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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to __________________
Commission File Number: 001-15787
METLIFE, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 63-0891252
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
One Madison Avenue
New York, New York 10010-3690
(212) 578-2211
(Address of principal executive offices, including zip code, and Registrant's
telephone number, including area code)
Indicate by check mark whether Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [ ] NO [X]
At May 16, 2000, 782,391,173 shares of the Registrant's Common Stock. $.01 par
value per share, were outstanding.
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TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Unaudited Interim Condensed Consolidated Statements of Income for the three
months ended March 31, 2000 and 1999
Interim Condensed Consolidated Balance Sheets at March 31, 2000 (unaudited)
and December 31, 1999
Unaudited Interim Condensed Consolidated Statement of Equity for the three
months ended March 31, 2000
Unaudited Interim Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 2000 and 1999
Notes to Unaudited Interim Condensed Consolidated Financial Statements
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
METROPOLITAN LIFE INSURANCE COMPANY
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(IN MILLIONS)
2000 1999
------- -------
REVENUES
Premiums $ 3,860 $ 2,916
Universal life and investment-type product policy fees 469 339
Net investment income 2,784 2,310
Other revenues 665 454
Net realized investment losses (net of amounts
allocable to other accounts of $19 and $34, respectively) (112) (74)
------- -------
7,666 5,945
------- -------
EXPENSES
Policyholder benefits and claims (includes amounts
directly related to net realized investment
losses of $4 and $4, respectively) 4,047 3,141
Interest credited to policyholder account balances 697 610
Policyholder dividends 468 382
Other expenses (includes amounts directly related to
net realized investment losses of $15 and $30,
respectively) 1,979 1,401
------- -------
7,191 5,534
------- -------
Income before provision for income taxes and extraordinary item 475 411
Provision for income taxes 198 174
------- -------
Income before extraordinary item 277 237
Extraordinary item - demutualization expense 41 8
------- -------
Net income $ 236 $ 229
======= =======
See accompanying notes to unaudited interim condensed consolidated financial
statements.
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METROPOLITAN LIFE INSURANCE COMPANY
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 (UNAUDITED) AND DECEMBER 31, 1999
(IN MILLIONS)
2000 1999
--------- ---------
ASSETS
Investments:
Fixed maturities available-for-sale, at fair value $ 108,566 $ 96,981
Equity securities, at fair value 2,137 2,006
Mortgage loans on real estate 21,185 19,739
Real estate and real estate joint ventures 5,747 5,649
Policy loans 7,914 5,598
Other limited partnership interests 1,452 1,331
Short-term investments 1,578 3,055
Other invested assets 2,397 1,501
--------- ---------
150,976 135,860
Cash and cash equivalents 2,237 2,789
Accrued investment income 1,955 1,725
Premiums and other receivables 9,032 6,681
Deferred policy acquisition costs 10,582 9,069
Deferred income taxes 481 603
Other 4,675 3,564
Separate account assets 76,110 64,941
--------- ---------
$ 256,048 $ 225,232
========= =========
LIABILITIES AND EQUITY
Liabilities:
Future policy benefits $ 79,934 $ 73,582
Policyholder account balances 52,405 45,901
Other policyholder funds 5,208 4,498
Policyholder dividends payable 986 974
Short-term debt 3,585 4,208
Long-term debt 2,793 2,514
Current income taxes payable 579 548
Other 20,314 14,376
Separate account liabilities 76,110 64,941
--------- ---------
241,914 211,542
--------- ---------
Commitments and contingencies (Note 6)
Company-obligated mandatorily redeemable
securities of subsidiary trust holding solely
junior subordinated debentures of its Parent 118 --
--------- ---------
Equity:
Retained earnings 14,336 14,100
Accumulated other comprehensive loss (320) (410)
--------- ---------
14,016 13,690
--------- ---------
$ 256,048 $ 225,232
========= =========
See accompanying notes to unaudited interim condensed consolidated financial
statements.
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METROPOLITAN LIFE INSURANCE COMPANY
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(IN MILLIONS)
Accumulated Other Comprehensive Loss
-----------------------------------------
Net Foreign Minimum
Unrealized Currency Pension
Comprehensive Retained Investment Translation Liability
Total Income Earnings Gains (Losses) Adjustment Adjustment
----- ------ -------- -------------- ---------- ----------
Balance at January 1, 2000 $13,690 $14,100 $ (297) $ (94) $ (19)
Comprehensive income:
Net income 236 $ 236 236
-------
Other comprehensive income:
Unrealized investment gains, net of related
offsets, reclassification adjustments and
income taxes 89 89
Foreign currency translation adjustments 1 1
-------
Other comprehensive income 90 90
-------
Comprehensive income $ 326
=======
------- ------- ------- ------- -------
Balance at March 31, 2000 $14,016 $14,336 $ (208) $ (93) $ (19)
======= ======= ======= ======= =======
See accompanying notes to unaudited interim condensed consolidated financial
statements.
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METROPOLITAN LIFE INSURANCE COMPANY
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(IN MILLIONS)
2000 1999
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 1,616 $ 454
CASH FLOWS FROM INVESTING ACTIVITIES
Sales, maturities and repayments of:
Fixed maturities 14,705 24,094
Equity securities 381 236
Mortgage loans on real estate 704 394
Real estate and real estate joint ventures 120 153
Other limited partnership interests 138 183
Purchases of:
Fixed maturities (18,854) (25,064)
Equity securities (314) (128)
Mortgage loans on real estate (467) (871)
Real estate and real estate joint ventures (80) (89)
Other limited partnership interests (170) (167)
Net change in short-term investments 1,750 390
Net change in policy loans (72) 137
Purchase of business, net of cash received (459) --
Net change in investment collateral 2,305 404
Other, net (289) (208)
-------- --------
Net cash used in investing activities (602) (536)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Policyholder account balances:
Deposits 6,416 4,190
Withdrawals (7,421) (5,635)
Net change in short-term debt (620) 466
Long-term debt issued 64 39
Long-term debt repaid (5) (125)
-------- --------
Net cash used in financing activities (1,566) (1,065)
-------- --------
Change in cash and cash equivalents (552) (1,147)
Cash and cash equivalents, beginning of period 2,789 3,301
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,237 $ 2,154
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 119 $ 74
======== ========
Income taxes $ 116 $ 23
======== ========
See accompanying notes to unaudited interim condensed consolidated financial
statements.
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METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS ARE IN MILLIONS UNLESS OTHERWISE STATED.)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
On April 7, 2000, pursuant to an order by the New York Superintendent of
Insurance ("Superintendent") approving its plan of reorganization (the "plan")
as amended, Metropolitan Life Insurance Company ("Metropolitan Life") converted
from a mutual life insurance company to a stock life insurance company and
became a wholly-owned subsidiary of MetLife, Inc., a Delaware corporation.
Metropolitan Life and its subsidiaries (the "Company") is a leading
provider of insurance and financial services to a broad section of institutional
and individual customers. The Company offers life insurance, annuities and
mutual funds to individuals and group insurance, reinsurance and retirement and
savings products and services to corporations and other institutions.
BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been
prepared in conformity with accounting principles generally accepted in the
United States of America ("GAAP"). The New York State Insurance Department (the
"Department") recognizes only statutory accounting practices for determining and
reporting the financial condition and results of operations of an insurance
company for determining solvency under the New York Insurance Law. No
consideration is given by the Department to financial statements prepared in
accordance with GAAP in making such determination.
The accompanying condensed consolidated financial statements reflect all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the consolidated financial position of the Company at March 31,
2000 and its consolidated results of operations and cash flows for the three
months ended March 31, 2000 and 1999. Interim results are not necessarily
indicative of full year performance. These condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements of the Company and the notes thereto for the year ended December 31,
1999 included in MetLife, Inc.'s Registration Statement on Form S-1
(registration no. 333-91517) filed with the Securities and Exchange Commission.
PRINCIPLES OF CONSOLIDATION
The accompanying condensed consolidated financial statements include the
accounts of Metropolitan Life and its subsidiaries, partnerships and joint
ventures in which Metropolitan
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Life has a majority voting interest or general partner interest with limited
removal rights from limited partners. All material intercompany accounts and
transactions have been eliminated.
EXTRAORDINARY ITEM - DEMUTUALIZATION EXPENSE
The accompanying condensed consolidated statements of income include an
extraordinary charge of $41 (net of income tax benefit of $14) and $8 (net of
income tax benefit of $1) for the three months ended March 31, 2000 and 1999,
respectively, related to costs associated with the demutualization.
FEDERAL INCOME TAXES
Federal income taxes for interim periods have been computed using an
estimated annual effective tax rate. This rate is revised, if necessary, at the
end of each successive interim period to reflect the current estimate of the
annual effective tax rate.
APPLICATION OF ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2000, the Company adopted Statement of Position
("SOP") 98-7, Accounting for Insurance and Reinsurance Contracts That Do Not
Transfer Insurance Risk ("SOP 98-7"). SOP 98-7 provides guidance on the method
of accounting for insurance and reinsurance contracts that do not transfer
insurance risk, defined in the SOP as the deposit method. SOP 98-7 classifies
insurance and reinsurance contracts for which the deposit method is appropriate
into those that 1) transfer only significant timing risk, 2) transfer only
significant underwriting risk, 3) transfer neither significant timing or
underwriting risk and 4) have an indeterminate risk. Adoption of SOP 98-7 did
not have a material effect on the Company's condensed consolidated financial
statements.
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137, Accounting for Derivative Instruments
and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133
("SFAS 137"). SFAS 137 defers the provisions of Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities ("SFAS 133") until January 1, 2001. SFAS 133 requires, among other
things, that all derivatives be recognized in the consolidated balance sheets as
either assets or liabilities and measured at fair value. The corresponding
derivative gains and losses should be reported based upon the hedge
relationship, if such a relationship exists. Changes in the fair value of
derivatives that are not designated as hedges or that do not meet the hedge
accounting criteria in SFAS 133 are required to be reported in income. The
Company is in the process of quantifying the impact of SFAS 133 on its
consolidated financial statements.
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2. DEMUTUALIZATION
On April 7, 2000, the date the plan became effective, each policyholder's
membership interest was extinguished and each eligible policyholder received, in
exchange for that interest, trust interests representing shares of common stock
of MetLife, Inc. to be held in a trust, cash or an adjustment to their policy
values in the form of policy credits, as provided in the plan. In addition,
Metropolitan Life's Canadian branch made cash payments to holders of certain
policies transferred to Clarica Life Insurance Company in connection with the
sale of a substantial portion of Metropolitan Life's Canadian operations in
1998, as a result of a commitment made in connection with obtaining Canadian
regulatory approval of that sale. The amount of the payments, which will be
recorded in other expenses in the second quarter of 2000, has been determined in
a manner that is consistent with the treatment of, and fair and equitable to,
eligible policyholders of Metropolitan Life.
The plan required an initial public offering of common stock and provided
for other capital raising transactions on the effective date of the plan. On the
plan effective date, MetLife, Inc. conducted an initial public offering of
202,000,000 shares and concurrent private placements of 60,000,000 shares of its
common stock at an initial public offering price of $14.25 per share. The shares
of common stock issued in the offerings are in addition to 493,903,472 shares of
common stock of MetLife, Inc. distributed to the Metropolitan Life policyholder
trust for the benefit of policyholders of Metropolitan Life in connection with
the demutualization. On April 10, 2000, MetLife, Inc. issued 30,300,000
additional shares of common stock as a result of the exercise of over-allotment
options granted to underwriters in the initial public offering.
In addition to the issuance of common stock, MetLife, Inc. formed MetLife
Capital Trust I, a Delaware statutory business trust. MetLife Capital Trust I
issued two classes of trust securities: capital securities, which are a
component of equity security units, and common securities, which were issued to
MetLife, Inc. MetLife, Inc. owns all the beneficial interests represented by the
common securities of MetLife Capital Trust I. Concurrently with the initial
public offering of common stock noted above, on April 7, 2000 MetLife Capital
Trust I issued 17,500,000 8.00% equity security units. On April 14, 2000,
MetLife Capital Trust I issued an additional 2,625,000 8.00% equity security
units as a result of the exercise of over-allotment options granted to
underwriters in connection with the offering of the equity security units. Each
equity security unit contains a purchase contract under which the holder agrees
to purchase, for $50.00, shares of common stock of MetLife, Inc. on May 15,
2003. The number of shares to be purchased at such date will be determined based
on the average trading price of MetLife, Inc. common stock. The proceeds from
the sale of the capital securities were used to acquire $1,037 of 8.00%
debentures of MetLife, Inc. ("MetLife, Inc. debentures"). The capital securities
represent undivided beneficial ownership interests in MetLife Capital Trust I's
assets, which consist solely of the MetLife, Inc. debentures. Although, upon
issuance of the capital securities, a holder is the beneficial owner of the
related capital securities, those capital securities are pledged with the
collateral agent to collateralize the obligations of the unit holder under the
related purchase contracts. Holders of the capital securities are entitled to
receive cumulative cash distributions accruing from April 7, 2000, the effective
date of the plan, and payable quarterly in arrears
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commencing August 15, 2000 at an annual rate of 8.00% of the stated liquidation
amount of $50.00 per capital security. MetLife, Inc. irrevocably guarantees, on
a senior and unsecured basis, the payment in full of distributions on the
capital securities to the extent of available trust funds and the stated
liquidation amount of the capital securities to the extent of available trust
funds. Holders of the capital securities generally have no voting rights.
The MetLife, Inc. debentures bear interest at an annual rate of 8.00% of
the principal amount, payable quarterly in arrears commencing August 15, 2000
and mature on May 15, 2005. These debentures are unsecured and rank equally in
right of payment to all other senior unsecured debt of MetLife, Inc. Because
MetLife, Inc. is a holding company, its right to participate in the distribution
of assets of any subsidiary upon the subsidiary's liquidation, reorganization or
otherwise, is subject to the prior claims of creditors of the subsidiary, except
to the extent MetLife, Inc. may be recognized as a creditor of that subsidiary.
Accordingly, MetLife, Inc.'s obligations under the debentures will effectively
be subordinate to all existing and future liabilities of its subsidiaries.
In connection with the contribution of the net proceeds from the initial
public offering, the private placements and the equity security units offering
to Metropolitan Life, Metropolitan Life issued to MetLife, Inc. a $1,006 8.00%
mandatorily convertible note due 2005 having the same interest and payment terms
as set forth in the debentures of MetLife, Inc. issued to the MetLife Capital
Trust I. The principal amount of the capital note is mandatorily convertible
into common stock of Metropolitan Life upon maturity or acceleration of the
capital note and without any further action by MetLife, Inc. or Metropolitan
Life. As required by New York Insurance Law, the terms of the capital note were
approved on April 4, 2000 by the Superintendent as not adverse to the interests
of Metropolitan Life's policyholders. In addition, the capital note provides
that Metropolitan Life may not make any payment of principal or interest on the
capital note so long as specified payment restrictions exist and have not been
waived by the Superintendent. Payment restrictions would exist if Metropolitan
Life fails to exceed certain thresholds relative to the level of its statutory
risk-based capital or the amount of its outstanding capital notes, surplus notes
or similar obligations. At March 31, 2000, Metropolitan Life's statutory total
adjusted capital exceeded these limitations. If the payment of interest is
prevented by application of the payment restrictions described above, the
interest on the capital note will not be available as a source of liquidity for
MetLife, Inc.
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3. PRO FORMA CONSOLIDATED INFORMATION
The pro forma consolidated financial information presented below gives
effect to:
- - the demutualization, including the issuance of 493,903,472 shares of
MetLife, Inc. common stock to the Metropolitan Life policyholder trust in
connection therewith;
- - the establishment of the closed block;
- - the sale of 232,300,000 shares of MetLife, Inc. common stock in the initial
public offering at $14.25 per share;
- - the private placements of 60,000,000 shares of MetLife, Inc. common stock
at $14.25 per share; and
- - the sale of 20,125,000 equity units at $50.00 per unit;
as if they had occurred at March 31, 2000, for the purposes of the pro forma
consolidated balance sheet, and at January 1, 2000 for the purposes of the pro
forma consolidated statement of income for the three months ended March 31,
2000. This pro forma information is presented to depict only the effects of the
demutualization, the establishment of the closed block, the initial public
offering, the private placements and the sale of the equity security units.
The pro forma information is based on available information and on
assumptions management believes are reasonable and that reflect the effects of
these transactions. This information is provided for informational purposes only
and does not necessarily indicate the consolidated financial position or results
of operations had the demutualization, the establishment of the closed block,
the initial public offering, the private placements and the sale of equity units
been consummated on the dates assumed. The pro forma information also does not
project or forecast the consolidated financial position or results of operations
for any future date or period.
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Pro Forma Interim Condensed Consolidated Statement of Income
For the Three Months Ended March 31, 2000
(In millions, except per share amounts)
Establishment
of the The
Historical Closed Block(A) Demutualization
---------- --------------- ---------------
Revenues
Premiums $ 3,860 $ (894) $ --
Universal life and investment-type product policy fees 469 -- --
Net investment income 2,784 (631) --
Other revenues 665 -- --
Net realized investment losses (net of amounts
allocable to other accounts of $19) (112) 21 --
Contribution from the closed block -- 24 --
------- -------- -----
7,666 (1,480) --
------- -------- -----
Expenses
Policyholder benefits and claims (includes amounts
directly related to net realized investment losses
of $4) 4,047 (926) --
Interest credited to policyholder account balances 697 -- --
Policyholder dividends 468 (380) --
Other expenses (includes amounts directly related
to net realized investment losses of $15) 1,979 (174) --
------- -------- -----
7,191 (1,480) --
------- -------- -----
Income before provision for income taxes and
extraordinary item 475 -- --
Provision for income taxes 198 -- (30)(I)
------- -------- -----
Income before extraordinary item $ 277 $ -- $ 30
======= ======== =====
Per share data:
Income before extraordinary item per share-
basic and diluted
Number of shares used in calculation of per share data-
basic and diluted
The GenAm
Unit Debt
Offering Repayment Pro Forma
-------- --------- ---------
Revenues
Premiums $ -- $ -- $ 2,966
Universal life and investment-type product policy fees -- -- 469
Net investment income -- -- 2,153
Other revenues -- -- 665
Net realized investment losses (net of amounts --
allocable to other accounts of $19) -- -- (91)
Contribution from the closed block -- -- 24
----- ----- -----------
-- -- 6,186
----- ----- -----------
Expenses
Policyholder benefits and claims (includes amounts
directly related to net realized investment losses
of $4) -- -- 3,121
Interest credited to policyholder account balances -- -- 697
Policyholder dividends -- 88
Other expenses (includes amounts directly related --
to net realized investment losses of $15) 22(G) (14)(J) 1,813
----- ----- -----------
22 (14) 5,719
----- ----- -----------
Income before provision for income taxes and
extraordinary item (22) 14 467
Provision for income taxes (8)(G) 5(J) 165
----- ----- -----------
Income before extraordinary item $ (14) $ 9 $ 302
===== ===== ===========
Per share data:
Income before extraordinary item per share-
basic and diluted $ 0.38
-----------
Number of shares used in calculation of per share data-
basic and diluted 786,203,472(B)(C)
===========
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Pro Forma Interim Condensed Consolidated Balance Sheet
At March 31, 2000
(In millions)
The
Establishment Common
of the The Stock
Historical Closed Block(A) Demutualization Offering
---------- --------------- --------------- --------
ASSETS
Investments:
Fixed maturities available-for-sale, at fair value $108,566 $(23,939) $ -- $ --
Equity securities, at fair value 2,137 -- -- --
Mortgage loans on real estate 21,185 (4,744) -- --
Real estate and real estate joint ventures 5,747 -- -- --
Policy loans 7,914 (3,762) -- --
Other limited partnership interests 1,452 -- -- --
Short-term investments 1,578 (167) -- --
Other invested assets 2,397 (325) -- --
-------- -------- -------- ------
150,976 (32,937) -- --
Cash and cash equivalents 2,237 (327) (2,871)(B) 3,147(E)
Accrued investment income 1,955 (246) -- --
Premiums and other receivables 9,032 (245) -- --
Deferred policy acquisition costs 10,582 (3,954) -- --
Deferred income taxes 481 (5) -- --
Other 4,675 (22) -- --
Closed block assets -- 37,736 -- --
Separate account assets 76,110 -- -- --
-------- -------- -------- ------
$256,048 $ -- $ (2,871) $3,147
======== ======== ======== ======
LIABILITIES AND EQUITY
Liabilities:
Future policy benefits $ 79,934 $(38,662) $ 408(B) $ --
Policyholder account balances 52,405 (3) -- --
Other policyholder funds 5,208 (318) -- --
Policyholder dividends payable 986 (747) -- --
Short-term debt 3,585 -- -- --
Long-term debt 2,793 (57) -- --
Current income taxes payable 579 (46) (35)(D) --
Other 20,314 (2,138) 135(D) --
Closed block liabilities -- 41,971 -- --
Separate account liabilities 76,110 -- -- --
-------- -------- -------- ------
241,914 -- 508 --
-------- -------- -------- ------
Company-obligated mandatorily
redeemable securities of
subsidiary trusts holding solely
junior subordinated debentures
of their Parents 118 -- -- --
-------- -------- -------- ------
Equity:
Preferred stock -- -- -- --
Common stock -- -- 5(B)(H) 2(E)
Additional paid-in capital -- -- 10,952(B)(H) 3,145(E)
Retained earnings 14,336 -- (14,336)(H) --
Accumulated other comprehensive loss (320) -- -- --
-------- -------- -------- ------
14,016 -- (3,379) 3,147
-------- -------- -------- ------
$256,048 $ -- $ (2,871) $3,147
======== ======== ======== ======
The The
Private Unit
Placements Offering Pro Forma
---------- -------- ---------
ASSETS
Investments:
Fixed maturities available-for-sale, at fair value $ -- $ -- $ 84,627
Equity securities, at fair value -- -- 2,137
Mortgage loans on real estate -- -- 16,441
Real estate and real estate joint ventures -- -- 5,747
Policy loans -- -- 4,152
Other limited partnership interests -- -- 1,452
Short-term investments -- -- 1,411
Other invested assets -- -- 2,072
------ ------ --------
-- -- 118,039
Cash and cash equivalents 855(F) 966(G) 4,007
Accrued investment income -- -- 1,709
Premiums and other receivables -- -- 8,787
Deferred policy acquisition costs -- -- 6,628
Deferred income taxes -- -- 476
Other -- -- 4,653
Closed block assets -- -- 37,736
Separate account assets -- -- 76,110
------ ------ --------
$ 855 $ 966 $258,145
====== ====== ========
LIABILITIES AND EQUITY
Liabilities:
Future policy benefits $ -- $ -- $ 41,680
Policyholder account balances -- -- 52,402
Other policyholder funds -- -- 4,890
Policyholder dividends payable -- -- 239
Short-term debt -- -- 3,585
Long-term debt -- -- 2,736
Current income taxes payable -- -- 498
Other -- -- 18,311
Closed block liabilities -- -- 41,971
Separate account liabilities -- -- 76,110
------ ------ --------
-- -- 242,422
------ ------ --------
Company-obligated mandatorily
redeemable securities of
subsidiary trusts holding solely
junior subordinated debentures
of their Parents -- 961(G) 1,079
------ ------ --------
Equity:
Preferred stock -- -- --
Common stock 1(F) -- 8
Additional paid-in capital 854(F) 5(G) 14,956
Retained earnings -- -- --
Accumulated other comprehensive loss -- -- (320)
------ ------ --------
855 5 14,644
------ ------ --------
$ 855 $ 966 $258,145
====== ====== ========
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(A) The plan requires that Metropolitan Life establish and operate a closed
block for the benefit of holders of certain individual life insurance policies
of Metropolitan Life. On the plan effective date, assets were allocated to the
closed block in an amount that is expected to produce cash flows which, together
with anticipated revenues from the policies included in the closed block, are
reasonably expected to be sufficient to support obligations and liabilities
relating to these policies, including, but not limited to, provisions for the
payment of claims and certain expenses and taxes, and for the continuation of
policyholder dividend scales in effect for 1999, if the experience underlying
such dividend scales continues, and for appropriate adjustments in such scales
if the experience changes. The closed block assets, the cash flows generated by
the closed block assets and the anticipated revenues from the policies in the
closed block will benefit only the holders of policies included in the closed
block. To the extent that, over time, cash flows from the assets allocated to
the closed block and claims and other experience relating to the closed block
are, in the aggregate, more or less favorable than assumed in establishing the
closed block, total dividends paid to the closed block policyholders in the
future may be greater than or less than that which would have been paid to these
policyholders if the policyholder dividend scales in effect for 1999 had been
continued. Any cash flows in excess of amounts assumed will be available for
distribution over time to closed block policyholders and will not be available
to stockholders. The closed block will continue in effect until the last policy
in the closed block is no longer in force.
The accounting principles to account for the participating policies
included in the closed block are those used prior to the date of the
demutualization. However, a policyholder dividend obligation will be established
for earnings that will be paid to policyholders as additional dividends in the
amounts described below, unless these earnings are offset by future unfavorable
experience in the closed block. Although all of the cash flows of the closed
block are for the benefit of the closed block policyholders, the excess of the
closed block liabilities over closed block assets at the effective date will
represent the estimated maximum future contributions from the closed block
expected to be reported in income as the contribution from the closed block
after income taxes. Such estimated future contributions from the closed block
will inure to the stockholders of the Company. The contribution from the closed
block will be recognized in income over the period the policies and contracts in
the closed block remain in force. Management believes that over time the actual
cumulative contributions from the closed block will approximately equal the
expected cumulative contributions, due to the effect of dividend changes. If,
over the period the closed block remains in existence, the actual cumulative
contribution from the closed block is greater than the expected cumulative
contribution from the closed block, the expected cumulative contribution will be
recognized in income with the excess recorded as a policyholder dividend
obligation, because the excess of the actual cumulative contribution from the
closed block over the expected cumulative contribution will be paid to closed
block policyholders as additional policyholder dividends unless offset by future
unfavorable experience of the closed block. If over such period, the actual
cumulative contribution from the closed block is less than the expected
cumulative contribution from the closed block, the actual contribution will be
recognized in income. However, dividends in the future may be changed, which
would be intended to increase future actual contribution until the actual
contribution equals the expected cumulative contribution.
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15
The demutualization will be accounted for using the historical carrying
values of the assets and liabilities. The Company established accounting records
to specifically segregate the assets, liabilities, revenues and expenses of the
closed block, as if the closed block had been formed on January 1, 2000. These
pro forma amounts include all new individual participating policies issued
during 2000 and the revenues and expenses associated with individual
participating policies eligible to be included in the closed block. The closed
block was formed on April 7, 2000, the effective date of the plan and,
accordingly, the actual assets and liabilities assigned to the closed block and
their carrying values were finalized at that date.
The closed block amounts in the pro forma consolidated statement of income
for the three months ended March 31, 2000 reflect new individual participating
policies issued during the period, which are included in the closed block if
such policies remained in force as of the effective date of the plan. Closed
block amounts were determined as follows: (1) premiums and benefits related to
the policies to be included within the closed block were used; (2) net
investment income for the three months ended March 31, 2000 reflects the actual
income of assets set aside for assignment to the closed block; (3) policyholder
dividends were based on dividend scales of policies to be included within the
closed block; (4) maintenance expenses were based on per policy charges provided
in the plan; (5) realized investment losses of the closed block for the three
months ended March 31, 2000 reflect the actual losses from the assets set aside
for assignment to the closed block.
Deferred policy acquisition costs on business included in the closed block
has been reported as an asset of the closed block in the pro forma consolidated
balance sheet. Amortization of closed block deferred policy acquisition costs
has been included in other expenses in the closed block.
(B) The number of shares of MetLife, Inc. common stock used in the calculation
of pro forma income before extraordinary item per share - basic and diluted is
as follows:
Shares allocated to eligible policyholders 701,520,307
Less shares allocated to eligible policyholders who
received cash or policy credits 207,616,835
-----------
Shares issued to the Metropolitan Life policyholder trust 493,903,472
Shares issued in the initial public offering 232,300,000
Shares issued in the private placements 60,000,000
-----------
Total shares of common stock outstanding 786,203,472
===========
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16
MetLife, Inc. contributed $4,628 of the aggregate net proceeds of the
offerings and the private placements to Metropolitan Life, of which:
- - $408 was used to reimburse Metropolitan Life for the crediting of policy
credits to certain policyholders in the demutualization in lieu of
28,660,022 allocated shares of MetLife, Inc. common stock;
- - $2,550 was used to reimburse Metropolitan Life for cash payments to certain
policyholders in the demutualization in lieu of 178,956,813 allocated
shares of MetLife, Inc. common stock;
- - $321 was used to reimburse Metropolitan Life for cash payments made by its
Canadian branch to certain holders of policies included in its Canadian
business sold to Clarica Life Insurance Company in 1998;
- - $370 was used to reimburse Metropolitan Life for the payment of fees and
expenses incurred in connection with the demutualization; and
- - $979 was used for general corporate purposes, of which $900 was used to
repay short-term debt incurred in connection with Metropolitan Life's
acquisition of GenAmerica.
The amounts used to fund policy credits have been reflected as an increase
in future policy benefits and a reduction of retained earnings in the pro forma
consolidated balance sheet. The amounts used to make the cash payments have been
reflected as a reduction in retained earnings in the pro forma consolidated
balance sheet.
In connection with the contribution of the net proceeds from the initial
public offering, the private placements and the offering of equity security
units to Metropolitan Life as described above, Metropolitan Life issued to
MetLife, Inc. its $1,006 8.00% mandatorily convertible capital note due 2005.
(C) Each unit in the equity unit offering consists of (1) a contract to purchase
shares of MetLife, Inc. common stock and (2) an 8.00% capital security of
MetLife Capital Trust I. Before the issuance of shares of MetLife, Inc. common
stock upon settlement of the purchase contracts, the units will be reflected in
MetLife, Inc.'s diluted earnings per share calculations using the treasury stock
method. Under this method, the number of shares of MetLife, Inc. common stock
used in calculating earnings per share for any period is deemed to be increased
by the excess, if any, of the number of shares issuable upon settlement of the
purchase contracts over the number of shares that could be purchased by MetLife,
Inc. in the market, at the average market price during that period, using the
proceeds received upon settlement. Consequently, there will be no dilutive
effect on MetLife, Inc.'s earnings per share except during periods when the
average market price of its common stock is above $16.82 per share.
(D) The pro forma consolidated balance sheet reflects estimated additional
nonrecurring expenses of $100 (net of income tax benefit of $35) related to the
demutualization assumed to be incurred at the date of the pro forma consolidated
balance sheet. The pro forma consolidated statement of income does not reflect
such nonrecurring expenses since they will be reported as an extraordinary item.
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(E) Represents gross proceeds of $3,310 from the issuance of 232,300,000 shares
of MetLife, Inc. common stock, less an underwriting discount and estimated
offering expenses aggregating $163.
(F) Represents proceeds of $855 from the issuance of 60,000,000 shares of
MetLife, Inc. common stock at an initial public offering price of $14.25 in the
private placements.
(G) Represents gross proceeds of $1,006 from the issuance of the equity security
units, less an underwriting discount and estimated offering expenses aggregating
$40. The financial statements of the trust will be consolidated in MetLife,
Inc.'s consolidated financial statements, with the capital securities shown
under the caption "Company-obligated mandatorily redeemable securities of
subsidiary trusts holding solely junior subordinated debentures of their
Parents". The proceeds from the units were allocated to the underlying purchase
contracts and capital securities based on their relative fair values of $5 and
$961, respectively. The forward contracts will be reported in additional paid-in
capital and subsequent changes in fair value will not be recognized. The notes
to MetLife, Inc.'s consolidated financial statements will disclose that the sole
asset of the trust is the debentures. Distributions on the capital securities
will be reported as a charge to minority interest in MetLife, Inc.'s
consolidated statement of income, whether paid or accrued. The charge to other
expenses in the pro forma consolidated statement of income reflects
distributions on the capital securities at a rate of 8.00% ($20) and the
accretion of the discount ($2) on the carrying value of the Company-obligated
mandatorily redeemable securities of subsidiary trusts holding solely debentures
of their Parents. The income tax benefit related to such charges is $8.
(H) Represents the reclassification of the retained earnings of Metropolitan
Life to reflect the demutualization as follows:
Historical retained earnings $14,336
Less net proceeds of offerings used to fund policy credits and cash
payments to certain eligible policyholders 2,958
Less cash payments made by Metropolitan Life Canadian branch to
certain holders of policies included in its Canadian business sold to
Clarica Life Insurance Company 321
Less additional demutualization expenses (net of income tax benefit of $35) 100
-------
Retained earnings related to eligible policyholders receiving common stock $10,957
=======
(I) Represents the elimination of the surplus tax. As a stock life insurance
company, Metropolitan Life will no longer be subject to the surplus tax.
(J) Represents the elimination of $14 of interest expense related to the
repayment of $900 of short-term debt incurred in connection with Metropolitan
Life's acquisition of GenAmerica. The related income tax benefit was $5.
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4. GENAMERICA ACQUISITION
On January 6, 2000, the Company completed its acquisition of GenAmerica
Corporation ("GenAmerica") for $1.2 billion plus costs of the acquisition. In
connection with this transaction, the Company acquired assets of $23,686 and
assumed liabilities of $22,406. GenAmerica is a holding company which includes
General American Life Insurance Company, 48.3% of the outstanding shares of
Reinsurance Group of America ("RGA") common stock, a provider of reinsurance,
and 61.0% of the outstanding shares of Conning Corporation ("Conning") common
stock, an asset manager. The Company owned 9.6% of the outstanding shares of RGA
common stock prior to the completion of the GenAmerica acquisition. Subsequent
to the acquisition, the Company's ownership percentage of the outstanding shares
of RGA common stock was 57.9%.
In connection with the acquisition of GenAmerica, the Company obtained
GenAmerica Capital I, a wholly-owned subsidiary trust of GenAmerica. In June
1997, GenAmerica Capital I issued $125 million of 8.525% capital securities.
GenAmerica has fully and conditionally guaranteed, on a subordinated basis, the
obligation of the trust under the capital securities and is obligated to
mandatorily redeem the securities on June 30, 2027. GenAmerica may prepay the
securities at any time after June 30, 2007.
On April 18, 2000, Metropolitan Life completed its tender offer for all
outstanding shares of Conning common stock not already owned by Metropolitan
Life, at a price of $12.50 per share. Under the tender offer, 5,348,876 Conning
shares were tendered. These shares, aggregated with the number of Conning shares
that Metropolitan Life already beneficially owned, represent approximately 98%
of the outstanding Conning shares. Metropolitan Life acquired the remaining 2%
of outstanding Conning shares through a cash merger consummated on April 19,
2000.
As part of the GenAmerica acquisition, General American Life Insurance
Company agreed to pay the Company a fee of $120 in connection with the
assumption of certain funding agreements. The fee has been considered as part of
the purchase price of GenAmerica. The Company also agreed to make a capital
contribution of $120 to General American Life after the completion of the
acquisition in three installments of $40. At March 31, 2000, $80 of the total
contribution had been paid.
The Company's total revenues, income before extraordinary items and net
income for the three months ended March 31, 1999 on both an historical and pro
forma basis as if the acquisition of GenAmerica had occurred on January 1, 1999
were as follows:
Income Before
Total Revenues Extraordinary Item Net Income
-------------- ------------------ ----------
Historical $ 5,945 $ 237 $ 229
Pro forma $ 6,863 $ 245 $ 237
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5. NET REALIZED INVESTMENT GAINS (LOSSES)
Net realized investment gains (losses), including changes in valuation
allowances, for the three months ended March 31, 2000 and 1999 were as follows:
2000 1999
---- ----
Fixed maturities $(169) $(105)
Equity securities 68 (29)
Mortgage loans on real estate 1 10
Real estate and real estate joint ventures 13 62
Other limited partnership interests 4 5
Other (48) (51)
----- -----
(131) (108)
Amounts allocable to:
Deferred policy acquisition costs 15 30
Participating pension contracts 4 4
----- -----
$(112) $ (74)
===== =====
Realized investment gains (losses) have been reduced by (1) deferred policy
acquisition amortization to the extent that such amortization results from
realized investment gains and losses and (2) additions to participating
contractholder accounts when amounts equal to such investment gains and losses
are credited to the contractholders' accounts. This presentation may not be
comparable to presentations made by other insurers.
6. COMMITMENTS AND CONTINGENCIES
LITIGATION
The Company is currently a defendant in approximately 500 lawsuits raising
allegations of improper marketing and sales of individual life insurance
policies or annuities. These lawsuits are generally referred to as "sales
practices claims".
On December 28, 1999, after a fairness hearing, the United States District
Court for the Western District of Pennsylvania approved a class action
settlement resolving a multidistrict litigation proceeding involving alleged
sales practices claims. The settlement class includes most of the owners of
permanent life insurance policies and annuity contracts or certificates issued
pursuant to individual sales in the United States by Metropolitan Life,
Metropolitan Insurance and Annuity Company or Metropolitan Tower Life Insurance
Company between January 1, 1982 and December 31, 1997. The class includes owners
of approximately six million in-force or terminated insurance policies and
approximately one million in-force or terminated annuity contracts or
certificates.
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In addition to dismissing the consolidated class actions, the District
Court's order also bars sales practices claims by class action members for sales
by the defendant insurers during the class period, effectively resolving all
pending class actions against these insurers. The defendants are in the process
of having these claims dismissed.
Under the terms of the order, only those class members who excluded
themselves from the settlement may continue an existing, or start a new, sales
practices lawsuit against Metropolitan Life, Metropolitan Insurance and Annuity
Company or Metropolitan Tower Life Insurance Company for sales that occurred
during the class period. Approximately 20,000 class members elected to exclude
themselves from the settlement. Over 400 of the approximately 500 lawsuits noted
above are brought by individuals who have elected not to participate in the
class action settlement.
The settlement provides three forms of relief. General relief, in the form
of free death benefits, is provided automatically to class members who did not
exclude themselves from the settlement or who did not elect the claim evaluation
procedures set forth in the settlement. The claim evaluation procedures permit a
class member to have a claim evaluated by a third party under procedures set
forth in the settlement. Claim awards made under the claim evaluation procedures
will be in the form of policy adjustments, free death benefits or, in some
instances, cash payments. In addition, class members who have or had an
ownership interest in specified policies will also automatically receive
deferred acquisition cost tax relief in the form of free death benefits. The
settlement fixes the aggregate amounts that are available under each form of
relief.
The Company expects that the total cost of the settlement will be
approximately $957. This amount is equal to the amount of the increase in
liabilities for the death benefits and policy adjustments and the present value
of expected cash payments to be provided to included class members, as well as
attorneys' fees and expenses and estimated other administrative costs, but does
not include the cost of litigation with policyholders who are excluded from the
settlement. The Company believes that the cost to it of the settlement will be
substantially covered by available reinsurance and the provisions made in its
consolidated financial statements, and thus will not have a material adverse
effect on its business, results of operations or financial position. The Company
has not yet made a claim under those reinsurance agreements and, although there
is a risk that the carriers will refuse coverage for all or part of the claim,
the Company believes this is very unlikely to occur. The Company believes it has
made adequate provision in its consolidated financial statements for all
probable losses for sales practices claims, including litigation costs involving
policyholders who are excluded from the settlement.
The class action settlement does not resolve nine purported or certified
class actions currently pending against New England Mutual Life Insurance
Company with which the Company merged in 1996. Eight of those actions have been
consolidated as a multidistrict proceeding for pre-trial purposes in the United
States District Court of Massachusetts. The Court certified a mandatory class as
to those claims. Following an appeal of that certification, the United States
Court of Appeals remanded the case to the District Court for further
consideration. New England has agreed to a tentative
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settlement with class counsel which is being presented to the District Court for
preliminary approval.
The class action settlement also does not resolve three putative sales
practices class action lawsuits which have been brought against General American
Life Insurance Company. These lawsuits have been consolidated in a single
proceeding in the United States District Court for the Eastern District of
Missouri. General American Life Insurance Company and counsel for plaintiffs
have negotiated a settlement in principle of this consolidated proceeding.
General American Life Insurance Company has not reached agreement with
plaintiffs' counsel on the attorneys' fees to be paid. However, negotiations are
ongoing.
In addition, the class action settlement does not resolve two putative
class actions involving sales practices claims filed against Metropolitan Life
in Canada. A certified class action with conditionally certified subclasses
against Metropolitan Life, Metropolitan Insurance and Annuity Company,
Metropolitan Tower Life Insurance Company and various individual defendants
alleging improper sales abroad is pending in a New York federal court and
settlement discussions are continuing.
In the past, the Company has resolved some individual sales practices
claims through settlement, dispositive motion, or, in a few instances, trial.
Most of the current cases seek substantial damages, including in some cases
punitive and treble damages and attorneys' fees. Additional litigation relating
to the Company's marketing and sales of individual life insurance may be
commenced in the future.
See Note 9 of Notes to Consolidated Financial Statements for the year ended
December 31, 1999 included in MetLife, Inc.'s Registration Statement on Form S-1
(registration no. 333-91517) filed with the Securities and Exchange Commission
for information regarding reinsurance contracts related to sales practices
claims.
Regulatory authorities in a small number of states, including both
insurance departments and one state attorney general, as well as the National
Association of Securities Dealers, Inc., have ongoing investigations or inquires
relating to the Company's sales of individual life insurance policies or
annuities, including investigations of alleged improper replacement transactions
and alleged improper sales of insurance with inaccurate or inadequate
disclosures as to the period for which premiums would be payable. Over the past
several years, the Company has resolved a number of investigations by other
regulatory authorities for monetary payments and certain other relief, and may
continue to do so in the future.
Metropolitan Life is also a defendant in numerous lawsuits seeking
compensatory and punitive damages for personal injuries allegedly caused by
exposure to asbestos or asbestos-containing products. Metropolitan Life has
never engaged in the business of manufacturing, producing, distributing or
selling asbestos or asbestos-containing products. Rather, these lawsuits,
currently numbering in the thousands, have principally been based upon
allegations relating to certain research, publication and other activities
21
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of one or more of Metropolitan Life's employees during the period from the 1920s
through approximately the 1950s and alleging that Metropolitan Life learned or
should have learned of certain health risks posed by asbestos and, among other
things, improperly publicized or failed to disclose those health risks. Legal
theories asserted against Metropolitan Life have included negligence,
intentional tort claims and conspiracy claims concerning the health risks
associated with asbestos. While Metropolitan Life believes it has meritorious
defenses to these claims, and has not suffered any adverse judgments in respect
of these claims, most of the cases have been resolved by settlements.
Metropolitan Life intends to continue to exercise its best judgment regarding
settlement or defense of such cases. The number of such cases that may be
brought or the aggregate amount of any liability that Metropolitan Life may
ultimately incur is uncertain.
Significant portions of amounts paid in settlement of such cases have been
funded with proceeds from a previously resolved dispute with the Metropolitan
Life's primary, umbrella and first level excess liability insurance carriers.
Metropolitan Life is presently in litigation with several of its excess
liability insurers regarding amounts payable under its policies with respect to
coverage for these claims. The trial court has granted summary judgment to these
insurers. Metropolitan Life has appealed. There can be no assurances regarding
the outcome of this litigation or the amount and timing of recoveries, if any,
from these excess liability insurers. Metropolitan Life's asbestos-related
litigation with these insurers should have no effect on its recoveries under
excess insurance policies.
See Note 9 of Notes to Consolidated Financial Statements for the year ended
December 31, 1999 included in MetLife, Inc.'s Registration Statement on Form S-1
(registration no. 333-91517) filed with the Securities and Exchange Commission
for information regarding insurance policies related to asbestos-related claims.
A purported class action suit involving policyholders in 32 states has been
filed in a Rhode Island state court against the Metropolitan Life's subsidiary,
Metropolitan Property and Casualty Insurance Company, with respect to claims by
policyholders for the alleged diminished value of automobiles after
accident-related repairs. The trial court recently denied a motion be
Metropolitan Property and Casualty Insurance Company for summary judgment. A
similar "diminished value" allegation was made recently in a Texas Deceptive
Trade Practices Act letter and lawsuit which involve a Metropolitan Property and
Casualty Company policyholder. A purported class action has been filed against
Metropolitan Property and Casualty Insurance Company and its subsidiary,
Metropolitan Casualty Insurance Company, in Florida by a policyholder alleging
breach of contract and unfair trade practices with respect to allowing the use
of parts not made by the original manufacturer to repair damaged automobiles.
These suits are in the early stages of litigation and Metropolitan Property and
Casualty Insurance Company and Metropolitan Casualty Insurance Company intend to
vigorously defend themselves against these suits. Similar suits have been filed
against several other personal lines property and casualty insurers.
The United States, the Commonwealth of Puerto Rico and various hotels and
individuals have sued MetLife Capital Corporation, a former subsidiary of the
Company, seeking
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damages for clean up costs, natural resource damages, personal injuries and lost
profits and taxes based upon, among other things, a release of oil from a barge
which was being towed by the M/V Emily S. In connection with the sale of MetLife
Capital, the Company acquired MetLife Capital's potential liability with respect
to the M/V Emily S lawsuit. MetLife Capital had entered into a sale and
leaseback financing arrangement with respect to the M/V Emily S. The plaintiffs
have taken the position that MetLife Capital, as the owner of record of the M/V
Emily S, is responsible for all damages caused by the barge, including the oil
spill. The governments of the United States and Puerto Rico have claimed damages
in excess of $150. At a mediation, the action brought by the United States and
Puerto Rico was conditionally settled, provided that the governments have access
to additional sums from a fund contributed to by oil companies to help remediate
oil spills. The Company can provide no assurance that this action will be
settled in this manner.
Metropolitan Life has completed a tender offer to purchase the shares of
Conning Corporation that it had not already owned. After Metropolitan Life had
announced its intention to make a tender offer, three putative class actions
were filed by Conning shareholders alleging that the prospective offer was
inadequate and constituted a breach of fiduciary duty. The parties to the
litigation have reached an agreement in principle providing for a settlement of
the actions.
In addition, several lawsuits have been brought challenging the fairness of
Metropolitan Life's plan and the adequacy and accuracy of Metropolitan Life's
disclosures to policyholders regarding the plan. These actions name as
defendants some or all of Metropolitan Life, MetLife, Inc., the individual
directors and the New York State Superintendent of Insurance. The five
previously disclosed purported class actions pending in the Supreme Court of the
State of New York for New York County have been consolidated within the
commercial part. There remains a separate purported class action in Kings
County. In addition, a new purported class action was filed on April 21, 2000 in
state court in New York County. The plaintiffs in the state court class actions
seek injunctive, declaratory and compensatory relief, as well as an accounting.
On or about April 14, 2000, some of the plaintiffs in the above described
actions also brought a proceeding under Article 78 of New York's Civil Practice
Law and Rules challenging the Opinion and Decision of the New York
Superintendent of Insurance that approved the plan. In this action, petitioners
seek to vacate the Superintendent's Opinion and Order and enjoin him from
granting final approval to the plan. Finally, on April 18, 2000, a purported
class action was filed in United States District Court for the Eastern District
of New York claiming violation of the Securities Act of 1933. The plaintiff in
this action claims that the Policyholder Information Booklets relating to the
plan failed to disclose certain material facts and seeks rescission and
compensatory damages. Metropolitan Life, MetLife, Inc. and the individual
defendants believe they have meritorious defenses to the plaintiffs' claims and
intend vigorously to contest all of the plaintiffs' claims in these actions.
Various litigation, claims and assessments against the Company, in addition
to those discussed above and those otherwise provided for in the Company's
consolidated financial statements, have arisen in the course of the Company's
business, including, but not limited
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to, in connection with its activities as an insurer, employer, investor,
investment advisor and taxpayer. Further, state insurance regulatory authorities
and other Federal and state authorities regularly make inquiries and conduct
investigations concerning the Company's compliance with applicable insurance and
other laws and regulations.
In some of the matters referred to above, very large and/or indeterminate
amounts, including punitive and treble damages, are sought. While it is not
feasible to predict or determine the ultimate outcome of all pending
investigations and legal proceedings or provide reasonable ranges of potential
losses, it is the opinion of the Company's management that their outcomes, after
consideration of available insurance and reinsurance and the provisions made in
the Company's consolidated financial statements, are not likely to have a
material adverse effect on the Company's consolidated financial position.
However, given the large and/or indeterminate amounts sought in certain of these
matters and the inherent unpredictability of litigation, it is possible that an
adverse outcome in certain matters could, from time to time, have a material
adverse effect on the Company's operating results or cash flows in particular
quarterly or annual periods.
7. BUSINESS SEGMENT INFORMATION
Auto
&
For the three months ended March 31, 2000 Individual Institutional Home International Reinsurance
- ------------------------------------------------------------------------------------------------------------------
Premiums $ 1,118 $ 1,593 $ 645 $ 146 $ 358
Universal life and investment-type
product policy fees 319 137 -- 13 --
Net investment income 1,578 928 36 65 88
Other revenues 214 183 13 3 2
Net realized investment gains (losses) (39) (16) 5 1 (1)
Income (loss) before provision for income taxes
and extraordinary item 270 201 16 16 40
- ------------------------------------------------------------------------------------------------------------------
Asset Consolidation/
For the three months ended March 31, 2000 Management Corporate Elimination Total
- ---------------------------------------------------------------------------------------------------
Premiums $ -- $ -- $ -- $ 3,860
Universal life and investment-type
product policy fees -- -- -- 469
Net investment income 21 136 (68) 2,784
Other revenues 216 21 13 665
Net realized investment gains (losses) -- (62) -- (112)
Income (loss) before provision for income taxes
and extraordinary item 22 (73) (17) 475
- ---------------------------------------------------------------------------------------------------
Auto
&
For the three months ended March 31, 1999 Individual Institutional Home International Reinsurance
- -------------------------------------------------------------------------------------------------------------------
Premiums $ 1,018 $ 1,427 $ 357 $ 114 $ --
Universal life and investment-type
product policy fees 204 127 -- 8 --
Net investment income 1,272 914 22 48 --
Other revenues 101 133 5 2 --
Net realized investment gains (losses) (18) (12) -- 4 --
Income (loss) before provision for income taxes
and extraordinary item 240 232 8 1 --
- -------------------------------------------------------------------------------------------------------------------
Asset Consolidation/
For the three months ended March 31, 1999 Management Corporate Elimination Total
- --------------------------------------------------------------------------------------------------
Premiums $ -- $ -- $ -- $ 2,916
Universal life and investment-type
product policy fees -- -- -- 339
Net investment income 18 116 (80) 2,310
Other revenues 207 6 -- 454
Net realized investment gains (losses) -- (30) (18) (74)
Income (loss) before provision for income taxes
and extraordinary item 24 (57) (37) 411
- --------------------------------------------------------------------------------------------------
At March 31, At December 31,
2000 1999
----------- --------------
Assets
Individual $ 132,407 $ 109,401
Institutional 91,277 88,127
Auto & Home 4,457 4,443
International 5,228 4,381
Reinsurance 6,196 --
Asset Management 1,135 1,036
Corporate 19,384 20,499
Consolidation/Elimination (4,036) (2,655)
--------- ---------
Total $ 256,048 $ 225,232
========= =========
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The Individual segment includes an equity ownership interest in Nvest
Companies, L.P. ("Nvest") under the equity method of accounting. Nvest has been
included within the Asset Management segment due to the types of products and
strategies employed by the entity. The Individual segment's equity in earnings
of Nvest, which is included in net investment income, was $12 and $13 for the
three months ended March 31, 2000 and 1999, respectively. The investment in
Nvest was $195 and $224 at March 31, 2000 and 1999, respectively.
The Reinsurance segment includes the life reinsurance business of RGA
combined with Exeter, a previously existing ancillary life reinsurance business.
Exeter has been reported as a component of the Individual segment rather than as
a separate segment for periods prior to January 1, 2000 due to its
immateriality.
The Consolidation/Elimination column includes the elimination of all
intersegment amounts and the Individual segment's ownership interest in Nvest.
The principal component of the intersegment amounts related to intersegment
loans, which bore interest at rates commensurate with related borrowings.
Revenues derived from any one customer did not exceed 10% of consolidated
revenues. Revenues from U.S. operations were $7,438 and $5,769 for the three
months ended March 31, 2000 and 1999, respectively, which represented 97% of
consolidated revenues for both 2000 and 1999.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
For purposes of this discussion, the term "Company" refers, at all times
prior to the plan effective date (as hereinafter defined), to Metropolitan Life,
a mutual life insurance company organized under the laws of the State of New
York ("Metropolitan Life"), and its subsidiaries, and at all times on and after
the plan effective date, to MetLife, Inc. ("MetLife"), a Delaware corporation,
and its subsidiaries, including Metropolitan Life on and after the plan
effective date. Set forth below is a summary of certain significant matters
relevant to an understanding of the financial condition and results of
operations of the Company. Following this summary is a discussion addressing the
consolidated results of operations and financial condition of the Company for
the periods indicated. This discussion should be read in conjunction with the
Company's unaudited interim condensed consolidated financial statements included
elsewhere herein.
Statements, analyses, and other information contained in this report
relating to trends in the Company's operations and financial results, the
markets for the Company's products, the future development of the Company's
business, and the risks and uncertainties to which the Company may be subject,
other than with respect to historical information, constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Such forward-looking statements are not guarantees of future performance.
Actual results may differ materially from those anticipated in the forward
looking statements as a result of risks and uncertainties including: changes in
interest rates, decline in securities markets and the effect of sales on
investment products and on the Company's investment portfolio, competition,
litigation, failure to attract and retain sales representatives, differences
between actual claims experience and underwriting and reserving assumptions,
occurrence of catastrophes, downgrade of the Company's or its affiliates'
ratings, changes in state and federal regulation, and risks related to the
demutualization of Metropolitan Life, including a challenge to the plan of
reorganization or the order of the New York Superintendent of Insurance.
Readers are also directed to other risks and uncertainties discussed, as
well as to further discussion of the risks described above, in other documents
filed by the Company with the Securities and Exchange Commission, including the
Company's Registration Statement on Form S-1 (registration no. 333-91517). The
Company specifically disclaims any obligation to update or revise any
forward-looking statement, whether as a result of new information, future
developments or otherwise.
THE DEMUTUALIZATION
On April 7, 2000, pursuant to an order by the New York Superintendent of
Insurance ("Superintendent") approving its plan of reorganization (the "plan")
as amended, Metropolitan Life converted from a mutual life insurance company to
a stock life insurance company and became a wholly-owned subsidiary of MetLife.
In conjunction
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therewith, each policyholder's membership interest was extinguished and each
eligible policyholder received, in exchange for that interest, trust interests
representing shares of common stock of MetLife to be held in a trust, cash or an
adjustment to their policy values in the form of policy credits, as provided in
the plan. In addition, Metropolitan Life's Canadian branch made cash payments to
holders of certain policies transferred to Clarica Life Insurance Company in
connection with the sale of a substantial portion of Metropolitan Life's
Canadian operations in 1998, as a result of a commitment made in connection with
obtaining Canadian regulatory approval of that sale. The payments, which were
recorded in other expenses in the 2000 second quarter, were determined in a
manner that was consistent with the treatment of, and fair and equitable to,
eligible policyholders of Metropolitan Life.
On the plan effective date, MetLife, Inc. conducted an initial public
offering of 202,000,000 shares and concurrent private placements of an aggregate
of 60,000,000 shares of its common stock at an initial public offering price of
$14.25 per share. The shares of common stock issued in the offerings are in
addition to 493,903,472 shares of common stock of MetLife, Inc. distributed to
the Metropolitan Life policyholder trust for the benefit of policyholders of
Metropolitan Life in connection with the demutualization. On April 10, 2000,
MetLife, Inc. issued 30,300,000 additional shares as a result of the exercise of
over-allotment options granted to underwriters in the initial public offering.
Concurrently with these offerings, the Company and a trust it owns, sold
20,125,000 8.00% equity security units for an aggregate offering of $1,006
million. Each unit consists of (a) a contract to purchase shares of common stock
and (b) a capital security of MetLife Capital Trust I, a Delaware statutory
business trust wholly-owned by us.
On the plan effective date, the Company established the closed block for
the benefit of holders of certain individual life insurance policies of
Metropolitan Life. Assets have been allocated to the closed block in an amount
that produces cash flows which, together with anticipated revenue from the
policies included in the closed block, are reasonably expected to be sufficient
to support obligations and liabilities relating to these policies, including,
but not limited to, provisions for the payment of claims and certain expenses
and taxes, and to provide for the continuation of policyholder dividend scales
in effect for 1999, if the experience underlying such dividend scales continues,
and for appropriate adjustments in such scales if the experience changes. The
closed block assets, the cash flows generated by the closed block assets and the
anticipated revenue from the policies in the closed block will benefit only the
holders of the policies in the closed block. To the extent that, over time, cash
flows from the assets allocated to the closed block and claims and other
experience relating to the closed block are, in the aggregate, more or less
favorable than assumed in establishing the closed block, total dividends paid to
closed block policyholders in the future may be greater than or less than the
total dividends that would have been paid to these policyholders if the
policyholder dividend scales in effect for 1999 had been continued. Any cash
flows in excess of amounts assumed will be available for distribution over time
to closed block policyholders and will not be available to stockholders. The
closed block will continue in effect as long as any policy in the closed block
remains in force. Its expected life is over 100 years.
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28
The Company does not expect the closed block to affect its net income or
its liquidity. The Company will use the same accounting principles to account
for the participating policies included in the closed block as it used prior to
the date of demutualization. However, the Company will establish a policyholder
dividend obligation for earnings that will be paid to policyholders as
additional dividends in the amounts described below, unless these earnings are
offset by future unfavorable experience of the closed block. The excess of
closed block liabilities over closed block assets at the effective date of the
demutualization represents the estimated maximum future contributions from the
closed block expected to result from operations attributed to the closed block
after income taxes. Contributions are recognized from the closed block in income
over the period the policies and contracts in the closed block remain in force.
Management believes that over time the actual cumulative contributions from the
closed block will approximately equal the expected cumulative contributions, due
to the effect of dividend changes. If, over the period the closed block remains
in existence, the actual cumulative contribution from the closed block is
greater than the expected cumulative contribution from the closed block, the
Company will recognize only the expected cumulative contribution in income with
the excess recorded as a policyholder dividend obligation, because it will pay
the excess of the actual cumulative contribution from the closed block over the
expected cumulative contribution to closed block policyholders as additional
policyholder dividends unless offset by future unfavorable experience of the
closed block. If over such period, the actual cumulative contribution from the
closed block is less than the expected cumulative contribution from the closed
block, the Company will recognize only the actual contribution in income.
However, the Company may change dividends in the future, which would be intended
to increase future actual contributions until the actual cumulative
contributions equal the expected cumulative contributions.
ACQUISITIONS
On January 6, 2000, the Company completed its acquisition of GenAmerica
Corporation ("GenAmerica") for $1.2 billion plus costs of the acquisition.
GenAmerica is a holding company which includes General American Life Insurance
Company, 48.3% of the outstanding shares of Reinsurance Group of America ("RGA")
common stock, a provider of reinsurance, and 61.0% of the outstanding shares of
Conning Corporation ("Conning") common stock, an asset manager. The Company
owned 9.6% of the outstanding shares of RGA common stock prior to the completion
of the GenAmerica acquisition. Subsequent to the acquisition, the Company's
ownership percentage of the outstanding shares of RGA common stock was 57.9%.
On April 18, 2000, Metropolitan Life completed its tender offer for all of
the outstanding shares of Conning common stock not already owned by Metropolitan
Life, at a price of $12.50 per share. Under the tender offer, 5,348,876 Conning
shares were tendered. These shares, aggregated with the number of Conning shares
that Metropolitan Life already beneficially owns, represents approximately 98%
of the total Conning shares outstanding. Metropolitan Life acquired the
remaining 2% of outstanding Conning shares through a cash merger consummated on
April 19, 2000.
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RESULTS OF OPERATIONS
The following table presents summary consolidated financial information for
the periods indicated:
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------
2000 1999
------ ------
(DOLLARS IN MILLIONS)
REVENUES
Premiums............................................................... $3,860 $2,916
Universal life and investment-type product policy fees................. 469 339
Net investment income.................................................. 2,784 2,310
Other revenues......................................................... 665 454
Net realized investment losses (net of amounts allocable
to other accounts of $19 and $34, respectively)................... (112) (74)
------ ------
7,666 5,945
------ ------
EXPENSES
Policyholder benefits and claims (includes amounts
directly related to net realized investment
losses of $4 and $4, respectively)................................ 4,047 3,141
Interest credited to policyholder account balances..................... 697 610
Policyholder dividends................................................. 468 382
Other expenses (includes amounts directly related
to net realized investment losses of $15 and $30,
respectively).................................................... 1,979 1,401
------ ------
7,191 5,534
------ ------
Income before provision for income taxes and
extraordinary item............................................... 475 411
Provision for income taxes............................................ 198 174
------ ------
Income before extraordinary item...................................... 277 237
Extraordinary item - demutualization expense.......................... 41 8
------ ------
Net income............................................................ $ 236 $ 229
====== ======
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THREE MONTHS ENDED MARCH 31, 2000 COMPARED WITH THE THREE MONTHS ENDED MARCH 31,
1999
Premiums increased by $944 million, or 32%, to $3,860 million for the three
months ended March 31, 2000 from $2,916 million for the comparable 1999 period,
primarily due to the acquisition of GenAmerica on January 6, 2000. Excluding the
impact of this acquisition, premiums increased by $460 million, or 16%. This
increase was attributable to Auto & Home, Institutional Business, and
International. The increase of $288 million, or 81%, in Auto & Home was
primarily due to the acquisition of the standard personal lines property and
casualty insurance operations of The St. Paul Companies ("St. Paul"),
representing $259 million of the premiums, as well as growth in this segment's
standard auto and homeowners insurance businesses. The increase of $143 million,
or 10%, in Institutional Business was primarily due to an increase in
non-medical health premiums due to higher sales and improved policyholder
retention in this segment's dental and disability businesses. The increase of
$32 million, or 28%, in International was primarily due to overall growth in
Spain, Taiwan, Korea and Mexico.
Universal life and investment-type product policy fees increased by $130
million, or 38%, to $469 million for the three months ended March 31, 2000 from
$339 million for the comparable 1999 period. Excluding the impact of the
GenAmerica acquisition, universal life and investment-type product policy fees
increased by $69 million, or 20%. This increase was almost entirely attributable
to a $65 million, or 32%, increase in Individual Business, which was primarily
due to the continued growth in deposits for investment products, stock market
appreciation and the acceleration of the recognition of unearned fees in
connection with a universal life product replacement program.
Net investment income increased by $474 million, or 21%, to $2,784 million
for the three months ended March 31, 2000 from $2,310 million in 1999. Excluding
the impact of the GenAmerica acquisition, net investment income increased by
$198 million, or 9%. This increase was primarily due to higher income from (i)
fixed maturities of $134 million, or 8%, (ii) mortgage loans on real estate of
$41 million, or 12%, (iii) real estate and real estate joint ventures income,
after investment expenses and depreciation, of $44 million, or 40% and (iv) cash
and short-term investments of $17 million, or 47%. These increases were
partially offset by reduced income in (i) other limited partnership interests of
$29 million, or 66%, and (ii) other investment income of $8 million, or 38%, as
well as higher investment expenses of $9 million, or 15%.
Other revenues increased by $211 million, or 46%, to $665 million for the
three months ended March 31, 2000 from $454 million for the comparable 1999
period. Excluding the impact of the GenAmerica acquisition, other revenues
increased by $115 million, or 25%, primarily due to growth of $55 million, or
54%, in Individual Business and $48 million, or 36%, in Institutional Business.
The increase in Individual Business was primarily attributable to continued
growth in the Nathan & Lewis and MetLife Securities, Inc. subsidiaries. The
increase in Institutional Business was primarily due to strong growth in this
segment's dental and disability administrative services businesses.
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The Company's realized investment gains and losses are net of related
policyholder amounts. The amounts netted against realized investment gains and
losses are (i) amortization of deferred policy acquisition costs attributable to
the increase or decrease in product gross margins or profits resulting from
realized investment gains and losses, (ii) additional policyholder liabilities,
which are required when investment gains are realized and the Company reinvests
the proceeds in lower yielding assets ("loss recognition"), and (iii)
liabilities for those participating contracts in which the policyholders'
accounts are increased or decreased by the related investment gains or losses.
Net realized investment losses increased by $38 million, or 51%, to $112
million for the three months ended March 31, 2000 from $74 million for the
comparable 1999 period. Excluding the impact of the GenAmerica acquisition, net
realized investment losses increased by $37 million, or 50%. This increase
reflected total gross realized investment losses of $130 million, an increase of
$22 million, or 20%, from $108 million in 1999, before the offsets for the
amortization of deferred policy acquisition costs of $15 million and $30 million
and credits to participating contracts of $4 million related to assets sold in
2000 and 1999, respectively. The increase in net realized investment losses
reflects the continuation of the Company's strategy to reposition its investment
portfolio in order to provide a higher operating return on its invested assets.
The Company believes the policy of netting related policyholder amounts
against realized investment gains and losses provides important information in
evaluating its operating performance. Realized investment gains and losses are
often excluded by investors when evaluating the overall financial performance of
insurers. The Company believes its presentation enables readers of its
consolidated statements of income to easily exclude realized investment gains
and losses and the related effects on the consolidated statements of income when
evaluating its operating performance. The Company's presentation of realized
investment gains and losses net of policyholder amounts may be different from
the presentation used by other insurance companies and, therefore, amounts in
its consolidated statements of income may not be comparable with amounts
reported by other insurers.
Policyholder benefits and claims increased by $906 million, or 29%, to
$4,047 million for the three months ended March 31, 2000 from $3,141 million for
the comparable 1999 period. This increase reflected total gross policyholder
benefits and claims of $4,043 million, an increase of $906 million from $3,137
million in 1999, before the offset for participating contractholder accounts of
$4 million directly related to net realized investment gains and losses for the
three months ended March 31, 2000 and 1999, respectively. Excluding the impact
of the GenAmerica acquisition, policyholder benefits and claims increased $462
million, or 15%. This increase was primarily due to increases of $238 million,
or 14%, in Institutional Business and $205 million, or 75%, in Auto & Home. The
Institutional Business increase was primarily due to overall premium growth
within this segment's group dental and disability businesses as well as the
acquisition of the individual disability income business of Lincoln National in
November 1999. The increase in Auto & Home was primarily due to a 7% increase in
the number
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of policies in force, the St. Paul acquisition ($169 million), unfavorable
claims development and higher costs attributable to the increased use of
original manufacturer parts within this segment's auto business.
Interest credited increased by $87 million, or 14%, to $697 million for the
three months ended March 31, 2000 from $610 million for the comparable 1999
period. Excluding the impact of the GenAmerica acquisition, interest credited
decreased by $7 million, or 1%. This decrease was primarily due to a decrease in
Institutional Business of $16 million, or 6%, partially offset by and increase
in Individual Business of $9 million, or 3%. The decrease in Institutional
Business was primarily due to a decrease in retirement and savings products of
$26 million, or 26%, due to a continued shift in customers' investment
preferences from guaranteed interest products to separate account alternatives,
partially offset by an increase in group life of $10 million, or 11%, due to
growth in this segment's bank-owned life insurance business and increases in the
cash values of executive and corporate-owned universal life plans. The increase
in Individual Business was primarily due to an increase in insurance products of
$17 million, or 18%, due to higher policyholder account balances, partially
offset by an $8 million, or 3%, decrease in annuity investment products due to a
shift in investor preferences to separate account alternatives.
Policyholder dividends increased by $86 million, or 23%, to $468 million
for the three months ended March 31, 2000 from $382 million for the comparable
1999 period. Excluding the acquisition of GenAmerica, policyholder dividends
increased by $34 million, or 9%. This increase was primarily due to an increase
in Individual Business of $25 million, or 7%, due to growth in cash values of
policies associated with the Company's large block of traditional life insurance
business. Policyholder dividends vary from period to period based on
participating contract experience.
Other expenses increased by $578 million, or 41%, to $1,979 million for the
three months ended March 31, 2000 from $1,401 million for the comparable 1999
period. Excluding the net capitalization of deferred acquisition costs, other
expenses increased by $653 million, or 45%, to $2,093 in 2000 from $1,440 in
1999. Excluding the impact of the GenAmerica acquisition, other expenses
increased by $323 million, or 22%. This increase was primarily attributable to
increases in Individual Business of $149 million, or 24%, Auto & Home of $124
million, or 121%, and International of $22 million, or 35%. The increase in
Individual Business was primarily due to a $44 million increase in the Nathan &
Lewis and MetLife Securities, Inc. subsidiaries commensurate with the increase
in other revenues discussed above, a $41 million increase in expenses associated
with the Company's securities lending program, a $21 million increase in
commission expense arising from increased sales of variable annuities, and
higher general and administrative expenses. The increase in Auto & Home was
primarily due to the St. Paul acquisition. The increase in International was
primarily due to higher business development costs.
Deferred acquisition costs are principally amortized in proportion to gross
margins or profits, including realized investment gains or losses. The
amortization is allocated to
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realized investment gains and losses to provide consolidated statement of income
information regarding the impact of investment gains and losses on the amount of
the amortization, and other expenses to provide amounts related to gross margins
or profits originating from transactions other than investment gains and losses.
Capitalization of deferred acquisition costs increased to $386 million for
the three months ended March 31, 2000 from $239 million for the 1999 comparable
period while amortization of such costs increased to $287 million in 2000 from
$230 million in 1999. Excluding the impact of the GenAmerica acquisition,
capitalization of deferred acquisition costs increased to $335 million in 2000
from $239 in 1999 while amortization of such costs increased to $288 million in
2000 from $230 million in 1999. Amortization of deferred acquisition costs of
$272 million and $200 million was allocated to other expenses in 2000 and 1999,
respectively, while the remainder of the amortization in each year was allocated
to realized investment losses. Excluding the impact of the GenAmerica
acquisition, amortization of deferred acquisition costs of $276 million and $200
million was allocated to other expenses in 2000 and 1999, respectively, while
the remainder of the amortization in each year was allocated to realized
investment losses. The increase in amortization of deferred acquisition costs
allocated to other expenses was primarily attributable to the Individual
Business segment, which increased to $190 million in 2000 from $150 million in
1999, primarily due to refinements in the calculation of estimated gross margins
as well as the acceleration of the recognition of unearned fees in connection
with the product replacement program discussed above.
Income tax expense for the three months ended March 31, 2000 was $198
million, or 42% of income before provision for income taxes and extraordinary
item compared with $174, or 42%, for the comparable 1999 period. The effective
rates differ from the corporate tax rate of 35% primarily due to the impact of
surplus tax. The Company is subject to surplus tax imposed on mutual life
insurance companies under Section 809 of the Internal Revenue Code. The surplus
tax results from the disallowance of a portion of a mutual life insurance
company's policyholder dividends as a deduction from taxable income. Subsequent
to the plan effective date, the Company will no longer be subject to the surplus
tax.
Demutualization expenses, net of income taxes, were $41 million and $8
million for the three months ended March 31, 2000 and 1999, respectively. These
costs related to the Company's demutualization efforts.
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34
INDIVIDUAL BUSINESS
The following table presents summary consolidated financial information for
Individual Business for the periods indicated:
FOR THE THREE MONTHS
ENDED MARCH 31,
----------------------
2000 1999
---- ----
(DOLLARS IN MILLIONS)
REVENUES
Premiums $1,118 $1,018
Universal life and investment-type
product policy fees 319 204
Net investment income 1,578 1,272
Other revenues 214 101
Net realized investment losses (39) (18)
------ ------
3,190 2,577
------ ------
EXPENSES
Policyholder benefits and claims 1,185 1,057
Interest credited to policyholder
account balances 412 337
Policyholder dividends 438 361
Other expenses 885 582
------ ------
2,920 2,337
------ ------
Income before provision for income taxes 270 240
Provision for income taxes 97 77
------ ------
Net income $ 173 $ 163
====== ======
THREE MONTHS ENDED MARCH 31, 2000 COMPARED WITH THE THREE MONTHS ENDED MARCH 31,
1999 - INDIVIDUAL BUSINESS
Premiums increased by $100 million, or 10%, to $1,118 million for the three
months ended March 31, 2000 from $1,018 million for the 1999 comparable period.
Excluding the impact of the GenAmerica acquisition, premiums decreased by $9
million, or 1%. Premiums from insurance products decreased by $16 million, or
2%, to $986 million in 2000 compared with $1,002 million in 1999. This decrease
was primarily due to a decline in sales of traditional life insurance policies,
which reflected a continued shift in policyholders' preferences from those
policies to variable life products. Premiums from annuity and investment
products increased by $7 million, or 44%, to $23 million in 2000 from $16
million in 1999, primarily due to the increased sales of supplementary contracts
with life contingencies.
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35
Universal life and investment-type product policy fees increased by $115
million, or 56%, to $319 million for the three months ended March 31, 2000 from
$204 million for the comparable 1999 period. Excluding the impact of the
GenAmerica acquisition, universal life and investment-type product policy fees
increased by $65 million, or 32%. Policy fees from insurance products increased
by $43 million, or 33%, to $172 million in 2000 from $129 million in 1999. This
increase was due to increased sales of variable life products and continued
growth in separate accounts, reflecting a continued shift in customer
preferences from traditional life products. The increase also reflects the
acceleration of the recognition of unearned fees in connection with a product
replacement program related to universal life policies. Policy fees from annuity
and investment products increased by $22 million, or 29%, to $97 million in 2000
from $75 million in 1999, primarily due to continued growth in deposits for
investment products and stock market appreciation.
Other revenues increased by $113 million, or 112%, to $214 million for the
three months ended March 31, 2000 from $101 million for the comparable 1999
period. Excluding the impact of the GenAmerica acquisition, other revenues
increased by $55 million, or 54%. Other revenues for insurance products
increased by $52 million, or 54%, to $148 million in 2000 from $96 million in
1999. This increase was primarily attributable to continued growth in the Nathan
& Lewis and MetLife Securities, Inc. subsidiaries, as well as higher commission
and fee income associated with increased sales of proprietary and
non-proprietary products. Other revenues for annuity and investment products
increased by $3 million, or 60%, to $8 million for the three months ended March
31, 2000 from $5 million for the comparable 1999 period. This increase was
primarily due to investment advisory fees associated with the growth of variable
annuity separate accounts.
Policyholder benefits and claims increased $128 million, or 12%, to $1,185
million for the three months ended March 31, 2000 from $1,057 million for the
comparable 1999 period. Excluding the impact of the GenAmerica acquisition,
policyholder benefits and claims decreased $7 million, or 1%. Policyholder
benefits and claims for insurance products decreased by $40 million, or 4%, to
$1,004 million in 2000 from $1,044 million in 1999. This decrease was primarily
due to improved mortality and morbidity experience in the existing block of
traditional life policyholder liabilities. Policyholder benefits and claims for
annuity and investment products increased by $33 million, or 254%, to $46
million in 2000 from $13 million in 1999 consistent with the increase in
premiums discussed above.
Interest credited to policyholder account balances increased by $75
million, or 22%, to $412 million for the three months ended March 31, 2000 from
$337 million for the comparable 1999 period. Excluding the impact of the
GenAmerica acquisition, interest credited to policyholder account balances
increased by $9 million, or 3%. Interest on insurance products increased by $17
million, or 18%, to $109 million in 2000 from $92 million in 1999. This increase
was primarily due to higher policyholder account balances. Interest on annuity
and investment products decreased by $8 million, or 3%, to
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36
$237 million in 2000 from $245 million in 1999, primarily due to the shift in
investor preferences to separate account alternatives.
Policyholder dividends increased by $77 million, or 21%, to $438 million
for the three months ended March 31, 2000 from $361 million for the comparable
1999 period. Excluding the impact of the GenAmerica acquisition, policyholder
dividends increased by $25 million, or 7%. This increase was due to growth in
cash values of policies associated with this segment's large block of
traditional individual life insurance business.
Other expenses increased by $303 million, or 52%, to $885 million for the
three months ended March 31, 2000 from $582 million for the comparable 1999
period. Excluding the net capitalization of deferred acquisition costs as
discussed below, other expenses increased by $302 million, or 50%, to $912
million in 2000 from $610 million in 1999. Excluding the impact of the
GenAmerica acquisition, other expenses increased $149 million, or 24%. Other
expenses related to insurance products increased by $113 million, or 24%, to
$580 million in 2000 from $467 million in 1999. This increase was primarily due
to a $44 million increase in the broker dealer and other subsidiaries
commensurate with the increase in other revenues discussed above, a $29 million
increase in expenses associated with the Company's securities lending program,
and higher general and administrative expenses. Other expenses related to
annuity and investment products increased $36 million, or 25%, to $179 million
in 2000 from $143 million in 1999. This increase was primarily due to a $21
million increase in commission expense, arising from higher sales of variable
annuities and a $12 million increase in expenses associated with the Company's
securities lending program.
Deferred acquisition costs are principally amortized in proportion to gross
margins or gross profits, including realized investment gains or losses. The
amortization is allocated to realized investment gains and losses to provide
consolidated statement of income information regarding the impact of investment
gains and losses on the amount of the amortization, and other expenses to
provide amounts related to gross margins or profits originating from
transactions other than investment gains and losses.
Capitalization of deferred acquisition costs increased $34 million to $212
million in 2000 from $178 million in 1999 while total amortization of such costs
increased $50 million to $170 million in 2000 from $120 million in 1999.
Excluding the impact of the GenAmerica acquisition, capitalization of deferred
acquisition costs increased $18 million, while total amortization of such costs
increased $52 million. Amortization of deferred acquisition costs of $185
million and $150 million were allocated to other expenses in 2000 and 1999,
respectively, while the remainder of the amortization in each year was allocated
to realized investment gains and losses. Excluding the impact of the GenAmerica
acquisition, amortization of deferred acquisition costs of $190 million and $150
million were allocated to other expenses in 2000 and 1999, respectively, while
the remainder of the amortization in each year was allocated to realized
investment gains and losses. Amortization of deferred acquisition costs
allocated to other expenses related to insurance products increased $25 million
to $143 million in 2000 from $118 in 1999 due to refinements in the calculation
of estimated gross margin as well as the acceleration of
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37
the recognition of unearned fees in connection with the product replacement
program discussed above. Amortization of annuity products deferred acquisition
costs allocated to other expenses increased $15 million to $47 million in 2000
compared to $32 million in 1999. This change was related to refinements in the
calculation of estimated gross margin.
INSTITUTIONAL BUSINESS
The following table presents summary consolidated financial information for
Institutional Business for the periods as indicated:
FOR THE THREE MONTHS
ENDED MARCH 31,
----------------------
2000 1999
------ ------
(DOLLARS IN MILLIONS)
REVENUES
Premiums $1,593 $1,427
Universal life and investment-type product policy fees 137 127
Net investment income 928 914
Other revenues 183 133
Net realized investment losses (16) (12)
------ ------
2,825 2,589
------ ------
EXPENSES
Policyholder benefits and claims 1,973 1,708
Interest credited to policyholder account balances 247 258
Policyholder dividends 18 16
Other expenses 386 375
------ ------
2,624 2,357
------ ------
Income before provision for income taxes 201 232
Provision for income taxes 71 88
------ ------
Net income $ 130 $ 144
====== ======
THREE MONTHS ENDED MARCH 31, 2000 COMPARED WITH THE THREE MONTHS ENDED MARCH 31,
1999 -- INSTITUTIONAL BUSINESS
Premiums increased by $166 million, or 12%, to $1,593 million for the three
months ended March 31, 2000 from $1,427 million for the comparable 1999 period.
Excluding the impact of the GenAmerica acquisition, premiums increased by $143
million, or 10%, to $1,570 million in 2000 from $1,427 million in 1999. Group
insurance premiums increased by $97 million, or 7%, to $1,417 million in 2000
from $1,320 million in 1999. Group life
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38
premiums decreased by $22 million, or 2%, to $910 million in 2000 from $932
million in 1999, primarily due to a large retrospective premium received from an
existing customer in 1999. Non-medical health premiums increased $119 million,
or 31%, to $507 million in 2000 from $388 million in 1999. This increase was
primarily due to strong sales and continued favorable policyholder retention in
this segment's dental and disability businesses. In addition, premiums increased
by $13 million in 2000 as a result of the acquisition of the individual
disability income business of Lincoln National Life Insurance Company in
November 1999. Retirement and savings premiums increased by $46 million, or 43%,
to $153 million in 2000 from $107 million in 1999, primarily due to a
significant premium received from an existing customer in 2000.
Universal life and investment-type product policy fees increased by $10
million, or 8%, to $137 million for the three months ended March 31, 2000 from
$127 million for the comparable 1999 period. Excluding the impact of the
GenAmerica acquisition, universal life and investment-type product policy fees
were essentially unchanged at $126 million in 2000 compared with $127 million in
1999.
Other revenues increased by $50 million, or 38%, to $183 million for the
three months ended March 31, 2000 from $133 million for the comparable 1999
period. Excluding the impact of the GenAmerica acquisition, other revenues
increased by $48 million, or 36%, to $181 million in 2000 from $133 million in
1999. Group insurance increased by $40 million, or 70%, to $97 million in 2000
from $57 million in 1999. This increase was primarily due to strong sales growth
in this segment's dental and disability administrative services businesses and
higher management fees from group life insurance separate accounts. Retirement
and savings increased by $8 million, or 11%, to $84 million in 2000 from $76
million in 1999. This increase reflected higher administrative fees from
separate accounts and defined contribution record-keeping services.
Policyholder benefits and claims increased by $265 million, or 16%, to
$1,973 million for the three months ended March 31, 2000 from $1,708 million for
the comparable 1999 period. Excluding the impact of the GenAmerica acquisition,
policyholder benefits and claims increased by $238 million, or 14%, to $1,946
million in 2000 from $1,708 million in 1999. Group life increased by $32
million, or 3%, to $964 million in 2000 from $932 million in 1999, primarily due
to increased claim volume and higher average insurance coverage amounts per
life. Non-medical health increased by $142 million, or 45%, to $456 million in
2000 from $314 million in 1999, due to significant growth in this segment's
dental and disability insurance businesses as well as the acquisition of the
Lincoln National's individual disability income business discussed above.
Retirement and savings increased by $64 million, or 14%, to $526 million in 2000
from $462 million in 1999, commensurate with the premium variance discussed
above.
Interest credited to policyholder account balances decreased by $11
million, or 4%, to $247 million for the three months ended March 31, 2000 from
$258 million for the comparable 1999 period. Excluding the impact of the
GenAmerica acquisition, interest credited to policyholder account balances
decreased by $16 million, or 6%, to $242 million
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in 2000 from $258 million in 1999. Group life insurance increased by $10
million, or 11%, to $104 million in 2000 from $94 million in 1999. This increase
was primarily due to growth in the bank-owned life insurance business and
increases in the cash values of executive and corporate-owned universal life
plans. Retirement and savings decreased by $26 million, or 16%, to $138 million
in 2000 from $164 million in 1999, due to a continued shift in customers'
investment preferences from guaranteed interest products to separate account
alternatives.
Policyholder dividends increased by $2 million, or 13%, to $18 million for
the three months ended March 31, 2000 from $16 million for the comparable 1999
period. Policyholder dividends vary from period to period based on participating
group insurance contract experience.
Other expenses increased by $11 million, or 3%, to $386 million for the
three months ended March 31, 2000 from $375 million for the comparable 1999
period. Excluding the impact of the GenAmerica acquisition, expenses remained
essentially unchanged at $376 million in 2000 compared with $375 million in
1999.
REINSURANCE
As a result of the acquisition of GenAmerica on January 6, 2000, MetLife
beneficially owns approximately 58% of Reinsurance Group of America,
Incorporated ("RGA"). RGA, through its subsidiaries RGA Reinsurance Company and
RGA Life Reinsurance Company of Canada, is among the largest providers of life
reinsurance in North America. In addition to its North American operations, RGA
has subsidiary companies or branch offices in Argentina, Australia, Barbados,
Bermuda, Hong Kong, Japan, Taiwan, South Africa, and the United Kingdom.
Worldwide, RGA has over $450 billion of life reinsurance in force and assets of
$5.4 billion.
MetLife has designated the life reinsurance business of RGA, combined with
an existing ancillary life reinsurance business, as its Reinsurance segment. The
existing ancillary life reinsurance business was an immaterial component of
MetLife's Individual segment for periods prior to January 1, 2000. Life
reinsurance is an arrangement under which an insurance company, the "reinsurer,"
agrees to indemnify another insurance company, the "ceding company," for all or
a portion of the insurance risks underwritten by the ceding company. Life
reinsurance is designed to (i) reduce the net liability on individual risks,
thereby enabling the ceding company to increase the volume of business it can
underwrite, as well as increase the maximum risk it can underwrite on a single
life or risk; (ii) stabilize operating results by leveling fluctuations in the
ceding company's loss experience; (iii) assist the ceding company to meet
applicable regulatory requirements; and (iv) enhance the ceding company's
financial strength and surplus position.
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The following table presents summary consolidated financial information for
Reinsurance for the three months ended March 31, 2000 (Dollars in millions):
REVENUES
Premiums $358
Net investment income 88
Other revenues 2
Net realized investment losses (1)
----
447
----
EXPENSES
Policyholder benefits and claims 285
Interest credited to policyholder account balances 23
Policyholder dividends 5
Other expenses 85
----
398
----
Income before provision for income taxes 49
Provision for income taxes 19
Minority interest 9
----
Net income $ 21
====
THREE MONTHS ENDED MARCH 31, 2000 - REINSURANCE
Revenues for the three months ended March 31, 2000 were $447 million.
Reinsurance revenues are primarily derived from renewal premiums from existing
reinsurance treaties, new business premiums from existing or new reinsurance
treaties and income earned on invested assets. Premium levels are significantly
influenced by large transactions and reporting practices of ceding companies
and, as a result, can fluctuate from period to period.
Expenses for the three months ended March 31, 2000 were $398 million.
Policy benefits and claims were 79.6% of premiums for the three months ended
March 31, 2000. Mortality is expected to vary from period to period, but
generally remains fairly constant over the long-term. Underwriting, acquisition
and insurance expenses, which are included in other expenses, were 15.4% of
premiums for the three months ended March 31, 2000. This percentage fluctuates
depending on the mix of the underlying insurance products being reinsured.
Interest credited to policyholder account balances related to amounts credited
on the Company's deposit type contracts and cash value products in this segment,
which have a significant mortality component. This amount fluctuates with the
changes in cash values and changes in interest crediting rates.
Minority interest reflects third-party ownership interests in RGA.
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AUTO & HOME
The following table presents summary consolidated financial information for
Auto & Home for the periods indicated:
FOR THE THREE MONTHS
ENDED MARCH 31,
----------------------
2000 1999
------ ------
(DOLLARS IN MILLIONS)
REVENUES
Premiums $ 645 $ 357
Net investment income 36 22
Other revenues 13 5
Net realized investment gains 5 --
------ ------
699 384
------ ------
EXPENSES
Policyholder benefits and claims 479 274
Other expenses 204 102
------ ------
683 376
------ ------
Income before provision for income taxes 16 8
Provision for income taxes 5 1
------ ------
Net income $ 11 $ 7
====== ======
THREE MONTHS ENDED MARCH 31, 2000 COMPARED WITH THE THREE MONTHS ENDED MARCH 31,
1999 - AUTO & HOME
Premiums increased by $288 million, or 81%, to $645 million for the three
months ended March 31, 2000 from $357 million for the 1999 comparable period.
Excluding the impact of the St. Paul acquisition, premiums increased by $29
million, or 8%. Auto premiums increased by $13 million, or 4%, to $312 million
in 2000 from $299 million in 1999. This increase was primarily due to growth in
the standard auto insurance book of business which was attributable to increased
new business production and improved retention in this segment's existing
business. Policyholder retention in the standard auto business increased by 1%
to 88%. Homeowners increased by $11 million, or 20%, to $65 million in 2000 from
$54 million in 1999 due to higher new business production and an increase in
policyholder retention to 90% in 2000 from 89% in 1999. Other personal lines
increased to $9 million in 2000 from $4 million in 1999.
Other revenues increased by $8 million, or 160%, to $13 million for the
three months ended March 31, 2000 from $5 million for the comparable 1999
period, primarily due to
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a revision of an estimate of amounts recoverable from reinsurers related to the
disposition of this segment's reinsurance business in 1990.
Expenses increased by $307 million, or 82%, to $683 million for the three
months ended March 31, 2000 from $376 million for the comparable 1999 period.
Excluding the impact of the St. Paul acquisition, expenses increased by $48
million or 13%, which resulted in an increase in the combined ratio to 109.5% in
2000 from 105.2% in 1999. This increase was primarily due to higher overall loss
costs in the auto and homeowners lines, as discussed below.
Policyholder benefits and claims increased by $205 million, or 75%, to $479
million for the three months ended March 31, 2000 from $274 million for the
comparable 1999 period. The auto loss ratio decreased to 76.0% in 2000 from
77.4% in 1999 while the homeowners loss ratio decreased to 73.0% from 74.2% in
1999. Excluding the impact of the St. Paul acquisition, policyholder benefits
and claims increased by $36 million, or 13%. Auto policyholder benefits and
claims increased by $27 million, or 12%, to $259 million in 2000 from $232
million in 1999, due to a 7% increase in the number of policies in force, as
well as unfavorable claims development due to higher claim frequencies, which
were primarily related to poorer road conditions in 2000 compared with 1999, as
well as increased costs due to an increase in the use of original equipment
manufacturer parts and higher labor rates. Correspondingly, the auto loss ratio
increased to 82.8% in 2000 from 77.4% in 1999. Homeowners benefits and claims
increased $8 million, or 20%, to $48 million in 2000 from $40 million in 1999
due to the increased volume of this book of business. The homeowners loss ratio
increased by .7% to 74.9% in 2000 from 74.2% in 1999. Other personal lines
benefits and claims increased by $1 million to $3 million in 2000 from $2
million in 1999.
Other expenses increased by $102 million, or 100%, to $204 million for the
three months ended March 31, 2000 from $102 million for the comparable 1999
period, which resulted in an increase in the expense ratio to 31.7% in 2000 from
28.5% in 1999. Excluding the impact of the St. Paul acquisition, operating
expenses increased $12 million, or 12%, resulting in a slight increase in the
expense ratio to 29.3% in 2000 from 28.5% in 1999. This increase was primarily
due to higher staff and service expenses.
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ASSET MANAGEMENT
The following table presents summary consolidated financial information for
Asset Management for the periods indicated:
FOR THE THREE MONTHS
ENDED MARCH 31,
----------------------
2000 1999
------ ------
(DOLLARS IN MILLIONS)
REVENUES
Net investment income $ 21 $ 18
Other revenues 216 207
------ ------
237 225
OTHER EXPENSES 202 186
------ ------
Income before provision for income taxes
and minority interest 35 39
Provision for income taxes 11 10
Minority interest 13 15
------ ------
Net income $ 11 $ 14
====== ======
THREE MONTHS ENDED MARCH 31, 2000 COMPARED WITH THE THREE MONTHS ENDED MARCH 31,
1999 - ASSET MANAGEMENT
Other revenues, which are primarily comprised of management and advisory
fees, increased by $9 million, or 4%, to $216 million for the three months ended
March 31, 2000 from $207 million for the comparable 1999 period, reflecting an
overall increase in assets under management of $29 billion, or 15%, to $219
billion in 2000 from $190 billion in 1999. Excluding the impact of Conning,
which was acquired as part of the GenAmerica acquisition, assets under
management increased $3 billion, or 2%, to $193 billion in 2000 from $190
billion in 1999, primarily due to overall market appreciation of $5 billion,
partially offset by net cash outflows from customers' accounts of $2 billion.
Despite the increase in assets under management, other revenues decreased by $10
million, or 5%, to $197 million in 2000 from $207 million in 1999, primarily due
to a change in asset mix from value style products to fixed income and other
retail equity products. Management and advisory fees are typically calculated
based on a percentage of assets under management, and are not necessarily
proportionate to average assets managed due to changes in account mix.
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Other expenses increased by $16 million, or 9%, to $202 million for the
three months ended March 31, 2000 from $186 million for the comparable 1999
period. Excluding the impact of Conning, other expenses decreased by $2 million,
or 1%, to $184 million in 2000 from $186 million in 1999. Total compensation and
benefits of $106 million consisted of approximately 59% base compensation and
41% variable compensation. Base compensation increased by $7 million, or 13%, to
$63 million in 2000 from $56 million in 1999, primarily due to annual salary
increases and higher staffing levels. Variable compensation decreased by $7
million, or 14%, to $43 million in 2000 from $50 million in 1999. Variable
incentive payments are based on profitability, investment portfolio performance,
new business sales and growth in revenues and profits. The variable compensation
plans reward the employees for growth in their businesses, but also require them
to share in the impact of any declines. In addition, general and administrative
expenses decreased by $2 million, or 3%, to $78 in 2000 from $80 million in
1999, primarily due to lower discretionary spending.
Minority interest, reflecting third-party ownership interests in Nvest and
Conning, decreased by $2 million, or 13%, to $13 million for the three months
ended March 31, 2000 from $15 million for the comparable 1999 period.
INTERNATIONAL
The following table presents summary consolidated financial information for
International for the periods indicated:
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------
2000 1999
---- ----
(DOLLARS IN MILLIONS)
REVENUES
Premiums $146 $114
Universal life and investment-type product policy fees 13 8
Net investment income 65 48
Other revenues 3 2
Net realized investment gains 1 4
---- ----
228 176
---- ----
EXPENSES
Policyholder benefits and claims 125 102
Interest credited to policyholder account balances 15 15
Policyholder dividends 7 5
Other expenses 65 53
---- ----
212 175
---- ----
Income before provision for income taxes 16 1
Provision for income taxes 6 (4)
---- ----
Net income $ 10 $ 5
==== ====
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THREE MONTHS ENDED MARCH 31, 2000 COMPARED WITH THE THREE MONTHS ENDED MARCH 31,
1999 - INTERNATIONAL
Premiums increased by $32 million, or 28%, to $146 million for the three
months ended March 31, 2000 from $114 million for the three months ended March
31, 1999. Mexico's premiums increased by $7 million primarily due to one large
group customer obtained in 2000. Taiwan's premiums increased by $8 million
primarily due to a large group customer obtained in the third quarter of 1999.
Korea's premiums increased by $7 million due to improved policyholder retention,
which increased 8% to 81% in 2000 from 73% in 1999, and a shift in customers'
preferences towards whole life policies from investment-type products. Spain's
premiums increased by $8 million primarily due to increased sales from its joint
venture partnership, specifically in the agency and direct auto business.
Brazil's premiums increased by $2 million, primarily due to expanded business
operations.
Universal life and investment type-product policy fees increased by $5
million, or 63%, to $13 million for the three months ended March 31, 2000 from
$8 million for the comparable 1999 period, due to growth in all countries with
the most significant increases in Spain and Argentina. Spain increased by $2
million due to increased sales of its unit-linked product that was introduced in
the second quarter of 1999. This unit-linked product is similar to a variable
universal life product in the United States and its strong sales are
attributable to its favorable tax advantages and the current strong economic
environment in Spain. Argentina increased by $1 million, primarily due to
expanded business operations.
Other revenues were essentially unchanged at $3 million for the three
months ended March 31, 2000 compared with $2 million for the comparable 1999
period.
Policyholder benefits and claims increased by $23 million, or 23%, to $125
million for the three months ended March 31, 2000 from $102 million for the
comparable 1999 period. Taiwan and Korea increased by $11 million and $4
million, respectively, primarily due to the overall premium growth discussed
above. Spain increased by $3 million primarily due to increases in auto
premiums, partially offset by an improved loss ratio, which improved 25% to 75%
in 2000 from 100% in 1999. The remainder of the increase was primarily due to
minor increases in several countries.
Interest credited to policyholder account balances was stable at $15
million for the three months ended March 31, 2000 and 1999.
Policyholder dividends were essentially unchanged at $7 million for the
three months ended March 31, 2000 compared with $5 million for the comparable
1999 period. These dividends vary from period to period based on the claims
experience of participating insurance contracts.
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46
Other expenses increased by $12 million, or 23%, to $65 million for the
three months ended March 31, 2000 from $53 million for the comparable 1999
period. This increase was primarily due to higher business development costs.
CORPORATE
Total revenues for the Corporate segment, which consisted of net investment
income and realized investment losses that were not allocated to other business
segments, increased by $3 million, or 3%, to $95 million for the three months
ended March 31, 2000 from $92 million for the comparable 1999 period. Excluding
the impact of the GenAmerica acquisition, total revenues decreased by $11
million, or 12%. This decrease was primarily due to a $32 million increase in
realized investment losses, partially offset by a $20 million increase in net
investment income. These variances reflect the continuation of the Company's
strategy to reposition its investment portfolio in order to provide a higher
operating return on its invested assets. Total Corporate expenses increased by
$19 million, or 13%, to $168 million in 2000 from $149 million in 1999.
Excluding the impact of the GenAmerica acquisition, total expenses were
essentially unchanged at $147 million in 2000 compared with $149 million in
1999. The Company incurred a net loss of $120 million for the three months ended
March 31, 2000, compared with a net loss of $77 million for the comparable 1999
period, which was primarily attributable to a $33 million after-tax increase in
demutualization expenses.
LIQUIDITY AND CAPITAL RESOURCES
METLIFE, INC.
Following the plan effective date, Metropolitan Life became a wholly-owned
subsidiary and the principal asset of MetLife, Inc. The primary uses of
liquidity of MetLife, Inc. will include the payment of common stock dividends,
interest payments on debentures issued to MetLife Capital Trust I and other debt
servicing, contributions to subsidiaries and payment of general operating
expenses. The primary source of the Company's liquidity will be dividends it may
receive from Metropolitan Life and the interest received from Metropolitan Life
under the capital note described below. In addition, the Company retained $340
million from the proceeds of the offerings and the private placements at
MetLife, Inc., which will be available to pay dividends to stockholders, make
contributions to subsidiaries, make payments on the debentures issued to MetLife
Capital Trust I and meet other obligations. MetLife's ability, on a continuing
basis, to meet its cash needs depends primarily on the receipt of dividends and
the interest on the capital note from Metropolitan Life.
Under the New York Insurance Law, Metropolitan Life will be permitted to
pay a stockholder dividend to MetLife, Inc. only if it files notice of its
intention to declare such a dividend and the amount thereof with the New York
Superintendent of Insurance and the New York Superintendent does not disapprove
the distribution. Under the New York
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Insurance Law, the New York Superintendent has broad discretion in determining
whether the financial condition of a stock life insurance company would support
the payment of dividends to its stockholders. The New York Insurance Department
has established informal guidelines for such determinations. The guidelines,
among other things, focus on the insurer's overall financial condition and
profitability under statutory accounting practices. Management of the Company
cannot provide assurance that Metropolitan Life will have statutory earnings to
support payment of dividends to MetLife, Inc. in an amount sufficient to fund
its cash requirements and pay cash dividends or that the Superintendent will not
disapprove any dividends that Metropolitan Life may seek to pay. MetLife's other
insurance subsidiaries are also subject to restrictions on the payment of
dividends.
The dividend limitation is based on statutory financial results. Statutory
accounting practices differ in certain respects from accounting principles used
in financial statements prepared in conformity with generally accepted
accounting principles. The significant differences relate to deferred
acquisition costs, deferred income taxes, required investment reserves, reserve
calculation assumptions and surplus notes. Furthermore, although the impact
cannot be determined at this time, the recent adoption of the Codification of
Statutory Accounting Principles by the NAIC may reduce statutory surplus,
thereby making the dividend limitation more restrictive.
In connection with the contribution of the net proceeds from the initial
public offering, the private placements and the offering of equity security
units to Metropolitan Life as described in Note 3 of Notes to Unaudited Interim
Condensed Consolidated Financial Statements, Metropolitan Life issued to MetLife
a $1,006 8.00% mandatorily convertible capital note due 2005.
The Superintendent approved the issuance of the capital note on April 4,
2000. If the payment of interest is prevented by application of the payment
restrictions described above, the interest on the capital note will not be
available as a source of liquidity for MetLife.
Based on the historic cash flows and the current financial results of
Metropolitan Life, subject to any dividend limitations which may be imposed upon
Metropolitan Life or its subsidiaries by regulatory authorities, management
believes that cash flows from operating activities, together with the $340
million of proceeds from the offerings and the private placements retained by
MetLife. and the interest received on the capital note from Metropolitan Life,
will be sufficient to enable MetLife to make dividend payments on its common
stock, to pay all operating expenses, make payments on the debentures issued to
MetLife Capital Trust I and meet its other obligations.
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METROPOLITAN LIFE INSURANCE COMPANY
LIQUIDITY SOURCES. Metropolitan Life's principal cash inflows from its
insurance activities come from life insurance premiums, annuity considerations
and deposit funds. A primary liquidity concern with respect to these cash
inflows is the risk of early contract holder and policyholder withdrawal.
Metropolitan Life seeks to include provisions limiting withdrawal rights from
general account institutional pension products (generally group annuities,
including guaranteed interest contracts and certain deposit fund liabilities)
sold to employee benefit plan sponsors.
Metropolitan Life's principal cash inflows from its investment activities
result from repayments of principal and proceeds from maturities and sales of
invested assets, investment income, as well as dividends and distributions from
subsidiaries. The primary liquidity concerns with respect to these cash inflows
are the risks of default by debtors, interest rate and other market volatilities
and potential illiquidity of subsidiaries. Metropolitan Life closely monitors
and manages these risks.
Additional sources of liquidity to meet unexpected cash outflows are
available from Metropolitan Life's portfolio of liquid assets. These liquid
assets include substantial holdings of U.S. treasury securities, short-term
investments, common stocks and marketable fixed maturity securities.
Metropolitan Life's available portfolio of liquid assets was approximately $97
billion and $88 billion at March 31, 2000 and December 31, 1999, respectively.
Sources of liquidity also include facilities for short- and long-term
borrowing as needed, primarily arranged through MetLife Funding, Inc., a
subsidiary of Metropolitan Life. See "--Financing".
LIQUIDITY USES. Metropolitan Life's principal cash outflows primarily
relate to the liabilities associated with its various life insurance, annuity
and group pension products, operating expenses, income taxes, contributions to
subsidiaries, as well as principal and interest on its outstanding debt
obligations. Liabilities arising from its insurance activities primarily relate
to benefit payments under the above-named products, as well as payments for
policy surrenders, withdrawals and loans.
The Company's management believes that its sources of liquidity are more
than adequate to meet its current cash requirements.
LITIGATION. Various litigation claims and assessments against the Company
have arisen in the course of the Company's business, including in connection
with its activities as an insurer, employer, investor, investment advisor and
taxpayer. Further, state insurance regulatory authorities and other authorities
regularly make inquiries and conduct investigations concerning the Company's
compliance with applicable insurance and other laws and regulations.
48
49
In some of these matters, very large and/or indeterminate amounts,
including punitive and treble damages, are sought. While it is not feasible to
predict or determine the ultimate outcome of all pending investigations and
legal proceedings or to provide reasonable ranges of potential losses, it is the
opinion of the Company's management that their outcomes, after consideration of
available insurance and reinsurance and the provisions made in the Company's
consolidated financial statements, are not likely to have a material adverse
effect on its consolidated financial condition. However, given the large and/or
indeterminate amounts sought in certain of these matters and the inherent
unpredictability of litigation, it is possible that an adverse outcome in
certain matters could, from time to time, have a material adverse effect on the
Company's operating results or cash flows in particular quarterly or annual
periods. See Note 6 in Notes to Unaudited Interim Condensed Consolidated
Financial Statements.
RISK-BASED CAPITAL. Section 1322 of the New York Insurance Law requires
that New York life insurers report their risk-based capital ("RBC") based on a
formula calculated by applying factors to various asset, premium and statutory
reserve items. The formula takes into account the risk characteristics of the
insurer, including asset risk, insurance risk, interest rate risk and business
risk. Section 1322 gives the Superintendent explicit regulatory authority to
require various actions by, or take various actions against, insurers whose
total adjusted capital does not exceed certain RBC levels. At March 31, 2000,
Metropolitan Life's total adjusted capital was in excess of each of those RBC
levels.
Each of the U.S. insurance subsidiaries of Metropolitan Life is subject to
these same RBC requirements. At March 31, 2000, the total adjusted capital of
each of these insurance subsidiaries was in excess of each of these RBC levels.
The NAIC has recently adopted the Codification of Statutory Accounting
Principles for life insurers, which is to become effective on January 1, 2001.
Prior to implementation by Metropolitan Life, the Codification requires adoption
by the New York Insurance Department. Based on a study commissioned by the NAIC,
the overall impact to life insurers resulting from adoption of the Codification
is not expected to be materially adverse; however, a detailed analysis will be
necessary to determine the actual impact of the Codification on the statutory
results of operations and statutory financial position of Metropolitan Life and
its U.S. insurance subsidiaries.
FINANCING. MetLife Funding, Inc. serves as a centralized finance unit for
Metropolitan Life. Pursuant to a support agreement, Metropolitan Life has agreed
to cause MetLife Funding to have a tangible net worth of at least one dollar. At
March 31, 2000 and December 31, 1999, MetLife Funding had a tangible net worth
of $10.6 million and $10.5 million, respectively. MetLife Funding raises funds
from various funding sources and uses the proceeds to extend loans to
Metropolitan Life and its other subsidiaries. MetLife Funding manages its
funding sources to enhance the financial flexibility and liquidity of MetLife.
At March 31, 2000 and December 31, 1999, MetLife Funding had total outstanding
liabilities of $3.5 billion and $4.2 billion, respectively, consisting primarily
of commercial paper.
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50
In connection with the Company's acquisition of the stock of GenAmerica,
the Company incurred $900 million of short-term debt, consisting primarily of
commercial paper. In April 2000, the entire debt was repaid with proceeds from
the offerings and the private placements. The Company also incurred
approximately $3.2 billion of short-term debt, consisting primarily of
commercial paper, in connection with its October 1, 1999 exchange offer to
holders of General American Life funding agreements. Through March 31, 2000,
$2.0 billion of this debt was repaid. The remaining $1.2 billion was included in
the outstanding liabilities of MetLife Funding at March 31, 2000, $690 million
of which was repaid during April 2000.
MetLife Funding and Metropolitan Life also maintained $7 billion ($5
billion of which served as back-up for the commercial paper incurred in
connection with the exchange offer to holders of General American Life funding
agreements and $2 billion in committed credit facilities) at March 31, 2000 and
December 31, 1999, respectively, which served as back-up for its commercial
paper program and for general corporate purposes. These credit facilities were
not utilized for the three months ended March 31, 2000 or for the year ended
December 31, 1999.
SUPPORT AGREEMENTS. In addition to its support agreement with MetLife
Funding, Metropolitan Life has entered into a net worth maintenance agreement
with New England Life Insurance Company ("NELICO"), whereby it is obligated to
maintain NELICO's statutory capital and surplus at the greater of $10 million or
the amount necessary to prevent certain regulatory action by Massachusetts, the
state of domicile of this subsidiary. The capital and surplus of NELICO at March
31, 2000 and 1999, respectively, was significantly in excess of the amount that
would trigger such an event. Furthermore, Metropolitan Life has never been
called upon to provide support to NELICO.
In connection with the Company's acquisition of GenAmerica, Metropolitan
Life entered into a net worth maintenance agreement with General American Life
Insurance Company ("General American Life"), whereby Metropolitan Life is
obligated to maintain General American Life's statutory capital and surplus at
the greater of $10 million or the amount necessary to maintain the capital and
surplus of General American Life at a level not less than 180% of the NAIC Risk
Based Capitalization Model. The capital and surplus of General American Life at
March 31, 2000 was in excess of the required amount.
Metropolitan Life has also entered into arrangements with some of its other
subsidiaries and affiliates to assist such subsidiaries and affiliates in
meeting various jurisdictions' regulatory requirements regarding capital and
surplus. In addition, Metropolitan Life has entered into a support arrangement
with respect to reinsurance obligations of its wholly-owned subsidiary,
Metropolitan Insurance and Annuity Company. Management does not anticipate that
these arrangements will place any significant demands upon MetLife's liquidity
resources.
CONSOLIDATED CASH FLOWS. Net cash provided by operating activities was
$1,616 million and $454 million for the three months ended March 31, 2000 and
1999, respectively. The increase in cash provided by the Company's operations in
2000
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compared with 1999 was primarily due to strong sales and continued favorable
policyholder retention in the Institutional segment's dental and disability
businesses as well as timing in the settlement of other receivables and
payables. Operating cash flows in the periods presented have been more than
adequate to meet liquidity requirements.
Net cash used in investing activities was $602 million and $536 million for
the three months ended March 31, 2000 and 1999, respectively. Purchases of
investments exceeded sales, maturities and repayments by $3,837 million and
$1,259 million in 2000 and 1999, respectively. These increases were primarily
attributable to the investment of collateral received in connection with our
securities lending program. In addition, cash flows from investing activities
also increased by $2,305 million and $404 million in 2000 and 1999,
respectively, as a result of activity from the Company's securities lending
program.
Net cash used in financing activities was $1,566 million and $1,065 million
for the three months ended March 31, 2000 and 1999, respectively. Withdrawals
from policyholders' account balances exceeded deposits by $1,005 million and
$1,445 million in 2000 and 1999, respectively. Short-term financing decreased by
$620 million in 2000 compared with a $466 million increase in 1999, while net
additions in long-term debt were $59 million in 2000 compared with net
reductions of $86 million in 1999.
The operating, investing and financing activities described above resulted
in a decrease in cash and cash equivalents of $552 million and $1,147 million
for the three months ended March 31, 2000 and 1999, respectively.
INSOLVENCY ASSESSMENTS
Most of the jurisdictions in which the Company is admitted to transact
business require life insurers doing business within the jurisdiction to
participate in guaranty associations, which are organized to pay contractual
benefits owed pursuant to insurance policies issued by impaired, insolvent or
failed life insurers. These associations levy assessments, up to prescribed
limits, on all member insurers in a particular state on the basis of the
proportionate share of the premiums written by member insurers in the lines of
business in which the impaired, insolvent or failed insurer engaged. Some states
permit member insurers to recover assessments paid through full or partial
premium tax offsets. Assessments levied against the Company from January 1, 1999
through March 31, 2000 aggregated $5 million. The Company maintained a liability
of $58 million at March 31, 2000 for future assessments in respect of currently
impaired, insolvent or failed insurers.
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EFFECTS OF INFLATION
The Company does not believe that inflation has had a material effect on
consolidated results of operations, except insofar as inflation may affect
interest rates.
INVESTMENTS
The Company had total cash and invested assets at March 31, 2000 of $153.2
billion. In addition, the Company had $76.1 billion held in its separate
accounts, for which the Company generally does not bear investment risk.
The Company's primary investment objective is to maximize after-tax
operating income consistent with acceptable risk parameters. The Company is
exposed to three primary sources of investment risk:
- credit risk, relating to the uncertainty associated with the
continued ability of a given obligor to make timely payments of
principal and interest;
- interest rate risk, relating to the market price and cash flow
variability associated with changes in market interest rates;
and
- market valuation risk for equity holdings.
The Company manages credit risk through in-house fundamental analysis of
the underlying obligors, issuers, transaction structures and real estate
properties. The Company also manages credit risk and valuation risk through
industry and issuer diversification and asset allocation. For real estate and
agricultural assets, the Company manages credit risk and valuation risk through
geographic, property type, and product type diversification and asset
allocation. The Company manages interest rate risk as part of its asset and
liability management strategies, product design, such as the use of market value
adjustment features and surrender charges, and proactive monitoring and
management of certain non-guaranteed elements of its products, such as the
resetting of credited interest and dividend rates for policies that permit such
adjustments.
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The following table summarizes the Company's cash and invested assets at
March 31, 2000 and December 31, 1999:
INVESTED ASSETS
AT MARCH 31, AT DECEMBER 31,
2000 1999
------------------- --------------------
CARRYING % OF CARRYING % OF
VALUE TOTAL VALUE TOTAL
-------- ----- -------- -----
(DOLLARS IN MILLIONS)
Fixed maturities available-for-sale, at fair value $108,566 70.8% $ 96,981 69.9%
Equity securities, at fair value 2,137 1.4 2,006 1.5
Mortgage loans on real estate 21,185 13.8 19,739 14.2
Equity real estate and real estate joint ventures 5,747 3.8 5,649 4.1
Policy loans 7,914 5.2 5,598 4.0
Other limited partnership interests 1,452 0.9 1,331 1.0
Short-term investments 1,578 1.0 3,055 2.2
Other invested assets 2,397 1.6 1,501 1.1
Cash and cash equivalents 2,237 1.5 2,789 2.0
-------- ----- -------- -----
Total cash and invested assets $153,213 100.0% $138,649 100.0%
======== ===== ======== =====
INVESTMENT RESULTS
The annualized yields on general account cash and invested assets,
excluding net realized investment gains and losses, were 7.2% and 6.9% for the
three months ended March 31, 2000 and 1999, respectively.
The following table illustrates the annualized yields on average assets for
each of the components of the Company's investment portfolio for the three
months ended March 31, 2000 and 1999:
AT OR FOR THE THREE MONTHS ENDED MARCH 31,
---------------------------------------------
2000 1999
------------------- ---------------------
YIELD(1) AMOUNT YIELD(1) AMOUNT
------- ------- -------- ------
(DOLLARS IN MILLIONS) (DOLLARS IN MILLIONS)
FIXED MATURITIES:(2)
Investment income 7.6% $ 2,039 7.1% $ 1,722
Net realized losses (169) (105)
-------- -------
Total $ 1,870 $ 1,617
Ending assets $108,566 $99,946
-------- -------
MORTGAGE LOANS:(3)
Investment income 7.9% $ 419 8.1% $ 347
Net realized gains 2 10
-------- -------
Total $ 421 $ 357
-------- -------
Ending assets $ 21,185 $17,305
-------- -------
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AT OR FOR THE THREE MONTHS ENDED MARCH 31,
---------------------------------------------
2000 1999
----------------- ---------------------
YIELD(1) AMOUNT YIELD(1) AMOUNT
-------- ------ -------- ------
(DOLLARS IN MILLIONS) (DOLLARS IN MILLIONS)
EQUITY REAL ESTATE AND REAL ESTATE JOINT
VENTURES:(4)
Investment income, net of expenses 10.8% $ 155 7.1% $ 111
Net realized gains 13 62
------ ------
Total $ 168 $ 173
------ ------
Ending assets $5,747 $6,182
------ ------
POLICY LOANS:
Investment income 6.3% $ 125 6.0% $ 82
------ ------
Ending assets $7,914 $5,463
------ ------
CASH, CASH EQUIVALENTS AND SHORT-TERM
INVESTMENTS:
Investment income 4.8% $ 62 3.7% $ 36
Net realized losses (2) --
------ ------
Total $ 60 $ 36
------ ------
Ending assets $3,815 $3,133
------ ------
EQUITY SECURITIES:
Investment income 2.8% $ 14 1.9% $ 11
Net realized gains (losses) 68 (29)
------ ------
Total $ 82 $ (18)
------ ------
Ending assets $2,137 $2,275
------ ------
OTHER LIMITED PARTNERSHIP INTERESTS:
Investment income 4.2% $ 15 17.3% $ 44
Net realized gains 4 5
------ ------
Total $ 19 $ 49
------ ------
Ending assets $1,452 $1,060
------ ------
OTHER INVESTED ASSETS:
Investment income 4.1% $ 24 4.0% $ 16
Net realized losses (47) (51)
------ ------
Total $ (23) $ (35)
------ ------
Ending assets $2,397 $1,634
------ ------
TOTAL INVESTMENTS:
Investment income before expenses and fees 7.4% $2,853 7.1% $2,369
Investment expenses and fees (0.2%) (69) (0.2%) (59)
----- ------ ----- ------
Net investment income 7.2% $2,784 6.9% $2,310
Net realized losses (131) (108)
Adjustments to realized losses (5) 19 34
------ ------
Total $2,672 $2,236
====== ======
(1) Yields are based on average asset carrying values for the three months
ended March 31, 2000 and 1999, excluding unrealized gains and losses,
and for yield calculation purposes, average assets exclude fixed
maturities associated with the Company's
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securities lending program. For assets acquired through the GenAmerica
acquisition, yields are based on March 31, 2000 asset carrying values,
excluding unrealized gains and losses. Fixed maturity investment income
has been reduced by rebates paid under the program.
(2) Included in fixed maturities are equity linked notes of $760 million
and $1,073 million at March 31, 2000 and 1999, respectively, which
include an equity component as part of the notes' return. Investment
income for fixed maturities includes prepayment fees and income from
the securities lending program.
(3) Investment income from mortgage loans includes prepayment fees.
(4) Equity real estate and real estate joint venture income is shown net of
depreciation of $55 million and $67 million in 2000 and 1999,
respectively.
(5) Adjustments to realized losses include amortization of deferred
acquisition costs and charges to participating contracts.
FIXED MATURITIES
Fixed maturities consist principally of publicly traded and privately
placed debt securities, and represented 70.8% and 69.9% of total cash and
invested assets at March 31, 2000 and December 31, 1999, respectively.
Based on estimated fair value, public fixed maturities and private fixed
maturities comprised 84.0% and 16.0% of total fixed maturities at March 31,
2000, respectively, and 82.6% and 17.4% at December 31, 1999, respectively. The
Company invests in privately placed fixed maturities to enhance the overall
value of the portfolio, increase diversification and obtain higher yields than
can ordinarily be obtained with comparable public market securities. Generally,
private placements provide the Company with protective covenants, call
protection features and, where applicable, a higher level of collateral.
However, the Company may not freely trade its private placements because of
restrictions imposed by federal and state securities laws and illiquid trading
markets.
The Securities Valuation Office of the NAIC evaluates the bond investments
of insurers for regulatory reporting purposes and assigns securities to one of
six investment categories called "NAIC designations". The NAIC designations
parallel the credit ratings of the Nationally Recognized Statistical Rating
Organizations for marketable bonds. NAIC designations 1 and 2 include bonds
considered investment grade (rated "Baa3" or higher by Moody's, or rated "BBB-"
or higher by S&P) by such rating organizations. NAIC designations 3 through 6
include bonds considered below investment grade (rated "Ba1" or lower by
Moody's, or rated "BB+" or lower by S&P).
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The following tables present the Company's public, private and total fixed
maturities by NAIC designation and the equivalent ratings of the Nationally
Recognized Statistical Rating Organizations at March 31, 2000 and December 31,
1999, as well as the percentage, based on estimated fair value, that each
designation comprises:
PUBLIC FIXED MATURITIES BY CREDIT QUALITY
AT MARCH 31, 2000 AT DECEMBER 31, 1999
---------------------------------------- --------------------------------------
ESTIMATED ESTIMATED
NAIC RATING AGENCY AMORTIZED FAIR % OF AMORTIZED FAIR % OF
RATING EQUIVALENT DESIGNATION COST VALUE TOTAL COST VALUE TOTAL
- ------ ---------------------- --------- --------- ----- --------- --------- -----
(Dollars in millions)
1 Aaa/Aa/A $61,803 $61,481 67.4% $55,258 $54,511 68.1%
2 Baa 23,087 22,308 24.5 19,908 19,106 23.8
3 Ba 4,934 4,743 5.2 4,355 4,232 5.3
4 B 2,711 2,593 2.8 2,184 2,153 2.7
5 Caa and lower 74 63 0.1 64 54 0.1
6 In or near default 18 13 0.0 23 23 0.0
------- ------ ----- ------- ------- -----
Total public fixed
maturities $92,627 $91,201 100.0% $81,792 $80,079 100.0%
======= ======= ===== ======= ======= =====
PRIVATE FIXED MATURITIES BY CREDIT QUALITY
AT MARCH 31, 2000 AT DECEMBER 31, 1999
---------------------------------------- --------------------------------------
ESTIMATED ESTIMATED
NAIC RATING AGENCY AMORTIZED FAIR % OF AMORTIZED FAIR % OF
RATING EQUIVALENT DESIGNATION COST VALUE TOTAL COST VALUE TOTAL
- ------ ---------------------- --------- --------- ------ --------- --------- -----
(Dollars in millions)
1 Aaa/Aa/A $ 7,588 $ 7,767 44.7% $ 7,597 $ 7,696 45.5%
2 Baa 6,928 6,811 39.2 6,975 6,845 40.5
3 Ba 1,825 1,748 10.1 1,453 1,404 8.3
4 B 912 883 5.1 833 816 4.8
5 Caa and lower 117 103 0.6 104 87 0.5
6 In or near default 21 19 0.1 45 44 0.3
------ ------ ----- ------- ------- -----
Subtotal 17,391 17,331 99.8 17,007 16,892 99.9
Redeemable preferred stock 34 34 0.2 10 10 0.1
------ ------ ----- ------- ------- -----
Total private fixed maturities $17,425 $17,365 100.0% $17,017 $16,902 100.0%
======= ======= ===== ======= ======= =====
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TOTAL FIXED MATURITIES BY CREDIT QUALITY
AT MARCH 31, 2000 AT DECEMBER 31, 1999
------------------------------------ -----------------------------
ESTIMATED ESTIMATED
NAIC RATING AGENCY AMORTIZED FAIR % OF AMORTIZED FAIR % OF
RATING EQUIVALENT DESIGNATION COST VALUE TOTAL COST VALUE TOTAL
- ------- ---------------------- --------- --------- --------- ---------- ---------- -------
(DOLLARS IN MILLIONS)
1 Aaa/Aa/A $ 69,391 $ 69,248 63.8% $62,855 $62,207 64.2%
2 Baa 30,015 29,119 26.8 26,883 25,951 26.8
3 Ba 6,759 6,491 6.0 5,808 5,636 5.8
4 B 3,623 3,476 3.2 3,017 2,969 3.1
5 Caa and lower 191 166 0.2 168 141 0.1
6 In or near default 39 32 0.0 68 67 0.0
--------- --------- --------- ---------- ---------- --------
Subtotal 110,018 108,532 100.0 98,799 96,971 100.0
Redeemable preferred stock 34 34 0.0 10 10 0.0
--------- --------- --------- ---------- ---------- --------
Total fixed maturities $110,052 $108,566 100.0% $98,809 $96,981 100.0%
========= ========= ========= ========== ========== ========
Based on estimated fair values, total investment grade public and private
placement fixed maturities comprised 90.6% and 91.0% of total fixed maturities
in the general account at March 31, 2000 and December 31, 1999, respectively.
The following table shows the amortized cost and estimated fair value of
fixed maturities, by contractual maturity dates (excluding scheduled sinking
funds) at March 31, 2000 and December 31, 1999:
FIXED MATURITIES BY CONTRACTUAL MATURITY DATES
AT MARCH 31, 2000 AT DECEMBER 31, 1999
--------------------------- ----------------------------
ESTIMATED ESTIMATED
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- ------------ ---------- ----------
(DOLLARS IN MILLIONS)
Due in one year or less $ 3,378 $ 3,374 $ 3,180 $ 3,217
Due after one year through five years 20,350 20,155 18,152 18,061
Due after five years through ten years 25,058 24,423 23,755 23,114
Due after ten years 29,423 29,426 26,316 25,918
--------- ------------ ---------- ----------
Subtotal 78,209 77,378 71,403 70,310
Mortgage-backed and other asset-backed
securities 31,809 31,154 27,396 26,661
--------- ------------ ---------- ----------
Subtotal 110,018 108,532 98,799 96,971
Redeemable preferred stock 34 34 10 10
--------- ------------ ---------- ----------
Total fixed maturities $110,052 $108,566 $98,809 $96,981
========= ============ ========== ==========
PROBLEM, POTENTIAL PROBLEM AND RESTRUCTURED FIXED MATURITIES. The Company
monitors fixed maturities to identify investments that management considers to
be problems or potential problems. The Company also monitors investments that
have been restructured.
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58
The Company defines problem securities in the fixed maturities category as
securities as to which principal or interest payments are in default or are to
be restructured pursuant to commenced negotiations, or as securities issued by a
debtor that has subsequently entered bankruptcy.
The Company defines potential problem securities in the fixed maturity
category as securities of an issuer deemed to be experiencing significant
operating problems or difficult industry conditions. The Company uses various
criteria, including the following, to identify potential problem securities:
- debt service coverage or cash flow falling below certain
thresholds which vary according to the issuer's industry and
other relevant factors;
- significant declines in revenues or margins;
- violation of financial covenants;
- public securities trading at a substantial discount as a result
of specific credit concerns; and
- other subjective factors.
The Company defines restructured securities in the fixed maturities
category as securities to which the Company has granted a concession that it
would not have otherwise considered but for the financial difficulties of the
obligor. The Company enters into a restructuring when it believes it will
realize a greater economic value under the new terms than through liquidation or
disposition. The terms of the restructuring may involve some or all of the
following characteristics: a reduction in the interest rate, an extension of the
maturity date, an exchange of debt for equity or a partial forgiveness of
principal or interest.
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59
The following table presents the estimated fair value of the Company's
total fixed maturities classified as performing, problem, potential problem and
restructured fixed maturities at March 31, 2000 and December 31, 1999:
PROBLEM, POTENTIAL PROBLEM AND RESTRUCTURED FIXED MATURITIES
At March 31, 2000 At December 31, 1999
------------------- --------------------
Estimated % of Estimated % of
Fair Value Total Fair Value Total
---------- ----- ---------- -----
(Dollars in millions)
Performing $107,542 99.0% $96,464 99.5%
Problem 83 0.1 20 0.0
Potential Problem 928 0.9 482 0.5
Restructured 13 0.0 15 0.0
-------- ----- ------- -----
Total $108,566 100.0% $96,981 100.0%
======== ===== ======= =====
The Company classifies all of its fixed maturities as available-for-sale
and marks them to market. The Company writes down to management's expectations
of ultimate realizable value fixed maturities that the Company deems to be other
than temporarily impaired. The Company records write-downs as realized losses
and includes them in earnings and adjusts the cost basis of the fixed maturities
accordingly. The Company does not change the revised cost basis for subsequent
recoveries in value. Such write-downs were $71 million and $33 million for the
three months ended March 31, 2000 and 1999, respectively. Cumulative write-downs
on fixed maturities owned were $71 million and $76 million at March 31, 2000 and
December 31, 1999, respectively.
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FIXED MATURITIES BY SECTOR. The Company diversifies its fixed maturities by
security sector. The following tables set forth the estimated fair value of the
Company's fixed maturities by sector, as well as the percentage of the total
fixed maturities holdings that each security sector comprised at March 31, 2000
and December 31, 1999, and show by security type the relative amounts of
publicly traded and privately placed securities:
FIXED MATURITIES BY SECTOR
AT MARCH 31, 2000
---------------------------------------------------------------
Publicly Traded Privately Placed Total
------------------ ------------------ -------------------
Estimated % of Estimated % of Estimated % of
Fair Value Total Fair Value Total Fair Value Total
---------- ----- ---------- ----- ---------- -----
(Dollars in millions)
U.S. treasuries/agencies $ 6,658 7.3% $ 1 0.0% $ 6,659 6.1%
Corporate securities 45,310 49.6 15,719 90.6 61,029 56.3
Foreign government securities 4,698 5.2 110 0.6 4,808 4.4
Mortgage-backed securities 23,269 25.5 282 1.6 23,551 21.7
Asset-backed securities 6,802 7.5 801 4.6 7,603 7.0
Other fixed income assets 4,465 4.9 451 2.6 4,916 4.5
------- ----- ------- ----- -------- -----
Total $91,202 100.0% $17,364 100.0% $108,566 100.0%
======= ===== ======= ===== ======== =====
FIXED MATURITIES BY SECTOR
AT DECEMBER 31, 1999
--------------------------------------------------------------
Publicly Traded Privately Placed Total
------------------ ------------------ ------------------
Estimated % of Estimated % of Estimated % of
Fair Value Total Fair Value Total Fair Value Total
---------- ----- ---------- ----- ---------- -----
(Dollars in millions)
U.S. treasuries/agencies $ 6,298 7.9% $ 1 0.0% $ 6,299 6.5%
Corporate securities 40,207 50.2 15,336 90.7 55,543 57.3
Foreign government securities 4,095 5.1 111 0.7 4,206 4.3
Mortgage-backed securities 20,032 25.0 247 1.5 20,279 20.9
Asset-backed securities 5,715 7.1 667 3.9 6,382 6.6
Other fixed income assets 3,732 4.7 540 3.2 4,272 4.4
------- ----- ------- ----- ------- -----
Total $80,079 100.0% $16,902 100.0% $96,981 100.0%
======= ===== ======= ===== ======= =====
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CORPORATE FIXED MATURITIES. The table below shows the major industry types
that comprise the corporate bond holdings at the dates indicated:
AT MARCH 31, 2000 AT DECEMBER 31, 1999
--------------------- --------------------
ESTIMATED % OF ESTIMATED % OF
FAIR VALUE TOTAL FAIR VALUE TOTAL
---------- ------- ---------- --------
(DOLLARS IN MILLIONS)
Industrial $28,658 47.1% $26,480 47.6%
Utility 7,102 11.6 6,487 11.7
Finance 13,761 22.5 11,631 21.0
Yankee/Foreign(1) 10,815 17.7 10,423 18.8
Other 693 1.1 522 0.9
---------- ------- ---------- --------
Total $61,029 100.0% $55,543 100.0%
========== ======= ========== ========
(1) Includes publicly traded, dollar-denominated debt obligations of
foreign obligors, known as Yankee bonds, and other foreign
investments.
The Company diversifies its corporate bond holdings by industry and issuer.
The portfolio has no significant exposure to any single issuer. At March 31,
2000, the Company's combined holdings in the ten issuers to which it had the
greatest exposure totaled $3,202 million, which was less than 3% of the
Company's total invested assets at such date. The exposure to the largest single
issuer of corporate bonds the Company held at March 31, 2000 was $398 million,
which was less than 1% of its total invested assets at such date.
At March 31, 2000, investments of $4,212 million, or 38.9% of the
Yankee/Foreign sector, represented exposure to traditional "Yankee" bonds, which
are dollar-denominated debt obligations of foreign obligors. The balance of this
exposure was primarily dollar-denominated, foreign private placements and
project finance loans. The Company diversifies the Yankee/Foreign portfolio by
country and issuer.
The Company does not have material exposure to foreign currency risk in its
invested assets. In the Company's international insurance operations, both its
assets and liabilities are denominated in local currencies. Foreign currency
denominated securities supporting U.S. dollar liabilities are generally swapped
back into U.S. dollars.
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MORTGAGE-BACKED SECURITIES. The following table shows the types of
mortgage-backed securities the Company held at March 31, 2000 and December 31,
1999:
MORTGAGE-BACKED SECURITIES
AT MARCH 31, 2000 AT DECEMBER 31, 1999
--------------------- --------------------
ESTIMATED % OF ESTIMATED % OF
FAIR VALUE TOTAL FAIR VALUE TOTAL
----------- ------ ---------- ------
Pass-through securities $ 9,961 42.3% $ 8,478 41.8%
------- ------ ------- -----
Collateralized mortgage obligations
Planned amortization class 4,141 17.6 3,974 19.6
Sequential pay class 4,310 18.3 3,359 16.5
Other 529 2.2 361 1.8
------- ------ ------- -----
Subtotal 8,980 38.1 7,694 37.9
Commercial mortgage-backed securities 4,610 19.6 4,107 20.3
------- ------ ------- -----
Total $23,551 100.0% $20,279 100.0%
======= ====== ======== =====
At March 31, 2000, pass-through and collateralized mortgage obligations
totaled $18,941 million, or 80.4% of total mortgage-backed securities, and a
majority of this amount represented agency-issued pass-through and
collateralized mortgage obligations guaranteed or otherwise supported by the
Federal National Mortgage Association, Federal Home Loan Mortgage Corporation or
Government National Mortgage Association. Other types of mortgage-backed
securities comprised the balance of such amounts reflected in the table. At
March 31, 2000, approximately $2,890 million, or 62.7% of the commercial
mortgage-backed securities and $17,344 million, or 91.6% of the pass-through
securities and collateralized mortgage obligations were rated Aaa/AAA by Moody's
or S&P.
Mortgage-backed securities are purchased to diversify the portfolio risk
characteristics from primarily corporate credit risk to a mix of credit risk and
cash flow risk. The majority of the mortgage-backed securities in the Company's
investment portfolio have relatively low cash flow variability.
The principal risks inherent in holding mortgage-backed securities are
prepayment and extension risks, which will affect the timing of when cash flow
will be received. The Company's active monitoring of its mortgage-backed
securities mitigates exposure to losses from cash flow risk associated with
interest rate fluctuations.
Mortgage-backed pass-through certificates are the most liquid assets in the
mortgage-backed sector. Pass-through securities represented 42.3% and 41.8% of
the Company's mortgage-backed securities at March 31, 2000 and December 31,
1999, respectively. Pass-through securities distribute, on a pro rata basis to
their holders, the monthly cash flows of principal and interest, both scheduled
and prepayments, generated by the underlying mortgages.
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The Company also invested 38.1% and 37.9% of its mortgage-backed securities
at March 31, 2000 and December 31, 1999, respectively, in collateralized
mortgage obligations ("CMOs") which have a greater degree of cash flow stability
than pass-throughs.
Planned Amortization Class bonds ("PAC") represented 17.6% and 19.6% of the
Company's mortgage-backed securities at March 31, 2000 and December 31, 1999,
respectively. These bonds or tranches are structured to provide more certain
cash flows to the investor and therefore are subject to less prepayment and
extension risk than other mortgage-backed securities. PAC tranches derive their
stability from having a specified principal payment schedule, provided
prepayments of the underlying securities remain within their expected range. The
other tranches of a CMO absorb prepayment variations so that PACs maintain a
better defined maturity profile than other mortgage-backed securities. By buying
PACs, the Company accepts a lower yield in return for more certain cash flow.
The principal risk of holding PACs is that prepayments may differ significantly
from expectations and the Company will not receive the expected yield on the
PAC. In contrast, Sequential Pay Class tranches receive principal payments in a
prescribed sequence without a pre-determined prepayment schedule. In addition to
the Company's PACs and Sequential Pay Class tranches, the Company had
approximately $85 million invested in interest-only or principal-only securities
at March 31, 2000.
ASSET-BACKED SECURITIES. The following table below shows the types of
asset-backed securities the Company held at March 31, 2000 and December 31,
1999:
AT MARCH 31, 2000 AT DECEMBER 31, 1999
--------------------- --------------------
ESTIMATED % OF ESTIMATED % OF
FAIR VALUE TOTAL FAIR VALUE TOTAL
---------- ------- ---------- --------
(DOLLARS IN MILLIONS)
Credit card receivables $1,734 22.8% $1,960 30.7%
Automobile receivables 1,043 13.7 1,070 16.8
Home equity loans 1,867 24.6 1,541 24.1
Other 2,959 38.9 1,811 28.4
------ ------- ------ ------
Total $7,603 100.0% $6,382 100.0%
====== ======= ====== ======
Asset-backed securities are purchased both to diversify the overall risks
of the Company's fixed maturities assets and to provide attractive returns. The
Company's asset-backed securities are diversified both by type of asset and by
issuer. Credit card receivables constitute the largest exposure in the Company's
asset-backed securities investments. Except for asset-backed securities backed
by home equity loans, the asset-backed securities investments generally have
little sensitivity to changes in interest rates. At March 31, 2000,
approximately $3,518 million, or 46.3%, of the total was rated Aaa/AAA by
Moody's or S&P.
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The principal risks in holding asset-backed securities are structural,
credit and capital market risks. Structural risks include the security's
priority in the issuer's capital structure, the adequacy of and ability to
realize proceeds from the collateral and the potential for prepayments. Credit
risks include consumer or corporate credits such as credit card holders,
equipment lessees, and corporate obligors. Capital market risks include the
general level of interest rates and the liquidity for these securities in the
market place.
MORTGAGE LOANS
The Company's mortgage loans are collateralized by commercial, agricultural
and residential properties. Mortgage loans comprised 13.8% and 14.2% of the
Company's total cash and invested assets at March 31, 2000 and December 31,
1999, respectively. The carrying value of mortgage loans is stated at original
cost net of repayments, amortization of premiums, accretion of discounts and
valuation allowances. The following table shows the carrying value of the
Company's mortgage loans by such types at March 31, 2000 and December 31, 1999:
MORTGAGE LOANS BY PORTFOLIO
AT MARCH 31, 2000 AT DECEMBER 31, 1999
----------------- --------------------
CARRYING % OF CARRYING % OF
VALUE TOTAL VALUE TOTAL
-------- ------- -------- -------
(DOLLARS IN MILLIONS)
Commercial $16,363 77.3% $14,862 75.3%
Agricultural 4,732 22.3 4,798 24.3
Residential 90 0.4 79 0.4
-------- ------- -------- -------
Total $21,185 100.0% $19,739 100.0%
======== ======== ======== =======
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COMMERCIAL MORTGAGE LOANS. The Company diversifies its commercial mortgage
loans by both geographic region and property type, and manages these investments
through a network of regional offices overseen by its investment department. The
following table presents the distribution across geographic regions and property
types for commercial mortgage loans at March 31, 2000 and December 31, 1999:
AT MARCH 31, 2000 AT DECEMBER 31, 1999
----------------- --------------------
CARRYING % OF CARRYING % OF
VALUE TOTAL VALUE TOTAL
-------- ------- -------- -------
(DOLLARS IN MILLIONS)
REGION
South Atlantic $ 4,491 27.4% $ 4,098 27.6%
Middle Atlantic 2,806 17.1 2,703 18.2
Pacific 2,898 17.7 2,596 17.5
East North Central 1,842 11.3 1,865 12.5
New England 1,092 6.7 1,095 7.4
West South Central 1,163 7.1 1,012 6.8
West North Central 768 4.7 652 4.4
Mountain 807 4.9 490 3.3
East South Central 158 1.0 149 1.0
International 338 2.1 202 1.3
-------- ------- -------- -------
Total $16,363 100.0% $14,862 100.0%
======== ======= ======== =======
PROPERTY TYPE
Office $ 7,246 44.4% $ 6,789 45.7%
Retail 3,984 24.3 3,620 24.4
Apartments 2,640 16.1 2,382 16.0
Industrial 1,491 9.1 1,136 7.6
Hotel 884 5.4 843 5.7
Other 118 0.7 92 0.6
-------- ------- -------- -------
Total $16,363 100.0% $14,862 100.0%
======== ======= ======== =======
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The following table presents the scheduled maturities for the Company's
commercial mortgage loans at March 31, 2000 and December 31, 1999:
COMMERCIAL MORTGAGE LOAN SCHEDULED MATURITIES
AT MARCH 31, 2000 AT DECEMBER 31, 1999
----------------- --------------------
CARRYING % OF CARRYING % OF
VALUE TOTAL VALUE TOTAL
-------- ------ -------- --------
(DOLLARS IN MILLIONS)
Due in 1 year or less $ 840 5.1% $ 806 5.4%
Due after 1 year through 2 years 689 4.2 482 3.2
Due after 2 years through 3 years 833 5.1 708 4.8
Due after 3 years through 4 years 1,133 6.9 787 5.3
Due after 4 years through 5 years 1,144 7.0 1,608 10.8
Due after 5 years 11,724 71.7 10,471 70.5
------- ----- ------- -----
Total $16,363 100.0% $14,862 100.0%
======= ===== ======= =====
The Company monitors its mortgage loan investments on a continual basis.
Through this monitoring process, the Company reviews loans that are
restructured, delinquent or under foreclosure and identifies those that
management considers to be potentially delinquent. These loan classifications
are generally consistent with those used in industry practice.
The Company defines restructured mortgage loans, consistent with industry
practice, as loans in which the Company, for economic or legal reasons related
to the debtor's financial difficulties, grants a concession to the debtor that
it would not otherwise consider. This definition provides for loans to exit the
restructured category under certain conditions. The Company defines delinquent
mortgage loans, consistent with industry practice, as loans in which two or more
interest or principal payments are past due. The Company defines mortgage loans
under foreclosure, consistent with industry practice, as loans in which
foreclosure proceedings have formally commenced. The Company defines potentially
delinquent loans as loans that, in management's opinion, have a high probability
of becoming delinquent.
The Company reviews all mortgage loans on an annual basis. These reviews
may include an analysis of the property financial statement and rent roll, lease
rollover analysis, property inspections, market analysis and tenant
creditworthiness. The Company also reviews loan-to-value ratios and debt
coverage ratios for restructured loans, delinquent loans, loans under
foreclosure, potentially delinquent loans, loans with an existing valuation
allowance, loans maturing within two years and loans with a loan-to-value ratio
greater than 90% as determined in the prior year.
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The Company establishes valuation allowances for loans that it deems
impaired, as determined through its annual review process. The Company defines
impaired loans consistent with Statement of Financial Accounting Standards No.
114, Accounting by Creditors for Impairment of a Loan, as loans which it
probably will not collect all amounts due according to applicable contractual
terms of the agreement. The Company bases valuation allowances upon the present
value of expected future cash flows discounted at the loan's original effective
interest rate or the value of the loan's collateral. The Company records
valuation allowances as realized losses and includes them in earnings. The
Company records subsequent adjustments to allowances as realized gains or losses
and includes them in earnings.
The following table presents the amortized cost and valuation allowances
for commercial mortgage loans distributed by loan classification at March 31,
2000 and December 31, 1999:
COMMERCIAL MORTGAGE LOAN DISTRIBUTION AND VALUATION ALLOWANCE BY LOAN CLASSIFICATION
AT MARCH 31, 2000 AT DECEMBER 31, 1999
------------------------------------------- -------------------------------------------
% OF % OF
AMORTIZED % OF VALUATION AMORTIZED AMORTIZED % OF VALUATION AMORTIZED
COST(1) TOTAL ALLOWANCE COST COST(1) TOTAL ALLOWANCE COST
--------- ------ --------- --------- --------- ------ --------- ---------
(DOLLARS IN MILLIONS)
Performing $15,608 95.0% $ 13 0.1% $14,098 94.5% $ 11 0.1%
Restructured 728 4.4 48 6.6% 810 5.4 52 6.4%
Delinquent or under
foreclosure 58 0.4 11 19.0% 17 0.1 4 25.0%
Potentially delinquent 41 0.2 -- 0.0% 6 0.0 2 33.3%
------- ----- ---- ------ ----- ----
Total $16,435 100.0% $ 72 0.4% $14,931 100.0% $ 69 0.5%
======= ===== ==== ======= ===== ====
(1) Amortized cost is equal to carrying value before valuation allowances.
The following table presents the changes in valuation allowances for
commercial mortgage loans for the three months ended March 31, 2000:
THREE MONTHS ENDED
MARCH 31, 2000
---------------------
(DOLLARS IN MILLIONS)
Balance, beginning of period $ 69
Additions 29
Deductions for writedowns and dispositions (26)
-----
Balance, end of period $ 72
=====
The principal risks in holding commercial mortgage loans are property
specific, supply and demand, financial and capital market risks. Property
specific risks include the geographic location of the property, the physical
condition of the property, the diversity of tenants and the rollover of their
leases and the ability of the property manager to attract
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tenants and manage expenses. Supply and demand risks include changes in the
supply and/or demand for rental space which cause changes in vacancy rates
and/or rental rates. Financial risks include the overall level of debt on the
property and the amount of principal repaid during the loan term. Capital market
risks include the general level of interest rates, the liquidity for these
securities in the marketplace and the capital available for refinancing of a
loan.
AGRICULTURAL MORTGAGE LOANS. The Company diversifies its agricultural
mortgage loans by both geographic region and product type. The Company manages
these investments through a network of regional offices and field professionals
overseen by its investment department. The following table presents the
distribution across geographic regions and product types for agricultural
mortgage loans at March 31, 2000 and December 31, 1999:
AGRICULTURAL MORTGAGE LOAN DISTRIBUTION
BY GEOGRAPHIC REGION AND BY PRODUCT TYPE
AT MARCH 31, 2000 AT DECEMBER 31, 1999
--------------------- ---------------------
CARRYING % OF CARRYING % OF
VALUE TOTAL VALUE TOTAL
-------- ----- -------- -----
(DOLLARS IN MILLIONS)
REGION
Pacific $1,134 24.0% $1,184 24.7%
West North Central 1,034 21.8 1,053 21.9
South Atlantic 838 17.7 840 17.5
East North Central 732 15.5 737 15.4
West South Central 407 8.6 405 8.5
Mountain 373 7.9 371 7.7
East South Central 195 4.1 189 3.9
New England 19 0.4 19 0.4
------ ----- ------ -----
Total $4,732 100.0% $4,798 100.0%
====== ===== ====== =====
PROPERTY TYPE
Annual Crop $2,214 46.7% $2,276 47.4%
Permanent 968 20.5 932 19.5
Agribusiness 719 15.2 761 15.8
Livestock 658 13.9 655 13.7
Timer 173 3.7 174 3.6
------ ----- ------ -----
Total $4,732 100.0% $4,798 100.0%
====== ===== ====== =====
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The following table presents the scheduled maturities for the Company's
agricultural mortgage loans at March 31, 2000 and December 31, 1999:
AGRICULTURAL MORTGAGE LOAN MATURITY PROFILE
AT MARCH 31, 2000 AT DECEMBER 31, 1999
----------------- --------------------
CARRYING % OF CARRYING % OF
VALUE TOTAL VALUE TOTAL
--------- ------ --------- -------
(DOLLARS IN MILLIONS)
Due in 1 year or less $ 126 2.7% $ 99 2.1%
Due after 1 year through 2 years 60 1.3 74 1.5
Due after 2 year through 3 years 98 2.1 97 2.0
Due after 3 year through 4 years 134 2.8 135 2.8
Due after 4 year through 5 years 113 2.4 134 2.8
Due after 5 years 4,201 88.7 4,259 88.8
------ ------ ------ ------
Total $4,732 100.0% $4,798 100.0%
====== ====== ====== ======
Approximately 60% of the $4,732 million of agricultural mortgage loans
outstanding at March 31, 2000 was subject to rate resets prior to maturity. A
substantial portion of these loans were successfully renegotiated and remain
outstanding to maturity. The process and policies for monitoring the
agricultural mortgage loans and classifying them by performance status are
generally the same as those for the commercial loans.
The following table presents the amortized cost and valuation allowances
for agricultural mortgage loans distributed by loan classification at March 31,
2000 and December 31, 1999:
AGRICULTURAL MORTGAGE LOAN DISTRIBUTION AND
VALUATION ALLOWANCE BY LOAN CLASSIFICATION
AT MARCH 31, 2000 AT DECEMBER 31, 1999
------------------------------------------------- -------------------------------------------------
% OF % OF
AMORTIZED % OF VALUATION AMORTIZED AMORTIZED % OF VALUATION AMORTIZED
COST(1) TOTAL ALLOWANCE COST COST(1) TOTAL ALLOWANCE COST
---------- -------- ---------- --------- --------- ------- --------- ----------
(DOLLARS IN MILLIONS)
Performing $4,495 94.6% $ - 0.0% $4,616 95.8% $ 1 0.0%
Restructured 151 3.2 7 4.6% 165 3.4 11 6.7%
Delinquent or under
foreclosure 99 2.1 10 10.1% 27 0.6 2 7.4%
Potentially
delinquent 5 0.1 1 20.0% 8 0.2 4 50.0%
------ ------ --- ------ ----- ---
Total $4,750 100.0% $18 0.4% $4,816 100.0% $18 0.4%
====== ====== === ====== ===== ===
(1) Amortized cost is equal to carrying value before valuation allowances.
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The following table presents the changes in valuation allowances for
agricultural mortgage loans for the three months ended March 31, 2000:
CHANGES IN AGRICULTURAL MORTGAGE LOAN VALUATION ALLOWANCES
THREE MONTHS ENDED
MARCH 31, 2000
--------------------
(DOLLARS IN MILLIONS)
Balance, beginning of period $ 18
Additions 1
Deductions for writedowns and dispositions (1)
----
Balance, end of period $ 18
====
The principal risks in holding agricultural mortgage loans are property
specific, supply and demand, financial and capital market risks. Property
specific risks include the location of the property, soil types, weather
conditions and the other factors that may impact the borrower's personal
guaranty. Supply and demand risks include the supply and demand for the
commodities produced on the specific property and the related price for those
commodities. Financial risks include the overall level of debt on the property
and the amount of principal repaid during the loan term. Capital market risks
include the general level of interest rates, the liquidity for these securities
in the marketplace and the capital available for refinancing of a loan.
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EQUITY REAL ESTATE AND REAL ESTATE JOINT VENTURES
The Company's equity real estate and real estate joint venture investments
consist of commercial and agricultural properties located throughout the U.S.
and Canada. The Company manages these investments through a network of regional
offices overseen by its investment department. At March 31, 2000 and December
31, 1999, the carrying value of the Company's equity real estate and real estate
joint ventures was $5,747 million and $5,649 million, respectively, or 3.8% and
4.1% of total cash and invested assets. The carrying value of equity real estate
was stated at depreciated cost net of impairments and valuation allowances. The
carrying value of real estate joint ventures was stated at the Company's equity
in the real estate joint ventures net of impairments and valuation allowances.
These holdings consist of equity real estate, interests in real estate joint
ventures and real estate acquired upon foreclosure of commercial and
agricultural mortgage loans. The following table presents the carrying value of
the Company's equity real estate and real estate joint ventures at March 31,
2000 and December 31, 1999:
EQUITY REAL ESTATE AND REAL ESTATE JOINT VENTURES
AT MARCH 31, 2000 AT DECEMBER 31, 1999
------------------------- ---------------------------
CARRYING % OF CARRYING % OF
VALUE TOTAL VALUE TOTAL
-------- ----- -------- -----
(DOLLARS IN MILLIONS)
TYPE
Equity real estate $5,292 92.1% $5,271 93.3%
Real estate joint ventures 395 6.9 331 5.9
------ ----- ------ -----
Subtotal 5,687 99.0 5,602 99.2
Foreclosed real estate 60 1.0 47 0.8
------ ----- ------ -----
Total $5,747 100.0% $5,649 100.0%
====== ===== ====== =====
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These investments are diversified by geographic location and property
types. The following table presents the distribution across geographic regions
and property types for equity real estate and real estate joint ventures at
March 31, 2000 and December 31, 1999:
EQUITY REAL ESTATE AND REAL ESTATE JOINT VENTURES
DISTRIBUTION BY GEOGRAPHIC REGION AND PROPERTY TYPE
AT MARCH 31, 2000 AT DECEMBER 31, 1999
------------------------- ---------------------------
CARRYING % OF CARRYING % OF
VALUE TOTAL VALUE TOTAL
-------- ----- -------- -----
(DOLLARS IN MILLIONS)
REGION
East $1,853 32.3% $1,863 33.0%
West 1,807 31.4 1,657 29.3
South 1,383 24.1 1,416 25.1
Midwest 558 9.7 544 9.6
International 146 2.5 169 3.0
------ ----- ------ -----
Total $5,747 100.0% $5,649 100.0%
====== ===== ====== =====
PROPERTY TYPE
Office $3,826 66.7 $3,846 68.1%
Retail 604 10.5 587 10.4
Apartments 468 8.1 474 8.4
Land 305 5.3 258 4.6
Industrial 174 3.0 160 2.8
Hotel 172 3.0 151 2.7
Agriculture 93 1.6 96 1.7
Other 105 1.8 77 1.3
------ ----- ------ -----
Total $5,747 100.0 $5,649 100.0%
====== ===== ====== =====
Office properties representing 66.7% and 68.1% of the Company's equity real
estate and real estate joint venture holdings at March 31, 2000 and December 31,
1999, respectively, are well diversified geographically. The average occupancy
level of office properties was 93% and 92% at March 31, 2000 and December 31,
1999, respectively.
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The Company classifies equity real estate and real estate joint ventures as
held for investment or held for sale. The following table presents the carrying
value of equity real estate and real estate joint ventures by such
classifications at March 31, 2000 and December 31, 1999:
EQUITY REAL ESTATE AND REAL ESTATE JOINT VENTURES
CLASSIFICATION BY HELD FOR INVESTMENT AND HELD FOR SALE
At March 31, 2000 At December 31, 1999
----------------- --------------------
Carrying % of Carrying % of
Value Total Value Total
-------- ----- -------- -----
(Dollars in Millions)
Equity real estate and real estate joint ventures held for investment $5,129 89.2% $5,151 91.2%
Equity real estate and real estate joint ventures held for sale 618 10.8 498 8.8
------ ----- ------ -----
Total $5,747 100.0% $5,649 100.0%
====== ===== ====== =====
Ongoing management of these investments includes quarterly appraisals as
well as an annual market update and review of each property's budget, financial
returns, lease rollover status and the Company's exit strategy. In addition to
individual property reviews, the Company employs an overall strategy of
selective dispositions and acquisitions as market opportunities arise.
The Company adjusts the carrying value of equity real estate and real
estate joint ventures held for investment for impairments whenever events or
changes in circumstances indicate that the carrying value of the property may
not be recoverable. The Company writes down impaired real estate to estimated
fair value, which it generally computes using the present value of future cash
flows from the property, discounted at a rate commensurate with the underlying
risks. The Company records write-downs as realized losses through earnings and
reduces the cost basis of the properties accordingly. The Company does not
change the new cost basis for subsequent recoveries in value. Cumulative
write-downs on equity real estate and real estate joint ventures that are held
for investment, excluding real estate acquired upon foreclosure of commercial
and agricultural mortgage loans, were $289 million at both March 31, 2000 and
December 31, 1999.
The Company records real estate acquired upon foreclosure of commercial and
agricultural mortgage loans at the lower of estimated fair value or the carrying
value of the mortgage loan at the date of foreclosure.
Once the Company identifies a property to be sold and commences a firm plan
for marketing the property, the Company establishes and periodically revises, if
necessary, a valuation allowance to adjust the carrying value of the property to
its expected sales value, less associated selling costs, if it is lower than the
property's carrying value. The Company records allowances as realized losses and
includes them in earnings. The Company records subsequent adjustments to
allowances as realized gains or losses and includes them in earnings.
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The Company's carrying value of equity real estate and real estate joint
ventures held for sale, including real estate acquired upon foreclosure of
commercial and agricultural mortgage loans, in the amounts of $618 million and
$498 million at March 31, 2000 and December 31, 1999, respectively, are net of
impairments of $186 million and $187 million and net of valuation allowances of
$33 million and $34 million, respectively.
EQUITY SECURITIES AND OTHER LIMITED PARTNERSHIP INTERESTS
The Company's equity securities primarily consist of investments in common
stocks. Substantially all of the common stock is publicly traded on major
securities exchanges. The other limited partnership interests primarily
represent ownership interests in pooled investment funds that make private
equity investments in companies in the U.S. and overseas. The Company classifies
its investments in common stocks as available-for-sale and marks them to market
except for non-marketable private equities which are generally carried at cost.
The Company accounts for its investments in limited partnership interests in
which it does not have a controlling interest in accordance with the equity
method of accounting. The Company's investments in equity securities represented
1.4% and 1.5% of cash and invested assets at March 31, 2000 and December 31,
1999, respectively.
The following table presents the carrying values of the Company's
investments in equity securities and other limited partnership interests at
March 31, 2000 and December 31, 1999:
INVESTMENTS IN EQUITY SECURITIES AND OTHER LIMITED PARTNERSHIP INTERESTS
At March 31, 2000 At December 31, 1999
----------------- --------------------
Carrying % of Carrying % of
Value Total Value Total
-------- ----- -------- -----
(Dollars in Millions)
Equity securities $2,137 59.5% $2,006 60.1%
Other limited partnership interests 1,452 40.5 1,331 39.9
------ ----- ------ -----
Total $3,589 100.0% $3,337 100.0%
====== ===== ====== =====
Equity securities include, at March 31, 2000 and December 31, 1999, $268
million and $237 million, respectively, of private equity securities. The
Company may not freely trade its private equity securities because of
restrictions imposed by federal and state securities laws and illiquid trading
markets.
At March 31, 2000 and December 31, 1999, approximately $362 million and
$380 million, respectively, of the Company's equity securities holdings were
effectively fixed at a minimum value of $353 million and $355 million in these
respective periods, primarily through the use of convertible securities and
other derivatives. The exchangeable
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subordinated debt securities mature through 2002 and the Company may terminate
them earlier at its discretion.
PROBLEM AND POTENTIAL PROBLEM EQUITY SECURITIES AND OTHER LIMITED PARTNERSHIP
INTERESTS
The Company monitors its equity securities and other limited partnership
interests on a continual basis. Through this monitoring process, the Company
identifies investments that management considers to be problems or potential
problems.
Problem equity securities and other limited partnership interests are
defined as securities (1) in which significant declines in revenues and/or
margins threaten the ability of the issuer to continue operating or (2) where
the issuer has subsequently entered bankruptcy.
Potential problem equity securities and other limited partnership interests
are defined as securities issued by a company that is experiencing significant
operating problems or difficult industry conditions. Criteria generally
indicative of these problems or conditions are (1) cash flows falling below
varying thresholds established for the industry and other relevant factors, (2)
significant declines in revenues and/or margins, (3) public securities trading
at a substantial discount as a result of specific credit concerns and (4) other
information that becomes available.
Equity securities or other limited partnership interests which are deemed
to be other than temporarily impaired are written down to management's
expectation of ultimate realizable value. Write-downs are recorded as realized
investment losses and are included in earnings and the cost basis of the equity
securities and other limited partnership interests are adjusted accordingly. The
new cost basis is not changed for subsequent recoveries in value. For the three
months ended March 31, 2000 and 1999, such write-downs were $3 million and $1
million, respectively. Cumulative write-downs on equity securities and other
limited partnership interests owned at March 31, 2000 were $34 million.
OTHER INVESTED ASSETS
The Company's other invested assets consisted principally of leveraged
leases, which were recorded net of non-recourse debt. The Company participates
in lease transactions which are diversified by geographic area. The Company
regularly reviews residual values and writes down residuals to expected values
as needed. The Company's other invested assets represented 1.6% and 1.1% of cash
and invested assets at March 31, 2000 and December 31, 1999, respectively.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses derivative instruments to manage market risk through one
of four principal risk management strategies: the hedging of invested assets,
liabilities, portfolios of assets or liabilities and anticipated transactions.
The Company's derivative strategy
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employs a variety of instruments including financial futures, financial forwards
foreign exchange contracts, foreign currency swaps, interest rate swaps,
interest rate caps and options.
The Company held the following positions in derivative financial
instruments at March 31, 2000 and December 31, 1999:
DERIVATIVE FINANCIAL INSTRUMENTS
AT MARCH 31, 2000 AT DECEMBER 31, 1999
----------------- --------------------
NOTIONAL % OF NOTIONAL % OF
AMOUNT TOTAL AMOUNT TOTAL
-------- ------ -------- --------
(DOLLARS IN MILLIONS)
Financial futures $ 2,725 8.5% $ 3,140 15.1%
Foreign exchange contracts 114 0.4 -- 0.0
Foreign currency swaps 4,135 12.9 4,002 19.2
Interest rate swaps 16,083 50.2 1,316 6.3
Interest rate caps 8,968 28.0 12,376 59.4
------- ----- ------- -----
Total $32,025 100.0% $20,834 100.0%
======= ===== ======= =====
SECURITIES LENDING
Pursuant to the Company's securities lending program, it lends securities
to major brokerage firms. The Company's policy requires a minimum of 102% of the
fair value of the loaned securities as collateral, calculated on a daily basis.
The Company's securities on loan at March 31, 2000 and December 31, 1999 had
estimated fair values of $9,123 million and $6,391 million, respectively.
SEPARATE ACCOUNT ASSETS
The Company manages each separate account's assets in accordance with the
prescribed investment policy that applies to that specific separate account. The
Company establishes separate accounts on a single client and multi-client
commingled basis in conformity with insurance laws. Generally, separate accounts
are not chargeable with liabilities that arise from any other business of the
Company. Separate account assets are subject to the Company's general account's
claims only to the extent that the value of such assets exceeds the separate
account liabilities, as defined by the account's contract. If the Company uses a
separate account to support a contract providing guaranteed benefits, the
Company must comply with the asset maintenance requirements stipulated under
Regulation 128 of the New York Insurance Department. The Company monitors these
requirements at least monthly and in addition performs cash flow analyses,
similar to that conducted for the general account, on an annual basis. The
Company reports separately as assets and liabilities investments held in
separate accounts and liabilities of the separate accounts. The Company reports
substantially all separate account assets at their fair market
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value. Investment income and gains or losses on the investments of separate
accounts accrue directly to contract holders, and, accordingly, the Company does
not reflect them in its consolidated statements of income and cash flows. The
Company reflects in its revenues fees charged to the separate accounts by the
Company, including mortality charges, risk charges, policy administration fees,
investment management fees and surrender charges.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has material exposure to interest rate, equity market and
foreign exchange risk. The Company analyzes interest rate risk using various
models including multi-scenario cash flow projection models that forecast cash
flows of the liabilities and their supporting investments, including derivative
instruments. There have been no material changes in market risk exposures from
December 31, 1999.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The following should be read in conjunction with Note 6 to Unaudited
Interim Condensed Consolidated Financial Statements in Part I of this Report
("Note 6").
Eight of the nine purported or certified class actions currently pending
against New England Mutual Life Insurance Company ("New England") have been
consolidated as a multidistrict proceeding for pre-trial purposes in the United
States District Court in Massachusetts. That Court certified a mandatory class
as to those claims. Following an appeal of that certification, the United States
Court of Appeals remanded the case to the District Court for further
consideration. New England has agreed to a tentative settlement with class
counsel which is being presented to the District Court for preliminary approval.
As previously disclosed, a purported class action suit involving
policyholders in 32 states has been filed in a Rhode Island state court against
Metropolitan Life's subsidiary, Metropolitan Property and Casualty Insurance
Company, with respect to claims by policyholders for the alleged diminished
value of automobiles after accident-related repairs. The trial court recently
denied a motion by Metropolitan Property and Casualty Insurance Company for
summary judgment.
Metropolitan Life has completed a tender offer to purchase the shares of
Conning Corporation that it had not already owned. After Metropolitan Life had
announced its intention to make a tender offer, three putative class actions
were filed by Conning shareholders alleging that the prospective offer was
inadequate and constituted a breach of fiduciary duty. The parties to the
litigation have reached an agreement in principle providing for a settlement of
the actions.
In addition, several lawsuits have been brought challenging the fairness of
Metropolitan Life's plan and the adequacy and accuracy of Metropolitan Life's
disclosures to policyholders regarding the plan. These actions name as
defendants some
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or all of Metropolitan Life, MetLife, Inc., the individual directors and the New
York State Superintendent of Insurance. The five previously disclosed purported
class actions pending in the Supreme Court of the State of New York for New York
County have been consolidated within the commercial part. There remains a
separate purported class action in Kings County. In addition, a new purported
class action was filed on April 21, 2000 in state court in New York County. The
plaintiffs in the state court class actions seek injunctive, declaratory and
compensatory relief, as well as an accounting. On or about April 14, 2000, some
of the plaintiffs in the above described actions also brought a proceeding under
Article 78 of New York's Civil Practice Law and Rules challenging the Opinion
and Decision of the New York Superintendent of Insurance that approved the plan.
In this action, petitioners seek to vacate the Superintendent's Opinion and
Order and enjoin him from granting final approval to the plan. Finally, on April
18, 2000, a purported class action was filed in United States District Court for
the Eastern District of New York claiming violation of the Securities Act of
1933. The plaintiff in this action claims that the Policyholder Information
Booklets relating to the plan failed to disclose certain material facts and
seeks rescission and compensatory damages. Metropolitan Life, MetLife, Inc. and
the individual defendants believe they have meritorious defenses and intend
vigorously to contest all of the claims in these actions.
Various litigation, claims and assessments against the Company, in addition
to those discussed above and those otherwise provided for in the Company's
consolidated financial statements, have arisen in the course of its business,
including, but not limited to, in connection with its activities as an insurer,
employer, investor, investment advisor and taxpayer. Further, state insurance
regulatory authorities and other federal and state authorities regularly make
inquiries and conduct investigations concerning the Company's compliance with
applicable insurance and other laws and regulations.
In some of the matters referred to above and in Note 6, very large and/or
indeterminate amounts, including punitive and treble damages, are sought. While
it is not feasible to predict or determine the ultimate outcome of all pending
investigations and legal proceedings or provide reasonable ranges of potential
losses, it is the opinion of the Company's management that their outcomes, after
consideration of available insurance and reinsurance and the provisions made in
its consolidated financial statements, are not likely to have a material adverse
effect on our consolidated financial condition. However, given the large and/or
indeterminate amounts sought in certain of these matters and the inherent
unpredictability of litigation, it is possible that an adverse outcome in
certain matters could, from time to time, have a material adverse effect on the
Company's operating results or cash flows in particular quarterly or annual
periods.
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ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) The Initial Public Offerings
On April 4, 2000, the Securities and Exchange Commission declared effective
(i) the Registration Statement on Form S-1 (Registration No. 333-91517) of
MetLife with respect to the MetLife's common stock, par value $.01 per share
(the "Common Stock"); and (ii) the Registration Statement on Form S-1
(Registration Nos. 333-32074 and 333-32074-01) of MetLife and MetLife Capital
Trust I with respect to 8.00% Equity Security Units (the "Units"). The Units are
comprised of a purchase contract, which constitutes the holder's agreement to
purchase shares of the Registrant's Common Stock at a future date, and a capital
security of MetLife Capital Trust I. The offerings of the securities registered
on the registration statements referred to in (i) and (ii) above are
collectively referred to as the "Public Offerings."
The lead managing underwriters for the U.S. offerings of Common Stock and
Units were Credit Suisse First Boston and Goldman, Sachs & Co. The managing
underwriters for the International offering of the Common Stock were Credit
Suisse First Boston and Goldman Sachs International. Each of the Public
Offerings commenced on April 4, 2000. The offerings of the Common Stock
terminated upon the sale of all the 232,300,000 shares of Common Stock
(including 30,300,000 shares sold pursuant to the underwriters' over-allotment
options). The offering of the Units terminated upon the sale of all the
20,125,000 Units (including 2,625,000 Units sold pursuant to the underwriters'
over-allotment options).
The aggregate offering price of the Common Stock sold was $3,310,275,000
(including $431,775,000 of gross proceeds attributable to the shares of Common
Stock sold pursuant to exercise of the underwriters' over-allotment options).
MetLife incurred the following expenses in connection with the offering of
Common Stock:
Underwriting discounts and commissions $148,672,000
Other expenses (legal and accounting fees, printing and
Engraving expenses, filing and listing fees, transfer
agent and registrar fees and miscellaneous 14,603,000 *
------------
Total $163,275,000
The net proceeds to MetLife from the offering of Common Stock, after
deducting the foregoing expenses, were approximately $3,147,000,000.
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The aggregate offering price of the Units sold was $1,006,250,000
(including $131,250,000 of gross proceeds attributable to the Units sold
pursuant to exercise of the underwriters' over-allotment options). MetLife
incurred the following expenses in connection with the offering of the Units:
Underwriting discounts and commissions $35,218,750
Other expenses (legal and accounting fees, printing and
Engraving expenses, filing and listing fees, transfer
agent and registrar fees and miscellaneous 5,031,250 *
-----------
Total $40,250,000
The net proceeds to MetLife from the offering of the Units, after deducting
the foregoing expenses, were approximately $966,000,000.
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* Estimated
The Private Placements
Contemporaneously with the Public Offerings and in reliance upon the
exemption from registration provided under Section 4(2) of the Securities Act of
1933, MetLife conducted private placements (referred to collectively as the
"Private Placements" and, together with the Initial Public Offerings, as the
"Offerings") to (i) Credit Suisse First Boston and Winterthur Life
(collectively, "CSFB") and (ii) Banco Santander Central Hispano ("Banco
Santander"). Each of CSFB and Banco Santander purchased 30,000,000 shares of
Common Stock, at $14.25 per share, the initial public offering price of the
Common Stock. The Private Placements were completed on April 7, 2000.
The net proceeds to MetLife from the Private Placements were $855,000,000.
The total net proceeds to MetLife from the Initial Public Offerings and the
Private Placements were approximately $4,968,000,000.
In connection with the Initial Public Offerings and the Private Placements,
except as otherwise noted below, the Company did not make any direct or indirect
payments to directors or officers of MetLife or, to MetLife's knowledge, their
associates, persons owning 10% or more of any class of equity securities of
MetLife, or affiliates of the Company. Approximately $340 million of the net
proceeds were retained by MetLife and the balance of approximately $4.6 billion
was contributed to Metropolitan Life.
Of the net proceeds contributed by MetLife to Metropolitan Life,
approximately $408,000,000 was used to reimburse Metropolitan Life for the
crediting of policy credits to certain policyholders in the demutualization of
Metropolitan Life (the "Demutualization"); (ii) approximately $2,550,000,000 was
used to reimburse
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Metropolitan Life for the payment of cash to certain policyholders in the
Demutualization; (iii) approximately $321,000,000 was used to reimburse
Metropolitan Life for the payment of cash to be made by its Canadian branch to
certain holders of policies included in the Canadian business previously sold;
(iv) approximately $370,000,000 was used to reimburse Metropolitan Life for the
payment of fees and expenses incurred in connection with the Demutualization;
(v) approximately $900,000,000 was used to repay short-term debt incurred in
connection with the acquisition of GenAmerica Corporation and (vi) approximately
$79,000,000 is expected to be used for general corporate purposes. Certain
officers and directors of the Registrant are policyholders of Metropolitan Life
and, as such, have or will receive consideration indirectly from MetLife, in
connection with the Demutualization, in consideration of their membership
interests in Metropolitan Life. In addition, an affiliate of MetLife served as a
co-manager of the Initial Public Offerings and received compensation indirectly
from MetLife for providing such services.
The net proceeds retained by MetLife will be available for general
corporate purposes, including the payment of dividends on the Common Stock,
contributions to the Company's subsidiaries, payments on the debentures issued
by MetLife to MetLife Capital Trust I in connection with the offering of the
Units and to pay the fees and expenses of the trustee and custodian of the
Metropolitan Life Policyholder Trust.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 2000 Annual Meeting of Shareholders of MetLife was held on April 3,
2000. At the Meeting, the following matters were approved by Metropolitan Life,
the then sole shareholder of the Registrant: (i) the election of Robert H.
Benmosche, Gerald Clark, John J. Phelan, Jr., Hugh B. Price and Ruth J. Simmons
as Class I directors, each to hold office until the Registrant's 2003 Annual
Meeting of Shareholders and (ii) the amendment and restatement of the 2000 Stock
Incentive Plan and the 2000 Directors Stock Plan.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Amended and Restated Aggregate Excess of Loss Reinsurance
Agreement, dated as of March 1, 2000, between American International Life
Assurance Company of New York and Metropolitan Life.
10.2 Amended and Restated Aggregate Excess of Loss Reinsurance
Agreement, dated as of March 1, 2000, between Stockwood Reinsurance Company Ltd.
and Metropolitan Life.
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10.3 Employment Continuation Agreement, dated as of March 10, 2000,
between James M. Benson and Metropolitan Life (incorporated herein by reference
to Exhibit 10.5 of the Registrant's Registration Statement on Form S-1,
Registration No. 333-91517 (the "S-1")).
10.4 Employment Continuation Agreement, dated as of March 3, 2000,
between Catherine A. Rein and Metropolitan Property and Casualty Insurance
Company (incorporated herein by reference to Exhibit 10.10 of the S-1).
10.5 Amended and Restated Employment Continuation Agreement, dated as
of March 3, 2000, between Catherine A. Rein and Metropolitan Life (incorporated
herein by reference to Exhibit 10.9 of the S-1).
10.6 Employment Continuation Agreement, dated as of March 16, 2000,
between Lisa M. Weber and Metropolitan Life (incorporated herein by reference to
Exhibit 10.50 of the S-1).
10.7 MetLife, Inc. 2000 Stock Incentive Plan, as amended and restated
(incorporated herein by reference to Exhibit 10.7 of the S-1).
10.8 MetLife, Inc. 2000 Directors Stock Plan, as amended and restated
(incorporated herein by reference to Exhibit 10.8 of the S-1).
10.9 Metropolitan Life Long Term Performance Compensation Plan (for
performance periods starting on or after January 1, 2000)(incorporated herein by
reference to Exhibit 10.24 of the S-1).
10.10 Metropolitan Life Annual Variable Incentive Plan (for performance
periods starting on or after January 1, 2000)(incorporated herein by reference
to Exhibit 10.28 of the S-1).
10.11 New England Financial Long Term Performance Compensation Plan
(for performance periods starting on or after January 1, 2000)(incorporated
herein by reference to Exhibit 10.36 of the S-1).
10.12 New England Financial Annual Variable Incentive Plan (for
performance periods starting on or after January 1, 2000)(incorporated herein by
reference to Exhibit 10.35 of the S-1).
10.13 New England Life Insurance Company Select Employees Supplemental
401(k) Plan, as amended and restated effective January 1, 2000 (incorporated
herein by reference to Exhibit 10.37 of the S-1).
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10.14 New England Life Insurance Company Supplemental Retirement Plan,
as amended and restated effective January 1, 2000 (incorporated herein by
reference to Exhibit 10.38 of the S-1).
10.15 New England Life Insurance Company Select Employees Supplemental
Retirement Plan, as amended and restated effective January 1, 2000 (incorporated
herein by reference to Exhibit 10.39 of the S-1).
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No report on Form 8-K was filed by the Registrant during the
quarter covered by this Report.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
METLIFE, INC.
By: /s/ Virginia M. Wilson
-------------------------------
Virginia M. Wilson
Senior Vice-President and
Controller
(Authorized signatory and
principal accounting
officer)
Date: May 19, 2000
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EXHIBIT INDEX
EXHIBIT PAGE
NUMBER EXHIBIT NAME NUMBER
10.1 Amended and Restated Aggregate Excess of Loss Reinsurance
Agreement, dated as of March 1, 2000, between American
International Life Assurance Company of New York and
Metropolitan Life.
10.2 Amended and Restated Aggregate Excess of Loss Reinsurance
Agreement, dated as of March 1, 2000, between Stockwood
Reinsurance Company Ltd. and Metropolitan Life.
10.3 Employment Continuation Agreement, dated as of March 10, 2000,
between James M. Benson and Metropolitan Life (incorporated
herein by reference to Exhibit 10.5 of the Registrant's
Registration Statement on Form S-1, Registration No.
333-91517 (the "S-1")).
10.4 Employment Continuation Agreement, dated as of March 3, 2000,
between Catherine A. Rein and Metropolitan Property and Casualty
Insurance Company (incorporated herein by reference to Exhibit
10.10 of the S-1).
10.5 Amended and Restated Employment Continuation Agreement, dated as
of March 3, 2000, between Catherine A. Rein and Metropolitan
Life (incorporated herein by reference to Exhibit 10.9 of the
S-1).
10.6 Employment Continuation Agreement, dated as of March 16, 2000,
between Lisa M. Weber and Metropolitan Life (incorporated herein
by reference to Exhibit 10.50 of the S-1).
10.7 MetLife, Inc. 2000 Stock Incentive Plan, as amended and restated
(incorporated herein by reference to Exhibit 10.7 of the S-1).
10.8 MetLife, Inc. 2000 Directors Stock Plan, as amended and restated
(incorporated herein by reference to Exhibit 10.8 of the S-1).
10.9 Metropolitan Life Long Term Performance Compensation Plan (for
performance periods starting on or after January 1,
2000)(incorporated herein by reference to Exhibit 10.24 of the
S-1).
10.10 Metropolitan Life Annual Variable Incentive Plan (for
performance periods starting on or after January 1,
2000)(incorporated herein by reference to Exhibit 10.28 of the
S-1).
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10.11 New England Financial Long Term Performance Compensation Plan
(for performance periods starting on or after January 1,
2000)(incorporated herein by reference to Exhibit 10.36 of the
S-1).
10.12 New England Financial Annual Variable Incentive Plan (for
performance periods starting on or after January 1,
2000)(incorporated herein by reference to Exhibit 10.35 of the
S-1).
10.13 New England Life Insurance Company Select Employees Supplemental
401(k) Plan, as amended and restated effective January 1, 2000
(incorporated herein by reference to Exhibit 10.37 of the S-1).
10.14 New England Life Insurance Company Supplemental Retirement Plan,
as amended and restated effective January 1, 2000 (incorporated
herein by reference to Exhibit 10.38 of the S-1).
10.15 New England Life Insurance Company Select Employees Supplemental
Retirement Plan, as amended and restated effective January 1,
2000 (incorporated herein by reference to Exhibit 10.39 of the
S-1).
27.1 Financial Data Schedule
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