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Washington, D.C. 20549
(Mark One) | ||
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the fiscal year ended December 31, 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 |
Connecticut (State or other jurisdiction of incorporation or organization) | 06-0566090 (I.R.S. Employer Identification No.) | |
1300 Hall Boulevard, Bloomfield, Connecticut (Address of principal executive offices) | 06002 (Zip Code) |
Large accelerated filero | Accelerated filero | |
Non-accelerated filerþ | Smaller reporting companyo | |
(Do not check if a smaller reporting company) |
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• | should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate; | |
• | have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement; | |
• | may apply standards of materiality in a way that is different from what may be viewed as material to investors; and | |
• | were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments. |
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Item 1. | Business |
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December 31, | ||||||||
2008 | 2007 | |||||||
(In millions) | ||||||||
Unaffiliated recoverables: | ||||||||
Future policy benefit recoverables | $ | 5,347 | $ | 4,774 | ||||
Deposit recoverables | 98 | 73 | ||||||
Claim recoverables | 74 | 52 | ||||||
All other recoverables | 7 | 6 | ||||||
Total | $ | 5,526 | $ | 4,905 | ||||
Affiliated recoverables: | ||||||||
Future policy benefit recoverables | $ | 3,296 | $ | 1,142 | ||||
Deposit recoverables | 3,041 | 1,953 | ||||||
Claim recoverables | 13 | 38 | ||||||
All other recoverables | 197 | 24 | ||||||
Total | $ | 6,547 | $ | 3,157 | ||||
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• | expanding the types of institutions that have access to the Federal Reserve Bank of New York’s discount window; | |
• | providing asset guarantees and emergency loans to particular distressed companies; | |
• | a temporary ban on short selling of shares of certain financial institutions; | |
• | programs intended to reduce the volume of mortgage foreclosures by modifying the terms of mortgage loans for distressed borrowers; | |
• | temporarily guaranteeing money market funds; and | |
• | programs to support the mortgage-backed securities market and mortgage lending. |
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A.M. Best (1) | Fitch (2) | Moody’s (3) | S&P (4) | |||||||||||||
MetLife Insurance Company of Connecticut | A+ | AA | Aa2 | AA− | ||||||||||||
MetLife Investors USA Insurance Company | A+ | AA | Aa2 | AA− |
(1) | A.M. Best financial strength ratings range from “A++ (superior)” to “S (Suspended).” Ratings of “A+” and “A” are in the “superior” and “excellent” categories, respectively. | |
(2) | Fitch insurer financial strength ratings range from “AAA (exceptionally strong)” to “C (ceased or interrupted payments imminent).” A “+” or “− ” may be appended to ratings from “AA” to “CCC” to indicate relative position within a category. A rating of “AA” is in the “very strong” category. | |
(3) | Moody’s insurance financial strength ratings range from “Aaa (exceptional)” to “C (extremely poor).” A numeric modifier may be appended to ratings from “Aa” to “Caa” to indicate relative position within a category, with 1 being the highest and 3 being the lowest. A rating of “Aa” is in the “excellent” category. | |
(4) | S&P long-term insurer financial strength ratings range from “AAA (extremely strong)” to “R (under regulatory supervision).” A “+” or “− ” may be appended to ratings from “AA” to “CCC” to indicate relative position within a category. A rating of “AA” is in the “very strong” category. |
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Item 1A. | Risk Factors |
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• | Fixed maturity and equity securities are classified as available-for-sale 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 (loss), net of policyholder related amounts and deferred income taxes. | |
• | 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 estimated fair value, or stated at estimated fair value, if available. Short-term investments also include investments in affiliated money market pools. | |
• | The carrying value of mortgage and consumer loans is stated at original cost net of repayments, amortization of premiums, accretion of discounts and valuation allowances. | |
• | Policy loans are stated at unpaid principal balances. | |
• | Real estate held-for-investment, including related improvements, is stated at cost, less accumulated depreciation. | |
• | 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 we have a minor equity investment and virtually no influence over the joint ventures or the partnership’s operations. | |
• | Other invested assets consist principally of freestanding derivatives with positive estimated fair values. Freestanding derivatives are carried at estimated fair value with changes in estimated fair value reflected in income for both 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 (loss). |
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Level 1 | Unadjusted quoted prices in active markets for identical assets or liabilities. We define active markets based on average trading volume for equity securities. The size of the bid/ask spread is used as an indicator of market activity for fixed maturity securities. | |
Level 2 | Quoted prices in markets that are not active or inputs that are observable either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities other than quoted prices in Level 1; quoted prices in markets that are not active; or other inputs that are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities. | |
Level 3 | Unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities. Unobservable inputs reflect the reporting 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; |
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• | 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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Item 1B. | Unresolved Staff Comments |
Item 2. | Properties |
Item 3. | Legal Proceedings |
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Item 4. | Submission of Matters to a Vote of Security Holders |
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Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
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Item 6. | Selected Financial Data |
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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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 estimated 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 estimated fair value requires significant management judgment or estimation. |
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(i) | the length of time and the extent to which the estimated fair value has been below cost or amortized cost; | |
(ii) | the potential for impairments of securities when the issuer is experiencing significant financial difficulties; | |
(iii) | the potential for impairments in an entire industry sector or sub-sector; | |
(iv) | the potential for impairments in certain economically depressed geographic locations; | |
(v) | the potential for impairments of securities where the issuer, series of issuers or industry has suffered a catastrophic type of loss or has exhausted natural resources; | |
(vi) | 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; | |
(vii) | unfavorable changes in forecasted cash flows on mortgage-backed and asset-backed securities; and |
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(viii) | other subjective factors, including concentrations and information obtained from regulators and rating agencies. |
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Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(In millions) | ||||||||||||
Investment return | $ | (25 | ) | $ | (15 | ) | $ | (16 | ) | |||
Separate account balances | (365 | ) | 3 | 8 | ||||||||
Net investment gain (loss) related | (225 | ) | (28 | ) | 84 | |||||||
Expense | 7 | (8 | ) | 13 | ||||||||
In-force/Persistency | (50 | ) | (27 | ) | (24 | ) | ||||||
Other | (6 | ) | (41 | ) | (35 | ) | ||||||
Total | $ | (664 | ) | $ | (116 | ) | $ | 30 | ||||
• | The decrease in equity markets during the year significantly lowered separate account balances resulting in a significant reduction in expected future gross profits on variable universal life contracts and variable deferred annuity contracts resulting in an increase of $365 million in DAC and VOBA amortization. | |
• | The significant increase in net investment gains increased actual gross profit during the current period, resulting in an increase of $225 million in DAC and VOBA amortization. The increase in net investment gains was primarily driven by increase in derivative gains on freestanding derivatives and the net embedded derivative gains associated with the direct and ceded guarantee obligations. |
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• | Increases in amortization resulting from changes in assumptions related to in-force/persistency of $50 million were driven by higher than anticipated partial withdrawal and lower than anticipated premium persistency during the current year. |
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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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Years Ended December 31, | ||||||||
2008 | 2007 | |||||||
(In millions) | ||||||||
Revenues | ||||||||
Premiums | $ | 634 | $ | 353 | ||||
Universal life and investment-type product policy fees | 1,378 | 1,411 | ||||||
Net investment income | 2,494 | 2,893 | ||||||
Other revenues | 230 | 251 | ||||||
Net investment gains (losses) | 549 | (142 | ) | |||||
Total revenues | 5,285 | 4,766 | ||||||
Expenses | ||||||||
Policyholder benefits and claims | 1,446 | 978 | ||||||
Interest credited to policyholder account balances | 1,130 | 1,299 | ||||||
Other expenses | 1,933 | 1,446 | ||||||
Total expenses | 4,509 | 3,723 | ||||||
Income from continuing operations before provision for income tax | 776 | 1,043 | ||||||
Provision for income tax | 203 | 303 | ||||||
Income from continuing operations | 573 | 740 | ||||||
Income from discontinued operations, net of income tax | — | 4 | ||||||
Net income | $ | 573 | $ | 744 | ||||
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• | An increase in DAC amortization of $275 million, net of income tax, within the Individual segment, primarily related to lower expected future gross profits due to separate account balance decreases resulting from recent market declines, higher net investment gains primarily due to net derivative gains and lower expected gross profit due to higher than anticipated partial withdrawal and lower than anticipated premium persistency. This increase in DAC and VOBA amortization was partially offset by higher DAC amortization in the Institutional segment in the prior year due to the adoption of Statement of Position (“SOP”)05-1,Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts(“SOP05-1”). | |
• | Increase in policyholder benefits and claims of $101 million, net of income tax, primarily due to higher guaranteed annuity benefit rider costs and higher amortization of sales inducements. | |
• | A decrease in interest margins of $74 million, net of income tax. Management primarily attributes this to a decrease of $80 million and $13 million, net of income tax, in the annuity and variable and universal life businesses, respectively. These decreases were offset by an increase in retirement & savings and group life businesses of $15 million and $5 million, net of income tax, respectively, partially offset by a decrease in non-medical health and other business of $1 million, net of income tax. Interest margin is the difference between interest earned and interest credited to policyholder account balances. Interest earned approximates net investment income on investable assets with minor adjustments related to the consolidation of certain separate accounts and other minor non-policyholder elements. Interest credited is the amount attributed to insurance products, recorded in policyholder benefits and claims, and the amount credited to policyholder account balances for investment-type products, recorded in interest credited to policyholder account balances. Interest credited on insurance products reflects the current year impact of the interest rate assumptions established at issuance or acquisition. Interest credited to policyholder account balances is subject to contractual terms, including some minimum guarantees. This tends to move gradually over time to reflect market interest rate movements and may reflect actions by management to respond to competitive pressures and, therefore, generally does not introduce volatility in expense. | |
• | A decrease in net investment income of $60 million, net of income tax, primarily due to reduced yields on other limited partnerships including hedge funds and real estate joint ventures. The reduction in yields associated with other limited partnership interests including hedge funds was primarily due to the lack of liquidity and credit in the financial markets as well as unprecedented investor redemptions in an environment with steep declines in the public equity and debt markets. The decrease in real estate joint ventures yields |
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was primarily due a slow down in lease and related sales activities in a year with declining property values as well as fund investment write-downs. |
• | An increase in other expenses excluding DAC amortization of $40 million, net of income tax, due primarily to higher non-deferrable volume related expenses and higher interest expenses, which decreased income from continuing operations. | |
• | A decrease in underwriting results of $43 million, net of income tax, primarily due to decreases in life products, retirement & savings and non-medical health & other businesses partially offset by an increase in the group life business. 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 year to year. | |
• | A decrease in other revenues combined with universal life and investment-type product policy fees of $35 million, net of income tax primarily due to a reinsurance agreement with an affiliate partially offset by fee growth in the life products. |
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December 31, | ||||||||
2008 | 2007 | |||||||
(In millions) | ||||||||
Other Assets: | ||||||||
Premium tax offset for future undiscounted assessments | $ | 6 | $ | 8 | ||||
Premium tax offsets currently available for paid assessments | 1 | 1 | ||||||
$ | 7 | $ | 9 | |||||
Other Liabilities: | ||||||||
Insolvency assessments | $ | 10 | $ | 17 | ||||
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(i) | clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS 133; | |
(ii) | establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation; | |
(iii) | clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives; and | |
(iv) | amends SFAS 140 to eliminate the prohibition on a QSPE from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial interest. |
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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. |
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• | 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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Item 7A. | Quantitative and Qualitative Disclosures About Market Risk |
• | implementing a Board of Directors approved corporate risk framework, which outlines the Company’s approach for managing risk on an enterprise-wide basis; | |
• | developing policies and procedures for managing, measuring, monitoring and controlling those risks identified in the corporate risk framework; | |
• | establishing appropriate corporate risk tolerance levels; | |
• | deploying capital on an economic capital basis; and | |
• | reporting on a periodic basis to the Finance and Risk Policy Committee of the Company’s Board of Directors and various financial and non-financial senior management committees. |
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• | The Company’s Treasury Department is responsible for managing the exposure to investments in foreign subsidiaries. Limits to exposures are established and monitored by the Treasury Department and managed by the Investment Department. | |
• | The Investment Department is responsible for managing the exposure to foreign currency investments. Exposure limits to unhedged foreign currency investments are incorporated into the standing authorizations granted to management by the Board of Directors and are reported to the Board of Directors on a periodic basis. | |
• | The lines of business are responsible for establishing limits and managing any foreign exchange rate exposure caused by the sale or issuance of insurance products. |
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• | Risks Related to Living Benefit Riders — The Company uses a wide range of derivative contracts to hedge the risk associated with variable annuity living benefit riders. These hedges include equity and interest rate futures, interest rate, currency and equity variance swaps, interest rate and currency forwards, and interest rate option contracts. | |
• | Minimum Interest Rate Guarantees — For certain Company liability contracts, the Company provides the contractholder a guaranteed minimum interest rate. These contracts include certain fixed annuities and other insurance liabilities. The Company purchases interest rate floors to reduce risk associated with these liability guarantees. | |
• | Reinvestment Risk in Long Duration Liability Contracts — Derivatives are used to hedge interest rate risk related to certain long duration liability contracts, such as long-term care. Hedges include zero coupon interest rate swaps and swaptions. | |
• | Foreign Currency Risk — The Company uses currency swaps and forwards to hedge currency risk. These hedges primarily swap foreign denominated bonds or equity exposures to U.S. dollars. | |
• | General ALM Hedging Strategies — In the ordinary course of managing the Company’s asset/liability risks, the Company uses interest rate futures, interest rate swaps, interest rate caps, interest rate floors and inflation swaps. These hedges are designed to reduce interest rate risk or inflation risk related to the existing assets or liabilities or related to expected future cash flows. |
• | the net present values of its interest rate sensitive exposures resulting from a 10% change (increase or decrease) in interest rates; | |
• | the U.S. dollar equivalent estimated fair values of the Company’s foreign currency exposures due to a 10% change (increase or decrease) in foreign currency exchange rates; and | |
• | the estimated fair value of its equity positions due to a 10% change (increase or decrease) in equity market prices. |
• | the market risk information is limited by the assumptions and parameters established in creating the related sensitivity analysis, including the impact of prepayment rates on mortgages; | |
• | the derivatives that qualify as hedges, the impact on reported earnings may be materially different from the change in market values; |
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• | 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. |
December 31, 2008 | ||||
(In millions) | ||||
Non-trading: | ||||
Interest rate risk | $ | 555 | ||
Foreign currency exchange rate risk | $ | 6 | ||
Equity price risk | $ | 34 |
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December 31, 2008 | ||||||||||||
Assuming a | ||||||||||||
Notional | Estimated | 10% Increase | ||||||||||
Amount | Fair Value(3) | in the Yield Curve | ||||||||||
(In millions) | ||||||||||||
Assets | ||||||||||||
Fixed maturity securities | $ | 34,846 | $ | (454 | ) | |||||||
Equity securities | 474 | — | ||||||||||
Trading securities | 232 | — | ||||||||||
Mortgage and consumer loans | 4,252 | (15 | ) | |||||||||
Policy loans | 1,296 | (6 | ) | |||||||||
Real estate joint venture (1) | 103 | — | ||||||||||
Other limited partnership interests (1) | 247 | — | ||||||||||
Short-term investments | 3,127 | — | ||||||||||
Cash and cash equivalents | 5,656 | — | ||||||||||
Accrued investment income | 487 | — | ||||||||||
Premiums and other receivables | 2,700 | (70 | ) | |||||||||
Net embedded derivatives within asset host contracts (2) | 2,062 | (157 | ) | |||||||||
Mortgage loan commitments | $ | 231 | (15 | ) | (1 | ) | ||||||
Commitments to fund bank credit facilities and private corporate bond investments | 332 | (101 | ) | — | ||||||||
Total assets | $ | (703 | ) | |||||||||
Liabilities | ||||||||||||
Policyholder account balances | $ | 23,937 | $ | 202 | ||||||||
Short-term debt | 300 | |||||||||||
Long-term debt — affiliated | 671 | 9 | ||||||||||
Payables for collateral under securities loaned and other transactions | 7,871 | — | ||||||||||
Other liabilities | 158 | — | ||||||||||
Net embedded derivatives within liability host contracts (2) | 1,405 | 101 | ||||||||||
Total liabilities | $ | 312 | ||||||||||
Other | ||||||||||||
Derivative instruments (designated hedges or otherwise) | ||||||||||||
Interest rate swaps | $ | 7,074 | $ | 389 | $ | (39 | ) | |||||
Interest rate floors | 12,071 | 494 | (52 | ) | ||||||||
Interest rate caps | 3,513 | 1 | — | |||||||||
Financial futures | 1,434 | (12 | ) | (54 | ) | |||||||
Foreign currency swaps | 3,771 | 480 | (13 | ) | ||||||||
Foreign currency forwards | 92 | (9 | ) | — | ||||||||
Options | 813 | 248 | (5 | ) | ||||||||
Financial forwards | 1,289 | 49 | (1 | ) | ||||||||
Credit default swaps | 648 | 11 | — | |||||||||
Total other | $ | (164 | ) | |||||||||
Net change | $ | (555 | ) | |||||||||
(1) | Represents only those investments accounted for using the cost method. | |
(2) | Embedded derivatives are recognized in the consolidated balance sheet in the same caption as the host contract. |
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(3) | Separate account assets and liabilities which are interest rate sensitive are not included herein as any interest rate risk is borne by the holder of the separate account. |
December 31, 2008 | ||||||||||||
Assuming a | ||||||||||||
10% Increase | ||||||||||||
Notional | Estimated | in the Foreign | ||||||||||
Amount | Fair Value(1) | Exchange Rate | ||||||||||
(In millions) | ||||||||||||
Assets | ||||||||||||
Fixed maturity securities | $ | 34,846 | $ | (59 | ) | |||||||
Total assets | $ | (59 | ) | |||||||||
Liabilities | ||||||||||||
Policyholder account balances | $ | 23,937 | $ | 302 | ||||||||
Total liabilities | $ | 302 | ||||||||||
Other | ||||||||||||
Derivative instruments (designated hedges or otherwise) | ||||||||||||
Interest rate swaps | $ | 7,074 | $ | 389 | $ | (1 | ) | |||||
Interest rate floors | 12,071 | 494 | — | |||||||||
Interest rate caps | 3,513 | 1 | — | |||||||||
Financial futures | 1,434 | (12 | ) | |||||||||
Foreign currency swaps | 3,771 | 480 | (259 | ) | ||||||||
Foreign currency forwards | 92 | (9 | ) | 11 | ||||||||
Options | 813 | 248 | — | |||||||||
Financial forwards | 1,289 | �� | 49 | — | ||||||||
Credit default swaps | 648 | 11 | — | |||||||||
Total other | $ | (249 | ) | |||||||||
Net change | $ | (6 | ) | |||||||||
(1) | Estimated fair value presented in the table above represents the fair value of all financial instruments within this financial statement caption not necessarily those solely subject to foreign exchange risk. |
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December 31, 2008 | ||||||||||||
Assuming a | ||||||||||||
Notional | Estimated | 10% Increase | ||||||||||
Amount | Fair Value(1) | in Equity Prices | ||||||||||
(In millions) | ||||||||||||
Assets | ||||||||||||
Equity securities | $ | 474 | $ | 14 | ||||||||
Net embedded derivatives within asset host contracts (2) | 2,062 | (160 | ) | |||||||||
Total assets | $ | (146 | ) | |||||||||
Liabilities | ||||||||||||
Policyholder account balances | $ | 23,937 | $ | 41 | ||||||||
Net embedded derivatives within asset host contracts (2) | 133 | |||||||||||
Total liabilities | $ | 174 | ||||||||||
Other | ||||||||||||
Derivative instruments (designated hedges or otherwise) | ||||||||||||
Interest rate swaps | $ | 7,074 | $ | 389 | $ | — | ||||||
Interest rate floors | 12,071 | 494 | — | |||||||||
Interest rate caps | 3,513 | 1 | — | |||||||||
Financial futures | 1,434 | (12 | ) | (38 | ) | |||||||
Foreign currency swaps | 3,771 | 480 | — | |||||||||
Foreign currency forwards | 92 | (9 | ) | — | ||||||||
Options | 813 | 248 | (25 | ) | ||||||||
Financial forwards | 1,289 | 49 | 1 | |||||||||
Credit default swaps | 648 | 11 | — | |||||||||
Total other | $ | (62 | ) | |||||||||
Net change | $ | (34 | ) | |||||||||
(1) | Estimated fair value presented in the table above represents the fair value of all financial instruments within this financial statement caption not necessarily those solely subject to foreign exchange risk. | |
(2) | Embedded derivatives are recognized in the consolidated balance sheet in the same caption as the host contract. |
76
Item 8. | Financial Statements and Supplementary Data |
Page | ||||
F-1 | ||||
Financial Statements at December 31, 2008 and 2007 and for the Years Ended December 31, 2008, 2007 and 2006: | ||||
F-2 | ||||
F-3 | ||||
F-4 | ||||
F-5 | ||||
F-7 | ||||
Financial Statement Schedules at December 31, 2008 and 2007 and for the Years Ended December 31, 2008, 2007 and 2006: | ||||
F-104 | ||||
F-105 | ||||
F-111 | ||||
F-113 |
77
Table of Contents
F-1
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Consolidated Balance Sheets
December 31, 2008 and 2007
(In millions, except share and per share data)
2008 | 2007 | |||||||
Assets | ||||||||
Investments: | ||||||||
Fixed maturity securitiesavailable-for-sale, at estimated fair value (amortized cost: $39,601 and $46,264, respectively) | $ | 34,846 | $ | 45,671 | ||||
Equity securitiesavailable-for-sale, at estimated fair value (cost: $673 and $992, respectively) | 474 | 952 | ||||||
Trading securities, at estimated fair value (cost: $251 and $0, respectively) | 232 | — | ||||||
Mortgage and consumer loans | 4,447 | 4,404 | ||||||
Policy loans | 1,192 | 913 | ||||||
Real estate and real estate joint venturesheld-for-investment | 608 | 541 | ||||||
Other limited partnership interests | 1,249 | 1,130 | ||||||
Short-term investments | 3,127 | 1,335 | ||||||
Other invested assets | 2,297 | 1,445 | ||||||
Total investments | 48,472 | 56,391 | ||||||
Cash and cash equivalents | 5,656 | 1,774 | ||||||
Accrued investment income | 487 | 637 | ||||||
Premiums and other receivables | 12,463 | 8,320 | ||||||
Deferred policy acquisition costs and value of business acquired | 5,440 | 4,948 | ||||||
Current income tax recoverable | 66 | 72 | ||||||
Deferred income tax assets | 1,843 | 846 | ||||||
Goodwill | 953 | 953 | ||||||
Other assets | 752 | 753 | ||||||
Separate account assets | 35,892 | 53,867 | ||||||
Total assets | $ | 112,024 | $ | 128,561 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Liabilities: | ||||||||
Future policy benefits | $ | 20,213 | $ | 19,576 | ||||
Policyholder account balances | 37,175 | 33,815 | ||||||
Other policyholder funds | 2,085 | 1,777 | ||||||
Short-term debt | 300 | — | ||||||
Long-term debt — affiliated | 950 | 635 | ||||||
Payables for collateral under securities loaned and other transactions | 7,871 | 10,471 | ||||||
Other liabilities | 2,604 | 1,072 | ||||||
Separate account liabilities | 35,892 | 53,867 | ||||||
Total liabilities | 107,090 | 121,213 | ||||||
Contingencies, Commitments and Guarantees (Note 10) | ||||||||
Stockholders’ Equity: | ||||||||
Common stock, par value $2.50 per share; 40,000,000 shares authorized; 34,595,317 shares issued and outstanding at December 31, 2008 and 2007 | 86 | 86 | ||||||
Additional paid-in capital | 6,719 | 6,719 | ||||||
Retained earnings | 965 | 892 | ||||||
Accumulated other comprehensive loss | (2,836 | ) | (349 | ) | ||||
Total stockholders’ equity | 4,934 | 7,348 | ||||||
Total liabilities and stockholders’ equity | $ | 112,024 | $ | 128,561 | ||||
F-2
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Consolidated Statements of Income
For the Years Ended December 31, 2008, 2007 and 2006
(In millions)
2008 | 2007 | 2006 | ||||||||||
Revenues | ||||||||||||
Premiums | $ | 634 | $ | 353 | $ | 308 | ||||||
Universal life and investment-type product policy fees | 1,378 | 1,411 | 1,268 | |||||||||
Net investment income | 2,494 | 2,893 | 2,839 | |||||||||
Other revenues | 230 | 251 | 212 | |||||||||
Net investment gains (losses) | 549 | (142 | ) | (521 | ) | |||||||
Total revenues | 5,285 | 4,766 | 4,106 | |||||||||
Expenses | ||||||||||||
Policyholder benefits and claims | 1,446 | 978 | 792 | |||||||||
Interest credited to policyholder account balances | 1,130 | 1,299 | 1,316 | |||||||||
Other expenses | 1,933 | 1,446 | 1,173 | |||||||||
Total expenses | 4,509 | 3,723 | 3,281 | |||||||||
Income from continuing operations before provision for income tax | 776 | 1,043 | 825 | |||||||||
Provision for income tax | 203 | 303 | 228 | |||||||||
Income from continuing operations | 573 | 740 | 597 | |||||||||
Income from discontinued operations, net of income tax | — | 4 | — | |||||||||
Net income | $ | 573 | $ | 744 | $ | 597 | ||||||
F-3
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Consolidated Statements of Stockholders’ Equity
For the Years Ended December 31, 2008, 2007 and 2006
(In millions)
Accumulated | ||||||||||||||||||||||||
Other Comprehensive Loss | ||||||||||||||||||||||||
Net | Foreign | |||||||||||||||||||||||
Additional | Unrealized | Currency | ||||||||||||||||||||||
Common | Paid-in | Retained | Investment | Translation | ||||||||||||||||||||
Stock | Capital | Earnings | Gains (Losses) | Adjustments | Total | |||||||||||||||||||
Balance at January 1, 2006 | $ | 86 | $ | 7,180 | $ | 581 | $ | (416 | ) | $ | 2 | $ | 7,433 | |||||||||||
Revisions of purchase price pushed down to MetLife Insurance Company of Connecticut’s net assets acquired (Note 1) | 40 | 40 | ||||||||||||||||||||||
Dividend paid to MetLife | (259 | ) | (658 | ) | (917 | ) | ||||||||||||||||||
Capital contribution of intangible assets from MetLife, net of income tax | 162 | 162 | ||||||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||
Net income | 597 | 597 | ||||||||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||
Unrealized gains (losses) on derivative instruments, net of income tax | (5 | ) | (5 | ) | ||||||||||||||||||||
Unrealized investment gains (losses), net of related offsets and income tax | 107 | 107 | ||||||||||||||||||||||
Foreign currency translation adjustments, net of income tax | (2 | ) | (2 | ) | ||||||||||||||||||||
Other comprehensive income | 100 | |||||||||||||||||||||||
Comprehensive income | 697 | |||||||||||||||||||||||
Balance at December 31, 2006 | 86 | 7,123 | 520 | (314 | ) | — | 7,415 | |||||||||||||||||
Cumulative effect of change in accounting principle, net of income tax (Note 1) | (86 | ) | (86 | ) | ||||||||||||||||||||
Balance at January 1, 2007 | 86 | 7,123 | 434 | (314 | ) | — | 7,329 | |||||||||||||||||
Dividend paid to MetLife | (404 | ) | (286 | ) | (690 | ) | ||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||
Net income | 744 | 744 | ||||||||||||||||||||||
Other comprehensive income (loss): | ||||||||||||||||||||||||
Unrealized gains (losses) on derivative instruments, net of income tax | (2 | ) | (2 | ) | ||||||||||||||||||||
Unrealized investment gains (losses), net of related offsets and income tax | (45 | ) | (45 | ) | ||||||||||||||||||||
Foreign currency translation adjustments, net of income tax | 12 | 12 | ||||||||||||||||||||||
Other comprehensive loss | (35 | ) | ||||||||||||||||||||||
Comprehensive income | 709 | |||||||||||||||||||||||
Balance at December 31, 2007 | 86 | 6,719 | 892 | (361 | ) | 12 | 7,348 | |||||||||||||||||
Dividend paid to MetLife | (500 | ) | (500 | ) | ||||||||||||||||||||
Comprehensive income (loss): | ||||||||||||||||||||||||
Net income | 573 | 573 | ||||||||||||||||||||||
Other comprehensive income (loss): | ||||||||||||||||||||||||
Unrealized gains (losses) on derivative instruments, net of income tax | 21 | 21 | ||||||||||||||||||||||
Unrealized investment gains (losses), net of related offsets and income tax | (2,342 | ) | (2,342 | ) | ||||||||||||||||||||
Foreign currency translation adjustments, net of income tax | (166 | ) | (166 | ) | ||||||||||||||||||||
Other comprehensive loss | (2,487 | ) | ||||||||||||||||||||||
Comprehensive loss | (1,914 | ) | ||||||||||||||||||||||
Balance at December 31, 2008 | $ | 86 | $ | 6,719 | $ | 965 | $ | (2,682 | ) | $ | (154 | ) | $ | 4,934 | ||||||||||
F-4
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
2008 | 2007 | 2006 | ||||||||||
Cash flows from operating activities | ||||||||||||
Net income | $ | 573 | $ | 744 | $ | 597 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization expenses | 29 | 26 | 6 | |||||||||
Amortization of premiums and accretion of discounts associated with investments, net | (18 | ) | 11 | 74 | ||||||||
(Gains) losses from sales of investments and businesses, net | (546 | ) | 145 | 521 | ||||||||
Gain from recapture of ceded reinsurance | — | (22 | ) | — | ||||||||
Undistributed equity earnings of real estate joint ventures and other limited partnership interests | 97 | (121 | ) | (83 | ) | |||||||
Interest credited to policyholder account balances | 1,130 | 1,299 | 1,316 | |||||||||
Universal life and investment-type product policy fees | (1,378 | ) | (1,411 | ) | (1,268 | ) | ||||||
Change in accrued investment income | 150 | (35 | ) | 2 | ||||||||
Change in premiums and other receivables | (2,561 | ) | 360 | (509 | ) | |||||||
Change in deferred policy acquisition costs, net | 330 | 61 | (234 | ) | ||||||||
Change in insurance-related liabilities | 997 | 71 | 234 | |||||||||
Change in trading securities | (218 | ) | — | (43 | ) | |||||||
Change in income tax payable | 262 | 308 | 156 | |||||||||
Change in other assets | 598 | 675 | 578 | |||||||||
Change in other liabilities | 1,176 | 234 | (351 | ) | ||||||||
Other, net | 38 | — | — | |||||||||
Net cash provided by operating activities | 659 | 2,345 | 996 | |||||||||
Cash flows from investing activities | ||||||||||||
Sales, maturities and repayments of: | ||||||||||||
Fixed maturity securities | 20,183 | 21,546 | 27,706 | |||||||||
Equity securities | 126 | 146 | 218 | |||||||||
Mortgage and consumer loans | 522 | 1,208 | 1,034 | |||||||||
Real estate and real estate joint ventures | 15 | 155 | 126 | |||||||||
Other limited partnership interests | 203 | 465 | 762 | |||||||||
Purchases of: | ||||||||||||
Fixed maturity securities | (14,027 | ) | (19,365 | ) | (23,840 | ) | ||||||
Equity securities | (65 | ) | (357 | ) | (109 | ) | ||||||
Mortgage and consumer loans | (621 | ) | (2,030 | ) | (2,092 | ) | ||||||
Real estate and real estate joint ventures | (102 | ) | (458 | ) | (56 | ) | ||||||
Other limited partnership interests | (458 | ) | (515 | ) | (343 | ) | ||||||
Net change in short-term investments | (1,887 | ) | (558 | ) | 991 | |||||||
Net change in other invested assets | 445 | (175 | ) | (316 | ) | |||||||
Net change in policy loans | (279 | ) | 5 | (2 | ) | |||||||
Other, net | — | 16 | 1 | |||||||||
Net cash provided by investing activities | $ | 4,055 | $ | 83 | $ | 4,080 | ||||||
F-5
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Consolidated Statements of Cash Flows — (Continued)
For the Years Ended December 31, 2008, 2007 and 2006
(In millions)
2008 | 2007 | 2006 | ||||||||||
Cash flows from financing activities | ||||||||||||
Policyholder account balances: | ||||||||||||
Deposits | $ | 7,146 | $ | 11,395 | $ | 8,185 | ||||||
Withdrawals | (5,307 | ) | (13,563 | ) | (11,637 | ) | ||||||
Net change in short-term debt | 300 | — | — | |||||||||
Long-term debt issued — affiliated | 750 | 200 | — | |||||||||
Long-term debt repaid — affiliated | (435 | ) | — | — | ||||||||
Debt issuance costs | (8 | ) | — | — | ||||||||
Net change in payables for collateral under securities loaned and other transactions | (2,600 | ) | 1,316 | (582 | ) | |||||||
Financing element on certain derivative instruments | (46 | ) | 33 | (55 | ) | |||||||
Dividends on common stock | (500 | ) | (690 | ) | (917 | ) | ||||||
Net cash used in financing activities | (700 | ) | (1,309 | ) | (5,006 | ) | ||||||
Effect of change in foreign currency exchange rates on cash balances | (132 | ) | 6 | 8 | ||||||||
Change in cash and cash equivalents | 3,882 | 1,125 | 78 | |||||||||
Cash and cash equivalents, beginning of year | 1,774 | 649 | 571 | |||||||||
Cash and cash equivalents, end of year | $ | 5,656 | $ | 1,774 | $ | 649 | ||||||
Supplemental disclosures of cash flow information: | ||||||||||||
Net cash paid (received) during the year for: | ||||||||||||
Interest | $ | 64 | $ | 33 | $ | 31 | ||||||
Income tax | $ | (48 | ) | $ | (6 | ) | $ | 81 | ||||
Non-cash transactions during the year: | ||||||||||||
Contribution of equity securities to MetLife Foundation | $ | — | $ | 12 | $ | — | ||||||
Contribution of other intangible assets from MetLife, net of deferred income tax | $ | — | $ | — | $ | 162 | ||||||
Contribution of goodwill from MetLife | $ | — | $ | — | $ | 29 | ||||||
F-6
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements
1. | Business, Basis of Presentation and Summary of Significant Accounting Policies |
F-7
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
(i) | the estimated fair value of investments in the absence of quoted market values; | |
(ii) | investment impairments; | |
(iii) | the recognition of income on certain investment entities; | |
(iv) | the application of the consolidation rules to certain investments; | |
(v) | the existence and estimated fair value of embedded derivatives requiring bifurcation; | |
(vi) | the estimated fair value of and accounting for derivatives; | |
(vii) | the capitalization and amortization of deferred policy acquisition costs (“DAC”) and the establishment and amortization of 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; and | |
(xii) | the liability for litigation and regulatory matters. |
F-8
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
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 estimated 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 estimated fair value requires significant management judgment or estimation. |
F-9
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
F-10
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
F-11
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
F-12
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
F-13
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
F-14
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
F-15
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
F-16
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
F-17
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
F-18
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
F-19
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
F-20
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
• | Guaranteed minimum death benefit (“GMDB”) liabilities are determined by estimating the expected value of death benefits in excess of the projected account balance and recognizing the excess ratably over the accumulation period based on total expected assessments. The Company regularly evaluates estimates used and adjusts the additional liability balance, with a related charge or credit to benefit expense, if actual experience or other evidence suggests that earlier assumptions should be revised. The assumptions used in estimating the GMDB liabilities are consistent with those used for amortizing DAC, and are thus subject to the same variability and risk. The assumptions of investment performance and volatility are consistent with the historical experience of the Standard & Poor’s (“S&P”) 500 Index. The benefit assumptions used in calculating the liabilities are based on the average benefits payable over a range of scenarios. | |
• | Guaranteed minimum income benefit (“GMIB”) liabilities are determined by estimating the expected value of the income benefits in excess of the projected account balance at any future date of annuitization and recognizing the excess ratably over the accumulation period based on total expected assessments. The Company regularly evaluates estimates used and adjusts the additional liability balance, with a related charge or credit to benefit expense, if actual experience or other evidence suggests that earlier assumptions should be revised. The assumptions used for estimating the GMIB liabilities are consistent with those used for estimating the GMDB liabilities. In addition, the calculation of guaranteed annuitization benefit liabilities incorporates an assumption for the percentage of the potential annuitizations that may be elected by the contractholder. Certain GMIBs have settlement features that result in a portion of that guarantee being accounted for as an embedded derivative and are recorded in policyholder account balances as described below. |
F-21
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
• | Guaranteed minimum withdrawal benefit riders (“GMWB”) guarantee the contractholder a return of their purchase payment via partial withdrawals, even if the account value is reduced to zero, provided that the contractholder’s cumulative withdrawals in a contract year do not exceed a certain limit. The initial guaranteed withdrawal amount is equal to the initial benefit base as defined in the contract (typically, the initial purchase payments plus applicable bonus amounts). The GMWB is an embedded derivative, which is measured at estimated fair value separately from the host variable annuity product. | |
• | Guaranteed minimum accumulation benefit riders (“GMAB”) provide the contractholder, after a specified period of time determined at the time of issuance of the variable annuity contract, with a minimum accumulation of their purchase payments even if the account value is reduced to zero. The initial guaranteed accumulation amount is equal to the initial benefit base as defined in the contract (typically, the initial purchase payments plus applicable bonus amounts). The GMAB is an embedded derivative, which is measured at estimated fair value separately from the host variable annuity product. |
F-22
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
F-23
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
(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. |
F-24
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
F-25
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
F-26
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
F-27
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
F-28
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
(i) | clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS 133; | |
(ii) | establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation; | |
(iii) | clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives; and | |
(iv) | amends SFAS 140 to eliminate the prohibition on a QSPE from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial interest. |
F-29
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
F-30
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
• | 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. |
F-31
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
• | 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. |
F-32
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
2. | Investments |
December 31, 2008 | ||||||||||||||||||||
Cost or | ||||||||||||||||||||
Amortized | Gross Unrealized | Estimated | % of | |||||||||||||||||
Cost | Gain | Loss | Fair Value | Total | ||||||||||||||||
(In millions) | ||||||||||||||||||||
U.S. corporate securities | $ | 15,440 | $ | 126 | $ | 2,335 | $ | 13,231 | 38.0 | % | ||||||||||
Residential mortgage-backed securities | 7,901 | 124 | 932 | 7,093 | 20.4 | |||||||||||||||
Foreign corporate securities | 6,157 | 41 | 1,136 | 5,062 | 14.5 | |||||||||||||||
U.S. Treasury/agency securities | 3,407 | 926 | — | 4,333 | 12.4 | |||||||||||||||
Commercial mortgage-backed securities | 2,933 | 6 | 665 | 2,274 | 6.5 | |||||||||||||||
Asset-backed securities | 2,429 | 1 | 703 | 1,727 | 5.0 | |||||||||||||||
State and political subdivision securities | 880 | 2 | 225 | 657 | 1.9 | |||||||||||||||
Foreign government securities | 454 | 48 | 33 | 469 | 1.3 | |||||||||||||||
Total fixed maturity securities (1),(2) | $ | 39,601 | $ | 1,274 | $ | 6,029 | $ | 34,846 | 100.0 | % | ||||||||||
Non-redeemable preferred stock (1) | $ | 551 | $ | 1 | $ | 196 | $ | 356 | 75.1 | % | ||||||||||
Common stock | 122 | 1 | 5 | 118 | 24.9 | |||||||||||||||
Total equity securities | $ | 673 | $ | 2 | $ | 201 | $ | 474 | 100.0 | % | ||||||||||
F-33
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
December 31, 2007 | ||||||||||||||||||||
Cost or | ||||||||||||||||||||
Amortized | Gross Unrealized | Estimated | % of | |||||||||||||||||
Cost | Gain | Loss | Fair Value | Total | ||||||||||||||||
(In millions) | ||||||||||||||||||||
U.S. corporate securities | $ | 17,174 | $ | 119 | $ | 618 | $ | 16,675 | 36.5 | % | ||||||||||
Residential mortgage-backed securities | 11,914 | 98 | 80 | 11,932 | 26.1 | |||||||||||||||
Foreign corporate securities | 6,536 | 83 | 184 | 6,435 | 14.1 | |||||||||||||||
U.S. Treasury/agency securities | 3,976 | 126 | 11 | 4,091 | 9.0 | |||||||||||||||
Commercial mortgage-backed securities | 3,182 | 28 | 67 | 3,143 | 6.9 | |||||||||||||||
Asset-backed securities | 2,236 | 4 | 108 | 2,132 | 4.7 | |||||||||||||||
State and political subdivision securities | 611 | 4 | 40 | 575 | 1.2 | |||||||||||||||
Foreign government securities | 635 | 55 | 2 | 688 | 1.5 | |||||||||||||||
Total fixed maturity securities (1),(2) | $ | 46,264 | $ | 517 | $ | 1,110 | $ | 45,671 | 100.0 | % | ||||||||||
Non-redeemable preferred stock (1) | $ | 777 | $ | 21 | $ | 63 | $ | 735 | 77.2 | % | ||||||||||
Common stock | 215 | 9 | 7 | 217 | 22.8 | |||||||||||||||
Total equity securities | $ | 992 | $ | 30 | $ | 70 | $ | 952 | 100.0 | % | ||||||||||
(1) | The Company classifies perpetual securities that have attributes of both debt and equity as fixed maturity securities if the security has a punitive interest ratestep-up feature as it believes in most instances this feature will compel the issuer to redeem the security at the specified call date. Perpetual securities that do not have a punitive interest ratestep-up feature are classified as non-redeemable preferred stock. Many of such securities have been issued bynon-U.S. financial institutions that are accorded Tier 1 and Upper Tier 2 capital treatment by their respective regulatory bodies and are commonly referred to as “perpetual hybrid securities.” Perpetual hybrid securities classified as non-redeemable preferred stock held by the Company at December 31, 2008 and 2007 had an estimated fair value of $304 million and $594 million, respectively. In addition, the Company held $52 million and $141 million at estimated fair value, respectively, at December 31, 2008 and 2007 of other perpetual hybrid securities, primarily U.S. financial institutions, also included in non-redeemable preferred stock. Perpetual hybrid securities held by the Company and included within fixed maturity securities (primarily within foreign corporate securities) at December 31, 2008 and 2007 had an estimated fair value of $425 million and $778 million, respectively. In addition, the Company held $16 million and $29 million at estimated fair value, respectively, at December 31, 2008 and 2007 of other perpetual hybrid securities, primarily U.S. financial institutions, included in fixed maturity securities. | |
(2) | At December 31, 2008 and 2007 the Company also held $385 million and $558 million at estimated fair value, respectively, of redeemable preferred stock which have stated maturity dates which are included within fixed maturity securities. These securities are primarily issued by U.S. financial institutions, have cumulative interest deferral features and are commonly referred to as “capital securities” within U.S. corporate securities. |
F-34
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
December 31, | ||||||||||||||||
2008 | 2007 | |||||||||||||||
Estimated | % of | Estimated | % of | |||||||||||||
Fair Value | Total | Fair Value | Total | |||||||||||||
(In millions) | ||||||||||||||||
Foreign (1) | $ | 5,062 | 27.6 | % | $ | 6,435 | 27.9 | % | ||||||||
Finance | 3,397 | 18.6 | 5,171 | 22.4 | ||||||||||||
Utility | 2,810 | 15.4 | 3,213 | 13.9 | ||||||||||||
Consumer | 2,666 | 14.6 | 3,677 | 15.9 | ||||||||||||
Industrial | 1,775 | 9.7 | 2,702 | 11.7 | ||||||||||||
Communications | 1,305 | 7.1 | 1,785 | 7.7 | ||||||||||||
Other | 1,278 | 7.0 | 127 | 0.5 | ||||||||||||
Total | $ | 18,293 | 100.0 | % | $ | 23,110 | 100.0 | % | ||||||||
F-35
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
(1) | Includes U.S. Dollar-denominated debt obligations of foreign obligors, and other fixed maturity foreign investments. |
December 31, | ||||||||||||||||
2008 | 2007 | |||||||||||||||
Estimated | % of | Estimated | % of | |||||||||||||
Fair Value | Total | Fair Value | Total | |||||||||||||
(In millions) | ||||||||||||||||
Residential mortgage-backed securities: | ||||||||||||||||
Collateralized mortgage obligations | $ | 5,028 | 70.9 | % | $ | 7,290 | 61.1 | % | ||||||||
Pass-through securities | 2,065 | 29.1 | 4,642 | 38.9 | ||||||||||||
Total residential mortgage-backed securities | $ | 7,093 | 100.0 | % | $ | 11,932 | 100.0 | % | ||||||||
F-36
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
December 31, | ||||||||||||||||
2008 | 2007 | |||||||||||||||
Amortized | Estimated | Amortized | Estimated | |||||||||||||
Cost | Fair Value | Cost | Fair Value | |||||||||||||
(In millions) | ||||||||||||||||
Due in one year or less | $ | 993 | $ | 966 | $ | 1,172 | $ | 1,163 | ||||||||
Due after one year through five years | 6,337 | 5,755 | 8,070 | 8,035 | ||||||||||||
Due after five years through ten years | 7,329 | 6,195 | 7,950 | 7,858 | ||||||||||||
Due after ten years | 11,679 | 10,836 | 11,740 | 11,408 | ||||||||||||
Subtotal | 26,338 | 23,752 | 28,932 | 28,464 | ||||||||||||
Mortgage-backed and asset-backed securities | 13,263 | 11,094 | 17,332 | 17,207 | ||||||||||||
Total fixed maturity securities | $ | 39,601 | $ | 34,846 | $ | 46,264 | $ | 45,671 | ||||||||
F-37
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(In millions) | ||||||||||||
Fixed maturity securities | $ | (4,755 | ) | $ | (593 | ) | $ | (566 | ) | |||
Equity securities | (199 | ) | (40 | ) | 17 | |||||||
Derivatives | 12 | (16 | ) | (9 | ) | |||||||
Short-term investments | (100 | ) | — | — | ||||||||
Other | (3 | ) | — | 7 | ||||||||
Subtotal | (5,045 | ) | (649 | ) | (551 | ) | ||||||
Amounts allocated from: | ||||||||||||
DAC and VOBA | 916 | 93 | 66 | |||||||||
Deferred income tax | 1,447 | 195 | 171 | |||||||||
Subtotal | 2,363 | 288 | 237 | |||||||||
Net unrealized investment gains (losses) | $ | (2,682 | ) | $ | (361 | ) | $ | (314 | ) | |||
Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(In millions) | ||||||||||||
Balance, beginning of period | $ | (361 | ) | $ | (314 | ) | $ | (416 | ) | |||
Unrealized investment gains (losses) during the year | (4,396 | ) | (98 | ) | 113 | |||||||
Unrealized investment gains (losses) relating to: | ||||||||||||
Insurance liability gain (loss) recognition | — | — | 78 | |||||||||
DAC and VOBA | 823 | 27 | (36 | ) | ||||||||
Deferred income tax | 1,252 | 24 | (53 | ) | ||||||||
Balance, end of period | $ | (2,682 | ) | $ | (361 | ) | $ | (314 | ) | |||
Change in net unrealized investment gains (losses) | $ | (2,321 | ) | $ | (47 | ) | $ | 102 | ||||
F-38
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
December 31, 2008 | ||||||||||||||||||||||||
Equal to or Greater than | ||||||||||||||||||||||||
Less than 12 Months | 12 Months | Total | ||||||||||||||||||||||
Gross | Gross | Gross | ||||||||||||||||||||||
Estimated | Unrealized | Estimated | Unrealized | Estimated | Unrealized | |||||||||||||||||||
Fair Value | Loss | Fair Value | Loss | Fair Value | Loss | |||||||||||||||||||
(In millions, except number of securities) | ||||||||||||||||||||||||
U.S. corporate securities | $ | 6,302 | $ | 1,001 | $ | 4,823 | $ | 1,334 | $ | 11,125 | $ | 2,335 | ||||||||||||
Residential mortgage-backed securities | 1,740 | 501 | 934 | 431 | 2,674 | 932 | ||||||||||||||||||
Foreign corporate securities | 2,684 | 517 | 1,530 | 619 | 4,214 | 1,136 | ||||||||||||||||||
U.S. Treasury/agency securities | 34 | — | — | — | 34 | — | ||||||||||||||||||
Commercial mortgage-backed securities | 1,485 | 289 | 679 | 376 | 2,164 | 665 | ||||||||||||||||||
Asset-backed securities | 961 | 221 | 699 | 482 | 1,660 | 703 | ||||||||||||||||||
State and political subdivision securities | 348 | 91 | 220 | 134 | 568 | 225 | ||||||||||||||||||
Foreign government securities | 229 | 21 | 20 | 12 | 249 | 33 | ||||||||||||||||||
Total fixed maturity securities | $ | 13,783 | $ | 2,641 | $ | 8,905 | $ | 3,388 | $ | 22,688 | $ | 6,029 | ||||||||||||
Equity securities | $ | 124 | $ | 59 | $ | 191 | $ | 142 | $ | 315 | $ | 201 | ||||||||||||
Total number of securities in an unrealized loss position | 2,634 | 1,340 | ||||||||||||||||||||||
F-39
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
December 31, 2007 | ||||||||||||||||||||||||
Equal to or Greater than | ||||||||||||||||||||||||
Less than 12 Months | 12 Months | Total | ||||||||||||||||||||||
Gross | Gross | Gross | ||||||||||||||||||||||
Estimated | Unrealized | Estimated | Unrealized | Estimated | Unrealized | |||||||||||||||||||
Fair Value | Loss | Fair Value | Loss | Fair Value | Loss | |||||||||||||||||||
(In millions, except number of securities) | ||||||||||||||||||||||||
U.S. corporate securities | $ | 6,643 | $ | 316 | $ | 5,010 | $ | 302 | $ | 11,653 | $ | 618 | ||||||||||||
Residential mortgage-backed securities | 2,374 | 52 | 1,160 | 28 | 3,534 | 80 | ||||||||||||||||||
Foreign corporate securities | 2,350 | 86 | 2,234 | 98 | 4,584 | 184 | ||||||||||||||||||
U.S. Treasury/agency securities | 307 | 2 | 343 | 9 | 650 | 11 | ||||||||||||||||||
Commercial mortgage-backed securities | 417 | 26 | 1,114 | 41 | 1,531 | 67 | ||||||||||||||||||
Asset-backed securities | 1,401 | 91 | 332 | 17 | 1,733 | 108 | ||||||||||||||||||
State and political subdivision securities | 84 | 9 | 387 | 31 | 471 | 40 | ||||||||||||||||||
Foreign government securities | 63 | 1 | 62 | 1 | 125 | 2 | ||||||||||||||||||
Total fixed maturity securities | $ | 13,639 | $ | 583 | $ | 10,642 | $ | 527 | $ | 24,281 | $ | 1,110 | ||||||||||||
Equity securities | $ | 386 | $ | 42 | $ | 190 | $ | 28 | $ | 576 | $ | 70 | ||||||||||||
Total number of securities in an unrealized loss position | 2,011 | 1,487 | ||||||||||||||||||||||
F-40
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
December 31, 2008 | ||||||||||||||||||||||||
Cost or Amortized Cost | Gross Unrealized Loss | Number of Securities | ||||||||||||||||||||||
Less than | 20% or | Less than | 20% or | Less than | 20% or | |||||||||||||||||||
20% | more | 20% | more | 20% | more | |||||||||||||||||||
(In millions, except number of securities) | ||||||||||||||||||||||||
Fixed Maturity Securities: | ||||||||||||||||||||||||
Less than six months | $ | 5,444 | $ | 9,799 | $ | 392 | $ | 3,547 | 1,314 | 1,089 | ||||||||||||||
Six months or greater but less than nine months | 2,737 | 542 | 213 | 271 | 349 | 54 | ||||||||||||||||||
Nine months or greater but less than twelve months | 3,554 | 810 | 392 | 470 | 342 | 95 | ||||||||||||||||||
Twelve months or greater | 5,639 | 192 | 614 | 130 | 642 | 28 | ||||||||||||||||||
Total | $ | 17,374 | $ | 11,343 | $ | 1,611 | $ | 4,418 | ||||||||||||||||
Equity Securities: | ||||||||||||||||||||||||
Less than six months | $ | 23 | $ | 298 | $ | 3 | $ | 130 | 13 | 50 | ||||||||||||||
Six months or greater but less than nine months | 18 | 53 | 3 | 20 | 2 | 5 | ||||||||||||||||||
Nine months or greater but less than twelve months | — | 102 | — | 43 | — | 9 | ||||||||||||||||||
Twelve months or greater | 22 | — | 2 | — | 6 | — | ||||||||||||||||||
Total | $ | 63 | $ | 453 | $ | 8 | $ | 193 | ||||||||||||||||
F-41
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
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 | $ | 10,460 | $ | 428 | $ | 349 | $ | 114 | 1,825 | 80 | ||||||||||||||
Six months or greater but less than nine months | 2,900 | — | 145 | — | 321 | — | ||||||||||||||||||
Nine months or greater but less than twelve months | 1,523 | — | 81 | — | 162 | — | ||||||||||||||||||
Twelve months or greater | 10,079 | — | 421 | — | 1,358 | — | ||||||||||||||||||
Total | $ | 24,962 | $ | 428 | $ | 996 | $ | 114 | ||||||||||||||||
Equity Securities: | ||||||||||||||||||||||||
Less than six months | $ | 261 | $ | 56 | $ | 19 | $ | 16 | 98 | 18 | ||||||||||||||
Six months or greater but less than nine months | 111 | — | 10 | — | 16 | — | ||||||||||||||||||
Nine months or greater but less than twelve months | 37 | — | 5 | — | 12 | — | ||||||||||||||||||
Twelve months or greater | 182 | — | 20 | — | 17 | — | ||||||||||||||||||
Total | $ | 591 | $ | 56 | $ | 54 | $ | 16 | ||||||||||||||||
F-42
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
F-43
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
December 31, | ||||||||
2008 | 2007 | |||||||
Sector: | ||||||||
U.S. corporate securities | 37 | % | 52 | % | ||||
Foreign corporate securities | 18 | 16 | ||||||
Residential mortgage-backed securities | 15 | 7 | ||||||
Asset-backed securities | 11 | 9 | ||||||
Commercial mortgage-backed securities | 11 | 6 | ||||||
State and political subdivision securities | 4 | 3 | ||||||
Other | 4 | 7 | ||||||
Total | 100 | % | 100 | % | ||||
Industry: | ||||||||
Mortgage-backed | 26 | % | 13 | % | ||||
Finance | 25 | 36 | ||||||
Asset-backed | 11 | 9 | ||||||
Consumer | 10 | 3 | ||||||
Utility | 9 | 8 | ||||||
Communication | 7 | 2 | ||||||
Industrial | 4 | 23 | ||||||
Foreign government | 1 | 1 | ||||||
Other | 7 | 5 | ||||||
Total | 100 | % | 100 | % | ||||
F-44
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(In millions) | ||||||||||||
Fixed maturity securities | $ | (651 | ) | $ | (272 | ) | $ | (497 | ) | |||
Equity securities | (65 | ) | 15 | 10 | ||||||||
Mortgage and consumer loans | (44 | ) | (2 | ) | 7 | |||||||
Real estate and real estate joint ventures | (1 | ) | 1 | 64 | ||||||||
Other limited partnership interests | (9 | ) | (19 | ) | (1 | ) | ||||||
Freestanding derivatives | 558 | 189 | 92 | |||||||||
Embedded derivatives | 436 | 116 | 85 | |||||||||
Other | 325 | (170 | ) | (281 | ) | |||||||
Net investment gains (losses) | $ | 549 | $ | (142 | ) | $ | (521 | ) | ||||
Fixed Maturity Securities | Equity Securities | Total | ||||||||||||||||||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | 2006 | 2008 | 2007 | 2006 | ||||||||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||||||||||
Proceeds | $ | 11,450 | $ | 14,693 | $ | 23,718 | $ | 76 | $ | 133 | $ | 183 | $ | 11,526 | $ | 14,826 | $ | 23,901 | ||||||||||||||||||
Gross investment gains | 126 | 120 | 60 | 15 | 26 | 13 | 141 | 146 | 73 | |||||||||||||||||||||||||||
Gross investment losses | (381 | ) | (364 | ) | (517 | ) | (25 | ) | (9 | ) | (2 | ) | (406 | ) | (373 | ) | (519 | ) | ||||||||||||||||||
Writedowns | ||||||||||||||||||||||||||||||||||||
Credit-related | (361 | ) | (20 | ) | (40 | ) | (9 | ) | — | — | (370 | ) | (20 | ) | (40 | ) | ||||||||||||||||||||
Other than credit-related (1) | (35 | ) | (8 | ) | — | (46 | ) | (2 | ) | (1 | ) | (81 | ) | (10 | ) | (1 | ) | |||||||||||||||||||
Total writedowns | (396 | ) | (28 | ) | (40 | ) | (55 | ) | (2 | ) | (1 | ) | (451 | ) | (30 | ) | (41 | ) | ||||||||||||||||||
Net investment gains (losses) | $ | (651 | ) | $ | (272 | ) | $ | (497 | ) | $ | (65 | ) | $ | 15 | $ | 10 | $ | (716 | ) | $ | (257 | ) | $ | (487 | ) | |||||||||||
(1) | Other than credit-related writedowns include items such as equity securities where the primary reason for the writedown was the severity and/or the duration of an unrealized loss position and fixed maturity securities where an interest-rate related writedown was taken |
F-45
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(In millions) | ||||||||||||
Fixed maturity securities | $ | 2,455 | $ | 2,803 | $ | 2,719 | ||||||
Equity securities | 44 | 45 | 17 | |||||||||
Trading securities | (19 | ) | — | — | ||||||||
Mortgage and consumer loans | 255 | 263 | 182 | |||||||||
Policy loans | 64 | 53 | 52 | |||||||||
Real estate and real estate joint ventures | 11 | 81 | 29 | |||||||||
Other limited partnership interests | (69 | ) | 164 | 238 | ||||||||
Cash, cash equivalents and short-term investments | 67 | 104 | 137 | |||||||||
International joint ventures | (4 | ) | (4 | ) | (5 | ) | ||||||
Other | (3 | ) | 11 | 13 | ||||||||
Total investment income | 2,801 | 3,520 | 3,382 | |||||||||
Less: Investment expenses | 307 | 627 | 543 | |||||||||
Net investment income | $ | 2,494 | $ | 2,893 | $ | 2,839 | ||||||
F-46
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
F-47
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
December 31, | ||||||||||||||||
2008 | 2007 | |||||||||||||||
Amount | Percent | Amount | Percent | |||||||||||||
(In millions) | ||||||||||||||||
Commercial mortgage loans | $ | 3,301 | 73.4 | % | $ | 3,125 | 70.8 | % | ||||||||
Agricultural mortgage loans | 1,185 | 26.4 | 1,265 | 28.7 | ||||||||||||
Consumer loans | 7 | 0.2 | 22 | 0.5 | ||||||||||||
Total | 4,493 | 100.0 | % | 4,412 | 100.0 | % | ||||||||||
Less: Valuation allowances | 46 | 8 | ||||||||||||||
�� | ||||||||||||||||
Total mortgage and consumer loans | $ | 4,447 | $ | 4,404 | ||||||||||||
F-48
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
December 31, 2008 | December 31, 2007 | |||||||||||||||
Carrying | % of | Carrying | % of | |||||||||||||
Value | Total | Value | Total | |||||||||||||
(In millions) | ||||||||||||||||
Region | ||||||||||||||||
South Atlantic | $ | 842 | 25.9 | % | $ | 874 | 28.0 | % | ||||||||
Pacific | 753 | 23.1 | 634 | 20.3 | ||||||||||||
Middle Atlantic | 516 | 15.8 | 487 | 15.6 | ||||||||||||
New England | 412 | 12.6 | 417 | 13.4 | ||||||||||||
West South Central | 264 | 8.1 | 216 | 6.9 | ||||||||||||
East North Central | 152 | 4.7 | 166 | 5.3 | ||||||||||||
East South Central | 130 | 4.0 | 139 | 4.5 | ||||||||||||
Mountain | 67 | 2.1 | 68 | 2.2 | ||||||||||||
International | 59 | 1.8 | 62 | 2.0 | ||||||||||||
West North Central | 22 | 0.7 | 50 | 1.6 | ||||||||||||
Other | 40 | 1.2 | 5 | 0.2 | ||||||||||||
Total | $ | 3,257 | 100.0 | % | $ | 3,118 | 100.0 | % | ||||||||
Property Type | ||||||||||||||||
Office | $ | 1,188 | 36.5 | % | $ | 1,013 | 32.5 | % | ||||||||
Retail | 760 | 23.3 | 630 | 20.2 | ||||||||||||
Apartments | 553 | 17.0 | 572 | 18.4 | ||||||||||||
Hotel | 396 | 12.2 | 484 | 15.5 | ||||||||||||
Industrial | 151 | 4.6 | 172 | 5.5 | ||||||||||||
Other | 209 | 6.4 | 247 | 7.9 | ||||||||||||
Total | $ | 3,257 | 100.0 | % | $ | 3,118 | 100.0 | % | ||||||||
Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(In millions) | ||||||||||||
Balance at January 1, | $ | 8 | $ | 6 | $ | 9 | ||||||
Additions | 75 | 7 | 3 | |||||||||
Deductions | (37 | ) | (5 | ) | (6 | ) | ||||||
Balance at December 31, | $ | 46 | $ | 8 | $ | 6 | ||||||
F-49
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
December 31, | ||||||||
2008 | 2007 | |||||||
(In millions) | ||||||||
Impaired loans with valuation allowances | $ | 24 | $ | 65 | ||||
Impaired loans without valuation allowances | 2 | 2 | ||||||
Subtotal | 26 | 67 | ||||||
Less: Valuation allowances on impaired loans | 24 | 4 | ||||||
Impaired loans | $ | 2 | $ | 63 | ||||
December 31, | ||||||||
2008 | 2007 | |||||||
(In millions) | ||||||||
Real estate | $ | 86 | $ | 86 | ||||
Accumulated depreciation | (16 | ) | (11 | ) | ||||
Net real estate | 70 | 75 | ||||||
Real estate joint ventures | 538 | 466 | ||||||
Total real estate holdings | $ | 608 | $ | 541 | ||||
F-50
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
December 31, | ||||||||||||||||
2008 | 2007 | |||||||||||||||
Amount | Percent | Amount | Percent | |||||||||||||
(In millions) | ||||||||||||||||
Office | $ | 252 | 41.5 | % | $ | 231 | 42.7 | % | ||||||||
Real estate investment funds | 138 | 22.7 | 111 | 20.5 | ||||||||||||
Apartments | 100 | 16.4 | 87 | 16.1 | ||||||||||||
Land | 32 | 5.3 | 18 | 3.3 | ||||||||||||
Retail | 17 | 2.8 | 20 | 3.7 | ||||||||||||
Agriculture | 14 | 2.3 | 19 | 3.5 | ||||||||||||
Other | 55 | 9.0 | 55 | 10.2 | ||||||||||||
Total real estate holdings | $ | 608 | 100.0 | % | $ | 541 | 100.0 | % | ||||||||
F-51
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
December 31, | ||||||||||||||||
2008 | 2007 | |||||||||||||||
Carrying | % of | Carrying | % of | |||||||||||||
Value | Total | Value | Total | |||||||||||||
(In millions) | ||||||||||||||||
Freestanding derivatives with positive fair values | $ | 2,258 | 98.3 | % | $ | 1,404 | 97.2 | % | ||||||||
Joint venture investment | 31 | 1.3 | 18 | 1.2 | ||||||||||||
Tax credit partnerships | 4 | 0.2 | — | — | ||||||||||||
Other | 4 | 0.2 | 23 | 1.6 | ||||||||||||
Total | $ | 2,297 | 100.0 | % | $ | 1,445 | 100.0 | % | ||||||||
December 31, 2008 | ||||||||
Maximum | ||||||||
Carrying | Exposure to | |||||||
Amount (1) | Loss (2) | |||||||
(In millions) | ||||||||
Fixed maturity securities,available-for-sale (3) | ||||||||
Foreign corporate securities | $ | 152 | $ | 152 | ||||
U.S. Treasury/agency securities | 182 | 182 | ||||||
Real estate joint ventures (4) | 41 | 41 | ||||||
Other limited partnership interests (4) | 672 | 1,060 | ||||||
Total | $ | 1,047 | $ | 1,435 | ||||
(1) | See Note 1 for further discussion of the Company’s significant accounting policies with regards to the carrying amounts of these investments. | |
(2) | The maximum exposure to loss relating to the fixed maturity securitiesavailable-for-sale is equal to the carrying amounts or carrying amounts of retained interests. The maximum exposure to loss relating to real estate joint ventures and other limited partnership interests is equal to the carrying amounts plus any unfunded commitments. Such a maximum loss would be expected to occur only upon bankruptcy of the issuer or investee. | |
(3) | These assets are reflected at estimated fair value within fixed maturity securitiesavailable-for-sale. | |
(4) | Real estate joint ventures include partnerships and other ventures which engage in the acquisition, development, management and disposal of real estate investments. Other limited partnership interests include partnerships established for the purpose of investing in public and private debt and equity securities. |
F-52
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(In millions) | ||||||||||||
Estimated fair value of assets transferred to affiliates | $ | 27 | $ | 628 | $ | 164 | ||||||
Amortized cost of assets transferred to affiliates | $ | 23 | $ | 629 | $ | 164 | ||||||
Net investment gains (losses) recognized on transfers | $ | 4 | $ | (1 | ) | $ | — | |||||
Estimated fair value of assets transferred from affiliates | $ | 230 | $ | 836 | $ | 89 |
3. | Derivative Financial Instruments |
December 31, 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 | $ | 7,074 | $ | 736 | $ | 347 | $ | 12,437 | $ | 336 | $ | 144 | ||||||||||||
Interest rate floors | 12,071 | 494 | — | 12,071 | 159 | — | ||||||||||||||||||
Interest rate caps | 3,513 | 1 | — | 10,715 | 7 | — | ||||||||||||||||||
Financial futures | 1,434 | 4 | 16 | 881 | 2 | 5 | ||||||||||||||||||
Foreign currency swaps | 3,771 | 699 | 219 | 3,716 | 788 | 97 | ||||||||||||||||||
Foreign currency forwards | 92 | — | 9 | 167 | 2 | — | ||||||||||||||||||
Options | 813 | 248 | — | 1,004 | 85 | 1 | ||||||||||||||||||
Financial forwards | 1,289 | 57 | 8 | 2,330 | 20 | — | ||||||||||||||||||
Credit default swaps | 648 | 19 | 8 | 1,013 | 5 | 3 | ||||||||||||||||||
Total | $ | 30,705 | $ | 2,258 | $ | 607 | $ | 44,334 | $ | 1,404 | $ | 250 | ||||||||||||
F-53
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
Remaining Life | ||||||||||||||||||||
After Five | ||||||||||||||||||||
After One Year | Years | |||||||||||||||||||
One Year | Through Five | Through Ten | After | |||||||||||||||||
or Less | Years | Years | Ten Years | Total | ||||||||||||||||
(In millions) | ||||||||||||||||||||
Interest rate swaps | $ | 1,235 | $ | 3,567 | $ | 1,367 | $ | 905 | $ | 7,074 | ||||||||||
Interest rate floors | 2,551 | — | 9,520 | — | 12,071 | |||||||||||||||
Interest rate caps | 10 | 3,503 | — | — | 3,513 | |||||||||||||||
Financial futures | 1,434 | — | — | — | 1,434 | |||||||||||||||
Foreign currency swaps | 1,072 | 1,711 | 737 | 251 | 3,771 | |||||||||||||||
Foreign currency forwards | 92 | — | — | — | 92 | |||||||||||||||
Options | 88 | 214 | 511 | — | 813 | |||||||||||||||
Financial forwards | — | 519 | 563 | 207 | 1,289 | |||||||||||||||
Credit default swaps | 20 | 471 | 157 | — | 648 | |||||||||||||||
Total | $ | 6,502 | $ | 9,985 | $ | 12,855 | $ | 1,363 | $ | 30,705 | ||||||||||
F-54
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
F-55
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
December 31, 2008 | December 31, 2007 | |||||||||||||||||||||||
Notional | Fair Value | Notional | Fair Value | |||||||||||||||||||||
Amount | Assets | Liabilities | Amount | Assets | Liabilities | |||||||||||||||||||
(In millions) | ||||||||||||||||||||||||
Fair value | $ | 845 | $ | 68 | $ | 161 | $ | 651 | $ | 20 | $ | 3 | ||||||||||||
Cash flow | 486 | 91 | — | 486 | 85 | 3 | ||||||||||||||||||
Non-qualifying | 29,374 | 2,099 | 446 | 43,197 | 1,299 | 244 | ||||||||||||||||||
Total | $ | 30,705 | $ | 2,258 | $ | 607 | $ | 44,334 | $ | 1,404 | $ | 250 | ||||||||||||
Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(In millions) | ||||||||||||
Qualifying hedges: | ||||||||||||
Net investment income | $ | (2 | ) | $ | — | $ | — | |||||
Interest credited to policyholder account balances | 6 | (6 | ) | (9 | ) | |||||||
Non-qualifying hedges: | ||||||||||||
Net investment gains (losses) | 43 | 82 | 73 | |||||||||
Total | $ | 47 | $ | 76 | $ | 64 | ||||||
Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(In millions) | ||||||||||||
Changes in the fair value of derivatives | $ | (87 | ) | $ | 18 | $ | (1 | ) | ||||
Changes in the fair value of the items hedged | 86 | (20 | ) | 2 | ||||||||
Net ineffectiveness of fair value hedging activities | $ | (1 | ) | $ | (2 | ) | $ | 1 | ||||
F-56
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
Years Ended December 31, | ||||||||||||||||
2008 | 2007 | 2006 | ||||||||||||||
(In millions) | ||||||||||||||||
Other comprehensive loss balance at January 1, | $ | (13 | ) | $ | (9 | ) | $ | (2 | ) | |||||||
Gains deferred in other comprehensive loss on the effective portion of cash flow hedges | 9 | 39 | 41 | |||||||||||||
Amounts reclassified to net investment gains (losses) | 24 | (43 | ) | (48 | ) | |||||||||||
Other comprehensive income (loss) balance at December 31, | $ | 20 | $ | (13 | ) | $ | (9 | ) | ||||||||
Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(In millions) | ||||||||||||
Net investment gains (losses), excluding embedded derivatives | $ | 514 | $ | 112 | $ | 16 |
F-57
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
December 31, | ||||||||
2008 | 2007 | |||||||
(In millions) | ||||||||
Net embedded derivatives within asset host contracts: | ||||||||
Ceded guaranteed minimum benefit riders | $ | 2,062 | $ | 382 | ||||
Call options in equity securities | (36 | ) | — | |||||
Net embedded derivatives within asset host contracts | $ | 2,026 | $ | 382 | ||||
Net embedded derivatives within liability host contracts: | ||||||||
Direct guaranteed minimum benefit riders | $ | 1,432 | $ | 257 | ||||
Other | (27 | ) | — | |||||
Net embedded derivatives within liability host contracts | $ | 1,405 | $ | 257 | ||||
Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(In millions) | ||||||||||||
Net investment gains (losses) (1) | $ | 436 | $ | 116 | $ | 85 |
(1) | Effective January 1, 2008, upon adoption of SFAS 157, the valuation of the Company’s guaranteed minimum benefit riders includes an adjustment for the Company’s own credit. Included in net investment gains (losses) for the year ended December 31, 2008 are gains of $738 million in connection with this adjustment. |
F-58
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
F-59
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
December 31, 2008 | ||||||||||||
Fair Value of | Maximum Amount of | Weighted | ||||||||||
Credit Default | Future Payments under | Average Years | ||||||||||
Rating Agency Designation of Referenced Credit Obligations (1) | Swaps | Credit Default Swaps (2) | to Maturity (3) | |||||||||
(In millions) | ||||||||||||
Aaa/Aa/A | ||||||||||||
Single name credit default swaps (corporate) | $ | — | $ | 25 | 5.0 | |||||||
Credit default swaps referencing indices | (2 | ) | 222 | 4.0 | ||||||||
Subtotal | (2 | ) | 247 | 4.1 | ||||||||
Baa | ||||||||||||
Single name credit default swaps (corporate) | — | 10 | 5.0 | |||||||||
Credit default swaps referencing indices | — | — | — | |||||||||
Subtotal | — | 10 | 5.0 | |||||||||
Ba | ||||||||||||
Single name credit default swaps (corporate) | (1 | ) | 20 | 0.7 | ||||||||
Credit default swaps referencing indices | — | — | — | |||||||||
Subtotal | (1 | ) | 20 | 0.7 | ||||||||
B | ||||||||||||
Single name credit default swaps (corporate) | — | — | — | |||||||||
Credit default swaps referencing indices | — | — | — | |||||||||
Subtotal | — | — | — | |||||||||
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 | — | — | — | |||||||||
$ | (3 | ) | $ | 277 | 3.9 | |||||||
(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 upon weighted average notional amounts. |
F-60
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
4. | Deferred Policy Acquisition Costs and Value of Business Acquired |
DAC | VOBA | Total | ||||||||||
(In millions) | ||||||||||||
Balance at January 1, 2006 | $ | 1,496 | $ | 3,418 | $ | 4,914 | ||||||
Capitalizations | 721 | — | 721 | |||||||||
Subtotal | 2,217 | 3,418 | 5,635 | |||||||||
Less: Amortization related to: | ||||||||||||
Net investment gains (losses) | (16 | ) | (68 | ) | (84 | ) | ||||||
Other expenses | 252 | 320 | 572 | |||||||||
Total amortization | 236 | 252 | 488 | |||||||||
Less: Unrealized investment gains (losses) | (10 | ) | 46 | 36 | ||||||||
Balance at December 31, 2006 | 1,991 | 3,120 | 5,111 | |||||||||
Effect ofSOP 05-1 adoption | (7 | ) | (125 | ) | (132 | ) | ||||||
Capitalizations | 682 | — | 682 | |||||||||
Subtotal | 2,666 | 2,995 | 5,661 | |||||||||
Less: Amortization related to: | ||||||||||||
Net investment gains (losses) | 44 | (16 | ) | 28 | ||||||||
Other expenses | 388 | 324 | 712 | |||||||||
Total amortization | 432 | 308 | 740 | |||||||||
Less: Unrealized investment gains (losses) | (18 | ) | (9 | ) | (27 | ) | ||||||
Balance at December 31, 2007 | 2,252 | 2,696 | 4,948 | |||||||||
Capitalizations | 835 | — | 835 | |||||||||
Subtotal | 3,087 | 2,696 | 5,783 | |||||||||
Less: Amortization related to: | ||||||||||||
Net investment gains (losses) | 190 | 35 | 225 | |||||||||
Other expenses | 504 | 434 | 938 | |||||||||
Total amortization | 694 | 469 | 1,163 | |||||||||
Less: Unrealized investment gains (losses) | (389 | ) | (434 | ) | (823 | ) | ||||||
Less: Other | 3 | — | 3 | |||||||||
Balance at December 31, 2008 | $ | 2,779 | $ | 2,661 | $ | 5,440 | ||||||
F-61
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
DAC | VOBA | Total | ||||||||||||||||||||||
December 31, | ||||||||||||||||||||||||
2008 | 2007 | 2008 | 2007 | 2008 | 2007 | |||||||||||||||||||
(In millions) | ||||||||||||||||||||||||
Individual: | ||||||||||||||||||||||||
Traditional life | $ | 172 | $ | 111 | $ | 52 | $ | 57 | $ | 224 | $ | 168 | ||||||||||||
Variable & universal life | 1,179 | 798 | 851 | 981 | 2,030 | 1,779 | ||||||||||||||||||
Annuities | 1,416 | 1,335 | 1,755 | 1,648 | 3,171 | 2,983 | ||||||||||||||||||
Subtotal | 2,767 | 2,244 | 2,658 | 2,686 | 5,425 | 4,930 | ||||||||||||||||||
Institutional: | ||||||||||||||||||||||||
Group life | 5 | 6 | 2 | 9 | 7 | 15 | ||||||||||||||||||
Retirement & savings | — | — | 1 | 1 | 1 | 1 | ||||||||||||||||||
Subtotal | 5 | 6 | 3 | 10 | 8 | 16 | ||||||||||||||||||
Corporate & Other | 7 | 2 | — | — | 7 | 2 | ||||||||||||||||||
Total | $ | 2,779 | $ | 2,252 | $ | 2,661 | $ | 2,696 | $ | 5,440 | $ | 4,948 | ||||||||||||
5. | Goodwill |
December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(In millions) | ||||||||||||
Balance at the beginning of the period, | $ | 953 | $ | 953 | $ | 924 | ||||||
Contribution from MetLife | — | — | 29 | |||||||||
Balance at the end of the period, | $ | 953 | $ | 953 | $ | 953 | ||||||
F-62
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
December 31, | ||||||||
2008 | 2007 | |||||||
(In millions) | ||||||||
Individual: | ||||||||
Traditional life | $ | 12 | $ | 12 | ||||
Variable & universal life | 1 | 1 | ||||||
Annuities | 218 | 218 | ||||||
Other | 5 | 5 | ||||||
Subtotal | 236 | 236 | ||||||
Institutional: | ||||||||
Group life | 3 | 3 | ||||||
Retirement & savings | 304 | 304 | ||||||
Non-medical health & other | 5 | 5 | ||||||
Subtotal | 312 | 312 | ||||||
Corporate & Other (1) | 405 | 405 | ||||||
Total | $ | 953 | $ | 953 | ||||
(1) | The allocation of the goodwill to the reporting units was performed at the time of the respective acquisition. The $405 million of goodwill within Corporate & Other represents the excess of the amounts MetLife paid to acquire subsidiaries and other businesses over the estimated fair value of their net assets at the date of acquisition. For purposes of goodwill impairment testing at December 31, 2008 and 2007, $405 million of Corporate & Other goodwill has been attributed to the Institutional and Individual segment reporting units. The Individual segment was attributed $210 million, (traditional life — $23 million, variable & universal life — $11 million and annuities — $176 million) and the Institutional segment was attributed $195 million (group life — $2 million, retirement & savings — $186 million, and non-medical health & other — $7 million) at both December 31, 2008 and 2007. |
F-63
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
6. | Insurance |
Future Policy | Policyholder Account | Other Policyholder | ||||||||||||||||||||||
Benefits | Balances | Funds | ||||||||||||||||||||||
December 31, | ||||||||||||||||||||||||
2008 | 2007 | 2008 | 2007 | 2008 | 2007 | |||||||||||||||||||
(In millions) | ||||||||||||||||||||||||
Institutional | ||||||||||||||||||||||||
Group life | $ | 208 | $ | 220 | $ | 1,045 | $ | 763 | $ | 5 | $ | 5 | ||||||||||||
Retirement & savings | 12,042 | 12,040 | 11,511 | 12,780 | — | — | ||||||||||||||||||
Non-medical health & other | 294 | 303 | — | — | 2 | 2 | ||||||||||||||||||
Individual | ||||||||||||||||||||||||
Traditional Life | 944 | 921 | — | — | 55 | 50 | ||||||||||||||||||
Variable & universal life | 678 | 575 | 5,456 | 4,995 | 1,791 | 1,496 | ||||||||||||||||||
Annuities | 1,215 | 944 | 18,905 | 15,058 | 30 | 36 | ||||||||||||||||||
Other | — | — | 72 | 47 | — | — | ||||||||||||||||||
Corporate & Other (1) | 4,832 | 4,573 | 186 | 172 | 202 | 188 | ||||||||||||||||||
Total | $ | 20,213 | $ | 19,576 | $ | 37,175 | $ | 33,815 | $ | 2,085 | $ | 1,777 | ||||||||||||
(1) | Corporate & Other includes intersegment eliminations. |
Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(In millions) | ||||||||||||
Balance at January 1, | $ | 232 | $ | 237 | $ | 72 | ||||||
Contribution of VODA from MetLife | — | — | 167 | |||||||||
Amortization | (8 | ) | (5 | ) | (2 | ) | ||||||
Balance at December 31, | $ | 224 | $ | 232 | $ | 237 | ||||||
F-64
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(In millions) | ||||||||||||
Balance at January 1, | $ | 403 | $ | 330 | $ | 218 | ||||||
Capitalization | 111 | 124 | 129 | |||||||||
Amortization | (92 | ) | (51 | ) | (17 | ) | ||||||
Balance at December 31, | $ | 422 | $ | 403 | $ | 330 | ||||||
F-65
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(In millions) | ||||||||||||
Balance at January 1, | $ | 612 | $ | 551 | $ | 512 | ||||||
Less: Reinsurance recoverables | (463 | ) | (403 | ) | (373 | ) | ||||||
Net balance at January 1, | 149 | 148 | 139 | |||||||||
Incurred related to: | ||||||||||||
Current year | 8 | 32 | 29 | |||||||||
Prior years | (29 | ) | (5 | ) | 4 | |||||||
(21 | ) | 27 | 33 | |||||||||
Paid related to: | ||||||||||||
Current year | (2 | ) | (2 | ) | (2 | ) | ||||||
Prior years | (24 | ) | (24 | ) | (22 | ) | ||||||
(26 | ) | (26 | ) | (24 | ) | |||||||
Net balance at December 31, | 102 | 149 | 148 | |||||||||
Add: Reinsurance recoverables | 589 | 463 | 403 | |||||||||
Balance at December 31, | $ | 691 | $ | 612 | $ | 551 | ||||||
F-66
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
December 31, | ||||||||||||||||
2008 | 2007 | |||||||||||||||
In the | At | In the | At | |||||||||||||
Event of Death | Annuitization | Event of Death | Annuitization | |||||||||||||
(In millions) | ||||||||||||||||
Annuity Contracts (1) | ||||||||||||||||
Return of Net Deposits | ||||||||||||||||
Separate account value | $ | 9,721 | N/A | $ | 11,337 | N/A | ||||||||||
Net amount at risk (2) | $ | 2,813 | (3) | N/A | $ | 33 | (3) | N/A | ||||||||
Average attained age of contractholders | 62 years | N/A | 62 years | N/A | ||||||||||||
Anniversary Contract Value or Minimum Return | ||||||||||||||||
Separate account value | $ | 27,572 | $ | 13,217 | $ | 41,515 | $ | 16,143 | ||||||||
Net amount at risk (2) | $ | 9,876 | (3) | $ | 6,323 | (4) | $ | 1,692 | (3) | $ | 245 | (4) | ||||
Average attained age of contractholders | 58 years | 61 years | 56 years | 61 years |
December 31, | ||||||||
2008 | 2007 | |||||||
Secondary | Secondary | |||||||
Guarantees | Guarantees | |||||||
(In millions) | ||||||||
Universal and Variable Life Contracts (1) | ||||||||
Account value (general and separate account) | $ | 2,917 | $ | 2,797 | ||||
Net amount at risk (2) | $ | 43,237 | (3) | $ | 38,621 | (3) | ||
Average attained age of policyholders | 58 years | 57 years |
(1) | The Company’s annuity and life contracts with guarantees may offer more than one type of guarantee in each contract. Therefore, the amounts listed above may not be mutually exclusive. | |
(2) | The net amount at risk is based on the direct amount at risk (excluding reinsurance). | |
(3) | The net amount at risk for guarantees of amounts in the event of death is defined as the current guaranteed minimum death benefit in excess of the current account balance at the balance sheet date. | |
(4) | The net amount at risk for guarantees of amounts at annuitization is defined as the present value of the minimum guaranteed annuity payments available to the contractholder determined in accordance with the terms of the contract in excess of the current account balance. |
F-67
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
Universal and | ||||||||||||||||
Variable Life | ||||||||||||||||
Annuity Contracts | Contracts | |||||||||||||||
Guaranteed | Guaranteed | |||||||||||||||
Death | Annuitization | Secondary | ||||||||||||||
Benefits | Benefits | Guarantees | Total | |||||||||||||
(In millions) | ||||||||||||||||
Balance at January 1, 2006 | $ | 3 | $ | — | $ | 9 | $ | 12 | ||||||||
Incurred guaranteed benefits | — | — | 22 | 22 | ||||||||||||
Paid guaranteed benefits | (3 | ) | — | — | (3 | ) | ||||||||||
Balance at December 31, 2006 | — | — | 31 | 31 | ||||||||||||
Incurred guaranteed benefits | 6 | 28 | 34 | 68 | ||||||||||||
Paid guaranteed benefits | (4 | ) | — | — | (4 | ) | ||||||||||
Balance at December 31, 2007 | 2 | 28 | 65 | 95 | ||||||||||||
Incurred guaranteed benefits | 24 | 121 | 43 | 188 | ||||||||||||
Paid guaranteed benefits | (14 | ) | — | — | (14 | ) | ||||||||||
Balance at December 31, 2008 | $ | 12 | $ | 149 | $ | 108 | $ | 269 | ||||||||
December 31, | ||||||||
2008 | 2007 | |||||||
(In millions) | ||||||||
Mutual Fund Groupings | ||||||||
Equity | $ | 21,738 | $ | 40,608 | ||||
Balanced | 6,971 | 4,422 | ||||||
Bond | 2,280 | 2,307 | ||||||
Money Market | 1,715 | 1,265 | ||||||
Specialty | 228 | 395 | ||||||
Total | $ | 32,932 | $ | 48,997 | ||||
7. | Reinsurance |
F-68
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
F-69
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(In millions) | ||||||||||||
Premiums: | ||||||||||||
Direct premiums | $ | 1,042 | $ | 654 | $ | 599 | ||||||
Reinsurance assumed | 15 | 17 | 21 | |||||||||
Reinsurance ceded | (423 | ) | (318 | ) | (312 | ) | ||||||
Net premiums | $ | 634 | $ | 353 | $ | 308 | ||||||
Universal life and investment-type product policy fees: | ||||||||||||
Direct universal life and investment-type product policy fees | $ | 1,710 | $ | 1,680 | $ | 1,480 | ||||||
Reinsurance assumed | 197 | 119 | 84 | |||||||||
Reinsurance ceded | (529 | ) | (388 | ) | (296 | ) | ||||||
Net universal life and investment-type product policy fees | $ | 1,378 | $ | 1,411 | $ | 1,268 | ||||||
Policyholder benefits and claims: | ||||||||||||
Direct policyholder benefits and claims | $ | 2,775 | $ | 1,722 | $ | 1,500 | ||||||
Reinsurance assumed | 23 | 22 | 15 | |||||||||
Reinsurance ceded | (1,352 | ) | (766 | ) | (723 | ) | ||||||
Net policyholder benefits and claims | $ | 1,446 | $ | 978 | $ | 792 | ||||||
December 31, | ||||||||
2008 | 2007 | |||||||
(In millions) | ||||||||
Unaffiliated recoverables: | ||||||||
Future policy benefit recoverables | $ | 5,347 | $ | 4,774 | ||||
Deposit recoverables | 98 | 73 | ||||||
Claim recoverables | 74 | 52 | ||||||
All other recoverables | 7 | 6 | ||||||
Total | $ | 5,526 | $ | 4,905 | ||||
Affiliated recoverables: | ||||||||
Future policy benefit recoverables | $ | 3,296 | $ | 1,142 | ||||
Deposit recoverables | 3,041 | 1,953 | ||||||
Claim recoverables | 13 | 38 | ||||||
All other recoverables | 197 | 24 | ||||||
Total | $ | 6,547 | $ | 3,157 | ||||
F-70
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
F-71
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(In millions) | ||||||||||||
Assumed premiums | $ | 15 | $ | 17 | $ | 21 | ||||||
Assumed fees, included in universal life and investment-type product policy fees | $ | 197 | $ | 119 | $ | 65 | ||||||
Assumed benefits, included in policyholder benefits and claims | $ | 19 | $ | 18 | $ | 11 | ||||||
Assumed benefits, included in interest credited to policyholder account balances | $ | 57 | $ | 53 | $ | 49 | ||||||
Assumed acquisition costs, included in other expenses | $ | 97 | $ | 39 | $ | 58 | ||||||
Ceded premiums | $ | 125 | $ | 32 | $ | 21 | ||||||
Ceded fees, included in universal life and investment-type product policy fees | $ | 352 | $ | 216 | $ | 130 | ||||||
Amortization of unearned revenue associated with experience refund, included in universal life and investment-type product policy fees | $ | 38 | $ | — | $ | — | ||||||
Income from deposit contracts, included in other revenues | $ | 83 | $ | 85 | $ | 68 | ||||||
Ceded benefits, included in policyholder benefits and claims | $ | 321 | $ | 95 | $ | 86 | ||||||
Ceded benefits, included in interest credited to policyholder account balances | $ | 22 | $ | — | $ | — | ||||||
Interest costs on ceded reinsurance, included in other expenses | $ | 75 | $ | 33 | $ | 77 |
F-72
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
F-73
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(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
8. | Debt |
December 31, | ||||||||
2008 | 2007 | |||||||
(In millions) | ||||||||
Surplus notes, interest rate 8.595%, due 2038 | $ | 750 | $ | — | ||||
Surplus notes, interest rate 7.349%, due 2035 | — | 400 | ||||||
Surplus notes, interest rate LIBOR plus 1.15%, maturity date 2009 | 200 | 200 | ||||||
Surplus notes, interest rate 5%, due upon request | — | 25 | ||||||
Surplus notes, interest rate LIBOR plus 0.75%, due upon request | — | 10 | ||||||
Total long-term debt — affiliated | 950 | 635 | ||||||
Total short-term debt | 300 | — | ||||||
Total | $ | 1,250 | $ | 635 | ||||
F-74
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
9. | Income Tax |
Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(In millions) | ||||||||||||
Current: | ||||||||||||
Federal | $ | (50 | ) | $ | 9 | $ | 18 | |||||
State and local | (2 | ) | 4 | — | ||||||||
Foreign | — | 1 | — | |||||||||
Subtotal | (52 | ) | 14 | 18 | ||||||||
Deferred: | ||||||||||||
Federal | $ | 260 | $ | 306 | $ | 212 | ||||||
State and local | — | — | (2 | ) | ||||||||
Foreign | (5 | ) | (17 | ) | — | |||||||
Subtotal | 255 | 289 | 210 | |||||||||
Provision for income tax | $ | 203 | $ | 303 | $ | 228 | ||||||
Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(In millions) | ||||||||||||
Tax provision at U.S. statutory rate | $ | 273 | $ | 365 | $ | 288 | ||||||
Tax effect of: | ||||||||||||
Tax-exempt investment income | (65 | ) | (65 | ) | (62 | ) | ||||||
Prior year tax | (4 | ) | 9 | (9 | ) | |||||||
Foreign tax rate differential and change in valuation allowance | — | (7 | ) | 12 | ||||||||
State tax, net of federal benefit | (1 | ) | 3 | — | ||||||||
Other, net | — | (2 | ) | (1 | ) | |||||||
Provision for income tax | $ | 203 | $ | 303 | $ | 228 | ||||||
F-75
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
December 31, | ||||||||
2008 | 2007 | |||||||
(In millions) | ||||||||
Deferred income tax assets: | ||||||||
Benefit, reinsurance and other reserves | $ | 1,548 | $ | 1,929 | ||||
Net unrealized investment losses | 1,447 | 195 | ||||||
Capital loss carryforwards | 269 | 150 | ||||||
Net operating loss carryforwards | 94 | 42 | ||||||
Tax credits | 45 | 20 | ||||||
Operating lease reserves | 8 | 13 | ||||||
Investments | — | 54 | ||||||
Other | 24 | 13 | ||||||
3,435 | 2,416 | |||||||
Deferred income tax liabilities: | ||||||||
Investments, including derivatives | (113 | ) | — | |||||
DAC and VOBA | (1,479 | ) | (1,570 | ) | ||||
(1,592 | ) | (1,570 | ) | |||||
Net deferred income tax asset | $ | 1,843 | $ | 846 | ||||
F-76
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
December 31, | ||||||||
2008 | 2007 | |||||||
(In millions) | ||||||||
Balance at beginning of the period | $ | 53 | $ | 64 | ||||
Reductions for tax positions of prior years | — | (2 | ) | |||||
Additions for tax positions of current year | 2 | 5 | ||||||
Reductions for tax positions of current year | (7 | ) | (8 | ) | ||||
Settlements with tax authorities | — | (6 | ) | |||||
Balance at end of the period | $ | 48 | $ | 53 | ||||
F-77
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
10. | Contingencies, Commitments and Guarantees |
F-78
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(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
December 31, | ||||||||
2008 | 2007 | |||||||
(In millions) | ||||||||
Other Assets: | ||||||||
Premium tax offset for future undiscounted assessments | $ | 6 | $ | 8 | ||||
Premium tax offsets currently available for paid assessments | 1 | 1 | ||||||
$ | 7 | $ | 9 | |||||
Other Liabilities: | ||||||||
Insolvency assessments | $ | 10 | $ | 17 | ||||
F-79
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(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
Gross | ||||||||
Rental | Rental | |||||||
Income | Payments | |||||||
(In millions) | ||||||||
2009 | $ | 3 | $ | 7 | ||||
2010 | $ | 3 | $ | 6 | ||||
2011 | $ | 3 | $ | 5 | ||||
2012 | $ | 3 | $ | — | ||||
2013 | $ | 3 | $ | — | ||||
Thereafter | $ | 77 | $ | — |
F-80
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(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
11. | Employee Benefit Plans |
F-81
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(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
12. | Equity |
F-82
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(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
F-83
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(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(In millions) | ||||||||||||
Holding gains (losses) on investments arising during the year | $ | (5,022 | ) | $ | (358 | ) | $ | (434 | ) | |||
Income tax effect of holding gains (losses) | 1,760 | 122 | 147 | |||||||||
Reclassification adjustments: | ||||||||||||
Recognized holding (gains) losses included in current year income | 674 | 260 | 487 | |||||||||
Amortization of premiums and accretion of discounts associated with investments | (48 | ) | — | 60 | ||||||||
Income tax effect | (220 | ) | (88 | ) | (186 | ) | ||||||
Allocation of holding gains on investments relating to other policyholder amounts | 823 | 27 | 42 | |||||||||
Income tax effect of allocation of holding gains to other policyholder amounts | (288 | ) | (10 | ) | (14 | ) | ||||||
Net unrealized investment gains (losses), net of income tax | (2,321 | ) | (47 | ) | 102 | |||||||
Foreign currency translation adjustment | (166 | ) | 12 | (2 | ) | |||||||
Other comprehensive income (loss) | $ | (2,487 | ) | $ | (35 | ) | $ | 100 | ||||
13. | Other Expenses |
Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(In millions) | ||||||||||||
Compensation | $ | 119 | $ | 125 | $ | 134 | ||||||
Commissions | 733 | 633 | 712 | |||||||||
Interest and debt issue costs | 74 | 35 | 31 | |||||||||
Amortization of DAC and VOBA | 1,163 | 740 | 488 | |||||||||
Capitalization of DAC | (835 | ) | (682 | ) | (721 | ) | ||||||
Rent, net of sublease income | 4 | 5 | 11 | |||||||||
Minority interest | — | — | 26 | |||||||||
Insurance tax | 38 | 44 | 42 | |||||||||
Other | 637 | 546 | 450 | |||||||||
Total other expenses | $ | 1,933 | $ | 1,446 | $ | 1,173 | ||||||
F-84
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(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
14. | Business Segment Information |
F-85
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(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
For the Year Ended | Corporate & | |||||||||||||||
December 31, 2008 | Individual | Institutional | Other | Total | ||||||||||||
(In millions) | ||||||||||||||||
Statement of Income: | ||||||||||||||||
Revenues | ||||||||||||||||
Premiums | $ | 200 | $ | 423 | $ | 11 | $ | 634 | ||||||||
Universal life and investment- type product policy fees | 1,334 | 41 | 3 | 1,378 | ||||||||||||
Net investment income | 1,097 | 1,343 | 54 | 2,494 | ||||||||||||
Other revenues | 214 | 10 | 6 | 230 | ||||||||||||
Net investment gains (losses) | 850 | (518 | ) | 217 | 549 | |||||||||||
Total revenues | 3,695 | 1,299 | 291 | 5,285 | ||||||||||||
Expenses | ||||||||||||||||
Policyholder benefits and claims | 567 | 850 | 29 | 1,446 | ||||||||||||
Interest credited to policyholder account balances | 702 | 449 | (21 | ) | 1,130 | |||||||||||
Other expenses | 1,780 | 46 | 107 | 1,933 | ||||||||||||
Total expenses | 3,049 | 1,345 | 115 | 4,509 | ||||||||||||
Income (loss) from continuing operations before provision (benefit) for income tax | 646 | (46 | ) | 176 | 776 | |||||||||||
Provision (benefit) for income tax | 224 | (17 | ) | (4 | ) | 203 | ||||||||||
Net income (loss) | $ | 422 | $ | (29 | ) | $ | 180 | $ | 573 | |||||||
Balance Sheet: | ||||||||||||||||
Total assets | $ | 69,335 | $ | 29,224 | $ | 13,465 | $ | 112,024 | ||||||||
DAC and VOBA | $ | 5,425 | $ | 8 | $ | 7 | $ | 5,440 | ||||||||
Goodwill | $ | 236 | $ | 312 | $ | 405 | $ | 953 | ||||||||
Separate account assets | $ | 34,494 | $ | 1,398 | $ | — | $ | 35,892 | ||||||||
Policyholder liabilities | $ | 29,146 | $ | 25,107 | $ | 5,220 | $ | 59,473 | ||||||||
Separate account liabilities | $ | 34,494 | $ | 1,398 | $ | — | $ | 35,892 |
F-86
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(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
For the Year Ended | Corporate & | |||||||||||||||
December 31, 2007 | Individual | Institutional | Other | Total | ||||||||||||
(In millions) | ||||||||||||||||
Statement of Income: | ||||||||||||||||
Revenues | ||||||||||||||||
Premiums | $ | 295 | $ | 34 | $ | 24 | $ | 353 | ||||||||
Universal life and investment-type product policy fees | 1,370 | 39 | 2 | 1,411 | ||||||||||||
Net investment income | 1,090 | 1,510 | 293 | 2,893 | ||||||||||||
Other revenues | 237 | 14 | — | 251 | ||||||||||||
Net investment gains (losses) | 116 | (263 | ) | 5 | (142 | ) | ||||||||||
Total revenues | 3,108 | 1,334 | 324 | 4,766 | ||||||||||||
Expenses | ||||||||||||||||
Policyholder benefits and claims | 479 | 466 | 33 | 978 | ||||||||||||
Interest credited to policyholder account balances | 661 | 638 | — | 1,299 | ||||||||||||
Other expenses | 1,329 | 50 | 67 | 1,446 | ||||||||||||
Total expenses | 2,469 | 1,154 | 100 | 3,723 | ||||||||||||
Income from continuing operations before provision for income tax | 639 | 180 | 224 | 1,043 | ||||||||||||
Provision for income tax | 227 | 60 | 16 | 303 | ||||||||||||
Income from continuing operations | 412 | 120 | 208 | 740 | ||||||||||||
Income from discontinued operations, net of income tax | — | 4 | — | 4 | ||||||||||||
Net income | $ | 412 | $ | 124 | $ | 208 | $ | 744 | ||||||||
Balance Sheet: | ||||||||||||||||
Total assets | $ | 82,214 | $ | 35,154 | $ | 11,193 | $ | 128,561 | ||||||||
DAC and VOBA | $ | 4,930 | $ | 16 | $ | 2 | $ | 4,948 | ||||||||
Goodwill | $ | 236 | $ | 312 | $ | 405 | $ | 953 | ||||||||
Separate account assets | $ | 51,398 | $ | 2,469 | $ | — | $ | 53,867 | ||||||||
Policyholder liabilities | $ | 24,122 | $ | 26,113 | $ | 4,933 | $ | 55,168 | ||||||||
Separate account liabilities | $ | 51,398 | $ | 2,469 | $ | — | $ | 53,867 |
F-87
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
For the Year Ended | Corporate & | |||||||||||||||
December 31, 2006 | Individual | Institutional | Other | Total | ||||||||||||
(In millions) | ||||||||||||||||
Statement of Income: | ||||||||||||||||
Revenues | ||||||||||||||||
Premiums | $ | 218 | $ | 65 | $ | 25 | $ | 308 | ||||||||
Universal life and investment- type product policy fees | 1,244 | 24 | — | 1,268 | ||||||||||||
Net investment income | 985 | 1,449 | 405 | 2,839 | ||||||||||||
Other revenues | 195 | 15 | 2 | 212 | ||||||||||||
Net investment gains (losses) | (194 | ) | (282 | ) | (45 | ) | (521 | ) | ||||||||
Total revenues | 2,448 | 1,271 | 387 | 4,106 | ||||||||||||
Expenses | ||||||||||||||||
Policyholder benefits and claims | 315 | 450 | 27 | 792 | ||||||||||||
Interest credited to policyholder account balances | 669 | 647 | — | 1,316 | ||||||||||||
Other expenses | 1,045 | 16 | 112 | 1,173 | ||||||||||||
Total expenses | 2,029 | 1,113 | 139 | 3,281 | ||||||||||||
Income from continuing operations before provision for income tax | 419 | 158 | 248 | 825 | ||||||||||||
Provision for income tax | 145 | 55 | 28 | 228 | ||||||||||||
Net income | $ | 274 | $ | 103 | $ | 220 | $ | 597 | ||||||||
15. | Discontinued Operations |
F-88
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
16. | Fair Value |
Notional | Carrying | Estimated | ||||||||||
December 31, 2007 | Amount | Value | Fair Value | |||||||||
(In millions) | ||||||||||||
Assets: | ||||||||||||
Fixed maturity securities | $ | 45,671 | $ | 45,671 | ||||||||
Equity securities | $ | 952 | $ | 952 | ||||||||
Mortgage and consumer loans | $ | 4,404 | $ | 4,407 | ||||||||
Policy loans | $ | 913 | $ | 913 | ||||||||
Short-term investments | $ | 1,335 | $ | 1,335 | ||||||||
Cash and cash equivalents | $ | 1,774 | $ | 1,774 | ||||||||
Accrued investment income | $ | 637 | $ | 637 | ||||||||
Liabilities: | ||||||||||||
Policyholder account balances | $ | 28,056 | $ | 27,651 | ||||||||
Long-term debt | $ | 635 | $ | 609 | ||||||||
Payables for collateral under securities loaned and other transactions | $ | 10,471 | $ | 10,471 | ||||||||
Commitments:(1) | ||||||||||||
Mortgage loan commitments | $ | 626 | $ | — | $ | (11 | ) | |||||
Commitments to fund bank credit facilities and private corporate bond investments | $ | 488 | $ | — | $ | (31 | ) |
(1) | Commitments are off-balance sheet obligations. Negative estimated fair values represent off-balance sheet liabilities. |
F-89
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
F-90
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
Notional | Carrying | Estimated | ||||||||||
December 31, 2008 | Amount | Value | Fair Value | |||||||||
(In millions) | ||||||||||||
Assets: | ||||||||||||
Fixed maturity securities | $ | 34,846 | $ | 34,846 | ||||||||
Equity securities | $ | 474 | $ | 474 | ||||||||
Trading securities | $ | 232 | $ | 232 | ||||||||
Mortgage and consumer loans | $ | 4,447 | $ | 4,252 | ||||||||
Policy loans | $ | 1,192 | $ | 1,296 | ||||||||
Real estate joint ventures (1) | $ | 92 | $ | 103 | ||||||||
Other limited partnership interests (1) | $ | 189 | $ | 247 | ||||||||
Short-term investments | $ | 3,127 | $ | 3,127 | ||||||||
Other invested assets (2) | $ | 21,395 | $ | 2,258 | $ | 2,258 | ||||||
Cash and cash equivalents | $ | 5,656 | $ | 5,656 | ||||||||
Accrued investment income | $ | 487 | $ | 487 | ||||||||
Premiums and other receivables (1) | $ | 3,171 | $ | 2,700 | ||||||||
Net embedded derivatives within asset host contracts (3) | $ | 2,062 | $ | 2,062 | ||||||||
Separate account assets | $ | 35,892 | $ | 35,892 | ||||||||
Liabilities: | ||||||||||||
Policyholder account balances (1) | $ | 26,316 | $ | 23,937 | ||||||||
Short-term debt | $ | 300 | $ | 300 | ||||||||
Long-term debt — affiliated | $ | 950 | $ | 671 | ||||||||
Payables for collateral under securities loaned and other transactions | $ | 7,871 | $ | 7,871 | ||||||||
Other liabilities:(1) | ||||||||||||
Derivative liabilities | $ | 9,310 | $ | 607 | $ | 607 | ||||||
Other | $ | 158 | $ | 158 | ||||||||
Net embedded derivatives within liability host contracts | $ | 1,405 | $ | 1,405 | ||||||||
Separate account liabilities | $ | 1,181 | $ | 1,181 | ||||||||
Commitments:(4) | ||||||||||||
Mortgage loan commitments | $ | 231 | $ | — | $ | (15 | ) | |||||
Commitments to fund bank credit facilities and private corporate bond investments | $ | 332 | $ | — | $ | (101 | ) |
(1) | Carrying values presented herein differ from those presented on the consolidated balance sheet because certain items within the respective financial statement caption are not considered financial instruments. Financial statement captions omitted from the table above are not considered financial instruments. | |
(2) | Other invested assets is comprised of freestanding derivatives with positive estimated fair values. | |
(3) | Net embedded derivatives within asset host contracts are presented within premiums and other receivables. Net embedded derivatives within liability host contracts are presented within policyholder account balances and other liabilities. Equity securities also includes embedded derivatives of ($36) million. | |
(4) | Commitments are off-balance sheet obligations. Negative estimated fair values represent off-balance sheet liabilities. |
F-91
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(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
F-92
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(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
F-93
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(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
F-94
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(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
F-95
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(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
F-96
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(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
F-97
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(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
December 31, 2008 | ||||||||||||||||
Fair Value Measurements at | ||||||||||||||||
Reporting Date Using | ||||||||||||||||
Quoted Prices in | ||||||||||||||||
Active Markets for | Significant | Significant | ||||||||||||||
Identical Assets | Other Observable | Unobservable | Total | |||||||||||||
and Liabilities | Inputs | Inputs | Estimated | |||||||||||||
(Level 1) | (Level 2) | (Level 3) | Fair Value | |||||||||||||
(In millions) | ||||||||||||||||
Assets | ||||||||||||||||
Fixed maturity securities: | ||||||||||||||||
U.S. corporate securities | $ | — | $ | 11,830 | $ | 1,401 | $ | 13,231 | ||||||||
Residential mortgage-backed securities | — | 7,031 | 62 | 7,093 | ||||||||||||
Foreign corporate securities | — | 4,136 | 926 | 5,062 | ||||||||||||
U.S. Treasury/agency securities | 2,107 | 2,190 | 36 | 4,333 | ||||||||||||
Commercial mortgage-backed securities | — | 2,158 | 116 | 2,274 | ||||||||||||
Asset-backed securities | — | 1,169 | 558 | 1,727 | ||||||||||||
State and political subdivision securities | — | 633 | 24 | 657 | ||||||||||||
Foreign government securities | — | 459 | 10 | 469 | ||||||||||||
Total fixed maturity securities | 2,107 | 29,606 | 3,133 | 34,846 | ||||||||||||
Equity securities: | ||||||||||||||||
Common stock | 40 | 70 | 8 | 118 | ||||||||||||
Non-redeemable preferred stock | — | 38 | 318 | 356 | ||||||||||||
Total equity securities | 40 | 108 | 326 | 474 | ||||||||||||
Trading securities | 176 | 6 | 50 | 232 | ||||||||||||
Short-term investments (1) | 1,171 | 1,952 | — | 3,123 | ||||||||||||
Derivative assets (2) | 4 | 1,928 | 326 | 2,258 | ||||||||||||
Net embedded derivatives within asset host contracts (3) | — | — | 2,062 | 2,062 | ||||||||||||
Separate account assets (4) | 35,567 | 166 | 159 | 35,892 | ||||||||||||
Total assets | $ | 39,065 | $ | 33,766 | $ | 6,056 | $ | 78,887 | ||||||||
Liabilities | ||||||||||||||||
Derivative liabilities (2) | $ | 16 | $ | 574 | $ | 17 | $ | 607 | ||||||||
Net embedded derivatives within liability host contracts (3) | — | — | 1,405 | 1,405 | ||||||||||||
Total liabilities | $ | 16 | $ | 574 | $ | 1,422 | $ | 2,012 | ||||||||
(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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(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
(2) | 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 table. | |
(3) | Net embedded derivatives within asset host contracts are presented within premiums and other receivables. Net embedded derivatives within liability host contracts are presented within policyholder account balances and other liabilities. Equity securities also includes embedded derivatives of ($36) million. | |
(4) | Separate account assets are measured at estimated fair value. Investment performance related to separate account assets is fully offset by corresponding amounts credited to contractholders whose liability is reflected within separate account liabilities. Separate account liabilities are set equal to the estimated fair value of separate account assets as prescribed bySOP 03-1. |
Level 1 | This category includes certain U.S. Treasury and agency fixed maturity securities, exchange-traded common stock, trading securities 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. 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. As it relates to derivatives, this level includes all types of derivative instruments utilized by the Company with the exception of exchange-traded futures 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. | |
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 and primarily include: U.S. and foreign corporate securities — including below investment grade private placements; commercial mortgage-backed securities; and asset backed securities — including all of those supported bysub-prime mortgage loans. 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. Trading securities included within Level 3 are of a similar nature to these fixed maturity and equity securities. As it relates to derivatives this category includes: financial forwards including swap spread locks with maturities which extend beyond observable periods; equity variance swaps with unobservable volatility inputs or that are priced via independent broker quotations; interest rate swaps with |
F-99
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
maturities which extend beyond the observable portion of the yield curve; credit default swaps which are priced through independent broker quotations; 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 other limited partnership interests. Embedded derivatives classified within this level include embedded derivatives associated with certain variable annuity riders and embedded derivatives related to funds withheld on ceded reinsurance. |
Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||||||||||||||||||||
Total Realized/Unrealized | ||||||||||||||||||||||||||||||||||||||||
Gains (Losses) included in: | Purchases, | |||||||||||||||||||||||||||||||||||||||
Balance, | Impact of | Balance, | Other | Sales, | Transfer in | Balance, | ||||||||||||||||||||||||||||||||||
December 31, | SFAS 157 | Beginning | Comprehensive | Issuances and | and/or Out | End of | ||||||||||||||||||||||||||||||||||
2007 | Adoption (1) | of Period | Earnings (2,3) | Income (Loss) | Settlements (4) | of Level 3 (5) | Period | |||||||||||||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||||||||||||||
Fixed maturity securities | $ | 4,602 | $ | — | $ | 4,602 | $ | (263 | ) | $ | (1,214 | ) | $ | (232 | ) | $ | 240 | $ | 3,133 | |||||||||||||||||||||
Equity securities | 556 | — | 556 | (48 | ) | (110 | ) | (72 | ) | — | 326 | |||||||||||||||||||||||||||||
Trading securities | — | — | — | — | — | 50 | — | 50 | ||||||||||||||||||||||||||||||||
Net derivatives (6) | 108 | — | 108 | 266 | — | (65 | ) | — | 309 | |||||||||||||||||||||||||||||||
Separate account assets (7) | 183 | — | 183 | (22 | ) | — | — | (2 | ) | 159 | ||||||||||||||||||||||||||||||
Net embedded derivatives (8) | 125 | 92 | 217 | 366 | — | 74 | — | 657 |
(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. Such amount was offset by a reduction to DAC of $30 million resulting in a net impact of $62 million. This net impact of $62 million along with a $3 million reduction in the estimated fair value of Level 2 freestanding derivatives results in a total impact of adoption of SFAS 157 of $59 million. | |
(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. | |
(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. |
F-100
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
(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 | |||||||||||
Income | Gains (Losses) | Total | ||||||||||
(In millions) | ||||||||||||
Fixed maturity securities | $ | 6 | $ | (269 | ) | $ | (263 | ) | ||||
Equity securities | — | (48 | ) | (48 | ) | |||||||
Net derivatives | — | 266 | 266 | |||||||||
Net embedded derivatives | — | 366 | 366 |
Change in Unrealized Gains (Losses) Relating to Assets Held at December 31, 2008: | ||||||||||||
Net | Net | |||||||||||
Investment | Investment | |||||||||||
Income | Gains (Losses) | Total | ||||||||||
(In millions) | ||||||||||||
Fixed maturity securities | $ | 6 | $ | (230 | ) | $ | (224 | ) | ||||
Equity securities | — | (29 | ) | (29 | ) | |||||||
Net derivatives | — | 233 | 233 | |||||||||
Net embedded derivatives | — | 353 | 353 |
17. | Related Party Transactions |
F-101
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
18. | Quarterly Information Unaudited |
F-102
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements — (Continued)
For the Three Months Ended | ||||||||||||||||||||||||
March 31, 2008 | June 30, 2008 | September 30, 2008 | ||||||||||||||||||||||
As Previously | As Previously | As Previously | ||||||||||||||||||||||
Reported | As Restated | Reported | As Restated | Reported | As Restated | |||||||||||||||||||
(In millions) | ||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||
Deferred income tax assets | $ | 979 | $ | 1,000 | $ | 1,131 | $ | 1,170 | $ | 1,477 | $ | 1,534 | ||||||||||||
Total assets | $ | 124,768 | $ | 124,789 | $ | 123,066 | $ | 123,105 | $ | 116,432 | $ | 116,489 | ||||||||||||
Liabilities: | ||||||||||||||||||||||||
Other policyholder funds | $ | 1,795 | $ | 1,855 | $ | 1,836 | $ | 1,947 | $ | 1,878 | $ | 2,042 | ||||||||||||
Total liabilities | $ | 117,716 | $ | 117,776 | $ | 116,155 | $ | 116,266 | $ | 110,199 | $ | 110,363 | ||||||||||||
Stockholders’ Equity: | ||||||||||||||||||||||||
Retained earnings | $ | 1,002 | $ | 963 | $ | 1,177 | $ | 1,105 | $ | 1,396 | $ | 1,289 | ||||||||||||
Total stockholders’ equity | $ | 7,052 | $ | 7,013 | $ | 6,911 | $ | 6,839 | $ | 6,233 | $ | 6,126 | ||||||||||||
Total liabilities and stockholders’ equity | $ | 124,768 | $ | 124,789 | $ | 123,066 | $ | 123,105 | $ | 116,432 | $ | 116,489 |
For the Three Months Ended | ||||||||||||||||||||||||
March 31, 2008 | June 30, 2008 | September 30, 2008 | ||||||||||||||||||||||
As Previously | As Previously | As Previously | ||||||||||||||||||||||
Reported | As Restated | Reported | As Restated | Reported | As Restated | |||||||||||||||||||
(In millions) | ||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||
Premiums | $ | 155 | $ | 149 | $ | 65 | $ | 61 | $ | 90 | $ | 84 | ||||||||||||
Universal life and investment-type product policy fees | $ | 400 | $ | 346 | $ | 372 | $ | 325 | $ | 436 | $ | 389 | ||||||||||||
Total revenues | $ | 1,228 | $ | 1,168 | $ | 1,055 | $ | 1,004 | $ | 1,281 | $ | 1,228 | ||||||||||||
Income from continuing operations before provision for income tax | $ | 138 | $ | 78 | $ | 244 | $ | 193 | $ | 301 | $ | 248 | ||||||||||||
Provision for income tax | $ | 28 | $ | 7 | $ | 69 | $ | 51 | $ | 82 | $ | 64 | ||||||||||||
Income from continuing operations | $ | 110 | $ | 71 | $ | 175 | $ | 142 | $ | 219 | $ | 184 | ||||||||||||
Net income | $ | 110 | $ | 71 | $ | 175 | $ | 142 | $ | 219 | $ | 184 |
F-103
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Other Than Investments in Related Parties
December 31, 2008
(In millions)
Amount at | ||||||||||||
Cost or | Estimated | Which Shown on | ||||||||||
Type of Investments | Amortized Cost (1) | Fair Value | Balance Sheet | |||||||||
Fixed Maturity Securities: | ||||||||||||
Bonds: | ||||||||||||
U.S. Treasury/agency securities | $ | 3,407 | $ | 4,333 | $ | 4,333 | ||||||
State and political subdivision securities | 880 | 657 | 657 | |||||||||
Foreign government securities | 454 | 469 | 469 | |||||||||
Public utilities | 2,381 | 2,132 | 2,132 | |||||||||
All other corporate bonds | 17,737 | 15,335 | 15,335 | |||||||||
Mortgage-backed and asset-backed securities | 13,263 | 11,094 | 11,094 | |||||||||
Redeemable preferred stock | 1,479 | 826 | 826 | |||||||||
Total fixed maturity securities | 39,601 | 34,846 | 34,846 | |||||||||
Trading Securities | 251 | 232 | 232 | |||||||||
Equity Securities: | ||||||||||||
Common stock: | ||||||||||||
Industrial, miscellaneous and all other | 122 | 118 | 118 | |||||||||
Non-redeemable preferred stock | 551 | 356 | 356 | |||||||||
Total equity securities | 673 | 474 | 474 | |||||||||
Mortgage and consumer loans | 4,447 | 4,447 | ||||||||||
Policy loans | 1,192 | 1,192 | ||||||||||
Real estate and real estate joint ventures | 608 | 608 | ||||||||||
Other limited partnership interests | 1,249 | 1,249 | ||||||||||
Short-term investments | 3,127 | 3,127 | ||||||||||
Other invested assets | 2,297 | 2,297 | ||||||||||
Total investments | $ | 53,445 | $ | 48,472 | ||||||||
(1) | The Company’s trading securities portfolio is mainly comprised of fixed maturity and equity securities. Cost or amortized cost for fixed maturity securities and mortgage and consumer loans represents original cost reduced by repayments, net valuation allowances and writedowns fromother-than-temporary declines in value and adjusted for amortization of premiums or discounts; for equity securities, cost represents original cost reduced by writedowns fromother-than-temporary declines in value; for real estate, cost represents original cost reduced by writedowns and adjusted for valuation allowances and depreciation; cost for real estate joint ventures and other limited partnership interests represents original cost reduced forother-than-temporary impairments or original cost adjusted for equity in earnings and distributions. |
F-104
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
December 31, 2008 and 2007
(In millions, except share and per share data)
2008 | 2007 | |||||||
Condensed Balance Sheets | ||||||||
Assets | ||||||||
Investments: | ||||||||
Fixed maturity securitiesavailable-for-sale, at estimated fair value (amortized cost: $34,567 and $41,940, respectively) | $ | 30,172 | $ | 41,342 | ||||
Equity securitiesavailable-for-sale, at estimated fair value (cost: $662 and $906, respectively) | 467 | 868 | ||||||
Trading securities, at estimated fair value (cost: $50 and $0, respectively) | 50 | — | ||||||
Mortgage and consumer loans | 4,060 | 3,999 | ||||||
Policy loans | 1,151 | 874 | ||||||
Real estate and real estate joint ventures held-for-investment | 367 | 341 | ||||||
Other limited partnership interests | 947 | 897 | ||||||
Short-term investments | 1,539 | 601 | ||||||
Investment in subsidiaries | 3,411 | 2,603 | ||||||
Other invested assets | 2,136 | 1,432 | ||||||
Total investments | 44,300 | 52,957 | ||||||
Cash and cash equivalents | 4,753 | 1,252 | ||||||
Accrued investment income | 421 | 579 | ||||||
Premiums and other receivables | 5,501 | 4,956 | ||||||
Receivables from subsidiaries | 348 | 422 | ||||||
Deferred policy acquisition costs and value of business acquired | 3,344 | 3,129 | ||||||
Current income tax recoverable | — | 78 | ||||||
Deferred income tax assets | 2,272 | 1,145 | ||||||
Goodwill | 885 | 885 | ||||||
Other assets | 167 | 169 | ||||||
Separate account assets | 17,375 | 30,025 | ||||||
Total assets | $ | 79,366 | $ | 95,597 | ||||
Liabilities and Stockholders’ Equity Liabilities: | ||||||||
Future policy benefits | $ | 18,993 | $ | 19,131 | ||||
Policyholder account balances | 28,283 | 28,306 | ||||||
Other policyholder funds | 415 | 401 | ||||||
Short-term debt | 300 | — | ||||||
Long-term debt — affiliated | 950 | 200 | ||||||
Current income tax payable | 64 | — | ||||||
Payables for collateral under securities loaned and other transactions | 6,983 | 9,543 | ||||||
Other liabilities | 1,069 | 643 | ||||||
Separate account liabilities | 17,375 | 30,025 | ||||||
Total liabilities | 74,432 | 88,249 | ||||||
Stockholders’ Equity: | ||||||||
Common stock, par value $2.50 per share; 40,000,000 shares authorized; 34,595,317 shares issued and outstanding at December 31, 2008 and 2007, respectively | 86 | 86 | ||||||
Additional paid-in capital | 6,719 | 6,719 | ||||||
Retained earnings | 965 | 892 | ||||||
Accumulated other comprehensive loss | (2,836 | ) | (349 | ) | ||||
Total stockholders’ equity | 4,934 | 7,348 | ||||||
Total liabilities and stockholders’ equity | $ | 79,366 | $ | 95,597 | ||||
F-105
Table of Contents
2008 | 2007 | 2006 | ||||||||||
Condensed Statements of Income | ||||||||||||
Revenues | ||||||||||||
Premiums | $ | 110 | $ | 177 | $ | 219 | ||||||
Universal life and investment-type product policy fees | 741 | 841 | 864 | |||||||||
Net investment income | 2,226 | 2,588 | 2,528 | |||||||||
Equity in earnings from subsidiaries | 278 | 248 | 97 | |||||||||
Other income | 60 | 66 | 69 | |||||||||
Net investment gains (losses) | (179 | ) | (345 | ) | (480 | ) | ||||||
Total revenues | 3,236 | 3,575 | 3,297 | |||||||||
Expenses | ||||||||||||
Policyholder benefits and claims | 682 | 741 | 716 | |||||||||
Interest credited to policyholder account balances | 896 | 1,057 | 1,080 | |||||||||
Other expenses | 1,006 | 796 | 694 | |||||||||
Total expenses | 2,584 | 2,594 | 2,490 | |||||||||
Income from continuing operations before provision for income tax | 652 | 981 | 807 | |||||||||
Provision for income tax | 79 | 241 | 210 | |||||||||
Income from continuing operations | 573 | 740 | 597 | |||||||||
Income from discontinued operations, net of income tax | — | 4 | — | |||||||||
Net income | $ | 573 | $ | 744 | $ | 597 | ||||||
F-106
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
2008 | 2007 | 2006 | ||||||||||
Condensed Statements of Cash Flows | ||||||||||||
Cash flows from operating activities | ||||||||||||
Net cash provided by operating activities | $ | 856 | $ | 2,333 | $ | 1,036 | ||||||
Cash flows from investing activities | ||||||||||||
Sales, maturities and repayments of: | ||||||||||||
Fixed maturity securities | 18,221 | 19,995 | 25,341 | |||||||||
Equity securities | 119 | 172 | 226 | |||||||||
Mortgage and consumer loans | 458 | 1,103 | 922 | |||||||||
Real estate and real estate joint ventures | 15 | 117 | 128 | |||||||||
Other limited partnership interests | 181 | 423 | 561 | |||||||||
Purchases of: | ||||||||||||
Fixed maturity securities | (11,263 | ) | (17,608 | ) | (21,884 | ) | ||||||
Equity securities | (65 | ) | (277 | ) | (70 | ) | ||||||
Mortgage and consumer loans | (560 | ) | (1,996 | ) | (1,951 | ) | ||||||
Real estate and real estate joint ventures | (47 | ) | (241 | ) | (55 | ) | ||||||
Other limited partnership interests | (340 | ) | (325 | ) | (312 | ) | ||||||
Net change in short-term investments | (934 | ) | (320 | ) | 996 | |||||||
Net change in other invested assets | (66 | ) | (984 | ) | (99 | ) | ||||||
Net change in policy loans | (277 | ) | 6 | 1 | ||||||||
Other, net | — | 2 | (1 | ) | ||||||||
Net cash provided by investing activities | 5,442 | 67 | 3,803 | |||||||||
Cash flows from financing activities | ||||||||||||
Policyholder account balances: | ||||||||||||
Deposits | 3,275 | 2,830 | 2,184 | |||||||||
Withdrawals | (4,008 | ) | (5,330 | ) | (5,620 | ) | ||||||
Net change in short-term debt | 300 | — | — | |||||||||
Long-term debt issued — affiliated | 750 | 200 | — | |||||||||
Debt issuance costs | (8 | ) | — | — | ||||||||
Net change in payables for collateral under securities loaned and other transactions | (2,560 | ) | 1,288 | (474 | ) | |||||||
Financing element on certain derivative instruments | (46 | ) | 33 | (55 | ) | |||||||
Dividends on common stock | (500 | ) | (690 | ) | (917 | ) | ||||||
Net cash (used in) financing activities | (2,797 | ) | (1,669 | ) | (4,882 | ) | ||||||
Change in cash and cash equivalents | 3,501 | 731 | (43 | ) | ||||||||
Cash and cash equivalents, beginning of year | 1,252 | 521 | 564 | |||||||||
Cash and cash equivalents, end of year | $ | 4,753 | $ | 1,252 | $ | 521 | ||||||
Supplemental disclosures of cash flow information: | ||||||||||||
Net cash paid (received) during the year for: | ||||||||||||
Interest | $ | 44 | $ | 1 | $ | — | ||||||
Income tax | $ | (41 | ) | $ | 79 | $ | 88 | |||||
Non-cash transactions during the year: | ||||||||||||
Contribution of equity securities to MetLife Foundation | $ | — | $ | 12 | $ | — | ||||||
Contribution of other intangible assets, net of income tax | $ | — | $ | — | $ | 162 | ||||||
Contribution of goodwill from MetLife | $ | — | $ | — | $ | 28 | ||||||
F-107
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
1. | Summary of Accounting Policies |
• | Business, Basis of Presentation and Summary of Significant Accounting Policies (Note 1) | |
• | Contingencies, Commitments and Guarantees (Note 10) | |
• | Equity (Note 12) |
2. | Long-term and Short-term Debt |
F-108
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
3. | Related Party Transactions |
F-109
Table of Contents
(A Wholly-Owned Subsidiary of MetLife, Inc.)
4. | Subsequent Event |
F-110
Table of Contents
DAC | Future Policy | Policyholder | ||||||||||||||
and | Benefits and Other | Account | Unearned | |||||||||||||
Segment | VOBA | Policyholder Funds | Balances | Revenue (1) | ||||||||||||
2008 | ||||||||||||||||
Individual | $ | 5,425 | $ | 4,713 | $ | 24,433 | $ | 545 | ||||||||
Institutional | 8 | 12,551 | 12,556 | — | ||||||||||||
Corporate & Other | 7 | 5,034 | 186 | 3 | ||||||||||||
$ | 5,440 | $ | 22,298 | $ | 37,175 | $ | 548 | |||||||||
2007 | ||||||||||||||||
Individual | $ | 4,930 | $ | 4,022 | $ | 20,100 | $ | 342 | ||||||||
Institutional | 16 | 12,570 | 13,543 | — | ||||||||||||
Corporate & Other | 2 | 4,761 | 172 | 1 | ||||||||||||
$ | 4,948 | $ | 21,353 | $ | 33,815 | $ | 343 | |||||||||
2006 | ||||||||||||||||
Individual | $ | 4,946 | $ | 3,769 | $ | 20,660 | $ | 260 | ||||||||
Institutional | 165 | 12,895 | 14,496 | 3 | ||||||||||||
Corporate & Other | — | 4,503 | (57 | ) | — | |||||||||||
$ | 5,111 | $ | 21,167 | $ | 35,099 | $ | 263 | |||||||||
(1) | Amounts are included within the future policy benefits and other policyholder funds column. |
F-111
Table of Contents
Amortization of | ||||||||||||||||||||||||
Premium | Net | Policyholder | DAC and VOBA | Other | ||||||||||||||||||||
Revenue and | Investment | Benefits and | Charged to | Operating | Premiums Written | |||||||||||||||||||
Segment | Policy Charges | Income | Interest Credited | Other Expenses | Expenses (1) | (Excluding Life) | ||||||||||||||||||
2008 | ||||||||||||||||||||||||
Individual | $ | 1,534 | $ | 1,097 | $ | 1,269 | $ | 1,148 | $ | 632 | $ | — | ||||||||||||
Institutional | 464 | 1,343 | 1,299 | 13 | 33 | 5 | ||||||||||||||||||
Corporate & Other | 14 | 54 | 8 | 2 | 105 | 12 | ||||||||||||||||||
$ | 2,012 | $ | 2,494 | $ | 2,576 | $ | 1,163 | $ | 770 | $ | 17 | |||||||||||||
2007 | ||||||||||||||||||||||||
Individual | $ | 1,665 | $ | 1,090 | $ | 1,140 | $ | 717 | $ | 612 | $ | — | ||||||||||||
Institutional | 73 | 1,510 | 1,104 | 23 | 27 | 7 | ||||||||||||||||||
Corporate & Other | 26 | 293 | 33 | — | 67 | 25 | ||||||||||||||||||
$ | 1,764 | $ | 2,893 | $ | 2,277 | $ | 740 | $ | 706 | $ | 32 | |||||||||||||
2006 | ||||||||||||||||||||||||
Individual | $ | 1,462 | $ | 985 | $ | 984 | $ | 481 | $ | 564 | $ | — | ||||||||||||
Institutional | 89 | 1,449 | 1,097 | 6 | 10 | 9 | ||||||||||||||||||
Corporate & Other | 25 | 405 | 27 | 1 | 111 | 25 | ||||||||||||||||||
$ | 1,576 | $ | 2,839 | $ | 2,108 | $ | 488 | $ | 685 | $ | 34 | |||||||||||||
(1) | Includes other expenses excluding amortization of DAC and VOBA charged to other expenses. |
F-112
Table of Contents
% Amount | ||||||||||||||||||||
Assumed | ||||||||||||||||||||
Gross Amount | Ceded | Assumed | Net Amount | to Net | ||||||||||||||||
2008 | ||||||||||||||||||||
Life insurance in-force | $ | 226,418 | $ | 191,146 | $ | 8,800 | $ | 44,072 | 20.0 | % | ||||||||||
Insurance premium | ||||||||||||||||||||
Life insurance | $ | 779 | $ | 181 | $ | 15 | $ | 613 | 2.4 | % | ||||||||||
Accident and health | 263 | 242 | — | 21 | — | % | ||||||||||||||
Total insurance premium | $ | 1,042 | $ | 423 | $ | 15 | $ | 634 | 2.4 | % | ||||||||||
% Amount | ||||||||||||||||||||
Assumed | ||||||||||||||||||||
Gross Amount | Ceded | Assumed | Net Amount | to Net | ||||||||||||||||
2007 | ||||||||||||||||||||
Life insurance in-force | $ | 189,630 | $ | 152,943 | $ | 13,934 | $ | 50,621 | 27.5 | % | ||||||||||
Insurance premium | ||||||||||||||||||||
Life insurance | $ | 384 | $ | 82 | $ | 17 | $ | 319 | 5.3 | % | ||||||||||
Accident and health | 270 | 236 | — | 34 | — | % | ||||||||||||||
Total insurance premium | $ | 654 | $ | 318 | $ | 17 | $ | 353 | 4.8 | % | ||||||||||
% Amount | ||||||||||||||||||||
Assumed | ||||||||||||||||||||
Gross Amount | Ceded | Assumed | Net Amount | to Net | ||||||||||||||||
2006 | ||||||||||||||||||||
Life insurance in-force | $ | 153,390 | $ | 119,281 | $ | 14,374 | $ | 48,483 | 29.6 | % | ||||||||||
Insurance premium | ||||||||||||||||||||
Life insurance | $ | 323 | $ | 72 | $ | 21 | $ | 272 | 7.7 | % | ||||||||||
Accident and health | 276 | 240 | — | 36 | — | % | ||||||||||||||
Total insurance premium | $ | 599 | $ | 312 | $ | 21 | $ | 308 | 6.8 | % | ||||||||||
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Item 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure |
Item 9B. | Other Information |
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Item 10. | Directors, Executive Officers and Corporate Governance |
Item 11. | Executive Compensation |
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
Item 13. | Certain Relationships and Related Transactions, and Director Independence |
Item 14. | Principal Accountant Fees and Services |
2008 | 2007 | |||||||
(In millions) | ||||||||
Audit Fees (1) | $ | 5.95 | $ | 6.36 | ||||
Audit-Related Fees (2) | $ | 0.11 | $ | — | ||||
Tax Fees (3) | $ | 0.02 | $ | — | ||||
All Other Fees (4) | $ | — | $ | — |
(1) | Fees for services to perform an audit or review in accordance with auditing standards of the Public Company Accounting Oversight Board and services that generally only the Company’s independent auditor can reasonably provide, such as comfort letters, statutory audits, attest services, consents and assistance with and review of documents filed with the U.S. Securities and Exchange Commission (“SEC”). | |
(2) | Fees for assurance and related services that are traditionally performed by the Company’s independent auditor, such as audit and related services for due diligence related to mergers and acquisitions, accounting consultations and audits in connection with proposed or consummated acquisitions, control reviews, attest services not required by statute or regulation, and consultation concerning financial accounting and reporting standards. | |
(3) | Fees for tax compliance, consultation and planning services. Tax compliance generally involves preparation of original and amended tax returns, claims for refunds and tax payment planning services. Tax consultation and tax planning encompass a diverse range of services, including assistance in connection with tax audits and filing appeals, tax advice related to mergers and acquisitions, advice related to employee benefit plans and requests for rulings or technical advice from taxing authorities. | |
(4) | Fees for other types of permitted services. |
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Item 15. | Exhibits and Financial Statement Schedules |
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By: | /s/ Michael K. Farrell |
Title: | President and Director |
Signature | Title | Date | ||||
/s/ William J. Mullaney William J. Mullaney | Director | March 26, 2009 | ||||
/s/ Lisa M. Weber Lisa M. Weber | Director | March 26, 2009 | ||||
/s/ Michael K. Farrell Michael K. Farrell | President and Director (Principal Executive Officer) | March 26, 2009 | ||||
/s/ Stanley J. Talbi Stanley J. Talbi | Executive Vice President and Chief Financial Officer (Principal Financial Officer) | March 26, 2009 | ||||
/s/ Joseph J. Prochaska, Jr. Joseph J. Prochaska, Jr. | Executive Vice President and Chief Accounting Officer (Principal Accounting Officer) | March 26, 2009 |
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Exhibit | ||||
No. | Description | |||
2 | .1 | Acquisition Agreement between MetLife, Inc. and Citigroup Inc., dated as of January 31, 2005 (Incorporated by reference to Exhibit 2.1 to MetLife, Inc.’s Current Report onForm 8-K dated February 4, 2005) | ||
3 | .1 | Charter of The Travelers Insurance Company (now MetLife Insurance Company of Connecticut), as effective October 19, 1994 (Incorporated by reference to Exhibit 3.1 MetLife Insurance Company of Connecticut’s Annual Report onForm 10-K for the fiscal year ended December 31, 2005 (the “2005 Annual Report”)) | ||
3 | .2 | Certificate of Amendment of the Charter as Amended and Restated of MetLife Insurance Company of Connecticut, as effective May 1, 2006 (the “Certificate of Amendment”) (Incorporated by reference to Exhibit 3.2 to the 2005 Annual Report) | ||
3 | .3 | Certificate of Correction to the Certificate of Amendment. Filed April 9, 2007 (Incorporated by reference to Exhibit 3.3 to MetLife Insurance Company of Connecticut’s Quarterly Report onForm 10-Q for the quarter ended June 30, 2007) | ||
3 | .4 | By-laws of MetLife Insurance Company of Connecticut, as effective October 20, 1994 (Incorporated by reference to Exhibit 3.3 to the 2005 Annual Report) | ||
31 | .1 | Certification of President 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 President 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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