0000937834mlic:BMember2024-03-31
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________
Form 10-Q
(Mark One)
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| ☑ | |
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2017MARCH 31, 2024
or
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| ☐ | |
¨ | 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: 000-55029
________________________________________ Metropolitan Life Insurance Company
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | | | | | | | |
| New York | | 13-5581829 |
| | |
New York | | 13-5581829 |
(State or other jurisdiction of
incorporation or organization)
| | (I.R.S. Employer
Identification No.)
|
| | | | |
| 200 Park Avenue, | New York, N.Y. | NY | | 10166-0188 |
| (Address of principal executive offices) | | (Zip Code) |
(212) 578-9500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| None | N/A | N/A |
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 ¨☐
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 ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | |
| | | |
| Large accelerated filer | ¨
☐ | Accelerated filer | ¨
☐ |
Non-accelerated filer (Do not check if a smaller reporting company) | þ☑ | Smaller reporting company | ¨
☐ |
| | Emerging growth company | ¨
☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No þ☑
At November 8, 2017,May 7, 2024, 494,466,664 shares of the registrant’s common stock $0.01 par value per share, were outstanding, all of which were owned directly by MetLife, Inc.
REDUCED DISCLOSURE FORMAT
The registrant meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is, therefore, filing this Form 10-Q with the reduced disclosure format.
Table of Contents
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| Item 1. | Financial Statements (Unaudited) (at September 30, 2017 (Unaudited)March 31, 2024 and December 31, 20162023 and for the Three Months Ended March 31, 2024 and Nine Months Ended September 30, 2017 and 2016 (Unaudited))2023) | |
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| Item 1A. | | |
Item 6. 5. | | |
| Item 6. | | |
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As used in this Form 10-Q, “MLIC,” the “Company,” “we,” “our” and “us” refer to Metropolitan Life Insurance Company, a New York corporation incorporated in 1868, and its subsidiaries. Metropolitan Life Insurance Company is a wholly-owned subsidiary of MetLife, Inc. (MetLife, Inc., together with its subsidiaries and affiliates, “MetLife”).
Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q,10‑Q, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, may contain or incorporate by reference information that includes or is based upon forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements give expectations or forecasts of future events. These statements can be identified by the fact that theyevents and do not relate strictly to historical or current facts. They use words and terms such as “anticipate,” “are confident,” “assume,” “believe,” “continue,” “could,” “estimate,” “expect,” “project,“if,” “intend,” “likely,” “may,” “plan,” “believe”“potential,” “project,” “should,” “will,” “would” and other words and terms of similar meaning or that are otherwise tied to future periods or future performance, in connection with a discussion of future operating or financial performance. In particular, theseeach case in all derivative forms. They include statements relating to future actions, prospective services or products, future performance or results of current and anticipated services or products, future sales efforts, future expenses, the outcome of contingencies such as legal proceedings, and future 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 unknownMany factors determine Company results, and they involve unpredictable risks and uncertainties. Many such factors will be important in determining the actual future results of MLIC. TheseOur forward-looking statements are baseddepend on currentour assumptions, our expectations, and our understanding of the current economic environment. They involve a number of risksenvironment, but they may be inaccurate and uncertainties that are difficult to predict. These statements aremay change. We do not guarantees ofguarantee any future performance. ActualOur results could differ materially from those expressedwe express or impliedimply in the forward-looking statements. Risks, uncertainties, and other factors that might cause such differences include theThe risks, uncertainties and other factors identified in Metropolitan Life Insurance Company'sCompany’s filings with the U.S. Securities and Exchange Commission.Commission, and others, may cause such differences. These factors include:
(1) difficult conditions in the global capital markets; (2) increased volatilityeconomic condition difficulties, including risks relating to interest rates, credit spreads, declining equity or debt markets, real estate, obligors and disruption of thecounterparties, government default, derivatives, climate change and public health;
(2) global capital and credit markets, which may affect our ability to meet liquidity needs and access capital, including throughmarket adversity;
(3) credit facilities, generate market-related revenue and finance statutory reserve requirements; (3) exposure to global financial and capital market risks; facility inaccessibility;
(4) regulatory, legislative or tax changes relating to our insurance or other operations that may affect the cost of, or demand for, our products or services; (5) adverse results or other consequences from litigation, arbitration or regulatory investigations; (6) impact on us of comprehensive financial services regulation reform, including potential regulation of MetLife, Inc. as a non-bank systemically important financial institution, or otherwise; (7) our ability to address difficulties, unforeseen liabilities, asset impairments, or rating agency actions arising from business acquisitions, dispositions of businesses, entry into joint ventures, or legal entity reorganizations; (8) potential liquidity and other risks resulting from our participation in a securities lending program and other transactions; (9) investment losses, and changes to investment valuations; (10) changes in assumptions related to deferred policy acquisition costs, deferred sales inducements, or value of business acquired; (11) the defaults or deteriorating credit of other financial institutions that could adversely affect us; (12) downgrades in our financial strength or credit ratings downgrades;
(5) unavailability, unaffordability, or MetLife, Inc.’sinadequate reinsurance, including reinsurance risks that arise from reinsurers’ credit ratings; (13) a deterioration inrisk, and the experience of the closed block established in connection with the reorganization of Metropolitan Life Insurance Company; (14) availability and effectiveness of reinsurance, hedging or indemnification arrangements, as well as any defaultpotential shortfall or failure of counterpartiesrisk mitigants to perform; protect against such risks;
(6) statutory life insurance reserve financing costs or limited market capacity;
(7) legal, regulatory, and supervisory and enforcement policy changes;
(8) changes in tax rates, tax laws or interpretations;
(9) litigation and regulatory investigations;
(10) unsuccessful efforts to meet all environmental, social, and governance standards or to enhance our sustainability;
(11) investment defaults, downgrades, or volatility;
(12) investment sales or lending difficulties;
(13) collateral or derivative-related payments;
(14) investment valuations, allowances, or impairments changes;
(15) differences between actual claims experienceor other results that differ from our estimates, assumptions, or models;
(16) business competition;
(17) catastrophes;
(18) climate changes or responses to it;
(19) deficiencies in our closed block;
(20) impairment of value of business acquired, value of distribution agreements acquired or value of customer relationships acquired;
(21) product guarantee volatility, costs, and underwriting and reserving assumptions; (16) ineffectivenesscounterparty risks;
(22) risk management policies and procedures; (17) exposure to losses related to variable annuity guarantee benefits, includingfailures;
(23) insufficient protection from significant and sustained downturns or extreme volatility in equity markets, reduced interest rates, unanticipated policyholder behavior, mortality or longevity, and any adjustment for nonperformance risk; (18) changes in accounting standards, practices and/or policies; (19) the effects of business disruption or economic contraction due to disasters such as terrorist attacks, cyberattacks, other hostilities, or natural catastrophes, including any related impact on MetLife’s disaster recovery systems, cyber- or other information security systems and management continuity planning; (20) anyoperational risks;
(24) failure to protect the confidentiality and integrity of client information;data or other cybersecurity or disaster recovery failures;
(25) accounting standards changes;
(26) excessive risk-taking; and (21) other risks
(27) marketing and uncertainties described from time to time in Metropolitan Life Insurance Company's filings with the U.S. Securities and Exchange Commission.distribution difficulties.
Metropolitan Life Insurance Company does not undertake any obligation to publicly correct or update any forward-looking statement if Metropolitan Life Insurance Company later becomes aware that such statement is not likely to be achieved. Please consult any further disclosures Metropolitan Life Insurance Company makes on related subjects in subsequent reports to the U.S. Securities and Exchange Commission.
Note Regarding Reliance on Statements in Our Contracts
See “Item 6. Exhibits“Exhibits — Note Regarding Reliance on Statements in Our Contracts” for information regarding agreements included as exhibits to this Quarterly Report on Form 10-Q.
Part I — Financial Information
Item 1. Financial Statements
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Interim Condensed Consolidated Balance Sheets
September 30, 2017 (Unaudited)March 31, 2024 and December 31, 20162023 (Unaudited)
(In millions, except share and per share data)
|
| | | | | | | | |
| | | September 30, 2017 | | December 31, 2016 |
| Assets | | | | |
| Investments: | | | | |
| Fixed maturity securities available-for-sale, at estimated fair value (amortized cost: $160,383 and $155,141, respectively) | | $ | 172,284 |
| | $ | 163,120 |
|
| Equity securities available-for-sale, at estimated fair value (cost: $1,712 and $1,785, respectively) | | 1,791 |
| | 1,839 |
|
| Mortgage loans (net of valuation allowances of $272 and $267, respectively; includes $564 and $566, respectively, under the fair value option) | | 58,054 |
| | 56,560 |
|
| Policy loans | | 5,985 |
| | 5,945 |
|
| Real estate and real estate joint ventures (includes $1,102 and $1,124, respectively, relating to variable interest entities; includes $61 and $56, respectively, of real estate held-for-sale) | | 6,657 |
| | 6,386 |
|
| Other limited partnership interests (includes $0 and $14, respectively, relating to variable interest entities) | | 3,893 |
| | 3,725 |
|
| Short-term investments, principally at estimated fair value | | 4,682 |
| | 4,690 |
|
| Other invested assets (includes $140 and $39, respectively, relating to variable interest entities) | | 15,335 |
| | 17,255 |
|
| Total investments | | 268,681 |
| | 259,520 |
|
| Cash and cash equivalents, principally at estimated fair value (includes $9 and $0, respectively, relating to variable interest entities) | | 4,323 |
| | 5,714 |
|
| Accrued investment income | | 2,228 |
| | 2,019 |
|
| Premiums, reinsurance and other receivables (includes $3 and $6, respectively, relating to variable interest entities) | | 22,148 |
| | 22,383 |
|
| Deferred policy acquisition costs and value of business acquired | | 4,492 |
| | 4,743 |
|
| Other assets (includes $3 and $3, respectively, relating to variable interest entities) | | 4,514 |
| | 4,346 |
|
| Separate account assets | | 132,670 |
| | 133,836 |
|
| Total assets | | $ | 439,056 |
| | $ | 432,561 |
|
| Liabilities and Equity | | | | |
| Liabilities | | | | |
| Future policy benefits | | $ | 118,726 |
| | $ | 115,556 |
|
| Policyholder account balances | | 94,175 |
| | 92,466 |
|
| Other policy-related balances | | 6,607 |
| | 6,731 |
|
| Policyholder dividends payable | | 551 |
| | 510 |
|
| Policyholder dividend obligation | | 2,201 |
| | 1,931 |
|
| Payables for collateral under securities loaned and other transactions | | 21,839 |
| | 20,815 |
|
| Short-term debt | | 100 |
| | 100 |
|
| Long-term debt (includes $6 and $12, respectively, at estimated fair value, relating to variable interest entities) | | 1,679 |
| | 1,589 |
|
| Current income tax payable | | 236 |
| | 50 |
|
| Deferred income tax liability | | 2,738 |
| | 2,503 |
|
| Other liabilities | | 28,976 |
| | 29,497 |
|
| Separate account liabilities | | 132,670 |
| | 133,836 |
|
| Total liabilities | | 410,498 |
| | 405,584 |
|
| Contingencies, Commitments and Guarantees (Note 11) | |
| |
|
| Equity | | | | |
| Metropolitan Life Insurance Company stockholder’s equity: | | | | |
| Common stock, par value $0.01 per share; 1,000,000,000 shares authorized; 494,466,664 shares issued and outstanding | | 5 |
| | 5 |
|
| Additional paid-in capital | | 14,149 |
| | 14,413 |
|
| Retained earnings | | 9,184 |
| | 9,250 |
|
| Accumulated other comprehensive income (loss) | | 5,041 |
| | 3,119 |
|
| Total Metropolitan Life Insurance Company stockholder’s equity | | 28,379 |
| | 26,787 |
|
| Noncontrolling interests | | 179 |
| | 190 |
|
| Total equity | | 28,558 |
| | 26,977 |
|
| Total liabilities and equity | | $ | 439,056 |
| | $ | 432,561 |
|
| | | | | | | | | | | | | | |
| | March 31, 2024 | | December 31, 2023 |
| Assets | | | | |
| Investments: | | | | |
| Fixed maturity securities available-for-sale, at estimated fair value (net of allowance for credit loss of $66 and $132, respectively); and amortized cost: $153,315 and $152,080, respectively | | $ | 142,218 | | | $ | 142,805 | |
Mortgage loans (net of allowance for credit loss of $569 and $509, respectively; includes $187 and $166, respectively, relating to variable interest entities) | | 61,855 | | | 62,584 | |
| Policy loans | | 5,738 | | | 5,671 | |
| Real estate and real estate joint ventures (includes $1,355 and $1,427, respectively, relating to variable interest entities, $328 and $317, respectively, under the fair value option) | | 8,648 | | | 8,690 | |
| Other limited partnership interests | | 7,276 | | | 7,765 | |
| Short-term investments, at estimated fair value | | 2,004 | | | 3,048 | |
| Other invested assets (includes $780 and $805, respectively, of leveraged and direct financing leases; $117 and $117, respectively, relating to variable interest entities) | | 16,878 | | | 17,040 | |
| Total investments | | 244,617 | | | 247,603 | |
| Cash and cash equivalents, principally at estimated fair value | | 6,101 | | | 6,795 | |
| Accrued investment income | | 2,080 | | | 2,026 | |
| Premiums, reinsurance and other receivables | | 28,781 | | | 28,236 | |
| Market risk benefits, at estimated fair value | | 230 | | | 177 | |
| Deferred policy acquisition costs and value of business acquired | | 3,260 | | | 3,305 | |
| Current income tax recoverable | | — | | | 112 | |
| Deferred income tax asset | | 2,934 | | | 2,922 | |
| Other assets | | 4,333 | | | 4,312 | |
| Separate account assets | | 81,726 | | | 83,197 | |
| Total assets | | $ | 374,062 | | | $ | 378,685 | |
| Liabilities and Equity | | | | |
| Liabilities | | | | |
| Future policy benefits | | $ | 126,894 | | | $ | 129,182 | |
| Policyholder account balances | | 103,262 | | | 103,894 | |
| Market risk benefits, at estimated fair value | | 2,452 | | | 2,878 | |
| Other policy-related balances | | 8,796 | | | 8,289 | |
| Policyholder dividends payable | | 228 | | | 233 | |
| Payables for collateral under securities loaned and other transactions | | 11,628 | | | 11,790 | |
| Long-term debt | | 1,737 | | | 1,887 | |
| Current income tax payable | | 9 | | | — | |
| Other liabilities | | 24,037 | | | 23,719 | |
| Separate account liabilities | | 81,726 | | | 83,197 | |
| Total liabilities | | 360,769 | | | 365,069 | |
| Contingencies, Commitments and Guarantees (Note 15) | | | | |
| Equity | | | | |
| Metropolitan Life Insurance Company stockholder’s equity: | | | | |
| Common stock, par value $0.01 per share; 1,000,000,000 shares authorized; 494,466,664 shares issued and outstanding | | 5 | | | 5 | |
| Additional paid-in capital | | 12,475 | | | 12,475 | |
| Retained earnings | | 7,164 | | | 7,645 | |
| Accumulated other comprehensive income (loss) | | (6,728) | | | (6,872) | |
| Total Metropolitan Life Insurance Company stockholder’s equity | | 12,916 | | | 13,253 | |
| Noncontrolling interests | | 377 | | | 363 | |
| Total equity | | 13,293 | | | 13,616 | |
| Total liabilities and equity | | $ | 374,062 | | | $ | 378,685 | |
See accompanying notes to the interim condensed consolidated financial statements.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Interim Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
For the Three Months Ended March 31, 2024 and Nine Months Ended September 30, 2017 and 20162023 (Unaudited)
(In millions)
| | | | Three Months
Ended
September 30, | | Nine Months
Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | Three Months
Ended
March 31, | | | | Three Months
Ended
March 31, |
| | 2024 | | | | 2024 | | 2023 |
| Revenues | | | | | | | |
| Premiums | |
| Premiums | |
| Premiums | $ | 6,629 |
| | $ | 6,142 |
| | $ | 17,597 |
| | $ | 16,801 |
|
| Universal life and investment-type product policy fees | 556 |
| | 638 |
| | 1,706 |
| | 1,928 |
|
| Net investment income | 2,660 |
| | 2,870 |
| | 7,955 |
| | 8,349 |
|
| Other revenues | 371 |
| | 389 |
| | 1,148 |
| | 1,121 |
|
| Net investment gains (losses): | | | | | | | |
| Other-than-temporary impairments on fixed maturity securities | (6 | ) | | (4 | ) | | (7 | ) | | (66 | ) |
| Other-than-temporary impairments on fixed maturity securities transferred to other comprehensive income (loss) | 1 |
| | (5 | ) | | 1 |
| | (9 | ) |
| Other net investment gains (losses) | 101 |
| | 51 |
| | 190 |
| | 190 |
|
| Total net investment gains (losses) | 96 |
| | 42 |
| | 184 |
| | 115 |
|
| Net investment gains (losses) | |
| Net derivative gains (losses) | (26 | ) | | (205 | ) | | (317 | ) | | (562 | ) |
| Total revenues | 10,286 |
| | 9,876 |
| | 28,273 |
| | 27,752 |
|
| Expenses | | | | | | | |
| Policyholder benefits and claims | 7,317 |
| | 6,897 |
| | 19,561 |
| | 19,019 |
|
| Policyholder benefits and claims | |
| Policyholder benefits and claims | |
| Policyholder liability remeasurement (gains) losses | |
| Market risk benefit remeasurement (gains) losses | |
| Interest credited to policyholder account balances | 567 |
| | 560 |
| | 1,660 |
| | 1,675 |
|
| Policyholder dividends | 267 |
| | 302 |
| | 827 |
| | 924 |
|
| Other expenses | 1,205 |
| | 1,364 |
| | 3,808 |
| | 4,450 |
|
| Total expenses | 9,356 |
| | 9,123 |
| | 25,856 |
| | 26,068 |
|
| Income (loss) before provision for income tax | 930 |
| | 753 |
| | 2,417 |
| | 1,684 |
|
| Provision for income tax expense (benefit) | 187 |
| | 123 |
| | 475 |
| | 232 |
|
| Net income (loss) | 743 |
| | 630 |
| | 1,942 |
| | 1,452 |
|
| Less: Net income (loss) attributable to noncontrolling interests | 5 |
| | (7 | ) | | 8 |
| | (9 | ) |
| Net income (loss) attributable to Metropolitan Life Insurance Company | $ | 738 |
| | $ | 637 |
| | $ | 1,934 |
| | $ | 1,461 |
|
| Comprehensive income (loss) | $ | 914 |
| | $ | 637 |
| | $ | 3,864 |
| | $ | 5,619 |
|
| Less: Comprehensive income (loss) attributable to noncontrolling interests, net of income tax | 5 |
| | (7 | ) | | 8 |
| | (9 | ) |
| Comprehensive income (loss) attributable to Metropolitan Life Insurance Company | $ | 909 |
| | $ | 644 |
| | $ | 3,856 |
| | $ | 5,628 |
|
See accompanying notes to the interim condensed consolidated financial statements.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Interim Condensed Consolidated Statements of Equity
For the NineThree Months Ended September 30, 2017March 31, 2024 and 20162023 (Unaudited)
(In millions)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common
Stock | | Additional
Paid-in
Capital | | Retained
Earnings | | Accumulated
Other
Comprehensive
Income (Loss) | | Total
Metropolitan Life
Insurance Company
Stockholder’s Equity | | Noncontrolling
Interests | | Total
Equity |
| Balance at December 31, 2023 | | $ | 5 | | | $ | 12,475 | | | $ | 7,645 | | | $ | (6,872) | | | $ | 13,253 | | | $ | 363 | | | $ | 13,616 | |
| Cumulative effects of changes in accounting principles, net of income tax | | | | | | (219) | | | | | (219) | | | | | (219) | |
| Dividends to MetLife, Inc. | | | | | | (1,200) | | | | | (1,200) | | | | | (1,200) | |
| Change in equity of noncontrolling interests | | | | | | | | | | — | | | 17 | | | 17 | |
| Net income (loss) | | | | | | 938 | | | | | 938 | | | (3) | | | 935 | |
| Other comprehensive income (loss), net of income tax | | | | | | | | 144 | | | 144 | | | | | 144 | |
| Balance at March 31, 2024 | | $ | 5 | | | $ | 12,475 | | | $ | 7,164 | | | $ | (6,728) | | | $ | 12,916 | | | $ | 377 | | | $ | 13,293 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total Metropolitan Life Insurance Company Stockholder’s Equity | | Noncontrolling Interests | | Total Equity |
| Balance at December 31, 2016 | | $ | 5 |
| | $ | 14,413 |
| | $ | 9,250 |
| | $ | 3,119 |
| | $ | 26,787 |
| | $ | 190 |
| | $ | 26,977 |
|
| Capital contributions from MetLife, Inc. | |
| | 5 |
| |
| |
| | 5 |
| |
| | 5 |
|
| Returns of capital | |
| | (20 | ) | |
|
| |
| | (20 | ) | |
| | (20 | ) |
| Dividends paid to MetLife, Inc. | |
| |
|
| | (2,000 | ) | |
| | (2,000 | ) | |
|
| | (2,000 | ) |
| Purchase of operating joint venture interest from an affiliate (Note 5) | |
| | (249 | ) | |
|
| |
| | (249 | ) | |
| | (249 | ) |
| Change in equity of noncontrolling interests | |
| |
|
| |
| |
| |
|
| | (19 | ) | | (19 | ) |
| Net income (loss) | |
| |
| | 1,934 |
| |
| | 1,934 |
| | 8 |
| | 1,942 |
|
| Other comprehensive income (loss), net of income tax | |
| |
| |
| | 1,922 |
| | 1,922 |
| |
|
| | 1,922 |
|
| Balance at September 30, 2017 | | $ | 5 |
| | $ | 14,149 |
| | $ | 9,184 |
| | $ | 5,041 |
| | $ | 28,379 |
| | $ | 179 |
| | $ | 28,558 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total Metropolitan Life Insurance Company Stockholder’s Equity | | Noncontrolling Interests | | Total Equity |
| Balance at December 31, 2015 | | $ | 5 |
| | $ | 14,444 |
| | $ | 13,738 |
| | $ | 2,685 |
| | $ | 30,872 |
| | $ | 372 |
| | $ | 31,244 |
|
| Capital contributions from MetLife, Inc. | |
| | 4 |
| |
| |
| | 4 |
| |
| | 4 |
|
| Returns of capital | |
| | (62 | ) | |
|
| |
| | (62 | ) | |
| | (62 | ) |
| Tax deficiencies related to stock-based compensation | |
| | (11 | ) | |
|
| |
| | (11 | ) | |
| | (11 | ) |
| Dividends paid to MetLife, Inc. | |
| |
| | (3,600 | ) | |
| | (3,600 | ) | |
| | (3,600 | ) |
| Change in equity of noncontrolling interests | |
| |
|
| |
| |
| |
|
| | (203 | ) | | (203 | ) |
| Net income (loss) | |
| |
| | 1,461 |
| |
| | 1,461 |
| | (9 | ) | | 1,452 |
|
| Other comprehensive income (loss), net of income tax | |
| |
| |
| | 4,167 |
| | 4,167 |
| |
|
| | 4,167 |
|
| Balance at September 30, 2016 | | $ | 5 |
| | $ | 14,375 |
| | $ | 11,599 |
| | $ | 6,852 |
| | $ | 32,831 |
| | $ | 160 |
| | $ | 32,991 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common
Stock | | Additional
Paid-in
Capital | | Retained
Earnings | | Accumulated
Other
Comprehensive
Income (Loss) | | Total
Metropolitan Life
Insurance Company
Stockholder’s Equity | | Noncontrolling
Interests | | Total
Equity |
| Balance at December 31, 2022 | | $ | 5 | | | $ | 12,476 | | | $ | 9,022 | | | $ | (8,320) | | | $ | 13,183 | | | $ | 212 | | | $ | 13,395 | |
| Dividends to MetLife, Inc. | | | | | | (618) | | | | | (618) | | | | | (618) | |
| Change in equity of noncontrolling interests | | | | | | | | | | — | | | 1 | | | 1 | |
| Net income (loss) | | | | | | (89) | | | | | (89) | | | (2) | | | (91) | |
| Other comprehensive income (loss), net of income tax | | | | | | | | 1,488 | | | 1,488 | | | 1 | | | 1,489 | |
| Balance at March 31, 2023 | | $ | 5 | | | $ | 12,476 | | | $ | 8,315 | | | $ | (6,832) | | | $ | 13,964 | | | $ | 212 | | | $ | 14,176 | |
See accompanying notes to the interim condensed consolidated financial statements.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Interim Condensed Consolidated Statements of Cash Flows
For the NineThree Months Ended September 30, 2017March 31, 2024 and 20162023 (Unaudited)
(In millions)
| | | | | | | | | | | |
| | Three Months
Ended
March 31, |
| | 2024 | | 2023 |
| Net cash provided by (used in) operating activities | $ | 1,397 | | | $ | 199 | |
| Cash flows from investing activities | | | |
| Sales, maturities and repayments of: | | | |
| Fixed maturity securities available-for-sale | 5,900 | | | 10,356 | |
| Equity securities | 24 | | | 30 | |
| Mortgage loans | 1,607 | | | 1,146 | |
| Real estate and real estate joint ventures | 57 | | | 8 | |
| Other limited partnership interests | 250 | | | 155 | |
| Short-term investments | 2,090 | | | 2,042 | |
| Purchases and originations of: | | | |
| Fixed maturity securities available-for-sale | (7,035) | | | (11,590) | |
| Equity securities | (6) | | | (4) | |
| Mortgage loans | (1,002) | | | (2,700) | |
| Real estate and real estate joint ventures | (114) | | | (193) | |
| Other limited partnership interests | (112) | | | (174) | |
| Short-term investments | (1,095) | | | (1,321) | |
| Cash received in connection with freestanding derivatives | 312 | | | 259 | |
| Cash paid in connection with freestanding derivatives | (549) | | | (921) | |
| | | |
| | | |
| | | |
| Net change in policy loans | (67) | | | 28 | |
| | | |
| Net change in other invested assets | (14) | | | (11) | |
| | | |
| Other, net | 15 | | | 6 | |
| Net cash provided by (used in) investing activities | 261 | | | (2,884) | |
| Cash flows from financing activities | | | |
| Policyholder account balances - deposits | 17,712 | | | 22,131 | |
| Policyholder account balances - withdrawals | (18,513) | | | (22,491) | |
| Net change in payables for collateral under securities loaned and other transactions | (162) | | | (728) | |
| | | |
| Long-term debt issued | — | | | 211 | |
| Long-term debt repaid | (150) | | | — | |
| Derivatives with certain financing elements and other derivative-related transactions, net | (55) | | | (2) | |
| | | |
| | | |
| | | |
| Dividends paid to MetLife, Inc. | (1,200) | | | (618) | |
| | | |
| | | |
| Other, net | 18 | | | 2 | |
| Net cash provided by (used in) financing activities | (2,350) | | | (1,495) | |
| Effect of change in foreign currency exchange rates on cash and cash equivalents balances | (2) | | | — | |
| Change in cash and cash equivalents | (694) | | | (4,180) | |
| Cash and cash equivalents, beginning of period | 6,795 | | | 9,405 | |
| Cash and cash equivalents, end of period | $ | 6,101 | | | $ | 5,225 | |
| Supplemental disclosures of cash flow information | | | |
| Net cash paid (received) for: | | | |
| Interest | $ | 14 | | | $ | 14 | |
| Income tax | $ | 11 | | | $ | 3 | |
| Non-cash transactions: | | | |
| | | |
| Other invested assets received in connection with the sale of other limited partnership interests | $ | 278 | | | $ | — | |
| | | |
| | | |
| Policyholder account balances received associated with funding agreement backed notes issued but not settled | $ | — | | | $ | 795 | |
| Fixed maturity securities available-for-sale received from an affiliate | $ | — | | | $ | 502 | |
| Policyholder account balances received in connection with affiliated reinsurance transactions | $ | — | | | $ | 502 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
| | | | | | | |
| | Nine Months
Ended
September 30, |
| | 2017 | | 2016 |
| Net cash provided by (used in) operating activities | $ | 5,010 |
| | $ | 3,625 |
|
| Cash flows from investing activities | | | |
| Sales, maturities and repayments of: | | | |
| Fixed maturity securities | 37,260 |
| | 53,466 |
|
| Equity securities | 470 |
| | 798 |
|
| Mortgage loans | 5,696 |
| | 9,008 |
|
| Real estate and real estate joint ventures | 673 |
| | 353 |
|
| Other limited partnership interests | 412 |
| | 618 |
|
| Purchases of: | | | |
| Fixed maturity securities | (40,819 | ) | | (53,863 | ) |
| Equity securities | (387 | ) | | (703 | ) |
| Mortgage loans | (7,020 | ) | | (11,010 | ) |
| Real estate and real estate joint ventures | (671 | ) | | (1,125 | ) |
| Other limited partnership interests | (536 | ) | | (589 | ) |
| Cash received in connection with freestanding derivatives | 1,439 |
| | 1,165 |
|
| Cash paid in connection with freestanding derivatives | (2,259 | ) | | (1,589 | ) |
| Net change in policy loans | (40 | ) | | 86 |
|
| Net change in short-term investments | 78 |
| | (128 | ) |
| Net change in other invested assets | (168 | ) | | (316 | ) |
| Net change in property, equipment and leasehold improvements | (148 | ) | | (154 | ) |
| Net cash provided by (used in) investing activities | (6,020 | ) | | (3,983 | ) |
| Cash flows from financing activities | | | |
| Policyholder account balances: | | | |
| Deposits | 53,149 |
| | 46,119 |
|
| Withdrawals | (52,610 | ) | | (44,175 | ) |
| Net change in payables for collateral under securities loaned and other transactions | 1,443 |
| | 1,698 |
|
| Long-term debt issued | 169 |
| | 11 |
|
| Long-term debt repaid | (81 | ) | | (55 | ) |
| Financing element on certain derivative instruments and other derivative related transactions, net | (210 | ) | | (72 | ) |
| Dividends paid to MetLife, Inc. | (2,000 | ) | | (3,600 | ) |
| Returns of capital | (5 | ) | | (62 | ) |
| Return of capital associated with the purchase of operating joint venture interest from an affiliate (Note 5) | (249 | ) | | — |
|
| Other, net | (10 | ) | | 19 |
|
| Net cash provided by (used in) financing activities | (404 | ) | | (117 | ) |
| Effect of change in foreign currency exchange rates on cash and cash equivalents balances | 23 |
| | — |
|
| Change in cash and cash equivalents | (1,391 | ) | | (475 | ) |
| Cash and cash equivalents, beginning of period | 5,714 |
| | 4,651 |
|
| Cash and cash equivalents, end of period | $ | 4,323 |
| | $ | 4,176 |
|
| Supplemental disclosures of cash flow information | | | |
| Net cash paid (received) for: | | | |
| Interest | $ | 64 |
| | $ | 71 |
|
| Income tax | $ | 1,137 |
| | $ | 596 |
|
| Non-cash transactions: | | | |
| Capital contributions from MetLife, Inc. | $ | 5 |
| | $ | 4 |
|
| Returns of capital | $ | 15 |
| | $ | — |
|
| Fixed maturity securities received in connection with pension risk transfer transactions | $ | — |
| | $ | 985 |
|
| Transfer of fixed maturity securities from affiliate | $ | 292 |
| | $ | — |
|
| Transfer of fixed maturity securities to affiliates | $ | — |
| | $ | 3,435 |
|
| Transfer of mortgage loans to affiliates | $ | — |
| | $ | 375 |
|
| Deconsolidation of real estate joint venture: | | | |
| Reduction of real estate and real estate joint ventures | $ | — |
| | $ | 339 |
|
| Reduction of noncontrolling interests | $ | — |
| | $ | 339 |
|
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies
Business
Metropolitan Life Insurance Company and its subsidiaries (collectively, “MLIC” or the “Company”) is a provider of insurance, annuities, employee benefits and asset management.management and is organized into three segments: Group Benefits, Retirement and Income Solutions (“RIS”), and MetLife Holdings. Metropolitan Life Insurance Company is a wholly-owned subsidiary of MetLife, Inc. (MetLife, Inc., together with its subsidiaries and affiliates, “MetLife”).
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 on the interim condensed consolidated financial statements. In applying these policies and estimates, management makes subjective and complex judgments that frequently require assumptions about matters that are inherently uncertain. Many of these policies, estimates and related judgments are common in the insurance and financial services industries; others are specific to the Company’s business and operations. Actual results could differ from these estimates.
Consolidation
The accompanying interim condensed consolidated financial statements include the accounts of Metropolitan Life Insurance 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. Intercompany accounts and transactions have been eliminated.
The Company uses the equity method of accounting for equity securities when it has significant influence or at least 20% interest and for real estate joint ventures and other limited partnership interests (“investees”) when it has more than a minor ownership interest or more than a minor influence over the investee’s operations. The Company generally recognizes its share of the investee’s earnings on a three-month lag in instances where the investee’s financial information is not sufficiently timely or when the investee’s reporting period differs from the Company’s reporting period. The Company uses the cost method of accounting for investments in which it has virtually no influence over the investee’s operations.
Reclassifications
Certain amounts in the prior year periods’ interim condensed consolidated financial statements and related footnotes thereto have been reclassified to conform to the 2017 presentation as discussed throughout the Notes to the Interim Condensed Consolidated Financial Statements.
Since the Company is a member of a controlled group of affiliated companies, its results may not be indicative of those of a stand-alone entity.
The accompanying interim condensed consolidated financial statements are unaudited and reflect all adjustments (including normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented in conformity with GAAP. Interim results are not necessarily indicative of full year performance. The December 31, 20162023 consolidated balance sheet data was derived from audited consolidated financial statements included in Metropolitan Life Insurance Company’s Annual Report on Form 10-K for the year ended December 31, 20162023 (the “2016“2023 Annual Report”), 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 20162023 Annual Report.
AdoptionConsolidation
The accompanying interim condensed consolidated financial statements include the accounts of NewMetropolitan Life Insurance Company and its subsidiaries, as well as partnerships and joint ventures in which the Company has a controlling financial interest, and variable interest entities (“VIEs”) for which the Company is the primary beneficiary. Intercompany accounts and transactions have been eliminated.
The Company uses the equity method of accounting, unless the fair value option (“FVO”) is applied, for real estate joint ventures and other limited partnership interests (“investee”) when it has more than a minor ownership interest or more than a minor influence over the investee’s operations. The Company generally recognizes its share of the investee’s earnings in net investment income on a three-month lag in instances where the investee’s financial information is not sufficiently timely or when the investee’s reporting period differs from the Company’s reporting period.
Since the Company is a member of a controlled group of affiliated companies, its results may not be indicative of those of a stand-alone entity.
Recent Accounting Pronouncements
Effective January 1, 2017,Changes to GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of Accounting Standards Updates (each, an “ASU”) to the FASB Accounting Standards Codification. The Company early adopted guidance relating to business combinations.considers the applicability and impact of all ASUs. The new guidance clarifiesfollowing tables provide a description of ASUs recently issued by the definitionFASB and the impact of a business and requires that an entity apply certain criteria in order to determine when a set of assets and activities qualifies as a business. Thetheir adoption of this standard will result in fewer acquisitions qualifying as businesses and, accordingly, acquisition costs for those acquisitions that do not qualify as businesses will be capitalized rather than expensed. The adoption did not have a material impact on the Company’s consolidated financial statements.
Effective January 1, 2017, the Company retrospectively adopted guidance relating to consolidation. The new guidance does not change the characteristics of a primary beneficiary under current GAAP. It changes how a reporting entity evaluates whether it is the primary beneficiary of a VIE by changing how a reporting entity that is a single decisionmaker of a VIE handles indirect interests in the entity held through related parties that are under common control with the reporting entity. The adoption of this new guidance did not have a material impact on the Company’s consolidated financial statements.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Other
Effective January 3, 2017, the Chicago Mercantile Exchange (“CME”) amended its rulebook, resulting in the characterization of variation margin transfers as settlement payments, as opposed to adjustments to collateral. These amendments impacted the accounting treatment of the Company’s centrally cleared derivatives for which the CME serves as the central clearing party. As of the effective date, the application of the amended rulebook reduced gross derivative assets by $751 million, gross derivative liabilities by $603 million, accrued investment income by $55 million, accrued investment expense recorded within other liabilities by $10 million, collateral receivables recorded within premiums, reinsurance and other receivables of $226 million, and collateral payables recorded within payables for collateral under securities loaned and other transactions of $419 million.
Future Adoption of NewAdopted Accounting Pronouncements
In August 2017,The table below describes the Financial Accounting Standards Board (“FASB”) issued new guidance on hedging activities (Accounting Standards Update (“ASU”) 2017-12,Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities). The new guidance is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years and should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings. Early adoption is permitted. The new guidance simplifies the applicationimpacts of hedge accounting in certain situations and amends the hedge accounting model to enable entities to better portray the economics of their risk management activities in the financial statements. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.
In March 2017, the FASB issued new guidance on purchased callable debt securities (ASU 2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities.) The new guidance is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years and should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings. Early adoption is permitted. The ASU shortens the amortization period for certain callable debt securities held at a premium and requires the premium to be amortized to the earliest call date. However, the new guidance does not require an accounting change for securities held at a discount whose discount continues to be amortized to maturity. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.
In March 2017, the FASB issued new guidance on the presentation of net periodic pension cost and net periodic postretirement benefit cost (ASU 2017-07,Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost). The new guidance is effective for annual periods beginning after December 15, 2017 and interim periods within those annual periods. Early adoption is permitted as of the beginning of an annual period for which financial statements (interim or annual) have not been issued or made available for issuance. The guidance requires that an employer that offers to its employees defined benefit pension or other postretirement benefit plans report the service cost component in the same line item or items as other compensation costs arising from services renderedASUs adopted by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. The guidance should be applied retrospectively for the presentation of the service cost component in the income statement and allows a practical expedient for the estimation basis for applying the retrospective presentation requirements. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.Company.
In February 2017, the FASB issued new guidance on derecognition of nonfinancial assets (ASU 2017-05,Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets). The new guidance is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. Early adoption was permitted for interim or annual reporting periods beginning after December 15, 2016. The guidance may be applied retrospectively for all periods presented or retrospectively with a cumulative-effect adjustment at the date of adoption. The new guidance clarifies the scope and accounting of a financial asset that meets the definition of an “in-substance nonfinancial asset” and defines the term, “in-substance nonfinancial asset.” The ASU also adds guidance for partial sales of nonfinancial assets. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.
| | | | | | | | | | | |
| Standard | Description | Effective Date and
Method of Adoption | Impact on Financial Statements |
ASU 2023-02, Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method
| The amendments in this update permit reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. In addition, disclosures describing the nature of the investments and related income tax credits and benefits will be required. | January 1, 2024. The Company adopted this update, applying a modified retrospective basis. | The Company has elected to use the proportional amortization method to account for its tax equity investments that meet the required criteria. The adoption of this update resulted in a decrease to retained earnings of $219 million, net of income tax, primarily related to the Company’s tax equity investments reported within other invested assets, as of January 1, 2024. |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Future Adoption of Accounting Pronouncements
In January 2017,ASUs not listed below were assessed and either determined to be not applicable or are not expected to have a material impact on the FASB issued new guidance on goodwill impairment (ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment). The new guidance is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years, and should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The new guidance simplifies the current two-step goodwill impairment test by eliminating Step 2 of the test. The new guidance requires a one-step impairment test in which an entity compares the fair value of a reporting unit with its carrying amount and recognizes an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, if any. The Company is currently evaluating the impact of this guidance on itsCompany’s consolidated financial statements.
In November 2016,statements or disclosures. ASUs issued but not yet adopted as of March 31, 2024 that are currently being assessed and may or may not have a material impact on the FASB issued new guidance on restricted cash (ASU 2016-18,Statement of Cash Flows (Topic 230): a consensus of the FASB Emerging Issues Task Force). The new guidance is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years, and should be applied on a retrospective basis. Early adoption is permitted. The new guidance requires that a statement of cash flows explain the change during the periodCompany’s consolidated financial statements or disclosures are summarized in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. As a result, the new guidance requires that amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The new guidance does not provide a definition of restricted cash or restricted cash equivalents. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.table below.
In October 2016, the FASB issued new guidance on tax accounting for intra-entity transfers of assets (ASU 2016-16,Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory). The new guidance is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years, and should be applied on a modified retrospective basis. Early adoption is permitted in the first interim or annual reporting period. Current guidance prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. The new guidance requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. Also, the guidance eliminates the exception for an intra-entity transfer of an asset other than inventory. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.
In August 2016, the FASB issued new guidance on cash flow statement presentation (ASU 2016-15,Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments). The new guidance is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years, and should be applied retrospectively to all periods presented. Early adoption is permitted in any interim or annual period. This ASU addresses diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.
In June 2016, the FASB issued new guidance on measurement of credit losses on financial instruments (ASU 2016-13,Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments). The new guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. This ASU replaces the incurred loss impairment methodology with one that reflects expected credit losses. The measurement of expected credit losses should be based on historical loss information, current conditions, and reasonable and supportable forecasts. The new guidance requires that an other than temporary impairment (“OTTI”) on a debt security will be recognized as an allowance going forward, such that improvements in expected future cash flows after an impairment will no longer be reflected as a prospective yield adjustment through net investment income, but rather a reversal of the previous impairment and recognized through realized investment gains and losses. The guidance also requires enhanced disclosures. The Company has assessed the asset classes impacted by the new guidance and is currently assessing the accounting and reporting system changes that will be required to comply with the new guidance. The Company believes that the most significant impact upon adoption will be to its mortgage loan investments. The Company is continuing to evaluate the overall impact of the new guidance on its consolidated financial statements.
| | | | | | | | | | | |
| Standard | Description | Effective Date and
Method of Adoption | Impact on Financial Statements |
ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures
| Among other things, the amendments in this update require that public business entities, on an annual basis: (i) disclose specific categories in the rate reconciliation; and (ii) provide additional information for reconciling items that meet a quantitative threshold. In addition, the amendments in this update require that all entities disclose on an annual basis the following information about income taxes paid: (i) the amount of income taxes paid (net of refunds received) disaggregated by federal (national), state, and foreign taxes; and (ii) the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than five percent of total income taxes paid (net of refunds received). | Effective for annual periods beginning January 1, 2025, to be applied prospectively with an option for retrospective application (with early adoption permitted). | The Company is evaluating the impact of the guidance on its consolidated financial statements. |
ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures | The amendments in this update are intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. The key amendments include: (i) disclosures on significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within each reported measure of segment profit or loss on an annual and interim basis; (ii) disclosures on an amount for other segment items by reportable segment and a description of its composition on an annual and interim basis. The other segment items category is the difference between segment revenue less the significant expenses disclosed and each reported measure of segment profit or loss; (iii) providing all annual disclosures on a reportable segment’s profit or loss and assets currently required by FASB ASC Topic 280, Segment Reporting in interim periods; and (iv) specifying the title and position of the CODM. | Effective for annual periods beginning January 1, 2024 and interim periods beginning January 1, 2025, to be applied on a retrospective basis unless it is impracticable (with early adoption permitted). | The Company is evaluating the impact of the guidance on its consolidated financial statements. |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
In February 2016, the FASB issued new guidance on leasing transactions (ASU 2016-02,Leases - Topic 842). The new guidance is effective for the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and requires a modified retrospective transition approach. Early adoption is permitted. The new guidance requires a lessee to recognize assets and liabilities for leases with lease terms of more than 12 months. Leases would be classified as finance or operating leases and both types of leases will be recognized on the balance sheet. Lessor accounting will remain largely unchanged from current guidance except for certain targeted changes. The new guidance will also require new qualitative and quantitative disclosures. The Company’s implementation efforts are primarily focused on the review of its existing lease contracts, as well as identification of other contracts that may fall under the scope of the new guidance. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.
In January 2016, the FASB issued new guidance (ASU 2016-01,Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities) on the recognition and measurement of financial instruments. The new guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted for the instrument-specific credit risk provision. The new guidance changes the current accounting guidance related to (i) the classification and measurement of certain equity investments, (ii) the presentation of changes in the fair value of financial liabilities measured under the fair value option (“FVO”) that are due to instrument-specific credit risk, and (iii) certain disclosures associated with the fair value of financial instruments. Additionally, there will no longer be a requirement to assess equity securities for impairment since such securities will be measured at fair value through net income. The Company has assessed the population of financial instruments that are subject to the new guidance and has determined that the most significant impact will be the requirement to report changes in fair value in net income each reporting period for all equity securities currently classified as available-for-sale (“AFS”) and to a lesser extent, other limited partnership interests and real estate joint ventures that are currently accounted for under the cost method. The estimated impact, using values as of September 30, 2017, related to the change in accounting for equity securities AFS, was $50 million of net unrealized investment gains, net of income tax, which would be reclassified from accumulated other comprehensive income (“AOCI”) to retained earnings. The estimated financial statement impact related to cost method other limited partnership interests and real estate joint ventures was not material.
In May 2014, the FASB issued a comprehensive new revenue recognition standard (ASU 2014-09,Revenue from Contracts with Customers (Topic 606)), effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. The Company will apply this guidance retrospectively with a cumulative-effect adjustment as of January 1, 2018. The new guidance will supersede nearly all existing revenue recognition guidance under U.S. GAAP. However, it will not impact the accounting for insurance and investment contracts within the scope of Accounting Standards Codification Topic 944,Financial Services - Insurance, leases, financial instruments and certain guarantees. For those contracts that are impacted, the new guidance will require an entity to recognize revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled, in exchange for those goods or services. Given the scope of the new revenue recognition guidance, the Company does not expect the adoption to have a material impact on its consolidated revenues or statements of operations, with the Company’s implementation efforts primarily focused on other revenues on the consolidated statements of operations. Other revenues on the consolidated statements of operations represents less than 5% of consolidated total revenues for the nine months ended September 30, 2017. Based on implementation efforts completed to date, the Company has identified revenue streams within the scope of the guidance and is evaluating the related contracts, primarily consisting of prepaid legal plans and administrative-only contracts in the U.S. segment, advisory fees in the MetLife Holdings segment, and fee-based investment management services in Corporate & Other. While the Company has not yet identified any material changes in the recognition and measurement of other revenue, the Company’s assessment is ongoing, including the consideration of the new disclosure requirements.
2. Segment Information
The Company is organizedIn the fourth quarter of 2023, MLIC reorganized from two segments into two segments: U.S.the following three segments to reflect changes in management’s responsibilities: Group Benefits, RIS and MetLife Holdings. The Group Benefits and RIS businesses were previously reported as the U.S. segment. These changes were applied retrospectively and did not have an impact on prior period total consolidated net income (loss) or adjusted earnings. In addition, the Company reportscontinues to report certain of its results of operations in Corporate & Other.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
2. Segment Information (continued)
On August 4, 2017, MetLife, Inc. completed the separation of Brighthouse Financial, Inc. and its subsidiaries (“Brighthouse”) through a distribution of 96,776,670 shares of the 119,773,106 shares of Brighthouse Financial, Inc. common stock outstanding, representing 80.8% of those shares, to MetLife, Inc. common shareholders (the “Separation”). MetLife, Inc. retained the remaining ownership interest of 22,996,436 shares, or 19.2%, of Brighthouse Financial, Inc. common stock outstanding.
U.S.Group Benefits
The Group Benefits segment, based in the U.S. segment, offers a broad range of protection products and services aimed at serving the financial needs of customers throughout their lives. These products are sold to corporations and their respective employees, other institutions and their respective members, as well as individuals. The U.S. segment is organized into two businesses: Group BenefitsThese products include term, variable and Retirement and Income Solutions.
The Group Benefits business offersuniversal life insurance, products and services which include life, dental, group short- and long-term disability, individual disability accidental death and dismemberment, critical illness, vision and accident & health coverages, as well as prepaid legal plans. This business also sells administrative services-only arrangements to some employers.insurance.
RIS
The Retirement and Income Solutions businessRIS segment, based in the U.S., offers a broad range of annuitylife and annuity-based insurance and investment products including guaranteed interest contractsto corporations and their respective employees, other institutions and their respective members, as well as individuals. These products include stable value and pension risk transfer products, institutional income annuities, and separate account contracts for the investment management of defined benefit and defined contribution plan assets. This business also includes structured settlements, benefit funding solutions and certain products to fund postretirement benefits and company-, bank- or trust-owned life insurance used to finance nonqualified benefit programs for executives.capital markets investment products.
MetLife Holdings
The MetLife Holdings segment consists of operations relating to products and businesses that the Company no longer actively marketed by the Companymarkets in the United States.U.S. These products and businesses include variable, universal, term and whole life as well asinsurance, variable, fixed and index-linked annuities. The MetLife Holdings segment also includes the Company’s discontinuedannuities and long-term care business.insurance.
Corporate & Other
Corporate & Other contains various start-up, developing and run-off businesses, including the Company’s ancillary non-U.S. operations. Also included in Corporate & Other are: the excess capital, as well as certain charges and activities, not allocated to the segments including(including enterprise-wide strategic initiative restructuring charges and various start-up businesses (including the investment management business through which the Company offers fee-based investment management services to institutional clients, as well as the direct to consumer portion of the U.S. Direct business). Corporate & Other also includes the Company’s ancillary international operations, the business of the Company that MetLife, Inc. separated and included in Brighthouse Financial in the prior periods andinitiatives), interest expense related to the majority of the Company’s outstanding debt, as well as expenses associated with certain legal proceedings and income tax audit issues. In addition, Corporate & Other includesissues, and the elimination of intersegment amounts which(which generally relate to intersegment loans which bearbearing interest rates commensurate with related borrowings.borrowings).
Financial Measures and Segment Accounting Policies
OperatingAdjusted earnings is used by management to evaluate performance and allocate resources. Consistent with GAAP guidance for segment reporting, operatingadjusted earnings is also the Company’s GAAP measure of segment performance and is reported below. OperatingAdjusted earnings should not be viewed as a substitute for net income (loss). The Company believes the presentation of operatingadjusted earnings, as the Company measures it for management purposes, enhances the understanding of its performance by highlighting the results of operations and the underlying profitability drivers of the business. Operating earnings allows analysis of the Company’s performance and facilitates comparisons to industry results.
OperatingAdjusted earnings is defined as operatingadjusted revenues less operatingadjusted expenses, both net of income tax.
These financial measures focus on the Company’s primary businesses principally by excluding the impact of (i) market volatility which could distort trends, (ii) asymmetrical and non-economic accounting, and (iii) revenues and costs related to divested businesses, non-core products and certain entities required to be consolidated under GAAP. Also, these measures exclude results of discontinued operations under GAAP.
Market volatility can have a significant impact on the Company’s financial results. Adjusted earnings excludes net investment gains (losses), net derivative gains (losses), market risk benefits (“MRBs”) remeasurement gains (losses) and goodwill impairments. Further, policyholder benefits and claims exclude (i) changes in the discount rate on certain annuitization guarantees accounted for as additional liabilities, and (ii) market value adjustments.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
2. Segment Information (continued)
Asymmetrical and non-economic accounting adjustments are made to the line items indicated in calculating adjusted earnings:
The financial measures•Net investment income includes earned income on derivatives and amortization of operatingpremium on derivatives that are hedges of investments or that are used to replicate certain investments, but do not qualify for hedge accounting treatment.
•Other revenues include settlements of foreign currency earnings hedges and operating expenses focusexclude asymmetrical accounting associated with in-force reinsurance.
•Policyholder benefits and claims excludes (i) amortization of basis adjustments associated with de-designated fair value hedges of future policy benefits (“FPBs”), (ii) inflation-indexed benefit adjustments associated with contracts backed by inflation-indexed investments, (iii) asymmetrical accounting associated with in-force reinsurance, and (iv) non-economic losses incurred at contract inception for certain single premium annuity business. These losses are amortized into adjusted earnings within policyholder benefits and claims over the estimated lives of the contracts.
•Interest credited to policyholder account balances (“PABs”) excludes amounts associated with periodic crediting rate adjustments based on the Company’s primary businesses principally by excluding the impacttotal return of market volatility, which could distort trends, and revenues and costs related to non-core products and certain entities required to be consolidated under GAAP. Also, these measures exclude resultsa contractually referenced pool of discontinued operations under GAAPassets and other pass-through adjustments and asymmetrical accounting associated with in-force reinsurance.
Divested businesses are those that have been or will be sold or exited by MLIC but do not meet the discontinued operations criteria under GAAP and are referred to as divested businesses.GAAP. Divested businesses also includesinclude the net impact of transactions with exited businesses that have been eliminated in consolidation under GAAP and costs relating to businesses that have been or will be sold or exited by MLIC that do not meet the criteria to be included in results of discontinued operations under GAAP. Operating revenues also excludes net investment gains (losses) and net derivative gains (losses).
The following additionalOther adjustments are made to revenues, in the line items indicated in calculating operating revenues:adjusted earnings:
Universal life and investment-type product policy fees excludes the amortization of unearned revenue related to net investment gains (losses) and net derivative gains (losses) and certain variable annuityguaranteed minimum income benefits (“GMIBs”) fees (“GMIB Fees”); and
•Net investment income: (i) includes earned income on derivatives and amortization of premium on derivatives that are hedges of investments or that are usedinterest credited to replicate certain investments, but do not qualify for hedge accounting treatment, (ii) excludes post-tax operating earnings adjustments relating to insurance joint ventures accounted for under the equity method and (iii)PABs excludes certain amounts related to securitization entities that are VIEs consolidatedcontractholder-directed equity securities.
•Other revenues include fee revenue on synthetic guaranteed interest contracts (“GICs”) accounted for as freestanding derivatives.
•Other revenues exclude and other expenses include fees received in connection with services provided under GAAP.transition service agreements.
The following additional adjustments are made to expenses, in the line items indicated, in calculating operating expenses:
Policyholder benefits and claims and policyholder dividends excludes: (i) changes in the policyholder dividend obligation related to net investment gains (losses) and net derivative gains (losses), (ii) 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 earned income on derivatives and amortization of premium on derivatives that are hedges of policyholder account balances but do not qualify for hedge accounting treatment;
Amortization ofdeferred 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;
Interest expense on debt excludes certain amounts related to securitization entities that are VIEs consolidated under GAAP; and
•Other expenses excludesexclude (i) implementation of new insurance regulatory requirements and other costs, and (ii) acquisition, integration and other related costs. Other expenses include (i) deductions for net income attributable to noncontrolling interests, and goodwill impairments.(ii) benefits accrued on synthetic GICs accounted for as freestanding derivatives.
Adjusted earnings also excludes the recognition of certain contingent assets and liabilities that could not be recognized at acquisition or adjusted for during the measurement period under GAAP business combination accounting guidance.
The tax impact of the adjustments mentioned above are calculated net of the U.S. or foreign statutory tax rate, which could differ from the Company’s effective tax rate. Additionally, the provision for income tax (expense) benefit also includes the impact related to the timing of certain tax credits, as well as certain tax reforms.
Set forth in the tables below is certain financial information with respect to the Company’s segments, as well as Corporate & Other, for the three months endedMarch 31, 2024 and nine months endedSeptember 30, 2017and2016.2023. The segment accounting policies are the same as those used to prepare the Company’s interim condensed consolidated financial statements, except for operatingadjusted earnings adjustments as defined above. In addition, segment accounting policies include the method of capital allocation described below.
Economic capital is an internally developed risk capital model, the purpose of which is to measure the risk in the business and to provide a basis upon which capital is deployed. The economic capital model accounts for the unique and specific nature of the risks inherent in MetLife’s and the Company’s business.businesses.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
2. Segment Information (continued)
MetLife’s economic capital model, coupled with considerations of local capital requirements, aligns segment allocated equity with emerging standards and consistent risk principles. The model applies statistics-based risk evaluation principles to the material risks to which the Company is exposed. These consistent risk principles include calibrating required economic capital shock factors to a specific confidence level and time horizon while applying an industry standard method for the inclusion of diversification benefits among risk types. MetLife’s management is responsible for the ongoing production and enhancement of the economic capital model and reviews its approach periodically to ensure that it remains consistent with emerging industry practice standards.
Segment net investment income is credited or charged based on the level of allocated equity; however, changes in allocated equity do not impact the Company’s consolidated net investment income, net income (loss) or operatingadjusted earnings.
Net investment income is based upon the actual results of each segment’s specifically identifiable investment portfolios adjusted for allocated equity. Other costs are allocated to each of the segments based upon: (i) a review of the nature of such costs; (ii) time studies analyzing the amount of employee compensation costs incurred by each segment; and (iii) cost estimates included in the Company’s product pricing.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2024 | | Group Benefits | | RIS | | MetLife
Holdings | | Corporate & Other | | Total | | Adjustments | | Total Consolidated |
| | (In millions) |
| Revenues | | | | | | | | | | | | | | |
| Premiums | | $ | 5,467 | | | $ | 176 | | | $ | 572 | | | $ | (1) | | | $ | 6,214 | | | $ | — | | | $ | 6,214 | |
| Universal life and investment-type product policy fees | | 222 | | | 65 | | | 70 | | | 2 | | | 359 | | | — | | | 359 | |
| Net investment income | | 305 | | | 1,676 | | | 910 | | | 90 | | | 2,981 | | | (124) | | | 2,857 | |
| Other revenues | | 189 | | | 62 | | | 50 | | | 122 | | | 423 | | | 32 | | | 455 | |
| Net investment gains (losses) | | — | | | — | | | — | | | — | | | — | | | (136) | | | (136) | |
| Net derivative gains (losses) | | — | | | — | | | — | | | — | | | — | | | (56) | | | (56) | |
| Total revenues | | 6,183 | | | 1,979 | | | 1,602 | | | 213 | | | 9,977 | | | (284) | | | 9,693 | |
| Expenses | | | | | | | | | | | | | | |
| Policyholder benefits and claims and policyholder dividends | | 4,945 | | | 827 | | | 1,046 | | | — | | | 6,818 | | | (13) | | | 6,805 | |
| Policyholder liability remeasurement (gains) losses | | (3) | | | (8) | | | 24 | | | — | | | 13 | | | — | | | 13 | |
| Market risk benefit remeasurement (gains) losses | | — | | | — | | | — | | | — | | | — | | | (586) | | | (586) | |
| Interest credited to policyholder account balances | | 48 | | | 676 | | | 94 | | | 83 | | | 901 | | | 22 | | | 923 | |
| Capitalization of deferred policy acquisition costs | | (4) | | | (21) | | | — | | | — | | | (25) | | | — | | | (25) | |
| Amortization of deferred policy acquisition costs and value of business acquired | | 6 | | | 8 | | | 50 | | | 6 | | | 70 | | | — | | | 70 | |
| Interest expense on debt | | — | | | 4 | | | 4 | | | 24 | | | 32 | | | — | | | 32 | |
| Other expenses | | 872 | | | 102 | | | 200 | | | 135 | | | 1,309 | | | 3 | | | 1,312 | |
| Total expenses | | 5,864 | | | 1,588 | | | 1,418 | | | 248 | | | 9,118 | | | (574) | | | 8,544 | |
| Provision for income tax expense (benefit) | | 69 | | | 82 | | | 36 | | | (34) | | | 153 | | | 61 | | | 214 | |
| Adjusted earnings | | $ | 250 | | | $ | 309 | | | $ | 148 | | | $ | (1) | | | 706 | | | | | |
| Adjustments to: | | | | | | | | | | | | | | |
| Total revenues | | | | | | | | | | (284) | | | | | |
| Total expenses | | | | | | | | | | 574 | | | | | |
| Provision for income tax (expense) benefit | | | | | | | | | | (61) | | | | | |
| Net income (loss) | | $ | 935 | | | | | $ | 935 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Operating Results | | | | |
| Three Months Ended September 30, 2017 | | U.S. | | MetLife Holdings | | Corporate & Other | | Total | | Adjustments | | Total Consolidated |
| | | (In millions) |
| Revenues | | | | | | | | | | | | |
| Premiums | | $ | 5,820 |
| | $ | 806 |
| | $ | 3 |
| | $ | 6,629 |
| | $ | — |
| | $ | 6,629 |
|
| Universal life and investment-type product policy fees | | 245 |
| | 286 |
| | — |
| | 531 |
| | 25 |
| | 556 |
|
| Net investment income | | 1,554 |
| | 1,228 |
| | (39 | ) | | 2,743 |
| | (83 | ) | | 2,660 |
|
| Other revenues | | 191 |
| | 36 |
| | 144 |
| | 371 |
| | — |
| | 371 |
|
| Net investment gains (losses) | | — |
| | — |
| | — |
| | — |
| | 96 |
| | 96 |
|
| Net derivative gains (losses) | | — |
| | — |
| | — |
| | — |
| | (26 | ) | | (26 | ) |
| Total revenues | | 7,810 |
| | 2,356 |
| | 108 |
| | 10,274 |
| | 12 |
| | 10,286 |
|
| Expenses | | | | | | | | | | | | |
| Policyholder benefits and claims and policyholder dividends | | 6,006 |
| | 1,448 |
| | — |
| | 7,454 |
| | 130 |
| | 7,584 |
|
| Interest credited to policyholder account balances | | 373 |
| | 195 |
| | — |
| | 568 |
| | (1 | ) | | 567 |
|
| Capitalization of DAC | | (15 | ) | | (2 | ) | | — |
| | (17 | ) | | — |
| | (17 | ) |
| Amortization of DAC and VOBA | | 15 |
| | (79 | ) | | — |
| | (64 | ) | | 21 |
| | (43 | ) |
| Interest expense on debt | | 3 |
| | 2 |
| | 21 |
| | 26 |
| | — |
| | 26 |
|
| Other expenses | | 681 |
| | 291 |
| | 272 |
| | 1,244 |
| | (5 | ) | | 1,239 |
|
| Total expenses | | 7,063 |
| | 1,855 |
| | 293 |
| | 9,211 |
| | 145 |
| | 9,356 |
|
| Provision for income tax expense (benefit) | | 262 |
| | 161 |
| | (190 | ) | | 233 |
| | (46 | ) | | 187 |
|
| Operating earnings | | $ | 485 |
| | $ | 340 |
| | $ | 5 |
| | 830 |
| | | | |
| Adjustments to: | | | | | | | | | | | | |
| Total revenues | | | | | | | | 12 |
| | | | |
| Total expenses | | | | | | | | (145 | ) | | | | |
| Provision for income tax (expense) benefit | | | | | | | | 46 |
| | | | |
| Net income (loss) | | $ | 743 |
| | | | $ | 743 |
|
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
2. Segment Information (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2023 | | Group Benefits | | RIS | | MetLife
Holdings | | Corporate & Other | | Total | | Adjustments | | Total Consolidated |
| | (In millions) |
| Revenues | | | | | | | | | | | | | | |
| Premiums | | $ | 5,216 | | | $ | 54 | | | $ | 578 | | | $ | 1 | | | $ | 5,849 | | | $ | — | | | $ | 5,849 | |
| Universal life and investment-type product policy fees | | 218 | | | 67 | | | 145 | | | — | | | 430 | | | — | | | 430 | |
| Net investment income | | 303 | | | 1,551 | | | 989 | | | 43 | | | 2,886 | | | (201) | | | 2,685 | |
| Other revenues | | 179 | | | 63 | | | 56 | | | 122 | | | 420 | | | (5) | | | 415 | |
| Net investment gains (losses) | | — | | | — | | | — | | | — | | | — | | | (102) | | | (102) | |
| Net derivative gains (losses) | | — | | | — | | | — | | | — | | | — | | | (560) | | | (560) | |
| Total revenues | | 5,916 | | | 1,735 | | | 1,768 | | | 166 | | | 9,585 | | | (868) | | | 8,717 | |
| Expenses | | | | | | | | | | | | | | |
| Policyholder benefits and claims and policyholder dividends | | 4,694 | | | 533 | | | 1,116 | | | — | | | 6,343 | | | 3 | | | 6,346 | |
| Policyholder liability remeasurement (gains) losses | | (4) | | | (68) | | | 15 | | | — | | | (57) | | | — | | | (57) | |
| Market risk benefit remeasurement (gains) losses | | — | | | — | | | — | | | — | | | — | | | 244 | | | 244 | |
| Interest credited to policyholder account balances | | 46 | | | 563 | | | 155 | | | 66 | | | 830 | | | 1 | | | 831 | |
| Capitalization of deferred policy acquisition costs | | (6) | | | (19) | | | — | | | (52) | | | (77) | | | — | | | (77) | |
| Amortization of deferred policy acquisition costs and value of business acquired | | 6 | | | 8 | | | 59 | | | 4 | | | 77 | | | — | | | 77 | |
| Interest expense on debt | | — | | | 3 | | | 3 | | | 24 | | | 30 | | | — | | | 30 | |
| Other expenses | | 809 | | | 297 | | | 206 | | | 201 | | | 1,513 | | | 5 | | | 1,518 | |
| Total expenses | | 5,545 | | | 1,317 | | | 1,554 | | | 243 | | | 8,659 | | | 253 | | | 8,912 | |
| Provision for income tax expense (benefit) | | 78 | | | 87 | | | 41 | | | (75) | | | 131 | | | (235) | | | (104) | |
| Adjusted earnings | | $ | 293 | | | $ | 331 | | | $ | 173 | | | $ | (2) | | | 795 | | | | | |
| Adjustments to: | | | | | | | | | | | | | | |
| Total revenues | | | | | | | | | | (868) | | | | | |
| Total expenses | | | | | | | | | | (253) | | | | | |
| Provision for income tax (expense) benefit | | | | | | | | | | 235 | | | | | |
| Net income (loss) | | $ | (91) | | | | | $ | (91) | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Operating Results | | | | |
| Three Months Ended September 30, 2016 | | U.S. | | MetLife Holdings | | Corporate & Other | | Total | | Adjustments | | Total Consolidated |
| | | (In millions) |
| Revenues | | | | | | | | | | | | |
| Premiums | | $ | 5,036 |
| | $ | 1,091 |
| | $ | 15 |
| | $ | 6,142 |
| | $ | — |
| | $ | 6,142 |
|
| Universal life and investment-type product policy fees | | 244 |
| | 310 |
| | 58 |
| | 612 |
| | 26 |
| | 638 |
|
| Net investment income | | 1,554 |
| | 1,463 |
| | (7 | ) | | 3,010 |
| | (140 | ) | | 2,870 |
|
| Other revenues | | 188 |
| | 46 |
| | 155 |
| | 389 |
| | — |
| | 389 |
|
| Net investment gains (losses) | | — |
| | — |
| | — |
| | — |
| | 42 |
| | 42 |
|
| Net derivative gains (losses) | | — |
| | — |
| | — |
| | — |
| | (205 | ) | | (205 | ) |
| Total revenues | | 7,022 |
| | 2,910 |
| | 221 |
| | 10,153 |
| | (277 | ) | | 9,876 |
|
| Expenses | | | | | | | | | | | | |
| Policyholder benefits and claims and policyholder dividends | | 5,281 |
| | 1,814 |
| | 29 |
| | 7,124 |
| | 75 |
| | 7,199 |
|
| Interest credited to policyholder account balances | | 322 |
| | 230 |
| | 9 |
| | 561 |
| | (1 | ) | | 560 |
|
| Capitalization of DAC | | (17 | ) | | (44 | ) | | 2 |
| | (59 | ) | | — |
| | (59 | ) |
| Amortization of DAC and VOBA | | 14 |
| | 217 |
| | 10 |
| | 241 |
| | (29 | ) | | 212 |
|
| Interest expense on debt | | 2 |
| | 2 |
| | 24 |
| | 28 |
| | — |
| | 28 |
|
| Other expenses | | 668 |
| | 341 |
| | 163 |
| | 1,172 |
| | 11 |
| | 1,183 |
|
| Total expenses | | 6,270 |
| | 2,560 |
| | 237 |
| | 9,067 |
| | 56 |
| | 9,123 |
|
| Provision for income tax expense (benefit) | | 269 |
| | 109 |
| | (139 | ) | | 239 |
| | (116 | ) | | 123 |
|
| Operating earnings | | $ | 483 |
| | $ | 241 |
| | $ | 123 |
| | 847 |
| | | | |
| Adjustments to: | | | | | | | | | | | | |
| Total revenues | | | | | | | | (277 | ) | | | | |
| Total expenses | | | | | | | | (56 | ) | | | | |
| Provision for income tax (expense) benefit | | | | | | | | 116 |
| | | | |
| Net income (loss) | | $ | 630 |
| | | | $ | 630 |
|
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
2. Segment Information (continued)
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Operating Results | | | | |
| Nine Months Ended September 30, 2017 | | U.S. | | MetLife
Holdings | | Corporate
& Other | | Total | | Adjustments | | Total
Consolidated |
| | | (In millions) |
| Revenues | | | | | | | | | | | | |
| Premiums | | $ | 15,055 |
| | $ | 2,530 |
| | $ | 12 |
| | $ | 17,597 |
| | $ | — |
| | $ | 17,597 |
|
| Universal life and investment-type product policy fees | | 757 |
| | 876 |
| | — |
| | 1,633 |
| | 73 |
| | 1,706 |
|
| Net investment income | | 4,646 |
| | 3,711 |
| | (103 | ) | | 8,254 |
| | (299 | ) | | 7,955 |
|
| Other revenues | | 581 |
| | 126 |
| | 441 |
| | 1,148 |
| | — |
| | 1,148 |
|
| Net investment gains (losses) | | — |
| | — |
| | — |
| | — |
| | 184 |
| | 184 |
|
| Net derivative gains (losses) | | — |
| | — |
| | — |
| | — |
| | (317 | ) | | (317 | ) |
| Total revenues | | 21,039 |
| | 7,243 |
| | 350 |
| | 28,632 |
| | (359 | ) | | 28,273 |
|
| Expenses | | | | | | | | | | | | |
| Policyholder benefits and claims and policyholder dividends | | 15,743 |
| | 4,395 |
| | 3 |
| | 20,141 |
| | 247 |
| | 20,388 |
|
| Interest credited to policyholder account balances | | 1,076 |
| | 587 |
| | — |
| | 1,663 |
| | (3 | ) | | 1,660 |
|
| Capitalization of DAC | | (42 | ) | | (15 | ) | | — |
| | (57 | ) | | — |
| | (57 | ) |
| Amortization of DAC and VOBA | | 44 |
| | 165 |
| | — |
| | 209 |
| | (85 | ) | | 124 |
|
| Interest expense on debt | | 8 |
| | 6 |
| | 65 |
| | 79 |
| | — |
| | 79 |
|
| Other expenses | | 2,044 |
| | 895 |
| | 735 |
| | 3,674 |
| | (12 | ) | | 3,662 |
|
| Total expenses | | 18,873 |
| | 6,033 |
| | 803 |
| | 25,709 |
| | 147 |
| | 25,856 |
|
| Provision for income tax expense (benefit) | | 756 |
| | 381 |
| | (485 | ) | | 652 |
| | (177 | ) | | 475 |
|
| Operating earnings | | $ | 1,410 |
| | $ | 829 |
| | $ | 32 |
| | 2,271 |
| | | | |
| Adjustments to: | | | | | | | | | | | | |
| Total revenues | | | | | | | | (359 | ) | | | | |
| Total expenses | | | | | | | | (147 | ) | | | | |
| Provision for income tax (expense) benefit | | | | | | | | 177 |
| | | | |
| Net income (loss) | | $ | 1,942 |
| | | | $ | 1,942 |
|
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
2. Segment Information (continued)
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Operating Results | | | | |
| Nine Months Ended September 30, 2016 | | U.S. | | MetLife
Holdings | | Corporate
& Other | | Total | | Adjustments | | Total
Consolidated |
| | | (In millions) |
| Revenues | | | | | | | | | | | | |
| Premiums | | $ | 13,451 |
| | $ | 3,303 |
| | $ | 47 |
| | $ | 16,801 |
| | $ | — |
| | $ | 16,801 |
|
| Universal life and investment-type product policy fees | | 741 |
| | 928 |
| | 182 |
| | 1,851 |
| | 77 |
| | 1,928 |
|
| Net investment income | | 4,518 |
| | 4,260 |
| | (35 | ) | | 8,743 |
| | (394 | ) | | 8,349 |
|
| Other revenues | | 561 |
| | 98 |
| | 462 |
| | 1,121 |
| | — |
| | 1,121 |
|
| Net investment gains (losses) | | — |
| | — |
| | — |
| | — |
| | 115 |
| | 115 |
|
| Net derivative gains (losses) | | — |
| | — |
| | — |
| | — |
| | (562 | ) | | (562 | ) |
| Total revenues | | 19,271 |
| | 8,589 |
| | 656 |
| | 28,516 |
| | (764 | ) | | 27,752 |
|
| Expenses | | | | | | | | | | | | |
| Policyholder benefits and claims and policyholder dividends | | 14,232 |
| | 5,475 |
| | 103 |
| | 19,810 |
| | 133 |
| | 19,943 |
|
| Interest credited to policyholder account balances | | 964 |
| | 687 |
| | 26 |
| | 1,677 |
| | (2 | ) | | 1,675 |
|
| Capitalization of DAC | | (43 | ) | | (239 | ) | | (3 | ) | | (285 | ) | | — |
| | (285 | ) |
| Amortization of DAC and VOBA | | 43 |
| | 591 |
| | 51 |
| | 685 |
| | (265 | ) | | 420 |
|
| Interest expense on debt | | 7 |
| | 5 |
| | 72 |
| | 84 |
| | — |
| | 84 |
|
| Other expenses | | 2,057 |
| | 1,439 |
| | 612 |
| | 4,108 |
| | 123 |
| | 4,231 |
|
| Total expenses | | 17,260 |
| | 7,958 |
| | 861 |
| | 26,079 |
| | (11 | ) | | 26,068 |
|
| Provision for income tax expense (benefit) | | 720 |
| | 178 |
| | (403 | ) | | 495 |
| | (263 | ) | | 232 |
|
| Operating earnings | | $ | 1,291 |
| | $ | 453 |
| | $ | 198 |
| | 1,942 |
| | | | |
| Adjustments to: | | | | | | | | | | | | |
| Total revenues | | | | | | | | (764 | ) | | | | |
| Total expenses | | | | | | | | 11 |
| | | | |
| Provision for income tax (expense) benefit | | | | | | | | 263 |
| | | | |
| Net income (loss) | | $ | 1,452 |
| | | | $ | 1,452 |
|
The following table presents total assets with respect to the Company’s segments, as well as Corporate & Other, at:
| | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
| (In millions) |
| Group Benefits | $ | 34,538 | | | $ | 34,185 | |
| RIS | 177,148 | | | 180,625 | |
| MetLife Holdings | 131,556 | | | 133,219 | |
| Corporate & Other | 30,820 | | | 30,656 | |
| Total | $ | 374,062 | | | $ | 378,685 | |
3. Future Policy Benefits
The Company establishes liabilities for amounts payable under insurance policies. These liabilities are comprised of traditional and limited-payment contracts and associated deferred profit liability (“DPL”), additional insurance liabilities, participating life and short-duration contracts.
|
| | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| | (In millions) |
| U.S. | $ | 250,516 |
| | $ | 247,314 |
|
| MetLife Holdings | 164,588 |
| | 163,048 |
|
| Corporate & Other | 23,952 |
| | 22,199 |
|
| Total | $ | 439,056 |
| | $ | 432,561 |
|
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
3. Insurance
Guarantees
As discussed in Notes 1 and 4 of the Notes to the Consolidated Financial Statements included in the 2016 Annual Report, the Company issues variable annuity products with guaranteed minimum benefits. Guaranteed minimum accumulation benefits (“GMABs”), the non-life-contingent portion of guaranteed minimum withdrawal benefits (“GMWBs”) and the portion of certain GMIBs that do not require annuitization are accounted for as embedded derivatives in policyholder account balances and are further discussed in Note 6.
The Company also issues other annuity contracts that apply a lower rate on funds deposited if the contractholder elects to surrender the contract for cash and a higher rate if the contractholder elects to annuitize. These guarantees include benefits that are payable in the event of death, maturity or at annuitization. Certain other annuity contracts contain guaranteed annuitization benefits that may be above what would be provided by the current account value of the contract. Additionally, the Company issues universal and variable life contracts where the Company contractually guarantees to the contractholder a secondary guarantee or a guaranteed paid-up benefit.
Information regarding the Company’s guarantee exposure, which includes direct business, but excludes offsets from hedging or reinsurance, if any, was as follows at:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | September 30, 2017 | | December 31, 2016 |
| | | In the
Event of Death | | At
Annuitization | | In the
Event of Death | | At
Annuitization |
| | | (Dollars in millions) | |
| Annuity Contracts (1): | | | | | | | | | | | | |
| Variable Annuity Guarantees: | | | | | | | | | | | | |
| Total account value (2) | | $ | 55,962 |
| | | $ | 25,123 |
| | | $ | 54,629 |
| | | $ | 24,310 |
| |
| Separate account value | | $ | 45,046 |
| | | $ | 24,179 |
| | | $ | 43,359 |
| | | $ | 23,330 |
| |
| Net amount at risk | | $ | 1,082 |
| (3 | ) | | $ | 383 |
| (4 | ) | | $ | 1,386 |
| (3 | ) | | $ | 328 |
| (4 | ) |
| Average attained age of contractholders | | 66 years |
| | | 65 years |
| | | 65 years |
| | | 64 years |
| |
| Other Annuity Guarantees: | | | | | | | | | | | | |
| Total account value (2) | | N/A |
| | | $ | 140 |
| | | N/A |
| | | $ | 141 |
| |
| Net amount at risk | | N/A |
| | | $ | 93 |
| (5 | ) | | N/A |
| | | $ | 92 |
| (5 | ) |
| Average attained age of contractholders | | N/A |
| | | 52 years |
| | | N/A |
| | | 52 years |
| |
|
| | | | | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| | Secondary
Guarantees | | Paid-Up
Guarantees | | Secondary
Guarantees | | Paid-Up
Guarantees |
| | (Dollars in millions) |
| Universal and Variable Life Contracts (1): | | | | | | | |
| Total account value (2) | $ | 4,548 |
| | $ | 985 |
| | $ | 4,306 |
| | $ | 1,014 |
|
| Net amount at risk (6) | $ | 47,348 |
| | $ | 6,826 |
| | $ | 49,161 |
| | $ | 7,164 |
|
| Average attained age of policyholders | 54 years |
| | 62 years |
| | 53 years |
| | 62 years |
|
__________________
| |
(1) | The Company’s annuity and life contracts with guarantees may offer more than one type of guarantee in each contract. Therefore, the amounts listed above may not be mutually exclusive. |
| |
(2) | Includes the contractholder’s investments in the general account and separate account, if applicable. |
| |
(3) | Defined as the death benefit less the total account value, as of the balance sheet date. It represents the amount of the claim that the Company would incur if death claims were filed on all contracts on the balance sheet date and includes any additional contractual claims associated with riders purchased to assist with covering income taxes payable upon death. |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
3. InsuranceFuture Policy Benefits (continued)
The Company’s FPBs on the interim condensed consolidated balance sheets was as follows at:
| |
(4) | Defined as the amount (if any) that would be required to be added to the total account value to purchase a lifetime income stream, based on current annuity rates, equal to the minimum amount provided under the guaranteed benefit. This amount represents the Company’s potential economic exposure to such guarantees in the event all contractholders were to annuitize on the balance sheet date, even though the contracts contain terms that allow annuitization of the guaranteed amount only after the 10th anniversary of the contract, which not all contractholders have achieved. |
| |
(5) | Defined as either the excess of the upper tier, adjusted for a profit margin, less the lower tier, as of the balance sheet date or the amount (if any) that would be required to be added to the total account value to purchase a lifetime income stream, based on current annuity rates, equal to the minimum amount provided under the guaranteed benefit. These amounts represent the Company’s potential economic exposure to such guarantees in the event all contractholders were to annuitize on the balance sheet date. |
| |
(6) | Defined as the guarantee amount less the account value, as of the balance sheet date. It represents the amount of the claim that the Company would incur if death claims were filed on all contracts on the balance sheet date. |
| | | | | | | | | | | | | | |
| | March 31, 2024 | | December 31, 2023 |
| | (In millions) |
| Traditional and Limited-Payment Contracts: | | | | |
| RIS - Annuities | | $ | 47,106 | | | $ | 48,695 | |
| MetLife Holdings - Long-term care | | 14,845 | | | 15,240 | |
| Deferred Profit Liabilities: | | | | |
| RIS - Annuities | | 2,993 | | | 3,000 | |
| Additional Insurance Liabilities: | | | | |
| MetLife Holdings - Universal and variable universal life | | 1,877 | | | 1,841 | |
| MetLife Holdings - Participating life | | 43,294 | | | 43,586 | |
| Other long-duration (1) | | 6,416 | | | 6,605 | |
| Short-duration and other | | 10,363 | | | 10,215 | |
| Total | | $ | 126,894 | | | $ | 129,182 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
__________________
(1) This balance represents liabilities for various smaller product lines across all segments.
Rollforwards - Traditional and Limited-Payment Contracts
The following information about the direct and assumed liability for FPBs includes disaggregated rollforwards of expected future net premiums and expected future benefits. The products grouped within these rollforwards were selected based upon common characteristics and valuations using similar inputs, judgments, assumptions and methodologies within a particular segment of the business. The adjusted balance in each disaggregated rollforward reflects the remeasurement (gains) losses. All amounts presented in the rollforwards and accompanying financial information do not include a reduction for amounts ceded to reinsurers, except with respect to ending net liability for FPB balances where applicable.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
3. Future Policy Benefits (continued)
RIS - Annuities
The RIS segment’s annuity products include pension risk transfers, certain structured settlements and certain institutional income annuities, which are mainly single premium spread-based products. Information regarding these products was as follows:
| | | | | | | | | | | | | | |
| | Three Months
Ended
March 31, |
| | 2024 | | 2023 |
| | (Dollars in millions) |
| Present Value of Expected Net Premiums | | | | |
| Balance, beginning of period, at current discount rate at balance sheet date | | $ | — | | | $ | — | |
| | | | |
| Balance, beginning of period, at original discount rate | | $ | — | | | $ | — | |
| | | | |
| Effect of actual variances from expected experience (1) | | (3) | | | 2 | |
| Adjusted balance | | (3) | | | 2 | |
| Issuances | | 157 | | | 66 | |
| Net premiums collected | | (154) | | | (68) | |
| Ending balance at original discount rate | | — | | | — | |
| Balance, end of period, at current discount rate at balance sheet date | | $ | — | | | $ | — | |
| | | | |
| Present Value of Expected FPBs | | | | |
| Balance, beginning of period, at current discount rate at balance sheet date | | $ | 48,886 | | | $ | 48,190 | |
| | | | |
| Balance, beginning of period, at original discount rate | | $ | 47,991 | | | $ | 49,194 | |
| | | | |
| Effect of actual variances from expected experience (1) | | (26) | | | (262) | |
| Adjusted balance | | 47,965 | | | 48,932 | |
| Issuances | | 157 | | | 64 | |
| Interest accrual | | 597 | | | 600 | |
| Benefit payments | | (1,115) | | | (1,309) | |
| Ending balance at original discount rate | | 47,604 | | | 48,287 | |
| Effect of changes in discount rate assumptions | | (200) | | | 281 | |
| Balance, end of period, at current discount rate at balance sheet date | | 47,404 | | | 48,568 | |
| | | | |
| Cumulative amount of fair value hedging adjustments | | (298) | | | (77) | |
| Net liability for FPBs | | $ | 47,106 | | | $ | 48,491 | |
| | | | |
| | | | |
| | | | |
| Undiscounted - Expected future benefit payments | | $ | 88,345 | | | $ | 94,225 | |
| Discounted - Expected future benefit payments (at current discount rate at balance sheet date) | | $ | 47,404 | | | $ | 48,568 | |
| Weighted-average duration of the liability | | 9 years | | 10 years |
| Weighted-average interest accretion (original locked-in) rate | | 5.1 | % | | 5.1 | % |
| Weighted-average current discount rate at balance sheet date | | 5.4 | % | | 5.2 | % |
__________________
(1)For the three months ended March 31, 2024 and 2023, the net effect of actual variances from expected experience was largely offset by the corresponding impact in DPL associated with the RIS segment’s annuity products of $15 million and $196 million, respectively. Excluding the corresponding impact in DPL, for the three months ended March 31, 2023, the net effect of actual variances from expected experience was primarily driven by favorable mortality and the amendment of an affiliated reinsurance treaty.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
3. Future Policy Benefits (continued)
MetLife Holdings - Long-term Care
The MetLife Holdings segment’s long-term care products offer protection against potentially high costs of long-term health care services. Information regarding these products was as follows:
| | | | | | | | | | | | | | |
| Three Months
Ended
March 31, |
| | 2024 | | 2023 |
| | (Dollars in millions) |
| Present Value of Expected Net Premiums | | | | |
| Balance, beginning of period, at current discount rate at balance sheet date | | $ | 5,687 | | | $ | 5,775 | |
| | | | |
| Balance, beginning of period, at original discount rate | | $ | 5,566 | | | $ | 5,807 | |
| | | | |
| Effect of actual variances from expected experience | | (4) | | | 26 | |
| Adjusted balance | | 5,562 | | | 5,833 | |
| Interest accrual | | 71 | | | 75 | |
| Net premiums collected | | (143) | | | (146) | |
| Ending balance at original discount rate | | 5,490 | | | 5,762 | |
| Effect of changes in discount rate assumptions | | — | | | 104 | |
| Balance, end of period, at current discount rate at balance sheet date | | $ | 5,490 | | | $ | 5,866 | |
| | | | |
| Present Value of Expected FPBs | | | | |
| Balance, beginning of period, at current discount rate at balance sheet date | | $ | 20,927 | | | $ | 19,619 | |
| | | | |
| Balance, beginning of period, at original discount rate | | $ | 20,494 | | | $ | 20,165 | |
| | | | |
| Effect of actual variances from expected experience | | (1) | | | 28 | |
| Adjusted balance | | 20,493 | | | 20,193 | |
| Interest accrual | | 269 | | | 266 | |
| Benefit payments | | (212) | | | (191) | |
| Ending balance at original discount rate | | 20,550 | | | 20,268 | |
| Effect of changes in discount rate assumptions | | (215) | | | 215 | |
| Balance, end of period, at current discount rate at balance sheet date | | 20,335 | | | 20,483 | |
| | | | |
| Net liability for FPBs | | $ | 14,845 | | | $ | 14,617 | |
| | | | |
| Undiscounted: | | | | |
| Expected future gross premiums | | $ | 10,430 | | | $ | 11,053 | |
| Expected future benefit payments | | $ | 44,808 | | | $ | 45,741 | |
| Discounted (at current discount rate at balance sheet date): | | | | |
| Expected future gross premiums | | $ | 6,895 | | | $ | 7,295 | |
| Expected future benefit payments | | $ | 20,335 | | | $ | 20,483 | |
| Weighted-average duration of the liability | | 14 years | | 15 years |
| Weighted -average interest accretion (original locked-in) rate | | 5.4 | % | | 5.4 | % |
| Weighted-average current discount rate at balance sheet date | | 5.5 | % | | 5.3 | % |
Rollforward - Additional Insurance Liabilities
The Company establishes additional insurance liabilities for annuitization, death or other insurance benefits for universal life and variable universal life contract features where the Company guarantees to the contractholder either a secondary guarantee or a guaranteed paid-up benefit. The policy can remain in force, even if the base policy account value is zero, as long as contractual secondary guarantee requirements have been met.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
3. Future Policy Benefits (continued)
The following information about the direct liability for additional insurance liabilities includes a disaggregated rollforward. The products grouped within the rollforward were selected based upon common characteristics and valuations using similar inputs, judgments, assumptions and methodologies within a particular segment of the business. The adjusted balance in the disaggregated rollforward reflects the remeasurement (gains) losses. All amounts presented in the rollforward and accompanying financial information do not include a reduction for amounts ceded to reinsurers.
MetLife Holdings
The MetLife Holdings segment’s universal life and variable universal life products offer a contract feature where the Company guarantees to the contractholder a secondary guarantee or a guaranteed paid-up benefit. Information regarding these additional insurance liabilities was as follows:
| | | | | | | | | | | | | | |
| | Three Months
Ended
March 31, |
| | 2024 | | 2023 |
| | Universal and Variable Universal Life |
| | (Dollars in millions) |
| Balance, beginning of period | | $ | 1,841 | | | $ | 1,642 | |
| Less: Accumulated other comprehensive income (“AOCI”) adjustment | | (14) | | | (63) | |
| Balance, beginning of period, before AOCI adjustment | | 1,855 | | | 1,705 | |
| | | | |
| Effect of actual variances from expected experience | | 11 | | | 14 | |
| Adjusted balance | | 1,866 | | | 1,719 | |
| Assessments accrual | | 22 | | | 24 | |
| Interest accrual | | 24 | | | 22 | |
| Excess benefits paid | | (20) | | | (29) | |
| Balance, end of period, before AOCI adjustment | | 1,892 | | | 1,736 | |
| Add: AOCI adjustment | | (15) | | | (50) | |
| Balance, end of period | | 1,877 | | | 1,686 | |
| Less: Reinsurance recoverables | | 1,877 | | | 636 | |
| Balance, end of period, net of reinsurance | | $ | — | | | $ | 1,050 | |
| | | | |
| Weighted-average duration of the liability | | 17 years | | 17 years |
| Weighted-average interest accretion rate | | 5.2 | % | | 5.2 | % |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
3. Future Policy Benefits (continued)
The Company’s gross premiums or assessments and interest expense recognized in the interim condensed consolidated statements of operations and comprehensive income (loss) for long-duration contracts, excluding MetLife Holdings’ participating life contracts, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months
Ended
March 31, |
| | 2024 | | 2023 |
| | Gross Premiums or Assessments (1) | | Interest Expense (2) | | Gross Premiums or Assessments (1) | | Interest Expense (2) |
| | (In millions) |
| Traditional and Limited-Payment Contracts: | | | | | | | | |
| RIS - Annuities | | $ | 167 | | | $ | 597 | | | $ | 41 | | | $ | 600 | |
| MetLife Holdings - Long-term care | | 181 | | | 198 | | | 183 | | | 191 | |
| Deferred Profit Liabilities: | | | | | | | | |
| RIS - Annuities | | N/A | | 37 | | | N/A | | 35 | |
| Additional Insurance Liabilities: | | | | | | | | |
| MetLife Holdings - Universal and variable universal life | | 99 | | | 24 | | | 120 | | | 22 | |
| Other long duration | | 177 | | | 77 | | | 164 | | | 76 | |
| Total | | $ | 624 | | | $ | 933 | | | $ | 508 | | | $ | 924 | |
__________________
(1)Gross premiums are related to traditional and limited-payment contracts and are included in premiums. Assessments are related to additional insurance liabilities and are included in universal life and investment-type product policy fees and net investment income.
(2)Interest expense is included in policyholder benefits and claims.
Liabilities for Unpaid Claims and Claim Expenses
Rollforward of Claims and Claim Adjustment Expenses
Information regarding the liabilities for unpaid claims and claim adjustment expenses was as follows:
| | | | | | | | | | | | | | |
| | Three Months
Ended
March 31, |
| | 2024 | | 2023 |
| | (In millions) |
| Balance, beginning of period | | $ | 11,609 | | | $ | 11,300 | |
| Less: Reinsurance recoverables | | 1,740 | | | 1,633 | |
| Net balance, beginning of period | | 9,869 | | | 9,667 | |
| Incurred related to: | | | | |
| Current period | | 5,178 | | | 5,151 | |
| Prior periods (1) | | (58) | | | (28) | |
| Total incurred | | 5,120 | | | 5,123 | |
| Paid related to: | | | | |
| Current period | | (2,152) | | | (2,025) | |
| Prior periods | | (3,000) | | | (2,999) | |
| Total paid | | (5,152) | | | (5,024) | |
| Net balance, end of period | | 9,837 | | | 9,766 | |
| Add: Reinsurance recoverables | | 2,064 | | | 1,816 | |
| Balance, end of period (included in FPBs and other policy-related balances) | | $ | 11,901 | | | $ | 11,582 | |
|
| | | | | | | | |
|
| Nine Months
Ended
September 30, |
|
| 2017 |
| 2016 |
|
| (In millions) |
| Balance at December 31 of prior period |
| $ | 11,621 |
| | $ | 7,527 |
|
| Less: Reinsurance recoverables |
| 539 |
| | 273 |
|
| Net Balance at December 31 of prior period |
| 11,082 |
| | 7,254 |
|
| Cumulative adjustment (1) |
| — |
| | 3,397 |
|
| Net balance, beginning of period |
| 11,082 |
| | 10,651 |
|
| Incurred related to: |
| | | |
| Current period |
| 11,768 |
| | 12,392 |
|
| Prior periods (2) |
| 205 |
| | 239 |
|
| Total incurred |
| 11,973 |
| | 12,631 |
|
| Paid related to: |
| | | |
| Current period |
| (8,952 | ) | | (8,678 | ) |
| Prior periods |
| (3,115 | ) | | (3,505 | ) |
| Total paid |
| (12,067 | ) | | (12,183 | ) |
| Net balance, end of period |
| 10,988 |
| | 11,099 |
|
| Add: Reinsurance recoverables |
| 1,355 |
| | 1,489 |
|
| Balance, end of period (included in future policy benefits and other policy-related balances) |
| $ | 12,343 |
| | $ | 12,588 |
|
__________________
| |
(1) | Reflects the accumulated adjustment, net of reinsurance, upon implementation of the new short-duration contracts guidance which clarified the requirement to include claim information for long-duration contracts. The accumulated adjustment primarily reflects unpaid claim liabilities, net of reinsurance, for long-duration contracts as of the beginning of the period presented. |
| |
(2) | During both the nine months ended September 30, 2017 and 2016, as a result of changes in estimates of insured events in the respective prior periods, the claims and claim adjustment expenses associated with prior periods increased due to unfavorable claims experience. |
______________
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
3. Future Policy Benefits (continued)
(1)For the three months ended March 31, 2024 and 2023, incurred claims and claim adjustment expenses associated with prior periods decreased due to favorable claims experience in the respective current period.
4. Policyholder Account Balances
The Company establishes liabilities for PABs, which are generally equal to the account value, and which includes accrued interest credited, but excludes the impact of any applicable charge that may be incurred upon surrender.
The Company’s PABs on the interim condensed consolidated balance sheets were as follows at:
| | | | | | | | | | | | | | |
| | March 31, 2024 | | December 31, 2023 |
| | (In millions) |
| Group Benefits - Group Life | | $ | 7,593 | | | $ | 7,605 | |
| RIS: | | | | |
| Capital Markets Investment Products and Stable Value GICs | | 58,350 | | | 58,554 | |
| Annuities and Risk Solutions | | 10,793 | | | 10,650 | |
| | | | |
| | | | |
| MetLife Holdings - Annuities | | 10,489 | | | 10,888 | |
| | | | |
| Other | | 16,037 | | | 16,197 | |
| Total | | $ | 103,262 | | | $ | 103,894 | |
Rollforwards
The following information about the direct and assumed liability for PABs includes year-to-date disaggregated rollforwards. The products grouped within these rollforwards were selected based upon common characteristics and valuations using similar inputs, judgments, assumptions and methodologies within a particular segment of the business. Policy charges presented in each disaggregated rollforward reflect a premium and/or assessment based on the account balance.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
4. Policyholder Account Balances (continued)
Group Benefits
Group Life
The Group Benefits segment’s group life PABs predominantly consist of retained asset accounts, universal life products, and the fixed account of variable life insurance products. Information regarding this liability was as follows:
| | | | | | | | | | | | | | |
| | Three Months
Ended
March 31, |
| | 2024 | | 2023 |
| | (Dollars in millions) |
| Balance, beginning of period | | $ | 7,605 | | | $ | 7,954 | |
| Deposits | | 966 | | | 830 | |
| Policy charges | | (163) | | | (160) | |
| Surrenders and withdrawals | | (856) | | | (782) | |
| Benefit payments | | (4) | | | (1) | |
| Net transfers from (to) separate accounts | | (3) | | | 1 | |
| Interest credited | | 48 | | | 46 | |
| Balance, end of period | | $ | 7,593 | | | $ | 7,888 | |
| | | | |
| Weighted-average annual crediting rate | | 2.6 | % | | 2.3 | % |
| | | | |
| At period end: | | | | |
| Cash surrender value | | $ | 7,533 | | | $ | 7,827 | |
| Net amount at risk, excluding offsets from reinsurance: | | | | |
| In the event of death | | $ | 260,502 | | | $ | 249,463 | |
The Group Benefits segment’s group life product account values by range of guaranteed minimum crediting rates (“GMCR”) and the related range of differences between rates being credited to policyholders and the respective guaranteed minimums were as follows at:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Range of GMCR | | At GMCR | | Greater than
0% but less
than 0.50% above GMCR | | Equal to or greater than 0.50% but less than 1.50%
above GMCR | | Equal to or greater than 1.50% above GMCR | | Total
Account
Value |
| | (In millions) |
| March 31, 2024 | | | | | | | | | | |
| Equal to or greater than 0% but less than 2% | | $ | — | | | $ | — | | | $ | 839 | | | $ | 4,628 | | | $ | 5,467 | |
| Equal to or greater than 2% but less than 4% | | 1,242 | | | 9 | | | 60 | | | 2 | | | 1,313 | |
| Equal to or greater than 4% | | 701 | | | — | | | 40 | | | 33 | | | 774 | |
| Products with either a fixed rate or no GMCR | | N/A | | N/A | | N/A | | N/A | | 39 | |
| Total | | $ | 1,943 | | | $ | 9 | | | $ | 939 | | | $ | 4,663 | | | $ | 7,593 | |
| | | | | | | | | | |
| March 31, 2023 | | | | | | | | | | |
| Equal to or greater than 0% but less than 2% | | $ | — | | | $ | — | | | $ | 935 | | | $ | 4,640 | | | $ | 5,575 | |
| Equal to or greater than 2% but less than 4% | | 1,277 | | | 10 | | | 63 | | | 2 | | | 1,352 | |
| Equal to or greater than 4% | | 759 | | | 1 | | | 43 | | | 33 | | | 836 | |
| Products with either a fixed rate or no GMCR | | N/A | | N/A | | N/A | | N/A | | 125 | |
| Total | | $ | 2,036 | | | $ | 11 | | | $ | 1,041 | | | $ | 4,675 | | | $ | 7,888 | |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
4. Policyholder Account Balances (continued)
RIS
Capital Markets Investment Products and Stable Value GICs
The RIS segment’s capital markets investment products and stable value GICs in PABs are investment-type products, mainly funding agreements. Information regarding this liability was as follows:
| | | | | | | | | | | | | | |
| | Three Months
Ended
March 31, |
| | 2024 | | 2023 |
| | (Dollars in millions) |
| Balance, beginning of period | | $ | 58,554 | | | $ | 58,508 | |
| Deposits | | 16,227 | | | 19,546 | |
| | | | |
| Surrenders and withdrawals | | (16,502) | | | (20,825) | |
| | | | |
| | | | |
| Interest credited | | 518 | | | 422 | |
| Effect of foreign currency translation and other, net | | (447) | | | 459 | |
| Balance, end of period | | $ | 58,350 | | | $ | 58,110 | |
| | | | |
| Weighted-average annual crediting rate | | 3.6 | % | | 2.9 | % |
| Cash surrender value at period end | | $ | 1,515 | | | $ | 1,565 | |
The RIS segment’s capital markets investment products and stable value GICs account values by range of GMCR and the related range of differences between rates being credited to policyholders and the respective guaranteed minimums were as follows at:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Range of GMCR | | At GMCR | | Greater than
0% but less
than 0.50% above GMCR | | Equal to or greater than 0.50% but less than 1.50%
above GMCR | | Equal to or greater than 1.50% above GMCR | | Total
Account
Value |
| | (In millions) |
| March 31, 2024 | | | | | | | | | | |
| Equal to or greater than 0% but less than 2% | | $ | — | | | $ | — | | | $ | 1 | | | $ | 1,998 | | | $ | 1,999 | |
| | | | | | | | | | |
| | | | | | | | | | |
| Products with either a fixed rate or no GMCR | | N/A | | N/A | | N/A | | N/A | | 56,351 | |
| Total | | $ | — | | | $ | — | | | $ | 1 | | | $ | 1,998 | | | $ | 58,350 | |
| | | | | | | | | | |
| March 31, 2023 | | | | | | | | | | |
| Equal to or greater than 0% but less than 2% | | $ | — | | | $ | — | | | $ | 1 | | | $ | 1,835 | | | $ | 1,836 | |
| | | | | | | | | | |
| | | | | | | | | | |
| Products with either a fixed rate or no GMCR | | N/A | | N/A | | N/A | | N/A | | 56,274 | |
| Total | | $ | — | | | $ | — | | | $ | 1 | | | $ | 1,835 | | | $ | 58,110 | |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
4. Policyholder Account Balances (continued)
Annuities and Risk Solutions
The RIS segment’s annuity and risk solutions PABs include certain structured settlements and institutional income annuities, and benefit funding solutions that include postretirement benefits and company-, bank- or trust-owned life insurance used to finance nonqualified benefit programs for executives. Information regarding this liability was as follows:
| | | | | | | | | | | | | | |
| | Three Months
Ended
March 31, |
| | 2024 | | 2023 |
| | (Dollars in millions) |
| Balance, beginning of period | | $ | 10,650 | | | $ | 10,244 | |
| Deposits | | 250 | | | 240 | |
| Policy charges | | (12) | | | (43) | |
| Surrenders and withdrawals | | (55) | | | (40) | |
| Benefit payments | | (148) | | | (134) | |
| Net transfers from (to) separate accounts | | 19 | | | 55 | |
| Interest credited | | 112 | | | 107 | |
| Other | | (23) | | | 21 | |
| Balance, end of period | | $ | 10,793 | | | $ | 10,450 | |
| | | | |
| Weighted-average annual crediting rate | | 4.2 | % | | 4.1 | % |
| | | | |
| At period end: | | | | |
| Cash surrender value | | $ | 6,834 | | | $ | 6,621 | |
| Net amount at risk, excluding offsets from ceded reinsurance: | | | | |
| In the event of death | | $ | 34,862 | | | $ | 35,177 | |
The RIS segment’s annuity and risk solutions account values by range of GMCR and the related range of differences between rates being credited to policyholders and the respective guaranteed minimums were as follows at:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Range of GMCR | | At GMCR | | Greater than
0% but less
than 0.50% above GMCR | | Equal to or greater than 0.50% but less than 1.50%
above GMCR | | Equal to or greater than 1.50% above GMCR | | Total
Account
Value |
| | (In millions) |
| March 31, 2024 | | | | | | | | | | |
| Equal to or greater than 0% but less than 2% | | $ | — | | | $ | — | | | $ | 20 | | | $ | 1,579 | | | $ | 1,599 | |
| Equal to or greater than 2% but less than 4% | | 244 | | | 34 | | | 8 | | | 416 | | | 702 | |
| Equal to or greater than 4% | | 3,527 | | | — | | | 266 | | | 5 | | | 3,798 | |
| Products with either a fixed rate or no GMCR | | N/A | | N/A | | N/A | | N/A | | 4,694 | |
| Total | | $ | 3,771 | | | $ | 34 | | | $ | 294 | | | $ | 2,000 | | | $ | 10,793 | |
| | | | | | | | | | |
| March 31, 2023 | | | | | | | | | | |
| Equal to or greater than 0% but less than 2% | | $ | — | | | $ | — | | | $ | 58 | | | $ | 1,394 | | | $ | 1,452 | |
| Equal to or greater than 2% but less than 4% | | 230 | | | 39 | | | 40 | | | 441 | | | 750 | |
| Equal to or greater than 4% | | 3,689 | | | 120 | | | 12 | | | 5 | | | 3,826 | |
| Products with either a fixed rate or no GMCR | | N/A | | N/A | | N/A | | N/A | | 4,422 | |
| Total | | $ | 3,919 | | | $ | 159 | | | $ | 110 | | | $ | 1,840 | | | $ | 10,450 | |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
4. Policyholder Account Balances (continued)
MetLife Holdings
Annuities
The MetLife Holdings segment’s annuity PABs primarily include fixed deferred annuities, the fixed account portion of variable annuities, certain income annuities, and embedded derivatives related to equity-indexed annuities. Information regarding this liability was as follows:
| | | | | | | | | | | | | | |
| | Three Months
Ended
March 31, |
| | 2024 | | 2023 |
| | (Dollars in millions) |
| Balance, beginning of period | | $ | 10,888 | | | $ | 12,598 | |
| Deposits | | 36 | | | 41 | |
| Policy charges | | (3) | | | (3) | |
| Surrenders and withdrawals | | (440) | | | (510) | |
| Benefit payments | | (106) | | | (117) | |
| Net transfers from (to) separate accounts | | 27 | | | 35 | |
| Interest credited | | 83 | | | 90 | |
| Other | | 4 | | | 9 | |
| Balance, end of period | | $ | 10,489 | | | $ | 12,143 | |
| | | | |
| Weighted-average annual crediting rate | | 3.2 | % | | 2.9 | % |
| | | | |
| At period end: | | | | |
| Cash surrender value | | $ | 9,797 | | | $ | 11,309 | |
| Net amount at risk, excluding offsets from ceded reinsurance (1): | | | | |
| In the event of death | | $ | 2,486 | | | $ | 3,600 | |
| At annuitization or exercise of other living benefits | | $ | 572 | | | $ | 788 | |
__________________
(1)Includes amounts for certain variable annuities recorded as PABs with the related guarantees recorded as MRBs which are disclosed in “MetLife Holdings – Annuities” in Note 5.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
4. Policyholder Account Balances (continued)
The MetLife Holdings segment’s annuity account values by range of GMCR and the related range of differences between rates being credited to policyholders and the respective guaranteed minimums were as follows at:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Range of GMCR | | At GMCR | | Greater than
0% but less
than 0.50% above GMCR | | Equal to or greater than 0.50% but less than 1.50%
above GMCR | | Equal to or greater than 1.50% above GMCR | | Total
Account
Value |
| | (In millions) |
| March 31, 2024 | | | | | | | | | | |
| Equal to or greater than 0% but less than 2% | | $ | 6 | | | $ | 237 | | | $ | 442 | | | $ | 60 | | | $ | 745 | |
| Equal to or greater than 2% but less than 4% | | 865 | | | 7,151 | | | 534 | | | 201 | | | 8,751 | |
| Equal to or greater than 4% | | 417 | | | 140 | | | 25 | | | — | | | 582 | |
| Products with either a fixed rate or no GMCR | | N/A | | N/A | | N/A | | N/A | | 411 | |
| Total | | $ | 1,288 | | | $ | 7,528 | | | $ | 1,001 | | | $ | 261 | | | $ | 10,489 | |
| | | | | | | | | | |
| March 31, 2023 | | | | | | | | | | |
| Equal to or greater than 0% but less than 2% | | $ | 658 | | | $ | 90 | | | $ | 136 | | | $ | 24 | | | $ | 908 | |
| Equal to or greater than 2% but less than 4% | | 6,516 | | | 3,197 | | | 371 | | | 36 | | | 10,120 | |
| Equal to or greater than 4% | | 587 | | | 44 | | | 6 | | | — | | | 637 | |
| Products with either a fixed rate or no GMCR | | N/A | | N/A | | N/A | | N/A | | 478 | |
| Total | | $ | 7,761 | | | $ | 3,331 | | | $ | 513 | | | $ | 60 | | | $ | 12,143 | |
5. Market Risk Benefits
The Company establishes liabilities for variable annuity contract features which include a minimum benefit guarantee that provides to the contractholder a minimum return based on their initial deposit less withdrawals. In some cases, the benefit base may be increased by additional deposits, bonus amounts, accruals or optional market value resets.
The Company’s MRB assets and MRB liabilities on the interim condensed consolidated balance sheets were as follows at:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2024 | | December 31, 2023 |
| | Asset | | Liability | | Net | | Asset | | Liability | | Net |
| | (In millions) |
| MetLife Holdings - Annuities | | $ | 206 | | | $ | 2,437 | | | $ | 2,231 | | | $ | 156 | | | $ | 2,858 | | | $ | 2,702 | |
| Other | | 24 | | | 15 | | | (9) | | | 21 | | | 20 | | | (1) | |
| Total | | $ | 230 | | | $ | 2,452 | | | $ | 2,222 | | | $ | 177 | | | $ | 2,878 | | | $ | 2,701 | |
Rollforwards
The following information about the direct liability for MRBs includes a disaggregated rollforward. The products grouped within this rollforward were selected based upon common characteristics and valuations using similar inputs, judgments, assumptions and methodologies within a particular segment of the business.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
5. Market Risk Benefits (continued)
MetLife Holdings - Annuities
The MetLife Holdings segment’s variable annuity products offer contract features where the Company guarantees to the contractholder a minimum benefit, which includes guaranteed minimum death benefits (“GMDBs”) and living benefit guarantees. The GMDB contract features include return of premium, which provides a return of the purchase payment upon death, annual step-up and roll-up and step-up combinations. The living benefit guarantees contract features primarily include guaranteed minimum income benefits (“GMIBs”), which provide a minimum accumulation of purchase payments that can be annuitized to receive a monthly income stream, and guaranteed minimum withdrawal benefits (“GMWBs”), which provide a series of withdrawals, provided that withdrawals in a contract year do not exceed a contractual limit. Information regarding MetLife Holdings annuity products was as follows:
| | | | | | | | | | | | | | |
| Three Months
Ended
March 31, |
| | 2024 | | 2023 |
| (In millions) |
| Balance, beginning of period | | $ | 2,702 | | | $ | 3,071 | |
| | | | |
| Balance, beginning of period, before effect of cumulative changes in the instrument-specific credit risk | | $ | 2,741 | | | $ | 3,164 | |
| | | | |
| Attributed fees collected | | 76 | | | 80 | |
| Benefit payments | | (22) | | | (10) | |
| Effect of changes in interest rates | | (376) | | | 344 | |
| Effect of changes in capital markets | | (242) | | | (303) | |
| Effect of changes in equity index volatility | | 34 | | | (121) | |
| Actual policyholder behavior different from expected behavior | | 57 | | | 21 | |
| | | | |
| Effect of foreign currency translation and other, net (1) | | (11) | | | 251 | |
| Effect of changes in risk margin | | (44) | | | 3 | |
| Balance, end of period, before the cumulative effect of changes in the instrument-specific credit risk | | 2,213 | | | 3,429 | |
| Cumulative effect of changes in the instrument-specific credit risk | | 18 | | | (174) | |
| | | | |
| Balance, end of period | | $ | 2,231 | | | $ | 3,255 | |
| | | | |
| | | | |
| | | | |
| At period end: | | | | |
| Net amount at risk, excluding offsets from hedging (2): | | | | |
| In the event of death | | $ | 2,486 | | | $ | 3,600 | |
| At annuitization or exercise of other living benefits | | $ | 572 | | | $ | 788 | |
| Weighted-average attained age of contractholders: | | | | |
| In the event of death | | 72 years | | 70 years |
| At annuitization or exercise of other living benefits | | 70 years | | 70 years |
__________________
(1) Included is the covariance impact from aggregating the market observable inputs, mostly driven by interest rate and capital market volatility.
(2) Includes amounts for certain variable annuity guarantees recorded as MRBs on contracts also recorded as PABs which are disclosed in “MetLife Holdings – Annuities” in Note 4.
Significant Methodologies and Assumptions
The Company issues GMDBs, GMWBs, guaranteed minimum accumulation benefits (“GMABs”) and GMIBs that typically meet the definition of MRBs, which are measured in aggregate, as one compound MRB, at estimated fair value separately from the variable annuity contract, with changes in estimated fair value reported in net income, except for changes in nonperformance risk of the Company which are recorded in other comprehensive income (loss) (“OCI”).
The Company calculates the fair value of these MRBs, which is estimated as the present value of projected future benefits minus the present value of projected attributed fees, using actuarial and capital market assumptions including expectations concerning policyholder behavior. The calculation is based on in-force business, projecting future cash flows from the MRB over multiple risk neutral stochastic scenarios using observable risk-free rates.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
5. Market Risk Benefits (continued)
Capital market assumptions, such as risk-free rates and implied volatilities, are based on market prices for publicly traded instruments to the extent that prices for such instruments are observable. Implied volatilities beyond the observable period are extrapolated based on observable implied volatilities and historical volatilities. Actuarial assumptions, including mortality, lapse, withdrawal and utilization, are unobservable and are reviewed at least annually based on actuarial studies of historical experience. See Note 11 for additional information on significant unobservable inputs.
The valuation of these MRBs includes a nonperformance risk adjustment and adjustments for a risk margin related to non-capital market inputs. The nonperformance adjustment is determined by taking into consideration publicly available information relating to spreads in the secondary market for MetLife, Inc.’s 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 as compared to MetLife, Inc.
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 at annuitization, premium persistency, partial withdrawal and surrenders. The establishment of risk margins requires the use of significant management judgment, including assumptions of the amount and cost of capital needed to cover the guarantees.
These guarantees may be more costly than expected in volatile or declining equity markets. Market conditions, including changes in interest rates, equity indices, market volatility and foreign currency exchange rates; and variations in actuarial assumptions regarding policyholder behavior, mortality and risk margins related to non-capital market inputs, impact the estimated fair value of the guarantees and affect net income, and changes in nonperformance risk of the Company affect OCI.
Other
In addition to the disaggregated MRB product rollforward above, the Company offers other products with guaranteed minimum benefit features. These MRBs are measured at estimated fair value, with changes in estimated fair value reported in net income, except for changes in nonperformance risk of the Company which are recorded in OCI. See Note 11 for additional information on significant unobservable inputs used in the fair value measurement of MRBs. Information regarding these product liabilities was as follows:
| | | | | | | | | | | | | | |
| | Three Months
Ended
March 31, |
| | 2024 | | 2023 |
| | (In millions) |
| Balance, beginning of period | | $ | (1) | | | $ | 25 | |
| | | | |
| Balance, beginning of period, before effect of cumulative changes in the instrument-specific credit risk | | $ | 2 | | | $ | 34 | |
| | | | |
| Attributed fees collected | | 1 | | | 1 | |
| | | | |
| Effect of changes in interest rates | | (12) | | | 21 | |
| | | | |
| | | | |
| Actual policyholder behavior different from expected behavior | | — | | | (23) | |
| | | | |
| Effect of foreign currency translation and other, net | | 2 | | | 35 | |
| | | | |
| Balance, end of period, before the cumulative effect of changes in the instrument-specific credit risk | | (7) | | | 68 | |
| Cumulative effect of changes in the instrument-specific credit risk | | (2) | | | (15) | |
| | | | |
| Balance, end of period | | $ | (9) | | | $ | 53 | |
| | | | |
| | | | |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
6. Separate Accounts
Separate account assets consist of investment accounts established and maintained by the Company. The investment objectives of these assets are directed by the contractholder. An equivalent amount is reported as separate account liabilities. These accounts are reported separately from the general account assets and liabilities.
Separate Account Liabilities
The Company’s separate account liabilities on the interim condensed consolidated balance sheets were as follows at:
| | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
| (In millions) |
| RIS: | | | |
| Stable Value and Risk Solutions | $ | 33,142 | | | $ | 35,562 | |
| Annuities | 11,465 | | | 11,659 | |
| MetLife Holdings - Annuities | 29,803 | | | 29,162 | |
| Other | 7,316 | | | 6,814 | |
| Total | $ | 81,726 | | | $ | 83,197 | |
Rollforwards
The following information about the separate account liabilities includes disaggregated rollforwards. The products grouped within these rollforwards were selected based upon common characteristics and valuations using similar inputs, judgments, assumptions and methodologies within a particular segment of the business.
The separate account liabilities are primarily comprised of the following: RIS stable value and risk solutions contracts, RIS annuities participating and non-participating group contracts, and MetLife Holdings variable annuities.
The balances of and changes in separate account liabilities were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | RIS
Stable Value and Risk Solutions | | RIS
Annuities | | MetLife Holdings
Annuities |
| | (In millions) |
| Three Months Ended March 31, 2024 | | | | | | |
| Balance, beginning of period | | $ | 35,562 | | | $ | 11,659 | | | $ | 29,162 | |
| Premiums and deposits | | 312 | | | 15 | | | 63 | |
| Policy charges | | (49) | | | (5) | | | (143) | |
| Surrenders and withdrawals | | (1,804) | | | (172) | | | (880) | |
| Benefit payments | | (22) | | | — | | | (128) | |
| Investment performance | | 246 | | | (54) | | | 1,761 | |
| Net transfers from (to) general account | | (19) | | | — | | | (27) | |
| Other (1) | | (1,084) | | | 22 | | | (5) | |
| Balance, end of period | | $ | 33,142 | | | $ | 11,465 | | | $ | 29,803 | |
| Three Months Ended March 31, 2023 | | | | | | |
| Balance, beginning of period | | $ | 43,249 | | | $ | 11,694 | | | $ | 28,443 | |
| Premiums and deposits | | 645 | | | 78 | | | 67 | |
| Policy charges | | (57) | | | (6) | | | (149) | |
| Surrenders and withdrawals | | (3,417) | | | (135) | | | (660) | |
| Benefit payments | | (21) | | | — | | | (120) | |
| Investment performance | | 1,079 | | | 505 | | | 1,716 | |
| Net transfers from (to) general account | | (57) | | | 2 | | | (36) | |
| Other | | (744) | | | 81 | | | — | |
| Balance, end of period | | $ | 40,677 | | | $ | 12,219 | | | $ | 29,261 | |
| | | | | | |
| Cash surrender value at March 31, 2024 (2) | | $ | 29,496 | | | N/A | | $ | 29,656 | |
| Cash surrender value at March 31, 2023 (2) | | $ | 36,594 | | | N/A | | $ | 29,115 | |
_____________
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
6. Separate Accounts (continued)
(1) Other for RIS stable value and risk solutions primarily includes changes related to unsettled trades of mortgage-backed securities.
(2) Cash surrender value represents the amount of the contractholders’ account balances distributable at the balance sheet date less policy loans and certain surrender charges.
Separate Account Assets
The Company’s aggregate fair value of assets, by major investment asset category, supporting separate account liabilities was as follows at:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2024 |
| | Group Benefits | | RIS | | MetLife Holdings | | | Total |
| | (In millions) |
| Fixed maturity securities: | | | | | | | | | |
| Bonds: | | | | | | | | | |
| Foreign government | | $ | — | | | $ | 555 | | | $ | — | | | | $ | 555 | |
| U.S. government and agency | | — | | | 9,167 | | | — | | | | 9,167 | |
| Public utilities | | — | | | 1,075 | | | — | | | | 1,075 | |
| Municipals | | — | | | 297 | | | — | | | | 297 | |
| Corporate bonds: | | | | | | | | | |
| Materials | | — | | | 134 | | | — | | | | 134 | |
| Communications | | — | | | 828 | | | — | | | | 828 | |
| Consumer | | — | | | 1,795 | | | — | | | | 1,795 | |
| Energy | | — | | | 878 | | | — | | | | 878 | |
| Financial | | — | | | 2,632 | | | — | | | | 2,632 | |
| Industrial and other | | — | | | 695 | | | — | | | | 695 | |
| Technology | | — | | | 471 | | | — | | | | 471 | |
| Foreign | | — | | | 1,840 | | | — | | | | 1,840 | |
| Total corporate bonds | | — | | | 9,273 | | | — | | | | 9,273 | |
| Total bonds | | — | | | 20,367 | | | — | | | | 20,367 | |
| Mortgage-backed securities | | — | | | 9,305 | | | — | | | | 9,305 | |
| Asset-backed securities and collateralized loan obligations | | — | | | 2,151 | | | — | | | | 2,151 | |
| Redeemable preferred stock | | — | | | 9 | | | — | | | | 9 | |
| Total fixed maturity securities | | — | | | 31,832 | | | — | | | | 31,832 | |
| Equity securities: | | | | | | | | | |
| Common stock: | | | | | | | | | |
| Industrial, miscellaneous and all other | | — | | | 2,373 | | | — | | | | 2,373 | |
| Banks, trust and insurance companies | | — | | | 731 | | | — | | | | 731 | |
| Public utilities | | — | | | 63 | | | — | | | | 63 | |
| Non-redeemable preferred stock | | — | | | — | | | — | | | | — | |
| Mutual funds | | 1,261 | | | 3,770 | | | 35,763 | | | | 40,794 | |
| Total equity securities | | 1,261 | | | 6,937 | | | 35,763 | | | | 43,961 | |
| Other invested assets | | — | | | 1,376 | | | — | | | | 1,376 | |
| Total investments | | 1,261 | | | 40,145 | | | 35,763 | | | | 77,169 | |
| Other assets | | — | | | 4,557 | | | — | | | | 4,557 | |
| Total | | $ | 1,261 | | | $ | 44,702 | | | $ | 35,763 | | | | $ | 81,726 | |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
6. Separate Accounts (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2023 |
| | Group Benefits | | RIS | | MetLife Holdings | | | Total |
| | (In millions) |
| Fixed maturity securities: | | | | | | | | | |
| Bonds: | | | | | | | | | |
| Foreign government | | $ | — | | | $ | 509 | | | $ | — | | | | $ | 509 | |
| U.S. government and agency | | — | | | 9,603 | | | — | | | | 9,603 | |
| Public utilities | | — | | | 1,066 | | | — | | | | 1,066 | |
| Municipals | | — | | | 346 | | | — | | | | 346 | |
| Corporate bonds: | | | | | | | | | |
| Materials | | — | | | 143 | | | — | | | | 143 | |
| Communications | | — | | | 883 | | | — | | | | 883 | |
| Consumer | | — | | | 1,843 | | | — | | | | 1,843 | |
| Energy | | — | | | 906 | | | — | | | | 906 | |
| Financial | | — | | | 2,670 | | | — | | | | 2,670 | |
| Industrial and other | | — | | | 757 | | | — | | | | 757 | |
| Technology | | — | | | 541 | | | — | | | | 541 | |
| Foreign | | — | | | 1,889 | | | — | | | | 1,889 | |
| Total corporate bonds | | — | | | 9,632 | | | — | | | | 9,632 | |
| Total bonds | | — | | | 21,156 | | | — | | | | 21,156 | |
| Mortgage-backed securities | | — | | | 9,515 | | | — | | | | 9,515 | |
| Asset-backed securities and collateralized loan obligations | | — | | | 2,341 | | | — | | | | 2,341 | |
| Redeemable preferred stock | | — | | | 9 | | | — | | | | 9 | |
| Total fixed maturity securities | | — | | | 33,021 | | | — | | | | 33,021 | |
| Equity securities: | | | | | | | | | |
| Common stock: | | | | | | | | | |
| Industrial, miscellaneous and all other | | — | | | 2,338 | | | — | | | | 2,338 | |
| Banks, trust and insurance companies | | — | | | 716 | | | — | | | | 716 | |
| Public utilities | | — | | | 65 | | | — | | | | 65 | |
| Non-redeemable preferred stock | | — | | | — | | | — | | | | — | |
| Mutual funds | | 1,159 | | | 3,672 | | | 34,728 | | | | 39,559 | |
| Total equity securities | | 1,159 | | | 6,791 | | | 34,728 | | | | 42,678 | |
| Other invested assets | | — | | | 1,425 | | | — | | | | 1,425 | |
| Total investments | | 1,159 | | | 41,237 | | | 34,728 | | | | 77,124 | |
| Other assets | | — | | | 6,073 | | | — | | | | 6,073 | |
| Total | | $ | 1,159 | | | $ | 47,310 | | | $ | 34,728 | | | | $ | 83,197 | |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
7. Deferred Policy Acquisition Costs, Value of Business Acquired and Unearned Revenue
DAC and VOBA
Information regarding total deferred policy acquisition costs (“DAC”) and value of business acquired (“VOBA”) by segment, as well as Corporate & Other, was as follows at:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Group Benefits | | RIS | | MetLife Holdings (1) | | Corporate & Other | | Total |
| | (In millions) |
| DAC: | | | | | | | | | | |
| Balance at January 1, 2024 | | $ | 255 | | | $ | 155 | | | $ | 2,723 | | | $ | 158 | | | $ | 3,291 | |
| Capitalizations | | 4 | | | 21 | | | — | | | — | | | 25 | |
| Amortization | | (6) | | | (8) | | | (50) | | | (6) | | | (70) | |
| Balance at March 31, 2024 | | $ | 253 | | | $ | 168 | | | $ | 2,673 | | | $ | 152 | | | $ | 3,246 | |
| | | | | | | | | | |
| Balance at January 1, 2023 | | $ | 264 | | | $ | 137 | | | $ | 3,220 | | | $ | 120 | | | $ | 3,741 | |
| Capitalizations | | 6 | | | 19 | | | — | | | 52 | | | 77 | |
| Amortization | | (6) | | | (7) | | | (59) | | | (4) | | | (76) | |
| Balance at March 31, 2023 | | $ | 264 | | | $ | 149 | | | $ | 3,161 | | | $ | 168 | | | $ | 3,742 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Total DAC and VOBA: | | | | | | | | | | |
| Balance at March 31, 2024 | | | | | | | | | | $ | 3,260 | |
| Balance at March 31, 2023 | | | | | | | | | | $ | 3,757 | |
| Balance at December 31, 2023 | | | | | | | | | | $ | 3,305 | |
__________________
(1)Includes DAC balances primarily related to whole life, variable annuities, disability income, term life, long-term care and universal life products.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
7. Deferred Policy Acquisition Costs, Value of Business Acquired and Unearned Revenue (continued)
Unearned Revenue
Information regarding the Company’s unearned revenue primarily related to universal life and variable universal life products by segment included in other policy-related balances was as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Three Months
Ended
March 31, 2024 |
| | RIS | | MetLife Holdings | | Total |
| | (In millions) |
| Balance, beginning of period | | $ | 16 | | | $ | 5 | | | $ | 21 | |
| Deferrals | | 1 | | | — | | | 1 | |
| Amortization | | (1) | | | — | | | (1) | |
| Balance, end of period | | $ | 16 | | | $ | 5 | | | $ | 21 | |
| | | | | | |
| | Three Months
Ended
March 31, 2023 |
| | RIS | | MetLife Holdings | | Total |
| | (In millions) |
| Balance, beginning of period | | $ | 18 | | | $ | 227 | | | $ | 245 | |
| Deferrals | | 1 | | | 9 | | | 10 | |
| Amortization | | (1) | | | (5) | | | (6) | |
| Balance, end of period | | $ | 18 | | | $ | 231 | | | $ | 249 | |
8. Closed Block
On April 7, 2000 (the “Demutualization Date”), Metropolitan Life Insurance Company 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 Metropolitan Life Insurance Company’s plan of reorganization, as amended (the “Plan of Reorganization”). On the Demutualization Date, Metropolitan Life Insurance Company established a closed block for the benefit of holders of certain individual life insurance policies of Metropolitan Life Insurance Company. See Note 9 to the Notes to the Consolidated Financial Statements included in the 2023 Annual Report for further information on the closed block.
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 earningspolicy count within the closed block. Accordingly, the Company’s net income continues to be sensitive to the actual performance of the closed block.
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.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
4.8. Closed Block (continued)
Information regarding the closed block liabilities and assets designated to the closed block was as followsfollows at:
| | | | | | | | | | | | | | |
| | March 31, 2024 | | December 31, 2023 |
| | (In millions) |
| Closed Block Liabilities | | | | |
| Future policy benefits | | $ | 35,806 | | | $ | 36,142 | |
| Other policy-related balances | | 301 | | | 319 | |
| Policyholder dividends payable | | 170 | | | 174 | |
| Policyholder dividend obligation | | — | | | — | |
| Current income tax payable | | 1 | | | — | |
| Other liabilities | | 746 | | | 668 | |
| Total closed block liabilities | | 37,024 | | | 37,303 | |
| Assets Designated to the Closed Block | | | | |
| Investments: | | | | |
| Fixed maturity securities available-for-sale, at estimated fair value | | 19,637 | | | 19,939 | |
| Mortgage loans | | 6,005 | | | 6,151 | |
| Policy loans | | 3,919 | | | 3,960 | |
| Real estate and real estate joint ventures | | 676 | | | 668 | |
| Other invested assets | | 496 | | | 506 | |
| Total investments | | 30,733 | | | 31,224 | |
| Cash and cash equivalents | | 717 | | | 717 | |
| Accrued investment income | | 385 | | | 383 | |
| Premiums, reinsurance and other receivables | | 52 | | | 54 | |
| Current income tax recoverable | | — | | | 3 | |
| Deferred income tax asset | | 359 | | | 312 | |
| Total assets designated to the closed block | | 32,246 | | | 32,693 | |
| Excess of closed block liabilities over assets designated to the closed block | | 4,778 | | | 4,610 | |
| AOCI: | | | | |
| Unrealized investment gains (losses), net of income tax | | (1,044) | | | (820) | |
| Unrealized gains (losses) on derivatives, net of income tax | | 151 | | | 130 | |
| Total amounts included in AOCI | | (893) | | | (690) | |
| Maximum future earnings to be recognized from closed block assets and liabilities | | $ | 3,885 | | | $ | 3,920 | |
|
| | | | | | | | |
| | | September 30, 2017 | | December 31, 2016 |
| | | (In millions) |
| Closed Block Liabilities | | | | |
| Future policy benefits | | $ | 40,489 |
| | $ | 40,834 |
|
| Other policy-related balances | | 193 |
| | 257 |
|
| Policyholder dividends payable | | 483 |
| | 443 |
|
| Policyholder dividend obligation | | 2,201 |
| | 1,931 |
|
| Current income tax payable | | — |
| | 4 |
|
| Other liabilities | | 277 |
| | 196 |
|
| Total closed block liabilities | | 43,643 |
| | 43,665 |
|
| Assets Designated to the Closed Block | | | | |
| Investments: | | | | |
| Fixed maturity securities available-for-sale, at estimated fair value | | 27,541 |
| | 27,220 |
|
| Equity securities available-for-sale, at estimated fair value | | 71 |
| | 100 |
|
| Mortgage loans | | 5,904 |
| | 5,935 |
|
| Policy loans | | 4,542 |
| | 4,553 |
|
| Real estate and real estate joint ventures | | 628 |
| | 655 |
|
| Other invested assets | | 1,053 |
| | 1,246 |
|
| Total investments | | 39,739 |
| | 39,709 |
|
| Cash and cash equivalents | | 60 |
| | 18 |
|
| Accrued investment income | | 487 |
| | 467 |
|
| Premiums, reinsurance and other receivables | | 68 |
| | 68 |
|
| Current income tax recoverable | | 30 |
| | — |
|
| Deferred income tax assets | | 109 |
| | 177 |
|
| Total assets designated to the closed block | | 40,493 |
| | 40,439 |
|
| Excess of closed block liabilities over assets designated to the closed block | | 3,150 |
| | 3,226 |
|
| Amounts included in accumulated other comprehensive income (loss) (“AOCI”): | | | | |
| Unrealized investment gains (losses), net of income tax | | 1,851 |
| | 1,517 |
|
| Unrealized gains (losses) on derivatives, net of income tax | | 23 |
| | 95 |
|
| Allocated to policyholder dividend obligation, net of income tax | | (1,431 | ) | | (1,255 | ) |
| Total amounts included in AOCI | | 443 |
| | 357 |
|
| Maximum future earnings to be recognized from closed block assets and liabilities | | $ | 3,593 |
| | $ | 3,583 |
|
Information regarding the closed block policyholder dividend obligation was as follows:
|
| | | | | | | | |
| | | Nine Months
Ended
September 30, 2017 | | Year
Ended
December 31, 2016 |
| | | (In millions) |
| Balance, beginning of period | | $ | 1,931 |
| | $ | 1,783 |
|
| Change in unrealized investment and derivative gains (losses) | | 270 |
| | 148 |
|
| Balance, end of period | | $ | 2,201 |
| | $ | 1,931 |
|
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
4.8. Closed Block (continued)
Information regarding the closed block revenues and expenses was as follows:
| | | | | Three Months
Ended
September 30, | | Nine Months
Ended
September 30, |
| | | 2017 | | 2016 | | 2017 | | 2016 |
| | | (In millions) |
| | | | Three Months
Ended
March 31, | |
| | | | Three Months
Ended
March 31, | |
| | | | Three Months
Ended
March 31, | |
| | | | | | 2024 | | | | | | | | 2024 | | 2023 |
| | | | | (In millions) | | | | | | | (In millions) |
| Revenues | | | | | | | | |
| Premiums | |
| Premiums | |
| Premiums | | $ | 413 |
| | $ | 436 |
| | $ | 1,247 |
| | $ | 1,297 |
|
| Net investment income | | 450 |
| | 486 |
| | 1,368 |
| | 1,435 |
|
| Net investment gains (losses) | | — |
| | (3 | ) | | (10 | ) | | (19 | ) |
| Net derivative gains (losses) | | (6 | ) | | 4 |
| | (24 | ) | | (3 | ) |
| Total revenues | | 857 |
| | 923 |
| | 2,581 |
| | 2,710 |
|
| Expenses | | | | | | | | |
| Policyholder benefits and claims | | 591 |
| | 619 |
| | 1,773 |
| | 1,861 |
|
| Policyholder benefits and claims | |
| Policyholder benefits and claims | |
| Policyholder dividends | | 235 |
| | 232 |
| | 732 |
| | 723 |
|
| Other expenses | | 30 |
| | 33 |
| | 94 |
| | 100 |
|
| Total expenses | | 856 |
| | 884 |
| | 2,599 |
| | 2,684 |
|
| Revenues, net of expenses before provision for income tax expense (benefit) | | 1 |
| | 39 |
| | (18 | ) | | 26 |
|
| Provision for income tax expense (benefit) | | — |
| | 13 |
| | (8 | ) | | 8 |
|
| Revenues, net of expenses and provision for income tax expense (benefit) | | $ | 1 |
| | $ | 26 |
| | $ | (10 | ) | | $ | 18 |
|
Metropolitan Life Insurance Company charges the closed block with federal income taxes, state and local premium taxes and other state or local taxes, as well as investment management expenses relating to the closed block as provided in the Plan of Reorganization. Metropolitan Life Insurance Company also charges the closed block for expenses of maintaining the policies included in the closed block.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
9. Investments
5. Investments
Fixed Maturity and Equity Securities Available-for-Sale
Fixed Maturity and Equity Securities Available-for-Sale by Sector
The following table presents the fixed maturity and equity securities AFSavailable-for-sale (“AFS”) by sector. Redeemable preferred stock is reported within U.S. corporate and foreign corporate fixed maturity securities and non-redeemablesectors include redeemable preferred stock is reported within equity securities. Included within fixed maturity securities are structured securities including residentialstock. Residential mortgage-backed securities (“RMBS”), asset-backed includes agency, prime, prime investor, non-qualified residential mortgage, alternative, reperforming and sub-prime mortgage-backed securities. Asset-backed securities (“ABS”and collateralized loan obligations (collectively, “ABS & CLO”) includes securities collateralized by consumer loans, corporate loans and commercialbroadly syndicated bank loans. Municipals includes taxable and tax-exempt revenue bonds and, to a much lesser extent, general obligations of states, municipalities and political subdivisions. Commercial mortgage-backed securities (“CMBS”) (collectively,primarily includes securities collateralized by multiple commercial mortgage loans. RMBS, ABS & CLO and CMBS are, collectively, “Structured Securities”).Products.”
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| | Cost or
Amortized
Cost | | Gross Unrealized | | Estimated
Fair
Value | | Cost or
Amortized
Cost | | Gross Unrealized | | Estimated
Fair
Value |
| |
Gains | | Temporary
Losses | | OTTI
Losses (1) | |
Gains | | Temporary
Losses | | OTTI
Losses (1) | |
| | (In millions) |
| Fixed maturity securities: | | | | | | | | | | | | | | | | | | |
| U.S. corporate | $ | 52,903 |
| | $ | 4,851 |
| | $ | 277 |
| | $ | — |
| | $ | 57,477 |
| | $ | 52,665 |
| | $ | 4,079 |
| | $ | 586 |
| | $ | — |
| | $ | 56,158 |
|
| U.S. government and agency | 36,722 |
| | 3,630 |
| | 244 |
| | — |
| | 40,108 |
| | 32,834 |
| | 3,238 |
| | 457 |
| | — |
| | 35,615 |
|
| Foreign corporate | 24,311 |
| | 1,563 |
| | 507 |
| | — |
| | 25,367 |
| | 24,596 |
| | 957 |
| | 1,196 |
| | — |
| | 24,357 |
|
| RMBS | 23,470 |
| | 1,095 |
| | 184 |
| | (39 | ) | | 24,420 |
| | 22,786 |
| | 911 |
| | 290 |
| | (10 | ) | | 23,417 |
|
| ABS | 7,652 |
| | 68 |
| | 15 |
| | — |
| | 7,705 |
| | 7,567 |
| | 32 |
| | 95 |
| | — |
| | 7,504 |
|
| State and political subdivision | 6,284 |
| | 1,159 |
| | 8 |
| | — |
| | 7,435 |
| | 6,252 |
| | 928 |
| | 44 |
| | — |
| | 7,136 |
|
| CMBS | 5,239 |
| | 145 |
| | 27 |
| | — |
| | 5,357 |
| | 4,876 |
| | 118 |
| | 59 |
| | — |
| | 4,935 |
|
| Foreign government | 3,802 |
| | 639 |
| | 26 |
| | — |
| | 4,415 |
| | 3,565 |
| | 507 |
| | 74 |
| | — |
| | 3,998 |
|
| Total fixed maturity securities | $ | 160,383 |
|
| $ | 13,150 |
|
| $ | 1,288 |
|
| $ | (39 | ) |
| $ | 172,284 |
|
| $ | 155,141 |
|
| $ | 10,770 |
|
| $ | 2,801 |
|
| $ | (10 | ) |
| $ | 163,120 |
|
| Equity securities: | | | | | | | | | | | | | | | | | | | |
| Common stock | $ | 1,274 |
| | $ | 72 |
| | $ | 16 |
| | $ | — |
| | $ | 1,330 |
| | $ | 1,220 |
| | $ | 91 |
| | $ | 12 |
| | $ | — |
| | $ | 1,299 |
|
| Non-redeemable preferred stock | 438 |
| | 29 |
| | 6 |
| | — |
| | 461 |
| | 565 |
| | 14 |
| | 39 |
| | — |
| | 540 |
|
| Total equity securities | $ | 1,712 |
|
| $ | 101 |
|
| $ | 22 |
|
| $ | — |
|
| $ | 1,791 |
|
| $ | 1,785 |
|
| $ | 105 |
|
| $ | 51 |
|
| $ | — |
|
| $ | 1,839 |
|
__________________
| |
(1) | Noncredit OTTI losses included in AOCI in an unrealized gain position are due to increases in estimated fair value subsequent to initial recognition of noncredit losses on such securities. See also “— Net Unrealized Investment Gains (Losses).” |
The Company held non-income producing fixed maturity securities with an estimated fair value of $1 million and less than $1 million with unrealized gains (losses) of less than ($1) million and less than $1 million at September 30, 2017 and December 31, 2016, respectively. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2024 | | December 31, 2023 |
| | Amortized
Cost | | | | Gross Unrealized | | Estimated
Fair
Value | | Amortized
Cost | | | | Gross Unrealized | | Estimated
Fair
Value |
| Sector | | Allowance for
Credit Loss | | Gains | | Losses | | Allowance for
Credit Loss | | Gains | | Losses | |
| | (In millions) |
| | | | | | | | | | | | | | | | | | |
| U.S. corporate | | $ | 52,298 | | | $ | (10) | | | $ | 845 | | | $ | 3,467 | | | $ | 49,666 | | | $ | 52,479 | | | $ | (62) | | | $ | 1,126 | | | $ | 3,050 | | | $ | 50,493 | |
| Foreign corporate | | 27,237 | | | (2) | | | 415 | | | 3,126 | | | 24,524 | | | 27,520 | | | (2) | | | 536 | | | 2,839 | | | 25,215 | |
| U.S. government and agency | | 24,647 | | | — | | | 132 | | | 2,783 | | | 21,996 | | | 23,100 | | | — | | | 243 | | | 2,283 | | | 21,060 | |
| RMBS | | 21,688 | | | (1) | | | 193 | | | 2,149 | | | 19,731 | | | 20,700 | | | (1) | | | 228 | | | 1,979 | | | 18,948 | |
| ABS & CLO | | 11,908 | | | (7) | | | 38 | | | 363 | | | 11,576 | | | 12,049 | | | (6) | | | 30 | | | 432 | | | 11,641 | |
| Municipals | | 6,261 | | | — | | | 233 | | | 455 | | | 6,039 | | | 6,429 | | | — | | | 318 | | | 428 | | | 6,319 | |
| CMBS | | 5,979 | | | (11) | | | 40 | | | 445 | | | 5,563 | | | 6,387 | | | (11) | | | 28 | | | 570 | | | 5,834 | |
| Foreign government | | 3,297 | | | (35) | | | 125 | | | 264 | | | 3,123 | | | 3,416 | | | (50) | | | 156 | | | 227 | | | 3,295 | |
| Total fixed maturity securities AFS | | $ | 153,315 | | | $ | (66) | | | $ | 2,021 | | | $ | 13,052 | | | $ | 142,218 | | | $ | 152,080 | | | $ | (132) | | | $ | 2,665 | | | $ | 11,808 | | | $ | 142,805 | |
Maturities of Fixed Maturity Securities AFS
The amortized cost, net of allowance for credit loss (“ACL”), and estimated fair value of fixed maturity securities AFS, by contractual maturity date, were as follows at September 30, 2017:March 31, 2024:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Due in One
Year or Less | | Due After
One Year
Through
Five Years | | Due After
Five Years
Through Ten
Years | | Due After
Ten Years | | Structured
Products | | Total Fixed
Maturity
Securities
AFS |
| (In millions) |
| Amortized cost, net of ACL | $ | 4,500 | | | $ | 24,993 | | | $ | 27,898 | | | $ | 56,302 | | | $ | 39,556 | | | $ | 153,249 | |
| Estimated fair value | $ | 4,407 | | | $ | 24,203 | | | $ | 26,636 | | | $ | 50,102 | | | $ | 36,870 | | | $ | 142,218 | |
Actual maturities may differ from contractual maturities due to the exercise of call or prepayment options. Fixed maturity securities AFS not due at a single maturity date have been presented in the year of final contractual maturity. Structured Products are shown separately, as they are not due at a single maturity.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Due in One Year or Less | | Due After One Year Through Five Years | | Due After Five Years Through Ten Years | | Due After Ten Years | | Structured Securities | | Total Fixed Maturity Securities |
| | (In millions) |
| Amortized cost | $ | 6,872 |
| | $ | 35,227 |
| | $ | 30,763 |
| | $ | 51,160 |
| | $ | 36,361 |
| | $ | 160,383 |
|
| Estimated fair value | $ | 6,894 |
| | $ | 36,381 |
| | $ | 32,449 |
| | $ | 59,078 |
| | $ | 37,482 |
| | $ | 172,284 |
|
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
5.9. Investments (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 presented in the year of final contractual maturity. Structured Securities are shown separately, as they are not due at a single maturity.
Continuous Gross Unrealized Losses for Fixed Maturity and Equity Securities AFS by Sector
The following table presents the estimated fair value and gross unrealized losses of fixed maturity and equity securities AFS in an unrealized loss position aggregatedwithout an ACL by sector and aggregated by length of time that the securities have been in a continuous unrealized loss position at:position.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| | Less than 12 Months | | Equal to or Greater
than 12 Months | | Less than 12 Months | | Equal to or Greater
than 12 Months |
| | Estimated
Fair
Value | | Gross
Unrealized
Losses | | Estimated
Fair
Value | | Gross
Unrealized
Losses | | Estimated
Fair
Value | | Gross
Unrealized
Losses | | Estimated
Fair
Value | | Gross
Unrealized
Losses |
| | (Dollars in millions) |
| Fixed maturity securities: | | | | | | | | | | | | | | | |
| U.S. corporate | $ | 4,644 |
| | $ | 119 |
| | $ | 1,750 |
| | $ | 158 |
| | $ | 8,406 |
| | $ | 337 |
| | $ | 2,260 |
| | $ | 249 |
|
| U.S. government and agency | 15,499 |
| | 240 |
| | 149 |
| | 4 |
| | 6,032 |
| | 457 |
| | — |
| | — |
|
| Foreign corporate | 2,153 |
| | 74 |
| | 3,870 |
| | 433 |
| | 5,343 |
| | 336 |
| | 4,523 |
| | 860 |
|
| RMBS | 5,075 |
| | 77 |
| | 1,566 |
| | 68 |
| | 6,662 |
| | 187 |
| | 1,707 |
| | 93 |
|
| ABS | 1,156 |
| | 2 |
| | 463 |
| | 13 |
| | 1,482 |
| | 12 |
| | 1,714 |
| | 83 |
|
| State and political subdivision | 222 |
| | 6 |
| | 60 |
| | 2 |
| | 943 |
| | 43 |
| | 17 |
| | 1 |
|
| CMBS | 882 |
| | 8 |
| | 123 |
| | 19 |
| | 922 |
| | 15 |
| | 432 |
| | 44 |
|
| Foreign government | 216 |
| | 6 |
| | 249 |
| | 20 |
| | 581 |
| | 26 |
| | 309 |
| | 48 |
|
| Total fixed maturity securities | $ | 29,847 |
| | $ | 532 |
| | $ | 8,230 |
| | $ | 717 |
| | $ | 30,371 |
| | $ | 1,413 |
| | $ | 10,962 |
| | $ | 1,378 |
|
| Equity securities: |
| |
| |
| |
| |
| |
| |
| |
|
| Common stock | $ | 98 |
| | $ | 16 |
| | $ | 3 |
| | $ | — |
| | $ | 58 |
| | $ | 12 |
| | $ | 10 |
| | $ | — |
|
| Non-redeemable preferred stock | — |
| | — |
| | 82 |
| | 6 |
| | 139 |
| | 6 |
| | 120 |
| | 33 |
|
| Total equity securities | $ | 98 |
| | $ | 16 |
| | $ | 85 |
| | $ | 6 |
| | $ | 197 |
| | $ | 18 |
| | $ | 130 |
| | $ | 33 |
|
Total number of securities in an unrealized loss position | 1,592 |
| |
| | 886 |
| |
| | 3,076 |
| |
| | 940 |
| |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2024 | | December 31, 2023 |
| | Less than 12 Months | | Equal to or Greater
than 12 Months | | Less than 12 Months | | Equal to or Greater
than 12 Months |
| Sector & Credit Quality | | Estimated
Fair
Value | | Gross
Unrealized
Losses | | Estimated
Fair
Value | | Gross
Unrealized
Losses | | Estimated
Fair
Value | | Gross
Unrealized
Losses | | Estimated
Fair
Value | | Gross
Unrealized
Losses |
| | (Dollars in millions) |
| | | | | | | | | | | | | | | | |
| U.S. corporate | | $ | 4,729 | | | $ | 124 | | | $ | 25,379 | | | $ | 3,319 | | | $ | 3,537 | | | $ | 95 | | | $ | 25,752 | | | $ | 2,924 | |
| Foreign corporate | | 1,414 | | | 66 | | | 16,414 | | | 3,060 | | | 714 | | | 64 | | | 16,982 | | | 2,775 | |
| U.S. government and agency | | 5,375 | | | 184 | | | 10,925 | | | 2,599 | | | 4,322 | | | 228 | | | 9,980 | | | 2,055 | |
| RMBS | | 1,830 | | | 53 | | | 12,743 | | | 2,095 | | | 1,470 | | | 37 | | | 12,813 | | | 1,941 | |
| ABS & CLO | | 1,040 | | | 20 | | | 6,140 | | | 342 | | | 937 | | | 20 | | | 8,250 | | | 410 | |
| Municipals | | 440 | | | 13 | | | 2,106 | | | 442 | | | 262 | | | 10 | | | 2,102 | | | 418 | |
| CMBS | | 173 | | | 4 | | | 3,756 | | | 439 | | | 587 | | | 23 | | | 4,096 | | | 542 | |
| Foreign government | | 490 | | | 22 | | | 1,368 | | | 239 | | | 431 | | | 12 | | | 1,452 | | | 212 | |
| Total fixed maturity securities AFS | | $ | 15,491 | | | $ | 486 | | | $ | 78,831 | | | $ | 12,535 | | | $ | 12,260 | | | $ | 489 | | | $ | 81,427 | | | $ | 11,277 | |
| Investment grade | | $ | 14,664 | | | $ | 459 | | | $ | 74,988 | | | $ | 12,094 | | | $ | 11,499 | | | $ | 453 | | | $ | 77,325 | | | $ | 10,849 | |
| Below investment grade | | 827 | | | 27 | | | 3,843 | | | 441 | | | 761 | | | 36 | | | 4,102 | | | 428 | |
| Total fixed maturity securities AFS | | $ | 15,491 | | | $ | 486 | | | $ | 78,831 | | | $ | 12,535 | | | $ | 12,260 | | | $ | 489 | | | $ | 81,427 | | | $ | 11,277 | |
| Total number of securities in an unrealized loss position | | 2,055 | | | | 8,334 | | | | 1,679 | | | | 8,441 | | |
Evaluation of Fixed Maturity Securities AFS Securities for OTTICredit Loss
Evaluation and Evaluating Temporarily Impaired AFS SecuritiesMeasurement Methodologies
As described more fully in Notes 1 and 8See Note 10 of the Notes to the Consolidated Financial Statements included in the 20162023 Annual Report for a description of the Company performs a regular evaluationCompany’s Evaluation and Measurement Methodologies of all investment classesFixed Maturity Securities AFS for impairment, includingCredit Loss.
Evaluation of Fixed Maturity Securities AFS in an Unrealized Loss Position
Gross unrealized losses on securities without an ACL increased $1.3 billion for the three months ended March 31, 2024 to $13.0 billion primarily due to an increase in interest rates and the impact of weakening foreign currencies on certain non-functional currency denominated fixed maturity securities, equitypartially offset by narrowing credit spreads.
As shown in the table above, most of the gross unrealized losses on securities without an ACL that have been in a continuous gross unrealized loss position for 12 months or greater at March 31, 2024, relate to investment grade securities. These unrealized losses are principally due to widening credit spreads since purchase and, with respect to fixed-rate securities, rising interest rates since purchase.
As of March 31, 2024, $441 million of gross unrealized losses on securities without an ACL that have been in a continuous gross unrealized loss position for 12 months or greater on below investment grade securities were concentrated in the consumer, transportation and communications sectors within corporate securities and perpetual hybridin foreign government securities. These unrealized losses are the result of significantly wider credit spreads resulting from higher risk premiums since purchase, largely due to economic and market uncertainty and, with respect to fixed-rate securities, in accordance withrising interest rates since purchase.
At March 31, 2024, the Company did not intend to sell its impairment policy, in order to evaluate whether such investments are other-than-temporarily impaired.
Current Period Evaluation
Based on the Company’s current evaluation of its AFS securities in an unrealized loss position in accordance with its impairment policy,without an ACL, and it was not more likely than not that the Company’s current intentions and assessments (as applicable to the type of security) about holding, selling and any requirementsCompany would be required to sell these securities before the anticipated recovery of the remaining amortized cost. Therefore, the Company concluded that these securities werehad not other-than-temporarily impairedincurred a credit loss and should not have an ACL at September 30, 2017. March 31, 2024.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
9. Investments (continued)
Future OTTIprovisions for credit loss 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 and collateral valuation, interest rates and credit spreads, as well as a change in the Company’s intention to hold or sell a security that is in an unrealized loss position. If economic fundamentals deteriorate or if there are adverse changes in the above factors, OTTI may be incurred in upcoming periods.valuation.
Rollforward of Allowance for Credit Loss for Fixed Maturity Securities AFS By Sector
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
5. Investments (continued)
Gross unrealized losses onACL for fixed maturity securities decreased $1.5 billion during the nine months ended September 30, 2017 to $1.2 billion. The decrease in gross unrealized losses for the nine months ended September 30, 2017 was primarily attributable to decreasing longer-term interest rates and narrowing credit spreads, and to a lesser extent the impact of strengthening foreign currencies on non-functional currency denominated fixed maturity securities.AFS by sector is as follows:
At September 30, 2017, $107 million of the total $1.2 billion of gross unrealized losses were from 30 fixed maturity securities with an unrealized loss position of 20% or more of amortized cost for six months or greater. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| U.S.
Corporate | | Foreign Corporate | | Foreign
Government | | RMBS | | ABS & CLO | | CMBS | | Total |
| Three Months Ended March 31, 2024 | (In millions) |
| Balance, at beginning of period | $ | 62 | | | $ | 2 | | | $ | 50 | | | $ | 1 | | | $ | 6 | | | $ | 11 | | | $ | 132 | |
| ACL not previously recorded | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Changes for securities with previously recorded ACL | — | | | — | | | (2) | | | — | | | 1 | | | — | | | (1) | |
| Securities sold or exchanged | (52) | | | — | | | (13) | | | — | | | — | | | — | | | (65) | |
| | | | | | | | | | | | | |
| Balance, at end of period | $ | 10 | | | $ | 2 | | | $ | 35 | | | $ | 1 | | | $ | 7 | | | $ | 11 | | | $ | 66 | |
| Three Months Ended March 31, 2023 | | | | | | | | | | | | | |
| Balance, at beginning of period | $ | 28 | | | $ | 3 | | | $ | 68 | | | $ | — | | | $ | — | | | $ | 15 | | | $ | 114 | |
| ACL not previously recorded | 31 | | | — | | | — | | | — | | | — | | | — | | | 31 | |
| Changes for securities with previously recorded ACL | — | | | — | | | — | | | — | | | — | | | 2 | | | 2 | |
| Securities sold or exchanged | (2) | | | — | | | — | | | — | | | — | | | (10) | | | (12) | |
| | | | | | | | | | | | | |
| Balance, at end of period | $ | 57 | | | $ | 3 | | | $ | 68 | | | $ | — | | | $ | — | | | $ | 7 | | | $ | 135 | |
Gross unrealized losses on equity securities decreased $29 million during the nine months ended September 30, 2017 to $22 million.
Investment Grade Fixed Maturity Securities
Of the $107 million of gross unrealized losses on fixed maturity securities with an unrealized loss of 20% or more of amortized cost for six months or greater, $70 million, or 65%, were related to gross unrealized losses on 13 investment grade fixed maturity securities. Unrealized losses on investment grade fixed maturity securities are principally related to widening credit spreads since purchase and, with respect to fixed-rate fixed maturity securities, rising interest rates since purchase.
Below Investment Grade Fixed Maturity Securities
Of the $107 million of gross unrealized losses on fixed maturity securities with an unrealized loss of 20% or more of amortized cost for six months or greater, $37 million, or 35%, were related to gross unrealized losses on 17 below investment grade fixed maturity securities. Unrealized losses on below investment grade fixed maturity securities are principally related to U.S. and foreign corporate securities (primarily industrial and utility securities) and are the result of significantly wider credit spreads resulting from higher risk premiums since purchase, largely due to economic and market uncertainty including concerns over lower oil prices in the energy sector. Management evaluates U.S. and foreign corporate securities based on factors such as expected cash flows and the financial condition and near-term and long-term prospects of the issuers.
Mortgage Loans
Mortgage Loans by Portfolio Segment
Mortgage loans are summarized as follows at:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2024 | | December 31, 2023 |
| Portfolio Segment | | Carrying
Value | | % of
Total | | Carrying
Value | | % of
Total |
| | (Dollars in millions) |
| Commercial | | $ | 36,599 | | | 59.2 | % | | $ | 37,129 | | | 59.3 | % |
| Agricultural | | 15,700 | | | 25.4 | | | 15,831 | | | 25.3 | |
| Residential | | 10,125 | | | 16.3 | | | 10,133 | | | 16.2 | |
| Total amortized cost | | 62,424 | | | 100.9 | | | 63,093 | | | 100.8 | |
| Allowance for credit loss | | (569) | | | (0.9) | | | (509) | | | (0.8) | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Total mortgage loans | | $ | 61,855 | | | 100.0 | % | | $ | 62,584 | | | 100.0 | % |
|
| | | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| | Carrying Value | | % of Total | | Carrying Value | | % of Total |
| | (Dollars in millions) |
| Mortgage loans: | | | | | | | |
| Commercial | $ | 34,495 |
| | 59.4 | % | | $ | 34,008 |
| | 60.1 | % |
| Agricultural | 12,700 |
| | 21.9 |
| | 12,358 |
| | 21.9 |
|
| Residential | 10,567 |
| | 18.2 |
| | 9,895 |
| | 17.5 |
|
| Subtotal (1) | 57,762 |
| | 99.5 |
| | 56,261 |
| | 99.5 |
|
| Valuation allowances | (272 | ) | | (0.5 | ) | | (267 | ) | | (0.5 | ) |
| Subtotal mortgage loans, net | 57,490 |
| | 99.0 |
| | 55,994 |
| | 99.0 |
|
| Residential — FVO | 564 |
| | 1.0 |
| | 566 |
| | 1.0 |
|
| Total mortgage loans, net | $ | 58,054 |
| | 100.0 | % | | $ | 56,560 |
| | 100.0 | % |
__________________
| |
(1) | Purchases of mortgage loans,The amount of net (discounts) premiums and deferred (fees) expenses, included within total amortized cost, primarily attributable to residential were$409 millionand $1.9 billionfor thethree monthsand nine months endedSeptember 30, 2017, respectively, and$732 millionand $1.9 billionfor thethree monthsand nine months endedSeptember 30, 2016, respectively.
|
Mortgage Loans, Valuation Allowance and Impaired Loans by Portfolio Segment
Mortgage loans by portfolio segment, by method of evaluation of credit loss, impaired mortgage loans including those modified in a troubled debt restructuring,was ($775) million and the related valuation allowances, were as follows at:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Evaluated Individually for Credit Losses | | Evaluated Collectively for Credit Losses | | Impaired Loans |
| | Impaired Loans with a Valuation Allowance | | Impaired Loans without a Valuation Allowance | | | | | | |
| | Unpaid Principal Balance | | Recorded Investment | | Valuation
Allowances | | Unpaid Principal Balance | | Recorded
Investment | | Recorded
Investment | | Valuation
Allowances | | Carrying
Value |
| | (In millions) |
| September 30, 2017 | | | | | | | | | | | | | | | |
| Commercial | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 34,495 |
| | $ | 171 |
| | $ | — |
|
| Agricultural | 22 |
| | 21 |
| | 2 |
| | 28 |
| | 28 |
| | 12,651 |
| | 38 |
| | 47 |
|
| Residential | — |
| | — |
| | — |
| | 335 |
| | 304 |
| | 10,263 |
| | 61 |
| | 304 |
|
| Total | $ | 22 |
|
| $ | 21 |
|
| $ | 2 |
|
| $ | 363 |
|
| $ | 332 |
|
| $ | 57,409 |
|
| $ | 270 |
|
| $ | 351 |
|
| December 31, 2016 | | | | | | | | | | | | | | | |
| Commercial | $ | — |
| | $ | — |
| | $ | — |
| | $ | 12 |
| | $ | 12 |
| | $ | 33,996 |
| | $ | 167 |
| | $ | 12 |
|
| Agricultural | 11 |
| | 9 |
| | 1 |
| | 27 |
| | 27 |
| | 12,322 |
| | 37 |
| | 35 |
|
| Residential | — |
| | — |
| | — |
| | 265 |
| | 241 |
| | 9,654 |
| | 62 |
| | 241 |
|
| Total | $ | 11 |
|
| $ | 9 |
|
| $ | 1 |
|
| $ | 304 |
|
| $ | 280 |
|
| $ | 55,972 |
|
| $ | 266 |
|
| $ | 288 |
|
($720) million at March 31, 2024 and December 31, 2023, respectively. The average recorded investmentaccrued interest income excluded from total amortized cost for impaired commercial, agricultural and residential mortgage loans at March 31, 2024 was $0, $31$194 million, $138 million and $297$80 million, respectively,respectively. The accrued interest income excluded from total amortized cost for the three months ended September 30, 2017; and $6 million, $28 million and $275 million, respectively, for the nine months ended September 30, 2017.
The average recorded investment for impaired commercial, agricultural and residential mortgage loans at December 31, 2023 was$12 $196 million,, $48 $166 millionand $202$79 million, respectively,respectively.
Purchases of mortgage loans from unaffiliated parties, consisting primarily of residential mortgage loans, were $255 million and $757 million for the three months ended September 30, 2016;March 31, 2024 and $34 million, $52 million2023, respectively. See “— Related Party Investment Transactions” for information regarding transfers of mortgage loans to and $174 million, respectively, for the nine months ended September 30, 2016.
Valuation Allowance Rollforward by Portfolio Segment
The changes in the valuation allowance, by portfolio segment, were as follows:from affiliates.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months
Ended
September 30, |
| | 2017 |
| 2016 |
| | Commercial |
| Agricultural |
| Residential |
| Total |
| Commercial |
| Agricultural |
| Residential |
| Total |
| | (In millions) |
| Balance, beginning of period | $ | 167 |
|
| $ | 38 |
|
| $ | 62 |
|
| $ | 267 |
|
| $ | 165 |
|
| $ | 37 |
|
| $ | 55 |
|
| $ | 257 |
|
| Provision (release) | 4 |
|
| 4 |
|
| 10 |
|
| 18 |
|
| — |
|
| 2 |
|
| 11 |
|
| 13 |
|
| Charge-offs, net of recoveries | — |
|
| (2 | ) |
| (11 | ) |
| (13 | ) |
| — |
|
| (2 | ) |
| (12 | ) |
| (14 | ) |
| Balance, end of period | $ | 171 |
|
| $ | 40 |
|
| $ | 61 |
|
| $ | 272 |
|
| $ | 165 |
|
| $ | 37 |
|
| $ | 54 |
|
| $ | 256 |
|
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
5.9. Investments (continued)
Rollforward of Allowance for Credit Quality of CommercialLoss for Mortgage Loans by Portfolio Segment
The credit qualityrollforward of commercialACL for mortgage loans, wasby portfolio segment, is as follows at:follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2024 | | 2023 |
| Commercial | | Agricultural | | Residential | | Total | | Commercial | | Agricultural | | Residential | | Total |
| (In millions) |
| Balance, beginning of period | $ | 210 | | | $ | 152 | | | $ | 147 | | | $ | 509 | | | $ | 174 | | | $ | 105 | | | $ | 169 | | | $ | 448 | |
| Provision (release) | 63 | | | 15 | | | (18) | | | 60 | | | 79 | | | 49 | | | 18 | | | 146 | |
| | | | | | | | | | | | | | | |
| Charge-offs, net of recoveries | — | | | — | | | — | | | — | | | — | | | (7) | | | — | | | (7) | |
| Balance, end of period | $ | 273 | | | $ | 167 | | | $ | 129 | | | $ | 569 | | | $ | 253 | | | $ | 147 | | | $ | 187 | | | $ | 587 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Recorded Investment | | Estimated
Fair
Value | | % of
Total |
| | Debt Service Coverage Ratios | | | | % of
Total | |
| | > 1.20x | | 1.00x - 1.20x | | < 1.00x | | Total | |
| | (Dollars in millions) |
| September 30, 2017 | | | | | | | | | | | | | |
| Loan-to-value ratios: | | | | | | | | | | | | | |
| Less than 65% | $ | 29,702 |
| | $ | 1,430 |
| | $ | 242 |
| | $ | 31,374 |
| | 91.0 | % | | $ | 32,058 |
| | 91.1 | % |
| 65% to 75% | 2,441 |
| | 159 |
| | 168 |
| | 2,768 |
| | 8.0 |
| | 2,769 |
| | 7.9 |
|
| 76% to 80% | 149 |
| | — |
| | 57 |
| | 206 |
| | 0.6 |
| | 202 |
| | 0.6 |
|
| Greater than 80% | — |
| | — |
| | 147 |
| | 147 |
| | 0.4 |
| | 143 |
| | 0.4 |
|
| Total | $ | 32,292 |
|
| $ | 1,589 |
|
| $ | 614 |
|
| $ | 34,495 |
|
| 100 | % |
| $ | 35,172 |
|
| 100 | % |
| December 31, 2016 | | | | | | | | | | | | | |
| Loan-to-value ratios: | | | | | | | | | | | | | |
| Less than 65% | $ | 29,352 |
| | $ | 1,036 |
| | $ | 564 |
| | $ | 30,952 |
| | 91.0 | % | | $ | 31,320 |
| | 91.2 | % |
| 65% to 75% | 2,522 |
| | — |
| | 198 |
| | 2,720 |
| | 8.0 |
| | 2,694 |
| | 7.9 |
|
| 76% to 80% | 116 |
| | — |
| | — |
| | 116 |
| | 0.3 |
| | 115 |
| | 0.3 |
|
| Greater than 80% | 118 |
| | 27 |
| | 75 |
| | 220 |
| | 0.7 |
| | 214 |
| | 0.6 |
|
| Total | $ | 32,108 |
|
| $ | 1,063 |
|
| $ | 837 |
|
| $ | 34,008 |
|
| 100 | % |
| $ | 34,343 |
|
| 100 | % |
Allowance for Credit Quality of Agricultural Mortgage LoansLoss Methodology
The Company records an allowance for expected lifetime credit qualityloss in earnings within net investment gains (losses) in an amount that represents the portion of agriculturalthe amortized cost basis of mortgage loans wasthat the Company does not expect to collect, resulting in mortgage loans being presented at the net amount expected to be collected. In determining the Company’s ACL, management applies significant judgment to estimate expected lifetime credit loss, including: (i) pooling mortgage loans that share similar risk characteristics, (ii) considering expected lifetime credit loss over the contractual term of its mortgage loans adjusted for expected prepayments and any extensions, and (iii) considering past events and current and forecasted economic conditions. Each of the Company’s commercial, agricultural and residential mortgage loan portfolio segments are evaluated separately. The ACL is calculated for each mortgage loan portfolio segment based on inputs unique to each loan portfolio segment. On a quarterly basis, mortgage loans within a portfolio segment that share similar risk characteristics, such as follows at:
|
| | | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| | Recorded Investment | | % of Total | | Recorded Investment | | % of Total |
| | (Dollars in millions) |
| Loan-to-value ratios: | | | | | | | |
| Less than 65% | $ | 12,162 |
| | 95.7 | % | | $ | 11,829 |
| | 95.7 | % |
| 65% to 75% | 520 |
| | 4.1 |
| | 424 |
| | 3.4 |
|
| 76% to 80% | 9 |
| | 0.1 |
| | 17 |
| | 0.2 |
|
| Greater than 80% | 9 |
| | 0.1 |
| | 88 |
| | 0.7 |
|
| Total | $ | 12,700 |
| | 100.0 | % | | $ | 12,358 |
| | 100.0 | % |
internal risk ratings or consumer credit scores, are pooled for calculation of ACL. On an ongoing basis, mortgage loans with dissimilar risk characteristics (i.e., loans with significant declines in credit quality), such as collateral dependent mortgage loans (i.e., when the borrower is experiencing financial difficulty, including when foreclosure is reasonably possible or probable), are evaluated individually for credit loss. The ACL for loans evaluated individually are established using the same methodologies for all three portfolio segments. For example, the ACL for a collateral dependent loan is established as the excess of amortized cost over the estimated fair value of agricultural mortgagethe loan’s underlying collateral, less selling cost when foreclosure is probable. Accordingly, the change in the estimated fair value of collateral dependent loans, was $12.8 billion and $12.5 billion at September 30, 2017 and December 31, 2016, respectively.
which are evaluated individually for credit loss, is recorded as a change in the ACL which is recorded on a quarterly basis as a charge or credit to earnings in net investment gains (losses).
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
5.9. Investments (continued)
Commercial and Agricultural Mortgage Loan Portfolio Segments
Within each loan portfolio segment, commercial and agricultural loans are pooled by internal risk rating. Estimated lifetime loss rates, which vary by internal risk rating, are applied to the amortized cost of each loan, excluding accrued investment income, on a quarterly basis to develop the ACL. Internal risk ratings are based on an assessment of the loan’s credit quality, which can change over time. The estimated lifetime loss rates are based on several loan portfolio segment-specific factors, including (i) the Company’s experience with defaults and loss severity, (ii) expected default and loss severity over the forecast period, (iii) current and forecasted economic conditions including growth, inflation, interest rates and unemployment levels, (iv) loan specific characteristics including loan-to-value (“LTV”) ratios, and (v) internal risk ratings. These evaluations are revised as conditions change and new information becomes available. The Company uses its several decades of historical default and loss severity experience which capture multiple economic cycles. The Company uses a forecast of economic assumptions for a two-year period for most of its commercial and agricultural mortgage loans, while a one-year period is used for loans originated in certain markets. After the applicable forecast period, the Company reverts to its historical loss experience using a straight-line basis over two years. For evaluations of commercial mortgage loans, in addition to historical experience, management considers factors that include the impact of a rapid change to the economy, which may not be reflected in the loan portfolio, recent loss and recovery trend experience as compared to historical loss and recovery experience, and loan specific characteristics including debt service coverage ratios (“DSCR”). In estimating expected lifetime credit loss over the term of its commercial mortgage loans, the Company adjusts for expected prepayment and extension experience during the forecast period using historical prepayment and extension experience considering the expected position in the economic cycle and the loan profile (i.e., floating rate, shorter-term fixed rate and longer-term fixed rate) and after the forecast period using long-term historical prepayment experience. For evaluations of agricultural mortgage loans, in addition to historical experience, management considers factors that include increased stress in certain sectors, which may be evidenced by higher delinquency rates, or a change in the number of higher risk loans. In estimating expected lifetime credit loss over the term of its agricultural mortgage loans, the Company’s experience is much less sensitive to the position in the economic cycle and by loan profile; accordingly, historical prepayment experience is used, while extension terms are not prevalent with the Company’s agricultural mortgage loans.
Commercial mortgage loans are reviewed on an ongoing basis, which review includes, but is not limited to, an analysis of the property financial statements and rent roll, lease rollover analysis, property inspections, market analysis, estimated valuations of the underlying collateral, LTV ratios, DSCR and tenant creditworthiness. The monitoring process focuses on higher risk loans, which include those that are classified as restructured, delinquent or in foreclosure, as well as loans with higher LTV ratios and lower DSCR. Agricultural mortgage loans are reviewed on an ongoing basis, which review includes, but is not limited to, property inspections, market analysis, estimated valuations of the underlying collateral, LTV ratios and borrower creditworthiness, as well as reviews on a geographic and property-type basis. The monitoring process for agricultural mortgage loans also focuses on higher risk loans.
For commercial mortgage loans, the primary credit quality indicator is the DSCR, which compares a property’s net operating income to amounts needed to service the principal and interest due under the loan. Generally, the lower the DSCR, the higher the risk of experiencing a credit loss. The Company also reviews the LTV ratio of its commercial mortgage loan portfolio. LTV ratios compare the unpaid principal balance of the loan to the estimated fair value of the underlying collateral. Generally, the higher the LTV ratio, the higher the risk of experiencing a credit loss. The DSCR and the values utilized in calculating the ratio are updated routinely. In addition, the LTV ratio is routinely updated for all but the lowest risk loans as part of the Company’s ongoing review of its commercial mortgage loan portfolio.
For agricultural mortgage loans, the Company’s primary credit quality indicator is the LTV ratio. The values utilized in calculating this ratio are developed in connection with the ongoing review of the agricultural mortgage loan portfolio and are routinely updated.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
9. Investments (continued)
After commercial and agricultural mortgage loans are approved, the Company makes commitments to lend and, typically, borrowers draw down on some or all of the commitments. The timing of mortgage loan funding is based on the commitment expiration dates. A liability for credit loss for unfunded commercial and agricultural mortgage loan commitments that is not unconditionally cancellable is recognized in earnings and is reported within net investment gains (losses). The liability is based on estimated lifetime loss rates as described above and the amount of the outstanding commitments, which for lines of credit, considers estimated utilization rates. When the commitment is funded or expires, the liability is adjusted accordingly.
Residential Mortgage Loan Portfolio Segment
The Company’s residential mortgage loan portfolio is comprised primarily of purchased closed end, amortizing residential mortgage loans, including both performing loans purchased within 12 months of origination and reperforming loans purchased after they have been performing for at least 12 months post-modification. Residential mortgage loans are pooled by loan type (i.e., new origination and reperforming) and pooled by similar risk profiles (including consumer credit score and LTV ratios). Estimated lifetime loss rates, which vary by loan type and risk profile, are applied to the amortized cost of each loan excluding accrued investment income on a quarterly basis to develop the ACL. The estimated lifetime loss rates are based on several factors, including (i) industry historical experience and expected results over the forecast period for defaults, (ii) loss severity, (iii) prepayment rates, (iv) current and forecasted economic conditions including growth, inflation, interest rates and unemployment levels, and (v) loan pool specific characteristics including consumer credit scores, LTV ratios, payment history and home prices. These evaluations are revised as conditions change and new information becomes available. The Company uses industry historical experience which captures multiple economic cycles as the Company has purchased most of its residential mortgage loans in the last five years. The Company uses a forecast of economic assumptions for a two-year period for most of its residential mortgage loans. After the applicable forecast period, the Company reverts to industry historical loss experience using a straight-line basis over one year.
For residential mortgage loans, the Company’s primary credit quality indicator is whether the loan is performing or nonperforming. The Company generally defines nonperforming residential mortgage loans as those that are 60 or more days past due and/or in nonaccrual status which is assessed monthly. Generally, nonperforming residential mortgage loans have a higher risk of experiencing a credit loss.
Modifications to Borrowers Experiencing Financial Difficulty
The Company may modify mortgage loans to borrowers. Each mortgage loan modification is evaluated to determine whether the borrower was experiencing financial difficulties. Disclosed below are those modifications, in materially impacted segments, where the borrower was determined to be experiencing financial difficulties and the mortgage loans were modified by any of the following means: principal forgiveness, interest rate reduction, other-than-insignificant payment delay or term extension. The amount, timing and extent of modifications granted and subsequent performance are considered in determining any ACL recorded.
These mortgage loan modifications are summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2024 | | 2023 |
| Maturity Extension | | Weighted Average Life Increase | | | | % of BV | | Maturity Extension | | Weighted Average Life Increase | | % of BV |
| Amortized Cost | | Affected Loans (in Years) | | | | | | Amortized Cost | | Affected Loans (in Years) | | |
| (Dollars in millions) |
| Commercial | $ | 30 | | | Less than one year | | | | | | < 1% | | $ | 31 | | | Less than one year | | < 1% |
During the three months ended March 31, 2024, commercial mortgage loans with an amortized cost of $171 million which were extended over the past 12 months became delinquent. During the three months ended March 31, 2023, all commercial mortgage loans which were modified to borrowers experiencing financial difficulties, were current.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
9. Investments (continued)
Credit Quality of Residential Mortgage Loans by Portfolio Segment
The amortized cost of commercial mortgage loans by credit quality indicator and vintage year was as follows at March 31, 2024:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Credit Quality Indicator | | 2024 | | 2023 | | 2022 | | 2021 | | 2020 | | Prior | | Revolving
Loans | | Total | | % of
Total |
| | (Dollars in millions) |
| LTV ratios: | | | | | | | | | | | | | | | | | | |
| Less than 65% | | $ | 550 | | | $ | 1,587 | | | $ | 1,197 | | | $ | 1,689 | | | $ | 982 | | | $ | 10,054 | | | $ | 2,461 | | | $ | 18,520 | | | 50.6 | % |
| 65% to 75% | | — | | | 226 | | | 3,080 | | | 1,462 | | | 936 | | | 4,408 | | | — | | | 10,112 | | | 27.6 | |
| 76% to 80% | | — | | | — | | | 355 | | | 182 | | | 111 | | | 1,755 | | | — | | | 2,403 | | | 6.6 | |
| Greater than 80% | | — | | | 52 | | | 588 | | | 724 | | | 611 | | | 3,589 | | | — | | | 5,564 | | | 15.2 | |
| Total | | $ | 550 | | | $ | 1,865 | | | $ | 5,220 | | | $ | 4,057 | | | $ | 2,640 | | | $ | 19,806 | | | $ | 2,461 | | | $ | 36,599 | | | 100.0 | % |
| DSCR: | | | | | | | | | | | | | | | | | | |
| > 1.20x | | $ | 518 | | | $ | 1,384 | | | $ | 4,453 | | | $ | 3,677 | | | $ | 2,367 | | | $ | 16,393 | | | $ | 2,461 | | | $ | 31,253 | | | 85.4 | % |
| 1.00x - 1.20x | | 32 | | | 392 | | | 328 | | | 380 | | | 101 | | | 2,101 | | | — | | | 3,334 | | | 9.1 | |
| <1.00x | | — | | | 89 | | | 439 | | | — | | | 172 | | | 1,312 | | | — | | | 2,012 | | | 5.5 | |
| Total | | $ | 550 | | | $ | 1,865 | | | $ | 5,220 | | | $ | 4,057 | | | $ | 2,640 | | | $ | 19,806 | | | $ | 2,461 | | | $ | 36,599 | | | 100.0 | % |
The amortized cost of agricultural mortgage loans by credit quality indicator and vintage year was as follows at March 31, 2024:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Credit Quality Indicator | | 2024 | | 2023 | | 2022 | | 2021 | | 2020 | | Prior | | Revolving
Loans | | Total | | % of
Total |
| | (Dollars in millions) |
| LTV ratios: | | | | | | | | | | | | | | | | | | |
| Less than 65% | | $ | 123 | | | $ | 794 | | | $ | 1,988 | | | $ | 1,472 | | | $ | 1,942 | | | $ | 6,941 | | | $ | 1,235 | | | $ | 14,495 | | | 92.3 | % |
| 65% to 75% | | 3 | | | 22 | | | 77 | | | 193 | | | 125 | | | 503 | | | 127 | | | 1,050 | | | 6.7 | |
| 76% to 80% | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Greater than 80% | | — | | | 5 | | | — | | | — | | | 5 | | | 140 | | | 5 | | | 155 | | | 1.0 | |
| Total | | $ | 126 | | | $ | 821 | | | $ | 2,065 | | | $ | 1,665 | | | $ | 2,072 | | | $ | 7,584 | | | $ | 1,367 | | | $ | 15,700 | | | 100.0 | % |
The amortized cost of residential mortgage loans by credit quality indicator and vintage year was as follows at:at March 31, 2024:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Credit Quality Indicator | | 2024 | | 2023 | | 2022 | | 2021 | | 2020 | | Prior | | Revolving
Loans | | Total | | % of
Total |
| | (Dollars in millions) |
| Performance indicators: | | | | | | | | | | | | | | | | | | |
| Performing | | $ | — | | | $ | 345 | | | $ | 1,842 | | | $ | 909 | | | $ | 150 | | | $ | 6,521 | | | $ | — | | | $ | 9,767 | | | 96.5 | % |
| Nonperforming (1) | | — | | | 8 | | | 50 | | | 14 | | | 6 | | | 280 | | | — | | | 358 | | | 3.5 | |
| Total | | $ | — | | | $ | 353 | | | $ | 1,892 | | | $ | 923 | | | $ | 156 | | | $ | 6,801 | | | $ | — | | | $ | 10,125 | | | 100.0 | % |
|
| | | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| | Recorded Investment | | % of Total | | Recorded Investment | | % of Total |
| | (Dollars in millions) |
| Performance indicators: | | | | | | | |
| Performing | $ | 10,198 |
| | 96.5 | % | | $ | 9,563 |
| | 96.6 | % |
| Nonperforming | 369 |
| | 3.5 |
| | 332 |
| | 3.4 |
|
| Total | $ | 10,567 |
| | 100.0 | % | | $ | 9,895 |
| | 100.0 | % |
The estimated fair value of(1)Includes residential mortgage loans was $11.2 billion and $10.3 billionin process of foreclosure of $134 million at September 30, 2017both March 31, 2024 and December 31, 2016, respectively.2023.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
9. Investments (continued)
Past Due and Nonaccrual Mortgage Loans
The Company has a high quality, well performing mortgage loan portfolio, with 99% of all mortgage loans classified as performing at both September 30, 2017March 31, 2024 and December 31, 2016.2023. The Company defines delinquency consistent with industry practice, when mortgage loans are past due more than two or more months, as follows: commercial and residential mortgage loans — 60 days and agricultural mortgage loans — 90 days.applicable, by portfolio segment. The past due and nonaccrual mortgage loans at recorded investment,amortized cost, prior to valuation allowances,ACL, by portfolio segment, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Past Due | | Past Due
and Still Accruing Interest | | Nonaccrual |
| Portfolio Segment | | March 31, 2024 | | December 31, 2023 | | March 31, 2024 | | December 31, 2023 | | March 31, 2024 | | December 31, 2023 |
| | (In millions) |
| Commercial | | $ | 276 | | | $ | 19 | | | $ | — | | | $ | — | | | $ | 491 | | | $ | 303 | |
| Agricultural | | 243 | | | 40 | | | 29 | | | — | | | 252 | | | 206 | |
| Residential | | 358 | | | 343 | | | — | | | — | | | 360 | | | 343 | |
| Total | | $ | 877 | | | $ | 402 | | | $ | 29 | | | $ | — | | | $ | 1,103 | | | $ | 852 | |
Real Estate and Real Estate Joint Ventures
The Company’s real estate investment portfolio is diversified by property type, geography and income stream, including income from operating leases, operating income and equity in earnings from equity method real estate joint ventures. Real estate investments, by income type, as well as income earned, were as follows at:at and for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | March 31, 2024 | | December 31, 2023 | | Three Months
Ended
March 31, | | |
| | | | | 2024 | | 2023 | | | | |
| Income Type | | Carrying Value | | Income |
| | (In millions) |
| Wholly-owned real estate: | | | | | | | | | | | | |
| Leased real estate | | $ | 1,587 | | | $ | 1,594 | | | $ | 38 | | | $ | 42 | | | | | |
| Other real estate | | 510 | | | 506 | | | 43 | | | 46 | | | | | |
| Real estate joint ventures | | 6,551 | | | 6,590 | | | (50) | | | (36) | | | | | |
| Total real estate and real estate joint ventures | | $ | 8,648 | | | $ | 8,690 | | | $ | 31 | | | $ | 52 | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Past Due | | Greater than 90 Days Past Due and Still Accruing Interest | | Nonaccrual |
| | September 30, 2017 | | December 31, 2016 | | September 30, 2017 | | December 31, 2016 | | September 30, 2017 | | December 31, 2016 |
| | (In millions) |
| Commercial | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Agricultural | 134 |
| | 127 |
| | 125 |
| | 104 |
| | 36 |
| | 23 |
|
| Residential | 369 |
| | 332 |
| | — |
| | — |
| | 369 |
| | 332 |
|
| Total | $ | 503 |
| | $ | 459 |
| | $ | 125 |
| | $ | 104 |
| | $ | 405 |
| | $ | 355 |
|
Mortgage Loans Modified in a Troubled Debt Restructuring
During both thethree months and nine months endedSeptember 30, 2017 and 2016, the Company did not have a significant amount of mortgage loans modified in a troubled debt restructuring.
Cash Equivalents
The carrying value of cash equivalentswholly-owned real estate acquired through foreclosure was $3.0 billion$192 million and $4.7 billion$190 million at September 30, 2017March 31, 2024 and December 31, 2016,2023, respectively. Depreciation expense on real estate investments was $21 million and $20 million for thethree months ended March 31, 2024 and 2023, respectively. Real estate investments net of accumulated depreciation were $660 million and $638 million at March 31, 2024 and December 31, 2023, respectively.
Leased Real Estate Investments - Operating Leases
The Company, as lessor, leases investment real estate, principally commercial real estate for office, apartment and retail use, through a variety of operating lease arrangements, which typically include tenant reimbursement for property operating costs and options to renew or extend the lease. In some circumstances, leases may include an option for the lessee to purchase the property. In addition, certain leases of retail space may stipulate that a portion of the income earned is contingent upon the level of the tenants’ revenues. The Company has elected a practical expedient of not separating non-lease components related to reimbursement of property operating costs from associated lease components. These property operating costs have the same timing and pattern of transfer as the related lease component, because they are incurred over the same period of time as the operating lease. Therefore, the combined component is accounted for as a single operating lease. Risk is managed through lessee credit analysis, property type diversification and geographic diversification.
See Note 10 of the Notes to the Consolidated Financial Statements included in the 2023 Annual Report for a summary of leased real estate investments and income earned, by property type.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
5.9. Investments (continued)
Other Invested Assets
Net Unrealized Investment Gains (Losses)Tax Equity Investments
UnrealizedThe Company invests in certain tax equity investments, including low income housing tax credit partnerships and renewable energy partnerships. The carrying value of tax equity investments, reported in other invested assets on the interim condensed consolidated balance sheet, was $781 million and $1.0 billion at March 31, 2024 and December 31, 2023, respectively. Beginning January 1, 2024, tax equity investments that meet certain criteria are accounted for using the proportional amortization method, where the initial cost of the investment gains (losses) onis amortized in proportion to the tax credits received and recognized as a component of income tax expense (benefit) in the interim condensed consolidated statements of operations. Investments which do not meet the qualification criteria for the proportional amortization method are accounted for using the equity method of accounting. For the three months ended March 31, 2024, income tax credits and other income tax benefits of $37 million and amortized expense of $33 million were recognized net as a component of income tax expense in the Company’s interim condensed consolidated statement of operations.
FVO Securities and Equity Securities
The following table presents FVO securities and equity securities by asset type. FVO securities includes fixed maturity and equity securities AFSto support asset and the effect on DAC, VOBA, deferred sales inducements (“DSI”), future policy benefitsliability management strategies for certain insurance products and the policyholder dividend obligation, that would result from the realization of the unrealized gains (losses), are includedinvestments in net unrealized investment gains (losses) in AOCI.certain separate accounts.
The components of net unrealized investment gains (losses), included in AOCI, were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| | March 31, 2024 | | December 31, 2023 |
| | Cost | | Net Unrealized Gains (Losses) (1) | | Estimated Fair Value | | Cost | | Net Unrealized Gains (Losses) (1) | | Estimated Fair Value |
| Asset Type | | | | |
| | | | (In millions) |
| FVO securities | | $ | 391 | | | $ | 443 | | | $ | 834 | | | $ | 379 | | | $ | 367 | | | $ | 746 | |
| | | | | | | | | | | | |
| Equity securities | | | | | | | | | | | | |
| Common stock (2) | | $ | 119 | | | $ | 57 | | | $ | 176 | | | $ | 118 | | | $ | 45 | | | $ | 163 | |
| Non-redeemable preferred stock | | 166 | | | 4 | | | 170 | | | 177 | | | 7 | | | 184 | |
| Total equity securities | | $ | 285 | | | $ | 61 | | | $ | 346 | | | $ | 295 | | | $ | 52 | | | $ | 347 | |
|
| | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| | (In millions) |
| Fixed maturity securities | $ | 11,787 |
| | $ | 7,912 |
|
| Fixed maturity securities with noncredit OTTI losses included in AOCI | 39 |
| | 10 |
|
| Total fixed maturity securities | 11,826 |
| | 7,922 |
|
| Equity securities | 123 |
| | 72 |
|
| Derivatives | 1,557 |
| | 2,244 |
|
| Other | 62 |
| | 16 |
|
| Subtotal | 13,568 |
| | 10,254 |
|
| Amounts allocated from: | | | |
| Future policy benefits | (18 | ) | | (9 | ) |
| DAC and VOBA related to noncredit OTTI losses recognized in AOCI | (1 | ) | | (1 | ) |
| DAC, VOBA and DSI | (759 | ) | | (569 | ) |
| Policyholder dividend obligation | (2,201 | ) | | (1,931 | ) |
| Subtotal | (2,979 | ) | | (2,510 | ) |
| Deferred income tax benefit (expense) related to noncredit OTTI losses recognized in AOCI | (13 | ) | | (3 | ) |
| Deferred income tax benefit (expense) | (3,689 | ) | | (2,690 | ) |
| Net unrealized investment gains (losses) | $ | 6,887 |
| | $ | 5,051 |
|
The(1)Represents cumulative changes in net unrealized investment gains (losses) were as follows:estimated fair value, recognized in earnings, and not in OCI.
(2)Includes common stock and certain mutual funds. |
| | | |
| | Nine Months
Ended
September 30, 2017 |
| | (In millions) |
| Balance, beginning of period | $ | 5,051 |
|
| Fixed maturity securities on which noncredit OTTI losses have been recognized | 29 |
|
| Unrealized investment gains (losses) during the period | 3,285 |
|
| Unrealized investment gains (losses) relating to: | |
| Future policy benefits | (9 | ) |
| DAC and VOBA related to noncredit OTTI losses recognized in AOCI | — |
|
| DAC, VOBA and DSI | (190 | ) |
| Policyholder dividend obligation | (270 | ) |
| Deferred income tax benefit (expense) related to noncredit OTTI losses recognized in AOCI | (10 | ) |
| Deferred income tax benefit (expense) | (999 | ) |
| Balance, end of period | $ | 6,887 |
|
| Change in net unrealized investment gains (losses) | $ | 1,836 |
|
Cash equivalents, which includes securities and other investments with an original or remaining maturity of three months or less at the time of purchase, was $3.6 billion and $3.5 billion, principally at estimated fair value, at March 31, 2024 and December 31, 2023, respectively. Concentrations of Credit Risk
There were no investments in any counterparty that were greater than 10% of the Company’s equity, other than the U.S. government and its agencies, at both September 30, 2017March 31, 2024 and December 31, 2016.
2023.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
5.9. Investments (continued)
Securities Lending Transactions and Repurchase Agreements
Securities, LendingCollateral and Reinvestment Portfolio
ElementsA summary of the securities lending program are presented below at:these transactions and agreements accounted for as secured borrowings were as follows:
|
| | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| | (In millions) |
| Securities on loan: (1) | | | |
| Amortized cost | $ | 14,447 |
| | $ | 15,694 |
|
| Estimated fair value | $ | 15,551 |
| | $ | 16,496 |
|
| Cash collateral received from counterparties (2) | $ | 15,919 |
| | $ | 16,807 |
|
| Security collateral received from counterparties (3) | $ | — |
| | $ | 14 |
|
| Reinvestment portfolio — estimated fair value | $ | 16,012 |
| | $ | 16,821 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | March 31, 2024 | | | | December 31, 2023 |
| | | Securities (1) | | | | | | | | Securities (1) | | |
| Agreement Type | | | Estimated Fair Value | | Cash Collateral Received from Counterparties (2) | | Reinvestment Portfolio at Estimated
Fair Value | | | | Estimated Fair Value | | Cash Collateral Received from Counterparties (2) | | Reinvestment Portfolio at Estimated
Fair Value |
| | | (In millions) |
| Securities lending | | | $ | 5,862 | | | $ | 5,997 | | | $ | 5,870 | | | | | $ | 5,528 | | | $ | 5,684 | | | $ | 5,565 | |
| Repurchase agreements | | | $ | 3,032 | | | $ | 2,975 | | | $ | 2,912 | | | | | $ | 3,029 | | | $ | 2,975 | | | $ | 2,913 | |
__________________
| |
(1) | Included within fixed maturity securities. |
| |
(2) | Included within payables(1)These securities were included within fixed maturity securities AFS, short-term investments and cash equivalents at both March 31, 2024 and December 31, 2023. (2)The liability for collateral under securities loaned and other transactions. |
| |
(3) | Security collateral received from counterparties may not be sold or re-pledged, unless the counterparty is in default,and is not reflected on the consolidated financial statements.
|
The cash collateral liability byis included within payables for collateral under securities loaned security type and remaining tenorother transactions.
Contractual Maturities
Contractual maturities of thethese transactions and agreements wasaccounted for as follows at:secured borrowings were as follows:
| | | March 31, 2024 | |
| | March 31, 2024 | |
| | March 31, 2024 | |
| | Remaining Maturities | |
| | Remaining Maturities | |
| | Remaining Maturities | |
| Security Type | |
| Security Type | |
| Security Type | |
| | (In millions) | |
| | (In millions) | |
| | (In millions) | |
| Cash collateral liability by security type: | |
| Securities lending: | |
| Securities lending: | |
| Securities lending: | |
| U.S. government and agency | |
| U.S. government and agency | |
| U.S. government and agency | |
| | | Repurchase agreements: | |
| | September 30, 2017 | | December 31, 2016 |
| | Remaining Tenor of Securities Lending Agreements | | | Remaining Tenor of Securities Lending Agreements | | |
| Repurchase agreements: | |
| | Open (1) | | 1 Month or Less | | 1 to 6 Months | | Total | | Open (1) | | 1 Month or Less | | 1 to 6 Months | | Total |
| | (In millions) |
| Cash collateral liability by loaned security type: | | | | | | | | | | | | | | | |
| Repurchase agreements: | |
| U.S. government and agency | $ | 3,532 |
| | $ | 6,962 |
| | $ | 5,425 |
| | $ | 15,919 |
| | $ | 4,033 |
| | $ | 5,640 |
| | $ | 7,134 |
| | $ | 16,807 |
|
| U.S. government and agency | |
| U.S. government and agency | |
|
__________________
| |
(1) | The related loaned security could be returned to the Company on the next business day which would require the Company to immediately return the cash collateral. |
(1)The related security could be returned to the Company on the next business day, which would require the Company to immediately return the cash collateral.
If the Company is required to return significant amounts of cash collateral on short notice and is forced to sell securitiesinvestments to meet the return obligation, it may have difficulty selling such collateral that is invested in securities in a timely manner, be forced to sell securitiesinvestments in a volatile or illiquid market for less than what otherwise would have been realized under normal market conditions, or both. The estimated fair value of the securities on loan related to the cash collateral on open at September 30, 2017 was $3.5 billion, all of which were U.S. government and agency securities which, if put back to the Company, could be immediately sold to satisfy the cash requirement.
The securities lending and repurchase agreements reinvestment portfolio acquired with the cash collateral consistedportfolios consist principally of high quality, liquid, publicly traded fixed maturity securities (including agency RMBS, U.S. government and agency and ABS), short-term investments and cash equivalents with 68% invested in agency RMBS, U.S. government and agency securities,AFS, short-term investments, cash equivalents or held in cash. If the securities on loan orin the reinvestment portfolio become less liquid, the Company has the liquidity resources of most of itswithin the general account are available to meet any potential cash demands when securities on loan are put back toby the Company.counterparty.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
5. Investments (continued)
Repurchase Agreements
Elements of the short-term repurchase agreements are presented below at:
|
| | | |
| | September 30, 2017 |
| | (In millions) |
| Securities on loan: (1) | |
| Amortized cost | $ | 1,879 |
|
| Estimated fair value | $ | 2,000 |
|
| Cash collateral received from counterparties (2) | $ | 1,960 |
|
| Reinvestment portfolio — estimated fair value | $ | 1,972 |
|
__________________
| |
(1) | Included within fixed maturity securities. |
| |
(2) | Included within payables for collateral under securities loaned and other transactions. |
The cash collateral liability by loaned security type and remaining tenor of the agreements was as follows at:
|
| | | | | | | |
| | September 30, 2017 |
| | Remaining Tenor of Repurchase Agreements | | |
| | 1 Month or Less | | Total |
| | (In millions) |
| Cash collateral liability by loaned security type: | |
| U.S. government and agency | $ | 1,960 |
| | $ | 1,960 |
|
The reinvestment portfolio acquired with the cash collateral consisted principally of fixed maturity securities (including agency RMBS, U.S. government and agency securities and ABS), short-term investments and cash equivalents with 68% invested in agency RMBS, U.S. government and agency securities, short-term investments, cash equivalents or held in cash. If the securities on loan 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 on loan are put back to the Company. There were no repurchase agreements outstanding at December 31, 2016.
Invested Assets on Deposit and Pledged as Collateral
Invested assets on deposit and pledged as collateral are presented below at estimated fair value for all asset classes, except mortgage loans, which are presented at carrying value at:
|
| | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| | (In millions) |
| Invested assets on deposit (regulatory deposits) | $ | 49 |
| | $ | 47 |
|
| Invested assets pledged as collateral | 20,938 |
| | 20,750 |
|
| Total invested assets on deposit and pledged as collateral | $ | 20,987 |
|
| $ | 20,797 |
|
The Company has pledged invested assets in connection with various agreements and transactions, including funding agreements (see Note 4 of the Notes to the Consolidated Financial Statements included in the 2016 Annual Report) and derivative transactions (see Note 6). Amounts in the table above include invested assets, and cash and cash equivalents. See Note 6.
See “— Securities Lending” and “— Repurchase Agreements” for information regarding securities on loan and Note 4 for information regarding investments designated to the closed block.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
5.9. Investments (continued)
except mortgage loans, which are presented at carrying value, and were as follows at:
| | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
| (In millions) |
| Invested assets on deposit (regulatory deposits) | $ | 101 | | | $ | 105 | |
| Invested assets pledged as collateral (1) | 21,418 | | | 21,177 | |
| Total invested assets on deposit and pledged as collateral | $ | 21,519 | | | $ | 21,282 | |
__________________
(1)The Company has pledged invested assets in connection with various agreements and transactions, including funding agreements and secured debt (see Notes 4 and 14of the Notes to the Consolidated Financial Statements included in the 2023 Annual Report). For information regarding invested assets pledged in connection with derivative transactions, see Note 10.
See “— Securities Lending Transactions and Repurchase Agreements” for information regarding securities supporting securities lending transactions and repurchase agreements, and Note 8 for information regarding investments designated to the closed block. In addition, the Company’s investment in Federal Home Loan Bank of New York common stock, included within other invested assets, which is considered restricted until redeemed by the issuer, was $637 million, at redemption value, at both March 31, 2024 and December 31, 2023.
Variable Interest Entities
The Company has invested in legal entities that are VIEs. In certain instances, the Company holds both the power to direct the most significant activities of the entity, as well as an economic interest in the entity and, as such, is deemed to be the primary beneficiary or consolidator of the entity. The determination of the VIE’s primary beneficiary requires an evaluation of the contractual and implied rights and obligations associated with each party’s relationship with or involvement in the entity, an estimate of the entity’s expected losses and expected residual returns and the allocation of such estimates to each party involved in the entity.
Consolidated VIEs
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 Company’s obligation to the VIEs is limited to the amount of its committed investment.
The following table presents the total assets and total liabilities relating to investment-related VIEs for which the Company has concluded that it is the primary beneficiary and which are consolidated at:
|
| | | | | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| | Total Assets | | Total Liabilities | | Total Assets | | Total Liabilities |
| | (In millions) |
| Real estate joint ventures (1) | $ | 1,102 |
| | $ | — |
| | $ | 1,124 |
| | $ | — |
|
| Renewable energy partnership (2) | 114 |
| | — |
| | — |
| | — |
|
| Other investments (3) | 41 |
| | 6 |
| | 62 |
| | 12 |
|
| Total | $ | 1,257 |
|
| $ | 6 |
|
| $ | 1,186 |
|
| $ | 12 |
|
__________________
| |
(1) | The Company’s investment in these affiliated real estate joint ventures was $1.0 billion at both September 30, 2017 and December 31, 2016. Other affiliates’ investments in these affiliated real estate joint ventures totaled $83 million and $85 million at September 30, 2017 and December 31, 2016, respectively. |
| |
(2) | Assets of the renewable energy partnership, primarily consisting of other invested assets, were consolidated in prior periods. As a result of the Separation and a reassessment in the third quarter of 2017, the renewable energy partnership was determined to be a consolidated VIE. |
| |
(3) | Other investments is primarily comprised of other invested assets and other limited partnership interests. The Company consolidates entities 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 liable for any principal or interest shortfalls should any arise. |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2024 | | December 31, 2023 |
| Asset Type | | Total
Assets | | Total
Liabilities | | Total
Assets | | Total
Liabilities |
| | (In millions) |
| Real estate joint ventures | | $ | 1,355 | | | $ | — | | | $ | 1,427 | | | $ | — | |
| Mortgage loan joint ventures | | 195 | | | — | | | 171 | | | — | |
| Renewable energy partnership (primarily other invested assets) | | 66 | | | 1 | | | 65 | | | — | |
| Investment funds (primarily other invested assets) | | 61 | | | — | | | 61 | | | — | |
| Total | | $ | 1,677 | | | $ | 1 | | | $ | 1,724 | | | $ | — | |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
5.9. Investments (continued)
Unconsolidated VIEs
The carrying amount and maximum exposure to loss relating to VIEs in which the Company holds a significant variable interest but is not the primary beneficiary and which have not been consolidated were as follows at:
| | | March 31, 2024 | | | | March 31, 2024 | | December 31, 2023 |
| Asset Type | | Asset Type | | Carrying
Amount | | Maximum
Exposure
to Loss (1) | | Carrying
Amount | | Maximum
Exposure
to Loss (1) |
| | (In millions) | | | | (In millions) |
| Fixed maturity securities AFS (2) | |
| | | Other limited partnership interests | |
| | September 30, 2017 | | December 31, 2016 |
| Other limited partnership interests | |
| | Carrying Amount | | Maximum Exposure to Loss (1) | | Carrying Amount | | Maximum Exposure to Loss (1) |
| | (In millions) |
| Fixed maturity securities AFS: | | | | | | | |
| Structured Securities (2) | $ | 35,845 |
| | $ | 35,845 |
| | $ | 34,912 |
| | $ | 34,912 |
|
| U.S. and foreign corporate | 1,162 |
| | 1,162 |
| | 1,167 |
| | 1,167 |
|
| Other limited partnership interests | 3,490 |
| | 5,865 |
| | 3,383 |
| | 5,674 |
|
| Other invested assets | 2,159 |
| | 2,570 |
| | 2,089 |
| | 2,666 |
|
| Real estate joint ventures | 70 |
| | 84 |
| | 81 |
| | 95 |
|
| Total | $ | 42,726 |
|
| $ | 45,526 |
|
| $ | 41,632 |
|
| $ | 44,514 |
|
__________________
| |
(1) | The maximum exposure to loss relating to fixed maturity securities AFS is equal to their carrying amounts or the carrying amounts of retained interests. The maximum exposure to loss relating to other limited partnership interests and real estate joint ventures is equal to the carrying amounts plus any unfunded commitments. For certain of its investments in other invested assets, the Company’s return is in the form of income tax credits which are guaranteed by creditworthy third parties. 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 $123 million and $150 million at September 30, 2017 and December 31, 2016, respectively. Such a maximum loss would be expected to occur only upon bankruptcy of the issuer or investee. |
| |
(2) | For these variable interests, the Company’s involvement is limited to that of a passive investor in mortgage-backed or asset backed securities issued by trusts that do not have substantial equity. |
(1)The maximum exposure to loss relating to fixed maturity securities AFS and FVO securities is equal to their carrying amounts or the carrying amounts of retained interests. The maximum exposure to loss relating to other limited partnership interests (“OLPI”) and real estate joint ventures (“REJV”) is equal to the carrying amounts plus any unrecognized unfunded commitments. For certain of its investments in other invested assets, the Company’s return is in the form of income tax credits which are guaranteed by creditworthy third parties. 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. Such a maximum loss would be expected to occur only upon bankruptcy of the issuer or investee.
(2)For variable interests in Structured Products included within fixed maturity securities AFS, the Company’s involvement is limited to that of a passive investor in mortgage-backed or asset-backed securities issued by trusts that do not have substantial equity.
As described in Note 11,15, 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 bothfor either the ninethree months ended September 30, 2017 and 2016.
March 31, 2024 or 2023.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
5.9. Investments (continued)
Net Investment Income
The componentscomposition of net investment income wereby asset type was as follows:
|
| | | | | | | | | | | | | | | |
| | Three Months
Ended
September 30, | | Nine Months
Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (In millions) |
| Investment income: | | | | | | | |
| Fixed maturity securities | $ | 1,764 |
| | $ | 1,907 |
| | $ | 5,274 |
| | $ | 5,803 |
|
| Equity securities | 20 |
| | 19 |
| | 68 |
| | 65 |
|
| Mortgage loans | 697 |
| | 630 |
| | 1,989 |
| | 1,930 |
|
| Policy loans | 77 |
| | 104 |
| | 230 |
| | 311 |
|
| Real estate and real estate joint ventures | 104 |
| | 159 |
| | 327 |
| | 366 |
|
| Other limited partnership interests | 163 |
| | 154 |
| | 506 |
| | 274 |
|
| Cash, cash equivalents and short-term investments | 20 |
| | 10 |
| | 54 |
| | 31 |
|
| Operating joint venture | 6 |
| | 2 |
| | 12 |
| | 7 |
|
| Other | 49 |
| | 67 |
| | 154 |
| | 136 |
|
| Subtotal | 2,900 |
| | 3,052 |
| | 8,614 |
|
| 8,923 |
|
| Less: Investment expenses | 240 |
| | 182 |
| | 659 |
| | 574 |
|
| Net investment income | $ | 2,660 |
| | $ | 2,870 |
| | $ | 7,955 |
|
| $ | 8,349 |
|
See “— Related Party Investment Transactions” for discussion of affiliated net investment income and investment expenses.
| | | | | | | | | | | | | | | | | | | |
| | Three Months
Ended
March 31, | | | |
| Asset Type | | 2024 | | 2023 | | | | | |
| | (In millions) | |
| Fixed maturity securities AFS | | $ | 1,830 | | | $ | 1,846 | | | | | | |
| Mortgage loans | | 828 | | | 790 | | | | | | |
| Policy loans | | 70 | | | 73 | | | | | | |
| Real estate and REJV | | 31 | | | 52 | | | | | | |
| OLPI | | 158 | | | 1 | | | | | | |
| Cash, cash equivalents and short-term investments | | 91 | | | 84 | | | | | | |
| FVO securities | | 66 | | | 50 | | | | | | |
| Operating joint venture | | 16 | | | 14 | | | | | | |
| Equity securities | | 3 | | | 1 | | | | | | |
| Other | | 81 | | | 79 | | | | | | |
| Subtotal investment income | | 3,174 | | | 2,990 | | | | | | |
| Less: Investment expenses | | 317 | | | 305 | | | | | | |
| Net investment income | | $ | 2,857 | | | $ | 2,685 | | | | | | |
| | | | | | | | | |
| Net Investment Income (“NII”) Information | | | | | | | | | |
| Net realized and unrealized gains (losses) recognized in NII: | | | | | | | | | |
| Net realized gains (losses) from sales and disposals | | $ | — | | | $ | — | | | | | | |
| Net unrealized gains (losses) from changes in estimated fair value (primarily FVO securities and REJV) | | 87 | | | 58 | | | | | | |
| Net realized and unrealized gains (losses) recognized in NII | | $ | 87 | | | $ | 58 | | | | | | |
| | | | | | | | | |
| Changes in estimated fair value subsequent to purchase of FVO securities still held at the end of the respective periods and recognized in NII | | $ | 64 | | | $ | 47 | | | | | | |
| | | | | | | | | |
| Equity method investments NII (primarily REJV, OLPI, tax credit and renewable energy partnerships and an operating joint venture) | | $ | 136 | | | $ | (38) | | | | | | |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
5.9. Investments (continued)
Net Investment Gains (Losses)
Components of Net Investment Gains (Losses) by Asset Type and Transaction Type
The componentscomposition of net investment gains (losses) wereby asset type and transaction type was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months
Ended
March 31, | | | | | | | | | | | | |
| Asset Type | | 2024 | | 2023 | | | | | | | | | | | | | | |
| (In millions) | | | | | | | | | |
| Fixed maturity securities AFS | | $ | (79) | | | $ | 52 | | | | | | | | | | | | | | | |
| Equity securities | | 6 | | | (5) | | | | | | | | | | | | | | | |
| Mortgage loans | | (71) | | | (149) | | | | | | | | | | | | | | | |
| Real estate and REJV (excluding changes in estimated fair value) | | 27 | | | 2 | | | | | | | | | | | | | | | |
| OLPI (excluding changes in estimated fair value) (1) | | (38) | | | 7 | | | | | | | | | | | | | | | |
| Other gains (losses) | | (5) | | | 6 | | | | | | | | | | | | | | | |
| Subtotal | | (160) | | | (87) | | | | | | | | | | | | | | | |
| Change in estimated fair value of OLPI and REJV | | 3 | | | (5) | | | | | | | | | | | | | | | |
| Non-investment portfolio gains (losses) | | 21 | | | (10) | | | | | | | | | | | | | | | |
| Subtotal | | 24 | | | (15) | | | | | | | | | | | | | | | |
| Net investment gains (losses) | | $ | (136) | | | $ | (102) | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Transaction Type | | | | | | | | | | | | | | | | | | |
| Realized gains (losses) on investments sold or disposed (1) | | $ | (173) | | | $ | 83 | | | | | | | | | | | | | | | |
| Impairment (losses) | | — | | | (6) | | | | | | | | | | | | | | | |
| Recognized gains (losses): | | | | | | | | | | | | | | | | | | |
| Change in allowance for credit loss recognized in earnings | | 7 | | | (162) | | | | | | | | | | | | | | | |
| Unrealized net gains (losses) recognized in earnings | | 9 | | | (7) | | | | | | | | | | | | | | | |
| Total recognized gains (losses) | | (157) | | | (92) | | | | | | | | | | | | | | | |
| Non-investment portfolio gains (losses) | | 21 | | | (10) | | | | | | | | | | | | | | | |
| Net investment gains (losses) | | $ | (136) | | | $ | (102) | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Net Investment Gains (Losses) (“NIGL”) Information | | | | | | | | | | | | | | | | | | |
| Changes in estimated fair value subsequent to purchase of equity securities still held at the end of the respective periods and recognized in NIGL | | $ | 11 | | | $ | (3) | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Other gains (losses) include: | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Foreign currency gains (losses) | | $ | 9 | | | $ | (15) | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Net Realized Investment Gains (Losses) From Sales and Disposals of Investments: | | | | | | | | | | | | | | | | | | |
| Recognized in NIGL | | $ | (173) | | | $ | 83 | | | | | | | | | | | | | | | |
| Recognized in NII | | — | | | — | | | | | | | | | | | | | | | |
| Net realized investment gains (losses) from sales and disposals of investments | | $ | (173) | | | $ | 83 | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | |
| | Three Months
Ended
September 30, | | Nine Months
Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (In millions) |
| Total gains (losses) on fixed maturity securities: | | | | | | | |
| Total OTTI losses recognized — by sector and industry: | | | | | | | |
| U.S. and foreign corporate securities — by industry: | | | | | | | |
| Industrial | $ | — |
| | $ | — |
| | $ | — |
| | $ | (58 | ) |
| Communications | — |
| | — |
| | — |
| | (3 | ) |
| Consumer | (5 | ) | | — |
| | (5 | ) | | — |
|
| Total U.S. and foreign corporate securities | (5 | ) | | — |
| | (5 | ) | | (61 | ) |
| State and political subdivision | — |
| | — |
| | (1 | ) | | — |
|
| RMBS | — |
| | (9 | ) | | — |
| | (14 | ) |
| OTTI losses on fixed maturity securities recognized in earnings | (5 | ) | | (9 | ) | | (6 | ) | | (75 | ) |
| Fixed maturity securities — net gains (losses) on sales and disposals | 1 |
| | 61 |
| | 41 |
| | 268 |
|
| Total gains (losses) on fixed maturity securities | (4 | ) | | 52 |
| | 35 |
|
| 193 |
|
| Total gains (losses) on equity securities: | | | | |
| |
|
| Total OTTI losses recognized — by sector: | | | | |
| |
|
| Common stock | (4 | ) | | (5 | ) | | (16 | ) | | (71 | ) |
| Non-redeemable preferred stock | — |
| | — |
| | (1 | ) | | — |
|
| OTTI losses on equity securities recognized in earnings | (4 | ) | | (5 | ) | | (17 | ) |
| (71 | ) |
| Equity securities — net gains (losses) on sales and disposals | — |
| | 7 |
| | 1 |
| | 21 |
|
| Total gains (losses) on equity securities | (4 | ) | | 2 |
| | (16 | ) |
| (50 | ) |
| Mortgage loans | (16 | ) | | (9 | ) | | (44 | ) | | (6 | ) |
| Real estate and real estate joint ventures | 169 |
| | 20 |
| | 436 |
| | 28 |
|
| Other limited partnership interests | (30 | ) | | (8 | ) | | (44 | ) | | (38 | ) |
| Other | 21 |
| | (14 | ) | | (90 | ) | | (44 | ) |
| Subtotal | 136 |
| | 43 |
| | 277 |
|
| 83 |
|
| FVO consolidated securitization entities: | | | | | | | |
| Securities | — |
| | 1 |
| | — |
| | 2 |
|
| Non-investment portfolio gains (losses) | (40 | ) | | (2 | ) | | (93 | ) | | 30 |
|
| Subtotal | (40 | ) | | (1 | ) | | (93 | ) |
| 32 |
|
| Total net investment gains (losses) | $ | 96 |
| | $ | 42 |
| | $ | 184 |
|
| $ | 115 |
|
See “— Related Party Investment Transactions” for discussion(1) Includes a net loss of affiliated net investment gains (losses) related to transfers of invested assets to affiliates.
Gains (losses) from foreign currency transactions included within net investment gains (losses) were ($30)$36 millionand ($139) million for during thethree months ended March 31, 2024 for private equity investments sold. The Company sold a $590 million portfolio of investments to a fund for proceeds of $554 million in cash and nine months endedSeptember 30, 2017, respectively, and $1 millionand $24 millionreceivables secured by the value of the fund. An affiliate has entered into an agreement to serve as the investment manager of the fund for thethree monthsand nine months endedSeptember 30, 2016, respectively.
which it will receive a management fee.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
5.9. Investments (continued)
Sales or Disposals and Impairments of Fixed Maturity Securities AFS and Equity Securities – Composition of Net Investment Gains (Losses)
Investment gains and losses on salesThe composition of securities are determined on a specific identification basis. Proceeds from sales or disposals of fixed maturity and equity securities and the components of fixed maturity and equity securities net investment gains (losses) werefor these securities is as shown in the table below.follows:
| | | | | | | | | | | | | | | | | | | | | | |
| | Three Months
Ended
March 31, | | | | | | |
| Fixed Maturity Securities AFS | | 2024 | | 2023 | | | | | | | | |
| | (In millions) |
| Proceeds | | $ | 3,030 | | | $ | 8,422 | | | | | | | | | |
| Gross investment gains | | $ | 48 | | | $ | 239 | | | | | | | | | |
| Gross investment (losses) | | (193) | | | (160) | | | | | | | | | |
| Realized gains (losses) on sales and disposals | | (145) | | | 79 | | | | | | | | | |
| Net credit loss (provision) release (change in ACL recognized in earnings) | | 66 | | | (21) | | | | | | | | | |
| Impairment (losses) | | — | | | (6) | | | | | | | | | |
| Net credit loss (provision) release and impairment (losses) | | 66 | | | (27) | | | | | | | | | |
| Net investment gains (losses) | | $ | (79) | | | $ | 52 | | | | | | | | | |
| | | | | | | | | | | | |
| Equity Securities | | | | | | | | | | | | |
| Realized gains (losses) on sales and disposals | | $ | (1) | | | $ | (2) | | | | | | | | | |
| Unrealized net gains (losses) recognized in earnings | | 7 | | | (3) | | | | | | | | | |
| Net investment gains (losses) | | $ | 6 | | | $ | (5) | | | | | | | | | |
|
| | | | | | | | | | | | | | | |
| | Three Months
Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | Fixed Maturity Securities | | Equity Securities |
| | (In millions) |
| Proceeds | $ | 5,888 |
| | $ | 15,343 |
| | $ | 317 |
| | $ | 28 |
|
| Gross investment gains | $ | 32 |
| | $ | 135 |
| | $ | 4 |
| | $ | 9 |
|
| Gross investment losses | (31 | ) | | (74 | ) | | (4 | ) | | (2 | ) |
| OTTI losses | (5 | ) | | (9 | ) | | (4 | ) | | (5 | ) |
| Net investment gains (losses) | $ | (4 | ) | | $ | 52 |
| | $ | (4 | ) | | $ | 2 |
|
|
| | | | | | | | | | | | | | | |
| Nine Months
Ended
September 30, |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| Fixed Maturity Securities |
| Equity Securities |
| (In millions) |
| Proceeds | $ | 22,256 |
|
| $ | 41,425 |
|
| $ | 407 |
|
| $ | 85 |
|
| Gross investment gains | $ | 225 |
|
| $ | 637 |
|
| $ | 9 |
|
| $ | 28 |
|
| Gross investment losses | (184 | ) |
| (369 | ) |
| (8 | ) |
| (7 | ) |
| OTTI losses | (6 | ) |
| (75 | ) |
| (17 | ) |
| (71 | ) |
| Net investment gains (losses) | $ | 35 |
|
| $ | 193 |
|
| $ | (16 | ) |
| $ | (50 | ) |
Credit Loss Rollforward
The table below presents a rollforward of the cumulative credit loss component of OTTI loss recognized in earnings on fixed maturity securities still held for which a portion of the OTTI loss was recognized in other comprehensive income (loss) (“OCI”):
|
| | | | | | | | | | | | | | | |
| | Three Months
Ended
September 30, | | Nine Months
Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (In millions) |
| Balance, beginning of period | $ | 136 |
| | $ | 171 |
| | $ | 157 |
| | $ | 188 |
|
| Addition: | | | | | | | |
| Additional impairments — credit loss OTTI on securities previously impaired | — |
| | 8 |
| | — |
| | 11 |
|
| Reduction: | | | | | | | |
Sales (maturities, pay downs or prepayments) of securities previously impaired as credit loss OTTI | (4 | ) | | (10 | ) | | (25 | ) | | (30 | ) |
| Balance, end of period | $ | 132 |
| | $ | 169 |
| | $ | 132 |
|
| $ | 169 |
|
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
5. Investments (continued)
Related Party Investment Transactions
The Company transfers invested assets primarily consisting of fixed maturity securities andAFS, mortgage loans, and real estate and real estate joint ventures to and from affiliates. Invested assets transferred to and from affiliates were as follows:
| | | | | | | | | | | | | | | | | | |
| Three Months
Ended
March 31, | | | | | |
| 2024 | | 2023 | | | | | | | |
| (In millions) |
| Estimated fair value of invested assets transferred to affiliates | $ | 140 | | | $ | — | | | | | | | | |
| Amortized cost of invested assets transferred to affiliates | $ | 137 | | | $ | — | | | | | | | | |
| Net investment gains (losses) recognized on transfers | $ | 3 | | | $ | — | | | | | | | | |
| Estimated fair value of invested assets transferred from affiliates | $ | 2 | | | $ | 515 | | | | | | | | |
| Estimated fair value of derivative liabilities transferred from affiliates | $ | — | | | $ | — | | | | | | | | |
|
| | | | | | | | | | | | | | | |
| | Three Months
Ended
September 30, | | Nine Months
Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (In millions) |
| Estimated fair value of invested assets transferred to affiliates | $ | — |
| | $ | 179 |
| | $ | 453 |
| | $ | 4,555 |
|
| Amortized cost of invested assets transferred to affiliates | $ | — |
| | $ | 169 |
| | $ | 416 |
| | $ | 4,297 |
|
| Net investment gains (losses) recognized on transfers | $ | — |
| | $ | 10 |
| | $ | 37 |
| | $ | 258 |
|
| Estimated fair value of invested assets transferred from affiliates | $ | — |
| | $ | 51 |
| | $ | 293 |
| | $ | 150 |
|
In January 2017,Recurring related party investments and related net investment income were as follows at and for the Company received transferred investments withperiods ended:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | March 31, 2024 | | December 31, 2023 | | Three Months
Ended
March 31, | | |
| | | | | | 2024 | | 2023 | | | | |
Investment Type/
Balance Sheet Category | | Related Party | | Carrying Value | | Net Investment Income |
| | | | (In millions) |
| Affiliated investments (1) | | MetLife, Inc. | | $ | 1,052 | | | $ | 1,130 | | | $ | 3 | | | $ | 5 | | | | | |
| Affiliated investments (2) | | Metropolitan General Insurance Company | | 152 | | | 150 | | | — | | | — | | | | | |
| Other invested assets | | | | $ | 1,204 | | | $ | 1,280 | | | $ | 3 | | | $ | 5 | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
________________
(1)Represents an estimated fair value of $292 million,investment in affiliated senior unsecured notes which are included in the table above, in additionhave maturity dates from July 2026 to $275 million in cash relatedDecember 2031 and bear interest, payable semi-annually, at rates per annum ranging from 1.61% to the recapture of risks from minimum benefit guarantees on certain variable annuities previously reinsured by Brighthouse Life Insurance Company (“Brighthouse Insurance”)2.16%. See Note 12 for additional information related to the transfer.
Below is a summary of certain affiliated loans which are more fully described in Note 810 of the Notes ofto the Consolidated Financial Statements included in the 20162023 Annual Report.Report for further information.
(2)Represents an investment in affiliated preferred stock with a dividend yield of 7.50% that will be cumulative and payable annually in arrears. The shares can be redeemed, at MetLife General Insurance Company’s option, after December 15, 2028.
The Company, hadthrough its wholly-owned subsidiary, entered into an agreement to assume certain group annuity contracts issued in connection with a qualifying pension risk transfer on a modified coinsurance basis from Metropolitan Tower Life Insurance Company (“MTL”). In accordance with this reinsurance agreement, the Company reported affiliated loans outstanding to MetLife, Inc., which are included infunds withheld within other invested assets totaling $1.8of $2.8 billion atfor both September 30, 2017March 31, 2024 and December 31, 2016. Net2023.
The Company incurred investment incomeadvisory charges from affiliated loans was$19 millionand $58 millionfor thethree monthsandnine months endedSeptember 30, 2017, respectively, and$23 millionand $70 millionfor thethree monthsandnine months endedSeptember 30, 2016, respectively.
As a structured settlements assignment company, the Company purchases annuities from Brighthouse to fund the periodic structured settlement claim payment obligations it assumes. Each annuity purchased is contractually designated to the assumed claim obligation it funds. The aggregate annuity contract values recorded, for which the Company has also recorded unpaid claim obligationsan affiliate of equal amounts, were $1.3 billion at both September 30, 2017 and December 31, 2016. The related net investment income and corresponding policyholder benefits and claims recognized were $18$76 million and $51$68 million for the three monthsandnine months endedSeptember 30, 2017, respectively, and$17 millionand$46 millionfor thethree monthsandnine months endedSeptember 30, 2016, respectively.
The Company holds a surplus note from American Life Insurance Company, an affiliate, which is included in other invested assets, with a carrying value of $100 million at both September 30, 2017 and December March 31, 2016. Net investment income from this surplus note was $1 million2024 and $3 million for both the three monthsandnine months endedSeptember 30, 2017, and thethree monthsandnine months endedSeptember 30, 2016.
The Company held preferred stock of Metropolitan Property and Casualty Insurance Company, an affiliate, which was included in other invested assets, with a carrying value of $315 million at both September 30, 2017 and December 31, 2016. Net investment income from the affiliated preferred stock dividends was $1 million and $4 million for both thethree monthsandnine months endedSeptember 30, 2017, and thethree monthsandnine months endedSeptember 30, 2016.
In March 2017, the Company purchased from Brighthouse Insurance an interest in an operating joint venture for $286 million, which was settled in cash in April 2017.
The Company provides investment administrative services to certain affiliates. The related investment administrative service charges to these affiliates were$18 millionand $54 millionfor thethree monthsandnine months endedSeptember 30, 2017, respectively, and$42 million and$127 millionfor thethree monthsandnine months endedSeptember 30, 2016,2023, respectively.
See “— Variable Interest Entities” for information on investments in affiliated real estate joint ventures and affiliated mortgage loan joint ventures.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
6.10. Derivatives
Accounting for Derivatives
Freestanding Derivatives
Freestanding derivatives are carried on the Company’s balance sheet either as assets within other invested assets or as liabilities within other liabilities at estimated fair value. The Company does not offset the estimated fair value amounts recognized for derivatives executed with the same counterparty under the same master netting agreement.
Accruals on derivatives are generally recorded in accrued investment income or within other liabilities. However, accruals that are not scheduled to settle within one year are included with the derivatives carrying value in other invested assets or other liabilities.
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 valueSee Note 1 of the derivative are reported in net derivative gains (losses) except as follows:
|
| | |
Statement of Operations Presentation: | Derivative: |
Policyholder benefits and claims | • | Economic hedges of variable annuity guarantees included in
future policy benefits
|
Net investment income | • | Economic hedges of equity method investments in joint
ventures
|
| • | All derivatives held in relation to trading portfolios |
Hedge Accounting
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. Hedge designation and financial statement presentation of changes in estimated fair value of the hedging derivatives are as follows:
Fair value hedge (a hedge of the estimated fair value of a recognized asset or liability) - in net derivative gains (losses), consistent with the change in estimated fair value of the hedged item attributable to the designated risk being hedged.
Cash flow hedge (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) - effectiveness in OCI (deferred gains or losses on the derivative are reclassified into the statement of operations when the Company’s earnings are affected by the variability in cash flows of the hedged item); ineffectiveness in net derivative gains (losses).
The changes in estimated fair values of the hedging derivatives are exclusive of any accruals that are separately reported on the statement of operations within interest income or interest expense to match the location of the hedged item.
In its hedge documentation, the Company sets forth how the hedging instrument is expected to hedge the designated risks related to the hedged item and sets forth the method that will be used to retrospectively and prospectively assess the hedging instrument’s effectiveness and the method that 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 at least quarterly 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 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.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
6. Derivatives (continued)
When hedge accounting is discontinued because it is determined that the derivative is not highly effective in offsetting changesincluded in the estimated fair value or cash flows of2023 Annual Report for a hedged item, the derivative continues to be carried on the balance sheet at its estimated fair value, with changes in estimated fair value recognized in net derivative gains (losses). The carrying valuedescription of the hedged recognized asset or liability under a fair value hedge is no longer adjustedCompany’s accounting policies for changes in its estimated fair value due to the hedged risk,derivatives 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 OCI related to discontinued cash flow hedges are released into the statement of operations when the Company’s earnings are affected by the variability in cash flows of the hedged item.
When hedge accounting is discontinued because it is no longer probable that the forecasted transactions will occur on the anticipated date or within two months of that date, the derivative continues to be carried on the balance sheet 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 OCI 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 on the balance sheet, with changes in its estimated fair value recognized in the current period as net derivative gains (losses).
Embedded Derivatives
The Company sells variable annuities and issues certain insurance products and investment contracts and is a party to certain reinsurance agreements that have embedded derivatives. The Company assesses each identified embedded derivative to determine whether it is required to be bifurcated. The embedded derivative is bifurcated from the host contract and accounted for as a freestanding derivative if:
the combined instrument is not accounted for in its entirety at estimated fair value with changes in estimated fair value recorded in earnings;
the terms of the embedded derivative are not clearly and closely related to the economic characteristics of the host contract; and
a separate instrument with the same terms as the embedded derivative would qualify as a derivative instrument.
Such embedded derivatives are carried on the balance sheet at estimated fair value with the host contract and changes in their estimated fair value are generally reported in net derivative gains (losses). 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. At inception, the Company attributes to the embedded derivative a portion of the projected future guarantee fees to be collected from the policyholder equal to the present value of projected future guaranteed benefits. Any additional fees represent “excess” fees and are reported in universal life and investment-type product policy fees.
See Note 711 for information about the fair value hierarchy for derivatives.
Derivative Strategies
Types of Derivative Instruments and Derivative Strategies
The Company is exposed to various risks relating to its ongoing business operations, including interest rate, foreign currency exchange rate, credit and equity market. The Company uses a variety of strategies to manage these risks, including the use of derivatives. Commonly used derivative instruments include, but are not limited to:
Derivatives are financial instruments with values derived from interest rates, foreign•Interest rate derivatives: swaps, total return swaps, caps, floors, futures, swaptions, forwards and synthetic GICs;
•Foreign currency exchange rates, credit spreads and/rate derivatives: swaps and forwards;
•Credit derivatives: purchased or other financial indices. Derivatives may be exchange-tradedwritten single name or contracted in the over-the-counter (“OTC”) market. Certain of the Company’s OTC derivatives are cleared and settled through central clearing counterparties (“OTC-cleared”), while others are bilateral contracts between two counterparties (“OTC-bilateral”). The types of derivatives the Company uses include swaps, forwards, futures and option contracts. To a lesser extent, the Company usesindex credit default swaps, and structured interest rateforwards; and
•Equity derivatives: index options, variance swaps, exchange-traded futures and total return swaps.
For detailed information on these contracts and the related strategies, see Note 11 of the Notes to synthetically replicate investment risks and returns which are not readily availablethe Consolidated Financial Statements included in the cash markets.
2023 Annual Report.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
6.10. Derivatives (continued)
Interest Rate Derivatives
The Company uses a variety of interest rate derivatives to reduce its exposure to changes in interest rates, including interest rate swaps, interest rate total return swaps, caps, floors, swaptions, futures and forwards.
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 amount. The Company utilizes interest rate swaps in fair value, cash flow and nonqualifying 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. government and agency, or other fixed maturity security. Structured interest rate swaps are included in interest rate swaps and are not designated as hedging instruments.
Interest rate total return swaps 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 Interbank Offered Rate (“LIBOR”), calculated by reference to an agreed notional amount. No cash is exchanged at the outset of the contract. Cash is paid and received over the life of the contract based on the terms of the swap. These transactions are entered into pursuant to master agreements that provide for a single net payment to be made by the counterparty at each due date. Interest rate total return swaps are used by the Company to reduce market risks from changes in interest rates and to alter interest rate exposure arising from mismatches between assets and liabilities (duration mismatches). The Company utilizes interest rate total return swaps in nonqualifying hedging relationships.
The Company purchases interest rate caps and floors primarily to protect its floating rate liabilities against rises in interest rates above a specified level, and against interest rate exposure arising from mismatches between assets and liabilities, 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 nonqualifying hedging relationships.
Swaptions are used by the Company to hedge interest rate risk associated with the Company’s 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. The Company utilizes swaptions in nonqualifying hedging relationships. Swaptions are included in interest rate options.
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 utilizes interest rate forwards in cash flow and nonqualifying hedging relationships.
To a lesser extent, the Company uses exchange-traded interest rate futures in nonqualifying hedging relationships.
Foreign Currency Exchange Rate Derivatives
The Company uses foreign currency exchange rate derivatives, including foreign currency swaps and foreign currency forwards, to reduce the risk from fluctuations in foreign currency exchange rates associated with its assets and liabilities denominated in foreign currencies.
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 notional amount. The notional 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 and nonqualifying 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 at the specified future date. The Company utilizes foreign currency forwards in nonqualifying hedging relationships.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
6. Derivatives (continued)
Credit Derivatives
The Company enters into purchased credit default swaps to hedge against credit-related changes in the value of its investments. In a credit default swap transaction, the Company agrees with another party to pay, at specified intervals, a premium to hedge credit risk. If a credit event occurs, as defined by the contract, the contract may be cash settled or it may be settled gross by the delivery of par quantities of the referenced investment equal to the specified swap notional amount in exchange for the payment of cash amounts by the counterparty equal to the par value of the investment surrendered. Credit events vary by type of issuer but typically include bankruptcy, failure to pay debt obligations, repudiation, moratorium, involuntary restructuring or governmental intervention. In each case, payout on a credit default swap is triggered only after the Credit Derivatives Determinations Committee of the International Swaps and Derivatives Association, Inc. (“ISDA”) deems that a credit event has occurred. The Company utilizes credit default swaps in nonqualifying hedging relationships.
The Company enters into written credit default swaps to synthetically create credit investments that are either more expensive to acquire or otherwise unavailable in the cash markets. These transactions are a combination of a derivative and one or more cash instruments, such as U.S. government and agency securities, or other fixed maturity securities. 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 transactions as credit forwards. The Company utilizes credit forwards in cash flow hedging relationships.
Equity Derivatives
The Company uses a variety of equity derivatives to reduce its exposure to equity market risk, including equity index options, equity variance swaps, exchange-traded equity futures and equity total return swaps.
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. The Company utilizes equity index options in nonqualifying 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. The Company utilizes equity variance swaps in nonqualifying 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 minimum guarantees embedded in certain variable annuity products offered by the Company. The Company utilizes exchange-traded equity futures in nonqualifying hedging relationships.
In an equity total return swap, the Company agrees with another party to exchange, at specified intervals, the difference between the economic risk and reward of an asset or a market index and LIBOR, calculated by reference to an agreed notional amount. No cash is exchanged at the outset of the contract. Cash is paid and received over the life of the contract based on the terms of the swap. The Company uses equity total return swaps to hedge its equity market guarantees in certain of its insurance products. Equity total return swaps can be used as hedges or to synthetically create investments. The Company utilizes equity total return swaps in nonqualifying hedging relationships.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
6. Derivatives (continued)
Primary Risks Managed by Derivatives
The following table presents the primary underlying risk exposure, gross notional amount, and estimated fair value of the Company’s derivatives, excluding embedded derivatives, held at:
| | | | | September 30, 2017 | | December 31, 2016 |
| | | Primary Underlying Risk Exposure | | Gross
Notional
Amount | | Estimated Fair Value | | Gross
Notional
Amount | | Estimated Fair Value |
| | | Assets | | Liabilities | | Assets | | Liabilities |
| | | (In millions) |
| | | | March 31, 2024 | | | | | | March 31, 2024 | | December 31, 2023 |
| | Primary Underlying Risk Exposure | | | | Primary Underlying Risk Exposure | | Gross Notional Amount | | Estimated Fair Value | | Gross Notional Amount | | Estimated Fair Value |
| | Assets | | | | Assets | | Liabilities | | Assets | | Liabilities |
| | | | (In millions) | | | | | | (In millions) |
| Derivatives Designated as Hedging Instruments: | Derivatives Designated as Hedging Instruments: | | | | | | | | | | | | |
| Fair value hedges: | | | | | | | | | | | | |
| Fair value hedges: | |
| Fair value hedges: | |
| Interest rate swaps | |
| Interest rate swaps | |
| Interest rate swaps | | Interest rate | | $ | 3,942 |
| | $ | 2,305 |
| | $ | 3 |
| | $ | 4,993 |
| | $ | 2,221 |
| | $ | 6 |
|
| Foreign currency swaps | | Foreign currency exchange rate | | 636 |
| | 44 |
| | 4 |
| | 1,200 |
| | 29 |
| | 224 |
|
| | Subtotal | |
| Subtotal | |
| Subtotal | | 4,578 |
| | 2,349 |
| | 7 |
| | 6,193 |
| | 2,250 |
| | 230 |
|
| Cash flow hedges: | | | | | | | | | | | | |
| Interest rate swaps | | Interest rate | | 3,534 |
| | 307 |
| | — |
| | 1,793 |
| | 325 |
| | 26 |
|
| Interest rate swaps | |
| Interest rate swaps | |
| Interest rate forwards | | Interest rate | | 3,413 |
| | — |
| | 203 |
| | 4,033 |
| | — |
| | 370 |
|
| Foreign currency swaps | | Foreign currency exchange rate | | 22,027 |
| | 936 |
| | 1,043 |
| | 20,080 |
| | 1,435 |
| | 1,604 |
|
| | Subtotal | |
| Subtotal | |
| Subtotal | | 28,974 |
| | 1,243 |
| | 1,246 |
| | 25,906 |
| | 1,760 |
| | 2,000 |
|
| Total qualifying hedges | | 33,552 |
| | 3,592 |
| | 1,253 |
| | 32,099 |
| | 4,010 |
| | 2,230 |
|
| Derivatives Not Designated or Not Qualifying as Hedging Instruments: | Derivatives Not Designated or Not Qualifying as Hedging Instruments: | | | | | | | | | | | | |
| Interest rate swaps | |
| Interest rate swaps | |
| Interest rate swaps | | Interest rate | | 43,155 |
| | 1,773 |
| | 328 |
| | 32,662 |
| | 2,514 |
| | 879 |
|
| Interest rate floors | | Interest rate | | 7,201 |
| | 127 |
| | — |
| | 9,001 |
| | 173 |
| | 2 |
|
| Interest rate caps | | Interest rate | | 73,018 |
| | 54 |
| | 2 |
| | 78,358 |
| | 112 |
| | 3 |
|
| Interest rate futures | | Interest rate | | 2,096 |
| | 2 |
| | — |
| | 2,342 |
| | 3 |
| | — |
|
| Interest rate options | | Interest rate | | 7,525 |
| | 156 |
| | 35 |
| | 850 |
| | 144 |
| | 1 |
|
| Interest rate forwards | | Interest rate | | — |
| | — |
| | — |
| | 396 |
| | — |
| | 3 |
|
| Interest rate total return swaps | | Interest rate | | 1,048 |
| | 3 |
| | 9 |
| | 1,549 |
| | 2 |
| | 127 |
|
| | Synthetic GICs | |
| | Synthetic GICs | |
| | Synthetic GICs | | Interest rate | | 11,254 |
| | — |
| | — |
| | 5,566 |
| | — |
| | — |
|
| Foreign currency swaps | | Foreign currency exchange rate | | 7,068 |
| | 644 |
| | 135 |
| | 8,175 |
| | 1,247 |
| | 58 |
|
| Foreign currency forwards | | Foreign currency exchange rate | | 1,429 |
| | 37 |
| | 6 |
| | 1,396 |
| | 52 |
| | 18 |
|
| Credit default swaps — purchased | | Credit | | 878 |
| | 10 |
| | 7 |
| | 961 |
| | 12 |
| | 6 |
|
| Credit default swaps — written | | Credit | | 8,031 |
| | 166 |
| | 1 |
| | 8,025 |
| | 119 |
| | 8 |
|
| Equity futures | | Equity market | | 1,712 |
| | — |
| | 6 |
| | 1,851 |
| | 10 |
| | — |
|
| Equity index options | | Equity market | | 6,773 |
| | 223 |
| | 496 |
| | 11,119 |
| | 260 |
| | 426 |
|
| Equity variance swaps | | Equity market | | 5,579 |
| | 81 |
| | 228 |
| | 5,579 |
| | 69 |
| | 193 |
|
| | Equity total return swaps | |
| Equity total return swaps | |
| Equity total return swaps | | Equity market | | 1,063 |
| | — |
| | 35 |
| | 1,013 |
| | 1 |
| | 42 |
|
| Total non-designated or nonqualifying derivatives | Total non-designated or nonqualifying derivatives | | 177,830 |
| | 3,276 |
| | 1,288 |
| | 168,843 |
| | 4,718 |
| | 1,766 |
|
| Total | | $ | 211,382 |
| | $ | 6,868 |
| | $ | 2,541 |
| | $ | 200,942 |
| | $ | 8,728 |
| | $ | 3,996 |
|
Based on gross notional amounts, a substantial portion of the Company’s derivatives was not designated or did not qualify as part of a hedging relationship at both September 30, 2017March 31, 2024 and December 31, 2016.2023. The Company’s use of derivatives includes (i) derivatives that serve as macro hedges of the Company’s exposure to various risks and that generally do not qualify for hedge accounting due to the criteria required under the portfolio hedging rules;rules, (ii) derivatives that economically hedge insurance liabilities that contain mortality or morbidity risk and that generally do not qualify for hedge accounting because the lack of these risks in the derivatives cannot support an expectation of a highly effective hedging relationship;relationship, (iii) derivatives that economically hedge embedded derivativesMRBs that do not qualify for hedge accounting because the changes in estimated fair value of the embedded derivativesMRBs are already recorded in net income;income, and (iv) written credit default swaps and interest rate swaps that are used to synthetically create investments and that do not qualify for hedge accounting because they do not involve a hedging relationship. For these nonqualified derivatives, changes in market factors can lead to the recognition of fair value changes on the statement of operations without an offsetting gain or loss recognized in earnings for the item being hedged.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
6.10. Derivatives (continued)
Net Derivative Gains (Losses)
The componentsEffects of net derivative gains (losses) were as follows:
|
| | | | | | | | | | | | | | | |
| | Three Months
Ended
September 30, | | Nine Months
Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (In millions) |
| Freestanding derivatives and hedging gains (losses) (1) | $ | (167 | ) | | $ | (342 | ) | | $ | (634 | ) | | $ | 947 |
|
| Embedded derivatives gains (losses) | 141 |
| | 137 |
| | 317 |
| | (1,509 | ) |
| Total net derivative gains (losses) | $ | (26 | ) | | $ | (205 | ) | | $ | (317 | ) | | $ | (562 | ) |
__________________
| |
(1) | Includes foreign currency transaction gains (losses) on hedged items in cash flow and nonqualifying hedging relationships, which are not presented elsewhere in this note. |
Derivatives on the Interim Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) The following table presents earned incomethe interim condensed consolidated financial statement location and amount of gain (loss) recognized on fair value, cash flow, nonqualifying hedging relationships and embedded derivatives:
|
| | | | | | | | | | | | | | | |
| | Three Months
Ended
September 30, | | Nine Months
Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (In millions) |
| Qualifying hedges: | | | | | | | |
| Net investment income | $ | 73 |
| | $ | 70 |
| | $ | 220 |
| | $ | 199 |
|
| Interest credited to policyholder account balances | (20 | ) | | — |
| | (40 | ) | | 7 |
|
| Nonqualifying hedges: | | | | | | | |
| Net investment income | — |
| | — |
| | — |
| | (1 | ) |
| Net derivative gains (losses) | 93 |
| | 152 |
| | 327 |
| | 428 |
|
| Policyholder benefits and claims | 2 |
| | 1 |
| | 4 |
| | 3 |
|
| Total | $ | 148 |
| | $ | 223 |
| | $ | 511 |
| | $ | 636 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2024 |
| | Net
Investment
Income | | Net
Investment
Gains
(Losses) | | Net
Derivative
Gains
(Losses) | | Policyholder
Benefits and
Claims | | Interest Credited to Policyholder Account Balances | | | | OCI |
| | (In millions) |
| Gain (Loss) on Fair Value Hedges: | | | | | | | | | | | | | | |
| Interest rate derivatives: | | | | | | | | | | | | | | |
| Derivatives designated as hedging instruments (1) | | $ | — | | | $ | — | | | N/A | | $ | (109) | | | $ | (39) | | | | | N/A |
| Hedged items | | — | | | — | | | N/A | | 103 | | | 38 | | | | | N/A |
| Foreign currency exchange rate derivatives: | | | | | | | | | | | | | | |
| Derivatives designated as hedging instruments (1) | | 4 | | | — | | | N/A | | — | | | (24) | | | | | N/A |
| Hedged items | | (2) | | | — | | | N/A | | — | | | 28 | | | | | N/A |
| Subtotal | | 2 | | | — | | | N/A | | (6) | | | 3 | | | | | N/A |
| Gain (Loss) on Cash Flow Hedges: | | | | | | | | | | | | | | |
| Interest rate derivatives: (1) | | | | | | | | | | | | | | |
| Amount of gains (losses) deferred in AOCI | | N/A | | N/A | | N/A | | N/A | | N/A | | | | $ | (144) | |
| Amount of gains (losses) reclassified from AOCI into income | | 8 | | | 2 | | | — | | | — | | | — | | | | | (10) | |
| Foreign currency exchange rate derivatives: (1) | | | | | | | | | | | | | | |
| Amount of gains (losses) deferred in AOCI | | N/A | | N/A | | N/A | | N/A | | N/A | | | | 1 | |
| Amount of gains (losses) reclassified from AOCI into income | | 1 | | | (270) | | | — | | | — | | | — | | | | | 269 | |
| Foreign currency transaction gains (losses) on hedged items | | — | | | 263 | | | — | | | — | | | — | | | | | |
| Credit derivatives: (1) | | | | | | | | | | | | | | |
| Amount of gains (losses) deferred in AOCI | | N/A | | N/A | | N/A | | N/A | | N/A | | | | — | |
| Amount of gains (losses) reclassified from AOCI into income | | — | | | — | | | — | | | — | | | — | | | | | — | |
| Subtotal | | 9 | | | (5) | | | — | | | — | | | — | | | | | 116 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| Gain (Loss) on Derivatives Not Designated or Not Qualifying as Hedging Instruments: | | | | | | | | | | | | | | |
| Interest rate derivatives (1) | | — | | | N/A | | (199) | | | N/A | | N/A | | | | N/A |
| Foreign currency exchange rate derivatives (1) | | — | | | N/A | | 74 | | | N/A | | N/A | | | | N/A |
| Credit derivatives — purchased (1) | | — | | | N/A | | — | | | N/A | | N/A | | | | N/A |
| Credit derivatives — written (1) | | — | | | N/A | | 23 | | | N/A | | N/A | | | | N/A |
| Equity derivatives (1) | | (25) | | | N/A | | (281) | | | N/A | | N/A | | | | N/A |
| Foreign currency transaction gains (losses) on hedged items | | — | | | N/A | | (36) | | | N/A | | N/A | | | | N/A |
| Subtotal | | (25) | | | N/A | | (419) | | | N/A | | N/A | | | | N/A |
| Earned income on derivatives | | 30 | | | — | | | 127 | | | (4) | | | (48) | | | | | — | |
| Synthetic GICs | | N/A | | N/A | | 2 | | | N/A | | N/A | | | | N/A |
| Embedded derivatives | | N/A | | N/A | | 234 | | | N/A | | N/A | | | | N/A |
| Total | | $ | 16 | | | $ | (5) | | | $ | (56) | | | $ | (10) | | | $ | (45) | | | | | $ | 116 | |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
6.10. Derivatives (continued)
Nonqualifying Derivatives and Derivatives for Purposes Other Than Hedging
The following table presents the amount and location of gains (losses) recognized in income for derivatives that were not designated or not qualifying as hedging instruments:
|
| | | | | | | | | | | |
| | Net Derivative Gains (Losses) | | Net Investment Income (1) | | Policyholder Benefits and Claims (2) |
| | (In millions) |
| Three Months Ended September 30, 2017 | | | | | |
| Interest rate derivatives | $ | (60 | ) | | $ | (2 | ) | | $ | — |
|
| Foreign currency exchange rate derivatives | (238 | ) | | — |
| | — |
|
| Credit derivatives — purchased | (6 | ) | | — |
| | — |
|
| Credit derivatives — written | 24 |
| | — |
| | — |
|
| Equity derivatives | (124 | ) | | (2 | ) | | (52 | ) |
| Total | $ | (404 | ) | | $ | (4 | ) | | $ | (52 | ) |
| Three Months Ended September 30, 2016 | | | | | |
| Interest rate derivatives | $ | (305 | ) | | $ | — |
| | $ | — |
|
| Foreign currency exchange rate derivatives | 65 |
| | — |
| | — |
|
| Credit derivatives — purchased | (13 | ) | | — |
| | — |
|
| Credit derivatives — written | 36 |
| | — |
| | — |
|
| Equity derivatives | (231 | ) | | (2 | ) | | (62 | ) |
| Total | $ | (448 | ) | | $ | (2 | ) | | $ | (62 | ) |
| Nine Months Ended September 30, 2017 | | | | | |
| Interest rate derivatives | $ | (260 | ) | | $ | (2 | ) | | $ | — |
|
| Foreign currency exchange rate derivatives | (639 | ) | | — |
| | — |
|
| Credit derivatives — purchased | (14 | ) | | — |
| | — |
|
| Credit derivatives — written | 80 |
| | — |
| | — |
|
| Equity derivatives | (442 | ) | | (4 | ) | | (149 | ) |
| Total | $ | (1,275 | ) | | $ | (6 | ) | | $ | (149 | ) |
| Nine Months Ended September 30, 2016 | | | | | |
| Interest rate derivatives | $ | 867 |
| | $ | — |
| | $ | — |
|
| Foreign currency exchange rate derivatives | 275 |
| | — |
| | — |
|
| Credit derivatives — purchased | (31 | ) | | — |
| | — |
|
| Credit derivatives — written | 38 |
| | — |
| | — |
|
| Equity derivatives | (304 | ) | | (12 | ) | | (57 | ) |
| Total | $ | 845 |
| | $ | (12 | ) | | $ | (57 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2023 |
| | Net Investment Income | | Net Investment Gains (Losses) | | Net Derivative Gains (Losses) | | Policyholder Benefits and Claims | | Interest Credited to Policyholder Account Balances | | | | OCI |
| | (In millions) |
| Gain (Loss) on Fair Value Hedges: | | | | | | | | | | | | | | |
| Interest rate derivatives: | | | | | | | | | | | | | | |
| Derivatives designated as hedging instruments (1) | | $ | (1) | | | $ | — | | | N/A | | $ | 126 | | | $ | 32 | | | | | N/A |
| Hedged items | | 1 | | | — | | | N/A | | (126) | | | (32) | | | | | N/A |
| Foreign currency exchange rate derivatives: | | | | | | | | | | | | | | |
| Derivatives designated as hedging instruments (1) | | (16) | | | — | | | N/A | | — | | | — | | | | | N/A |
| Hedged items | | 16 | | | — | | | N/A | | — | | | — | | | | | N/A |
| Subtotal | | — | | | — | | | N/A | | — | | | — | | | | | N/A |
| Gain (Loss) on Cash Flow Hedges: | | | | | | | | | | | | | | |
| Interest rate derivatives: (1) | | | | | | | | | | | | | | |
| Amount of gains (losses) deferred in AOCI | | N/A | | N/A | | N/A | | N/A | | N/A | | | | $ | 200 | |
| Amount of gains (losses) reclassified from AOCI into income | | 14 | | | 2 | | | — | | | — | | | — | | | | | (16) | |
| Foreign currency exchange rate derivatives: (1) | | | | | | | | | | | | | | |
| Amount of gains (losses) deferred in AOCI | | N/A | | N/A | | N/A | | N/A | | N/A | | | | (41) | |
| Amount of gains (losses) reclassified from AOCI into income | | 1 | | | 129 | | | — | | | — | | | — | | | | | (130) | |
| Foreign currency transaction gains (losses) on hedged items | | — | | | (124) | | | — | | | — | | | — | | | | | — | |
| Credit derivatives: (1) | | | | | | | | | | | | | | |
| Amount of gains (losses) deferred in AOCI | | N/A | | N/A | | N/A | | N/A | | N/A | | | | — | |
| Amount of gains (losses) reclassified from AOCI into income | | — | | | — | | | — | | | — | | | — | | | | | — | |
| Subtotal | | 15 | | | 7 | | | — | | | — | | | — | | | | | 13 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| Gain (Loss) on Derivatives Not Designated or Not Qualifying as Hedging Instruments: | | | | | | | | | | | | | | |
| Interest rate derivatives (1) | | — | | | N/A | | (61) | | | N/A | | N/A | | | | N/A |
| Foreign currency exchange rate derivatives (1) | | — | | | N/A | | (95) | | | N/A | | N/A | | | | N/A |
| Credit derivatives — purchased (1) | | — | | | N/A | | (9) | | | N/A | | N/A | | | | N/A |
| Credit derivatives — written (1) | | — | | | N/A | | 6 | | | N/A | | N/A | | | | N/A |
| Equity derivatives (1) | | (6) | | | N/A | | (403) | | | N/A | | N/A | | | | N/A |
| Foreign currency transaction gains (losses) on hedged items | | — | | | N/A | | 32 | | | N/A | | N/A | | | | N/A |
| Subtotal | | (6) | | | N/A | | (530) | | | N/A | | N/A | | | | N/A |
| Earned income on derivatives | | 43 | | | — | | | 245 | | | 5 | | | (33) | | | | | — | |
| Synthetic GICs | | N/A | | N/A | | 5 | | | N/A | | N/A | | | | N/A |
| Embedded derivatives | | N/A | | N/A | | (280) | | | N/A | | N/A | | | | N/A |
| Total | | $ | 52 | | | $ | 7 | | | $ | (560) | | | $ | 5 | | | $ | (33) | | | | | $ | 13 | |
__________________
| |
(1) | Changes in estimated fair value related to economic hedges of equity method investments in joint ventures and derivatives held in relation to trading portfolios. |
| |
(2) | Changes in estimated fair value related to economic hedges of variable annuity guarantees included in future policy benefits. |
(1)Excludes earned income on derivatives. 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 assets and liabilities to floating rate assets and liabilities;liabilities, and (ii) foreign currency swaps to hedge the foreign currency fair value exposure of foreign currency denominated assets and liabilities.
liabilities.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
6.10. Derivatives (continued)
The Company recognizes gainsfollowing table presents the balance sheet classification, carrying amount and losses on derivativescumulative fair value hedging adjustments for items designated and the relatedqualifying as hedged items in fair value hedges within net derivative gains (losses). The following table presents the amount of such net derivative gains (losses):hedges:
|
| | | | | | | | | | | | | | |
Derivatives in Fair Value Hedging Relationships | | Hedged Items in Fair Value Hedging Relationships | | Net Derivative Gains (Losses) Recognized for Derivatives | | Net Derivative Gains (Losses) Recognized for Hedged Items | | Ineffectiveness Recognized in Net Derivative Gains (Losses) |
| |
| | (In millions) |
| Three Months Ended September 30, 2017 | | | | | | |
| Interest rate swaps: | | Fixed maturity securities | | $ | 1 |
| | $ | — |
| | $ | 1 |
|
| | | Policyholder liabilities (1) | | (13 | ) | | 12 |
| | (1 | ) |
| Foreign currency swaps: | | Foreign-denominated fixed maturity securities | | (8 | ) | | 9 |
| | 1 |
|
| | | Foreign-denominated policyholder account balances (2) | | 15 |
| | (16 | ) | | (1 | ) |
| Total | | $ | (5 | ) | | $ | 5 |
| | $ | — |
|
| Three Months Ended September 30, 2016 | | | | | | |
| Interest rate swaps: | | Fixed maturity securities | | $ | 5 |
| | $ | (3 | ) | | $ | 2 |
|
| | | Policyholder liabilities (1) | | (47 | ) | | 42 |
| | (5 | ) |
| Foreign currency swaps: | | Foreign-denominated fixed maturity securities | | 1 |
| | (1 | ) | | — |
|
| | | Foreign-denominated policyholder account balances (2) | | (1 | ) | | 1 |
| | — |
|
| Total | | $ | (42 | ) | | $ | 39 |
| | $ | (3 | ) |
| Nine Months Ended September 30, 2017 | | | | | | |
| Interest rate swaps: | | Fixed maturity securities | | $ | 2 |
| | $ | (2 | ) | | $ | — |
|
| | | Policyholder liabilities (1) | | (15 | ) | | 83 |
| | 68 |
|
| Foreign currency swaps: | | Foreign-denominated fixed maturity securities | | (13 | ) | | 14 |
| | 1 |
|
| | | Foreign-denominated policyholder account balances (2) | | 61 |
| | (40 | ) | | 21 |
|
| Total | | $ | 35 |
| | $ | 55 |
| | $ | 90 |
|
| Nine Months Ended September 30, 2016 | | | | | | |
| Interest rate swaps: | | Fixed maturity securities | | $ | (3 | ) | | $ | 1 |
| | $ | (2 | ) |
| | | Policyholder liabilities (1) | | 472 |
| | (482 | ) | | (10 | ) |
| Foreign currency swaps: | | Foreign-denominated fixed maturity securities | | 5 |
| | (4 | ) | | 1 |
|
| | | Foreign-denominated policyholder account balances (2) | | (27 | ) | | 24 |
| | (3 | ) |
| Total | | $ | 447 |
| | $ | (461 | ) | | $ | (14 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance Sheet Line Item | | Carrying Amount of the
Hedged
Assets/(Liabilities) | | Cumulative Amount
of Fair Value Hedging Adjustments
Included in the Carrying Amount of Hedged
Assets/(Liabilities) (1) | | |
| | March 31, 2024 | | December 31, 2023 | | March 31, 2024 | | December 31, 2023 | | |
| | (In millions) | | |
| Fixed maturity securities AFS | | $ | 118 | | | $ | 120 | | | $ | 1 | | | $ | 1 | | | |
| Mortgage loans | | $ | 271 | | | $ | 345 | | | $ | (8) | | | $ | (10) | | | |
| FPBs | | $ | (2,656) | | | $ | (2,863) | | | $ | 298 | | | $ | 191 | | | |
| PABs | | $ | (1,657) | | | $ | (1,844) | | | $ | 121 | | | $ | 2 | | | |
__________________
| |
(1) | Fixed rate liabilities reported in policyholder account balances or future policy benefits. |
| |
(2) | Fixed rate or floating rate liabilities. |
(1)Includes ($107) million and ($113) million of hedging adjustments on discontinued hedging relationships at March 31, 2024 and December 31, 2023, respectively.
All components of each derivative’s gain or loss were included in the assessment of hedge effectiveness.
Cash Flow Hedges
The Company designates and accounts for the following as cash flow hedges when they have met the requirements of cash flow hedging: (i) interest rate swaps to convert floating rate assets and liabilities to fixed rate assets and liabilities;liabilities, (ii) foreign currency swaps to hedge the foreign currency cash flow exposure of foreign currency denominated assets and liabilities;liabilities, (iii) interest rate forwards and credit forwards to lock in the price to be paid for forward purchases of investments;investments, and (iv) interest rate swaps and interest rate forwards to hedge the forecasted purchases of fixed-rate investments.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
6. Derivatives (continued)
In certain instances, the Company discontinued cash flow hedge accounting because the forecasted transactions were no longer probable of occurring. Because certain of the forecasted transactions also were not probable of occurring within two months of the anticipated date, the Company reclassified amounts from AOCI into net derivative gains (losses). Thereincome. These amounts were no amounts reclassified from AOCI into net derivative gains (losses)$0 and $1 million for the three months ended September 30, 2017. The amount reclassified from AOCI into net derivative gains (losses) was $20 million for the nine months ended September 30, 2017. These amounts were $7 millionMarch 31, 2024 and $10 million for the three months and nine months ended September 30, 2016.2023, respectively.
At both September 30, 2017March 31, 2024 and December 31, 2016,2023, the maximum length of time over which the Company was hedging its exposure to variability in future cash flows for forecasted transactions did not exceed five years.
At September 30, 2017March 31, 2024 and December 31, 2016,2023, the balance in AOCI associated with cash flow hedges was $1.6$1.0 billion and $2.2 billion,$894 million, respectively.
The following table presents the effects of derivatives in cash flow hedging relationships on the consolidated statements of operations and comprehensive income (loss) and the consolidated statements of equity:
|
| | | | | | | | | | | | | | | | |
Derivatives in Cash Flow
Hedging Relationships | | Amount of Gains
(Losses) Deferred in
AOCI on Derivatives | | Amount and Location
of Gains (Losses)
Reclassified from
AOCI into Income (Loss) | | Amount and Location
of Gains (Losses)
Recognized in Income
(Loss) on Derivatives |
| | | (Effective Portion) | | (Effective Portion) | | (Ineffective Portion) |
| | | | | Net Derivative
Gains (Losses) | | Net Investment
Income | | Net Derivative
Gains (Losses) |
| | | (In millions) |
| Three Months Ended September 30, 2017 | | | | | | | | |
| Interest rate swaps | | $ | 15 |
| | $ | 8 |
| | $ | 4 |
| | $ | (2 | ) |
| Interest rate forwards | | 2 |
| | (1 | ) | | 1 |
| | — |
|
| Foreign currency swaps | | (37 | ) | | 282 |
| | (1 | ) | | — |
|
| Credit forwards | | — |
| | — |
| |
|
| | — |
|
| Total | | $ | (20 | ) | | $ | 289 |
| | $ | 4 |
| | $ | (2 | ) |
| Three Months Ended September 30, 2016 | | | | | | | | |
| Interest rate swaps | | $ | 21 |
| | $ | 27 |
| | $ | 4 |
| | $ | — |
|
| Interest rate forwards | | (6 | ) | | 1 |
| | — |
| | — |
|
| Foreign currency swaps | | 24 |
| | 69 |
| | — |
| | (4 | ) |
| Credit forwards | | — |
| | — |
| | — |
| | — |
|
| Total | | $ | 39 |
| | $ | 97 |
| | $ | 4 |
| | $ | (4 | ) |
| Nine Months Ended September 30, 2017 | | | | | | | | |
| Interest rate swaps | | $ | 90 |
| | $ | 22 |
| | $ | 12 |
| | $ | 5 |
|
| Interest rate forwards | | 138 |
| | (5 | ) | | 2 |
| | (1 | ) |
| Foreign currency swaps | | (2 | ) | | 882 |
| | (1 | ) | | 1 |
|
| Credit forwards | | — |
| | 1 |
| | — |
| | — |
|
| Total | | $ | 226 |
| | $ | 900 |
| | $ | 13 |
| | $ | 5 |
|
| Nine Months Ended September 30, 2016 | | | | | | | | |
| Interest rate swaps | | $ | 330 |
| | $ | 44 |
| | $ | 10 |
| | $ | — |
|
| Interest rate forwards | | 34 |
| | — |
| | 2 |
| | — |
|
| Foreign currency swaps | | 339 |
| | 169 |
| | (1 | ) | | (3 | ) |
| Credit forwards | | — |
| | 3 |
| | — |
| | — |
|
| Total | | $ | 703 |
| | $ | 216 |
| | $ | 11 |
| | $ | (3 | ) |
All components of each derivative’s gain or loss were included in the assessment of hedge effectiveness.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
6. Derivatives (continued)
At September 30, 2017,March 31, 2024, the Company expected to reclassify ($3)$190 millionof deferred net gains (losses) on derivatives in AOCI to earnings within the next 12 months.
Credit Derivatives
In connection with synthetically created credit investment transactions, the Company writes credit default swaps for which it receives a premium to insure credit risk. Such credit derivatives are included within the nonqualifyingeffects of derivatives on the interim condensed consolidated statements of operations and derivatives for purposes other than hedgingcomprehensive income (loss) table. If a credit event occurs, as defined by the contract, the contract may be cash settled or it may be settled gross by the Company paying the counterparty the specified swap notional amount in exchange for the delivery of par quantities of the referenced credit obligation. The Company’s maximum amount at risk, assuming the value of all referenced credit obligations is zero, was $8.0 billion at both September 30, 2017 and December 31, 2016. The Company can terminate these contracts at any time through cash settlement with the counterparty at an amount equal to the then current estimated fair value of the credit default swaps. At September 30, 2017 and December 31, 2016,
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Company would have received $165 million and $111 million, respectively, to terminate all of these contracts.Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
10. Derivatives (continued)
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:
| | | | | September 30, 2017 | | December 31, 2016 |
| | March 31, 2024 | | | | March 31, 2024 | | December 31, 2023 |
Rating Agency Designation of Referenced Credit Obligations (1) | | Estimated
Fair Value
of Credit
Default
Swaps | | Maximum
Amount of
Future
Payments under
Credit Default
Swaps | | Weighted
Average
Years to
Maturity (2) | | Estimated
Fair Value
of Credit
Default
Swaps | | Maximum
Amount of
Future
Payments under
Credit Default
Swaps | | Weighted
Average
Years to
Maturity (2) | Rating Agency Designation of Referenced
Credit Obligations (1) | | Estimated
Fair Value
of Credit
Default
Swaps | | Maximum
Amount of
Future
Payments under
Credit Default
Swaps | | Weighted
Average
Years to
Maturity (2) | | Estimated
Fair Value
of Credit
Default
Swaps | | Maximum
Amount of
Future
Payments under
Credit Default
Swaps | | Weighted
Average
Years to
Maturity (2) |
| | | (Dollars in millions) |
| | (Dollars in millions) | | | | (Dollars in millions) |
| Aaa/Aa/A | | | | | | | | | | | | |
| Single name credit default swaps (3) | |
| Single name credit default swaps (3) | |
| Single name credit default swaps (3) | | $ | 3 |
| | $ | 229 |
| | 2.2 |
| | $ | 1 |
| | $ | 229 |
| | 2.7 |
| | $ | — | | | $ | | $ | 10 | | | 0.2 | | 0.2 | | $ | — | | | $ | | $ | 10 | | | 0.5 | | 0.5 |
| Credit default swaps referencing indices | | 42 |
| | 2,193 |
| | 3.0 |
| | 32 |
| | 2,093 |
| | 3.5 |
| Credit default swaps referencing indices | | 91 | | | 4,286 | | 4,286 | | | 2.7 | | 2.7 | | 80 | | | 3,831 | | 3,831 | | | 2.7 | | 2.7 |
| Subtotal | | 45 |
| | 2,422 |
| | 2.9 |
| | 33 |
| | 2,322 |
| | 3.4 |
| Subtotal | | 91 | | | 4,296 | | 4,296 | | | 2.7 | | 2.7 | | 80 | | | 3,841 | | 3,841 | | | 2.7 | | 2.7 |
| Baa | | | | | | | | | | | | |
| Single name credit default swaps (3) | | 5 |
| | 493 |
| | 1.6 |
| | 3 |
| | 563 |
| | 2.2 |
|
| Single name credit default swaps (3) | |
| Single name credit default swaps (3) | | | 1 | | | 55 | | | 2.0 | | 1 | | | 55 | | | 2.3 |
| Credit default swaps referencing indices | | 96 |
| | 4,761 |
| | 5.4 |
| | 61 |
| | 4,730 |
| | 5.1 |
| Credit default swaps referencing indices | | 119 | | | 6,963 | | 6,963 | | | 4.7 | | 4.7 | | 102 | | | 5,982 | | 5,982 | | | 5.6 | | 5.6 |
| Subtotal | | 101 |
| | 5,254 |
| | 5.0 |
| | 64 |
| | 5,293 |
| | 4.8 |
| Subtotal | | 120 | | | 7,018 | | 7,018 | | | 4.7 | | 4.7 | | 103 | | | 6,037 | | 6,037 | | | 5.5 | | 5.5 |
| Ba | | | | | | | | | | | | |
| Single name credit default swaps (3) | | — |
| | 105 |
| | 3.6 |
| | (2 | ) | | 115 |
| | 4.2 |
|
| | Credit default swaps referencing indices | |
| | Credit default swaps referencing indices | |
| | Credit default swaps referencing indices | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2 | | | 25 | | 25 | | | 2.7 | | 2.7 | | 2 | | | 25 | | 25 | | | 3.0 | | 3.0 |
| Subtotal | | — |
| | 105 |
| | 3.6 |
| | (2 | ) | | 115 |
| | 4.2 |
| Subtotal | | 2 | | | 25 | | 25 | | | 2.7 | | 2.7 | | 2 | | | 25 | | 25 | | | 3.0 | | 3.0 |
| B | | | | | | | | | | | | |
| Single name credit default swaps (3) | | 2 |
| | 30 |
| | 2.6 |
| | — |
| | 70 |
| | 1.8 |
|
| | Credit default swaps referencing indices | |
| | Credit default swaps referencing indices | |
| | Credit default swaps referencing indices | | | 1 | | | 74 | | | 4.7 | | 1 | | | 74 | | | 5.0 |
| Subtotal | | Subtotal | | 1 | | | 74 | | | 4.7 | | 1 | | | 74 | | | 5.0 |
| Caa | |
| | Credit default swaps referencing indices | |
| | Credit default swaps referencing indices | |
| | Credit default swaps referencing indices | | 17 |
| | 220 |
| | 5.2 |
| | 16 |
| | 225 |
| | 5.0 |
| | (2) | | | 30 | | 30 | | | 2.2 | | 2.2 | | (4) | | | 30 | | 30 | | | 2.5 | | 2.5 |
| Subtotal | | 19 |
| | 250 |
| | 4.9 |
| | 16 |
| | 295 |
| | 4.2 |
| Subtotal | | (2) | | | 30 | | 30 | | | 2.2 | | 2.2 | | (4) | | | 30 | | 30 | | | 2.5 | | 2.5 |
| Total | | $ | 165 |
| | $ | 8,031 |
| | 4.4 |
| | $ | 111 |
| | $ | 8,025 |
| | 4.4 |
| Total | | $ | 212 | | | $ | | $ | 11,443 | | | 3.9 | | 3.9 | | $ | 182 | | | $ | | $ | 10,007 | | | 4.4 | | 4.4 |
__________________
| |
(1) | The rating agency designations are based on availability and the midpoint of the applicable ratings among Moody’s Investors Service (“Moody’s”),Standard & Poor’s Global Ratings (“S&P”) and Fitch Ratings. If no rating is available from a rating agency, then an internally developed rating is used.
|
| |
(2) | (1)The rating agency designations are based on availability and the midpoint of the applicable ratings among Moody’s Investors Service (“Moody’s”), S&P Global Ratings (“S&P”) and Fitch Ratings. If no rating is available from a rating agency, then an internally developed rating is used. (2)The weighted average years to maturity of the credit default swaps is calculated based on weighted average gross notional amounts. |
| |
(3) | Single name credit default swaps may be referenced to the credit of corporations, foreign governments, or state and political subdivisions. |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
6. Derivatives (continued)
The Company has also entered into credit default swaps is calculated based on weighted average gross notional amounts.
(3)Single name credit default swaps may be referenced to purchasethe credit protection on certain of the referenced credit obligations in the table above. As a result, the maximum amount of potential future recoveries available to offset the $8.0 billion from the table above was $30 million at both September 30, 2017 and December 31, 2016.corporations, foreign governments, or municipals.
Credit Risk on Freestanding Derivatives
The Company may be exposed to credit-related losses in the event of nonperformance by its counterparties to derivatives. Generally, the current credit exposure of the Company’s derivatives is limited to the net positive estimated fair value of derivatives at the reporting date after taking into consideration the existence of master netting or similar agreements and any collateral received pursuant to such agreements.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
10. Derivatives (continued)
The Company manages its credit risk related to derivatives by entering into transactions with creditworthy counterparties in jurisdictions in which it understands that close-out netting should be enforceable and establishing and monitoring exposure limits. The Company’s OTC-bilateralbilateral contracts between two counterparties (“OTC-bilateral”) derivative transactions are generally governed by ISDAInternational Swaps and Derivatives Association, Inc. (“ISDA”) Master Agreements which provide for legally enforceable set-off and close-out netting of exposures to specific counterparties in the event of early termination of a transaction, which includes, but is not limited to, events of default and bankruptcy. In the event of an early termination, close-out netting permits the Company is permitted(subject to financial regulations such as the Orderly Liquidation Authority under Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act) to set off receivables from the counterparty against payables to the same counterparty arising out of all included transactions. Substantially alltransactions and to apply collateral to the obligations without application of the automatic stay, upon the counterparty’s bankruptcy. All of the Company’s ISDA Master Agreements also include Credit Support Annex provisions which require both the pledging and accepting of collateral in connection with its OTC-bilateral derivatives.derivatives as required by applicable law. Additionally, the Company is required to pledge initial margin for certain new OTC-bilateral derivative transactions to third party custodians.
The Company’s OTC-clearedover-the-counter cleared (“OTC-cleared”) derivatives are effected through central clearing counterparties and its exchange-traded derivatives are effected through regulated exchanges. Such positions are marked to market and margined on a daily basis (both initial margin and variation margin), and the Company has minimal exposure to credit-related losses in the event of nonperformance by counterpartiesbrokers and central clearinghouses to such derivatives.
See Note 711 for a description of the impact of credit risk on the valuation of derivatives.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
6. Derivatives (continued)
The estimated fair values of the Company’s net derivative assets and net derivative liabilities after the application of master netting agreements and collateral were as follows at:
| | | | | September 30, 2017 | | December 31, 2016 |
| Derivatives Subject to a Master Netting Arrangement or a Similar Arrangement (1) | | Assets | | Liabilities | | Assets | | Liabilities |
| | | (In millions) |
| | March 31, 2024 | | | | March 31, 2024 | | December 31, 2023 |
| Derivatives Subject to a Master Netting Arrangement or a Similar Arrangement | | Derivatives Subject to a Master Netting Arrangement or a Similar Arrangement | | Assets | | Liabilities | | Assets | | Liabilities |
| | (In millions) | | | | (In millions) |
| Gross estimated fair value of derivatives: | | | | | | | | |
| OTC-bilateral (1) | | $ | 6,773 |
| | $ | 2,284 |
| | $ | 7,926 |
| | $ | 3,349 |
|
| OTC-cleared (1), (6) | | 152 |
| | 218 |
| | 905 |
| | 611 |
|
| OTC-bilateral (1) | |
| OTC-bilateral (1) | |
| OTC-cleared (1) | |
| Exchange-traded | | 2 |
| | 6 |
| | 13 |
| | — |
|
| Total gross estimated fair value of derivatives (1) | | 6,927 |
| | 2,508 |
| | 8,844 |
| | 3,960 |
|
| Amounts offset on the consolidated balance sheets | | — |
| | — |
| | — |
| | — |
|
Estimated fair value of derivatives presented on the consolidated balance sheets (1), (6) | | 6,927 |
| | 2,508 |
| | 8,844 |
| | 3,960 |
|
| Gross amounts not offset on the consolidated balance sheets: | | | | | | | | |
| Total gross estimated fair value of derivatives presented on the interim condensed consolidated balance sheets (1) | |
| | Gross amounts not offset on the interim condensed consolidated balance sheets: | |
| Gross amounts not offset on the interim condensed consolidated balance sheets: | |
| Gross amounts not offset on the interim condensed consolidated balance sheets: | |
| Gross estimated fair value of derivatives: (2) | | | | | | | | |
| Gross estimated fair value of derivatives: (2) | |
| Gross estimated fair value of derivatives: (2) | |
| OTC-bilateral | |
| OTC-bilateral | |
| OTC-bilateral | | (1,914 | ) | | (1,914 | ) | | (2,737 | ) | | (2,737 | ) |
| OTC-cleared | | (32 | ) | | (32 | ) | | (391 | ) | | (391 | ) |
| Exchange-traded | | — |
| | — |
| | — |
| | — |
|
| Cash collateral: (3), (4) | | | | | | | | |
| OTC-bilateral | | (3,702 | ) | | — |
| | (3,418 | ) | | — |
|
| OTC-bilateral | |
| OTC-bilateral | |
| OTC-cleared | | (115 | ) | | (181 | ) | | (497 | ) | | (217 | ) |
| Exchange-traded | | — |
| | — |
| | — |
| | — |
|
| | Securities collateral: (5) | | | | | | | | |
| Securities collateral: (5) | |
| Securities collateral: (5) | |
| OTC-bilateral | |
| OTC-bilateral | |
| OTC-bilateral | | (1,092 | ) | | (371 | ) | | (1,560 | ) | | (609 | ) |
| OTC-cleared | | — |
| | (5 | ) | | — |
| | — |
|
| Exchange-traded | | — |
| | (5 | ) | | — |
| | — |
|
| Net amount after application of master netting agreements and collateral | | $ | 72 |
| | $ | — |
| | $ | 241 |
| | $ | 6 |
|
__________________
| |
(1) | At September 30, 2017 and December 31, 2016, derivative assets included income or (expense) accruals reported in accrued investment income or in other liabilities of $59 million and $116 million, respectively, and derivative liabilities included (income) or expense accruals reported in accrued investment income or in other liabilities of($33) millionand ($36) million, respectively.
|
| |
(2) | Estimated fair value of derivatives is limited to the amount that is subject to set-off and includes income or expense accruals. |
| |
(3) | Cash collateral received by the Company for OTC-bilateral and OTC-cleared derivatives is included in cash and cash equivalents, short-term investments or in fixed maturity securities, and the obligation to return it is included in payables for collateral under securities loaned and other transactions on the balance sheet. |
| |
(4) | The receivable for the return of cash collateral provided by the Company is inclusive of initial margin on exchange-traded and OTC-cleared derivatives and is included in premiums, reinsurance and other receivables on the balance sheet. The amount of cash collateral offset in the table above is limited to the net estimated fair value of derivatives after application of netting agreements. At September 30, 2017 and December 31, 2016, the Company received excess cash collateral of $143 million and $77 million, respectively, and provided excess cash collateral of $4 million and $9 million, respectively, which is not included in the table above due to the foregoing limitation. |
(1)At March 31, 2024 and December 31, 2023, derivative assets included income (expense) accruals reported in accrued investment income or in other liabilities of $167 million and $143 million, respectively, and derivative liabilities included (income) expense accruals reported in accrued investment income or in other liabilities of $73 million and $8 million, respectively.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
6.10. Derivatives (continued)
(2)Estimated fair value of derivatives is limited to the amount that is subject to set-off and includes income or expense accruals.
| |
(5) | Securities collateral received by the Company is held in separate custodial accounts and is not recorded on the balance sheet. Subject to certain constraints, the Company is permitted by contract to sell or re-pledge this collateral, but at September 30, 2017, none of the collateral had been sold or re-pledged. Securities collateral pledged by the Company is reported in fixed maturity securities on the balance sheet. Subject to certain constraints, the counterparties are permitted by contract to sell or re-pledge this collateral. The amount of securities collateral offset in the table above is limited to the net estimated fair value of derivatives after application of netting agreements and cash collateral. At September 30, 2017 and December 31, 2016, the Company received excess securities collateral with an estimated fair value of $81 million and $21 million, respectively, for its OTC-bilateral derivatives, which are not included in the table above due to the foregoing limitation. At September 30, 2017 and December 31, 2016, the Company provided excess securities collateral with an estimated fair value of $179 million and $75 million, respectively, for its OTC-bilateral derivatives, and $307 million and $531 million, respectively, for its OTC-cleared derivatives, and $66 million and $116 million, respectively, for its exchange-traded derivatives, which are not included in the table above due to the foregoing limitation. |
| |
(6) | Effective January 3, 2017, the CME amended its rulebook, resulting in the characterization of variation margin transfers as settlement payments, as opposed to adjustments to collateral. See Note 1 for further information on the CME amendments. |
(3)Cash collateral received by the Company for OTC-bilateral and OTC-cleared derivatives, where the central clearinghouse treats variation margin as collateral, is included in cash and cash equivalents, short-term investments or in fixed maturity securities AFS, and the obligation to return it is included in payables for collateral under securities loaned and other transactions on the balance sheet.
(4)The receivable for the return of cash collateral provided by the Company is inclusive of initial margin on exchange-traded and OTC-cleared derivatives and is included in premiums, reinsurance and other receivables on the balance sheet. The amount of cash collateral offset in the table above is limited to the net estimated fair value of derivatives after application of netting agreements. At March 31, 2024 and December 31, 2023, the Company received excess cash collateral of $28 million and $154 million, respectively, and provided excess cash collateral of $5 million and $4 million, respectively, which are not included in the table above due to the foregoing limitation.
(5)Securities collateral received by the Company is held in separate custodial accounts and is not recorded on the balance sheet. Subject to certain constraints, the Company is permitted by contract to sell or re-pledge this collateral, but at March 31, 2024, none of the collateral had been sold or re-pledged. Securities collateral pledged by the Company is reported in fixed maturity securities AFS on the balance sheet. Subject to certain constraints, the counterparties are permitted by contract to sell or re-pledge this collateral. The amount of securities collateral offset in the table above is limited to the net estimated fair value of derivatives after application of netting agreements and cash collateral. At March 31, 2024 and December 31, 2023, the Company received excess securities collateral with an estimated fair value of $305 million and $286 million, respectively, for its OTC-bilateral derivatives, which are not included in the table above due to the foregoing limitation. At March 31, 2024 and December 31, 2023, the Company provided excess securities collateral with an estimated fair value of $1.0 billion and $1.1 billion, respectively, for its OTC-bilateral derivatives, $469 million and $495 million, respectively, for its OTC-cleared derivatives, and $55 million and $56 million, respectively, for its exchange-traded derivatives, which are not included in the table above due to the foregoing limitation.
The Company’s collateral arrangements for its OTC-bilateral derivatives generally require the counterparty in a net liability position, after considering the effect of netting agreements, to pledge collateral when the collateral amount owed by that partycounterparty reaches a minimum transfer amount. A small number of these arrangements also include financial strength or credit rating contingent provisions that include a threshold above which collateral must be posted. Such agreements provide for a reduction of these thresholds (on a sliding scale that converges toward zero) in the event of downgrades in credit ratings of Metropolitan Life Insurance Company and/or the credit ratings of the counterparty. In addition, substantially allAll of the Company’s netting agreements for derivatives contain provisions that require both Metropolitan Life Insurance Company and the counterparty to maintain a specific investment grade financial strength or credit rating from each of Moody’s and S&P. If a party’s financial strength or credit ratingsrating were to fall below that specific investment grade financial strength or credit rating, that party would be in violation of these provisions, and the other party to the derivatives could terminate the transactions and demand immediate settlement and payment based on such party’s reasonable valuation of the derivatives.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
6. Derivatives (continued)
The following table presents the estimated fair value of the Company’s OTC-bilateral derivatives that arewere 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
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2024 | | December 31, 2023 |
| | Derivatives
Subject to
Financial Strength-Contingent
Provisions | | Derivatives
Not Subject
to Financial
Strength-Contingent
Provisions | | Total | | Derivatives
Subject to
Financial Strength-Contingent
Provisions | | Derivatives
Not Subject
to Financial
Strength-Contingent
Provisions | | Total |
| | (In millions) |
| Estimated fair value of derivatives in a net liability position (1) | | $ | 590 | | | $ | 3 | | | $ | 593 | | | $ | 542 | | | $ | — | | | $ | 542 | |
| Estimated fair value of collateral provided: | | | | | | | | | | | | |
| Fixed maturity securities AFS | | $ | 1,025 | | | $ | 5 | | | $ | 1,030 | | | $ | 896 | | | $ | — | | | $ | 896 | |
| | | | | | | | | | | | |
__________________
(1)After taking into consideration the incremental collateral that existence of netting agreements.
Metropolitan Life Insurance Company would be required
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to provide if there was a one-notch downgrade in its financial strength or credit rating, as applicable, at the reporting date or if its financial strength or credit rating, as applicable, sustained a downgrade to a level that triggered full overnight collateralization or termination of the derivative position at the reporting date. OTC-bilateral derivatives that are not subject to collateral agreements are excluded from this table.Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
10. Derivatives (continued)
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | September 30, 2017 | | December 31, 2016 |
| | | Derivatives Subject to Financial Strength- Contingent Provisions | | Derivatives Not Subject to Financial Strength- Contingent Provisions | | Total | | Derivatives Subject to Financial Strength- Contingent Provisions | | Derivatives Not Subject to Financial Strength- Contingent Provisions | | Total |
| | | (In millions) |
Estimated Fair Value of Derivatives in a Net Liability Position (1) | | $ | 371 |
| | $ | — |
| | $ | 371 |
| | $ | 612 |
| | $ | — |
| | $ | 612 |
|
| Estimated Fair Value of Collateral Provided: | | | | | | | | | | | | |
| Fixed maturity securities | | $ | 465 |
| | $ | — |
| | $ | 465 |
| | $ | 684 |
| | $ | — |
| | $ | 684 |
|
| Cash | | $ | — |
| | $ | — |
| | $ | �� |
| | $ | — |
| | $ | — |
| | $ | — |
|
Estimated Fair Value of Incremental Collateral Provided Upon: | | | | | | | | | | | | |
One-notch downgrade in financial strength or credit rating, as applicable | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Downgrade in financial strength or credit rating, as applicable, to a level that triggers full overnight collateralization or termination of the derivative position | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
__________________
| |
(1) | After taking into consideration the existence of netting agreements. |
Embedded Derivatives
The Company issues certain products or purchases certain investments that contain embedded derivatives that are required to be separated from their host contracts and accounted for as freestanding derivatives. These host contracts principally include: variable annuities with guaranteed minimum benefits, including GMWBs, GMABs and certain GMIBs; affiliated ceded reinsurance of guaranteed minimum benefits related to GMWBs, GMABs and certain GMIBs; affiliated assumed reinsurance of guaranteed minimum benefits related to GMWBs, GMABs and certain GMIBs; funds withheld on ceded reinsurance and affiliated funds withheld on ceded reinsurance; fixed annuities with equity indexed returns; and certain debt and equity securities.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
6. Derivatives (continued)
The following table presents the estimated fair value and balance sheet location of the Company’s embedded derivatives that have been separated from their host contracts at:
| | | | | | | | | | | | | | | | | | | | |
| | Balance Sheet Location | | March 31, 2024 | | December 31, 2023 |
| | | | (In millions) |
| Embedded derivatives within asset host contracts: | | | | | | |
| Assumed on affiliated reinsurance | | Other invested assets | | $ | 59 | | | $ | 41 | |
| Funds withheld on affiliated reinsurance | | Other invested assets | | 7 | | | (26) | |
| Total | | | | $ | 66 | | | $ | 15 | |
| Embedded derivatives within liability host contracts: | | | | | | |
| | | | | | |
| | | | | | |
| Assumed on affiliated reinsurance | | Other liabilities | | $ | — | | | $ | 104 | |
| Funds withheld on affiliated reinsurance | | Other liabilities | | (387) | | | (304) | |
| Fixed annuities with equity indexed returns | | Policyholder account balances | | 168 | | | 163 | |
| Total | | | | $ | (219) | | | $ | (37) | |
|
| | | | | | | | | | |
| | | Balance Sheet Location | | September 30, 2017 | | December 31, 2016 |
| | | | | (In millions) |
| Embedded derivatives within asset host contracts: | | | | | | |
| Ceded guaranteed minimum benefits | | Premiums, reinsurance and other receivables | | $ | — |
| | $ | 460 |
|
| Options embedded in debt or equity securities | | Investments | | (119 | ) | | (78 | ) |
| Embedded derivatives within asset host contracts | | $ | (119 | ) | | $ | 382 |
|
| Embedded derivatives within liability host contracts: | | | | | | |
| Direct guaranteed minimum benefits | | Policyholder account balances | | $ | (31 | ) | | $ | 169 |
|
| Assumed guaranteed minimum benefits | | Policyholder account balances | | 3 |
| | 390 |
|
| Funds withheld on ceded reinsurance | | Other liabilities | | 906 |
| | 777 |
|
| Fixed annuities with equity indexed returns | | Policyholder account balances | | 53 |
| | 17 |
|
| Embedded derivatives within liability host contracts | | $ | 931 |
| | $ | 1,353 |
|
The following table presents changes in estimated fair value related to embedded derivatives:
|
| | | | | | | | | | | | | | | |
| | Three Months
Ended
September 30, | | Nine Months
Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (In millions) |
| Net derivative gains (losses) (1), (2) | $ | 141 |
| | $ | 137 |
| | $ | 317 |
| | $ | (1,509 | ) |
__________________
| |
(1) | The valuation of direct and assumed guaranteed minimum benefits includes a nonperformance risk adjustment. The amounts included in net derivative gains (losses) in connection with this adjustment were ($17) million and ($39) million for the three months and nine months ended September 30, 2017, respectively, and ($47) million and $173 million for the three months and nine months ended September 30, 2016, respectively. In addition, the valuation of ceded guaranteed minimum benefits includes a nonperformance risk adjustment. For the three months and nine months ended September 30, 2017, the Company did not have any ceded guaranteed minimum benefits. The amounts included in net derivative gains (losses) in connection with this adjustment were $9 million and ($64) million for the three months and nine months ended September 30, 2016, respectively. |
| |
(2) | See Note 12 for discussion of affiliated net derivative gains (losses).
|
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
7.11. Fair Value
Considerable judgment is often required in interpreting the market data used 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.
Recurring Fair Value Measurements
The assets and liabilities measured at estimated fair value on a recurring basis and their corresponding placement in the fair value hierarchy, including those items for which the Company has elected the FVO, are presented below at:
| | March 31, 2024 | | | March 31, 2024 |
| Fair Value Hierarchy | |
| Level 1 | |
| Level 1 | |
| Level 1 | | | Level 2 | | Level 3 | | Total Estimated Fair Value |
| (In millions) | | | (In millions) |
| Assets | |
| Fixed maturity securities AFS: | |
| Fixed maturity securities AFS: | |
| Fixed maturity securities AFS: | |
| U.S. corporate | |
| U.S. corporate | |
| U.S. corporate | |
| Foreign corporate | |
| U.S. government and agency | |
| RMBS | |
| ABS & CLO | |
| Municipals | |
| CMBS | |
| Foreign government | |
| Total fixed maturity securities AFS | |
| | | Short-term investments | |
| | September 30, 2017 |
| Short-term investments | |
| | Fair Value Hierarchy | | |
| Short-term investments | |
| | Level 1 | | Level 2 | | Level 3 | | Total
Estimated
Fair Value |
| | (In millions) |
| Assets | | | | | | | |
| Fixed maturity securities: | | | | | | | |
| U.S. corporate | $ | — |
| | $ | 52,694 |
| | $ | 4,783 |
| | $ | 57,477 |
|
| U.S. government and agency | 20,192 |
| | 19,916 |
| | — |
| | 40,108 |
|
| Foreign corporate | — |
| | 21,403 |
| | 3,964 |
| | 25,367 |
|
| RMBS | 412 |
| | 20,637 |
| | 3,371 |
| | 24,420 |
|
| ABS | — |
| | 7,286 |
| | 419 |
| | 7,705 |
|
| State and political subdivision | — |
| | 7,434 |
| | 1 |
| | 7,435 |
|
| CMBS | — |
| �� | 5,329 |
| | 28 |
| | 5,357 |
|
| Foreign government | — |
| | 4,401 |
| | 14 |
| | 4,415 |
|
| Total fixed maturity securities | 20,604 |
| | 139,100 |
| | 12,580 |
| | 172,284 |
|
| Equity securities | 483 |
| | 943 |
| | 365 |
| | 1,791 |
|
| Short-term investments | 2,467 |
| | 1,813 |
| | 402 |
| | 4,682 |
|
| Residential mortgage loans — FVO | — |
| | — |
| | 564 |
| | 564 |
|
| Other investments | |
| Other investments | |
| Other investments | |
| Derivative assets: (1) | | | | | | | |
| Interest rate | |
| Interest rate | |
| Interest rate | 2 |
| | 4,722 |
| | 3 |
| | 4,727 |
|
| Foreign currency exchange rate | — |
| | 1,661 |
| | — |
| | 1,661 |
|
| Credit | — |
| | 137 |
| | 39 |
| | 176 |
|
| Equity market | — |
| | 199 |
| | 105 |
| | 304 |
|
| Total derivative assets | 2 |
| | 6,719 |
| | 147 |
| | 6,868 |
|
| Embedded derivatives within asset host contracts (3) | — |
| | — |
| | — |
| | — |
|
| Separate account assets (3) | 23,832 |
| | 107,799 |
| | 1,039 |
| | 132,670 |
|
| Total assets | $ | 47,388 |
| | $ | 256,374 |
| | $ | 15,097 |
| | $ | 318,859 |
|
| Embedded derivatives within asset host contracts (4) | |
| Market risk benefits | |
| | Separate account assets (2) | |
| Separate account assets (2) | |
| Separate account assets (2) | |
| Total assets (3) | |
| Liabilities | | | | | | | |
| Derivative liabilities: (1) | | | | | | | |
| Derivative liabilities: (1) | |
| Derivative liabilities: (1) | |
| Interest rate | |
| Interest rate | |
| Interest rate | $ | — |
| | $ | 368 |
| | $ | 212 |
| | $ | 580 |
|
| Foreign currency exchange rate | — |
| | 1,184 |
| | 4 |
| | 1,188 |
|
| Credit | — |
| | 8 |
| | — |
| | 8 |
|
| Equity market | 6 |
| | 531 |
| | 228 |
| | 765 |
|
| Total derivative liabilities | 6 |
| | 2,091 |
| | 444 |
| | 2,541 |
|
| Embedded derivatives within liability host contracts (2) | — |
| | — |
| | 931 |
| | 931 |
|
| Long-term debt | — |
| | — |
| | — |
| | — |
|
| Separate account liabilities (3) | 1 |
| | 6 |
| | 2 |
| | 9 |
|
| Embedded derivatives within liability host contracts (4) | |
| | Market risk benefits | |
| Market risk benefits | |
| Market risk benefits | |
| Separate account liabilities (2) | |
| Total liabilities | $ | 7 |
| | $ | 2,097 |
| | $ | 1,377 |
| | $ | 3,481 |
|
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
7.11. Fair Value (continued)
| | December 31, 2023 | | | December 31, 2023 |
| Fair Value Hierarchy | |
| Level 1 | |
| Level 1 | |
| Level 1 | | | Level 2 | | Level 3 | | Total Estimated Fair Value |
| (In millions) | | | (In millions) |
| Assets | |
| Fixed maturity securities AFS: | |
| Fixed maturity securities AFS: | |
| Fixed maturity securities AFS: | |
| U.S. corporate | |
| U.S. corporate | |
| U.S. corporate | |
| Foreign corporate | |
| U.S. government and agency | |
| RMBS | |
| ABS & CLO | |
| Municipals | |
| CMBS | |
| Foreign government | |
| Total fixed maturity securities AFS | |
| | | Short-term investments | |
| | December 31, 2016 |
| Short-term investments | |
| | Fair Value Hierarchy | | |
| Short-term investments | |
| | Level 1 | | Level 2 | | Level 3 | | Total
Estimated
Fair Value |
| | (In millions) |
| Assets | | | | | | | |
| Fixed maturity securities: | | | | | | | |
| U.S. corporate | $ | — |
| | $ | 51,303 |
| | $ | 4,855 |
| | $ | 56,158 |
|
| U.S. government and agency | 17,597 |
| | 18,018 |
| | — |
| | 35,615 |
|
| Foreign corporate | — |
| | 20,373 |
| | 3,984 |
| | 24,357 |
|
| RMBS | — |
| | 19,719 |
| | 3,698 |
| | 23,417 |
|
| ABS | — |
| | 6,745 |
| | 759 |
| | 7,504 |
|
| State and political subdivision | — |
| | 7,126 |
| | 10 |
| | 7,136 |
|
| CMBS | — |
| | 4,851 |
| | 84 |
| | 4,935 |
|
| Foreign government | — |
| | 3,977 |
| | 21 |
| | 3,998 |
|
| Total fixed maturity securities | 17,597 |
| | 132,112 |
| | 13,411 |
| | 163,120 |
|
| Equity securities | 408 |
| | 1,011 |
| | 420 |
| | 1,839 |
|
| Short-term investments | 2,945 |
| | 1,720 |
| | 25 |
| | 4,690 |
|
| Residential mortgage loans — FVO | — |
| | — |
| | 566 |
| | 566 |
|
| Other investments | |
| Other investments | |
| Other investments | |
| Derivative assets: (1) | | | | | | | |
| Interest rate | |
| Interest rate | |
| Interest rate | 3 |
| | 5,489 |
| | 2 |
| | 5,494 |
|
| Foreign currency exchange rate | — |
| | 2,763 |
| | — |
| | 2,763 |
|
| Credit | — |
| | 101 |
| | 30 |
| | 131 |
|
| Equity market | 10 |
| | 226 |
| | 104 |
| | 340 |
|
| Total derivative assets | 13 |
| | 8,579 |
| | 136 |
| | 8,728 |
|
| Embedded derivatives within asset host contracts (2) | — |
| | — |
| | 460 |
| | 460 |
|
| Separate account assets (3) | 27,633 |
| | 105,055 |
| | 1,148 |
| | 133,836 |
|
| Total assets | $ | 48,596 |
| | $ | 248,477 |
| | $ | 16,166 |
| | $ | 313,239 |
|
| Embedded derivatives within asset host contracts (4) | |
| Market risk benefits | |
| | Separate account assets (2) | |
| Separate account assets (2) | |
| Separate account assets (2) | |
| Total assets (3) | |
| Liabilities | | | | | | | |
| Derivative liabilities: (1) | | | | | | | |
| Derivative liabilities: (1) | |
| Derivative liabilities: (1) | |
| Interest rate | |
| Interest rate | |
| Interest rate | $ | — |
| | $ | 917 |
| | $ | 500 |
| | $ | 1,417 |
|
| Foreign currency exchange rate | — |
| | 1,902 |
| | 2 |
| | 1,904 |
|
| Credit | — |
| | 14 |
| | — |
| | 14 |
|
| Equity market | — |
| | 468 |
| | 193 |
| | 661 |
|
| Total derivative liabilities | — |
| | 3,301 |
| | 695 |
| | 3,996 |
|
| Embedded derivatives within liability host contracts (3) | — |
| | — |
| | 1,353 |
| | 1,353 |
|
| Long-term debt | — |
| | — |
| | 74 |
| | 74 |
|
| Separate account liabilities (3) | — |
| | 16 |
| | 7 |
| | 23 |
|
| Embedded derivatives within liability host contracts (4) | |
| | Market risk benefits | |
| | Market risk benefits | |
| | Market risk benefits | |
| Separate account liabilities (2) | |
| Total liabilities | $ | — |
| | $ | 3,317 |
| | $ | 2,129 |
| | $ | 5,446 |
|
__________________
| |
(1) | Derivative assets are presented within other invested assets on the consolidated balance sheets and derivative liabilities are presented within other liabilities on the consolidated balance sheets. The amounts are presented gross in the tables above to reflect the presentation on 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. |
| |
(2) | Embedded derivatives within asset host contracts are presented within premiums, reinsurance and other receivables on the consolidated balance sheets. Embedded derivatives within liability host contracts are presented within policyholder account balances and other liabilities on the consolidated balance sheets. At September 30, 2017 and December 31, 2016, debt and equity securities also included embedded derivatives of ($119) million and ($78) million, respectively. |
(1)Derivative assets are presented within other invested assets on the interim condensed consolidated balance sheets and derivative liabilities are presented within other liabilities on the interim condensed consolidated balance sheets. The amounts are presented gross in the tables above to reflect the presentation on the interim condensed consolidated balance sheets, but are presented net for purposes of the rollforward in the Fair Value Measurements Using Significant Unobservable Inputs (Level 3) tables.
(2)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. Separate account liabilities presented in the tables above represent derivative liabilities.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
7.11. Fair Value (continued)
(3)Total assets included in the fair value hierarchy exclude OLPI that are measured at estimated fair value using the net asset value (“NAV”) per share (or its equivalent) practical expedient. At March 31, 2024 and December 31, 2023, the estimated fair value of such investments was $52 million and $48 million, respectively.
| |
(3) | 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. Separate account liabilities presented in the tables above represent derivative liabilities. |
(4)Embedded derivatives within asset host contracts are presented within other invested assets on the interim condensed consolidated balance sheets. Embedded derivatives within liability host contracts are presented within PABs and other liabilities on the interim condensed consolidated balance sheets. The following describes the valuation methodologies used to measure assets and liabilities at fair value. The description includes the valuation techniques and key inputs for each category of assets or liabilities that are classified within Level 2 and Level 3 of the fair value hierarchy.
Investments
Valuation Controls and Procedures
On behalf of the Company and MetLife, Inc.’s Chief Investment Officer and Chief Financial Officer, a pricing and valuation committee that is independent of the trading and investing functions and comprised of senior management, provides oversight of control systems and valuation policies for securities, mortgage loans and derivatives. On a quarterly basis, this committee reviews and approves new transaction types and markets, ensures that observable market prices and market-based parameters are used for valuation, wherever possible, and determines that judgmental valuation adjustments, when applied, are based upon established policies and are applied consistently over time. This committee also provides oversight of the selection of independent third-party pricing providers and the controls and procedures to evaluate third-party pricing. Periodically, the Chief Accounting Officer reports to the Audit Committee of the Board of Directors of each of MetLife, Inc. and Metropolitan Life Insurance Company regarding compliance with fair value accounting standards.
The Company reviews its valuation methodologies on an ongoing basis and revises those methodologies when necessary based on changing market conditions. Assurance is gained on the overall reasonableness and consistent application of input assumptions, valuation methodologies and compliance with fair value accounting standards through controls designed to ensure valuations represent an exit price. Several controls are utilized, including certain monthly controls, which include, but are not limited to, analysis of portfolio returns to corresponding benchmark returns, comparing a sample of executed prices of securities sold to the fair value estimates, comparing fair value estimates to management’s knowledge of the current market, reviewing the bid/ask spreads to assess activity, comparing prices from multiple independent pricing services and ongoing due diligence to confirm that independent pricing services use market-based parameters. The process includes a determination of the observability of inputs used in estimated fair values received from independent pricing services or brokers by assessing whether these inputs can be corroborated by observable market data. The Company ensures that prices received from independent brokers, also referred to herein as “consensus pricing,” represent a reasonable estimate of fair value by considering such pricing relative to the Company’s knowledge of the current market dynamics and current pricing for similar financial instruments. While independent non-binding broker quotations are utilized, they are not used for a significant portion of the portfolio. For example, fixed maturity securities priced using independent non-binding broker quotations represent less than 1% of the total estimated fair value of fixed maturity securities and less than 1% of the total estimated fair value of Level 3 fixed maturity securities at September 30, 2017.
The Company also applies a formal process to challenge any prices received from independent pricing services that are not considered representative of estimated fair value. If prices received from independent pricing services are not considered reflective of market activity or representative of estimated fair value, independent non-binding broker quotations are obtained, or an internally developed valuation is prepared. Internally developed valuations of current estimated fair value, which reflect internal estimates of liquidity and nonperformance risks, compared with pricing received from the independent pricing services, did not produce material differences in the estimated fair values for the majority of the portfolio; accordingly, overrides were not material. This is, in part, because internal estimates of liquidity and nonperformance risks are generally based on available market evidence and estimates used by other market participants. In the absence of such market-based evidence, management’s best estimate is used.
Securities, Short-term Investments and Long-term DebtOther Investments
When available, the estimated fair value of these financial instruments is based on quoted prices in active markets that are readily and regularly obtainable. Generally, these are the most liquid of the Company’s securities holdings and valuation of these securities does not involve management’s judgment.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
7. Fair Value (continued)
When quoted prices in active markets are not available, the determination of estimated fair value of securities is based on market standard valuation methodologies, giving priority to observable inputs. 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. When observable inputs are not available, the market standard valuation methodologies rely on inputs that are significant to the estimated fair value that are not observable in the market or cannot be derived principally from, or corroborated by, observable market data. These unobservable inputs can be based, in large part, on management’s judgment or estimation and cannot be supported by reference to market activity. Even though theseUnobservable inputs are unobservable, management believes they are consistent with what otherbased on management’s assumptions about the inputs market participants would use whenin pricing such securities and are considered appropriate given the circumstances.investments.
The estimated fair value of long-term debtshort-term investments and other investments is determined on a basis consistent with the methodologies described hereinherein.
The valuation approaches and key inputs for securities.
each category of assets or liabilities that are classified within Level 2 and Level 3 of the fair value hierarchy are presented below. The primary valuation approaches are the market approach, which considers recent prices from market transactions involving identical or similar assets or liabilities, and the income approach, which converts expected future amounts (e.g., cash flows) to a single current, discounted amount. The valuation of most instruments listed below is determined using independent pricing sources, matrix pricing, discounted cash flow methodologies or other similar techniques that use either observable market inputs or unobservable inputs.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
11. Fair Value (continued)
|
| | | | | | | | | | | | | | | | |
| Instrument | | Level 2 Observable Inputs | Level 3 Unobservable Inputs |
Fixed Maturity Securitiesmaturity securities AFS |
| U.S. corporate and Foreign corporate securities |
| Valuation Approaches: Principally the market and income approaches. | Valuation Approaches: Principally the market approach. |
| Key Inputs: | Key Inputs: |
| • | quoted prices in markets that are not active | • | illiquidity premium |
| • | • | benchmark yields; spreads off benchmark yields; new issuances; issuer ratingratings | • | delta spread adjustments to reflect specific credit-related issues |
| • | • | trades of identical or comparable securities; duration | • | credit spreads |
| • | • | Privately-placedprivately-placed securities are valued using the additional key inputs: | • | quoted prices in markets that are not active for identical or similar securities that are less liquid and based on lower levels of trading activity than securities classified in Level 2 |
| | • | market yield curve; call provisions | |
| | • | observable prices and spreads for similar public or private securities that incorporate the credit quality and industry sector of the issuer | •
| independent non-binding broker quotations |
| | • | delta spread adjustments to reflect specific credit-related issues | | |
U.S. government and agency State and political subdivisionsecurities, Municipals and Foreign government securities |
| Valuation Approaches: Principally the market approach. | Valuation Approaches: Principally the market approach. |
| Key Inputs: | Key Inputs: |
| • | quoted prices in markets that are not active | • | independent non-binding broker quotations |
| • | benchmark U.S. Treasury yield or other yields | • | quoted prices in markets that are not active for identical or similar securities that are less liquid and based on lower levels of trading activity than securities classified in Level 2 |
| • | the spread off the U.S. Treasury yield curve for the identical security | |
| • | • | issuer ratings and issuer spreads; broker-dealer quotesquotations | • | credit spreads |
| • | comparable securities that are actively traded | | |
Structured SecuritiesProducts |
| Valuation Approaches: Principally the market and income approaches. | Valuation Approaches: Principally the market and income approaches. |
| Key Inputs: | Key Inputs: |
| • | • | quoted prices in markets that are not active | • | credit spreads |
| • | spreads for actively traded securities; spreads off benchmark yields | • | quoted prices in markets that are not active for identical or similar securities that are less liquid and based on lower levels of trading activity than securities classified in Level 2 |
| • | expected prepayment speeds and volumes | |
| • | current and forecasted loss severity; ratings; geographic region | • | independent non-binding broker quotations |
| • | weighted average coupon and weighted average maturity | • | credit ratings |
| • | • | average delinquency rates; debt-service coverage ratiosDSCR | | |
| • | credit ratings | | |
| • | issuance-specific information, including, but not limited to: | | |
| | • | | • | collateral type; structure of the security; vintage of the loans | | |
| | • | | • | payment terms of the underlying assets | | |
| | • | payment priority within the tranche; deal performance | | |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
7.11. Fair Value (continued)
| | | | | | | | | | | | | | | | | |
| | | | | |
| Instrument | Level 2 Observable Inputs | Level 3 Unobservable Inputs |
Equity Securities |
| Valuation Approaches: Principally the market approach. | Valuation Approaches: Principally the marketShort-term investments and income approaches. |
| Key Input: | Key Inputs: |
| • | quoted prices in markets that are not considered active | • | credit ratings; issuance structures |
| | | • | quoted prices in markets that are not active for identical or similar
securities that are less liquid and based on lower levels of trading
activity than securities classified in Level 2
|
| | | • | independent non-binding broker quotations |
Short-termOther investments |
| • | • | Short-termCertain short-term investments and certain other investments are of a similar nature and class to the fixed maturity
and equity securities AFS described above; accordingly, thewhile certain other investments are similar to equity securities. The valuation
approaches and observable inputs used in their valuation are also similar to those described above. Other investments contain equity securities valued using quoted prices in markets that are not considered active. | • | Short-termCertain short-term investments and certain other investments are of a similar nature and class to the fixed
maturity andsecurities AFS described above, while certain other investments are similar to equity securities described above; accordingly, thesecurities. The valuation approaches and unobservable inputs used in their
valuation are also similar to those described above. Other investments contain equity securities that use key unobservable inputs such as credit ratings, issuance structures and those described above for fixed maturities AFS. Other investments also include certain REJV and use the valuation approach and key inputs as described for OLPI below. |
| Residential mortgage loans — FVO
| | • N/A | Valuation Approaches: Principally the market approach.
|
| | | | Valuation Techniques and Key Inputs: These investments are based primarily on matrix pricing or other similar techniques that utilize inputs from mortgage servicers that are unobservable or cannot be derived principally from, or corroborated by, observable market data.
|
Separate Account Assetsaccount assets and Separate Account Liabilitiesaccount liabilities (1) |
| Mutual funds and hedge funds without readily determinable fair values as prices are not published publicly |
| Key Input: | • | N/A |
| • | quoted prices or reported Net Asset value (“NAV”)NAV provided by the fund managers | | |
| OLPI |
| Other limited partnership interests
| • | •
N/A | N/A | Valued giving consideration to the underlying holdings
of the partnerships and by applying a premium or discount,adjusting, if appropriate.
|
| | | Key Inputs: |
| | | • | | | • | liquidity; bid/ask spreads; performance record of the fund manager |
| | | • | other relevant variables that may impact the exit value of the particular partnership interest |
__________________
| |
(1) | Estimated fair value equals carrying value, based on the value of the underlying assets, including: mutual fund interests, fixed maturity securities, equity securities, derivatives, hedge funds, other limited partnership interests, short-term investments and cash and cash equivalents. Fixed maturity securities, equity securities, derivatives, short-term investments and cash and cash equivalents are similar in nature to the instruments described under “— Securities, Short-term Investments and Long-term Debt” and “— Derivatives — Freestanding Derivatives.” |
(1)Estimated fair value equals carrying value, based on the value of the underlying assets, including: mutual fund interests, fixed maturity securities, equity securities, derivatives, hedge funds, OLPI, short-term investments and cash and cash equivalents. The estimated fair value of fixed maturity securities, equity securities, derivatives, short-term investments and cash and cash equivalents is determined on a basis consistent with the assets described under “— Securities, Short-term Investments and Other Investments” and “— Derivatives — Freestanding Derivatives.” Derivatives
The estimated fair value of derivatives is determined through the use of quoted market prices for exchange-traded derivatives, or through the use of pricing models for OTC-bilateral and OTC-cleared derivatives. The determination of estimated fair value, when quoted market values are not available, is based on market standard valuation methodologies and inputs that management believes are consistent with what other market participants would use when pricing such instruments. Derivative valuations can be affected by changes in interest rates, foreign currency exchange rates, financial indices, credit spreads, default risk, nonperformance risk, volatility, liquidity and changes in estimates and assumptions used in the pricing models. The valuation controls and procedures for derivatives are described in “— Investments.”
The significant inputs to the pricing models for most OTC-bilateral and OTC-cleared derivatives are inputs that are observable in the market or can be derived principally from, or corroborated by, observable market data. CertainWith respect to certain OTC-bilateral and OTC-cleared derivatives, management 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. These unobservable inputs may involve significant management judgment or estimation. Even though unobservable, theseUnobservable inputs are based on management’s assumptions deemed appropriate givenabout the circumstances and management believes they are consistent with what otherinputs market participants would use whenin pricing such instruments.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
7. Fair Value (continued)
derivatives.
Most inputs for OTC-bilateral and OTC-cleared derivatives are mid-market inputs but, in certain cases, liquidity adjustments are made when they are deemed more representative of exit value. Market liquidity, as well as the use of different methodologies, assumptions and inputs, may have a material effect on the estimated fair values of the Company’s derivatives and could materially affect net income.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
11. Fair Value (continued)
The credit risk of both the counterparty and the Company areis considered in determining the estimated fair value for all OTC-bilateral and OTC-cleared 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 OTC-bilateral and OTC-cleared derivatives using standard swap curves which may include a spread to the risk-free rate, depending upon specific collateral arrangements. This credit spread is appropriate for those parties that execute trades at pricing levels consistent with similar collateral arrangements. As the Company and its significant derivative counterparties generally execute trades at such pricing levels and hold sufficient collateral, additional credit risk adjustments are not currently required in the valuation process. The Company’s ability to consistently execute at such pricing levels is, in part, due to the netting agreements and collateral arrangements that are in place with all of its significant derivative counterparties. An evaluation of the requirement to make additional credit risk adjustments is performed by the Company each reporting period.period.
Freestanding Derivatives
Level 2 Valuation Approaches and Key Inputs:
This level includes all types of derivatives utilized by the Company with the exception of exchange-traded derivatives included within Level 1 and those derivatives with unobservable inputs as described in Level 3.
Level 3 Valuation Approaches and Key Inputs:
These valuation methodologies generally use the same inputs as described in the corresponding sections 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.
Freestanding derivatives are principally valued using the income approach. Valuations of non-option-based derivatives utilize present value techniques, whereas valuations of option-based derivatives utilize option pricing models. Key inputs are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Instrument | | | | | | | | |
Instrument | | Interest Rate | | Foreign Currency
Exchange Rate
| | Credit | | Credit | Equity Market |
| Inputs common to Level 2 and Level 3 by instrument type | • | swap yield curves | • | swap yield curves | • | swap yield curves | • | swap yield curves |
| • | basis curves | • | basis curves | • | credit curves | • | spot equity index levels |
| • | interest rate volatility (1) | • | currency spot rates | • | recovery rates | • | dividend yield curves |
| | | • | | | • | cross currency basis curves | | | • | equity volatility (1) |
| | | | | | | | |
| Level 3 | • | swap yield curves (2) | • | swap yield curves (2) | • | swap yield curves (2) | • | dividend yield curves (2) |
| • | basis curves (2) | • | basis curves (2) | • | credit curves (2) | • | equity volatility (1), (2) |
| • | • | repurchase rates | • | cross currency basis curves (2) | •
| credit spreads | • | correlation between model inputs (1) |
| • | interest rate volatility (1), (2) | | • | currency correlation | • | repurchase rates | | |
| | | | | • | independent non-binding broker quotations | | |
__________________
| |
(2) | Extrapolation beyond the observable limits of the curve(s). |
(1)Option-based only.
(2)Extrapolation beyond the observable limits of the curve(s).
Embedded Derivatives
Embedded derivatives principally include equity-indexed annuity contracts and investment risk within funds withheld related to certain reinsurance agreements. Embedded derivatives are recorded at estimated fair value with changes in estimated fair value reported in net income.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
7.11. Fair Value (continued)
Embedded Derivatives
Embedded derivatives principally include certain direct, assumed and ceded variable annuity guarantees, certain affiliated ceded reinsurance agreements related to such variable annuity guarantees, equity or bond indexed crediting rates within certain funding agreements and those related to funds withheld on ceded reinsurance agreements. Embedded derivatives are recorded at estimated fair value with changes in estimated fair value reported in net income.
The Company issues certain variable annuity products with guaranteed minimum benefits. GMWBs, GMABs and certain GMIBs contain 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 on the consolidated balance sheets.
The Company’s actuarial department calculates the fair value of these embedded derivatives, which are estimated as the present value of projected future benefits minus the present value of projected future fees using actuarial and capital market assumptions including expectations concerning policyholder behavior. The calculation is based on in-force business, and is performed using standard actuarial valuation software which projects future cash flows from the embedded derivative over multiple risk neutral stochastic scenarios using observable risk-free rates.
Capital market assumptions, such as risk-free rates and implied volatilities, are based on market prices for publicly traded instruments to the extent that prices for such instruments are observable. Implied volatilities beyond the observable period are extrapolated based on observable implied volatilities and historical volatilities. Actuarial assumptions, including mortality, lapse, withdrawal and utilization, are unobservable and are reviewed at least annually based on actuarial studies of historical experience.
The valuation of these guarantee liabilities includes nonperformance risk adjustments and adjustments for a risk margin related to non-capital market inputs. The nonperformance adjustment is determined by taking into consideration publicly available information relating to spreads in the secondary market for MetLife, Inc.’s 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 as compared to MetLife, Inc.
Risk margins are established to capture the non-capital market risks of the instrument which represent the additional compensation a market participant would require to assume the risks related to the uncertainties of such actuarial assumptions as annuitization, premium persistency, partial withdrawal and surrenders. The establishment of risk margins requires the use of significant management judgment, including assumptions of the amount and cost of capital needed to cover the guarantees. These guarantees may be more costly than expected in volatile or declining equity markets. Market conditions including, but not limited to, changes in interest rates, equity indices, market volatility and foreign currency exchange rates; changes in nonperformance risk; and variations in actuarial assumptions regarding policyholder behavior, mortality and risk margins related to non-capital market inputs, may result in significant fluctuations in the estimated fair value of the guarantees that could materially affect net income.
The Company ceded the risk associated with certain of the GMIBs, GMABs and GMWBs previously described. In addition to ceding risks associated with guarantees that are accounted for as embedded derivatives, the Company also ceded directly written GMIBs that are accounted for as insurance (i.e., not as embedded derivatives) but where the reinsurance agreement contains an embedded derivative. These embedded derivatives are included within premiums, reinsurance and other receivables on the consolidated balance sheets with changes in estimated fair value reported in net derivative gains (losses). 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 with the exception of the input for nonperformance risk that reflects the credit of the reinsurer.
The estimated fair value of the embedded derivatives within funds withheld related to certain ceded reinsurance and experience refund related to certain assumed 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 withheldreinsurance liability. The estimated fair value of the underlying assets is determined as described in “— Investments — Securities, Short-term Investments and Long-term Debt.Other Investments.” The estimated fair value of these embedded derivatives is included, along with their funds withheld hosts,underlying host contracts, in other liabilities and other invested assets on the interim condensed 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.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
7. Fair Value (continued)
The estimated fair value of the embedded equity and bond indexed derivatives, containedbased on the present value of future equity returns to the policyholder using actuarial and present value assumptions including expectations concerning policyholder behavior, is calculated by the Company’s actuarial department. The calculation is based on in-force business and uses standard capital market techniques, such as Black-Scholes, to calculate the value of the portion of the embedded derivative for which the terms are set. The portion of the embedded derivative covering the period beyond where terms are set is calculated as the present value of amounts expected to be spent to provide equity indexed returns in certain funding agreements is determined using market standard swapthose periods. The valuation models and observable market inputs, including a nonperformance risk adjustment. The estimated fair value of these embedded derivatives are included, along with their funding agreements host, within policyholder account balances withalso includes the establishment of a risk margin, as well as changes in estimated fair value recorded in net derivative gains (losses). Changes in equity and bond indices, interest rates andnonperformance risk.
Market Risk Benefits
See Note 5 for information on the Company’s credit standing may result in significant fluctuations in the estimated fair value of these embedded derivatives that could materially affect net income.valuation approaches and key inputs for MRBs.
Embedded Derivatives Within Asset and Liability Host Contracts
Level 3 Valuation Approaches and Key Inputs:
Direct and assumed guaranteed minimum benefits
These embedded derivatives are principally valued using the income approach. Valuations are based on option pricing techniques, which utilize significant inputs that may include swap yield curves, 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 curves 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 the income approach. The valuation techniques and significant market standard unobservable inputs used in their valuation are similar to those described above in “— 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 the income approach. The valuations are based on present value techniques, which utilize significant inputs that may include the swap yield curves 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.
Transfers between Levels
Overall, transfers between levels occur when there are changes in the observability of inputs and market activity. Transfers into or out of any level are assumed to occur at the beginning of the period.
Transfers between Levels 1 and 2:
For assets and liabilities measured at estimated fair value and still held at September 30, 2017 and December 31, 2016, there were no transfers between Levels 1 and 2.
Transfers into or out of Level 3:
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.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
7.11. Fair Value (continued)
Assets and Liabilities Measured at Fair Value Using Significant Unobservable Inputs (Level 3)
The following table presents certain quantitative information about the significant unobservable inputs used in the fair value measurement, and the sensitivity of the estimated fair value to changes in those inputs, for the more significant asset and liability classes measured at fair value on a recurring basis using significant unobservable inputs (Level 3) at:
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | September 30, 2017 | | December 31, 2016 | | Impact of
Increase in Input
on Estimated
Fair Value (2) |
| | Valuation
Techniques | | Significant Unobservable Inputs | | Range | | Weighted Average (1) | | Range | | Weighted Average (1) | |
| Fixed maturity securities (3) | | | | | | | | | | | | | | | | | |
| U.S. corporate and foreign corporate | • | Matrix pricing | | • | Offered quotes (4) | | 21 | - | 140 | | 108 | | 18 | - | 138 | | 106 | | Increase |
| | • | Market pricing |
| • | Quoted prices (4) |
| 25 | - | 498 |
| 121 |
| 25 | - | 700 |
| 117 |
| Increase |
| RMBS | • | Market pricing | | • | Quoted prices (4) | | 5 | - | 173 | | 94 | | 19 | - | 137 | | 91 | | Increase (5) |
| ABS | • | Market pricing | | • | Quoted prices (4) | | 28 | - | 104 | | 100 | | 20 | - | 106 | | 99 | | Increase (5) |
| | • | Consensus pricing | | • | Offered quotes (4) | | 99 | - | 100 | | 99 | | 98 | - | 100 | | 100 | | Increase (5) |
| Derivatives | | | | | | | | | | | | | | | | | | | |
| Interest rate | • | Present value techniques | | • | Swap yield (6) | | 200 | - | 300 | | | | 200 | - | 300 | | | | Increase (7) |
| | | | | • | Repurchase rates (8) | | — | - | 8 | | | | (44) | - | 18 | | | | Decrease (7) |
| Foreign currency exchange rate | • | Present value techniques | | • | Swap yield (6) | | (24) | - | (1) | | | | 50 | - | 236 | | | | Increase (7) |
| Credit | • | Present value techniques | | • | Credit spreads (9) | | 97 | - | 100 | | | | 97 | - | 98 | | | | Decrease (7) |
| | • | Consensus pricing | | • | Offered quotes (10) | | | | | | | | | | | | | | |
| Equity market | • | Present value techniques or option pricing models | | • | Volatility (11) | | 9% | - | 30% | | | | 14% | - | 32% | | | | Increase (7) |
| | | | | • | Correlation (12) | | 10% | - | 30% | | | | 40% | - | 40% | | | | |
| Embedded derivatives | | | | | | | | | | | | | | | | | |
Direct, assumed and ceded
guaranteed minimum
benefits | • | Option pricing
techniques | | • | Mortality rates: | | | | | | | | | | | | | | |
| | | | | | Ages 0 - 40 | | 0% | - | 0.09% | | | | 0% | - | 0.09% | | | | Decrease (13) |
| | | | | | Ages 41 - 60 | | 0.04% | - | 0.65% | | | | 0.04% | - | 0.65% | | | | Decrease (13) |
| | | | | | Ages 61 - 115 | | 0.26% | - | 100% | | | | 0.26% | - | 100% | | | | Decrease (13) |
| | | | | • | Lapse rates: | | | | | | | | | | | | | | |
| | | | | | Durations 1 - 10 | | 0.25% | - | 100% | | | | 0.25% | - | 100% | | | | Decrease (14) |
| | | | | | Durations 11 - 20 | | 3% | - | 100% | | | | 3% | - | 100% | | | | Decrease (14) |
| | | | | | Durations 21 - 116 | | 3% | - | 100% | | | | 3% | - | 100% | | | | Decrease (14) |
| | | | | • | Utilization rates | | 0% | - | 25% | | | | 0% | - | 25% | | | | Increase (15) |
| | | | | • | Withdrawal rates | | 0.25% | - | 10% | | | | 0.25% | - | 10% | | | | (16) |
| | | | | • | Long-term equity
volatilities | | 17.40% | - | 25% | | | | 17.40% | - | 25% | | | | Increase (17) |
| | | | | • | Nonperformance risk
spread | | 0.03% | - | 0.46% | | | | 0.04% | - | 0.57% | | | | Decrease (18) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | March 31, 2024 | | December 31, 2023 | | Impact of
Increase in Input
on Estimated
Fair Value (2) |
| Valuation Techniques | | Significant
Unobservable Inputs | | Range | | Weighted
Average (1) | | Range | | Weighted
Average (1) | |
| Fixed maturity securities AFS (3) | | | | | | | | | | | | | | | | | |
| U.S. corporate and foreign corporate | • | Matrix pricing | | • | Offered quotes (4) | | 50 | - | 128 | | 94 | | 4 | - | 131 | | 95 | | Increase |
| • | Market pricing | | • | Quoted prices (4) | | 2 | - | 112 | | 94 | | — | - | 110 | | 93 | | Increase |
| RMBS | • | Market pricing | | • | Quoted prices (4) | | — | - | 114 | | 95 | | — | - | 112 | | 93 | | Increase (5) |
| ABS & CLO | • | Market pricing | | • | Quoted prices (4) | | 78 | - | 100 | | 94 | | 78 | - | 101 | | 94 | | Increase (5) |
| Derivatives | | | | | | | | | | | | | | | | | | | |
| Interest rate | • | Present value techniques | | • | Swap yield (6) | | 400 | - | 432 | | 417 | | 367 | - | 399 | | 385 | | Increase (7) |
| | | | | | | | | | | | | | | | | | | |
| Credit | • | Consensus pricing | | • | Offered quotes (8) | | | | | | | | | | | | | | |
| Market Risk Benefits | | | | | | | | | | | | | | | | | |
| Direct and assumed guaranteed minimum benefits | • | Option pricing techniques | | • | Mortality rates: | | | | | | | | | | | | | | |
| | | | | Ages 0 - 40 | | 0.01% | - | 0.13% | | 0.05% | | 0.01% | - | 0.13% | | 0.05% | | (9) |
| | | | | Ages 41 - 60 | | 0.05% | - | 0.67% | | 0.22% | | 0.05% | - | 0.67% | | 0.22% | | (9) |
| | | | | Ages 61 - 115 | | 0.35% | - | 100% | | 1.23% | | 0.35% | - | 100% | | 1.23% | | (9) |
| | | | • | Lapse rates: | | | | | | | | | | | | | | |
| | | | | Durations 1 - 10 | | 0.80% | - | 20.10% | | 8.72% | | 0.80% | - | 20.10% | | 8.72% | | Decrease (10) |
| | | | | Durations 11 - 20 | | 3.10% | - | 10.10% | | 4.34% | | 3.10% | - | 10.10% | | 4.34% | | Decrease (10) |
| | | | | Durations 21 - 116 | | 0.10% | - | 10.10% | | 4.59% | | 0.10% | - | 10.10% | | 4.59% | | Decrease (10) |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | • | Utilization rates | | 0.20% | - | 22% | | 0.44% | | 0.20% | - | 22% | | 0.44% | | Increase (11) |
| | | | • | Withdrawal rates | | 0.25% | - | 7.75% | | 4.47% | | 0.25% | - | 7.75% | | 4.47% | | (12) |
| | | | • | Long-term equity volatilities | | 16.37% | - | 21.85% | | 18.55% | | 16.37% | - | 21.85% | | 18.55% | | Increase (13) |
| | | | • | Nonperformance risk spread | | 0.34% | - | 0.67% | | 0.73% | | 0.38% | - | 0.70% | | 0.73% | | Decrease (14) |
__________________
| |
(1) | The weighted average for fixed maturity securities is determined based on the estimated fair value of the securities. |
| |
(2) | The impact of a decrease in input would have the opposite impact on estimated fair value. For embedded derivatives, changes to direct and assumed guaranteed minimum benefits are based on liability positions; changes to ceded guaranteed minimum benefits are based on asset positions. |
| |
(3) | Significant increases (decreases) in expected default rates in isolation would result in substantially lower (higher) valuations. |
| |
(4) | Range and weighted average are presented in accordance with the market convention for fixed maturity securities of dollars per hundred dollars of par. |
(1)The weighted average for fixed maturity securities AFS and derivatives is determined based on the estimated fair value of the securities and derivatives. The weighted average for MRBs is determined based on a combination of account values and experience data.
(2)The impact of a decrease in input would have resulted in the opposite impact on estimated fair value. For MRBs, changes to direct and assumed guaranteed minimum benefits are based on liability positions.
(3)Significant increases (decreases) in expected default rates in isolation would have resulted in substantially lower (higher) valuations.
(4)Range and weighted average are presented in accordance with the market convention for fixed maturity securities AFS of dollars per hundred dollars of par.
(5)Changes in the assumptions used for the probability of default would have been accompanied by a directionally similar change in the assumption used for the loss severity and a directionally opposite change in the assumptions used for prepayment rates.
(6)Ranges represent the rates across different yield curves and are presented in basis points. The swap yield curves are utilized among different types of derivatives to project cash flows, as well as to discount future cash flows to present value. Since this valuation methodology uses a range of inputs across a yield curve to value the derivative, presenting a range is more representative of the unobservable input used in the valuation.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
7.11. Fair Value (continued)
(7)Changes in estimated fair value are based on long U.S. dollar net asset positions and will be inversely impacted for short U.S. dollar net asset positions.
| |
(5) | Changes in the assumptions used for the probability of default are accompanied by a directionally similar change in the assumption used for the loss severity and a directionally opposite change in the assumptions used for prepayment rates. |
| |
(6) | Ranges represent the rates across different yield curves and are presented in basis points. The swap yield curves are utilized among different types of derivatives to project cash flows, as well as to discount future cash flows to present value. Since this valuation methodology uses a range of inputs across a yield curve to value the derivative, presenting a range is more representative of the unobservable input used in the valuation. |
| |
(7) | Changes in estimated fair value are based on long U.S. dollar net asset positions and will be inversely impacted for short U.S. dollar net asset positions. |
| |
(8) | Ranges represent different repurchase rates utilized as components within the valuation methodology and are presented in basis points. |
| |
(9) | Represents the risk quoted in basis points of a credit default event on the underlying instrument. Credit derivatives with significant unobservable inputs are primarily comprised of written credit default swaps. |
| |
(10) | At both September 30, 2017 and December 31, 2016,(8)At both March 31, 2024 and December 31, 2023, independent non-binding broker quotations were used in the determination of less than 1% of the total net derivative estimated fair value. |
| |
(11) | Ranges represent the underlying equity volatility quoted in percentage points. Since this valuation methodology uses a range of inputs across multiple volatility surfaces to value the derivative, presenting a range is more representative of the unobservable input used in the valuation. |
| |
(12) | Ranges represent the different correlation factors utilized as components within the valuation methodology. Presenting a range of correlation factors is more representative of the unobservable input used in the valuation. Increases (decreases) in correlation in isolation will increase (decrease) the significance of the change in valuations. |
| |
(13) | Mortality rates vary by age and by demographic characteristics such as gender. Mortality rate assumptions are based on company experience. A mortality improvement assumption is also applied. For any given contract, mortality rates vary throughout the period over which cash flows are projected for purposes of valuing the embedded derivative. |
| |
(14) | Base lapse rates are adjusted at the contract level based on a comparison of the actuarially calculated guaranteed values and the current policyholder account value, as well as other factors, such as the applicability of any surrender charges. A dynamic lapse function reduces the base lapse rate when the guaranteed amount is greater than the account value as in the money contracts are less likely to lapse. Lapse rates are also generally assumed to be lower in periods when a surrender charge applies. For any given contract, lapse rates vary throughout the period over which cash flows are projected for purposes of valuing the embedded derivative. |
| |
(15) | The utilization rate assumption estimates the percentage of contractholders with a GMIB or lifetime withdrawal benefit who will elect to utilize the benefit upon becoming eligible. The rates may vary by the type of guarantee, the amount by which the guaranteed amount is greater than the account value, the contract’s withdrawal history and by the age of the policyholder. For any given contract, utilization rates vary throughout the period over which cash flows are projected for purposes of valuing the embedded derivative. |
| |
(16) | The withdrawal rate represents the percentage of account balance that any given policyholder will elect to withdraw from the contract each year. The withdrawal rate assumption varies by age and duration of the contract, and also by other factors such as benefit type. For any given contract, withdrawal rates vary throughout the period over which cash flows are projected for purposes of valuing the embedded derivative. For GMWBs, any increase (decrease) in withdrawal rates results in an increase (decrease) in the estimated fair value of the guarantees. For GMABs and GMIBs, any increase (decrease) in withdrawal rates results in a decrease (increase) in the estimated fair value. |
| |
(17) | Long-term equity volatilities represent equity volatility beyond the period for which observable equity volatilities are available. For any given contract, long-term equity volatility rates vary throughout the period over which cash flows are projected for purposes of valuing the embedded derivative. |
| |
(18) | Nonperformance risk spread varies by duration and by currency. For any given contract, multiple nonperformance risk spreads will apply, depending on the duration of the cash flow being discounted for purposes of valuing the embedded derivative. |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
7. Fair Value (continued)
The following is a summary of the valuation techniques and significant unobservable inputs used in the determination of less than 1% of the total net derivative estimated fair value.
(9)Mortality rates vary by age and by demographic characteristics such as gender. Mortality rate assumptions are based on company experience. A mortality improvement assumption is also applied. For any given contract, mortality rates vary throughout the period over which cash flows are projected for purposes of valuing the MRBs. For contracts that contain only a GMDB, any increase (decrease) in mortality rates result in an increase (decrease) in the estimated fair value measurement of assetsMRBs. Generally, for contracts that contain both a GMDB and liabilities classified within Level 3 that are not includeda living benefit (e.g., GMIB, GMWB, GMAB), any increase (decrease) in mortality rates result in a decrease (increase) in the preceding table. Generally, allestimated fair value of MRBs.
(10)Base lapse rates are adjusted at the contract level based on a comparison of the actuarially calculated guaranteed values and the current policyholder account value, as well as other factors, such as the applicability of any surrender charges. A dynamic lapse function reduces the base lapse rate when the guaranteed amount is greater than the account value as in the money contracts are less likely to lapse. Lapse rates are also generally assumed to be lower in periods when a surrender charge applies. For any given contract, lapse rates vary throughout the period over which cash flows are projected for purposes of valuing the MRBs.
(11)The utilization rate assumption estimates the percentage of contractholders with GMIBs or a lifetime withdrawal benefit who will elect to utilize the benefit upon becoming eligible. The rates may vary by the type of guarantee, the amount by which the guaranteed amount is greater than the account value, the contract’s withdrawal history and by the age of the policyholder. For any given contract, utilization rates vary throughout the period over which cash flows are projected for purposes of valuing the MRBs.
(12)The withdrawal rate represents the percentage of account balance that any given policyholder will elect to withdraw from the contract each year. The withdrawal rate assumption varies by age and duration of the contract, and also by other factors such as benefit type. For any given contract, withdrawal rates vary throughout the period over which cash flows are projected for purposes of valuing the MRBs. For GMWBs, any increase (decrease) in withdrawal rates results in an increase (decrease) in the estimated fair value of the guarantees. For GMABs and GMIBs, any increase (decrease) in withdrawal rates results in a decrease (increase) in the estimated fair value.
(13)Long-term equity volatilities represent equity volatility beyond the period for which observable equity volatilities are available. For any given contract, long-term equity volatility rates vary throughout the period over which cash flows are projected for purposes of valuing the MRBs.
(14)Nonperformance risk spread varies by duration and by currency. For any given contract, multiple nonperformance risk spreads will apply, depending on the duration of the cash flow being discounted for purposes of valuing the MRBs.
All other classes of securities classified within Level 3, including those within separateOther investments, Separate account assets, and embeddedEmbedded derivatives within funds withheld related to certain ceded reinsurance, use the same valuation techniques and significant unobservable inputs as previously described for Level 3 securities. This includes matrix pricingGenerally, all other classes of assets and discounted cash flow methodologies, inputs such as quoted prices for identical or similar securitiesliabilities classified within Level 3 that are less liquidnot included above use the same valuation techniques and based on lower levels of trading activity than securities classified insignificant unobservable inputs as previously described for Level 2, as well as independent non-binding broker quotations. The residential mortgage loans — FVO and long-term debt are valued using independent non-binding broker quotations and internal models including matrix pricing and discounted cash flow methodologies using current interest rates.3. The sensitivity of the estimated fair value to changes in the significant unobservable inputs for these other assets and liabilities is similar in nature to that described in the preceding table.
The following tables summarizevaluation techniques and significant unobservable inputs used in the change of allfair value measurement for the more significant assets and (liabilities) measured at estimated fair value on a recurringnonrecurring basis and determined using significant unobservable inputs (Level 3): are summarized in “— Nonrecurring Fair Value Measurements.”
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Fair Value Measurements Using Significant Unobservable Inputs (Level 3) |
| | | Fixed Maturity Securities | | |
| | | Corporate (1) | | U.S. Government and Agency | | Structured Securities | | State and
Political
Subdivision | | Foreign
Government | | Equity Securities |
| | | (In millions) |
| Three Months Ended September 30, 2017 | | | | | | | | | | | | |
| Balance, beginning of period | | $ | 8,458 |
| | $ | — |
| | $ | 4,133 |
| | $ | — |
| | $ | 14 |
| | $ | 416 |
|
Total realized/unrealized gains (losses)
included in net income (loss) (2), (3) | | (4 | ) | | — |
| | 21 |
| | — |
| | — |
| | — |
|
Total realized/unrealized gains (losses)
included in AOCI | | 121 |
| | — |
| | 17 |
| | — |
| | — |
| | (3 | ) |
| Purchases (4) | | 420 |
| | — |
| | 220 |
| | — |
| | — |
| | 4 |
|
| Sales (4) | | (255 | ) | | — |
| | (303 | ) | | — |
| | — |
| | (52 | ) |
| Issuances (4) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Settlements (4) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Transfers into Level 3 (5) | | 117 |
| | — |
| | — |
| | 1 |
| | — |
| | — |
|
| Transfers out of Level 3 (5) | | (110 | ) | | — |
| | (270 | ) | | — |
| | — |
| | — |
|
| Balance, end of period | | $ | 8,747 |
| | $ | — |
| | $ | 3,818 |
| | $ | 1 |
| | $ | 14 |
| | $ | 365 |
|
| Three Months Ended September 30, 2016 | | | | | | | | | | | | |
| Balance, beginning of period | | $ | 8,904 |
| | $ | 175 |
| | $ | 4,415 |
| | $ | 28 |
| | $ | 65 |
| | $ | 456 |
|
Total realized/unrealized gains (losses)
included in net income (loss) (2), (3) | | 9 |
| | — |
| | 25 |
| | — |
| | — |
| | 4 |
|
Total realized/unrealized gains (losses)
included in AOCI | | 66 |
| | — |
| | 23 |
| | 3 |
| | — |
| | (12 | ) |
| Purchases (4) | | 431 |
| | 98 |
| | 702 |
| | — |
| | 17 |
| | 4 |
|
| Sales (4) | | (407 | ) | | — |
| | (294 | ) | | — |
| | (1 | ) | | (11 | ) |
| Issuances (4) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Settlements (4) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Transfers into Level 3 (5) | | 331 |
| | — |
| | 36 |
| | 7 |
| | — |
| | 1 |
|
| Transfers out of Level 3 (5) | | (139 | ) | | (2 | ) | | (159 | ) | | — |
| | (10 | ) | | (5 | ) |
| Balance, end of period | | $ | 9,195 |
| | $ | 271 |
| | $ | 4,748 |
| | $ | 38 |
| | $ | 71 |
| | $ | 437 |
|
Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at September 30, 2017 (6) | | $ | (3 | ) | | $ | — |
| | $ | 21 |
| | $ | — |
| | $ | — |
| | $ | (2 | ) |
Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at September 30, 2016 (6) | | $ | 1 |
| | $ | — |
| | $ | 26 |
| | $ | — |
| | $ | — |
| | $ | — |
|
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
7.11. Fair Value (continued)
The following tables summarize the change of assets (liabilities) measured at estimated fair value on a recurring basis using significant unobservable inputs (Level 3), excluding MRBs (see Note 5):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Fair Value Measurements Using Significant Unobservable Inputs (Level 3) |
| | | Fixed Maturity Securities AFS | | | | |
| | | Corporate (6) | | | | Structured
Products | | | | Foreign
Government | | | | Short-term
Investments |
| | | (In millions) |
| Three Months Ended March 31, 2024 | | | | | | | | | | | | | | |
| Balance, beginning of period | | $ | 17,115 | | | | | $ | 3,196 | | | | | $ | 14 | | | | | $ | 15 | |
| Total realized/unrealized gains (losses) included in net income (loss) (1), (2) | | (15) | | | | | 4 | | | | | 2 | | | | | — | |
Total realized/unrealized gains (losses) included in AOCI | | (169) | | | | | 39 | | | | | (1) | | | | | — | |
| Purchases (3) | | 711 | | | | | 494 | | | | | — | | | | | 2 | |
| Sales (3) | | (380) | | | | | (153) | | | | | — | | | | | (1) | |
| Issuances (3) | | — | | | | | — | | | | | — | | | | | — | |
| Settlements (3) | | — | | | | | — | | | | | — | | | | | — | |
| Transfers into Level 3 (4) | | 81 | | | | | 51 | | | | | — | | | | | — | |
| Transfers out of Level 3 (4) | | (189) | | | | | (88) | | | | | — | | | | | (5) | |
| Balance, end of period | | $ | 17,154 | | | | | $ | 3,543 | | | | | $ | 15 | | | | | $ | 11 | |
| Three Months Ended March 31, 2023 | | | | | | | | | | | | | | |
| Balance, beginning of period | | $ | 14,733 | | | | | $ | 3,373 | | | | | $ | 15 | | | | | $ | 47 | |
| Total realized/unrealized gains (losses) included in net income (loss) (1), (2) | | 2 | | | | | (5) | | | | | — | | | | | — | |
Total realized/unrealized gains (losses) included in AOCI | | 376 | | | | | 20 | | | | | (1) | | | | | 1 | |
| Purchases (3) | | 1,355 | | | | | 189 | | | | | 2 | | | | | 52 | |
| Sales (3) | | (463) | | | | | (100) | | | | | (1) | | | | | (43) | |
| Issuances (3) | | — | | | | | — | | | | | — | | | | | — | |
| Settlements (3) | | — | | | | | — | | | | | — | | | | | — | |
| Transfers into Level 3 (4) | | 161 | | | | | 70 | | | | | — | | | | | — | |
| Transfers out of Level 3 (4) | | (447) | | | | | (46) | | | | | — | | | | | — | |
| Balance, end of period | | $ | 15,717 | | | | | $ | 3,501 | | | | | $ | 15 | | | | | $ | 57 | |
Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at March 31, 2024 (5) | | $ | 3 | | | | | $ | 4 | | | | | $ | 2 | | | | | $ | — | |
Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at March 31, 2023 (5) | | $ | 1 | | | | | $ | (1) | | | | | $ | — | | | | | $ | — | |
Changes in unrealized gains (losses) included in AOCI for the instruments still held at March 31, 2024 (5) | | $ | (179) | | | | | $ | 37 | | | | | $ | (1) | | | | | $ | — | |
Changes in unrealized gains (losses) included in AOCI for the instruments still held at March 31, 2023 (5) | | $ | 374 | | | | | $ | 17 | | | | | $ | (1) | | | | | $ | — | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Fair Value Measurements Using Significant Unobservable Inputs (Level 3) |
| | | Short-term Investments | | Residential Mortgage
Loans - FVO | | Net Derivatives (7) | | Net Embedded Derivatives (8) | | Separate Accounts (9) | | Long-term Debt |
| | | (In millions) |
| Three Months Ended September 30, 2017 | | | | | | | | | | | | |
| Balance, beginning of period | | $ | 821 |
| | $ | 615 |
| | $ | (277 | ) | | $ | (1,008 | ) | | $ | 975 |
| | $ | (19 | ) |
Total realized/unrealized gains (losses)
included in net income (loss) (2), (3) | | — |
| | 32 |
| | (5 | ) | | 131 |
| | 6 |
| | — |
|
Total realized/unrealized gains (losses)
included in AOCI | | — |
| | — |
| | 1 |
| | — |
| | — |
| | — |
|
| Purchases (4) | | — |
| | 10 |
| | — |
| | — |
| | 136 |
| | — |
|
| Sales (4) | | (247 | ) | | (72 | ) | | — |
| | — |
| | (35 | ) | | — |
|
| Issuances (4) | | — |
| | — |
| | — |
| | — |
| | 1 |
| | — |
|
| Settlements (4) | | — |
| | (21 | ) | | (16 | ) | | (54 | ) | | (1 | ) | | 19 |
|
| Transfers into Level 3 (5) | | 2 |
| | — |
| | — |
| | — |
| | 56 |
| | — |
|
| Transfers out of Level 3 (5) | | (174 | ) | | — |
| | — |
| | — |
| | (101 | ) | | — |
|
| Balance, end of period | | $ | 402 |
| | $ | 564 |
| | $ | (297 | ) | | $ | (931 | ) | | $ | 1,037 |
| | $ | — |
|
| Three Months Ended September 30, 2016 | | | | | | | | | | | | |
| Balance, beginning of period | | $ | — |
| | $ | 449 |
| | $ | 102 |
| | $ | (1,508 | ) | | $ | 1,485 |
| | $ | (44 | ) |
Total realized/unrealized gains (losses)
included in net income (loss) (2), (3) | | — |
| | 10 |
| | (44 | ) | | 119 |
| | (25 | ) | | — |
|
Total realized/unrealized gains (losses)
included in AOCI | | — |
| | — |
| | (8 | ) | | — |
| | — |
| | — |
|
| Purchases (4) | | 187 |
| | 42 |
| | — |
| | — |
| | 4 |
| | — |
|
| Sales (4) | | (1 | ) | | (5 | ) | | — |
| | — |
| | (25 | ) | | — |
|
| Issuances (4) | | — |
| | — |
| | (1 | ) | | — |
| | 30 |
| | — |
|
| Settlements (4) | | — |
| | (15 | ) | | (10 | ) | | (57 | ) | | (45 | ) | | 2 |
|
| Transfers into Level 3 (5) | | — |
| | — |
| | — |
| | — |
| | 8 |
| | — |
|
| Transfers out of Level 3 (5) | | — |
| | — |
| | — |
| | — |
| | (178 | ) | | — |
|
| Balance, end of period | | $ | 186 |
| | $ | 481 |
| | $ | 39 |
| | $ | (1,446 | ) | | $ | 1,254 |
| | $ | (42 | ) |
Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at September 30, 2017 (6) | | $ | — |
| | $ | 32 |
| | $ | (9 | ) | | $ | 59 |
| | $ | — |
| | $ | — |
|
Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at September 30, 2016 (6) | | $ | — |
| | $ | 10 |
| | $ | (33 | ) | | $ | 119 |
| | $ | — |
| | $ | — |
|
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
7.11. Fair Value (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | | |
| | | Other Investments | | Net
Derivatives (7) | | Net Embedded
Derivatives (8) | | Separate Accounts (9) | | |
| | | (In millions) |
| Three Months Ended March 31, 2024 | | | | | | | | | | |
| Balance, beginning of period | | $ | 1,317 | | | $ | (160) | | | $ | 52 | | | $ | 968 | | | |
| Total realized/unrealized gains (losses) included in net income (loss) (1), (2) | | 84 | | | (1) | | | 234 | | | (14) | | | |
Total realized/unrealized gains (losses) included in AOCI | | — | | | (28) | | | — | | | — | | | |
| Purchases (3) | | 5 | | | — | | | — | | | 39 | | | |
| Sales (3) | | (3) | | | — | | | — | | | (9) | | | |
| Issuances (3) | | — | | | (2) | | | — | | | — | | | |
| Settlements (3) | | — | | | 70 | | | (1) | | | — | | | |
| Transfers into Level 3 (4) | | — | | | — | | | — | | | 3 | | | |
| Transfers out of Level 3 (4) | | — | | | — | | | — | | | (7) | | | |
| Balance, end of period | | $ | 1,403 | | | $ | (121) | | | $ | 285 | | | $ | 980 | | | |
| Three Months Ended March 31, 2023 | | | | | | | | | | |
| Balance, beginning of period | | $ | 1,022 | | | $ | (331) | | | $ | 458 | | | $ | 995 | | | |
| Total realized/unrealized gains (losses) included in net income (loss) (1), (2) | | 28 | | | — | | | (280) | | | (9) | | | |
Total realized/unrealized gains (losses) included in AOCI | | — | | | 66 | | | — | | | — | | | |
| Purchases (3) | | 2 | | | — | | | — | | | 101 | | | |
| Sales (3) | | — | | | — | | | — | | | (93) | | | |
| Issuances (3) | | — | | | — | | | — | | | — | | | |
| Settlements (3) | | — | | | 55 | | | (10) | | | 1 | | | |
| Transfers into Level 3 (4) | | — | | | — | | | — | | | 5 | | | |
| Transfers out of Level 3 (4) | | — | | | (61) | | | — | | | — | | | |
| Balance, end of period | | $ | 1,052 | | | $ | (271) | | | $ | 168 | | | $ | 1,000 | | | |
Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at March 31, 2024 (5) | | $ | 86 | | | $ | — | | | $ | 234 | | | $ | — | | | |
Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at March 31, 2023 (5) | | $ | 29 | | | $ | 1 | | | $ | (280) | | | $ | — | | | |
Changes in unrealized gains (losses) included in AOCI for the instruments still held at March 31, 2024 (5) | | $ | — | | | $ | (20) | | | $ | — | | | $ | — | | | |
Changes in unrealized gains (losses) included in AOCI for the instruments still held at March 31, 2023 (5) | | $ | — | | | $ | 62 | | | $ | — | | | $ | — | | | |
__________________
(1)Amortization of premium/accretion of discount is included within net investment income. Impairments and changes in ACL charged to net income (loss) on certain securities are included in net investment gains (losses). Lapses associated with net embedded derivatives are included in net derivative gains (losses). Substantially all realized/unrealized gains (losses) included in net income (loss) for net derivatives and net embedded derivatives are reported in net derivative gains (losses).
(2)Interest and dividend accruals, as well as cash interest coupons and dividends received, are excluded from the rollforward.
(3)Items purchased/issued and then sold/settled in the same period are excluded from the rollforward. Fees attributed to embedded derivatives are included in settlements.
(4)Items transferred into and then out of Level 3 in the same period are excluded from the rollforward.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Fair Value Measurements Using Significant Unobservable Inputs (Level 3) |
| | | Fixed Maturity Securities | | |
| | | Corporate (1) | | U.S. Government and Agency | | Structured Securities | | State and
Political
Subdivision | | Foreign
Government | | Equity Securities |
| | | (In millions) |
| Nine Months Ended September 30, 2017 | | | | | | | | | | | | |
| Balance, beginning of period | | $ | 8,839 |
| | $ | — |
| | $ | 4,541 |
| | $ | 10 |
| �� | $ | 21 |
| | $ | 420 |
|
Total realized/unrealized gains (losses)
included in net income (loss) (2), (3) | | 5 |
| | — |
| | 76 |
| | — |
| | — |
| | (14 | ) |
Total realized/unrealized gains (losses)
included in AOCI | | 394 |
| | — |
| | 94 |
| | — |
| | — |
| | 27 |
|
| Purchases (4) | | 1,853 |
| | — |
| | 465 |
| | — |
| | — |
| | 10 |
|
| Sales (4) | | (1,229 | ) | | — |
| | (1,038 | ) | | — |
| | (1 | ) | | (74 | ) |
| Issuances (4) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Settlements (4) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Transfers into Level 3 (5) | | 58 |
| | — |
| | 10 |
| | 1 |
| | — |
| | — |
|
| Transfers out of Level 3 (5) | | (1,173 | ) | | — |
| | (330 | ) | | (10 | ) | | (6 | ) | | (4 | ) |
| Balance, end of period | | $ | 8,747 |
| | $ | — |
| | $ | 3,818 |
| | $ | 1 |
| | $ | 14 |
| | $ | 365 |
|
| Nine Months Ended September 30, 2016 | | | | | | | | | | | | |
| Balance, beginning of period | | $ | 8,282 |
| | $ | — |
| | $ | 4,416 |
| | $ | 33 |
| | $ | 275 |
| | $ | 328 |
|
Total realized/unrealized gains (losses)
included in net income (loss) (2), (3) | | 1 |
| | — |
| | 73 |
| | 1 |
| | — |
| | (21 | ) |
Total realized/unrealized gains (losses)
included in AOCI | | 633 |
| | 13 |
| | (19 | ) | | 2 |
| | (1 | ) | | 38 |
|
| Purchases (4) | | 1,155 |
| | 98 |
| | 1,726 |
| | — |
| | 18 |
| | 20 |
|
| Sales (4) | | (717 | ) | | — |
| | (966 | ) | | — |
| | (1 | ) | | (15 | ) |
| Issuances (4) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Settlements (4) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Transfers into Level 3 (5) | | 589 |
| | 160 |
| | 4 |
| | 7 |
| | — |
| | 282 |
|
| Transfers out of Level 3 (5) | | (748 | ) | | — |
| | (486 | ) | | (5 | ) | | (220 | ) | | (195 | ) |
| Balance, end of period | | $ | 9,195 |
| | $ | 271 |
| | $ | 4,748 |
| | $ | 38 |
| | $ | 71 |
| | $ | 437 |
|
Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at September 30, 2017 (6) | | $ | (1 | ) | | $ | — |
| | $ | 66 |
| | $ | — |
| | $ | — |
| | $ | (12 | ) |
Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at September 30, 2016 (6) | | $ | 3 |
| | $ | — |
| | $ | 76 |
| | $ | 1 |
| | $ | — |
| | $ | (26 | ) |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
7.11. Fair Value (continued)
(5)Changes in unrealized gains (losses) included in net income (loss) and included in AOCI relate to assets and liabilities still held at the end of the respective periods. Substantially all changes in unrealized gains (losses) included in net income (loss) for net derivatives and net embedded derivatives are reported in net derivative gains (losses).
(6)Comprised of U.S. and foreign corporate securities.
(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 (loss). For the purpose of this disclosure, these changes are presented within net income (loss). Separate account assets and liabilities are presented net for the purposes of the rollforward.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value Measurements Using Significant Unobservable Inputs (Level 3) |
| | Short-term Investments | | Residential Mortgage
Loans - FVO | | Net Derivatives (7) | | Net Embedded Derivatives (8) | | Separate Accounts (9) | | Long-term Debt |
| | (In millions) |
| Nine Months Ended September 30, 2017 | | | | | | | | | | | |
| Balance, beginning of period | $ | 25 |
| | $ | 566 |
| | $ | (559 | ) | | $ | (893 | ) | | $ | 1,141 |
| | $ | (74 | ) |
Total realized/unrealized gains (losses)
included in net income (loss) (2), (3) | — |
| | 38 |
| | 7 |
| | 343 |
| | (22 | ) | | — |
|
Total realized/unrealized gains (losses)
included in AOCI | — |
| | — |
| | 136 |
| | — |
| | — |
| | — |
|
| Purchases (4) | 400 |
| | 184 |
| | — |
| | — |
| | 269 |
| | — |
|
| Sales (4) | — |
| | (155 | ) | | — |
| | — |
| | (78 | ) | | — |
|
| Issuances (4) | — |
| | — |
| | — |
| | — |
| | 1 |
| | — |
|
| Settlements (4) | — |
| | (69 | ) | | 119 |
| | (381 | ) | | (62 | ) | | 34 |
|
| Transfers into Level 3 (5) | 2 |
| | — |
| | — |
| | — |
| | 21 |
| | — |
|
| Transfers out of Level 3 (5) | (25 | ) | | — |
| | — |
| | — |
| | (233 | ) | | 40 |
|
| Balance, end of period | $ | 402 |
| | $ | 564 |
| | $ | (297 | ) | | $ | (931 | ) | | $ | 1,037 |
| | $ | — |
|
| Nine Months Ended September 30, 2016 | | | | | | | | | | | |
| Balance, beginning of period | $ | 200 |
| | $ | 314 |
| | $ | (23 | ) | | $ | 186 |
| | $ | 1,520 |
| | $ | (36 | ) |
Total realized/unrealized gains (losses)
included in net income (loss) (2), (3) | — |
| | 22 |
| | 63 |
| | (1,476 | ) | | 7 |
| | — |
|
Total realized/unrealized gains (losses)
included in AOCI | — |
| | — |
| | 27 |
| | — |
| | — |
| | — |
|
| Purchases (4) | 187 |
| | 187 |
| | 6 |
| | — |
| | 107 |
| | — |
|
| Sales (4) | (199 | ) | | (12 | ) | | — |
| | — |
| | (64 | ) | | — |
|
| Issuances (4) | — |
| | — |
| | (1 | ) | | — |
| | 28 |
| | (11 | ) |
| Settlements (4) | — |
| | (30 | ) | | (33 | ) | | (156 | ) | | (57 | ) | | 5 |
|
| Transfers into Level 3 (5) | — |
| | — |
| | — |
| | — |
| | 9 |
| | — |
|
| Transfers out of Level 3 (5) | (2 | ) | | — |
| | — |
| | — |
| | (296 | ) | | — |
|
| Balance, end of period | $ | 186 |
| | $ | 481 |
| | $ | 39 |
| | $ | (1,446 | ) | | $ | 1,254 |
| | $ | (42 | ) |
Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at September 30, 2017 (6) | $ | — |
| | $ | 38 |
| | $ | (19 | ) | | $ | 343 |
| | $ | — |
| | $ | — |
|
Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at September 30, 2016 (6) | $ | — |
| | $ | 22 |
| | $ | 66 |
| | $ | (1,470 | ) | | $ | — |
| | $ | — |
|
__________________
| |
(1) | Comprised of U.S. and foreign corporate securities. |
| |
(2) | Amortization of premium/accretion of discount is included within net investment income. Impairments charged to net income (loss) on securities are included in net investment gains (losses), while changes in estimated fair value of residential mortgage loans — FVO are included in net investment income. Lapses associated with net embedded derivatives are included in net derivative gains (losses). Substantially all realized/unrealized gains (losses) included in net income (loss) for net derivatives and net embedded derivatives are reported in net derivatives gains (losses). |
| |
(3) | Interest and dividend accruals, as well as cash interest coupons and dividends received, are excluded from the rollforward. |
| |
(4) | Items purchased/issued and then sold/settled in the same period are excluded from the rollforward. Fees attributed to embedded derivatives are included in settlements. |
| |
(5) | Gains and losses, in net income (loss) and OCI, are calculated assuming transfers into and/or out of Level 3 occurred at the beginning of the period. Items transferred into and then out of Level 3 in the same period are excluded from the rollforward. |
| |
(6) | Changes in unrealized gains (losses) included in net income (loss) relate to assets and liabilities still held at the end of the respective periods. Substantially all changes in unrealized gains (losses) included in net income (loss) for net derivatives and net embedded derivatives are reported in net derivative gains (losses). |
| |
(7) | Freestanding derivative assets and liabilities are presented net for purposes of the rollforward. |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
7.Nonrecurring Fair Value (continued)
Measurements
| |
(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 (loss). For the purpose of this disclosure, these changes are presented within net investment gains (losses). Separate account assets and liabilities are presented net for the purposes of the rollforward. |
Fair Value Option
The Company elects the FVO for certain residential mortgage loans that are managed on a total return basis. The following table presents information for residentialassets measured at estimated fair value on a nonrecurring basis during the periods and still held at the reporting dates (for example, when there is evidence of impairment), using significant unobservable inputs (Level 3).
| | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
| (in millions) |
| Carrying value after measurement |
| Mortgage loans (1) | $ | 624 | | | $ | 295 | |
| | | | | | | | | | | | | | | | | | |
| | | | Three Months
Ended
March 31, |
| | | | | | 2024 | | 2023 |
| | | | | | (in millions) |
| Realized gains (losses) net: |
| Mortgage loans (1) | | | | | | $ | (37) | | | $ | (66) | |
__________________
(1)Estimated fair values of impaired mortgage loans which are accounted for underbased on the FVO, and were initially measured at fair value.underlying collateral or discounted cash flows. See Note 9.
|
| | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| | (In millions) |
| Unpaid principal balance | $ | 711 |
| | $ | 794 |
|
| Difference between estimated fair value and unpaid principal balance | (147 | ) | | (228 | ) |
| Carrying value at estimated fair value | $ | 564 |
| | $ | 566 |
|
| Loans in nonaccrual status | $ | 213 |
| | $ | 214 |
|
| Loans more than 90 days past due | $ | 106 |
| | $ | 137 |
|
| Loans in nonaccrual status or more than 90 days past due, or both - difference between aggregate estimated fair value and unpaid principal balance | $ | (121 | ) | | $ | (150 | ) |
The following table presents information for long-term debt, which is accounted for under the FVO, and was initially measured at fair value.
|
| | | | | | | | |
| | | September 30, 2017 | | December 31, 2016 |
| | | (In millions) |
| Contractual principal balance | | $ | — |
| | $ | 71 |
|
Difference between estimated fair value and contractual principal balance | | — |
| | 3 |
|
| Carrying value at estimated fair value (1) | | $ | — |
| | $ | 74 |
|
__________________
| |
(1) | Changes in estimated fair value are recognized in net investment gains (losses). Interest expense is recognized in other expenses. |
Fair Value of Financial Instruments Carried at Other Than Fair Value
The following tables provide fair value information for financial instruments that are carried on the balance sheet at amounts other than fair value. These tables exclude the following financial instruments: cash and cash equivalents, accrued investment income, payables for collateral under securities loaned and other transactions, short-term debt and those short-term investments that are not securities, such as time deposits, and therefore are not included in the three levelthree-level hierarchy table disclosed in the “— Recurring Fair Value Measurements” section. The estimated fair valueCompany believes that due to the short-term nature of thethese excluded financial instruments,assets, which are primarily classified in Level 2, the estimated fair value approximates carrying value as they are short-term in nature such that the Company believes there is minimal risk of material changes in interest rates or credit quality.value. All remaining balance sheet amounts excluded from the tables below are not considered financial instruments subject to this disclosure.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
7.11. Fair Value (continued)
The carrying values and estimated fair values for such financial instruments, and their corresponding placement in the fair value hierarchy, are summarized as follows at:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2024 |
| | | | Fair Value Hierarchy | | |
| | Carrying
Value | | Level 1 | | Level 2 | | Level 3 | | Total
Estimated
Fair Value |
| | (In millions) |
| Assets | | | | | | | | | | |
| Mortgage loans (1) | | $ | 61,855 | | | $ | — | | | $ | — | | | $ | 58,387 | | | $ | 58,387 | |
| Policy loans | | $ | 5,738 | | | $ | — | | | $ | — | | | $ | 6,058 | | | $ | 6,058 | |
| | | | | | | | | | |
| | | | | | | | | | |
| Other invested assets | | $ | 1,978 | | | $ | — | | | $ | 1,717 | | | $ | 278 | | | $ | 1,995 | |
| Premiums, reinsurance and other receivables | | $ | 13,991 | | | $ | — | | | $ | 303 | | | $ | 13,902 | | | $ | 14,205 | |
| Liabilities | | | | | | | | | | |
| PABs | | $ | 87,038 | | | $ | — | | | $ | — | | | $ | 84,884 | | | $ | 84,884 | |
| Long-term debt | | $ | 1,736 | | | $ | — | | | $ | 1,803 | | | $ | — | | | $ | 1,803 | |
| Other liabilities | | $ | 11,703 | | | $ | — | | | $ | 495 | | | $ | 11,191 | | | $ | 11,686 | |
| Separate account liabilities | | $ | 27,850 | | | $ | — | | | $ | 27,850 | | | $ | — | | | $ | 27,850 | |
| | | December 31, 2023 | | | | December 31, 2023 |
| | | | Fair Value Hierarchy | |
| | Carrying
Value | |
| | Carrying
Value | |
| | Carrying
Value | | | Level 1 | | Level 2 | | Level 3 | | Total
Estimated
Fair Value |
| | (In millions) | | | | (In millions) |
| Assets | |
| Mortgage loans (1) | |
| Mortgage loans (1) | |
| Mortgage loans (1) | |
| Policy loans | |
| | | Other invested assets | |
| | September 30, 2017 |
| Other invested assets | |
| | | | Fair Value Hierarchy | | |
| | Carrying
Value | | Level 1 | | Level 2 | | Level 3 | | Total
Estimated
Fair Value |
| | (In millions) |
| Assets | | | | | | | | | |
| Mortgage loans | $ | 57,490 |
| | $ | — |
| | $ | — |
| | $ | 59,149 |
| | $ | 59,149 |
|
| Policy loans | $ | 5,985 |
| | $ | — |
| | $ | 259 |
| | $ | 6,769 |
| | $ | 7,028 |
|
| Real estate joint ventures | $ | 2 |
| | $ | — |
| | $ | — |
| | $ | 11 |
| | $ | 11 |
|
| Other limited partnership interests | $ | 234 |
| | $ | — |
| | $ | — |
| | $ | 239 |
| | $ | 239 |
|
| Other invested assets | $ | 2,260 |
| | $ | — |
| | $ | 2,051 |
| | $ | 159 |
| | $ | 2,210 |
|
Premiums, reinsurance and other receivables | $ | 15,036 |
| | $ | — |
| | $ | 643 |
| | $ | 14,895 |
| | $ | 15,538 |
|
| Liabilities | | | | | | | | | |
| Policyholder account balances | $ | 75,498 |
| | $ | — |
| | $ | — |
| | $ | 76,953 |
| | $ | 76,953 |
|
| PABs | |
| PABs | |
| PABs | |
| Long-term debt | $ | 1,673 |
| | $ | — |
| | $ | 2,037 |
| | $ | — |
| | $ | 2,037 |
|
| Other liabilities | $ | 15,520 |
| | $ | — |
| | $ | 2,070 |
| | $ | 13,553 |
| | $ | 15,623 |
|
| Separate account liabilities | $ | 63,481 |
| | $ | — |
| | $ | 63,481 |
| | $ | — |
| | $ | 63,481 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | December 31, 2016 |
| | | | Fair Value Hierarchy | | |
| | Carrying
Value | | Level 1 | | Level 2 | | Level 3 | | Total
Estimated
Fair Value |
| | (In millions) |
| Assets | | | | | | | | | |
| Mortgage loans | $ | 55,994 |
| | $ | — |
| | $ | — |
| | $ | 57,171 |
| | $ | 57,171 |
|
| Policy loans | $ | 5,945 |
| | $ | — |
| | $ | 258 |
| | $ | 6,695 |
| | $ | 6,953 |
|
| Real estate joint ventures | $ | 4 |
| | $ | — |
| | $ | — |
| | $ | 26 |
| | $ | 26 |
|
| Other limited partnership interests | $ | 336 |
| | $ | — |
| | $ | — |
| | $ | 362 |
| | $ | 362 |
|
| Other invested assets | $ | 2,263 |
| | $ | — |
| | $ | 2,151 |
| | $ | 151 |
| | $ | 2,302 |
|
Premiums, reinsurance and other receivables | $ | 14,888 |
| | $ | — |
| | $ | 368 |
| | $ | 15,421 |
| | $ | 15,789 |
|
| Liabilities | | | | | | | | | |
| Policyholder account balances | $ | 72,944 |
| | $ | — |
| | $ | — |
| | $ | 74,052 |
| | $ | 74,052 |
|
| Long-term debt | $ | 1,503 |
| | $ | — |
| | $ | 1,755 |
| | $ | — |
| | $ | 1,755 |
|
| Other liabilities | $ | 14,731 |
| | $ | — |
| | $ | 894 |
| | $ | 13,920 |
| | $ | 14,814 |
|
| Separate account liabilities | $ | 65,545 |
| | $ | — |
| | $ | 65,545 |
| | $ | — |
| | $ | 65,545 |
|
The methods, assumptions and significant valuation techniques and inputs used to estimate the fair value of financial instruments are summarized as follows:
Mortgage Loans
The estimated fair value of(1)Includes mortgage loans is primarily determined by estimating expected future cash flows and discounting them using current interest rates for similar mortgage loans with similar credit risk, or is determined from pricing for similar loans.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
7. Fair Value (continued)
Policy Loans
Policy loans with fixed interest rates are classified within Level 3. The estimated fair values for these loans 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 by 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. Policy loans with variable interest rates are classified within Level 2 and the estimated fair value 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
The estimated fair values of these cost method investments are generally based on the Company’s share of the NAV as provided on 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.
Other Invested Assets
These other invested assets are principally comprised of loans to affiliates. The estimated fair value of loans to affiliates is determined by discounting the expected future cash flows using market interest rates currently available for instruments with similar terms and remaining maturities.
Premiums, Reinsurance and Other Receivables
Premiums, reinsurance and other receivables are principally comprised of certain amounts recoverable under reinsurance agreements, amounts on deposit with financial institutions to facilitate daily settlements related to certain derivatives and amounts receivable for securities sold but not yet settled.
Amounts recoverable under ceded reinsurance agreements, which the Company has determined do not transfer significant risk such that they are accounted for using the deposit method of accounting, have been classified as Level 3. The valuation is based on discounted cash flow methodologies using significant unobservable inputs. The estimated fair value is determined using interest rates determined to reflect the appropriate credit standing of the assuming counterparty.
The amounts on deposit for derivative settlements, classified within Level 2, 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.
Policyholder Account Balances
These policyholder account balances include investment contracts which primarily include certain funding agreements, fixed deferred annuities, modified guaranteed annuities, fixed term payout annuities and total control accounts (“TCA”). The valuation of these investment contracts is based on discounted cash flow methodologies using significant unobservable inputs. The estimated fair value is determined using current market risk-free interest rates adding a spread to reflect the nonperformance risk in the liability.
Long-term Debt
The estimated fair value of long-term debt is principally determined using market standard valuation methodologies.
Valuations of instruments are based primarily on quoted prices in markets that are not active or using matrix pricing that use standard market observable inputs such as quoted prices in markets that are not active and observable yields and spreads in the market. Instruments valued using discounted cash flow methodologies use standard market observable inputs including market yield curve, duration, call provisions, observable prices and spreads for similar publicly traded or privately traded issues.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
7. Fair Value (continued)
Other Liabilities
Other liabilities consist primarily of amounts due for securities purchased but not yet settled, funds withheld amounts payable, which are contractually withheld by the Company in accordance with the terms of the reinsurance agreements, and amounts payable under certain assumed reinsurance agreements, which are recorded using the deposit method of accounting. The Company evaluates the specific terms, facts and circumstances of each instrument to determine the appropriate estimated fair values, which are not materially different from the carrying values, with the exception of certain deposit type reinsurance payables. For such payables, the estimated fair value is determined as the present value of expected future cash flows, which are discounted using an interest rate determined to reflect the appropriate credit standing of the assuming counterparty.
Separate Account Liabilities
Separate account liabilities represent those balances due to policyholders under contracts that are classified as investment contracts.
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.
Since separate account liabilities are fully funded by cash flows from the separate account assets which are recognizedmeasured at estimated fair value as described in the section “— Recurring Fair Value Measurements,” the value of those assets approximates the estimated fair value of the related separate account liabilities. The valuation techniques and inputs for separate account liabilities are similar to those described for separate account assets.on a nonrecurring basis.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
8.12. Equity
Accumulated Other Comprehensive Income (Loss)
Information regarding changes in the balances of each component of AOCI attributable to Metropolitan Life Insurance Company was as follows:
|
| | | | | | | | | | | | | | | | | | | |
| | Three Months
Ended
September 30, 2017 |
| | Unrealized Investment Gains (Losses), Net of Related Offsets (1) | | Unrealized Gains (Losses) on Derivatives | | Foreign Currency Translation Adjustments | | Defined Benefit Plans Adjustment | | Total |
| | (In millions) |
| Balance, beginning of period | $ | 5,549 |
| | $ | 1,216 |
| | $ | (82 | ) | | $ | (1,813 | ) | | $ | 4,870 |
|
| OCI before reclassifications | 560 |
| | (20 | ) | | 29 |
| | 2 |
| | 571 |
|
| Deferred income tax benefit (expense) | (214 | ) | | 7 |
| | (7 | ) | | (1 | ) | | (215 | ) |
| AOCI before reclassifications, net of income tax | 5,895 |
| | 1,203 |
| | (60 | ) | | (1,812 | ) | | 5,226 |
|
| Amounts reclassified from AOCI | (30 | ) | | (293 | ) | | — |
| | 40 |
| | (283 | ) |
| Deferred income tax benefit (expense) | 10 |
| | 102 |
| | — |
| | (14 | ) | | 98 |
|
| Amounts reclassified from AOCI, net of income tax | (20 | ) | | (191 | ) | | — |
| | 26 |
| | (185 | ) |
| Balance, end of period | $ | 5,875 |
| | $ | 1,012 |
| | $ | (60 | ) | | $ | (1,786 | ) | | $ | 5,041 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | Three Months
Ended
September 30, 2016 |
| | Unrealized Investment Gains (Losses), Net of Related Offsets (1) | | Unrealized Gains (Losses) on Derivatives | | Foreign Currency Translation Adjustments | | Defined Benefit Plans Adjustment | | Total |
| | (In millions) |
| Balance, beginning of period | $ | 7,051 |
| | $ | 1,785 |
| | $ | (53 | ) | | $ | (1,938 | ) | | $ | 6,845 |
|
| OCI before reclassifications | 343 |
| | 39 |
| | (16 | ) | | (258 | ) | | 108 |
|
| Deferred income tax benefit (expense) | (117 | ) | | (14 | ) | | 5 |
| | 90 |
| | (36 | ) |
| AOCI before reclassifications, net of income tax | 7,277 |
| | 1,810 |
| | (64 | ) | | (2,106 | ) | | 6,917 |
|
| Amounts reclassified from AOCI | (44 | ) | | (101 | ) | | — |
| | 46 |
| | (99 | ) |
| Deferred income tax benefit (expense) | 15 |
| | 36 |
| | — |
| | (17 | ) | | 34 |
|
| Amounts reclassified from AOCI, net of income tax | (29 | ) | | (65 | ) | | — |
| | 29 |
| | (65 | ) |
| Balance, end of period | $ | 7,248 |
| | $ | 1,745 |
| | $ | (64 | ) | | $ | (2,077 | ) | | $ | 6,852 |
|
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
8.12. Equity (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months
Ended
March 31, 2024 |
| Unrealized
Investment Gains
(Losses), Net of
Related Offsets (1) | | Deferred
Gains (Losses)
on Derivatives | | Future Policy Benefits Discount Rate Remeasurement Gains (Losses) | | Market Risk Benefits Instrument-Specific Credit Risk Remeasurement Gains (Losses) | | Foreign
Currency
Translation
Adjustments | | Defined
Benefit
Plans
Adjustment | | Total |
| (In millions) |
| Balance, beginning of period | $ | (6,495) | | | $ | 705 | | | $ | (807) | | | $ | 33 | | | $ | (143) | | | $ | (165) | | | $ | (6,872) | |
| OCI before reclassifications | (1,924) | | | (143) | | | 1,804 | | | (58) | | | 39 | | | — | | | (282) | |
| Deferred income tax benefit (expense) | 443 | | | 30 | | | (379) | | | 12 | | | (8) | | | — | | | 98 | |
| AOCI before reclassifications, net of income tax | (7,976) | | | 592 | | | 618 | | | (13) | | | (112) | | | (165) | | | (7,056) | |
| Amounts reclassified from AOCI | 159 | | | 259 | | | — | | | — | | | — | | | 3 | | | 421 | |
| Deferred income tax benefit (expense) | (37) | | | (55) | | | — | | | — | | | — | | | (1) | | | (93) | |
| Amounts reclassified from AOCI, net of income tax | 122 | | | 204 | | | — | | | — | | | — | | | 2 | | | 328 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Balance, end of period | $ | (7,854) | | | $ | 796 | | | $ | 618 | | | $ | (13) | | | $ | (112) | | | $ | (163) | | | $ | (6,728) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months
Ended
March 31, 2023 |
| Unrealized
Investment Gains
(Losses), Net of
Related Offsets (1) | | Deferred
Gains (Losses)
on Derivatives | | Future Policy Benefits Discount Rate Remeasurement Gains (Losses) | | Market Risk Benefits Instrument-Specific Credit Risk Remeasurement Gains (Losses) | | Foreign
Currency
Translation
Adjustments | | Defined
Benefit
Plans
Adjustment | | Total |
| (In millions) |
| Balance, beginning of period | $ | (11,161) | | | $ | 1,557 | | | $ | 1,529 | | | $ | 80 | | | $ | (187) | | | $ | (138) | | | $ | (8,320) | |
| OCI before reclassifications | 3,812 | | | 159 | | | (2,068) | | | 88 | | | 60 | | | (1) | | | 2,050 | |
| Deferred income tax benefit (expense) | (798) | | | (33) | | | 433 | | | (19) | | | (12) | | | — | | | (429) | |
| AOCI before reclassifications, net of income tax | (8,147) | | | 1,683 | | | (106) | | | 149 | | | (139) | | | (139) | | | (6,699) | |
| Amounts reclassified from AOCI | (25) | | | (146) | | | — | | | — | | | — | | | 2 | | | (169) | |
| Deferred income tax benefit (expense) | 5 | | | 31 | | | — | | | — | | | — | | | — | | | 36 | |
| Amounts reclassified from AOCI, net of income tax | (20) | | | (115) | | | — | | | — | | | — | | | 2 | | | (133) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Balance, end of period | $ | (8,167) | | | $ | 1,568 | | | $ | (106) | | | $ | 149 | | | $ | (139) | | | $ | (137) | | | $ | (6,832) | |
__________________(1)Primarily unrealized gains (losses) on fixed maturity securities.
|
| | | | | | | | | | | | | | | | | | | |
| | Nine Months
Ended
September 30, 2017 |
| | Unrealized Investment Gains (Losses), Net of Related Offsets (1) | | Unrealized Gains (Losses) on Derivatives | | Foreign Currency Translation Adjustments | | Defined Benefit Plans Adjustment | | Total |
| | (In millions) |
| Balance, beginning of period | $ | 3,592 |
| | $ | 1,459 |
| | $ | (67 | ) | | $ | (1,865 | ) | | $ | 3,119 |
|
| OCI before reclassifications | 3,434 |
| | 226 |
| | 9 |
| | 5 |
| | 3,674 |
|
| Deferred income tax benefit (expense) | (1,215 | ) | | (79 | ) | | (2 | ) | | (2 | ) | | (1,298 | ) |
| AOCI before reclassifications, net of income tax | 5,811 |
| | 1,606 |
| | (60 | ) | | (1,862 | ) | | 5,495 |
|
| Amounts reclassified from AOCI | 98 |
| | (913 | ) | | — |
| | 118 |
| | (697 | ) |
| Deferred income tax benefit (expense) | (34 | ) | | 319 |
| | — |
| | (42 | ) | | 243 |
|
| Amounts reclassified from AOCI, net of income tax | 64 |
| | (594 | ) | | — |
| | 76 |
| | (454 | ) |
| Balance, end of period | $ | 5,875 |
| | $ | 1,012 |
| | $ | (60 | ) | | $ | (1,786 | ) | | $ | 5,041 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | Nine Months
Ended
September 30, 2016 |
| | Unrealized Investment Gains (Losses), Net of Related Offsets (1) | | Unrealized Gains (Losses) on Derivatives | | Foreign Currency Translation Adjustments | | Defined Benefit Plans Adjustment | | Total |
| | (In millions) |
| Balance, beginning of period | $ | 3,337 |
| | $ | 1,436 |
| | $ | (74 | ) | | $ | (2,014 | ) | | $ | 2,685 |
|
| OCI before reclassifications | 6,132 |
| | 703 |
| | 6 |
| | (241 | ) | | 6,600 |
|
| Deferred income tax benefit (expense) | (2,148 | ) | | (247 | ) | | 4 |
| | 84 |
| | (2,307 | ) |
| AOCI before reclassifications, net of income tax | 7,321 |
| | 1,892 |
| | (64 | ) | | (2,171 | ) | | 6,978 |
|
| Amounts reclassified from AOCI | (113 | ) | | (227 | ) | | — |
| | 145 |
| | (195 | ) |
| Deferred income tax benefit (expense) | 40 |
| | 80 |
| | — |
| | (51 | ) | | 69 |
|
| Amounts reclassified from AOCI, net of income tax | (73 | ) | | (147 | ) | | — |
| | 94 |
| | (126 | ) |
| Balance, end of period | $ | 7,248 |
| | $ | 1,745 |
| | $ | (64 | ) | | $ | (2,077 | ) | | $ | 6,852 |
|
__________________
| |
(1) | See Note 5 for information on offsets to investments related to future policy benefits, DAC, VOBA and DSI, and the policyholder dividend obligation.
|
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
8.12. Equity (continued)
Information regarding amounts reclassified out of each component of AOCI was as follows:
| | | | Three Months
Ended
March 31, | |
| | 2024 | |
| | 2024 | |
| | 2024 | |
| AOCI Components | | Amounts Reclassified from AOCI | | Consolidated Statements of
Operations and
Comprehensive Income (Loss)
Locations |
| | | Three Months
Ended
September 30, | | Nine Months
Ended
September 30, | |
| | | 2017 | | 2016 | | 2017 | | 2016 | |
| | | (In millions) | |
| AOCI Components | |
| AOCI Components | | | Amounts Reclassified from AOCI | | Consolidated Statements of
Operations and
Comprehensive Income (Loss)
Locations |
| | (In millions) | |
| Net unrealized investment gains (losses): | | | | | | | | | |
| Net unrealized investment gains (losses): | |
| Net unrealized investment gains (losses): | |
| Net unrealized investment gains (losses) | |
| Net unrealized investment gains (losses) | |
| Net unrealized investment gains (losses) | | $ | (5 | ) | | $ | 52 |
| | $ | 30 |
| | $ | 144 |
| | Net investment gains (losses) | | $ | (146) | | | $ | | $ | 41 | | | Net investment gains (losses) | | Net investment gains (losses) |
| Net unrealized investment gains (losses) | | (3 | ) | | — |
| | (5 | ) | | 11 |
| | Net investment income | Net unrealized investment gains (losses) | | (1) | | | 2 | | 2 | | | Net investment income | | Net investment income |
| Net unrealized investment gains (losses) | | 38 |
| | (8 | ) | | (123 | ) | | (42 | ) | | Net derivative gains (losses) | Net unrealized investment gains (losses) | | (12) | | | (18) | | (18) | | | Net derivative gains (losses) | | Net derivative gains (losses) |
| Net unrealized investment gains (losses), before income tax | | 30 |
| | 44 |
| | (98 | ) | | 113 |
| |
| Income tax (expense) benefit | | (10 | ) | | (15 | ) | | 34 |
| | (40 | ) | |
| Income tax (expense) benefit | |
| Income tax (expense) benefit | |
| Net unrealized investment gains (losses), net of income tax | | 20 |
| | 29 |
| | (64 | ) | | 73 |
| |
| Unrealized gains (losses) on derivatives - cash flow hedges: | | | | | | | | | |
| Interest rate swaps | | 8 |
| | 27 |
| | 22 |
| | 44 |
| | Net derivative gains (losses) |
| Interest rate swaps | | 4 |
| | 4 |
| | 12 |
| | 10 |
| | Net investment income |
| Interest rate forwards | | (1 | ) | | 1 |
| | (5 | ) | | — |
| | Net derivative gains (losses) |
| Interest rate forwards | | 1 |
| | — |
| | 2 |
| | 2 |
| | Net investment income |
| Foreign currency swaps | | 282 |
| | 69 |
| | 882 |
| | 169 |
| | Net derivative gains (losses) |
| Foreign currency swaps | | (1 | ) | | — |
| | (1 | ) | | (1 | ) | | Net investment income |
| Credit forwards | | — |
| | ��� |
| | 1 |
| | 3 |
| | Net derivative gains (losses) |
| Net unrealized investment gains (losses), net of income tax | |
| Net unrealized investment gains (losses), net of income tax | |
| Deferred gains (losses) on derivatives - cash flow hedges: | |
| Deferred gains (losses) on derivatives - cash flow hedges: | |
| Deferred gains (losses) on derivatives - cash flow hedges: | |
| Interest rate derivatives | |
| Interest rate derivatives | |
| Interest rate derivatives | | | 8 | | | 14 | | | Net investment income |
| Interest rate derivatives | | Interest rate derivatives | | 2 | | | 2 | | | Net investment gains (losses) |
| Foreign currency exchange rate derivatives | | Foreign currency exchange rate derivatives | | 1 | | | 1 | | | Net investment income |
| Foreign currency exchange rate derivatives | | Foreign currency exchange rate derivatives | | (270) | | | 129 | | | Net investment gains (losses) |
| Gains (losses) on cash flow hedges, before income tax | | 293 |
| | 101 |
| | 913 |
| | 227 |
| |
| Income tax (expense) benefit | | (102 | ) | | (36 | ) | | (319 | ) | | (80 | ) | |
| Income tax (expense) benefit | |
| Income tax (expense) benefit | |
| Gains (losses) on cash flow hedges, net of income tax | |
| Gains (losses) on cash flow hedges, net of income tax | |
| Gains (losses) on cash flow hedges, net of income tax | | 191 |
| | 65 |
| | 594 |
| | 147 |
| |
| Defined benefit plans adjustment: (1) | | | | | | | | | |
| Defined benefit plans adjustment: (1) | |
| Defined benefit plans adjustment: (1) | |
| Amortization of net actuarial gains (losses) | |
| Amortization of net actuarial gains (losses) | |
| Amortization of net actuarial gains (losses) | | (45 | ) | | (48 | ) | | (134 | ) | | (150 | ) | |
| Amortization of prior service (costs) credit | | 5 |
| | 2 |
| | 16 |
| | 5 |
| |
| Amortization of prior service (costs) credit | |
| Amortization of prior service (costs) credit | |
| Amortization of defined benefit plan items, before income tax | |
| Amortization of defined benefit plan items, before income tax | |
| Amortization of defined benefit plan items, before income tax | | (40 | ) | | (46 | ) | | (118 | ) | | (145 | ) | |
| Income tax (expense) benefit | | 14 |
| | 17 |
| | 42 |
| | 51 |
| |
| Income tax (expense) benefit | |
| Income tax (expense) benefit | |
| Amortization of defined benefit plan items, net of income tax | |
| Amortization of defined benefit plan items, net of income tax | |
| Amortization of defined benefit plan items, net of income tax | | (26 | ) | | (29 | ) | | (76 | ) | | (94 | ) | |
| Total reclassifications, net of income tax | | $ | 185 |
| | $ | 65 |
| | $ | 454 |
| | $ | 126 |
| |
| Total reclassifications, net of income tax | |
| Total reclassifications, net of income tax | |
__________________
| |
(1) | These AOCI components are included in the computation of net periodic benefit costs. See Note 10.
|
(1)These AOCI components are included in the computation of net periodic benefit costs.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
9.13. Other Revenues and Other Expenses
Other Revenues
Information on other revenues, which primarily includes fees related to service contracts from customers, was as follows:
| | | | | | | | | | | | | | | | | | |
| | | | Three Months
Ended
March 31, |
| | | | | | 2024 | | 2023 |
| | | | | (In millions) |
| Prepaid legal plans | | | | | | $ | 120 | | | $ | 115 | |
| Administrative services-only contracts | | | | | | 66 | | | 61 | |
| Recordkeeping and administrative services (1) | | | | | | 38 | | | 37 | |
| Other revenue from service contracts from customers | | | | | | 9 | | | 10 | |
| Total revenues from service contracts from customers | | | | | | 233 | | | 223 | |
| Other (2) | | | | | | 222 | | | 192 | |
| Total other revenues | | | | | | $ | 455 | | | $ | 415 | |
__________________
(1)Related to products and businesses no longer actively marketed by the Company.
(2)Primarily includes reinsurance ceded. See Note 16.
Other Expenses
Information on other expenses was as follows:
| | | | | | | | | | | | | | | | | | |
| | | | Three Months
Ended
March 31, |
| | | | | | 2024 | | 2023 |
| | | | | (In millions) |
| General and administrative expenses (1) | | | | | | $ | 673 | | | $ | 661 | |
| Pension, postretirement and postemployment benefit costs | | | | | | 55 | | | 50 | |
| Premium taxes, other taxes, and licenses & fees | | | | | | 97 | | | 93 | |
| Commissions and other variable expenses | | | | | | 487 | | | 714 | |
| Capitalization of DAC | | | | | | (25) | | | (77) | |
| Amortization of DAC and VOBA | | | | | | 70 | | | 77 | |
| Interest expense on debt | | | | | | 32 | | | 30 | |
| Total other expenses | | | | | | $ | 1,389 | | | $ | 1,548 | |
|
| | | | | | | | | | | | | | | |
| | Three Months
Ended
September 30, | | Nine Months
Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (In millions) |
| Compensation | $ | 530 |
| | $ | 488 |
| | $ | 1,541 |
| | $ | 1,598 |
|
| Pension, postretirement and postemployment benefit costs | 51 |
| | 41 |
| | 138 |
| | 199 |
|
| Commissions | 132 |
| | 168 |
| | 398 |
| | 527 |
|
| Volume-related costs | 69 |
| | 40 |
| | 164 |
| | 162 |
|
| Affiliated expenses on ceded and assumed reinsurance | 149 |
| | 152 |
| | 521 |
| | 774 |
|
| Capitalization of DAC | (17 | ) | | (59 | ) | | (57 | ) | | (285 | ) |
| Amortization of DAC and VOBA | (43 | ) | | 212 |
| | 124 |
| | 420 |
|
| Interest expense on debt | 26 |
| | 28 |
| | 79 |
| | 84 |
|
| Premium taxes, licenses and fees | 62 |
| | 89 |
| | 210 |
| | 272 |
|
| Professional services | 266 |
| | 235 |
| | 755 |
| | 662 |
|
| Rent and related expenses, net of sublease income | 72 |
| | 38 |
| | 122 |
| | 108 |
|
| Other | (92 | ) | | (68 | ) | | (187 | ) | | (71 | ) |
| Total other expenses | $ | 1,205 |
| | $ | 1,364 |
| | $ | 3,808 |
| | $ | 4,450 |
|
(1)Includes ($40) million and ($30) million for the three months ended March 31, 2024 and 2023, respectively, for the net change in cash surrender value of investments in certain life insurance policies, net of premiums paid.
Affiliated Expenses
Commissions, capitalization of DAC and amortization of DAC and VOBA include the impact of affiliated reinsurance transactions. See Note 1216 for a discussion of affiliated expenses included in the table above.
10. Employee Benefit Plans
Pension and Other Postretirement Benefit Plans
The Company sponsors and administers various defined benefit pension plans and other postretirement employee benefit plans covering employees and sales representatives who meet specified eligibility requirements. Participating affiliates are allocated an equitable share of net expense related to the plans, proportionate to other expenses being allocated to these affiliates.
The Company also provides certain postemployment benefits and certain postretirement medical and life insurance benefits for retired employees. Participating affiliates are allocated a proportionate share of net expense and contributions related to the postemployment and other postretirement plans.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
10. Employee Benefit Plans (continued)
14. Income Tax
The components of net periodic benefit costs were as follows:
|
| | | | | | | | | | | | | | | |
| | Three Months
Ended
September 30, |
| | 2017 | | 2016 |
| | Pension Benefits | | Other Postretirement Benefits | | Pension Benefits | | Other Postretirement Benefits |
| | (In millions) |
| Service costs | $ | 40 |
| | $ | — |
| | $ | 49 |
| | $ | 3 |
|
| Interest costs | 98 |
| | 16 |
| | 100 |
| | 20 |
|
| Divestitures and curtailment costs (1) | 3 |
| | 2 |
| | (1 | ) | | (1 | ) |
| Expected return on plan assets | (121 | ) | | (16 | ) | | (139 | ) | | (20 | ) |
| Amortization of net actuarial (gains) losses | 45 |
| | — |
| | 45 |
| | 3 |
|
| Amortization of prior service costs (credit) | — |
| | (5 | ) | | — |
| | (2 | ) |
| Allocated to affiliates | (9 | ) | | — |
| | (15 | ) | | (3 | ) |
| Net periodic benefit costs (credit) | $ | 56 |
| | $ | (3 | ) | | $ | 39 |
| | $ | — |
|
|
| | | | | | | | | | | | | | | |
| | Nine Months
Ended
September 30, |
| | 2017 | | 2016 |
| | Pension Benefits | | Other Postretirement Benefits | | Pension Benefits | | Other Postretirement Benefits |
| | (In millions) |
| Service costs | $ | 120 |
| | $ | 3 |
| | $ | 155 |
| | $ | 7 |
|
| Interest costs | 295 |
| | 50 |
| | 314 |
| | 62 |
|
| Divestitures and curtailment costs (1) | 3 |
| | 2 |
| | (1 | ) | | 26 |
|
| Expected return on plan assets | (362 | ) | | (48 | ) | | (389 | ) | | (56 | ) |
| Amortization of net actuarial (gains) losses | 134 |
| | — |
| | 143 |
| | 7 |
|
| Amortization of prior service costs (credit) | (1 | ) | | (15 | ) | | — |
| | (5 | ) |
| Allocated to affiliates | (26 | ) | | (1 | ) | | (50 | ) | | (7 | ) |
| Net periodic benefit costs (credit) | $ | 163 |
| | $ | (9 | ) | | $ | 172 |
| | $ | 34 |
|
__________________
(1)DuringFor the three months and nineended March 31, 2024, the effective tax rate on income (loss) before provision for income tax was 19%. The Company’s effective tax rate for the three months ended September 30, 2016,March 31, 2024 differed from the Company recognized curtailment chargesU.S. statutory rate of 21% primarily due to tax benefits from (i) non-taxable investment income, (ii) the corporate tax deduction for stock compensation, and (iii) low income housing and other tax credits, partially offset by the impact of tax equity investments now accounted for under the proportional amortization method.
For the three months ended March 31, 2023, the effective tax rate on certain postretirement benefit plans in connection withincome (loss) before provision for income tax was 53%. The Company’s effective tax rate for the salethree months ended March 31, 2023 differed from the U.S. statutory rate of 21% primarily due to MassMutual of MetLife, Inc.’s U.S. retail advisor forcetax benefits from (i) low income housing and certain assets associated withother tax credits, (ii) the MetLife Premier Client Group, including all of the issuedcorporate tax deduction for stock compensation, and outstanding shares of MetLife’s affiliated broker-dealer, MetLife Securities, Inc., a wholly-owned subsidiary of MetLife, Inc.(iii) non-taxable investment income.
11.15. Contingencies, Commitments and Guarantees
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
11. Contingencies, Commitments and Guarantees (continued)
Contingencies
Litigation
The Company is a defendant in a large number of litigation matters. In some of the matters, very large and/Putative or indeterminate amounts, including punitivecertified class action litigation and treble damages, are sought. Modern pleading practice in the 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 oflitigation and claims and assessments against the Company, in litigatingaddition to those discussed below and those otherwise provided for in the Company’s interim condensed consolidated financial statements, have arisen in the course of the Company’s business, including, but not limited to, in connection with its activities as an insurer, mortgage lending bank, employer, investor, investment advisor, broker-dealer, and taxpayer.
The Company also receives and responds to subpoenas or resolving through settlement numerous claims over an extended periodother inquiries seeking a broad range of time, demonstratesinformation from state regulators, including state insurance commissioners; state attorneys general or other state governmental authorities; federal regulators, including the U.S. Securities and Exchange Commission; federal governmental authorities, including congressional committees; and the Financial Industry Regulatory Authority, as well as from local and national regulators and government authorities in jurisdictions outside the United States where the Company conducts business. The issues involved in information requests and regulatory matters vary widely, but can include inquiries or investigations concerning the Company’s compliance with applicable insurance and other laws and regulations. The Company cooperates in these inquiries.
It is not possible to management thatpredict 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, theultimate outcome of a litigation matterall pending investigations 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, at trial or on appeal. Disposition valuations are also subject to the uncertainty of how opposing parties and their counsel will view the relevant evidence and applicable law.
legal proceedings. 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. LiabilitiesIn certain circumstances where liabilities have been established for a numberthere may be coverage under one or more corporate insurance policies, pursuant to which there may be an insurance recovery. Insurance recoveries are recognized as gains when any contingencies relating to the insurance claim have been resolved, which is the earlier of when the matters noted below.gains are realized or realizable. 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 reasonably estimated at September 30, 2017.March 31, 2024. 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 to management, management does not believe any such charges are likely to have a material effect on the Company’s financial position. 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 effect on the Company’s consolidated net income or cash flows in particular quarterly or annual periods.
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, the Company has not made an accrual. As of September 30, 2017,March 31, 2024, the Company estimates the aggregate range of reasonably possible losses in excess of amounts accrued for these matters to be $0 to $350$125 million.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
15. Contingencies, Commitments and Guarantees (continued)
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.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
11. Contingencies, Commitments and Guarantees (continued)
Asbestos-Related Claims
Metropolitan Life Insurance Company 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. Metropolitan Life Insurance Company has never engaged in the business of manufacturing producing, distributing or selling asbestos or asbestos-containing products, nor has Metropolitan Life Insurance Company 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 Metropolitan Life Insurance Company’s employees during the period from the 1920’s1920s through approximately the 1950’s1950s and allege that Metropolitan Life Insurance Company 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. Metropolitan Life Insurance Company 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 Metropolitan Life Insurance Company. Metropolitan Life Insurance Company 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 Metropolitan Life Insurance Company have included negligence, intentional tort and conspiracy concerning the health risks associated with asbestos. Metropolitan Life Insurance Company’s defenses (beyond denial of certain factual allegations) include that: (i) Metropolitan Life Insurance Company 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 Metropolitan Life Insurance Company; (iii) Metropolitan Life Insurance Company’s conduct was not the cause of the plaintiffs’ injuries; and (iv) plaintiffs’ exposure occurred after the dangers of asbestos were known; and (v) the applicable time with respect to filing suit has expired.known. During the course of the litigation, certain trial courts have granted motions dismissing claims against Metropolitan Life Insurance Company, while other trial courts have denied Metropolitan Life Insurance Company’s motions. There can be no assurance that Metropolitan Life Insurance Company will receive favorable decisions on motions in the future. While most cases brought to date have settled, Metropolitan Life Insurance Company intends to continue to defend aggressively against claims based on asbestos exposure, including defending claims at trials.
As reported in the 20162023 Annual Report, Metropolitan Life Insurance Company received approximately 4,1462,565 asbestos-related claims in 2016. During2023. For the ninethree months ended September 30, 2017March 31, 2024 and 2016,2023, Metropolitan Life Insurance Company received approximately 2,742783 and 3,267587 new asbestos-related claims, respectively. See Note 1619 of the Notes to the Consolidated Financial Statements included in the 20162023 Annual Report for historical information concerning asbestos claims and Metropolitan Life Insurance Company’s increaseupdate in its recorded liability at December 31, 2014.2023. The number of asbestos cases that may be brought, the aggregate amount of any liability that Metropolitan Life Insurance Company 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 Metropolitan Life Insurance Company 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 Metropolitan Life Insurance Company when exposure to asbestos took place after the dangers of asbestos exposure were well known, and the impact of any possible future adverse verdicts and their amounts.
The ability to make estimates regarding ultimate asbestos exposure declines significantly as the estimates relate to years further in the future. In the Company’s judgment, there is a future point after which losses cease to be probable and reasonably estimable. It is reasonably possible that the Company’s total exposure to asbestos claims may be materially greater than the asbestos liability currently accrued and that future charges to income may be necessary. While the potential future charges could be material in the particular quarterly or annual periods in which they are recorded, based on information currently known by management,necessary, but management does not believe any such charges are likely to have a material effect on the Company’s financial position.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
11.15. Contingencies, Commitments and Guarantees (continued)
The Company believes adequate provision has been made in its interim condensed consolidated financial statements for all probable and reasonably estimable losses for asbestos-related claims. Metropolitan Life Insurance Company’s recorded asbestos liability is based on its estimation of the following elements, as informed by the facts presently known to it, its understanding of current law and its past experiences: (i) the probable and reasonably estimable liability for asbestoscovers pending claims, already asserted against Metropolitan Life Insurance Company, including claims settled but not yet paid; (ii) the probable and reasonably estimable liability for asbestos claims not yet asserted, against Metropolitan Life Insurance Company, but which Metropolitan Life Insurance Company believes are reasonably probable of assertion; and (iii) the legal defense costs associated with the foregoing claims. Significantand is based on estimates and includes significant assumptions underlying Metropolitan Life Insurance Company’s 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.analysis.
Metropolitan Life Insurance Company reevaluates on a quarterly and annual basis its exposure from asbestos litigation, including studying its claims experience, reviewing external literature regarding asbestos claims experience in the United States, assessing relevant trends impacting asbestos liability and considering numerous variables that can affect its asbestos liability exposure on an overall or per claim basis. These variables include bankruptcies of other companies involved in asbestos litigation, legislative and judicial developments, the number of pending claims involving serious disease, the number of new claims filed against it and other defendants and the jurisdictions in which claims are pending. Based upon its regular reevaluation of its exposure from asbestos litigation, Metropolitan Life Insurance Company has updated its liability analysis for asbestos-related claims through September 30, 2017.March 31, 2024.
Regulatory MattersTotal Asset Recovery Services, LLC. v. MetLife, Inc., et al. (Supreme Court of the State of New York, County of New York, filed December 27, 2017)
The Company receives and responds to subpoenas or other inquiries seeking a broad rangeTotal Asset Recovery Services (the “Relator”) brought an action under the qui tam provision of information from state regulators, including state insurance commissioners; state attorneys general or other state governmental authorities; federal regulators, including the U.S. Securities and Exchange Commission (“SEC”New York False Claims Act (the “Act”); federal governmental authorities, including congressional committees; on behalf of itself and the Financial Industry Regulatory Authority (“FINRA”).State of New York. The issues involvedRelator originally filed this action under seal in information requests2010, and regulatory matters vary widely.the complaint was unsealed on December 19, 2017. The Company cooperates in these inquiries.
In the Matter of Chemform,Relator alleges that MetLife, Inc. Site, Pompano Beach, Broward County, Florida
In July 2010, the Environmental Protection Agency (“EPA”) advised Metropolitan Life Insurance Company 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 Metropolitan Life Insurance Company (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. In September 2012, the EPA,, Metropolitan Life Insurance Company and several other insurance companies violated the third party executed an Administrative Order on Consent underAct by filing false unclaimed property reports with the State of New York from 1986 to 2017, to avoid having to escheat the proceeds of more than 25,000 life insurance policies, including policies for which Metropolitan Life Insurance Companythe defendants escheated funds as part of their demutualizations in the late 1990s. The Relator seeks treble damages and other relief. The Appellate Division of the third party agreed to be responsible for certain environmental testing atNew York State Supreme Court, First Department, reversed the Chemform Site. The EPA may seek additional costs if the environmental testing identifies issues. The EPAcourt’s order granting MetLife, Inc. and Metropolitan Life Insurance Company have reached a settlement in principal onCompany’s motion to dismiss and remanded the EPA’s claim for past costs.case to the trial court where the Relator has filed an amended complaint. The Company estimatesintends to defend the action vigorously.
Matters Related to Group Annuity Benefits
In 2018, the Company announced that it identified a material weakness in its internal control over financial reporting related to the aggregate cost to resolve this matter, includingpractices and procedures for estimating reserves for certain group annuity benefits. Several regulators have made inquiries into the settlement for claims of past costsissue and the costs of environmental testing, will not exceed $300 thousand.
Sales Practices Regulatory Matters
Regulatory authorities in a number of states and FINRA, and occasionally the SEC, have hadit is possible that other jurisdictions may pursue similar investigations or inquiriesinquiries. The Company could be exposed to lawsuits, and additional legal actions relating to sales of individual life insurance policiesthis issue. These may result in payments, including damages, fines, penalties, interest and other amounts assessed or annuitiesawarded by courts or other products by Metropolitan Life Insurance Company. These investigations often focus on the conduct of particular financial services representatives and the sale of unregistered or unsuitable products or the misuse of client assets. Over the past several years, these and a number of investigations by other regulatory authorities were resolved for monetary payments and certain other relief, including restitution payments. The Company may continue to resolve investigations in a similar manner. 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
Metropolitan Life Insurance Company is a defendant in a lawsuit related to its use of retained asset accounts, known as total control accounts (“TCA”), as a settlement option for death benefits.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
11. Contingencies, Commitments and Guarantees (continued)
Owens v. Metropolitan Life Insurance Company (N.D. Ga., filed April 17, 2014)
Plaintiff filed this class action lawsuit on behalf of all persons for whom Metropolitan Life Insurance Company established a retained asset account, known as a TCA, to pay death benefits under anapplicable escheat, tax, securities, Employee Retirement Income Security Act of 1974, (“ERISA”) plan. The action alleges that Metropolitan Life Insurance Company’s use of the TCA as the settlement option for life insurance benefits under some group life insurance policies violates Metropolitan Life Insurance Company’s fiduciary duties under ERISA. As damages, plaintiff seeks disgorgement of profits that Metropolitan Life Insurance Company realized on accounts owned by members of the class. In addition, plaintiff, on behalf of a subgroup of the class, seeks interest under Georgia’s delayed settlement interest statute, alleging that the use of the TCA as the settlement option did not constitute payment. On September 27, 2016, the court denied Metropolitan Life Insurance Company’s summary judgment motion in full and granted plaintiff’s partial summary judgment motion. On September 29, 2017, the court certified a nationwide class. The court also certified a Georgia subclass.or other laws or regulations. The Company intends to defend this action vigorously.
Other Litigation
Sun Life Assurance Company of Canada Indemnity Claim
In 2006, Sun Life Assurance Company of Canada (“Sun Life”), as successor to the purchaser of Metropolitan Life Insurance Company’s Canadian operations, filed a lawsuit in Toronto, seeking a declaration that Metropolitan Life Insurance Company remains liable for “market conduct claims” related to certain individual life insurance policies sold by Metropolitan Life Insurance Company that were subsequently transferred to Sun Life. 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 Metropolitan Life Insurance Company’s motion for summary judgment. Both parties agreed to consider the indemnity claim through arbitration. In September 2010, Sun Life notified Metropolitan Life Insurance Company that a purported class action lawsuit was filed against Sun Life in Toronto alleging sales practices claims regarding the policies sold by Metropolitan Life Insurance Company and transferred to Sun Life. On August 30, 2011, Sun Life notified Metropolitan Life Insurance Company that another purported class action lawsuit was filed against Sun Life in Vancouver, BC alleging sales practices claims regarding certain of the same policies sold by Metropolitan Life Insurance Company and transferred to Sun Life. Sun Life contends that Metropolitan Life Insurance Company is obligated to indemnify Sun Life for some or all of the claims in these lawsuits. These sales practices cases against Sun Life are ongoing, and the Company is unable to estimate the reasonably possible loss or range of loss arising from this litigation.
Voshall v. Metropolitan Life Insurance Company (Superior Court of the State of California, County of Los Angeles, April 8, 2015)
Plaintiff filed this putative class action lawsuit on behalf of himself and all persons covered under a long-term group disability income insurance policy issued by Metropolitan Life Insurance Company to public entities in California between April 8, 2011 and April 8, 2015. Plaintiff alleges that Metropolitan Life Insurance Company improperly reduced benefits by including cost of living adjustments and employee paid contributions in the employer retirement benefits and other income that reduces the benefit payable under such policies. Plaintiff asserts causes of action for declaratory relief, violation of the California Business & Professions Code, breach of contract and breach of the implied covenant of good faith and fair dealing. The Company intends to defend this action vigorously.
Martin v. Metropolitan Life Insurance Company (Superior Court of the State of California, County of Contra Costa, filed December 17, 2015)
Plaintiffs filed this putative class action lawsuit on behalf of themselves and all California persons who have been charged compound interest by Metropolitan Life Insurance Company in life insurance policy and/or premium loan balances within the last four years. Plaintiffs allege that Metropolitan Life Insurance Company has engaged in a pattern and practice of charging compound interest on life insurance policy and premium loans without the borrower authorizing such compounding, and that this constitutes an unlawful business practice under California law. Plaintiff asserts causes of action for declaratory relief, violation of California’s Unfair Competition Law and Usury Law, and unjust enrichment. Plaintiff seeks declaratory and injunctive relief, restitution of interest, and damages in an unspecified amount. On April 12, 2016, the court granted Metropolitan Life Insurance Company’s motion to dismiss. Plaintiffs have appealed this ruling.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
11. Contingencies, Commitments and Guarantees (continued)
Lau v. Metropolitan Life Insurance Company (S.D.N.Y. filed, December 3, 2015)
This putative class action lawsuit was filed by a single defined contribution plan participant on behalf of all ERISA plans whose assets were invested in Metropolitan Life Insurance Company’s “Group Annuity Contract Stable Value Funds” within the past six years. The suit alleges breaches of fiduciary duty under ERISA and challenges the “spread” with respect to the stable value fund group annuity products sold to retirement plans. The allegations focus on the methodology Metropolitan Life Insurance Company uses to establish and reset the crediting rate, the terms under which plan participants are permitted to transfer funds from a stable value option to another investment option, the procedures followed if an employer terminates a contract, and the level of disclosure provided. Plaintiff seeks declaratory and injunctive relief, as well as damages in an unspecified amount. The Company intends to defend this action vigorously.
Newman v. Metropolitan Life Insurance Company (N.D. Ill., filed March 23, 2016)
Plaintiff filed this putative class action alleging causes of action for breach of contract, fraud, and violations of the Illinois Consumer Fraud and Deceptive Business Practices Act, based on Metropolitan Life Insurance Company’s class-wide increase in premiums charged for long-term care insurance policies. Plaintiff alleges a class consisting of herself and all persons over age 65 who selected a Reduced Pay at Age 65 payment feature and whose premium rates were increased after age 65. Plaintiff asserts that premiums could not be increased for these class members and/or that marketing material was misleading as to Metropolitan Life Insurance Company’s right to increase premiums. Plaintiff seeks unspecified compensatory, statutory and punitive damages, as well as recessionary and injunctive relief. On April 12, 2017, the court granted Metropolitan Life Insurance Company’s motion, dismissing the action with prejudice. On April 21, 2017, plaintiff appealed this ruling.
Miller, et al. v. MetLife, Inc., et al. (C.D. Cal., filed April 7, 2017)
Plaintiffs filed this putative class action against MetLife, Inc. and Metropolitan Life Insurance Company in the U.S. District Court for the Central District of California, purporting to assert claims on behalf of all persons who replaced their MetLife Optional Term Life or Group Universal Life policy for a Group Variable Universal Life policy wherein MetLife allegedly charged smoker rates for certain non-smokers. Plaintiffs seek unspecified compensatory and punitive damages, as well as other relief. On September 25, 2017, Plaintiffs dismissed the action and refiled the complaint in U.S. District Court for the Southern District of New York. The Company intends to defend this action vigorously.
Julian & McKinney v. Metropolitan Life Insurance Company (S.D.N.Y., filed February 9, 2017)
Plaintiffs filed this putative class and collective action on behalf of themselves and all current and former long-term disability (“LTD”) claims specialists between February 2011 and the present for alleged wage and hour violations under the Fair Labor Standards Act, the New York Labor Law, and the Connecticut Minimum Wage Act. The suit alleges that Metropolitan Life Insurance Company improperly reclassified the plaintiffs and similarly situated LTD claims specialists from non-exempt to exempt from overtime pay in November 2013. As a result, they and members of the putative class were no longer eligible for overtime pay even though they allege they continued to work more than 40 hours per week. The Company intends to defend this action vigorously.
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, other products or the misuse of client assets. Some of the current cases seek substantial damages, including punitive and treble damages and attorneys’ fees. The Company continues to defend vigorously against the claims in these matters. The Company believes adequate provision has been made in its consolidated financial statements for all probable and reasonably estimable losses for sales practices matters.
Summary
Putative or certified class action litigation and other litigation and claims and assessments against the Company, in addition to those discussed previously and those otherwise provided for in the Company’s consolidated financial statements, have arisen in the course of the Company’s business, including, but not limited to,incur significant costs in connection with its activities as an insurer, investor and taxpayer. Further, state insurance regulatory authorities and other federal and state authorities regularly make inquiries and conduct investigations concerning the Company’s compliance with applicable insurance and other laws and regulations.these actions.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
11. Contingencies, Commitments and Guarantees (continued)
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 effect upon the Company’s financial position, based on information currently known by the Company’s management, in its opinion, the outcomes of such pending investigations and legal proceedings are not likely to have such an effect. However, given the large and/or indeterminate amounts sought in certain of these matters and the inherent unpredictability of litigation, it is possible that an adverse outcome in certain matters could, from time to time, have a material effect on the Company’s consolidated net income or cash flows in particular quarterly or annual periods.
Commitments
Mortgage Loan Commitments
The Company commits to lend funds under mortgage loan commitments. The amounts of these mortgage loan commitments were $2.2 billion and $3.3 billion and $3.9 billion at September 30, 2017March 31, 2024 and December 31, 2016,2023, respectively.
Commitments to Fund Partnership Investments, Bank Credit Facilities Bridge Loans and Private Corporate Bond Investments
The Company commits to fund partnership investments and to lend funds under bank credit facilities bridge loans and private corporate bond investments. The amounts of these unfunded commitments were $4.0$4.1 billion and $4.2$4.4 billion at September 30, 2017March 31, 2024 and December 31, 2016,2023, respectively.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
15. Contingencies, Commitments and Guarantees (continued)
Guarantees
In the normal course of its business, the Company has provided certain indemnities guarantees and commitmentsguarantees to third parties such that it may be required to make payments now or in the future. In the context of acquisition, disposition, investment and other transactions, the Company has provided indemnities and guarantees, including those related to tax, environmental and other specific liabilities and other indemnities and guarantees that are triggered by, among other things, breaches of representations, warranties or covenants provided by the Company. In addition, in the normal course of business, the Company provides indemnifications to counterparties in contracts with triggers similar to the foregoing, as well as for certain other liabilities, such as third-party lawsuits. These obligations are often subject to time limitations that vary in duration, including contractual limitations and those that arise by operation of law, such as applicable statutes of limitation. In some cases, the maximum potential obligation under the indemnities and guarantees is subject to a contractual limitation ranging from less than $1 million to $127$570 million, with a cumulative maximum of $367$669 million, while in other cases such limitations are not specified or applicable. Since certain of these obligations are not subject to limitations, the Company does not believe that it is possible to determine the maximum potential amount that could become due under these guarantees in the future. Management believes that it is unlikely the Company will have to make any material payments under these indemnities guarantees, or commitments.guarantees.
In addition, the Company indemnifies its directors and officers as provided in its charters and by-laws. Also, the Company indemnifies its agents for liabilities incurred as a result of their representation of the Company’s interests. Since these indemnities are generally not subject to limitation with respect to duration or amount, the Company does not believe that it is possible to determine the maximum potential amount that could become due under these indemnities in the future.
The Company’s recorded liabilities were $4$2 million at September 30, 2017both March 31, 2024 and $5 million at December 31, 2016, respectively,2023, for indemnities guarantees and commitments.
12. Related Party Transactions
guarantees.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
12.16. Related Party Transactions (continued)
Service Agreements
The Company has entered into various agreements with affiliates for services necessary to conduct its activities. Typical services provided under these agreements include personnel, policy administrative functions and distribution services. For certain agreements, charges are based on various performance measures or activity-based costing. The bases for such charges are modified and adjusted by management when necessary or appropriate to reflect fairly and equitably the actual cost incurred by the Company and/or affiliate.its affiliates. Expenses and fees incurred with affiliates related to these agreements, recorded in other expenses, were $575$722 million and $1.7 billion$715 million for the three months ended March 31, 2024 and nine months ended September 30, 2017, respectively, and $631 million and $1.7 billion for the three months and nine months ended September 30, 2016,2023, respectively. RevenuesTotal revenues received from affiliates related to these agreements recorded in universal life and investment-type product policy fees, were $31$11 million and $93$14 million for the three months ended March 31, 2024 and nine months ended September 30, 2017, respectively, and $37 million and $104 million for the three months and nine months ended September 30, 2016,2023, respectively. Revenues received from affiliates related to these agreements, recorded in other revenues, were $27 million and $82 million for the three months and nine months ended September 30, 2017, respectively, and $37 million and $110 million for the three months and nine months ended September 30, 2016, respectively.
The Company also entered into agreements with affiliates to provide additional services necessary to conduct the affiliates’ activities. Typical services provided under these agreements include management, policy administrative functions, investment advice and distribution services. Expenses incurred by the Company related to these agreements, included in other expenses, were $378 million and $1.1 billion for the three months andnine months endedSeptember 30, 2017, respectively, and $304 million and $1.1 billion for the three months and nine months ended September 30, 2016, respectively, and were reimbursed to the Company by these affiliates.
The Company had net payables to affiliates, related to the items discussed above, of $142$28 million and $165$56 million at September 30, 2017March 31, 2024 and December 31, 2016,2023, respectively.
See Notes 5 and 10Note 9 for additional information on related party transactions.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
16. Related Party Transactions (continued)
Related Party Reinsurance Transactions
The Company has reinsurance agreements with certain of MetLife, Inc.’s subsidiaries, including MetLife Reinsurance Company of Charleston (“MRC”), MetLife Reinsurance Company of Vermont, Metropolitan Tower LifeMTL, Superior Vision Insurance, CompanyInc. and General American LifeMetLife Insurance Company,K.K., all of which are related parties. Additionally,
Information regarding the Company hassignificant effects of affiliated reinsurance agreements with Brighthouse Insurance, Brighthouse Life Insurance Companyon the interim condensed consolidated statements of NY (“Brighthouse NY”)operations and New England Life Insurance Company (“NELICO”), former subsidiaries of MetLife, Inc. that were part of the Separation. See Note 2.comprehensive income (loss) was as follows:
| | | | | | | | | | | | | | | | | | |
| | | | Three Months
Ended
March 31, |
| | | | | | 2024 | | 2023 |
| | | | | (In millions) |
| Premiums | | | | | | | | |
| Reinsurance assumed | | | | | | $ | 1 | | | $ | (27) | |
| Reinsurance ceded | | | | | | (103) | | | (84) | |
| Net premiums | | | | | | $ | (102) | | | $ | (111) | |
| Universal life and investment-type product policy fees | | | | | | | | |
| Reinsurance assumed | | | | | | $ | 3 | | | $ | — | |
| Reinsurance ceded | | | | | | — | | | (2) | |
| Net universal life and investment-type product policy fees | | | | | | $ | 3 | | | $ | (2) | |
| Other revenues | | | | | | | | |
| Reinsurance assumed | | | | | | $ | 28 | | | $ | 22 | |
| Reinsurance ceded | | | | | | 115 | | | 115 | |
| Net other revenues | | | | | | $ | 143 | | | $ | 137 | |
| Policyholder benefits and claims | | | | | | | | |
| Reinsurance assumed | | | | | | $ | 12 | | | $ | (169) | |
| Reinsurance ceded | | | | | | (86) | | | (77) | |
| Net policyholder benefits and claims | | | | | | $ | (74) | | | $ | (246) | |
| Policyholder liability remeasurement (gains) losses | | | | | | | | |
| Reinsurance assumed | | | | | | $ | — | | | $ | (39) | |
| Reinsurance ceded | | | | | | 2 | | | (5) | |
| Net policyholder liability remeasurement (gains) losses | | | | | | $ | 2 | | | $ | (44) | |
| Interest credited to policyholder account balances | | | | | | | | |
| Reinsurance assumed | | | | | | $ | 89 | | | $ | 73 | |
| Reinsurance ceded | | | | | | (3) | | | (3) | |
| Net interest credited to policyholder account balances | | | | | | $ | 86 | | | $ | 70 | |
| Other expenses | | | | | | | | |
| Reinsurance assumed | | | | | | $ | 12 | | | $ | 204 | |
| Reinsurance ceded | | | | | | 56 | | | 63 | |
| Net other expenses | | | | | | $ | 68 | | | $ | 267 | |
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
12.16. Related Party Transactions (continued)
Information regarding the significant effects of affiliated reinsurance included on the consolidated statements of operations and comprehensive income (loss) was as follows:
|
| | | | | | | | | | | | | | | |
| | Three Months
Ended
September 30, | | Nine Months
Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (In millions) |
| Premiums | | | | | | | |
| Reinsurance assumed | $ | 5 |
| | $ | 188 |
| | $ | 118 |
| | $ | 569 |
|
| Reinsurance ceded | (32 | ) | | (9 | ) | | (101 | ) | | (30 | ) |
| Net premiums | $ | (27 | ) | | $ | 179 |
| | $ | 17 |
| | $ | 539 |
|
| Universal life and investment-type product policy fees | | | | | | | |
| Reinsurance assumed | $ | (2 | ) | | $ | 14 |
| | $ | 16 |
| | $ | 45 |
|
| Reinsurance ceded | (6 | ) | | (40 | ) | | (16 | ) | | (109 | ) |
| Net universal life and investment-type product policy fees | $ | (8 | ) | | $ | (26 | ) | | $ | — |
| | $ | (64 | ) |
| Other revenues | | | | | | | |
| Reinsurance assumed | $ | 4 |
| | $ | 9 |
| | $ | 30 |
| | $ | (5 | ) |
| Reinsurance ceded | 139 |
| | 143 |
| | 421 |
| | 429 |
|
| Net other revenues | $ | 143 |
| | $ | 152 |
| | $ | 451 |
| | $ | 424 |
|
| Policyholder benefits and claims | | | | | | | |
| Reinsurance assumed | $ | 4 |
| | $ | 197 |
| | $ | 63 |
| | $ | 532 |
|
| Reinsurance ceded | (26 | ) | | (34 | ) | | (90 | ) | | (72 | ) |
| Net policyholder benefits and claims | $ | (22 | ) | | $ | 163 |
| | $ | (27 | ) | | $ | 460 |
|
| Interest credited to policyholder account balances | | | | | | | |
| Reinsurance assumed | $ | 12 |
| | $ | 8 |
| | $ | 36 |
| | $ | 24 |
|
| Reinsurance ceded | (3 | ) | | (22 | ) | | (9 | ) | | (66 | ) |
| Net interest credited to policyholder account balances | $ | 9 |
| | $ | (14 | ) | | $ | 27 |
| | $ | (42 | ) |
| Other expenses | | | | | | | |
| Reinsurance assumed | $ | (4 | ) | | $ | 9 |
| | $ | 33 |
| | $ | 456 |
|
| Reinsurance ceded | 139 |
| | 145 |
| | 459 |
| | 417 |
|
| Net other expenses | $ | 135 |
| | $ | 154 |
| | $ | 492 |
| | $ | 873 |
|
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
12. Related Party Transactions (continued)
Information regarding the significant effects of affiliated reinsurance included on theinterim condensed consolidated balance sheets was as follows at:
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
| Assumed | | Ceded | | Assumed | | Ceded |
| (In millions) |
| Assets | | | | | | | |
| Premiums, reinsurance and other receivables | $ | 165 | | | $ | 11,260 | | | $ | 164 | | | $ | 11,302 | |
| Deferred policy acquisition costs and value of business acquired | 153 | | | (159) | | | 158 | | | (160) | |
| Total assets | $ | 318 | | | $ | 11,101 | | | $ | 322 | | | $ | 11,142 | |
| Liabilities | | | | | | | |
| Future policy benefits | $ | 2,157 | | | $ | — | | | $ | 2,236 | | | $ | — | |
| Policyholder account balances | 9,020 | | | — | | | 9,040 | | | — | |
| Other policy-related balances | 68 | | | (38) | | | 65 | | | (35) | |
| Other liabilities | 833 | | | 10,043 | | | 957 | | | 10,267 | |
| Total liabilities | $ | 12,078 | | | $ | 10,005 | | | $ | 12,298 | | | $ | 10,232 | |
|
| | | | | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| | Assumed | | Ceded | | Assumed | | Ceded |
| | (In millions) |
| Assets | | | | | | | |
| Premiums, reinsurance and other receivables | $ | 50 |
| | $ | 12,730 |
| | $ | 229 |
| | $ | 13,334 |
|
| Deferred policy acquisition costs and value of business acquired | — |
| | (182 | ) | | 38 |
| | (198 | ) |
| Total assets | $ | 50 |
| | $ | 12,548 |
| | $ | 267 |
| | $ | 13,136 |
|
| Liabilities | | | | | | | |
| Future policy benefits | $ | 384 |
| | $ | (4 | ) | | $ | 663 |
| | $ | (4 | ) |
| Policyholder account balances | 168 |
| | — |
| | 563 |
| | — |
|
| Other policy-related balances | 104 |
| | 16 |
| | 212 |
| | 18 |
|
| Other liabilities | 1,865 |
| | 12,969 |
| | 1,853 |
| | 13,065 |
|
| Total liabilities | $ | 2,521 |
| | $ | 12,981 |
| | $ | 3,291 |
| | $ | 13,079 |
|
The Company ceded two blocks of business to an affiliate on a 75% coinsurance with funds withheld basis. Certain contractual features of these agreements qualify as embedded derivatives, which are separately accounted for at estimated fair value on the Company’s interim condensed consolidated balance sheets. The embedded derivatives related to the funds withheld associated with these reinsurance agreements are included within other liabilities and were $15($42) million and $10($39) million at September 30, 2017March 31, 2024 and December 31, 2016,2023, respectively. Net derivative gains (losses) associated with these embedded derivatives were less than ($1)$3 million and ($6) million for the three months and nine months ended September 30, 2017, respectively,March 31, 2024 and less than ($1) million and ($17) millionfor the threemonths and nine months ended September 30, 2016,2023, respectively.
The Company ceded risks to an affiliate related to guaranteed minimum benefit guarantees written directly by the Company. These ceded reinsurance agreements contain embedded derivatives and changes in their estimated fair value are also included within net derivative gains (losses). The embedded derivatives associated with the cessions are included within premiums, reinsurance and other receivables and were $0 and $460 million at September 30, 2017 and December 31, 2016, respectively. Net derivative gains (losses) associated with the embedded derivatives were less than ($1) million and ($110) million for the threemonths and nine months ended September 30, 2017, respectively, and ($33) million and $275 million for the threemonths and nine months ended September 30, 2016, respectively.
Certain contractual features of the closed block agreement with MRC create anqualify as embedded derivative,derivatives, which isare separately accounted for at estimated fair value on the Company’s interim condensed consolidated balance sheets. The embedded derivative related to the funds withheld associated with this reinsurance agreement was included within other liabilities and was $891($344) million and $767($265) million at September 30, 2017March 31, 2024 and December 31, 2016,2023, respectively. Net derivative gains (losses) associated with the embedded derivative were less than ($1)$79 million and ($124)165) million for the threemonths and nine months ended September 30, 2017, respectively,March 31, 2024 and ($3) million and ($512) million for the threemonths and nine months ended September 30, 2016,2023, respectively.
The Company assumes risks from affiliates related to guaranteed minimum benefit guarantees written directly by the affiliates. These assumed reinsurance agreements contain embedded derivatives and changes in their estimated fair value are also included within net derivative gains (losses). The embedded derivatives associated with these agreements are included within policyholder account balances and were $3 million and $390 million at September 30, 2017 and December 31, 2016, respectively. Net derivative gains (losses) associated with the embedded derivatives were less than $1 million and $263 million for the threemonths and nine months ended September 30, 2017, respectively, $6 million and ($136) million for the threemonths andnine months endedSeptember 30, 2016, respectively.
In January 2017, Brighthouse NY and NELICO recaptured risks related to certain variable annuities, including guaranteed minimum benefits, reinsured by the Company. This recapture resulted in a decrease in cash and cash equivalents of $34 million, a decrease in premiums, reinsurance and other receivables of $77 million, a decrease in future policy benefits of $79 million, a decrease in policyholder account balances of $387 million and an increase in other liabilities of $76 million. For the nine months ended September 30, 2017, the Company recognized a gain of $178 million, net of income tax, as a result of this transaction.
Metropolitan Life Insurance Company
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (continued)
12. Related Party Transactions (continued)
In January 2017, the Company recaptured risks related to guaranteed minimum benefit guarantees on certain variable annuities reinsured by Brighthouse Insurance. This recapture resulted in an increase in investments and cash and cash equivalents of $428 million and a decrease in premiums, reinsurance and other receivables of $565 million. The Company recognized a loss of $89 million, net of income tax, for thenine months endedSeptember 30, 2017, as a result of this transaction.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Index to Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements and Other Financial Information
For purposes of this discussion, “MLIC,” the “Company,” “we,” “our” and “us” refer to Metropolitan Life Insurance Company, a New York corporation incorporated in 1868, and its subsidiaries. Metropolitan Life Insurance Company is a wholly-owned subsidiary of MetLife, Inc. (MetLife, Inc., together with its subsidiaries and affiliates, “MetLife”). Management’s narrative analysis of the Company’s results of operations is presented pursuant to General Instruction H(2)(a) of Form 10-Q. This narrative analysis should be read in conjunction with Metropolitan Life Insurance Company’s Annual Report on Form 10-K for the year ended December 31, 20162023 (the “2016“2023 Annual Report”), the cautionary language regarding forward-looking statements included below, the “Risk Factors” set forth in Part II, Item 1A, and the additional risk factors referred to therein, and the Company’s interim condensed consolidated financial statements included elsewhere herein.
This narrative analysis 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, or are tied to future periods, 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.”Statements” for cautionary language regarding forward-looking statements.
This narrative analysis includes references to our performance measure, operatingadjusted earnings, that is not based on accounting principles generally accepted in the United States of America (“GAAP”). This measure is used by management to evaluate performance and allocate resources. Consistent with GAAP guidance for segment reporting, operating earnings is also our GAAP measure of segment performance. Operating earnings allows analysis of our performance and facilitates comparisons to industry results. Forward-looking guidance provided on a non-GAAP basis cannot be reconciled to the most directly comparable GAAP measures on a forward-looking basis because net income may fluctuate significantly if net investment gains and losses and net derivative gains and losses move outside of estimated ranges. See “— Non-GAAP and Other Financial Disclosures” for definitions and a definition and discussion of this and other financial measures, and “— Results of Operations” for reconciliations of historical non-GAAP financial measures to the most directly comparable GAAP measures.
Business
Overview
MLIC is a provider of insurance, annuities, employee benefits and asset management to both individuals and groups. MLIC is organized into two segments: U.S. and MetLife Holdings. In addition, the Company reports certain of its results of operations in Corporate & Other. See Note 2 of the Notes to the Interim Condensed Consolidated Financial Statements for further information on the Company’s segments and Corporate & Other. Management continues to evaluate the Company’s segment performance and allocated resources and may adjust related measurements in the future to better reflect segment profitability.
Other Key Information
Separation of Brighthouse
On August 4, 2017, MetLife, Inc. completed the separation of Brighthouse Financial, Inc. and its subsidiaries (“Brighthouse”) through a distribution of 96,776,670 shares of the 119,773,106 shares of Brighthouse Financial, Inc. common stock outstanding, representing 80.8% of those shares, to MetLife, Inc. common shareholders (the “Separation”). MetLife, Inc. retained the remaining ownership interest of 22,996,436 shares, or 19.2%, of Brighthouse Financial, Inc. common stock outstanding. Certain MetLife affiliates hold MetLife, Inc. common stock and, as a result, participated in the distribution.
U.S. Retail Advisor Force DivestitureCurrent Market Conditions
In July 2016, MetLife, Inc. completed the sale to Massachusetts Mutual Life Insurance CompanyUnited States (“MassMutual”U.S.”) of MetLife’s U.S. retail advisor force and certain assets associated with the MetLife Premier Client Group, including all of the issued and outstanding shares of MetLife’s affiliated broker-dealer, MetLife Securities, Inc., a wholly-owned subsidiary of MetLife, Inc. (the “U.S. Retail Advisor Force Divestiture”). MassMutual assumed all of the liabilities related to such assets that arise or occur at or after the closing of the sale. As part of the transactions, MetLife, Inc. and MassMutual entered into a product development agreement under which the part of MetLife’s former U.S. retail business now in Brighthouse will be the exclusive developer of certain annuity products to be issued by MassMutual. In the MassMutual purchase agreement, MetLife, Inc. agreed to indemnify MassMutual for certain claims, liabilities and breaches of representations and warranties up to limits described in the purchase agreement.
Extraordinary Dividends
In December 2016, MLIC distributed to MetLife, Inc., as a non-cash extraordinary dividend, all of the issued and outstanding shares of common stock of each of New England Life Insurance Company (“NELICO”) and General American Life Insurance Company (“GALIC”). See “— Results of Operations” and Note 3 of the Notes to the Consolidated Financial Statements included in the 2016 Annual Report for further information.
Non-Bank SIFI
On December 18, 2014, the Financial Stability Oversight Council (“FSOC”) designated MetLife, Inc. as a non-bank systemically important financial institution (“non-bank SIFI”) subject to regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) and the Federal Reserve BankOpen Market Committee took various actions in 2023 to promote economic stability and combat inflation, including raising interest rates. Rates have remained steady in 2024, reflecting lower inflation. During inflationary periods with rising interest rates, the value of New York (collectivelyfixed income investments falls which could increase realized and unrealized losses, resulting in additional deferred tax assets that may not be realizable.
Regulatory Developments
The following discussion on regulatory developments should be read in conjunction with “Business — Regulation” in the Federal Reserve Board,2023 Annual Report, as amended or supplemented here.
State Insurance Regulation
Surplus and Capital
Investments
The National Association of Insurance Commissioners (“NAIC”) is focused on enhancing regulatory oversight of insurers’ investments in complex assets, such as structured securities. In connection with evaluating the “Federal Reserve”)risks of investing in leveraged loans and the Federal Deposit Insurance Corporation (the “FDIC”collateralized loan obligations (“CLOs”), the NAIC adopted an amendment to the Purposes and Procedures Manual in 2023. Under the amendment, the NAIC Structured Securities Group (“SSG”) will assign risk weights to CLOs based on its own modeling, as well asopposed to enhanced supervisioncredit ratings. The SSG will model CLO investments and prudential standards. Onevaluate tranche level losses across all debt tranches under a series of calibrated and weighted collateral stress scenarios to assign NAIC designations that minimize risk-based capital (“RBC”) arbitrage. The NAIC’s goal is to ensure that the aggregate RBC factor for owning all tranches of a CLO is similar to that required for owning all of the underlying loan collateral. Insurers are required to begin reporting the financially modeled NAIC designations for CLOs with their year-end 2024 financial statement filings, although the NAIC announced in March 30, 2016,2024 that implementation is expected to be delayed by a year to allow more time to develop the modeling methodology. The delay requires an amendment to the Purposes and Procedures Manual, which the NAIC is likely to adopt in August 2024.
Standards of Conduct, ERISA, Fiduciary Considerations, and Other Pension and Retirement Regulation
In 2023, the U.S. District CourtDepartment of Labor (the “DOL”) proposed a regulation to change the definition of “fiduciary” for the Districtpurposes of Columbia (the “D.C. District Court”) ordered that the designation of MetLife, Inc. as a non-bank SIFI by the FSOC be rescinded. On April 8, 2016, the FSOC appealed the D.C. District Court’s order to the United States Court of Appeals for the District of Columbia (“D.C. Circuit”), and oral argument was heard on October 24, 2016. In a Presidential Memorandum for the Secretary of the Treasury dated April 21, 2017, President Trump directed the Secretary of the Treasury to review the FSOC SIFI designation process for transparency, due process and other factors, and, pending the completion of the review and submission of the Secretary’s recommendations, to refrain from voting for any non-emergency designations. The Secretary’s review and report were due by October 18, 2017. As of November 8, 2017, the Secretary’s report has not yet been issued. On August 2, 2017, the D.C. Circuit ordered that the appeal be held in abeyance pending the issuance of that report by the Secretary of the Treasury. The D.C. Circuit also ordered the parties to file additional procedural motions to govern future proceedings by November 17, 2017, or within 30 days of the issuance of the Treasury Secretary’s report, whichever occurs first. If the FSOC prevails on appeal or designates MetLife, Inc. as systemically important as part of its ongoing review of non-bank financial companies, MetLife, Inc. could once again be subject to regulation as a non-bank SIFI. See “Business — Regulation — Potential Regulation of MetLife, Inc. as a Non-Bank SIFI” included in the 2016 Annual Report.
Regulatory Developments
The U.S. insurance industry is regulated primarily at the state level, with some products and services also subject to federal regulation. In addition, we are subject to regulation under the insurance holding company laws of the states of domicile of our U.S. insurance companies. Furthermore, some of our operations, products and services are subject to consumer protection laws, securities regulation, environmental and unclaimed property laws and regulations, and to the Employee Retirement Income Security Act of 1974 (“ERISA”). If MetLife, Inc. were re-designated as a non-bank SIFI, it could also be subject to regulation by the Federal Reserve and the FDIC and, as a subsidiaryparallel provisions of MetLife, Inc., we could be affected by such regulation. We may also be affected by any additional capital requirements to which MetLife, Inc. may become subject as a global systemically important insurer. See “Business — Regulation,” “Risk Factors — Regulatory and Legal Risks — Our Insurance Businesses Are Highly Regulated, and Changes in Regulation and in Supervisory and Enforcement Policies May Reduce Our Profitability and Limit Our Growth” included in the 2016 Annual Report, as amended or supplemented in our subsequently filed Quarterly Reports on Form 10-Q under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Business — Regulatory Developments” and similarly named sections under the caption “Risk Factors.”
The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) effected the most far-reaching overhaul of financial regulation in the United States in decades. However, President Trump and the majority party have expressed goals to amend Dodd-Frank. On June 8, 2017, the U.S. House of Representatives passed the Financial CHOICE Act of 2017, which proposes to amend or repeal various sections of Dodd-Frank. This proposed legislation is now being considered by the U.S. Senate. On February 3, 2017, President Trump issued an Executive Order that calls for a comprehensive review of laws, treaties, regulations, policies and guidance regulating the U.S. financial system, and requires the Secretary of the Treasury to consult with the heads of the member agencies of FSOC to identify any laws, regulations or requirements that inhibit federal regulation of the financial system in a manner consistent with the core principles identified in the Executive Order. The Secretary’s report on asset management and insurance was issued on October 26, 2017 and recommended activities-based evaluations of systemic risk in the insurance industry rather than an entity-based approach. The report also supported primary regulation of the U.S. insurance industry by the states rather than the federal government. See “Business — Regulation — Insurance Regulation” and “Risk Factors — Regulatory and Legal Risks — Our Insurance Businesses Are Highly Regulated and Changes in Regulation and In Supervisory and Enforcement Policies May Reduce Our Profitability and Limit Our Growth” in the 2016 Annual Report, as amended or supplemented in our subsequently filed Quarterly Reports on Form 10-Q, for a discussion of Dodd-Frank and other U.S. regulation.
Insurance Regulation
Insurance Regulatory Examinations and Other Activities
The International Association of Insurance Supervisors has encouraged U.S. insurance supervisors, such as the New York State Department of Financial Services (“NYDFS”), to establish Supervisory Colleges for U.S.-based insurance groups with international operations, including MetLife, to facilitate cooperation and coordination among the insurance groups’ supervisors and to enhance the member regulators’ understanding of an insurance group’s risk profile. In October 2017, a Supervisory College meeting was chaired by the NYDFS and attended by MetLife’s key U.S. and international regulators. MetLife has not received any reports or recommendations from the Supervisory College meeting, and we do not expect any outcome of the meeting to have a material adverse effect on our business.
ERISA Considerations
We provide products and services to certain employee benefit plans that are subject to ERISA or the Internal Revenue Code of 1986, as amended (the “Code”). The applicable provisions, when a financial professional, including an insurance producer, provides investment advice, and to amend various existing prohibited transaction exemptions (“PTEs”) that financial professionals rely on when making recommendations. On April 23, 2024, the DOL finalized and published this new definition of “fiduciary” for purposes of ERISA and parallel provisions of the Code and finalized and published amendments to these PTEs. We are subject to enforcement byevaluating the Department of Labor (“DOL”), among others. DOL regulations which became effective on June 9, 2017 broadened circumstances under which we may be deemed fiduciaries under ERISA in providing investment advice, increasing our potential exposure to fiduciary liabilities. Regulations that apply more onerous disclosure requirements and increase fiduciary requirements also become effective on January 1, 2018. On February 3, 2017, President Trump asked the DOL to update its analysis of the impact of the new regulations and possibly propose new regulations. On July 6, 2017, the DOL published a new Request for Information regarding a possible delay in the applicability date of January 1, 2018 along with possible additional changesthese developments on our business, particularly as it pertains to the rule. Following this, on August 31, 2017, the DOL proposedsale of insurance, annuity and welfare benefit products to delay the applicability date to July 1, 2019. retirement investors.
Management of Climate Risk
The public comment period for that proposal ended on September 15, 2017. The ruleU.S. Securities and Exchange Commission (“SEC”) is also being challengedcontinuing its focus on climate, and environmental, social and governance (“ESG”) risks and opportunities and has published its rulemaking list which contains certain ESG-related rulemakings that the SEC is considering. In March 2024, the SEC adopted final rules requiring registrants to provide additional climate-related information in their registration statements and annual reports, including in their financial statements. The rules include a phased-in compliance period beginning with the Fifth Circuit Court of Appeals (and elsewhere), where a decision is expected by2025 fiscal year for large accelerated reporting companies, including MetLife, Inc. Multiple parties initiated litigation challenging the end of 2017. See “Risk Factors — Regulatory and Legal Risks — Our Insurance Businesses Are Highly Regulated, and Changes in Regulationfinal rules, and in Supervisory and Enforcement Policies May Reduce Our Profitability and Limit Our Growth” inApril 2024, the 2016 Annual Report. SEC voluntarily stayed the final rules pending completion of judicial review.
Potential Regulation of MetLife, Inc. as a Non-Bank SIFI
See “— Overview — Other Key Information — Non-Bank SIFI” above for recent developments concerning FSOC’s appeal of the D.C. District Court’s order that the designation of MetLife, Inc. as a non-bank SIFI by the FSOC be rescinded.
Regulation of Over-the-Counter Derivatives and Qualified Financial Contracts
Federal banking regulators have recently adopted new rules that will apply to certain qualified financial contracts, including many derivatives contracts, securities lending agreements and repurchase agreements, with certain banking institutions and certain of their affiliates. These new rules, which will begin to go into effect in 2019, will generally require the banking institutions and their applicable affiliates to include contractual provisions in their qualified financial contracts that limit or delay certain rights of their counterparties including counterparties’ default rights (such as the right to terminate the contracts or foreclose on collateral) and restrictions on assignments and transfers of credit enhancements (such as guarantees) arising in connection with the banking institution or an applicable affiliate becoming subject to a bankruptcy, insolvency, resolution or similar proceeding. To the extent that any of the derivatives, securities lending agreements or repurchase agreements that we enter into are subject to these new rules, it could limit our recovery in the event of a default and increase our counterparty risk.
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 on the Interim Condensed Consolidated Financial Statements.interim condensed consolidated financial statements. The most critical estimates include those used in determining:
| |
(i) | liabilities for future policy benefits and the accounting for reinsurance; |
| |
(ii) | capitalization and amortization of deferred policy acquisition costs (“DAC”) and the establishment and amortization of value of business acquired (“VOBA”); |
| |
(iii) | estimated fair values of investments in the absence of quoted market values; |
| |
(iv) | investment impairments; |
| |
(v) | estimated fair values of freestanding derivatives and the recognition and estimated fair value of embedded derivatives requiring bifurcation; |
| |
(vi) | measurement of employee benefit plan liabilities; |
| |
(vii) | measurement of income taxes and the valuation of deferred tax assets; and(i)future policy benefit liabilities, market risk benefits (“MRBs”) and the accounting for reinsurance; (ii)estimated fair values of investments in the absence of quoted market values; (iii)investment allowance for credit loss and impairments; (iv)estimated fair values of freestanding derivatives; (v)measurement of employee benefit plan liabilities; (vi)measurement of income taxes and the valuation of deferred tax assets; and (vii)liabilities for litigation and regulatory matters. |
| |
(viii) | liabilities for litigation and regulatory matters.
|
In applying our accountingthese policies and estimates, management makes subjective and complex judgments that frequently require assumptions 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 our business and operations. Actual results could differ from these estimates.
The aboveCompany’s critical accounting estimates are described in “Management’s 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 included in the 20162023 Annual Report.
Results of Operations
Consolidated ResultsOverview
Business Overview. Overall sales forMLIC is a provider of insurance, annuities, employee benefits and asset management. In the nine months ended September 30, 2017 increased over prior period levels reflecting higher salesfourth quarter of 2023, the Company reorganized from our U.S. segmenttwo segments into the following three segments to reflect changes in both ourmanagement’s responsibilities: Group Benefits, Retirement and Income Solutions (“RIS”), and MetLife Holdings. The Group Benefits businesses. The increase inand RIS was primarily driven by an increase in funding agreement issuances,businesses were previously reported as well as higher sales of pension risk transfers and stable value products, partially offset by lower sales of structured settlements. Strong performance from our core and voluntary products resulted in a 22% increase in sales from our Group Benefits business. In connection with the Separation and the U.S. Retail Advisor Force Divestiture, wesegment. These changes were applied retrospectively and did not have discontinuedan impact on prior period total consolidated net income (loss) or adjusted earnings. In addition, the marketingCompany continues to report certain of lifeits results of operations in Corporate & Other. See Note 2 of the Notes to the Interim Condensed Consolidated Financial Statements for further information on the Company’s segments and annuity products in our MetLife Holdings segment, which has ledCorporate & Other.
Key Financial Highlights
•Net income attributable to lower sales.MLIC of $938 million for the three months ended March 31, 2024, compared to net loss of $89 million for the three months ended March 31, 2023.
•Adjusted earnings of $706 million for the three months ended March 31, 2024, compared to $795 million for the three months ended March 31, 2023.
Consolidated Results
| | | | Nine Months
Ended
September 30, |
| | 2017 | | 2016 |
| | (In millions) |
| | | Three Months
Ended
March 31, | |
| | | Three Months
Ended
March 31, | |
| | | Three Months
Ended
March 31, | |
| | | | | 2024 | | | | | | | 2024 | | 2023 |
| | | | | (In millions) | | | | | | | (In millions) |
| Revenues | | | |
| Premiums | |
| Premiums | |
| Premiums | $ | 17,597 |
| | $ | 16,801 |
|
| Universal life and investment-type product policy fees | 1,706 |
| | 1,928 |
|
| Net investment income | 7,955 |
| | 8,349 |
|
| Other revenues | 1,148 |
| | 1,121 |
|
| Net investment gains (losses) | 184 |
| | 115 |
|
| Net derivative gains (losses) | (317 | ) | | (562 | ) |
| Total revenues | 28,273 |
| | 27,752 |
|
| Expenses | | | |
| Policyholder benefits and claims and policyholder dividends | 20,388 |
| | 19,943 |
|
| Policyholder benefits and claims and policyholder dividends | |
| Policyholder benefits and claims and policyholder dividends | |
| Policyholder liability remeasurement (gains) losses | |
| Market risk benefit remeasurement (gains) losses | |
| Interest credited to policyholder account balances | 1,660 |
| | 1,675 |
|
| Capitalization of DAC | (57 | ) | | (285 | ) |
| Amortization of DAC and VOBA | 124 |
| | 420 |
|
| Amortization of deferred policy acquisition costs and value of business acquired | |
| Interest expense on debt | 79 |
| | 84 |
|
| Other expenses | 3,662 |
| | 4,231 |
|
| Other expenses, net of capitalization of deferred policy acquisition costs | |
| Total expenses | 25,856 |
| | 26,068 |
|
| Income (loss) before provision for income tax | 2,417 |
| | 1,684 |
|
| Provision for income tax expense (benefit) | 475 |
| | 232 |
|
| | Net income (loss) | |
| | Net income (loss) | |
| | Net income (loss) | 1,942 |
| | 1,452 |
|
| Less: Net income (loss) attributable to noncontrolling interests | 8 |
| | (9 | ) |
| Net income (loss) attributable to Metropolitan Life Insurance Company | $ | 1,934 |
| | $ | 1,461 |
|
NineThree Months Ended September 30, 2017March 31, 2024 Compared with the NineThree Months Ended September 30, 2016March 31, 2023
During the nine months ended September 30, 2017,Net income (loss) before provision for income tax increased $733attributable to MLIC- Increased $1.0 billion primarily due to the following:
Net Investment Gains (Losses)- Unfavorable change of $34 million ($49027 million, net of income tax) from:
•Losses on sales of fixed maturity securities in the priorcurrent period primarily driven by favorable changes
•Losses on other limited partnerships in operating earnings and net derivative gains (losses). As previously discussed, MLIC distributed to MetLife, Inc., as a non-cash extraordinary dividend, all of the issued and outstanding shares of common stock of each of NELICO and GALIC in December 2016. This transaction resulted in a $40 million decrease in net income for the nine months ended September 30, 2017 as compared to the prior period.current period
Partially offset by:
Management of Investment Portfolio and Hedging Market Risks with Derivatives. We manage our investment portfolio using disciplined asset/liability management principles, focusing•Lower impairment losses on cash flow and duration to support our current and future liabilities. Our intent is to match the timing and amount of liability cash outflows with invested assets that have cash inflows of comparable timing and amount, while optimizing risk-adjusted net investment income and risk-adjusted total return. Our investment portfolio is heavily weighted toward fixed income investments, with over 80% of our portfolio invested in fixed maturity securities and mortgage loans. These securities and loans have varying maturities and other characteristics which cause them to be generally well suited for matching the cash flow and duration of insurance liabilities.
We purchase investments to support our insurance liabilities and not to generate net investment gains and losses. However, net investment gains and losses are incurred and can change significantly from period to period due to changes in external influences, including changes in market factors such as interest rates,•Gains on foreign currency exchange rates, credit spreads and equity markets; counterparty specific factors such as financial performance, credit rating and collateral valuation; and internal factors such as portfolio rebalancing. Changestransactions in these factors fromthe current period to
•Gains on sales of real estate investments in the current period can significantly impact the levels of both impairments and realized gains and losses on investments sold.
We also use derivatives as an integral part of our management of the investment portfolio and insurance liabilities to hedge certain risks, including changes in interest rates, foreign currency exchange rates, credit spreads and equity market levels.
We use freestanding interest rate, equity, credit and currency derivatives to hedge certain invested assets and insurance liabilities. A small portion of these hedges are designated and qualify as accounting hedges, which reduce volatility in earnings. For those hedges not designated as accounting hedges, changes in market factors lead to the recognition of fair value changes in net derivative gains (losses) generally without an offsetting gain or loss recognized in earnings for the item being hedged, which creates volatility in earnings. During the first quarter of 2017, we began restructuring certain derivative hedges to partially stabilize volatility from nonqualified interest rate derivatives and to help meet prospective dividend objectives under varying interest rate scenarios. The restructuring of the hedge program is substantially complete in meeting our initial objectives. As part of this restructuring, we replaced certain nonqualified derivatives with derivatives that qualify for hedge accounting treatment. In addition, we also entered into replication transactions using interest rate swaps, which are accounted for at amortized cost under statutory guidelines and are nonqualified derivatives under GAAP. We actively evaluate market risk hedging needs and strategies to ensure our capital objectives are met under a range of market conditions.
Certain direct or assumed variable annuity products with guaranteed minimum benefits contain embedded derivatives that are measured at estimated fair value separately from the host variable annuity contract, with changes in estimated fair value recorded in net derivative gains (losses). We use reinsurance and derivatives to hedge the market and other risks inherent in these variable annuity guarantees. Ceded reinsurance of direct variable annuity products with guaranteed minimum benefits generally contain embedded derivatives that are measured at estimated fair value separately from the host variable annuity contract, with changes in estimated fair value recorded in net derivative gains (losses). The valuation of these embedded derivatives includes a nonperformance risk adjustment, which is unhedged, and can be a significant driver of net derivative gains (losses) and volatility in earnings, but does not have an economic impact on us.
Net Derivative Gains (Losses). Direct, assumed and ceded variable annuity embedded derivatives, as well as the associated freestanding derivatives, are referred to as “VA program derivatives” in the following table. All other embedded derivatives and all freestanding derivatives that are economic hedges- Favorable change of certain invested assets and insurance liabilities are referred to as “non-VA program derivatives” in the following table. The table below presents the impact on net derivative gains (losses) from non-VA program derivatives and VA program derivatives:
|
| | | | | | | |
| | Nine Months
Ended
September 30, |
| | 2017 | | 2016 |
| | (In millions) |
| Non-VA program derivatives | | | |
| Interest rate | $ | 68 |
| | $ | 992 |
|
| Foreign currency exchange rate | (354 | ) | | (50 | ) |
| Credit | 107 |
| | 45 |
|
| Equity | 26 |
| | 9 |
|
| Non-VA embedded derivatives | (190 | ) | | (664 | ) |
| Total non-VA program derivatives | (343 | ) | | 332 |
|
| VA program derivatives | | | |
| Embedded derivatives-direct and assumed guarantees: | | | |
| Market risks | 511 |
| | (85 | ) |
| Nonperformance risk adjustment | (39 | ) | | 173 |
|
| Other risks | 145 |
| | (1,209 | ) |
| Total | 617 |
| | (1,121 | ) |
| Embedded derivatives - ceded reinsurance: | | | |
| Market and other risks | (110 | ) | | 340 |
|
| Nonperformance risk adjustment | — |
| | (64 | ) |
| Total | (110 | ) | | 276 |
|
| Freestanding derivatives hedging direct and assumed embedded derivatives | (481 | ) | | (49 | ) |
| Total VA program derivatives | 26 |
| | (894 | ) |
| Net derivative gains (losses) | $ | (317 | ) | | $ | (562 | ) |
The unfavorable change in net derivative gains (losses) on non-VA program derivatives was $675$504 million ($439398 million, net of income tax). This was primarily due to mid- and long-term interest rates decreasing less in the current period versus the prior period, unfavorably impacting receive-fixed interest rate swaps, swaptions and floors, primarily hedging long duration liability portfolios. Additionally, the U.S. dollar weakened in relation to other key currencies more in the current period relative to the prior period, unfavorably impacting foreign currency swaps that primarily hedge foreign currency-denominated bonds. These unfavorable changes were partially offset by a change(1):
•Change in the value of the underlying assets favorably impacting non-VA- favorable impact to embedded derivatives related to funds withheld on a certain reinsurance agreement. Because certainagreement
•The U.S. dollar strengthened against major currencies in the changescurrent period versus weakened in the prior period - favorable impact to the estimated fair value of these freestanding derivatives are recognizedreceive-U.S. dollar currency swaps and buy-U.S. dollar currency forwards
Partially offset by:
•Long-term interest rates increased in net derivative gains (losses) without an offsetting gain or loss recognizedthe current period versus decreased in earnings for the item being hedged.prior period - unfavorable impact to the estimated fair value of receiver swaps and swaptions
The favorableMarket Risk Benefit Remeasurement (Gains) Losses(2) - Favorable change in net derivative gains (losses) on VA program derivatives was $920of $830 million ($598656 million, net of income tax). This was due to a favorable change of $1.1 billion ($694 million, net of income tax) in market and other risks on direct and assumed variable annuity embedded derivatives, net of the impact of market and other risks on the ceded reinsurance embedded derivatives and net of freestanding derivatives hedging those risks, partially offset by an unfavorable change of $148 million ($96 million, net of income tax) related to the change in the nonperformance risk adjustment on the direct and assumed variable annuity embedded derivatives, net of the impact of the nonperformance risk adjustment on the ceded variable annuity embedded derivatives. Other risks relate primarily to the impact of policyholder behavior and other non-market risks that generally cannot be hedged.:
The foregoing favorable change of $1.1 billion ($694 million, net of income tax) was primarily driven by changes in market factors and other risks.
The primary changes in market factors are summarized as follows:
•Long-term interest rates decreased lessincreased in the current period thanversus decreased in the prior period contributing to an unfavorable
Adjusted Earnings(3)- Unfavorable change of $89 million. See “— Consolidated Results — Adjusted Earnings.”
Taxes - Favorable change in our freestanding derivatives and a favorable change in our embedded derivatives. For example, the 30-year U.S. swapeffective tax rate decreased 6 basis points- 19% in the current period and decreased 84 basis pointsversus 53% in the prior period.period
Key weighted average equity index levels increased more in the current•Current period than in the prior period, contributing to an unfavorable change in our freestanding derivatives and a favorable change in our embedded derivatives.
The primary changes in other risks are summarized as follows:
Updates to actuarial policyholder behavior assumptions within the valuation model;
Impacts due to variable annuity reinsurance recaptures, which became effective in the first quarter of 2017;
An increase in the risk margin adjustment measuring policyholder behavior risks, which was affected by market and interesttax rate changes; and
A combination of other factors, which include fees being deducted from accounts and changes in the benefit base, premiums, lapses, withdrawals and deaths.
We calculate the nonperformance risk adjustment as the change in the embedded derivative discounted at the risk-adjusted rate (which includes our own credit spread to the extent that the embedded derivative is in-the-money) less the change in the embedded derivative discounted at the risk-free rate. The unfavorable change in the nonperformance risk adjustment on the direct and assumed variable annuity embedded derivatives of $212 million ($138 million, net of income tax) was primarily due to an unfavorable change of $190 million, before income tax, as a result of changes in capital market inputs, such as long-term interest rates and key equity index levels, on variable annuity guarantees, and an unfavorable change of $22 million, before income tax, related to changes in our own credit spread. The favorable change in the nonperformance risk adjustment on the ceded variable annuity embedded derivatives of $64 million ($42 million, net of income tax) was due to a favorable change of $53 million, before income tax, as a result of the impact of changes in capital market inputs, such as long-term interest rates and key equity index levels, on variable annuity guarantees, and a favorable change of $11 million, before income tax, related to changes in our own credit spread.
When equity index levels decrease in isolation, the direct and assumed variable annuity guarantees become more valuable to policyholders, which results in an increase in the undiscounted embedded derivative liability. Discounting this unfavorable change by the risk adjusted rate yields a smaller loss than by discounting at the risk-free rate, thus creating a gain from including an adjustment for nonperformance risk on the direct and assumed variable annuity embedded derivatives. The opposite impact occurs with respect to the nonperformance risk adjustment on the ceded variable annuity guarantees.
When the risk-free interest rate decreases in isolation, discounting the embedded derivative liability produces a higher valuation of the liability than if the risk-free interest rate had remained constant. Discounting this unfavorable change by the risk adjusted rate yields a smaller loss than by discounting at the risk-free interest rate, thus creating a gain from including an adjustment for nonperformance risk on the direct and assumed variable annuity embedded derivatives. The opposite impact occurs with respect to the nonperformance risk adjustment on the ceded variable annuity guarantees.
When our own credit spread increases in isolation, discounting the embedded derivative liability produces a lower valuation of the liability than if our own credit spread had remained constant. As a result, a gain is created from including an adjustment for nonperformance risk on the direct and assumed variable annuity embedded derivatives. The opposite impact occurs with respect to the nonperformance risk adjustment on the ceded variable annuity guarantees when the reinsurer’s credit spread increases in isolation. For each of these primary market drivers, the opposite effect occurs when they move in the opposite direction.
Generally, a higher portion of the ceded reinsurance for guaranteed minimum income benefits (“GMIBs”) is accounted for as an embedded derivative as compared to the direct guarantees since the settlement provisions of the reinsurance agreements generally meet the accounting criteria of “net settlement.” This mismatch in accounting can lead to significant volatility in earnings, even though the risks inherent in these direct guarantees are fully covered by the ceded reinsurance.
Net Investment Gains (Losses). The favorable change in net investment gains (losses) of $69 million ($45 million, net of income tax) primarily reflects higher gains on sales of real estate joint ventures and lower impairments of fixed maturity and equity securities. These favorable changes were partially offset by lower gains on sales of fixed maturity and equity securities, lower foreign currency transaction gains, increased provisions for loan losses on mortgage loans and higher impairments on leveraged leases.
Actuarial Assumption Review. Results for the current period include a $74 million ($48 million, net of income tax) gain associated with our annual review of actuarial assumptions related to reserves and DAC, of which an $18 million ($12 million, net of income tax) gain was recognized in net derivative gains (losses). Of the $74 million gain, a $141 million ($92 million, net of income tax) gain was associated with DAC, offset by a $67 million ($44 million, net of income tax) loss related to reserves. The $18 million gain recognized in net derivative gains (losses) associated with this annual review of actuarial assumptions was included within the other risks in embedded derivatives - direct and assumed guarantees caption in the table above.
As a result of our annual review of actuarial assumptions, changes were made to policyholder behavior, mortality and operational assumptions. The significant impacts of the assumption review were on the individual life and variable annuity blocks of business and are summarized as follows:
Changes in the mortality assumptions resulted in a net charge of $23 million ($15 million, net of income tax).
Changes in policyholder behavior assumptions resulted in reserve increases, net of reinsurance, which were partially offset by favorable DAC, resulting in a net charge of $45 million ($29 million net of income tax).
Operational updates, most notably related to updates to maintenance expense assumptions and the closed block projections, resulted in a net gain of $142 million ($92 million, net of income tax).
Results for the prior period include a $722 million ($469 million, net of income tax) loss associated with the annual review of actuarial assumptions related to reserves and DAC, of which a $798 million ($519 million, net of income tax) loss was recognized in net derivative gains (losses). Of the $722 million charge, a $787 million ($512 million, net of income tax) loss was related to reserves while a $65 million ($43 million, net of income tax) gain was associated with DAC.
Taxes. Income tax expense for the nine months ended September 30, 2017 was $475 million, or 20% of income before provision for income tax compared withwas 19% versus the U.S. statutory rate of 21% primarily due to tax benefits from:
•Non-taxable investment income
•Corporate tax expensededuction for stock compensation
•Low income housing and other tax credits, partially offset by the impact of $232 million, or 14% of incometax equity investments now accounted for under the proportional amortization method
•Prior period effective tax rate on loss before provision for income tax for the nine months ended September 30, 2016. Our effective tax rates differ fromwas 53% versus the U.S. statutory rate of 35%21% primarily due to non-taxabletax benefits from:
•Low income housing and other tax credits
•Corporate tax deduction for stock compensation
•Non-taxable investment income
__________________
(1) Includes amounts relating to investment hedge adjustments, which are also included in adjusted earnings.
(2) See Note 5 of the Notes to the Interim Condensed Consolidated Financial Statements for further information on the Company’s MRBs.
(3) As used in “— Consolidated Results — Adjusted Earnings” and tax credits for low income housing. Current and prior period results include tax benefits of $25 million and $36 million, respectively, for tax audit settlements.
Operating Earnings. Asas more fully described in “— Non-GAAP and Other Financial Disclosures,” we use operatingrefer to adjusted earnings, which does not equate to net income (loss), as determined in accordance with GAAP, to analyze our performance, evaluate segment performance, and allocate resources. We believe that the presentation of operatingadjusted earnings, as we measure it for management purposes, enhances the understanding of our performance by highlighting the results of operations and the underlying profitability drivers of the business. OperatingAdjusted earnings allows analysis of our performance and facilitates comparisons to industry results. OperatingAdjusted earnings should not be viewed as a substitute for net income (loss). Operating earnings increased $329 million, net of income tax, to $2.3 billion, net of income tax, for the nine months ended September 30, 2017 from $1.9 billion, net of income tax, for the nine months ended September 30, 2016.
Reconciliation of net income (loss) to operatingadjusted earnings
|
| | | | | | | |
| | Nine Months
Ended
September 30, |
| | 2017 |
| 2016 |
| | (In millions) |
| Net income (loss) | $ | 1,942 |
| | $ | 1,452 |
|
| Less: Net investment gains (losses) | 184 |
| | 115 |
|
| Less: Net derivative gains (losses) | (317 | ) | | (562 | ) |
| Less: Other adjustments to net income (1) | (373 | ) | | (306 | ) |
| Less: Provision for income tax (expense) benefit | 177 |
| | 263 |
|
| Operating earnings | $ | 2,271 |
| | $ | 1,942 |
|
__________________
| |
(1) | See definitions of operating revenues and operating expenses under “— Non-GAAP and Other Financial Disclosures” for the components of such adjustments. |
Reconciliation of and premiums, fees and other revenues to operatingadjusted premiums, fees and other revenues and expenses to operating expenses
| | | | | | | | | | | | | | |
| | Three Months
Ended
March 31, |
| | 2024 | | 2023 |
| | (In millions) |
| Net income (loss) | $ | 935 | | | $ | (91) | |
| Less: adjustments from net income (loss) to adjusted earnings: | | | |
| Revenues: | | | |
| Net investment gains (losses) | (136) | | | (102) | |
| Net derivative gains (losses) | (56) | | | (560) | |
| Premiums | — | | | — | |
| Universal life and investment-type product policy fees | — | | | — | |
| Net investment income | (124) | | | (201) | |
| Other revenues | 32 | | | (5) | |
| Expenses: | | | |
| Policyholder benefits and claims and policyholder dividends | 13 | | | (3) | |
| Policyholder liability remeasurement (gains) losses | — | | | — | |
| Market risk benefit remeasurement (gains) losses | 586 | | | (244) | |
| Interest credited to policyholder account balances | (22) | | | (1) | |
| Capitalization of deferred policy acquisition costs | — | | | — | |
| Amortization of deferred policy acquisition costs and value of business acquired | — | | | — | |
| Interest expense on debt | — | | | — | |
| Other expenses | (3) | | | (5) | |
| Provision for income tax (expense) benefit | (61) | | | 235 | |
| Adjusted earnings | $ | 706 | | | $ | 795 | |
| | | | |
| Premiums, fees and other revenues | $ | 7,028 | | | $ | 6,694 | |
| Less: adjustments to premiums, fees and other revenues | 32 | | | (5) | |
| Adjusted premiums, fees and other revenues | $ | 6,996 | | | $ | 6,699 | |
|
| | | | | | | |
| | Nine Months
Ended
September 30, |
| | 2017 | | 2016 |
| | (In millions) |
| Total revenues | $ | 28,273 |
| | $ | 27,752 |
|
| Less: Net investment gains (losses) | 184 |
| | 115 |
|
| Less: Net derivative gains (losses) | (317 | ) | | (562 | ) |
| Less: Other adjustments to revenues (1) | (226 | ) | | (317 | ) |
| Total operating revenues | $ | 28,632 |
| | $ | 28,516 |
|
| Total expenses | $ | 25,856 |
| | $ | 26,068 |
|
| Less: Adjustments related to net investment gains (losses) and net derivative gains (losses) | (66 | ) | | (281 | ) |
| Less: Other adjustments to expenses (1) | 213 |
| | 270 |
|
| Total operating expenses | $ | 25,709 |
| | $ | 26,079 |
|
__________________ | |
(1) | See definitions of operating revenues and operating expenses under “— Non-GAAP and Other Financial Disclosures” for the components of such adjustments. |
Consolidated Results — OperatingAdjusted Earnings
NineBusiness Overview. Adjusted premiums, fees and other revenues for the three months ended March 31, 2024 increased $297 million, or 4%, compared to the prior period. This was primarily due to growth in the core and voluntary businesses in our Group Benefits segment, as well as growth in the structured settlements and income annuities businesses in our RIS segment, partially offset by the expected decline in our MetLife Holdings segment from business run-off.
Three Months Ended September 30, 2017March 31, 2024 Compared with the NineThree Months Ended September 30, 2016March 31, 2023
Unless otherwise stated, all amounts discussed below are net of income tax.
As previously mentioned, MLIC transferred the issued and outstanding shares of NELICO’s and GALIC’s common stock to MetLife, Inc. in the form of a non-cash extraordinary dividend in December 2016. This transaction, which is excluded from the discussion below, resulted in an $87Adjusted Earnings - Decreased $89 million decrease in operating earnings as comparedprimarily due to the prior period.following business drivers:
Business Growth. An increase in net investment income was due to asset growth in our U.S. segment, consistent with the growth in average invested assets from increased net flows in our RIS business. This increase was partially offsetReinsurance Transaction - Decreased adjusted earnings by negative net flows, primarilyapproximately $40 million as a result of a reduced asset basethe reinsurance transaction that closed in November 2023
Market Factors- Increased adjusted earnings by $50 million:
•Variable investment income increased - higher returns on private equity funds
•Recurring investment income increased - higher yields on fixed income securities and mortgage loans, partially offset by lower derivative income, as well as lower average invested assets in our MetLife Holdings segment due to the recapture of two assumed single-premium deferred annuity reinsurance agreements with Brighthouse. Consistent with the growth inbusiness run-off
Largely offset by:
•Higher average invested assets from increased premiums in the U.S. segment, interest creditedcrediting rates on long-duration contracts increased. In our MetLife Holdings segment, negative net flowsinvestment-type products, primarily in our deferred annuities businessRIS segment
Underwriting and a decrease in universal life sales resulted in lower asset-based fee income, decreasing operating earnings. Higher interest credited on insurance liabilities and DAC amortizationOther Insurance Adjustments- Decreased adjusted earnings by $54 million:
•Unfavorable underwriting:
•Unfavorable mortality in our MetLife Holdings segment also decreased operating earnings. In our U.S. segment, an increase in premiums, fees- life and other revenues, coupled with a decline in direct and allocated expenses, was partially offset by higher volume-related expenses. The current period abatement of the annual health insurer fee under the Patient Protection and Affordable Care Act was offset by a corresponding decrease in premiums, fees and other revenues. The combined impact of the items discussed above decreased operating earnings by $67 million.annuity businesses
Market Factors. Market factors, including interest rate levels, variability in equity market returns, and foreign currency exchange rate fluctuations, continued to impact our results; however, certain impacts were mitigated by derivatives used to hedge these risks. Investment yields were negatively affected by lower prepayment fees, lower income on derivatives and lower returns on real estate joint ventures. In addition, earnings on our securities lending program decreased, which primarily resulted from lower margins due to a flatter yield curve. These declines were partially offset by higher income on other limited partnership interests, driven by improvements in equity market performance, and increased yields on fixed maturity securities. In our MetLife Holdings segment, higher equity returns drove an increase in average separate account balances, resulting in higher asset-based fees in our deferred annuities business. Certain of our funding agreements and guaranteed interest contract liabilities have interest credited rates that are contractually tied to current market rates, specifically the 3-month London Interbank Offered Rate (“LIBOR”) and, as a result, a higher average interest credited rate drove an increase in interest credited expense. In addition, the crediting rate on certain long-duration insurance contracts increased, which decreased operating earnings. The changes in market factors discussed above resulted in a $22 million decrease in operating earnings.
Underwriting, Actuarial Assumption Review and Other Insurance Adjustments. Favorable underwriting increased operating earnings by $87 million due to favorable mortality in our MetLife Holdings and U.S. segments and favorable•Unfavorable morbidity in our U.S. segment. Mortality results improved by $58 million primarily as a result of lower life claim severity in our MetLife HoldingsGroup Benefits segment and favorable claims experience in our U.S. segment, mainly driven by a prior period development in our term life business and favorable current period mortality in our pension risk transfer, structured settlement and post-retirement benefit businesses. These positive results were partially offset by less favorable mortality in our accidental death and dismemberment and universal life businesses, driven by- higher incidence in disability businesses and severity, as well as less favorable mortalityan unfavorable change in our specialized lifedental prior year development
•Unfavorable change from refinements to certain insurance and income annuities businesses. A $29 million increase in operating earnings was driven by favorable morbidity experience in our U.S. segment, partially offset by unfavorable morbidity experience due to higher claim severity and volume in our long-term care business in our MetLife Holdings segment. The favorable morbidity experience in our U.S. segment was the result of favorable prior period development, current period utilization and the impact of pricing actions in our dental business, as well as favorable claims experience in our group disability and accident & health businesses. The impactother liabilities in both periods ofin our annual actuarial assumption review resultedGroup Benefits and RIS segments
Taxes- Unfavorable change in a $170 million increase in operating earnings, primarily driven by favorable DAC unlockingseffective tax rate - 18% in the current period compared to unfavorable DAC unlockingsversus 14% in the prior period primarily in the life business in our MetLife Holdings segment. Refinements to DAC and certain insurance-related liabilities, which were recorded in both periods, resulted in an increase in operating earnings of $73 million. This includes current
•Current period refinements in the MetLife Holdings segment of (i) favorable reserve adjustments resulting from modeling improvements in the reserving process of $32 million and $28 million, in our life and long-term care businesses, respectively; (ii) a $10 million unfavorable DAC adjustment related to certain participating whole life business assumed from Brighthouse; and (iii) a net unfavorable impact from an affiliated life reinsurance recapture. This also includes an unfavorable prior period refinement resulting from modeling improvements in the reserving process for our universal life business in the MetLife Holdings segment, which increased operating earnings by $25 million in the current period.
Expenses and Taxes. An $88 million increase in expenses was primarily due to an increase in costs associated with corporate initiatives and projects, higher employee-related expenses and expenses incurred in the current period related to the guaranty fund assessment for Penn Treaty Network America Insurance Company, partially offset by lower costs as a result of the U.S. Retail Advisor Force Divestiture. Costs associated with corporate initiatives and projects include leasehold impairments, Separation-related costs and costs related to our unit cost initiative. Our effective tax rates differ fromrate on loss before provision for income tax was 18% versus the U.S. statutory rate of 35% due to non-taxable investment income and tax credits for investments in low income housing. Current and prior period results include tax benefits of $25 million and $36 million, respectively, for tax audit settlements.
Other. In connection with the Separation, annuities reinsurance activity with Brighthouse increased operating earnings by $254 million. This favorable impact was21% primarily due to the recapture in 2016 of certain single-premium deferred annuity reinsurance agreementstax benefits from:
•Non-taxable investment income
•Corporate tax deduction for stock compensation
•Low income housing and the elimination of interest credited payments on the related reinsurance payable, as well as lower DAC amortization. This increase wasother tax credits, partially offset by the net unfavorable impact inof tax equity investments now accounted for under the currentproportional amortization method
•Prior period fromeffective tax rate on income before provision for income tax was 14% versus the recaptureU.S. statutory rate of 21% primarily due to tax benefits from:
•Low income housing and novation of, as well as refinements to, assumed and ceded agreements covering certain variable annuity business.other tax credits
•Corporate tax deduction for stock compensation Adoption of New•Non-taxable investment income
Adopted Accounting Pronouncements
See Note 1 of the Notes to the Interim Condensed Consolidated Financial Statements.
Future Adoption of New Accounting Pronouncements
See Note 1 of the Notes to the Interim Condensed Consolidated Financial Statements.
Non-GAAP and Other Financial Disclosures
In this report, the Company presents certain measures of its performance that are not calculated in accordance with GAAP. We believe that these non-GAAP financial measures enhance the understanding for the Company and our investors of our performance by highlighting the results of operations and the underlying profitability drivers of our business.
The following non-GAAP financial measures should not be viewed as substitutes for the most directly comparable financial measures calculated in accordance with GAAP:
| | | | | | | | | | | |
| | | |
| Non-GAAP financial measures: | Comparable GAAP financial measures: |
| (i) | operatingadjusted premiums, fees and other revenues | (i) | premiums, fees and other revenues |
| (ii) | operating expensesadjusted earnings | (ii) | expenses |
(iii) | operating earnings | (iii) | net income (loss) |
Reconciliations of these non-GAAP financial measures to the most directly comparable historical GAAP financial measures are included in the results of operations, see “— Results of Operations.” Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures isare not accessible on a forward-looking basis because we believe it is not possible without unreasonable effortseffort to provide other than a range of net investment gains and losses and net derivative gains and losses, which can fluctuate significantly within or outside the range and from period to period and may have a material impact on net income.
Our definitions of the various non-GAAP and other financial measures discussed in this report may differ from those used by other companies:companies.
OperatingAdjusted earnings
This measure is used by management to evaluate performance and allocate resources. Consistent with GAAP guidance for segment reporting, operatingadjusted earnings is also our GAAP measure of segment performance. OperatingAdjusted earnings allows analysis of our performance and facilitates comparisons to industry results.
OperatingAdjusted earnings is defined as operatingadjusted revenues less operatingadjusted expenses, both net of income tax.
Operating revenues and operating expenses
These financial measures focus on our primary businesses principally by excluding the impact of market volatility, which could distort trends, and revenues and costs related to non-core products and certain entities required to be consolidated under GAAP. Also, these measures exclude results of discontinued operations under GAAP and other businesses that have been or will be sold or exited by MLIC but do not meet the discontinued operations criteria under GAAP and are referred to Adjusted loss is defined as divested businesses. Divested businesses also includes the net impact of transactions with exited businesses that have been eliminated in consolidation under GAAP and costsnegative adjusted earnings. For additional information relating to businesses that have been or will be sold or exited by MLIC that do not meet the criteria to be includedadjusted earnings, see “Financial Measures and Segment Accounting Policies” in results of discontinued operations under GAAP. Operating revenues also excludes net investment gains (losses) and net derivative gains (losses).
The following additional adjustments are made to revenues, in the line items indicated, in calculating operating revenues:
Universal life and investment-type product policy fees excludes the amortization of unearned revenue related to net investment gains (losses) and net derivative gains (losses) and certain variable annuity GMIB fees (“GMIB Fees”); and
Net investment income: (i) includes earned income on derivatives and amortization of premium on derivatives that are hedges of investments or that are used to replicate certain investments, but do not qualify for hedge accounting treatment, (ii) excludes post-tax operating earnings adjustments relating to insurance joint ventures accounted for under the equity method, and (iii) excludes certain amounts related to securitization entities that are variable interest entities (“VIEs”) consolidated under GAAP.
The following additional adjustments are made to expenses, in the line items indicated, in calculating operating expenses:
Policyholder benefits and claims and policyholder dividends excludes: (i) changes in the policyholder dividend obligation related to net investment gains (losses) and net derivative gains (losses), (ii) 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 earned income on derivatives and amortization of premium on derivatives that are hedges of policyholder account balances but do not qualify for hedge accounting treatment;
Amortization of DAC and 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;
Interest expense on debt excludes certain amounts related to securitization entities that are VIEs consolidated under GAAP; and
Other expenses excludes costs related to noncontrolling interests and goodwill impairments.
The tax impactNote 2 of the adjustments mentioned above are calculated net of the U.S. or foreign statutory tax rate, which could differ from the Company’s effective tax rate. Additionally, the provision for income tax (expense) benefit also includes the impact relatedNotes to the timing of certain tax credits, as well as certain tax reforms.Interim Condensed Consolidated Financial Statements.
The following additional information is relevant to an understanding of our performance results:
•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.
•Near-term represents one to three years.
•Allocated equity is the portion of MetLife, Inc.’s common stockholders’ equity that management allocates to each of its segments based on local capital requirements and economic capital. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management — Economic Capital” in the 2023 Annual Report. Allocated equity excludes the impact of accumulated other comprehensive income other than foreign currency translation adjustments.
Risk Management
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management” in the 2023 Annual Report for information on our risk management.
Item 4. Controls and Procedures
Management, with the participation of the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”), as of the end of the period covered by this report. Based on that evaluation, the Chief Executive OfficerCEO and Chief Financial OfficerCFO have concluded that these disclosure controls and procedures are effective.
There were no material changes to the Company’s internal control over financial reporting as defined in Exchange Act Rule 13a-15(f) during the quarter ended September 30, 2017March 31, 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Part II — Other Information
Item 1. Legal Proceedings
The following should be read in conjunction with (i) Part I, Item 3, of the 2016 Annual Report; (ii) Part II, Item 1, of Metropolitan Life Insurance Company’s Quarterly Report on Form 10-Q for the quarters ended March 31, 2017 and June 30, 2017; and (iii)See Note 11 of the15 of the Notes to the Interim Condensed Consolidated Financial Statements in Part I of this report.Statements.
Asbestos-Related Claims
Metropolitan Life Insurance Company 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 2016 Annual Report, Metropolitan Life Insurance Company received approximately 4,146 asbestos-related claims in 2016. During the nine months ended September 30, 2017 and 2016, Metropolitan Life Insurance Company received approximately 2,742 and 3,267 new asbestos-related claims, respectively. See Note 16 of the Notes to the Consolidated Financial Statements included in the 2016 Annual Report for historical information concerning asbestos claims and Metropolitan Life Insurance Company’s increase in its recorded liability at December 31, 2014. The number of asbestos cases that may be brought, the aggregate amount of any liability that Metropolitan Life Insurance Company may incur, and the total amount paid in settlements in any given year are uncertain and may vary significantly from year to year.
Metropolitan Life Insurance Company reevaluates on a quarterly and annual basis its exposure from asbestos litigation, including studying its claims experience, reviewing external literature regarding asbestos claims experience in the United States, assessing relevant trends impacting asbestos liability and considering numerous variables that can affect its asbestos liability exposure on an overall or per claim basis. These variables include bankruptcies of other companies involved in asbestos litigation, legislative and judicial developments, the number of pending claims involving serious disease, the number of new claims filed against it and other defendants and the jurisdictions in which claims are pending. Based upon its regular reevaluation of its exposure from asbestos litigation, Metropolitan Life Insurance Company has updated its liability analysis for asbestos-related claims through September 30, 2017.
Regulatory Matters
The Company receives and responds to subpoenas or other inquiries seeking a broad range of information 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. The issues involved in information requests and regulatory matters vary widely. The Company cooperates in these inquiries.
In the Matter of Chemform, Inc. Site, Pompano Beach, Broward County, Florida
In July 2010, the Environmental Protection Agency (“EPA”) advised Metropolitan Life Insurance Company 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 Metropolitan Life Insurance Company (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. In September 2012, the EPA, Metropolitan Life Insurance Company and the third party executed an Administrative Order on Consent under which Metropolitan Life Insurance Company and the third party agreed to be responsible for certain environmental testing at the Chemform Site. The EPA may seek additional costs if the environmental testing identifies issues. The EPA and Metropolitan Life Insurance Company have reached a settlement in principal on the EPA’s claim for past costs. The Company estimates that the aggregate cost to resolve this matter, including the settlement for claims of past costs and the costs of environmental testing, will not exceed $300 thousand.
Total Control Accounts Litigation
Metropolitan Life Insurance Company is a defendant in a lawsuit related to its use of retained asset accounts, known as TCA, as a settlement option for death benefits.
Owens v. Metropolitan Life Insurance Company (N.D. Ga., filed April 17, 2014)
Plaintiff filed this class action lawsuit on behalf of all persons for whom Metropolitan Life Insurance Company established a retained asset account, known as a TCA, to pay death benefits under an Employee Retirement Income Security Act of 1974 (“ERISA”) plan. The action alleges that Metropolitan Life Insurance Company’s use of the TCA as the settlement option for life insurance benefits under some group life insurance policies violates Metropolitan Life Insurance Company’s fiduciary duties under ERISA. As damages, plaintiff seeks disgorgement of profits that Metropolitan Life Insurance Company realized on accounts owned by members of the class. In addition, plaintiff, on behalf of a subgroup of the class, seeks interest under Georgia’s delayed settlement interest statute, alleging that the use of the TCA as the settlement option did not constitute payment. On September 27, 2016, the court denied Metropolitan Life Insurance Company’s summary judgment motion in full and granted plaintiff’s partial summary judgment motion. On September 29, 2017, the court certified a nationwide class. The court also certified a Georgia subclass. The Company intends to defend this action vigorously.
Other Litigation
Miller, et al. v. MetLife, Inc., et al. (C.D. Cal., filed April 7, 2017)
Plaintiffs filed this putative class action against MetLife, Inc. and Metropolitan Life Insurance Company in the U.S. District Court for the Central District of California, purporting to assert claims on behalf of all persons who replaced their MetLife Optional Term Life or Group Universal Life policy for a Group Variable Universal Life policy wherein MetLife allegedly charged smoker rates for certain non-smokers. Plaintiffs seek unspecified compensatory and punitive damages, as well as other relief. On September 25, 2017, Plaintiffs dismissed the action and refiled the complaint in U.S. District Court for the Southern District of New York. The Company intends to defend this action vigorously.
Julian & McKinney v. Metropolitan Life Insurance Company (S.D.N.Y., filed February 9, 2017)
Plaintiffs filed this putative class and collective action on behalf of themselves and all current and former long-term disability (“LTD”) claims specialists between February 2011 and the present for alleged wage and hour violations under the Fair Labor Standards Act, the New York Labor Law, and the Connecticut Minimum Wage Act. The suit alleges that Metropolitan Life Insurance Company improperly reclassified the plaintiffs and similarly situated LTD claims specialists from non-exempt to exempt from overtime pay in November 2013. As a result, they and members of the putative class were no longer eligible for overtime pay even though they allege they continued to work more than 40 hours per week. The Company intends to defend this action vigorously.
Summary
Putative or certified class action litigation and other litigation and claims and assessments against the Company, in addition to those discussed previously and those otherwise provided for in the Company’s consolidated financial statements, have arisen in the course of the Company’s business, including, but not limited to, in connection with its activities as an insurer, investor and taxpayer. Further, state insurance regulatory authorities and other federal and state authorities regularly make inquiries and conduct investigations concerning the Company’s compliance with applicable insurance and other laws and regulations.
It is not possible to predict the ultimate outcome of all pending investigations and legal proceedings. 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 effect upon the Company’s financial position, based on information currently known by the Company’s management, in its opinion, the outcomes of such pending investigations and legal proceedings are not likely to have such an effect. However, given the large and/or indeterminate amounts sought in certain of these matters and the inherent unpredictability of litigation, it is possible that an adverse outcome in certain matters could, from time to time, have a material effect on the Company’s consolidated net income or cash flows in particular quarterly or annual periods.
Item 1A. Risk Factors
The following should be read in conjunction with, and supplements and amends, theCertain factors that may affect the Company’s business or operations are described under “Risk Factors” in Part I, Item 1A, of the 20162023 Annual Report, as amended or supplemented by the information under “Risk Factors” in Part II, Item 1A, of Metropolitan Life Insurance Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 (the “Second Quarter 2017 Report”). Other than as described in this Item 1A, thereReport. There have been no material changes to our risk factors from the risk factors previously disclosed in the 2016 Annual Report as amended or supplemented by such information in the Second Quarter 2017 Report.
Risks Related to Our Business
The following updates and replaces the similar risk factor entitled “Differences Between Actual Claims Experience and Underwriting and Reserving Assumptions May Adversely Affect Our Financial Results” included in the 20162023 Annual Report.
Differences Between Actual Claims Experience and Underwriting and Reserving Assumptions May Adversely Affect Our Financial Results
Our earnings significantly depend uponItem 5. Other Information
Securities trading plans
During the extentthree months ended March 31, 2024, none of our Section 16 officers or directors (as defined in Rule 16a-1(f) of the Exchange Act) adopted or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to which our actual claims experience is consistent withsatisfy the assumptions we useaffirmative defense conditions of Rule 10b5-1(c) of the Exchange Act or any “non-Rule 10b5-1 trading arrangement” (as defined in setting prices for our products and establishing liabilities for future policy benefits and claims. Such amounts are established based on estimates by actuariesSection 408(c) of how much we will need to pay for future benefits and claims. We cannot determine precisely the amounts which we will ultimately pay to settle our liabilities, and such amounts may vary from the estimated amounts, particularly when those payments may not occur until well in the future. We evaluate our liabilities periodically based on accounting requirements, which change from time to time, the assumptions used to establish the liabilities, as well as our actual experience. Reserve estimates in some instances are affected by our operating practices and procedures that are used, among other things, to support our assumptions with respect to the Company’s obligations to its policyholders and contractholders. To the extent that these practices and procedures do not accurately produce the data to support our assumptions our reserves may require adjustment. If the liabilities originally established for future benefit payments prove inadequate, we must increase them and/or reduce associated DAC and/or VOBA. Such adjustments could affect earnings negatively and have a material adverse effect on our business, results of operations and financial condition. See “Business — Policyholder Liabilities” included in the 2016 Annual Report. See also “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Consolidated Results — Nine Months Ended September 30, 2017 Compared with the Nine Months Ended September 30, 2016 — Actuarial Assumption Review,” as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Summary of Critical Accounting Estimates — Deferred Policy Acquisition Costs and Value of Business Acquired” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Summary of Critical Accounting Estimates — Derivatives” included in the 2016 Annual Report for further information regarding the manner in which policyholder behavior and other events may differ from our assumptions and, thereby affect our financial results.
Regulation S-K).
Item 6. Exhibits
(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 Metropolitan Life Insurance Company, 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 Metropolitan Life Insurance Company, its subsidiaries and affiliates may be found elsewhere in this Quarterly Report on Form 10-Q and Metropolitan Life Insurance Company’s other public filings, which are available without charge through the U.S. Securities and Exchange Commission website at www.sec.gov.)
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| 31.1 | | | | | | | | | | | | X |
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| 101.INS | | XBRL Instance Document. | | | | | | | | | | X
| 101.SCH | | Inline XBRL Taxonomy Extension Schema Document. | | | | | | | | | | X |
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| 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | | | | | | | | | | X |
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| 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document. | | | | | | | | | | X |
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| 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document. | | | | | | | | | | X |
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| 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | | | | | | | | | | X |
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| 101.INS | | XBRL Instance Document - the instance document does not appear in the Interactive Data file because its XBRL tags are embedded within the Inline XBRL document. | | | | | | | | | | X |
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| 104 | | Cover Page Interactive Data File (embedded within the Inline XBRL Taxonomy Extension Definition Linkbase Document.document and included in Exhibit 101). | | | | | | | | | | X |
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.
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| METROPOLITAN LIFE INSURANCE COMPANY |
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| By: | | | /s/ Tamara L. Schock |
| By: | | /s/ William O’Donnell |
| | Name: | William O’Donnell |
| | Tamara L. Schock Title: | Executive Vice President and Chief |
| | | Accounting Officer (Authorized Signatory |
| | | and Principal Accounting Officer) |
Date: November 8, 2017
May 7, 2024