-type product policy fees
|
|
|
546
|
|
|
|
509
|
|
|
|
56
|
|
|
|
|
|
|
|
1,111
|
|
|
|
|
|
|
|
312
|
|
|
|
312
|
|
|
|
|
|
|
|
1,423
|
|
|
|
59
|
|
|
|
1,482
|
|
Net investment income
|
|
|
1,495
|
|
|
|
842
|
|
|
|
1,234
|
|
|
|
52
|
|
|
|
3,623
|
|
|
|
|
|
|
|
274
|
|
|
|
274
|
|
|
|
223
|
|
|
|
4,120
|
|
|
|
(59
|
)
|
|
|
4,061
|
|
Other revenues
|
|
|
188
|
|
|
|
54
|
|
|
|
59
|
|
|
|
8
|
|
|
|
309
|
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
|
|
231
|
|
|
|
544
|
|
|
|
|
|
|
|
544
|
|
Net investment gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14
|
)
|
|
|
(14
|
)
|
Net derivative gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,481
|
|
|
|
1,481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
6,546
|
|
|
|
1,655
|
|
|
|
1,823
|
|
|
|
783
|
|
|
|
10,807
|
|
|
|
|
|
|
|
1,407
|
|
|
|
1,407
|
|
|
|
457
|
|
|
|
12,671
|
|
|
|
1,467
|
|
|
|
14,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
4,721
|
|
|
|
422
|
|
|
|
979
|
|
|
|
506
|
|
|
|
6,628
|
|
|
|
|
|
|
|
751
|
|
|
|
751
|
|
|
|
(2
|
)
|
|
|
7,377
|
|
|
|
(59
|
)
|
|
|
7,318
|
|
Interest credited to policyholder account balances
|
|
|
237
|
|
|
|
405
|
|
|
|
364
|
|
|
|
|
|
|
|
1,006
|
|
|
|
|
|
|
|
41
|
|
|
|
41
|
|
|
|
|
|
|
|
1,047
|
|
|
|
1
|
|
|
|
1,048
|
|
Interest credited to bank deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
|
|
|
|
36
|
|
|
|
|
|
|
|
36
|
|
Capitalization of DAC
|
|
|
(217
|
)
|
|
|
(262
|
)
|
|
|
(3
|
)
|
|
|
(117
|
)
|
|
|
(599
|
)
|
|
|
|
|
|
|
(157
|
)
|
|
|
(157
|
)
|
|
|
|
|
|
|
(756
|
)
|
|
|
|
|
|
|
(756
|
)
|
Amortization of DAC and VOBA
|
|
|
206
|
|
|
|
272
|
|
|
|
4
|
|
|
|
111
|
|
|
|
593
|
|
|
|
|
|
|
|
109
|
|
|
|
109
|
|
|
|
|
|
|
|
702
|
|
|
|
312
|
|
|
|
1,014
|
|
Amortization of negative VOBA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense on debt
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
|
|
262
|
|
|
|
266
|
|
|
|
103
|
|
|
|
369
|
|
Other expenses
|
|
|
1,031
|
|
|
|
607
|
|
|
|
117
|
|
|
|
193
|
|
|
|
1,948
|
|
|
|
|
|
|
|
477
|
|
|
|
477
|
|
|
|
273
|
|
|
|
2,698
|
|
|
|
48
|
|
|
|
2,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
5,978
|
|
|
|
1,445
|
|
|
|
1,462
|
|
|
|
693
|
|
|
|
9,578
|
|
|
|
|
|
|
|
1,223
|
|
|
|
1,223
|
|
|
|
569
|
|
|
|
11,370
|
|
|
|
405
|
|
|
|
11,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
199
|
|
|
|
74
|
|
|
|
126
|
|
|
|
17
|
|
|
|
416
|
|
|
|
|
|
|
|
42
|
|
|
|
42
|
|
|
|
(102
|
)
|
|
|
356
|
|
|
|
471
|
|
|
|
827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
369
|
|
|
$
|
136
|
|
|
$
|
235
|
|
|
$
|
73
|
|
|
$
|
813
|
|
|
$
|
|
|
|
$
|
142
|
|
|
$
|
142
|
|
|
$
|
(10
|
)
|
|
|
945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,467
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
(405
|
)
|
|
|
|
|
|
|
|
|
Provision for income tax (expense) benefit
|
|
|
(471
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of income
tax
|
|
$
|
1,536
|
|
|
|
|
|
|
$
|
1,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
121
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Earnings
|
|
|
|
|
|
|
|
|
|
U.S. Business
|
|
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
Auto
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
Banking,
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance
|
|
|
Retirement
|
|
|
Benefit
|
|
|
&
|
|
|
|
|
|
|
|
|
International
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Total
|
|
Six Months Ended June 30, 2011
|
|
Products
|
|
|
Products
|
|
|
Funding
|
|
|
Home
|
|
|
Total
|
|
|
Japan
|
|
|
Regions
|
|
|
Total
|
|
|
& Other
|
|
|
Total
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
8,460
|
|
|
$
|
446
|
|
|
$
|
1,072
|
|
|
$
|
1,483
|
|
|
$
|
11,461
|
|
|
$
|
3,119
|
|
|
$
|
3,264
|
|
|
$
|
6,383
|
|
|
$
|
4
|
|
|
$
|
17,848
|
|
|
$
|
|
|
|
$
|
17,848
|
|
Universal life and investment-type product policy fees
|
|
|
1,129
|
|
|
|
1,208
|
|
|
|
112
|
|
|
|
|
|
|
|
2,449
|
|
|
|
389
|
|
|
|
906
|
|
|
|
1,295
|
|
|
|
|
|
|
|
3,744
|
|
|
|
114
|
|
|
|
3,858
|
|
Net investment income
|
|
|
3,101
|
|
|
|
1,578
|
|
|
|
2,636
|
|
|
|
104
|
|
|
|
7,419
|
|
|
|
956
|
|
|
|
960
|
|
|
|
1,916
|
|
|
|
627
|
|
|
|
9,962
|
|
|
|
452
|
|
|
|
10,414
|
|
Other revenues
|
|
|
404
|
|
|
|
150
|
|
|
|
121
|
|
|
|
15
|
|
|
|
690
|
|
|
|
13
|
|
|
|
68
|
|
|
|
81
|
|
|
|
384
|
|
|
|
1,155
|
|
|
|
3
|
|
|
|
1,158
|
|
Net investment gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(254
|
)
|
|
|
(254
|
)
|
Net derivative gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
13,094
|
|
|
|
3,382
|
|
|
|
3,941
|
|
|
|
1,602
|
|
|
|
22,019
|
|
|
|
4,477
|
|
|
|
5,198
|
|
|
|
9,675
|
|
|
|
1,015
|
|
|
|
32,709
|
|
|
|
352
|
|
|
|
33,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
9,299
|
|
|
|
777
|
|
|
|
2,113
|
|
|
|
1,251
|
|
|
|
13,440
|
|
|
|
1,968
|
|
|
|
2,320
|
|
|
|
4,288
|
|
|
|
3
|
|
|
|
17,731
|
|
|
|
365
|
|
|
|
18,096
|
|
Interest credited to policyholder account balances
|
|
|
487
|
|
|
|
788
|
|
|
|
665
|
|
|
|
|
|
|
|
1,940
|
|
|
|
757
|
|
|
|
295
|
|
|
|
1,052
|
|
|
|
|
|
|
|
2,992
|
|
|
|
374
|
|
|
|
3,366
|
|
Interest credited to bank deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
|
|
|
|
46
|
|
|
|
|
|
|
|
46
|
|
Capitalization of DAC
|
|
|
(430
|
)
|
|
|
(717
|
)
|
|
|
(18
|
)
|
|
|
(222
|
)
|
|
|
(1,387
|
)
|
|
|
(1,041
|
)
|
|
|
(839
|
)
|
|
|
(1,880
|
)
|
|
|
|
|
|
|
(3,267
|
)
|
|
|
|
|
|
|
(3,267
|
)
|
Amortization of DAC and VOBA
|
|
|
445
|
|
|
|
436
|
|
|
|
10
|
|
|
|
222
|
|
|
|
1,113
|
|
|
|
663
|
|
|
|
600
|
|
|
|
1,263
|
|
|
|
|
|
|
|
2,376
|
|
|
|
61
|
|
|
|
2,437
|
|
Amortization of negative VOBA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(287
|
)
|
|
|
(41
|
)
|
|
|
(328
|
)
|
|
|
|
|
|
|
(328
|
)
|
|
|
(38
|
)
|
|
|
(366
|
)
|
Interest expense on debt
|
|
|
|
|
|
|
1
|
|
|
|
4
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
|
|
644
|
|
|
|
651
|
|
|
|
184
|
|
|
|
835
|
|
Other expenses
|
|
|
2,063
|
|
|
|
1,462
|
|
|
|
237
|
|
|
|
391
|
|
|
|
4,153
|
|
|
|
1,593
|
|
|
|
2,111
|
|
|
|
3,704
|
|
|
|
648
|
|
|
|
8,505
|
|
|
|
207
|
|
|
|
8,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
11,864
|
|
|
|
2,747
|
|
|
|
3,011
|
|
|
|
1,642
|
|
|
|
19,264
|
|
|
|
3,653
|
|
|
|
4,448
|
|
|
|
8,101
|
|
|
|
1,341
|
|
|
|
28,706
|
|
|
|
1,153
|
|
|
|
29,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
431
|
|
|
|
222
|
|
|
|
327
|
|
|
|
(41
|
)
|
|
|
939
|
|
|
|
289
|
|
|
|
211
|
|
|
|
500
|
|
|
|
(244
|
)
|
|
|
1,195
|
|
|
|
(248
|
)
|
|
|
947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
799
|
|
|
$
|
413
|
|
|
$
|
603
|
|
|
$
|
1
|
|
|
$
|
1,816
|
|
|
$
|
535
|
|
|
$
|
539
|
|
|
$
|
1,074
|
|
|
$
|
(82
|
)
|
|
|
2,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
352
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
(1,153
|
)
|
|
|
|
|
|
|
|
|
Provision for income tax (expense) benefit
|
|
|
248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of income
tax
|
|
$
|
2,255
|
|
|
|
|
|
|
$
|
2,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
122
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Earnings
|
|
|
|
|
|
|
|
|
|
U.S. Business
|
|
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
Auto
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
Banking,
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance
|
|
|
Retirement
|
|
|
Benefit
|
|
|
&
|
|
|
|
|
|
|
|
|
International
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Total
|
|
Six Months Ended June 30, 2010
|
|
Products
|
|
|
Products
|
|
|
Funding
|
|
|
Home
|
|
|
Total
|
|
|
Japan
|
|
|
Regions
|
|
|
Total
|
|
|
& Other
|
|
|
Total
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
8,640
|
|
|
$
|
503
|
|
|
$
|
1,145
|
|
|
$
|
1,437
|
|
|
$
|
11,725
|
|
|
$
|
|
|
|
$
|
1,644
|
|
|
$
|
1,644
|
|
|
$
|
3
|
|
|
$
|
13,372
|
|
|
$
|
|
|
|
$
|
13,372
|
|
Universal life and investment-type product policy fees
|
|
|
1,095
|
|
|
|
974
|
|
|
|
111
|
|
|
|
|
|
|
|
2,180
|
|
|
|
|
|
|
|
601
|
|
|
|
601
|
|
|
|
|
|
|
|
2,781
|
|
|
|
106
|
|
|
|
2,887
|
|
Net investment income
|
|
|
2,999
|
|
|
|
1,694
|
|
|
|
2,425
|
|
|
|
105
|
|
|
|
7,223
|
|
|
|
|
|
|
|
702
|
|
|
|
702
|
|
|
|
466
|
|
|
|
8,391
|
|
|
|
(10
|
)
|
|
|
8,381
|
|
Other revenues
|
|
|
377
|
|
|
|
103
|
|
|
|
122
|
|
|
|
6
|
|
|
|
608
|
|
|
|
|
|
|
|
5
|
|
|
|
5
|
|
|
|
444
|
|
|
|
1,057
|
|
|
|
|
|
|
|
1,057
|
|
Net investment gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
18
|
|
Net derivative gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,522
|
|
|
|
1,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
13,111
|
|
|
|
3,274
|
|
|
|
3,803
|
|
|
|
1,548
|
|
|
|
21,736
|
|
|
|
|
|
|
|
2,952
|
|
|
|
2,952
|
|
|
|
913
|
|
|
|
25,601
|
|
|
|
1,636
|
|
|
|
27,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
9,568
|
|
|
|
829
|
|
|
|
2,152
|
|
|
|
1,000
|
|
|
|
13,549
|
|
|
|
|
|
|
|
1,516
|
|
|
|
1,516
|
|
|
|
(7
|
)
|
|
|
15,058
|
|
|
|
101
|
|
|
|
15,159
|
|
Interest credited to policyholder account balances
|
|
|
471
|
|
|
|
811
|
|
|
|
719
|
|
|
|
|
|
|
|
2,001
|
|
|
|
|
|
|
|
191
|
|
|
|
191
|
|
|
|
|
|
|
|
2,192
|
|
|
|
(2
|
)
|
|
|
2,190
|
|
Interest credited to bank deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75
|
|
|
|
75
|
|
|
|
|
|
|
|
75
|
|
Capitalization of DAC
|
|
|
(423
|
)
|
|
|
(496
|
)
|
|
|
(11
|
)
|
|
|
(221
|
)
|
|
|
(1,151
|
)
|
|
|
|
|
|
|
(338
|
)
|
|
|
(338
|
)
|
|
|
|
|
|
|
(1,489
|
)
|
|
|
|
|
|
|
(1,489
|
)
|
Amortization of DAC and VOBA
|
|
|
445
|
|
|
|
441
|
|
|
|
8
|
|
|
|
218
|
|
|
|
1,112
|
|
|
|
|
|
|
|
209
|
|
|
|
209
|
|
|
|
|
|
|
|
1,321
|
|
|
|
290
|
|
|
|
1,611
|
|
Amortization of negative VOBA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense on debt
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
3
|
|
|
|
3
|
|
|
|
523
|
|
|
|
530
|
|
|
|
209
|
|
|
|
739
|
|
Other expenses
|
|
|
2,023
|
|
|
|
1,169
|
|
|
|
233
|
|
|
|
372
|
|
|
|
3,797
|
|
|
|
|
|
|
|
983
|
|
|
|
983
|
|
|
|
547
|
|
|
|
5,327
|
|
|
|
78
|
|
|
|
5,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
12,084
|
|
|
|
2,756
|
|
|
|
3,103
|
|
|
|
1,369
|
|
|
|
19,312
|
|
|
|
|
|
|
|
2,564
|
|
|
|
2,564
|
|
|
|
1,138
|
|
|
|
23,014
|
|
|
|
676
|
|
|
|
23,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
360
|
|
|
|
181
|
|
|
|
245
|
|
|
|
34
|
|
|
|
820
|
|
|
|
|
|
|
|
99
|
|
|
|
99
|
|
|
|
(171
|
)
|
|
|
748
|
|
|
|
435
|
|
|
|
1,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
667
|
|
|
$
|
337
|
|
|
$
|
455
|
|
|
$
|
145
|
|
|
$
|
1,604
|
|
|
$
|
|
|
|
$
|
289
|
|
|
$
|
289
|
|
|
$
|
(54
|
)
|
|
|
1,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,636
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
(676
|
)
|
|
|
|
|
|
|
|
|
Provision for income tax (expense) benefit
|
|
|
(435
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of income
tax
|
|
$
|
2,364
|
|
|
|
|
|
|
$
|
2,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
123
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The following table presents total assets with respect to the
Companys segments, as well as Banking,
Corporate & Other, at:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
(In millions)
|
|
|
U.S. Business:
|
|
|
|
|
|
|
|
|
Insurance Products
|
|
$
|
143,626
|
|
|
$
|
141,366
|
|
Retirement Products
|
|
|
189,411
|
|
|
|
177,045
|
|
Corporate Benefit Funding
|
|
|
187,041
|
|
|
|
172,929
|
|
Auto & Home
|
|
|
5,865
|
|
|
|
5,541
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
525,943
|
|
|
|
496,881
|
|
|
|
|
|
|
|
|
|
|
International:
|
|
|
|
|
|
|
|
|
Japan
|
|
|
98,803
|
|
|
|
87,416
|
|
Other International Regions
|
|
|
69,946
|
|
|
|
77,579
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
168,749
|
|
|
|
164,995
|
|
Banking, Corporate & Other
|
|
|
76,791
|
|
|
|
69,030
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
771,483
|
|
|
$
|
730,906
|
|
|
|
|
|
|
|
|
|
|
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.
Operating revenues derived from any customer did not exceed 10%
of consolidated operating revenues for the three months and six
months ended June 30, 2011 and 2010. Operating revenues
from U.S. operations were $11.4 billion and
$22.5 billion for the three months and six months ended
June 30, 2011, respectively, which represented 67% and 69%,
respectively, of consolidated operating revenues. Operating
revenues from U.S. operations were $11.1 billion and
$22.1 billion for the three months and six months ended
June 30, 2010, respectively, which represented 88% and 87%,
respectively, of consolidated operating 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 $28 million
and $48 million for the three months and six months ended
June 30, 2011, respectively, and $7 million and
$10 million for the three months and six months ended
June 30, 2010, respectively.
The carrying value of real estate related to discontinued
operations was $7 million and $65 million at
June 30, 2011 and December 31, 2010, respectively.
Operations
During the first quarter of 2011, the Company entered into a
definitive agreement to sell its wholly-owned subsidiary,
MetLife Taiwan, to a third party. See Note 2. The following
tables present the amounts related to the operations and
financial position of MetLife Taiwan as well as the impairment
loss on the Companys investment in MetLife Taiwan, that
have been reflected as discontinued operations in the interim
condensed consolidated
124
MetLife,
Inc.
Notes to
the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
statements of operations and as assets and liabilities
held-for-sale
in the interim condensed consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
(In millions)
|
|
|
Total revenues
|
|
$
|
129
|
|
|
$
|
105
|
|
|
$
|
236
|
|
|
$
|
194
|
|
Total expenses
|
|
|
116
|
|
|
|
100
|
|
|
|
214
|
|
|
|
184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income tax
|
|
|
13
|
|
|
|
5
|
|
|
|
22
|
|
|
|
10
|
|
Provision for income tax expense
|
|
|
5
|
|
|
|
1
|
|
|
|
8
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations of discontinued operations, net of income
tax
|
|
|
8
|
|
|
|
4
|
|
|
|
14
|
|
|
|
7
|
|
Net investment gain (loss), net of income tax
|
|
|
(7
|
)
|
|
|
|
|
|
|
(74
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of income tax
|
|
$
|
1
|
|
|
$
|
4
|
|
|
$
|
(60
|
)
|
|
$
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
(In millions)
|
|
|
Total assets
held-for-sale
|
|
$
|
3,369
|
|
|
$
|
3,331
|
|
Total liabilities
held-for-sale
|
|
$
|
3,163
|
|
|
$
|
3,043
|
|
Major classes of assets and liabilities included above:
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
2,987
|
|
|
$
|
2,726
|
|
Total future policy benefits
|
|
$
|
2,616
|
|
|
$
|
2,461
|
|
125
|
|
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 refer to MetLife, Inc., a Delaware corporation
incorporated in 1999 (the Holding Company), its
subsidiaries and affiliates. 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, 2010, as amended by
MetLife, Inc.s
Form 10-K/A
dated March 1, 2011 (as amended, the 2010 Annual
Report), filed with the U.S. Securities and Exchange
Commission (SEC), the forward-looking statement
information included below, the Risk Factors set
forth in Part II, Item 1A and the additional risk
factors referred to therein, and the Companys interim
condensed consolidated financial statements included elsewhere
herein.
This Managements Discussion and Analysis of Financial
Condition and Results of Operations may contain or incorporate
by reference information that includes or is based upon
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking
statements give expectations or forecasts of future events.
These statements can be identified by the fact that they do not
relate strictly to historical or current facts. They use words
such as anticipate, estimate,
expect, project, intend,
plan, believe and other words and terms
of similar meaning in connection with a discussion of future
operating or financial performance. In particular, these include
statements relating to future actions, prospective services or
products, future performance or results of current and
anticipated services or products, sales efforts, expenses, the
outcome of contingencies such as legal proceedings, trends in
operations and financial results. Any or all forward-looking
statements may turn out to be wrong. 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 accounting principles
generally accepted 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, it 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, both net of income tax. Operating earnings
available to common shareholders is defined as operating
earnings less preferred stock dividends.
Operating revenues exclude net investment gains (losses) and net
derivative gains (losses). The following additional adjustments
are made to GAAP revenues, in the line items indicated, in
calculating operating revenues:
|
|
|
|
|
Universal life and investment-type product policy fees exclude
the amortization of unearned revenue related to net investment
gains (losses) and net derivative gains (losses) and certain
variable annuity guaranteed minimum income benefits
(GMIB) fees (GMIB Fees);
|
|
|
|
Net investment income: (i) includes amounts for scheduled
periodic settlement payments and amortization of premium on
derivatives that are hedges of investments but do not qualify
for hedge accounting treatment, (ii) includes income from
discontinued real estate operations, (iii) excludes
post-tax operating earnings adjustments relating to insurance
joint ventures accounted for under the equity method,
(iv) excludes certain amounts related to
contractholder-directed unit-linked investments, and
(v) excludes certain amounts related to securitization
entities that are variable interest entities (VIEs)
consolidated under GAAP; and
|
|
|
|
Other revenues are adjusted for settlements of foreign currency
earnings hedges.
|
The following adjustments are made to GAAP expenses, in the line
items indicated, in calculating operating expenses:
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
exclude: (i) changes in the policyholder dividend
obligation related to net investment gains (losses) and net
derivative gains (losses), (ii) inflation-indexed benefit
adjustments associated with contracts backed by
inflation-indexed investments and amounts associated with
periodic crediting rate adjustments based on the total return of
a contractually referenced
|
126
|
|
|
|
|
pool of assets, (iii) benefits and hedging costs related to
GMIBs (GMIB Costs), and (iv) market value
adjustments associated with surrenders or terminations of
contracts (Market Value Adjustments);
|
|
|
|
|
|
Interest credited to policyholder account balances includes
adjustments for scheduled periodic settlement payments and
amortization of premium on derivatives that are hedges of
policyholder account balances but do not qualify for hedge
accounting treatment and amounts related to net investment
income earned on contractholder-directed unit-linked investments;
|
|
|
|
Amortization of deferred policy acquisition costs
(DAC) and value of business acquired
(VOBA) excludes amounts related to: (i) net
investment gains (losses) and net derivative gains (losses),
(ii) GMIB Fees and GMIB Costs, and (iii) Market Value
Adjustments;
|
|
|
|
Amortization of negative VOBA excludes amounts related to Market
Value Adjustments;
|
|
|
|
Interest expense on debt excludes certain amounts related to
securitization entities that are VIEs consolidated under
GAAP; and
|
|
|
|
Other expenses exclude costs related to: (i) noncontrolling
interests, (ii) implementation of new insurance regulatory
requirements, and (iii) business combinations.
|
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 business. Operating
revenues, operating expenses, operating earnings, and operating
earnings available to common shareholders should not be viewed
as substitutes for GAAP revenues, GAAP expenses, GAAP income
(loss) from continuing operations, net of income tax, and GAAP
net income (loss) available to MetLife, Inc.s common
shareholders, respectively. Reconciliations of these measures to
the most directly comparable GAAP measures, are included in
Results of Operations.
In the first quarter of 2011, management modified its definition
of operating earnings and operating earnings available to common
shareholders to exclude impacts related to certain variable
annuity guarantees and Market Value Adjustments to better
conform to the way it manages and assesses its business.
Accordingly, such results are no longer reported in operating
earnings and operating earnings available to common
shareholders. Consequently, prior period results for Retirement
Products and total consolidated operating earnings have been
reduced by $105 million, net of $56 million of income
tax, and $71 million, net of $38 million of income
tax, for the three months and six months ended June 30,
2010, respectively.
In this discussion, we sometimes refer to sales activity for
various products. These sales statistics do not correspond to
revenues under GAAP, but are used as relevant measures of
business activity.
Executive
Summary
MetLife is a leading global provider of insurance, annuities and
employee benefit programs throughout the United States
(U.S.), Japan, Latin America, Asia Pacific, Europe
and the Middle East. Through its subsidiaries and affiliates,
MetLife offers life insurance, annuities, auto and homeowners
insurance, mortgage and deposit products 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
six segments: Insurance Products, Retirement Products, Corporate
Benefit Funding and Auto & Home (collectively,
U.S. Business), and Japan and Other
International Regions (collectively, International).
In addition, the Company reports certain of its results of
operations in Banking, Corporate & Other, which
includes MetLife Bank, National Association (MetLife
Bank) and other business activities. On July 21,
2011, MetLife, Inc. announced that it is exploring the sale of
MetLife Banks depository business, which includes savings
accounts, certificates of deposit and money market accounts.
MetLife plans to continue to offer residential mortgages through
its home loans business.
On November 1, 2010 (the Acquisition Date),
MetLife, Inc. completed the acquisition of American Life
Insurance Company (American Life) from AM Holdings
LLC (formerly known as ALICO Holdings LLC) (AM
Holdings), a subsidiary of American International Group,
Inc. (AIG), and Delaware American Life Insurance
Company (DelAm) from AIG (American Life, together
with DelAm, collectively, ALICO) (the
Acquisition). ALICOs fiscal year-end is
November 30. Accordingly, the Companys interim
condensed consolidated financial
127
statements reflect the assets and liabilities of ALICO as of
May 31, 2011 and the operating results of ALICO for the
three months and six months ended May 31, 2011.
In the first quarter of 2011, the Company began reporting the
results from its international operations in two separate
segments to reflect a change in the manner in which the
financial results are reviewed and evaluated by executive
management. The assets, liabilities and the operating results
relating to the Acquisition are included in Japan and Other
International Regions segments. Prior period results have been
adjusted to conform to this new presentation of segments.
In the fourth quarter of 2010, management realigned certain
income annuity products within the Companys segments to
better conform to the way it manages and assesses its business
and began reporting such product results in the Retirement
Products segment, previously reported in the Corporate Benefit
Funding segment. Accordingly, prior period results for these
segments have been adjusted by $3 million of operating
earnings, net of $2 million of income tax, and
$11 million of operating earnings, net of $6 million
of income tax, for the three months and six months ended
June 30, 2010, respectively, to reflect such product
reclassifications.
With the improving stability of the U.S. and global
financial markets, we have experienced improvements in net
investment income in certain businesses and policy fee income.
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 offset by
unfavorable changes in net investment gains (losses) and net
derivative gains (losses) as well as severe storm activity in
the U.S. and the impact of the March 2011 earthquake and
tsunami in Japan in the current period. In addition, the demand
for certain of our products was further impacted by the unstable
economic environment, including high levels of unemployment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
(In millions)
|
|
|
Income (loss) from continuing operations, net of income tax
|
|
$
|
1,201
|
|
|
$
|
1,536
|
|
|
$
|
2,255
|
|
|
$
|
2,364
|
|
Less: Net investment gains (losses)
|
|
|
(155
|
)
|
|
|
(14
|
)
|
|
|
(254
|
)
|
|
|
18
|
|
Less: Net derivative gains (losses)
|
|
|
352
|
|
|
|
1,481
|
|
|
|
37
|
|
|
|
1,522
|
|
Less: Other adjustments to continuing operations (1)
|
|
|
(417
|
)
|
|
|
(405
|
)
|
|
|
(584
|
)
|
|
|
(580
|
)
|
Less: Provision for income tax (expense) benefit
|
|
|
61
|
|
|
|
(471
|
)
|
|
|
248
|
|
|
|
(435
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
|
1,360
|
|
|
|
945
|
|
|
|
2,808
|
|
|
|
1,839
|
|
Less: Preferred stock dividends
|
|
|
31
|
|
|
|
31
|
|
|
|
61
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings available to common shareholders
|
|
$
|
1,329
|
|
|
$
|
914
|
|
|
$
|
2,747
|
|
|
$
|
1,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See definitions of operating revenues and operating expenses for
the components of such adjustments. |
Three
Months Ended June 30, 2011 Compared with the Three Months
Ended June 30, 2010
Unless otherwise stated, all amounts discussed below are net of
income tax.
During the three months ended June 30, 2011, income (loss)
from continuing operations, net of income tax, decreased
$335 million to $1.2 billion from $1.5 billion in
the comparable 2010 period. The change was predominantly due to
a $1.1 billion unfavorable change in net derivative gains
(losses), before income tax, and a $141 million unfavorable
change in net investment gains (losses), before income tax,
partially offset by a $415 million favorable change in
operating earnings available to common shareholders, which
includes the impact of the Acquisition.
The unfavorable change in net derivative gains (losses) of
$734 million was primarily driven by unfavorable changes in
freestanding derivatives, partially offset by favorable changes
in embedded derivatives. The unfavorable changes in net
derivatives gains (losses) were primarily attributable to the
impact of equity market movements, a decrease in equity market
volatility, falling long-term and mid-term interest rates, a
weakening U.S. dollar, and less
128
strengthening in the Japanese yen against other currencies. The
unfavorable change in net investment gains (losses) was
primarily driven by increased impairments of equity securities.
The Acquisition drove most of the $415 million increase in
operating earnings available to common shareholders. We also
benefited from the improvement in the financial markets, which
was most evident in certain businesses from higher net
investment income and higher policy fee income as average
separate account balances grew with favorable equity market
performance and increased sales of our variable annuity
products. The current period was negatively impacted by severe
storm activity in the U.S. as well as the impact of the
March 2011 earthquake and tsunami in Japan.
Six
Months Ended June 30, 2011 Compared with the Six Months
Ended June 30, 2010
Unless otherwise stated, all amounts discussed below are net of
income tax.
During the six months ended June 30, 2011, income (loss)
from continuing operations, net of income tax, decreased
$109 million to $2.3 billion from $2.4 billion in
the comparable 2010 period. The change was predominantly due to
a $1.5 billion unfavorable change in net derivative gains
(losses), before income tax, and a $272 million unfavorable
change in net investment gains (losses), before income tax,
partially offset by a $969 million favorable change in
operating earnings available to common shareholders, which
includes the impact of the Acquisition.
The unfavorable change in net derivative gains (losses) of
$965 million was primarily driven by unfavorable changes in
freestanding derivatives, partially offset by favorable changes
in embedded derivatives. The unfavorable changes in net
derivative gains (losses) were primarily attributable to the
impact of equity market movements, a decrease in equity market
volatility, falling long-term and mid-term interest rates, a
weakening U.S. dollar and a weakening Japanese yen against
other currencies. The unfavorable change in net investment gains
(losses) was primarily driven by both increased net losses on
sales of, and increased impairments on, both equity securities
and fixed maturity securities.
The Acquisition drove most of the $969 million increase in
operating earnings available to common shareholders. We also
benefited from the improvement in the financial markets, which
was most evident in certain businesses from higher net
investment income and higher policy fee income as average
separate account balances grew with favorable equity market
performance and increased sales of our variable annuity
products. The current period was negatively impacted by recent
severe storm activity in the U.S. as well as the impact of
the March 2011 earthquake and tsunami in Japan.
Consolidated
Company Outlook
In 2011, we continue to expect a significant improvement in the
operating earnings of the Company over 2010, driven primarily by
the following:
|
|
|
|
|
Premiums, fees and other revenues growth in 2011 of 31%, which
is mainly attributable to the Acquisition. The remaining
increase is expected to be driven by:
|
|
|
|
|
|
Increases in our International businesses from continuing
organic growth throughout our various geographic regions;
|
|
|
|
Higher fees earned on separate accounts, as the equity markets
continue to improve, thereby increasing the value of those
separate accounts. In addition, net flows of variable annuities
are expected to remain strong in the remainder of 2011, which
also increases the account values upon which these fees are
earned; and
|
|
|
|
Growth within our pension closeouts business.
|
|
|
|
|
|
Focus on disciplined underwriting. We see no significant changes
to the underlying trends that drive underwriting results and
continue to anticipate solid results in 2011.
|
129
|
|
|
|
|
Focus on expense management. We continue to focus on expense
control throughout the Company, specifically managing the costs
associated with the integration of ALICO. We also continue to
expect to begin realizing cost synergies later in 2011.
|
|
|
|
Performance of the investment portfolio. Although the market
environment remains challenging, we expect the performance on
our investment portfolio in 2011 with respect to both income and
realized gains and losses will generally be higher than the
results achieved in 2010.
|
More difficult to predict is the impact of potential changes in
fair value of freestanding and embedded derivatives 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 and net derivative gains
(losses). Additionally, changes in fair value of embedded
derivatives within certain insurance liabilities may have a
material impact on net derivative gains (losses) related to the
inclusion of an adjustment for nonperformance risk.
Industry
Trends
Despite continued improvement in general economic conditions in
2011, we continue to be impacted by the unstable global
financial and economic environment that has been affecting 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 U.S. and elsewhere around the world.
Stressed conditions, volatility and disruptions in global
capital markets, particular markets, or financial asset classes
can have an adverse effect on us, in part because we have a
large investment portfolio and our insurance liabilities are
sensitive to changing market factors. The global economy and
markets are 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.
Although the disruption in the global financial markets has
moderated, not all global financial markets are functioning
normally, and recovery from the U.S. recession has been
below historic averages. Global inflation had fallen over the
last several years, but is now rising, and a number of central
banks around the world have begun tightening monetary
conditions. The global recession and disruption of the financial
markets has led to concerns over capital markets access and the
solvency of certain European Union member states, including
Portugal, Ireland, Italy, Greece and Spain, and of financial
institutions that have significant direct or indirect exposure
to debt issued by these countries. Certain of the major rating
agencies have downgraded the sovereign debt of Greece, Portugal
and Ireland. These ratings downgrades and implementation of
European Union and private sector support programs have
increased concerns that other European Union member states could
experience similar financial troubles. Furthermore, the delay by
Congress in raising the statutory national debt limit could have
severe repercussions to the U.S. and global credit and
financial markets, further exacerbate concerns over sovereign
debt of other countries and could disrupt economic activity in
the U.S. and elsewhere. See
Investments Current
Environment for further information about support programs
announced in July 2011 and ratings actions.
All of these factors have had and could continue to have an
adverse effect on the financial results of companies in the
financial services industry, including MetLife. Such global
economic conditions, as well as the global financial markets,
continue to impact our net investment income, our net investment
and net derivative gains (losses), and the demand for and the
cost and profitability of certain of our products, including
variable annuities and guarantee benefits. See
Results of Operations and
Liquidity and Capital Resources.
As a financial holding company with significant operations in
the U.S., we are affected by the monetary policy of the Federal
Reserve Board. The Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank), which was signed by
President Obama in July 2010, will significantly change
financial regulation in the U.S. See Risk
Factors Various Aspects of Dodd-Frank Could Impact
Our Business Operations, Capital Requirements and Profitability
and Limit Our Growth in the 2010 Annual Report. In
addition, the oversight body of the Basel Committee on Banking
Supervision announced in December 2010 increased capital and
liquidity requirements (commonly referred to as Basel
III) for bank holding companies, such as MetLife, Inc.
Assuming these requirements are endorsed and adopted by the
U.S., they are to be phased in beginning January 1, 2013.
It is possible that even more stringent capital and liquidity
requirements could be imposed under Dodd-Frank and Basel III.
130
Competitive Pressures. The life insurance
industry remains highly competitive. The product development and
product life-cycles have shortened in many product segments,
leading to more intense competition with respect to product
features. Larger companies have the ability to invest in brand
equity, product development, technology and risk management,
which are among the fundamentals for sustained profitable growth
in the life insurance industry. In addition, several of the
industrys products can be quite homogeneous and subject to
intense price competition. Sufficient scale, financial strength
and financial flexibility are becoming prerequisites for
sustainable growth in the life insurance industry. Larger market
participants tend to have the capacity to invest in additional
distribution capability and the information technology needed to
offer the superior customer service demanded by an increasingly
sophisticated industry client base. We believe that the
turbulence in financial markets that began in the second half of
2007, its impact on the capital position of many competitors,
and subsequent actions by regulators and rating agencies have
highlighted financial strength as a significant differentiator
from the perspective of customers and certain distributors. In
addition, the financial market turbulence and the economic
recession have led many companies in our industry to re-examine
the pricing and features of the products they offer and may lead
to consolidation in the life insurance industry.
Regulatory Changes. The U.S. life
insurance industry is regulated at the state level, with some
products and services also subject to Federal regulation. As
life insurers introduce new and often more complex products,
regulators refine capital requirements and introduce new
reserving standards for the life insurance industry. Regulations
recently adopted or currently under review can potentially
impact the statutory reserve and capital requirements of the
industry. In addition, regulators have undertaken market and
sales practices reviews of several markets or products,
including equity-indexed annuities, variable annuities and group
products. The regulation of the financial services industry in
the U.S. and internationally has received renewed scrutiny
as a result of the disruptions in the financial markets in 2008
and 2009. Significant regulatory reforms have been recently
adopted and additional reforms proposed, and these or other
reforms could be implemented. See Risk Factors
Our Insurance, Brokerage and Banking Businesses Are Highly
Regulated, and Changes in Regulation and in Supervisory and
Enforcement Policies May Reduce Our Profitability and Limit Our
Growth. Also see Risk Factors Changes in
U.S. Federal and State Securities Laws and Regulations, and
State Insurance Regulations Regarding Suitability of Annuity
Product Sales, May Affect Our Operations and Our
Profitability in the 2010 Annual Report. Until various
studies are completed and final regulations are promulgated
pursuant to Dodd-Frank, the full impact of Dodd-Frank on the
investments, investment activities, banking activities and
insurance and annuity products of the Company remains unclear.
See Risk Factors Various Aspects of Dodd-Frank
Could Impact Our Business Operations, Capital Requirements and
Profitability and Limit Our Growth in the 2010 Annual
Report. Under Dodd-Frank, 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 Tier 1 and
total 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. The so-called Volcker Rule
provisions of Dodd-Frank restrict 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 Risk Factors Various
Aspects of Dodd-Frank Could Impact Our Business Operations,
Capital Requirements and Profitability and Limit Our
Growth in the 2010 Annual Report. MetLife, Inc. is
exploring the sale of MetLife Banks depository business,
but plans to continue offering residential mortgage loans
through a nonbank entity. This sale, if completed, and the
associated relinquishment of MetLife Banks charter, would
end MetLife, Inc.s status as a bank holding company with
assets of $50 billion or more, and would render the
Volcker Rule inapplicable to the Company; however,
MetLife, Inc. could still be subject to enhanced prudential
standards if it is designated as a systemically important
financial company. It is not clear how these enhanced standards
will be applied to non-bank systemically important financial
companies.
Mortgage and Foreclosure-Related Exposures. In
2008, MetLife Bank acquired certain assets to enter the forward
and reverse residential mortgage origination and servicing
business, including rights to service residential mortgage
loans. At various times since then, including most recently in
the third quarter of 2010, MetLife Bank has acquired additional
residential mortgage loan servicing rights. As an originator and
servicer of mortgage loans, which are usually sold to an
investor shortly after origination, MetLife Bank has obligations
to repurchase loans or compensate for losses upon demand by the
investor due to a determination that material representations
made in connection with the sale of the loans (relating, for
example, to the underwriting and origination of the loans) are
incorrect or defects in servicing of the loan. MetLife Bank is
indemnified by the sellers of the acquired assets, for
131
various periods depending on the transaction and the nature of
the claim, for origination and servicing deficiencies that
occurred prior to MetLife Banks acquisition, including
indemnification for any repurchase claims made from investors
who purchased mortgage loans from the sellers. Substantially all
mortgage servicing rights that were acquired by MetLife Bank
relate to loans sold to Federal National Mortgage Association
(FNMA) or Federal Home Loan Mortgage Corporation
(FHLMC). Since the 2008 acquisitions, MetLife Bank
has originated and sold mortgages primarily to FNMA, FHLMC and
Government National Mortgage Association (GNMA)
(collectively, the Agency Investors) and, to a
limited extent, a small number of private investors. Currently
99% of MetLife Banks $87 billion servicing portfolio
consists of Agency Investors product. Other than
repurchase obligations which are subject to indemnification by
sellers of acquired assets as described above, MetLife
Banks exposure to repurchase obligations and losses
related to origination deficiencies is limited to the
approximately $59 billion of loans originated by MetLife
Bank (all of which have been originated since August 2008).
Reserves for representation and warranty repurchases and
indemnifications were $62 million and $56 million at
June 30, 2011 and December 31, 2010, respectively.
MetLife Bank is also exposed to losses due to servicing
deficiencies on loans originated and sold as well as servicing
acquired, to the extent such servicing deficiencies occurred
after the date of acquisition. Management is satisfied that
adequate provision has been made in the Companys
consolidated financial statements for all probable and
reasonably estimable repurchase obligations and losses.
Since 2008, MetLife, through its affiliate, MetLife Bank, has
significantly increased its mortgage servicing activities by
acquiring servicing portfolios. Currently, MetLife Bank services
approximately 1% of the aggregate principal amount of the
mortgage loans serviced in the U.S. State and federal
regulatory and law enforcement authorities have initiated
various inquiries, investigations or examinations of alleged
irregularities in the foreclosure practices of the residential
mortgage servicing industry. Mortgage servicing practices have
also been the subject of Congressional attention. Authorities
have publicly stated that the scope of the investigations
extends beyond foreclosure documentation practices to include
mortgage loan modification and loss mitigation practices.
MetLife Banks mortgage servicing has been the subject of
recent inquiries and requests by such authorities. MetLife Bank
is cooperating with the authorities review of this
business. On April 13, 2011, the Office of the Comptroller
of the Currency (OCC) entered into consent decrees
with several banks, including MetLife Bank. The consent decrees
require an independent review of foreclosure practices and set
forth new residential mortgage servicing standards, including a
requirement for a designated point of contact for a borrower
during the loss mitigation process. In addition, the Board of
Governors of the Federal Reserve System (Federal
Reserve) entered into consent decrees with the affiliated
bank holding companies of these banks, including MetLife, Inc.,
to enhance the supervision of the mortgage servicing activities
of their banking subsidiaries. Neither of the consent decrees
includes monetary penalties. In a press release, the Federal
Reserve stated that it plans to announce monetary penalties with
respect to the consent orders. The OCC stated in its press
release that the actions do not preclude assessment of civil
monetary penalties, which the OCC is holding in abeyance.
MetLife Bank has also had an initial meeting with the Department
of Justice regarding mortgage servicing and foreclosure
practices. These consent decrees as well as the inquiries or
investigations referred to above could adversely affect
MetLifes reputation or result in material fines,
penalties, equitable remedies or other enforcement actions, and
result in significant legal costs in responding to governmental
investigations or other litigation. In addition, the changes to
the mortgage servicing business required by the consent decrees
and the resolution of any other inquiries or investigations may
affect the profitability of such business.
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;
|
132
|
|
|
|
(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.
|
The application of acquisition accounting requires the use of
estimation techniques in determining the estimated fair values
of assets acquired and liabilities assumed the most
significant of which relate to aforementioned critical
accounting estimates. 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 business
and operations. Actual results could differ from these estimates.
The above critical accounting estimates are described in
Managements Discussion and Analysis of Financial
Condition and Results of Operations Summary of
Critical Accounting Estimates and Note 1 of the Notes
to the Consolidated Financial Statements in the 2010 Annual
Report.
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 the Companys business.
Effective January 1, 2011, the Company updated its economic
capital model to align segment allocated equity with emerging
standards and consistent risk principles. Such changes to the
Companys economic capital model are applied prospectively.
Segment net investment income is also credited or charged based
on the level of allocated equity; however, changes in allocated
equity do not impact the Companys consolidated net
investment income, operating earnings or income (loss) from
continuing operations, net of income tax.
Acquisitions
and Dispositions
See Note 2 of the Notes to the Interim Condensed
Consolidated Financial Statements.
In addition, in the second quarter of 2011, (i) a
subsidiary of American Life agreed to purchase a 99.86% stake in
a Turkish life insurance and pension company and enter into an
exclusive
15-year
distribution arrangement with Deniz Bank to sell the
Companys products in Turkey, and (ii) American Life
agreed to sell certain closed blocks of business in the U.K. In
July 2011, Punjab National Bank (PNB) agreed to
acquire a 30% stake in MetLife India Insurance Company Limited
(MetLife India) in exchange for an exclusive
10-year
distribution arrangement to sell MetLife Indias products
through PNBs branch network. Closure of these transactions
is subject to regulatory and other approvals.
Results
of Operations
Three
Months Ended June 30, 2011 Compared with the Three Months
Ended June 30, 2010
Consolidated
Results
We have experienced growth and an increase in market share in
several of our businesses, which, together with improved overall
market conditions compared to conditions in the prior period,
positively impacted our results, most significantly through
higher net investment income in certain of our businesses and
higher policy fee income.
133
Sales of our domestic annuity products were up 48%, driven by an
increase in variable annuity sales compared with the prior
period. Even with the impact of the earthquake and tsunami in
Japan, our sales results there continue to show steady growth
and improvement. We also benefited in the current quarter from
strong sales of funding agreements. Market penetration continues
in our pension closeout business in the U.K.; however, although
improving, our domestic pension closeout business has been
adversely impacted by a combination of poor equity market
returns and lower interest rates. Sustained high levels of
unemployment and a challenging pricing environment continue to
depress growth across our group insurance businesses. While we
experienced growth in our traditional life and universal life
businesses, sales of group life and non-medical health products
declined. Sales of new auto and homeowner policies decreased as
the housing and automobile markets remained sluggish. We
experienced steady growth and improvement in sales of the
majority of our products abroad. The residential mortgage
refinance market declined in comparison to the second quarter of
2010, driving lower originations of forward mortgages.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Change
|
|
|
% Change
|
|
|
|
(In millions)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
9,294
|
|
|
$
|
6,584
|
|
|
$
|
2,710
|
|
|
|
41.2
|
%
|
Universal life and investment-type product policy fees
|
|
|
1,969
|
|
|
|
1,482
|
|
|
|
487
|
|
|
|
32.9
|
%
|
Net investment income
|
|
|
5,098
|
|
|
|
4,061
|
|
|
|
1,037
|
|
|
|
25.5
|
%
|
Other revenues
|
|
|
592
|
|
|
|
544
|
|
|
|
48
|
|
|
|
8.8
|
%
|
Net investment gains (losses)
|
|
|
(155
|
)
|
|
|
(14
|
)
|
|
|
(141
|
)
|
|
|
(1,007.1
|
)%
|
Net derivative gains (losses)
|
|
|
352
|
|
|
|
1,481
|
|
|
|
(1,129
|
)
|
|
|
(76.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
17,150
|
|
|
|
14,138
|
|
|
|
3,012
|
|
|
|
21.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
9,493
|
|
|
|
7,318
|
|
|
|
2,175
|
|
|
|
29.7
|
%
|
Interest credited to policyholder account balances
|
|
|
1,442
|
|
|
|
1,048
|
|
|
|
394
|
|
|
|
37.6
|
%
|
Interest credited to bank deposits
|
|
|
23
|
|
|
|
36
|
|
|
|
(13
|
)
|
|
|
(36.1
|
)%
|
Capitalization of DAC
|
|
|
(1,698
|
)
|
|
|
(756
|
)
|
|
|
(942
|
)
|
|
|
(124.6
|
)%
|
Amortization of DAC and VOBA
|
|
|
1,381
|
|
|
|
1,014
|
|
|
|
367
|
|
|
|
36.2
|
%
|
Amortization of negative VOBA
|
|
|
(183
|
)
|
|
|
|
|
|
|
(183
|
)
|
|
|
|
|
Interest expense on debt
|
|
|
420
|
|
|
|
369
|
|
|
|
51
|
|
|
|
13.8
|
%
|
Other expenses
|
|
|
4,552
|
|
|
|
2,746
|
|
|
|
1,806
|
|
|
|
65.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
15,430
|
|
|
|
11,775
|
|
|
|
3,655
|
|
|
|
31.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before provision for
income tax
|
|
|
1,720
|
|
|
|
2,363
|
|
|
|
(643
|
)
|
|
|
(27.2
|
)%
|
Provision for income tax expense (benefit)
|
|
|
519
|
|
|
|
827
|
|
|
|
(308
|
)
|
|
|
(37.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of income tax
|
|
|
1,201
|
|
|
|
1,536
|
|
|
|
(335
|
)
|
|
|
(21.8
|
)%
|
Income (loss) from discontinued operations, net of income tax
|
|
|
29
|
|
|
|
11
|
|
|
|
18
|
|
|
|
163.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
1,230
|
|
|
|
1,547
|
|
|
|
(317
|
)
|
|
|
(20.5
|
)%
|
Less: Net income (loss) attributable to noncontrolling interests
|
|
|
(7
|
)
|
|
|
(10
|
)
|
|
|
3
|
|
|
|
30.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to MetLife, Inc.
|
|
|
1,237
|
|
|
|
1,557
|
|
|
|
(320
|
)
|
|
|
(20.6
|
)%
|
Less: Preferred stock dividends
|
|
|
31
|
|
|
|
31
|
|
|
|
|
|
|
|
|
%
|
Preferred stock redemption premium
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to MetLife, Inc.s common
shareholders
|
|
$
|
1,206
|
|
|
$
|
1,526
|
|
|
$
|
(320
|
)
|
|
|
(21.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
134
Unless otherwise stated, all amounts discussed below are net of
income tax.
During the three months ended June 30, 2011, income (loss)
from continuing operations, net of income tax, decreased
$335 million to $1.2 billion primarily driven by
decreased derivative gains and increased investment losses, both
net of related adjustments, principally associated with DAC and
VOBA amortization. This decrease was partially offset by an
increase in operating earnings, reflecting the impact of the
Acquisition.
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, net
of income tax, risk-adjusted net investment income and
risk-adjusted total return. Our investment portfolio is heavily
weighted toward fixed income investments, with over 80% of our
portfolio invested in fixed maturity securities and mortgage
loans. These securities and loans have varying maturities and
other characteristics which cause them to be generally well
suited for matching the cash flow and duration of insurance
liabilities. Other invested asset classes including, but not
limited to, equity securities, other limited partnership
interests and real estate and real estate joint ventures,
provide additional diversification and opportunity for long-term
yield enhancement in addition to supporting the cash flow and
duration objectives of our investment portfolio. We also use
derivatives as an integral part of our management of the
investment portfolio to hedge certain risks, including changes
in interest rates, foreign currencies, credit spreads and equity
market levels. Additional considerations for our investment
portfolio include current and expected market conditions and
expectations for changes within our specific mix of products and
business segments. In addition, the general account investment
portfolio includes, within trading and other securities,
contractholder-directed investments supporting unit-linked
variable annuity type liabilities, which do not qualify as
separate account assets. The returns on these
contractholder-directed investments, which can vary
significantly period to period, include changes in estimated
fair value subsequent to purchase, inure to contractholders and
are offset in earnings by a corresponding change in policyholder
account balances through interest credited to policyholder
account balances.
The composition of the investment portfolio of each business
segment is tailored to the specific characteristics of its
insurance liabilities, causing certain portfolios to be shorter
in duration and others to be longer in duration. Accordingly,
certain portfolios are more heavily weighted in longer duration,
higher yielding 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 changes in market factors such as interest
rates, foreign currencies, credit spreads and equity markets,
counterparty specific factors such as financial performance,
credit rating and collateral valuation, and internal factors
such as portfolio rebalancing. Changes in these factors from
period to period can significantly impact the levels of both
impairments and realized gains and losses on investments sold.
We use freestanding currency, interest rate, 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. For those hedges not designated as
accounting hedges, changes in market factors can lead to the
recognition of fair value changes in net derivative gains
(losses) without an offsetting gain or loss recognized in
earnings for the item being hedged even though these are
effective economic hedges. Additionally, we issue liabilities
and purchase assets that contain embedded derivatives whose
changes in estimated fair value are sensitive to changes in
market factors and are also recognized in net derivative gains
(losses).
The unfavorable variance in net derivative gains (losses) of
$734 million, from gains of $963 million in the second
quarter of 2010 to gains of $229 million in the comparable
2011 period, was driven by an unfavorable change in freestanding
derivatives of $1.9 billion which was partially offset by a
favorable change in embedded derivatives of $1.2 billion
primarily associated with variable annuity minimum benefit
guarantees.
The $1.9 billion unfavorable variance in freestanding
derivatives was primarily attributable to the impact of equity
market movements, a decrease in equity volatility, falling
long-term and mid-term interest rates, a weakening
U.S. dollar and less strengthening in the Japanese yen
against other currencies. The impact of equity market movements
and decreased equity volatility in the current period compared
to the prior period
135
had a negative impact of $1.1 billion on our equity
derivatives, which was primarily attributable to hedges of
variable annuity minimum benefit guarantee liabilities that are
accounted for as embedded derivatives. Long-term and mid-term
interest rates fell more in the prior period than in the current
period which had a negative impact of $407 million on our
interest rate derivatives, $292 million of which was
attributable to hedges of variable annuity minimum benefit
guarantee liabilities that are accounted for as embedded
derivatives. Foreign currency derivatives had a negative impact
of $367 million related to hedges of foreign-currency
exposures, $109 million of which was attributable to hedges
of variable annuity minimum benefit guarantee liabilities that
are accounted for as embedded derivatives.
Certain variable annuity products with minimum benefit
guarantees contain embedded derivatives that are measured at
estimated fair value separately from the host variable annuity
contract with changes in estimated fair value reported in net
derivative gains (losses). The fair value of these embedded
derivatives also includes an adjustment for nonperformance risk,
which is unhedged. The $1.2 billion favorable change in
embedded derivatives was primarily attributable to hedged risks
relating to changes in market factors of $1.6 billion,
partially offset by an unfavorable change in unhedged risks for
changes in the adjustment for nonperformance risk of
$353 million and an unfavorable change in other unhedged
non-market risks of $46 million. The aforementioned
$1.6 billion favorable change in embedded derivatives,
attributable to changes in market factors, was largely offset by
losses in freestanding derivatives that hedge these risks, which
are described in the preceding section. The foregoing
$353 million unfavorable change in the adjustment for
nonperformance risk was net of a prior period $621 million
loss relating to a refinement in estimating the spreads used in
the adjustment for nonperformance risk.
The increase in net investment losses was primarily due to both
increased impairments and realized losses on sales of
non-redeemable preferred securities. An increase in OTTI losses
on fixed maturity and equity securities in the financial
services and consumer industries primarily reflects impairments
on securities the Company intends to sell driven by the
continuing diversification of the portfolio, which were
partially offset by decreased impairments on structured
securities reflecting improved economic fundamentals.
Income tax expense for the three months ended June 30, 2011
was $519 million, or 30% of income (loss) from continuing
operations before provision for income tax, compared with
$827 million, or 35% of income (loss) from continuing
operations before income tax, for the comparable 2010 period.
The Companys 2011 effective tax rate differs from the
U.S. statutory rate of 35% primarily due to the impact of
certain permanent tax differences, including non-taxable
investment income and tax credits for investments in low income
housing, in relation to income (loss) from continuing operations
before income tax, as well as certain foreign permanent tax
differences.
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, net of income tax,
as determined in accordance with GAAP, to analyze our
performance, evaluate segment performance, and allocate
resources. We believe that 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 the
business. Operating earnings and operating earnings available to
common shareholders should not be viewed as a substitute for
GAAP income (loss) from continuing operations, net of income
tax, and GAAP net income (loss) available to MetLife,
Inc.s common shareholders, respectively. Operating
earnings available to common shareholders increased by
$415 million to $1.3 billion in the second quarter of
2011 from $914 million in the comparable 2010 period.
136
Reconciliation
of income (loss) from continuing operations, net of income tax
to operating earnings available to common
shareholders
Three
Months Ended June 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Other
|
|
|
Banking,
|
|
|
|
|
|
|
Insurance
|
|
|
Retirement
|
|
|
Benefit
|
|
|
Auto &
|
|
|
|
|
|
International
|
|
|
Corporate
|
|
|
|
|
|
|
Products
|
|
|
Products
|
|
|
Funding
|
|
|
Home
|
|
|
Japan
|
|
|
Regions
|
|
|
& Other
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
|
|
|
Income (loss) from continuing operations, net of income tax
|
|
$
|
582
|
|
|
$
|
332
|
|
|
$
|
284
|
|
|
$
|
(62
|
)
|
|
$
|
331
|
|
|
$
|
(84
|
)
|
|
$
|
(182
|
)
|
|
$
|
1,201
|
|
Less: Net investment gains (losses)
|
|
|
3
|
|
|
|
42
|
|
|
|
(12
|
)
|
|
|
(6
|
)
|
|
|
(47
|
)
|
|
|
(33
|
)
|
|
|
(102
|
)
|
|
|
(155
|
)
|
Less: Net derivative gains (losses)
|
|
|
261
|
|
|
|
271
|
|
|
|
(52
|
)
|
|
|
(3
|
)
|
|
|
135
|
|
|
|
(261
|
)
|
|
|
1
|
|
|
|
352
|
|
Less: Other adjustments to continuing operations (1)
|
|
|
(58
|
)
|
|
|
(111
|
)
|
|
|
17
|
|
|
|
|
|
|
|
46
|
|
|
|
(218
|
)
|
|
|
(93
|
)
|
|
|
(417
|
)
|
Less: Provision for income tax (expense) benefit
|
|
|
(73
|
)
|
|
|
(71
|
)
|
|
|
17
|
|
|
|
3
|
|
|
|
(48
|
)
|
|
|
166
|
|
|
|
67
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
449
|
|
|
$
|
201
|
|
|
$
|
314
|
|
|
$
|
(56
|
)
|
|
$
|
245
|
|
|
$
|
262
|
|
|
|
(55
|
)
|
|
|
1,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings available to common shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(86
|
)
|
|
$
|
1,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Other
|
|
|
Banking,
|
|
|
|
|
|
|
Insurance
|
|
|
Retirement
|
|
|
Benefit
|
|
|
Auto &
|
|
|
|
|
|
International
|
|
|
Corporate
|
|
|
|
|
|
|
Products
|
|
|
Products
|
|
|
Funding
|
|
|
Home
|
|
|
Japan
|
|
|
Regions
|
|
|
& Other
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Income (loss) from continuing operations, net of income tax
|
|
$
|
714
|
|
|
$
|
401
|
|
|
$
|
330
|
|
|
$
|
72
|
|
|
$
|
|
|
|
$
|
68
|
|
|
$
|
(49
|
)
|
|
$
|
1,536
|
|
Less: Net investment gains (losses)
|
|
|
(4
|
)
|
|
|
70
|
|
|
|
16
|
|
|
|
1
|
|
|
|
|
|
|
|
5
|
|
|
|
(102
|
)
|
|
|
(14
|
)
|
Less: Net derivative gains (losses)
|
|
|
605
|
|
|
|
418
|
|
|
|
129
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
260
|
|
|
|
72
|
|
|
|
1,481
|
|
Less: Other adjustments to continuing operations (1)
|
|
|
(69
|
)
|
|
|
(78
|
)
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
(233
|
)
|
|
|
(33
|
)
|
|
|
(405
|
)
|
Less: Provision for income tax (expense) benefit
|
|
|
(187
|
)
|
|
|
(145
|
)
|
|
|
(58
|
)
|
|
|
1
|
|
|
|
|
|
|
|
(106
|
)
|
|
|
24
|
|
|
|
(471
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
369
|
|
|
$
|
136
|
|
|
$
|
235
|
|
|
$
|
73
|
|
|
$
|
|
|
|
$
|
142
|
|
|
|
(10
|
)
|
|
|
945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings available to common shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(41
|
)
|
|
$
|
914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See definitions of operating revenues and operating expenses for
the components of such adjustments. |
137
Reconciliation
of GAAP revenues to operating revenues and GAAP expenses to
operating expenses
Three
Months Ended June 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Other
|
|
|
Banking,
|
|
|
|
|
|
|
Insurance
|
|
|
Retirement
|
|
|
Benefit
|
|
|
Auto &
|
|
|
|
|
|
International
|
|
|
Corporate
|
|
|
|
|
|
|
Products
|
|
|
Products
|
|
|
Funding
|
|
|
Home
|
|
|
Japan
|
|
|
Regions
|
|
|
& Other
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Total revenues
|
|
$
|
6,819
|
|
|
$
|
2,067
|
|
|
$
|
2,197
|
|
|
$
|
797
|
|
|
$
|
2,241
|
|
|
$
|
2,531
|
|
|
$
|
498
|
|
|
$
|
17,150
|
|
Less: Net investment gains (losses)
|
|
|
3
|
|
|
|
42
|
|
|
|
(12
|
)
|
|
|
(6
|
)
|
|
|
(47
|
)
|
|
|
(33
|
)
|
|
|
(102
|
)
|
|
|
(155
|
)
|
Less: Net derivative gains (losses)
|
|
|
261
|
|
|
|
271
|
|
|
|
(52
|
)
|
|
|
(3
|
)
|
|
|
135
|
|
|
|
(261
|
)
|
|
|
1
|
|
|
|
352
|
|
Less: Adjustments related to net investment gains (losses) and
net derivative gains (losses)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Less: Other adjustments to revenues (1)
|
|
|
(55
|
)
|
|
|
25
|
|
|
|
36
|
|
|
|
|
|
|
|
(165
|
)
|
|
|
128
|
|
|
|
98
|
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
$
|
6,609
|
|
|
$
|
1,729
|
|
|
$
|
2,225
|
|
|
$
|
806
|
|
|
$
|
2,318
|
|
|
$
|
2,697
|
|
|
$
|
501
|
|
|
$
|
16,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
$
|
5,922
|
|
|
$
|
1,556
|
|
|
$
|
1,760
|
|
|
$
|
913
|
|
|
$
|
1,730
|
|
|
$
|
2,672
|
|
|
$
|
877
|
|
|
$
|
15,430
|
|
Less: Adjustments related to net investment gains (losses) and
net derivative gains (losses)
|
|
|
4
|
|
|
|
120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
124
|
|
Less: Other adjustments to expenses (1)
|
|
|
|
|
|
|
16
|
|
|
|
19
|
|
|
|
|
|
|
|
(211
|
)
|
|
|
346
|
|
|
|
191
|
|
|
|
361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
5,918
|
|
|
$
|
1,420
|
|
|
$
|
1,741
|
|
|
$
|
913
|
|
|
$
|
1,941
|
|
|
$
|
2,326
|
|
|
$
|
686
|
|
|
$
|
14,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Other
|
|
|
Banking,
|
|
|
|
|
|
|
Insurance
|
|
|
Retirement
|
|
|
Benefit
|
|
|
Auto &
|
|
|
|
|
|
International
|
|
|
Corporate
|
|
|
|
|
|
|
Products
|
|
|
Products
|
|
|
Funding
|
|
|
Home
|
|
|
Japan
|
|
|
Regions
|
|
|
& Other
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Total revenues
|
|
$
|
7,117
|
|
|
$
|
2,128
|
|
|
$
|
2,013
|
|
|
$
|
781
|
|
|
$
|
|
|
|
$
|
1,561
|
|
|
$
|
538
|
|
|
$
|
14,138
|
|
Less: Net investment gains (losses)
|
|
|
(4
|
)
|
|
|
70
|
|
|
|
16
|
|
|
|
1
|
|
|
|
|
|
|
|
5
|
|
|
|
(102
|
)
|
|
|
(14
|
)
|
Less: Net derivative gains (losses)
|
|
|
605
|
|
|
|
418
|
|
|
|
129
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
260
|
|
|
|
72
|
|
|
|
1,481
|
|
Less: Adjustments related to net investment gains (losses) and
net derivative gains (losses)
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
Less: Other adjustments to revenues (1)
|
|
|
(37
|
)
|
|
|
(15
|
)
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
(111
|
)
|
|
|
111
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
$
|
6,546
|
|
|
$
|
1,655
|
|
|
$
|
1,823
|
|
|
$
|
783
|
|
|
$
|
|
|
|
$
|
1,407
|
|
|
$
|
457
|
|
|
$
|
12,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
$
|
6,017
|
|
|
$
|
1,508
|
|
|
$
|
1,499
|
|
|
$
|
693
|
|
|
$
|
|
|
|
$
|
1,345
|
|
|
$
|
713
|
|
|
$
|
11,775
|
|
Less: Adjustments related to net investment gains (losses) and
net derivative gains (losses)
|
|
|
40
|
|
|
|
172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
212
|
|
Less: Other adjustments to expenses (1)
|
|
|
(1
|
)
|
|
|
(109
|
)
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
122
|
|
|
|
144
|
|
|
|
193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
5,978
|
|
|
$
|
1,445
|
|
|
$
|
1,462
|
|
|
$
|
693
|
|
|
$
|
|
|
|
$
|
1,223
|
|
|
$
|
569
|
|
|
$
|
11,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See definitions of operating revenues and operating expenses for
the components of such adjustments. |
138
Unless otherwise stated, all amounts discussed below are net of
income tax and are on a constant currency basis. The constant
currency basis amounts for both periods are calculated using the
average foreign currency exchange rates for the second quarter
of 2011.
The increase in operating earnings includes the impact of the
Acquisition, which is reflected in both Japan and Other
International Regions, as well as increased net investment
income in certain of our businesses and higher policy fee
income, as the improvement in the financial markets drove a
higher level of average separate account balances. Changes in
foreign currency exchange rates had a modest positive impact on
results compared to the prior period. Operating earnings
increased in all of our U.S. Business segments, except
Auto & Home, which was impacted by weather-related
claims.
Net investment income increased from growth in average invested
assets, offset by lower yields. Growth in the investment
portfolio was primarily due to the Acquisition and positive net
cash flows in the majority of our domestic businesses, as well
as continued growth in our Other International Regions
(excluding the impact of the Acquisition). These cash flows were
invested primarily in fixed maturity securities and mortgage
loans. Yields were negatively impacted by the acquired ALICO
investment portfolio, which has a larger allocation to lower
yielding government securities and shorter duration investments.
In addition, yields were adversely impacted by the effects of
lower fixed maturity securities yields due to new investment and
reinvestment during this lower interest rate environment. Also,
yields were negatively impacted by higher other limited
partnership interests yields in the prior period from a stronger
recovery in the private equity markets in the prior period
compared to the current period. These decreases in yield were
partially offset by increased real estate joint venture yields
from the positive effects of stabilizing real estate markets
period over period. Beginning in the fourth quarter of 2010,
investment earnings and interest credited related to
contractholder-directed unit-linked investments are excluded
from operating revenues and operating expenses, as the
contractholder, and not the Company, directs the investment of
the funds. This change in presentation had no impact on
operating earnings; however, it favorably impacted the change in
net investment income in the current period as negative returns
were incurred in the second quarter of 2010 from declining
equity markets.
Since many of our products are interest spread-based, higher net
investment income is typically offset by higher interest
credited expense. Interest credited expense increased
$37 million as a result of growth in our International
businesses, as well as our domestic long-term care, traditional
life and structured settlement businesses. This was partially
offset by a decrease in interest credited expense in our
domestic funding agreement and guaranteed interest contract
businesses, a result of the impact from derivatives that are
used to hedge certain liabilities.
The significant increase in average separate account balances
was largely attributable to favorable equity market performance
resulting from improved market conditions and positive net cash
flows from the annuity business. This resulted in higher policy
fees and other revenues of $138 million, most notably in
Retirement Products. Policy fees are typically calculated as a
percentage of the average assets in the separate accounts.
Apart from an increase resulting from the Acquisition, DAC, VOBA
and deferred sales inducements (DSI) amortization
for the second quarter of 2011 was essentially unchanged when
compared to the prior period. During the second quarter of 2010,
results reflected increased or accelerated DAC, VOBA and DSI
amortization primarily stemming from a decline in the market
value of our separate account balances. A factor that determines
the amount of amortization is expected future earnings which, in
the retirement business, are derived, in part, from the fees
earned on separate account balances. The decline in the market
value of our separate account balances during the second quarter
of 2010 resulted in a decrease in the expected future gross
profits, which triggered an acceleration of amortization during
the 2010 period. The resulting decline in amortization was
offset by an increase in amortization in the 2011 period due to
business growth.
Severe storm activity during the current period resulted in
catastrophe losses of $174 million in Auto & Home
which drove a $138 million unfavorable impact to claims
experience compared to the prior period. This was partially
offset by a modest net favorable impact from our other
businesses as mixed claims experience had a net favorable impact
in Insurance Products, slightly offset by less favorable
mortality in Corporate Benefit Funding.
139
Interest expense on debt increased $41 million primarily as
a result of debt issued in the third and fourth quarters of 2010
in connection with the Acquisition and Federal Home Loan Bank
(FHLB) borrowings.
Operating expenses increased due to the Acquisition, which
includes increased operating expenses of $18 million
related to the March 2011 earthquake and tsunami in Japan. In
addition, operating expenses increased as a result of investment
and growth in our international and banking businesses. The
current period also includes higher variable expenses, such as
commissions and separate account advisory fees, a portion of
which is offset by DAC capitalization.
Insurance
Products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Change
|
|
|
% Change
|
|
|
|
(In millions)
|
|
|
|
|
|
OPERATING REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
4,268
|
|
|
$
|
4,317
|
|
|
$
|
(49
|
)
|
|
|
(1.1
|
)%
|
Universal life and investment-type product policy fees
|
|
|
565
|
|
|
|
546
|
|
|
|
19
|
|
|
|
3.5
|
%
|
Net investment income
|
|
|
1,572
|
|
|
|
1,495
|
|
|
|
77
|
|
|
|
5.2
|
%
|
Other revenues
|
|
|
204
|
|
|
|
188
|
|
|
|
16
|
|
|
|
8.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
6,609
|
|
|
|
6,546
|
|
|
|
63
|
|
|
|
1.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
4,634
|
|
|
|
4,721
|
|
|
|
(87
|
)
|
|
|
(1.8
|
)%
|
Interest credited to policyholder account balances
|
|
|
246
|
|
|
|
237
|
|
|
|
9
|
|
|
|
3.8
|
%
|
Capitalization of DAC
|
|
|
(214
|
)
|
|
|
(217
|
)
|
|
|
3
|
|
|
|
1.4
|
%
|
Amortization of DAC and VOBA
|
|
|
214
|
|
|
|
206
|
|
|
|
8
|
|
|
|
3.9
|
%
|
Other expenses
|
|
|
1,038
|
|
|
|
1,031
|
|
|
|
7
|
|
|
|
0.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
5,918
|
|
|
|
5,978
|
|
|
|
(60
|
)
|
|
|
(1.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
242
|
|
|
|
199
|
|
|
|
43
|
|
|
|
21.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
449
|
|
|
$
|
369
|
|
|
$
|
80
|
|
|
|
21.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unless otherwise stated, all amounts discussed below are net of
income tax.
Sustained high levels of unemployment and a challenging pricing
environment continue to depress growth across our group
insurance businesses. Growth in our open block traditional life
and universal life businesses was more than offset by declines
in our group life and non-medical health businesses, as well as
the expected run-off from our closed block business. Our dental
business benefited from higher enrollment and certain pricing
actions, but this was essentially offset by a decline in
revenues from our disability business. This reduction was mainly
due to net customer cancellations and lower covered lives. Our
long-term care revenues were flat period over period, consistent
with the discontinuance of the sale of this coverage at the end
of 2010.
The significant components of the increase in operating earnings
were higher net investment income, net favorable claims
experience and the impact of a reduction in dividends to certain
policyholders.
Higher net investment income of $50 million was partially
offset by a $9 million increase in interest credited on
long-duration contracts, which is reflected in the change in
policyholder benefits and dividends. This increase in interest
credited was primarily due to growth in future policyholder
benefits in our long-term care and traditional life businesses.
The increase in net investment income was due to a
$31 million increase from growth in average invested assets
and a $19 million increase from higher yields. Growth in
the investment portfolio was due to positive cash flows from
operations in most of our businesses, which was invested
primarily in fixed maturity securities and mortgage loans.
Yields were positively impacted by the improved yields on fixed
maturity securities and mortgage loans from the repositioning of
the accumulated liquidity in our portfolio into longer duration
and higher yielding
140
investments and an increase in mortgage loan prepayments. The
increase in yields was partially offset by the negative impact
of the current low interest rate environment on invested
economic capital. To manage the needs of our intermediate- to
longer-term liabilities, our portfolio consists primarily of
investment grade corporate fixed maturity securities, mortgage
loans, structured securities (comprised of mortgage and
asset-backed securities) and U.S. Treasury and agency
securities and, to a lesser extent, certain other invested asset
classes, including other limited partnership interests, real
estate joint ventures and other invested assets which provide
additional diversification and opportunity for long-term yield
enhancement.
Claims experience varied amongst our businesses with a net
favorable impact of $38 million to operating earnings. This
was driven primarily by unusually strong mortality in our group
life business as evidenced by our group life mortality ratio of
82.1%. We also experienced more favorable morbidity results in
the current period, specifically, our disability and dental
businesses had favorable claims experience and our disability
business benefited from higher net closures. Partially
offsetting these positive impacts to operating earnings was
unfavorable mortality in our universal variable life and
traditional life businesses.
A reduction in the dividend scale, which was announced in the
fourth quarter of 2010, resulted in a $17 million decrease
in policyholder dividends in the traditional life business.
Retirement
Products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Change
|
|
|
% Change
|
|
|
|
(In millions)
|
|
|
|
|
|
OPERATING REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
240
|
|
|
$
|
250
|
|
|
$
|
(10
|
)
|
|
|
(4.0
|
)%
|
Universal life and investment-type product policy fees
|
|
|
622
|
|
|
|
509
|
|
|
|
113
|
|
|
|
22.2
|
%
|
Net investment income
|
|
|
792
|
|
|
|
842
|
|
|
|
(50
|
)
|
|
|
(5.9
|
)%
|
Other revenues
|
|
|
75
|
|
|
|
54
|
|
|
|
21
|
|
|
|
38.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
1,729
|
|
|
|
1,655
|
|
|
|
74
|
|
|
|
4.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
402
|
|
|
|
422
|
|
|
|
(20
|
)
|
|
|
(4.7
|
)%
|
Interest credited to policyholder account balances
|
|
|
395
|
|
|
|
405
|
|
|
|
(10
|
)
|
|
|
(2.5
|
)%
|
Capitalization of DAC
|
|
|
(400
|
)
|
|
|
(262
|
)
|
|
|
(138
|
)
|
|
|
(52.7
|
)%
|
Amortization of DAC and VOBA
|
|
|
238
|
|
|
|
272
|
|
|
|
(34
|
)
|
|
|
(12.5
|
)%
|
Interest expense on debt
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
%
|
Other expenses
|
|
|
784
|
|
|
|
607
|
|
|
|
177
|
|
|
|
29.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,420
|
|
|
|
1,445
|
|
|
|
(25
|
)
|
|
|
(1.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
108
|
|
|
|
74
|
|
|
|
34
|
|
|
|
45.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
201
|
|
|
$
|
136
|
|
|
$
|
65
|
|
|
|
47.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unless otherwise stated, all amounts discussed below are net of
income tax.
During the second quarter of 2011, overall annuity sales
increased 48% compared to the second quarter of 2010. While
sales of fixed annuity products decreased, variable annuity
product sales increased primarily due to the expansion of
alternative distribution channels, fewer competitors in the
marketplace and the introduction of a new lower-risk variable
annuity product. Surrender rates for both our variable and fixed
annuities remained low during the current period as we believe
our customers continue to value our products compared to other
alternatives in the marketplace.
141
Interest rate and equity market changes were the primary drivers
of the increase in operating earnings, with the largest impact
resulting from increased policy fees and other revenues,
partially offset by a decrease in net investment income.
Premiums decreased $7 million. In the annuity business, the
movement in premiums is almost entirely offset by the related
change in policyholder benefits, as the insurance liability that
we establish at the time we assume the risk under these
contracts is typically equivalent to the premium earned less the
amount of acquisition expenses.
A significant increase in average separate account balances was
largely attributable to favorable equity market performance
resulting from improved market conditions and positive net cash
flows from the annuity business. This resulted in higher policy
fees and other revenues of $87 million. Policy fees are
typically calculated as a percentage of the average assets in
the separate account.
DAC, VOBA and DSI amortization decreased $22 million during
the second quarter of 2011 compared to the prior period. During
the second quarter of 2010, results reflected increased or
accelerated DAC, VOBA and DSI amortization primarily stemming
from a decline in the market value of our separate account
balances. A factor that determines the amount of amortization is
expected future earnings which, in the retirement business, are
derived, in part, from the fees earned on separate account
balances. The decline in the market value of our separate
account balances during the second quarter of 2010 resulted in a
decrease in the expected future gross profits, which triggered
an acceleration of amortization in the 2010 period. The
resulting decrease in amortization was partially offset by an
increase in amortization due to the business growth experienced
in 2011.
Net investment income decreased $33 million due to an
$18 million decrease from lower yields and a
$15 million decrease from a reduction in average invested
assets. Yields were negatively impacted by the reinvestment of
proceeds from maturities and sales of fixed maturity securities
and mortgage loans during this lower interest rate environment.
The low interest rate environment also negatively impacted
yields on invested economic capital. Additionally, yields on
other limited partnership interests were negatively impacted by
a stronger recovery in the private equity markets in the prior
period than in the current period. The reduction in the
investment portfolio was due to a decrease in the securities
lending program and from transfers to the separate account. To
manage the needs of our intermediate- to longer-term
liabilities, our portfolio consists primarily of investment
grade corporate fixed maturity securities, structured
securities, mortgage loans, U.S. Treasury and agency
securities and, to a lesser extent, certain other invested asset
classes, including other limited partnership interests, real
estate joint ventures and other invested assets, in order to
provide additional diversification and opportunity for long-term
yield enhancement. Consistent with yields on our investment
portfolio, we have seen a drop in our average crediting rates on
fixed annuities, which has resulted in a $7 million
decrease in interest credited expense.
Other expenses increased $115 million primarily due to a
$108 million increase in variable expenses, such as
commissions, separate account advisory fees, letter of credit
fees and other volume-related activity. A portion of this
increase was offset by DAC capitalization, which was higher
compared with the prior period.
142
Corporate
Benefit Funding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Change
|
|
|
% Change
|
|
|
|
(In millions)
|
|
|
|
|
|
OPERATING REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
781
|
|
|
$
|
474
|
|
|
$
|
307
|
|
|
|
64.8
|
%
|
Universal life and investment-type product policy fees
|
|
|
58
|
|
|
|
56
|
|
|
|
2
|
|
|
|
3.6
|
%
|
Net investment income
|
|
|
1,325
|
|
|
|
1,234
|
|
|
|
91
|
|
|
|
7.4
|
%
|
Other revenues
|
|
|
61
|
|
|
|
59
|
|
|
|
2
|
|
|
|
3.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
2,225
|
|
|
|
1,823
|
|
|
|
402
|
|
|
|
22.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
1,292
|
|
|
|
979
|
|
|
|
313
|
|
|
|
32.0
|
%
|
Interest credited to policyholder account balances
|
|
|
330
|
|
|
|
364
|
|
|
|
(34
|
)
|
|
|
(9.3
|
)%
|
Capitalization of DAC
|
|
|
(6
|
)
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
|
(100.0
|
)%
|
Amortization of DAC and VOBA
|
|
|
5
|
|
|
|
4
|
|
|
|
1
|
|
|
|
25.0
|
%
|
Interest expense on debt
|
|
|
2
|
|
|
|
1
|
|
|
|
1
|
|
|
|
100.0
|
%
|
Other expenses
|
|
|
118
|
|
|
|
117
|
|
|
|
1
|
|
|
|
0.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,741
|
|
|
|
1,462
|
|
|
|
279
|
|
|
|
19.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
170
|
|
|
|
126
|
|
|
|
44
|
|
|
|
34.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
314
|
|
|
$
|
235
|
|
|
$
|
79
|
|
|
|
33.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unless otherwise stated, all amounts discussed below are net of
income tax.
The improvement in the financial markets over the last year
continues to impact the demand for funding agreements, as
evidenced by issuances of more than $1.0 billion, before
income tax, in the current quarter. Our pension closeouts
business in the U.K. continues to expand as sales increased by
$348 million, before income tax, due to a significant sale
in the current quarter. Our domestic pension closeouts sales
remain low as premiums declined $63 million, before income
tax. Although improving, a combination of poor equity returns
and lower interest rates have contributed to pension plans
remaining underfunded, both in the U.S. and in the U.K.,
which reduces our customers flexibility to engage in
transactions such as pension closeouts. In addition, sales of
structured settlement products increased $23 million,
before income tax. For both the structured settlement and
pension closeout businesses, the change 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.
The primary driver of the $79 million increase in operating
earnings was higher net investment income of $59 million,
reflecting a $53 million increase from growth in average
invested assets and a $6 million increase from higher
yields. Growth in the investment portfolio was due to an
increase in the securities lending program and increased
issuances under funding agreements. Yields were positively
impacted by improved yields on fixed maturity securities from
the repositioning of the accumulated liquidity in our portfolio
to longer duration and higher yielding investments.
Additionally, mortgage loan yields were positively impacted by
collections on lower yielding assets in addition to increased
mortgage prepayments. These improvements in yields were
partially offset by the negative impact of the current low
interest rate environment on invested economic capital. 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 and agency
securities, structured securities, and, to a lesser extent,
certain other invested asset classes including other limited
partnership interests, real estate joint ventures and other
invested assets in order to provide additional diversification
and opportunity for long-term yield enhancement. For our
short-term obligations, we invest primarily in structured
securities, mortgage loans, investment grade corporate fixed
maturity securities and U.S. Treasury and agency
securities. The yields on these short-term investments have
moved consistently with the underlying market indices, primarily
LIBOR and the U.S. Treasury, on which they are based.
143
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 $22 million largely due to the impact
from derivatives that are used to hedge certain liabilities in
our funding agreement and guaranteed interest contract
businesses. The increase in average policyholder liabilities
resulted in a $4 million increase in interest credited
expense primarily related to the structured settlements business.
Mortality experience was mixed and decreased operating earnings
by $6 million, partially offset by the net impact of
favorable liability refinements in both periods resulting in an
increase in operating earnings.
Auto &
Home
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Change
|
|
|
% Change
|
|
|
|
(In millions)
|
|
|
|
|
|
OPERATING REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
748
|
|
|
$
|
723
|
|
|
$
|
25
|
|
|
|
3.5
|
%
|
Net investment income
|
|
|
51
|
|
|
|
52
|
|
|
|
(1
|
)
|
|
|
(1.9
|
)%
|
Other revenues
|
|
|
7
|
|
|
|
8
|
|
|
|
(1
|
)
|
|
|
(12.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
806
|
|
|
|
783
|
|
|
|
23
|
|
|
|
2.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
719
|
|
|
|
506
|
|
|
|
213
|
|
|
|
42.1
|
%
|
Capitalization of DAC
|
|
|
(117
|
)
|
|
|
(117
|
)
|
|
|
|
|
|
|
|
%
|
Amortization of DAC and VOBA
|
|
|
113
|
|
|
|
111
|
|
|
|
2
|
|
|
|
1.8
|
%
|
Other expenses
|
|
|
198
|
|
|
|
193
|
|
|
|
5
|
|
|
|
2.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
913
|
|
|
|
693
|
|
|
|
220
|
|
|
|
31.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
(51
|
)
|
|
|
17
|
|
|
|
(68
|
)
|
|
|
(400.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
(56
|
)
|
|
$
|
73
|
|
|
$
|
(129
|
)
|
|
|
(176.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unless otherwise stated, all amounts discussed below are net of
income tax.
Policy sales decreased in the second quarter of 2011 as the
housing and automobile markets remained sluggish. This was
partially offset by increases in the average premium of new
policies sold. New premium associated with sales activity on new
policies decreased 5% for each of our homeowners and auto
businesses in the second quarter of 2011 compared to the prior
period. These decreases were more than offset by increases in
earned exposures and average earned premiums per policy for our
homeowners business and by an increase in average earned premium
for our auto business in the second quarter of 2011 compared to
the prior period.
The primary driver of the $129 million decrease in
operating earnings was unfavorable claims experience.
Catastrophe-related losses increased $128 million compared
to the second quarter of 2010 mainly due to the storm activity
in the U.S. during the second quarter of 2011, which
resulted in $174 million of losses. The April catastrophes
resulted in a record number of tornados for a one-month period
and resulted in damage in many states, with the worst storm
impacting Alabama and Tennessee, from tornados and hail,
respectively. The May catastrophes included one that impacted
20 states and caused severe tornado damage in Missouri,
Minnesota and Oklahoma. In addition, current period
non-catastrophe claim costs increased $15 million as a
result of higher claim frequencies in both our auto and
homeowners businesses due primarily to non-catastrophe weather.
Higher severities in our homeowners business resulted in an
increase in claims. The negative impact of these items was
partially offset by additional favorable development of prior
year losses of $6 million.
The impact of the items discussed above can be seen in the
unfavorable change in the combined ratio, including
catastrophes, to 121.5% in the second quarter of 2011 from 95.3%
in the comparable 2010 period. The
144
combined ratio, excluding catastrophes, was 85.7% in the second
quarter of 2011 compared to 85.5% in the comparable 2010 period.
The increase in average premium per policy in both our
homeowners and auto businesses improved operating earnings by
$15 million.
Japan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Change
|
|
|
|
(In millions)
|
|
|
OPERATING REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
1,602
|
|
|
$
|
|
|
|
$
|
1,602
|
|
Universal life and investment-type product policy fees
|
|
|
195
|
|
|
|
|
|
|
|
195
|
|
Net investment income
|
|
|
517
|
|
|
|
|
|
|
|
517
|
|
Other revenues
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
2,318
|
|
|
|
|
|
|
|
2,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
1,019
|
|
|
|
|
|
|
|
1,019
|
|
Interest credited to policyholder account balances
|
|
|
388
|
|
|
|
|
|
|
|
388
|
|
Capitalization of DAC
|
|
|
(519
|
)
|
|
|
|
|
|
|
(519
|
)
|
Amortization of DAC and VOBA
|
|
|
371
|
|
|
|
|
|
|
|
371
|
|
Amortization of negative VOBA
|
|
|
(141
|
)
|
|
|
|
|
|
|
(141
|
)
|
Other expenses
|
|
|
823
|
|
|
|
|
|
|
|
823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,941
|
|
|
|
|
|
|
|
1,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
132
|
|
|
|
|
|
|
|
132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
245
|
|
|
$
|
|
|
|
$
|
245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unless otherwise stated, all amounts discussed below are net of
income tax.
Our Japan operation is comprised of the Japanese business
acquired in the Acquisition and continues to remain among the
largest foreign life insurers in Japan. Through our Japan
operation, we provide life insurance, accident and health
insurance, annuities and endowment products to both individuals
and groups. Even with the impact of the earthquake and tsunami,
as noted below, our sales results continue to show steady growth
and improvement across essentially all distribution channels,
including captive agents, independent agents, brokers,
bancassurance, and direct marketing.
The Japanese economy, to which we face substantial exposure
given our operations there, has been significantly negatively
impacted by the March 2011 earthquake and tsunami. Disruptions
to the Japanese economy are having, and will continue to have,
negative impacts on the overall global economy, not all of which
can be foreseen. During the second quarter of 2011, the Company
incurred $26 million of insurance claims and
$18 million of increased operating expenses related to the
earthquake and tsunami.
145
Other
International Regions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Change
|
|
|
% Change
|
|
|
|
(In millions)
|
|
|
|
|
|
OPERATING REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
1,653
|
|
|
$
|
817
|
|
|
$
|
836
|
|
|
|
102.3
|
%
|
Universal life and investment-type product policy fees
|
|
|
470
|
|
|
|
312
|
|
|
|
158
|
|
|
|
50.6
|
%
|
Net investment income
|
|
|
539
|
|
|
|
274
|
|
|
|
265
|
|
|
|
96.7
|
%
|
Other revenues
|
|
|
35
|
|
|
|
4
|
|
|
|
31
|
|
|
|
775.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
2,697
|
|
|
|
1,407
|
|
|
|
1,290
|
|
|
|
91.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
1,218
|
|
|
|
751
|
|
|
|
467
|
|
|
|
62.2
|
%
|
Interest credited to policyholder account balances
|
|
|
152
|
|
|
|
41
|
|
|
|
111
|
|
|
|
270.7
|
%
|
Capitalization of DAC
|
|
|
(442
|
)
|
|
|
(157
|
)
|
|
|
(285
|
)
|
|
|
(181.5
|
)%
|
Amortization of DAC and VOBA
|
|
|
312
|
|
|
|
109
|
|
|
|
203
|
|
|
|
186.2
|
%
|
Amortization of negative VOBA
|
|
|
(23
|
)
|
|
|
|
|
|
|
(23
|
)
|
|
|
|
|
Interest expense on debt
|
|
|
|
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
(100.0
|
)%
|
Other expenses
|
|
|
1,109
|
|
|
|
477
|
|
|
|
632
|
|
|
|
132.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
2,326
|
|
|
|
1,223
|
|
|
|
1,103
|
|
|
|
90.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
109
|
|
|
|
42
|
|
|
|
67
|
|
|
|
159.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
262
|
|
|
$
|
142
|
|
|
$
|
120
|
|
|
|
84.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unless otherwise stated, all amounts discussed below are net of
income tax and are on a constant currency basis. The constant
currency basis amounts for both periods are calculated using the
average foreign currency exchange rates for the second quarter
of 2011.
Sales results continue to show steady growth and improvement,
with increases over the prior period in the majority of our
businesses. Life sales were driven by growth in variable
universal life products in Korea and endowments in Hong Kong.
Accident and health sales increased due to strong sales in Latin
America and Asia, as well as growth in the credit life business
in Europe and Latin America. Group sales increased primarily due
to higher group medical sales in the Middle East and group
disability sales in Mexico. Retirement and savings sales
increased primarily due to higher individual annuity sales in
Korea and variable annuity sales in Europe, partially offset by
lower pension sales in Korea.
Reported operating earnings increased by $120 million over
the prior period, reflecting the addition of the ALICO
operations other than Japan. The positive impact of changes in
foreign currency exchange rates improved reported earnings by
$12 million for the second quarter of 2011 compared to the
prior period.
Operating earnings in Mexico increased primarily due to an
increase in policy fees on our universal life products.
Operating earnings in Ireland increased primarily due to
business growth in our European annuity operation. These
increases were partially offset by a decrease in Australia
largely due to the loss of an institutional business contract in
December 2010 combined with an increase in operating expenses in
the current period. In addition, operating earnings in Argentina
decreased primarily due to the release of the pesification
reserves in the prior period as well as increases in operating
expenses in the current period. Results in Chile decreased
mainly due to an increase in annuity reserves which resulted
from higher inflation in the current period.
Net investment income increased from growth in average invested
assets offset by lower yields. Growth in average invested assets
reflects the Acquisition and growth in our businesses. Beginning
in the fourth quarter of 2010, investment earnings and interest
credited related to contractholder-directed unit-linked
investments were excluded from operating revenues and operating
expenses, as the contractholder, and not the Company, directs
the
146
investment of the funds. This change in presentation had no
impact on operating earnings; however, it favorably impacted the
change in net investment income in the current period as
negative returns were incurred in the second quarter of 2010
from declining equity markets. The decrease in yields reflects
the Acquisition and the net impact of higher inflation,
primarily in Chile, which was more than offset by the impact of
changes in assumptions for measuring the effects of inflation on
certain inflation-indexed investments, also in Chile. The change
in net investment income from inflation was offset by a similar
change in the related insurance liabilities.
In addition to an increase associated with the Acquisition,
operating expenses increased primarily due to higher commission
expenses and business growth in Korea, Brazil, Mexico, Chile and
Irelands European variable annuity operation.
Banking,
Corporate & Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Change
|
|
|
% Change
|
|
|
|
(In millions)
|
|
|
|
|
|
OPERATING REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
2
|
|
|
$
|
3
|
|
|
$
|
(1
|
)
|
|
|
(33.3
|
)%
|
Net investment income
|
|
|
297
|
|
|
|
223
|
|
|
|
74
|
|
|
|
33.2
|
%
|
Other revenues
|
|
|
202
|
|
|
|
231
|
|
|
|
(29
|
)
|
|
|
(12.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
501
|
|
|
|
457
|
|
|
|
44
|
|
|
|
9.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
1
|
|
|
|
(2
|
)
|
|
|
3
|
|
|
|
150.0
|
%
|
Interest credited to bank deposits
|
|
|
23
|
|
|
|
36
|
|
|
|
(13
|
)
|
|
|
(36.1
|
)%
|
Interest expense on debt
|
|
|
325
|
|
|
|
262
|
|
|
|
63
|
|
|
|
24.0
|
%
|
Other expenses
|
|
|
337
|
|
|
|
273
|
|
|
|
64
|
|
|
|
23.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
686
|
|
|
|
569
|
|
|
|
117
|
|
|
|
20.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
(130
|
)
|
|
|
(102
|
)
|
|
|
(28
|
)
|
|
|
(27.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
|
(55
|
)
|
|
|
(10
|
)
|
|
|
(45
|
)
|
|
|
(450.0
|
)%
|
Less: Preferred stock dividends
|
|
|
31
|
|
|
|
31
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings available to common shareholders
|
|
$
|
(86
|
)
|
|
$
|
(41
|
)
|
|
$
|
(45
|
)
|
|
|
(109.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unless otherwise stated, all amounts discussed below are net of
income tax.
The 2011 residential mortgage refinance market declined in
comparison to the second quarter of 2010. Consistent with these
market conditions, our forward mortgage production declined
$736 million to $3.9 billion. Our serviced residential
mortgage loan portfolio increased $22.6 billion, which
includes a $16.5 billion purchase from a Federal Deposit
Insurance Corporation receivership bank in the third quarter of
2010 and the sale of $4.8 billion to FNMA in the second
quarter of 2010. Run-off of existing servicing business was
12.0% in the second quarter of 2011 compared to 10.5% in the
second quarter of 2010.
The Holding Company completed four debt financings in August
2010 in connection with the Acquisition, issuing
$1.0 billion of 2.375% senior notes, $1.0 billion
of 4.750% senior notes, $750 million of
5.875% senior notes, and $250 million of floating rate
senior notes. The Holding Company also issued debt securities in
November 2010, which are part of the $3.0 billion stated
value of common equity units. The proceeds from these debt
issuances were used to finance the Acquisition.
Operating earnings available to common shareholders and
operating earnings, which excludes preferred stock dividends,
each decreased $45 million, primarily due to an increase in
interest expense resulting from the 2010 debt issuances and a
decrease in the results of our mortgage banking business,
partially offset by an increase in net investment income and a
decrease in interest credited to bank deposits.
147
Interest expense on debt increased $41 million primarily as
a result of debt issued in the third and fourth quarters of 2010
in connection with the Acquisition and FHLB borrowings.
The mortgage loan origination business experienced a
$39 million decline in operating earnings with
$14 million principally attributable to lower forward
residential mortgage volumes and new interest rate lock
commitment activity as a result of a weaker refinance market, as
well as margin compression in both our forward and reverse
mortgage products. Also contributing to this decline was a
$25 million increase in other expenses to support sales
growth and risk management initiatives.
The results of our mortgage loan servicing business declined
$13 million primarily due to additional expenses incurred
to support a larger portfolio with increased regulatory
oversight. The Company made $8 million of charitable
contributions in the second quarter of 2011. There were no
charitable contributions in the second quarter of 2010. In
addition, advertising costs were $5 million higher in the
current year quarter. These increases were partially offset by
$12 million of lower human resource expenses and
$5 million lower interest on uncertain tax positions during
second quarter of 2011.
Net investment income increased $48 million due to an
increase of $49 million from higher yields and a decrease
of $1 million from reduction in average invested assets.
Yields were positively impacted by improved yields on fixed
maturity securities from the repositioning of the accumulated
liquidity in our portfolio to longer duration and higher
yielding investments. Yields were also positively impacted by
lower crediting rates paid to the segments on the economic
capital invested on their behalf period over period, reflecting
the low interest rate environment. The reduction in the
investment portfolio was due to a decrease in the securities
lending program. Our investments primarily include structured
securities, investment grade corporate fixed maturities,
mortgage loans and U.S. Treasury and agency 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 and other securities and equity securities.
Interest credited to bank deposits decreased $8 million due
to lower overall cost of deposits driven by lower interest rates
paid on deposit accounts.
148
Six
Months Ended June 30, 2011 Compared with the Six Months
Ended June 30, 2010
Consolidated
Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Change
|
|
|
% Change
|
|
|
|
(In millions)
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
17,848
|
|
|
$
|
13,372
|
|
|
$
|
4,476
|
|
|
|
33.5
|
%
|
Universal life and investment-type product policy fees
|
|
|
3,858
|
|
|
|
2,887
|
|
|
|
971
|
|
|
|
33.6
|
%
|
Net investment income
|
|
|
10,414
|
|
|
|
8,381
|
|
|
|
2,033
|
|
|
|
24.3
|
%
|
Other revenues
|
|
|
1,158
|
|
|
|
1,057
|
|
|
|
101
|
|
|
|
9.6
|
%
|
Net investment gains (losses)
|
|
|
(254
|
)
|
|
|
18
|
|
|
|
(272
|
)
|
|
|
(1,511.1
|
)%
|
Net derivative gains (losses)
|
|
|
37
|
|
|
|
1,522
|
|
|
|
(1,485
|
)
|
|
|
(97.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
33,061
|
|
|
|
27,237
|
|
|
|
5,824
|
|
|
|
21.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
18,096
|
|
|
|
15,159
|
|
|
|
2,937
|
|
|
|
19.4
|
%
|
Interest credited to policyholder account balances
|
|
|
3,366
|
|
|
|
2,190
|
|
|
|
1,176
|
|
|
|
53.7
|
%
|
Interest credited to bank deposits
|
|
|
46
|
|
|
|
75
|
|
|
|
(29
|
)
|
|
|
(38.7
|
)%
|
Capitalization of DAC
|
|
|
(3,267
|
)
|
|
|
(1,489
|
)
|
|
|
(1,778
|
)
|
|
|
(119.4
|
)%
|
Amortization of DAC and VOBA
|
|
|
2,437
|
|
|
|
1,611
|
|
|
|
826
|
|
|
|
51.3
|
%
|
Amortization of negative VOBA
|
|
|
(366
|
)
|
|
|
|
|
|
|
(366
|
)
|
|
|
|
|
Interest expense on debt
|
|
|
835
|
|
|
|
739
|
|
|
|
96
|
|
|
|
13.0
|
%
|
Other expenses
|
|
|
8,712
|
|
|
|
5,405
|
|
|
|
3,307
|
|
|
|
61.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
29,859
|
|
|
|
23,690
|
|
|
|
6,169
|
|
|
|
26.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before provision for
income tax
|
|
|
3,202
|
|
|
|
3,547
|
|
|
|
(345
|
)
|
|
|
(9.7
|
)%
|
Provision for income tax expense (benefit)
|
|
|
947
|
|
|
|
1,183
|
|
|
|
(236
|
)
|
|
|
(19.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of income tax
|
|
|
2,255
|
|
|
|
2,364
|
|
|
|
(109
|
)
|
|
|
(4.6
|
)%
|
Income (loss) from discontinued operations, net of income tax
|
|
|
(12
|
)
|
|
|
17
|
|
|
|
(29
|
)
|
|
|
(170.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
2,243
|
|
|
|
2,381
|
|
|
|
(138
|
)
|
|
|
(5.8
|
)%
|
Less: Net income (loss) attributable to noncontrolling interests
|
|
|
|
|
|
|
(11
|
)
|
|
|
11
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to MetLife, Inc.
|
|
|
2,243
|
|
|
|
2,392
|
|
|
|
(149
|
)
|
|
|
(6.2
|
)%
|
Less: Preferred stock dividends
|
|
|
61
|
|
|
|
61
|
|
|
|
|
|
|
|
|
%
|
Preferred stock redemption premium
|
|
|
146
|
|
|
|
|
|
|
|
146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to MetLife, Inc.s common
shareholders
|
|
$
|
2,036
|
|
|
$
|
2,331
|
|
|
$
|
(295
|
)
|
|
|
(12.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unless otherwise stated, all amounts discussed below are net of
income tax.
During the six months ended June 30, 2011, income (loss)
from continuing operations, net of income tax, decreased
$109 million to $2.3 billion driven by decreased
derivative gains and increased investment losses, both net of
related adjustments, principally associated with DAC and VOBA
amortization. This decrease was partially offset by an increase
in operating earnings, reflecting the impact of the Acquisition.
149
The unfavorable variance in net derivative gains (losses) of
$965 million, from gains of $989 million to gains of
$24 million, was primarily driven by an unfavorable change
in freestanding derivatives of $2.4 billion which was
partially offset by a favorable change in embedded derivatives
of $1.4 billion primarily associated with variable annuity
minimum benefit guarantees.
The $2.4 billion unfavorable variance in freestanding
derivatives was primarily attributable to the impact of equity
market movements, a decrease in equity volatility, falling
long-term and mid-term interest rates, a weakening
U.S. dollar and a weakening Japanese yen against other
currencies. The impact of equity market movements and decreased
equity volatility in the current period compared to the prior
period had a negative impact of $1.1 billion on our equity
derivatives, which was primarily attributable to hedges of
variable annuity minimum benefit guarantee liabilities that are
accounted for as embedded derivatives. A smaller decrease in
long-term and mid-term interest rates in the current period than
in the prior period had a negative impact of $686 million
on our interest rate derivatives, $501 million of which was
attributable to hedges of variable annuity minimum benefit
guarantee liabilities that are accounted for as embedded
derivatives. Foreign currency derivatives had a negative impact
of $668 million related to hedges of foreign-currency
exposures, $221 million of which was attributable to hedges
of variable annuity minimum benefit guarantee liabilities that
are accounted for as embedded derivatives.
Certain variable annuity products with minimum benefit
guarantees contain embedded derivatives that are measured at
estimated fair value separately from the host variable annuity
contract with changes in estimated fair value reported in net
derivative gains (losses). The fair value of these embedded
derivatives also includes an adjustment for nonperformance risk,
which is unhedged. The $1.4 billion favorable change in
embedded derivatives was primarily attributable to hedged risks
relating to changes in market factors of $1.8 billion and a
favorable change in other unhedged non-market risks of $36
million offset by an unfavorable change in unhedged risks for
changes in the adjustment for nonperformance risk of
$345 million. The aforementioned $1.8 billion
favorable change in embedded derivatives, attributable to
changes in market factors, was largely offset by losses on
freestanding derivatives that hedge these risks, which are
described in the preceding section. The foregoing
$345 million unfavorable change in the adjustment for
nonperformance risk was net of a prior period $621 million
loss relating to a refinement in estimating the spreads used in
the adjustment for nonperformance risk.
The unfavorable change in net investment gains (losses) was
primarily due to increased impairments and realized losses on
sales of non-redeemable preferred securities and fixed maturity
securities. An increase in OTTI losses on fixed maturity and
equity securities in the foreign government sector, financial
services industry and most corporate securities sectors
primarily reflects impairments on securities the Company intends
to sell driven by the repositioning of the portfolio to
diversify and extend duration, which were partially offset by
decreased impairments on structured securities reflecting
improved economic fundamentals.
Income tax expense for the six months ended June 30, 2011
was $947 million, or 30% of income (loss) from continuing
operations before provision for income tax, compared with
$1.2 billion, or 33% of income (loss) from continuing
operations before income tax, for the comparable 2010 period.
The Companys 2011 and 2010 effective tax rates differ from
the U.S. statutory rate of 35% primarily due to the impact
of certain permanent tax differences, including non-taxable
investment income and tax credits for investments in low income
housing, in relation to income (loss) from continuing operations
before income tax, as well as certain foreign permanent tax
differences.
The first six months of 2010 included $87 million of
charges 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
reduced 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 was reflected in our financial statements, the
entire future impact of this change in law was required to be
recorded as a charge in the first quarter of 2010, when 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 certain types of compensation. This change
negatively impacted the results for the first six months of 2010
by $12 million. These charges were partially offset by
decreased utilization of tax preferenced investments which
provided tax credits and deductions.
150
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, net of income tax,
as determined in accordance with GAAP, to analyze our
performance, evaluate segment performance, and allocate
resources. We believe that 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 the
business. Operating earnings and operating earnings available to
common shareholders should not be viewed as a substitute for
GAAP income (loss) from continuing operations, net of income
tax, and GAAP net income (loss) available to MetLife,
Inc.s common shareholders, respectively. Operating
earnings available to common shareholders increased by
$969 million to $2.7 billion in the first six months
of 2011 from $1.8 billion in the comparable 2010 period.
Reconciliation
of income (loss) from continuing operations, net of income tax
to operating earnings available to common
shareholders
Six
Months Ended June 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Other
|
|
|
Banking,
|
|
|
|
|
|
|
Insurance
|
|
|
Retirement
|
|
|
Benefit
|
|
|
Auto &
|
|
|
|
|
|
International
|
|
|
Corporate
|
|
|
|
|
|
|
Products
|
|
|
Products
|
|
|
Funding
|
|
|
Home
|
|
|
Japan
|
|
|
Regions
|
|
|
& Other
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Income (loss) from continuing operations, net of income tax
|
|
$
|
813
|
|
|
$
|
506
|
|
|
$
|
527
|
|
|
$
|
(5
|
)
|
|
$
|
593
|
|
|
$
|
121
|
|
|
$
|
(300
|
)
|
|
$
|
2,255
|
|
Less: Net investment gains (losses)
|
|
|
40
|
|
|
|
51
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
(94
|
)
|
|
|
(145
|
)
|
|
|
(100
|
)
|
|
|
(254
|
)
|
Less: Net derivative gains (losses)
|
|
|
92
|
|
|
|
264
|
|
|
|
(179
|
)
|
|
|
(3
|
)
|
|
|
127
|
|
|
|
(185
|
)
|
|
|
(79
|
)
|
|
|
37
|
|
Less: Other adjustments to continuing operations (1)
|
|
|
(110
|
)
|
|
|
(171
|
)
|
|
|
61
|
|
|
|
|
|
|
|
57
|
|
|
|
(271
|
)
|
|
|
(150
|
)
|
|
|
(584
|
)
|
Less: Provision for income tax (expense) benefit
|
|
|
(8
|
)
|
|
|
(51
|
)
|
|
|
42
|
|
|
|
3
|
|
|
|
(32
|
)
|
|
|
183
|
|
|
|
111
|
|
|
|
248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
799
|
|
|
$
|
413
|
|
|
$
|
603
|
|
|
$
|
1
|
|
|
$
|
535
|
|
|
$
|
539
|
|
|
|
(82
|
)
|
|
|
2,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings available to common shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(143
|
)
|
|
$
|
2,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Other
|
|
|
Banking,
|
|
|
|
|
|
|
Insurance
|
|
|
Retirement
|
|
|
Benefit
|
|
|
Auto &
|
|
|
|
|
|
International
|
|
|
Corporate
|
|
|
|
|
|
|
Products
|
|
|
Products
|
|
|
Funding
|
|
|
Home
|
|
|
Japan
|
|
|
Regions
|
|
|
& Other
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Income (loss) from continuing operations, net of income tax
|
|
$
|
1,002
|
|
|
$
|
597
|
|
|
$
|
569
|
|
|
$
|
143
|
|
|
$
|
|
|
|
$
|
176
|
|
|
$
|
(123
|
)
|
|
$
|
2,364
|
|
Less: Net investment gains (losses)
|
|
|
9
|
|
|
|
91
|
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
(29
|
)
|
|
|
(110
|
)
|
|
|
18
|
|
Less: Net derivative gains (losses)
|
|
|
625
|
|
|
|
511
|
|
|
|
70
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
266
|
|
|
|
53
|
|
|
|
1,522
|
|
Less: Other adjustments to continuing operations (1)
|
|
|
(117
|
)
|
|
|
(201
|
)
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
(268
|
)
|
|
|
(53
|
)
|
|
|
(580
|
)
|
Less: Provision for income tax (expense) benefit
|
|
|
(182
|
)
|
|
|
(141
|
)
|
|
|
(72
|
)
|
|
|
1
|
|
|
|
|
|
|
|
(82
|
)
|
|
|
41
|
|
|
|
(435
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
667
|
|
|
$
|
337
|
|
|
$
|
455
|
|
|
$
|
145
|
|
|
$
|
|
|
|
$
|
289
|
|
|
|
(54
|
)
|
|
|
1,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings available to common shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(115
|
)
|
|
$
|
1,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
151
(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
Six
Months Ended June 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Other
|
|
|
Banking,
|
|
|
|
|
|
|
Insurance
|
|
|
Retirement
|
|
|
Benefit
|
|
|
Auto &
|
|
|
|
|
|
International
|
|
|
Corporate
|
|
|
|
|
|
|
Products
|
|
|
Products
|
|
|
Funding
|
|
|
Home
|
|
|
Japan
|
|
|
Regions
|
|
|
& Other
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Total revenues
|
|
$
|
13,120
|
|
|
$
|
3,742
|
|
|
$
|
3,842
|
|
|
$
|
1,593
|
|
|
$
|
4,604
|
|
|
$
|
5,128
|
|
|
$
|
1,032
|
|
|
$
|
33,061
|
|
Less: Net investment gains (losses)
|
|
|
40
|
|
|
|
51
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
(94
|
)
|
|
|
(145
|
)
|
|
|
(100
|
)
|
|
|
(254
|
)
|
Less: Net derivative gains (losses)
|
|
|
92
|
|
|
|
264
|
|
|
|
(179
|
)
|
|
|
(3
|
)
|
|
|
127
|
|
|
|
(185
|
)
|
|
|
(79
|
)
|
|
|
37
|
|
Less: Adjustments related to net investment gains (losses) and
net derivative gains (losses)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
Less: Other adjustments to revenues (1)
|
|
|
(104
|
)
|
|
|
45
|
|
|
|
80
|
|
|
|
|
|
|
|
94
|
|
|
|
260
|
|
|
|
196
|
|
|
|
571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
$
|
13,094
|
|
|
$
|
3,382
|
|
|
$
|
3,941
|
|
|
$
|
1,602
|
|
|
$
|
4,477
|
|
|
$
|
5,198
|
|
|
$
|
1,015
|
|
|
$
|
32,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
$
|
11,868
|
|
|
$
|
2,963
|
|
|
$
|
3,030
|
|
|
$
|
1,642
|
|
|
$
|
3,690
|
|
|
$
|
4,979
|
|
|
$
|
1,687
|
|
|
$
|
29,859
|
|
Less: Adjustments related to net investment gains (losses) and
net derivative gains (losses)
|
|
|
4
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94
|
|
Less: Other adjustments to expenses (1)
|
|
|
|
|
|
|
126
|
|
|
|
19
|
|
|
|
|
|
|
|
37
|
|
|
|
531
|
|
|
|
346
|
|
|
|
1,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
11,864
|
|
|
$
|
2,747
|
|
|
$
|
3,011
|
|
|
$
|
1,642
|
|
|
$
|
3,653
|
|
|
$
|
4,448
|
|
|
$
|
1,341
|
|
|
$
|
28,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Other
|
|
|
Banking,
|
|
|
|
|
|
|
Insurance
|
|
|
Retirement
|
|
|
Benefit
|
|
|
Auto &
|
|
|
|
|
|
International
|
|
|
Corporate
|
|
|
|
|
|
|
Products
|
|
|
Products
|
|
|
Funding
|
|
|
Home
|
|
|
Japan
|
|
|
Regions
|
|
|
& Other
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Total revenues
|
|
$
|
13,678
|
|
|
$
|
3,842
|
|
|
$
|
4,026
|
|
|
$
|
1,545
|
|
|
$
|
|
|
|
$
|
3,065
|
|
|
$
|
1,081
|
|
|
$
|
27,237
|
|
Less: Net investment gains (losses)
|
|
|
9
|
|
|
|
91
|
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
(29
|
)
|
|
|
(110
|
)
|
|
|
18
|
|
Less: Net derivative gains (losses)
|
|
|
625
|
|
|
|
511
|
|
|
|
70
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
266
|
|
|
|
53
|
|
|
|
1,522
|
|
Less: Adjustments related to net investment gains (losses) and
net derivative gains (losses)
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
Less: Other adjustments to revenues (1)
|
|
|
(73
|
)
|
|
|
(34
|
)
|
|
|
96
|
|
|
|
|
|
|
|
|
|
|
|
(124
|
)
|
|
|
225
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
$
|
13,111
|
|
|
$
|
3,274
|
|
|
$
|
3,803
|
|
|
$
|
1,548
|
|
|
$
|
|
|
|
$
|
2,952
|
|
|
$
|
913
|
|
|
$
|
25,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
$
|
12,134
|
|
|
$
|
2,923
|
|
|
$
|
3,140
|
|
|
$
|
1,369
|
|
|
$
|
|
|
|
$
|
2,708
|
|
|
$
|
1,416
|
|
|
$
|
23,690
|
|
Less: Adjustments related to net investment gains (losses) and
net derivative gains (losses)
|
|
|
50
|
|
|
|
176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
226
|
|
Less: Other adjustments to expenses (1)
|
|
|
|
|
|
|
(9
|
)
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
144
|
|
|
|
278
|
|
|
|
450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
12,084
|
|
|
$
|
2,756
|
|
|
$
|
3,103
|
|
|
$
|
1,369
|
|
|
$
|
|
|
|
$
|
2,564
|
|
|
$
|
1,138
|
|
|
$
|
23,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
152
(1) See definitions of operating revenues and operating
expenses for the components of such adjustments.
Unless otherwise stated, all amounts discussed below are net of
income tax and are on a constant currency basis. The constant
currency basis amounts for both periods are calculated using the
average foreign currency exchange rates for the first six months
of 2011.
The increase in operating earnings includes the impact of
the Acquisition, which is reflected in both Japan and Other
International Regions, as well as increased policy fees as the
improvement in the financial markets drove a higher level of
average separate account balances and higher net investment
income in certain of our businesses. Changes in foreign currency
exchange rates had a modest positive impact on results compared
to the prior period. Operating earnings increased in all of
U.S. Business, except Auto & Home, which was
impacted by weather-related claims.
The significant increase in average separate account balances
was largely attributable to favorable equity market performance
resulting from improved market conditions and positive net cash
flows from the annuity business. This resulted in higher policy
fees and other revenues of $282 million, most notably in
Retirement Products. Policy fees are typically calculated as a
percentage of the average assets in the separate accounts.
Net investment income increased from growth in average invested
assets offset by lower yields. Growth in the investment
portfolio was primarily due to the Acquisition and positive net
cash flows in the majority of our domestic businesses, as well
as continued growth in Other International Regions (excluding
the impact of the Acquisition). These cash flows were invested
primarily in fixed maturity securities and mortgage loans.
Yields were negatively impacted by the acquired ALICO investment
portfolio, which has a larger allocation to lower yielding
government securities and shorter duration investments. In
addition, yields were adversely impacted by the effects of lower
fixed maturity securities yields due to new investment and
reinvestment during this lower interest rate environment. Also,
yields were negatively impacted by higher other limited
partnership interests yields in the prior period from a stronger
recovery in the private equity markets in the prior period
compared to the current period. These decreases in yield were
partially offset by increased real estate joint venture yields
as a result of the positive effects of stabilizing real estate
markets period over period. Beginning in the fourth quarter of
2010, investment earnings and interest credited related to
contractholder-directed unit-linked investments are excluded
from operating revenues and operating expenses, as the
contractholder, and not the Company, directs the investment of
the funds. This change in presentation had no impact on
operating earnings; however, it unfavorably impacted the change
in net investment income in the current period.
Since many of our products are interest spread-based, higher net
investment income is typically offset by higher interest
credited expense. However, interest credited expense decreased
slightly primarily in our domestic funding agreement and
guaranteed interest contract businesses as a result of the
impact from derivatives that are used to hedge certain
liabilities. The impact from the growth in our long-term care,
traditional life and structured settlement businesses partially
offset those decreases in interest credited expense.
Apart from an increase resulting from the Acquisition, DAC, VOBA
and DSI amortization for the first six months of 2011 increased
$47 million when compared to the prior period, primarily
due to business growth in the current period. During the first
six months of 2010, results reflected increased or accelerated
DAC, VOBA and DSI amortization primarily stemming from a decline
in the market value of our separate account balances. A factor
that determines the amount of amortization is expected future
earnings, which, in the retirement business, are derived, in
part, from the fees earned on separate account balances. The
decline in the market value of our separate account balances
during the first six months of 2010 resulted in a decrease in
the expected future gross profits, which triggered an
acceleration of amortization during the 2010 period.
Severe storm activity during the second quarter of 2011 resulted
in catastrophe losses of $174 million in Auto &
Home, which drove a $163 million unfavorable impact to
claims experience compared to the prior period. This was
partially offset by a modest net favorable impact from our other
businesses as mixed claims experience had a net favorable impact
in Insurance Products, slightly offset by less favorable
mortality in Corporate Benefit Funding.
Interest expense on debt increased $79 million primarily as
a result of debt issued in the third and fourth quarters of 2010
in connection with the Acquisition and FHLB borrowings.
153
Operating expenses increased due to the Acquisition, which
includes increased operating expenses of $18 million
related to the March 2011 earthquake and tsunami in Japan. In
addition, operating expenses increased as a result of investment
and growth in our international and banking businesses. The
current period also includes higher variable expenses, such as
commissions and separate account advisory fees, a portion of
which is offset by DAC capitalization.
Insurance
Products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Change
|
|
|
% Change
|
|
|
|
(In millions)
|
|
|
|
|
|
OPERATING REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
8,460
|
|
|
$
|
8,640
|
|
|
$
|
(180
|
)
|
|
|
(2.1
|
)%
|
Universal life and investment-type product policy fees
|
|
|
1,129
|
|
|
|
1,095
|
|
|
|
34
|
|
|
|
3.1
|
%
|
Net investment income
|
|
|
3,101
|
|
|
|
2,999
|
|
|
|
102
|
|
|
|
3.4
|
%
|
Other revenues
|
|
|
404
|
|
|
|
377
|
|
|
|
27
|
|
|
|
7.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
13,094
|
|
|
|
13,111
|
|
|
|
(17
|
)
|
|
|
(0.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
9,299
|
|
|
|
9,568
|
|
|
|
(269
|
)
|
|
|
(2.8
|
)%
|
Interest credited to policyholder account balances
|
|
|
487
|
|
|
|
471
|
|
|
|
16
|
|
|
|
3.4
|
%
|
Capitalization of DAC
|
|
|
(430
|
)
|
|
|
(423
|
)
|
|
|
(7
|
)
|
|
|
(1.7
|
)%
|
Amortization of DAC and VOBA
|
|
|
445
|
|
|
|
445
|
|
|
|
|
|
|
|
|
%
|
Other expenses
|
|
|
2,063
|
|
|
|
2,023
|
|
|
|
40
|
|
|
|
2.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
11,864
|
|
|
|
12,084
|
|
|
|
(220
|
)
|
|
|
(1.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
431
|
|
|
|
360
|
|
|
|
71
|
|
|
|
19.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
799
|
|
|
$
|
667
|
|
|
$
|
132
|
|
|
|
19.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unless otherwise stated, all amounts discussed below are net of
income tax.
The significant components of the increase in operating earnings
were net favorable claims experience, higher net investment
income and the impact of a reduction in dividends to certain
policyholders, partially offset by higher expenses.
Claims experience varied amongst our businesses with a net
favorable impact of $75 million to operating earnings. We
experienced very favorable morbidity results in the current
period, specifically in our non-medical health businesses. Our
disability and dental businesses had favorable claims experience
and our disability business also benefited from higher net
closures. Improved mortality in our group life and traditional
life businesses was significantly offset by unfavorable
mortality in our universal variable life business.
Higher net investment income of $66 million was partially
offset by a $19 million increase in interest credited on
long-duration contracts, which is reflected in the change in
policyholder benefits and dividends. This increase in interest
credited was primarily due to growth in future policyholder
benefits in our long-term care and traditional life businesses.
The increase in net investment income was due to a
$56 million increase from growth in average invested assets
and a $10 million increase from higher yields. Growth in
the investment portfolio was due to positive cash flows from
operations in most of our businesses. Yields were positively
impacted by the improved yields on fixed maturity securities and
mortgage loans yields from the repositioning of the accumulated
liquidity in our portfolio to longer duration and higher
yielding investments and an increase in mortgage loan
prepayments. In addition, real estate joint venture yields
increased from the positive effects of stabilizing real estate
markets period over period. The increase in yields was partially
offset by the negative impact of the current low interest rate
154
environment on invested economic capital. Additionally, other
limited partnership interests yields were negatively impacted
from a stronger recovery in private equity markets in the prior
period compared to the current period.
A reduction in the dividend scale, which was announced in the
fourth quarter of 2010, resulted in a $32 million decrease
in policyholder dividends in the traditional life business.
Other expenses increased $26 million primarily due to a
$19 million increase in commissions and a $7 million
increase in professional services. A portion of the commission
increase is offset by DAC capitalization.
Retirement
Products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Change
|
|
|
% Change
|
|
|
|
(In millions)
|
|
|
|
|
|
OPERATING REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
446
|
|
|
$
|
503
|
|
|
$
|
(57
|
)
|
|
|
(11.3
|
)%
|
Universal life and investment-type product policy fees
|
|
|
1,208
|
|
|
|
974
|
|
|
|
234
|
|
|
|
24.0
|
%
|
Net investment income
|
|
|
1,578
|
|
|
|
1,694
|
|
|
|
(116
|
)
|
|
|
(6.8
|
)%
|
Other revenues
|
|
|
150
|
|
|
|
103
|
|
|
|
47
|
|
|
|
45.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
3,382
|
|
|
|
3,274
|
|
|
|
108
|
|
|
|
3.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
777
|
|
|
|
829
|
|
|
|
(52
|
)
|
|
|
(6.3
|
)%
|
Interest credited to policyholder account balances
|
|
|
788
|
|
|
|
811
|
|
|
|
(23
|
)
|
|
|
(2.8
|
)%
|
Capitalization of DAC
|
|
|
(717
|
)
|
|
|
(496
|
)
|
|
|
(221
|
)
|
|
|
(44.6
|
)%
|
Amortization of DAC and VOBA
|
|
|
436
|
|
|
|
441
|
|
|
|
(5
|
)
|
|
|
(1.1
|
)%
|
Interest expense on debt
|
|
|
1
|
|
|
|
2
|
|
|
|
(1
|
)
|
|
|
(50.0
|
)%
|
Other expenses
|
|
|
1,462
|
|
|
|
1,169
|
|
|
|
293
|
|
|
|
25.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
2,747
|
|
|
|
2,756
|
|
|
|
(9
|
)
|
|
|
(0.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
222
|
|
|
|
181
|
|
|
|
41
|
|
|
|
22.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
413
|
|
|
$
|
337
|
|
|
$
|
76
|
|
|
|
22.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unless otherwise stated, all amounts discussed below are net of
income tax.
Interest rate and equity market changes were the primary drivers
of the increase in operating earnings, with the largest impact
resulting from increased policy fees and other revenues,
partially offset by a decrease in net investment income.
Premiums decreased $37 million. In the annuity business,
the movement in premiums is almost entirely offset by the
related change in policyholder benefits, as the insurance
liability that we establish at the time we assume the risk under
these contracts is typically equivalent to the premium earned
less the amount of acquisition expenses. In addition,
refinements in certain assumptions used to develop income
annuity liabilities reduced operating earnings by
$11 million.
A significant increase in average separate account balances was
largely attributable to favorable equity market performance
resulting from improved market conditions and positive net cash
flows from the annuity business. This resulted in higher policy
fees and other revenues of $183 million. Policy fees are
typically calculated as a percentage of the average assets in
the separate account.
DAC, VOBA and DSI amortization decreased $1 million during
the first six months of 2011 compared to the prior period.
During the first six months of 2010, results reflected increased
or accelerated DAC, VOBA and DSI amortization primarily stemming
from a decline in the market value of our separate account
balances. A factor that determines the amount of amortization is
expected future earnings which, in the retirement business, are
derived, in
155
part, from the fees earned on separate account balances. The
decline in the market value of our separate account balances
during the first six months of 2010 resulted in a decrease in
the expected future gross profits, which triggered an
acceleration of amortization in the 2010 period. The resulting
decrease in amortization was almost entirely offset by an
increase in amortization due to the business growth experienced
in 2011.
There was an $8 million decrease in variable annuity
guarantee benefit costs as the 2011 period experienced equity
market improvements compared to equity market declines in the
2010 period. The decrease in variable annuity guarantee benefit
costs was due to a decrease in paid claims, partially offset by
an increase in the cost of our reinsurance programs.
Net investment income decreased $75 million due to a
$52 million decrease from lower yields and a
$23 million decrease from a reduction in average invested
assets. Yields were negatively impacted by the reinvestment of
proceeds from maturities and sales of fixed maturity securities
and mortgage loans during this lower interest rate environment.
The low interest rate environment also negatively impacted
yields on invested economic capital. Additionally, yields on
other limited partnership interests were negatively impacted by
a stronger recovery in the private equity markets in the prior
period than in the current period. The reduction in the
investment portfolio was due to a decrease in the securities
lending program and from transfers to the separate account.
Consistent with yields on our investment portfolio, we have seen
a drop in our average crediting rates on fixed annuities, which
has resulted in a $15 million decrease in interest credited
expense.
Other expenses increased $190 million primarily due to a
$185 million increase in variable expenses, such as
commissions, separate account advisory fees, letter of credit
fees and other volume-related activity. A portion of this
increase was offset by DAC capitalization, which was higher
compared with the prior period.
Corporate
Benefit Funding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Change
|
|
|
% Change
|
|
|
|
(In millions)
|
|
|
|
|
|
OPERATING REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
1,072
|
|
|
$
|
1,145
|
|
|
$
|
(73
|
)
|
|
|
(6.4
|
)%
|
Universal life and investment-type product policy fees
|
|
|
112
|
|
|
|
111
|
|
|
|
1
|
|
|
|
0.9
|
%
|
Net investment income
|
|
|
2,636
|
|
|
|
2,425
|
|
|
|
211
|
|
|
|
8.7
|
%
|
Other revenues
|
|
|
121
|
|
|
|
122
|
|
|
|
(1
|
)
|
|
|
(0.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
3,941
|
|
|
|
3,803
|
|
|
|
138
|
|
|
|
3.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
2,113
|
|
|
|
2,152
|
|
|
|
(39
|
)
|
|
|
(1.8
|
)%
|
Interest credited to policyholder account balances
|
|
|
665
|
|
|
|
719
|
|
|
|
(54
|
)
|
|
|
(7.5
|
)%
|
Capitalization of DAC
|
|
|
(18
|
)
|
|
|
(11
|
)
|
|
|
(7
|
)
|
|
|
(63.6
|
)%
|
Amortization of DAC and VOBA
|
|
|
10
|
|
|
|
8
|
|
|
|
2
|
|
|
|
25.0
|
%
|
Interest expense on debt
|
|
|
4
|
|
|
|
2
|
|
|
|
2
|
|
|
|
100.0
|
%
|
Other expenses
|
|
|
237
|
|
|
|
233
|
|
|
|
4
|
|
|
|
1.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
3,011
|
|
|
|
3,103
|
|
|
|
(92
|
)
|
|
|
(3.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
327
|
|
|
|
245
|
|
|
|
82
|
|
|
|
33.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
603
|
|
|
$
|
455
|
|
|
$
|
148
|
|
|
|
32.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unless otherwise stated, all amounts discussed below are net of
income tax.
The $148 million increase in operating earnings was
primarily driven by an improvement in net investment income and
the impact of lower interest credited expense. Favorable
liability refinements also increased operating earnings.
156
Net investment income increased $137 million, reflecting a
$110 million increase from growth in average invested
assets and a $27 million increase from higher yields.
Growth in the investment portfolio was due to an increase in the
securities lending program and increased issuances under funding
agreements. Yields were positively impacted by improved yields
on fixed maturity securities from the repositioning of the
accumulated liquidity in our portfolio to longer duration and
higher yielding investments. Additionally, mortgage loan yields
were positively impacted by collections on lower yielding assets
in addition to increased mortgage prepayments. These
improvements in yields were partially offset by the negative
impact of the current low interest rate environment on invested
economic capital.
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 $35 million largely due to the impact
from derivatives that are used to hedge certain liabilities in
our funding agreement and guaranteed interest contract
businesses. The increase in the average policyholder liabilities
resulted in a $12 million increase in interest credited
expense primarily related to the structured settlements business.
Mortality experience was mixed and decreased operating earnings
by $13 million, partially offset by the net impact of
favorable liability refinements in both periods resulting in an
increase in operating earnings.
Auto &
Home
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Change
|
|
|
% Change
|
|
|
|
(In millions)
|
|
|
|
|
|
OPERATING REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
1,483
|
|
|
$
|
1,437
|
|
|
$
|
46
|
|
|
|
3.2
|
%
|
Net investment income
|
|
|
104
|
|
|
|
105
|
|
|
|
(1
|
)
|
|
|
(1.0
|
)%
|
Other revenues
|
|
|
15
|
|
|
|
6
|
|
|
|
9
|
|
|
|
150.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
1,602
|
|
|
|
1,548
|
|
|
|
54
|
|
|
|
3.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
1,251
|
|
|
|
1,000
|
|
|
|
251
|
|
|
|
25.1
|
%
|
Capitalization of DAC
|
|
|
(222
|
)
|
|
|
(221
|
)
|
|
|
(1
|
)
|
|
|
(0.5
|
)%
|
Amortization of DAC and VOBA
|
|
|
222
|
|
|
|
218
|
|
|
|
4
|
|
|
|
1.8
|
%
|
Other expenses
|
|
|
391
|
|
|
|
372
|
|
|
|
19
|
|
|
|
5.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,642
|
|
|
|
1,369
|
|
|
|
273
|
|
|
|
19.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
(41
|
)
|
|
|
34
|
|
|
|
(75
|
)
|
|
|
(220.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
1
|
|
|
$
|
145
|
|
|
$
|
(144
|
)
|
|
|
(99.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unless otherwise stated, all amounts discussed below are net of
income tax.
The primary driver of the $144 million decrease in
operating earnings was unfavorable claims experience.
Catastrophe-related losses increased $133 million compared
to the first six months of 2010 mainly due to the storm activity
in the U.S. during the second quarter of 2011, which
resulted in $174 million of losses. The April catastrophes
resulted in a record number of tornados for a one-month period
and resulted in damage in many states, with the worst storm
impacting Alabama and Tennessee, from tornados and hail,
respectively. The May catastrophes included one that impacted
20 states and caused severe tornado damage in Missouri,
Minnesota and Oklahoma. In addition, current period
non-catastrophe claim costs increased $41 million as a
result of higher claim frequencies in both our auto and
homeowners businesses due primarily to more severe winter
weather in the first quarter of 2011 and to non-catastrophe
weather in the second quarter of 2011. The negative impact of
these items was partially offset by additional favorable
development of prior year losses of $11 million and lower
severities as an improvement in our auto business was partially
offset by an increase in severities in our homeowners results.
157
The impact of the items discussed above can be seen in the
unfavorable change in the combined ratio, including
catastrophes, to 110.0% in the first half of 2011 from 94.7% in
the comparable 2010 period, and the unfavorable change in the
combined ratio, excluding catastrophes, to 89.0% in the first
half of 2011 from 87.2% in comparable 2010 period.
A $14 million increase in other expenses, including the net
change in DAC, contributed to the decrease in operating
earnings. The increase in expenses resulted from higher
commission-related expenses and minor fluctuations in a number
of expense categories.
The increase in average premium per policy in both our
homeowners and auto businesses improved operating earnings by
$21 million and the increase in exposures improved
operating earnings as the positive impact from premiums exceeded
the negative impact from claims. Exposures are primarily each
automobile for the auto line of business and each residence for
the homeowners line of business.
In addition, the write-off in the first quarter of 2010 of an
equity interest in a mandatory state underwriting pool, required
by a change in legislation, resulted in an increase in other
revenues.
Japan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Change
|
|
|
|
(In millions)
|
|
|
OPERATING REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
3,119
|
|
|
$
|
|
|
|
$
|
3,119
|
|
Universal life and investment-type product policy fees
|
|
|
389
|
|
|
|
|
|
|
|
389
|
|
Net investment income
|
|
|
956
|
|
|
|
|
|
|
|
956
|
|
Other revenues
|
|
|
13
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
4,477
|
|
|
|
|
|
|
|
4,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
1,968
|
|
|
|
|
|
|
|
1,968
|
|
Interest credited to policyholder account balances
|
|
|
757
|
|
|
|
|
|
|
|
757
|
|
Capitalization of DAC
|
|
|
(1,041
|
)
|
|
|
|
|
|
|
(1,041
|
)
|
Amortization of DAC and VOBA
|
|
|
663
|
|
|
|
|
|
|
|
663
|
|
Amortization of negative VOBA
|
|
|
(287
|
)
|
|
|
|
|
|
|
(287
|
)
|
Other expenses
|
|
|
1,593
|
|
|
|
|
|
|
|
1,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
3,653
|
|
|
|
|
|
|
|
3,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
289
|
|
|
|
|
|
|
|
289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
535
|
|
|
$
|
|
|
|
$
|
535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unless otherwise stated, all amounts discussed below are net of
income tax.
Even with the impact of the earthquake and tsunami, as noted
below, our sales results continue to show steady growth and
improvement across essentially all distribution channels
including captive agents, independent agents, brokers,
bancassurance, and direct marketing.
The Japanese economy, to which we face substantial exposure
given our operations there, has been significantly negatively
impacted by the March 2011 earthquake and tsunami. Disruptions
to the Japanese economy are having, and will continue to have,
negative impacts on the overall global economy, not all of which
can be foreseen. During the second quarter of 2011, the Company
incurred $26 million of insurance claims and
$18 million of increased operating expenses related to the
earthquake and tsunami.
158
Other
International Regions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Change
|
|
|
% Change
|
|
|
|
(In millions)
|
|
|
|
|
|
OPERATING REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
3,264
|
|
|
$
|
1,644
|
|
|
$
|
1,620
|
|
|
|
98.5
|
%
|
Universal life and investment-type product policy fees
|
|
|
906
|
|
|
|
601
|
|
|
|
305
|
|
|
|
50.7
|
%
|
Net investment income
|
|
|
960
|
|
|
|
702
|
|
|
|
258
|
|
|
|
36.8
|
%
|
Other revenues
|
|
|
68
|
|
|
|
5
|
|
|
|
63
|
|
|
|
1,260.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
5,198
|
|
|
|
2,952
|
|
|
|
2,246
|
|
|
|
76.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
2,320
|
|
|
|
1,516
|
|
|
|
804
|
|
|
|
53.0
|
%
|
Interest credited to policyholder account balances
|
|
|
295
|
|
|
|
191
|
|
|
|
104
|
|
|
|
54.5
|
%
|
Capitalization of DAC
|
|
|
(839
|
)
|
|
|
(338
|
)
|
|
|
(501
|
)
|
|
|
(148.2
|
)%
|
Amortization of DAC and VOBA
|
|
|
600
|
|
|
|
209
|
|
|
|
391
|
|
|
|
187.1
|
%
|
Amortization of negative VOBA
|
|
|
(41
|
)
|
|
|
|
|
|
|
(41
|
)
|
|
|
|
|
Interest expense on debt
|
|
|
2
|
|
|
|
3
|
|
|
|
(1
|
)
|
|
|
(33.3
|
)%
|
Other expenses
|
|
|
2,111
|
|
|
|
983
|
|
|
|
1,128
|
|
|
|
114.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
4,448
|
|
|
|
2,564
|
|
|
|
1,884
|
|
|
|
73.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
211
|
|
|
|
99
|
|
|
|
112
|
|
|
|
113.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
539
|
|
|
$
|
289
|
|
|
$
|
250
|
|
|
|
86.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unless otherwise stated, all amounts discussed below are net of
income tax and are on a constant currency basis. The constant
currency basis amounts for both periods are calculated using the
average foreign currency exchange rates for the first half of
2011.
Reported operating earnings increased by $250 million over
the prior period, reflecting the addition of the ALICO
operations other than Japan. The positive impact of changes in
foreign currency exchange rates improved reported earnings by
$23 million for the first half of 2011 compared to the
prior period.
Operating earnings in Mexico increased primarily due to an
increase in policy fees on our universal life products.
Koreas operating earnings increased primarily from a tax
benefit in the current period. Irelands operating earnings
increased primarily due to business growth in our European
annuity operation. The impact of the sale of the Companys
interest in Mitsui Sumitomo MetLife Insurance Co., Ltd.
(MSI MetLife) on April 1, 2011 decreased
operating results as no earnings were recognized in the current
period. Australias operating earnings decreased largely
due to the loss of an institutional business contract in
December 2010 combined with an increase in operating expenses.
Net investment income increased from growth in average invested
assets offset by lower yields. Growth in average invested assets
reflects the Acquisition and growth in our businesses. Decreased
yields reflect the Acquisition and the net impact of higher
inflation, primarily in Chile, which was more than offset by the
impact of changes in assumptions for measuring the effects of
inflation on certain inflation-indexed investments, primarily in
Chile. The change in net investment income from inflation was
offset by a similar change in the related insurance liabilities.
Beginning in the fourth quarter of 2010, investment earnings and
interest credited related to contractholder-directed unit-linked
investments were excluded from operating revenues and operating
expenses, as the contractholder, and not the Company, directs
the investment of the funds. This change in presentation had no
impact on operating earnings; however, it unfavorably impacted
the change in net investment income in the current period.
In addition to an increase associated with the Acquisition,
operating expenses increased primarily due to an increase in
commission expenses and business growth in Korea, Brazil,
Mexico, Chile and Irelands European variable annuity
operation.
159
Banking,
Corporate & Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Change
|
|
|
% Change
|
|
|
|
(In millions)
|
|
|
|
|
|
OPERATING REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
4
|
|
|
$
|
3
|
|
|
$
|
1
|
|
|
|
33.3
|
%
|
Net investment income
|
|
|
627
|
|
|
|
466
|
|
|
|
161
|
|
|
|
34.5
|
%
|
Other revenues
|
|
|
384
|
|
|
|
444
|
|
|
|
(60
|
)
|
|
|
(13.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
1,015
|
|
|
|
913
|
|
|
|
102
|
|
|
|
11.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims and policyholder dividends
|
|
|
3
|
|
|
|
(7
|
)
|
|
|
10
|
|
|
|
142.9
|
%
|
Interest credited to bank deposits
|
|
|
46
|
|
|
|
75
|
|
|
|
(29
|
)
|
|
|
(38.7
|
)%
|
Interest expense on debt
|
|
|
644
|
|
|
|
523
|
|
|
|
121
|
|
|
|
23.1
|
%
|
Other expenses
|
|
|
648
|
|
|
|
547
|
|
|
|
101
|
|
|
|
18.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,341
|
|
|
|
1,138
|
|
|
|
203
|
|
|
|
17.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
(244
|
)
|
|
|
(171
|
)
|
|
|
(73
|
)
|
|
|
(42.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
|
(82
|
)
|
|
|
(54
|
)
|
|
|
(28
|
)
|
|
|
(51.9
|
)%
|
Less: Preferred stock dividends
|
|
|
61
|
|
|
|
61
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings available to common shareholders
|
|
$
|
(143
|
)
|
|
$
|
(115
|
)
|
|
$
|
(28
|
)
|
|
|
(24.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unless otherwise stated, all amounts discussed below are net of
income tax.
Operating earnings available to common shareholders and
operating earnings, which excludes preferred stock dividends,
each decreased $28 million, primarily due to an increase in
interest expense resulting from the 2010 debt issuances and a
decrease in the results of our mortgage banking business,
partially offset by an increase in net investment income, an
increase in tax benefit and a decrease in interest credited to
bank deposits.
Interest expense on debt increased $79 million primarily as
a result of debt issued in the third and fourth quarters of 2010
in connection with the Acquisition and FHLB borrowings.
The mortgage loan origination business experienced an
$80 million decline in operating earnings with
$31 million principally attributable to lower forward
residential mortgage volumes and new interest rate lock
commitment activity as a result of a weaker refinance market, as
well as margin compression in both our forward and reverse
mortgage products. Also contributing to this decline was a
$49 million increase in other expenses to support sales
growth and risk management initiatives.
The results of our mortgage loan servicing business declined
$19 million primarily due to additional expenses incurred
to support a larger portfolio with increased regulatory
oversight. The Company made $16 million of charitable
contributions in the first half of 2011 compared to
$26 million in the 2010 period. In addition, Banking,
Corporate & Other benefited in the current period from
a $6 million reduction in discretionary spending, such as
consulting and postemployment-related costs. These savings were
partially offset by a $10 million increase in internal
resource costs for associates committed to the Acquisition.
Net investment income increased $105 million due to an
increase of $93 million from higher yields and an increase
of $12 million from growth in average invested assets.
Yields were positively impacted by improved yields on fixed
maturity securities from the repositioning of the accumulated
liquidity in our portfolio to longer duration and higher
yielding investments. Yields were also positively impacted by
lower crediting rates paid to the segments on the economic
capital invested on their behalf period over period, reflecting
the low interest rate environment. An increase in the average
invested assets was primarily due to proceeds from the issuances
of debt.
160
Banking, Corporate & Other also benefited from a lower
effective tax rate. The lower effective tax rate provided an
increased benefit of $38 million from the first six months
of 2010. The higher tax benefit was primarily due to
$87 million of charges in 2010 related to the Health Care
Act. The Health Care Act reduced 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 was reflected
in our financial statements, the entire future impact of this
change in law was required to be recorded as a charge in the
first quarter of 2010, when 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 certain types of
compensation. This change negatively impacted the results for
the first six months of 2010 by $12 million. The higher tax
benefit was partially offset by decreased utilization of tax
preferenced investments which provided tax credits and
deductions.
Interest credited to bank deposits decreased $19 million
due to lower overall cost of deposits driven by lower interest
rates paid on deposit accounts.
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 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.
Although the disruption in the global financial markets has
moderated, not all global financial markets are functioning
normally, and recovery from the U.S. recession has been
below historic averages. Global inflation had fallen over the
last several years, but is now rising, and a number of central
banks around the world have begun tightening monetary
conditions. The global recession and disruption of the financial
markets has led to concerns over capital markets access and the
solvency of certain European Union member states, including
Portugal, Ireland, Italy, Greece and Spain, and of financial
institutions that have significant direct or indirect exposure
to debt issued by these countries.
In July 2011, the sovereign debt of Portugal and Ireland was
downgraded to below investment grade by Moodys Investors
Service (Moodys), the first of the major
rating agencies to downgrade the sovereign debt of these
countries to below investment grade. Also in July 2011, the
Council of the European Union announced a
161
Portugal and Ireland support program that included the reduction
of interest rates on certain sovereign debt of Portugal and
Ireland.
In January 2011, Greeces sovereign debt was downgraded to
below investment grade by Fitch Ratings (Fitch), the
last of the major rating agencies to downgrade Greeces
sovereign debt to below investment grade. In July 2011, the
Council of the European Union and the Institute of International
Finance, Inc. announced a Greece support program estimated at
109 billion from public financing sources financed by
the European Financial Stability Facility, as well as a separate
Greece sovereign debt exchange proposal by the private sector.
This support program, including the debt exchange proposal, is
expected to improve the debt sustainability and refinancing
profile of Greece. Private investors that voluntarily
participate in the debt exchange proposal, which is expected to
apply to Greeces sovereign debt maturing through 2019, are
expected to incur losses on a net present value basis on such
securities that mature through 2019. As a result of this
expectation, in July 2011, Moodys downgraded Greeces
sovereign debt to a Ca rating a rating designation
of likely in, or very near, default.
This support program, including the debt exchange proposal,
which is expected to apply to Greeces sovereign debt
maturing through 2019, did not impact net income for the second
quarter of 2011, as our holdings of Greece sovereign debt were
acquired in the Acquisition and our amortized cost basis
reflects recording such securities at estimated fair value on
November 1, 2010, which was substantially below par. The
par value and amortized cost of the Companys holdings in
sovereign fixed maturity securities of Greece, was
$827 million and $579 million at June 30, 2011,
respectively, and $962 million and $682 million at
December 31, 2010, respectively. The estimated fair value
of the Companys holdings in sovereign fixed maturity
securities of Greece was $419 million and $642 million
at June 30, 2011 and December 31, 2010, respectively.
The estimated fair value of the Companys holdings in
sovereign fixed maturity securities of Portugal, Ireland, Italy,
Greece and Spain, commonly referred to as Europes
perimeter region, was $761 million and
$1,562 million prior to considering net purchased credit
default swap protection at June 30, 2011 and
December 31, 2010, respectively. The notional value of net
purchased credit default swap protection on the Europe perimeter
region was $220 million and $170 million at
June 30, 2011 and December 31, 2010, respectively. The
estimated fair value of these Europe perimeter region sovereign
fixed maturity securities prior to considering net purchased
credit default swap protection represented 1.4% and 3.2% of the
Companys equity at June 30, 2011 and
December 31, 2010, respectively, and 0.2% and 0.3% of total
cash and invested assets at June 30, 2011 and
December 31, 2010, respectively. Despite all Europe
perimeter region programs, including the support program and
debt exchange proposal announced in July 2011, concerns remain
that other European Union member states could experience similar
financial troubles. We cannot predict whether the financial
markets will continue to stabilize or revive.
See Industry Trends.
The Japanese economy, to which we face substantial exposure
given our operations there, has been significantly negatively
impacted by the March 2011 earthquake and tsunami. Disruptions
to the Japanese economy are having, and will continue to have,
negative impacts on the overall global economy, not all of which
can be foreseen.
On August 2, 2011, Moodys confirmed its highest
rating on U.S. Treasury securities, following the raising
of the statutory debt limit; however, their rating outlook is
negative. The Company has been closely evaluating the
implications on its investment portfolio of a one-notch
downgrade of U.S. Treasury securities and believes its
investment portfolio is well positioned. In light of the related
market uncertainty, the Company has increased its liquidity
position. See Risk Factors Delay
by Congress in Raising the Statutory Debt Limit of the United
States Could Have an Adverse Effect on Our Business, Financial
Condition and Results of Operations.
Investment Outlook. Recovering private equity
markets and stabilizing credit and real estate markets during
2010 and the first six months of 2011 had a positive impact on
returns and net investment income of real estate joint ventures
and funds, which are included within real estate and real estate
joint venture portfolios. Although the disruption in the global
financial markets has moderated, if there is a resumption of
significant disruption, it could adversely impact returns and
net investment income on alternative investment classes. Net
cash flows arising from our business and our investment
portfolio will be reinvested in a prudent manner and 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.
162
Composition
of Investment Portfolio and Investment Portfolio
Results
The following yield table presents the net investment income,
investment portfolio 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 net investment income and investment portfolio gains
(losses) for the investment portfolio as a whole. The yield
table also presents gains (losses) on derivative instruments
which are used to manage risk for certain invested assets and
certain insurance liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or For the
|
|
|
At or For the
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
(In millions)
|
|
|
Fixed Maturity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield (1)
|
|
|
4.94
|
%
|
|
|
5.34
|
%
|
|
|
4.93
|
%
|
|
|
5.54
|
%
|
Investment income (2),(3)
|
|
$
|
3,794
|
|
|
$
|
2,939
|
|
|
$
|
7,487
|
|
|
$
|
6,053
|
|
Investment gains (losses) (3)
|
|
$
|
(105
|
)
|
|
$
|
(127
|
)
|
|
$
|
(268
|
)
|
|
$
|
(193
|
)
|
Ending carrying value (2),(3)
|
|
$
|
342,607
|
|
|
$
|
247,098
|
|
|
$
|
342,607
|
|
|
$
|
247,098
|
|
Mortgage Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield (1)
|
|
|
5.50
|
%
|
|
|
5.55
|
%
|
|
|
5.52
|
%
|
|
|
5.48
|
%
|
Investment income (3),(4)
|
|
$
|
765
|
|
|
$
|
694
|
|
|
$
|
1,524
|
|
|
$
|
1,366
|
|
Investment gains (losses) (3)
|
|
$
|
68
|
|
|
$
|
11
|
|
|
$
|
115
|
|
|
$
|
(17
|
)
|
Ending carrying value (3)
|
|
$
|
56,927
|
|
|
$
|
51,070
|
|
|
$
|
56,927
|
|
|
$
|
51,070
|
|
Real Estate and Real Estate Joint Ventures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield (1)
|
|
|
4.85
|
%
|
|
|
3.15
|
%
|
|
|
3.85
|
%
|
|
|
0.52
|
%
|
Investment income
|
|
$
|
99
|
|
|
$
|
54
|
|
|
$
|
156
|
|
|
$
|
18
|
|
Investment gains (losses)
|
|
$
|
47
|
|
|
$
|
(17
|
)
|
|
$
|
76
|
|
|
$
|
(39
|
)
|
Ending carrying value
|
|
$
|
8,234
|
|
|
$
|
6,841
|
|
|
$
|
8,234
|
|
|
$
|
6,841
|
|
Policy Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield (1)
|
|
|
5.41
|
%
|
|
|
6.26
|
%
|
|
|
5.41
|
%
|
|
|
6.66
|
%
|
Investment income
|
|
$
|
160
|
|
|
$
|
157
|
|
|
$
|
320
|
|
|
$
|
333
|
|
Ending carrying value
|
|
$
|
11,858
|
|
|
$
|
10,047
|
|
|
$
|
11,858
|
|
|
$
|
10,047
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield (1)
|
|
|
6.04
|
%
|
|
|
5.37
|
%
|
|
|
4.70
|
%
|
|
|
4.36
|
%
|
Investment income
|
|
$
|
48
|
|
|
$
|
39
|
|
|
$
|
78
|
|
|
$
|
64
|
|
Investment gains (losses)
|
|
$
|
(70
|
)
|
|
$
|
74
|
|
|
$
|
(34
|
)
|
|
$
|
101
|
|
Ending carrying value
|
|
$
|
3,238
|
|
|
$
|
2,738
|
|
|
$
|
3,238
|
|
|
$
|
2,738
|
|
Other Limited Partnership Interests:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield (1)
|
|
|
9.90
|
%
|
|
|
11.13
|
%
|
|
|
12.52
|
%
|
|
|
14.93
|
%
|
Investment income
|
|
$
|
159
|
|
|
$
|
161
|
|
|
$
|
402
|
|
|
$
|
426
|
|
Investment gains (losses)
|
|
$
|
5
|
|
|
$
|
(10
|
)
|
|
$
|
8
|
|
|
$
|
(11
|
)
|
Ending carrying value
|
|
$
|
6,453
|
|
|
$
|
5,856
|
|
|
$
|
6,453
|
|
|
$
|
5,856
|
|
Cash and Short-Term Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield (1)
|
|
|
0.92
|
%
|
|
|
0.36
|
%
|
|
|
0.93
|
%
|
|
|
0.37
|
%
|
Investment income
|
|
$
|
41
|
|
|
$
|
15
|
|
|
$
|
84
|
|
|
$
|
28
|
|
Investment gains (losses)
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
1
|
|
Ending carrying value (3)
|
|
$
|
22,026
|
|
|
$
|
20,341
|
|
|
$
|
22,026
|
|
|
$
|
20,341
|
|
Other Invested Assets: (5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income
|
|
$
|
165
|
|
|
$
|
166
|
|
|
$
|
177
|
|
|
$
|
320
|
|
Investment gains (losses)
|
|
$
|
(7
|
)
|
|
$
|
17
|
|
|
$
|
(3
|
)
|
|
$
|
75
|
|
Ending carrying value
|
|
$
|
14,900
|
|
|
$
|
15,571
|
|
|
$
|
14,900
|
|
|
$
|
15,571
|
|
Total Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income yield (1)
|
|
|
4.96
|
%
|
|
|
5.24
|
%
|
|
|
4.89
|
%
|
|
|
5.39
|
%
|
Investment fees and expenses yield
|
|
|
(0.13
|
)
|
|
|
(0.13
|
)
|
|
|
(0.13
|
)
|
|
|
(0.14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Investment Income Yield (3)
|
|
|
4.83
|
%
|
|
|
5.11
|
%
|
|
|
4.76
|
%
|
|
|
5.25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income
|
|
$
|
5,231
|
|
|
$
|
4,225
|
|
|
$
|
10,228
|
|
|
$
|
8,608
|
|
Investment fees and expenses
|
|
|
(138
|
)
|
|
|
(105
|
)
|
|
|
(266
|
)
|
|
|
(217
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Investment Income (3),(6)
|
|
$
|
5,093
|
|
|
$
|
4,120
|
|
|
$
|
9,962
|
|
|
$
|
8,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Carrying Value (3)
|
|
$
|
466,243
|
|
|
$
|
359,562
|
|
|
$
|
466,243
|
|
|
$
|
359,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross investment gains (3)
|
|
$
|
348
|
|
|
$
|
413
|
|
|
$
|
638
|
|
|
$
|
687
|
|
Gross investment losses (3)
|
|
|
(290
|
)
|
|
|
(293
|
)
|
|
|
(533
|
)
|
|
|
(449
|
)
|
Writedowns
|
|
|
(119
|
)
|
|
|
(172
|
)
|
|
|
(210
|
)
|
|
|
(321
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Portfolio Gains (Losses) (3),(6)
|
|
$
|
(61
|
)
|
|
$
|
(52
|
)
|
|
$
|
(105
|
)
|
|
$
|
(83
|
)
|
Investment portfolio gains (losses) income tax (expense) benefit
|
|
|
23
|
|
|
|
11
|
|
|
|
38
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Portfolio Gains (Losses), Net of Income Tax
|
|
$
|
(38
|
)
|
|
$
|
(41
|
)
|
|
$
|
(67
|
)
|
|
$
|
(64
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Gains (Losses) (6)
|
|
$
|
293
|
|
|
$
|
1,322
|
|
|
$
|
(93
|
)
|
|
$
|
1,312
|
|
Derivative gains (losses) income tax (expense) benefit
|
|
|
(104
|
)
|
|
|
(540
|
)
|
|
|
28
|
|
|
|
(529
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Gains (Losses), Net of Income Tax
|
|
$
|
189
|
|
|
$
|
782
|
|
|
$
|
(65
|
)
|
|
$
|
783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As described in the footnotes below, the yield table reflects
certain differences from the presentation of invested assets,
net investment income, net investment gains (losses) and net
derivative gains (losses) as presented in the consolidated
balance sheets and consolidated statements of operations,
including the exclusion of |
163
|
|
|
|
|
contractholder-directed unit-linked investments classified
within trading and other securities, as the contractholder, not
the Company, directs the investment of the funds; and the
exclusion of the effects of consolidating certain VIEs that are
consolidated securitization entities (CSEs). This
yield table presentation is consistent with how we measure our
investment performance for management purposes, and we believe
it enhances understanding of our investment portfolio results. |
|
|
|
(1) |
|
Yields are based on average of quarterly average asset carrying
values, excluding recognized and unrealized investment gains
(losses), collateral received from counterparties associated
with our securities lending program, the effects of
consolidating certain VIEs that are treated as CSEs and,
effective October 1, 2010, contractholder-directed
unit-linked investments. Yields also exclude investment income
recognized on mortgage loans and securities held by CSEs and,
effective October 1, 2010, contractholder-directed
unit-linked investments. |
|
(2) |
|
Fixed maturity securities include $863 million and
$2,901 million at estimated fair value of trading and other
securities at June 30, 2011 and 2010, respectively. Fixed
maturity securities include $16 million and
$44 million of investment income related to trading and
other securities for the three months and six months ended
June 30, 2011, respectively, and ($56) million and
$23 million of investment income (loss) related to trading
and other securities for the three months and six months ended
June 30, 2010, respectively. |
|
(3) |
|
(a) Ending carrying values of fixed maturity securities as
presented herein, exclude (i) contractholder-directed
unit-linked investments reported within trading and
other securities, of $18,690 million at June 30, 2011,
and (ii) securities held by CSEs reported
within trading and other securities, of $147 million and
$257 million at June 30, 2011 and 2010, respectively.
Effective October 1, 2010, investment income and net
investment income, as presented herein, excludes investment
income and net investment income on contractholder-directed
unit-linked investments reported within trading and
other securities, as shown in footnote (6) to this yield
table. |
|
|
|
(b) Ending carrying values, investment income, net
investment income, and investment gains (losses), as presented
herein, exclude the effects of consolidating certain VIEs that
are treated as CSEs. The adjustments to investment income, net
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 (FVO).
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 FVO. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or For the Three Months Ended June 30, 2011
|
|
At or For the Six Months Ended June 30, 2011
|
|
|
|
|
Impact of Excluding
|
|
Total - Including all
|
|
|
|
Impact of Excluding
|
|
Total - Including all
|
|
|
As Reported in the
|
|
Trading and Other
|
|
Trading and Other
|
|
As Reported in the
|
|
Trading and Other
|
|
Trading and Other
|
|
|
Yield Table
|
|
Securities and CSEs
|
|
Securities and CSEs
|
|
Yield Table
|
|
Securities and CSEs
|
|
Securities and CSEs
|
|
|
(In millions)
|
|
Trading and Other Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(included within Fixed Maturity Securities):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending carrying value
|
|
$
|
863
|
|
|
$
|
18,837
|
|
|
$
|
19,700
|
|
|
$
|
863
|
|
|
$
|
18,837
|
|
|
$
|
19,700
|
|
Investment income
|
|
$
|
16
|
|
|
$
|
(32
|
)
|
|
$
|
(16
|
)
|
|
$
|
44
|
|
|
$
|
388
|
|
|
$
|
432
|
|
Investment gains (losses)
|
|
$
|
|
|
|
$
|
(15
|
)
|
|
$
|
(15
|
)
|
|
$
|
|
|
|
$
|
(8
|
)
|
|
$
|
(8
|
)
|
Mortgage Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending carrying value
|
|
$
|
56,927
|
|
|
$
|
6,697
|
|
|
$
|
63,624
|
|
|
$
|
56,927
|
|
|
$
|
6,697
|
|
|
$
|
63,624
|
|
Investment income
|
|
$
|
765
|
|
|
$
|
96
|
|
|
$
|
861
|
|
|
$
|
1,524
|
|
|
$
|
191
|
|
|
$
|
1,715
|
|
Investment gains (losses)
|
|
$
|
68
|
|
|
$
|
(1
|
)
|
|
$
|
67
|
|
|
$
|
115
|
|
|
$
|
17
|
|
|
$
|
132
|
|
Cash and Short-Term Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending carrying value
|
|
$
|
22,026
|
|
|
$
|
21
|
|
|
$
|
22,047
|
|
|
$
|
22,026
|
|
|
$
|
21
|
|
|
$
|
22,047
|
|
Total Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending carrying value
|
|
$
|
466,243
|
|
|
$
|
25,555
|
|
|
$
|
491,798
|
|
|
$
|
466,243
|
|
|
$
|
25,555
|
|
|
$
|
491,798
|
|
|
|
|
(4) |
|
Investment income from fixed maturity securities and mortgage
loans includes prepayment fees. |
164
|
|
|
(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 on freestanding derivatives
included in other liabilities are included in net investment
income as shown in Note 4 of the Notes to the Interim
Condensed Consolidated Financial Statements. As yield is not
considered a meaningful measure of performance for other
invested assets, it has been excluded from the yield table. |
|
(6) |
|
Net investment income, investment portfolio gains (losses) and
derivative 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, net
investment gains (losses), net derivative gains (losses), and
interest credited to policyholder account balances
(PABs) and excludes 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,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
(In millions)
|
|
|
Net investment income in the above yield table
|
|
$
|
5,093
|
|
|
$
|
4,120
|
|
|
$
|
9,962
|
|
|
$
|
8,391
|
|
Real estate discontinued operations deduct from net
investment income
|
|
|
|
|
|
|
(4
|
)
|
|
|
(2
|
)
|
|
|
(7
|
)
|
Scheduled periodic settlement payments on derivatives not
qualifying for hedge accounting deduct from net
investment income, add to net derivative gains (losses)
|
|
|
(55
|
)
|
|
|
(61
|
)
|
|
|
(94
|
)
|
|
|
(110
|
)
|
Equity method operating joint ventures add to net
investment income, deduct from net derivative gains (losses)
|
|
|
|
|
|
|
(97
|
)
|
|
|
(23
|
)
|
|
|
(102
|
)
|
Net investment income on contractholder-directed unit-linked
investments reported within trading and other
securities add to net investment income
|
|
|
(32
|
)
|
|
|
|
|
|
|
387
|
|
|
|
|
|
Incremental net investment income from CSEs add to
net investment income
|
|
|
92
|
|
|
|
103
|
|
|
|
184
|
|
|
|
209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income GAAP consolidated statements
of operations
|
|
$
|
5,098
|
|
|
$
|
4,061
|
|
|
$
|
10,414
|
|
|
$
|
8,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment portfolio gains (losses) in the above
yield table
|
|
$
|
(61
|
)
|
|
$
|
(52
|
)
|
|
$
|
(105
|
)
|
|
$
|
(83
|
)
|
Real estate discontinued operations deduct from net
investment gains (losses)
|
|
|
(43
|
)
|
|
|
(10
|
)
|
|
|
(71
|
)
|
|
|
(10
|
)
|
Investment gains (losses) related to CSEs add to net
investment gains (losses)
|
|
|
(16
|
)
|
|
|
(2
|
)
|
|
|
9
|
|
|
|
8
|
|
Other gains (losses) add to net investment gains
(losses)
|
|
|
(35
|
)
|
|
|
50
|
|
|
|
(87
|
)
|
|
|
103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment gains (losses) GAAP consolidated
statements of operations
|
|
$
|
(155
|
)
|
|
$
|
(14
|
)
|
|
$
|
(254
|
)
|
|
$
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative gains (losses) in the above yield table
|
|
$
|
293
|
|
|
$
|
1,322
|
|
|
$
|
(93
|
)
|
|
$
|
1,312
|
|
Scheduled periodic settlement payments on derivatives not
qualifying for hedge accounting add to net
derivative gains (losses), deduct from net investment income
|
|
|
55
|
|
|
|
61
|
|
|
|
94
|
|
|
|
110
|
|
Scheduled periodic settlement payments on derivatives not
qualifying for hedge accounting add to net
derivative gains (losses), deduct from interest credited to PABs
|
|
|
8
|
|
|
|
1
|
|
|
|
16
|
|
|
|
(2
|
)
|
Settlement of foreign currency earnings add to net
derivative gains (losses), deduct from other revenues
|
|
|
(4
|
)
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
Equity method operating joint ventures add to net
investment income, deduct from net derivative gains (losses)
|
|
|
|
|
|
|
97
|
|
|
|
23
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net derivative gains (losses) GAAP consolidated
statements of operations
|
|
$
|
352
|
|
|
$
|
1,481
|
|
|
$
|
37
|
|
|
$
|
1,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
165
See Results of Operations Three
Months Ended June 30, 2011 compared with the Three Months
Ended June 30, 2010 Consolidated Results
and Results of Operations Six
Months Ended June 30, 2011 compared with the Six Months
Ended June 30, 2010 Consolidated Results
for analyses of the period over period changes in net investment
income, net investment gains (losses) and net derivative 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 $341.7 billion and $324.8 billion at estimated
fair value, at June 30, 2011 and December 31, 2010,
respectively, or 69% of total cash and invested assets at both
June 30, 2011 and December 31, 2010. Publicly-traded
fixed maturity securities represented $297.4 billion and
$284.0 billion of total fixed maturity securities at
estimated fair value, at June 30, 2011 and
December 31, 2010, respectively, or 87% of total fixed
maturity securities at estimated fair value, at both
June 30, 2011 and December 31, 2010. Privately placed
fixed maturity securities represented $44.3 billion and
$40.8 billion at estimated fair value, at June 30,
2011 and December 31, 2010, respectively, or 13% of total
fixed maturity securities at estimated fair value, at both
June 30, 2011 and December 31, 2010.
Equity securities, which consisted principally of
publicly-traded and privately-held common and preferred stocks,
including certain perpetual hybrid securities and mutual fund
interests, were $3.2 billion and $3.6 billion, or 0.7%
and 0.8%, of total cash and invested assets at estimated fair
value, at June 30, 2011 and December 31, 2010,
respectively. Publicly-traded equity securities represented
$1.9 billion and $2.3 billion, or 59% and 64%, of
total equity securities at estimated fair value, at
June 30, 2011 and December 31, 2010, respectively.
Privately-held equity securities represented $1.3 billion
of total equity securities at estimated fair value, at both
June 30, 2011 and December 31, 2010, or 41% and 36%,
of total equity securities at estimated fair value, at
June 30, 2011 and December 31, 2010, respectively.
See also 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 2010 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.
166
Fair Value Hierarchy. Fixed maturity
securities and equity securities
available-for-sale
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, 2011
|
|
|
|
Fixed Maturity
|
|
|
Equity
|
|
|
|
Securities
|
|
|
Securities
|
|
|
|
(In millions)
|
|
|
Level 1:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted prices in active markets for identical assets
|
|
$
|
19,894
|
|
|
|
5.8
|
%
|
|
$
|
685
|
|
|
|
21.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Independent pricing source
|
|
|
267,755
|
|
|
|
78.3
|
|
|
|
603
|
|
|
|
18.6
|
|
Internal matrix pricing or discounted cash flow techniques
|
|
|
34,436
|
|
|
|
10.1
|
|
|
|
991
|
|
|
|
30.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant other observable inputs
|
|
|
302,191
|
|
|
|
88.4
|
|
|
|
1,594
|
|
|
|
49.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Independent pricing source
|
|
|
9,266
|
|
|
|
2.7
|
|
|
|
759
|
|
|
|
23.4
|
|
Internal matrix pricing or discounted cash flow techniques
|
|
|
8,392
|
|
|
|
2.5
|
|
|
|
179
|
|
|
|
5.5
|
|
Independent broker quotations
|
|
|
2,001
|
|
|
|
0.6
|
|
|
|
21
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant unobservable inputs
|
|
|
19,659
|
|
|
|
5.8
|
|
|
|
959
|
|
|
|
29.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total estimated fair value
|
|
$
|
341,744
|
|
|
|
100.0
|
%
|
|
$
|
3,238
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
|
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
|
|
$
|
|
|
|
$
|
89,926
|
|
|
$
|
6,871
|
|
|
$
|
96,797
|
|
Foreign corporate securities
|
|
|
|
|
|
|
64,694
|
|
|
|
5,844
|
|
|
|
70,538
|
|
Foreign government securities
|
|
|
82
|
|
|
|
46,003
|
|
|
|
3,161
|
|
|
|
49,246
|
|
Residential mortgage-backed securities (RMBS)
|
|
|
|
|
|
|
43,116
|
|
|
|
434
|
|
|
|
43,550
|
|
U.S. Treasury and agency securities
|
|
|
19,812
|
|
|
|
15,727
|
|
|
|
26
|
|
|
|
35,565
|
|
Commercial mortgage-backed securities (CMBS)
|
|
|
|
|
|
|
18,737
|
|
|
|
781
|
|
|
|
19,518
|
|
Asset-backed securities (ABS)
|
|
|
|
|
|
|
12,406
|
|
|
|
2,451
|
|
|
|
14,857
|
|
State and political subdivision securities
|
|
|
|
|
|
|
11,580
|
|
|
|
89
|
|
|
|
11,669
|
|
Other fixed maturity securities
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
19,894
|
|
|
$
|
302,191
|
|
|
$
|
19,659
|
|
|
$
|
341,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
685
|
|
|
$
|
1,100
|
|
|
$
|
305
|
|
|
$
|
2,090
|
|
Non-redeemable preferred stock
|
|
|
|
|
|
|
494
|
|
|
|
654
|
|
|
|
1,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
685
|
|
|
$
|
1,594
|
|
|
$
|
959
|
|
|
$
|
3,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
167
The composition of fair value pricing sources for and
significant changes in Level 3 securities at June 30,
2011 are as follows:
|
|
|
|
|
The majority of the Level 3 fixed maturity and equity
securities (89%, as presented above) were concentrated in four
sectors: U.S. and foreign corporate securities, foreign
government securities and ABS.
|
|
|
|
Level 3 fixed maturity securities are priced principally
through market standard valuation methodologies, independent
pricing services and independent non-binding broker quotations
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 (Alt-A) RMBS and less liquid prime
RMBS, certain 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, 2011, Level 3
fixed maturity securities decreased by $1,616 million, or
8%. The decrease was driven by transfers out of Level 3,
partially offset by net purchases in excess of sales and an
increase in estimated fair value recognized in other
comprehensive income (loss). See analysis of transfers into
and/or out
of Level 3 below. Net purchases in excess of sales of fixed
maturity securities were concentrated in foreign and
U.S. corporate securities. The increase in estimated fair
value recognized in accumulated other comprehensive income
(loss) for fixed maturity securities was concentrated in
U.S. and foreign corporate securities due to improving
market conditions including an improvement in liquidity and a
decrease in interest rates.
|
|
|
|
During the six months ended June 30, 2011, Level 3
fixed maturity securities decreased by $3,057 million, or
13%. The decrease was driven by transfers out of Level 3,
partially offset by an increase in estimated fair value
recognized in other comprehensive income (loss) and net
purchases in excess of sales. See analysis of transfers into
and/or out
of Level 3 below. The increase in estimated fair value
recognized in accumulated other comprehensive income (loss) for
fixed maturity securities was concentrated in foreign and
U.S. corporate securities and ABS, and net purchases in
excess of sales of fixed maturity securities were concentrated
in foreign and U.S. corporate securities and foreign
government securities.
|
A rollforward of the fair value measurements for fixed maturity
securities and equity securities
available-for-sale
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, 2011
|
|
|
June 30, 2011
|
|
|
|
Fixed Maturity
|
|
|
Equity
|
|
|
Fixed Maturity
|
|
|
Equity
|
|
|
|
Securities
|
|
|
Securities
|
|
|
Securities
|
|
|
Securities
|
|
|
|
(In millions)
|
|
|
Balance, beginning of period
|
|
$
|
21,275
|
|
|
$
|
1,305
|
|
|
$
|
22,716
|
|
|
$
|
1,173
|
|
Total realized/unrealized gains (losses) included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
|
|
|
(15
|
)
|
|
|
(67
|
)
|
|
|
35
|
|
|
|
(65
|
)
|
Other comprehensive income (loss)
|
|
|
134
|
|
|
|
79
|
|
|
|
547
|
|
|
|
88
|
|
Purchases
|
|
|
2,540
|
|
|
|
29
|
|
|
|
3,517
|
|
|
|
70
|
|
Sales
|
|
|
(1,821
|
)
|
|
|
(307
|
)
|
|
|
(3,215
|
)
|
|
|
(314
|
)
|
Transfers into Level 3
|
|
|
756
|
|
|
|
2
|
|
|
|
653
|
|
|
|
12
|
|
Transfers out of Level 3
|
|
|
(3,210
|
)
|
|
|
(82
|
)
|
|
|
(4,594
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
19,659
|
|
|
$
|
959
|
|
|
$
|
19,659
|
|
|
$
|
959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
168
An analysis of transfers into
and/or out
of Level 3 for the three months and six months ended
June 30, 2011 is as follows:
|
|
|
|
|
Total gains and losses in earnings and other comprehensive
income (loss) are calculated assuming transfers into or out of
Level 3 occurred at the beginning of the period. Items
transferred into and out for the same period are excluded from
the rollforward.
|
|
|
|
Total gains (losses) for fixed maturity securities included in
earnings of less than $1 million and ($1) million, and
other comprehensive income (loss) of $10 million and
$5 million, were incurred on these securities subsequent to
their transfer into Level 3, for the three months and six
months ended June 30, 2011, respectively.
|
|
|
|
Net transfers into
and/or out
of Level 3 for fixed maturity securities were
($2,454) million and ($3,941) million, and were
comprised of transfers into Level 3 of $756 million
and $653 million, and transfers out of Level 3 of
($3,210) million and ($4,594) million for the three
months and six months ended June 30, 2011, respectively.
|
Overall, transfers into
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 underlying inputs
cannot be observed, current prices are not available, and when
there are significant variances in quoted prices, thereby
affecting transparency. Assets and liabilities are transferred
out of Level 3 when circumstances change such that a
significant input 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 into
and/or out
of any level are assumed to occur at the beginning of the
period. Significant transfers into
and/or out
of Level 3 assets and liabilities for the three months and
six months ended June 30, 2011 are summarized below:
|
|
|
|
|
During the three months and six months ended June 30, 2011,
fixed maturity securities transfers into Level 3 of
$756 million and $653 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 RMBS, foreign government
securities and ABS.
|
|
|
|
During the three months and six months ended June 30, 2011,
fixed maturity securities transfers out of Level 3 of
($3,210) million and ($4,594) million, respectively,
resulted primarily from increased transparency of both new
issuances that, subsequent to issuance and establishment of
trading activity, became priced by independent pricing services
and existing issuances that, over time, the Company was able to
obtain pricing from, or corroborate pricing received from
independent pricing services with observable inputs, or there
were increases in market activity and upgraded credit ratings
primarily for certain ABS, RMBS, U.S. and foreign corporate
securities.
|
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 2010 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. If no
rating is available from the NAIC, then as permitted by the
NAIC, an internally developed rating is used. The NAIC ratings
are generally similar to the credit quality
169
designations of the Nationally Recognized Statistical Ratings
Organizations (NRSROs) for marketable fixed maturity
securities, called rating agency designations,
except for certain structured securities as described below.
NAIC ratings 1 and 2 include fixed maturity securities generally
considered investment grade (i.e., rated Baa3 or
better by Moodys or rated BBB or better by
S&P and Fitch) by such rating organizations. NAIC ratings 3
through 6 include fixed maturity securities generally considered
below investment grade (i.e., rated Ba1 or lower by
Moodys or rated BB+ or lower by S&P and
Fitch) by such rating organizations.
The NAIC adopted revised rating methodologies for certain
structured securities comprised of non-agency RMBS, CMBS and
ABS. The NAICs objective with the revised rating
methodologies for these structured securities was to increase
the accuracy in assessing expected losses, and to use the
improved assessment to determine a more appropriate capital
requirement for such structured securities. The revised
methodologies reduce regulatory reliance on rating agencies and
allow for greater regulatory input into the assumptions used to
estimate expected losses from structured securities. The Company
applies the revised NAIC rating methodologies to structured
securities held by MetLife, Inc.s insurance subsidiaries
that file NAIC statutory financial statements.
The three tables below present fixed maturity securities based
on rating agency designations and equivalent designations of the
NAIC, with the exception of certain structured securities
described above. These structured securities are presented based
on final ratings from the revised NAIC rating methodologies
described above (which may not correspond to rating agency
designations). All NAIC designation (e.g., NAIC 1
6) amounts and percentages presented herein are based on
the revised NAIC methodologies 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 methodologies described above.
The following three tables present information about the
Companys fixed maturity securities holdings by NAIC 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,
LLC. If no rating is available from a rating agency, then an
internally developed rating is used.
The following table presents the Companys total fixed
maturity securities by NRSRO designation and the equivalent
designations of the NAIC, except for certain structured
securities, which are presented as described above, as well as
the percentage, based on estimated fair value, that each
designation is comprised of at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
December 31, 2010
|
|
|
|
|
|
|
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
|
|
$
|
232,136
|
|
|
$
|
239,320
|
|
|
|
70.0
|
%
|
|
$
|
226,639
|
|
|
$
|
231,198
|
|
|
|
71.2
|
%
|
|
2
|
|
|
Baa
|
|
|
72,007
|
|
|
|
76,483
|
|
|
|
22.4
|
|
|
|
65,412
|
|
|
|
68,729
|
|
|
|
21.2
|
|
|
3
|
|
|
Ba
|
|
|
15,561
|
|
|
|
15,337
|
|
|
|
4.5
|
|
|
|
15,331
|
|
|
|
15,290
|
|
|
|
4.7
|
|
|
4
|
|
|
B
|
|
|
8,923
|
|
|
|
8,585
|
|
|
|
2.5
|
|
|
|
8,742
|
|
|
|
8,308
|
|
|
|
2.6
|
|
|
5
|
|
|
Caa and lower
|
|
|
1,334
|
|
|
|
1,121
|
|
|
|
0.3
|
|
|
|
1,340
|
|
|
|
1,142
|
|
|
|
0.3
|
|
|
6
|
|
|
In or near default
|
|
|
942
|
|
|
|
898
|
|
|
|
0.3
|
|
|
|
153
|
|
|
|
130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
330,903
|
|
|
$
|
341,744
|
|
|
|
100.0
|
%
|
|
$
|
317,617
|
|
|
$
|
324,797
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
170
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, except for certain structured
securities, which are presented as described above, that each
designation is comprised of at June 30, 2011 and
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Maturity Securities by Sector & Credit
Quality Rating at June 30, 2011
|
|
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
|
|
$
|
47,015
|
|
|
$
|
37,166
|
|
|
$
|
8,236
|
|
|
$
|
4,009
|
|
|
$
|
370
|
|
|
$
|
1
|
|
|
$
|
96,797
|
|
Foreign corporate securities
|
|
|
38,501
|
|
|
|
27,242
|
|
|
|
3,185
|
|
|
|
1,470
|
|
|
|
135
|
|
|
|
5
|
|
|
|
70,538
|
|
Foreign government securities
|
|
|
37,843
|
|
|
|
8,638
|
|
|
|
1,259
|
|
|
|
1,497
|
|
|
|
9
|
|
|
|
|
|
|
|
49,246
|
|
RMBS (1)
|
|
|
37,484
|
|
|
|
1,287
|
|
|
|
2,219
|
|
|
|
1,306
|
|
|
|
389
|
|
|
|
865
|
|
|
|
43,550
|
|
U.S. Treasury and agency securities
|
|
|
35,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,565
|
|
CMBS (1)
|
|
|
18,365
|
|
|
|
713
|
|
|
|
243
|
|
|
|
168
|
|
|
|
17
|
|
|
|
12
|
|
|
|
19,518
|
|
ABS (1)
|
|
|
13,683
|
|
|
|
680
|
|
|
|
158
|
|
|
|
128
|
|
|
|
193
|
|
|
|
15
|
|
|
|
14,857
|
|
State and political subdivision securities
|
|
|
10,862
|
|
|
|
757
|
|
|
|
37
|
|
|
|
5
|
|
|
|
8
|
|
|
|
|
|
|
|
11,669
|
|
Other fixed maturity securities
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
239,320
|
|
|
$
|
76,483
|
|
|
$
|
15,337
|
|
|
$
|
8,585
|
|
|
$
|
1,121
|
|
|
$
|
898
|
|
|
$
|
341,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of total
|
|
|
70.0
|
%
|
|
|
22.4
|
%
|
|
|
4.5
|
%
|
|
|
2.5
|
%
|
|
|
0.3
|
%
|
|
|
0.3
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Maturity Securities by Sector & Credit
Quality Rating at December 31, 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
|
|
$
|
46,035
|
|
|
$
|
34,259
|
|
|
$
|
7,633
|
|
|
$
|
3,452
|
|
|
$
|
353
|
|
|
$
|
40
|
|
|
$
|
91,772
|
|
Foreign corporate securities
|
|
|
39,430
|
|
|
|
24,352
|
|
|
|
2,474
|
|
|
|
1,454
|
|
|
|
169
|
|
|
|
9
|
|
|
|
67,888
|
|
Foreign government securities
|
|
|
31,559
|
|
|
|
7,184
|
|
|
|
2,179
|
|
|
|
1,080
|
|
|
|
|
|
|
|
|
|
|
|
42,002
|
|
RMBS (1)
|
|
|
38,984
|
|
|
|
1,109
|
|
|
|
2,271
|
|
|
|
1,993
|
|
|
|
331
|
|
|
|
45
|
|
|
|
44,733
|
|
U.S. Treasury and agency securities
|
|
|
33,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,304
|
|
CMBS (1)
|
|
|
19,385
|
|
|
|
665
|
|
|
|
363
|
|
|
|
205
|
|
|
|
56
|
|
|
|
1
|
|
|
|
20,675
|
|
ABS (1)
|
|
|
13,133
|
|
|
|
435
|
|
|
|
338
|
|
|
|
120
|
|
|
|
226
|
|
|
|
35
|
|
|
|
14,287
|
|
State and political subdivision securities
|
|
|
9,368
|
|
|
|
722
|
|
|
|
32
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
10,129
|
|
Other fixed maturity securities
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
231,198
|
|
|
$
|
68,729
|
|
|
$
|
15,290
|
|
|
$
|
8,308
|
|
|
$
|
1,142
|
|
|
$
|
130
|
|
|
$
|
324,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of total
|
|
|
71.2
|
%
|
|
|
21.2
|
%
|
|
|
4.7
|
%
|
|
|
2.6
|
%
|
|
|
0.3
|
%
|
|
|
|
%
|
|
|
100.0
|
%
|
(1) Presented using the final rating from revised NAIC
rating methodologies.
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 information about:
|
|
|
|
|
Fixed maturity and equity securities on a sector basis and the
related cost or amortized cost, gross unrealized gains and
losses, including noncredit loss component of OTTI loss, and
estimated fair value of such securities at June 30, 2011
and December 31, 2010.
|
|
|
|
Estimated fair value and unrealized gains (losses) on below
investment grade or non-rated, non-income producing, fixed
maturity securities at June 30, 2011 and December 31,
2010.
|
|
|
|
Government and agency securities holdings in excess of 10% of
the Companys equity.
|
|
|
|
U.S. and foreign corporate fixed maturity
securities the composition by industry and sector
and related concentrations of credit risk at June 30, 2011
and December 31, 2010.
|
171
Structured Securities. The following table
presents information about structured securities at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
Fair
|
|
|
% of
|
|
|
Fair
|
|
|
% of
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
RMBS
|
|
$
|
43,550
|
|
|
|
55.9
|
%
|
|
$
|
44,733
|
|
|
|
56.1
|
%
|
CMBS
|
|
|
19,518
|
|
|
|
25.0
|
|
|
|
20,675
|
|
|
|
26.0
|
|
ABS
|
|
|
14,857
|
|
|
|
19.1
|
|
|
|
14,287
|
|
|
|
17.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total structured securities
|
|
$
|
77,925
|
|
|
|
100.0
|
%
|
|
$
|
79,695
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratings profile:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMBS rated Aaa/AAA
|
|
$
|
34,105
|
|
|
|
78.3
|
%
|
|
$
|
36,085
|
|
|
|
80.7
|
%
|
RMBS rated NAIC 1
|
|
$
|
37,484
|
|
|
|
86.1
|
%
|
|
$
|
38,984
|
|
|
|
87.1
|
%
|
CMBS rated Aaa/AAA
|
|
$
|
16,160
|
|
|
|
82.8
|
%
|
|
$
|
16,901
|
|
|
|
81.7
|
%
|
CMBS rated NAIC 1
|
|
$
|
18,365
|
|
|
|
94.1
|
%
|
|
$
|
19,385
|
|
|
|
93.7
|
%
|
ABS rated Aaa/AAA
|
|
$
|
9,809
|
|
|
|
66.0
|
%
|
|
$
|
10,411
|
|
|
|
72.9
|
%
|
ABS rated NAIC 1
|
|
$
|
13,683
|
|
|
|
92.1
|
%
|
|
$
|
13,133
|
|
|
|
91.9
|
%
|
See Investments Fixed Maturity and Equity
Securities
Available-for-Sale
Concentrations of Credit Risk (Fixed Maturity
Securities) RMBS, Concentrations of Credit Risk
(Fixed Maturity Securities) CMBS and Concentrations
of Credit Risk (Fixed Maturity Securities) ABS
in Note 3 of the Notes to the Interim Condensed
Consolidated Financial Statements for tables and information
about the Companys structured securities holdings at
June 30, 2011 and December 31, 2010, including:
|
|
|
|
|
RMBS holdings by security type and risk profile at June 30,
2011 and December 31, 2010.
|
|
|
|
Alt-A RMBS holdings by vintage year and selected other
information at June 30, 2011 and December 31, 2010.
|
|
|
|
CMBS holdings by rating agency designation and by vintage year
as well as NAIC rating at June 30, 2011 and
December 31, 2010.
|
|
|
|
ABS holdings by collateral type and selected other information
at June 30, 2011 and December 31, 2010.
|
RMBS. 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, 2011 and
December 31, 2010, as presented above. The majority of the
agency RMBS held by the Company were guaranteed or otherwise
supported by FNMA, FHLMC or GNMA. Non-agency RMBS includes prime
and 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. Included within
prime and Alt-A RMBS are resecuritization of real estate
mortgage investment conduit (Re-REMIC) securities.
Re-REMIC Alt-A RMBS involve the pooling of previous issues of
prime and Alt-A RMBS and restructuring the combined pools to
create new senior and subordinated securities. The credit
enhancement on the senior tranches is improved through the
resecuritization. The Companys holdings are in senior
tranches with significant credit enhancement.
The Companys Alt-A securities portfolio has superior
structure to the overall Alt-A market. At June 30, 2011 and
December 31, 2010, 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, 70% and 85% at June 30, 2011 and
December 31, 2010, 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.
172
CMBS. There have been disruptions in the CMBS
market due to market perceptions that default rates will
increase in part as a result of weakness in commercial real
estate market fundamentals and in part to relaxed underwriting
standards by some originators of commercial mortgage loans
within the more recent vintage years (i.e., 2006 and later).
These factors 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, commencing in the
second quarter 2010 and through the second quarter of 2011,
market conditions improved causing our portfolio to be in a net
unrealized gain position of 4% of amortized cost at
June 30, 2011.
The Company had no exposure to CMBS index securities at
June 30, 2011 or December 31, 2010. The Companys
holdings of commercial real estate collateralized debt
obligations securities were $132 million and
$138 million at estimated fair value at June 30, 2011
and December 31, 2010, respectively. The weighted average
credit enhancement of the Companys CMBS holdings was 27%
and 26% at June 30, 2011 and December 31, 2010,
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.
ABS. The Companys ABS holdings are
diversified both by collateral type and by issuer. The Company
had ABS supported by
sub-prime
mortgage loans with estimated fair values of $1,065 million
and $1,119 million and unrealized losses of
$284 million and $317 million at June 30, 2011
and December 31, 2010, respectively. Approximately 27% of
this portfolio was rated Aa or better, of which 73% was in
vintage year 2005 and prior at June 30, 2011. Approximately
54% of this portfolio was rated Aa or better, of which 88% was
in vintage year 2005 and prior at December 31, 2010. These
older vintages from 2005 and prior benefit from better
underwriting, improved credit enhancement levels and higher
residential property price appreciation. All of the
$1,065 million and $1,119 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, 2011 and
December 31, 2010, respectively. The slowing
U.S. housing market, greater use of affordable mortgage
products and relaxed underwriting standards for some originators
of sub-prime
mortgage loans have 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, 2011, market conditions improved,
credit spreads narrowed on mortgage-backed and asset-backed
securities and unrealized losses on ABS backed by
sub-prime
mortgage loans decreased from 22% to 21% of amortized cost from
December 31, 2010 to June 30, 2011.
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
equity or 1% of total investments at June 30, 2011 and
December 31, 2010.
Evaluation
of Fixed Maturity Securities and Equity Securities
Available-for-Sale
for
Other-Than-Temporary
Impairment
See the following sections within Investments in
Note 3 of the Notes to the Interim Condensed Consolidated
Financial Statements for information about the evaluation of
fixed maturity securities and equity securities
available-for-sale
for
other-than-temporary
impairment (OTTI):
|
|
|
|
|
Evaluating
Available-for-Sale
Securities for
Other-Than-Temporary
Impairment
|
|
|
|
Net Unrealized Investment Gains (Losses)
|
|
|
|
Continuous Gross Unrealized Losses and OTTI Losses for Fixed
Maturity and Equity Securities
Available-for-Sale
by Sector
|
|
|
|
Aging of Gross Unrealized Losses and OTTI Losses for Fixed
Maturity and Equity Securities
Available-for-Sale
|
|
|
|
Concentration of Gross Unrealized Losses and OTTI Losses for
Fixed Maturity and Equity Securities
Available-for-Sale
|
|
|
|
Evaluating Temporarily Impaired
Available-for-Sale
Securities
|
173
Net
Investment Gains (Losses) Including OTTI Losses Recognized in
Earnings
See Investments Fixed Maturity and Equity
Securities
Available-for-Sale
Net Investment Gains (Losses) in Note 3 of the Notes
to the Interim Condensed Consolidated Financial Statements for
tables that present:
|
|
|
|
|
The components of net investment gains (losses) for the three
months and six months ended June 30, 2011 and 2010.
|
|
|
|
Proceeds from sales or disposals of fixed maturity and equity
securities and the components of fixed maturity and equity
securities net investment gains (losses) for the three months
and six months ended June 30, 2011 and 2010.
|
|
|
|
Fixed maturity security OTTI losses recognized in earnings by
sector and by industry within the U.S. and foreign
corporate securities sector for the three months and six months
ended June 30, 2011 and 2010.
|
|
|
|
Equity security OTTI losses recognized in earnings by sector and
industry for the three months and six months ended June 30,
2011 and 2010.
|
Overview of Fixed Maturity and Equity Security OTTI Losses
Recognized in Earnings. Impairments of fixed
maturity and equity securities were $170 million and
$299 million for the three months and six months ended
June 30, 2011, respectively, and $147 million and
$240 million for the three months and six months ended
June 30, 2010, respectively. Impairments of fixed maturity
securities were $123 million and $246 million for the
three months and six months ended June 30, 2011,
respectively, and $146 million and $238 million for
the three months and six months ended June 30, 2010,
respectively. Impairments of equity securities were
$47 million and $53 million for the three months and
six months ended June 30, 2011, respectively, and
$1 million and $2 million for the three months and six
months ended June 30, 2010, respectively.
The Companys credit-related impairments of fixed maturity
securities were $70 million and $113 million for the
three months and six months ended June 30, 2011,
respectively, and $146 million and $232 million for
the three months and six months ended June 30, 2010,
respectively.
The Companys three largest impairments totaled
$56 million and $92 million for the three months and
six months ended June 30, 2011, respectively, and
$57 million and $63 million for the three months and
six months ended June 30, 2010, respectively.
The Company records OTTI losses charged to earnings within net
investment gains (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
$8.0 billion and $18.4 billion during the three months
and six months ended June 30, 2011, respectively, and
$3.5 billion and $6.7 billion for the three months and
six months ended June 30, 2010, respectively. Gross losses
excluding impairments for fixed maturity and equity securities
were $266 million and $505 million for the three
months and six months ended June 30, 2011, respectively,
and $196 million and $337 million for the three months
and six months ended June 30, 2010, respectively.
Explanations of period over period changes in fixed maturity and
equity securities impairments are as follows:
Three months ended June 30, 2011 compared to the three
months ended June 30, 2010 Overall OTTI
losses recognized in earnings on fixed maturity and equity
securities were $170 million for the three months ended
June 30, 2011 as compared to $147 million in the prior
period. An increase in OTTI losses on fixed maturity and equity
securities primarily reflects impairments on securities the
Company intends to sell of $91 million from the continuing
diversification of the portfolio. Impairments on fixed maturity
and equity securities in the financial services and consumer
industries increased $84 million driven by impairments on
securities to be sold, while impairments on structured
securities decreased $80 million reflecting improved
economic fundamentals.
Six months ended June 30, 2011 compared to the six
months ended June 30, 2010 Overall OTTI
losses recognized in earnings on fixed maturity and equity
securities were $299 million for the six months ended
June 30,
174
2011 as compared to $240 million in the prior period. An
increase in OTTI losses on fixed maturity and equity securities
primarily reflects impairments on securities the Company intends
to sell of $171 million from repositioning the
Companys portfolio to diversify and extend duration.
Impairments on foreign government, financial services industry
and most corporate sectors within fixed maturity and equity
securities increased $155 million driven by impairments on
securities to be sold, while impairments on structured
securities decreased $109 million reflecting improved
economic fundamentals.
Future Impairments. Future OTTIs 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 any of the above factors deteriorate,
additional OTTIs may be incurred in upcoming quarters. 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
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
at June 30, 2011 and 2010 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, 2011 and 2010.
Securities
Lending
The Company participates in a securities lending program whereby
blocks of securities, which are included in fixed maturity
securities and short-term investments, are loaned to third
parties, primarily brokerage firms and commercial banks. The
Company generally obtains collateral, generally cash, in an
amount equal to 102% of the estimated fair value of the
securities loaned, 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. These transactions are treated as financing
arrangements and the associated liability is recorded at the
amount of the cash received.
See Investments Securities
Lending in Note 3 of the Notes to the Interim
Condensed Consolidated Financial Statements for the following
information regarding the Companys securities lending
program:
|
|
|
|
|
Securities on loan, aging of cash collateral liability, security
collateral on deposit from counterparties and the estimated fair
value of the reinvestment portfolio at June 30, 2011 and
December 31, 2010.
|
|
|
|
Estimated fair value of the securities on loan related to the
cash collateral on open at June 30, 2011 and portion
consisting of U.S. Treasury and agency securities at
June 30, 2011 and composition of the remaining securities
on loan and the composition of the reinvestment portfolio at
June 30, 2011.
|
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, 2011 and December 31, 2010.
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.
175
Trading
and Other Securities
The Company has a trading securities portfolio, principally
invested in fixed maturity securities, to support investment
strategies that involve the active and frequent purchase and
sale of securities (Actively Traded Securities) and
the execution of short sale agreements. Trading and other
securities also include securities for which the FVO has been
elected (FVO Securities). FVO Securities include
certain fixed maturity and equity securities held for investment
by the general account to support asset and liability matching
strategies for certain insurance products. FVO Securities also
include contractholder-directed investments supporting
unit-linked variable annuity type liabilities which do not
qualify for presentation as separate account summary total
assets and liabilities. These investments are primarily mutual
funds, and to a lesser extent, fixed maturity and equity
securities, short-term investments and cash and cash
equivalents. The investment returns on these investments inure
to contractholders and are offset by a corresponding change in
PABs through interest credited to PABs. FVO Securities also
include securities held by CSEs (former qualifying special
purpose entities). Trading and other securities were
$19.7 billion and $18.6 billion, or 4.0% and 3.9% of
total cash and invested assets at estimated fair value, at
June 30, 2011 and December 31, 2010, respectively. See
Investments Trading and Other Securities
in Note 3 of the Notes to the Interim Condensed
Consolidated Financial Statements for tables which present
information about the Actively Traded Securities and FVO
Securities, related short sale agreement liabilities and
investments pledged to secure short sale agreement liabilities
at June 30, 2011 and December 31, 2010.
Trading and other securities and trading (short sale agreement)
liabilities, measured at estimated fair value on a recurring
basis and their corresponding fair value hierarchy, are
presented as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
|
Trading and Other
|
|
|
Trading
|
|
|
|
Securities
|
|
|
Liabilities
|
|
|
|
(In millions)
|
|
|
Quoted prices in active markets for identical assets and
liabilities (Level 1)
|
|
$
|
7,622
|
|
|
|
39
|
%
|
|
$
|
54
|
|
|
|
100
|
%
|
Significant other observable inputs (Level 2)
|
|
|
11,399
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
Significant unobservable inputs (Level 3)
|
|
|
679
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total estimated fair value
|
|
$
|
19,700
|
|
|
|
100
|
%
|
|
$
|
54
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A rollforward of the fair value measurements for trading and
other 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, 2011, is
as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30, 2011
|
|
|
June 30, 2011
|
|
|
|
(In millions)
|
|
|
Balance, beginning of period
|
|
$
|
668
|
|
|
$
|
822
|
|
Total realized/unrealized gains (losses) included in earnings
|
|
|
26
|
|
|
|
62
|
|
Purchases
|
|
|
315
|
|
|
|
326
|
|
Sales
|
|
|
(340
|
)
|
|
|
(490
|
)
|
Transfers into Level 3
|
|
|
35
|
|
|
|
124
|
|
Transfers out of Level 3
|
|
|
(25
|
)
|
|
|
(165
|
)
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
679
|
|
|
$
|
679
|
|
|
|
|
|
|
|
|
|
|
See Managements Discussion and Analysis of Financial
Condition and Results of Operations Summary of
Critical Accounting Estimates included in the 2010 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
176
Statements for further information about the valuation
techniques and inputs by level of major classes of invested
assets that affect the amounts reported above.
Mortgage
Loans
The Companys mortgage loans are principally collateralized
by commercial real estate, agricultural real estate and
residential properties. The carrying value of mortgage loans was
$63.6 billion and $62.3 billion, or 12.9% and 13.1% of
total cash and invested assets at June 30, 2011 and
December 31, 2010, 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 $60.8 billion and $59.0 billion by portfolio
segment at June 30, 2011 and December 31, 2010,
respectively, as well as the components of the mortgage loans
held-for-sale
of $2.8 billion and $3.3 billion at June 30, 2011
and December 31, 2010, respectively. The information
presented on mortgage loans herein excludes the effects of
consolidating certain VIEs that are treated as CSEs. Such
amounts are presented in the aforementioned table.
Commercial Mortgage Loans by Geographic Region and Property
Type. Commercial mortgage loans are the largest
component of the mortgage loan invested asset class as it
represents over 70% of total mortgage loans
held-for-investment
(excluding the effects of consolidating certain VIEs that are
treated as CSEs) at both June 30, 2011 and
December 31, 2010. The Company diversifies its commercial
mortgage loan portfolio by both geographic region and property
type to reduce the risk of concentration. Additionally, the
Company manages risk when originating commercial and
agricultural mortgage loans by generally lending only up to 75%
of the estimated fair value of the underlying real estate. The
tables below present the diversification across geographic
regions and property types for commercial mortgage loans
held-for-investment
at:
177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
Amount
|
|
|
Total
|
|
|
Amount
|
|
|
Total
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South Atlantic
|
|
$
|
8,429
|
|
|
|
21.5
|
%
|
|
$
|
8,016
|
|
|
|
21.2
|
%
|
Pacific
|
|
|
8,078
|
|
|
|
20.7
|
|
|
|
8,974
|
|
|
|
23.7
|
|
Middle Atlantic
|
|
|
7,278
|
|
|
|
18.6
|
|
|
|
6,484
|
|
|
|
17.1
|
|
International
|
|
|
4,711
|
|
|
|
12.1
|
|
|
|
4,214
|
|
|
|
11.1
|
|
West South Central
|
|
|
3,322
|
|
|
|
8.5
|
|
|
|
3,266
|
|
|
|
8.6
|
|
East North Central
|
|
|
3,189
|
|
|
|
8.2
|
|
|
|
3,066
|
|
|
|
8.1
|
|
New England
|
|
|
1,758
|
|
|
|
4.5
|
|
|
|
1,531
|
|
|
|
4.1
|
|
Mountain
|
|
|
911
|
|
|
|
2.3
|
|
|
|
884
|
|
|
|
2.3
|
|
West North Central
|
|
|
650
|
|
|
|
1.7
|
|
|
|
666
|
|
|
|
1.8
|
|
East South Central
|
|
|
467
|
|
|
|
1.2
|
|
|
|
461
|
|
|
|
1.2
|
|
Other
|
|
|
257
|
|
|
|
0.7
|
|
|
|
256
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recorded investment
|
|
|
39,050
|
|
|
|
100.0
|
%
|
|
|
37,818
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: valuation allowances
|
|
|
469
|
|
|
|
|
|
|
|
562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value, net of valuation allowances
|
|
$
|
38,581
|
|
|
|
|
|
|
$
|
37,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property Type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
|
|
$
|
17,951
|
|
|
|
46.0
|
%
|
|
$
|
16,857
|
|
|
|
44.6
|
%
|
Retail
|
|
|
8,901
|
|
|
|
22.8
|
|
|
|
9,215
|
|
|
|
24.3
|
|
Apartments
|
|
|
3,755
|
|
|
|
9.6
|
|
|
|
3,630
|
|
|
|
9.6
|
|
Hotels
|
|
|
3,135
|
|
|
|
8.0
|
|
|
|
3,089
|
|
|
|
8.2
|
|
Industrial
|
|
|
3,046
|
|
|
|
7.8
|
|
|
|
2,910
|
|
|
|
7.7
|
|
Other
|
|
|
2,262
|
|
|
|
5.8
|
|
|
|
2,117
|
|
|
|
5.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recorded investment
|
|
|
39,050
|
|
|
|
100.0
|
%
|
|
|
37,818
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: valuation allowances
|
|
|
469
|
|
|
|
|
|
|
|
562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value, net of valuation allowances
|
|
$
|
38,581
|
|
|
|
|
|
|
$
|
37,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, when interest and principal
payments are past due as follows: commercial mortgage
loans 60 days or more past due; agricultural
mortgage loans 90 days or more past due; and
residential mortgage loans 60 days or more past
due. The Company defines mortgage loans under foreclosure as
loans in which foreclosure proceedings have formally commenced.
178
The following table presents the recorded investment and
valuation allowance for all mortgage loans
held-for-investment
distributed by the above stated loan classifications at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
Recorded
|
|
|
% of
|
|
|
Valuation
|
|
|
Recorded
|
|
|
Recorded
|
|
|
% of
|
|
|
Valuation
|
|
|
Recorded
|
|
|
|
Investment
|
|
|
Total
|
|
|
Allowance
|
|
|
Investment
|
|
|
Investment
|
|
|
Total
|
|
|
Allowance
|
|
|
Investment
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing
|
|
$
|
38,710
|
|
|
|
99.1
|
%
|
|
$
|
441
|
|
|
|
1.1
|
%
|
|
$
|
37,487
|
|
|
|
99.1
|
%
|
|
$
|
528
|
|
|
|
1.4
|
%
|
Restructured (1)
|
|
|
156
|
|
|
|
0.4
|
|
|
|
8
|
|
|
|
5.1
|
%
|
|
|
93
|
|
|
|
0.2
|
|
|
|
6
|
|
|
|
6.5
|
%
|
Potentially delinquent
|
|
|
23
|
|
|
|
0.1
|
|
|
|
15
|
|
|
|
65.2
|
%
|
|
|
180
|
|
|
|
0.5
|
|
|
|
28
|
|
|
|
15.6
|
%
|
Delinquent or under foreclosure
|
|
|
161
|
|
|
|
0.4
|
|
|
|
5
|
|
|
|
3.1
|
%
|
|
|
58
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
39,050
|
|
|
|
100.0
|
%
|
|
$
|
469
|
|
|
|
1.2
|
%
|
|
$
|
37,818
|
|
|
|
100.0
|
%
|
|
$
|
562
|
|
|
|
1.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural
(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing
|
|
$
|
12,732
|
|
|
|
98.1
|
%
|
|
$
|
41
|
|
|
|
0.3
|
%
|
|
$
|
12,486
|
|
|
|
97.9
|
%
|
|
$
|
35
|
|
|
|
0.3
|
%
|
Restructured (3)
|
|
|
50
|
|
|
|
0.4
|
|
|
|
9
|
|
|
|
18.0
|
%
|
|
|
33
|
|
|
|
0.3
|
|
|
|
8
|
|
|
|
24.2
|
%
|
Potentially delinquent
|
|
|
37
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
%
|
|
|
62
|
|
|
|
0.5
|
|
|
|
11
|
|
|
|
17.7
|
%
|
Delinquent or under foreclosure(3)
|
|
|
162
|
|
|
|
1.2
|
|
|
|
29
|
|
|
|
17.9
|
%
|
|
|
170
|
|
|
|
1.3
|
|
|
|
34
|
|
|
|
20.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
12,981
|
|
|
|
100.0
|
%
|
|
$
|
79
|
|
|
|
0.6
|
%
|
|
$
|
12,751
|
|
|
|
100.0
|
%
|
|
$
|
88
|
|
|
|
0.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
(4):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing
|
|
$
|
2,615
|
|
|
|
98.4
|
%
|
|
$
|
17
|
|
|
|
0.7
|
%
|
|
$
|
2,145
|
|
|
|
96.1
|
%
|
|
$
|
12
|
|
|
|
0.6
|
%
|
Restructured (5)
|
|
|
3
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
%
|
|
|
4
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
%
|
Potentially delinquent
|
|
|
4
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
%
|
|
|
4
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
%
|
Delinquent or under foreclosure (5)
|
|
|
35
|
|
|
|
1.3
|
|
|
|
1
|
|
|
|
2.9
|
%
|
|
|
78
|
|
|
|
3.5
|
|
|
|
2
|
|
|
|
2.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,657
|
|
|
|
100.0
|
%
|
|
$
|
18
|
|
|
|
0.7
|
%
|
|
$
|
2,231
|
|
|
|
100.0
|
%
|
|
$
|
14
|
|
|
|
0.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As of June 30, 2011 and December 31, 2010,
restructured commercial mortgage loans were comprised of seven
and five restructured loans, respectively, all of which were
performing. |
|
(2) |
|
Of the $13.0 billion of agricultural mortgage loans
outstanding at June 30, 2011, 51% were subject to rate
resets prior to maturity. A substantial portion of these
mortgage loans have been successfully reset, refinanced or
extended at market terms. |
|
(3) |
|
As of June 30, 2011 and December 31, 2010,
restructured agricultural mortgage loans were comprised of
eleven and five restructured loans, respectively, all of which
were performing. Additionally, as of December 31, 2010,
delinquent or under foreclosure agricultural mortgage loans
included two restructured loans with a recorded investment of
$29 million, which were not performing. |
|
(4) |
|
Residential mortgage loans
held-for-investment
consist primarily of first lien residential mortgage loans, and
to a much lesser extent, second lien residential mortgage loans
and home equity lines of credit. |
|
(5) |
|
As of June 30, 2011, restructured residential mortgage
loans were comprised of eleven restructured loans, all of which
were performing. Additionally, as of June 30, 2011,
delinquent or under foreclosure residential mortgage loans
included two previously restructured loans with a recorded
investment of less than $1 million, which were not
performing. As of December 31, 2010, restructured
residential mortgage loans were comprised of twelve previously
restructured loans, all of which were performing. |
See Investments Mortgage Loans in
Note 3 of the Notes to the Interim Condensed Consolidated
Financial Statements for tables that present, by portfolio
segment, mortgage loans by credit quality indicator and impaired
loans, as well as information on past due and nonaccrual
mortgage loans.
Mortgage Loan Credit Quality Monitoring
Process Commercial and Agricultural Mortgage
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
179
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 mortgage loans is generally similar,
with a focus on higher risk loans, such as loans with higher
loan-to-value
ratios, including reviews on a geographic and property type
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 are a common measure in the assessment of the quality of
agricultural 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 mortgage loans, the average
loan-to-value
ratio was 64% and 66% at June 30, 2011 and
December 31, 2010, respectively, and the average debt
service coverage ratio was 2.3x at June 30, 2011 as
compared to 2.4x at December 31, 2010. For agricultural
mortgage loans, the average
loan-to-value
ratio was 48% and 49% at June 30, 2011 and
December 31, 2010, respectively. The values utilized in
calculating the debt service coverage and
loan-to-value
ratios are updated annually, on a rolling basis, with a portion
of the loan portfolio updated each quarter as part of the
periodic quality rating process and evaluation of the estimated
fair value of the underlying collateral.
Mortgage Loan Credit Quality Monitoring
Process Residential Mortgage
Loans. The Company has a conservative
residential mortgage loan portfolio and does not hold any option
ARMs,
sub-prime or
low teaser rate. 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 mortgage loans
with a
loan-to-value
ratio of 80% or more was $153 million at June 30,
2011, and the majority of the higher
loan-to-value
residential mortgage 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 mortgage
loans was $429 million and $389 million at
June 30, 2011 and December 31, 2010, respectively.
Mortgage Loan Valuation Allowances. 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 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
180
regularly, which can cause the valuation allowances to increase
or decrease over time as such evaluations are revised. Negative
credit migration including an actual or expected increase in the
level of problem loans will result in an increase in the
valuation allowance. Positive credit migration including an
actual or expected decrease in the level of problem loans will
result in a decrease in the valuation allowance. Such changes in
the valuation allowance are recorded in net investment gains
(losses).
See Investments Mortgage Loans in
Note 3 of the Notes to the Interim Condensed Consolidated
Financial Statements for a table that presents the activity in
the Companys valuation allowances, by portfolio segment,
for the three months and six months ended June 30, 2011 and
for the three months and six months ended June 30, 2010;
and for tables that present the Companys valuation
allowances, by type of credit loss, by portfolio segment, at
June 30, 2011 and December 31, 2010.
The Company held $229 million and $197 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 $182 million and
$164 million related to impaired mortgage loans
held-for-investment
and $47 million and $33 million to certain mortgage
loans
held-for-sale,
at June 30, 2011 and December 31, 2010, 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, 2011, respectively, and $8 million and
($16) million for the three months and six months ended
June 30, 2010, respectively.
Real
Estate and Real Estate Joint Ventures
Real estate investments by type consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
Carrying
|
|
|
% of
|
|
|
Carrying
|
|
|
% of
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Traditional
|
|
$
|
5,702
|
|
|
|
69.2
|
%
|
|
$
|
5,106
|
|
|
|
63.6
|
%
|
Real estate joint ventures and funds
|
|
|
2,356
|
|
|
|
28.6
|
|
|
|
2,707
|
|
|
|
33.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate and real estate joint ventures
|
|
|
8,058
|
|
|
|
97.8
|
|
|
|
7,813
|
|
|
|
97.3
|
|
Foreclosed (commercial, agricultural and residential)
|
|
|
169
|
|
|
|
2.1
|
|
|
|
152
|
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
held-for-investment
|
|
|
8,227
|
|
|
|
99.9
|
|
|
|
7,965
|
|
|
|
99.2
|
|
Real estate
held-for-sale
|
|
|
7
|
|
|
|
0.1
|
|
|
|
65
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate and real estate joint ventures
|
|
$
|
8,234
|
|
|
|
100.0
|
%
|
|
$
|
8,030
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See also Real Estate and Real Estate Joint Ventures
in Note 3 of the Notes to the Consolidated Financial
Statements included in the 2010 Annual Report for a discussion
of the types of investments reported within traditional real
estate and real estate joint ventures and funds. The estimated
fair value of the traditional real estate investment portfolio
was $7.3 billion and $6.6 billion at June 30,
2011 and December 31, 2010, respectively.
Impairments of real estate and real estate joint ventures were
$1 million for both the three months and six months ended
June 30, 2011, respectively, and $26 million and
$47 million for the three months and six months ended
June 30, 2010, respectively. There were no impairments of
cost basis real estate joint ventures for the three months and
six months ended June 30, 2011, and $4 million and
$25 million of such impairments for the three months and
six months ended June 30, 2010, respectively, and such
impairments were recognized in net investment gains (losses) for
all periods. There were no impairments recognized on real estate
held-for-sale
for the three months and six months ended June 30, 2011 or
2010. The estimated fair value of the impaired cost basis real
estate joint ventures after these impairments was
$8 million at June 30, 2010. 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 limited price transparency inherent in
the market for such investments.
181
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 U.S. and overseas) was $6.5 billion
and $6.4 billion, which included $1.2 billion and
$1.0 billion of hedge funds, at June 30, 2011 and
December 31, 2010, respectively. Impairments to estimated
fair value for such other limited partnership interests of
$3 million and $8 million for the three months ended
June 30, 2011 and 2010, respectively, and $3 million
and $8 million for the six months ended June 30, 2011
and 2010, respectively, were recognized within net investment
gains (losses). The estimated fair value of the impaired other
limited partnership interests after these impairments was
$10 million and $17 million at June 30, 2011 and
2010, 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
limited 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, 2011
|
|
|
December 31, 2010
|
|
|
|
Carrying
|
|
|
% of
|
|
|
Carrying
|
|
|
% of
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Freestanding derivatives with positive estimated fair values
|
|
$
|
7,693
|
|
|
|
51.6
|
%
|
|
$
|
7,777
|
|
|
|
50.4
|
%
|
Leveraged leases, net of non-recourse debt
|
|
|
2,219
|
|
|
|
14.9
|
|
|
|
2,191
|
|
|
|
14.2
|
|
Tax credit partnerships
|
|
|
1,001
|
|
|
|
6.7
|
|
|
|
976
|
|
|
|
6.3
|
|
MSRs
|
|
|
964
|
|
|
|
6.5
|
|
|
|
950
|
|
|
|
6.2
|
|
Funds withheld
|
|
|
557
|
|
|
|
3.7
|
|
|
|
551
|
|
|
|
3.6
|
|
Joint venture investments
|
|
|
208
|
|
|
|
1.4
|
|
|
|
694
|
|
|
|
4.5
|
|
Other
|
|
|
2,258
|
|
|
|
15.2
|
|
|
|
2,291
|
|
|
|
14.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
14,900
|
|
|
|
100.0
|
%
|
|
$
|
15,430
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Note 4 of the Notes to the Interim Condensed
Consolidated Financial Statements for information regarding
freestanding derivatives with positive estimated fair values.
Short-term
Investments and Cash Equivalents
The carrying value of short-term investments, which includes
investments with remaining maturities of one year or less, but
greater than three months, at the time of purchase was
$12.4 billion and $9.4 billion, or 2.5% and 2.0% of
total cash and invested assets, at June 30, 2011 and
December 31, 2010, respectively. The carrying value of cash
equivalents, which includes investments with an original or
remaining maturity of three months or less at the time of
purchase were $4.9 billion and $9.6 billion, or 1.0%
and 2.0% of total cash and invested assets, at June 30,
2011 and December 31, 2010, 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 the Companys
derivative financial instruments, excluding embedded derivatives
held at June 30, 2011 and December 31, 2010.
|
182
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, 2011 and
December 31, 2010.
|
|
|
|
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, 2011 and December 31, 2010.
|
|
|
|
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, 2011 and 2010.
|
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, 2011
|
|
|
|
Derivative
|
|
|
Derivative
|
|
|
|
Assets
|
|
|
Liabilities
|
|
|
|
(In millions)
|
|
|
Quoted prices in active markets for identical assets and
liabilities (Level 1)
|
|
$
|
73
|
|
|
|
1
|
%
|
|
$
|
153
|
|
|
|
4
|
%
|
Significant other observable inputs (Level 2)
|
|
|
7,233
|
|
|
|
94
|
|
|
|
3,360
|
|
|
|
88
|
|
Significant unobservable inputs (Level 3)
|
|
|
387
|
|
|
|
5
|
|
|
|
308
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total estimated fair value
|
|
$
|
7,693
|
|
|
|
100
|
%
|
|
$
|
3,821
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The valuation of Level 3 derivatives involves the use of
significant unobservable inputs and generally requires a higher
degree of management judgment or estimation than the valuations
of Level 1 and Level 2 derivatives. Although
Level 3 inputs are based on assumptions deemed appropriate
given the circumstances and are assumed to be consistent with
what other market participants would use when pricing such
instruments, the use of different inputs or methodologies could
have a material effect on the estimated fair value of
Level 3 derivatives and could materially affect net income.
Derivatives categorized as Level 3 at June 30, 2011
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; credit default
swaps based upon baskets of credits having unobservable credit
correlations, credit default swaps priced through independent
broker quotes; implied volatility swaps with unobservable
volatility inputs or that are priced via independent broker
quotations; equity options with unobservable volatility inputs
or that are priced via independent broker quotations; and credit
forwards having unobservable repurchase rates.
At June 30, 2011 and December 31, 2010, 3% and 2%,
respectively, of the net derivative estimated fair value was
priced via independent broker quotations.
183
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, 2011 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30, 2011
|
|
|
June 30, 2011
|
|
|
|
(In millions)
|
|
|
Balance, beginning of period
|
|
$
|
(23
|
)
|
|
$
|
173
|
|
Total realized/unrealized gains (losses) included in:
|
|
|
|
|
|
|
|
|
Earnings
|
|
|
(15
|
)
|
|
|
(94
|
)
|
Other comprehensive income (loss)
|
|
|
25
|
|
|
|
9
|
|
Purchases, sales, issuances and settlements
|
|
|
83
|
|
|
|
99
|
|
Transfer into and/or out of Level 3
|
|
|
9
|
|
|
|
(108
|
)
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
79
|
|
|
$
|
79
|
|
|
|
|
|
|
|
|
|
|
See Managements Discussion and Analysis of Financial
Condition and Results of Operations Summary of
Critical Accounting Estimates Derivative Financial
Instruments in the 2010 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.
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, 2011
|
|
|
|
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)
|
|
|
2
|
|
|
|
1
|
|
|
|
15
|
|
|
|
1
|
|
Significant unobservable inputs (Level 3)
|
|
|
196
|
|
|
|
99
|
|
|
|
2,270
|
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total estimated fair value
|
|
$
|
198
|
|
|
|
100
|
%
|
|
$
|
2,285
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
184
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, 2011
|
|
|
June 30, 2011
|
|
|
|
(In millions)
|
|
|
Balance, beginning of period
|
|
$
|
(1,538
|
)
|
|
$
|
(2,438
|
)
|
Total realized/unrealized gains (losses) included in:
|
|
|
|
|
|
|
|
|
Earnings
|
|
|
(373
|
)
|
|
|
584
|
|
Other comprehensive income (loss)
|
|
|
(50
|
)
|
|
|
(2
|
)
|
Purchases, sales, issuances and settlements
|
|
|
(113
|
)
|
|
|
(218
|
)
|
Transfer into and/or out of Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
(2,074
|
)
|
|
$
|
(2,074
|
)
|
|
|
|
|
|
|
|
|
|
The valuation of guaranteed minimum benefits includes an
adjustment for nonperformance risk. The amounts included in net
derivative gains (losses), in connection with this adjustment,
were $108 million and $34 million for the three months
and six months ended June 30, 2011, respectively, and
$776 million and $690 million for the three months and
six months ended June 30, 2010, respectively. The net
derivative gains (losses) for the three months and six months
ended June 30, 2010 included ($955) million relating
to a refinement for estimating nonperformance risk in fair value
measurements implemented at June 30, 2010. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations Summary of
Critical Accounting Estimates in the 2010 Annual Report.
See also Managements Discussion and Analysis of
Financial Condition and Results of Operations
Summary of Critical Accounting Estimates Embedded
Derivatives included in the 2010 Annual Report for further
information on the estimates and assumptions that affect the
amounts reported above.
Off-Balance
Sheet Arrangements
Credit
Facilities, Committed Facilities and Letters of
Credit
The Company maintains unsecured credit facilities, committed
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.
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 $22 million at
June 30, 2011. There was no non-cash collateral for
securities lending on deposit from customers at
December 31, 2010.
Other
See Note 8 of the Notes to the Interim Condensed
Consolidated Financial Statements for the following information:
|
|
|
|
|
Commitments to Fund Partnership Investments
|
|
|
|
Mortgage Loan Commitments
|
|
|
|
Commitments to Fund Bank Credit Facilities, Bridge Loans
and Private Corporate Bond Investments
|
|
|
|
Guarantees
|
Other than the commitments disclosed in Note 8 of the Notes
to the Interim Condensed Consolidated Financial Statements,
there are no other material obligations or liabilities arising
from the commitments to fund partnership
185
investments, mortgage loans, bank credit facilities, and bridge
loans and private corporate bond investment arrangements.
Liquidity
and Capital Resources
Overview
Our business and results of operations are materially affected
by conditions in the global capital markets and the economy,
generally, both in the U.S. and elsewhere around the world.
Stressed conditions, volatility and disruptions in global
capital markets, particular markets, or financial asset classes
can have an adverse effect on us, in part because we have a
large investment portfolio and our insurance liabilities are
sensitive to changing market factors. The global economy and
markets are 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.
Consequently, financial institutions paid higher spreads over
benchmark U.S. Treasury securities than before the market
disruption began.
Although the disruption in the global financial markets has
moderated, not all global financial markets are functioning
normally, and recovery from the U.S. recession has been
below historic averages. Global inflation had fallen over the
last several years, but is now rising, and a number of central
banks around the world have begun tightening monetary
conditions. The global recession and disruption of the financial
markets has led to concerns over capital markets access and the
solvency of certain European Union member states and of
financial institutions that have significant direct or indirect
exposure to debt issued by these countries. The Japanese
economy, to which we face substantial exposure given our
operations there, has been significantly negatively impacted by
the March 2011 earthquake and tsunami. Disruptions to the
Japanese economy are having, and will continue to have, negative
impacts on the overall global economy, not all of which can be
foreseen. The delay by Congress in raising the statutory
national debt limit could have severe repercussions to the
U.S. and global credit and financial markets, further
exacerbate concerns over sovereign debt of other countries and
could disrupt economic activity in the U.S. and elsewhere.
All of these factors could affect the Companys ability to
meet liquidity needs and obtain capital. See
Industry Trends,
Investments Current
Environment and Risk Factors The Delay
by Congress in Raising the Statutory Debt Limit of the United
States Could Have an Adverse Effect on Our Business, Financial
Condition and Results of Operations. The following
discussion supplements the discussion in the 2010 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 the Company has ample liquidity to meet business
requirements under current market conditions and unlikely but
reasonably possible stress scenarios. The Companys
short-term liquidity position (cash and cash equivalents,
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
$16.6 billion and $17.6 billion at June 30, 2011
and December 31, 2010, 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. See
Investments Current Environment.
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.
The Company raised new capital from its debt issuances during
the difficult market conditions prevailing since the second half
of 2008, as well as during the rebound and recovery periods
beginning in the second quarter of 2009
186
and continuing into 2010. The increase in credit spreads
experienced during the crisis resulted in an increase in the
cost of capital, as well as increases in facility fees. Most
recently, as a result of reductions in interest rates and credit
spreads, the Companys interest expense and dividends on
floating rate securities have been lower.
Despite the still unsettled financial markets, the Company also
raised new capital from successful offerings of the Holding
Companys common stock in August 2010 and on March 8,
2011. The August 2010 offering provided financing for the
Acquisition and the March 2011 offering provided financing for
the repurchase from AM Holdings of the Holding Companys
Convertible Preferred Stock that was issued in connection with
the Acquisition. See The Company
Liquidity and Capital Sources Convertible Preferred
Stock and Common Stock.
Rating Agencies. Rating agencies assign
insurer financial strength ratings to the Holding 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.
A downgrade in the credit or insurer financial strength ratings
of the Holding 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.
Furthermore, the payment of dividends and other distributions to
the Holding Company by its insurance subsidiaries is regulated
by insurance laws and regulations. See The
Holding Company Liquidity and Capital
Sources Dividends from Subsidiaries and
Note 18 of the Notes to the Consolidated Financial
Statements included in the 2010 Annual Report.
187
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,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(In millions)
|
|
|
Sources:
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
6,793
|
|
|
$
|
3,928
|
|
Net cash provided by changes in policyholder account balances
|
|
|
3,829
|
|
|
|
1,823
|
|
Net cash provided by changes in payables for collateral under
securities loaned and other transactions
|
|
|
2,807
|
|
|
|
5,576
|
|
Long-term debt issued, net of issuance costs
|
|
|
1,220
|
|
|
|
677
|
|
Cash received in connection with collateral financing
arrangements
|
|
|
100
|
|
|
|
|
|
Common stock issued, net of issuance costs
|
|
|
2,950
|
|
|
|
|
|
Stock options exercised
|
|
|
73
|
|
|
|
26
|
|
Cash provided by the effect of change in foreign currency
exchange rates
|
|
|
146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sources
|
|
|
17,918
|
|
|
|
12,030
|
|
|
|
|
|
|
|
|
|
|
Uses:
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
16,898
|
|
|
|
10,120
|
|
Net cash used for changes in bank deposits
|
|
|
341
|
|
|
|
497
|
|
Net cash used for short-term debt repayments
|
|
|
204
|
|
|
|
33
|
|
Long-term debt repaid
|
|
|
715
|
|
|
|
511
|
|
Redemption of convertible preferred stock
|
|
|
2,805
|
|
|
|
|
|
Preferred stock redemption premium
|
|
|
146
|
|
|
|
|
|
Dividends on preferred stock
|
|
|
61
|
|
|
|
61
|
|
Net cash used in other, net
|
|
|
121
|
|
|
|
139
|
|
Cash used in the effect of change in foreign currency exchange
rates
|
|
|
|
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
Total uses
|
|
|
21,291
|
|
|
|
11,440
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
(3,373
|
)
|
|
$
|
590
|
|
|
|
|
|
|
|
|
|
|
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
disruption. 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 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, 2011 and December 31,
2010, the Company had $254.4 billion and
$245.7 billion, respectively, in liquid assets. For further
188
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 provided
by a variety of short-term instruments, including funding
agreements, credit facilities and commercial paper. Capital is
provided by a variety of instruments, including short-term and
long-term debt, preferred securities, junior subordinated debt
securities and equity and equity-linked securities. The
diversity of the Companys funding sources enhances funding
flexibility, limits dependence on any one market or source of
funds and generally lowers the cost of funds. The Companys
global funding sources include:
|
|
|
|
|
The Holding Company and MetLife Funding, Inc. (MetLife
Funding) each have commercial paper programs supported by
$4.0 billion in general corporate credit facilities.
MetLife Funding, a subsidiary of Metropolitan Life Insurance
Company (MLIC), serves as a centralized finance unit
for the Company. MetLife Funding raises cash from its commercial
paper program 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.
Outstanding balances for the commercial paper program fluctuate
in line with changes to affiliates financing arrangements.
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, 2011 and December 31, 2010,
MetLife Funding had a tangible net worth of $12 million. At
both June 30, 2011 and December 31, 2010, MetLife
Funding had total outstanding liabilities for its commercial
paper program, including accrued interest payable, of
$102 million.
|
|
|
|
MetLife Bank is a depository institution that is approved to use
the Federal Reserve Bank of New York Discount Window borrowing
privileges. To utilize these privileges, MetLife Bank has
pledged qualifying loans and investment securities to the
Federal Reserve Bank of New York as collateral. At both
June 30, 2011 and December 31, 2010, MetLife Bank had
no liability for advances from the Federal Reserve Bank of New
York under this facility.
|
|
|
|
MetLife Bank has a cash need to fund residential mortgage loans
that it originates and generally holds for a relatively short
period before selling them to one of the government-sponsored
enterprises such as FNMA or FHLMC. The outstanding volume of
residential mortgage originations varies from month to month and
is cyclical within a month. To meet the variable funding
requirements from this mortgage activity, as well as to increase
overall liquidity from time to time, MetLife Bank takes
advantage of short-term collateralized borrowing opportunities
with the Federal Home Loan Bank of New York (FHLB of
NY). MetLife Bank has entered into advances agreements
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
mortgage loans, mortgage loans
held-for-sale,
commercial mortgage loans 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 agreements. MetLife Bank has
received advances from the FHLB of NY on both short-term and
long-term bases, with a total liability of $4.5 billion and
$3.8 billion at June 30, 2011 and December 31,
2010, respectively.
|
|
|
|
The Company also had obligations under funding agreements with
the FHLB of NY of $12.0 billion and $12.6 billion at
June 30, 2011 and December 31, 2010, respectively, for
MLIC, and with the Federal Home Loan Bank of Boston (FHLB
of Boston) of $400 million and $100 million at
June 30, 2011 and December 31, 2010, respectively, for
MetLife Insurance Company of Connecticut (MICC). See
Note 8 of the Notes to the Consolidated Financial
Statements included in the 2010 Annual Report. In September
2010, MetLife Investors Insurance Company (MLIIC)
and General American Life Insurance Company (GALIC),
subsidiaries of MetLife, Inc., each became a member of the
Federal Home Loan Bank of Des Moines (FHLB of Des
Moines), and each purchased $10 million of FHLB of
Des Moines common stock. Membership in the FHLB of Des Moines
provides an additional source of contingent liquidity for the
Company. The Company had obligations under funding agreements
with the FHLB of Des Moines of
|
189
|
|
|
|
|
$175 million for MLIIC and $425 million for GALIC at
June 30, 2011. There were no funding agreements with the
FHLB of Des Moines at December 31, 2010.
|
|
|
|
|
|
The Company issues fixed and floating rate funding agreements,
which are denominated in either U.S. dollars or foreign
currencies, to certain special purpose entities
(SPEs) that have issued either debt securities or
commercial paper for which payment of interest and principal is
secured by such funding agreements. At June 30, 2011 and
December 31, 2010, funding agreements outstanding, which
are included in policyholder account balances, were
$29.0 billion and $27.2 billion, respectively. See
Note 8 of the Notes to the Consolidated Financial
Statements included in the 2010 Annual Report.
|
|
|
|
MLIC and MICC have each issued funding agreements to certain
SPEs that have issued debt securities for which payment of
interest and principal is secured by such funding agreements,
and such debt securities are also guaranteed as to payment of
interest and principal by the Federal Agricultural Mortgage
Corporation, a federally chartered instrumentality of the
U.S. The obligations under these funding agreements are
secured by a pledge of certain eligible agricultural real estate
mortgage loans and may, under certain circumstances, be secured
by other qualified collateral. The amount of the Companys
liability for funding agreements issued to such SPEs was
$2.8 billion at both June 30, 2011 and
December 31, 2010, which is included in policyholder
account balances. The obligations under these funding agreements
are collateralized by designated agricultural real estate
mortgage loans with carrying values of $3.2 billion at both
June 30, 2011 and December 31, 2010. See Note 8
of the Notes to the Consolidated Financial Statements included
in the 2010 Annual Report.
|
Outstanding Debt. The following table
summarizes the outstanding debt of the Company at:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
December 31, 2010
|
|
|
(In millions)
|
|
Short-term debt
|
|
$
|
102
|
|
|
$
|
306
|
|
Long-term debt (1)
|
|
$
|
21,722
|
|
|
$
|
20,766
|
|
Collateral financing arrangements
|
|
$
|
5,297
|
|
|
$
|
5,297
|
|
Junior subordinated debt securities
|
|
$
|
3,192
|
|
|
$
|
3,191
|
|
|
|
|
(1) |
|
Excludes $6,547 million and $6,820 million at
June 30, 2011 and December 31, 2010, respectively, of
long-term debt relating to CSEs. See Note 3 of the Notes to
the Interim Condensed Consolidated Financial Statements. |
Debt Issuances and Other Borrowings. During
the six months ended June 30, 2011 and 2010, MetLife Bank
received advances related to long-term borrowings totaling
$1,205 million and $678 million, respectively, from
the FHLB of NY. During the six months ended June 30, 2011
and 2010, MetLife Bank received advances related to short-term
borrowings totaling $5.4 billion and $2.3 billion,
respectively, from the FHLB of NY. No advances were received
from the Federal Reserve Bank of New York or the FHLB of Boston
related to short-term borrowings during the six months ended
June 30, 2011 and 2010.
Collateral Financing Arrangements. On
June 1, 2011, the Holding Company received
$100 million from an unaffiliated financial institution
related to an increase in the estimated fair value of the
surplus note issued by MetLife Reinsurance Company of Charleston
pursuant to a collateral financing arrangement. See Note 12
of the Notes to the Consolidated Financial Statements included
in the 2010 Annual Report for a further description of this
collateral financing arrangement.
Credit and Committed Facilities. The Company
maintains unsecured credit facilities and committed facilities,
which aggregated $4.0 billion and $12.8 billion,
respectively, at June 30, 2011. When drawn upon, these
facilities bear interest at varying rates in accordance with the
respective agreements. See Note 11 of the Notes to the
Consolidated Financial Statements included in the 2010 Annual
Report.
The unsecured credit facilities are used for general corporate
purposes, to support the borrowers commercial paper
programs and for the issuance of letters of credit. At
June 30, 2011, the Company had outstanding
$1.5 billion in letters of credit and no drawdowns against
these facilities. Remaining unused commitments were
$2.5 billion at June 30, 2011.
190
The committed facilities are used for collateral for certain of
the Companys affiliated reinsurance liabilities. At
June 30, 2011, the Company had outstanding
$6.1 billion in letters of credit and $2.8 billion in
aggregate drawdowns against these facilities. Remaining unused
commitments were $3.9 billion at June 30, 2011. In
February 2011, the Holding Company entered into a one-year
$350 million committed facility with a third-party bank to
provide letters of credit for the benefit of Missouri
Reinsurance (Barbados) Inc. (MoRe), a captive
reinsurance subsidiary. Under this facility, one letter of
credit of $305 million was outstanding at June 30,
2011. Both this letter of credit and the facility were canceled
on July 1, 2011.
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, 2011 and December 31, 2010.
Convertible Preferred Stock. In November 2010,
the Holding Company issued to AM Holdings in connection with the
financing of the Acquisition 6,857,000 shares of
Series B contingent convertible junior participating
non-cumulative perpetual preferred stock (the Convertible
Preferred Stock) convertible into approximately
68,570,000 shares (valued at $40.90 per share at the time
of the Acquisition) of the Holding Companys common stock
(subject to anti-dilution adjustments) upon a favorable vote of
the Holding Companys common stockholders. On March 8,
2011, the Holding Company repurchased and canceled all of the
Convertible Preferred Stock. See Common
Stock below.
Common Stock. On March 8, 2011, the
Holding Company issued 68,570,000 new shares of its common stock
in a public offering at a price of $43.25 per share for gross
proceeds of $3.0 billion. The proceeds were used to
repurchase the Convertible Preferred Stock issued to AM Holdings
on November 1, 2010 (the Acquisition Date) in
connection with the Acquisition.
On the Acquisition Date, the Holding Company issued to AM
Holdings in connection with the financing of the Acquisition
78,239,712 new shares of its common stock at $40.90 per share.
On March 8, 2011, AM Holdings sold the
78,239,712 shares of common stock in a public offering
concurrent with the public offering of common stock by the
Holding Company.
During the six months ended June 30, 2011, the Holding
Company issued 2,448,223 new shares of common stock for
$73 million to satisfy various stock option exercises.
Equity Units. On the Acquisition Date, the
Holding Company issued to AM Holdings in connection with the
financing of the Acquisition $3.0 billion aggregate stated
amount of Equity Units. See Note 14 of the Notes to the
Consolidated Financial Statements included in the 2010 Annual
Report. On March 8, 2011, concurrently with the public
offering of common stock by the Holding Company and AM Holdings,
AM Holdings sold all of the Equity Units in a public offering.
The terms and conditions of the Equity Units were unaffected by
the resulting transfers of ownership.
Replacement Capital Covenants. As described in
the 2010 Annual Report, the Holding Company entered into
replacement capital covenants (each an RCC) in
connection with
and/or
relating to prior issuances of certain of the Companys
outstanding debt securities and its Floating Rate Non-Cumulative
Preferred Stock, Series A, and 6.50% Non-Cumulative
Preferred Stock, Series B (collectively, the
Preferred Stock). Each RCC is for the benefit of
holders of one or more other designated series of the Holding
Companys indebtedness (the Covered Debt),
which was initially its 5.70% senior notes due 2035 (the
Senior Notes). As a result of the issuance of the
Holding Companys 10.750% junior subordinated debt
securities due 2069 (the 10.750% JSDs), the 10.750%
JSDs became the Covered Debt with respect to, and in accordance
with, the terms of the RCCs relating to the Holding
Companys 6.40% junior subordinated debt securities due
2066 and the Preferred Stock. The Senior Notes continue to be
the Covered Debt with respect to, and in accordance with, the
terms of the RCCs relating to MetLife Capital
Trust IVs 7.875%
Fixed-to-Floating
Rate Exchangeable Surplus Trust Securities due 2067,
MetLife Capital Trust Xs 9.250%
Fixed-to-Floating
Rate Exchangeable Surplus Trust Securities due 2068, and
the 10.750% JSDs.
191
See Managements Discussion and Analysis of Financial
Condition and Results of Operations The
Company Liquidity and Capital Sources
Preferred Stock included in the 2010
Annual Report and Note 13 of the Notes to the Consolidated
Financial Statements included in the 2010 Annual Report.
Liquidity
and Capital Uses
Debt Repayments. During the six months ended
June 30, 2011 and 2010, MetLife Bank made repayments of
$340 million and $169 million, respectively, to the
FHLB of NY related to long-term borrowings. During the six
months ended June 30, 2011 and 2010, MetLife Bank made
repayments to the FHLB of NY related to short-term borrowings of
$5.5 billion and $2.4 billion, respectively. No
repayments were made to the Federal Reserve Bank of New York or
the FHLB of Boston related to short-term borrowings during the
six months ended June 30, 2011 and 2010.
Debt Repurchases. We may from time to time
seek to retire or purchase our outstanding debt through cash
purchases
and/or
exchanges for other securities, in open market purchases,
privately negotiated transactions or otherwise. Any such
repurchases or exchanges will be dependent upon several factors,
including our liquidity requirements, contractual restrictions,
general market conditions, and applicable regulatory, legal and
accounting factors. Whether or not to repurchase any debt and
the size and timing of any such repurchases will be determined
in the Companys discretion.
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, 2011 and 2010, general account surrenders and
withdrawals from annuity products were $1.8 billion and
$1.7 billion, respectively. In Corporate Benefit Funding,
which includes pension closeouts, bank-owned life insurance and
other fixed annuity contracts, as well as funding agreements
(including funding agreements with the FHLB of NY, the FHLB of
Des Moines and the FHLB of Boston) and other capital market
products, 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, 2011 there were
$1,385 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, $535 million were
subject to a notice period of 90 days. The remainder of the
balance was subject to a notice period of 12 months or
greater. An additional $292 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-term 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.
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, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 16, 2011
|
|
May 31, 2011
|
|
June 15, 2011
|
|
$
|
0.2555555
|
|
|
$
|
7
|
|
|
$
|
0.4062500
|
|
|
$
|
24
|
|
March 7, 2011
|
|
February 28, 2011
|
|
March 15, 2011
|
|
$
|
0.2500000
|
|
|
|
6
|
|
|
$
|
0.4062500
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13
|
|
|
|
|
|
|
$
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
192
Residential Mortgage Loans
Held-for-Sale. At
June 30, 2011, the Company held $2,805 million in
residential mortgage loans
held-for-sale,
compared with $3,321 million at December 31, 2010, a
decrease of $516 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 $155 million at June 30, 2011. 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
$26.6 billion and $24.6 billion at June 30, 2011
and December 31, 2010, respectively. Of these amounts,
$3.5 billion and $2.8 billion at June 30, 2011
and December 31, 2010, respectively, were on open, meaning
that the related loaned security could be returned to the
Company on the next business day upon return of cash collateral.
The estimated fair value of the securities on loan related to
the cash collateral on open at June 30, 2011 was
$3.4 billion, of which $2.9 billion were
U.S. Treasury and agency 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 2010 Annual Report for additional information on the
Companys contractual obligations.
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. Under these arrangements, each Obligor,
with respect to the applicable entity, has agreed to cause such
entity to meet specified capital and surplus levels, has
guaranteed certain contractual obligations or has agreed to
provide, upon the occurrence of certain contingencies,
reinsurance for such entitys insurance liabilities. 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. On
April 1, 2011, the Company sold its interest in MSI
MetLife, a corporation in which the Holding Company owned 50% of
the equity. The Companys obligations under the related
support agreement were terminated on that date. See
The Holding Company Liquidity and
Capital Uses Support Agreements.
Litigation. Putative or certified class action
litigation and other litigation, and claims and assessments
against the Company, in addition to those discussed elsewhere
herein and those otherwise provided for in the Companys
consolidated financial statements, have arisen in the course of
the Companys business, including, but not limited to, in
connection with its activities as an insurer, 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.
The Company establishes liabilities for litigation and
regulatory loss contingencies when it is probable that a loss
has been incurred and the amount of the loss can be reasonably
estimated. For material matters where a loss is
193
believed to be reasonably possible but not probable, no accrual
is made but the Company discloses the nature of the contingency
and an aggregate estimate of the reasonably possible range of
loss in excess of amounts accrued, when such an estimate can be
made. It is not possible to predict or determine the ultimate
outcome of all pending investigations and legal proceedings. 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 bank
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. As of 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. In addition to requirements which
may be imposed in connection with the implementation of
Dodd-Frank, if adopted in the U.S., Basel III will also
lead to increased capital and liquidity requirements for bank
holding companies, such as MetLife, Inc. See
Industry Trends Financial and
Economic Environment and Risk Factors
Our Insurance, Brokerage and Banking Businesses Are Highly
Regulated, and Changes in Regulation and in Supervisory and
Enforcement Policies May Reduce Our Profitability and Limit Our
Growth.
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.
The table below sets forth the dividends permitted to be paid by
the respective insurance subsidiary without insurance regulatory
approval:
|
|
|
|
|
|
|
2011
|
|
|
Permitted w/o
|
Company
|
|
Approval (1)
|
|
|
(In millions)
|
|
Metropolitan Life Insurance Company
|
|
$
|
1,321
|
|
American Life Insurance Company
|
|
$
|
661
|
|
MetLife Insurance Company of Connecticut
|
|
$
|
517
|
|
Metropolitan Property and Casualty Insurance Company
|
|
$
|
|
|
Metropolitan Tower Life Insurance Company
|
|
$
|
80
|
|
194
|
|
|
|
(1)
|
Reflects dividend amounts that may be paid during 2011 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 2011, some or
all of such dividends may require regulatory approval. On
April 29, 2011, MLIC paid as a dividend $183 million
of such available amount to the Holding Company. No other
available amounts were paid by the above subsidiaries to the
Holding Company during the six months ended June 30, 2011.
|
In addition to the amounts presented in the table above, during
the six months ended June 30, 2011, the Holding Company
received cash of $495 million, of which $46 million
represented a dividend and $449 million represented a
return of capital.
The dividend capacity of
non-U.S. operations
is subject to similar restrictions established by the local
regulators. The
non-U.S. regulatory
regimes also commonly limit the dividend payments to the parent
to a portion of the prior years statutory income, as
determined by the local accounting principles. The regulators of
the
non-U.S. operations,
including the Japan branch of American Life, may also limit or
not permit profit repatriations or other transfers of funds to
the U.S. if such transfers would be detrimental to the
solvency or financial strength of the operations of the
non-U.S. operations,
or for other reasons. Most of the
non-U.S. subsidiaries
are second tier subsidiaries and are not directly owned by the
Holding Company. The capital and rating considerations
applicable to the first tier subsidiaries may also impact the
dividend flow into the Holding Company.
The Companys management actively manages its target and
excess capital levels and dividend flows on a pro-active basis
and forecasts local capital positions as part of the financial
planning cycle. The dividend capacity of certain U.S. and
non-U.S. subsidiaries
is also subject to business targets in excess of the minimum
capital necessary to maintain the desired rating or level of
financial strength in the relevant market. Management of the
Holding Company cannot provide assurances that the Holding
Companys 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 regulators will not disapprove any
dividends that such subsidiaries must submit for approval. See
Note 18 of the Notes to the Consolidated Financial
Statements included in the 2010 Annual Report.
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,
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; and (ii) cash collateral
received from counterparties in connection with derivative
instruments. At June 30, 2011 and December 31, 2010,
the Holding Company had $3.4 billion and $2.8 billion,
respectively, 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, 2011 and December 31, 2010, the
Holding Company had pledged $303 million and
$362 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-term and
long-term borrowing, as needed.
We continuously monitor and adjust our liquidity and capital
plans for the Holding Company and its subsidiaries in light of
changing requirements and market conditions.
195
Long-term Debt. The following table summarizes
the outstanding long-term debt of the Holding Company at:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
December 31, 2010
|
|
|
(In millions)
|
|
Long-term debt unaffiliated
|
|
$
|
16,454
|
|
|
$
|
16,258
|
|
Long-term debt affiliated (1)
|
|
$
|
500
|
|
|
$
|
665
|
|
Collateral financing arrangements
|
|
$
|
2,797
|
|
|
$
|
2,797
|
|
Junior subordinated debt securities
|
|
$
|
1,748
|
|
|
$
|
1,748
|
|
|
|
|
(1) |
|
Includes $165 million of affiliated senior notes associated
with bonds held by ALICO at December 31, 2010. Such bonds
were sold to a third party in the second quarter of 2011. |
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, 2011 and
December 31, 2010.
Preferred Stock, Convertible Preferred Stock, Common Stock
and Equity Units. For information on preferred
stock issued by the Holding Company, see The
Company Liquidity and Capital Sources
Preferred Stock in the 2010 Annual Report. For information
on convertible preferred stock, common stock and equity units
issued by the Holding Company, see The
Company Liquidity and Capital Sources
Convertible Preferred Stock, Common
Stock, and Equity Units,
respectively.
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 general
operating expenses and meet its cash needs.
Affiliated Capital Transactions. During the
six months ended June 30, 2011 and 2010, the Holding
Company invested an aggregate of $1,098 million and
$102 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, 2011
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
(In millions)
|
|
|
Metropolitan Life Insurance Company (1)
|
|
6-month LIBOR + 1.80%
|
|
December 31, 2011
|
|
$
|
|
|
|
$
|
775
|
|
Metropolitan Life Insurance Company
|
|
7.13%
|
|
December 15, 2032
|
|
|
400
|
|
|
|
400
|
|
Metropolitan Life Insurance Company
|
|
7.13%
|
|
January 15, 2033
|
|
|
100
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
500
|
|
|
$
|
1,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In April 2011, MLIC repaid in cash the $775 million surplus
note issued to the Holding Company in December 2009. The early
redemption was approved by the New York Superintendent of
Insurance. |
Debt Repayments. The Holding Company intends
to either repay all or refinance in whole or in part the debt
that is due in December 2011. See Managements
Discussion and Analysis of Financial Condition and Results of
Operations Liquidity and Capital
Resources The Holding Company
Liquidity and Capital Sources Senior Notes in
the 2010 Annual Report.
196
Support Agreements. The Holding Company is
party to various capital support commitments and guarantees with
certain of its subsidiaries. Under these arrangements, the
Holding Company has agreed to cause each such entity to meet
specified capital and surplus levels or has guaranteed certain
contractual obligations.
In June 2011, the Holding Company guaranteed the obligations of
its subsidiary, Delaware American Life Insurance Company
(DelAm), under a stop loss reinsurance agreement
with RGA Reinsurance (Barbados) Inc. (RGARe),
pursuant to which RGARe retrocedes to DelAm a portion of the
whole life medical insurance business that RGARe assumed from
American Life Insurance Company (American Life) on
behalf of its Japan branch.
As noted in The Company Liquidity and Capital
Uses Support Agreements above, the Holding
Company was formerly a party to a net worth maintenance
agreement with MSI MetLife, a former investment in Japan of
which the Holding Company owned 50% of the equity. Under the
agreement, the Holding Company agreed, without limitation as to
amount, to cause MSI MetLife to have the amount of capital and
surplus necessary for MSI MetLife to maintain a solvency ratio
of at least 400%, as calculated in accordance with the Insurance
Business Law of Japan, and to make such loans to MSI MetLife as
may have been necessary to ensure that MSI MetLife had
sufficient cash or other liquid assets to meet its payment
obligations as they fell due. As more fully described in
Note 2 of the Notes to the Interim Condensed Consolidated
Financial Statements, the Holding Company sold its 50% interest
in MSI MetLife to a third party. Upon the close of such sale on
April 1, 2011, the Holding Companys obligations under
the net worth maintenance agreement were terminated.
In March 2011, the Holding Company guaranteed the obligations of
its subsidiary, MoRe, under a retrocession agreement with RGARe,
pursuant to which MoRe retrocedes a portion of the closed block
liabilities associated with industrial life and ordinary life
insurance policies that it assumed from MLIC.
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 ALM
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 and the
Chief Risk Officer. This committee is responsible for
197
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 management throughout
MetLife and reports to MetLifes Chief Risk Officer. The
Enterprise Risk Management Departments primary
responsibilities consist of:
|
|
|
|
|
implementing a 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 Committee
of the Companys Board of Directors; with respect to credit
risk, reporting to the Investment Committee of the
Companys Board of Directors; and reporting on various
aspects of risk to 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 ALM process is the shared
responsibility of the Financial Risk Management and
Asset/Liability Management Unit, Enterprise Risk Management, the
Portfolio Management Unit, and the senior members of the
business segments and is governed by the ALM Committees. 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 Committees are carried out and monitored
through ALM Working Groups which are set up to manage by product
type. In addition, an ALM Steering Committee oversees the
activities of the underlying ALM Committees.
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, foreign currency
exchange rates and equity market.
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 ALM 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. ALM 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
198
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, the
Japanese yen and the Canadian dollar. The principal currencies
that create foreign currency 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 Korean won, the Canadian dollar, the British pound, the
Chilean peso, the Australian dollar, the Argentine peso, the
Polish zloty, the Euro 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. See Risk Factors Fluctuations in
Foreign Currency Exchange Rates Could Negatively Affect Our
Profitability in the 2010 Annual Report.
Equity Market. The Company has exposure to
equity market risk 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 ALM strategies
including the dynamic hedging of certain variable annuity
guarantee benefits. The Company also manages equity market risk
exposure 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 market risk,
including the use of derivative instruments.
Interest Rate Risk Management. To manage
interest rate risk, the Company analyzes interest rate risk
using various models, including multi-scenario cash flow
projection models that forecast cash flows of the liabilities
and their supporting investments, including derivative
instruments. These projections involve evaluating the potential
gain or loss on most of the Companys in-force business
under various increasing and decreasing interest rate
environments. The New York State Insurance Department
regulations require that MetLife perform some of these analyses
annually as part of MetLifes review of the sufficiency of
its regulatory reserves. For several of its legal entities, the
Company maintains segmented operating and surplus asset
portfolios for the purpose of ALM 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 business 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.
199
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 Market Risk Management. Equity market
risk exposure through the issuance of variable annuities is
managed by the Companys Asset/Liability Management Unit in
partnership with the Investment Department. Equity market risk
is realized 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 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 deferred annuities. 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.
|
200
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, 2011. The sensitivity analysis
separately calculates each of the Companys market risk
exposures (interest rate, equity market 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;
|
|
|
|
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, 2011:
|
|
|
|
|
|
|
June 30, 2011
|
|
|
(In millions)
|
|
Non-trading:
|
|
|
|
|
Interest rate risk
|
|
$
|
5,105
|
|
Foreign currency exchange rate risk
|
|
$
|
4,485
|
|
Equity market risk
|
|
$
|
11
|
|
Trading:
|
|
|
|
|
Interest rate risk
|
|
$
|
9
|
|
Foreign currency exchange rate risk
|
|
$
|
449
|
|
201
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, 2011 by type of asset or liability:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
|
|
|
|
|
|
|
Assuming a
|
|
|
|
|
|
|
Estimated
|
|
|
10% Increase
|
|
|
|
Notional
|
|
|
Fair
|
|
|
in the Yield
|
|
|
|
Amount
|
|
|
Value (3)
|
|
|
Curve
|
|
|
|
(In millions)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
|
|
|
|
$
|
341,744
|
|
|
$
|
(5,900
|
)
|
Equity securities
|
|
|
|
|
|
|
3,238
|
|
|
|
|
|
Trading and other securities
|
|
|
|
|
|
|
19,700
|
|
|
|
(11
|
)
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-for-investment
|
|
|
|
|
|
|
63,338
|
|
|
|
(359
|
)
|
Held-for-sale
|
|
|
|
|
|
|
2,805
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans, net
|
|
|
|
|
|
|
66,143
|
|
|
|
(373
|
)
|
Policy loans
|
|
|
|
|
|
|
13,381
|
|
|
|
(170
|
)
|
Real estate joint ventures (1)
|
|
|
|
|
|
|
558
|
|
|
|
|
|
Other limited partnership interests (1)
|
|
|
|
|
|
|
1,651
|
|
|
|
|
|
Short-term investments
|
|
|
|
|
|
|
12,419
|
|
|
|
(2
|
)
|
Other invested assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights
|
|
|
|
|
|
|
964
|
|
|
|
61
|
|
Other
|
|
|
|
|
|
|
1,480
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
9,628
|
|
|
|
(1
|
)
|
Accrued investment income
|
|
|
|
|
|
|
4,341
|
|
|
|
|
|
Premiums, reinsurance and other receivables
|
|
|
|
|
|
|
3,314
|
|
|
|
(204
|
)
|
Other assets
|
|
|
|
|
|
|
501
|
|
|
|
(8
|
)
|
Net embedded derivatives within asset host contracts (2)
|
|
|
|
|
|
|
198
|
|
|
|
(16
|
)
|
Mortgage loan commitments
|
|
$
|
4,362
|
|
|
|
(20
|
)
|
|
|
(10
|
)
|
Commitments to fund bank credit facilities, bridge loans and
private corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
bond investments
|
|
$
|
2,342
|
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
|
|
|
|
|
|
|
$
|
(6,634
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder account balances
|
|
|
|
|
|
$
|
158,635
|
|
|
$
|
807
|
|
Payables for collateral under securities loaned and other
transactions
|
|
|
|
|
|
|
30,079
|
|
|
|
|
|
Bank deposits
|
|
|
|
|
|
|
10,078
|
|
|
|
|
|
Short-term debt
|
|
|
|
|
|
|
102
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
22,962
|
|
|
|
332
|
|
Collateral financing arrangements
|
|
|
|
|
|
|
4,867
|
|
|
|
|
|
Junior subordinated debt securities
|
|
|
|
|
|
|
3,588
|
|
|
|
167
|
|
Other liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading liabilities
|
|
|
|
|
|
|
54
|
|
|
|
2
|
|
Other
|
|
|
|
|
|
|
2,962
|
|
|
|
|
|
Net embedded derivatives within liability host contracts (2)
|
|
|
|
|
|
|
2,285
|
|
|
|
1,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
|
|
|
|
|
|
|
$
|
2,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
69,893
|
|
|
$
|
1,763
|
|
|
$
|
(1,129
|
)
|
Interest rate floors
|
|
$
|
23,866
|
|
|
|
545
|
|
|
|
(68
|
)
|
Interest rate caps
|
|
$
|
37,726
|
|
|
|
189
|
|
|
|
60
|
|
Interest rate futures
|
|
$
|
12,770
|
|
|
|
9
|
|
|
|
4
|
|
Interest rate options
|
|
$
|
16,635
|
|
|
|
137
|
|
|
|
(101
|
)
|
Interest rate forwards
|
|
$
|
8,637
|
|
|
|
(94
|
)
|
|
|
(67
|
)
|
Synthetic GICs
|
|
$
|
4,392
|
|
|
|
|
|
|
|
|
|
Foreign currency swaps
|
|
$
|
17,455
|
|
|
|
13
|
|
|
|
5
|
|
Foreign currency forwards
|
|
$
|
10,038
|
|
|
|
(4
|
)
|
|
|
24
|
|
Currency futures
|
|
$
|
525
|
|
|
|
|
|
|
|
|
|
Currency options
|
|
$
|
2,191
|
|
|
|
15
|
|
|
|
|
|
Credit default swaps
|
|
$
|
12,266
|
|
|
|
65
|
|
|
|
|
|
Credit forwards
|
|
$
|
121
|
|
|
|
(1
|
)
|
|
|
|
|
Equity futures
|
|
$
|
6,015
|
|
|
|
(84
|
)
|
|
|
|
|
Equity options
|
|
$
|
16,330
|
|
|
|
1,337
|
|
|
|
(107
|
)
|
Variance swaps
|
|
$
|
18,719
|
|
|
|
(17
|
)
|
|
|
(6
|
)
|
Total rate of return swaps
|
|
$
|
1,862
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivative Instruments
|
|
|
|
|
|
|
|
|
|
$
|
(1,385
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change
|
|
|
|
|
|
|
|
|
|
$
|
(5,114
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents only those investments accounted for using the cost
method. |
202
|
|
|
(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
$268 million, or 5%, to $5,114 million at
June 30, 2011 from $5,382 million at December 31,
2010. The decrease in risk is partially due to a decrease in
interest rates across the long end of the swaps and
U.S. Treasury curves which decreased risk by
$303 million. Additionally, a decrease in premiums,
reinsurance and other receivables, and in the use of derivatives
employed by the Company and an increase in the net embedded
derivatives within liability host contracts decreased risk by
$127 million, $31 million and $82 million,
respectively. This decrease in risk was partially offset by
change in the net assets and liabilities bases of
$305 million. The remainder of the fluctuation is
attributable to numerous immaterial items.
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, 2011 by type of asset or
liability:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
|
|
|
|
|
|
|
Assuming a
|
|
|
|
|
|
|
Estimated
|
|
|
10% Increase
|
|
|
|
Notional
|
|
|
Fair
|
|
|
in the Foreign
|
|
|
|
Amount
|
|
|
Value (1)
|
|
|
Exchange Rate
|
|
|
|
(In millions)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
|
|
|
|
$
|
341,744
|
|
|
$
|
(7,670
|
)
|
Equity securities
|
|
|
|
|
|
|
3,238
|
|
|
|
(130
|
)
|
Trading and other securities
|
|
|
|
|
|
|
19,700
|
|
|
|
(449
|
)
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-for-investment
|
|
|
|
|
|
|
63,338
|
|
|
|
(463
|
)
|
Held-for-sale
|
|
|
|
|
|
|
2,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans, net
|
|
|
|
|
|
|
66,143
|
|
|
|
(463
|
)
|
Policy loans
|
|
|
|
|
|
|
13,381
|
|
|
|
(199
|
)
|
Other limited partnership interests
|
|
|
|
|
|
|
1,651
|
|
|
|
(12
|
)
|
Short-term investments
|
|
|
|
|
|
|
12,419
|
|
|
|
(229
|
)
|
Other invested assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights
|
|
|
|
|
|
|
964
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
1,480
|
|
|
|
(119
|
)
|
Cash and cash equivalents
|
|
|
|
|
|
|
9,628
|
|
|
|
(152
|
)
|
Accrued investment income
|
|
|
|
|
|
|
4,341
|
|
|
|
(11
|
)
|
Premiums, reinsurance and other receivables
|
|
|
|
|
|
|
3,314
|
|
|
|
(9
|
)
|
Other assets
|
|
|
|
|
|
|
501
|
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
|
|
|
|
|
|
|
$
|
(9,462
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder account balances
|
|
|
|
|
|
$
|
158,635
|
|
|
$
|
3,478
|
|
Bank deposits
|
|
|
|
|
|
|
10,078
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
22,962
|
|
|
|
118
|
|
Payable for collateral under securities loaned and other
transactions
|
|
|
|
|
|
|
30,079
|
|
|
|
3
|
|
Other liabilities
|
|
|
|
|
|
|
2,962
|
|
|
|
28
|
|
Net embedded derivatives within liability host contracts (2)
|
|
|
|
|
|
|
2,285
|
|
|
|
449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
|
|
|
|
|
|
|
$
|
4,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
69,893
|
|
|
$
|
1,763
|
|
|
$
|
(11
|
)
|
Interest rate floors
|
|
$
|
23,866
|
|
|
|
545
|
|
|
|
|
|
Interest rate caps
|
|
$
|
37,726
|
|
|
|
189
|
|
|
|
|
|
Interest rate futures
|
|
$
|
12,770
|
|
|
|
9
|
|
|
|
(1
|
)
|
Interest rate options
|
|
$
|
16,635
|
|
|
|
137
|
|
|
|
(32
|
)
|
Interest rate forwards
|
|
$
|
8,637
|
|
|
|
(94
|
)
|
|
|
|
|
Synthetic GICs
|
|
$
|
4,392
|
|
|
|
|
|
|
|
|
|
Foreign currency swaps
|
|
$
|
17,455
|
|
|
|
13
|
|
|
|
650
|
|
Foreign currency forwards
|
|
$
|
10,038
|
|
|
|
(4
|
)
|
|
|
8
|
|
Currency futures
|
|
$
|
525
|
|
|
|
|
|
|
|
(50
|
)
|
Currency options
|
|
$
|
2,191
|
|
|
|
15
|
|
|
|
20
|
|
Credit default swaps
|
|
$
|
12,266
|
|
|
|
65
|
|
|
|
|
|
Credit forwards
|
|
$
|
121
|
|
|
|
(1
|
)
|
|
|
|
|
Equity futures
|
|
$
|
6,015
|
|
|
|
(84
|
)
|
|
|
4
|
|
Equity options
|
|
$
|
16,330
|
|
|
|
1,337
|
|
|
|
(135
|
)
|
Variance swaps
|
|
$
|
18,719
|
|
|
|
(17
|
)
|
|
|
(1
|
)
|
Total rate of return swaps
|
|
$
|
1,862
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivative Instruments
|
|
|
|
|
|
|
|
|
|
$
|
452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change
|
|
|
|
|
|
|
|
|
|
$
|
(4,934
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
203
|
|
|
(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
$919 million, or 23%, to $4,934 million at
June 30, 2011 from $4,015 million at December 31,
2010. This change was due to an increase in exchange rate risk
relating to fixed maturity securities (including trading and
other securities) of $1,257 million due to higher net
exposures primarily to the British pound, the Euro, the
Australian dollar and the Japanese Yen. This was partially
offset by an increase in the foreign exposure related to
policyholder account balances, to the use of derivatives
employed by the Company and to the long-term debt of
$223 million, $147 million and $81 million,
respectively. The remainder of the fluctuation is attributable
to numerous immaterial items.
Sensitivity Analysis: Equity Market
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, 2011 by type of asset or liability:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
|
|
|
|
|
|
|
Assuming a
|
|
|
|
|
|
|
Estimated
|
|
|
10% Decrease
|
|
|
|
Notional
|
|
|
Fair
|
|
|
in Equity
|
|
|
|
Amount
|
|
|
Value (1)
|
|
|
Prices
|
|
|
|
(In millions)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
|
|
|
$
|
3,328
|
|
|
$
|
(349
|
)
|
Other invested assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net embedded derivatives within asset host contracts (2)
|
|
|
|
|
|
|
198
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
|
|
|
|
|
|
|
$
|
(338
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder account balances
|
|
|
|
|
|
$
|
158,635
|
|
|
$
|
|
|
Bank deposits
|
|
|
|
|
|
|
10,078
|
|
|
|
|
|
Other liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net embedded derivatives within liability host contracts (2)
|
|
|
|
|
|
|
2,285
|
|
|
|
(544
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
|
|
|
|
|
|
|
$
|
(544
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
69,893
|
|
|
$
|
1,763
|
|
|
$
|
|
|
Interest rate floors
|
|
$
|
23,866
|
|
|
|
545
|
|
|
|
|
|
Interest rate caps
|
|
$
|
37,726
|
|
|
|
189
|
|
|
|
|
|
Interest rate futures
|
|
$
|
12,770
|
|
|
|
9
|
|
|
|
|
|
Interest rate options
|
|
$
|
16,635
|
|
|
|
137
|
|
|
|
|
|
Interest rate forwards
|
|
$
|
8,637
|
|
|
|
(94
|
)
|
|
|
|
|
Synthetic GICs
|
|
$
|
4,392
|
|
|
|
|
|
|
|
|
|
Foreign currency swaps
|
|
$
|
17,455
|
|
|
|
13
|
|
|
|
|
|
Foreign currency forwards
|
|
$
|
10,038
|
|
|
|
(4
|
)
|
|
|
|
|
Currency futures
|
|
$
|
525
|
|
|
|
|
|
|
|
|
|
Currency options
|
|
$
|
2,191
|
|
|
|
15
|
|
|
|
|
|
Credit default swaps
|
|
$
|
12,266
|
|
|
|
65
|
|
|
|
|
|
Credit forwards
|
|
$
|
121
|
|
|
|
(1
|
)
|
|
|
|
|
Equity futures
|
|
$
|
6,015
|
|
|
|
(84
|
)
|
|
|
391
|
|
Equity options
|
|
$
|
16,330
|
|
|
|
1,337
|
|
|
|
292
|
|
Variance swaps
|
|
$
|
18,719
|
|
|
|
(17
|
)
|
|
|
|
|
Total rate of return swaps
|
|
$
|
1,862
|
|
|
|
(1
|
)
|
|
|
188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivative Instruments
|
|
|
|
|
|
|
|
|
|
$
|
871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change
|
|
|
|
|
|
|
|
|
|
$
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
204
|
|
|
(1) |
|
Estimated fair value presented in the table above represents the
estimated fair value of all financial instruments within this
financial statement caption not necessarily those solely subject
to equity price risk. |
|
(2) |
|
Embedded derivatives are recognized in the consolidated balance
sheet in the same caption as the host contract. |
Equity price risk decreased by $3 million to
$11 million at June 30, 2011 from $14 million at
December 31, 2010. This change was attributable to numerous
insignificant 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, 2011 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 MetLife, Inc.s
Annual Report on
Form 10-K
for the year ended December 31, 2010, as amended by
MetLife, Inc.s
Form 10-K/A
dated March 1, 2011 (as amended, the 2010 Annual
Report), filed with the U.S. Securities and Exchange
Commission (SEC); (ii) Part II,
Item 1, of MetLife, Inc.s Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2011, and
(iii) Note 8 of the Notes to the Interim Condensed
Consolidated Financial Statements in Part I of this report.
Asbestos-Related
Claims
Metropolitan Life Insurance Company (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 2010 Annual Report, MLIC received
approximately 5,670 asbestos-related claims in 2010. During the
six months ended June 30, 2011 and 2010, MLIC received
approximately 2,306 and 2,076 new asbestos-related claims,
respectively. See Note 16 of the Notes to the Consolidated
Financial Statements included in the 2010 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 (U.S.),
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, 2011.
Regulatory
Matters
MetLife Bank Mortgage Servicing Regulatory and Law
Enforcement Authorities Inquiries. Since
2008, MetLife, through its affiliate, MetLife Bank, National
Association (MetLife Bank), has significantly
increased its
205
mortgage servicing activities by acquiring servicing portfolios.
Currently, MetLife Bank services approximately 1% of the
aggregate principal amount of the mortgage loans serviced in the
U.S. State and federal regulatory and law enforcement
authorities have initiated various inquiries, investigations or
examinations of alleged irregularities in the foreclosure
practices of the residential mortgage servicing industry.
Mortgage servicing practices have also been the subject of
Congressional attention. Authorities have publicly stated that
the scope of the investigations extends beyond foreclosure
documentation practices to include mortgage loan modification
and loss mitigation practices.
MetLife Banks mortgage servicing has been the subject of
recent inquiries and requests by such authorities. MetLife Bank
is cooperating with the authorities review of this
business. On April 13, 2011, the Office of the Comptroller
of the Currency (OCC) entered into consent decrees
with several banks, including MetLife Bank. The consent decrees
require an independent review of foreclosure practices and set
forth new residential mortgage servicing standards, including a
requirement for a designated point of contact for a borrower
during the loss mitigation process. In addition, the Board of
Governors of the Federal Reserve System (Federal
Reserve) entered into consent decrees with the affiliated
bank holding companies of these banks, including MetLife, Inc.,
to enhance the supervision of the mortgage servicing activities
of their banking subsidiaries. Neither of the consent decrees
includes monetary penalties. In a press release, the Federal
Reserve stated that it plans to announce monetary penalties with
respect to the consent orders. The OCC stated in its press
release that the actions do not preclude assessment of civil
money penalties, which the OCC is holding in abeyance. MetLife
Bank has also had an initial meeting with the Department of
Justice regarding mortgage servicing and foreclosure practices.
These consent decrees as well as the inquiries or investigations
referred to above could adversely affect MetLifes
reputation or result in material fines, penalties, equitable
remedies or other enforcement actions, and result in significant
legal costs in responding to governmental investigations or
other litigation. In addition, the changes to the mortgage
servicing business required by the consent decrees and the
resolution of any other inquiries or investigations may affect
the profitability of such business. The Company is unable to
estimate the reasonably possible loss or range of loss arising
from the MetLife Bank regulatory matters. Management believes
that the Companys consolidated financial statements as a
whole will not be materially affected by the MetLife Bank
regulatory matters.
Unclaimed Property Inquiries. More than 30
U.S. jurisdictions are auditing MetLife, Inc. and certain
of its affiliates for compliance with unclaimed property laws.
Additionally, MLIC and certain of its affiliates have received
subpoenas and other regulatory inquiries from certain regulators
and other officials relating to claims-payment practices and
compliance with unclaimed property laws. On July 5, 2011,
the New York Insurance Department issued a letter requiring life
insurers doing business in New York to use data available on the
U.S. Social Security Administrations Death Master
File or a similar database to identify instances where death
benefits under life insurance policies, annuities, and retained
asset accounts are payable, to locate and pay beneficiaries
under such contracts, and to report the results of the use of
the data. It is possible that other jurisdictions may pursue
similar investigations or inquiries, or issue directives similar
to the New York Insurance Departments letter. It is
possible that the audits and related activity may result in
additional payments to beneficiaries, additional escheatment of
funds deemed abandoned under state laws, administrative
penalties, and changes to the Companys procedures for the
identification and escheatment of abandoned property. The
Company is not currently able to estimate the reasonably
possible amount of any such additional payments or the
reasonably possible cost of any such changes in procedures, but
it is possible that such costs may be substantial.
Total
Control Accounts Litigation
MLIC is a defendant in lawsuits related to its use of retained
asset accounts, known as Total Control Accounts
(TCA), as a settlement option for death benefits.
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 the Employee Retirement Income Security Act of 1974
(ERISA).
Keife, et al. v. Metropolitan Life Insurance Company (D.
Nev., filed in state court on July 30, 2010 and removed to
federal court on September 7, 2010). This putative
class action lawsuit raises a breach of contract claim arising
from MLICs use of the TCA to pay life insurance benefits
under the Federal Employees Group Life Insurance
206
program. 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
September 2010, plaintiffs filed a motion for class
certification of the breach of contract claim, which the court
has stayed. On April 28, 2011, the court denied MLICs
motion to dismiss.
Other
U.S. Litigation
Merrill Haviland, et al. v. Metropolitan Life Insurance
Company (Mich. Cir. Ct., Wayne County, filed June 22,
2011). This lawsuit was filed by 45 retired
General Motors (GM) employees against MLIC and
includes claims for conversion, unjust enrichment, breach of
contract, fraud, intentional infliction of emotional distress,
fraudulent insurance acts, and unfair trade practices, based
upon GMs 2009 reduction of the employees life
insurance coverage under GMs ERISA-governed plan. The
complaint includes a count seeking class action status. MLIC is
the insurer of GMs group life insurance plan and
administers claims under the plan. According to the complaint,
MLIC had previously provided plaintiffs with a written
guarantee that their life insurance benefits under the GM
plan would not be reduced for the rest of their lives. The
Company has removed the case to federal court based upon
complete ERISA preemption of the state law claims and intends to
vigorously defend this action.
International
Litigation
Italy Fund Redemption Suspension Complaints and
Litigation. As a result of suspension of
withdrawals and diminution in value in certain funds offered
within certain unit-linked policies sold by the Italian branch
of Alico Life International, Ltd. (ALIL), a number
of policyholders invested in those funds have either commenced
or threatened litigation against ALIL, alleging
misrepresentation, inadequate disclosures and other related
claims. These policyholders contacted ALIL beginning in July
2009 alleging that the funds operated at variance to the
published prospectus and that prospectus risk disclosures were
allegedly wrong, unclear, and misleading. The limited number of
lawsuits that have been filed to date have either been resolved
or are proceeding through litigation. In March 2011, ALIL began
implementing a plan to resolve policyholder claims. Under the
plan, ALIL will provide liquidity to the suspended funds so that
policyholders may withdraw investments in these funds, and ALIL
will offer policyholders amounts in addition to the liquidation
value of the suspended funds based on the performance of other
relevant financial products. The settlement program achieved a
96% acceptance rate. Those policyholders who did not accept the
settlement may still pursue other remedies or commence
individual litigation. The formal investigation opened by the
Milan public prosecutor, into the actions of ALIL employees as
well as of employees of ALILs major distributor, has been
dismissed by the court. Under the terms of the stock purchase
agreement dated as of March 7, 2010, as amended, by and
among MetLife, Inc., AIG and AM Holdings, AIG has agreed to
indemnify MetLife, Inc. and its affiliates for third party
claims and regulatory fines associated with ALILs
suspended funds.
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. 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
207
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, together with the information under Risk
Factors in Item 8.01 of the Companys Current
Report on
Form 8-K
filed with the SEC on March 1, 2011 and Risk
Factors in Part II, Item 1A, of the
Companys Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2011, which is incorporated
herein by reference, should be read in conjunction with, and
supplements and amends, the factors that may affect the
Companys business or operations described under Risk
Factors in Part I, Item 1A, of the 2010 Annual
Report.
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 U.S. and elsewhere around the world.
Stressed conditions, volatility and disruptions in global
capital markets, particular markets, or financial asset classes
can have an adverse effect on us, in part because we have a
large investment portfolio and our insurance liabilities are
sensitive to changing market factors. Disruptions in one market
or asset class can also spread to other markets or asset
classes. Upheavals in the financial markets can also affect our
business through their effects on general levels of economic
activity, employment and customer behavior. Although the
disruption in the global financial markets has moderated, not
all global financial markets are functioning normally, and
recovery from the U.S. recession has been below historic
averages. Global inflation had fallen over the last several
years, but is now rising, and a number of central banks around
the world have begun tightening monetary conditions. The global
recession and disruption of the financial markets has led to
concerns over capital markets access and the solvency of certain
European Union member states, including Portugal, Ireland,
Italy, Greece and Spain, and of financial institutions that have
significant direct or indirect exposure to debt issued by these
countries. Certain of the major rating agencies have downgraded
the sovereign debt of Greece, Portugal and Ireland. These
ratings downgrades and implementation of European Union and
private sector support programs have increased concerns that
other European Union member states could experience similar
financial troubles. The Japanese economy, to which we face
substantial exposure given our operations there, has been
significantly negatively impacted by the March 2011 earthquake
and tsunami. Disruptions to the Japanese economy are having, and
will continue to have, negative impacts on the overall global
economy, not all of which can be foreseen. Furthermore, the
delay by Congress in raising the statutory national debt limit
could have severe repercussions to the U.S. and global
credit and financial markets, further exacerbate concerns over
sovereign debt of other countries and could disrupt economic
activity in the U.S. and elsewhere. See The
Delay by Congress in Rasing the Statutory Debt Limit of the
United States Could Have an Adverse Effect on Our Business,
Financial Condition and Results of Operations and
Managements Discussion and Analysis of Financial
Condition and Results of Operations
Investments Current Environment for further
information about support programs announced in July 2011 and
ratings actions.
Our revenues and net investment income 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
and/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 insurance products and
certain other products issued through separate accounts. 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 policy acquisition costs to accelerate
and could increase the level of insurance 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
208
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 Our
Insurance, Brokerage and Banking Businesses Are Highly
Regulated, and Changes in Regulation and in Supervisory and
Enforcement Policies May Reduce Our Profitability and Limit Our
Growth and Risk Factors 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, Risk Factors Various Aspects
of Dodd-Frank Could Impact Our Business Operations, Capital
Requirements and Profitability and Limit Our Growth, and
Risk Factors Competitive Factors May Adversely
Affect Our Market Share and Profitability in the 2010
Annual Report.
The
Delay by Congress in Raising the Statutory Debt Limit of the
United States Could Have an Adverse Effect on Our Business,
Financial Condition and Results of Operations
The delay by Congress in raising the statutory national debt
limit could have severe repercussions to the U.S. and
global credit and financial markets, further exacerbate concerns
over sovereign debt of other countries and could disrupt
economic activity in the U.S. and elsewhere. As a result,
our access to, or cost of, liquidity may deteriorate.
Furthermore, if the major rating agencies downgrade the AAA/Aaa
ratings of U.S. Treasury securities, the market value of
our investments would likely decrease, and our capital adequacy
could be adversely affected, which could require us to raise
additional capital during a period of distress in financial
markets, potentially at a higher cost. In the event of a
downgrade, the risks we face and any resulting adverse effects
on our business, financial condition and results of operations
would be significantly exacerbated, including those described
under 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 and
Risk Factors Adverse Capital and Credit Market
Conditions May Significantly Affect Our Ability to Meet
Liquidity Needs, Access to Capital and Cost of Capital,
Risk Factors Our Participation in a Securities
Lending Program Subjects Us to Potential Liquidity and Other
Risks and Risk Factors 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 in the 2010
Annual Report. We cannot predict whether or when these adverse
consequences may occur, what other unforeseen consequences may
result, or the extent, severity and duration of the impact of
such consequences on our business, results of operations and
financial condition.
Our
Insurance, Brokerage and Banking Businesses Are Highly
Regulated, and Changes in Regulation and in Supervisory and
Enforcement Policies 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 U.S. Regulation
Insurance Regulation in the 2010 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 or
operate. See Business International
Regulation in the 2010 Annual Report.
State laws in the U.S. grant insurance regulatory
authorities broad administrative powers with respect to, among
other things:
|
|
|
|
|
licensing companies and agents to transact business;
|
|
|
|
calculating the value of assets to determine compliance with
statutory requirements;
|
209
|
|
|
|
|
mandating certain insurance benefits;
|
|
|
|
regulating certain premium rates;
|
|
|
|
reviewing and approving policy forms;
|
|
|
|
regulating unfair trade and claims practices, including through
the imposition of restrictions on marketing and sales practices,
distribution arrangements and payment of inducements;
|
|
|
|
regulating advertising;
|
|
|
|
protecting privacy;
|
|
|
|
establishing statutory capital and reserve requirements and
solvency standards;
|
|
|
|
fixing maximum interest rates on insurance policy loans and
minimum rates for guaranteed crediting rates on life insurance
policies and annuity contracts;
|
|
|
|
approving changes in control of insurance companies;
|
|
|
|
restricting the payment of dividends and other transactions
between affiliates; and
|
|
|
|
regulating the types, amounts and valuation of investments.
|
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
U.S. Regulation Insurance
Regulation Guaranty Associations and Similar
Arrangements in the 2010 Annual Report.
State insurance regulators and the National Association of
Insurance Commissioners regularly re-examine existing laws and
regulations applicable to insurance companies and their
products. Changes in these laws and regulations, or in
interpretations thereof, that are made for the benefit of the
consumer sometimes lead to additional expense for the insurer
and, thus, could have a material adverse effect on our financial
condition and results of operations.
Currently, the U.S. federal government does not directly
regulate the business of insurance. However, the Dodd-Frank Wall
Street Reform and Consumer Protection Act
(Dodd-Frank) allows federal regulators to compel
state insurance regulators to liquidate an insolvent insurer
under some circumstances if the state regulators have not acted
within a specific period. It also establishes the Federal
Insurance Office which has the authority to participate in the
negotiations of international insurance agreements with foreign
regulators for the U.S., as well as to collect information about
the insurance industry and recommend prudential standards.
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. 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 Risk Factors Various Aspects of
Dodd-Frank Could Impact Our Business Operations, Capital
Requirements and Profitability and Limit Our Growth in the
2010 Annual Report.
As a federally chartered national banking 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 apply as
well. MetLife Bank is principally regulated by the OCC, the
Federal Reserve and the Federal Deposit Insurance Corporation
(FDIC).
Federal banking laws and regulations address various aspects of
MetLife Banks business and operations with respect to,
among other things:
|
|
|
|
|
chartering to carry on business as a bank;
|
210
|
|
|
|
|
the permissibility of certain activities;
|
|
|
|
maintaining minimum capital ratios;
|
|
|
|
capital management in relation to the banks assets;
|
|
|
|
dividend payments;
|
|
|
|
safety and soundness standards;
|
|
|
|
loan loss and other related liabilities;
|
|
|
|
liquidity;
|
|
|
|
financial reporting and disclosure standards;
|
|
|
|
counterparty credit concentration;
|
|
|
|
restrictions on related party and affiliate transactions;
|
|
|
|
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);
|
|
|
|
payment of interest;
|
|
|
|
unfair or deceptive acts or practices;
|
|
|
|
mortgage servicing practices;
|
|
|
|
privacy; and
|
|
|
|
relationships with MetLife, Inc. in its capacity as a bank
holding company and potentially with other investors in
connection with a change in control of MetLife Bank.
|
Federal 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.
Since 2008, MetLife, through MetLife Bank, has significantly
increased its mortgage servicing activities by acquiring
servicing portfolios. Currently, MetLife Bank services
approximately 1% of the aggregate principal amount of the
mortgage loans serviced in the United States.
State and federal regulatory and law enforcement authorities
have initiated various inquiries, investigations or examinations
of alleged irregularities in the foreclosure practices of the
residential mortgage servicing industry. Mortgage servicing
practices have also been the subject of Congressional attention.
Authorities have publicly stated that the scope of the
investigations extends beyond foreclosure documentation
practices to include mortgage loan modification and loss
mitigation practices.
MetLife Banks mortgage servicing has been the subject of
recent inquiries and requests by such authorities. MetLife Bank
is cooperating with the authorities review of this
business. On April 13, 2011, the OCC entered into consent
decrees with several banks, including MetLife Bank. The consent
decrees require an independent review of foreclosure practices
and set forth new residential mortgage servicing standards,
including a requirement for a designated point of contact for a
borrower during the loss mitigation process. In addition, the
Federal Reserve entered into consent decrees with the affiliated
bank holding companies of these banks, including MetLife, Inc.,
to enhance the supervision of the mortgage servicing activities
of their banking subsidiaries. Neither of the consent decrees
includes monetary penalties. In a press release, the Federal
Reserve stated that it plans to announce monetary penalties with
respect to the consent orders. The OCC stated in its press
release that the actions do not preclude assessment of civil
monetary penalties, which the OCC is holding in abeyance. It is
also possible that additional state or federal authorities may
pursue similar investigations or make related inquiries. MetLife
Bank has also had an initial meeting with the Department of
Justice regarding mortgage servicing and foreclosure practices.
211
These consent decrees, inquiries or investigations could
adversely affect MetLifes reputation or result in material
fines, penalties, equitable remedies or other enforcement
actions, and result in significant legal costs in responding to
governmental investigations or other litigation. MetLife cannot
predict the outcome of any such actions or reviews. In addition,
the changes to the mortgage servicing business required by the
consent decrees and the resolution of any other inquiries or
investigations either specifically with respect to MetLife Bank
or the mortgage servicing industry in general may affect the
profitability of such business. See Managements
Discussion and Analysis of Financial Condition and Results of
Operations Industry Trends.
In addition, Dodd-Frank establishes a new Bureau of Consumer
Financial Protection that supervises and regulates institutions
providing certain financial products and services to consumers.
Although the consumer financial services to which this
legislation applies exclude insurance business of the kind in
which we engage, the new Bureau has authority to regulate
consumer services provided by MetLife Bank and non-insurance
consumer services provided elsewhere throughout MetLife.
Dodd-Frank established a statutory standard for Federal
preemption of state consumer financial protection laws, which
standard will require national banks to comply with many state
consumer financial protection laws that previously were
considered preempted by Federal law. The scope of this new
standard is currently the matter of some dispute between the
Comptroller of the Currency and some state attorneys general. As
a result of the new standard, whatever its scope is finally
determined to be, the regulatory and compliance burden on
MetLife Bank is likely to increase 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.
Dodd-Frank also 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. See
Business U.S. Regulation
Banking Regulation and Risk Factors
Changes in U.S. Federal and State Securities Laws and
Regulations, and State Insurance Regulations Regarding
Suitability of Annuity Product Sales, May Affect Our Operations
and Our Profitability in the 2010 Annual Report.
In December 2010, the Basel Committee on Banking Supervision
published capital standards referred to as Basel III
for banks and bank holding companies, such as MetLife, Inc.
Assuming regulators in the U.S. implement Basel III, it
will require banks and bank holding companies to hold greater
amounts of capital, to comply with requirements for short-term
liquidity and to reduce reliance on short-term funding sources.
See Business U.S. Regulation
Financial Holding Company Regulation Capital
in the 2010 Annual Report and Managements Discussion
and Analysis of Financial Condition and Results of
Operations Industry Trends Financial and
Economic Environment. It is not clear how these new
requirements will compare to the enhanced prudential standards
that may apply to us under Dodd-Frank. See Risk
Factors Various Aspects of Dodd-Frank Could Impact
Our Business Operations, Capital Requirements and Profitability
and Limit Our Growth in the 2010 Annual Report.
As a bank holding company, MetLife, Inc. may be restricted in
its ability to pay dividends, repurchase common stock or other
securities or engage in other transactions that could affect its
capital or need for capital. The Federal Reserve Board or the
Federal Reserve Bank of New York will need to approve our
capital plans and any material changes to them in connection
with such activities. The ability of MetLife Bank and MetLife,
Inc. to pay dividends could also be restricted by any additional
capital requirements that might be imposed as a result of the
enactment of Dodd-Frank
and/or the
implementation by the U.S. banking regulators of Basel III.
In addition, as required by Dodd-Frank, effective July 21,
2011, 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, as well as their depository institution(s).
If we are unable to meet these standards, we could be subject to
activity restrictions, ultimately be required to divest certain
operations and be restricted in our ability to pay dividends or
repurchase common stock. We determine our consolidated
risk-based capital ratios, as so defined, as of the end of each
calendar quarter. As of June 30, 2011, our total risk-based
capital ratio was 9.19% and our Tier 1 risk-based capital
ratio was 8.89%. See Risk Factors Various
Aspects of Dodd-Frank Could Impact Our Business Operations,
Capital Requirements and Profitability and Limit Our
Growth in the 2010 Annual Report. MetLife, Inc. is
exploring the sale of MetLife Banks depository business,
but plans to
212
continue offering residential mortgage loans through a nonbank
entity. This sale, if completed, and the associated
relinquishment of MetLife Banks charter, would end
MetLife, Inc.s status 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 assessments for banks with
assets of $10.0 billion or more, which includes MetLife
Bank.
Our international operations are subject to regulation in the
jurisdictions in which they operate, as described further under
Business International Regulation in the
2010 Annual Report. A significant portion of our revenues are
generated through operations in foreign jurisdictions, including
many countries in early stages of economic and political
development. Our international operations may be materially
adversely affected by foreign authorities and regulators, such
as through nationalization or expropriation of assets, the
imposition of limits on foreign ownership, changes in laws or
their interpretation or application, political instability,
dividend limitations, price controls, currency 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 to U.S. dollars or
other currencies, as well as adverse actions by foreign
governmental authorities and regulators. This may also impact
many of our customers and independent sales intermediaries.
Changes in the regulations that affect their operations also may
affect our business relationships with them and their ability to
purchase or distribute our products. Accordingly, these changes
could have a material adverse effect on our financial condition
and results of operations.
Our international operations are subject to local laws and
regulations, and we expect the scope and extent of regulation
outside of the U.S., as well as regulatory oversight, generally
to continue to increase. The authority of our international
operations to conduct business is subject to licensing
requirements, permits and approvals, and these authorizations
are subject to modification and revocation. The regulatory
environment in the countries in which we operate and changes in
laws could have a material adverse effect on us and our foreign
operations. See Risk Factors 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 and Business International
Regulation in the 2010 Annual Report.
Furthermore, the increase in our international operations as a
result of the Acquisition may also subject us to increased
supervision by the Federal Reserve Board, since the size of a
bank holding companys foreign activities is taken as an
indication of the holding companys complexity. It may also
have an effect on the manner in which MetLife, Inc. is required
to calculate its risk-based capital.
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 regulated 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 U.S. Regulation and
Business International Regulation in the
2010 Annual Report.
The
Resolution of Several Issues Affecting the Financial Services
Industry Could Have a Negative Impact on Our Reported Results or
on Our Relations with Current and Potential
Customers
We will continue to be subject to legal and regulatory actions
in the ordinary course of our business, both in the
U.S. and internationally. This could result in a challenge
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 addition,
regulators are auditing
213
compliance by life insurers with state unclaimed property laws.
See Litigation and Regulatory Investigations
Are Increasingly Common in Our Businesses and May Result in
Significant Financial Losses
and/or Harm
to Our Reputation.
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 MetLife 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.
We Are
Exposed to Significant Financial and Capital Markets Risk Which
May Adversely Affect Our Results of Operations, Financial
Condition and Liquidity, and May Cause Our Net Investment Income
to 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 global economy
in general, the performance of the specific obligors, including
governments, 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. Changes in interest rates will impact the net
unrealized gain or loss position of our fixed income investment
portfolio. If long-term interest rates rise dramatically within
a six to twelve month time period, certain of our life insurance
businesses and fixed annuity business 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. Changes in interest rates will impact both the net
unrealized gain or loss position of our fixed income portfolio
and the rates of return we receive on funds invested. Our
mitigation efforts with respect to interest rate risk are
primarily focused towards maintaining an investment portfolio
with diversified maturities that has a weighted average duration
that is approximately equal to the duration of our estimated
liability cash flow profile. However, our estimate of the
liability cash flow profile may be inaccurate and we may be
forced to liquidate fixed income investments prior to maturity
at a loss in order to cover the cash flow profile of 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
volatility and cash flow variability associated with changes in
credit spreads. A widening of credit spreads will adversely
impact both the net unrealized gain or 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 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 changed
to a lesser extent 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
214
pricing transparency which, individually or in tandem, could
have a material adverse effect on our 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. Downturns and
volatility in equity markets can have a material adverse effect
on the revenues and investment 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 variable 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 variable
annuity products offer guaranteed benefits which increase our
potential benefit exposure should equity markets decline.
MetLife, Inc. uses derivatives and reinsurance 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 public and private 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 leasable commercial 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 results of operations, financial condition,
liquidity or cash flows through net investment income, realized
investment losses and levels of valuation allowances.
Our investment portfolio contains investments in government
bonds issued by European nations, commonly referred to as
Europes perimeter region and in financial
institutions that have significant direct or indirect exposure
to debt issued by those 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 lead
to troubles in others. In particular, a number of large European
banks hold significant amounts of sovereign
and/or
financial institution debt of other European nations and could
experience difficulties as a result of defaults or declines in
the value of such debt. These difficulties or concern that they
may occur could disrupt the functioning of the financial
markets. Our investment portfolio also contains investments in
revenue bonds issued under the auspices of U.S. states and
municipalities and a limited amount of general obligation bonds
of U.S. states and municipalities (collectively,
Municipal Bonds). Recently, certain U.S. states
and municipalities have faced budget deficits and financial
difficulties. There can be no assurance that the financial
difficulties of such U.S. states and municipalities would
not have an adverse impact on our Municipal Bond portfolio.
Our primary foreign currency exchange risks are described under
Risk Factors Fluctuations in Foreign Currency
Exchange Rates Could Negatively Affect Our Profitability
in the 2010 Annual Report. 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, many of which
make private equity investments. The amount and timing of net
investment income from such
215
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. Recovering private equity markets and
stabilizing credit and real estate markets during 2010 had a
positive impact on returns and net investment income on private
equity funds, hedge funds and real estate joint ventures, which
are included within other limited partnership interests and real
estate and real estate joint venture portfolios. Although
volatility in most global financial markets has moderated, if
there is a resumption of significant volatility, it could
adversely impact returns and net investment income on these
alternative investment classes.
Continuing challenges include continued weakness in the
U.S. real estate market, investor anxiety over the
U.S. and European economies, defaults or declines in the
value of sovereign or financial institution debt, 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, sustained high levels of
unemployment and the continuing recovery 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 results
of operations, financial condition, liquidity or cash flows
through realized investment losses, impairments, increased
valuation allowances and changes in unrealized gain or 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 value of
business acquired (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. During periods of sustained lower interest rates,
policy liabilities may not be sufficient to meet future policy
obligations and may need to be strengthened. Accordingly,
declining interest rates may materially affect our results of
operations, financial position and cash flows and significantly
reduce our profitability. We recognize that a low interest rate
environment will adversely affect our earnings, but we do not
believe any such impact will be material in 2011.
The sufficiency of our life insurance statutory reserves in
Taiwan is highly sensitive to interest rates and other related
assumptions. This is due to the sustained low interest rate
environment in Taiwan coupled with long-term interest rate
guarantees of approximately 6% embedded in the life and health
contracts sold prior to 2003 and the lack of availability of
long-duration investments in the Taiwanese capital markets to
match such long-duration liabilities. The key assumptions
include current Taiwan government bond yield rates increasing
approximately 1%
216
from current levels over the next ten years, lapse rates,
mortality and morbidity levels remaining consistent with recent
experience, and U.S. dollar-denominated investments making
up to 35% of total assets backing life insurance statutory
reserves. Current reserve adequacy analysis shows that
provisions are adequate; however, adverse changes in key
assumptions for interest rates, lapse experience and mortality
and morbidity levels could lead to a need to strengthen reserves.
Increases in market interest rates could also negatively affect
our profitability. In periods of rapidly increasing interest
rates, we may not be able to replace, in a timely manner, the
investments in 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 and may also cause us to accelerate negative VOBA,
which increases 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.
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
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 gains and gross unrealized losses on fixed
maturity and equity securities available for sale at
June 30, 2011 were $16.4 billion and
$5.5 billion, respectively. The portion of the
$5.5 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 $1.3 billion at
June 30, 2011. 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
Impairment of Other Financial Institutions Could Adversely
Affect Us
We have exposure to many different industries and
counterparties, and routinely execute transactions with
counterparties in the financial services industry, including
brokers and dealers, commercial banks, investment banks, hedge
funds and other investment funds and other institutions. Many of
these transactions expose us to credit risk in the event of
default of our counterparty. In addition, with respect to
secured transactions, our credit risk may be exacerbated when
the collateral held by us cannot be realized or is liquidated at
prices not sufficient to recover the full amount of the loan or
derivative exposure due to us. We also have exposure to these
financial institutions in the form of unsecured debt
instruments, non-redeemable and redeemable preferred securities,
derivative transactions, 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, or lack of action by
European Union member governments and central banks, 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.
217
There
Can Be No Assurance That Any Incremental Tax Benefit Will Result
From the Elections Under Section 338 of the
Code
MetLife, Inc. has made Section 338 Elections with respect
to ALICO and certain of its subsidiaries, and MetLife, Inc.
believes that ALICO and such subsidiaries should have additional
amortizable basis in their assets for U.S. tax purposes as
a result of such elections. No assurance can be given, however,
as to the incremental tax benefit, if any, that will result from
any such elections.
A
Downgrade or a Potential Downgrade in Our Financial Strength or
Credit Ratings Could Result in a Loss of Business and Materially
Adversely Affect Our Financial Condition and Results of
Operations
Financial strength ratings, which various Nationally Recognized
Statistical Rating Organizations (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:
|
|
|
|
|
reducing new sales of insurance products, annuities and other
investment products;
|
|
|
|
adversely affecting our relationships with our sales force and
independent sales intermediaries;
|
|
|
|
materially increasing the number or amount of policy surrenders
and withdrawals by contractholders and policyholders;
|
|
|
|
requiring us to reduce prices for many of our products and
services to remain competitive; and
|
|
|
|
adversely affecting our ability to obtain reinsurance at
reasonable prices or at all.
|
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 $93 million at
June 30, 2011. Also, at June 30, 2011,
$292 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.
218
Based on the announcement in February 2010 that MetLife was in
discussions to acquire ALICO, in February 2010, S&P and
A.M. Best placed the ratings of MetLife, Inc. and its
subsidiaries on CreditWatch with negative
implications and under review with negative
implications, respectively. Also in connection with the
announcement, in March 2010, Moodys changed the ratings
outlook of MetLife, Inc. and its subsidiaries from
stable to negative outlook. Upon
completion of the public financing transactions related to the
Acquisition, in August 2010, S&P affirmed the ratings of
MetLife, Inc. and subsidiaries with a negative
outlook, and removed them from CreditWatch. On
November 1, 2010, upon closing of the Acquisition, S&P
changed the rating outlook of American Life to
positive from negative and affirmed its
financial strength rating; the ratings of MetLife, Inc. and its
other subsidiaries were unaffected by this ratings action. Also
on November 1, 2010, Fitch Ratings upgraded by one notch
(and changed the rating outlook from Rating Watch
Positive to stable) the financial strength
rating of American Life and affirmed all existing ratings for
MetLife, Inc. and its other subsidiaries. On November 4,
2010, A.M. Best upgraded by one notch the financial
strength rating of American Life and changed the rating outlook
from under review with positive implications to
negative. A.M. Best also changed the outlook
for MetLife, Inc. and certain of its other subsidiaries to
negative from under review with negative
implications. Effective as of January in 2011, MetLife
withdrew the American Life financial strength ratings by
A.M. Best and Fitch Ratings as once it became a subsidiary
of MetLife it was not deemed necessary to maintain stand-alone
ratings.
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. As of
June 30, 2011, we have approximately $8.3 billion of
Hybrids outstanding, which includes approximately
$6.2 billion of debt securities and $2.1 billion of
equity securities. Application of the Guidance has resulted in
Moodys significantly reducing the amount of equity credit
it assigns to these securities, including the common equity
units originally issued to AM Holdings in connection with the
Acquisition. We do not expect at this time, as a result of the
Guidance, that a reduction in Moodys equity treatment of
our Hybrids, including the common 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 (to the extent permissible under
Dodd-Frank (see Our Insurance, Brokerage and
Banking Businesses Are Highly Regulated, and Changes in
Regulation and in Supervisory and Enforcement Policies May
Reduce Our Profitability and Limit Our Growth) additional
common equity or higher equity content Hybrids satisfying the
Guidances revised rating criteria,
and/or
(ii) redeem, repurchase or restructure existing Hybrids, to
the extent permitted by their terms and by the terms of any
applicable replacement capital covenants into which MetLife,
Inc. has entered. Any sale of additional common equity would
have a dilutive effect on our common stockholders.
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.
Catastrophes
May Adversely Impact Liabilities for Policyholder Claims and
Reinsurance Availability
Our insurance operations are exposed to the risk of catastrophic
events. 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, hurricanes,
earthquakes, tsunamis 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 issuers of obligations we hold in our
investment portfolio, resulting in impairments to these
obligations, and the financial condition of our reinsurers and
thereby increase the probability of default on reinsurance
recoveries. Large scale catastrophes may also reduce
219
the overall level of economic activity in affected countries
which could hurt our business and the value of our investments.
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.
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 hurricanes, windstorms, earthquakes, hail,
tornados, 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 U.S. (including lower
New York, Connecticut, Rhode Island and Massachusetts), the Gulf
Coast (including Alabama, Mississippi, Louisiana and Texas) and
Florida. We also have some earthquake exposure, primarily along
the New Madrid fault line in the central U.S. and in the
Pacific Northwest.
Most of the jurisdictions in which our U.S. insurance
subsidiaries are admitted to transact business require life and
property and casualty insurers doing business within the
jurisdiction to participate in guaranty associations, which are
organized to pay 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 U.S. Regulation
Insurance Regulation Guaranty Associations and
Similar Arrangements and Business
International Regulation in the 2010 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
220
insolvency proceedings, but additional liabilities may be
necessary. See Note 16 of the Notes to the Consolidated
Financial Statements included in the 2010 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 Risk Factors Reinsurance May Not Be
Available, Affordable or Adequate to Protect Us Against
Losses in the 2010 Annual Report.
Litigation
and Regulatory Investigations Are Increasingly Common in Our
Businesses and May Result in Significant Financial Losses and/or
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. Modern pleading practice in the
U.S. permits considerable variation in the assertion of
money damages or other relief. 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, demonstrates to management that the monetary
relief which may be specified in a lawsuit or claim bears little
relevance to its merits or disposition value. 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 normally be difficult to ascertain.
Uncertainties can include how fact finders will evaluate
documentary evidence and the credibility and effectiveness of
witness 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.
The Company establishes liabilities for litigation and
regulatory loss contingencies 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, 2011.
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,
221
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 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
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. 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 our total exposure to
asbestos claims may be materially greater than the liability
recorded by us in our consolidated financial statements and that
future charges to income may be necessary. The potential future
charges could be material in the particular quarterly or annual
periods in which they are recorded.
We are also subject to various regulatory inquiries, such as
information requests, subpoenas and books and record
examinations, from state and federal regulators and other
authorities. A substantial legal liability or a significant
regulatory action against us could have a material adverse
effect on our business, financial condition and results of
operations. Moreover, even if we ultimately prevail in the
litigation, regulatory action or investigation, we could suffer
significant reputational harm, which could have a material
adverse effect on our business, financial condition and results
of operations, including our ability to attract new customers,
retain our current customers and recruit and retain employees.
Regulatory inquiries and litigation may cause volatility in the
price of stocks of companies in our industry.
More than 30 U.S. jurisdictions are auditing MetLife, Inc.
and certain of its affiliates for compliance with unclaimed
property laws. Additionally, MLIC and certain of its affiliates
have received subpoenas and other regulatory inquiries from
certain regulators and other officials relating to
claims-payment practices and compliance with unclaimed property
laws. On July 5, 2011, the New York Insurance Department
issued a letter requiring life insurers doing business in New
York to use data available on the U.S. Social Security
Administrations Death Master File or a similar database to
identify instances where death benefits under life insurance
policies, annuities, and retained-asset accounts are payable, to
locate and pay beneficiaries under such contracts, and to report
the results of the use of the data. It is possible that other
jurisdictions may pursue similar investigations or inquiries, or
issue directives similar to the New York Insurance
Departments letter. It is possible that the audits and
related activity may result in additional payments to
beneficiaries, additional escheatment of funds deemed abandoned
under state laws, administrative penalties, and changes to the
Companys procedures for the identification and escheatment
of abandoned property. The Company is not currently able to
estimate the reasonably possible amount of any such additional
payments or the reasonably possible cost of any such changes in
procedures, but it is possible that such costs may be
substantial.
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.
222
|
|
Item 2.
|
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, 2011 are
set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c) Total Number
|
|
(d) Maximum Number
|
|
|
|
|
|
|
of Shares
|
|
(or Approximate
|
|
|
|
|
|
|
Purchased as Part
|
|
Dollar Value) of
|
|
|
(a) Total Number
|
|
|
|
of Publicly
|
|
Shares that May Yet
|
|
|
of Shares
|
|
(b) Average Price
|
|
Announced Plans
|
|
Be Purchased Under the
|
Period
|
|
Purchased (1)
|
|
Paid per Share
|
|
or Programs
|
|
Plans or Programs (2)
|
|
April 1 April 30, 2011
|
|
|
2,729
|
|
|
$
|
46.10
|
|
|
|
|
|
|
$
|
1,260,735,127
|
|
May 1 May 31, 2011
|
|
|
1,188
|
|
|
$
|
44.63
|
|
|
|
|
|
|
$
|
1,260,735,127
|
|
June 1 June 30, 2011
|
|
|
11,744
|
|
|
$
|
40.78
|
|
|
|
|
|
|
$
|
1,260,735,127
|
|
|
|
|
(1) |
|
During the periods April 1 through April 30, 2011,
May 1 through May 31, 2011, and June 1 through
June 30, 2011, separate account and other affiliates of the
Company purchased 2,729 shares, 1,188 shares and
11,744 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, 2011, the Company had $1,261 million
remaining under its common stock repurchase program
authorizations. In April 2008, the Companys Board of
Directors authorized an additional $1.0 billion common
stock repurchase program, which will begin after the completion
of the January 2008 $1.0 billion common stock repurchase
program, of which $261 million remained outstanding at
June 30, 2011. 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. Any future common stock repurchases will be
dependent upon several factors, including the Companys
capital position, its liquidity, its financial strength and
credit ratings, general market conditions and the market price
of MetLife, Inc.s common stock compared to
managements assessment of the stocks underlying
value and applicable regulatory, legal and accounting factors. |
223
(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 affiliates, 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., its subsidiaries and
affiliates 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
|
|
Agreement, effective as of May 9, 2011, by and between
Kathleen A. Henkel 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.
|
224
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
|
|
|
|
Title:
|
Executive Vice President, Finance
|
Operations and Chief Accounting Officer
(Authorized Signatory and Principal
Accounting Officer)
Date: August 5, 2011
225
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 affiliates, 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., its subsidiaries and
affiliates 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
|
|
Agreement, effective as of May 9, 2011, by and between
Kathleen A. Henkel 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