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Washington, D.C. 20549
(Mark One) | ||
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2008 | ||
OR | ||
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
FOR THE TRANSITION PERIOD FROM TO |
Delaware | 13-4075851 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
200 Park Avenue, New York, NY | 10166-0188 | |
(Address of principal executive offices) | (Zip Code) |
Large accelerated filer þ | Accelerated filer o | |
Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting companyo |
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EX-31.1: CERTIFICATION | ||||||||
EX-31.2: CERTIFICATION | ||||||||
EX-32.1: CERTIFICATION | ||||||||
EX-32.2: CERTIFICATION |
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Item 1. | Financial Statements |
Interim Condensed Consolidated Balance Sheets
September 30, 2008 (Unaudited) and December 31, 2007
(In millions, except share and per share data)
September 30, | December 31, | |||||||
2008 | 2007 | |||||||
Assets | ||||||||
Investments: | ||||||||
Fixed maturity securities available-for-sale, at estimated fair value (amortized cost: $224,866 and $229,847, respectively) | $ | 212,645 | $ | 232,844 | ||||
Equity securities available-for-sale, at estimated fair value (cost: $4,024 and $5,735, respectively) | 3,477 | 5,913 | ||||||
Trading securities, at estimated fair value (cost: $922 and $768, respectively) | 788 | 779 | ||||||
Mortgage and consumer loans | 50,646 | 46,198 | ||||||
Policy loans | 9,776 | 9,360 | ||||||
Real estate and real estate joint ventures held-for-investment | 7,368 | 6,588 | ||||||
Real estate held-for-sale | 188 | 181 | ||||||
Other limited partnership interests | 6,353 | 6,155 | ||||||
Short-term investments | 2,570 | 2,573 | ||||||
Other invested assets | 9,745 | 8,064 | ||||||
Total investments | 303,556 | 318,655 | ||||||
Cash and cash equivalents | 20,209 | 9,964 | ||||||
Accrued investment income | 3,273 | 3,551 | ||||||
Premiums and other receivables | 17,865 | 13,390 | ||||||
Deferred policy acquisition costs and value of business acquired | 20,347 | 18,008 | ||||||
Current income tax recoverable | 762 | 336 | ||||||
Deferred income tax assets | 1,625 | — | ||||||
Goodwill | 5,036 | 4,814 | ||||||
Assets of subsidiaries held-for-sale | — | 22,037 | ||||||
Other assets | 8,823 | 8,239 | ||||||
Separate account assets | 139,803 | 160,142 | ||||||
Total assets | $ | 521,299 | $ | 559,136 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Liabilities | ||||||||
Future policy benefits | $ | 128,762 | $ | 126,174 | ||||
Policyholder account balances | 139,132 | 130,692 | ||||||
Other policyholder funds | 8,446 | 7,994 | ||||||
Policyholder dividends payable | 1,077 | 994 | ||||||
Policyholder dividend obligation | — | 789 | ||||||
Short-term debt | 1,106 | 667 | ||||||
Long-term debt | 10,811 | 9,100 | ||||||
Collateral financing arrangements | 5,132 | 4,882 | ||||||
Junior subordinated debt securities | 3,759 | 4,075 | ||||||
Liabilities of subsidiaries held-for-sale | — | 19,958 | ||||||
Deferred income tax liability | — | 1,516 | ||||||
Payables for collateral under securities loaned and other transactions | 43,299 | 44,136 | ||||||
Other liabilities | 12,139 | 12,838 | ||||||
Separate account liabilities | 139,803 | 160,142 | ||||||
�� | ||||||||
Total liabilities | 493,466 | 523,957 | ||||||
Contingencies, Commitments and Guarantees (Note 11) | ||||||||
Stockholders’ Equity | ||||||||
Preferred stock, par value $0.01 per share; 200,000,000 shares authorized; 84,000,000 shares issued and outstanding; $2,100 aggregate liquidation preference | 1 | 1 | ||||||
Common stock, par value $0.01 per share; 3,000,000,000 shares authorized; 786,766,664 shares issued; 707,312,251 shares and 729,223,440 shares outstanding at September 30, 2008 and December 31, 2007, respectively | 8 | 8 | ||||||
Additional paid-in capital | 17,602 | 17,098 | ||||||
Retained earnings | 22,041 | 19,884 | ||||||
Treasury stock, at cost; 79,454,413 shares and 57,543,224 shares at September 30, 2008 and December 31, 2007, respectively | (4,279 | ) | (2,890 | ) | ||||
Accumulated other comprehensive income (loss) | (7,540 | ) | 1,078 | |||||
Total stockholders’ equity | 27,833 | 35,179 | ||||||
Total liabilities and stockholders’ equity | $ | 521,299 | $ | 559,136 | ||||
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Interim Condensed Consolidated Statements of Income
For the Three Months and Nine Months Ended September 30, 2008 and 2007 (Unaudited)
(In millions, except per share data)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
Revenues | ||||||||||||||||
Premiums | $ | 6,789 | $ | 5,717 | $ | 19,428 | $ | 17,050 | ||||||||
Universal life and investment-type product policy fees | 1,372 | 1,313 | 4,206 | 3,901 | ||||||||||||
Net investment income | 4,051 | 4,512 | 12,670 | 13,365 | ||||||||||||
Other revenues | 421 | 345 | 1,141 | 1,105 | ||||||||||||
Net investment gains (losses) | 745 | (209 | ) | (341 | ) | (466 | ) | |||||||||
Total revenues | 13,378 | 11,678 | 37,104 | 34,955 | ||||||||||||
Expenses | ||||||||||||||||
Policyholder benefits and claims | 7,276 | 6,013 | 20,475 | 17,759 | ||||||||||||
Interest credited to policyholder account balances | 1,133 | 1,425 | 3,573 | 4,082 | ||||||||||||
Policyholder dividends | 449 | 434 | 1,324 | 1,289 | ||||||||||||
Other expenses | 2,931 | 2,483 | 8,091 | 7,565 | ||||||||||||
Total expenses | 11,789 | 10,355 | 33,463 | 30,695 | ||||||||||||
Income from continuing operations before provision for income tax | 1,589 | 1,323 | 3,641 | 4,260 | ||||||||||||
Provision for income tax | 528 | 380 | 1,078 | 1,223 | ||||||||||||
Income from continuing operations | 1,061 | 943 | 2,563 | 3,037 | ||||||||||||
Income (loss) from discontinued operations, net of income tax | (431 | ) | 76 | (339 | ) | 162 | ||||||||||
Net income | 630 | 1,019 | 2,224 | 3,199 | ||||||||||||
Preferred stock dividends | 30 | 34 | 94 | 102 | ||||||||||||
Net income available to common shareholders | $ | 600 | $ | 985 | $ | 2,130 | $ | 3,097 | ||||||||
Income from continuing operations available to common shareholders per common share | ||||||||||||||||
Basic | $ | 1.44 | $ | 1.22 | $ | 3.44 | $ | 3.93 | ||||||||
Diluted | $ | 1.42 | $ | 1.19 | $ | 3.39 | $ | 3.84 | ||||||||
Net income available to common shareholders per common share | ||||||||||||||||
Basic | $ | 0.84 | $ | 1.32 | $ | 2.97 | $ | 4.15 | ||||||||
Diluted | $ | 0.83 | $ | 1.29 | $ | 2.92 | $ | 4.05 | ||||||||
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Interim Condensed Consolidated Statement of Stockholders’ Equity
For the Nine Months Ended September 30, 2008 (Unaudited)
(In millions)
Accumulated Other | ||||||||||||||||||||||||||||||||||||
Comprehensive Income (Loss) | ||||||||||||||||||||||||||||||||||||
Net | Foreign | Defined | ||||||||||||||||||||||||||||||||||
Additional | Treasury | Unrealized | Currency | Benefit | ||||||||||||||||||||||||||||||||
Preferred | Common | Paid-in | Retained | Stock | Investment | Translation | Plans | |||||||||||||||||||||||||||||
Stock | Stock | Capital | Earnings | at Cost | Gains (Losses) | Adjustments | Adjustment | Total | ||||||||||||||||||||||||||||
Balance at December 31, 2007 | $ | 1 | $ | 8 | $ | 17,098 | $ | 19,884 | $ | (2,890 | ) | $ | 971 | $ | 347 | $ | (240 | ) | $ | 35,179 | ||||||||||||||||
Cumulative effect of a change in accounting principles, net of income tax (Note 1) | 27 | (10 | ) | 17 | ||||||||||||||||||||||||||||||||
Balance at January 1, 2008 | 1 | 8 | 17,098 | 19,911 | (2,890 | ) | 961 | 347 | (240 | ) | 35,196 | |||||||||||||||||||||||||
Treasury stock transactions, net | 363 | (1,389 | ) | (1,026 | ) | |||||||||||||||||||||||||||||||
Deferral of stock-based compensation | 141 | 141 | ||||||||||||||||||||||||||||||||||
Dividends on preferred stock | (94 | ) | (94 | ) | ||||||||||||||||||||||||||||||||
Comprehensive income (loss): | ||||||||||||||||||||||||||||||||||||
Net income | 2,224 | 2,224 | ||||||||||||||||||||||||||||||||||
Other comprehensive income (loss): | ||||||||||||||||||||||||||||||||||||
Unrealized gains (losses) on derivative instruments, net of income tax | 135 | 135 | ||||||||||||||||||||||||||||||||||
Unrealized gains (losses), net of related offsets and income tax | (8,448 | ) | (8,448 | ) | ||||||||||||||||||||||||||||||||
Foreign currency translation adjustments, net of income tax | (299 | ) | (299 | ) | ||||||||||||||||||||||||||||||||
Defined benefit plans adjustment, net of income tax | 4 | 4 | ||||||||||||||||||||||||||||||||||
Other comprehensive income (loss) | (8,608 | ) | ||||||||||||||||||||||||||||||||||
Comprehensive income (loss) | (6,384 | ) | ||||||||||||||||||||||||||||||||||
Balance at September 30, 2008 | $ | 1 | $ | 8 | $ | 17,602 | $ | 22,041 | $ | (4,279 | ) | $ | (7,352 | ) | $ | 48 | $ | (236 | ) | $ | 27,833 | |||||||||||||||
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Interim Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2008 and 2007 (Unaudited)
(In millions)
Nine Months Ended | ||||||||
September 30, | ||||||||
2008 | 2007 | |||||||
Net cash provided by operating activities | $ | 6,890 | $ | 6,922 | ||||
Cash flows from investing activities | ||||||||
Sales, maturities and repayments of: | ||||||||
Fixed maturity securities | 74,011 | 85,788 | ||||||
Equity securities | 2,466 | 1,375 | ||||||
Mortgage and consumer loans | 4,570 | 7,806 | ||||||
Real estate and real estate joint ventures | 147 | 544 | ||||||
Other limited partnership interests | 580 | 928 | ||||||
Purchases of: | ||||||||
Fixed maturity securities | (74,701 | ) | (96,628 | ) | ||||
Equity securities | (1,138 | ) | (2,497 | ) | ||||
Mortgage and consumer loans | (8,009 | ) | (10,117 | ) | ||||
Real estate and real estate joint ventures | (938 | ) | (1,779 | ) | ||||
Other limited partnership interests | (1,341 | ) | (1,261 | ) | ||||
Net change in short-term investments | 36 | 961 | ||||||
Purchases of businesses, net of cash received of $313 and $13, respectively | (465 | ) | (43 | ) | ||||
Proceeds (payments) from sales of businesses, net of cash disposed of $0 and $763, respectively | (4 | ) | (686 | ) | ||||
Disposal of subsidiary | (281 | ) | — | |||||
Net change in other invested assets | (689 | ) | 37 | |||||
Net change in policy loans | (405 | ) | (92 | ) | ||||
Other, net | (96 | ) | (124 | ) | ||||
Net cash used in investing activities | (6,257 | ) | (15,788 | ) | ||||
Cash flows from financing activities | ||||||||
Policyholder account balances: | ||||||||
Deposits | 47,217 | 42,511 | ||||||
Withdrawals | (38,896 | ) | (37,495 | ) | ||||
Net change in payables for collateral under securities loaned and other transactions | (837 | ) | 3,437 | |||||
Net change in short-term debt | 439 | 431 | ||||||
Long-term debt issued | 1,032 | 508 | ||||||
Long-term debt repaid | (217 | ) | (283 | ) | ||||
Collateral financing arrangements issued | 250 | 2,327 | ||||||
Cash paid in connection with collateral financing arrangements | (238 | ) | — | |||||
Junior subordinated debt securities issued | 750 | — | ||||||
Dividends on preferred stock | (94 | ) | (102 | ) | ||||
Treasury stock acquired | (1,250 | ) | (975 | ) | ||||
Treasury stock issued to settle stock forward contracts | 1,035 | — | ||||||
Stock options exercised | 43 | 95 | ||||||
Debt and equity issuance costs | (10 | ) | — | |||||
Other, net | (16 | ) | (68 | ) | ||||
Net cash provided by financing activities | 9,208 | 10,386 | ||||||
Change in cash and cash equivalents | 9,841 | 1,520 | ||||||
Cash and cash equivalents, beginning of period | 10,368 | 7,107 | ||||||
Cash and cash equivalents, end of period | $ | 20,209 | $ | 8,627 | ||||
Cash and cash equivalents, subsidiaries held-for-sale, beginning of period | $ | 404 | $ | 164 | ||||
Cash and cash equivalents, subsidiaries held-for-sale, end of period | $ | — | $ | 464 | ||||
Cash and cash equivalents, from continuing operations, beginning of period | $ | 9,964 | $ | 6,943 | ||||
Cash and cash equivalents, from continuing operations, end of period | $ | 20,209 | $ | 8,163 | ||||
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Interim Condensed Consolidated Statements of Cash Flows — (Continued)
For the Nine Months Ended September 30, 2008 and 2007 (Unaudited)
(In millions)
Nine Months Ended | ||||||||
September 30, | ||||||||
2008 | 2007 | |||||||
Supplemental disclosures of cash flow information: | ||||||||
Net cash paid during the period for: | ||||||||
Interest | $ | 677 | $ | 584 | ||||
Income tax | $ | 430 | $ | 1,619 | ||||
Non-cash transactions during the period: | ||||||||
Business acquisitions: | ||||||||
Assets acquired | $ | 1,808 | $ | — | ||||
Cash paid | (778 | ) | — | |||||
Liabilities assumed | $ | 1,030 | $ | — | ||||
Disposal of subsidiary: | ||||||||
Assets disposed | $ | 22,135 | $ | — | ||||
Less: liabilities disposed | (20,689 | ) | — | |||||
Net assets disposed | 1,446 | — | ||||||
Add: cash disposed | 270 | — | ||||||
Add: transaction costs, including cash paid of $11 | 60 | — | ||||||
Less: treasury stock received in common stock exchange | (1,318 | ) | — | |||||
Loss on disposal of subsidiary | $ | 458 | $ | — | ||||
Remarketing of debt securities: | ||||||||
Fixed maturity securities redeemed | $ | 32 | $ | — | ||||
Long-term debt issued | $ | 1,035 | $ | — | ||||
Junior subordinated debt securities redeemed | $ | 1,067 | $ | — | ||||
Fixed maturity securities received in connection with insurance contract commutation | $ | 115 | $ | — | ||||
Real estate acquired in satisfaction of debt | $ | 1 | $ | — | ||||
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1. | Business, Basis of Presentation, and Summary of Significant Accounting Policies |
(i) | the fair value of investments in the absence of quoted market values; | |
(ii) | investment impairments; | |
(iii) | the recognition of income on certain investment entities; | |
(iv) | the application of the consolidation rules to certain investments; | |
(v) | the existence and fair value of embedded derivatives requiring bifurcation; | |
(vi) | the fair value of and accounting for derivatives; | |
(vii) | the capitalization and amortization of deferred policy acquisition costs (“DAC”) and the establishment and amortization of value of business acquired (“VOBA”); | |
(viii) | the measurement of goodwill and related impairment, if any; | |
(ix) | the liability for future policyholder benefits; | |
(x) | accounting for income taxes and the valuation of deferred tax assets; | |
(xi) | accounting for reinsurance transactions; | |
(xii) | accounting for employee benefit plans; and | |
(xiii) | the liability for litigation and regulatory matters. |
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Level 1 | Unadjusted quoted prices in active markets for identical assets or liabilities. The Company defines active markets based on average trading volume for equity securities. The size of the bid/ask spread is used as an indicator of market activity for fixed maturity securities. | |
Level 2 | Quoted prices in markets that are not active or inputs that are observable either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities other than quoted prices in Level 1; quoted prices in markets that are not active; or other inputs that are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities. | |
Level 3 | Unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability. Level 3 assets and liabilities include financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. |
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• | All business combinations (whether full, partial or “step” acquisitions) result in all assets and liabilities of an acquired business being recorded at fair value, with limited exceptions. | |
• | Acquisition costs are generally expensed as incurred; restructuring costs associated with a business combination are generally expensed as incurred subsequent to the acquisition date. | |
• | The fair value of the purchase price, including the issuance of equity securities, is determined on the acquisition date. | |
• | Certain acquired contingent liabilities are recorded at fair value at the acquisition date and subsequently measured at either the higher of such amount or the amount determined under existing guidance for non-acquired contingencies. | |
• | Changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally affect income tax expense. | |
• | Noncontrolling interests (formerly known as “minority interests”) are valued at fair value at the acquisition date and are presented as equity rather than liabilities. | |
• | When control is attained on previously noncontrolling interests, the previously held equity interests are remeasured at fair value and a gain or loss is recognized. | |
• | Purchases or sales of equity interests that do not result in a change in control are accounted for as equity transactions. | |
• | When control is lost in a partial disposition, realized gains or losses are recorded on equity ownership sold and the remaining ownership interest is remeasured and holding gains or losses are recognized. |
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2. | Acquisitions and Dispositions |
• | In the first quarter of 2008, goodwill and other intangible assets increased by $169 million and $149 million, respectively, in the Institutional and International segments. | |
• | In the second quarter of 2008, goodwill and other intangible assets increased by $68 million and $5 million, respectively, in Corporate & Other. | |
• | In the third quarter of 2008, negative goodwill of approximately $6 million was allocated against long-lived assets acquired in Corporate & Other. |
• | A recapitalization of RGA common stock into two classes of common stock — RGA Class A common stock and RGA Class B common stock. Pursuant to the terms of the recapitalization, each outstanding share of RGA common stock, including the 32,243,539 shares of RGA common stock beneficially owned by the Company and its subsidiaries, was reclassified as one share of RGA Class A common stock. Immediately thereafter, the Company and its subsidiaries exchanged 29,243,539 shares of its RGA Class A common stock — which represented all of the RGA Class A common stock beneficially owned by the Company and its subsidiaries other than 3,000,000 shares of RGA Class A common stock — with RGA for 29,243,539 shares of RGA Class B common stock. | |
• | An exchange offer, pursuant to which the Company offered to acquire MetLife common stock from its stockholders in exchange for all of its 29,243,539 shares of RGA Class B common stock. The exchange ratio was determined based upon a ratio — as more specifically described in the exchange offering document — of the value of the MetLife and RGA shares during thethree-day period prior to the closing of the exchange offer. The 3,000,000 shares of the RGA Class A common stock were not subject to the tax-free exchange. |
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3. | Investments |
September 30, 2008 | ||||||||||||||||||||
Cost or | ||||||||||||||||||||
Amortized | Gross Unrealized | Estimated | % of | |||||||||||||||||
Cost | Gain | Loss | Fair Value | Total | ||||||||||||||||
(In millions) | ||||||||||||||||||||
U.S. corporate securities | $ | 74,381 | $ | 772 | $ | 7,124 | $ | 68,029 | 32.0 | % | ||||||||||
Residential mortgage-backed securities | 48,947 | 460 | 2,424 | 46,983 | 22.1 | |||||||||||||||
Foreign corporate securities | 36,262 | 752 | 2,618 | 34,396 | 16.2 | |||||||||||||||
U.S. Treasury/agency securities | 15,414 | 1,269 | 47 | 16,636 | 7.8 | |||||||||||||||
Commercial mortgage-backed securities | 17,539 | 91 | 1,725 | 15,905 | 7.5 | |||||||||||||||
Foreign government securities | 11,200 | 1,054 | 319 | 11,935 | 5.6 | |||||||||||||||
Asset-backed securities | 14,693 | 22 | 1,924 | 12,791 | 6.0 | |||||||||||||||
State and political subdivision securities | 6,371 | 67 | 526 | 5,912 | 2.8 | |||||||||||||||
Other fixed maturity securities | 59 | — | 1 | 58 | — | |||||||||||||||
Total fixed maturity securities | $ | 224,866 | $ | 4,487 | $ | 16,708 | $ | 212,645 | 100.0 | % | ||||||||||
Common stock | $ | 1,609 | $ | 73 | $ | 69 | $ | 1,613 | 46.4 | % | ||||||||||
Non-redeemable preferred stock | 2,415 | 19 | 570 | 1,864 | 53.6 | |||||||||||||||
Total equity securities | $ | 4,024 | $ | 92 | $ | 639 | $ | 3,477 | 100.0 | % | ||||||||||
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December 31, 2007 | ||||||||||||||||||||
Cost or | ||||||||||||||||||||
Amortized | Gross Unrealized | Estimated | % of | |||||||||||||||||
Cost | Gain | Loss | Fair Value | Total | ||||||||||||||||
(In millions) | ||||||||||||||||||||
U.S. corporate securities | $ | 74,494 | $ | 1,695 | $ | 2,077 | $ | 74,112 | 31.8 | % | ||||||||||
Residential mortgage-backed securities | 54,853 | 599 | 377 | 55,075 | 23.7 | |||||||||||||||
Foreign corporate securities | 36,318 | 1,705 | 768 | 37,255 | 16.0 | |||||||||||||||
U.S. Treasury/agency securities | 19,768 | 1,486 | 13 | 21,241 | 9.1 | |||||||||||||||
Commercial mortgage-backed securities | 17,035 | 242 | 194 | 17,083 | 7.4 | |||||||||||||||
Foreign government securities | 11,647 | 1,350 | 182 | 12,815 | 5.5 | |||||||||||||||
Asset-backed securities | 11,055 | 40 | 518 | 10,577 | 4.5 | |||||||||||||||
State and political subdivision securities | 4,342 | 140 | 114 | 4,368 | 1.9 | |||||||||||||||
Other fixed maturity securities | 335 | 13 | 30 | 318 | 0.1 | |||||||||||||||
Total fixed maturity securities | $ | 229,847 | $ | 7,270 | $ | 4,273 | $ | 232,844 | 100.0 | % | ||||||||||
Common stock | $ | 2,477 | $ | 568 | $ | 108 | $ | 2,937 | 49.7 | % | ||||||||||
Non-redeemable preferred stock | 3,258 | 60 | 342 | 2,976 | 50.3 | |||||||||||||||
Total equity securities | $ | 5,735 | $ | 628 | $ | 450 | $ | 5,913 | 100.0 | % | ||||||||||
• | The majority of the residential mortgage-backed securities are guaranteed or otherwise supported by the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation or the Government |
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• | At September 30, 2008 and December 31, 2007, $14.3 billion and $15.0 billion, respectively, of the estimated fair value, or 90% and 88%, respectively, of the commercial mortgage-backed securities were rated Aaa/AAA by Moody’s, S&P, or Fitch. | |
• | The Company’s asset-backed securities are diversified both by sector and by issuer. At September 30, 2008 and December 31, 2007, $9.1 billion and $5.7 billion, respectively, or 71% and 54%, respectively, of total asset-backed securities were rated Aaa/AAA by Moody’s, S&P or Fitch. At September 30, 2008, the largest exposures in the Company’s asset-backed securities portfolio were credit card receivables and automobile receivables of 50% and 10% of the total holdings, respectively. The Company’s asset-backed securities include exposure to residential mortgage-backed securities backed by sub-prime mortgage loans. Sub-prime mortgage lending is the origination of residential mortgage loans to customers with weak credit profiles. At September 30, 2008 and December 31, 2007, the Company had exposure to fixed maturity securities backed by sub-prime mortgage loans with estimated fair values of $1.4 billion and $2.0 billion, respectively, and unrealized losses of $532 million and $198 million, respectively. At September 30, 2008, 37% of the asset-backed securities backed by sub-prime mortgage loans have been guaranteed by financial guarantee insurers, of which 12%, 36% and 6% were guaranteed by financial guarantee insurers who were Aaa, Aa and A rated, respectively. |
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September 30, 2008 | December 31, 2007 | |||||||
(In millions) | ||||||||
Fixed maturity securities | $ | (12,345 | ) | $ | 3,378 | |||
Equity securities | (541 | ) | 157 | |||||
Derivatives | (67 | ) | (270 | ) | ||||
Minority interest | 7 | (150 | ) | |||||
Other | 16 | 3 | ||||||
Subtotal | (12,930 | ) | 3,118 | |||||
Amounts allocated from: | ||||||||
Insurance liability loss recognition | (128 | ) | (608 | ) | ||||
DAC and VOBA | 1,821 | (327 | ) | |||||
Policyholder dividend obligation | — | (789 | ) | |||||
Subtotal | 1,693 | (1,724 | ) | |||||
Deferred income tax | 3,885 | (423 | ) | |||||
Subtotal | 5,578 | (2,147 | ) | |||||
Net unrealized investment gains (losses) | $ | (7,352 | ) | $ | 971 | |||
September 30, 2008 | ||||||||
(In millions) | ||||||||
Balance at December 31, 2007 | $ | 971 | ||||||
Cumulative effect of change in accounting principles, net of income tax | (10 | ) | ||||||
Balance at January 1, 2008 | 961 | |||||||
Unrealized investment losses during the period | (16,125 | ) | ||||||
Unrealized investment loss of subsidiary at date of disposal | 87 | |||||||
Unrealized investment gains (losses) relating to: | ||||||||
Insurance liability gain recognition | 480 | |||||||
DAC and VOBA | 2,166 | |||||||
DAC and VOBA of subsidiary at date of disposal | (18 | ) | ||||||
Policyholder dividend obligation | 789 | |||||||
Deferred income tax | 4,354 | |||||||
Deferred income tax of subsidiary at date of disposal | (46 | ) | ||||||
Balance at September 30, 2008 | $ | (7,352 | ) | |||||
Change in net unrealized investment gains (losses) | $ | (8,313 | ) | |||||
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September 30, 2008 | ||||||||||||||||||||||||
Less than 12 months | Equal to or Greater than 12 months | Total | ||||||||||||||||||||||
Estimated | Gross | Estimated | Gross | Estimated | Gross | |||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
Value | Loss | Value | Loss | Value | Loss | |||||||||||||||||||
(In millions, except number of securities) | ||||||||||||||||||||||||
U.S. corporate securities | $ | 35,636 | $ | 3,327 | $ | 17,266 | $ | 3,797 | $ | 52,902 | $ | 7,124 | ||||||||||||
Residential mortgage-backed securities | 19,749 | 1,492 | 6,343 | 932 | 26,092 | 2,424 | ||||||||||||||||||
Foreign corporate securities | 16,956 | 1,464 | 6,914 | 1,154 | 23,870 | 2,618 | ||||||||||||||||||
U.S. Treasury/agency securities | 2,662 | 39 | 139 | 8 | 2,801 | 47 | ||||||||||||||||||
Commercial mortgage-backed securities | 10,608 | 871 | 4,323 | 854 | 14,931 | 1,725 | ||||||||||||||||||
Foreign government securities | 3,992 | 269 | 577 | 50 | 4,569 | 319 | ||||||||||||||||||
Asset-backed securities | 8,764 | 659 | 3,662 | 1,265 | 12,426 | 1,924 | ||||||||||||||||||
State and political subdivision securities | 2,544 | 245 | 960 | 281 | 3,504 | 526 | ||||||||||||||||||
Other fixed maturity securities | 14 | — | 11 | 1 | 25 | 1 | ||||||||||||||||||
Total fixed maturity securities | $ | 100,925 | $ | 8,366 | $ | 40,195 | $ | 8,342 | $ | 141,120 | $ | 16,708 | ||||||||||||
Equity securities | $ | 630 | $ | 194 | $ | 1,167 | $ | 445 | $ | 1,797 | $ | 639 | ||||||||||||
Total number of securities in an unrealized loss position | 9,634 | 3,583 | ||||||||||||||||||||||
December 31, 2007 | ||||||||||||||||||||||||
Less than 12 months | Equal to or Greater than 12 months | Total | ||||||||||||||||||||||
Estimated | Gross | Estimated | Gross | Estimated | Gross | |||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
Value | Loss | Value | Loss | Value | Loss | |||||||||||||||||||
(In millions, except number of securities) | ||||||||||||||||||||||||
U.S. corporate securities | $ | 27,930 | $ | 1,358 | $ | 11,619 | $ | 719 | $ | 39,549 | $ | 2,077 | ||||||||||||
Residential mortgage-backed securities | 14,104 | 273 | 5,846 | 104 | 19,950 | 377 | ||||||||||||||||||
Foreign corporate securities | 10,885 | 464 | 6,162 | 304 | 17,047 | 768 | ||||||||||||||||||
U.S. Treasury/agency securities | 431 | 3 | 625 | 10 | 1,056 | 13 | ||||||||||||||||||
Commercial mortgage-backed securities | 2,408 | 97 | 3,751 | 97 | 6,159 | 194 | ||||||||||||||||||
Foreign government securities | 3,387 | 158 | 436 | 24 | 3,823 | 182 | ||||||||||||||||||
Asset-backed securities | 7,279 | 417 | 1,203 | 101 | 8,482 | 518 | ||||||||||||||||||
State and political subdivision securities | 1,307 | 80 | 461 | 34 | 1,768 | 114 | ||||||||||||||||||
Other fixed maturity securities | 91 | 30 | 1 | — | 92 | 30 | ||||||||||||||||||
Total fixed maturity securities | $ | 67,822 | $ | 2,880 | $ | 30,104 | $ | 1,393 | $ | 97,926 | $ | 4,273 | ||||||||||||
Equity securities | $ | 2,681 | $ | 379 | $ | 531 | $ | 71 | $ | 3,212 | $ | 450 | ||||||||||||
Total number of securities in an unrealized loss position | 7,525 | 2,683 | ||||||||||||||||||||||
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September 30, 2008 | ||||||||||||||||||||||||
Cost or Amortized Cost | Gross Unrealized Loss | Number of Securities | ||||||||||||||||||||||
Less than | 20% or | Less than | 20% or | Less than | 20% or | |||||||||||||||||||
20% | more | 20% | more | 20% | more | |||||||||||||||||||
(In millions, except number of securities) | ||||||||||||||||||||||||
Fixed Maturity Securities: | ||||||||||||||||||||||||
Less than six months | $ | 62,315 | $ | 19,570 | $ | 2,964 | $ | 5,672 | 6,083 | 1,285 | ||||||||||||||
Six months or greater but less than nine months | 30,276 | 4,010 | 2,280 | 1,498 | 1,661 | 286 | ||||||||||||||||||
Nine months or greater but less than twelve months | 8,393 | 576 | 750 | 283 | 526 | 61 | ||||||||||||||||||
Twelve months or greater | 32,489 | 199 | 3,169 | 92 | 2,573 | 91 | ||||||||||||||||||
Total | $ | 133,473 | $ | 24,355 | $ | 9,163 | $ | 7,545 | ||||||||||||||||
Equity Securities: | ||||||||||||||||||||||||
Less than six months | $ | 265 | $ | 1,163 | $ | 21 | $ | 416 | 504 | 467 | ||||||||||||||
Six months or greater but less than nine months | 87 | 606 | 11 | 163 | 35 | 20 | ||||||||||||||||||
Nine months or greater but less than twelve months | 86 | — | 10 | — | 29 | — | ||||||||||||||||||
Twelve months or greater | 229 | — | 18 | — | 30 | — | ||||||||||||||||||
Total | $ | 667 | $ | 1,769 | $ | 60 | $ | 579 | ||||||||||||||||
December 31, 2007 | ||||||||||||||||||||||||
Cost or Amortized Cost | Gross Unrealized Loss | Number of Securities | ||||||||||||||||||||||
Less than | 20% or | Less than | 20% or | Less than | 20% or | |||||||||||||||||||
20% | more | 20% | more | 20% | more | |||||||||||||||||||
(In millions, except number of securities) | ||||||||||||||||||||||||
Fixed Maturity Securities: | ||||||||||||||||||||||||
Less than six months | $ | 46,380 | $ | 1,381 | $ | 1,480 | $ | 384 | 4,742 | 148 | ||||||||||||||
Six months or greater but less than nine months | 15,871 | 14 | 732 | 4 | 1,043 | 24 | ||||||||||||||||||
Nine months or greater but less than twelve months | 8,541 | 7 | 494 | 2 | 591 | — | ||||||||||||||||||
Twelve months or greater | 29,942 | 50 | 1,164 | 13 | 2,722 | 32 | ||||||||||||||||||
Total | $ | 100,734 | $ | 1,452 | $ | 3,870 | $ | 403 | ||||||||||||||||
Equity Securities: | ||||||||||||||||||||||||
Less than six months | $ | 1,762 | $ | 427 | $ | 150 | $ | 134 | 1,212 | 420 | ||||||||||||||
Six months or greater but less than nine months | 529 | — | 62 | — | 154 | — | ||||||||||||||||||
Nine months or greater but less than twelve months | 441 | — | 53 | — | 62 | 1 | ||||||||||||||||||
Twelve months or greater | 516 | — | 51 | — | 90 | — | ||||||||||||||||||
Total | $ | 3,248 | $ | 427 | $ | 316 | $ | 134 | ||||||||||||||||
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September 30, | December 31, | |||||||
2008 | 2007 | |||||||
Sector: | ||||||||
U.S. corporate securities | 41 | % | 44 | % | ||||
Foreign corporate securities | 15 | 16 | ||||||
Asset-backed securities | 11 | 11 | ||||||
Residential mortgage-backed securities | 14 | 8 | ||||||
Foreign government securities | 2 | 4 | ||||||
Commercial mortgage-backed securities | 10 | 4 | ||||||
State and political subdivision securities | 3 | 2 | ||||||
Other | 4 | 11 | ||||||
Total | 100 | % | 100 | % | ||||
Industry: | ||||||||
Finance | 29 | % | 33 | % | ||||
Industrial | 3 | 19 | ||||||
Mortgage-backed | 24 | 12 | ||||||
Asset-backed | 11 | 11 | ||||||
Utility | 9 | 8 | ||||||
Government | 2 | 4 | ||||||
Consumer | 9 | 3 | ||||||
Communication | 6 | 2 | ||||||
Other | 7 | 8 | ||||||
Total | 100 | % | 100 | % | ||||
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Three Months | Nine Months | |||||||||||||||
Ended | Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
(In millions) | ||||||||||||||||
Fixed maturity securities | $ | (919 | ) | $ | (295 | ) | $ | (1,424 | ) | $ | (606 | ) | ||||
Equity securities | (181 | ) | 31 | (194 | ) | 108 | ||||||||||
Mortgage and consumer loans | 26 | 21 | (36 | ) | 34 | |||||||||||
Real estate and real estate joint ventures | 1 | 2 | 3 | 41 | ||||||||||||
Other limited partnership interests | (16 | ) | 7 | (31 | ) | 22 | ||||||||||
Derivatives | 1,480 | (20 | ) | 1,064 | (201 | ) | ||||||||||
Other | 354 | 45 | 277 | 136 | ||||||||||||
Net investment gains (losses) | $ | 745 | $ | (209 | ) | $ | (341 | ) | $ | (466 | ) | |||||
Fixed Maturity Securities | Equity Securities | |||||||||||||||||||||||||||||||
Three Months | Nine Months | Three Months | Nine Months | |||||||||||||||||||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||||||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||||||||||||||||||
2008 | 2007 | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | |||||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||||||
Gross investment gains | $ | 279 | $ | 115 | $ | 569 | $ | 351 | $ | 265 | $ | 52 | $ | 412 | $ | 142 | ||||||||||||||||
Gross investment losses | (450 | ) | (370 | ) | (1,032 | ) | (898 | ) | (167 | ) | (15 | ) | (210 | ) | (24 | ) | ||||||||||||||||
Writedowns | (748 | ) | (40 | ) | (961 | ) | (59 | ) | (279 | ) | (6 | ) | (396 | ) | (10 | ) | ||||||||||||||||
Net investment gains (losses) | $ | (919 | ) | $ | (295 | ) | $ | (1,424 | ) | $ | (606 | ) | $ | (181 | ) | $ | 31 | $ | (194 | ) | $ | 108 | ||||||||||
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Three Months | Nine Months | |||||||||||||||
Ended | Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
(In millions) | ||||||||||||||||
Fixed maturity securities | $ | 3,455 | $ | 3,802 | $ | 10,449 | $ | 10,932 | ||||||||
Equity securities | 47 | 70 | 197 | 167 | ||||||||||||
Trading securities | (95 | ) | 21 | (137 | ) | 52 | ||||||||||
Mortgage and consumer loans | 712 | 733 | 2,111 | 2,082 | ||||||||||||
Policy loans | 149 | 146 | 449 | 430 | ||||||||||||
Real estate and real estate joint ventures | 134 | 218 | 484 | 684 | ||||||||||||
Other limited partnership interests | (62 | ) | 206 | 141 | 969 | |||||||||||
Cash, cash equivalents and short-term investments | 101 | 110 | 313 | 365 | ||||||||||||
Other | 103 | 72 | 246 | 171 | ||||||||||||
Total investment income | 4,544 | 5,378 | 14,253 | 15,852 | ||||||||||||
Less: Investment expenses | 493 | 866 | 1,583 | 2,487 | ||||||||||||
Net investment income | $ | 4,051 | $ | 4,512 | $ | 12,670 | $ | 13,365 | ||||||||
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4. | Derivative Financial Instruments |
September 30, 2008 | December 31, 2007 | |||||||||||||||||||||||
Current Market | Current Market | |||||||||||||||||||||||
Notional | or Fair Value | Notional | or Fair Value | |||||||||||||||||||||
Amount | Assets | Liabilities | Amount | Assets | Liabilities | |||||||||||||||||||
(In millions) | ||||||||||||||||||||||||
Interest rate swaps | $ | 33,192 | $ | 1,302 | $ | 599 | $ | 62,410 | $ | 784 | $ | 768 | ||||||||||||
Interest rate floors | 48,517 | 634 | — | 48,937 | 621 | — | ||||||||||||||||||
Interest rate caps | 24,646 | 93 | — | 45,498 | 50 | — | ||||||||||||||||||
Financial futures | 10,466 | 106 | 103 | 12,302 | 89 | 57 | ||||||||||||||||||
Foreign currency swaps | 20,357 | 1,120 | 1,312 | 21,201 | 1,480 | 1,719 | ||||||||||||||||||
Foreign currency forwards | 6,220 | 208 | 83 | 4,177 | 76 | 16 | ||||||||||||||||||
Options | 7,541 | 1,360 | — | 6,565 | 713 | 1 | ||||||||||||||||||
Financial forwards | 18,676 | 182 | 33 | 11,937 | 122 | 2 | ||||||||||||||||||
Credit default swaps | 4,378 | 121 | 23 | 6,625 | 58 | 33 | ||||||||||||||||||
Synthetic GICs | 4,097 | — | — | 3,670 | — | — | ||||||||||||||||||
Other | 250 | — | 44 | 250 | 43 | — | ||||||||||||||||||
Total | $ | 178,340 | $ | 5,126 | $ | 2,197 | $ | 223,572 | $ | 4,036 | $ | 2,596 | ||||||||||||
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September 30, 2008 | December 31, 2007 | |||||||||||||||||||||||
Notional | Fair Value | Notional | Fair Value | |||||||||||||||||||||
Amount | Assets | Liabilities | Amount | Assets | Liabilities | |||||||||||||||||||
( In millions) | ||||||||||||||||||||||||
Fair value | $ | 11,160 | $ | 564 | $ | 197 | $ | 10,006 | $ | 650 | $ | 99 | ||||||||||||
Cash flow | 4,226 | 161 | 214 | 4,717 | 161 | 321 | ||||||||||||||||||
Foreign Operations | 2,335 | 114 | 56 | 1,674 | 11 | 114 | ||||||||||||||||||
Non-qualifying | 160,619 | 4,287 | 1,730 | 207,175 | 3,214 | 2,062 | ||||||||||||||||||
Total | $ | 178,340 | $ | 5,126 | $ | 2,197 | $ | 223,572 | $ | 4,036 | $ | 2,596 | ||||||||||||
The following table presents the settlement payments recorded in income for the: |
Three Months | Nine Months | |||||||||||||||
Ended | Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
(In millions) | ||||||||||||||||
Qualifying hedges: | ||||||||||||||||
Net investment income | $ | 6 | $ | 7 | $ | 8 | $ | 24 | ||||||||
Interest credited to policyholder account balances | 26 | (7 | ) | 89 | (28 | ) | ||||||||||
Other expenses | (2 | ) | (2 | ) | (3 | ) | — | |||||||||
Non-qualifying hedges: | ||||||||||||||||
Net investment income | 3 | — | 2 | — | ||||||||||||
Net investment gains (losses) | 5 | 70 | (14 | ) | 200 | |||||||||||
Total | $ | 38 | $ | 68 | $ | 82 | $ | 196 | ||||||||
Three Months | Nine Months | |||||||||||||||
Ended | Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
(In millions) | ||||||||||||||||
Changes in the fair value of derivatives | $ | (401 | ) | $ | 313 | $ | (379 | ) | $ | 311 | ||||||
Changes in the fair value of the items hedged | 411 | (313 | ) | 384 | (309 | ) | ||||||||||
Net ineffectiveness of fair value hedging activities | $ | 10 | $ | — | $ | 5 | $ | 2 | ||||||||
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Three Months | Nine Months | |||||||||||||||
Ended | Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
(In millions) | ||||||||||||||||
Other comprehensive income (loss) balance at the beginning of the period | $ | (318 | ) | $ | (248 | ) | $ | (270 | ) | $ | (208 | ) | ||||
Gains (losses) deferred in other comprehensive income (loss) on the effective portion of cash flow hedges | 123 | (110 | ) | 77 | (198 | ) | ||||||||||
Amounts reclassified to net investment gains (losses) | 126 | 31 | 119 | 73 | ||||||||||||
Amounts reclassified to net investment income | 2 | 3 | 7 | 11 | ||||||||||||
Amortization of transition adjustment | — | (1 | ) | 1 | (2 | ) | ||||||||||
Amounts reclassified to other expenses | — | — | (1 | ) | (1 | ) | ||||||||||
Other comprehensive income (loss) balance at the end of the period | $ | (67 | ) | $ | (325 | ) | $ | (67 | ) | $ | (325 | ) | ||||
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Table of Contents
Three Months | Nine Months | |||||||||||||||
Ended | Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
(In millions) | ||||||||||||||||
Net investment gains (losses), excluding embedded derivatives | $ | 1,453 | $ | 87 | $ | 1,170 | $ | (397 | ) | |||||||
Policyholder benefits and claims | 62 | 10 | 121 | (6 | ) | |||||||||||
Net investment income (1) | 42 | 9 | 81 | — | ||||||||||||
Total | $ | 1,557 | $ | 106 | $ | 1,372 | $ | (403 | ) | |||||||
(1) | Changes in fair value related to economic hedges of equity method investments in joint ventures that do not qualify for hedge accounting and changes in fair value related to derivatives held in relation to trading portfolios. |
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September 30, | December 31, | |||||||
2008 | 2007 | |||||||
(In millions) | ||||||||
Net embedded derivatives within asset host contracts: | ||||||||
Ceded guaranteed minimum benefit riders | $ | 14 | $ | 6 | ||||
Call options in equity securities | (60 | ) | (16 | ) | ||||
Net embedded derivatives within asset host contracts | $ | (46 | ) | $ | (10 | ) | ||
Net embedded derivatives within liability host contracts: | ||||||||
Direct guaranteed minimum benefit riders | $ | 463 | $ | 284 | ||||
Other | (29 | ) | 52 | |||||
Net embedded derivatives within liability host contracts | $ | 434 | $ | 336 | ||||
Three Months | Nine Months | |||||||||||||||
Ended | Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
(In millions) | ||||||||||||||||
Net investment gains (losses) | $ | 31 | $ | (204 | ) | $ | (29 | ) | $ | (41 | ) |
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September 30, 2008 | ||||||||||||
Maximum Amount of | ||||||||||||
Fair Value of | Future Payments | |||||||||||
Credit Default | under Credit | Weighted Average | ||||||||||
Rating Agency Designation of Referenced Credit Obligations (1) | Swaps | Default Swaps (2) | Years to Maturity (3) | |||||||||
(In millions) | ||||||||||||
Aaa/Aa/A | ||||||||||||
Single name credit default swaps (corporate) | $ | — | $ | 45 | 2.4 | |||||||
Credit default swaps referencing indices | (8 | ) | 1,200 | 4.3 | ||||||||
Subtotal | (8 | ) | 1,245 | 4.3 | ||||||||
Baa | ||||||||||||
Single name credit default swaps (corporate) | — | 60 | 2.7 | |||||||||
Credit default swaps referencing indices | (1 | ) | 105 | 3.1 | ||||||||
Subtotal | (1 | ) | 165 | 2.9 | ||||||||
Ba | ||||||||||||
Single name credit default swaps (corporate) | — | 55 | 3.5 | |||||||||
Credit default swaps referencing indices | — | — | — | |||||||||
Subtotal | — | 55 | 3.5 | |||||||||
B | ||||||||||||
Single name credit default swaps (corporate) | — | 10 | 4.9 | |||||||||
Credit default swaps referencing indices | — | — | — | |||||||||
Subtotal | — | 10 | 4.9 | |||||||||
Caa and lower | ||||||||||||
Single name credit default swaps (corporate) | — | — | — | |||||||||
Credit default swaps referencing indices | — | — | — | |||||||||
Subtotal | — | — | — | |||||||||
In or near default | ||||||||||||
Single name credit default swaps (corporate) | — | — | — | |||||||||
Credit default swaps referencing indices | — | — | — | |||||||||
Subtotal | — | — | — | |||||||||
$ | (9 | ) | $ | 1,475 | 4.1 | |||||||
(1) | The rating agency designations are based on availability and the midpoint of the applicable ratings among Moody’s, S&P, and Fitch. If no rating is available from a rating agency, then the MetLife rating is used. | |
(2) | Assumes the value of the referenced credit obligations is zero. | |
(3) | The weighted average years to maturity of the credit default swaps is calculated based on weighted average notional amounts. |
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Table of Contents
5. | Closed Block |
September 30, | December 31, | |||||||
2008 | 2007 | |||||||
(In millions) | ||||||||
Closed Block Liabilities | ||||||||
Future policy benefits | $ | 43,428 | $ | 43,362 | ||||
Other policyholder funds | 313 | 323 | ||||||
Policyholder dividends payable | 774 | 709 | ||||||
Policyholder dividend obligation | — | 789 | ||||||
Payables for collateral under securities loaned and other transactions | 6,389 | 5,610 | ||||||
Other liabilities | 450 | 290 | ||||||
Total closed block liabilities | 51,354 | 51,083 | ||||||
Assets Designated to the Closed Block | ||||||||
Investments: | ||||||||
Fixed maturity securities available-for-sale, at estimated fair value (amortized cost: $30,490 and $29,631, respectively) | 29,252 | 30,481 | ||||||
Equity securities available-for-sale, at estimated fair value (cost: $302 and $1,555, respectively) | 266 | 1,875 | ||||||
Mortgage loans on real estate | 7,384 | 7,472 | ||||||
Policy loans | 4,351 | 4,290 | ||||||
Real estate and real estate joint ventures held-for-investment | 393 | 297 | ||||||
Short-term investments | 2 | 14 | ||||||
Other invested assets | 1,291 | 829 | ||||||
Total investments | 42,939 | 45,258 | ||||||
Cash and cash equivalents | 1,184 | 333 | ||||||
Accrued investment income | 481 | 485 | ||||||
Deferred income tax assets | 1,245 | 640 | ||||||
Premiums and other receivables | 179 | 151 | ||||||
Total assets designated to the closed block | 46,028 | 46,867 | ||||||
Excess of closed block liabilities over assets designated to the closed block | 5,326 | 4,216 | ||||||
Amounts included in accumulated other comprehensive income (loss): | ||||||||
Unrealized investment gains (losses), net of income tax of ($444) and $424, respectively | (825 | ) | 751 | |||||
Unrealized gains (losses) on derivative instruments, net of income tax benefit of ($11) and ($19), respectively | (21 | ) | (33 | ) | ||||
Allocated to policyholder dividend obligation, net of income tax benefit of $0 and ($284), respectively | — | (505 | ) | |||||
Total amounts included in accumulated other comprehensive income (loss) | (846 | ) | 213 | |||||
Maximum future earnings to be recognized from closed block assets and liabilities | $ | 4,480 | $ | 4,429 | ||||
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Table of Contents
Nine Months | Year | |||||||
Ended | Ended | |||||||
September 30, 2008 | December 31, 2007 | |||||||
(In millions) | ||||||||
Balance at beginning of period | $ | 789 | $ | 1,063 | ||||
Change in unrealized investment and derivative gains (losses) | (789 | ) | (274 | ) | ||||
Balance at end of period | $ | — | $ | 789 | ||||
Three Months | Nine Months | |||||||||||||||
Ended | Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
(In millions) | ||||||||||||||||
Revenues | ||||||||||||||||
Premiums | $ | 667 | $ | 686 | $ | 2,004 | $ | 2,069 | ||||||||
Net investment income and other revenues | 573 | 590 | 1,714 | 1,753 | ||||||||||||
Net investment gains (losses) | 23 | (6 | ) | (50 | ) | 44 | ||||||||||
Total revenues | 1,263 | 1,270 | 3,668 | 3,866 | ||||||||||||
Expenses | ||||||||||||||||
Policyholder benefits and claims | 812 | 833 | 2,459 | 2,505 | ||||||||||||
Policyholder dividends | 384 | 376 | 1,134 | 1,114 | ||||||||||||
Other expenses | 54 | 57 | 164 | 174 | ||||||||||||
Total expenses | 1,250 | 1,266 | 3,757 | 3,793 | ||||||||||||
Revenues, net of expenses before income tax | 13 | 4 | (89 | ) | 73 | |||||||||||
Provision (benefit) for income tax | 2 | — | (38 | ) | 24 | |||||||||||
Revenues, net of expenses and income tax | $ | 11 | $ | 4 | $ | (51 | ) | $ | 49 | |||||||
Three Months | Nine Months | |||||||||||||||
Ended | Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
(In millions) | ||||||||||||||||
Balance at end of period | $ | 4,480 | $ | 4,427 | $ | 4,480 | $ | 4,427 | ||||||||
Less: Cumulative effect of a change in accounting principle, net of income tax | — | — | — | (4 | ) | |||||||||||
Balance at beginning of period | 4,491 | 4,431 | 4,429 | 4,480 | ||||||||||||
Change during period | $ | (11 | ) | $ | (4 | ) | $ | 51 | $ | (49 | ) | |||||
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6. | Insurance |
Future Policy Benefits | Policyholder Account Balances | Other Policyholder Funds | ||||||||||||||||||||||
September 30, | December 31, | September 30, | December 31, | September 30, | December 31, | |||||||||||||||||||
2008 | 2007 | 2008 | 2007 | 2008 | 2007 | |||||||||||||||||||
(In millions) | ||||||||||||||||||||||||
Institutional | ||||||||||||||||||||||||
Group life | $ | 3,374 | $ | 3,326 | $ | 14,274 | $ | 13,997 | $ | 2,775 | $ | 2,364 | ||||||||||||
Retirement & savings | 39,004 | 37,947 | 56,830 | 51,586 | 77 | 213 | ||||||||||||||||||
Non-medical health & other | 11,304 | 10,617 | 518 | 501 | 717 | 597 | ||||||||||||||||||
Individual | ||||||||||||||||||||||||
Traditional life | 52,854 | 52,493 | — | — | 1,441 | 1,480 | ||||||||||||||||||
Universal & variable life | 1,123 | 985 | 15,285 | 14,898 | 1,609 | 1,572 | ||||||||||||||||||
Annuities | 3,244 | 3,063 | 38,551 | 37,807 | 80 | 76 | ||||||||||||||||||
Other | — | — | 2,574 | 2,410 | — | — | ||||||||||||||||||
Auto & Home | 3,201 | 3,273 | — | — | 48 | 51 | ||||||||||||||||||
International | 9,827 | 9,826 | 5,379 | 4,961 | 1,436 | 1,296 | ||||||||||||||||||
Corporate & Other | 4,831 | 4,644 | 5,721 | 4,532 | 263 | 345 | ||||||||||||||||||
Total | $ | 128,762 | $ | 126,174 | $ | 139,132 | $ | 130,692 | $ | 8,446 | $ | 7,994 | ||||||||||||
7. | Long-term and Short-term Debt |
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Letter of | ||||||||||||||||||
Credit | Unused | |||||||||||||||||
Borrower(s) | Expiration | Capacity | Issuances | Drawdowns | Commitments | |||||||||||||
(In millions) | ||||||||||||||||||
MetLife, Inc. and MetLife Funding, Inc. | June 2012 (1) | $ | 3,000 | $ | 1,004 | $ | — | $ | 1,996 | |||||||||
MetLife Bank, N.A. | July 2009 | 300 | — | — | 300 | |||||||||||||
Total | $ | 3,300 | $ | 1,004 | $ | — | $ | 2,296 | ||||||||||
(1) | Proceeds are available to be used for general corporate purposes, to support their commercial paper programs and for the issuance of letters of credit. All borrowings under the credit agreement must be repaid by June 2012, except that letters of credit outstanding upon termination may remain outstanding until June 2013. The borrowers and the lenders under this facility may agree to extend the term of all or part of the facility to no later than June 2014, except that letters of credit outstanding upon termination may remain outstanding until June 2015. |
Letter of | ||||||||||||||||||||||||
Credit | Unused | Maturity | ||||||||||||||||||||||
Account Party/Borrower(s) | Expiration | Capacity | Drawdowns | Issuances | Commitments | (Years) | ||||||||||||||||||
(In millions) | ||||||||||||||||||||||||
Exeter Reassurance Company Ltd., MetLife, Inc., & Missouri Reinsurance (Barbados), Inc. | June 2016 (1) | $ | 500 | $ | — | $ | 490 | $ | 10 | 7 | ||||||||||||||
MetLife, Inc. | August 2009 (2), (3) | 500 | — | 500 | — | 0 | ||||||||||||||||||
Exeter Reassurance Company Ltd. | December 2027 (2) | 650 | — | 410 | 240 | 19 | ||||||||||||||||||
MetLife Reinsurance Company of South Carolina & MetLife, Inc. | June 2037 | 3,500 | 2,632 | — | 868 | 28 | ||||||||||||||||||
MetLife Reinsurance Company of Vermont & MetLife, Inc. | December 2037 (2) | 2,896 | — | 1,328 | 1,568 | 29 | ||||||||||||||||||
MetLife Reinsurance Company of Vermont & MetLife, Inc. | September 2038 (2), (4) | 3,500 | — | 1,000 | 2,500 | 29 | ||||||||||||||||||
Total | $ | 11,546 | $ | 2,632 | $ | 3,728 | $ | 5,186 | ||||||||||||||||
(1) | Letters of credit and replacements or renewals thereof issued under this facility of $280 million, $10 million and $200 million are set to expire no later than December 2015, March 2016 and June 2016, respectively. | |
(2) | The Holding Company is a guarantor under this agreement. | |
(3) | In August 2008, the Holding Company entered into a one-year, $500 million letter of credit facility with an unaffiliated financial institution. Exeter Reassurance Company, Ltd. is a co-applicant under this letter of credit facility. All borrowings under the letter of credit facility must be repaid by August 2009, except that letters of credit outstanding upon termination may remain outstanding until August 2010. | |
(4) | In September 2008, MetLife Reinsurance Company of Vermont (“MRV”) and the Holding Company entered into a30-year, $3.5 billion letter of credit facility with an unaffiliated financial institution. These letters of credit serve as collateral for MRV’s obligations under a reinsurance agreement. |
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8. | Collateral Financing Arrangements |
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9. | Junior Subordinated Debentures |
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10. | Common Equity Units |
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11. | Contingencies, Commitments and Guarantees |
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12. | Employee Benefit Plans |
Pension Benefits | Other Postretirement Benefits | |||||||||||||||||||||||||||||||
Three Months | Nine Months | Three Months | Nine Months | |||||||||||||||||||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||||||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||||||||||||||||||
2008 | 2007 | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | |||||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||||||
Service cost | $ | 41 | $ | 41 | $ | 123 | $ | 123 | $ | 6 | $ | 6 | $ | 16 | $ | 20 | ||||||||||||||||
Interest cost | 94 | 87 | 285 | 264 | 25 | 25 | 77 | 77 | ||||||||||||||||||||||||
Expected return on plan assets | (130 | ) | (126 | ) | (393 | ) | (379 | ) | (22 | ) | (21 | ) | (66 | ) | (65 | ) | ||||||||||||||||
Amortization of prior service cost | 3 | 3 | 11 | 9 | (9 | ) | (9 | ) | (27 | ) | (27 | ) | ||||||||||||||||||||
Amortization of prior actuarial losses | 7 | 17 | 18 | 51 | — | — | — | — | ||||||||||||||||||||||||
Net periodic benefit cost | $ | 15 | $ | 22 | $ | 44 | $ | 68 | $ | — | $ | 1 | $ | — | $ | 5 | ||||||||||||||||
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Pension Benefits | Other Postretirement Benefits | |||||||||||||||||||||||||||||||
Three Months Ended | Nine Months Ended | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||||||||||||||||||
2008 | 2007 | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | |||||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||||||
Amortization of prior service cost (credit) | $ | 3 | $ | 3 | $ | 11 | $ | 9 | $ | (9 | ) | $ | (9 | ) | $ | (27 | ) | $ | (27 | ) | ||||||||||||
Amortization of net actuarial (gains) losses | 7 | 17 | 18 | 51 | — | — | — | — | ||||||||||||||||||||||||
Subtotal | 10 | 20 | 29 | 60 | (9 | ) | (9 | ) | (27 | ) | (27 | ) | ||||||||||||||||||||
Deferred income tax | (4 | ) | (8 | ) | (11 | ) | (23 | ) | 3 | 3 | 9 | 9 | ||||||||||||||||||||
Components of net periodic benefit cost amortized from accumulated other comprehensive income (loss), net of income tax (1) | $ | 6 | $ | 12 | $ | 18 | $ | 37 | $ | (6 | ) | $ | (6 | ) | $ | (18 | ) | $ | (18 | ) | ||||||||||||
(1) | Other comprehensive income also includes $4 million of amounts which were included in accumulated other comprehensive income (loss) which were reversed upon disposition of RGA. |
13. | Equity |
Dividend | ||||||||||||||||||||
Series A | Series A | Series B | Series B | |||||||||||||||||
Declaration Date | Record Date | Payment Date | Per Share | Aggregate | Per Share | Aggregate | ||||||||||||||
(In millions, except per share data) | ||||||||||||||||||||
August 15, 2008 | August 31, 2008 | September 15, 2008 | $ | 0.2555555 | $ | 6 | $ | 0.4062500 | $ | 24 | ||||||||||
May 15, 2008 | May 31, 2008 | June 16, 2008 | $ | 0.2555555 | 7 | $ | 0.4062500 | 24 | ||||||||||||
March 5, 2008 | February 29, 2008 | March 17, 2008 | $ | 0.3785745 | 9 | $ | 0.4062500 | 24 | ||||||||||||
$ | 22 | $ | 72 | |||||||||||||||||
August 15, 2007 | August 31, 2007 | September 17, 2007 | $ | 0.4063333 | $ | 10 | $ | 0.4062500 | $ | 24 | ||||||||||
May 15, 2007 | May 31, 2007 | June 15, 2007 | $ | 0.4060062 | 10 | $ | 0.4062500 | 24 | ||||||||||||
March 5, 2007 | February 28, 2007 | March 15, 2007 | $ | 0.3975000 | 10 | $ | 0.4062500 | 24 | ||||||||||||
$ | 30 | $ | 72 | |||||||||||||||||
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Three Months | Nine Months | |||||||||||||||
Ended | Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
(In millions) | ||||||||||||||||
Net income | $ | 630 | $ | 1,019 | $ | 2,224 | $ | 3,199 | ||||||||
Other comprehensive income (loss): | ||||||||||||||||
Unrealized gains (losses) on derivative instruments, net of income tax | 166 | (49 | ) | 135 | (76 | ) | ||||||||||
Unrealized gains (losses), net of related offsets and income tax | (4,822 | ) | 274 | (8,448 | ) | (1,228 | ) | |||||||||
Foreign currency translation adjustments, net of income tax | (379 | ) | 117 | (299 | ) | 223 | ||||||||||
Defined benefit plans adjustment, net of income tax | 4 | 6 | 4 | 19 | ||||||||||||
Other comprehensive income (loss) | (5,031 | ) | 348 | (8,608 | ) | (1,062 | ) | |||||||||
Comprehensive income (loss) | $ | (4,401 | ) | $ | 1,367 | $ | (6,384 | ) | $ | 2,137 | ||||||
14. | Other Expenses |
Three Months | Nine Months | |||||||||||||||
Ended | Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
(In millions) | ||||||||||||||||
Compensation | $ | 924 | $ | 890 | $ | 2,675 | $ | 2,654 | ||||||||
Commissions | 856 | 857 | 2,569 | 2,348 | ||||||||||||
Interest and debt issue costs | 263 | 264 | 821 | 714 | ||||||||||||
Amortization of DAC and VOBA | 703 | 502 | 1,790 | 1,690 | ||||||||||||
Capitalization of DAC | (778 | ) | (813 | ) | (2,332 | ) | (2,234 | ) | ||||||||
Rent, net of sublease income | 91 | 75 | 274 | 226 | ||||||||||||
Minority interest | (9 | ) | (6 | ) | (15 | ) | 17 | |||||||||
Insurance tax | 144 | 122 | 396 | 364 | ||||||||||||
Other (1) | 737 | 592 | 1,913 | 1,786 | ||||||||||||
Total other expenses | $ | 2,931 | $ | 2,483 | $ | 8,091 | $ | 7,565 | ||||||||
(1) | In connection with an enterprise-wide cost reduction and revenue enhancement initiative, the Company recognized within Corporate & Other, during the three months ended September 30, 2008, an initial accrual for post-employment related expenses of $73 million incurred under an existing benefit arrangement. No amounts were paid in connection with the accrual during the three months ended September 30, 2008. The Company expects the initiative to be fully implemented by December 31, 2010. |
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15. | Earnings Per Common Share |
Three Months | Nine Months | |||||||||||||||
Ended | Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
(In millions, except share and per common share data) | ||||||||||||||||
Weighted average common stock outstanding for basic earnings per share | 718,114,168 | 743,958,113 | 716,704,688 | 746,895,607 | ||||||||||||
Incremental common shares from assumed: | ||||||||||||||||
Stock purchase contracts underlying common equity units | 241,875 | 7,839,308 | 2,724,737 | 7,102,226 | ||||||||||||
Exercise or issuance of stock-based awards | 8,578,009 | 10,895,652 | 9,208,513 | 11,164,558 | ||||||||||||
Weighted average common stock outstanding for diluted earnings per share | 726,934,052 | 762,693,073 | 728,637,938 | 765,162,391 | ||||||||||||
Earnings per common share: | ||||||||||||||||
Income from continuing operations | $ | 1,061 | $ | 943 | $ | 2,563 | $ | 3,037 | ||||||||
Preferred stock dividends | 30 | 34 | 94 | 102 | ||||||||||||
Income from continuing operations available to common shareholders | $ | 1,031 | $ | 909 | $ | 2,469 | $ | 2,935 | ||||||||
Basic | $ | 1.44 | $ | 1.22 | $ | 3.44 | $ | 3.93 | ||||||||
Diluted | $ | 1.42 | $ | 1.19 | $ | 3.39 | $ | 3.84 | ||||||||
Income (loss) from discontinued operations, net of income tax | $ | (431 | ) | $ | 76 | $ | (339 | ) | $ | 162 | ||||||
Basic | $ | (0.60 | ) | $ | 0.10 | $ | (0.47 | ) | $ | 0.22 | ||||||
Diluted | $ | (0.59 | ) | $ | 0.10 | $ | (0.47 | ) | $ | 0.21 | ||||||
Net income | $ | 630 | $ | 1,019 | $ | 2,224 | $ | 3,199 | ||||||||
Preferred stock dividends | 30 | 34 | 94 | 102 | ||||||||||||
Net income available to common shareholders | $ | 600 | $ | 985 | $ | 2,130 | $ | 3,097 | ||||||||
Basic | $ | 0.84 | $ | 1.32 | $ | 2.97 | $ | 4.15 | ||||||||
Diluted | $ | 0.83 | $ | 1.29 | $ | 2.92 | $ | 4.05 | ||||||||
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16. | Business Segment Information |
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Auto & | Corporate & | |||||||||||||||||||||||
For the Three Months Ended September 30, 2008 | Institutional | Individual | International | Home | Other | Total | ||||||||||||||||||
(In millions) | ||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||
Premiums | $ | 4,065 | $ | 1,078 | $ | 893 | $ | 745 | $ | 8 | $ | 6,789 | ||||||||||||
Universal life and investment-type product policy fees | 215 | 893 | 264 | — | — | 1,372 | ||||||||||||||||||
Net investment income | 1,862 | 1,641 | 334 | 48 | 166 | 4,051 | ||||||||||||||||||
Other revenues | 223 | 147 | — | 9 | 42 | 421 | ||||||||||||||||||
Net investment gains (losses) | 203 | 363 | 277 | (67 | ) | (31 | ) | 745 | ||||||||||||||||
Total revenues | 6,568 | 4,122 | 1,768 | 735 | 185 | 13,378 | ||||||||||||||||||
Expenses | ||||||||||||||||||||||||
Policyholder benefits and claims | 4,462 | 1,382 | 949 | 471 | 12 | 7,276 | ||||||||||||||||||
Interest credited to policyholder account balances | 631 | 496 | 6 | — | — | 1,133 | ||||||||||||||||||
Policyholder dividends | — | 446 | 2 | 1 | — | 449 | ||||||||||||||||||
Other expenses | 612 | 1,191 | 412 | 196 | 520 | 2,931 | ||||||||||||||||||
Total expenses | 5,705 | 3,515 | 1,369 | 668 | 532 | 11,789 | ||||||||||||||||||
Income from continuing operations before provision for income tax | 863 | 607 | 399 | 67 | (347 | ) | 1,589 | |||||||||||||||||
Provision for income tax | 293 | 207 | 145 | 10 | (127 | ) | 528 | |||||||||||||||||
Income from continuing operations | 570 | 400 | 254 | 57 | (220 | ) | 1,061 | |||||||||||||||||
Income from discontinued operations, net of income tax | 4 | — | — | — | (435 | ) | (431 | ) | ||||||||||||||||
Net income | $ | 574 | $ | 400 | $ | 254 | $ | 57 | $ | (655 | ) | $ | 630 | |||||||||||
Auto & | Corporate & | |||||||||||||||||||||||
For the Three Months Ended September 30, 2007 | Institutional | Individual | International | Home | Other | Total | ||||||||||||||||||
(In millions) | ||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||
Premiums | $ | 3,081 | $ | 1,099 | $ | 780 | $ | 750 | $ | 7 | $ | 5,717 | ||||||||||||
Universal life and investment-type product policy fees | 201 | 874 | 238 | — | — | 1,313 | ||||||||||||||||||
Net investment income | 2,019 | 1,712 | 369 | 47 | 365 | 4,512 | ||||||||||||||||||
Other revenues | 181 | 146 | 4 | 10 | 4 | 345 | ||||||||||||||||||
Net investment gains (losses) | (216 | ) | (23 | ) | 19 | — | 11 | (209 | ) | |||||||||||||||
Total revenues | 5,266 | 3,808 | 1,410 | 807 | 387 | 11,678 | ||||||||||||||||||
Expenses | ||||||||||||||||||||||||
Policyholder benefits and claims | 3,478 | 1,383 | 689 | 453 | 10 | 6,013 | ||||||||||||||||||
Interest credited to policyholder account balances | 808 | 506 | 111 | — | — | 1,425 | ||||||||||||||||||
Policyholder dividends | — | 430 | 2 | 2 | — | 434 | ||||||||||||||||||
Other expenses | 570 | 991 | 371 | 207 | 344 | 2,483 | ||||||||||||||||||
Total expenses | 4,856 | 3,310 | 1,173 | 662 | 354 | 10,355 | ||||||||||||||||||
Income from continuing operations before provision for income tax | 410 | 498 | 237 | 145 | 33 | 1,323 | ||||||||||||||||||
Provision for income tax | 139 | 171 | 78 | 36 | (44 | ) | 380 | |||||||||||||||||
Income from continuing operations | 271 | 327 | 159 | 109 | 77 | 943 | ||||||||||||||||||
Income from discontinued operations, net of income tax | 1 | — | 44 | — | 31 | 76 | ||||||||||||||||||
Net income | $ | 272 | $ | 327 | $ | 203 | $ | 109 | $ | 108 | $ | 1,019 | ||||||||||||
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Auto & | Corporate & | |||||||||||||||||||||||
For the Nine Months Ended September 30, 2008 | Institutional | Individual | International | Home | Other | Total | ||||||||||||||||||
(In millions) | ||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||
Premiums | $ | 11,237 | $ | 3,216 | $ | 2,717 | $ | 2,232 | $ | 26 | $ | 19,428 | ||||||||||||
Universal life and investment-type product policy fees | 647 | 2,712 | 847 | — | — | 4,206 | ||||||||||||||||||
Net investment income | 5,859 | 5,031 | 960 | 149 | 671 | 12,670 | ||||||||||||||||||
Other revenues | 584 | 450 | 13 | 30 | 64 | 1,141 | ||||||||||||||||||
Net investment gains (losses) | (428 | ) | (2 | ) | 276 | (91 | ) | (96 | ) | (341 | ) | |||||||||||||
Total revenues | 17,899 | 11,407 | 4,813 | 2,320 | 665 | 37,104 | ||||||||||||||||||
Expenses | ||||||||||||||||||||||||
Policyholder benefits and claims | 12,389 | 4,169 | 2,393 | 1,488 | 36 | 20,475 | ||||||||||||||||||
Interest credited to policyholder account balances | 1,930 | 1,501 | 142 | — | — | 3,573 | ||||||||||||||||||
Policyholder dividends | — | 1,315 | 5 | 4 | — | 1,324 | ||||||||||||||||||
Other expenses | 1,778 | 3,119 | 1,312 | 604 | 1,278 | 8,091 | ||||||||||||||||||
Total expenses | 16,097 | 10,104 | 3,852 | 2,096 | 1,314 | 33,463 | ||||||||||||||||||
Income from continuing operations before provision for income tax | 1,802 | 1,303 | 961 | 224 | (649 | ) | 3,641 | |||||||||||||||||
Provision for income tax | 604 | 433 | 348 | 33 | (340 | ) | 1,078 | |||||||||||||||||
Income from continuing operations | 1,198 | 870 | 613 | 191 | (309 | ) | 2,563 | |||||||||||||||||
Income from discontinued operations, net of income tax | 9 | 5 | — | — | (353 | ) | (339 | ) | ||||||||||||||||
Net income | $ | 1,207 | $ | 875 | $ | 613 | $ | 191 | $ | (662 | ) | $ | 2,224 | |||||||||||
Auto & | Corporate & | |||||||||||||||||||||||
For the Nine Months Ended September 30, 2007 | Individual | Institutional | International | Home | Other | Total | ||||||||||||||||||
(In millions) | ||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||
Premiums | $ | 9,279 | $ | 3,271 | $ | 2,272 | $ | 2,205 | $ | 23 | $ | 17,050 | ||||||||||||
Universal life and investment-type product policy fees | 578 | 2,608 | 715 | — | — | 3,901 | ||||||||||||||||||
Net investment income | 6,016 | 5,245 | 889 | 142 | 1,073 | 13,365 | ||||||||||||||||||
Other revenues | 546 | 446 | 22 | 28 | 63 | 1,105 | ||||||||||||||||||
Net investment gains (losses) | (509 | ) | (87 | ) | 64 | 12 | 54 | (466 | ) | |||||||||||||||
Total revenues | 15,910 | 11,483 | 3,962 | 2,387 | 1,213 | 34,955 | ||||||||||||||||||
Expenses | ||||||||||||||||||||||||
Policyholder benefits and claims | 10,337 | 4,140 | 1,921 | 1,329 | 32 | 17,759 | ||||||||||||||||||
Interest credited to policyholder account balances | 2,305 | 1,508 | 269 | — | — | 4,082 | ||||||||||||||||||
Policyholder dividends | — | 1,283 | 3 | 3 | — | 1,289 | ||||||||||||||||||
Other expenses | 1,787 | 3,023 | 1,150 | 612 | 993 | 7,565 | ||||||||||||||||||
Total expenses | 14,429 | 9,954 | 3,343 | 1,944 | 1,025 | 30,695 | ||||||||||||||||||
Income from continuing operations before provision for income tax | 1,481 | 1,529 | 619 | 443 | 188 | 4,260 | ||||||||||||||||||
Provision for income tax | 501 | 522 | 186 | 112 | (98 | ) | 1,223 | |||||||||||||||||
Income from continuing operations | 980 | 1,007 | 433 | 331 | 286 | 3,037 | ||||||||||||||||||
Income (loss) from discontinued operations, net of income tax | 10 | 2 | (3 | ) | — | 153 | 162 | |||||||||||||||||
Net income | $ | 990 | $ | 1,009 | $ | 430 | $ | 331 | $ | 439 | $ | 3,199 | ||||||||||||
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September 30, | December 31, | |||||||
2008 | 2007 | |||||||
(In millions) | ||||||||
Institutional | $ | 202,939 | $ | 204,005 | ||||
Individual | 229,743 | 250,691 | ||||||
International | 27,179 | 26,357 | ||||||
Auto & Home | 5,844 | 5,672 | ||||||
Corporate & Other | 55,594 | 72,411 | ||||||
Total | $ | 521,299 | $ | 559,136 | ||||
17. | Discontinued Operations |
Three Months | Nine Months | |||||||||||||||
Ended | Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
(In millions) | ||||||||||||||||
Investment income | $ | 12 | $ | 9 | $ | 45 | $ | 38 | ||||||||
Investment expense | (4 | ) | (8 | ) | (19 | ) | (23 | ) | ||||||||
Net investment gains (losses) | — | — | — | 5 | ||||||||||||
Total revenues | 8 | 1 | 26 | 20 | ||||||||||||
Provision for income tax | 5 | — | 9 | 7 | ||||||||||||
Income from discontinued operations, net of income tax | $ | 3 | $ | 1 | $ | 17 | $ | 13 | ||||||||
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Three Months | Nine Months | |||||||||||||||
Ended | Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
(In millions) | ||||||||||||||||
Net investment income | ||||||||||||||||
Institutional | $ | 7 | $ | (1 | ) | $ | 14 | $ | 9 | |||||||
Individual | 1 | 1 | 10 | 4 | ||||||||||||
Corporate & Other | — | 1 | 2 | 2 | ||||||||||||
Total net investment income | $ | 8 | $ | 1 | $ | 26 | $ | 15 | ||||||||
Net investment gains (losses) | ||||||||||||||||
Institutional | $ | — | $ | — | $ | — | $ | 5 | ||||||||
Individual | — | — | — | — | ||||||||||||
Corporate & Other | — | — | — | — | ||||||||||||
Total net investment gains (losses) | $ | — | $ | — | $ | — | $ | 5 | ||||||||
Three Months | Nine Months | |||||||||||||||
Ended | Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
(In millions) | ||||||||||||||||
Premiums | $ | 878 | $ | 1,228 | $ | 3,535 | $ | 3,562 | ||||||||
Net investment income | 143 | 189 | 597 | 681 | ||||||||||||
Other revenues | 16 | 23 | 69 | 60 | ||||||||||||
Net investment gains (losses) | (87 | ) | (62 | ) | (249 | ) | (81 | ) | ||||||||
Total revenues | 950 | 1,378 | 3,952 | 4,222 | ||||||||||||
Policyholder benefits and claims | 732 | 1,006 | 2,989 | 2,887 | ||||||||||||
Interest credited to policyholder account balances | (29 | ) | 36 | 108 | 217 | |||||||||||
Other expenses | 213 | 274 | 699 | 928 | ||||||||||||
Total expenses | 916 | 1,316 | 3,796 | 4,032 | ||||||||||||
Income before provision for income tax | 34 | 62 | 156 | 190 | ||||||||||||
Provision for income tax | 10 | 21 | 53 | 67 | ||||||||||||
Income from discontinued operations, net of income tax | 24 | 41 | 103 | 123 | ||||||||||||
Loss on disposal, net of income tax | (458 | ) | — | (458 | ) | — | ||||||||||
Income (loss) from discontinued operations, net of income tax | $ | (434 | ) | $ | 41 | $ | (355 | ) | $ | 123 | ||||||
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December 31, 2007 | ||||
(In millions) | ||||
Fixed maturity securities | $ | 9,398 | ||
Equity securities | 137 | |||
Mortgage and consumer loans | 832 | |||
Policy loans | 1,059 | |||
Short-term investments | 75 | |||
Other invested assets | 4,897 | |||
Total investments | 16,398 | |||
Cash and cash equivalents | 404 | |||
Accrued investment income | 78 | |||
Premiums and other receivables | 1,440 | |||
Deferred policy acquisition costs | 3,513 | |||
Goodwill | 96 | |||
Other assets | 91 | |||
Separate account assets | 17 | |||
Total assets held-for-sale | $ | 22,037 | ||
Future policy benefits | $ | 6,159 | ||
Policyholder account balances | 6,657 | |||
Other policyholder funds | 2,297 | |||
Long-term debt | 528 | |||
Collateral financing arrangements | 850 | |||
Junior subordinated debt securities | 399 | |||
Shares subject to mandatory redemption | 159 | |||
Current income tax payable | 33 | |||
Deferred income tax liability | 941 | |||
Other liabilities | 1,918 | |||
Separate account liabilities | 17 | |||
Total liabilities held-for-sale | $ | 19,958 | ||
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Three Months | Nine Months | |||||||
Ended | Ended | |||||||
September 30, 2007 | September 30, 2007 | |||||||
(In millions) | ||||||||
Revenues | $ | 19 | $ | 71 | ||||
Expenses | 11 | 58 | ||||||
Income before provision for income tax | 8 | 13 | ||||||
Provision for income tax | 3 | 4 | ||||||
Income from discontinued operations, net of income tax | 5 | 9 | ||||||
Net investment gains (losses), net of income tax | 29 | 1 | ||||||
Income from discontinued operations, net of income tax | $ | 34 | $ | 10 | ||||
18. | Fair Value |
• | Fixed Maturity, Equity and Trading Securities and Short-Term Investments —When available, the estimated fair value of the Company’s fixed maturity, equity and trading securities as well as certain short-term investments are based on quoted prices in active markets that are readily and regularly obtainable. Generally, these are the most liquid of the Company’s securities holdings and valuation of these securities does not involve management judgment. |
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• | Derivatives —The 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 over-the-counter derivatives. The determination of fair value, when quoted market values are not available, is based on market standard valuation methodologies and inputs that are assumed to be consistent with what other market participants would use when pricing the instruments. Derivative valuations can be affected by changes in interest rates, foreign currency exchange rates, financial indices, credit spreads, default risk (including the counterparties to the contract), volatility, liquidity and changes in estimates and assumptions used in the pricing models. |
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• | Embedded Derivatives —Embedded derivatives principally include certain variable annuity riders and certain guaranteed investment contracts with equity or bond indexed crediting rates. Embedded derivatives are recorded in the financial statements at fair value with changes in fair value adjusted through net income. |
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• | Separate Account Assets —Separate account assets are carried at fair value and reported as a summarized total on the consolidated balance sheet in accordance with Statement of Position (“SOP”)03-1,Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts(“SOP 03-1”). The fair value of separate account assets are based on the fair value of the underlying assets owned by the separate account. Assets within the Company’s separate accounts include: mutual funds, fixed maturity securities, equity securities, mortgage loans, derivatives, hedge funds, other limited partnership interests, short-term investments and cash and cash equivalents. The fair value of mutual funds is based upon quoted prices or reported net assets values (“NAVs”) provided by the fund manager and are reviewed by management to determine whether such values require adjustment to represent exit value. The fair values of fixed maturity securities, equity securities, derivatives, short-term investments and cash and cash equivalents held by separate accounts are determined on a basis consistent with the methodologies described herein for similar financial instruments held within the general account. The fair value of hedge funds is based upon NAVs provided by the fund manager and are reviewed by management to determine whether such values require adjustment to represent exit value. The fair value of mortgage loans is determined by discounting expected future cash flows, using current interest rates for similar loans with similar credit risk. Other limited partnership interests are valued giving consideration to the value of the underlying holdings of the partnerships and by applying a premium or discount, if appropriate, for factors such as liquidity, bid/ask spreads, the performance record of the fund manager or other relevant variables which may impact the exit value of the particular partnership interest. | |
• | Mortgage and Consumer Loans —Mortgage and consumer loans includes residential mortgage loans held-for-sale for which the fair value option was elected and which are carried at estimated fair value. Generally, quoted market prices are not available for residential mortgage loans held-for-sale, accordingly, the estimated fair values of such assets are determined based on observable pricing of residential mortgage loans held-for-sale with similar characteristics, or observable pricing for securities backed by similar types of loans, adjusted to convert the securities prices to loan prices. When observable pricing for similar loans or securities that are backed by similar loans are not available, the estimated fair values of residential mortgage loans held-for-sale are determined using independent broker quotations, which is intended to approximate the amounts that would be received from third parties. | |
• | Mortgage Servicing Rights —The Company has elected to carry mortgage servicing rights at fair value pursuant to SFAS 140,Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, as amended by SFAS 156,Accounting for Servicing of Financial Assets. As sales of mortgage servicing rights tend to occur in private transactions where the precise terms and conditions of the sales are typically not readily available, observable market valuations are limited. As such, the Company relies primarily on a discounted cash flow model to estimate the fair value of the mortgage servicing rights. The model requires inputs such as type of loan (fixed vs. variable and agency vs. other), age of loan, loan interest rates and current market interest rates that are generally observable. The model also requires the use of nonobservable inputs including assumptions regarding estimates of discount rates, loan pre-payment, and servicing costs. |
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September 30, 2008 | ||||||||||||||||
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
Quoted Prices in | ||||||||||||||||
Active Markets for | Significant | |||||||||||||||
Identical Assets | Significant Other | Unobservable | ||||||||||||||
and Liabilities | Observable Inputs | Inputs | Total | |||||||||||||
(Level 1) | (Level 2) | (Level 3) | Fair Value | |||||||||||||
(In millions) | ||||||||||||||||
Assets | ||||||||||||||||
Fixed maturity securities: | ||||||||||||||||
U.S. corporate securities | $ | — | $ | 60,336 | $ | 7,693 | $ | 68,029 | ||||||||
Residential mortgage-backed securities | 2 | 46,471 | 510 | 46,983 | ||||||||||||
Foreign corporate securities | — | 26,597 | 7,799 | 34,396 | ||||||||||||
U.S. Treasury/agency securities | 5,519 | 11,051 | 66 | 16,636 | ||||||||||||
Commercial mortgage-backed securities | — | 15,549 | 356 | 15,905 | ||||||||||||
Foreign government securities | 255 | 11,160 | 520 | 11,935 | ||||||||||||
Asset-backed securities | — | 9,699 | 3,092 | 12,791 | ||||||||||||
State and political subdivision securities | — | 5,788 | 124 | 5,912 | ||||||||||||
Other fixed maturity securities | 15 | — | 43 | 58 | ||||||||||||
Total fixed maturity securities | 5,791 | 186,651 | 20,203 | 212,645 | ||||||||||||
Equity securities: | ||||||||||||||||
Common stocks | 461 | 1,003 | 149 | 1,613 | ||||||||||||
Non-redeemable preferred stocks | — | 296 | 1,568 | 1,864 | ||||||||||||
Total equity securities | 461 | 1,299 | 1,717 | 3,477 | ||||||||||||
Trading securities | 364 | 188 | 236 | 788 | ||||||||||||
Short-term investments (1) | 1,411 | 681 | 138 | 2,230 | ||||||||||||
Mortgage and consumer loans (2) | — | 1,321 | 15 | 1,336 | ||||||||||||
Derivative assets (3) | 127 | 3,666 | 1,333 | 5,126 | ||||||||||||
Net embedded derivatives within asset host contracts (4) | — | — | 14 | 14 | ||||||||||||
Mortgage servicing rights (5) | — | — | 303 | 303 | ||||||||||||
Separate account assets (6) | 104,332 | 33,460 | 2,011 | 139,803 | ||||||||||||
Total assets | $ | 112,486 | $ | 227,266 | $ | 25,970 | $ | 365,722 | ||||||||
Liabilities | ||||||||||||||||
Derivative liabilities (3) | $ | 117 | $ | 2,015 | $ | 65 | $ | 2,197 | ||||||||
Net embedded derivatives within liability host contracts (4) | — | (29 | ) | 463 | 434 | |||||||||||
Trading liabilities (7) | 30 | — | — | 30 | ||||||||||||
Total liabilities | $ | 147 | $ | 1,986 | $ | 528 | $ | 2,661 | ||||||||
(1) | Short-term investments as presented in the table above differ from the amounts presented in the consolidated balance sheet because certain short-term investments are not measured at estimated fair value (e.g. time deposits, money market funds, etc.). |
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(2) | Mortgage and consumer loans as presented in the table above differ from the amount presented in the consolidated balance sheet as this table only includes residential mortgage loans held-for-sale measured at estimated fair value on a recurring basis. | |
(3) | Derivative assets are presented within other invested assets and derivatives liabilities are presented within other liabilities. The amounts are presented gross in the table above to reflect the presentation in the consolidated balance sheet, but are presented net for purposes of the rollforward in the following tables. | |
(4) | Net embedded derivatives within asset host contracts are principally presented within other invested assets with certain amounts included within premiums and other receivables. Fixed maturity securities also includes embedded derivatives of ($60) million. Net embedded derivatives within liability host contracts are presented within policyholder account balances. | |
(5) | Mortgage servicing rights are presented within other assets. | |
(6) | Separate account assets are measured at estimated fair value. Investment performance related to separate account assets is fully offset by corresponding amounts credited to contractholders whose liability is reflected within separate account liabilities. Separate account liabilities are set equal to the fair value of separate account assets as prescribed bySOP 03-1. | |
(7) | Trading liabilities are presented within other liabilities. |
Level 1 | This category includes certain U.S. Treasury and agency fixed maturity securities, certain foreign government fixed maturity securities; residential mortgage-backed securities, principally to-be-announced; exchange-traded common stock; and certain short-term money market securities. As it relates to derivatives, this level includes financial futures including exchange-traded equity and interest rate futures, as well as financial forwards to sell residential mortgage-backed securities. Separate account assets classified within this level principally include mutual funds. Also included are assets held within separate accounts which are similar in nature to those classified in this level for the general account. | |
Level 2 | This category includes fixed maturity and equity securities priced principally by independent pricing services using observable inputs. These fixed maturity securities include most U.S. Treasury and agency securities as well as the majority of U.S. and foreign corporate securities, residential mortgage-backed securities, commercial mortgage-backed securities, state and political subdivision securities, foreign government securities, and asset-backed securities. Equity securities classified as Level 2 securities consist principally of non-redeemable preferred stock and certain equity securities where market quotes are available but are not considered actively traded. Short-term investments and trading securities included within Level 2 are of a similar nature to these fixed maturity and equity securities. Mortgage and consumer loans included in Level 2 include residential mortgage loans held-for-sale for which there is readily available observable pricing for similar loans or securities backed by similar loans and the unobservable adjustments to such prices are insignificant. As it relates to derivatives, this level includes all types of derivative instruments utilized by the Company with the exception of exchange-traded futures and financial forwards to sell residential mortgage-backed securities included within Level 1 and those derivative instruments with unobservable inputs as described in Level 3. Separate account assets classified within this level are generally similar to those classified within this level for the general account. Hedge funds owned by separate accounts are also included within this level. Embedded derivatives classified within this level include embedded equity derivatives contained in certain guaranteed investment contracts. |
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Level 3 | This category includes fixed maturity securities priced principally through independent broker quotations or market standard valuation methodologies using inputs that are not market observable or cannot be derived principally from or corroborated by observable market data. This level consists of less liquid fixed maturity securities with very limited trading activity or where less price transparency exists around the inputs to the valuation methodologies including: U.S. and foreign corporate securities — including below investment grade private placements; residential mortgage-backed securities; asset backed securities — including all of those supported by sub-prime mortgage loans; and other fixed maturity securities such as structured securities. Equity securities classified as Level 3 securities consist principally of common stock of privately held companies and non-redeemable preferred stock where there has been very limited trading activity or where less price transparency exists around the inputs to the valuation. Short-term investments and trading securities included within Level 3 are of a similar nature to these fixed maturity and equity securities. Mortgage and consumer loans included in Level 3 include residential mortgage loans held-for-sale for which pricing for similar loans or securities backed by similar loans is not observable and the estimate of fair value is determined using unobservable broker quotes. As it relates to derivatives this category includes: financial forwards including swap spread locks with maturities which extend beyond observable periods; interest rate lock commitments with certain unobservable inputs, including pull-through rates; equity variance swaps with unobservable volatility inputs; foreign currency swaps which are cancelable and priced through independent broker quotations; interest rate swaps with maturities which extend beyond the observable portion of the yield curve; credit default swaps based upon baskets of credits having unobservable credit correlations as well as credit default swaps with maturities which extend beyond the observable portion of the credit curves and credit default swaps priced through independent broker quotes; foreign currency forwards priced via independent broker quotations or with liquidity adjustments; equity options with unobservable volatility inputs; and interest rate caps and floors referencing unobservable yield curvesand/or which include liquidity and volatility adjustments. Separate account assets classified within this level are generally similar to those classified within this level for the general account; however, they also include mortgage loans, and other limited partnership interests. Embedded derivatives classified within this level include embedded derivatives associated with certain variable annuity riders. This category also includes mortgage servicing rights which are carried at fair value and have multiple significant unobservable inputs including discount rates, estimates of loan prepayments, servicing costs and risk margins. |
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Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||||||||||||
Total Realized/Unrealized | ||||||||||||||||||||||||||||||||
Impact of | Gains (Losses) included in: | Purchases, | ||||||||||||||||||||||||||||||
Balance, | SFAS 157 and | Balance, | Other | Sales, | Transfer In | Balance, | ||||||||||||||||||||||||||
December 31, | SFAS 159 | beginning | Comprehensive | Issuances and | and/or Out | end | ||||||||||||||||||||||||||
2007 | Adoption (1) | of period | Earnings (2, 3) | Income (Loss) | Settlements (4) | of Level 3 (5) | of period | |||||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||||||
For the Nine Months Ended September 30, 2008 | ||||||||||||||||||||||||||||||||
Fixed maturity securities | $ | 23,354 | $ | (8 | ) | $ | 23,346 | $ | (471 | ) | $ | (2,790 | ) | $ | (1,368 | ) | $ | 1,486 | $ | 20,203 | ||||||||||||
Equity securities | 2,371 | — | 2,371 | (265 | ) | (194 | ) | (222 | ) | 27 | 1,717 | |||||||||||||||||||||
Trading securities | 183 | 8 | 191 | (15 | ) | — | 65 | (5 | ) | 236 | ||||||||||||||||||||||
Short-term investments | 179 | — | 179 | — | — | (41 | ) | — | 138 | |||||||||||||||||||||||
Mortgage and consumer loans | — | — | — | — | — | 10 | 5 | 15 | ||||||||||||||||||||||||
Net derivatives (6) | 789 | (1 | ) | 788 | 405 | — | 74 | 1 | 1,268 | |||||||||||||||||||||||
Mortgage servicing rights | — | — | — | 1 | — | 302 | — | 303 | ||||||||||||||||||||||||
Separate account assets (7) | 1,464 | — | 1,464 | (60 | ) | — | 295 | 312 | 2,011 | |||||||||||||||||||||||
Net embedded derivatives (8) | (278 | ) | 24 | (254 | ) | (125 | ) | — | (70 | ) | — | (449 | ) | |||||||||||||||||||
For the Three Months Ended September 30, 2008 | ||||||||||||||||||||||||||||||||
Fixed maturity securities | 21,825 | (412 | ) | (1,671 | ) | (331 | ) | 792 | 20,203 | |||||||||||||||||||||||
Equity securities | 2,057 | (222 | ) | 12 | (176 | ) | 46 | 1,717 | ||||||||||||||||||||||||
Trading securities | 312 | (12 | ) | (2 | ) | (62 | ) | — | 236 | |||||||||||||||||||||||
Short-term investments | 134 | — | — | (12 | ) | 16 | 138 | |||||||||||||||||||||||||
Mortgage and consumer loans | — | — | — | 10 | 5 | 15 | ||||||||||||||||||||||||||
Net derivatives (6) | 853 | 348 | — | 67 | — | 1,268 | ||||||||||||||||||||||||||
Mortgage servicing rights | — | 1 | — | 302 | — | 303 | ||||||||||||||||||||||||||
Separate account assets (7) | 1,694 | (88 | ) | — | (57 | ) | 462 | 2,011 | ||||||||||||||||||||||||
Net embedded derivatives (8) | (444 | ) | 13 | — | (18 | ) | — | (449 | ) |
(1) | Impact of SFAS 157 adoption represents the amount recognized in earnings as a change in estimate upon the adoption of SFAS 157 associated with Level 3 financial instruments held at January 1, 2008. The net impact of adoption on Level 3 assets and liabilities presented in the table above was a $23 million increase to net assets. Such amount was also impacted by an increase to DAC of $17 million. The impact of adoption of SFAS 157 on RGA — not reflected in the table above as a result of the reflection of RGA in discontinued operations — was a net increase of $2 million (i.e., a decrease in Level 3 net embedded derivative liabilities of $17 million offset by a DAC decrease of $15 million) for a total impact of $42 million on Level 3 assets and liabilities. This impact of $42 million along with a $12 million reduction in the fair value of Level 2 freestanding derivatives, results in a total net impact of adoption of SFAS 157 of $30 million as described in Note 1. | |
(2) | Amortization of premium/discount is included within net investment income which is reported within the earnings caption of total gains/losses. Impairments are included within net investment gains (losses) which is reported within the earnings caption of total gains/losses. Lapses associated with embedded derivatives are included with the earnings caption of total gains/losses. | |
(3) | Interest and dividend accruals, as well as cash interest coupons and dividends received, are excluded from the rollforward. | |
(4) | The amount reported within purchases, sales, issuances and settlements is the purchase/issuance price (for purchases and issuances) and the sales/settlement proceeds (for sales and settlements) based upon the actual date purchased/issued or sold/settled. Items purchased/issued and sold/settled in the same period are excluded from the rollforward. For embedded derivatives, attributed fees are included within this caption along with settlements, if any. |
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(5) | Total gains and losses (in earnings and other comprehensive income (loss)) are calculated assuming transfers in (out) of Level 3 occurred at the beginning of the period. Items transferred in and out in the same period are excluded from the rollforward. | |
(6) | Freestanding derivative assets and liabilities are presented net for purposes of the rollforward. | |
(7) | Investment performance related to separate account assets is fully offset by corresponding amounts credited to contractholders whose liability is reflected within separate account liabilities. | |
(8) | Embedded derivative assets and liabilities are presented net for purposes of the rollforward. | |
(9) | Amounts presented do not reflect any associated hedging activities. Actual earnings associated with Level 3, inclusive of hedging activities, could differ materially. |
Total Gains and Losses | ||||||||||||||||
Classification of Realized/Unrealized Gains | ||||||||||||||||
(Losses) included in Earnings | ||||||||||||||||
Net | Net | |||||||||||||||
Investment | Investment | Other | ||||||||||||||
Income | Gains (Losses) | Revenues | Total | |||||||||||||
(In millions) | ||||||||||||||||
For the Nine Months Ended September 30, 2008 | ||||||||||||||||
Fixed maturity securities | $ | 201 | $ | (672 | ) | $ | — | $ | (471 | ) | ||||||
Equity securities | — | (265 | ) | — | (265 | ) | ||||||||||
Trading securities | (15 | ) | — | — | (15 | ) | ||||||||||
Short-term investments | 1 | (1 | ) | — | — | |||||||||||
Net derivatives | 15 | 390 | — | 405 | ||||||||||||
Mortgage servicing rights | — | — | 1 | 1 | ||||||||||||
Net embedded derivatives | — | (125 | ) | — | (125 | ) | ||||||||||
For the Three Months Ended September 30, 2008 | ||||||||||||||||
Fixed maturity securities | 87 | (499 | ) | — | (412 | ) | ||||||||||
Equity securities | — | (222 | ) | — | (222 | ) | ||||||||||
Trading securities | (12 | ) | — | — | (12 | ) | ||||||||||
Short-term investments | — | — | — | — | ||||||||||||
Net derivatives | 6 | 342 | — | 348 | ||||||||||||
Mortgage servicing rights | — | — | 1 | 1 | ||||||||||||
Net embedded derivatives | — | 13 | — | 13 |
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Changes in Unrealized Gains (Losses) | ||||||||||||||||
Relating to Assets Held at | ||||||||||||||||
September 30, 2008 | ||||||||||||||||
Net | Net | |||||||||||||||
Investment | Investment | Other | ||||||||||||||
Income | Gains/Losses | Revenues | Total | |||||||||||||
(In millions) | ||||||||||||||||
For the Nine Months Ended September 30, 2008 | ||||||||||||||||
Fixed maturity securities | $ | 191 | $ | (443 | ) | $ | — | $ | (252 | ) | ||||||
Equity securities | — | (248 | ) | — | (248 | ) | ||||||||||
Trading securities | (12 | ) | — | — | (12 | ) | ||||||||||
Short-term investments | — | — | — | — | ||||||||||||
Net derivatives | 15 | 345 | — | 360 | ||||||||||||
Mortgage servicing rights | — | — | 1 | 1 | ||||||||||||
Net embedded derivatives | — | (138 | ) | — | (138 | ) | ||||||||||
For the Three Months Ended September 30, 2008 | ||||||||||||||||
Fixed maturity securities | 85 | (353 | ) | — | (268 | ) | ||||||||||
Equity securities | — | (218 | ) | — | (218 | ) | ||||||||||
Trading securities | (12 | ) | — | — | (12 | ) | ||||||||||
Short-term investments | — | — | — | — | ||||||||||||
Net derivatives | 6 | 317 | — | 323 | ||||||||||||
Mortgage servicing rights | — | — | 1 | 1 | ||||||||||||
Net embedded derivatives | — | 8 | — | 8 |
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19. | Subsequent Events |
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Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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- | Higher DAC amortization in the Individual segment primarily related to changes in management’s assumptions used to determine estimated gross profits and margins associated with unfavorable equity market performance and net investment gains, both in the current period, and business growth. This increase in DAC was partially offset by higher DAC amortization in the Institutional segment in the prior period due to the adoption ofSOP 05-1. | |
- | An increase in corporate expenses primarily related to an enterprise-wide cost reduction and revenue enhancement initiative. As a result of a strategic review the Company began in 2007, it launched an enterprise initiative called Operational Excellence. This initiative began in April 2008 and management expects the initiative to be fully implemented by December 31, 2010. This initiative is focused on reducing complexity, leveraging scale, increasing productivity, improving the effectiveness of the Company’s operations and providing a foundation for future growth. The Company recognized within Corporate & Other during the current period an initial accrual for post-employment related expenses. | |
- | Higher legal costs in Corporate & Other principally driven by costs associated with the commutation of three asbestos insurance policies as well as higher expenses in the Institutional and International segments as well as Corporate & Other associate with business growth and higher corporate support expenses. |
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• | In the first quarter of 2008, goodwill and other intangible assets increased by $169 million and $149 million, respectively, in the Institutional and International segments. | |
• | In the second quarter of 2008, goodwill and other intangible assets increased by $68 million and $5 million, respectively, in Corporate & Other. | |
• | In the third quarter of 2008, negative goodwill of approximately $6 million was allocated against long-lived assets acquired in Corporate & Other. |
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• | A recapitalization of RGA common stock into two classes of common stock — RGA Class A common stock and RGA Class B common stock. Pursuant to the terms of the recapitalization, each outstanding share of RGA common stock, including the 32,243,539 shares of RGA common stock beneficially owned by the Company and its subsidiaries, was reclassified as one share of RGA Class A common stock. Immediately thereafter, the Company and its subsidiaries exchanged 29,243,539 shares of its RGA Class A common stock — which represented all of the RGA Class A common stock beneficially owned by the Company and its subsidiaries other than 3,000,000 shares of RGA Class A common stock — with RGA for 29,243,539 shares of RGA Class B common stock. | |
• | An exchange offer, pursuant to which the Company offered to acquire MetLife common stock from its stockholders in exchange for all of its 29,243,539 shares of RGA Class B common stock. The exchange ratio was determined based upon a ratio — as more specifically described in the exchange offering document — of the value of the MetLife and RGA shares during thethree-day period prior to the closing of the exchange offer. The 3,000,000 shares of the RGA Class A common stock were not subject to the tax-free exchange. |
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(i) | the fair value of investments in the absence of quoted market values; | |
(ii) | investment impairments; | |
(iii) | the recognition of income on certain investment entities; | |
(iv) | the application of the consolidation rules to certain investments; | |
(v) | the existence and fair value of embedded derivatives requiring bifurcation; | |
(vi) | the fair value of and accounting for derivatives; | |
(vii) | the capitalization and amortization of DAC and the establishment and amortization of VOBA; | |
(viii) | the measurement of goodwill and related impairment, if any; | |
(ix) | the liability for future policyholder benefits; | |
(x) | accounting for income taxes and the valuation of deferred tax assets; | |
(xi) | accounting for reinsurance transactions; | |
(xii) | accounting for employee benefit plans; and | |
(xiii) | the liability for litigation and regulatory matters. |
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(i) | the length of time and the extent to which the market value has been below cost or amortized cost; | |
(ii) | the potential for impairments of securities when the issuer is experiencing significant financial difficulties; | |
(iii) | the potential for impairments in an entire industry sector or sub-sector; | |
(iv) | the potential for impairments in certain economically depressed geographic locations; | |
(v) | the potential for impairments of securities where the issuer, series of issuers or industry has suffered a catastrophic type of loss or has exhausted natural resources; | |
(vi) | the Company’s ability and intent to hold the security for a period of time sufficient to allow for the recovery of its value to an amount equal to or greater than cost or amortized cost; |
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(vii) | unfavorable changes in forecasted cash flows on mortgage-backed and asset-backed securities; and | |
(viii) | other subjective factors, including concentrations and information obtained from regulators and rating agencies. |
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(i) | future taxable income exclusive of reversing temporary differences and carryforwards; | |
(ii) | future reversals of existing taxable temporary differences; | |
(iii) | taxable income in prior carryback years; and | |
(iv) | tax planning strategies. |
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Three Months | Nine Months | |||||||||||||||
Ended | Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
(In millions) | ||||||||||||||||
Revenues | ||||||||||||||||
Premiums | $ | 6,789 | $ | 5,717 | $ | 19,428 | $ | 17,050 | ||||||||
Universal life and investment-type product policy fees | 1,372 | 1,313 | 4,206 | 3,901 | ||||||||||||
Net investment income | 4,051 | 4,512 | 12,670 | 13,365 | ||||||||||||
Other revenues | 421 | 345 | 1,141 | 1,105 | ||||||||||||
Net investment gains (losses) | 745 | (209 | ) | (341 | ) | (466 | ) | |||||||||
Total revenues | 13,378 | 11,678 | 37,104 | 34,955 | ||||||||||||
Expenses | ||||||||||||||||
Policyholder benefits and claims | 7,276 | 6,013 | 20,475 | 17,759 | ||||||||||||
Interest credited to policyholder account balances | 1,133 | 1,425 | 3,573 | 4,082 | ||||||||||||
Policyholder dividends | 449 | 434 | 1,324 | 1,289 | ||||||||||||
Other expenses | 2,931 | 2,483 | 8,091 | 7,565 | ||||||||||||
Total expenses | 11,789 | 10,355 | 33,463 | 30,695 | ||||||||||||
Income from continuing operations before provision for income tax | 1,589 | 1,323 | 3,641 | 4,260 | ||||||||||||
Provision for income tax | 528 | 380 | 1,078 | 1,223 | ||||||||||||
Income from continuing operations | 1,061 | 943 | 2,563 | 3,037 | ||||||||||||
Income (loss) from discontinued operations, net of income tax | (431 | ) | 76 | (339 | ) | 162 | ||||||||||
Net income | 630 | 1,019 | 2,224 | 3,199 | ||||||||||||
Preferred stock dividends | 30 | 34 | 94 | 102 | ||||||||||||
Net income available to common shareholders | $ | 600 | $ | 985 | $ | 2,130 | $ | 3,097 | ||||||||
$ Change | ||||
(In millions) | ||||
Institutional | $ | 299 | ||
Individual | 73 | |||
International | 95 | |||
Auto & Home | (52 | ) | ||
Corporate & Other | (297 | ) | ||
Total change | $ | 118 | ||
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$ Change | ||||
(In millions) | ||||
Institutional | $ | 1,040 | ||
Individual | (1 | ) | ||
International | 135 | |||
Auto & Home | (6 | ) | ||
Corporate & Other | 39 | |||
Total change | $ | 1,207 | ||
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$ Change | ||||
(In millions) | ||||
Institutional | $ | 42 | ||
Individual | 200 | |||
International | 41 | |||
Auto & Home | (11 | ) | ||
Corporate & Other | 176 | |||
Total change | $ | 448 | ||
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$ Change | ||||
(In millions) | ||||
Institutional | $ | 218 | ||
Individual | (137 | ) | ||
International | 180 | |||
Auto & Home | (140 | ) | ||
Corporate & Other | (595 | ) | ||
Total change | $ | (474 | ) | |
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$ Change | ||||
(In millions) | ||||
Institutional | $ | 2,065 | ||
Individual | 53 | |||
International | 568 | |||
Auto & Home | 29 | |||
Corporate & Other | 4 | |||
Total change | $ | 2,719 | ||
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$ Change | ||||
(In millions) | ||||
Institutional | $ | (9 | ) | |
Individual | 96 | |||
International | 162 | |||
Auto & Home | (8 | ) | ||
Corporate & Other | 285 | |||
Total change | $ | 526 | ||
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Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
(In millions) | ||||||||||||||||
Revenues | ||||||||||||||||
Premiums | $ | 4,065 | $ | 3,081 | $ | 11,237 | $ | 9,279 | ||||||||
Universal life and investment-type product policy fees | 215 | 201 | 647 | 578 | ||||||||||||
Net investment income | 1,862 | 2,019 | 5,859 | 6,016 | ||||||||||||
Other revenues | 223 | 181 | 584 | 546 | ||||||||||||
Net investment gains (losses) | 203 | (216 | ) | (428 | ) | (509 | ) | |||||||||
Total revenues | 6,568 | 5,266 | 17,899 | 15,910 | ||||||||||||
Expenses | ||||||||||||||||
Policyholder benefits and claims | 4,462 | 3,478 | 12,389 | 10,337 | ||||||||||||
Interest credited to policyholder account balances | 631 | 808 | 1,930 | 2,305 | ||||||||||||
Other expenses | 612 | 570 | 1,778 | 1,787 | ||||||||||||
Total expenses | 5,705 | 4,856 | 16,097 | 14,429 | ||||||||||||
Income from continuing operations before provision for income tax | 863 | 410 | 1,802 | 1,481 | ||||||||||||
Provision for income tax | 293 | 139 | 604 | 501 | ||||||||||||
Income from continuing operations | 570 | 271 | 1,198 | 980 | ||||||||||||
Income from discontinued operations, net of income tax | 4 | 1 | 9 | 10 | ||||||||||||
Net income | $ | 574 | $ | 272 | $ | 1,207 | $ | 990 | ||||||||
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Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
(In millions) | ||||||||||||||||
Revenues | ||||||||||||||||
Premiums | $ | 1,078 | $ | 1,099 | $ | 3,216 | $ | 3,271 | ||||||||
Universal life and investment-type product policy fees | 893 | 874 | 2,712 | 2,608 | ||||||||||||
Net investment income | 1,641 | 1,712 | 5,031 | 5,245 | ||||||||||||
Other revenues | 147 | 146 | 450 | 446 | ||||||||||||
Net investment gains (losses) | 363 | (23 | ) | (2 | ) | (87 | ) | |||||||||
Total revenues | 4,122 | 3,808 | 11,407 | 11,483 | ||||||||||||
Expenses | ||||||||||||||||
Policyholder benefits and claims | 1,382 | 1,383 | 4,169 | 4,140 | ||||||||||||
Interest credited to policyholder account balances | 496 | 506 | 1,501 | 1,508 | ||||||||||||
Policyholder dividends | 446 | 430 | 1,315 | 1,283 | ||||||||||||
Other expenses | 1,191 | 991 | 3,119 | 3,023 | ||||||||||||
Total expenses | 3,515 | 3,310 | 10,104 | 9,954 | ||||||||||||
Income from continuing operations before provision for income tax | 607 | 498 | 1,303 | 1,529 | ||||||||||||
Provision for income tax | 207 | 171 | 433 | 522 | ||||||||||||
Income from continuing operations | 400 | 327 | 870 | 1,007 | ||||||||||||
Income (loss) from discontinued operations, net of income tax | — | — | 5 | 2 | ||||||||||||
Net income | $ | 400 | $ | 327 | $ | 875 | $ | 1,009 | ||||||||
• | Higher DAC amortization of $143 million, net of income tax, primarily relating to changes in management’s assumptions used to determine estimated gross profits and margins associated with unfavorable equity market performance during the current period, net investment gains in the current period, and business growth. | |
• | A decrease in interest margins of $70 million, net of income tax. Interest margins relate primarily to the general account portion of investment-type products. Management attributed a $61 million decrease to the |
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deferred annuity business and a $9 million decrease to other investment-type products, both net of income tax. Interest margin is the difference between interest earned and interest credited to policyholder account balances related to the general account on these businesses. Interest earned approximates net investment income on invested assets attributed to these businesses with net adjustments for other non-policyholder elements. Interest credited approximates the amount recorded in interest credited to policyholder account balances. Interest credited to policyholder account balances is subject to contractual terms, including some minimum guarantees, and may reflect actions by management to respond to competitive pressures. Interest credited to policyholder account balances tends to move gradually over time to reflect market interest rate movements, subject to any minimum guarantees and, therefore, generally does not introduce volatility in expense. |
• | Unfavorable underwriting results in life products of $18 million, net of income tax. Underwriting results are generally the difference between the portion of premium and fee income intended to cover mortality, morbidity or other insurance costs less claims incurred and the change in insurance-related liabilities. Underwriting results are significantly influenced by mortality, morbidity, or other insurance-related experience trends, as well as the reinsurance activity related to certain blocks of business. Consequently, results can fluctuate from period to period. | |
• | An increase in interest credited to policyholder account balances of $10 million, net of income tax, due primarily to lower amortization of the excess interest reserves on acquired annuity and universal life blocks of business. | |
• | An increase in policyholder dividends of $10 million, net of income tax, due to growth in the business. |
• | Higher net investment income on blocks of business not driven by interest margins of $40 million, net of income tax. | |
• | Higher universal life and investment-type product policy fees combined with other revenues of $17 million, net of income tax, primarily resulting from universal life business growth over the prior period, partially offset by the impact of lower average account balances due to unfavorable equity market performance during the current period. | |
• | Lower expenses of $13 million, net of income tax, primarily due to lower non-deferrable volume related expenses. |
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• | A decrease in interest margins of $172 million, net of income tax. Interest margins relate primarily to the general account portion of investment-type products. Management attributed a $165 million decrease to the deferred annuity business and a $7 million decrease to other investment-type products, both net of income tax. Interest margin is the difference between interest earned and interest credited to policyholder account balances related to the general account on these businesses. Interest earned approximates net investment income on invested assets attributed to these businesses with net adjustments for other non-policyholder elements. Interest credited approximates the amount recorded in interest credited to policyholder account balances. Interest credited to policyholder account balances is subject to contractual terms, including some |
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minimum guarantees, and may reflect actions by management to respond to competitive pressures. Interest credited to policyholder account balances tends to move gradually over time to reflect market interest rate movements, subject to any minimum guarantees and, therefore, generally does not introduce volatility in expense. |
• | Higher DAC amortization of $84 million, net of income tax, primarily relating to changes in management’s assumptions used to determine estimated gross profits and margins associated with unfavorable equity market performance during the current period, lower net investment losses in the current period, and business growth. | |
• | Unfavorable underwriting results in life products of $60 million, net of income tax. Underwriting results are generally the difference between the portion of premium and fee income intended to cover mortality, morbidity or other insurance costs less claims incurred and the change in insurance-related liabilities. Underwriting results are significantly influenced by mortality, morbidity, or other insurance-related experience trends, as well as the reinsurance activity related to certain blocks of business. Consequently, results can fluctuate from period to period. | |
• | An increase in interest credited to policyholder account balances of $38 million, net of income tax, due primarily to lower amortization of the excess interest reserves on acquired annuity and universal life blocks of business. | |
• | An increase in policyholder dividends of $21 million, net of income tax, due to growth in the business. |
• | Higher net investment income on blocks of business not driven by interest margins of $75 million, net of income tax. | |
• | Higher universal life and investment-type product policy fees combined with other revenues of $72 million, net of income tax, primarily resulting from universal life business growth over the prior period, partially offset by the impact of lower average account balances due to unfavorable equity market performance during the current period. | |
• | Lower expenses of $21 million, net of income tax, primarily due to a write-off of a receivable from one of the Company’s joint venture partners in the prior period and a decrease in non-deferrable volume related expenses. | |
• | Lower annuity benefits of $5 million, net of income tax, primarily due to higher guaranteed annuity benefit rider costs net of related hedging results and higher amortization of sales inducements, more than offset by revisions to policyholder benefits in the current period. |
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Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
(In millions) | ||||||||||||||||
Revenues | ||||||||||||||||
Premiums | $ | 893 | $ | 780 | $ | 2,717 | $ | 2,272 | ||||||||
Universal life and investment-type product policy fees | 264 | 238 | 847 | 715 | ||||||||||||
Net investment income | 334 | 369 | 960 | 889 | ||||||||||||
Other revenues | — | 4 | 13 | 22 | ||||||||||||
Net investment gains (losses) | 277 | 19 | 276 | 64 | ||||||||||||
Total revenues | 1,768 | 1,410 | 4,813 | 3,962 | ||||||||||||
Expenses | ||||||||||||||||
Policyholder benefits and claims | 949 | 689 | 2,393 | 1,921 | ||||||||||||
Interest credited to policyholder account balances | 6 | 111 | 142 | 269 | ||||||||||||
Policyholder dividends | 2 | 2 | 5 | 3 | ||||||||||||
Other expenses | 412 | 371 | 1,312 | 1,150 | ||||||||||||
Total expenses | 1,369 | 1,173 | 3,852 | 3,343 | ||||||||||||
Income from continuing operations before provision for income tax | 399 | 237 | 961 | 619 | ||||||||||||
Provision for income tax | 145 | 78 | 348 | 186 | ||||||||||||
Income from continuing operations | 254 | 159 | 613 | 433 | ||||||||||||
Income (loss) from discontinued operations, net of income tax | — | 44 | — | (3 | ) | |||||||||||
Net income | $ | 254 | $ | 203 | $ | 613 | $ | 430 | ||||||||
• | Mexico by $62 million, net of income tax, primarily due to an increase in certain policyholder liabilities caused by an increase in the unrealized investment gains on the invested assets supporting those liabilities relative to the prior period, higher claims experience, and higher expenses related to infrastructure costs as well as business growth, partially offset by lower DAC amortization resulting from management’s update of assumptions used to determine estimated gross profits in both the current and prior periods, higher net investment income due to an increase in invested assets as well as the impact of higher inflation rates on indexed securities, and a decrease in liabilities based on a review of outstanding remittances. |
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• | Argentina by $13 million, net of income tax, due to a decrease in premiums resulting from pension reform, under which fund administrators no longer provide death and disability coverage to the plan participants, a reduction of claim liabilities in the prior year resulting from an experience review, and an increase in DAC amortization related to market performance, offset by a decrease in claims and market-indexed policyholder liabilities resulting from pension reform. Argentina’s pension business was impacted, in both the current and prior periods, by the impact of valuation allowances against deferred taxes that are released only upon actual payment of taxes. | |
• | The home office by $13 million, net of income tax, due to lower expenses in the prior year resulting from the elimination of intercompany expenses previously charged to the International segment, an increase in the amount charged for economic capital, as well as higher spending on growth and infrastructure initiatives. | |
• | Chile by $7 million, net of income tax, primarily due to higher spending on growth initiatives, as well as higher commissions and compensation expenses due to business growth. | |
• | Australia by $3 million, net of income tax, primarily due to an increase in claim liabilities based on a review of experience. |
• | Ireland by $11 million, net of income tax, primarily due to the impact of foreign currency transaction losses in the prior year as well as higher net investment income due to an increase in invested assets. Ireland’s effective tax rate on its losses is higher in the current period due to a higher proportion of losses in the United Kingdom branch operation, which has a higher tax rate. | |
• | Japan by $7 million, net of income tax, due to an increase of $16 million, net of income tax, from hedging activities associated with Japan’s guaranteed annuity benefits and an increase of $3 million, net of income tax, in guarantee reserves from assumed reinsurance. These increases were partially offset by a decrease of $9 million, net of income tax, in the Company’s earnings from its investment in Japan due to a increase in the costs of guaranteed annuity benefits and an increase in DAC amortization related to market performance partially offset by the favorable impact from the utilization of the fair value option for certain fixed annuities, and an increase of $3 million, net of income tax, in fees from assumed reinsurance. | |
• | Hong Kong by $4 million, net of income tax, primarily due to a lower level of commission expense net of DAC. | |
• | South Korea by $3 million, net of income tax, due to a refinement in DAC capitalization as well as business growth partially offset by higher claims and higher spending on advertising and marketing. |
• | The United Kingdom by $33 million primarily due to the prior period impact of an unearned premium calculation refinement, as well as business growth. | |
• | Mexico by $25 million due to an increase in fees from growth in its individual business partially offset by a decrease in renewals in its institutional business and a decrease in fees due to management’s update of assumptions used to determine estimated gross profits in both the current and prior periods. |
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• | Chile by $18 million primarily due to higher annuity sales as well as higher institutional premiums from its traditional and bank distribution channels. | |
• | Brazil, South Korea, India, Australia, and Taiwan by $12 million, $12 million, $9 million, $8 million, and $5 million, respectively, due to business growth. | |
• | The Company’s Japan operations by $5 million due to an increase in fees from assumed reinsurance. |
• | Hong Kong by $94 million primarily due to losses in the current period on the trading securities portfolio which supports unit-linked policyholder liabilities. | |
• | Ireland by $16 million primarily due to losses in the current period on the trading securities portfolio which supports unit-linked policyholder liabilities, partially offset by an increase due to higher invested assets. | |
• | Brazil by $6 million primarily due to losses in the current period on the trading securities portfolio. | |
• | The home office by $6 million primarily due to an increase in the amount charged for economic capital. |
• | Chile by $29 million due to the impact of higher inflation rates on indexed securities, the valuations and returns of which are linked to inflation rates, as well as an increase in invested assets. | |
• | Mexico by $18 million due to an increase in invested assets as well as the impact of higher inflation rates on indexed securities and higher short-term interest rates. | |
• | Japan by $15 million due to an increase of $24 million from hedging activities associated with Japan’s guaranteed annuity, offset by a decrease of $9 million, net of income tax, in the Company’s earnings from its investment in Japan due to a increase in the costs of guaranteed annuity benefits and an increase in DAC amortization related to market performance, partially offset by the favorable impact from the utilization of the fair value option for certain fixed annuities. | |
• | Argentina by $8 million primarily due to the transfer of investments from the trading portfolio, which experienced losses in both the current and prior year periods. | |
• | South Korea and Taiwan by $5 million and $2 million, respectively, primarily due to increases in invested assets as well as higher portfolio yields. | |
• | India by $1 million primarily due to increases in invested assets. |
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• | Mexico by $155 million, primarily due to an increase in certain policyholder liabilities of $104 million caused by an increase in the unrealized investment gains on the invested assets supporting those liabilities relative to the prior year, higher claims experience, an increase in interest credited to policyholder account balances of $14 million commensurate with the growth in investment income from inflation-indexed assets discussed above and business growth. | |
• | Chile by $48 million primarily due to an increase in the annuity and institutional businesses mentioned above, as well as an increase in inflation indexed policyholder liabilities commensurate with the increase in net investment income from inflation-indexed assets. | |
• | South Korea by $15 million primarily due to higher claim experience and business growth. | |
• | The United Kingdom by $11 million primarily due to the reduction in claim liabilities in the prior year based on a review of experience. | |
• | Australia by $10 million primarily due to growth in the institutional business, as well as an increase in claim liabilities based on a review of experience. | |
• | Argentina by $6 million due to a reduction of claim liabilities in the prior year from an experience review as well as higher interest credited in the annuity business and business growth, offset by a decrease in claims and market-indexed policyholder liabilities resulting from pension reform, under which fund administrators no longer provide death and disability coverage to the plan participants. | |
• | The Company’s Japan operations by $4 million due to an increase in guarantee reserves from assumed reinsurance. | |
• | Taiwan by $4 million due to business growth. |
• | Hong Kong and Ireland by $100 million and $18 million, respectively, primarily due to a decrease in interest credited as a result of a reduction in unit-linked policyholder liabilities reflecting the losses of the trading portfolio backing these liabilities. |
• | The United Kingdom by $23 million primarily due to lower DAC amortization in the prior year resulting from calculation refinements, as well as business growth. | |
• | The home office by $14 million primarily due to lower expenses in the prior year resulting from the elimination of intercompany expenses previously charged to the International segment, as well as higher spending on growth and infrastructure initiatives. | |
• | India by $7 million primarily due to increased staffing and growth initiatives. | |
• | Chile by $6 million due to higher spending on growth initiatives, as well as higher commissions and compensation expenses due to business growth. | |
• | Argentina by $6 million due to higher commissions from growth in the institutional and bancassurance businesses as well as an increase in DAC amortization related to market performance. |
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• | Brazil, Belgium and Poland by $3 million, $3 million, and $2 million, respectively, primarily due to higher commissions related to business growth. |
• | Mexico by $16 million primarily due to lower DAC amortization resulting from management’s update of assumptions used to determine estimated gross profits in both the current and prior periods and a decrease in liabilities based on a review of outstanding remittances, partially offset by higher expenses related to infrastructure costs as well as business growth. | |
• | Ireland by $7 million primarily due to the impact of foreign currency transaction losses in the prior period. | |
• | South Korea by $4 million due to a refinement in DAC capitalization, offset by higher spending on advertising and marketing. |
• | Mexico by $34 million, net of income tax, primarily due to a decrease in certain policyholder liabilities caused by an increase in the unrealized investment losses on the invested assets supporting those liabilities relative to the prior period, the reinstatement of premiums from prior periods, growth in the individual and institutional businesses, higher net investment income due to an increase in invested assets as well as the impact of higher inflation rates on indexed securities, lower DAC amortization resulting from management’s update of assumptions used to determine estimated gross profits in both the current and prior years, and a decrease in liabilities based on a review of outstanding remittances, partially offset by higher expenses related to business growth and infrastructure costs, the favorable impact in the prior year of a decrease in experience refunds on Mexico’s institutional business, a lower increase in litigation liabilities in the prior period, a higher claims experience, as well as a valuation allowance established against net operating losses. | |
• | Ireland by $21 million, net of income tax, due to foreign currency transaction losses in the prior year as well as higher net investment income due to an increase in invested assets. Ireland’s effective tax rate on its losses is higher in the current period due to a higher proportion of losses in the United Kingdom branch operation, which has a higher tax rate. This is partially offset by the utilization in the prior period of net operating losses for which a valuation allowance had been previously established. | |
• | Hong Kong by $13 million, net of income tax, due to the acquisition of the remaining 50% interest in MetLife Fubon in the second quarter of 2007 and the resulting consolidation of the operation beginning in the third quarter of 2007, as well as business growth and a lower level of commission expense net of DAC. | |
• | The United Kingdom by $4 million, net of income tax, primarily due to business growth. | |
• | Taiwan by $3 million, net of income tax, primarily due to an increase in invested assets and a refinement in DAC capitalization, offset by an increase in liabilities resulting from a refinement of methodologies related to the estimation of profit emergence on certain blocks of business. | |
• | Australia by $2 million, net of income tax, primarily due to business growth slightly offset by an increase in claim liabilities based on a review of experience. | |
• | Argentina by $2 million, net of income tax, primarily due to a reduction in the liability for pension servicing obligations of $23 million, net of income tax, resulting from a refinement of assumptions and the availability |
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of statistics from the government regarding the number of participants transferring to the government-sponsored plan under pension reform which was effective January 1, 2008, a decrease in claims and market-indexed policyholder liabilities resulting from pension reform, under which fund administrators no longer provide death and disability coverage to the plan participants, partially offset by a reduction of claim liabilities in the prior year resulting from an experience review, an increase in DAC amortization related to market performance and a decrease in death and disability premiums due to pension reform. Argentina’s pension business was impacted, in both the current and prior periods, by the impact of valuation allowances against deferred taxes that are released only upon actual payment of taxes. |
• | The home office by $19 million, net of income tax, due to lower expenses in the prior year resulting from the elimination of intercompany expenses previously charged to the International segment, higher economic capital charges and higher spending on growth and infrastructure initiatives. | |
• | Chile by $6 million, net of income tax, primarily due to higher spending on growth initiatives, as well as higher commissions and compensation expenses due to business growth. | |
• | Japan by $6 million, net of income tax, due to a decrease of $39 million, net of income tax, in the Company’s earnings from its investment in Japan resulting from an increase in the costs of guaranteed annuity benefits and an increase in DAC amortization related to market performance partially offset by the favorable impact from the utilization of the fair value option for certain fixed annuities, the impact of a refinement in assumptions for the guaranteed annuity business, an increase of $26 million, net of income tax, from hedging activities associated with Japan’s guaranteed annuity benefits and an increase of $7 million, net of income tax, in fees from assumed reinsurance. | |
• | South Korea by $6 million, net of income tax, primarily due to higher claims and operating expenses, including an increase in DAC amortization related to market performance, partially offset by higher revenues from business growth and higher investment yields as well as a refinement in DAC capitalization. |
• | Chile by $153 million primarily due to higher annuity sales as well as higher institutional premiums from its traditional and bank distribution channels. | |
• | Hong Kong by $81 million primarily due to the acquisition of the remaining 50% interest in MetLife Fubon in the second quarter of 2007 and the resulting consolidation of the operation beginning in the third quarter of 2007, as well as business growth. | |
• | Mexico by $66 million due to growth in its individual and institutional businesses, an increase in fees from growth in its individual business as well as the reinstatement of $8 million of premiums from prior periods partially offset by a decrease of $13 million in experience refunds in the prior year on Mexico’s institutional business and a decrease in fees due to management’s update of assumptions used to determine estimated gross profits in both the current and prior periods. | |
• | The United Kingdom by $50 million primarily due to the prior year impact of an unearned premium calculation refinement, as well as business growth. | |
• | South Korea by $48 million due to growth in its traditional business as well as in its guaranteed annuity and variable universal life businesses. |
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• | Australia by $37 million as a result of growth in the institutional business and an increase in retention levels. | |
• | India, Brazil, Belgium, Taiwan and Ireland by $26 million, $20 million, $11 million, $3 million and $3 million, respectively, due to business growth. | |
• | The Company’s Japan operations by $16 million due to an increase in fees from assumed reinsurance. |
• | Chile by $88 million due to the impact of higher inflation rates on indexed securities, the valuations and returns of which are linked to inflation rates, as well as an increase in invested assets. | |
• | Mexico by $56 million due to an increase in invested assets, the impact of higher inflation rates on indexed securities as well as the lengthening of the duration of the portfolio, partially offset by a decrease in short-term yields. | |
• | Argentina by $11 million primarily due to the transfer of investments from the trading portfolio, which experienced losses in both the current and prior year periods. | |
• | South Korea and Taiwan by $13 million and $6 million, respectively, due to increases in invested assets as well as higher portfolio yields. | |
• | India by $4 million primarily due to increases in invested assets. | |
• | Brazil by $2 million due to an increase in invested assets resulting from growth and a capital contribution in the first quarter of 2008 partially offset by losses in the current period on the trading securities portfolio. | |
• | Japan by $1 million due to an increase of $40 million from hedging activities associated with Japan’s guaranteed annuity business and by the favorable impact from the utilization of the fair value option for certain fixed annuities partially offset by a decrease of $39 million, net of income tax, in the Company’s earnings from its investment in Japan due to an increase in the costs of guaranteed annuity benefits and the impact of a refinement in assumptions for the guaranteed annuity business. |
• | Hong Kong by $122 million despite the acquisition of the remaining 50% interest in MetLife Fubon in the second quarter of 2007 and the resulting consolidation of the operation beginning in the third quarter of 2007, because of the negative investment income for the period due to the losses on the trading securities portfolio which supports unit-linked policyholder liabilities. | |
• | The home office of $13 million primarily due to an increase in the amount charged for economic capital. | |
• | Ireland by $13 million primarily due to losses in the current period on the trading securities portfolio which supports unit-linked policyholder liabilities, partially offset by an increase due to higher invested assets resulting from capital contributions in the prior year. |
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�� | Chile by $233 million primarily due to an increase in the annuity and institutional businesses mentioned above, as well as an increase in inflation indexed policyholder liabilities commensurate with the increase in net investment income from inflation-indexed assets. | |
• | Mexico by $46 million, primarily due to increases in reserves and other policyholder benefits of $46 million commensurate with the growth in premiums discussed above, and an increase in interest credited to policyholder account balances of $34 million commensurate with the growth in investment income from inflation-indexed assets discussed above, partially offset by a decrease in certain policyholder liabilities of $34 million caused by an increase in the unrealized investment losses on the invested assets supporting those liabilities relative to the prior period, as well as lower claims experience. | |
• | South Korea by $28 million primarily due to higher claim experience and business growth. | |
• | Australia by $26 million due to growth in the institutional business and an increase in retention levels as well as an increase in claim liabilities based on a review of experience. | |
• | Brazil by $13 million primarily due to an increase in interest credited to unit-linked policyholder liabilities reflecting the net gains in the trading portfolio. | |
• | The United Kingdom by $11 million primarily due to the reduction in claim liabilities in the prior year based on a review of experience. | |
• | India by $10 million due to business growth. | |
• | Taiwan by $8 million primarily due to an increase in liabilities resulting from a refinement of methodologies related to the estimation of profit emergence on a certain block of business as well as business growth. | |
• | The Company’s Japan operations by $5 million due to an increase in guarantee reserves from assumed reinsurance. |
• | Hong Kong by $67 million due to the acquisition of the remaining 50% interest in MetLife Fubon in the second quarter of 2007 and the resulting consolidation of the operation beginning in the third quarter of 2007, which includes a decrease in interest credited as a result of a reduction in unit-linked policyholder liabilities reflecting the losses of the trading portfolio backing these liabilities as discussed in the net investment income section above. | |
• | Argentina by $24 million primarily due to a decrease in claims and market-indexed policyholder liabilities resulting from pension reform, under which fund administrators no longer provide death and disability coverage to the plan participants slightly offset by a reduction of claim liabilities in the prior year from an experience review as well as an increase in higher interest credited in the annuity business and due to a reduction of claim liabilities in the prior year from an experience review as well as business growth. | |
• | Ireland by $18 million primarily due to a decrease in interest credited as a result of a reduction in unit-linked policyholder liabilities reflecting the losses of the trading portfolio backing these liabilities. |
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• | South Korea by $40 million due to higher spending on advertising and marketing as well as an increase in DAC amortization related to market performance offset by a refinement in DAC capitalization. | |
• | The United Kingdom by $35 million primarily due to lower DAC amortization in the prior year resulting from calculation refinements, as well as business growth partially offset by foreign currency transaction gains. | |
• | India by $19 million primarily due to increased staffing and growth initiatives. | |
• | The home office by $19 million primarily due to lower expenses in the prior year resulting from the elimination of intercompany expenses previously charged to the International segment, as well as higher spending on growth and infrastructure initiatives. | |
• | Chile by $15 million primarily due to the business growth discussed above as well as higher commissions and compensation costs and higher spending on infrastructure and marketing programs. | |
• | Hong Kong by $12 million due to the acquisition of the remaining 50% interest in MetLife Fubon in the second quarter of 2007 and the resulting consolidation of the operation beginning in the third quarter of 2007. | |
• | Mexico by $10 million primarily due to higher expenses related to business growth and infrastructure costs, as well as a lower increase in litigation liabilities in the prior year partially offset by lower DAC amortization resulting from management’s update of assumptions used to determine estimated gross profits in both the current and prior years and a decrease in liabilities based on a review of outstanding remittances. | |
• | Belgium, Australia, Brazil and Poland by $10 million, $7 million, $7 million and $5 million, respectively, primarily due to higher commissions related to business growth. |
• | Argentina by $27 million, primarily due to a reduction in the liability for pension servicing obligations resulting from a refinement of assumptions and methodology, as well as the availability of government statistics regarding the number of participants transferring to the government-sponsored plan under the pension reform plan which was effective January 1, 2008. Under the pension reform plan, the Company retains the obligation for administering certain existing and future participants’ accounts for which they receive no revenue. Partially offsetting this decrease are higher commissions from growth in the institutional and bancassurance businesses as well as an increase in DAC amortization related to market performance. | |
• | Ireland by $18 million due to foreign currency transaction losses in the prior year, partially offset by higher expenses related to growth initiatives. | |
• | Taiwan by $3 million due to a refinement in DAC capitalization. |
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Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
(In millions) | ||||||||||||||||
Revenues | ||||||||||||||||
Premiums | $ | 745 | $ | 750 | $ | 2,232 | $ | 2,205 | ||||||||
Net investment income | 48 | 47 | 149 | 142 | ||||||||||||
Other revenues | 9 | 10 | 30 | 28 | ||||||||||||
Net investment gains (losses) | (67 | ) | — | (91 | ) | 12 | ||||||||||
Total revenues | 735 | 807 | 2,320 | 2,387 | ||||||||||||
Expenses | ||||||||||||||||
Policyholder benefits and claims | 471 | 453 | 1,488 | 1,329 | ||||||||||||
Policyholder dividends | 1 | 2 | 4 | 3 | ||||||||||||
Other expenses | 196 | 207 | 604 | 612 | ||||||||||||
Total expenses | 668 | 662 | 2,096 | 1,944 | ||||||||||||
Income before provision for income tax | 67 | 145 | 224 | 443 | ||||||||||||
Provision for income tax | 10 | 36 | 33 | 112 | ||||||||||||
Net income | $ | 57 | $ | 109 | $ | 191 | $ | 331 | ||||||||
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Three Months | Nine Months | |||||||||||||||
Ended | Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
(In millions) | ||||||||||||||||
Revenues | ||||||||||||||||
Premiums | $ | 8 | $ | 7 | $ | 26 | $ | 23 | ||||||||
Net investment income | 166 | 365 | 671 | 1,073 | ||||||||||||
Other revenues | 42 | 4 | 64 | 63 | ||||||||||||
Net investment gains (losses) | (31 | ) | 11 | (96 | ) | 54 | ||||||||||
Total revenues | 185 | 387 | 665 | 1,213 | ||||||||||||
Expenses | ||||||||||||||||
Policyholder benefits and claims | 12 | 10 | 36 | 32 | ||||||||||||
Policyholder dividends | — | — | — | — | ||||||||||||
Other expenses | 520 | 344 | 1,278 | 993 | ||||||||||||
Total expenses | 532 | 354 | 1,314 | 1,025 | ||||||||||||
Income (loss) from continuing operations before provision (benefit) for income tax | (347 | ) | 33 | (649 | ) | 188 | ||||||||||
Provision (benefit) for income tax | (127 | ) | (44 | ) | (340 | ) | (98 | ) | ||||||||
Income from continuing operations | (220 | ) | 77 | (309 | ) | 286 | ||||||||||
Income from discontinued operations, net of income tax | (435 | ) | 31 | (353 | ) | 153 | ||||||||||
Net income | (655 | ) | 108 | (662 | ) | 439 | ||||||||||
Preferred stock dividends | 30 | 34 | 94 | 102 | ||||||||||||
Net income (loss) available to common shareholders | $ | (685 | ) | $ | 74 | $ | (756 | ) | $ | 337 | ||||||
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Letter of | ||||||||||||||||||
Credit | Unused | |||||||||||||||||
Borrower(s) | Expiration | Capacity | Issuances | Drawdowns | Commitments | |||||||||||||
(In millions) | ||||||||||||||||||
MetLife, Inc. and MetLife Funding, Inc. | June 2012 (1) | $ | 3,000 | $ | 1,004 | $ | — | $ | 1,996 | |||||||||
MetLife Bank, N.A. | July 2009 | 300 | — | — | 300 | |||||||||||||
Total | $ | 3,300 | $ | 1,004 | $ | — | $ | 2,296 | ||||||||||
(1) | Proceeds are available to be used for general corporate purposes, to support their commercial paper programs and for the issuance of letters of credit. All borrowings under the credit agreement must be repaid by June 2012, except that letters of credit outstanding upon termination may remain outstanding until June 2013. The borrowers and the lenders under this facility may agree to extend the term of all or part of the facility to no later than June 2014, except that letters of credit outstanding upon termination may remain outstanding until June 2015. |
Letter of | ||||||||||||||||||||||
Credit | Unused | Maturity | ||||||||||||||||||||
Account Party/Borrower(s) | Expiration | Capacity | Drawdowns | Issuances | Commitments | (Years) | ||||||||||||||||
(In millions) | ||||||||||||||||||||||
Exeter Reassurance Company Ltd., MetLife, Inc., & Missouri Reinsurance (Barbados), Inc. | June 2016(1) | $ | 500 | $ | — | $ | 490 | $ | 10 | 7 | ||||||||||||
MetLife, Inc. | August 2009 (2), (3) | 500 | — | 500 | — | 0 | ||||||||||||||||
Exeter Reassurance Company Ltd. | December 2027 (2) | 650 | — | 410 | 240 | 19 | ||||||||||||||||
MetLife Reinsurance Company of South Carolina & MetLife, Inc. | June 2037 | 3,500 | 2,632 | — | 868 | 28 | ||||||||||||||||
MetLife Reinsurance Company of Vermont & MetLife, Inc. | December 2037 (2) | 2,896 | — | 1,328 | 1,568 | 29 | ||||||||||||||||
MetLife Reinsurance Company of Vermont & MetLife, Inc. | September 2038 (2), (4) | 3,500 | — | 1,000 | 2,500 | 29 | ||||||||||||||||
Total | $ | 11,546 | $ | 2,632 | $ | 3,728 | $ | 5,186 | ||||||||||||||
(1) | Letters of credit and replacements or renewals thereof issued under this facility of $280 million, $10 million and $200 million are set to expire no later than December 2015, March 2016 and June 2016, respectively. | |
(2) | The Holding Company is a guarantor under this agreement. | |
(3) | In August 2008, the Holding Company entered into a one-year, $500 million letter of credit facility with an unaffiliated financial institution. Exeter Reassurance Company, Ltd. (“Exeter”) is a co-applicant under this |
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letter of credit facility. All borrowings under the letter of credit facility must be repaid by August 2009, except that letters of credit outstanding upon termination may remain outstanding until August 2010. | ||
(4) | In September 2008, MetLife Reinsurance Company of Vermont (“MRV”) and the Holding Company entered into a30-year, $3.5 billion letter of credit facility with an unaffiliated financial institution. These letters of credit serve as collateral for MRV’s obligations under a reinsurance agreement. |
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Payments Due by Period | ||||||||||||||||||||||||
More Than | More Than | |||||||||||||||||||||||
One Year and | Three Years | |||||||||||||||||||||||
Less Than One | Less Than | and Less Than | More Than | |||||||||||||||||||||
Contractual Obligations | Total | Year | Three Years | Five Years | Five Years | |||||||||||||||||||
(In millions) | ||||||||||||||||||||||||
Future policy benefits | (1 | ) | $ | 318,187 | $ | 7,028 | $ | 10,869 | $ | 11,088 | $ | 289,202 | ||||||||||||
Policyholder account balances | (2 | ) | 198,424 | 31,123 | 27,494 | 23,706 | 116,101 | |||||||||||||||||
Other policyholder liabilities | (3 | ) | 7,253 | 6,540 | 26 | 31 | 656 | |||||||||||||||||
Short-term debt | (4 | ) | 1,108 | 1,108 | — | — | — | |||||||||||||||||
Long-term debt | (4 | ) | 18,167 | 1,739 | 1,774 | 2,386 | 12,268 | |||||||||||||||||
Collateral financing arrangements | (4 | ) | 9,792 | 190 | 379 | 379 | 8,844 | |||||||||||||||||
Junior subordinated debt securities | (4 | ) | 9,702 | 1,291 | 409 | 409 | 7,593 | |||||||||||||||||
Payables for collateral under securities loaned and other transactions | (5 | ) | 43,299 | 43,299 | — | — | — | |||||||||||||||||
Commitments to lend funds | (6 | ) | 11,993 | 11,766 | 166 | 8 | 53 | |||||||||||||||||
Operating leases | (7 | ) | 2,122 | 265 | 454 | 319 | 1,084 | |||||||||||||||||
Other | (8 | ) | 8,151 | 7,732 | 6 | 4 | 409 | |||||||||||||||||
Total | $ | 628,198 | $ | 112,081 | $ | 41,577 | $ | 38,330 | $ | 436,210 | ||||||||||||||
(1) | Future policyholder benefits include liabilities related to traditional whole life policies, term life policies, closeout and other group annuity contracts, structured settlements, master terminal funding agreements, single premium immediate annuities, long-term disability policies, individual disability income policies, LTC policies and property and casualty contracts. | |
Included within future policyholder benefits are contracts where the Company is currently making payments and will continue to do so until the occurrence of a specific event such as death as well as those where the timing of a portion of the payments has been determined by the contract. Also included are contracts where the Company is not currently making payments and will not make payments until the occurrence of an insurable event, such as death or illness, or where the occurrence of the payment triggering event, such as a surrender of a policy or contract, is outside the control of the Company. The Company has estimated the timing of the cash flows related to these contracts based on historical experience as well as its expectation of future payment patterns. | ||
Liabilities related to accounting conventions, or which are not contractually due, such as shadow liabilities, excess interest reserves and property and casualty loss adjustment expenses, of $503 million have been excluded from amounts presented in the table above. | ||
Amounts presented in the table above, excluding those related to property and casualty contracts, represent the estimated cash payments for benefits under such contracts including assumptions related to the receipt of future premiums and assumptions related to mortality, morbidity, policy lapse, renewal, retirement, inflation, disability incidence, disability terminations, policy loans and other contingent events as appropriate to the respective product type. Payments for case reserve liabilities and incurred but not reported liabilities associated with property and casualty contracts of $1.6 billion have been included using an estimate of the ultimate amount to be settled under the policies based upon historical payment patterns. The ultimate amount to be paid under property and casualty contracts is not determined until the Company reaches a settlement with the claimant, which may vary significantly from the liability or contractual obligation presented above especially as it relates to incurred but not reported liabilities. All estimated cash payments presented in the table above are undiscounted as to interest, net of estimated future premiums on policies currently in-force and gross of any reinsurance recoverable. The more than five years category displays estimated payments due for periods extending for more than 100 years from the present date. |
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The sum of the estimated cash flows shown for all years in the table of $318.2 billion exceeds the liability amount of $128.8 billion included on the consolidated balance sheet principally due to the time value of money, which accounts for at least 80% of the difference, as well as differences in assumptions, most significantly mortality, between the date the liabilities were initially established and the current date. | ||
For the majority of the Company’s insurance operations, estimated contractual obligations for future policyholder benefits and policyholder account balance liabilities as presented in the table above are derived from the annual asset adequacy analysis used to develop actuarial opinions of statutory reserve adequacy for state regulatory purposes. These cash flows are materially representative of the cash flows under generally accepted accounting principles. | ||
Actual cash payments to policyholders may differ significantly from the liabilities as presented in the consolidated balance sheet and the estimated cash payments as presented in the table above due to differences between actual experience and the assumptions used in the establishment of these liabilities and the estimation of these cash payments. See “— Liquidity and Capital Resources — The Company — Asset/Liability Management.” | ||
(2) | Policyholder account balances include liabilities related to conventional guaranteed investment contracts, guaranteed investment contracts associated with formal offering programs, funding agreements, individual and group annuities, total control accounts, bank deposits, individual and group universal life, variable universal life and company-owned life insurance. | |
Included within policyholder account balances are contracts where the amount and timing of the payment is essentially fixed and determinable. These amounts relate to policies where the Company is currently making payments and will continue to do so, as well as those where the timing of the payments has been determined by the contract. Other contracts involve payment obligations where the timing of future payments is uncertain and where the Company is not currently making payments and will not make payments until the occurrence of an insurable event, such as death, or where the occurrence of the payment triggering event, such as a surrender of or partial withdrawal on a policy or deposit contract, is outside the control of the Company. The Company has estimated the timing of the cash flows related to these contracts based on historical experience as well as its expectation of future payment patterns. | ||
Excess interest reserves representing purchase accounting adjustments of $740 million have been excluded from amounts presented in the table above as they represent an accounting convention and not a contractual obligation. | ||
Amounts presented in the table above represent the estimated cash payments to be made to policyholders undiscounted as to interest and including assumptions related to the receipt of future premiums and deposits; withdrawals, including unscheduled or partial withdrawals; policy lapses; surrender charges; annuitization; mortality; future interest credited; policy loans and other contingent events as appropriate to the respective product type. Such estimated cash payments are also presented net of estimated future premiums on policies currently in-force and gross of any reinsurance recoverable. For obligations denominated in foreign currencies, cash payments have been estimated using current spot rates. | ||
The sum of the estimated cash flows shown for all years in the table of $198.4 billion exceeds the liability amount of $139.1 billion included on the consolidated balance sheet principally due to the time value of money, which accounts for at least 80% of the difference, as well as differences in assumptions between the date the liabilities were initially established and the current date. See also comments under footnote 1 regarding the source and uncertainties associated with the estimation of the contractual obligations related to future policyholder benefits and policyholder account balances. See “— Liquidity and Capital Resources — Extraordinary Market Conditions.” | ||
(3) | Other policyholder liabilities is comprised of other policyholder funds, policyholder dividends payable and the policyholder dividend obligation. Amounts included in the table above related to these liabilities are as follows: | |
a. Other policyholder funds includes liabilities for incurred but not reported claims and claims payable on group term life, long-term disability, LTC and dental; policyholder dividends left on deposit and policyholder dividends due and unpaid related primarily to traditional life and group life and health; |
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and premiums received in advance. Liabilities related to unearned revenue of $2.1 billion have been excluded from the cash payments presented in the table above because they reflect an accounting convention and not a contractual obligation. With the exception of policyholder dividends left on deposit, and those items excluded as noted in the preceding sentence, the contractual obligation presented in the table above related to other policyholder funds is equal to the liability reflected in the consolidated balance sheet. Such amounts are reported in the less than one year category due to the short-term nature of the liabilities. Contractual obligations on policyholder dividends left on deposit are projected based on assumptions of policyholder withdrawal activity. | ||
b. Policyholder dividends payable consists of liabilities related to dividends payable in the following calendar year on participating policies. As such, the contractual obligation related to policyholder dividends payable is presented in the table above in the less than one year category at the amount of the liability presented in the consolidated balance sheet. | ||
c. The nature of the policyholder dividend obligation is described in Note 9 of the Notes to Consolidated Financial Statements included in the 2007 Annual Report. Because the exact timing and amount of the ultimate policyholder dividend obligation is subject to significant uncertainty and the amount of the policyholder dividend obligation is based upon a long-term projection of the performance of the closed block, management has reflected the obligation at the amount of the liability presented in the consolidated balance sheet in the more than five years category. This was done to reflect the long-duration of the liability and the uncertainty of the ultimate cash payment. | ||
(4) | Amounts presented in the table above for short-term debt, long-term debt, collateral financing arrangements and junior subordinated debt securities differ from the balances presented on the consolidated balance sheet as the amounts presented in the table above do not include premiums or discounts upon issuance or purchase accounting fair value adjustments. The amounts presented above also include interest on such obligations as described below. | |
Short-term debt consists principally of90-day commercial paper with an average remaining maturity of 20 days, and carries a variable rate of interest. The contractual obligation for short-term debt presented in the table above represents the amounts due upon maturity of the commercial paper plus the related variable interest which is calculated using the prevailing rates at September 30, 2008 through the date of maturity without consideration of any further issuances of commercial paper upon maturity of the amounts outstanding at September 30, 2008. | ||
Long-term debt bears interest at fixed and variable interest rates through their respective maturity dates. Interest on fixed rate debt was computed using the stated rate on the obligations through maturity. Interest on variable rate debt is computed using prevailing rates at September 30, 2008 and, as such, does not consider the impact of future rate movements. | ||
Collateral financing arrangements bear interest at fixed and variable interest rates through their respective maturity dates. Interest on fixed rate debt was computed using the stated rate on the obligations through maturity. Interest on variable rate debt is computed using prevailing rates at September 30, 2008 and, as such, does not consider the impact of future rate movements. | ||
Junior subordinated debt securities bear interest at fixed interest rates through their respective redemption dates. Interest was computed using the stated rates on the obligations through the scheduled redemption dates as it is the Company’s expectation that the debt will be redeemed at that time. Inclusion of interest payments on junior subordinated debt through the final maturity dates would increase the contractual obligation by $4.6 billion. | ||
Long-term debt also includes payments under capital lease obligations of $13 million, $4 million, $0 and $29 million, in the less than one year, one to three years, three to five years and more than five years categories, respectively. | ||
(5) | The Company has accepted cash collateral in connection with securities lending and derivative transactions. As the securities lending transactions expire within the next year or the timing of the return of the collateral is uncertain, the return of the collateral has been included in the less than one year category in the table above. The |
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Company also holds non-cash collateral, which is not reflected as a liability in the consolidated balance sheet, of $169 million as of September 30, 2008. | ||
(6) | The Company commits to lend funds under mortgage loans, partnerships, bank credit facilities, bridge loans and private corporate bond investments. In the table above, the timing of the funding of mortgage loans and private corporate bond investments is based on the expiration date of the commitment. As it relates to commitments to lend funds to partnerships and under bank credit facilities, the Company anticipates that these amounts could be invested any time over the next five years; however, as the timing of the fulfillment of the obligation cannot be predicted, such obligations are presented in the less than one year category in the table above. Commitments to fund bridge loans are short-term obligations and, as a result, are presented in the less than one year category in the table above. See “— Off-Balance Sheet Arrangements.” | |
(7) | As a lessee, the Company has various operating leases, primarily for office space. Contractual provisions exist that could increase or accelerate those leases obligations presented, including various leases with early buyouts and/or escalation clauses. However, the impact of any such transactions would not be material to the Company’s financial position or results of operations. See “— Off-Balance Sheet Arrangements.” | |
(8) | Other includes those other liability balances which represent contractual obligations, as well as other miscellaneous contractual obligations of $13 million not included elsewhere in the table above. Other liabilities presented in the table above are principally comprised of amounts due under reinsurance arrangements, payables related to securities purchased but not yet settled, securities sold short, accrued interest on debt obligations, fair value of derivative obligations, deferred compensation arrangements, guaranty liabilities, the fair value of forward stock purchase contracts, as well as general accruals and accounts payable due under contractual obligations. If the timing of any of the other liabilities is sufficiently uncertain, the amounts are included within the less than one year category. | |
The other liabilities presented in the table above differs from the amount presented in the consolidated balance sheet by $4.0 billion due primarily to the exclusion of items such as minority interests, legal liabilities, pension and postretirement benefit obligations, taxes due other than income tax, unrecognized tax benefits and related accrued interest, accrued severance and employee incentive compensation and other liabilities such as deferred gains and losses. Such items have been excluded from the table above as they represent accounting conventions or are not liabilities due under contractual obligations. | ||
The net funded status of the Company’s pension and other postretirement liabilities included within other liabilities has been excluded from the amounts presented in the table above. Rather, the amounts presented represent the discretionary contributions of $28 million, based on the current year’s expected gross benefit payments to participants, to be made by the Company to the postretirement benefit plans during 2008. Virtually all contributions to the pension and postretirement benefit plans are made by the insurance subsidiaries of the Holding Company with little impact on the Holding Company’s cash flows. | ||
Excluded from the table above are unrecognized tax benefits and accrued interest of $1.1 billion and $292 million, respectively, for which the Company cannot reliably determine the timing of payment. Current income tax payable is also excluded from the table. | ||
See also “— Off-Balance Sheet Arrangements.” |
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2008 | ||||
Company | Permitted w/o Approval (1) | |||
(In millions) | ||||
Metropolitan Life Insurance Company | $ | 1,299 | (2) | |
MetLife Insurance Company of Connecticut | $ | 1,026 | ||
Metropolitan Tower Life Insurance Company | $ | 113 | (3) | |
Metropolitan Property and Casualty Insurance Company | $ | — |
(1) | Reflects dividend amounts that may be paid during 2008 without prior regulatory approval. However, if paid before a specified date during 2008, some or all of such dividends may require regulatory approval. | |
(2) | As part of the split-off transaction described under “— Acquisitions and Dispositions,” MLIC distributed shares of RGA stock to the Holding Company as an in-kind dividend in excess of $1,299 million. Therefore, all future dividends in 2008 require regulatory approval. | |
(3) | On July 1, 2008, following regulatory approval, Metropolitan Tower Life Insurance Company distributed all of the common stock of one of its subsidiaries to the Holding Company as an in-kind dividend in an amount in excess of $113 million, therefore, all future dividends in 2008 require regulatory approval. |
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Letter of | ||||||||||||||||||||||
Credit | Unused | Maturity | ||||||||||||||||||||
Account Party/Borrower(s) | Expiration | Capacity | Drawdowns | Issuances | Commitments | (Years) | ||||||||||||||||
(In millions) | ||||||||||||||||||||||
Exeter Reassurance Company Ltd., MetLife, Inc., & Missouri Reinsurance (Barbados), Inc. | June 2016 (1) | $ | 500 | $ | — | $ | 490 | $ | 10 | 7 | ||||||||||||
MetLife, Inc. | August 2009 (2), (3) | 500 | — | 500 | — | 0 | ||||||||||||||||
Exeter Reassurance Company Ltd. | December 2027 (2) | 650 | — | 410 | 240 | 19 | ||||||||||||||||
MetLife Reinsurance Company of South Carolina & MetLife, Inc. | June 2037 | 3,500 | 2,632 | — | 868 | 28 | ||||||||||||||||
MetLife Reinsurance Company of Vermont & MetLife, Inc. | December 2037 (2) | 2,896 | — | 1,328 | 1,568 | 29 | ||||||||||||||||
MetLife Reinsurance Company of Vermont & MetLife, Inc. | September 2038 (2), (4) | 3,500 | — | 1,000 | 2,500 | 29 | ||||||||||||||||
Total | $ | 11,546 | $ | 2,632 | $ | 3,728 | $ | 5,186 | ||||||||||||||
(1) | Letters of credit and replacements or renewals thereof issued under this facility of $280 million, $10 million and $200 million are set to expire no later than December 2015, March 2016 and June 2016, respectively. | |
(2) | The Holding Company is a guarantor under this agreement. | |
(3) | In August 2008, the Holding Company entered into a one-year, $500 million letter of credit facility with an unaffiliated financial institution. Exeter is a co-applicant under this letter of credit facility. All borrowings under the letter of credit facility must be repaid by August 2009, except that letters of credit outstanding upon termination may remain outstanding until August 2010. | |
(4) | In September 2008, MetLife Reinsurance Company of Vermont (“MRV”) and the Holding Company entered into a30-year, $3.5 billion letter of credit facility with an unaffiliated financial institution. These letters of credit serve as collateral for MRV’s obligations under a reinsurance agreement. |
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Dividend | ||||||||||||||||||||
Series A | Series A | Series B | Series B | |||||||||||||||||
Declaration Date | Record Date | Payment Date | Per Share | Aggregate | Per Share | Aggregate | ||||||||||||||
(In millions, except per share data) | ||||||||||||||||||||
August 15, 2008 | August 31, 2008 | September 15, 2008 | $ | 0.2555555 | $ | 6 | $ | 0.4062500 | $ | 24 | ||||||||||
May 15, 2008 | May 31, 2008 | June 16, 2008 | $ | 0.2555555 | 7 | $ | 0.4062500 | 24 | ||||||||||||
March 5, 2008 | February 29, 2008 | March 17, 2008 | $ | 0.3785745 | 9 | $ | 0.4062500 | 24 | ||||||||||||
�� | ||||||||||||||||||||
$ | 22 | $ | 72 | |||||||||||||||||
August 15, 2007 | August 31, 2007 | September 17, 2007 | $ | 0.4063333 | $ | 10 | $ | 0.4062500 | $ | 24 | ||||||||||
May 15, 2007 | May 31, 2007 | June 15, 2007 | $ | 0.4060062 | 10 | $ | 0.4062500 | 24 | ||||||||||||
March 5, 2007 | February 28, 2007 | March 15, 2007 | $ | 0.3975000 | 10 | $ | 0.4062500 | 24 | ||||||||||||
$ | 30 | $ | 72 | |||||||||||||||||
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Level 1 | Unadjusted quoted prices in active markets for identical assets or liabilities. The Company defines active markets based on average trading volume for equity securities. The size of the bid/ask spread is used as an indicator of market activity for fixed maturity securities. | |
Level 2 | Quoted prices in markets that are not active or inputs that are observable either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities other than quoted prices in Level 1; quoted prices in markets that are not active; or other inputs that are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities. | |
Level 3 | Unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability. Level 3 assets and liabilities include financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. |
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• | All business combinations (whether full, partial or “step” acquisitions) result in all assets and liabilities of an acquired business being recorded at fair value, with limited exceptions. | |
• | Acquisition costs are generally expensed as incurred; restructuring costs associated with a business combination are generally expensed as incurred subsequent to the acquisition date. | |
• | The fair value of the purchase price, including the issuance of equity securities, is determined on the acquisition date. | |
• | Certain acquired contingent liabilities are recorded at fair value at the acquisition date and subsequently measured at either the higher of such amount or the amount determined under existing guidance for non-acquired contingencies. | |
• | Changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally affect income tax expense. | |
• | Noncontrolling interests (formerly known as “minority interests”) are valued at fair value at the acquisition date and are presented as equity rather than liabilities. | |
• | When control is attained on previously noncontrolling interests, the previously held equity interests are remeasured at fair value and a gain or loss is recognized. | |
• | Purchases or sales of equity interests that do not result in a change in control are accounted for as equity transactions. | |
• | When control is lost in a partial disposition, realized gains or losses are recorded on equity ownership sold and the remaining ownership interest is remeasured and holding gains or losses are recognized. |
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• | credit risk, relating to the uncertainty associated with the continued ability of a given obligor to make timely payments of principal and interest; | |
• | interest rate risk, relating to the market price and cash flow variability associated with changes in market interest rates; | |
• | liquidity risk, relating to the constrained ability to sell certain asset classes under current market conditions; and | |
• | market valuation risk. |
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At or For the Three Months | At or For the Nine Months | |||||||||||||||
Ended September 30, | Ended September 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
(In millions) | ||||||||||||||||
Fixed Maturity Securities | ||||||||||||||||
Yield (1) | 6.38 | % | 6.51 | % | 6.46 | % | 6.36 | % | ||||||||
Investment income (2) | $ | 3,115 | $ | 3,210 | $ | 9,454 | $ | 9,254 | ||||||||
Investment gains (losses) | $ | (919 | ) | $ | (295 | ) | $ | (1,424 | ) | $ | (606 | ) | ||||
Ending carrying value (2) | $ | 213,433 | $ | 244,263 | $ | 213,433 | $ | 244,263 | ||||||||
Mortgage and Consumer Loans | ||||||||||||||||
Yield (1) | 5.99 | % | 6.83 | % | 6.09 | % | 6.55 | % | ||||||||
Investment income (3) | $ | 687 | $ | 692 | $ | 2,039 | $ | 1,954 | ||||||||
Investment gains (losses) | $ | 26 | $ | 21 | $ | (36 | ) | $ | 34 | |||||||
Ending carrying value | $ | 50,646 | $ | 44,022 | $ | 50,646 | $ | 44,022 | ||||||||
Real Estate and Real Estate Joint Ventures (4) | ||||||||||||||||
Yield (1) | 2.83 | % | 8.56 | % | 4.86 | % | 10.48 | % | ||||||||
Investment income | $ | 53 | $ | 132 | $ | 261 | $ | 447 | ||||||||
Investment gains (losses) | $ | 1 | $ | 3 | $ | 3 | $ | 46 | ||||||||
Ending carrying value | $ | 7,556 | $ | 6,360 | $ | 7,556 | $ | 6,360 | ||||||||
Policy Loans | ||||||||||||||||
Yield (1) | 6.10 | % | 6.29 | % | 6.20 | % | 6.22 | % | ||||||||
Investment income | $ | 149 | $ | 146 | $ | 448 | $ | 429 | ||||||||
Ending carrying value | $ | 9,776 | $ | 9,303 | $ | 9,776 | $ | 9,303 | ||||||||
Equity Securities (7) | ||||||||||||||||
Yield (1) | 4.00 | % | 4.83 | % | 5.01 | % | 4.08 | % | ||||||||
Investment income | $ | 45 | $ | 66 | $ | 190 | $ | 152 | ||||||||
Investment gains (losses) | $ | (181 | ) | $ | 31 | $ | (194 | ) | $ | 108 | ||||||
Ending carrying value | $ | 3,477 | $ | 6,106 | $ | 3,477 | $ | 6,106 | ||||||||
Other Limited Partnership Interests (7) | ||||||||||||||||
Yield (1) | (3.91 | )% | 16.92 | % | 3.08 | % | 27.81 | % | ||||||||
Investment income | $ | (62 | ) | $ | 206 | $ | 140 | $ | 969 | |||||||
Investment gains (losses) | $ | (16 | ) | $ | 7 | $ | (31 | ) | $ | 22 | ||||||
Ending carrying value | $ | 6,353 | $ | 5,371 | $ | 6,353 | $ | 5,371 | ||||||||
Cash and Short-Term Investments | ||||||||||||||||
Yield (1) | 1.89 | % | 4.54 | % | 2.49 | % | 5.23 | % | ||||||||
Investment income | $ | 78 | $ | 98 | $ | 259 | $ | 315 | ||||||||
Investment gains (losses) | $ | — | $ | 2 | $ | 1 | $ | 3 | ||||||||
Ending carrying value | $ | 22,779 | $ | 9,736 | $ | 22,779 | $ | 9,736 | ||||||||
Other Invested Assets (5)(6)(8) | ||||||||||||||||
Investment income | $ | 102 | $ | 137 | $ | 198 | $ | 358 | ||||||||
Investment gains (losses) | $ | 1,827 | $ | (48 | ) | $ | 1,351 | $ | (270 | ) | ||||||
Ending carrying value | $ | 9,745 | $ | 6,799 | $ | 9,745 | $ | 6,799 | ||||||||
Total Investments | ||||||||||||||||
Gross investment income yield (1) | 5.67 | % | 6.76 | % | 5.98 | % | 6.81 | % | ||||||||
Investment fees and expenses yield | (0.15 | )% | (0.15 | )% | (0.16 | )% | (0.15 | )% | ||||||||
Net Investment Income Yield | 5.52 | % | 6.61 | % | 5.82 | % | 6.66 | % | ||||||||
Gross investment income | $ | 4,167 | $ | 4,687 | $ | 12,989 | $ | 13,878 | ||||||||
Investment fees and expenses | (108 | ) | (110 | ) | (342 | ) | (311 | ) | ||||||||
Net Investment Income | $ | 4,059 | $ | 4,577 | $ | 12,647 | $ | 13,567 | ||||||||
Ending carrying value | $ | 323,765 | $ | 331,960 | $ | 323,765 | $ | 331,960 | ||||||||
Gross investment gains | $ | 1,105 | $ | 344 | $ | 1,793 | $ | 967 | ||||||||
Gross investment losses (8) | (465 | ) | (536 | ) | (1,342 | ) | (1,299 | ) | ||||||||
Writedowns (8) | (1,048 | ) | (50 | ) | (1,496 | ) | (75 | ) | ||||||||
Subtotal | $ | (408 | ) | $ | (242 | ) | $ | (1,045 | ) | $ | (407 | ) | ||||
Derivative and other instruments not qualifying for hedge accounting (8) | 1,146 | (37 | ) | 715 | (256 | ) | ||||||||||
Investment Gains (Losses) | $ | 738 | $ | (279 | ) | $ | (330 | ) | $ | (663 | ) | |||||
Investment gains (losses) income tax benefit (provision) | (282 | ) | 96 | 84 | 236 | |||||||||||
Investment Gains (Losses), Net of Income Tax | $ | 456 | $ | (183 | ) | $ | (246 | ) | $ | (427 | ) | |||||
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(1) | Yields are based on quarterly average asset carrying values, excluding recognized and unrealized investment gains (losses), and for yield calculation purposes, average assets exclude collateral received from counterparties associated with the Company’s securities lending program. | |
(2) | Fixed maturity securities include $788 million and $824 million at estimated fair value related to trading securities at September 30, 2008 and 2007, respectively. Fixed maturity securities include ($95) million and ($137) million of investment income related to trading securities for the three months and nine months ended September 30, 2008, respectively. Fixed maturity securities include $21 million and $52 million of investment income related to trading securities for the three months and nine months ended September 30, 2007, respectively. | |
(3) | Investment income from mortgage and consumer loans includes prepayment fees. | |
(4) | Included in net investment income from real estate and real estate joint ventures is $8 million and $26 million related to discontinued operations for the three months and nine months ended September 30, 2008, respectively, and $1 million and $15 million related to discontinued operations for the three months and nine months ended September 30, 2007, respectively. There were no net investment gains (losses) from real estate and real estate joint ventures related to discontinued operations for both the three months and nine months ended September 30, 2008, and $0 and $5 million of gains related to discontinued operations for the three months and nine months ended September 30, 2007, respectively. | |
(5) | Included in investment income from other invested assets are scheduled periodic settlement payments on derivative instruments that do not qualify for hedge accounting under SFAS 133, of ($1) million and ($49) million for the three months and nine months ended September 30, 2008, respectively, and $64 million and $187 million for the three months and nine months ended September 30, 2007, respectively. These amounts are excluded from investment gains (losses). Additionally, excluded from investment gains (losses) are $8 million and $38 million for the three months and nine months ended September 30, 2008, respectively, and $6 million and $15 million for the three months and nine months ended September 30, 2007, respectively, related to settlement payments on derivatives used to hedge interest rate and currency risk on policyholder account balances that do not qualify for hedge accounting. Such amounts are included within interest credited to policyholder account balances. | |
(6) | Other invested assets is principally comprised of free standing derivatives with positive fair values and leveraged leases. Freestanding derivatives with negative fair values are included within other liabilities. As yield is not considered a meaningful measure of performance for other invested assets it has been excluded from the table above. | |
(7) | Certain prior period amounts have been reclassified to conform to the current period presentation. | |
(8) | The components of investment gains (losses) for both the three months and nine months ended September 30, 2008, are shown net of a realized gain under purchased credit default swaps that offsets losses incurred on certain fixed maturity securities. |
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September 30, 2008 | December 31, 2007 | |||||||||||||||||||||||||
Cost or | Cost or | |||||||||||||||||||||||||
NAIC | Amortized | Estimated | % of | Amortized | Estimated | % of | ||||||||||||||||||||
Rating | Rating Agency Designation (1) | Cost | Fair Value | Total | Cost | Fair Value | Total | |||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||
1 | Aaa/Aa/A | $ | 163,292 | $ | 155,352 | 73.1 | % | $ | 165,689 | $ | 168,130 | 72.2 | % | |||||||||||||
2 | Baa | 45,663 | 43,161 | 20.3 | 46,639 | 47,296 | 20.3 | |||||||||||||||||||
3 | Ba | 9,612 | 8,799 | 4.1 | 10,474 | 10,540 | 4.5 | |||||||||||||||||||
4 | B | 5,449 | 4,647 | 2.2 | 6,585 | 6,437 | 2.8 | |||||||||||||||||||
5 | Caa and lower | 787 | 623 | 0.3 | 459 | 428 | 0.2 | |||||||||||||||||||
6 | In or near default | 63 | 63 | — | 1 | 13 | — | |||||||||||||||||||
Total fixed maturity securities | $ | 224,866 | $ | 212,645 | 100.0 | % | $ | 229,847 | $ | 232,844 | 100.0 | % | ||||||||||||||
(1) | Amounts presented are based on rating agency designations. Comparisons between NAIC ratings and rating agency designations are published by the NAIC. The rating agency designations are based on availability and the midpoint of the applicable ratings among Moody’s, S&P and Fitch. If no rating is available from a rating agency, then the MetLife rating is used. |
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September 30, 2008 | ||||||||||||||||||||
Cost or | ||||||||||||||||||||
Amortized | Gross Unrealized | Estimated | % of | |||||||||||||||||
Cost | Gain | Loss | Fair Value | Total | ||||||||||||||||
(In millions) | ||||||||||||||||||||
U.S. corporate securities | $ | 74,381 | $ | 772 | $ | 7,124 | $ | 68,029 | 32.0 | % | ||||||||||
Residential mortgage-backed securities | 48,947 | 460 | 2,424 | 46,983 | 22.1 | |||||||||||||||
Foreign corporate securities | 36,262 | 752 | 2,618 | 34,396 | 16.2 | |||||||||||||||
U.S. Treasury/agency securities | 15,414 | 1,269 | 47 | 16,636 | 7.8 | |||||||||||||||
Commercial mortgage-backed securities | 17,539 | 91 | 1,725 | 15,905 | 7.5 | |||||||||||||||
Foreign government securities | 11,200 | 1,054 | 319 | 11,935 | 5.6 | |||||||||||||||
Asset-backed securities | 14,693 | 22 | 1,924 | 12,791 | 6.0 | |||||||||||||||
State and political subdivision securities | 6,371 | 67 | 526 | 5,912 | 2.8 | |||||||||||||||
Other fixed maturity securities | 59 | — | 1 | 58 | — | |||||||||||||||
Total fixed maturity securities | $ | 224,866 | $ | 4,487 | $ | 16,708 | $ | 212,645 | 100.0 | % | ||||||||||
Common stock | $ | 1,609 | $ | 73 | $ | 69 | $ | 1,613 | 46.4 | % | ||||||||||
Non-redeemable preferred stock | 2,415 | 19 | 570 | 1,864 | 53.6 | |||||||||||||||
Total equity securities (1) | $ | 4,024 | $ | 92 | $ | 639 | $ | 3,477 | 100.0 | % | ||||||||||
December 31, 2007 | ||||||||||||||||||||
Cost or | ||||||||||||||||||||
Amortized | Gross Unrealized | Estimated | % of | |||||||||||||||||
Cost | Gain | Loss | Fair Value | Total | ||||||||||||||||
(In millions) | ||||||||||||||||||||
U.S. corporate securities | $ | 74,494 | $ | 1,695 | $ | 2,077 | $ | 74,112 | 31.8 | % | ||||||||||
Residential mortgage-backed securities | 54,853 | 599 | 377 | 55,075 | 23.7 | |||||||||||||||
Foreign corporate securities | 36,318 | 1,705 | 768 | 37,255 | 16.0 | |||||||||||||||
U.S. Treasury/agency securities | 19,768 | 1,486 | 13 | 21,241 | 9.1 | |||||||||||||||
Commercial mortgage-backed securities | 17,035 | 242 | 194 | 17,083 | 7.4 | |||||||||||||||
Foreign government securities | 11,647 | 1,350 | 182 | 12,815 | 5.5 | |||||||||||||||
Asset-backed securities | 11,055 | 40 | 518 | 10,577 | 4.5 | |||||||||||||||
State and political subdivision securities | 4,342 | 140 | 114 | 4,368 | 1.9 | |||||||||||||||
Other fixed maturity securities | 335 | 13 | 30 | 318 | 0.1 | |||||||||||||||
Total fixed maturity securities | $ | 229,847 | $ | 7,270 | $ | 4,273 | $ | 232,844 | 100.0 | % | ||||||||||
Common stock | $ | 2,477 | $ | 568 | $ | 108 | $ | 2,937 | 49.7 | % | ||||||||||
Non-redeemable preferred stock | 3,258 | 60 | 342 | 2,976 | 50.3 | |||||||||||||||
Total equity securities (1) | $ | 5,735 | $ | 628 | $ | 450 | $ | 5,913 | 100.0 | % | ||||||||||
(1) | Equity securities primarily consist of investments in common and preferred stocks and mutual fund interests. Such securities include private equity securities with an estimated fair value of $879 million and $569 million at September 30, 2008 and December 31, 2007, respectively. |
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September 30, 2008 | ||||||||||||||||
Equity | ||||||||||||||||
Fixed Maturity Securities | Securities | |||||||||||||||
(In millions) | ||||||||||||||||
Quoted prices in active markets for identical assets (Level 1) | $ | 5,791 | 2.7 | % | $ | 461 | 13.2 | % | ||||||||
Independent pricing source | 156,968 | 73.8 | 469 | 13.5 | ||||||||||||
Internal matrix pricing or discounted cash flow techniques | 29,683 | 14.0 | 830 | 23.9 | ||||||||||||
Significant other observable inputs (Level 2) | 186,651 | 87.8 | 1,299 | 37.4 | ||||||||||||
Independent pricing source | 9,854 | 4.6 | 1,042 | 30.0 | ||||||||||||
Internal matrix pricing or discounted cash flow techniques | 6,678 | 3.2 | 174 | 5.0 | ||||||||||||
Independent non-binding broker quotations | 3,671 | 1.7 | 501 | 14.4 | ||||||||||||
Significant unobservable inputs (Level 3) | 20,203 | 9.5 | 1,717 | 49.4 | ||||||||||||
Total fair value | $ | 212,645 | 100.0 | % | $ | 3,477 | 100.0 | % | ||||||||
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September 30, 2008 | ||||||||||||||||
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
Quoted Prices | ||||||||||||||||
in Active | Significant | |||||||||||||||
Markets for | Other | Significant | ||||||||||||||
Identical Assets | Observable | Unobservable | ||||||||||||||
and Liabilities | Inputs | Inputs | Total | |||||||||||||
(Level 1) | (Level 2) | (Level 3) | Fair Value | |||||||||||||
(In millions) | ||||||||||||||||
Fixed maturity securities: | ||||||||||||||||
U.S. corporate securities | $ | — | $ | 60,336 | $ | 7,693 | $ | 68,029 | ||||||||
Residential mortgage-backed securities | 2 | 46,471 | 510 | 46,983 | ||||||||||||
Foreign corporate securities | — | 26,597 | 7,799 | 34,396 | ||||||||||||
U.S. Treasury/agency securities | 5,519 | 11,051 | 66 | 16,636 | ||||||||||||
Commercial mortgage-backed securities | — | 15,549 | 356 | 15,905 | ||||||||||||
Foreign government securities | 255 | 11,160 | 520 | 11,935 | ||||||||||||
Asset-backed securities | — | 9,699 | 3,092 | 12,791 | ||||||||||||
State and political subdivision securities | — | 5,788 | 124 | 5,912 | ||||||||||||
Other fixed maturity securities | 15 | — | 43 | 58 | ||||||||||||
Total fixed maturity securities | $ | 5,791 | $ | 186,651 | $ | 20,203 | $ | 212,645 | ||||||||
Equity securities: | ||||||||||||||||
Common stock | $ | 461 | $ | 1,003 | $ | 149 | $ | 1,613 | ||||||||
Non-redeemable preferred stock | — | 296 | 1,568 | 1,864 | ||||||||||||
Total equity securities | $ | 461 | $ | 1,299 | $ | 1,717 | $ | 3,477 | ||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, 2008 | September 30, 2008 | |||||||||||||||
Fixed Maturity | Equity | Fixed Maturity | Equity | |||||||||||||
Securities | Securities | Securities | Securities | |||||||||||||
(In millions) | ||||||||||||||||
Balance, December 31, 2007 | $ | 23,354 | $ | 2,371 | ||||||||||||
Impact of SFAS 157 and SFAS 159 adoption | (8 | ) | — | |||||||||||||
Balance, beginning of period | $ | 21,825 | $ | 2,057 | 23,346 | 2,371 | ||||||||||
Total realized/unrealized gains (losses) included in: | ||||||||||||||||
Earnings | (412 | ) | (222 | ) | (471 | ) | (265 | ) | ||||||||
Other comprehensive income (loss) | (1,671 | ) | 12 | (2,790 | ) | (194 | ) | |||||||||
Purchases, sales, issuances and settlements | (331 | ) | (176 | ) | (1,368 | ) | (222 | ) | ||||||||
Transfer in and/or out of Level 3 | 792 | 46 | 1,486 | 27 | ||||||||||||
Balance, end of period | $ | 20,203 | $ | 1,717 | $ | 20,203 | $ | 1,717 | ||||||||
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September 30, 2008 | December 31, 2007 | |||||||
(In millions) | ||||||||
Fixed maturity securities | $ | (12,345 | ) | $ | 3,378 | |||
Equity securities | (541 | ) | 157 | |||||
Derivatives | (67 | ) | (270 | ) | ||||
Minority interest | 7 | (150 | ) | |||||
Other | 16 | 3 | ||||||
Subtotal | (12,930 | ) | 3,118 | |||||
Amounts allocated from: | ||||||||
Insurance liability loss recognition | (128 | ) | (608 | ) | ||||
DAC and VOBA | 1,821 | (327 | ) | |||||
Policyholder dividend obligation | — | (789 | ) | |||||
Subtotal | 1,693 | (1,724 | ) | |||||
Deferred income tax | 3,885 | (423 | ) | |||||
Subtotal | 5,578 | (2,147 | ) | |||||
Net unrealized investment gains (losses) | $ | (7,352 | ) | $ | 971 | |||
September 30, 2008 | ||||
(In millions) | ||||
Balance at December 31, 2007 | $ | 971 | ||
Cumulative effect of change in accounting principles, net of income tax | (10 | ) | ||
Balance at January 1, 2008 | 961 | |||
Unrealized investment losses during the period | (16,125 | ) | ||
Unrealized investment loss of subsidiary at date of disposal | 87 | |||
Unrealized investment gains (losses) relating to: | ||||
Insurance liability gain recognition | 480 | |||
DAC and VOBA | 2,166 | |||
DAC and VOBA of subsidiary at date of disposal | (18 | ) | ||
Policyholder dividend obligation | 789 | |||
Deferred income tax | 4,354 | |||
Deferred income tax of subsidiary at date of disposal | (46 | ) | ||
Balance at September 30, 2008 | $ | (7,352 | ) | |
Change in net unrealized investment gains (losses) | $ | (8,313 | ) | |
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September 30, 2008 | ||||||||||||||||||||||||
Cost or Amortized Cost | Gross Unrealized Loss | Number of Securities | ||||||||||||||||||||||
Less than | 20% or | Less than | 20% or | Less than | 20% or | |||||||||||||||||||
20% | more | 20% | more | 20% | more | |||||||||||||||||||
(In millions, except number of securities) | ||||||||||||||||||||||||
Fixed Maturity Securities: | ||||||||||||||||||||||||
Less than six months | $ | 62,315 | $ | 19,570 | $ | 2,964 | $ | 5,672 | 6,083 | 1,285 | ||||||||||||||
Six months or greater but less than nine months | 30,276 | 4,010 | 2,280 | 1,498 | 1,661 | 286 | ||||||||||||||||||
Nine months or greater but less than twelve months | 8,393 | 576 | 750 | 283 | 526 | 61 | ||||||||||||||||||
Twelve months or greater | 32,489 | 199 | 3,169 | 92 | 2,573 | 91 | ||||||||||||||||||
Total | $ | 133,473 | $ | 24,355 | $ | 9,163 | $ | 7,545 | ||||||||||||||||
Equity Securities: | ||||||||||||||||||||||||
Less than six months | $ | 265 | $ | 1,163 | $ | 21 | $ | 416 | 504 | 467 | ||||||||||||||
Six months or greater but less than nine months | 87 | 606 | 11 | 163 | 35 | 20 | ||||||||||||||||||
Nine months or greater but less than twelve months | 86 | — | 10 | — | 29 | — | ||||||||||||||||||
Twelve months or greater | 229 | — | 18 | — | 30 | — | ||||||||||||||||||
Total | $ | 667 | $ | 1,769 | $ | 60 | $ | 579 | ||||||||||||||||
December 31, 2007 | ||||||||||||||||||||||||
Cost or Amortized Cost | Gross Unrealized Loss | Number of Securities | ||||||||||||||||||||||
Less than | 20% or | Less than | 20% or | Less than | 20% or | |||||||||||||||||||
20% | more | 20% | more | 20% | more | |||||||||||||||||||
(In millions, except number of securities) | ||||||||||||||||||||||||
Fixed Maturity Securities: | ||||||||||||||||||||||||
Less than six months | $ | 46,380 | $ | 1,381 | $ | 1,480 | $ | 384 | 4,742 | 148 | ||||||||||||||
Six months or greater but less than nine months | 15,871 | 14 | 732 | 4 | 1,043 | 24 | ||||||||||||||||||
Nine months or greater but less than twelve months | 8,541 | 7 | 494 | 2 | 591 | — | ||||||||||||||||||
Twelve months or greater | 29,942 | 50 | 1,164 | 13 | 2,722 | 32 | ||||||||||||||||||
Total | $ | 100,734 | $ | 1,452 | $ | 3,870 | $ | 403 | ||||||||||||||||
Equity Securities: | ||||||||||||||||||||||||
Less than six months | $ | 1,762 | $ | 427 | $ | 150 | $ | 134 | 1,212 | 420 | ||||||||||||||
Six months or greater but less than nine months | 529 | — | 62 | — | 154 | — | ||||||||||||||||||
Nine months or greater but less than twelve months | 441 | — | 53 | — | 62 | 1 | ||||||||||||||||||
Twelve months or greater | 516 | — | 51 | — | 90 | — | ||||||||||||||||||
Total | $ | 3,248 | $ | 427 | $ | 316 | $ | 134 | ||||||||||||||||
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September 30, | December 31, | |||||||
2008 | 2007 | |||||||
Sector: | ||||||||
U.S. corporate securities | 41 | % | 44 | % | ||||
Foreign corporate securities | 15 | 16 | ||||||
Asset-backed securities | 11 | 11 | ||||||
Residential mortgage-backed securities | 14 | 8 | ||||||
Foreign government securities | 2 | 4 | ||||||
Commercial mortgage-backed securities | 10 | 4 | ||||||
State and political subdivision securities | 3 | 2 | ||||||
Other | 4 | 11 | ||||||
Total | 100 | % | 100 | % | ||||
Industry: | ||||||||
Finance | 29 | % | 33 | % | ||||
Industrial | 3 | 19 | ||||||
Mortgage-backed | 24 | 12 | ||||||
Asset-backed | 11 | 11 | ||||||
Utility | 9 | 8 | ||||||
Government | 2 | 4 | ||||||
Consumer | 9 | 3 | ||||||
Communication | 6 | 2 | ||||||
Other | 7 | 8 | ||||||
Total | 100 | % | 100 | % | ||||
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Fixed Maturity Securities | Equity Securities | |||||||||||||||||||||||||||||||
Three Months | Nine Months | Three Months | Nine Months | |||||||||||||||||||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||||||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||||||||||||||||||
2008 | 2007 | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | |||||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||||||
Gross investment gains | $ | 279 | $ | 115 | $ | 569 | $ | 351 | $ | 265 | $ | 52 | $ | 412 | $ | 142 | ||||||||||||||||
Gross investment losses | (450 | ) | (370 | ) | (1,032 | ) | (898 | ) | (167 | ) | (15 | ) | (210 | ) | (24 | ) | ||||||||||||||||
Writedowns | (748 | ) | (40 | ) | (961 | ) | (59 | ) | (279 | ) | (6 | ) | (396 | ) | (10 | ) | ||||||||||||||||
Net investment gains (losses) | $ | (919 | ) | $ | (295 | ) | $ | (1,424 | ) | $ | (606 | ) | $ | (181 | ) | $ | 31 | $ | (194 | ) | $ | 108 | ||||||||||
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- | Lehman —In connection with the filing on September 15, 2008 by Lehman of a Chapter 11 bankruptcy petition, the Company recorded in the third quarter of 2008 impairments totaling $365 million (i.e., $322 million fixed maturity and $43 million equity securities) as follows related to Lehman — $249 million of Lehman senior unsecured debt and subordinated debt, $73 million of debt instruments issued by a special-purpose entity backed by Lehman obligations, and $43 million of Lehman trust preferred securities. The Company has also made secured loans to affiliates of Lehman which are fully collateralized; accordingly, no impairment charge has been recorded. | |
- | Washington Mutual —In connection with the September 25, 2008 acquisition of Washington Mutual’s banking operation by JP Morgan Chase & Co. relating to the Federal Deposit Insurance Corporation receivership of its bank subsidiaries, which transaction excluded the assumption of any senior unsecured debt, subordinated debt, and preferred securities of Washington Mutual and its bank subsidiaries, the Company recorded impairments in the third quarter of 2008 totaling $161 million (i.e., $125 million fixed maturity and $36 million equity securities) as follows — $125 million of Washington Mutual subordinated debt, $35 million of Washington Mutual trust preferred securities, and less than $1 million of Washington Mutual common stock holdings. These impairments were partially offset by a $17 million realized gain on credit default swaps purchased on Washington Mutual debt. | |
- | AIG —In connection with the September 23, 2008 definitive agreement between AIG and the Federal Reserve Bank of New York for a two-year revolving credit facility and issuance of preferred stock that granted 79.9% common stock voting power to the United States Treasury, the Company recorded impairments on securities for the three months ended September 30, 2008 totaling $36 million (i.e., $35 million fixed maturity and $1 million equity securities) as follows — $35 million of AIG unsecured subordinated debt holdings, and $1 million of AIG common stock. Additionally, a $2 million impairment was recorded on an AIG affiliate-managed other limited partnership investment for the three months ended September 30, 2008, for a total AIG impairment of $38 million for the three months ended September 30, 2008. |
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September 30, 2008 | December 31, 2007 | |||||||||||||||
Estimated | % of | Estimated | % of | |||||||||||||
Fair Value | Total | Fair Value | Total | |||||||||||||
(In millions) | ||||||||||||||||
Industrial | $ | 34,826 | 34.0 | % | $ | 39,339 | 35.3 | % | ||||||||
Foreign (1) | 34,396 | 33.6 | 37,255 | 33.5 | ||||||||||||
Finance | 16,683 | 16.3 | 20,669 | 18.6 | ||||||||||||
Utility | 13,234 | 12.9 | 13,276 | 11.9 | ||||||||||||
Other | 3,286 | 3.2 | 828 | 0.7 | ||||||||||||
Total | $ | 102,425 | 100.0 | % | $ | 111,367 | 100.0 | % | ||||||||
(1) | Includes U.S. dollar-denominated debt obligations of foreign obligors, and other fixed maturity foreign investments. |
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September 30, 2008 | December 31, 2007 | |||||||||||||||
Estimated | % of | Estimated | % of | |||||||||||||
Fair Value | Total | Fair Value | Total | |||||||||||||
(In millions) | ||||||||||||||||
Residential mortgage-backed securities: | ||||||||||||||||
Collateralized mortgage obligations | $ | 30,962 | 40.9 | % | $ | 36,356 | 43.9 | % | ||||||||
Pass-through securities | 16,021 | 21.2 | 18,719 | 22.6 | ||||||||||||
Total residential mortgage-backed securities | 46,983 | 62.1 | 55,075 | 66.5 | ||||||||||||
Commercial mortgage-backed securities | 15,905 | 21.0 | 17,083 | 20.7 | ||||||||||||
Asset-backed securities | 12,791 | 16.9 | 10,577 | 12.8 | ||||||||||||
Total | $ | 75,679 | 100.0 | % | $ | 82,735 | 100.0 | % | ||||||||
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September 30, 2008 | ||||||||||||||||||||||||||||||||||||||||||||||||
Aaa | Aa | A | Baa | Below Investment Grade | Total | |||||||||||||||||||||||||||||||||||||||||||
Cost or | Fair | Cost or | Fair | Cost or | Fair | Cost or | Fair | Cost or | Fair | Cost or | Fair | |||||||||||||||||||||||||||||||||||||
Amortized Cost | Value | Amortized Cost | Value | Amortized Cost | Value | Amortized Cost | Value | Amortized Cost | Value | Amortized Cost | Value | |||||||||||||||||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||||||||||||||||||||||
2003 & Prior | $ | 99 | $ | 83 | $ | 173 | $ | 139 | $ | 22 | $ | 16 | $ | 15 | $ | 11 | $ | 3 | $ | 2 | $ | 312 | $ | 251 | ||||||||||||||||||||||||
2004 | 131 | 93 | 379 | 264 | 5 | 4 | 37 | 27 | 2 | 1 | 554 | 389 | ||||||||||||||||||||||||||||||||||||
2005 | 375 | 288 | 286 | 210 | — | — | 4 | 3 | — | — | 665 | 501 | ||||||||||||||||||||||||||||||||||||
2006 | 153 | 128 | 111 | 60 | — | — | 1 | 1 | 16 | 6 | 281 | 195 | ||||||||||||||||||||||||||||||||||||
2007 | 112 | 69 | 25 | 12 | — | — | — | — | — | — | 137 | 81 | ||||||||||||||||||||||||||||||||||||
2008 | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Total | $ | 870 | $ | 661 | $ | 974 | $ | 685 | $ | 27 | $ | 20 | $ | 57 | $ | 42 | $ | 21 | $ | 9 | $ | 1,949 | $ | 1,417 | ||||||||||||||||||||||||
December 31, 2007 | ||||||||||||||||||||||||||||||||||||||||||||||||
Aaa | Aa | A | Baa | Below Investment Grade | Total | |||||||||||||||||||||||||||||||||||||||||||
Cost or | Fair | Cost or | Fair | Cost or | Fair | Cost or | Fair | Cost or | Fair | Cost or | Fair | |||||||||||||||||||||||||||||||||||||
Amortized Cost | Value | Amortized Cost | Value | Amortized Cost | Value | Amortized Cost | Value | Amortized Cost | Value | Amortized Cost | Value | |||||||||||||||||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||||||||||||||||||||||
2003 & Prior | $ | 217 | $ | 206 | $ | 130 | $ | 123 | $ | 15 | $ | 14 | $ | 13 | $ | 12 | $ | 4 | $ | 2 | $ | 379 | $ | 357 | ||||||||||||||||||||||||
2004 | 186 | 169 | 412 | 383 | 11 | 9 | — | — | 1 | — | 610 | 561 | ||||||||||||||||||||||||||||||||||||
2005 | 509 | 462 | 218 | 197 | — | — | — | — | — | — | 727 | 659 | ||||||||||||||||||||||||||||||||||||
2006 | 244 | 223 | 64 | 43 | — | — | — | — | — | — | 308 | 266 | ||||||||||||||||||||||||||||||||||||
2007 | 132 | 123 | 17 | 9 | — | — | — | — | — | — | 149 | 132 | ||||||||||||||||||||||||||||||||||||
Total | $ | 1,288 | $ | 1,183 | $ | 841 | $ | 755 | $ | 26 | $ | 23 | $ | 13 | $ | 12 | $ | 5 | $ | 2 | $ | 2,173 | $ | 1,975 | ||||||||||||||||||||||||
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September 30, 2008 | October 28, 2008 | |||||||||||||||
Cash Collateral | % of Total | Cash Collateral | % of Total | |||||||||||||
(In millions) | ||||||||||||||||
Open | $ | 14,160 | 34.4 | % | $ | 14,836 | 48.1 | % | ||||||||
Less than ninety days | 26,527 | 64.4 | 15,264 | 49.4 | ||||||||||||
Greater than ninety days | 497 | 1.2 | 770 | 2.5 | ||||||||||||
Total | $ | 41,184 | 100 | % | $ | 30,870 | 100 | % | ||||||||
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September 30, 2008 | ||||||||||||||||
Trading | Trading | |||||||||||||||
Securities | Liabilities | |||||||||||||||
(In millions) | ||||||||||||||||
Quoted prices in active markets for identical assets and liabilities (Level 1) | $ | 364 | 46 | % | $ | 30 | 100% | |||||||||
Significant other observable inputs (Level 2) | 188 | 24 | — | — | ||||||||||||
Significant unobservable inputs (Level 3) | 236 | 30 | — | — | ||||||||||||
Total fair value | $ | 788 | 100 | % | $ | 30 | 100% | |||||||||
Three Months Ended | Nine Months Ended | |||||||
September 30, 2008 | ||||||||
(In millions) | ||||||||
Balance, December 31, 2007 | $ | 183 | ||||||
Impact of SFAS 157 and SFAS 159 adoption | 8 | |||||||
Balance, beginning of period | $ | 312 | 191 | |||||
Total realized/unrealized gains (losses) included in: | ||||||||
Earnings | (12 | ) | (15 | ) | ||||
Other comprehensive income (loss) | (2 | ) | — | |||||
Purchases, sales, issuances and settlements | (62 | ) | 65 | |||||
Transfer in and/or out of Level 3 | — | (5 | ) | |||||
Balance, end of period | $ | 236 | $ | 236 | ||||
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September 30, 2008 | December 31, 2007 | |||||||||||||||
Carrying | % of | Carrying | % of | |||||||||||||
Value | Total | Value | Total | |||||||||||||
(In millions) | ||||||||||||||||
Commercial mortgage loans | $ | 35,912 | 70.9 | % | $ | 34,669 | 75.0 | % | ||||||||
Agricultural mortgage loans | 12,101 | 23.9 | 10,484 | 22.7 | ||||||||||||
Consumer loans | 1,209 | 2.4 | 1,040 | 2.3 | ||||||||||||
Loans held-for-investment | 49,222 | 97.2 | 46,193 | 100.0 | ||||||||||||
Mortgage loans held-for-sale | 1,424 | 2.8 | 5 | — | ||||||||||||
Total | $ | 50,646 | 100.0 | % | $ | 46,198 | 100.0 | % | ||||||||
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September 30, 2008 | December 31, 2007 | |||||||||||||||
Carrying | %of | Carrying | %of | |||||||||||||
Value | Total | Value | Total | |||||||||||||
(In millions) | ||||||||||||||||
Region | ||||||||||||||||
Pacific | $ | 8,584 | 23.9 | % | $ | 8,440 | 24.3 | % | ||||||||
South Atlantic | 8,099 | 22.6 | 7,770 | 22.4 | ||||||||||||
Middle Atlantic | 5,785 | 16.1 | 5,043 | 14.5 | ||||||||||||
International | 3,695 | 10.3 | 3,642 | 10.5 | ||||||||||||
West South Central | 3,065 | 8.5 | 2,894 | 8.3 | ||||||||||||
East North Central | 2,607 | 7.3 | 2,867 | 8.3 | ||||||||||||
New England | 1,535 | 4.3 | 1,464 | 4.2 | ||||||||||||
Mountain | 1,058 | 2.9 | 1,002 | 2.9 | ||||||||||||
West North Central | 758 | 2.1 | 974 | 2.8 | ||||||||||||
East South Central | 470 | 1.3 | 481 | 1.4 | ||||||||||||
Other | 256 | 0.7 | 92 | 0.4 | ||||||||||||
Total | $ | 35,912 | 100.0 | % | $ | 34,669 | 100.0 | % | ||||||||
Property Type | ||||||||||||||||
Office | $ | 15,351 | 42.8 | % | $ | 15,224 | 43.9 | % | ||||||||
Retail | 8,094 | 22.5 | 7,335 | 21.2 | ||||||||||||
Apartments | 4,137 | 11.5 | 4,371 | 12.6 | ||||||||||||
Hotel | 3,132 | 8.7 | 3,258 | 9.4 | ||||||||||||
Industrial | 2,849 | 8.0 | 2,622 | 7.6 | ||||||||||||
Other | 2,349 | 6.5 | 1,859 | 5.3 | ||||||||||||
Total | $ | 35,912 | 100.0 | % | $ | 34,669 | 100.0 | % | ||||||||
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September 30, 2008 | December 31, 2007 | |||||||||||||||||||||||||||||||
% of | % of | |||||||||||||||||||||||||||||||
Amortized | % of | Valuation | Amortized | Amortized | % of | Valuation | Amortized | |||||||||||||||||||||||||
Cost (1) | Total | Allowance | Cost | Cost (1) | Total | Allowance | Cost | |||||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||||||
Performing | $ | 36,067 | 100.0 | % | $ | 160 | 0.4 | % | $ | 34,833 | 100.0 | % | $ | 168 | 0.5 | % | ||||||||||||||||
Restructured | — | — | — | — | % | — | — | — | — | % | ||||||||||||||||||||||
Potentially delinquent | 4 | — | — | — | % | 3 | — | — | — | % | ||||||||||||||||||||||
Delinquent or under foreclosure | 1 | — | — | — | % | 1 | — | — | — | % | ||||||||||||||||||||||
Total | $ | 36,072 | 100.0 | % | $ | 160 | 0.4 | % | $ | 34,837 | 100.0 | % | $ | 168 | 0.5 | % | ||||||||||||||||
(1) | Amortized cost is equal to carrying value before valuation allowances. |
Nine Months Ended | ||||
September 30, 2008 | ||||
(In millions) | ||||
Balance, beginning of period | $ | 168 | ||
Additions | 57 | |||
Deductions | (65 | ) | ||
Balance, end of period | $ | 160 | ||
September 30, 2008 | December 31, 2007 | |||||||||||||||||||||||||||||||
% of | % of | |||||||||||||||||||||||||||||||
Amortized | % of | Valuation | Amortized | Amortized | % of | Valuation | Amortized | |||||||||||||||||||||||||
Cost (1) | Total | Allowance | Cost | Cost (1) | Total | Allowance | Cost | |||||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||||||
Performing | $ | 12,016 | 98.9 | % | $ | 16 | 0.1 | % | $ | 10,440 | 99.4 | % | $ | 12 | 0.1 | % | ||||||||||||||||
Restructured | 2 | — | — | — | % | 2 | — | — | — | % | ||||||||||||||||||||||
Potentially delinquent | 39 | 0.4 | 4 | 10.3 | % | 47 | 0.4 | 4 | 8.5 | % | ||||||||||||||||||||||
Delinquent or under foreclosure | 89 | 0.7 | 25 | 28.1 | % | 19 | 0.2 | 8 | 42.1 | % | ||||||||||||||||||||||
Total | $ | 12,146 | 100.0 | % | $ | 45 | 0.4 | % | $ | 10,508 | 100.0 | % | $ | 24 | 0.2 | % | ||||||||||||||||
(1) | Amortized cost is equal to carrying value before valuation allowances. |
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Nine Months Ended | ||||
September 30, 2008 | ||||
(In millions) | ||||
Balance, beginning of period | $ | 24 | ||
Additions | 26 | |||
Deductions | (5 | ) | ||
Balance, end of period | $ | 45 | ||
September 30, 2008 | December 31, 2007 | |||||||||||||||||||||||||||||||
% of | % of | |||||||||||||||||||||||||||||||
Amortized | % of | Valuation | Amortized | Amortized | % of | Valuation | Amortized | |||||||||||||||||||||||||
Cost (1) | Total | Allowance | Cost | Cost (1) | Total | Allowance | Cost | |||||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||||||
Performing | $ | 1,172 | 96.4 | % | $ | 6 | 0.5 | % | $ | 1,001 | 95.7 | % | $ | 5 | 0.5 | % | ||||||||||||||||
Restructured | — | — | — | — | % | — | — | — | — | % | ||||||||||||||||||||||
Potentially delinquent | 16 | 1.3 | — | — | % | 19 | 1.8 | — | — | % | ||||||||||||||||||||||
Delinquent or under foreclosure | 28 | 2.3 | 1 | 3.6 | % | 26 | 2.5 | 1 | 3.8 | % | ||||||||||||||||||||||
Total | $ | 1,216 | 100.0 | % | $ | 7 | 0.6 | % | $ | 1,046 | 100.0 | % | $ | 6 | 0.6 | % | ||||||||||||||||
(1) | Amortized cost is equal to carrying value before valuation allowances. |
Nine Months Ended | ||||
September 30, 2008 | ||||
(In millions) | ||||
Balance, beginning of period | $ | 6 | ||
Additions | 2 | |||
Deductions | (1 | ) | ||
Balance, end of period | $ | 7 | ||
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September 30, 2008 | December 31, 2007 | |||||||||||||||
Carrying | % of | Carrying | % of | |||||||||||||
Type | Value | Total | Value | Total | ||||||||||||
(In millions) | ||||||||||||||||
Real estate | $ | 3,877 | 51.3 | % | $ | 3,814 | 56.3 | % | ||||||||
Real estate joint ventures | 3,488 | 46.1 | 2,771 | 40.9 | ||||||||||||
Foreclosed real estate | 3 | 0.1 | 3 | 0.1 | ||||||||||||
7,368 | 97.5 | 6,588 | 97.3 | |||||||||||||
Real estate held-for-sale | 188 | 2.5 | 181 | 2.7 | ||||||||||||
Total real estate holdings | $ | 7,556 | 100.0 | % | $ | 6,769 | 100.0 | % | ||||||||
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September 30, 2008 | December 31, 2007 | |||||||||||||||
Carrying | % of | Carrying | % of | |||||||||||||
Type | Value | Total | Value | Total | ||||||||||||
(In millions) | ||||||||||||||||
Free standing derivatives with positive fair values | $ | 5,126 | 52.6 | % | $ | 4,036 | 50.1 | % | ||||||||
Leveraged leases, net of non-recourse debt (1) | 2,293 | 23.5 | 2,199 | 27.2 | ||||||||||||
Joint venture investments | 1,296 | 13.3 | 1,150 | 14.3 | ||||||||||||
Funds withheld at interest | 69 | 0.7 | 80 | 1.0 | ||||||||||||
Other | 961 | 9.9 | 599 | 7.4 | ||||||||||||
Total (2) | $ | 9,745 | 100.0 | % | $ | 8,064 | 100.0 | % | ||||||||
(1) | The Company participates in lease transactions, which are diversified by industry, asset type and geographic area. The Company regularly reviews residual values and writes down residuals to expected values as needed. | |
(2) | Total other invested assets represents 3.0% and 2.5% of cash and invested assets at September 30, 2008 and December 31, 2007, respectively. |
September 30, 2008 | December 31, 2007 | |||||||||||||||||||||||
Current Market | Current Market | |||||||||||||||||||||||
Notional | or Fair Value | Notional | or Fair Value | |||||||||||||||||||||
Amount | Assets | Liabilities | Amount | Assets | Liabilities | |||||||||||||||||||
(In millions) | ||||||||||||||||||||||||
Interest rate swaps | $ | 33,192 | $ | 1,302 | $ | 599 | $ | 62,410 | $ | 784 | $ | 768 | ||||||||||||
Interest rate floors | 48,517 | 634 | — | 48,937 | 621 | — | ||||||||||||||||||
Interest rate caps | 24,646 | 93 | — | 45,498 | 50 | — | ||||||||||||||||||
Financial futures | 10,466 | 106 | 103 | 12,302 | 89 | 57 | ||||||||||||||||||
Foreign currency swaps | 20,357 | 1,120 | 1,312 | 21,201 | 1,480 | 1,719 | ||||||||||||||||||
Foreign currency forwards | 6,220 | 208 | 83 | 4,177 | 76 | 16 | ||||||||||||||||||
Options | 7,541 | 1,360 | — | 6,565 | 713 | 1 | ||||||||||||||||||
Financial forwards | 18,676 | 182 | 33 | 11,937 | 122 | 2 | ||||||||||||||||||
Credit default swaps | 4,378 | 121 | 23 | 6,625 | 58 | 33 | ||||||||||||||||||
Synthetic GICs | 4,097 | — | — | 3,670 | — | — | ||||||||||||||||||
Other | 250 | — | 44 | 250 | 43 | — | ||||||||||||||||||
Total | $ | 178,340 | $ | 5,126 | $ | 2,197 | $ | 223,572 | $ | 4,036 | $ | 2,596 | ||||||||||||
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September 30, 2008 | ||||||||||||||||
Derivative Assets | Derivative Liabilities | |||||||||||||||
(In millions) | ||||||||||||||||
Quoted prices in active markets for identical assets and liabilities (Level 1) | $ | 127 | 2 | % | $ | 117 | 5 | % | ||||||||
Significant other observable inputs (Level 2) | 3,666 | 72 | 2,015 | 92 | ||||||||||||
Significant unobservable inputs (Level 3) | 1,333 | 26 | 65 | 3 | ||||||||||||
Total fair value | $ | 5,126 | 100 | % | $ | 2,197 | 100 | % | ||||||||
Three Months Ended | Nine Months Ended | |||||||
September 30, 2008 | ||||||||
(In millions) | ||||||||
Balance, December 31, 2007 | $ | 789 | ||||||
Impact of SFAS 157 and SFAS 159 adoption | (1 | ) | ||||||
Balance, beginning of period | $ | 853 | 788 | |||||
Total realized/unrealized gains (losses) included in: | ||||||||
Earnings | 348 | 405 | ||||||
Other comprehensive income (loss) | — | — | ||||||
Purchases, sales, issuances and settlements | 67 | 74 | ||||||
Transfer in and/or out of Level 3 | — | 1 | ||||||
Balance, end of period | $ | 1,268 | $ | 1,268 | ||||
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September 30, 2008 | ||||||||||||||||
Net Embedded Derivatives Within | ||||||||||||||||
Asset Host Contracts | Liability Host Contracts | |||||||||||||||
(In millions) | ||||||||||||||||
Quoted prices in active markets for identical assets and liabilities (Level 1) | $ | — | — | % | $ | — | — | % | ||||||||
Significant other observable inputs (Level 2) | — | — | (29 | ) | (7 | ) | ||||||||||
Significant unobservable inputs (Level 3) | 14 | 100 | 463 | 107 | ||||||||||||
Total fair value | $ | 14 | 100 | % | $ | 434 | 100 | % | ||||||||
Three Months Ended | Nine Months Ended | |||||||
September 30, 2008 | ||||||||
(In millions) | ||||||||
Balance, December 31, 2007 | $ | (278 | ) | |||||
Impact of SFAS 157 and SFAS 159 adoption | 24 | |||||||
Balance, beginning of period | $ | (444 | ) | (254 | ) | |||
Total realized/unrealized gains (losses) included in: | ||||||||
Earnings | 13 | (125 | ) | |||||
Other comprehensive income (loss) | — | — | ||||||
Purchases, sales, issuances and settlements | (18 | ) | (70 | ) | ||||
Transfer in and/or out of Level 3 | — | — | ||||||
Balance, end of period | $ | (449 | ) | $ | (449 | ) | ||
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September 30, 2008 | ||||||||||||
Primary Beneficiary | Not Primary Beneficiary | |||||||||||
Maximum | Maximum | |||||||||||
Total | Exposure to | Exposure to | ||||||||||
Assets (1) | Loss (2) | Loss (2) | ||||||||||
(In millions) | ||||||||||||
Asset-backed securitizations and collateralized debt obligations | $ | 1,305 | $ | 1,305 | $ | 102 | ||||||
Real estate joint ventures (3) | 41 | 21 | 33 | |||||||||
Other limited partnership interests (4) | 20 | 19 | 3,677 | |||||||||
Trust preferred securities (5) | 105 | 105 | 3,769 | |||||||||
Other investments (6) | 1,307 | 1,307 | 176 | |||||||||
Total | $ | 2,778 | $ | 2,757 | $ | 7,757 | ||||||
(1) | The assets of the asset-backed securitizations and collateralized debt obligations are reflected at fair value. The assets of the real estate joint ventures, other limited partnership interests, trust preferred securities and other investments are reflected at the carrying amounts at which such assets would have been reflected on the Company’s consolidated balance sheet had the Company consolidated the VIE from the date of its initial investment in the entity. | |
(2) | The maximum exposure to loss relating to the asset-backed securitizations and collateralized debt obligations is equal to the carrying amounts of retained interests. In addition, the Company provides collateral management services for certain of these structures for which it collects a management fee. The maximum exposure to loss relating to real estate joint ventures, other limited partnership interests, trust preferred securities and other investments is equal to the carrying amounts plus any unfunded commitments, reduced by amounts guaranteed by other partners. Such a maximum loss would be expected to occur only upon bankruptcy of the issuer or investee. | |
(3) | Real estate joint ventures include partnerships and other ventures which engage in the acquisition, development, management and disposal of real estate investments. | |
(4) | Other limited partnership interests include partnerships established for the purpose of investing in public and private debt and equity securities. | |
(5) | Trust preferred securities are complex, uniquely structured investments which contain features of both equity and debt, may have an extended or no stated maturity, and may be callable at the issuer’s option after a defined period of time. | |
(6) | Other investments include securities that are not trust preferred securities, asset-backed securitizations or collateralized debt obligations. |
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• | such separate accounts are legally recognized; | |
• | assets supporting the contract liabilities are legally insulated from the Company’s general account liabilities; | |
• | investments are directed by the contractholder; and | |
• | all investment performance, net of contract fees and assessments, is passed through to the contractholder. |
September 30, 2008 | ||||||||
(In millions) | ||||||||
Quoted prices in active markets for identical assets (Level 1) | $ | 104,332 | 75 | % | ||||
Significant other observable inputs (Level 2) | 33,460 | 24 | ||||||
Significant unobservable inputs (Level 3) | 2,011 | 1 | ||||||
Total fair value | $ | 139,803 | 100 | % | ||||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
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• | the net present values of its interest rate sensitive exposures resulting from a 10% change (increase or decrease) in interest rates; | |
• | the market value of its equity positions due to a 10% change (increase or decrease) in equity prices; and | |
• | the U.S. dollar equivalent balances of the Company’s currency exposures due to a 10% change (increase or decrease) in currency exchange rates. |
• | the market risk information is limited by the assumptions and parameters established in creating the related sensitivity analysis; | |
• | for derivatives that qualify as hedges, the impact on reported earnings may be materially different from the change in market values; | |
• | the analysis excludes other significant real estate holdings and liabilities pursuant to insurance contracts; and | |
• | the model assumes that the composition of assets and liabilities remains unchanged throughout the year. |
September 30, 2008 | ||||
(In millions) | ||||
Non-trading: | ||||
Interest rate risk | $ | 3,631 | ||
Equity price risk | $ | 21 | ||
Foreign currency exchange rate risk | $ | 835 | ||
Trading: | ||||
Interest rate risk | $ | 11 |
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As of September 30, 2008 | ||||||||||||
Assuming a | ||||||||||||
10% Increase | ||||||||||||
Notional | Estimated | in the Yield | ||||||||||
Amount | Fair Value | Curve | ||||||||||
(In millions) | ||||||||||||
Assets: | ||||||||||||
Fixed maturity securities | $ | 212,645 | $ | (4,177 | ) | |||||||
Equity securities | 3,477 | — | ||||||||||
Mortgage and consumer loans | 50,279 | (366 | ) | |||||||||
Policy loans | 11,011 | (197 | ) | |||||||||
Short-term investments | 2,570 | (3 | ) | |||||||||
Cash and cash equivalents | 20,209 | — | ||||||||||
Mortgage loan commitments | $ | 5,973 | (149 | ) | (10 | ) | ||||||
Commitments to fund bank credit facilities, bridge loans and private corporate bond investments | 1,391 | (77 | ) | — | ||||||||
Commitments to fund partnership investments | 4,629 | — | — | |||||||||
Total assets | $ | (4,753 | ) | |||||||||
Liabilities: | ||||||||||||
Policyholder account balances | $ | 93,894 | $ | 1,237 | ||||||||
Short-term debt | 1,106 | — | ||||||||||
Long-term debt | 8,782 | 199 | ||||||||||
Collateral financing arrangements | 2,453 | 91 | ||||||||||
Junior subordinated debt securities | 2,596 | 48 | ||||||||||
Payables for collateral under securities loaned and other transactions | 43,299 | — | ||||||||||
Total liabilities | $ | 1,575 | ||||||||||
Other: | ||||||||||||
Derivative instruments (designated hedges or otherwise) | ||||||||||||
Interest rate swaps | $ | 33,192 | $ | 703 | $ | (419 | ) | |||||
Interest rate floors | 48,517 | 634 | (126 | ) | ||||||||
Interest rate caps | 24,646 | 93 | 43 | |||||||||
Financial futures | 10,466 | 3 | 272 | |||||||||
Foreign currency swaps | 20,357 | (192 | ) | (92 | ) | |||||||
Foreign currency forwards | 6,220 | 125 | — | |||||||||
Options | 7,541 | 1,360 | (122 | ) | ||||||||
Financial forwards | 18,676 | 149 | (8 | ) | ||||||||
Credit default swaps | 4,378 | 98 | (1 | ) | ||||||||
Synthetic GICs | 4,097 | — | — | |||||||||
Other | 250 | (44 | ) | — | ||||||||
Total other | (453 | ) | ||||||||||
Net change | $ | (3,631 | ) | |||||||||
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Item 4. | Controls and Procedures |
Item 1. | Legal Proceedings |
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Item 1A. | Risk Factors |
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• | Fixed maturity and equity securities are classified as available-for-sale, except for trading securities, and are reported at their estimated fair value. Unrealized investment gains and losses on these securities are recorded as a separate component of other comprehensive income or loss, net of policyholder related amounts and deferred income taxes. | |
• | Trading securities are recorded at fair value with subsequent changes in fair value recognized in net investment income. | |
• | Short-term investments include investments with remaining maturities of one year or less, but greater than three months, at the time of acquisition and are stated at amortized cost, which approximates fair value. | |
• | Mortgage and consumer loans are stated at unpaid principal balance, adjusted for any unamortized premium or discount, deferred fees or expenses, net of valuation allowances. | |
• | Policy loans are stated at unpaid principal balances. | |
• | Real estate joint ventures and other limited partnership interests in which we have more than a minor equity interest or more than a minor influence over the joint ventures or partnership’s operations, but where we do not have a controlling interest and are not the primary beneficiary, are carried using the equity method of accounting. We use the cost method of accounting for investments in real estate joint ventures and other limited partnership interests in which it has a minor equity investment and virtually no influence over the joint ventures or the partnership’s operations. | |
• | Other invested assets consist principally of leveraged leases and derivatives with positive fair values. Leveraged leases are recorded net of non-recourse debt. Derivatives are carried at fair value with changes in fair value reflected in income from non-qualifying derivatives and derivatives in fair value hedging relationships. Derivatives in cash flow hedging relationships are reflected as a separate component of other comprehensive income or loss. |
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Level 1 | Unadjusted quoted prices in active markets for identical assets or liabilities. The Company defines active markets based on average trading volume for equity securities. The size of thebid/ask spread is used as an indicator of market activity for fixed maturity securities. | |
Level 2 | Quoted prices in markets that are not active or inputs that are observable either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities other than quoted prices in Level 1; quoted prices in markets that are not active; or other inputs that are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities. | |
Level 3 | Unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability. Level 3 assets and liabilities include financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. |
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• | reducing new sales of insurance products, annuities and other investment products; | |
• | adversely affecting our relationships with our sales force and independent sales intermediaries; | |
• | materially increasing the number or amount of policy surrenders and withdrawals by contractholders and policyholders; | |
• | requiring us to reduce prices for many of our products and services to remain competitive; and | |
• | adversely affecting our ability to obtain reinsurance at reasonable prices or at all. |
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• | licensing companies and agents to transact business; | |
• | calculating the value of assets to determine compliance with statutory requirements; | |
• | mandating certain insurance benefits; | |
• | regulating certain premium rates; | |
• | reviewing and approving policy forms; | |
• | regulating unfair trade and claims practices, including through the imposition of restrictions on marketing and sales practices, distribution arrangements and payment of inducements; | |
• | regulating advertising; | |
• | protecting privacy; | |
• | establishing statutory capital and reserve requirements and solvency standards; | |
• | fixing maximum interest rates on insurance policy loans and minimum rates for guaranteed crediting rates on life insurance policies and annuity contracts; | |
• | approving changes in control of insurance companies; | |
• | restricting the payment of dividends and other transactions between affiliates; and | |
• | regulating the types, amounts and valuation of investments. |
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• | an election or removal of directors in which a stockholder has properly nominated one or more candidates in opposition to a nominee or nominees of MetLife, Inc.’s Board of Directors or a vote on a stockholder’s |
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proposal to oppose a board nominee for director, remove a director for cause or fill a vacancy caused by the removal of a director by stockholders, subject to certain conditions; |
• | a merger or consolidation, a sale, lease or exchange of all or substantially all of the assets, or a recapitalization or dissolution, of MetLife, Inc., in each case requiring a vote of stockholders under applicable Delaware law; | |
• | any transaction that would result in an exchange or conversion of shares of common stock held by the Trust for cash, securities or other property; and | |
• | any proposal requiring MetLife, Inc.’s Board of Directors to amend or redeem the rights under the stockholder rights plan, other than a proposal with respect to which we have received advice of nationally-recognized legal counsel to the effect that the proposal is not a proper subject for stockholder action under Delaware law. |
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Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
(d) Maximum Number | ||||||||||||||||
(c) Total Number of | (or Approximate Dollar | |||||||||||||||
Shares Purchased as | Value) of Shares | |||||||||||||||
(a) Total Number | (b) Average | Part of Publicly | that May Yet Be | |||||||||||||
of Shares | Price Paid | Announced | Purchased Under the | |||||||||||||
Period | Purchased (1) | per Share | Plans or Programs | Plans of Programs (2) | ||||||||||||
July 1 — July 31, 2008 | 1,400 | $ | 53.45 | — | $ | 1,260,735,127 | ||||||||||
August 1 — August 31, 2008 | — | $ | — | — | $ | 1,260,735,127 | ||||||||||
September 1 — September 30, 2008 (3) | 23,094,136 | $ | — | 23,093,689 | $ | 1,260,735,127 | ||||||||||
Total | 23,095,536 | $ | — | 23,093,689 | $ | 1,260,735,127 | ||||||||||
(1) | During the periods July 1 — July 31, 2008, August 1 — August 31, 2008 and September 1 — September 30, 2008, separate account affiliates of the Company purchased 1,400 shares, 0 shares and 447 shares, respectively, of common stock on the open market in nondiscretionary transactions to rebalance index funds. Except as disclosed above, there were no shares of common stock which were repurchased by the Company other than through a publicly announced plan or program. | |
(2) | In April 2008, MetLife’s Board of Directors authorized an additional $1 billion common stock repurchase program, which will begin after completion of the January 2008 $1 billion common stock repurchase authorization. MetLife currently does not intend to make any further purchases under the common stock repurchase program in 2008. | |
(3) | On September 11, 2008, MetLife announced the final exchange ratio for its exchange offer related to the split-off of RGA. In connection with the split-off of RGA authorized by MetLife’s Board of Directors on May 30, 2008, MetLife received from its stockholders, and recorded as treasury stock, 23,093,689 shares of MetLife Inc.’s common stock with a market value of $57.06063 per share and an aggregate market value of $1,317,739,820. |
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Item 6. | Exhibits |
Exhibit | ||||
No. | Description | |||
4 | .1 | Sixth Supplemental Indenture dated as of August 7, 2008 to the Subordinated Indenture dated as of June 21, 2005 between MetLife, Inc. and The Bank of New York Mellon Trust Company, N.A. (as successor in interest to J.P. Morgan Trust Company, National Association), as trustee (Incorporated by reference to Exhibit 4.1 to MetLife, Inc.’s Current Report onForm 8-K dated August 8, 2008) | ||
4 | .2 | Form of security certificate representing MetLife, Inc.’s 6.817% Senior Debt Securities, Series A, Due 2018 (Incorporated by reference to Exhibit 4.1 to MetLife, Inc.’s Current Report onForm 8-K dated August 15, 2008) | ||
10 | .1 | MetLife, Inc. Director Indemnity Plan (Incorporated by reference to Exhibit 10.1 to MetLife, Inc.’s Current Report onForm 8-K dated July 25, 2008) | ||
31 | .1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
31 | .2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
32 | .1 | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||
32 | .2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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By | /s/ Joseph J. Prochaska, Jr. |
Title: | Executive Vice President, Finance |
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Exhibit | ||||
No. | Description | |||
4 | .1 | Sixth Supplemental Indenture dated as of August 7, 2008 to the Subordinated Indenture dated as of June 21, 2005 between MetLife, Inc. and The Bank of New York Mellon Trust Company, N.A. (as successor in interest to J.P. Morgan Trust Company, National Association), as trustee (Incorporated by reference to Exhibit 4.1 to MetLife, Inc.’s Current Report onForm 8-K dated August 8, 2008) | ||
4 | .2 | Form of security certificate representing MetLife, Inc.’s 6.817% Senior Debt Securities, Series A, Due 2018 (Incorporated by reference to Exhibit 4.1 to MetLife, Inc.’s Current Report onForm 8-K dated August 15, 2008) | ||
10 | .1 | MetLife, Inc. Director Indemnity Plan (Incorporated by reference to Exhibit 10.1 to MetLife, Inc.’s Current Report onForm 8-K dated July 25, 2008) | ||
31 | .1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
31 | .2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
32 | .1 | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||
32 | .2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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