TABLE OF CONTENTS
Note Regarding Forward-Looking Statements
Selected Financial Data
Business
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Management’s Annual Report on Internal Control Over Financial Reporting
Report of the Company’s Registered Public Accounting Firm
Financial Statements and Supplementary Data
Board of Directors
Executive Officers
Contact Information
Corporate Information
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Cover image:
MetLife’s principal executive
offices, 200 Park Avenue in
New York City.
Table of Contents
As used in this Annual Report, “MetLife,” the “Company,” “we,” “our” and “us” refer to MetLife, Inc., a Delaware corporation incorporated in 1999,
its subsidiaries and affiliates.
Note Regarding Forward-Looking Statements
This Annual Report, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, may contain or incorporate
by reference information that includes or is based upon forward-looking statements within the meaning of the Private Securities Litigation Reform Act
of 1995. Forward-looking statements give expectations or forecasts of future events. These statements can be identified by the fact that they do not
relate strictly to historical or current facts. They use words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe” and other
words and terms of similar meaning, or are tied to future periods, in connection with a discussion of future operating or financial performance. In
particular, these include statements relating to future actions, prospective services or products, future performance or results of current and anticipated
services or products, sales efforts, expenses, the outcome of contingencies such as legal proceedings, trends in operations and financial results.
Any or all forward-looking statements may turn out to be wrong. They can be affected by inaccurate assumptions or by known or unknown risks
and uncertainties. Many such factors will be important in determining the actual future results of MetLife, Inc., its subsidiaries and affiliates. These
statements are based on current expectations and the current economic environment. They involve a number of risks and uncertainties that are difficult
to predict. These statements are not guarantees of future performance. Actual results could differ materially from those expressed or implied in the
forward-looking statements. Risks, uncertainties, and other factors that might cause such differences include the risks, uncertainties and other factors
identified in MetLife, Inc.’s filings with the U.S. Securities and Exchange Commission. These factors include: (1) difficult conditions in the global capital
markets; (2) increased volatility and disruption of the global capital and credit markets, which may affect our ability to meet liquidity needs and access
capital, including through our credit facilities, generate fee income and market-related revenue and finance statutory reserve requirements and may
require us to pledge collateral or make payments related to declines in value of specified assets, including assets supporting risks ceded to certain
of our captive reinsurers or hedging arrangements associated with those risks; (3) exposure to global financial and capital market risks, including as
a result of the disruption in Europe and possible withdrawal of one or more countries from the Euro zone; (4) impact on us of comprehensive financial
services regulation reform, including potential regulation of MetLife, Inc. as a non-bank systemically important financial institution, or otherwise;
(5) numerous rulemaking initiatives required or permitted by the Dodd-Frank Wall Street Reform and Consumer Protection Act which may impact how
we conduct our business, including those compelling the liquidation of certain financial institutions; (6) regulatory, legislative or tax changes relating
to our insurance, international, or other operations that may affect the cost of, or demand for, our products or services, or increase the cost or
administrative burdens of providing benefits to employees; (7) adverse results or other consequences from litigation, arbitration or regulatory
investigations; (8) our ability to address difficulties, unforeseen liabilities, asset impairments, or rating agency actions arising from (a) business acquisitions
and integrating and managing the growth of such acquired businesses, (b) dispositions of businesses via sale, initial public offering, spin-off or otherwise,
(c) entry into joint ventures, or (d) legal entity reorganizations; (9) potential liquidity and other risks resulting from our participation in a securities lending
program and other transactions; (10) investment losses and defaults, and changes to investment valuations; (11) changes in assumptions related to
investment valuations, deferred policy acquisition costs, deferred sales inducements, value of business acquired or goodwill; (12) impairments of
goodwill and realized losses or market value impairments to illiquid assets; (13) defaults on our mortgage loans; (14) the defaults or deteriorating credit
of other financial institutions that could adversely affect us; (15) economic, political, legal, currency and other risks relating to our international operations,
including with respect to fluctuations of exchange rates; (16) downgrades in our claims paying ability, financial strength or credit ratings; (17) a
deterioration in the experience of the “closed block” established in connection with the reorganization of Metropolitan Life Insurance Company;
(18) availability and effectiveness of reinsurance or indemnification arrangements, as well as any default or failure of counterparties to perform;
(19) differences between actual claims experience and underwriting and reserving assumptions; (20) ineffectiveness of risk management policies and
procedures; (21) catastrophe losses; (22) increasing cost and limited market capacity for statutory life insurance reserve financings; (23) heightened
competition, including with respect to pricing, entry of new competitors, consolidation of distributors, the development of new products by new and
existing competitors, and for personnel; (24) exposure to losses related to variable annuity guarantee benefits, including from significant and sustained
downturns or extreme volatility in equity markets, reduced interest rates, unanticipated policyholder behavior, mortality or longevity, and the adjustment
for nonperformance risk; (25) regulatory and other restrictions affecting MetLife, Inc.’s ability to pay dividends and repurchase common stock;
(26) MetLife, Inc.’s primary reliance, as a holding company, on dividends from its subsidiaries to meet its free cash flow targets and debt payment
obligations and the applicable regulatory restrictions on the ability of the subsidiaries to pay such dividends; (27) the possibility that MetLife, Inc.’s
Board of Directors may influence the outcome of stockholder votes through the voting provisions of the MetLife Policyholder Trust; (28) changes in
accounting standards, practices and/or policies; (29) increased expenses relating to pension and postretirement benefit plans, as well as health care
and other employee benefits; (30) inability to protect our intellectual property rights or claims of infringement of the intellectual property rights of others;
(31) inability to attract and retain sales representatives; (32) provisions of laws and our incorporation documents may delay, deter or prevent takeovers
and corporate combinations involving MetLife; (33) the effects of business disruption or economic contraction due to disasters such as terrorist attacks,
cyberattacks, other hostilities, or natural catastrophes, including any related impact on the value of our investment portfolio, our disaster recovery
systems, cyber- or other information security systems and management continuity planning; (34) the effectiveness of our programs and practices in
avoiding giving our associates incentives to take excessive risks; and (35) other risks and uncertainties described from time to time in MetLife, Inc.’s
filings with the U.S. Securities and Exchange Commission.
MetLife, Inc. does not undertake any obligation to publicly correct or update any forward-looking statement if MetLife, Inc. later becomes aware
that such statement is not likely to be achieved. Please consult any further disclosures MetLife, Inc. makes on related subjects in reports to the U.S.
Securities and Exchange Commission.
MetLife, Inc.
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Selected Financial Data
The following selected financial data has been derived from the Company’s audited consolidated financial statements. The statement of operations
data for the years ended December 31, 2015, 2014 and 2013, and the balance sheet data at December 31, 2015 and 2014 have been derived from
the Company’s audited consolidated financial statements included elsewhere herein. The statement of operations data for the years ended
December 31, 2012 and 2011, and the balance sheet data at December 31, 2013, 2012 and 2011 have been derived from the Company’s audited
consolidated financial statements not included herein. The selected financial data set forth below should be read in conjunction with “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and the audited consolidated financial statements and related notes included
elsewhere herein.
Statement of Operations Data
Revenues
Premiums
Universal life and investment-type product policy fees
Net investment income
Other revenues
Net investment gains (losses)
Net derivative gains (losses)
Total revenues
Expenses
Policyholder benefits and claims
Interest credited to policyholder account balances
Policyholder dividends
Goodwill impairment
Other expenses
Total expenses
Income (loss) from continuing operations before provision for income
tax
Provision for income tax expense (benefit)
Income (loss) from continuing operations, net of income tax
Income (loss) from discontinued operations, net of income tax
Net income (loss)
Less: Net income (loss) attributable to noncontrolling interests
Net income (loss) attributable to MetLife, Inc.
Less: Preferred stock dividends
Preferred stock repurchase premium
Years Ended December 31,
2015
2014
2013
2012
2011
(In millions, except per share data)
$
38,545
$
39,067
$
37,674
$
37,975
$
36,361
9,507
19,281
1,983
597
38
69,951
9,946
21,153
2,030
(197)
1,317
73,316
9,451
22,232
1,920
161
(3,239)
68,199
8,556
21,984
1,906
(352)
(1,919)
68,150
7,806
19,585
2,532
(867)
4,824
70,241
38,714
39,102
38,107
37,987
35,471
5,610
1,388
—
16,769
62,481
7,470
2,148
5,322
—
5,322
12
5,310
116
42
6,943
1,376
—
17,091
64,512
8,804
2,465
6,339
(3)
6,336
27
6,309
122
—
8,179
1,259
—
16,602
64,147
4,052
661
3,391
2
3,393
25
3,368
122
—
7,729
1,369
1,868
17,755
66,708
1,442
128
1,314
48
1,362
38
1,324
122
—
5,603
1,446
—
18,537
61,057
9,184
2,793
6,391
24
6,415
(8)
6,423
122
146
Net income (loss) available to MetLife, Inc.’s common shareholders
$
5,152
$
6,187
$
3,246
$
1,202
$
6,155
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MetLife, Inc.
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EPS Data (1)
Income (loss) from continuing operations, net of income tax, available
to MetLife, Inc.’s common shareholders per common share:
Basic
Diluted
Income (loss) from discontinued operations, net of income tax, per
common share:
Basic
Diluted
Net income (loss) available to MetLife, Inc.’s common shareholders
per common share:
Basic
Diluted
Cash dividends declared per common share
Balance Sheet Data
Separate account assets
Total assets
Policyholder liabilities and other policy-related balances (2)
Short-term debt
Long-term debt
Collateral financing arrangements
Junior subordinated debt securities
Separate account liabilities
Accumulated other comprehensive income (loss)
Total MetLife, Inc.’s stockholders’ equity
Noncontrolling interests
$
$
$
$
$
$
$
4.61
4.57
$
$
5.48
5.42
$
$
2.94
2.91
$
$
— $
— $
— $
— $
— $
— $
1.08
1.08
0.04
0.04
4.61
4.57
1.475
$
$
$
5.48
5.42
1.325
$
$
$
2.94
2.91
1.010
$
$
$
1.12
1.12
0.740
$
$
$
$
$
$
$
5.79
5.74
0.02
0.02
5.81
5.76
0.740
2015
2014
2013
2012
2011
December 31,
(In millions)
$
$
$
$
$
$
$
$
$
$
$
301,598
877,933
411,359
100
18,023
4,139
3,194
301,598
4,771
67,949
470
$
$
$
$
$
$
$
$
$
$
$
316,994
902,337
417,141
100
16,286
4,196
3,193
316,994
10,649
72,053
507
$
$
$
$
$
$
$
$
$
$
$
317,201
885,296
418,487
175
18,653
4,196
3,193
317,201
5,104
61,553
543
$
$
$
$
$
$
$
$
$
$
$
235,393
836,781
438,191
100
19,062
4,196
3,192
235,393
11,397
64,453
384
$
$
$
$
$
$
$
$
$
$
$
203,023
796,226
421,267
686
23,692
4,647
3,192
203,023
6,083
57,519
370
Years Ended December 31,
2015
2014
2013
2012
2011
Other Data (3)
Return on MetLife, Inc.’s common stockholders’ equity
7.5%
9.4%
5.4%
2.0%
12.2%
_____________
(1)
(2)
(3)
For the year ended December 31, 2012, all shares related to the assumed issuance of shares in settlement of the applicable stock purchase
contracts relating to previously issued common equity units have been excluded from the calculation of diluted earnings per common share,
as these assumed shares are anti-dilutive.
Policyholder liabilities and other policy-related balances include future policy benefits, policyholder account balances, other policy-related
balances, policyholder dividends payable and the policyholder dividend obligation.
Return on MetLife, Inc.’s common stockholders’ equity is defined as net income (loss) available to MetLife, Inc.’s common shareholders divided
by MetLife, Inc.’s average common stockholders’ equity.
Business
We have grown to become a global provider of life insurance, annuities, employee benefits and asset management. Through our subsidiaries
and affiliates, we hold leading market positions in the United States, Japan, Latin America, Asia, Europe and the Middle East. Over the past several
years, we have grown our core businesses, as well as successfully executed on our growth strategy. This has included completing a number of
transactions that have resulted in the acquisition and, in some cases, divestiture of certain businesses while also further strengthening our balance
sheet to position MetLife for continued growth.
We are also one of the largest institutional investors in the U.S. with a $508.2 billion general account portfolio invested primarily in investment
grade corporate bonds, structured finance securities, mortgage loans and U.S. Treasury and agency securities, as well as real estate and corporate
equity, at December 31, 2015. Over the past several years, we have further diversified and strengthened our general account portfolio.
MetLife, Inc.
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MetLife is organized into six segments, reflecting three broad geographic regions: Retail; Group, Voluntary & Worksite Benefits; Corporate Benefit
Funding; and Latin America (collectively, the “Americas”); Asia; and Europe, the Middle East and Africa (“EMEA”). In addition, the Company reports
certain of its results of operations in Corporate & Other. See “Business — Segments and Corporate & Other” in MetLife’s Annual Report on Form 10-
K for the year ended December 31, 2015 (the “2015 Form 10-K”) and Note 2 of the Notes to the Consolidated Financial Statements for further
information on the Company’s segments and Corporate & Other. See also “— Other Key Information” for information on the Company’s announcement
of its plan to pursue the separation of a substantial portion of its Retail segment, which is organized into two U.S. businesses, Life & Other and
Annuities, as well as certain portions of its Corporate Benefit Funding segment and Corporate & Other (the “Separation”). Management continues to
evaluate the Company’s segment performance and allocated resources and may adjust related measurements in the future to better reflect segment
profitability.
In the U.S., we provide a variety of insurance and financial services products, including life, dental, disability, property & casualty, guaranteed
interest, stable value and annuities, through both proprietary and independent retail distribution channels, as well as at the workplace.
Outside the U.S., we provide life, medical, dental, credit and other accident & health insurance, as well as annuities, endowment and retirement &
savings products to both individuals and groups. We believe these businesses will continue to grow more quickly than our U.S. businesses.
In the Americas, excluding Latin America, we market our products and services through various distribution channels. Our retail life, disability
and annuities products targeted to individuals are sold via sales forces, comprised of MetLife employees, as well as third-party organizations. Our
group and corporate benefit funding products are sold via sales forces primarily comprised of MetLife employees. Personal lines property & casualty
insurance products are directly marketed to employees at their employer’s worksite. Personal lines property & casualty insurance products are also
marketed and sold to individuals by independent agents, property & casualty specialists through a direct marketing channel, and via sales forces
comprised of MetLife employees. MetLife sales employees work with all distribution channels to better reach and service customers, brokers,
consultants and other intermediaries. See “— Recent Developments” for information on the Company’s entry into an agreement with Massachusetts
Mutual Life Insurance Company (“MassMutual”) for the acquisition by MassMutual of MetLife’s U.S. Retail advisor force.
In Latin America, we market our products and services through a multi-distribution strategy which varies by geographic region and stage of
market development. Latin America’s distribution channels include captive agents, direct marketing (“sponsored and direct to customer”), large
multinational brokers and small and medium-sized brokers, direct and group sales forces (mostly for group policies without broker intermediation),
and worksite marketing. The region has an exclusive and captive agency distribution network also selling a variety of individual life, accident & health,
and pension products. In the direct marketing channel, we work with sponsors and telesales representatives selling mainly accident & health and
individual life products directly to consumers. We currently work with active brokers with registered sales of group and individual life, accident & health,
group medical, dental and pension products.
Our Asia operations are geographically diverse with developed and emerging markets. We market our products and services through a multi-
channel distribution strategy including career agency, bancassurance, direct marketing, brokerage, other third-party distribution and e-commerce.
Japan’s multi-channel distribution strategy consists of captive agents, independent agents, bancassurance, direct marketing and brokers. Outside
of Japan, our distribution strategies differ by country but generally utilize a combination of captive agents, bancassurance relationships and direct
marketing.
Our EMEA operations are geographically diverse with a mix of developed and emerging markets. Our businesses in EMEA employ a multi-
channel distribution strategy, including captive and independent agency, bancassurance and direct-to-consumer.
Revenues derived from any customer did not exceed 10% of consolidated premiums, universal life and investment-type product policy fees and
other revenues for the years ended December 31, 2015, 2014 and 2013. Financial information, including revenues, expenses, operating earnings,
and total assets by segment, as well as premiums, universal life and investment-type product policy fees and other revenues by major product groups,
is provided in Note 2 of the Notes to the Consolidated Financial Statements. Operating revenues and operating earnings are performance measures
that are not based on accounting principles generally accepted in the United States of America (“GAAP”). See “Management’s Discussion and Analysis
of Financial Condition and Results of Operations — Non-GAAP and Other Financial Disclosures” for definitions of such measures.
For financial information related to revenues, total assets, and goodwill balances by geographic region, see Notes 2 and 11 of the Notes to the
Consolidated Financial Statements.
Other Key Information
On January 12, 2016, the Company announced its plan to pursue the Separation. The Company is currently evaluating structural alternatives
for the proposed Separation, including a public offering of shares in an independent, publicly traded company, a spin-off, or a sale. The completion
of a public offering would depend on, among other things, the U.S. Securities and Exchange Commission (“SEC”) filing and review process, as well
as market conditions. Any Separation that might occur will be subject to the satisfaction of various conditions and approvals, including approval of
any transaction by the MetLife, Inc. Board of Directors, satisfaction of any applicable requirements of the SEC, and receipt of insurance and other
regulatory approvals and other anticipated conditions.
In November 2014, MetLife Insurance Company of Connecticut (“MICC”), a wholly-owned subsidiary of MetLife, Inc., re-domesticated from
Connecticut to Delaware, changed its name to MetLife Insurance Company USA and merged with its subsidiary, MetLife Investors USA Insurance
Company (“MLI-USA”), and its affiliate, MetLife Investors Insurance Company (“MLIIC”), each a U.S. insurance company that issued variable annuity
products in addition to other products, and Exeter Reassurance Company, Ltd. (“Exeter”), a former offshore, captive reinsurance subsidiary of MetLife,
Inc. and affiliate of MICC that mainly reinsured guarantees associated with variable annuity products (the “Mergers”). The surviving entity of the Mergers
was MetLife Insurance Company USA (“MetLife USA”). See “Management’s Discussion and Analysis of Financial Condition and Results of Operations
— Executive Summary — Other Key Information — Significant Events” for further information on the Mergers.
In October 2013, MetLife, Inc. completed its acquisition of Administradora de Fondos de Pensiones Provida S.A. (“ProVida”), the largest private
pension fund administrator in Chile based on assets under management and number of pension fund contributors. The acquisition of ProVida supports
the Company's growth strategy in emerging markets and further strengthens the Company's overall position in Chile. See Note 3 of the Notes to the
Consolidated Financial Statements.
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Certain international subsidiaries have a fiscal year cutoff of November 30th. Accordingly, the Company’s consolidated financial statements reflect
the assets and liabilities of such subsidiaries as of November 30, 2015 and 2014 and the operating results of such subsidiaries for the years ended
November 30, 2015, 2014 and 2013. The Company is in the process of converting to calendar year reporting for these subsidiaries. These conversions
are expected to be substantially complete in the first quarter of 2016. The impact of the conversions on our financial statements to date has been de
minimis and, therefore, has been reported in net income in the quarter of conversion.
Recent Developments
On March 30, 2016, the U.S. District Court for the District of Columbia (the “D.C. District Court”) ordered that the designation of MetLife, Inc.
as a non-bank systemically important financial institution (“non-bank SIFI”) by the Financial Stability Oversight Council (“FSOC”) be rescinded. On April
8, 2016, the FSOC filed a notice of appeal of the D.C. District Circuit Court’s order. On December 18, 2014, the FSOC had designated MetLife, Inc.
as a non-bank SIFI subject to regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) and the Federal
Reserve Bank of New York (collectively, with the Federal Reserve Board, the “Federal Reserve”) and the Federal Deposit Insurance Corporation (the
“FDIC”), as well as to enhanced supervision and prudential standards. On January 13, 2015, MetLife, Inc. had filed an action in the D.C. District Court
asking the Court to review and rescind the FSOC’s designation. If the FSOC prevails on appeal or designates MetLife, Inc. as systemically important
as part of its ongoing review of nonbank financial companies, MetLife, Inc. could once again be subject to regulation as a non-bank SIFI. See “Business
— Regulation — U.S. Regulation — Regulation as a Non-Bank SIFI” in the 2015 Form 10-K and Note 21 of the Notes to the Consolidated Financial
Statements.
On February 28, 2016, MetLife, Inc. entered into a purchase agreement with MassMutual pursuant to which MassMutual will acquire MetLife’s
U.S. Retail advisor force and certain assets associated with the MetLife Premier Client Group, including MetLife’s affiliated broker-dealer, MetLife
Securities, Inc. As part of the transaction, MetLife, Inc. and MassMutual have also agreed to enter into a product development agreement under which
MetLife’s U.S. Retail business will be the exclusive developer of certain annuity products to be issued by MassMutual. The transaction is subject to
certain closing conditions, including regulatory approval.
MetLife, Inc.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
Index to Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements and Other Financial Information
Executive Summary
Industry Trends
Summary of Critical Accounting Estimates
Economic Capital
Acquisitions and Dispositions
Results of Operations
Effects of Inflation
Investments
Derivatives
Off-Balance Sheet Arrangements
Insolvency Assessments
Policyholder Liabilities
Liquidity and Capital Resources
Adoption of New Accounting Pronouncements
Future Adoption of New Accounting Pronouncements
Non-GAAP and Other Financial Disclosures
Subsequent Events
Page
7
7
11
15
21
21
22
40
40
56
58
58
58
65
82
82
82
84
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The Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) set forth below is derived from the MD&A
included in the 2015 Form 10-K, which was filed on February 25, 2016, and sets forth information as of that filing date. Important updates to the
information provided in the 2015 Form 10-K may be found in “Business — Recent Developments.”
Forward-Looking Statements and Other Financial Information
For purposes of this discussion, “MetLife,” the “Company,” “we,” “our” and “us” refer to MetLife, Inc., a Delaware corporation incorporated in
1999, its subsidiaries and affiliates. Following this summary is a discussion addressing the consolidated results of operations and financial condition
of the Company for the periods indicated. This discussion should be read in conjunction with “Note Regarding Forward-Looking Statements,” “Selected
Financial Data,” “Quantitative and Qualitative Disclosures About Market Risk” and the Company’s consolidated financial statements included elsewhere
herein, and “Risk Factors” included in the 2015 Form 10-K.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations may contain or incorporate by reference information
that includes or is based upon forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements give expectations or forecasts of future events. These statements can be identified by the fact that they do not relate strictly to historical
or current facts. They use words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe” and other words and terms of similar
meaning, or are tied to future periods, in connection with a discussion of future operating or financial performance. In particular, these include statements
relating to future actions, prospective services or products, future performance or results of current and anticipated services or products, sales efforts,
expenses, the outcome of contingencies such as legal proceedings, trends in operations and financial results. Any or all forward-looking statements
may turn out to be wrong. Actual results could differ materially from those expressed or implied in the forward-looking statements. See “Note Regarding
Forward-Looking Statements.”
This Management’s Discussion and Analysis of Financial Condition and Results of Operations includes references to our performance measures,
operating earnings and operating earnings available to common shareholders, that are not based on GAAP. Operating earnings is the measure of
segment profit or loss we use to evaluate segment performance and allocate resources. Consistent with GAAP guidance for segment reporting,
operating earnings is our measure of segment performance. Operating earnings is also a measure by which senior management’s and many other
employees’ performance is evaluated for the purposes of determining their compensation under applicable compensation plans. See “— Non-GAAP
and Other Financial Disclosures” for definitions of these and other measures.
Executive Summary
Overview
MetLife is a global provider of life insurance, annuities, employee benefits and asset management. MetLife is organized into six segments,
reflecting three broad geographic regions: Retail; Group, Voluntary & Worksite Benefits; Corporate Benefit Funding; and Latin America (collectively,
the “Americas”); Asia; and EMEA. In addition, the Company reports certain of its results of operations in Corporate & Other. See “Business — Segments
and Corporate & Other” in the 2015 Form 10-K and Note 2 of the Notes to the Consolidated Financial Statements for further information on the
Company’s segments and Corporate & Other. See also “— Other Key Information — Significant Events” for information on the Company’s
announcement of its plan to pursue the Separation. Management continues to evaluate the Company’s segment performance and allocated resources
and may adjust related measurements in the future to better reflect segment profitability.
Current Year Highlights
Overall sales growth declined from 2014 levels; however, we experienced sales growth across various products within our regions during the
year ended December 31, 2015, as compared to 2014. In particular, we had higher sales of retail annuity and accident & health products. A number
of factors in 2015, however, offset the benefits of such sales growth, including (i) a tax charge and a related charge for interest on uncertain tax
positions recorded under accounting guidance for the recognition of tax uncertainties, (ii) a decline in investment yields as a result of the sustained
low interest rate environment and lower returns on other limited partnership interests, (iii) less favorable underwriting results driven by unfavorable
claims experience in our property & casualty business, and (iv) a decrease in earnings as a result of our annual review of actuarial assumptions.
MetLife, Inc.
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The following represents the segments’ contributions to total income (loss) from continuing operations, net of income tax, and total operating
earnings for the year ended December 31, 2015:
_________________
(1) Excludes Corporate & Other.
(2) See “— Results of Operations — Consolidated Results” and “— Non-GAAP and Other Financial Disclosures” for reconciliations and definitions of
non-GAAP financial measures.
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Year Ended December 31, 2015 Compared with the Year Ended December 31, 2014
Consolidated Results - Highlights
Income (loss) from continuing operations, net of income tax,
down $1.0 billion:
Operating earnings available to common shareholders
down $1.1 billion
Net derivative gains (losses) unfavorable by $1.3 billion
($831 million, net of income tax) driven by unfavorable
changes in market and other risks in embedded derivatives,
as well as changes in interest rates
Net investment gains (losses) favorable by $794 million
($516 million, net of income tax) primarily driven by a 2014
loss on the disposition of MetLife Assurance Limited
(“MAL”)
Includes a one-time tax benefit in Japan of $174 million in
2015
(1) See “— Results of Operations — Consolidated Results” and “— Non-GAAP and Other Financial Disclosures” for reconciliations and
definitions of non-GAAP financial measures.
Consolidated Results - Operating Highlights
Operating earnings available to common shareholders down $1.1 billion:
Results of operations impacted by: (i) lower investment yields; (ii) less favorable underwriting; (iii) unfavorable impact from annual reviews of
assumptions; (iv) higher net investment income from portfolio growth; and (v) additional items described below.
Our 2015 results also included the following:
• $557 million tax charge and a $362 million ($235 million, net of income tax) charge for interest on uncertain tax positions recorded under
accounting guidance for the recognition of tax uncertainties related to the U.S. tax treatment of taxes paid by a wholly-owned United Kingdom
(“U.K.”) investment subsidiary of Metropolitan Life Insurance Company ("MLIC")
• $183 million of tax benefits related to (i) restructuring in Chile; (ii) a change in tax rate in Japan; (iii) the repatriation of earnings from Japan; and
(iv) the devaluation of the peso in Argentina
Our 2014 results also included the following:
• $104 million, net of income tax, of favorable reserve adjustments related to disability premium waivers in the retail life business
• $117 million, net of income tax, increase in the litigation reserve related to asbestos
• Charge of $57 million, net of income tax, related to delayed settlement interest on unclaimed funds held by state governments in the retail life
business
• Charges totaling $57 million, net of income tax, related to a settlement of a licensing matter with the New York State Department of Financial
Services (the “Department of Financial Services”) and the District Attorney, New York County
• Net tax charge of $9 million related to: (i) charge related to a tax reform bill in Chile; and (ii) benefit related to the filing of the Company’s U.S.
federal tax return
For a more in-depth discussion of our consolidated results, see “— Results of Operations — Consolidated Results” and “— Results of
Operations — Consolidated Results — Operating.”
MetLife, Inc.
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Year Ended December 31, 2014 Compared with the Year Ended December 31, 2013
Consolidated Results Highlights
Income (loss) from continuing operations, net of income tax,
up $2.9 billion:
Net derivative gains (losses) favorable by $4.6 billion
($3.0 billion, net of income tax) driven by changes in interest
rates and foreign currency exchange rates
Annual assumption reviews related to reserves and deferred
policy acquisition costs (“DAC”) favorable by $262 million
($174 million, net of income tax)
Net investment gains (losses) unfavorable by $358 million
($233 million, net of income tax) primarily driven by a loss
on the disposition of MAL
(1) See “— Results of Operations — Consolidated Results” and “— Non-GAAP and Other Financial Disclosures” for reconciliations and definitions
of non-GAAP financial measures.
Operating earnings available to common shareholders up $299 million:
Consolidated Results - Operating Highlights
Results of operations impacted by: (i) higher net investment income from portfolio growth; (ii) higher asset-based fee income; (iii) lower interest
credited expense; (iv) unfavorable mortality, morbidity and claims experience; (v) lower investment yields; and (vi) additional items described below.
Fourth quarter 2013 acquisition of ProVida favorable by $166 million, net of income tax (excluding impact of tax reform charge in Chile)
Our 2014 results also included the following:
• A $58 million non-tax deductible charge related to the Patient Protection and Affordable Care Act (“PPACA”)
• Additional items presented in “—Year Ended December 31, 2015 Compared with the Year Ended December 31, 2014 — Consolidated Results
— Operating Highlights” above
Our 2013 results also included the following:
• A $101 million, net of income tax, increase in the litigation reserve related to asbestos
• A $57 million, net of income tax, reserve strengthening in Australia
For a more in-depth discussion of our consolidated results, see “— Results of Operations — Consolidated Results” and “— Results of
Operations — Consolidated Results — Operating.”
Consolidated Company Outlook
As part of an enterprise-wide strategic initiative, we announced that, by 2016, we expected to increase our operating return on common
stockholders’ equity (“operating ROE”), excluding accumulated other comprehensive income (loss) (“AOCI”), other than foreign currency translation
adjustments (“FCTA”), driven by higher operating earnings. In 2016, we expect our operating ROE, excluding AOCI other than FCTA, to be approximately
11%.
When making projections, we must rely on the accuracy of our assumptions about future economic and business conditions, which can be
affected by known and unknown risks and other uncertainties. Our assumptions have been and will continue to be impacted by (i) MetLife, Inc.’s plan
to pursue the Separation, (ii) regulatory uncertainty regarding capital requirements applicable to us as a non-bank SIFI which, among other things,
impacted the level of our share repurchases, (iii) lower investment margins (primarily in the U.S.) as a result of the sustained low interest rate environment,
(iv) lower than anticipated merger and acquisition activity, and (v) the impact on our foreign operations of the strengthening of the U.S. dollar.
We will need to take the above-referenced factors into account when formulating further assumptions. Due to the fact that the Separation is a
significant restructuring of our business, we will not be able to further expand our outlook until we have further clarity on the nature of the Separation.
The Separation is consistent with our “Accelerating Value” strategic initiative, giving greater weight to our commitments to maximize shareholder value
and, subject to Board approval, regulatory constraints and acquisition opportunities, pay out our free cash flow to shareholders.
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Other Key Information
Basis of Presentation
Certain international subsidiaries have a fiscal year cutoff of November 30th. Accordingly, the Company’s consolidated financial statements
reflect the assets and liabilities of such subsidiaries as of November 30, 2015 and 2014 and the operating results of such subsidiaries for the years
ended November 30, 2015, 2014 and 2013. The Company is in the process of converting to calendar year reporting for these subsidiaries. These
conversions are expected to be substantially complete in the first quarter of 2016. The impact of the conversions on our financial statements to
date has been de minimis and, therefore, has been reported in net income in the quarter of conversion.
Significant Events
On January 12, 2016, the Company announced its plan to pursue the Separation. The Company is currently evaluating structural alternatives
for the proposed Separation, including a public offering of shares in an independent, publicly traded company, a spin-off, or a sale. The completion
of a public offering would depend on, among other things, the SEC filing and review process, as well as market conditions. Any Separation that
might occur will be subject to the satisfaction of various conditions and approvals, including approval of any transaction by the MetLife, Inc. Board
of Directors, satisfaction of any applicable requirements of the SEC, and receipt of insurance and other regulatory approvals and other anticipated
conditions.
In November 2014, MICC, a wholly-owned subsidiary of MetLife, Inc., re-domesticated from Connecticut to Delaware, changed its name to
MetLife Insurance Company USA and merged with its subsidiary, MLI-USA, and its affiliate, MLIIC, each a U.S. insurance company that issued
variable annuity products in addition to other products, and Exeter, a former offshore, captive reinsurance subsidiary of MetLife, Inc. and affiliate
of MICC that mainly reinsured guarantees associated with variable annuity products. The surviving entity of the Mergers was MetLife USA. The
Mergers have provided increased transparency relative to our capital allocation and variable annuity risk management. See “Business — Regulation
— U.S. Regulation — Insurance Regulation — Insurance Regulatory Examinations and Other Activities” in the 2015 Form 10-K and “— Liquidity
and Capital Resources — The Company — Capital — Affiliated Captive Reinsurance Transactions” for information on our use of captive reinsurers.
In October 2013, MetLife, Inc. completed its acquisition of ProVida, the largest private pension fund administrator in Chile based on assets
under management and number of pension fund contributors. The acquisition of ProVida supports the Company's growth strategy in emerging
markets and further strengthens the Company's overall position in Chile. See Note 3 of the Notes to the Consolidated Financial Statements.
Industry Trends
We continue to be impacted by the unstable global financial and economic environment that has been affecting the industry.
Financial and Economic Environment
Our business and results of operations are materially affected by conditions in the global capital markets and the economy generally. Stressed
conditions, volatility and disruptions in global capital markets, particular markets, or financial asset classes can have an adverse effect on us, in part
because we have a large investment portfolio and our insurance liabilities are sensitive to changing market factors. Global market factors, including
interest rates, credit spreads, equity, oil and commodity prices, real estate markets, foreign currency exchange rates, consumer spending, business
investment, government spending, the volatility and strength of the capital markets, deflation and inflation, all affect the business and economic
environment and, ultimately, the amount and profitability of our business. Disruptions in one market or asset class can also spread to other markets
or asset classes. Upheavals in the financial markets can also affect our business through their effects on general levels of economic activity, employment
and customer behavior. See “Risk Factors — Economic Environment and Capital Markets-Related Risks — We Are Exposed to Significant Global
Financial and Capital Markets Risks Which May Adversely Affect Our Results of Operations, Financial Condition and Liquidity, and May Cause Our
Net Investment Income to Vary from Period to Period,” and “Risk Factors — Economic Environment and Capital Markets-Related Risks — If Difficult
Conditions in the Global Capital Markets and the Economy Generally Persist, They May Materially Adversely Affect Our Business and Results of
Operations” in the 2015 Form 10-K.
Weakness in the energy and metals and mining sectors and concerns about the political and/or economic stability of countries in regions outside
the European Union (the “EU”), including China, Ukraine, Russia, Argentina, Brazil, Japan and the Middle East, as well as Puerto Rico, have contributed
to global market volatility. See “— Investments — Current Environment — Selected Country and Sector Investments.” Concerns about global economic
conditions, capital markets and the solvency of certain EU member states, including Portugal, Ireland, Greece and Spain (“Europe’s perimeter region”),
their banking systems and the financial institutions that have significant direct or indirect exposure to debt issued by these countries or their respective
banking systems, have also been a cause of elevated levels of market volatility. See “— Investments — Current Environment” for information regarding
our exposure to obligations of European governments, European private obligors and Europe’s perimeter region. Contributing to such volatility are
concerns that such countries could default on their obligations, have to restructure their outstanding debt, or that financial institutions with significant
holdings of sovereign or private debt of such countries, including Europe’s perimeter region, could experience financial stress, any of which could
have significant adverse effects on the European and global economies and on financial markets, generally. While economic conditions in certain of
these countries, including Europe’s perimeter region seem to be stabilizing or improving, there is still concern that any support measures could affect
the Euro exchange rate and have uncertain impacts on interest rates and risk markets.
In an effort to further stabilize the European financial crisis, in December 2015, the European Central Bank (“ECB”) extended its quantitative
easing program until at least March 2017. These measures have included cutting interest rates to negative levels, providing inexpensive financing
facilities designed to incentivize banks to extend loans, buying private sector asset-backed securities and covered bonds and extending its asset
purchase program to include €60 billion per month of ECB purchases of local and regional debt, as well as sovereign debt on secondary markets.
Such actions are intended to lessen the risk of deflation, lower borrowing costs in the Euro zone and encourage corporations to issue more asset-
backed securities.
We face substantial exposure to the Japanese economy given our operations there. Structural weaknesses and debt sustainability have yet to
be addressed effectively. Going forward, Japan’s structural and demographic challenges may continue to limit its potential growth unless reforms that
boost productivity are put into place. Japan’s high public sector debt levels are mitigated by low refinancing risks and its nominal yields on government
debt have remained at a lower level than that of any other developed country. However, frequent changes in government have prevented policy makers
from implementing fiscal reform measures to put public finances on a sustainable path. To avert deflation and to achieve sustainable economic growth,
MetLife, Inc.
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the government and the Bank of Japan have implemented a coordinated strategy which includes the imposition of a negative rate on commercial
bank deposits, increased government bond purchases at longer maturities and tax reform, including the lowering of the Japanese corporate tax rate
by approximately 2% and the delay until 2017 of an increase in the consumption tax to 10%. As a result of the decrease in the corporate tax rate, the
Company recorded a one-time benefit of $174 million in the second quarter of 2015, which included an increase in Asia’s operating earnings of
$61 million. This tax law change favorably affected our annual effective tax rate for 2015 by approximately 0.3% as compared to 2014.
Impact of a Sustained Low Interest Rate Environment
As a global insurance company, we are affected by the monetary policy of central banks around the world, as well as the monetary policy of the
Federal Reserve Board in the United States. The Federal Reserve Board has taken a number of actions in recent years to spur economic activity,
including asset purchases and keeping interest rates low. However, in October 2014, the Federal Reserve Board’s Federal Open Market Committee
(“FOMC”), citing strength in the economy and substantial improvement in the outlook for labor market conditions, decided to conclude the asset
purchase program. In December 2015, the FOMC increased the federal funds rate for the first time in 10 years and held it steady at its January 2016
meeting. Further increases in the federal funds rate in the future may affect interest rates and risk markets in the U.S. and other developed and emerging
economies. See “— Financial and Economic Environment” for information regarding accommodative and other policy measures pursued by the ECB
and the Bank of Japan. However, we cannot predict with certainty the effect of these programs and policies on interest rates or the impact on the
pricing levels of risk-bearing investments at this time. See “— Investments — Current Environment.”
In periods of declining interest rates, we may have to invest insurance cash flows and reinvest the cash flows we received as interest or return
of principal on our investments in lower yielding instruments. Moreover, borrowers may prepay or redeem the fixed income securities, commercial,
agricultural or residential mortgage loans and mortgage-backed securities in our investment portfolio with greater frequency in order to borrow at
lower market rates. Therefore, some of our products expose us to the risk that a reduction in interest rates will reduce the difference between the
amounts that we are required to credit on contracts in our general account and the rate of return we are able to earn on investments intended to
support obligations under these contracts. This difference between interest earned and interest credited, or margin, is a key metric for the management
of, and reporting for, many of our businesses.
Our expectations regarding future margins are an important component impacting the amortization of certain intangible assets such as DAC
and value of business acquired (“VOBA”). Significantly lower margins may cause us to accelerate the amortization, thereby reducing net income in
the affected reporting period. Additionally, lower margins may also impact the recoverability of intangible assets such as goodwill, require the
establishment of additional liabilities or trigger loss recognition events on certain policyholder liabilities. We review this long-term margin assumption,
along with other assumptions, as part of our annual assumption review.
Mitigating Actions
The Company continues to be proactive in its investment and interest crediting rate strategies, as well as its product design and product mix.
To mitigate the risk of unfavorable consequences from the low interest rate environment in the U.S., the Company applies disciplined asset/liability
management (“ALM”) strategies, including the use of derivatives, primarily interest rate swaps, floors and swaptions. A significant portion of these
derivatives were entered into prior to the onset of the current low U.S. interest rate environment. In some cases, the Company has entered into
offsetting positions as part of its overall ALM strategy and to reduce volatility in net income. Lowering interest crediting rates on some products, or
adjusting the dividend scale on traditional products, can help offset decreases in investment margins on some products. Our ability to lower interest
crediting rates could be limited by competition, requirements to obtain regulatory approval, or contractual guarantees of minimum rates and may
not match the timing or magnitude of changes in asset yields. As a result, our margins could decrease or potentially become negative. We are able
to limit or close certain products to new sales in order to manage exposures. Business actions, such as shifting the sales focus to less interest rate
sensitive products, can also mitigate this risk. In addition, the Company is well diversified across product, distribution, and geography. Certain of
our non-U.S. businesses, reported within our Latin America and EMEA segments, which accounted for approximately 15% of our operating earnings
in 2015, are not significantly interest rate or market sensitive; in particular, they do not have any direct sensitivity to U.S. interest rates. The Company’s
primary exposure within these segments is insurance risk. We expect our non-U.S. businesses to grow faster than our U.S. businesses and, over
time, to become a larger percentage of our total business. As a result of the foregoing, the Company expects to be able to substantially mitigate
the negative impact of a sustained low interest rate environment in the U.S. on the Company’s profitability. Based on a near to intermediate term
analysis of a sustained lower interest rate environment in the U.S., the Company anticipates operating earnings will continue to increase, although
at a slower growth rate.
Low Interest Rate Scenario
In formulating its insurance contract assumptions, the Company uses projections that it makes regarding interest rates. Included in these
assumptions is the projection that the 10-year Treasury rate will rise from 2.27% at December 31, 2015 to 4.50% in 11 years, by 2026 and that
10-year yields will reach 2.78%, 3.07% and 3.21% by December 31, 2016, 2017 and 2018, respectively. Also included is the projection that the
three-month London Interbank Offered Rate (“LIBOR”) rate will move from 0.61% at December 31, 2015 to 1.32%, 1.81% and 1.76% by December
31, 2016, 2017 and 2018, respectively. However, due to the significant decline in the 10-year U.S. Treasury rate below 2.00% subsequent to
December 2015, we have revised the hypothetical low interest rate scenario on our 2016, 2017 and 2018 operating earnings for the total Company,
as well as each segment and Corporate & Other, that would be significantly affected by changes in LIBOR and U.S. interest rates, but without the
effect of the proposed Separation (described in further detail in Note 23 of the Notes to the Consolidated Financial Statements). The revised low
interest rate scenario reflects a decrease in the assumed constant 10-Year U.S. Treasury rate from 2.00% to 1.50% with the corresponding consensus
of interest rate views and credit spreads (the “Low Interest Rate Scenario”).
The following summarizes the impact of the Low Interest Rate Scenario. In addition, we have included disclosure on the potential impact on
2016, 2017 and 2018 net income using the same Low Interest Rate Scenario on the mark-to-market of derivative positions that do not qualify as
accounting hedges.
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Below is a summary of the rates we used for the Low Interest Rate Scenario versus our business plan through 2018. These rates represent
the most relevant short-term and long-term rates for our business plan.
2015
2016
2017
2018
Years Ended December 31,
Low Interest
Rate
Scenario
Three-month LIBOR
10-year U.S. Treasury
0.24%
1.50%
Business
Plan
0.61%
2.27%
Low Interest
Rate
Scenario
0.24%
1.50%
Business
Plan
1.32%
2.78%
Low Interest
Rate
Scenario
0.24%
1.50%
Business
Plan
1.81%
3.07%
Low Interest
Rate
Scenario
0.24%
1.50%
Business
Plan
1.76%
3.21%
The Low Interest Rate Scenario assumes three-month LIBOR to be 0.24% and the 10-year U.S. Treasury rate to be 1.50% at December 31,
2015 and remain constant at those levels until December 31, 2018. We make similar assumptions for interest rates at other maturities, and hold
this interest rate curve constant through December 31, 2018. In addition, in the Interest Rate Scenario, we assume credit spreads remain constant
from December 2015 through the end of 2018 as compared to our business plan which assumes rising credit spreads through 2016 and thereafter
remaining constant through the end of 2018. Further, we also include the impact of low interest rates on our pension and postretirement plan
expenses. We allocate this impact across our segments and it is included in the segment discussion below. The discount rate used to value these
plans is tied to high quality corporate bond yields. Accordingly, an extended low interest rate environment will result in increased pension and other
postretirement benefit liabilities. However, these liabilities are offset by corresponding returns on the fixed income portfolio of pension and other
postretirement benefit plan assets resulting in an overall decrease in expense.
Hypothetical Impact to Operating Earnings
Based on the above assumptions, we estimate an unfavorable combined long-term and short-term interest rate impact on our consolidated
operating earnings from the Low Interest Rate Scenario of approximately $65 million in 2016, $210 million 2017 and $375 million in 2018. Under
the Low Interest Rate Scenario, our long-term businesses are negatively impacted by the larger gap between new money yields and the yield
on assets rolling off the portfolio. However, there are positive offsets under the Low Interest Rate Scenario as short-term rates are much lower
than the business plan rates and the yield curve is steeper than that of the business plan. For example, our securities lending business performs
better than our business plan because it is driven by the slope of the yield curve rather than by the level of interest rates. In addition, derivative
income is higher primarily due to our receiver swaps where we receive a fixed rate and pay a floating rate.
In addition to its impact on operating earnings, we estimated the effect of the Low Interest Rate Scenario on the mark-to-market of our
derivative positions that do not qualify as accounting hedges. We applied the Low Interest Rate Scenario to these derivatives and compared the
impact to that from interest rates in our business plan. We hold a significant position in long duration receive-fixed interest rate swaps to hedge
reinvestment risk. These swaps are most sensitive to the 30-year and 10-year swap rates and we recognize gains as rates drop and recognize
losses as rates rise. This estimated impact on the derivative mark-to-market does not include that of our VA program derivatives as the impact
of low interest rates in the freestanding derivatives would be largely offset by the mark-to-market in net derivative gains (losses) for the related
embedded derivative.
Hypothetical Impact to Our Mark-to-Market Derivative Positions
Based on these additional assumptions, we estimate the combined long-term and short-term interest rate impact of the Low Interest Rate
Scenario on the mark-to-market of our derivative positions that do not qualify as accounting hedges to be an increase in net income of $530 million
and $40 million in 2016 and 2017, respectively, and a decrease in net income of $90 million in 2018. See “— Results of Operations — Consolidated
Results” for information regarding our actual gains and losses on the Company’s non-VA program derivatives due to interest rate changes (U.S.
dollar and non-U.S. dollar denominated instruments) which are included in net income.
Segments and Corporate & Other
The following discussion summarizes the impact of the above Low Interest Rate Scenario on the operating earnings of our segments, as
well as Corporate & Other. See also “— Policyholder Liabilities — Policyholder Account Balances” for information regarding the account values
subject to minimum guaranteed crediting rates.
Retail
Life & Other – Our interest rate sensitive products include traditional life, universal life, and retained asset accounts. Because the majority
of our traditional life insurance business is participating, we can largely offset lower investment returns on assets backing our traditional life
products through adjustments to the applicable dividend scale. In our universal life products, we manage interest rate risk through a combination
of product design features and ALM strategies, including the use of hedges such as interest rate swaps and floors. While we have the ability
to lower crediting rates on certain in-force universal life policies to mitigate margin compression, such actions would be partially offset by
increases in our liabilities related to policies with secondary guarantees. Our retained asset accounts have minimum interest crediting rate
guarantees which range from 0.5% to 4.0%, all of which are currently at their respective minimum interest crediting rates. While we expect to
experience margin compression as we reinvest at lower rates, the interest rate derivatives held in this portfolio will partially mitigate this risk.
Annuities – The impact on operating earnings from margin compression is concentrated in our deferred annuities where there are minimum
interest rate guarantees. Under the Low Interest Rate Scenario, we assume that a larger percentage of customers will maintain their funds
with us to take advantage of the attractive minimum guaranteed crediting rates and we expect to experience margin compression as we
reinvest cash flows at lower interest rates. Partially offsetting this margin compression, we assume we will lower crediting rates on contractual
reset dates for the portion of business that is not currently at minimum crediting rates. Additionally, we have various derivative positions,
primarily interest rate floors, to partially mitigate this risk.
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Reinvestment risk is defined for this purpose as the amount of reinvestment in 2016, 2017 and 2018 that would impact operating earnings
due to reinvesting cash flows in the Low Interest Rate Scenario. For the deferred annuities business, $2.1 billion, $2.1 billion, and $0.4 billion
in 2016, 2017, and 2018, respectively, of the asset base will be subject to reinvestment risk on an average asset base of $36.7 billion,
$37.5 billion and $38.2 billion in 2016, 2017 and 2018, respectively.
We estimate an unfavorable combined long-term and short-term interest rate impact on the operating earnings of our Retail segment
from the Low Interest Rate Scenario of $10 million, $65 million and $165 million in 2016, 2017 and 2018, respectively.
Group, Voluntary & Worksite Benefits
Group – In general, most of our group life insurance products in this segment are renewable term insurance and, therefore, have significant
repricing flexibility. Interest rate risk arises mainly from minimum interest rate guarantees on retained asset accounts. These accounts have
minimum interest crediting rate guarantees which range from 0.5% to 3.0%. All of these account balances are currently at their respective
minimum interest crediting rates and we would expect to experience margin compression as we reinvest at lower interest rates. We have used
interest rate floors to partially mitigate the risks of a sustained U.S. low interest rate environment. We also have exposure to interest rate risk
in this business arising from our group disability policy claim reserves. For these products, lower reinvestment rates cannot be offset by a
reduction in liability crediting rates for established claim reserves. Group disability policies are generally renewable term policies. Rates may
be adjusted on in-force policies at renewal based on the retrospective experience rating and current interest rate assumptions. We review the
discount rate assumptions and other assumptions associated with our long-term disability claim reserves no less frequently than annually.
Our most recent review at the end of 2015 resulted in no change to the applicable discount rates.
Voluntary & Worksite – We have exposure to interest rate risk in this business arising mainly from our long-term care policy reserves. For
these products, lower reinvestment rates cannot be offset by a reduction in liability crediting rates for established claim reserves. Long-term
care policies are guaranteed renewable, and rates may be adjusted on a class basis with regulatory approval to reflect emerging experience.
Our long-term care block is closed to new business. The Company makes use of derivative instruments to more closely match asset and
liability duration and immunize the portfolio against changes in interest rates. Reinvestment risk is defined for this purpose as the amount of
reinvestment in 2016, 2017 and 2018 that would impact operating earnings due to reinvesting cash flows in the Low Interest Rate Scenario.
For the long-term care portfolio, $1.8 billion, $1.7 billion and $1.5 billion of the asset base in 2016, 2017 and 2018, respectively, will be subject
to reinvestment risk on an average asset base of $10.5 billion, $11.2 billion and $11.8 billion in 2016, 2017 and 2018, respectively.
We estimate a favorable combined long-term and short-term interest rate impact on the operating earnings of our Group, Voluntary &
Worksite Benefits segment from the Low Interest Rate Scenario of $5 million in 2016 and an unfavorable impact of $10 million and $45 million
2017 and 2018, respectively.
Corporate Benefit Funding
This segment contains both short and long duration products consisting of capital market products, pension risk transfers, structured
settlements, and other benefit funding products. The majority of short duration products are managed on a floating rate basis, which mitigates
the impact of the low interest rate environment in the U.S. The long duration products have very predictable cash flows and we have matched
these cash flows through our ALM strategies. We also use interest rate swaps to help protect income in this segment against a low interest
rate environment in the U.S. Based on the cash flow estimates, only a small component is subject to reinvestment risk. Reinvestment risk is
defined for this purpose as the amount of reinvestment in 2016, 2017 and 2018 that would impact operating earnings due to reinvesting cash
flows in the Low Interest Rate Scenario. For the long duration business, $0.6 billion of the asset base in 2016 will be subject to reinvestment
risk on an average asset base of $60.6 billion. In 2017 and 2018, none of the asset base will be subject to reinvestment risk on an average
asset base of $63.9 billion and $66.5 billion, respectively.
We estimate an unfavorable combined long-term and short-term interest rate impact on operating earnings on our Corporate Benefit
Funding segment from the Low Interest Rate Scenario of $5 million, $30 million and $45 million in 2016, 2017 and 2018, respectively.
Asia
Our Asia segment has a portion of its investments in U.S. dollar denominated assets.
Life & Other – Our Japan business offers traditional life insurance and accident & health products. To the extent the Japan life insurance
portfolio is U.S. interest rate and LIBOR sensitive and we are unable to lower crediting rates to the customer, operating earnings will decline.
We manage interest rate risk on our life products through a combination of product design features and ALM strategies.
Annuities – We sell annuities in Asia which are predominantly single premium products with crediting rates set at the time of issue. This
allows us to tightly manage product ALM, cash flows and net spreads, thus maintaining profitability.
We estimate an unfavorable combined long-term and short-term interest rate impact on the operating earnings of our Asia segment from
the Low Interest Rate Scenario of $25 million, $50 million and $60 million in 2016, 2017 and 2018, respectively.
Corporate & Other
Corporate & Other contains the surplus portfolios for the enterprise, the portfolios used to fund the capital needs of the Company and
various reinsurance agreements. The surplus portfolios are subject to reinvestment risk; however, lower net investment income is significantly
offset by lower interest expense on both fixed and variable rate debt. Under a lower interest rate environment, fixed rate debt is assumed to
be either paid off when it matures or refinanced at a lower interest rate resulting in lower overall interest expense. Variable rate debt is indexed
to the three-month LIBOR, which results in lower interest expense incurred.
We estimate an unfavorable combined long-term and short-term interest rate impact on the operating earnings of Corporate & Other
from the Low Interest Rate Scenario of $30 million, $55 million and $60 million in 2016, 2017 and 2018, respectively.
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Competitive Pressures
The life insurance industry remains highly competitive. The product development and product life cycles have shortened in many product
segments, leading to more intense competition with respect to product features. Larger companies have the ability to invest in brand equity, product
development, technology and risk management, which are among the fundamentals for sustained profitable growth in the life insurance industry. In
addition, several of the industry’s products can be quite homogeneous and subject to intense price competition. Sufficient scale, financial strength
and financial flexibility are becoming prerequisites for sustainable growth in the life insurance industry. Larger market participants tend to have the
capacity to invest in additional distribution capability and the information technology needed to offer the superior customer service demanded by an
increasingly sophisticated industry client base. We believe that the continued volatility of the financial markets, its impact on the capital position of
many competitors, and subsequent actions by regulators and rating agencies have altered the competitive environment. In particular, we believe that
these factors have highlighted financial strength as the most significant differentiator from the perspective of some customers and certain distributors.
We believe the Company is well positioned to compete in this environment.
Regulatory Developments
In the U.S., our life insurance companies are regulated primarily at the state level, with some products and services also subject to federal
regulation. As life insurers introduce new and often more complex products, regulators refine capital requirements and introduce new reserving
standards for the life insurance industry. Regulations recently adopted or currently under review can potentially impact the statutory reserve and capital
requirements of the industry. In addition, regulators have undertaken market and sales practices reviews of several markets or products, including
equity-indexed annuities, variable annuities and group products, as well as reviews of the utilization of affiliated captive reinsurers and offshore entities
to reinsure insurance risks.
The regulation of the global financial services industry has received renewed scrutiny as a result of the disruptions in the financial markets.
Significant regulatory reforms have been adopted and additional reforms proposed, and these or other reforms could be implemented. See “Business
— Regulation,” “Risk Factors — Regulatory and Legal Risks — Our Insurance and Brokerage Businesses Are Highly Regulated, and Changes in
Regulation and in Supervisory and Enforcement Policies May Reduce Our Profitability and Limit Our Growth,” “Risk Factors — Risks Related to Our
Business — Our Statutory Life Insurance Reserve Financings May Be Subject to Cost Increases and New Financings May Be Subject to Limited
Market Capacity,” and “Risk Factors — Regulatory and Legal Risks — Changes in U.S. Federal, State Securities and State Insurance Laws and
Regulations May Affect Our Operations and Our Profitability” in the 2015 Form 10-K. For example, the Dodd-Frank Wall Street Reform and Consumer
Protection Act (“Dodd-Frank”), which was signed by President Obama in July 2010, effected the most far-reaching overhaul of financial regulation in
the U.S. in decades. The full impact of Dodd-Frank on us will depend on the numerous rulemaking initiatives required or permitted by Dodd-Frank
which are in various stages of implementation, many of which are not likely to be completed for some time.
Mortgage and Foreclosure-Related Exposures
MetLife no longer engages in the origination, sale and servicing of forward and reverse residential mortgage loans. See Note 21 of the Notes to
the Consolidated Financial Statements for further information regarding our mortgage and foreclosure-related exposures.
Notwithstanding the exit of MetLife Bank, National Association (“MetLife Bank”) from the origination and servicing businesses, MetLife Home
Loans, LLC (“MLHL”) remains obligated to repurchase loans or compensate for losses upon demand due to alleged defects by MetLife Bank or its
predecessor servicers in past servicing of the loans and material representations made in connection with MetLife Bank’s sale of the loans. Reserves
for representation and warranty repurchases and indemnifications were $72 million and $85 million at December 31, 2015 and 2014, respectively.
Reserves for estimated future losses due to alleged deficiencies on loans originated and sold, as well as servicing of the loans including servicing
acquired, are estimated based on unresolved claims and projected losses under investor servicing contracts where MetLife Bank’s past actions or
inactions are likely to result in missing certain stipulated investor timelines. Reserves for servicing defects were $31 million and $38 million at
December 31, 2015 and 2014, respectively. Management is satisfied that adequate provision has been made in the Company’s consolidated financial
statements for those representation and warranty obligations that are currently probable and reasonably estimable.
Summary of Critical Accounting Estimates
The preparation of financial statements in conformity with GAAP requires management to adopt accounting policies and make estimates and
assumptions that affect amounts reported in the Consolidated Financial Statements. For a discussion of our significant accounting policies, see Note
1 of the Notes to the Consolidated Financial Statements. The most critical estimates include those used in determining:
(i)
liabilities for future policy benefits and the accounting for reinsurance;
(ii) capitalization and amortization of DAC and the establishment and amortization of VOBA;
(iii) estimated fair values of investments in the absence of quoted market values;
(iv)
investment impairments;
(v) estimated fair values of freestanding derivatives and the recognition and estimated fair value of embedded derivatives requiring
bifurcation;
(vi) measurement of goodwill and related impairment;
(vii) measurement of employee benefit plan liabilities;
(viii) measurement of income taxes and the valuation of deferred tax assets; and
(xi)
liabilities for litigation and regulatory matters.
In addition, the application of acquisition accounting requires the use of estimation techniques in determining the estimated fair values of assets
acquired and liabilities assumed — the most significant of which relate to aforementioned critical accounting estimates. In applying our accounting
policies, we make subjective and complex judgments that frequently require estimates about matters that are inherently uncertain. Many of these
policies, estimates and related judgments are common in the insurance and financial services industries; others are specific to our business and
operations. Actual results could differ from these estimates.
MetLife, Inc.
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Liability for Future Policy Benefits
Generally, future policy benefits are payable over an extended period of time and related liabilities are calculated as the present value of future
expected benefits to be paid, reduced by the present value of future expected premiums. Such liabilities are established based on methods and
underlying assumptions in accordance with GAAP and applicable actuarial standards. Principal assumptions used in the establishment of liabilities
for future policy benefits are mortality, morbidity, policy lapse, renewal, retirement, disability incidence, disability terminations, investment returns,
inflation, expenses and other contingent events as appropriate to the respective product type and geographical area. These assumptions are established
at the time the policy is issued and are intended to estimate the experience for the period the policy benefits are payable. Utilizing these assumptions,
liabilities are established on a block of business basis. If experience is less favorable than assumed, additional liabilities may be established, resulting
in a charge to policyholder benefits and claims.
Future policy benefit liabilities for disabled lives are estimated using the present value of benefits method and experience assumptions as to claim
terminations, expenses and interest.
Liabilities for unpaid claims are estimated based upon our historical experience and other actuarial assumptions that consider the effects of
current developments, anticipated trends and risk management programs, reduced for anticipated salvage and subrogation.
Future policy benefit liabilities for minimum death and income benefit guarantees relating to certain annuity contracts are based on estimates of
the expected value of benefits in excess of the projected account balance, recognizing the excess ratably over the accumulation period based on
total expected assessments. Liabilities for universal and variable life policies with secondary guarantees (“ULSG”) and paid-up guarantees are determined
by estimating the expected value of death benefits payable when the account balance is projected to be zero and recognizing those benefits ratably
over the accumulation period based on total expected assessments. The assumptions used in estimating the secondary and paid-up guarantee
liabilities are consistent with those used for amortizing DAC, and are thus subject to the same variability and risk. The assumptions of investment
performance and volatility for variable products are consistent with historical experience of the appropriate underlying equity index, such as the
S&P 500 Index.
We regularly review our estimates of liabilities for future policy benefits and compare them with our actual experience. Differences between actual
experience and the assumptions used in pricing these policies and guarantees, as well as in the establishment of the related liabilities, result in variances
in profit and could result in losses.
See Note 4 of the Notes to the Consolidated Financial Statements for additional information on our liability for future policy benefits.
Reinsurance
Accounting for reinsurance requires extensive use of assumptions and estimates, particularly related to the future performance of the underlying
business and the potential impact of counterparty credit risks. We periodically review actual and anticipated experience compared to the aforementioned
assumptions used to establish assets and liabilities relating to ceded and assumed reinsurance and evaluate the financial strength of counterparties
to our reinsurance agreements using criteria similar to that evaluated in our security impairment process. See “— Investment Impairments.” Additionally,
for each of our reinsurance agreements, we determine whether the agreement provides indemnification against loss or liability relating to insurance
risk, in accordance with applicable accounting standards. We review all contractual features, including those that may limit the amount of insurance
risk to which the reinsurer is subject or features that delay the timely reimbursement of claims. If we determine that a reinsurance agreement does
not expose the reinsurer to a reasonable possibility of a significant loss from insurance risk, we record the agreement using the deposit method of
accounting.
See Note 6 of the Notes to the Consolidated Financial Statements for additional information on our reinsurance programs.
Deferred Policy Acquisition Costs and Value of Business Acquired
We incur significant costs in connection with acquiring new and renewal insurance business. Costs that relate directly to the successful acquisition
or renewal of insurance contracts are deferred as DAC. In addition to commissions, certain direct-response advertising expenses and other direct
costs, deferrable costs include the portion of an employee’s total compensation and benefits related to time spent selling, underwriting or processing
the issuance of new and renewal insurance business only with respect to actual policies acquired or renewed. We utilize various techniques to estimate
the portion of an employee’s time spent on qualifying acquisition activities that result in actual sales, including surveys, interviews, representative time
studies and other methods. These estimates include assumptions that are reviewed and updated on a periodic basis or more frequently to reflect
significant changes in processes or distribution methods.
VOBA represents the excess of book value over the estimated fair value of acquired insurance, annuity, and investment-type contracts in force
at the acquisition date. For certain acquired blocks of business, the estimated fair value of the in-force contract obligations exceeded the book value
of assumed in-force insurance policy liabilities, resulting in negative VOBA, which is presented separately from VOBA as an additional insurance liability
included in other policy-related balances. The estimated fair value of the acquired liabilities is based on projections, by each block of business, of
future policy and contract charges, premiums, mortality and morbidity, separate account performance, surrenders, operating expenses, investment
returns, nonperformance risk adjustment and other factors. Actual experience on the purchased business may vary from these projections. The
recovery of DAC and VOBA is dependent upon the future profitability of the related business.
Separate account rates of return on variable universal life contracts and variable deferred annuity contracts affect in-force account balances on
such contracts each reporting period, which can result in significant fluctuations in amortization of DAC and VOBA. Our practice to determine the
impact of gross profits resulting from returns on separate accounts assumes that long-term appreciation in equity markets is not changed by short-
term market fluctuations, but is only changed when sustained interim deviations are expected. We monitor these events and only change the assumption
when our long-term expectation changes. The effect of an increase (decrease) by 100 basis points in the assumed future rate of return is reasonably
likely to result in a decrease (increase) in the DAC and VOBA amortization with an offset to our unearned revenue liability which nets to approximately
$200 million. We use a mean reversion approach to separate account returns where the mean reversion period is five years with a long-term separate
account return after the five-year reversion period is over. The current long-term rate of return assumption for the variable universal life contracts and
variable deferred annuity contracts is 7.25%.
We also periodically review other long-term assumptions underlying the projections of estimated gross margins and profits. These assumptions
primarily relate to investment returns, policyholder dividend scales, interest crediting rates, mortality, persistency, and expenses to administer business.
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Assumptions used in the calculation of estimated gross margins and profits which may have significantly changed are updated annually. If the update
of assumptions causes expected future gross margins and profits to increase, DAC and VOBA amortization will decrease, resulting in a current period
increase to earnings. The opposite result occurs when the assumption update causes expected future gross margins and profits to decrease.
Our most significant assumption updates resulting in a change to expected future gross margins and profits and the amortization of DAC and
VOBA are due to revisions to expected future investment returns, expenses, in-force or persistency assumptions and policyholder dividends on
participating traditional life contracts, variable and universal life contracts and annuity contracts. We expect these assumptions to be the ones most
reasonably likely to cause significant changes in the future. Changes in these assumptions can be offsetting and we are unable to predict their
movement or offsetting impact over time.
At December 31, 2015, 2014 and 2013, DAC and VOBA for the Company was $24.1 billion, $24.4 billion and $26.7 billion, respectively.
Amortization of DAC and VOBA associated with the variable and universal life and the annuity contracts was significantly impacted by movements in
equity markets. The following illustrates the effect on DAC and VOBA of changing each of the respective assumptions, as well as updating estimated
gross margins or profits with actual gross margins or profits during the years ended December 31, 2015, 2014 and 2013. Increases (decreases) in
DAC and VOBA balances, as presented below, resulted in a corresponding decrease (increase) in amortization.
General account investment return
Separate account investment return
Net investment gains (losses)/Net derivative gains (losses)
Guaranteed minimum income benefits
Expense
In-force/Persistency
Policyholder dividends and other
Total
Years Ended December 31,
2015
2014
(In millions)
2013
$
(72) $
(45) $
(31)
(9)
(125)
(93)
220
(39)
43
(42)
(63)
24
94
(74)
$
(149) $
(63) $
(66)
157
195
337
36
72
8
739
The following represent significant items contributing to the changes to DAC and VOBA amortization in 2015:
•
Changes in net investment and net derivative gains (losses) resulted in the following changes in DAC and VOBA amortization:
–
–
–
Actual gross profits decreased as a result of an increase in liabilities associated with guarantee obligations on variable annuities,
resulting in a decrease of DAC and VOBA amortization of $338 million, excluding the impact from our nonperformance risk and risk
margins, which are described below. Mark-to-market changes on the freestanding derivatives hedging such guarantee obligations
resulted in an increase in DAC and VOBA amortization of $114 million.
The Company’s nonperformance risk adjustment decreased the valuation of guaranteed liabilities, increased actual gross profits and
increased DAC and VOBA amortization by $17 million. This was partially offset by the lower risk margins, which increased the guarantee
liability valuations, decreased actual gross profits and decreased DAC and VOBA amortization by $10 million.
The remainder of the impact increased DAC and VOBA amortization by $226 million and was attributable to 2015 investment activities,
methodology refinement, and assumption updates.
•
•
The change in guaranteed minimum income benefits (“GMIBs”) resulted in an increase to DAC amortization of $125 million mostly attributable
to hedge gains.
Better than expected persistency and updates in persistency assumptions caused an increase in actual and expected future gross profits
resulting in a net decrease in DAC and VOBA amortization of $220 million.
The following represent significant items contributing to the changes to DAC and VOBA amortization in 2014:
•
The increase in equity markets during the year increased separate account balances, which led to higher actual and expected future gross
profits on variable universal life contracts and variable deferred annuity contracts resulting in a decrease of $43 million in DAC and VOBA
amortization.
•
Changes in net investment gains (losses) resulted in the following changes in DAC and VOBA amortization.
–
–
–
Actual gross profits decreased as a result of an increase in liabilities associated with guarantee obligations on variable annuities,
resulting in a decrease of DAC and VOBA amortization of $118 million, excluding the impact from our nonperformance risk and risk
margins, which are described below. This decrease in actual gross profits was more than offset by freestanding net derivative gains
associated with the hedging of such guarantee obligations, which resulted in an increase in DAC and VOBA amortization of $219 million.
The widening of the Company’s nonperformance risk adjustment decreased the valuation of guaranteed liabilities, increased actual
gross profits and increased DAC and VOBA amortization by $44 million. This was more than offset by the higher risk margins, which
increased the guarantee liability valuations, decreased actual gross profits and decreased DAC and VOBA amortization by $53 million.
The remainder of the impact of net investment gains (losses), which decreased DAC and VOBA amortization by $50 million, was
primarily attributable to 2014 investment activities.
•
The change in current and future projected GMIBs liability resulted in an increase to DAC amortization of $63 million.
MetLife, Inc.
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•
Better than expected persistency and changes in assumptions regarding persistency caused an increase in actual and expected future
gross profits resulting in a net decrease in DAC and VOBA amortization of $94 million.
The following represent significant items contributing to the changes to DAC and VOBA amortization in 2013:
•
The increase in equity markets during the year increased separate account balances, which led to higher actual and expected future gross
profits on variable universal life contracts and variable deferred annuity contracts resulting in a decrease of $157 million in DAC and VOBA
amortization.
•
Changes in net investment gains (losses) resulted in the following changes in DAC and VOBA amortization:
– Actual gross profits increased as a result of a decrease in liabilities associated with guarantee obligations on variable annuities, resulting
in an increase of DAC and VOBA amortization of $1.1 billion, excluding the impact from our nonperformance risk and risk margins,
which are described below. This increase in actual gross profits was more than offset by freestanding derivative losses associated
with the hedging of such guarantee obligations, which resulted in a decrease in DAC and VOBA amortization of $1.2 billion.
– The tightening of our nonperformance risk adjustment increased the valuation of guarantee liabilities, decreased actual gross profits
and decreased DAC and VOBA amortization by $94 million. This was partially offset by lower risk margins, which decreased the
guarantee liability valuations, increased actual gross profits and increased DAC and VOBA amortization by $60 million.
–
The remainder of the impact of net investment gains (losses), which decreased DAC and VOBA amortization by $72 million, was
primarily attributable to 2013 investment activities.
•
The hedging and reinsurance losses associated with the insurance liabilities of the GMIBs decreased actual gross profits and decreased
DAC and VOBA amortization by $349 million.
Our DAC and VOBA balance is also impacted by unrealized investment gains (losses) and the amount of amortization which would have been
recognized if such gains and losses had been realized. The decrease in unrealized investment gains (losses) increased the DAC and VOBA balance
by $638 million in 2015, while the change in unrealized investment gains decreased the DAC and VOBA balance by $702 million and increased the
DAC and VOBA balance by $1.3 billion in 2014 and 2013, respectively. See Notes 5 and 8 of the Notes to the Consolidated Financial Statements for
information regarding the DAC and VOBA offset to unrealized investment losses.
Estimated Fair Value of Investments
In determining the estimated fair value of our investments, fair values are based on unadjusted quoted prices for identical investments in active
markets that are readily and regularly obtainable. When such quoted prices are not available, fair values are based on quoted prices in markets that
are not active, quoted prices for similar but not identical investments, or other observable inputs. If these inputs are not available, or observable inputs
are not determinable, unobservable inputs and/or adjustments to observable inputs requiring management judgment are used to determine the
estimated fair value of investments.
The methodologies, assumptions and inputs utilized are described in Note 10 of the Notes to the Consolidated Financial Statements.
Financial markets are susceptible to severe events evidenced by rapid depreciation in asset values accompanied by a reduction in asset liquidity.
Our ability to sell investments, or the price ultimately realized for investments, depends upon the demand and liquidity in the market and increases
the use of judgment in determining the estimated fair value of certain investments.
Investment Impairments
One of the significant estimates related to available-for-sale (“AFS”) securities is our impairment evaluation. The assessment of whether an other-
than-temporary impairment (“OTTI”) occurred is based on our case-by-case evaluation of the underlying reasons for the decline in estimated fair value
on a security-by-security basis. Our review of each fixed maturity and equity security for OTTI includes an analysis of gross unrealized losses by three
categories of severity and/or age of gross unrealized loss. An extended and severe unrealized loss position on a fixed maturity security may not have
any impact on the ability of the issuer to service all scheduled interest and principal payments. Accordingly, such an unrealized loss position may not
impact our evaluation of recoverability of all contractual cash flows or the ability to recover an amount at least equal to its amortized cost based on
the present value of the expected future cash flows to be collected. In contrast, for certain equity securities, greater weight and consideration are
given to a decline in estimated fair value and the likelihood such estimated fair value decline will recover.
Additionally, we consider a wide range of factors about the security issuer and use our best judgment in evaluating the cause of the decline in
the estimated fair value of the security and in assessing the prospects for near-term recovery. Inherent in our evaluation of the security are assumptions
and estimates about the operations of the issuer and its future earnings potential. Factors we consider in the OTTI evaluation process are described
in Note 8 of the Notes to the Consolidated Financial Statements.
The determination of the amount of allowances and impairments on the remaining invested asset classes is highly subjective and is based upon
our periodic evaluation and assessment of known and inherent risks associated with the respective asset class. Such evaluations and assessments
are revised as conditions change and new information becomes available.
See Notes 1 and 8 of the Notes to the Consolidated Financial Statements for additional information relating to our determination of the amount
of allowances and impairments.
Derivatives
The determination of the estimated fair value of freestanding derivatives, when quoted market values are not available, is based on market
standard valuation methodologies and inputs that management believes are consistent with what other market participants would use when pricing
the instruments. Derivative valuations can be affected by changes in interest rates, foreign currency exchange rates, financial indices, credit spreads,
default risk, nonperformance risk, volatility, liquidity and changes in estimates and assumptions used in the pricing models. See Note 10 of the Notes
to the Consolidated Financial Statements for additional details on significant inputs into the over-the-counter (“OTC”) derivative pricing models and
credit risk adjustment.
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We issue variable annuity products with guaranteed minimum benefits, some of which are embedded derivatives measured at estimated fair
value separately from the host variable annuity product, with changes in estimated fair value reported in net derivative gains (losses). The estimated
fair values of these embedded derivatives are determined based on the present value of projected future benefits minus the present value of projected
future fees. The projections of future benefits and future fees require capital market and actuarial assumptions, including expectations concerning
policyholder behavior. A risk neutral valuation methodology is used under which the cash flows from the guarantees are projected under multiple
capital market scenarios using observable risk-free rates. The valuation of these embedded derivatives also includes an adjustment for our
nonperformance risk and risk margins for non-capital market inputs. The nonperformance risk adjustment, which is captured as a spread over the
risk-free rate in determining the discount rate to discount the cash flows of the liability, is determined by taking into consideration publicly available
information relating to spreads in the secondary market for MetLife, Inc.’s debt, including related credit default swaps. These observable spreads are
then adjusted, as necessary, to reflect the priority of these liabilities and the claims paying ability of the issuing insurance subsidiaries compared to
MetLife, Inc. Risk margins are established to capture the non-capital market risks of the instrument which represent the additional compensation a
market participant would require to assume the risks related to the uncertainties in certain actuarial assumptions. The establishment of risk margins
requires the use of significant management judgment, including assumptions of the amount and cost of capital needed to cover the guarantees.
The table below illustrates the impact that a range of reasonably likely variances in credit spreads would have on our consolidated balance sheet,
excluding the effect of income tax, related to the embedded derivative valuation on certain variable annuity products measured at estimated fair value.
However, these estimated effects do not take into account potential changes in other variables, such as equity price levels and market volatility, which
can also contribute significantly to changes in carrying values. Therefore, the table does not necessarily reflect the ultimate impact on the consolidated
financial statement under the credit spread variance scenarios presented below.
In determining the ranges, we have considered current market conditions, as well as the market level of spreads that can reasonably be anticipated
over the near term. The ranges do not reflect extreme market conditions such as those experienced during the 2008-2009 financial crisis as we do
not consider those to be reasonably likely events in the near future.
100% increase in our credit spread
As reported
50% decrease in our credit spread
Changes in Balance Sheet Carrying Value At
December 31, 2015
Policyholder
Account Balances
DAC and VOBA
$
$
$
(In millions)
549
946
1,165
$
$
$
(111)
(64)
(37)
The accounting for derivatives is complex and interpretations of accounting standards continue to evolve in practice. If it is determined that hedge
accounting designations were not appropriately applied, reported net income could be materially affected. Assessments of hedge effectiveness and
measurements of ineffectiveness of hedging relationships are also subject to interpretations and estimations and different interpretations or estimates
may have a material effect on the amount reported in net income.
Variable annuities with guaranteed minimum benefits may be more costly than expected in volatile or declining equity markets. Market conditions
including, but not limited to, changes in interest rates, equity indices, market volatility and foreign currency exchange rates, changes in our
nonperformance risk, variations in actuarial assumptions regarding policyholder behavior, mortality and risk margins related to non-capital market
inputs, may result in significant fluctuations in the estimated fair value of the guarantees that could materially affect net income. If interpretations
change, there is a risk that features previously not bifurcated may require bifurcation and reporting at estimated fair value in the consolidated financial
statements and respective changes in estimated fair value could materially affect net income.
Additionally, we ceded the risk associated with certain of the variable annuities with guaranteed minimum benefits described in the preceding
paragraphs. The value of the embedded derivatives on the ceded risk is determined using a methodology consistent with that described previously
for the guarantees directly written by us with the exception of the input for nonperformance risk that reflects the credit of the reinsurer. Because certain
of the direct guarantees do not meet the definition of an embedded derivative and, thus are not accounted for at fair value, significant fluctuations in
net income may occur since the change in fair value of the embedded derivative on the ceded risk is being recorded in net income without a
corresponding and offsetting change in fair value of the direct guarantee.
See Note 9 of the Notes to the Consolidated Financial Statements for additional information on our derivatives and hedging programs.
Goodwill
Goodwill is tested for impairment at least annually or more frequently if events or circumstances, such as adverse changes in the business
climate, indicate that there may be justification for conducting an interim test.
For purposes of goodwill impairment testing, if the carrying value of a reporting unit exceeds its estimated fair value, the implied fair value of the
reporting unit goodwill is compared to the carrying value of that goodwill to measure the amount of impairment loss, if any. In such instances, the
implied fair value of the goodwill is determined in the same manner as the amount of goodwill that would be determined in a business acquisition.
The Company tests goodwill for impairment by either performing a qualitative assessment or a two-step quantitative test. The qualitative assessment
is an assessment of historical information and relevant events and circumstances to determine whether it is more likely than not that the fair value of
a reporting unit is less than its carrying amount, including goodwill. The Company may elect not to perform the qualitative assessment for some or
all of its reporting units and instead perform a two-step quantitative impairment test. In performing the two-step quantitative impairment test, the
Company may use a market multiple valuation approach and a discounted cash flow valuation approach. For reporting units which are particularly
sensitive to market assumptions, the Company may use additional valuation methodologies to estimate the reporting units’ fair values. The key inputs,
judgments and assumptions necessary in determining estimated fair value of the reporting units include projected operating earnings, current book
value, the level of economic capital required to support the mix of business, long-term growth rates, comparative market multiples, control premium,
MetLife, Inc.
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the account value of in-force business, projections of new and renewal business, as well as margins on such business, the level of interest rates,
credit spreads, equity market levels, and the discount rate that we believe is appropriate for the respective reporting unit.
During the 2015, 2014 and 2013 annual goodwill impairment tests, we concluded that the fair values of all reporting units were in excess of their
carrying values and, therefore, goodwill was not impaired.
We apply significant judgment when determining the estimated fair value of our reporting units and when assessing the relationship of market
capitalization to the aggregate estimated fair value of our reporting units. The valuation methodologies utilized are subject to key judgments and
assumptions that are sensitive to change. Estimates of fair value are inherently uncertain and represent only management’s reasonable expectation
regarding future developments. These estimates and the judgments and assumptions upon which the estimates are based will, in all likelihood, differ
in some respects from actual future results. Declines in the estimated fair value of our reporting units could result in goodwill impairments in future
periods which could materially adversely affect our results of operations or financial position.
See Note 11 of the Notes to the Consolidated Financial Statements for additional information on our goodwill.
Employee Benefit Plans
Certain subsidiaries of MetLife, Inc. sponsor and/or administer various plans that provide defined benefit pension and other postretirement
benefits covering eligible employees and sales representatives. The calculation of the obligations and expenses associated with these plans requires
an extensive use of assumptions such as the discount rate, expected rate of return on plan assets, rate of future compensation increases and healthcare
cost trend rates, as well as assumptions regarding participant demographics such as rate and age of retirements, withdrawal rates and mortality. In
consultation with external actuarial firms, we determine these assumptions based upon a variety of factors such as historical experience of the plan
and its assets, currently available market and industry data, and expected benefit payout streams.
We determine the expected rate of return on plan assets based upon an approach that considers inflation, real return, term premium, credit
spreads, equity risk premium and capital appreciation, as well as expenses, expected asset manager performance, asset weights and the effect of
rebalancing. Given the amount of plan assets as of December 31, 2014 the beginning of the measurement year, if we had assumed an expected rate
of return for both our pension and other postretirement benefit plans that was 100 basis points higher or 100 basis points lower than the rates we
assumed, the change in our net periodic benefit costs would have been a decrease of $103 million and an increase of $103 million, respectively, in
2015. This considers only changes in our assumed long-term rate of return given the level and mix of invested assets at the beginning of the year,
without consideration of possible changes in any of the other assumptions described above that could ultimately accompany any changes in our
assumed long-term rate of return.
We determine the discount rates used to value the pension and postretirement obligations, based upon rates commensurate with current yields
on high quality corporate bonds. Given our pension and postretirement obligations as of December 31, 2014, the beginning of the measurement
year, if we had assumed a discount rate for both our pension and postretirement benefit plans that was 100 basis points higher or 100 basis points
lower than the rates we assumed, the change in our net periodic benefit costs would have been a decrease of $133 million and an increase of
$155 million, respectively, in 2015. This considers only changes in our assumed discount rates without consideration of possible changes in any of
the other assumptions described above that could ultimately accompany any changes in our assumed discount rate. The assumptions used may
differ materially from actual results due to, among other factors, changing market and economic conditions and changes in participant demographics.
These differences may have a significant effect on the Company’s consolidated financial statements and liquidity.
See Note 18 of the Notes to the Consolidated Financial Statements for additional discussion of assumptions used in measuring liabilities relating
to our employee benefit plans.
Income Taxes
We provide for federal, state and foreign income taxes currently payable, as well as those deferred due to temporary differences between the
financial reporting and tax bases of assets and liabilities. Our accounting for income taxes represents our best estimate of various events and
transactions. Tax laws are often complex and may be subject to differing interpretations by the taxpayer and the relevant governmental taxing authorities.
In establishing a provision for income tax expense, we must make judgments and interpretations about the application of inherently complex tax laws.
We must also make estimates about when in the future certain items will affect taxable income in the various tax jurisdictions, both domestic and
foreign.
In establishing a liability for unrecognized tax benefits, assumptions may be made in determining whether, and to what extent, a tax position
may be sustained. Once established, unrecognized tax benefits are adjusted when there is more information available or when events occur requiring
a change.
Valuation allowances are established against deferred tax assets when management determines, based on available information, that it is more
likely than not that deferred income tax assets will not be realized. Significant judgment is required in determining whether valuation allowances should
be established, as well as the amount of such allowances. See Note 1 of the Notes to the Consolidated Financial Statements for additional information
relating to our determination of such valuation allowances.
We may be required to change our provision for income taxes when estimates used in determining valuation allowances on deferred tax assets
significantly change, or when receipt of new information indicates the need for adjustment in valuation allowances. Additionally, future events, such
as changes in tax laws, tax regulations, or interpretations of such laws or regulations, could have an impact on the provision for income tax and the
effective tax rate. Any such changes could significantly affect the amounts reported in the financial statements in the year these changes occur.
See Notes 1 and 19 of the Notes to the Consolidated Financial Statements for additional information on our income taxes.
Litigation Contingencies
We are a party to a number of legal actions and are involved in a number of regulatory investigations. Given the inherent unpredictability of these
matters, it is difficult to estimate the impact on our financial position. Liabilities are established when it is probable that a loss has been incurred and
the amount of the loss can be reasonably estimated. Liabilities related to certain lawsuits, including our asbestos-related liability, are especially difficult
to estimate due to the limitation of available data and uncertainty regarding numerous variables that can affect liability estimates. The data and variables
that impact the assumptions used to estimate our asbestos-related liability include the number of future claims, the cost to resolve claims, the disease
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mix and severity of disease in pending and future claims, the impact of the number of new claims filed in a particular jurisdiction and variations in the
law in the jurisdictions in which claims are filed, the possible impact of tort reform efforts, the willingness of courts to allow plaintiffs to pursue claims
against us when exposure to asbestos took place after the dangers of asbestos exposure were well known, and the impact of any possible future
adverse verdicts and their amounts. On a quarterly and annual basis, we review relevant information with respect to liabilities for litigation, regulatory
investigations and litigation-related contingencies to be reflected in our consolidated financial statements. It is possible that an adverse outcome in
certain of our litigation and regulatory investigations, including asbestos-related cases, or the use of different assumptions in the determination of
amounts recorded could have a material effect upon our consolidated net income or cash flows in particular quarterly or annual periods.
See Note 21 of the Notes to the Consolidated Financial Statements for additional information regarding our assessment of litigation contingencies.
Economic Capital
Economic capital is an internally developed risk capital model, the purpose of which is to measure the risk in the business and to provide a basis
upon which capital is deployed. The economic capital model accounts for the unique and specific nature of the risks inherent in our business.
Our economic capital model, coupled with considerations of local capital requirements, aligns segment allocated equity with emerging standards
and consistent risk principles. The model applies statistics-based risk evaluation principles to the material risks to which the Company is exposed.
These consistent risk principles include calibrating required economic capital shock factors to a specific confidence level and time horizon while
applying an industry standard method for the inclusion of diversification benefits among risk types. Economic capital-based risk estimation is an
evolving science and industry best practices have emerged and continue to evolve. Areas of evolving industry best practices include stochastic liability
valuation techniques, alternative methodologies for the calculation of diversification benefits, and the quantification of appropriate shock levels. MetLife’s
management is responsible for the ongoing production and enhancement of the economic capital model and reviews its approach periodically to
ensure that it remains consistent with emerging industry practice standards.
Segment net investment income is credited or charged based on the level of allocated equity; however, changes in allocated equity do not impact
our consolidated net investment income, operating earnings or income (loss) from continuing operations, net of income tax.
Net investment income is based upon the actual results of each segment’s specifically identifiable investment portfolios adjusted for allocated
equity. Other costs are allocated to each of the segments based upon: (i) a review of the nature of such costs; (ii) time studies analyzing the amount
of employee compensation costs incurred by each segment; and (iii) cost estimates included in the Company’s product pricing.
Acquisitions and Dispositions
In 2014, the life insurance joint venture in Vietnam among MetLife, Inc. (through MetLife Limited), Joint Stock Commercial Bank for Investment
& Development of Vietnam and Bank for Investment & Development of Vietnam Insurance Joint Stock Corporation was established. Operations of
the joint venture (BIDV MetLife Life Insurance Limited Liability Company) commenced in 2014.
In 2014, MetLife, Inc. and Malaysia’s AMMB Holdings Bhd (“AMMB”) completed the formation of their strategic partnership, in which each holds
approximately 50% of both AmMetLife Insurance Berhad and AmMetTakaful Berhad, each of which became parties to exclusive 20-year distribution
agreements with AMMB bank affiliates.
See Note 3 of the Notes to the Consolidated Financial Statements for information regarding the Company’s acquisitions and dispositions.
MetLife, Inc.
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Results of Operations
Consolidated Results
Business Overview. Overall sales declined from 2014 levels; however, sales experience was positive across various products within our regions
for the year ended December 31, 2015 as compared to 2014. The introduction of new variable annuity products in late 2014 and early 2015, as well
as pricing actions and our continued focus on our enhanced underwriting programs, all contributed to higher sales in our Retail segment. For our
Group, Voluntary & Worksite Benefits segment, 2015 sales were slightly higher, as improved sales of voluntary products were largely offset by lower
sales of our core group products as a result of increased competition. Despite the decline in funding ratios for defined benefit pension plans of S&P
500 companies, we experienced an increase in sales of pension risk transfers. However, more competitive pricing in the market drove a decrease in
structured settlement annuity sales. Total sales for our Latin America segment decreased primarily due to the impact of a large contract in Mexico in
2014. Excluding this contract, sales for the region increased due to organic growth in several countries. Sales in our EMEA segment improved, while
sales in our Asia segment declined slightly.
Years Ended December 31,
2015
2014
(In millions)
2013
Revenues
Premiums
Universal life and investment-type product policy fees
Net investment income
Other revenues
Net investment gains (losses)
Net derivative gains (losses)
Total revenues
Expenses
Policyholder benefits and claims and policyholder dividends
Interest credited to policyholder account balances
Capitalization of DAC
Amortization of DAC and VOBA
Amortization of negative VOBA
Interest expense on debt
Other expenses
Total expenses
Income (loss) from continuing operations before provision for income tax
Provision for income tax expense (benefit)
Income (loss) from continuing operations, net of income tax
Income (loss) from discontinued operations, net of income tax
Net income (loss)
Less: Net income (loss) attributable to noncontrolling interests
Net income (loss) attributable to MetLife, Inc.
Less: Preferred stock dividends
Preferred stock repurchase premium
$
38,545
$
39,067
$
9,507
19,281
1,983
597
38
69,951
40,102
5,610
(3,837)
3,936
(361)
1,208
15,823
62,481
7,470
2,148
5,322
—
5,322
12
5,310
116
42
9,946
21,153
2,030
(197)
1,317
73,316
40,478
6,943
(4,183)
4,132
(442)
1,216
16,368
64,512
8,804
2,465
6,339
(3)
6,336
27
6,309
122
—
Net income (loss) available to MetLife, Inc.’s common shareholders
$
5,152
$
6,187
$
37,674
9,451
22,232
1,920
161
(3,239)
68,199
39,366
8,179
(4,786)
3,550
(579)
1,282
17,135
64,147
4,052
661
3,391
2
3,393
25
3,368
122
—
3,246
Year Ended December 31, 2015 Compared with the Year Ended December 31, 2014
During the year ended December 31, 2015, income (loss) from continuing operations, before provision for income tax, decreased $1.3 billion
($1.0 billion, net of income tax) from 2014 primarily due to an unfavorable change in operating earnings, driven by the aforementioned tax charge
and related charge for interest on uncertain tax positions, and an unfavorable change in net derivative gains (losses), partially offset by a favorable
change in net investment gains (losses).
Management of Investment Portfolio and Hedging Market Risks with Derivatives. We manage our investment portfolio using disciplined ALM
principles, focusing on cash flow and duration to support our current and future liabilities. Our intent is to match the timing and amount of liability
cash outflows with invested assets that have cash inflows of comparable timing and amount, while optimizing risk-adjusted net investment income
and risk-adjusted total return. Our investment portfolio is heavily weighted toward fixed income investments, with over 80% of our portfolio invested
in fixed maturity securities and mortgage loans. These securities and loans have varying maturities and other characteristics which cause them to
be generally well suited for matching the cash flow and duration of insurance liabilities. We also use derivatives as an integral part of our management
of the investment portfolio to hedge certain risks, including changes in interest rates, foreign currency exchange rates, credit spreads and equity
market levels. In addition, our general account investment portfolio includes, within fair value option (“FVO”) and trading securities, contractholder-
directed unit-linked investments supporting unit-linked variable annuity type liabilities, which do not qualify as separate account assets. The returns
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on these contractholder-directed unit-linked investments, which can vary significantly from period to period, include changes in estimated fair value
subsequent to purchase, inure to contractholders and are offset in earnings by a corresponding change in policyholder account balances through
interest credited to policyholder account balances.
We purchase investments to support our insurance liabilities and not to generate net investment gains and losses. However, net investment
gains and losses are incurred and can change significantly from period to period due to changes in external influences, including changes in market
factors such as interest rates, foreign currency exchange rates, credit spreads and equity markets; counterparty specific factors such as financial
performance, credit rating and collateral valuation; and internal factors such as portfolio rebalancing. Changes in these factors from period to period
can significantly impact the levels of both impairments and realized gains and losses on investments sold.
We use freestanding interest rate, equity, credit and currency derivatives to hedge certain invested assets and insurance liabilities. Certain of
these hedges are designated and qualify as accounting hedges, which reduce volatility in earnings. For those hedges not designated as accounting
hedges, changes in market factors lead to the recognition of fair value changes in net derivative gains (losses) generally without an offsetting gain
or loss recognized in earnings for the item being hedged, which creates volatility in earnings.
Certain variable annuity products with guaranteed minimum benefits contain embedded derivatives that are measured at estimated fair value
separately from the host variable annuity contract, with changes in estimated fair value recorded in net derivative gains (losses). We use freestanding
derivatives to hedge the market risks inherent in these variable annuity guarantees. The valuation of these embedded derivatives includes a
nonperformance risk adjustment, which is unhedged, and can be a significant driver of net derivative gains (losses) and volatility in earnings, but
does not have an economic impact on us.
Net Derivative Gains (Losses). The variable annuity embedded derivatives and associated freestanding derivative hedges are collectively
referred to as “VA program derivatives” in the following table. All other derivatives that are economic hedges of certain invested assets and insurance
liabilities are referred to as “non-VA program derivatives” in the following table. The table below presents the impact on net derivative gains (losses)
from non-VA program derivatives and VA program derivatives:
Non-VA program derivatives
Interest rate
Foreign currency exchange rate
Credit
Equity
Non-VA embedded derivatives
Total non-VA program derivatives
VA program derivatives
Market risks in embedded derivatives
Nonperformance risk on embedded derivatives
Other risks in embedded derivatives
Total embedded derivatives
Freestanding derivatives hedging embedded derivatives
Total VA program derivatives
Net derivative gains (losses)
$
Years Ended December 31,
2015
2014
(In millions)
$
171
397
10
(172)
38
444
511
163
(951)
(277)
(129)
(406)
927
(25)
89
(62)
(99)
830
31
13
(266)
(222)
709
487
$
38
$
1,317
The unfavorable change in net derivative gains (losses) on non-VA program derivatives was $386 million ($251 million, net of income tax). This
was primarily due to long-term interest rates decreasing less in 2015 than in 2014, unfavorably impacting receive-fixed interest rate swaptions and
interest rate swaps primarily hedging long duration liability portfolios.
These unfavorable changes were partially offset by the strengthening of the U.S. dollar relative to other key currencies favorably impacting
foreign currency forwards and futures that primarily hedge foreign denominated fixed maturity securities. In addition, a change in the value of the
underlying assets favorably impacted non-VA embedded derivatives related to funds withheld on a certain reinsurance agreement. Because certain
of these hedging strategies are not designated or do not qualify as accounting hedges, the changes in the estimated fair value of these freestanding
derivatives are recognized in net derivative gains (losses) without an offsetting gain or loss recognized in earnings for the item being hedged.
The unfavorable change in net derivative gains (losses) on VA program derivatives was $893 million ($580 million, net of income tax). This was
due to an unfavorable change of $685 million ($445 million, net of income tax) in other risks in embedded derivatives and an unfavorable change
of $358 million ($233 million, net of income tax) in market risks in embedded derivatives, net of the impact of freestanding derivatives hedging those
risks, partially offset by a favorable change of $150 million ($98 million, net of income tax) related to the change in the nonperformance risk adjustment
on embedded derivatives. Other risks relate primarily to the impact of policyholder behavior and other non-market risks that generally cannot be
hedged.
The foregoing $685 million ($445 million, net of income tax) unfavorable change in other risks in embedded derivatives reflected:
•
Refinements in the valuation model, which resulted in an unfavorable year over year change in the valuation of the embedded derivatives.
MetLife, Inc.
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•
•
The cross effect of capital markets changes, which resulted in an unfavorable year over year change in the valuation of the embedded
derivatives.
A combination of other factors, including reserve changes influenced by benefit features and policyholder behavior, as well as FCTA, which
resulted in an unfavorable year over year change in the valuation of embedded derivatives.
The foregoing $358 million ($233 million, net of income tax) unfavorable change was comprised of an $838 million ($545 million, net of income
tax) unfavorable change in freestanding derivatives hedging market risks in embedded derivatives, which was partially offset by a $480 million ($312
million, net of income tax) favorable change in market risks in embedded derivatives.
The primary changes in market factors are summarized as follows:
•
•
•
Long-term interest rates decreased less in 2015 than in 2014, contributing to an unfavorable change in our freestanding derivatives and a
favorable change in our embedded derivatives. For example, the 30-year U.S. swap rate decreased by 3% in 2015 and 31% in 2014.
Key equity index levels decreased in 2015 and increased in 2014, contributing to a favorable change in our freestanding derivatives and
an unfavorable change in our embedded derivatives. For example, the S&P 500 Index decreased by 1% in 2015 and increased by 11% in
2014.
Changes in foreign currency exchange rates contributed to a favorable change in our freestanding derivatives and an unfavorable change
in our embedded derivatives related to the assumed reinsurance of certain variable annuity products from the Company’s former operating
joint venture in Japan. For example, the Japanese yen strengthened against the euro by 10% in 2015 as compared with a weakening of
less than 1% against the euro in 2014.
The aforementioned $150 million ($98 million, net of income tax) favorable change in the nonperformance risk adjustment on embedded
derivatives was due to a favorable change of $148 million, before income tax, related to changes in our own credit spread and a favorable change
of $2 million, before income tax, as a result of changes in capital market inputs, such as long-term interest rates and key equity index levels, on
the variable annuity guarantees.
When equity index levels decrease in isolation, the variable annuity guarantees become more valuable to policyholders, which results in an
increase in the undiscounted embedded derivative liability. Discounting this unfavorable change by the risk adjusted rate yields a smaller loss than
by discounting at the risk-free rate, thus creating a gain from including an adjustment for nonperformance risk.
When the risk-free interest rate decreases in isolation, discounting the embedded derivative liability produces a higher valuation of the liability
than if the risk-free interest rate had remained constant. Discounting this unfavorable change by the risk adjusted rate yields a smaller loss than by
discounting at the risk-free interest rate, thus creating a gain from including an adjustment for nonperformance risk.
When our own credit spread increases in isolation, discounting the embedded derivative liability produces a lower valuation of the liability than
if our own credit spread had remained constant. As a result, a gain is created from including an adjustment for nonperformance risk. For each of
these primary market drivers, the opposite effect occurs when they move in the opposite direction.
Net Investment Gains (Losses). The favorable change in net investment gains (losses) of $794 million ($516 million, net of income tax) primarily
reflects a loss in 2014 on the disposition of MAL and higher net gains on sales of real estate in 2015, partially offset by lower net gains on sales
and disposals of fixed maturity securities in 2015. For further information on MAL, see Note 3 of the Notes to the Consolidated Financial Statements.
Actuarial Assumption Review. Results for 2015 include a $313 million ($203 million, net of income tax) charge associated with our annual
assumption review related to reserves and DAC, of which a $3 million loss ($2 million, net of income tax) was recognized in net derivative gains
(losses). Of the $313 million charge, $60 million ($39 million, net of income tax) was related to DAC and $253 million ($164 million, net of income
tax) was associated with reserves.
The $3 million loss recognized in net derivative gains (losses) associated with our annual assumption review was included within the other
risks in embedded derivatives caption in the table above.
As a result of our annual assumption review, changes were made to economic, policyholder behavior, mortality and other assumptions. The
most significant impacts were in the Retail Life and Annuity blocks of business and are summarized as follows:
•
•
•
Changes in economic assumptions resulted in an increase of DAC and reserves, resulting in a net charge of $122 million ($79 million, net
of income tax).
Changes in policyholder behavior and mortality assumptions resulted in reserve increases, offset by favorable DAC, resulting in a net charge
of $91 million ($59 million, net of income tax).
The remaining updates resulted in an increase in reserves, coupled with unfavorable DAC, resulting in a charge of $100 million ($65 million,
net of income tax). The most notable update was related to our projection of closed block results.
Results for 2014 include a $161 million ($105 million, net of income tax) benefit associated with our annual assumption review related to
reserves and DAC, of which $137 million ($89 million, net of income tax) was recognized in net derivative gains (losses). Of the $161 million benefit,
$82 million ($53 million, net of income tax) was related to DAC and $79 million ($52 million, net of income tax) was associated with reserves.
Taxes. Income tax expense for the year ended December 31, 2015 was $2.1 billion, or 29% of income (loss) from continuing operations before
provision for income tax, compared with $2.5 billion, or 28% of income (loss) from continuing operations before provision for income tax, for the
year ended December 31, 2014. The Company’s 2015 effective tax rate differs from the U.S. statutory rate of 35% primarily due to non-taxable
investment income, tax credits for low income housing, and foreign earnings taxed at lower rates than the U.S. statutory rate. Our 2015 results
include one-time tax charges of $681 million, of which $557 million was recorded under accounting guidance for the recognition of tax uncertainties,
$88 million was related to foreign exchange-related gains on investments in Argentina and $36 million was the result of a deferred tax liability true-
up in Japan. These charges were partially offset by one-time tax benefits of $174 million in Japan related to a change in tax rate, $61 million related
to restructuring in Chile, $57 million related to the repatriation of earnings from Japan and $31 million related to the devaluation of the peso in
Argentina. The Company’s 2014 effective tax rate was different from the U.S. statutory rate of 35% primarily due to non-taxable investment income,
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MetLife, Inc.
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tax credits for low income housing, foreign earnings taxed at lower rates than the U.S. statutory rate, and the tax effects of the MAL divestiture. The
2014 period also includes a $54 million tax charge related to tax reform in Chile, a $45 million tax charge related to the repatriation of earnings from
Japan and an $18 million tax charge related to a portion of the aforementioned settlement of a licensing matter which was not deductible for income
tax purposes, partially offset by a $32 million one-time tax benefit related to the filing of the Company’s U.S. federal tax return.
Operating Earnings. As more fully described in “— Non-GAAP and Other Financial Disclosures,” we use operating earnings, which does not
equate to income (loss) from continuing operations, net of income tax, as determined in accordance with GAAP, to analyze our performance,
evaluate segment performance, and allocate resources. We believe that the presentation of operating earnings and operating earnings available to
common shareholders, as we measure it for management purposes, enhances the understanding of our performance by highlighting the results
of operations and the underlying profitability drivers of the business. Operating earnings and operating earnings available to common shareholders
should not be viewed as substitutes for income (loss) from continuing operations, net of income tax, and net income (loss) available to MetLife,
Inc.’s common shareholders, respectively. Operating earnings available to common shareholders decreased $1.1 billion, net of income tax, to
$5.5 billion, net of income tax, for the year ended December 31, 2015 from $6.6 billion, net of income tax, for the year ended December 31, 2014.
Year Ended December 31, 2014 Compared with the Year Ended December 31, 2013
During the year ended December 31, 2014, income (loss) from continuing operations, before provision for income tax, increased $4.8 billion
($2.9 billion, net of income tax) from 2013 primarily driven by a favorable change in net derivative gains (losses), partially offset by an unfavorable
change in net investment gains (losses). Income (loss) from continuing operations, before provision for income tax also reflects a $262 million ($174
million, net of income tax) favorable change as a result of our annual assumption reviews related to reserves and DAC.
Net Derivative Gains (Losses). The variable annuity embedded derivatives and associated freestanding derivative hedges are collectively
referred to as “VA program derivatives” in the following table. All other derivatives that are economic hedges of certain invested assets and insurance
liabilities are referred to as “non-VA program derivatives” in the following table. The table below presents the impact on net derivative gains (losses)
from non-VA program derivatives and VA program derivatives:
Non-VA program derivatives
Interest rate
Foreign currency exchange rate
Credit
Equity
Non-VA embedded derivatives
Total non-VA program derivatives
VA program derivatives
Market risks in embedded derivatives
Nonperformance risk on embedded derivatives
Other risks in embedded derivatives
Total embedded derivatives
Freestanding derivatives hedging embedded derivatives
Total VA program derivatives
Net derivative gains (losses)
Years Ended December 31,
2014
2013
(In millions)
$
927
$
(25)
89
(62)
(99)
830
31
13
(266)
(222)
709
487
$
1,317
$
(1,609)
(1,225)
187
(61)
123
(2,585)
6,101
(952)
(169)
4,980
(5,634)
(654)
(3,239)
The favorable change in net derivative gains (losses) on non-VA program derivatives was $3.4 billion ($2.2 billion, net of income tax). This was
primarily due to long-term interest rates decreasing in 2014 and increasing in 2013, favorably impacting receive-fixed interest rate swaps and interest
rate swaptions. These freestanding derivatives were primarily hedging long duration liability portfolios. The strengthening of the U.S. dollar relative
to other key currencies, as well as the Japanese yen weakening less against the U.S. dollar in 2014 versus 2013, favorably impacted foreign
currency swaps and forwards that primarily hedge foreign denominated fixed maturity securities. Because certain of these hedging strategies are
not designated or do not qualify as accounting hedges, the changes in the estimated fair value of these freestanding derivatives are recognized in
net derivative gains (losses) without an offsetting gain or loss recognized in earnings for the item being hedged.
The favorable change in net derivative gains (losses) on VA program derivatives was $1.1 billion ($742 million, net of income tax). This was
due to a favorable change of $965 million ($627 million, net of income tax) related to the change in the nonperformance risk adjustment on embedded
derivatives and a favorable change of $273 million ($178 million, net of income tax) on market risks in embedded derivatives, net of the impact of
freestanding derivatives hedging those risks, partially offset by an unfavorable change of $97 million ($63 million, net of income tax) on other risks
in embedded derivatives. Other risks relate primarily to the impact of policyholder behavior and other non-market risks that generally cannot be
hedged.
The aforementioned $965 million ($627 million, net of income tax) favorable change in the nonperformance risk adjustment was due to a
favorable change of $629 million, before income tax, as a result of changes in capital market inputs, such as long-term interest rates and key equity
index levels, on the variable annuity guarantees, as well as a favorable change of $336 million, before income tax, related to changes in our own
credit spread.
MetLife, Inc.
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The foregoing $273 million ($178 million, net of income tax) favorable change was comprised of a $6.3 billion ($4.1 billion, net of income tax)
favorable change in freestanding derivatives hedging market risks in embedded derivatives, which was largely offset by a $6.1 billion ($3.9 billion,
net of income tax) unfavorable change in market risks in embedded derivatives.
The primary changes in market factors are summarized as follows:
•
•
•
Long-term interest rates decreased in 2014 and increased in 2013, contributing to a favorable change in our freestanding derivatives
and an unfavorable change in our embedded derivatives. For example, the 30-year U.S. swap rate decreased by 31% in 2014 and
increased by 40% in 2013.
Key equity index levels increased less in 2014 than in 2013, contributing to a favorable change in our freestanding derivatives and an
unfavorable change in our embedded derivatives. For example, the S&P 500 increased by 11% in 2014 and increased by 30% in 2013.
Changes in foreign currency exchange rates contributed to a favorable change in our freestanding derivatives and an unfavorable change
in our embedded derivatives. For example, the U.S. dollar strengthened against the Japanese yen by 14% in 2014 as compared with
22% in 2013.
The foregoing $97 million ($63 million, net of income tax) unfavorable change in other risks in embedded derivatives was primarily due to an
increase in the risk margin adjustment caused by higher policyholder behavior risks, along with updates to the actuarial assumptions, partially offset
by favorable changes in all other risk factors.
Net Investment Gains (Losses). The unfavorable change in net investment gains (losses) of $358 million ($233 million, net of income tax)
primarily reflects a 2014 loss on the disposition of MAL, partially offset by 2014 gains on sales of real estate and real estate joint ventures.
Actuarial Assumption Review. Our 2014 results include a $161 million ($105 million, net of income tax) benefit associated with our annual
assumption review related to reserves and DAC, of which $137 million ($89 million, net of income tax) was recognized in net derivative gains (losses).
Of the $161 million benefit, $82 million ($53 million, net of income tax) was related to DAC and $79 million ($52 million, net of income tax) was
associated with reserves.
The $137 million gain recognized in net derivative gains (losses) associated with our annual assumption review was included within the other
risks in embedded derivatives caption in the table above.
As a result of our annual assumption review, changes were made to economic, policyholder behavior, mortality and other assumptions. The
most significant impacts were in the Retail Life and Annuity blocks of businesses and are summarized as follows:
•
•
•
Changes in economic assumptions resulted in a decrease in reserves, offset by unfavorable DAC, resulting in a net benefit of $229 million
($149 million, net of income tax).
Changes to policyholder behavior and mortality assumptions resulted in reserve increases, offset by favorable DAC, resulting in a net
loss of $175 million ($114 million, net of income tax).
The remaining updates resulted in a decrease in reserves, coupled with favorable DAC, resulting in a benefit of $107 million ($70 million,
net of income tax). The most notable update was related to our projection of closed block results.
Our 2013 results include a $101 million ($69 million, net of income tax) charge associated with our annual assumption review related to reserves
and DAC, of which $138 million ($90 million, net of income tax) was recognized in net derivative gains (losses). Of the $101 million charge, $228 million
($150 million, net of income tax) was related to reserves, offset by $127 million ($81 million, net of income tax) associated with DAC. The $138 million
loss recorded in net derivative gains (losses) associated with our annual assumption review was included within the other risks in embedded
derivatives caption in the table above.
Divested Businesses. Income (loss) from continuing operations, before provision for income tax, related to the divested businesses, excluding
net investment gains (losses) and net derivative gains (losses), improved $156 million to a loss of $13 million in 2014 from a loss of $169 million in
2013. Included in this improvement was a decrease in total revenues of $142 million, before income tax, and a decrease in total expenses of
$298 million, before income tax. The divested businesses include certain MetLife Bank businesses and MAL.
Taxes. Income tax expense for the year ended December 31, 2014 was $2.5 billion, or 28% of income (loss) from continuing operations before
provision for income tax, compared with $661 million, or 16% of income (loss) from continuing operations before provision for income tax, for the
year ended December 31, 2013. The Company’s 2014 and 2013 effective tax rates differed from the U.S. statutory rate of 35% primarily due to
non-taxable investment income, tax credits for low income housing, and foreign earnings taxed at lower rates than the U.S. statutory rate. The
Company’s 2013 effective tax rate also reflected tax benefits in Japan related to the 2012 branch restructuring and the estimated reversal of
temporary differences. Our 2014 results include a $38 million tax charge related to a portion of the aforementioned settlement of a licensing matter,
and the PPACA fee, both of which were not deductible for income tax purposes, as well as a $54 million tax charge related to tax reform in Chile
and a $45 million tax charge related to the repatriation of earnings from Japan. These charges were partially offset by a $32 million one-time tax
benefit related to the filing of the Company’s U.S. federal tax return. In addition, in 2013, the Company received an income tax refund from the
Japanese tax authority and recorded a $119 million reduction to income tax expense.
Operating Earnings. Operating earnings available to common shareholders increased $299 million, net of income tax, to $6.6 billion, net of
income tax, for the year ended December 31, 2014 from $6.3 billion, net of income tax, in 2013.
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MetLife, Inc.
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Reconciliation of income (loss) from continuing operations, net of income tax, to operating earnings available to common shareholders
Year Ended December 31, 2015
Income (loss) from continuing operations, net of
income tax
Less: Net investment gains (losses)
Less: Net derivative gains (losses)
Less: Other adjustments to continuing operations (1)
Less: Provision for income tax (expense) benefit
Operating earnings
Less: Preferred stock dividends
Operating earnings available to common shareholders
Year Ended December 31, 2014
Income (loss) from continuing operations, net of
income tax
Less: Net investment gains (losses)
Less: Net derivative gains (losses)
Less: Other adjustments to continuing operations (1)
Less: Provision for income tax (expense) benefit
Operating earnings
Less: Preferred stock dividends
Operating earnings available to common shareholders
Year Ended December 31, 2013
Income (loss) from continuing operations, net of
income tax
Less: Net investment gains (losses)
Less: Net derivative gains (losses)
Less: Other adjustments to continuing operations (1)
Less: Provision for income tax (expense) benefit
Operating earnings
Less: Preferred stock dividends
Operating earnings available to common shareholders
______________
Group,
Voluntary
& Worksite
Benefits
Retail
Corporate
Benefit
Funding
Latin
America
Asia
EMEA
Corporate
& Other
Total
(In millions)
$
1,972
$
893
$
1,544
$
386
$
1,807
$
288
$
(1,568) $
5,322
35
(159)
(609)
257
(33)
177
(171)
9
315
17
(91)
(84)
82
(135)
(72)
(62)
501
67
(120)
(21)
$
2,448
$
911
$
1,387
$
573
$
1,380
$
27
40
3
(22)
240
(330)
31
(31)
101
(1,339)
116
597
38
(1,091)
178
5,600
116
$
(1,455) $
5,484
Group,
Voluntary
& Worksite
Benefits
Retail
Corporate
Benefit
Funding
Latin
America
Asia
EMEA
Corporate
& Other
Total
(In millions)
$
2,744
$
1,086
$
1,318
$
344
$
1,200
$
330
$
(683) $
6,339
(7)
564
(671)
42
(39)
525
(167)
(111)
(432)
352
(112)
52
30
(60)
(242)
48
512
(532)
(122)
35
$
2,816
$
878
$
1,458
$
568
$
1,307
$
(17)
114
36
(88)
285
(244)
354
(98)
(65)
(630)
122
(197)
1,317
(1,376)
(87)
6,682
122
$
(752) $
6,560
Group,
Voluntary
& Worksite
Benefits
Retail
Corporate
Benefit
Funding
Latin
America
Asia
EMEA
Corporate
& Other
Total
$
1,586
$
383
$
1,129
$
555
$
(In millions)
70
(724)
(926)
554
$
2,612
$
(21)
(676)
(172)
304
948
(8)
(235)
87
53
21
(24)
166
(71)
597
343
(1,057)
(435)
487
$
1,232
$
463
$
1,259
$
281
$
301
$
(1,160) $
3,391
(16)
(6)
75
(33)
(228)
(517)
(392)
389
(412)
122
161
(3,239)
(1,597)
1,683
6,383
122
$
(534) $
6,261
(1)
See definitions of operating revenues and operating expenses under “— Non-GAAP and Other Financial Disclosures” for the components of
such adjustments.
MetLife, Inc.
27
Table of Contents
Reconciliation of GAAP revenues to operating revenues and GAAP expenses to operating expenses
Year Ended December 31, 2015
Group,
Voluntary
& Worksite
Benefits
Retail
Corporate
Benefit
Funding
Latin
America
Asia
EMEA
Corporate
& Other
Total
(In millions)
Total revenues
$
20,765
$
19,420
$
9,501
$
5,055
$
11,986
$
2,930
$
294
$
69,951
Less: Net investment gains (losses)
Less: Net derivative gains (losses)
Less: Adjustments related to net investment gains
(losses) and net derivative gains (losses)
Less: Other adjustments to revenues (1)
35
(159)
(2)
(73)
(33)
177
—
(171)
315
17
—
(105)
82
(135)
—
12
501
67
12
147
27
40
(5)
21
(330)
31
—
10
597
38
5
(159)
Total operating revenues
Total expenses
$
$
20,964
18,094
$
$
19,447
18,037
$
$
9,274
7,134
$
$
5,096
4,600
$
$
11,259
9,701
$
$
2,847
2,599
$
$
583
2,316
$
$
69,470
62,481
Less: Adjustments related to net investment gains
(losses) and net derivative gains (losses)
Less: Other adjustments to expenses (1)
11
523
—
—
—
(14)
—
84
9
270
(5)
18
—
41
15
922
Total operating expenses
$
17,560
$
18,037
$
7,148
$
4,516
$
9,422
$
2,586
$
2,275
$
61,544
Year Ended December 31, 2014
Group,
Voluntary
& Worksite
Benefits
Retail
Corporate
Benefit
Funding
Latin
America
Asia
EMEA
Corporate
& Other
Total
(In millions)
Total revenues
$
21,777
$
19,295
$
8,901
$
5,554
$
12,613
$
4,227
$
949
$
73,316
Less: Net investment gains (losses)
Less: Net derivative gains (losses)
Less: Adjustments related to net investment gains
(losses) and net derivative gains (losses)
Less: Other adjustments to revenues (1)
(7)
564
(1)
(79)
(39)
525
—
(167)
(432)
352
—
17
30
(60)
—
42
512
(532)
11
371
(17)
114
10
857
(244)
354
—
55
Total operating revenues
Total expenses
$
$
21,300
17,945
$
$
18,976
17,631
$
$
8,964
6,864
$
$
5,542
5,162
$
$
12,251
10,866
$
$
3,263
3,780
$
$
784
2,264
$
$
Less: Adjustments related to net investment gains
(losses) and net derivative gains (losses)
Less: Other adjustments to expenses (1)
26
565
—
—
—
129
—
284
(3)
507
12
819
—
153
(197)
1,317
20
1,096
71,080
64,512
35
2,457
Total operating expenses
$
17,354
$
17,631
$
6,735
$
4,878
$
10,362
$
2,949
$
2,111
$
62,020
Year Ended December 31, 2013
Group,
Voluntary
& Worksite
Benefits
Retail
Corporate
Benefit
Funding
Latin
America
Asia
EMEA
Corporate
& Other
Total
(In millions)
Total revenues
$
19,472
$
17,320
$
8,852
$
5,110
$
13,232
$
3,864
$
349
$
68,199
Less: Net investment gains (losses)
Less: Net derivative gains (losses)
Less: Adjustments related to net investment gains
(losses) and net derivative gains (losses)
Less: Other adjustments to revenues (1)
70
(724)
(9)
(119)
(21)
(676)
—
(172)
(8)
(235)
—
297
21
(24)
—
84
Total operating revenues
Total expenses
$
$
20,254
17,333
$
$
18,189
16,761
$
$
8,798
7,109
$
$
5,029
4,401
$
$
Less: Adjustments related to net investment gains
(losses) and net derivative gains (losses)
Less: Other adjustments to expenses (1)
(197)
995
—
—
—
210
—
(82)
343
(1,057)
2
1,386
12,558
12,557
(15)
1,838
(16)
(6)
14
667
$
$
3,205
3,479
$
$
16
590
(228)
(517)
—
111
983
2,507
—
503
$
$
161
(3,239)
7
2,254
69,016
64,147
(196)
4,054
Total operating expenses
$
16,535
$
16,761
$
6,899
$
4,483
$
10,734
$
2,873
$
2,004
$
60,289
______________
(1)
28
See definitions of operating revenues and operating expenses under “— Non-GAAP and Other Financial Disclosures” for the components of
such adjustments.
MetLife, Inc.
Table of Contents
Consolidated Results — Operating
Operating revenues
Premiums
Universal life and investment-type product policy fees
Net investment income
Other revenues
Total operating revenues
Operating expenses
Policyholder benefits and claims and policyholder dividends
Interest credited to policyholder account balances
Capitalization of DAC
Amortization of DAC and VOBA
Amortization of negative VOBA
Interest expense on debt
Other expenses
Total operating expenses
Provision for income tax expense (benefit)
Operating earnings
Less: Preferred stock dividends
Years Ended December 31,
2015
2014
(In millions)
2013
$
38,548
$
39,022
$
9,113
19,789
2,020
69,470
39,565
5,334
(3,837)
3,802
(326)
1,200
15,806
61,544
2,326
5,600
116
9,541
20,484
2,033
71,080
39,478
5,661
(4,182)
4,027
(396)
1,178
16,254
62,020
2,378
6,682
122
37,583
9,085
20,394
1,954
69,016
37,746
6,015
(4,786)
4,083
(524)
1,159
16,596
60,289
2,344
6,383
122
6,261
Operating earnings available to common shareholders
$
5,484
$
6,560
$
Year Ended December 31, 2015 Compared with the Year Ended December 31, 2014
Unless otherwise stated, all amounts discussed below are net of income tax.
Overview. The primary drivers of the decrease in operating earnings were lower investment yields, a tax charge and a related charge for interest
on uncertain tax positions in 2015, less favorable underwriting results and an unfavorable impact from our annual review of actuarial assumptions,
partially offset by higher net investment income from portfolio growth.
Foreign Currency. Changes in foreign currency exchange rates had a $303 million negative impact on operating earnings compared to 2014.
Business Growth. We benefited from higher sales and business growth across many of our products. Growth in the investment portfolios of
our domestic and Latin America segments generated higher net investment income, which was partially offset by higher surrenders of foreign
currency-denominated fixed annuity products in Japan. The changes in business growth discussed above resulted in a $474 million increase in
operating earnings.
Market Factors. Market factors, including the sustained low interest rate environment, continued to impact our investment yields. Excluding
the impact of inflation-indexed investments in the Latin America segment, investment yields decreased. Investment yields were negatively impacted
by the adverse impact of the sustained low interest rate environment on fixed maturity securities and mortgage loans, as well as by lower returns
on other limited partnership interests and our securities lending program. These decreases were partially offset by higher income on currency and
interest rate derivatives and higher returns on real estate and real estate joint ventures. The changes in market factors discussed above resulted in
a $545 million decrease in operating earnings.
Underwriting, Actuarial Assumption Review and Other Insurance Adjustments. A $99 million decrease in underwriting results was primarily
due to higher non-catastrophe related claim costs, as well as higher catastrophe-related losses in our property & casualty businesses. On an annual
basis, we review and update our long-term assumptions used in our calculations of certain insurance-related liabilities and DAC. These annual
updates, which occurred in both 2015 and 2014, resulted in a net operating earnings decrease of $98 million and were primarily related to unfavorable
DAC unlockings in our Retail segment. Refinements to DAC and certain insurance-related liabilities that were recorded in both 2015 and 2014
resulted in a net decrease of $6 million in operating earnings. The 2014 refinements include favorable reserve adjustments related to disability
premium waivers and a charge related to delayed settlement interest on unclaimed funds held by state governments, all in our retail life business.
Expenses. In 2015, other expenses include the aforementioned $235 million charge for interest on uncertain tax positions. An additional $101
million increase in expenses was primarily the result of higher employee-related costs and an increase in expenses associated with corporate
initiatives and projects, primarily in Asia. These increases were partially offset by a $117 million accrual in 2014 to increase the litigation reserve
related to asbestos, as well as 2014 charges totaling $57 million related to the aforementioned settlement of a licensing matter.
Taxes. The Company’s 2015 and 2014 effective tax rates differed from the U.S. statutory rate of 35%, primarily due to non-taxable investment
income, tax credits for low income housing, and foreign earnings taxed at lower rates than the U.S. statutory rate. Our results for 2015 include the
aforementioned tax charge of $557 million recorded under accounting guidance for the recognition of tax uncertainties, partially offset by a $61
million benefit in Japan related to a tax rate change, a one-time tax benefit of $60 million related to restructuring in Chile, a $31 million tax benefit
MetLife, Inc.
29
Table of Contents
related to the repatriation of earnings from Japan and a $31 million one-time tax benefit related to the devaluation of the peso in Argentina. In 2014,
the Company realized a $32 million one-time tax benefit related to the filing of the Company’s U.S. federal tax return. However, this was more than
offset by a $41 million one-time tax charge related to tax reform in Chile and an $18 million tax charge related to the aforementioned settlement of
a licensing matter which was not deductible for income tax purposes.
Year Ended December 31, 2014 Compared with the Year Ended December 31, 2013
Unless otherwise stated, all amounts discussed below are net of income tax.
Overview. The primary drivers of the increase in operating earnings were higher net investment income from portfolio growth, higher asset-
based fee income and a decrease in interest credited expense, partially offset by unfavorable mortality, morbidity and claims experience and the
impact of decreasing investment yields on net investment income. Excluding the impact of the aforementioned tax reform charge in Chile, the fourth
quarter 2013 acquisition of ProVida increased operating earnings by $166 million.
Foreign Currency. Changes in foreign currency exchange rates had a $127 million negative impact on results compared to 2013.
Business Growth. We benefited from strong sales and business growth across many of our products as evidenced by higher asset-based
fee income from growth in our businesses abroad. However, we continue to focus on pricing discipline and risk management which resulted in a
decrease in sales of our variable annuity products. This decline in sales, in combination with surrenders and withdrawals, resulted in negative net
flows, which caused lower average separate account assets and, consequently, lower asset-based fee income in our Retail segment. Excluding
the impact of the divested businesses and the acquisition of ProVida, growth in our investment portfolios in the majority of our segments generated
higher net investment income. Our property & casualty businesses benefited from an increase in average premium per policy. These positive results
were partially offset by an associated increase in DAC amortization. The changes in business growth discussed above resulted in a $432 million
increase in operating earnings.
Market Factors. Market factors, including the sustained low interest rate environment, continued to impact our investment yields, as well as
our crediting rates. Excluding the results of the divested businesses, the acquisition of ProVida and the impact of inflation-indexed investments in
the Latin America segment, investment yields decreased. Certain of our inflation-indexed products are backed by inflation-indexed investments.
Changes in inflation cause fluctuations in net investment income with a corresponding fluctuation in policyholder benefits, resulting in a minimal
impact to operating earnings. Investment yields were negatively impacted by the adverse impact of the sustained low interest rate environment
on fixed maturity securities and mortgage loans yields, lower returns on our hedge funds, as well as increased holdings of lower yielding Japanese
government securities in the Japan fixed annuity business. These decreases were partially offset by higher returns on interest rate derivatives, real
estate joint ventures and private equity investments. Yields were also favorably impacted by increased sales of foreign currency-denominated fixed
annuities in Japan, resulting in an increase in higher yielding foreign currency-denominated fixed maturity securities. The sustained low interest rate
environment also resulted in lower interest credited expense as we set interest credited rates lower on both new business and certain in-force
business with rate resets that are contractually tied to external indices or contain discretionary rate reset provisions. Our average separate account
balances grew with the equity markets driving higher fee income in our annuity business. However, this was partially offset by higher DAC amortization
due to the significant prior period equity market increase, as well as higher asset-based commissions and costs associated with our variable annuity
guaranteed minimum death benefits (“GMDBs”). The changes in market factors discussed above resulted in a $170 million decrease in operating
earnings.
Underwriting, Actuarial Assumption Review and Other Insurance Adjustments. Less favorable mortality and morbidity was driven by our Group,
Voluntary & Worksite Benefits segment. In addition, in our property & casualty businesses, catastrophe-related losses increased due to severe
storm activity in 2014. Non-catastrophe related claim costs also increased as a result of severe winter weather in 2014. Claims experience in our
Latin America segment was also unfavorable. The combined impact of mortality, morbidity and claims experience decreased operating earnings
by $146 million. The combined impact of the 2014 and 2013 annual assumption updates resulted in a $12 million decrease in operating earnings
in 2014 as compared to 2013. In addition to our annual updates, refinements to DAC and certain insurance-related liabilities that were recorded in
both years increased operating earnings by $75 million. Such refinements include favorable reserve adjustments in 2014 related to disability premium
waivers and a 2014 charge related to delayed settlement interest on unclaimed funds held by state governments, both in our life business within
our Retail segment, as well as a write-down of DAC and VOBA in 2013 related to pension reform in Poland within our EMEA segment. Also, our
2013 results include a reserve strengthening in Australia within our Asia segment of $57 million, net of reinsurance.
Expenses. A $112 million decrease in expenses was primarily driven by lower employee-related costs. In addition, our 2014 results include
charges totaling $57 million related to the aforementioned settlement of a licensing matter with the Department of Financial Services and the District
Attorney, New York County. The PPACA fee reduced operating earnings by $58 million in 2014. We increased our litigation reserves related to
asbestos more in 2014 than in 2013 resulting in a $16 million decline in operating earnings.
Taxes. In 2014, the Company realized a $32 million tax benefit related to the filing of the Company’s U.S. federal tax return, as well as additional
tax benefits of $36 million related to the separate account dividends received deduction and $58 million primarily related to foreign earnings taxed
at rates lower than the U.S. and other tax preference items. However, this was partially offset by a $38 million tax charge related to a portion of the
aforementioned settlement of a licensing matter and the PPACA fee, both of which were not deductible for income tax purposes.
Segment Results and Corporate & Other
Retail
Business Overview. Retail annuity sales increased 15% as a result of new variable annuity products introduced in late 2014 and early 2015
and higher indexed annuity sales. Life sales increased 17% driven by increases in our term life products (due to pricing actions) and whole life
products (as a result of several large cases, as well as a continued focus on our enhanced underwriting programs). A significant portion of our
operating earnings is driven by separate account balances. Most directly, these balances determine asset-based fee income but they also impact
DAC amortization and asset-based commissions. Separate account balances are driven by sales, movements in the market, surrenders, withdrawals,
benefit payments, transfers and policy charges. Separate account balances have declined due to market performance along with the impact of
negative net flows, as benefits, surrenders and withdrawals exceeded sales.
30
MetLife, Inc.
Table of Contents
Operating revenues
Premiums
Universal life and investment-type product policy fees
Net investment income
Other revenues
Total operating revenues
Operating expenses
Policyholder benefits and claims and policyholder dividends
Interest credited to policyholder account balances
Capitalization of DAC
Amortization of DAC and VOBA
Interest expense on debt
Other expenses
Total operating expenses
Provision for income tax expense (benefit)
Operating earnings
Years Ended December 31,
2015
2014
(In millions)
2013
$
7,228
$
7,280
$
4,933
7,814
989
20,964
9,995
2,198
(1,048)
1,561
(1)
4,855
17,560
956
5,074
7,887
1,059
21,300
9,851
2,245
(969)
1,515
1
4,711
17,354
1,130
$
2,448
$
2,816
$
6,528
4,912
7,796
1,018
20,254
9,028
2,331
(1,309)
1,384
—
5,101
16,535
1,107
2,612
Year Ended December 31, 2015 Compared with the Year Ended December 31, 2014
Unless otherwise stated, all amounts discussed below are net of income tax.
Business Growth. A $59 million increase in operating earnings was attributable to business growth. Our life businesses had positive net
flows which resulted in higher net investment income. In addition, net investment income increased as a result of a larger invested asset base
due to a higher amount of allocated equity as compared to 2014. This favorable impact was partially offset by a related increase in DAC amortization
and an increase in interest credited expenses. Declines in broker-dealer revenue also decreased operating earnings. In our property & casualty
business, an increase in average premium per policy in both the auto and homeowners businesses improved operating earnings, but was partially
offset by a decrease in exposures. In our deferred annuities business, negative net flows decreased average separate account balances and,
consequently, lower asset-based fee income, partially offset by lower DAC amortization due to the decrease in our in-force business.
Market Factors. A $177 million decrease in operating earnings was attributable to market factors, including equity markets and interest
rates. The sustained low interest rate environment resulted in a decline in net investment income on our fixed maturity securities and mortgage
loans as proceeds from maturing investments were reinvested at lower yields. This reduction in 2015 income from lower yields was partially
offset by a decrease in DAC amortization, as well as lower interest credited expense in our deferred annuities business as a result of declines in
average interest credited rates. Lower returns on other limited partnership interests were partially offset by increased prepayment fees and higher
returns on real estate and real estate joint ventures. While separate account fund returns were down slightly on a full year basis, the positive
returns in the first half of the year drove an increase in our average separate account balances which resulted in a small increase in asset-based
fee income, partially offset by higher DAC amortization. In addition, costs associated with our variable annuity GMDBs were lower in 2015.
Underwriting, Actuarial Assumption Review and Other Insurance Adjustments. Less favorable mortality in our universal life business, partially
offset by favorable mortality in our traditional life and income annuities businesses resulted in a net decrease of $12 million in operating earnings.
In our property & casualty business, non-catastrophe claim costs increased by $24 million as a result of higher severities in our auto and
homeowners businesses and higher frequencies in our auto business, partially offset by lower frequencies in our homeowners business.
Catastrophe-related losses increased $16 million mainly due to severe winter weather in 2015. Favorable morbidity experience in our individual
disability income business resulted in a $5 million increase in operating earnings. On an annual basis, we review and update our long-term
assumptions used in our calculations of certain insurance-related liabilities and DAC. These annual updates, which occurred in both 2015 and
2014, resulted in a net operating earnings decrease of $118 million and were primarily related to unfavorable DAC unlockings in the life businesses.
Refinements to DAC and certain insurance-related liabilities that were recorded in both 2015 and 2014 resulted in a decrease in operating
earnings of $18 million, primarily driven by certain 2014 adjustments in our life business, as well as adjustments in our annuities business. The
2014 refinements include favorable reserve adjustments related to disability premium waivers and a charge related to delayed settlement interest
on unclaimed funds held by state governments.
Expenses and Taxes. Operating earnings decreased due to an increase in expenses of $45 million, mainly the result of higher employee-
related costs. In 2015, we realized lower tax benefits of $16 million primarily related to the separate account dividends received deduction.
Year Ended December 31, 2014 Compared with the Year Ended December 31, 2013
Unless otherwise stated, all amounts discussed below are net of income tax.
Business Growth. A $156 million increase in operating earnings was attributable to business growth. Our life businesses had positive net
flows, despite a decline in universal life sales, which resulted in higher net investment income. This favorable impact was partially offset by
increases in DAC amortization and interest credited expenses, as well as lower fees, as 2013 benefited from the first year fees received on the
now discontinued lifetime secondary guarantees on our universal life products. In our deferred annuities business, the impact of negative net
flows contributed to a decrease in asset-based fee income, partially offset by a reduction in interest credited expenses in the general account.
MetLife, Inc.
31
Table of Contents
Additionally, costs associated with our variable annuity GMDBs were lower. In our property & casualty business, an increase in average premium
per policy in both our auto and homeowners businesses contributed to the increase in operating earnings. In addition, we earned more income
on a larger invested asset base, which resulted from a higher amount of allocated equity as compared to 2013.
Market Factors. A $58 million decrease in operating earnings was attributable to market factors, including equity markets and interest rates.
Strong equity market performance led to higher asset-based commissions, which were, in part, driven by separate account balances, higher
DAC amortization and costs associated with our GMDBs. The more favorable separate account returns in 2013 drove lower DAC amortization
in 2013 as compared to 2014 where equity returns were much less favorable. These negative impacts were partially offset by higher asset-based
fee income in 2014 due to increased average separate account balances. This positive equity market performance also drove higher net investment
income from private equity investments. The sustained low interest rate environment resulted in a decline in net investment income on our fixed
maturity securities and mortgage loans as proceeds from maturing investments were reinvested at lower yields. This negative interest rate impact
was partially offset by lower interest credited expense as we reduced interest credited rates on contracts with discretionary rate reset provisions,
and lower DAC amortization in our life business. Lower returns in our hedge funds also decreased operating earnings and were partially offset
by higher income from real estate joint ventures and increased prepayment fees.
Underwriting, Actuarial Assumption Review and Other Insurance Adjustments. Less favorable mortality experience in our variable and
universal life business, primarily driven by three large, unreinsured claims, partially offset by favorable experience in the traditional life and immediate
annuities businesses, resulted in a $40 million decrease in operating earnings. In our property & casualty business, non-catastrophe claim costs
increased by $8 million as a result of higher frequencies in our auto business offset by lower frequencies in our homeowners business. Catastrophe-
related losses increased $5 million as compared to 2013. In addition, favorable morbidity experience in our individual disability income business
resulted in a $6 million increase in operating earnings. The combined impact of the 2014 and 2013 annual assumption updates resulted in a net
operating earnings decrease of $11 million and were primarily related to unfavorable DAC unlockings in the variable annuity business, partially
offset by favorable DAC unlockings in our traditional and universal life businesses. Refinements to DAC and certain insurance-related liabilities
that were recorded in 2014 and 2013 resulted in a $7 million increase in operating earnings, which included $104 million of favorable reserve
adjustments in 2014 related to disability premium waivers and a 2014 charge of $57 million related to delayed settlement interest on unclaimed
funds held by state governments, both in our life business.
Expenses and Taxes. Operating earnings increased due to a decline in expenses of $109 million, mainly the result of lower employee-related
costs and the 2013 increase in litigation reserves. In 2014, we realized additional tax benefits of $37 million related to the separate account
dividends received deduction and $22 million related to the filing of the Company’s U.S. federal tax return.
Group, Voluntary & Worksite Benefits
Business Overview. Premiums increased for most of our businesses as a result of gradual growth in the U.S. economy, a decrease in the U.S.
unemployment rate and low inflation. Our term life, dental, disability and voluntary benefits businesses generated premium growth due to sales and
rate actions. In addition, we had strong persistency levels. The dental business also benefited from pricing actions on existing business. Our 2015
sales were slightly higher, as improved sales of voluntary products were largely offset by lower sales of our core group products as a result of
increased competition. Although we have discontinued selling our long-term care product, we continue to collect premiums and administer the
existing block of business, which contributed to asset growth in the segment.
Operating revenues
Premiums
Universal life and investment-type product policy fees
Net investment income
Other revenues
Total operating revenues
Operating expenses
Years Ended December 31,
2015
2014
(In millions)
2013
$
16,358
$
15,979
$
15,250
740
1,898
451
19,447
716
1,861
420
18,976
688
1,833
418
18,189
Policyholder benefits and claims and policyholder dividends
15,170
14,897
14,227
Interest credited to policyholder account balances
Capitalization of DAC
Amortization of DAC and VOBA
Interest expense on debt
Other expenses
Total operating expenses
Provision for income tax expense (benefit)
Operating earnings
151
(151)
164
—
2,703
18,037
156
(143)
149
1
2,571
17,631
$
499
911
$
467
878
$
155
(141)
140
1
2,379
16,761
480
948
Year Ended December 31, 2015 Compared with the Year Ended December 31, 2014
Unless otherwise stated, all amounts discussed below are net of income tax.
Business Growth. A $73 million increase in operating earnings was attributable to business growth. An increase in average premium per
policy in both our auto and homeowners businesses improved operating earnings. Growth in premiums, as well as increases in allocated equity
32
MetLife, Inc.
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resulted in higher average invested assets, improving operating earnings. Consistent with the growth in average invested assets from increased
premiums, primarily in our long-term care business, interest credited on long-duration contracts increased. An increase in the annual assessment
of the PPACA fee increased other expenses in 2015; however, the impact of the assessment was significantly offset by a related increase in
premiums from our dental business. The remaining increase in other operating expenses, mainly the result of growth across the segment, was
more than offset by the remaining increase in premiums, fees and other revenues.
Market Factors. The sustained low interest rate environment drove lower investment yields on our fixed maturity securities and mortgage
loans. In addition, yields were negatively impacted by a reduction in the size of our securities lending program, as well as lower returns on other
limited partnership interests. This was partially offset by higher returns on alternative investments and currency derivatives. Unlike in the Retail
and Corporate Benefit Funding segments, in the Group, Voluntary & Worksite Benefits segment, a change in investment yield does not necessarily
drive a corresponding change in the rates credited on certain insurance liabilities. The decrease in investment yields was partially offset by the
impact of lower crediting rates in 2015, which resulted in a net decrease in operating earnings of $14 million.
Underwriting and Other Insurance Adjustments. In our property & casualty business, catastrophe-related losses increased by $29 million,
mainly due to severe winter weather in 2015. In addition, non-catastrophe claim costs increased $37 million, resulting from higher severities in
both our auto and homeowners businesses, as well as higher frequencies in our auto business, partially offset by lower frequencies in our
homeowners businesses. Further, less favorable development of prior year non-catastrophe losses resulted in a slight decrease to operating
earnings. Our life and accidental death and dismemberment (“AD&D”) businesses experienced favorable mortality in 2015, mainly due to favorable
claims experience, which resulted in a $46 million increase in operating earnings. Less favorable reserve development in our dental business
was partially offset by favorable morbidity experience in our long-term care and disability businesses and resulted in a $16 million decrease in
operating earnings. The favorable claims experience in our long-term care business was due to higher net closures and the impact of lapses on
certain insurance liabilities. In our disability business, the favorable claims experience was primarily driven by fewer approvals, a reduction in the
average size of claims and higher net closures. Refinements to certain insurance and other liabilities, which were recorded in both 2015 and
2014, resulted in a $17 million increase in operating earnings.
Year Ended December 31, 2014 Compared with the Year Ended December 31, 2013
Unless otherwise stated, all amounts discussed below are net of income tax.
Business Growth. The increase in average premium per policy in both our auto and homeowners businesses improved operating earnings
by $42 million. Growth in premiums and deposits in 2014, as well as an increase in allocated equity, partially offset by reductions in other liabilities
and policyholder account balances, resulted in an increase in our average invested assets, increasing operating earnings by $51 million. Consistent
with the growth in average invested assets from premiums and deposits, primarily in our long-term care business, interest credited on long-
duration contracts and policyholder account balances increased by $24 million. The PPACA fee increased other expenses by $58 million in 2014;
however, the impact of the assessment was significantly offset by a related increase in premiums in the dental business. The remaining increase
in other operating expenses, including higher marketing and sales support costs in our property & casualty business, was partially offset by the
remaining increase in premiums, fees and other revenues.
Market Factors. The impact of changes in market factors, including lower yields on our fixed maturity securities and mortgage loans, and
decreased income on alternative investments, partially offset by higher returns on our real estate joint ventures and private equity investments,
resulted in lower investment yields. The decrease in investment yields, slightly offset by lower crediting rates in 2014, reduced operating earnings
by $29 million.
Underwriting and Other Insurance Adjustments. Our life business experienced less favorable mortality in 2014, mainly due to an increase
in claims severity in the term life business and increased claims incidence in the group universal life business, which resulted in a $48 million
decrease in operating earnings. Unfavorable claims experience in our disability business, driven by higher approvals, was partially offset by higher
net closures. In addition, increased utilization of services across the channels of our dental business was partially offset by the impact of lapses
on certain insurance liabilities, higher net closures in our long-term care business and favorable claims incidence in our AD&D business. Our
overall net unfavorable claims experience resulted in a $14 million decrease in operating earnings. The impact of favorable refinements to certain
insurance and other liabilities in 2014 resulted in an increase in operating earnings of $27 million. In our property & casualty business, catastrophe-
related losses increased by $21 million as compared to 2013, mainly due to severe storm activity in 2014. In addition, severe winter weather in
2014 increased non-catastrophe claim costs by $18 million, which was the result of higher frequencies in both our auto and homeowners
businesses, as well as higher severities in our homeowners business, partially offset by lower severities in our auto business. These unfavorable
results were partially offset by additional favorable development of prior year non-catastrophe losses, which improved operating earnings by
$15 million.
Corporate Benefit Funding
Business Overview. Funding ratios for defined benefit pension plans of S&P 500 companies continued to fall in 2015, limiting their ability to
engage in full pension plan buyouts. However, we expect that customers may choose to close out portions of pension plans over time, with the
largest volume of business generally occurring near the end of any year. Despite the decline in funding ratios for defined benefit pension plans of
S&P 500 companies, higher pension risk transfers resulted in an increase in premiums. In addition, more competitive pricing in the market drove
a decrease in structured settlement annuity sales. Changes in premiums for these businesses were almost entirely offset by the related changes
in policyholder benefits and claims.
MetLife, Inc.
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Operating revenues
Premiums
Universal life and investment-type product policy fees
Net investment income
Other revenues
Total operating revenues
Operating expenses
Policyholder benefits and claims and policyholder dividends
Interest credited to policyholder account balances
Capitalization of DAC
Amortization of DAC and VOBA
Interest expense on debt
Other expenses
Total operating expenses
Provision for income tax expense (benefit)
Operating earnings
Years Ended December 31,
2015
2014
(In millions)
2013
$
3,019
$
2,768
$
259
5,710
286
9,274
5,447
1,184
(19)
21
3
512
7,148
739
226
5,684
286
8,964
5,106
1,140
(31)
19
9
492
6,735
771
$
1,387
$
1,458
$
2,767
247
5,506
278
8,798
5,180
1,233
(27)
23
9
481
6,899
667
1,232
Year Ended December 31, 2015 Compared with the Year Ended December 31, 2014
Unless otherwise stated, all amounts discussed below are net of income tax.
Business Growth. The impact of 2015 deposits and funding agreement issuances resulted in higher invested assets, which drove an
increase in net investment income, partially offset by the related increase in interest credited expense, and resulted in a $106 million increase in
operating earnings. Net funding agreement issuances were higher in 2014 to take advantage of favorable market conditions in advance of
scheduled contract maturities.
Market Factors. The sustained low interest rate environment drove lower investment yields on mortgage loans and fixed maturity securities,
as well as from our securities lending program. In addition, weaker equity markets in 2015 resulted in lower returns on other limited partnership
interests. These unfavorable changes were partially offset by higher income on interest rate and currency derivatives, real estate and real estate
joint ventures, as well as the favorable impact of a conversion of the securities accounting system. An increase in interest credited expense,
resulting from a higher average rate, was driven by the effect of divesting a lower yielding product in early 2014. The combined impact of lower
investment returns and higher interest credited expense, resulted in a decrease in operating earnings of $144 million.
Underwriting and Other Insurance Adjustments. Less favorable mortality in our pension risk transfer and structured settlement businesses
was partially offset by more favorable mortality from our income annuity and specialized life insurance products, and resulted in a $6 million
decrease in operating earnings. The net impact of insurance liability refinements that were recorded in both 2015 and 2014 decreased operating
earnings by $20 million.
Expenses. Slightly higher employee-related costs and annual premium tax adjustments were partially offset by lower non-deferrable
commissions, driven by a decrease in structured settlement annuity sales in 2015, and decreased operating earnings by $4 million.
Year Ended December 31, 2014 Compared with the Year Ended December 31, 2013
Unless otherwise stated, all amounts discussed below are net of income tax.
Business Growth. The impact of 2014 deposits and funding agreement issuances, as well as increases in allocated equity and other liabilities,
resulted in higher invested assets, which drove an increase in net investment income that was partially offset by the related increase in interest
credited expense and resulted in a $122 million increase in operating earnings. In addition, strong investment performance and large case sales
for our separate account products drove higher average account balances which resulted in an increase in separate account fees of $8 million.
Market Factors. The sustained low interest rate environment impacted our interest credited rates, as well as our investment yields. Many
of our funding agreements and guaranteed interest contract liabilities have interest credited rates that are contractually tied to external indices
and, as a result, we set lower interest credited rates on new business, as well as on existing business with terms that can fluctuate. The sustained
low interest rate environment drove lower investment yields on mortgage loans and fixed maturity securities. In addition, hedge fund income
declined. These unfavorable changes were partially offset by the impact of changes in market factors that drove higher income on interest rate
derivatives and improved returns on real estate joint ventures. The impact of lower interest credited expense offset by lower investment returns
resulted in an increase in operating earnings of $34 million.
Underwriting and Other Insurance Adjustments. Favorable mortality in 2014, primarily in our structured settlements business, resulted in a
$24 million increase in operating earnings. The net impact of insurance liability refinements that were recorded in 2014 and 2013 increased
operating earnings by $28 million.
Taxes. In 2014, we realized additional tax benefits of $11 million primarily related to the filing of the Company’s U.S. federal tax return.
34
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Latin America
Business Overview. Total sales for the region decreased primarily due to the impact of a large contract in Mexico in 2014. Excluding this
contract, sales for the region increased due to organic growth in several countries. Total sales of life, accident & health and credit products increased
across several countries. Life and accident & health product sales also increased in our U.S. direct business. Sales of retirement products were
down as lower sales in Mexico were only partially offset by higher sales in Brazil.
Operating revenues
Premiums
Universal life and investment-type product policy fees
Net investment income
Other revenues
Total operating revenues
Operating expenses
Policyholder benefits and claims and policyholder dividends
Interest credited to policyholder account balances
Capitalization of DAC
Amortization of DAC and VOBA
Amortization of negative VOBA
Other expenses
Total operating expenses
Provision for income tax expense (benefit)
Operating earnings
Years Ended December 31,
2015
2014
(In millions)
2013
$
2,891
$
3,039
$
1,116
1,047
42
5,096
2,625
349
(426)
303
(1)
1,666
4,516
7
1,239
1,229
35
5,542
2,786
394
(445)
334
(1)
1,810
4,878
96
$
573
$
568
$
2,870
991
1,145
23
5,029
2,487
417
(452)
311
(2)
1,722
4,483
83
463
Year Ended December 31, 2015 Compared with the Year Ended December 31, 2014
Unless otherwise stated, all amounts discussed below are net of income tax.
Foreign Currency. The impact of changes in foreign currency exchange rates decreased operating earnings by $111 million for 2015
compared to 2014 mainly due to the weakening of the peso against the U.S. dollar, which included the impact of changes in foreign currency
exchange rates related to the one-time tax charge resulting from tax reform in Chile, as discussed further below.
Business Growth. Total sales for the region decreased primarily due to the impact of a large contract in Mexico in 2014. Excluding this
large contract, sales increased due to organic growth in several countries, as well as in our U.S. direct business but the resulting increase in
premiums was partially offset by related changes in policyholder benefits. An increase in average invested assets, primarily in Chile and Mexico,
generated higher net investment income. Growth in our businesses resulted in higher policy fee income, as well as increased marketing costs
and commissions, which were partially offset by increased DAC capitalization. The items discussed above were the primary drivers of a $133 million
increase in operating earnings.
Market Factors. The net impact of changes in market factors resulted in an $83 million decrease in operating earnings, driven by lower
investment yields and higher interest credited expense. Investment yields decreased on fixed income securities in Chile and Mexico and we
experienced lower investment returns on alternative investments in Chile.
Underwriting and Other Insurance Adjustments. Unfavorable claims experience in several countries decreased operating earnings by $16
million. Refinements to DAC and other adjustments recorded in both 2015 and 2014 resulted in a $14 million increase in operating earnings.
Expenses and Taxes. Effective September 1, 2015, ProVida was merged into MetLife Chile Acquisition Company resulting in a one-time
income tax benefit of $60 million in 2015. In the third quarter of 2014, our Chilean businesses, including ProVida, incurred a one-time tax charge
of $41 million ($33 million after adjusting for foreign currency fluctuations) as a result of tax reform in Chile. Other tax-related adjustments in both
2015 and 2014 decreased operating earnings by $18 million. These tax-related adjustments include tax charges related to inflation in Chile and
Mexico, as well as a 2014 refund claim in Argentina, partially offset by a benefit resulting from the devaluation of the peso in Argentina in both
2015 and 2014. In addition, employee-related costs, which include inflation, were higher across several countries, resulting in an $8 million
decrease in operating earnings.
Year Ended December 31, 2014 Compared with the Year Ended December 31, 2013
Unless otherwise stated, all amounts discussed below are net of income tax.
A tax reform bill was enacted in Chile on September 29, 2014 which includes, among other things, a gradual increase in the corporate tax
rate. Our Chilean businesses, including ProVida, incurred a one-time tax charge of $41 million as a result of this legislation. Excluding the
aforementioned tax reform, our operating earnings increased by $166 million in 2014 due to the fourth quarter 2013 acquisition of ProVida.
Foreign Currency. The impact of changes in foreign currency exchange rates decreased operating earnings by $57 million compared to
2013.
MetLife, Inc.
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Business Growth. Latin America experienced organic growth and increased sales of life products in several countries, as well as in our U.S.
sponsored direct business. This was partially offset by decreased pension and accident & health sales in Mexico and Brazil. The resulting increase
in premiums was partially offset by related changes in policyholder benefits. Growth in our businesses and the impact of inflation drove an increase
in average invested assets, which generated higher net investment income and higher policy fee income, partially offset by a corresponding
increase in interest credited on certain insurance liabilities and the impact of changes in allocated equity. Increases in marketing costs and
commissions resulted in higher operating expenses. Business growth also drove an increase in DAC amortization. The items discussed above
were the primary drivers of a $94 million increase in operating earnings.
Market Factors. The net impact of changes in market factors resulted in a $25 million decrease in operating earnings. This decrease was
primarily driven by higher interest credited expense, the unfavorable impact of inflation, and lower yields from alternative investments and mortgage
loans in Chile, partially offset by higher investment yields on fixed income securities in Chile and Brazil.
Underwriting, Actuarial Assumption Review and Other Insurance Adjustments. Unfavorable claims experience, primarily due to increased
claims severity and frequency in Mexico, Chile and Brazil, decreased operating earnings by $32 million. The impact of the 2013 annual assumption
review resulted in an operating earnings decrease of $7 million. In addition to our annual updates, other refinements to DAC and other adjustments
recorded in both 2014 and 2013 resulted in a $13 million decrease in operating earnings.
Expenses and Taxes. Tax-related adjustments in both 2014 and 2013 increased operating earnings by $45 million, excluding the
aforementioned tax reform. These tax-related adjustments include 2014 tax benefits related to the devaluation of the peso in Argentina, inflation
in Argentina and Chile, and a 2013 tax rate change in Mexico. These increases were partially offset by higher expenses, primarily generated by
employee- and information technology-related costs across several countries, which decreased operating earnings by $23 million.
Asia
Business Overview. Sales decreased slightly compared to 2014 due to lower group sales in Australia. This was partially offset by growth in
our ordinary life and accident & health businesses in Japan.
Operating revenues
Premiums
Universal life and investment-type product policy fees
Net investment income
Other revenues
Total operating revenues
Operating expenses
Policyholder benefits and claims and policyholder dividends
Interest credited to policyholder account balances
Capitalization of DAC
Amortization of DAC and VOBA
Amortization of negative VOBA
Other expenses
Total operating expenses
Provision for income tax expense (benefit)
Operating earnings
Years Ended December 31,
2015
2014
(In millions)
2013
$
6,937
$
7,566
$
1,542
2,675
105
11,259
5,275
1,309
(1,720)
1,256
(309)
3,611
9,422
457
1,693
2,886
106
12,251
5,724
1,544
(1,914)
1,397
(364)
3,975
10,362
582
$
1,380
$
1,307
$
7,801
1,722
2,943
92
12,558
5,755
1,690
(2,143)
1,542
(427)
4,317
10,734
565
1,259
Year Ended December 31, 2015 Compared with the Year Ended December 31, 2014
Unless otherwise stated, all amounts discussed below are net of income tax.
Foreign Currency. The impact of changes in foreign currency exchange rates reduced operating earnings by $126 million for 2015 compared
to 2014 as a result of the weakening of the yen against the U.S. dollar. This resulted in significant variances in the financial statement line items.
Business Growth. Asia’s premiums, fees and other revenues increased over the prior year driven by broad based in-force growth across
the region, including growth in our ordinary life and accident & health businesses in Japan and Korea, as well as our group insurance business
in Australia. Changes in premiums for these businesses were partially offset by related changes in policyholder benefits. During the period,
surrenders of foreign currency-denominated fixed annuity products in Japan also contributed to higher fee income. The impact of these surrenders,
partially offset by positive net flows in Korea, Bangladesh and India, resulted in lower average invested assets and a decrease in net investment
income. In addition, a decrease in interest credited expenses was partially offset by increases in amortization of DAC and VOBA, commissions
and variable expenses (net of DAC capitalization), primarily related to the establishment of an agency channel in Hong Kong. The combined
impact of the items discussed above improved operating earnings by $61 million.
Market Factors. Investment returns were positively impacted by higher net investment income resulting from the recovery of a previously
impaired mortgage loan in Japan, improved operating results from our China joint venture and higher interest rates on fixed maturity securities
in Bangladesh. These improved investment returns were partially offset by the impact of lower interest rates on fixed maturity securities in Korea
and the impact in Japan of continued growth of lower yielding Japanese government securities. The decrease in returns from Japanese government
36
MetLife, Inc.
Table of Contents
securities was offset by the favorable impact of increased foreign currency-denominated fixed annuities in Japan driving an increase in higher
yielding foreign currency-denominated fixed maturity securities. Higher investment yields, combined with the impact of foreign currency hedges,
increased operating earnings by $38 million.
Underwriting and Actuarial Assumption Review. Favorable claims experience, primarily in Japan resulted in a $15 million increase in operating
earnings. In addition, on an annual basis, we review and update our long-term assumptions used in our calculations of certain insurance-related
liabilities and DAC. This annual update resulted in a net operating earnings increase of $22 million.
Expenses and Taxes. Higher expenses, primarily driven by costs associated with corporate initiatives and projects, reduced operating
earnings by $32 million. Our 2015 results include one-time tax benefits of $61 million related to a change in tax rates, $12 million for the settlement
of an audit and $15 million related to the U.S. taxation of dividends, each related to Japan. In addition, in 2015, Korea received a tax refund of
$6 million related to unclaimed surrender value. Our 2014 results include one-time tax benefits of $9 million related to the U.S. taxation of dividends
and $4 million resulting from a tax rate change, each related to Japan.
Year Ended December 31, 2014 Compared with the Year Ended December 31, 2013
Unless otherwise stated, all amounts discussed below are net of income tax.
Foreign Currency. The impact of changes in foreign currency exchange rates reduced operating earnings by $52 million for 2014 as compared
with 2013 and resulted in significant variances in the financial statement line items. For example, while premiums, fees and other revenues
decreased 3% on a reported basis, they increased 3% on a constant currency basis.
Business Growth. Asia’s premiums, fees and other revenues increased over 2013 primarily driven by broad based in-force growth across
the region, including in our ordinary life business in Japan and our group insurance business in Australia. Positive net flows in Korea and Japan,
combined with growth in our life business in India and Bangladesh, resulted in higher average invested assets and generated an increase in net
investment income. Changes in premiums for these businesses were offset by related changes in policyholder benefits. The combined impact
of the items discussed above improved operating earnings by $90 million.
Market Factors. Investment returns were negatively affected by the adverse impact of the sustained low interest rate environment on
mortgage loans and an increase in lower yielding Japanese government securities, combined with lower returns on our other limited partnership
interests and decreased prepayment fee income. These declines in yields were partially offset by the favorable impact of increased sales of
foreign currency-denominated fixed annuities resulting in an increase in higher yielding foreign currency-denominated fixed maturity securities in
Japan. Declines in yields, combined with the impact of foreign currency hedges, resulted in a $46 million decrease in operating earnings.
Underwriting and Other Insurance Adjustments. Our 2013 results include a strengthening of group and permanent disability claim reserves
of $57 million, net of reinsurance, in Australia. In addition, refinements to DAC and certain insurance-related liabilities that were recorded in 2014
and 2013 resulted in a $14 million increase in operating earnings. Our 2014 results for Korea decreased $5 million as a result of unfavorable
claims experience, primarily in our life business, and regulatory changes.
Taxes. Our 2014 results include a $9 million tax benefit related to U.S. taxation of dividends from Japan and a $4 million tax benefit resulting
from a tax rate change in Japan. Our 2013 results include a $17 million tax benefit in Japan related to the estimated reversal of temporary
differences and a one-time tax benefit of $10 million related to the disposal of our interest in a Korean asset management company at the
beginning of 2013.
MetLife, Inc.
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Table of Contents
EMEA
Business Overview. Sales have increased slightly as 2015 sales growth in Turkey, Italy and Poland was offset by strong 2014 sales in the Gulf.
Operating revenues
Premiums
Universal life and investment-type product policy fees
Net investment income
Other revenues
Total operating revenues
Operating expenses
Policyholder benefits and claims and policyholder dividends
Interest credited to policyholder account balances
Capitalization of DAC
Amortization of DAC and VOBA
Amortization of negative VOBA
Interest expense on debt
Other expenses
Total operating expenses
Provision for income tax expense (benefit)
Operating earnings
Years Ended December 31,
2015
2014
(In millions)
2013
$
2,036
$
2,309
$
2,297
424
326
61
2,847
988
120
(472)
497
(16)
—
1,469
2,586
21
466
428
60
3,263
1,053
148
(680)
613
(31)
—
1,846
2,949
29
$
240
$
285
$
386
425
97
3,205
1,039
147
(714)
683
(95)
1
1,812
2,873
51
281
Year Ended December 31, 2015 Compared with the Year Ended December 31, 2014
Unless otherwise stated, all amounts discussed below are net of income tax.
Foreign Currency. The impact of changes in foreign currency exchange rates reduced operating earnings by $66 million for 2015 as
compared to 2014, primarily driven by the strengthening of the U.S. dollar against the euro, Russian ruble and Polish zloty.
Business Growth. Operating earnings benefited from growth in the Middle East, primarily in the Gulf and Turkey, as well as growth in the
U.K., increasing operating earnings by $30 million.
Actuarial Assumption Review. On an annual basis, we review and update our long-term assumptions used in our calculations of certain
insurance-related liabilities and DAC. These annual updates, which occurred in both 2015 and 2014, resulted in a net operating earnings decrease
of $4 million. In addition, operating earnings increased by $5 million due to a 2014 refinement of DAC in the U.K.
Taxes and Other. The Company had a number of one-time items in both 2015 and 2014, including tax benefits, the conversion of certain
of our subsidiaries to calendar year reporting, as well as re-branding and legal expenses. The combined impact of these items decreased
operating earnings by $3 million. In addition, our 2014 results included a $7 million one-time benefit related to pension reform in Poland.
Year Ended December 31, 2014 Compared with the Year Ended December 31, 2013
Unless otherwise stated, all amounts discussed below are net of income tax.
Foreign Currency. The impact of changes in foreign currency exchange rates reduced operating earnings by $18 million for 2014 as compared
to 2013.
Business Growth. An increase in sales over 2013, primarily in the Middle East and central, eastern and southern Europe, was partially offset
by the impact of regulatory changes in the U.K. Net investment income increased, driven by an increase in average invested assets from business
growth in Egypt, the Persian Gulf and Russia, in addition to a slight increase in yields from the lengthening of the Ireland and Greece shorter-
term portfolios into higher yielding longer duration fixed maturity securities. This was partially offset by the impact of changes in allocated equity.
Our 2014 results also included certain legal and re-branding expenses, as well as higher corporate overhead expenses, while operating earnings
benefited as a result of a review of certain tax liabilities. The combined impact of the items discussed above decreased operating earnings by
$16 million.
Actuarial Assumption Review and Other Insurance Adjustments. The combined impact of the 2014 and 2013 annual assumption updates
resulted in a net operating earnings increase of $6 million for 2014 as compared to 2013. The amortization, or release, of negative VOBA
associated with the conversion of certain policies generally results in an increase in operating earnings. In 2014, the number of policies converted
declined and so, relative to 2013, this reduced operating earnings by $11 million. A refinement in DAC in the U.K. resulted in a $5 million decrease
to operating earnings and liability refinements in 2013 in Greece decreased operating earnings by $4 million.
Taxes and Other. Our 2013 results were negatively impacted as a result of a $30 million tax charge related to the write-off of a U.K. tax loss
carryforward and by a $26 million write-down of DAC and VOBA related to pension reform in Poland. The Company received tax benefits in both
years following its decision to permanently reinvest certain foreign earnings outside of the U.S., however, since the 2013 benefit was larger,
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MetLife, Inc.
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operating earnings decreased by $18 million. In addition, our 2013 results benefited by $4 million due to a change in the local corporate tax rate
in Greece. In 2014, we converted to calendar year reporting for certain of our subsidiaries, which resulted in a $17 million increase to operating
earnings.
Corporate & Other
Operating revenues
Premiums
Universal life and investment-type product policy fees
$
Net investment income
Other revenues
Total operating revenues
Operating expenses
Policyholder benefits and claims and policyholder dividends
Interest credited to policyholder account balances
Capitalization of DAC
Interest expense on debt
Other expenses
Total operating expenses
Provision for income tax expense (benefit)
Operating earnings
Less: Preferred stock dividends
Years Ended December 31,
2015
2014
(In millions)
2013
79
99
319
86
583
65
23
(1)
1,198
990
2,275
(353)
(1,339)
116
$
81
$
127
509
67
784
61
34
—
1,167
849
2,111
(697)
(630)
122
Operating earnings available to common shareholders
$
(1,455) $
(752) $
The table below presents operating earnings available to common shareholders by source net of income tax:
Other business activities
Other net investment income
Interest expense on debt
Preferred stock dividends
Acquisition costs
Corporate initiatives and projects
Incremental tax benefit (expense)
Other
Years Ended December 31,
2015
2014
(In millions)
2013
$
39
$
80
$
215
(779)
(116)
—
(194)
(239)
(381)
337
(759)
(122)
(5)
(183)
232
(332)
Operating earnings available to common shareholders
$
(1,455) $
(752) $
70
139
746
28
983
30
42
—
1,148
784
2,004
(609)
(412)
122
(534)
102
485
(747)
(122)
(18)
(134)
251
(351)
(534)
Year Ended December 31, 2015 Compared with the Year Ended December 31, 2014
Unless otherwise stated, all amounts discussed below are net of income tax.
Other Business Activities. Operating earnings from other business activities decreased $41 million. This was primarily due to lower operating
earnings from start-up operations and from the assumed reinsurance from our former operating joint venture in Japan, reflecting lower fund
returns, a reduction in in-force due to surrenders and unfavorable foreign currency impacts.
Other Net Investment Income. A $122 million decrease in other net investment income was driven by an increase in the amount credited
to the segments due to growth in the economic capital managed by Corporate & Other on their behalf. This decrease was also impacted by the
sustained low interest rate environment, which drove lower investment yields on fixed maturity securities and mortgage loans, as well as lower
returns on alternative investments. This was partially offset by increased income from higher average invested assets and improved returns on
real estate investments.
Interest Expense on Debt. Interest expense on debt increased by $20 million, mainly due to the issuance of $1.5 billion of senior notes in
March 2015 and $1.25 billion of senior notes in November 2015.
MetLife, Inc.
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Corporate Initiatives and Projects. Expenses associated with corporate initiatives and projects increased by $11 million, primarily due to
increased costs associated with enterprise-wide initiatives taken by the Company.
Incremental Tax Benefit (Expense). Corporate & Other benefits from the impact of certain permanent tax differences, including non-taxable
investment income and tax credits for investments in low income housing. As a result, our effective tax rate differs from the U.S. statutory rate
of 35%. Our 2015 results include the aforementioned tax charge of $557 million, which was recorded under accounting guidance for the
recognition of tax uncertainties. Our 2014 results include an $18 million tax charge related to a portion of the settlement of a licensing matter
that was not deductible for income tax purposes. In addition, in 2015, we had higher utilization of tax preferenced investments, a benefit related
to the timing of certain tax credits and other tax benefits which increased our operating earnings by $68 million over 2014.
Other. Our 2015 results include the aforementioned charge of $235 million for interest on uncertain tax positions, as well as a $20 million
charge associated with company use real estate. These increases in expenses were partially offset by a $21 million one-time tax refund received
for a favorable outcome on prior year tax audits and a decrease in employee-related costs of $28 million from 2014. Our results for 2014 include
a $117 million accrual to increase the litigation reserve related to asbestos and charges totaling $57 million related to the settlement of a licensing
matter with the Department of Financial Services and the District Attorney, New York County. This was partially offset by an $18 million increase
in operating earnings in 2014 resulting from net adjustments to certain reinsurance assets and liabilities.
Year Ended December 31, 2014 Compared with the Year Ended December 31, 2013
Unless otherwise stated, all amounts discussed below are net of income tax.
Other Business Activities. Operating earnings from other business activities decreased by $22 million. Lower operating earnings from the
assumed reinsurance from our former operating joint venture in Japan, primarily due to lower returns in 2014, were partially offset by higher
operating earnings from start-up operations.
Other Net Investment Income. Other net investment income decreased by $148 million. This decrease was driven by an increase in the
amount credited to the segments on economic capital managed by Corporate & Other on their behalf, the adverse impact of the sustained low
interest rate environment on yields from our fixed maturity securities and lower returns on real estate investments. These decreases were partially
offset by improved returns on other limited partnership interests and higher mark-to-market income on residential mortgage loans carried at fair
value.
Interest Expense on Debt. Interest expense on debt increased by $12 million, mainly due to the issuance of $1.0 billion of senior notes in
April 2014 and the recognition of issuance costs related to the early redemption of senior notes in May 2014.
Acquisition Costs. Acquisition costs decreased by $13 million due to lower internal resource costs for associates committed to certain
acquisition activities.
Corporate Initiatives and Projects. Expenses related to corporate initiatives and projects increased by $49 million, primarily due to higher
relocation costs, severance and consulting expenses. These expenses include a $16 million decrease in restructuring charges, the majority of
which related to severance.
Incremental Tax Benefit. The tax benefit in 2014 included a tax benefit of $16 million related to the timing of certain tax credits. In addition,
we incurred a tax charge of $6 million in 2014 and received a tax benefit of $10 million in 2013 related to the filing of the Company’s U.S. federal
tax returns. Our results for 2014 also included an $18 million tax charge related to a portion of the aforementioned settlement of a licensing
matter that was not deductible for income tax purposes.
Other. Our results for 2014 include charges totaling $57 million related to the settlement of a licensing matter with the Department of
Financial Services and the District Attorney, New York County. In addition, we increased our litigation reserves related to asbestos more in 2014
than in 2013 resulting in a $16 million decline in operating earnings. This was partially offset by a $53 million decline in expenses which included
decreases in interest on uncertain tax positions, lower corporate overhead expenses and an adjustment on certain reinsurance assets and
liabilities. In addition, declines in employee-related costs and lower software amortization totaling $15 million, improved operating earnings.
Effects of Inflation
Management believes that inflation has not had a material effect on the Company’s consolidated results of operations, except insofar as inflation
may affect interest rates.
An increase in inflation could affect our business in several ways. During inflationary periods, the value of fixed income investments falls which
could increase realized and unrealized losses. Inflation also increases expenses for labor and other materials, potentially putting pressure on profitability
if such costs cannot be passed through in our product prices. Inflation could also lead to increased costs for losses and loss adjustment expenses
in certain of our businesses, which could require us to adjust our pricing to reflect our expectations for future inflation. Prolonged and elevated inflation
could adversely affect the financial markets and the economy generally, and dispelling it may require governments to pursue a restrictive fiscal and
monetary policy, which could constrain overall economic activity, inhibit revenue growth and reduce the number of attractive investment opportunities.
Investments
Investment Risks
Our primary investment objective is to optimize, net of income tax, risk-adjusted investment income and risk-adjusted total return while ensuring
that assets and liabilities are managed on a cash flow and duration basis. The Investments Department, led by the Chief Investment Officer, manages
investment risks using a risk control framework comprised of policies, procedures and limits, as discussed further below. The Investments Risk
Committee, chaired by the Global Risk Management Department (“GRM”), reviews and monitors investment risk limits and tolerances. We are exposed
to the following primary sources of investment risks:
•
credit risk, relating to the uncertainty associated with the continued ability of a given obligor to make timely payments of principal and
interest;
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•
interest rate risk, relating to the market price and cash flow variability associated with changes in market interest rates. Changes in market
interest rates will impact the net unrealized gain or loss position of our fixed income investment portfolio and the rates of return we receive
on both new funds invested and reinvestment of existing funds;
•
liquidity risk, relating to the diminished ability to sell certain investments, in times of strained market conditions;
• market valuation risk, relating to the variability in the estimated fair value of investments associated with changes in market factors such as
credit spreads. A widening of credit spreads will adversely impact the net unrealized gain (loss) position of the fixed income investment
portfolio, will increase losses associated with credit-based non-qualifying derivatives where we assume credit exposure, and, if credit
spreads widen significantly or for an extended period of time, will likely result in higher OTTI. Credit spread tightening will reduce net
investment income associated with purchases of fixed maturity securities and will favorably impact the net unrealized gain (loss) position
of the fixed income investment portfolio;
•
•
currency risk, relating to the variability in currency exchange rates for foreign denominated investments. This risk relates to potential decreases
in estimated fair value and net investment income resulting from changes in currency exchange rates versus the U.S. dollar. In general, the
weakening of foreign currencies versus the U.S. dollar will adversely affect the estimated fair value of our foreign denominated investments;
and
real estate risk, relating to commercial, agricultural and residential real estate, and stemming from factors, which include, but are not limited
to, market conditions, including the demand and supply of leasable commercial space, creditworthiness of tenants and partners, capital
markets volatility and the inherent interest rate movement.
We manage investment risk through in-house fundamental credit analysis of the underlying obligors, issuers, transaction structures and real
estate properties. We also manage credit risk, market valuation risk and liquidity risk through industry and issuer diversification and asset allocation.
Risk limits to promote diversification by asset sector, avoid concentrations in any single issuer and limit overall aggregate credit exposure as measured
by our economic capital framework are approved annually by a committee of directors that oversees our investment portfolio. For real estate assets,
we manage credit risk and market valuation risk through geographic, property type and product type diversification and asset allocation. We manage
interest rate risk as part of our ALM strategies. These strategies include maintaining an investment portfolio with diversified maturities that has a
weighted average duration that is approximately equal to the duration of our estimated liability cash flow profile, and utilizing product design, such as
the use of market value adjustment features and surrender charges, to manage interest rate risk. We also manage interest rate risk through proactive
monitoring and management of certain non-guaranteed elements of our products, such as the resetting of credited interest and dividend rates for
policies that permit such adjustments. In addition to hedging with foreign currency derivatives, we manage currency risk by matching much of our
foreign currency liabilities in our foreign subsidiaries with their respective foreign currency assets, thereby reducing our risk to foreign currency exchange
rate fluctuation. We also use certain derivatives in the management of credit, interest rate, and equity market risks.
We use purchased credit default swaps to mitigate credit risk in our investment portfolio. Generally, we purchase credit protection by entering
into credit default swaps referencing the issuers of specific assets we own. In certain cases, basis risk exists between these credit default swaps and
the specific assets we own. For example, we may purchase credit protection on a macro basis to reduce exposure to specific industries or other
portfolio concentrations. In such instances, the referenced entities and obligations under the credit default swaps may not be identical to the individual
obligors or securities in our investment portfolio. In addition, our purchased credit default swaps may have shorter tenors than the underlying investments
they are hedging. However, we dynamically hedge this risk through the rebalancing and rollover of our credit default swaps at their most liquid tenors.
We believe that our purchased credit default swaps serve as effective economic hedges of our credit exposure.
We generally enter into market standard purchased and written credit default swap contracts. Payout under such contracts is triggered by certain
credit events experienced by the referenced entities. For credit default swaps covering North American corporate issuers, credit events typically include
bankruptcy and failure to pay on borrowed money. For European corporate issuers, credit events typically also include involuntary restructuring. With
respect to credit default contracts on Western European sovereign debt, credit events typically include failure to pay debt obligations, repudiation,
moratorium, or involuntary restructuring. In each case, payout on a credit default swap is triggered only after the Credit Derivatives Determinations
Committee of the International Swaps and Derivatives Association deems that a credit event has occurred.
Current Environment
The global economy and markets continue to be affected by stress and volatility, which has adversely affected the financial services sector, in
particular, and global capital markets. Recently, weakness in the energy and metals and mining sectors and political and/or economic instability of
countries and regions outside the EU, including China, Ukraine, Russia, Argentina, Brazil, Japan, the Middle East and Puerto Rico, as well as Europe’s
perimeter region and Cyprus, have contributed to global market volatility. As a global insurance company, we are affected by the monetary policy of
central banks around the world. See “— Industry Trends — Financial and Economic Environment” for information on actions taken by the ECB and
Bank of Japan in recent years to support economic recovery. See also “— Industry Trends — Impact of a Sustained Low Interest Rate Environment”
for information regarding the December 2015 action taken by the FOMC to raise the federal funds rate and its January 2016 determination to maintain
it. The Federal Reserve may take further actions to influence interest rates in the future, which may have an impact on the pricing levels of risk-bearing
investments and may adversely impact the level of product sales.
European Region Investments
Excluding Europe’s perimeter region and Cyprus which are discussed below, our holdings of sovereign debt, corporate debt and perpetual
hybrid securities in certain EU member states and other countries in the region that are not members of the EU (collectively, the “European Region”)
were concentrated in the U.K., Germany, France, the Netherlands, Poland, Norway and Sweden. The sovereign debt of these countries continues
to maintain investment grade credit ratings from all major rating agencies. We maintain general account investments in the European Region to
support our insurance operations and related policyholder liabilities in these countries and certain of our non-European Region operations invest
in the region for diversification. In the European Region, we have proactively mitigated risk in both direct and indirect exposures by investing in a
diversified portfolio of high quality investments with a focus on the higher-rated countries. Sovereign debt issued by countries outside of Europe’s
perimeter region and Cyprus comprised $6.8 billion, or 98%, of our European Region sovereign fixed maturity securities, at estimated fair value,
at December 31, 2015. The European Region corporate securities (fixed maturity and perpetual hybrid securities classified as non-redeemable
preferred stock) are invested in a diversified portfolio of primarily non-financial services securities, which comprised $20.8 billion, or 70%, of European
Region total corporate securities, at estimated fair value, at December 31, 2015. Of these European Region sovereign fixed maturity and corporate
MetLife, Inc.
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securities, 92% were investment grade and, for the 8% that were below investment grade, the majority were non-financial services corporate
securities at December 31, 2015. European Region financial services corporate securities, at estimated fair value, were $9.0 billion (including $6.4
billion within the banking sector) with 95% invested in investment grade rated corporate securities, at December 31, 2015.
Selected Country and Sector Investments
In recent years, elevated levels of market volatility have affected the performance of various asset classes. Contributing factors include concerns
about global economic conditions and capital markets; lower oil prices impacting the energy sector; lower commodity prices impacting the metals
and mining sector; country specific volatility due to local economic and/or political concerns, including concerns over the solvency of the EU member
states included in Europe’s perimeter region and Cyprus, their banking systems and the financial institutions that have significant direct or indirect
exposure to debt issued by these countries or their respective banking systems. While economic conditions in certain of these countries, including
Europe’s perimeter region, seem to be stabilizing or improving, greater ECB and International Monetary Fund support, stronger liquidity facilities
and gradually improving macroeconomic conditions at the country level have reduced the risk of default on sovereign debt and/or the risk of possible
withdrawal of such countries from the Euro zone. See “— Industry Trends — Financial and Economic Environment.”
The following table presents, by country, a summary of fixed maturity securities in selected countries. We maintain general account investments
in the selected countries to support our insurance operations and related policyholder liabilities in these countries or we have exposure through
our global portfolio diversification. The Company has written credit default swaps where the underlying is an index comprised of companies across
various sectors in the European Region. At December 31, 2015, the written credit default swaps exposure to Europe’s perimeter region and Cyprus
was $209 million in notional amount and $2 million in estimated fair value. The information below is presented on a country of risk basis (e.g. the
country where the issuer primarily conducts business).
Europe’s perimeter region:
Spain
Italy
Ireland
Greece
Portugal
Total Europe’s perimeter region
Brazil
Argentina
Russia
Puerto Rico (2)
Cyprus
Ukraine
Total
Investment grade %
______________
Selected Country Fixed Maturity Securities at December 31, 2015
Sovereign
Financial
Services
Non-Financial
Services
Total (1)
(In millions)
$
$
55
52
6
—
—
113
315
367
345
14
35
2
$
225
177
27
2
—
431
87
1
6
—
4
—
$
467
431
85
—
1
984
619
107
31
114
—
—
747
660
118
2
1
1,528
1,021
475
382
128
39
2
$
1,191
$
529
$
1,855
$
3,575
45%
89%
61%
60%
(1)
(2)
The par value and amortized cost of the fixed maturity securities were $3.4 billion and $3.5 billion, respectively, at December 31, 2015.
Our exposure to Puerto Rico sovereigns is in the form of political subdivision fixed maturities and is composed completely of revenue bonds.
We have no Puerto Rico general obligation bonds.
There has been an increased focus on energy sector investments and metals and mining sector investments as a result of lower energy, oil
and commodity prices. Our net exposure to energy sector fixed maturity securities was $12.0 billion (comprised of fixed maturity securities of
$11.9 billion at estimated fair value and related net written credit default swaps of $60 million at notional value), of which 86% were investment
grade, with unrealized losses of $222 million at December 31, 2015. Our net exposure to metals and mining sector fixed maturity securities was
$2.1 billion (comprised of fixed maturity securities of $2.1 billion at estimated fair value and related net written credit default swaps of $13 million
at notional value), of which 82% were investment grade, with unrealized losses of $206 million at December 31, 2015.
We manage direct and indirect investment exposure in the selected countries, the energy sector and the metals and mining sector through
fundamental credit analysis and we continually monitor and adjust our level of investment exposure. We do not expect that our general account
investments in these countries, the energy sector or the metals and mining sector will have a material adverse effect on our results of operations
or financial condition.
Current Environment Summary
All of these factors have had and could continue to have an adverse effect on the financial results of companies in the financial services
industry, including MetLife. Such global economic conditions, as well as the global financial markets, continue to impact our net investment income,
net investment gains (losses), net derivative gains (losses), level of unrealized gains (losses) within the various asset classes in our investment
portfolio, and our level of investment in lower yielding cash equivalents, short-term investments and government securities. See “— Industry Trends”
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MetLife, Inc.
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included elsewhere herein and “Risk Factors — Economic Environment and Capital Markets-Related Risks — We Are Exposed to Significant Global
Financial and Capital Markets Risks Which May Adversely Affect Our Results of Operations, Financial Condition and Liquidity, and May Cause Our
Net Investment Income to Vary from Period to Period” in the 2015 Form 10-K.
Investment Portfolio Results
The following yield table presents the yield and investment income (loss) for our investment portfolio for the periods indicated. As described
in the footnotes below, this table reflects certain differences from the presentation of net investment income presented in the GAAP consolidated
statements of operations. This yield table presentation is consistent with how we measure our investment performance for management purposes,
and we believe it enhances understanding of our investment portfolio results.
For the Years Ended December 31,
2015
2014
2013
Yield% (1)
Amount
Yield% (1)
Amount
Yield% (1)
Amount
(In millions)
(In millions)
(In millions)
4.63 % $
14,201
4.81 % $
14,946
4.84 % $
15,098
4.97 %
4.89 %
5.23 %
4.71 %
8.45 %
1.04 %
4.85 %
(0.15)
3,135
488
603
144
669
129
1,053
20,422
5.15 %
3.67 %
5.36 %
4.30 %
2,928
376
629
133
13.01 %
1,033
1.07 %
161
906
5.58 %
3.44 %
5.26 %
4.44 %
13.35 %
0.98 %
3,020
347
620
127
955
168
819
5.01 %
21,112
5.03 %
21,154
(633)
(0.13)
(556)
(0.13)
(563)
4.70 %
19,789
4.88 %
20,556
4.90 %
20,591
—
$
19,789
(72)
$
20,484
(197)
$
20,394
Fixed maturity securities (2) (3)
Mortgage loans (3)
Real estate and real estate joint ventures
Policy loans
Equity securities
Other limited partnerships
Cash and short-term investments
Other invested assets
Total before investment fees and expenses
Investment fees and expenses
Net investment income including divested
businesses (4)
Less: net investment income from divested businesses (4)
Net investment income (5)
______________
(1)
(2)
(3)
(4)
Yields are calculated as investment income as a percent of average quarterly asset carrying values. Investment income excludes recognized
gains and losses and reflects GAAP adjustments presented in footnote (5) below. Asset carrying values exclude unrealized gains (losses),
collateral received in connection with our securities lending program, freestanding derivative assets, collateral received from derivative
counterparties, the effects of consolidating certain variable interest entities (“VIEs”) under GAAP that are treated as consolidated securitization
entities (“CSEs”) and contractholder-directed unit-linked investments. A yield is not presented for other invested assets as it is not considered
a meaningful measure of performance for this asset class.
Investment income (loss) includes amounts for FVO and trading securities of $21 million, $103 million and $65 million for the years ended
December 31, 2015, 2014 and 2013, respectively.
Investment income from fixed maturity securities and mortgage loans includes prepayment fees.
Yield calculations include the net investment income and ending carrying values of the divested businesses. The net investment income
adjustment for divested businesses for the years ended December 31, 2014 and 2013 was $72 million and $197 million, respectively. Net
investment income included in yield calculations include earned income on derivatives and amortization of premium on derivatives that are
hedges of investments or that are used to replicate certain investments, but do not qualify for hedge accounting (“investment hedge
adjustments”). Investment hedge adjustments are a reclassification adjustment to net investment income presented in the yield table to the
most directly comparable GAAP measure as presented below. The investment hedge adjustments presented below exclude cash settlements
of $1 million and $10 million for the years ended December 31, 2014, and 2013, respectively. There were no net investment income adjustments
for divested businesses or excluded scheduled periodic settlement payments on derivatives for the year ended December 31, 2015.
(5)
Net investment income presented in the yield table varies from the most directly comparable GAAP measure due to certain reclassifications
and adjustments and excludes the effects of consolidating certain VIEs under GAAP that are treated as CSEs and contractholder-directed
unit-linked investments. Such reclassifications and adjustments are presented in the table below.
MetLife, Inc.
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Years Ended December 31,
2015
2014
2013
(In millions)
Net investment income — in the above yield table
$
19,789
$
20,484
$
20,394
Real estate discontinued operations
Investment hedge adjustments
Operating joint venture adjustments
Contractholder-directed unit-linked investments
Divested businesses
Incremental net investment income from CSEs
—
(776)
(4)
264
—
8
(1)
(705)
(1)
1,266
72
38
(9)
(643)
(2)
2,172
197
123
Net investment income — GAAP consolidated statements of operations
$
19,281
$
21,153
$
22,232
See “— Results of Operations — Consolidated Results — Year Ended December 31, 2015 Compared with the Year Ended December 31,
2014” and “— Results of Operations — Consolidated Results —Year Ended December 31, 2014 Compared with the Year Ended December 31,
2013,” for an analysis of the year over year changes in net investment income.
Fixed Maturity and Equity Securities AFS
The following table presents fixed maturity and equity securities AFS by type (public or private) and information about perpetual and redeemable
securities held at:
Fixed maturity securities
Publicly-traded
Privately-placed
Total fixed maturity securities
Percentage of cash and invested assets
Equity securities
Publicly-traded
Privately-held
Total equity securities
Percentage of cash and invested assets
Perpetual securities included within fixed maturity and equity securities AFS
Redeemable preferred stock with a stated maturity included within fixed
maturity securities AFS
December 31, 2015
December 31, 2014
Estimated Fair
Value
(In millions)
% of
Total
Estimated Fair
Value
(In millions)
% of
Total
$
$
$
$
$
$
302,400
49,002
86.1 % $
315,167
86.2 %
13.9
50,258
13.8
351,402
100.0 % $
365,425
100.0 %
69.1%
2,184
1,137
3,321
0.7%
819
1,216
65.8 % $
34.2
100.0 % $
$
$
70.7%
2,569
1,062
3,631
0.7%
1,009
1,265
70.8 %
29.2
100.0 %
Perpetual securities are included within fixed maturity and equity securities. Upon acquisition, we classify perpetual securities that have attributes
of both debt and equity as fixed maturity securities if the securities have an interest rate step-up feature which, when combined with other qualitative
factors, indicates that the securities have more debt-like characteristics; while those with more equity-like characteristics are classified as equity
securities. Many of such securities, commonly referred to as “perpetual hybrid securities,” have been issued by non-U.S. financial institutions that are
accorded the highest two capital treatment categories by their respective regulatory bodies (i.e. core capital, or “Tier 1 capital” and perpetual deferrable
securities, or “Upper Tier 2 capital”).
Redeemable preferred stock with a stated maturity is included within fixed maturity securities. These securities, which are commonly referred to
as “capital securities,” primarily have cumulative interest deferral features and are primarily issued by U.S. financial institutions.
In connection with our investment management business, we manage privately-placed and infrastructure fixed maturity securities on behalf of
institutional clients, which are unaffiliated investors. These privately-placed and infrastructure fixed maturity securities had an estimated fair value of
$6.1 billion and $4.1 billion at December 31, 2015 and 2014, respectively. These assets are not included in our consolidated financial statements.
Also in connection with our investment management business, we manage index investment portfolios that track the return of standard industry
fixed income and equity market indices such as the Barclay’s U.S. Aggregate Bond Index and S&P 500® Index. These assets had an estimated fair
value of $26.0 billion and $27.7 billion at December 31, 2015 and 2014, respectively, and are included within separate account assets in our consolidated
financial statements.
Valuation of Securities. We are responsible for the determination of the estimated fair value of our investments. We determine the estimated fair
value of publicly-traded securities after considering one of three primary sources of information: quoted market prices in active markets, independent
pricing services, or independent broker quotations. We determine the estimated fair value of privately-placed securities after considering one of three
primary sources of information: market standard internal matrix pricing, market standard internal discounted cash flow techniques, or independent
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MetLife, Inc.
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pricing services (after we determine the independent pricing services’ use of available observable market data). For publicly-traded securities, the
number of quotations obtained varies by instrument and depends on the liquidity of the particular instrument. Generally, we obtain prices from multiple
pricing services to cover all asset classes and obtain multiple prices for certain securities, but ultimately utilize the price with the highest placement
in the fair value hierarchy. Independent pricing services that value these instruments use market standard valuation methodologies based on data
about market transactions and inputs from multiple pricing sources that are market observable or can be derived principally from or corroborated by
observable market data. See Note 10 of the Notes to the Consolidated Financial Statements for a discussion of the types of market standard valuation
methodologies utilized and key assumptions and observable inputs used in applying these standard valuation methodologies. When a price is not
available in the active market or through an independent pricing service, management values the security primarily using market standard internal
matrix pricing or discounted cash flow techniques, and non-binding quotations from independent brokers who are knowledgeable about these
securities. Independent non-binding broker quotations utilize inputs that may be difficult to corroborate with observable market data. As shown in the
following section, less than 1% of our fixed maturity securities were valued using non-binding quotations from independent brokers at December 31,
2015.
Senior management, independent of the trading and investing functions, is responsible for the oversight of control systems and valuation policies,
including reviewing and approving new transaction types and markets, for ensuring that observable market prices and market-based parameters are
used for valuation, wherever possible, and for determining that valuation adjustments, when applied, are based upon established policies and are
applied consistently over time. See Note 10 of the Notes to the Consolidated Financial Statements for further information on our valuation controls
and procedures including our formal process to challenge any prices received from independent pricing services that are not considered representative
of estimated fair value.
We have reviewed the significance and observability of inputs used in the valuation methodologies to determine the appropriate fair value hierarchy
level for each of our securities. Based on the results of this review and investment class analysis, each instrument is categorized as Level 1, 2 or 3
based on the lowest level significant input to its valuation. See Note 10 of the Notes to the Consolidated Financial Statements for information regarding
the valuation techniques and inputs by level within the three level fair value hierarchy by major classes of invested assets.
Fair Value of Fixed Maturity and Equity Securities – AFS
Fixed maturity and equity securities AFS measured at estimated fair value on a recurring basis and their corresponding fair value pricing
sources are as follows:
December 31, 2015
Fixed Maturity
Securities
Equity
Securities
(In millions)
(In millions)
Level 1
Quoted prices in active markets for identical assets
$
37,660
10.7% $
1,274
38.3%
Level 2
Independent pricing sources
Internal matrix pricing or discounted cash flow techniques
Significant other observable inputs
Level 3
Independent pricing sources
Internal matrix pricing or discounted cash flow techniques
Independent broker quotations
Significant unobservable inputs
Total estimated fair value
258,271
34,657
292,928
7,122
12,273
1,419
20,814
73.5
9.9
83.4
2.0
3.5
0.4
5.9
1,470
145
1,615
308
109
15
432
$
351,402
100.0% $
3,321
44.3
4.4
48.7
9.3
3.3
0.4
13.0
100.0%
See Note 10 of the Notes to the Consolidated Financial Statements for the fixed maturity securities and equity securities AFS fair value hierarchy.
The composition of fair value pricing sources for and significant changes in Level 3 securities at December 31, 2015 are as follows:
•
•
•
The majority of the Level 3 fixed maturity and equity securities AFS were concentrated in four sectors: U.S. and foreign corporate securities,
residential mortgage-backed securities (“RMBS”), and asset-backed securities (“ABS”).
Level 3 fixed maturity securities are priced principally through market standard valuation methodologies, independent pricing services and,
to a much lesser extent, independent non-binding broker quotations using inputs that are not market observable or cannot be derived
principally from or corroborated by observable market data. Level 3 fixed maturity securities consist of less liquid securities with very limited
trading activity or where less price transparency exists around the inputs to the valuation methodologies. Level 3 fixed maturity securities
include: sub-prime RMBS; certain below investment grade private securities and less liquid investment grade corporate securities (included
in U.S. and foreign corporate securities); less liquid ABS and foreign government securities.
During the year ended December 31, 2015, Level 3 fixed maturity securities decreased by $1.3 billion, or 6%. The decrease was driven by
net transfers out of Level 3, partially offset by purchases in excess of sales and a decrease in estimated fair value recognized in other
comprehensive income (loss).
See Note 10 of the Notes to the Consolidated Financial Statements for a rollforward of the fair value measurements for fixed maturity securities
and equity securities AFS measured at estimated fair value on a recurring basis using significant unobservable (Level 3) inputs; transfers into and/
or out of Level 3; and further information about the valuation techniques and inputs by level by major classes of invested assets that affect the
amounts reported above.
MetLife, Inc.
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Fixed Maturity Securities AFS
See Notes 1 and 8 of the Notes to the Consolidated Financial Statements for information about fixed maturity securities AFS by sector,
contractual maturities and continuous gross unrealized losses.
Fixed Maturity Securities Credit Quality — Ratings
The Securities Valuation Office of the National Association of Insurance Commissioners (“NAIC”) evaluates the fixed maturity security investments
of insurers for regulatory reporting and capital assessment purposes and assigns securities to one of six credit quality categories called “NAIC
designations.” If no designation is available from the NAIC, then, as permitted by the NAIC, an internally developed designation is used. The NAIC
designations are generally similar to the credit quality ratings of the Nationally Recognized Statistical Rating Organizations (“NRSROs”) for fixed
maturity securities, except for certain structured securities as described below. Rating agency ratings are based on availability of applicable ratings
from rating agencies on the NAIC credit rating provider list, including Moody’s Investors Services (“Moody’s”), Standard & Poor’s Rating Services
(“S&P”), Fitch Ratings (“Fitch”), Dominion Bond Rating Service, A.M. Best Company, Kroll Bond Rating Agency, Egan Jones Ratings Company
and Morningstar, Inc. (“Morningstar”). If no rating is available from a rating agency, then an internally developed rating is used.
The NAIC has adopted revised methodologies for certain structured securities comprised of non-agency RMBS, commercial mortgage-
backed securities (“CMBS”) and ABS. The NAIC’s objective with the revised methodologies for these structured securities was to increase the
accuracy in assessing expected losses, and to use the improved assessment to determine a more appropriate capital requirement for such structured
securities. The revised methodologies reduce regulatory reliance on rating agencies and allow for greater regulatory input into the assumptions
used to estimate expected losses from structured securities. We apply the revised NAIC methodologies to structured securities held by MetLife,
Inc.’s insurance subsidiaries that maintain the NAIC statutory basis of accounting. The NAIC’s present methodology is to evaluate structured
securities held by insurers using the revised NAIC methodologies on an annual basis. If MetLife, Inc.’s insurance subsidiaries acquire structured
securities that have not been previously evaluated by the NAIC, but are expected to be evaluated by the NAIC in the upcoming annual review, an
internally developed designation is used until a final designation becomes available.
The following table presents total fixed maturity securities by NRSRO rating and the equivalent designations of the NAIC, except for certain
structured securities, which are presented using the revised NAIC methodologies as described above, as well as the percentage, based on estimated
fair value that each designation is comprised of at:
NAIC
Designation
NRSRO Rating
1
2
3
4
5
6
Aaa/Aa/A
Baa
Subtotal investment
grade
Ba
B
Caa and lower
In or near default
Subtotal below
investment grade
Total fixed maturity
securities
2015
2014
December 31,
Amortized
Cost
Unrealized
Gain (Loss)
(In millions)
Estimated
Fair
Value
% of
Total
Amortized
Cost
Estimated
Fair
Value
% of
Total
Unrealized
Gain (Loss)
(In millions)
$ 234,176
$
16,627
$ 250,803
71.4 % $ 233,246
$
23,837
$ 257,083
70.4 %
77,313
2,210
79,523
22.6
76,754
6,654
83,408
22.8
18,837
330,326
94.0
30,491
340,491
93.2
311,489
15,314
5,083
1,036
42
(172)
(244)
5
12
15,142
4,839
1,041
54
4.3
1.4
0.3
—
6.0
310,000
14,967
8,481
1,296
36
178
(96)
44
28
15,145
8,385
1,340
64
4.1
2.3
0.4
—
6.8
21,475
(399)
21,076
24,780
154
24,934
$ 332,964
$
18,438
$ 351,402
100.0 % $ 334,780
$
30,645
$ 365,425
100.0 %
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The following tables present total fixed maturity securities, based on estimated fair value, by sector classification and by NRSRO rating and
the equivalent designations of the NAIC, except for certain structured securities, which are presented using the NAIC methodologies as described
above:
NAIC Designation:
NRSRO Rating:
December 31, 2015
U.S. corporate
U.S. Treasury and agency
Foreign corporate
Foreign government
RMBS
State and political subdivision
ABS
CMBS
Percentage of total
December 31, 2014
U.S. corporate
U.S. Treasury and agency
Foreign corporate
Foreign government
RMBS
State and political subdivision
ABS
CMBS
Fixed Maturity Securities — by Sector & Credit Quality Rating
1
Aaa/Aa/A
2
Baa
3
Ba
4
B
5
Caa and
Lower
6
In or Near
Default
Total
Estimated
Fair Value
(In millions)
$
43,448
$ 44,158
$
9,163
$
3,532
$
61,646
23,368
43,911
37,394
14,818
13,646
12,572
—
29,362
4,098
560
599
702
44
—
3,621
1,730
579
10
24
15
—
732
395
177
—
3
—
493
—
114
326
78
14
14
2
$
46,043
$ 44,174
$
9,627
$
5,602
$
497
$
61,516
25,368
44,837
37,156
14,656
13,383
14,124
—
31,084
5,763
1,049
501
807
30
—
3,775
744
766
30
37
166
—
1,358
863
551
—
2
9
—
89
418
318
—
15
3
$
— $ 100,794
—
1
39
9
—
5
—
54
61,646
57,198
50,499
38,797
15,441
14,394
12,633
$ 351,402
11
—
1
41
6
—
5
—
64
$ 105,954
61,516
61,675
52,666
39,846
15,187
14,249
14,332
$ 365,425
Total fixed maturity securities
$ 250,803
$ 79,523
$ 15,142
$
4,839
$
1,041
$
71.4%
22.6%
4.3%
1.4%
0.3%
—%
100.0%
Total fixed maturity securities
$ 257,083
$ 83,408
$ 15,145
$
8,385
$
1,340
$
Percentage of total
70.4%
22.8%
4.1%
2.3%
0.4%
—%
100.0%
MetLife, Inc.
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Table of Contents
U.S. and Foreign Corporate Fixed Maturity Securities
We maintain a diversified portfolio of corporate fixed maturity securities across industries and issuers. This portfolio does not have any exposure
to any single issuer in excess of 1% of total investments and the top ten holdings comprise 2% of total investments at both December 31, 2015
and 2014. The tables below present our U.S. and foreign corporate securities holdings at:
Corporate fixed maturity securities — by sector:
Foreign corporate (1)
U.S. corporate fixed maturity securities — by industry:
Consumer
Industrial
Utility
Finance
Communications
Other
Total
______________
December 31,
2015
2014
Estimated
Fair
Value
(In millions)
% of
Total
Estimated
Fair
Value
(In millions)
% of
Total
$
57,198
36.2% $
61,675
36.8%
27,715
25,861
18,591
18,239
6,802
3,586
17.5
16.4
11.8
11.5
4.3
2.3
27,808
27,221
20,029
18,688
8,071
4,137
16.6
16.2
12.0
11.1
4.8
2.5
$
157,992
100.0% $
167,629
100.0%
(1)
Includes both U.S. dollar and foreign denominated securities.
Structured Securities
We held $65.8 billion and $68.4 billion of structured securities, at estimated fair value, at December 31, 2015 and 2014, respectively, as
presented in the RMBS, ABS and CMBS sections below.
RMBS
The table below presents our RMBS holdings at:
2015
% of
Total
Estimated
Fair
Value
(In millions)
December 31,
Net
Unrealized
Gains (Losses)
Estimated
Fair
Value
(In millions)
(In millions)
2014
% of
Total
Net
Unrealized
Gains (Losses)
(In millions)
By security type:
Collateralized mortgage obligations
Pass-through securities
Total RMBS
By risk profile:
Agency
Prime
Alt-A
Sub-prime
Total RMBS
Ratings profile:
Rated Aaa/AAA
Designated NAIC 1
$
$
$
$
$
$
20,604
18,193
38,797
26,214
1,960
5,990
4,633
53.1% $
46.9
100.0% $
578
305
883
$
$
20,269
19,577
39,846
50.9% $
49.1
100.0% $
1,083
699
1,782
67.6% $
763
$
26,818
67.3% $
1,469
5.1
15.4
11.9
41
(18)
97
2,648
5,540
4,840
6.6
13.9
12.2
38,797
100.0% $
883
$
39,846
100.0% $
26,809
37,394
69.1%
96.4%
$
$
27,362
37,156
68.7%
93.2%
68
85
160
1,782
Collateralized mortgage obligations are structured by dividing the cash flows of mortgages into separate pools or tranches of risk that create
multiple classes of bonds with varying maturities and priority of payments. Pass-through mortgage-backed securities are secured by a mortgage
or collection of mortgages. The monthly mortgage payments from homeowners pass from the originating bank through an intermediary, such as
a government agency or investment bank, which collects the payments and, for a fee, remits or passes these payments through to the holders of
the pass-through securities.
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The majority of our RMBS holdings were rated Aaa/AAA by Moody’s, S&P or Fitch; and were designated NAIC 1 by the NAIC at December 31,
2015 and 2014. Agency RMBS were guaranteed or otherwise supported by Federal National Mortgage Association, Federal Home Loan Mortgage
Corporation or Government National Mortgage Association. Non-agency RMBS include prime, alternative residential mortgage loans (“Alt-A”) and
sub-prime RMBS. Prime residential mortgage lending includes the origination of residential mortgage loans to the most creditworthy borrowers
with high quality credit profiles. Alt-A is a classification of mortgage loans where the risk profile of the borrower falls between prime and sub-prime.
Sub-prime mortgage lending is the origination of residential mortgage loans to borrowers with weak credit profiles.
Included within prime and Alt-A RMBS are re-securitization of real estate mortgage investment conduit (“Re-REMIC”) securities. Re-REMIC
RMBS involve the pooling of previous issues of prime and Alt-A RMBS and restructuring the combined pools to create new senior and subordinated
securities. The credit enhancement on the senior tranches is improved through the re-securitization.
Historically, we have managed our exposure to sub-prime RMBS holdings by: acquiring older vintage year securities that benefit from better
underwriting, improved credit enhancement and higher levels of residential property price appreciation; reducing our overall exposure; stress testing
the portfolio with severe loss assumptions; and closely monitoring the performance of the portfolio. Since 2012, we have increased our exposure
by purchasing sub-prime RMBS at significant discounts to the expected principal recovery value of these securities. The estimated fair value of our
sub-prime RMBS holdings purchased since 2012 was $4.0 billion and $3.9 billion at December 31, 2015 and 2014, respectively, with unrealized
gains (losses) of $74 million and $130 million at December 31, 2015 and 2014, respectively.
ABS
Our ABS are diversified both by collateral type and by issuer. The following table presents our ABS holdings at:
2015
% of
Total
Estimated
Fair
Value
(In millions)
December 31,
Net
Unrealized
Gains (Losses)
Estimated
Fair
Value
(In millions)
(In millions)
7,698
1,365
1,284
1,153
831
2,063
53.5% $
(144) $
9.5
8.9
8.0
5.8
14.3
32
(30)
—
27
11
5,262
2,146
1,997
1,625
1,195
2,024
2014
% of
Total
Net
Unrealized
Gains (Losses)
(In millions)
36.9% $
(46)
15.1
14.0
11.4
8.4
14.2
63
42
10
44
15
14,394
100.0% $
(104) $
14,249
100.0% $
128
7,510
13,646
52.2%
94.8%
$
$
7,950
13,383
55.8%
93.9%
By collateral type:
Collateralized obligations
Foreign residential loans
Student loans
Automobile loans
Credit card loans
Other loans
Total
Ratings profile:
Rated Aaa/AAA
Designated NAIC 1
$
$
$
$
MetLife, Inc.
49
Table of Contents
CMBS
Our CMBS holdings are diversified by vintage year. The following tables present our CMBS holdings by rating agency rating and by vintage
year at:
Aaa
Aa
A
Baa
Below
Investment
Grade
Total
December 31, 2015
Amortized
Cost
Estimated
Fair
Value
Amortized
Cost
Estimated
Fair
Value
Amortized
Cost
Estimated
Fair
Value
Amortized
Cost
Estimated
Fair
Value
Amortized
Cost
Estimated
Fair
Value
Amortized
Cost
Estimated
Fair
Value
2003 -
2005
2006
2007
2008 -
2010
2011
2012
2013
2014
2015
$
187
$
198
$
1,061
1,070
477
5
560
506
989
854
486
5
593
534
1,036
859
2,258
2,227
95
79
144
—
23
368
696
939
445
$
101
$
79
145
—
24
376
735
937
436
(In millions)
$
$
33
76
84
13
63
500
893
453
325
35
77
87
13
64
513
925
459
327
$
47
50
—
—
—
8
12
1
32
48
56
—
—
—
9
10
1
32
$
$
10
—
123
10
—
125
—
—
1
—
—
—
—
—
1
—
—
—
$
372
$
392
1,266
1,282
828
18
646
1,383
2,590
2,247
3,060
843
18
681
1,433
2,706
2,256
3,022
Total
$
6,897
$ 7,008
$
2,789
$ 2,833
$
2,440
$ 2,500
$
150
$
156
$
134
$
136
$ 12,410
$12,633
Ratings
Distribution
55.5%
22.4%
19.8%
1.2%
1.1%
100.0%
Aaa
Aa
A
Baa
Below
Investment
Grade
Total
December 31, 2014
Amortized
Cost
Estimated
Fair
Value
Amortized
Cost
Estimated
Fair
Value
Amortized
Cost
Estimated
Fair
Value
Amortized
Cost
Estimated
Fair
Value
Amortized
Cost
Estimated
Fair
Value
Amortized
Cost
Estimated
Fair
Value
(In millions)
2003 -
2004
2005
2006
2007
2008 -
2010
2011
2012
2013
2014
$
251
$
258
$
25
$
2,278
1,983
694
2,300
2,056
720
5
561
467
802
466
5
603
559
854
480
412
103
64
—
23
245
467
883
27
426
106
67
—
24
255
505
900
$
54
$
243
107
195
25
63
842
56
253
110
205
25
65
866
1,330
1,393
652
677
$
40
$
111
66
41
—
—
—
13
13
$
40
115
73
43
—
—
—
11
14
$
17
9
—
17
13
—
129
131
—
4
3
—
76
—
4
3
—
73
$
387
$
398
3,053
2,259
1,123
30
651
1,557
2,612
2,090
3,107
2,345
1,166
30
696
1,683
2,763
2,144
Total
$
7,507
$ 7,835
$
2,222
$ 2,310
$
3,511
$ 3,650
$
284
$
296
$
238
$
241
$ 13,762
$14,332
Ratings
Distribution
54.7%
16.1%
25.5%
2.0%
1.7%
100.0%
The tables above reflect rating agency ratings assigned by NRSROs, including Moody’s, S&P, Fitch and Morningstar. CMBS designated NAIC
1 were 99.5% and 98.5% of total CMBS at December 31, 2015 and 2014, respectively.
Evaluation of AFS Securities for OTTI and Evaluating Temporarily Impaired AFS Securities
See Notes 1 and 8 of the Notes to the Consolidated Financial Statements for information about the evaluation of fixed maturity securities and
equity securities AFS for OTTI and evaluation of temporarily impaired AFS securities.
OTTI Losses on Fixed Maturity and Equity Securities AFS Recognized in Earnings
See Note 8 of the Notes to the Consolidated Financial Statements for information about OTTI losses and gross gains and gross losses on AFS
securities sold.
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Overview of Fixed Maturity and Equity Security OTTI Losses Recognized in Earnings
Impairments of fixed maturity and equity securities were $130 million, $96 million and $192 million for the years ended December 31, 2015,
2014 and 2013, respectively. Impairments of fixed maturity securities were $90 million, $60 million and $166 million for the years ended December 31,
2015, 2014 and 2013, respectively. Impairments of equity securities were $40 million, $36 million and $26 million for the years ended December 31,
2015, 2014 and 2013, respectively.
Credit-related impairments of fixed maturity securities were $90 million, $60 million and $147 million for the years ended December 31, 2015,
2014 and 2013, respectively.
Explanations of changes in fixed maturity and equity securities impairments are as follows:
Year Ended December 31, 2015 Compared with the Year Ended December 31, 2014
Overall OTTI losses recognized in earnings on fixed maturity and equity securities were $130 million for the year ended December 31, 2015
as compared to $96 million for the year ended December 31, 2014. The most significant increases were in U.S. and foreign corporate securities,
which comprised $54 million for the year ended December 31, 2015, as compared to $9 million for the year ended December 31, 2014. An
increase of $45 million in OTTI losses on U.S. and foreign corporate securities reflected the impact of weakening foreign currencies on non-
functional currency denominated fixed maturity securities and lower oil prices impacting the energy sector. The $45 million increase in OTTI
losses on U.S. and foreign corporate securities was concentrated in the utility and consumer services industries.
Year Ended December 31, 2014 Compared with the Year Ended December 31, 2013
Overall OTTI losses recognized in earnings on fixed maturity and equity securities were $96 million for the year ended December 31, 2014
as compared to $192 million for the year ended December 31, 2013. The most significant decreases were in U.S. and foreign corporate securities
and RMBS, which comprised $40 million for the year ended December 31, 2014, as compared to $154 million for the year ended December
31, 2013. A decrease of $65 million in OTTI losses on U.S. and foreign corporate securities and a $49 million decrease in OTTI losses on RMBS
reflected improving economic fundamentals. The $65 million decrease in OTTI losses on U.S. and foreign corporate securities was concentrated
in the utility and financial services industries.
Future Impairments
Future OTTI will depend primarily on economic fundamentals, issuer performance (including changes in the present value of future cash flows
expected to be collected), and changes in credit ratings, collateral valuation, interest rates and credit spreads. If economic fundamentals deteriorate
or if there are adverse changes in the above factors, OTTI may be incurred in upcoming periods.
FVO and Trading Securities
FVO and trading securities are primarily comprised of securities for which the FVO has been elected (“FVO Securities”). FVO Securities include
certain fixed maturity and equity securities held-for-investment by the general account to support ALM strategies for certain insurance products and
investments in certain separate accounts; securities held by CSEs; and trading securities, as further described in Note 1 of the Notes to the Consolidated
Financial Statements. FVO and trading securities were $15.0 billion and $16.7 billion at estimated fair value, or 3.0% and 3.2% of total cash and
invested assets, at December 31, 2015 and 2014, respectively. See Note 10 of the Notes to the Consolidated Financial Statements for the FVO and
trading securities fair value hierarchy and a rollforward of the fair value measurements for FVO and trading securities measured at estimated fair value
on a recurring basis using significant unobservable (Level 3) inputs.
Securities Lending
We participate in a securities lending program whereby securities are loaned to third parties, primarily brokerage firms and commercial banks.
We obtain collateral, usually cash, in an amount generally equal to 102% of the estimated fair value of the securities loaned, which is obtained at the
inception of a loan and maintained at a level greater than or equal to 100% for the duration of the loan. We monitor the estimated fair value of the
securities loaned on a daily basis with additional collateral obtained as necessary throughout the duration of the loan. Securities loaned under such
transactions may be sold or re-pledged by the transferee. We are liable to return to our counterparties the cash collateral under our control. Security
collateral on deposit from counterparties may not be sold or re-pledged, unless the counterparty is in default, and is not reflected in the consolidated
financial statements. These transactions are treated as financing arrangements and the associated cash collateral liability is recorded at the amount
of the cash received.
See “— Liquidity and Capital Resources — The Company — Liquidity and Capital Uses — Securities Lending” and Note 8 of the Notes to the
Consolidated Financial Statements for information regarding our securities lending program.
MetLife, Inc.
51
Table of Contents
Mortgage Loans
Our mortgage loans are principally collateralized by commercial, agricultural and residential properties. Mortgage loans and the related valuation
allowances are summarized as follows at:
2015
2014
December 31,
Recorded
Investment
% of
Total
Valuation
Allowance
% of
Recorded
Investment
Recorded
Investment
% of
Total
Valuation
Allowance
% of
Recorded
Investment
(Dollars in millions)
(Dollars in millions)
Commercial
Agricultural
Residential
Total
$
44,012
13,188
9,734
65.8% $
19.7
14.5
$
66,934
100.0% $
217
42
59
318
0.5% $
0.3%
0.6%
41,088
12,378
6,369
68.7% $
20.7
10.6
0.5% $
59,835
100.0% $
224
39
42
305
0.5%
0.3%
0.7%
0.5%
The information presented in the tables herein exclude mortgage loans where we elected the FVO. Such amounts are presented in Note 8 of
the Notes to the Consolidated Financial Statements.
We originated $12.8 billion and $11.1 billion of commercial mortgage loans during the years ended December 31, 2015 and 2014, respectively.
We originated $3.2 billion and $3.5 billion of agricultural mortgage loans during the years ended December 31, 2015 and 2014, respectively. While
we originate some residential mortgage loans, we purchased a substantial amount of our residential mortgage loans on the secondary market during
the years ended December 31, 2015 and 2014. See Note 8 of the Notes to the Consolidated Financial Statements for further information on mortgage
loan purchases.
We diversify our mortgage loan portfolio by both geographic region and property type to reduce the risk of concentration. Of our commercial
and agricultural mortgage loan portfolios, 85% are collateralized by properties located in the U.S., with the remaining 15% collateralized by properties
located outside the U.S., at December 31, 2015. The carrying value of our commercial and agricultural mortgage loans located in California, New
York and Texas were 19%, 12% and 8%, respectively, of total mortgage loans at December 31, 2015. Additionally, we manage risk when originating
commercial and agricultural mortgage loans by generally lending up to 75% of the estimated fair value of the underlying real estate collateral.
We manage our residential mortgage loan portfolio in a similar manner to reduce risk of concentration, with 91% collateralized by properties
located in the U.S., and the remaining 9% collateralized by properties located outside the U.S., at December 31, 2015. The carrying value of our
residential mortgage loans located in California, Florida, and New York were 35%, 7%, and 6%, respectively.
In connection with our investment management business, we manage commercial mortgage loans on behalf of institutional clients, which are
unaffiliated investors. These commercial mortgage loans had an estimated fair value of $2.0 billion and $1.2 billion at December 31, 2015 and 2014,
respectively. These assets are not included in our consolidated financial statements.
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Commercial Mortgage Loans by Geographic Region and Property Type. Commercial mortgage loans are the largest component of the mortgage
loan invested asset class, as such loans represented over 65% of total mortgage loans at both December 31, 2015 and 2014. The tables below
present the diversification across geographic regions and property types of commercial mortgage loans:
Region
Pacific
Middle Atlantic
International
South Atlantic
West South Central
East North Central
New England
Mountain
West North Central
East South Central
Multi-Region and Other
Total recorded investment
Less: valuation allowances
Carrying value, net of valuation allowances
Property Type
Office
Retail
Apartment
Hotel
Industrial
Other
Total recorded investment
Less: valuation allowances
Carrying value, net of valuation allowances
______________
December 31,
2015
2014
Amount
(In millions)
% of
Total
Amount
(In millions)
% of
Total
$
$
$
$
9,583
8,154
7,889
6,127
4,311
2,346
1,367
1,117
520
512
2,086
44,012
217
43,795
21,525
10,466
5,171
4,396
2,334
120
44,012
217
43,795
21.8% $
18.5
17.9
13.9
9.8
5.3
3.1
2.5
1.2
1.2
4.8
100.0%
$
8,620
7,689
7,251
6,384
3,990
2,430
1,155
932
140
424
2,073
41,088
224
40,864
21.0%
18.7
17.7
15.5
9.7
5.9
2.8
2.3
0.3
1.0
5.1
100.0%
48.9% $
21,400
52.1%
23.8
11.7
10.0
5.3
0.3
100.0%
$
9,389
3,786
4,196
2,133
184
41,088
224
40,864
22.9
9.2
10.2
5.2
0.4
100.0%
Mortgage Loan Credit Quality - Monitoring Process. We monitor our mortgage loan investments on an ongoing basis, including a review of loans
that are current, past due, restructured and under foreclosure. See Note 8 of the Notes to the Consolidated Financial Statements for tables that
present mortgage loans by credit quality indicator, past due and nonaccrual mortgage loans, as well as impaired mortgage loans. See “— Real Estate
and Real Estate Joint Ventures” for real estate acquired through foreclosure.
We review our commercial mortgage loans on an ongoing basis. These reviews may include an analysis of the property financial statements and
rent roll, lease rollover analysis, property inspections, market analysis, estimated valuations of the underlying collateral, loan-to-value ratios, debt
service coverage ratios, and tenant creditworthiness. The monitoring process focuses on higher risk loans, which include those that are classified as
restructured, delinquent or in foreclosure, as well as loans with higher loan-to-value ratios and lower debt service coverage ratios. The monitoring
process for agricultural mortgage loans is generally similar, with a focus on higher risk loans, such as loans with higher loan-to-value ratios, including
reviews on a geographic and sector basis. We review our residential mortgage loans on an ongoing basis. See Note 8 of the Notes to the Consolidated
Financial Statements for information on our evaluation of residential mortgage loans and related valuation allowance methodology.
Loan-to-value ratios and debt service coverage ratios are common measures in the assessment of the quality of commercial mortgage loans.
Loan-to-value ratios are a common measure in the assessment of the quality of agricultural mortgage loans. Loan-to-value ratios compare the amount
of the loan to the estimated fair value of the underlying collateral. A loan-to-value ratio greater than 100% indicates that the loan amount is greater
than the collateral value. A loan-to-value ratio of less than 100% indicates an excess of collateral value over the loan amount. Generally, the higher
the loan-to-value ratio, the higher the risk of experiencing a credit loss. The debt service coverage ratio compares a property’s net operating income
to amounts needed to service the principal and interest due under the loan. Generally, the lower the debt service coverage ratio, the higher the risk
of experiencing a credit loss. For our commercial mortgage loans, our average loan-to-value ratio was 52% at both December 31, 2015 and 2014,
and our average debt service coverage ratio was 2.6x at both December 31, 2015 and 2014. The debt service coverage ratio, as well as the values
utilized in calculating the ratio, is updated annually on a rolling basis, with a portion of the portfolio updated each quarter. In addition, the loan-to-value
ratio is routinely updated for all but the lowest risk loans as part of our ongoing review of our commercial mortgage loan portfolio. For our agricultural
mortgage loans, our average loan-to-value ratio was 43% and 44% at December 31, 2015 and 2014, respectively. The values utilized in calculating
MetLife, Inc.
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the agricultural mortgage loan loan-to-value ratio are developed in connection with the ongoing review of the agricultural loan portfolio and are routinely
updated.
Mortgage Loan Valuation Allowances. Our valuation allowances are established both on a loan specific basis for those loans considered impaired
where a property specific or market specific risk has been identified that could likely result in a future loss, as well as for pools of loans with similar
risk characteristics where a property specific or market specific risk has not been identified, but for which we expect to incur a loss. Accordingly, a
valuation allowance is provided to absorb these estimated probable credit losses.
The determination of the amount of valuation allowances is based upon our periodic evaluation and assessment of known and inherent risks
associated with our loan portfolios. Such evaluations and assessments are based upon several factors, including our experience for loan losses,
defaults and loss severity, and loss expectations for loans with similar risk characteristics. These evaluations and assessments are revised as conditions
change and new information becomes available, which can cause the valuation allowances to increase or decrease over time as such evaluations
are revised. Negative credit migration, including an actual or expected increase in the level of problem loans, will result in an increase in the valuation
allowance. Positive credit migration, including an actual or expected decrease in the level of problem loans, will result in a decrease in the valuation
allowance.
See Notes 1, 8 and 10 of the Notes to the Consolidated Financial Statements for information about how valuation allowances are established
and monitored, activity in and balances of the valuation allowance, and the estimated fair value of impaired mortgage loans and related impairments
included within net investment gains (losses) as of and for the years ended December 31, 2015, 2014 and 2013.
Real Estate and Real Estate Joint Ventures
We diversify our real estate investments by both geographic region and property type to reduce risk of concentration. Of our real estate investments,
77% were located in the United States, with the remaining 23% located outside the United States, at December 31, 2015. The carrying value of our
real estate investments located in Japan, California and the District of Columbia were 19%, 17% and 8%, respectively, of total real estate investments
at December 31, 2015.
Real estate investments by type consisted of the following at:
Traditional
Real estate joint ventures and funds
Subtotal
Foreclosed (commercial, agricultural and residential)
Real estate held-for-investment
Real estate held-for-sale
Total real estate and real estate joint ventures
December 31,
2015
2014
Carrying
Value
(In millions)
% of
Total
Carrying
Value
(In millions)
% of
Total
$
$
7,859
482
8,341
45
8,386
47
8,433
93.2% $
5.7
98.9
0.5
99.4
0.6
100.0% $
9,386
647
10,033
320
10,353
172
10,525
89.2%
6.2
95.4
3.0
98.4
1.6
100.0%
We classify within traditional real estate our investment in income-producing real estate, which is comprised of wholly-owned real estate and
joint ventures with interests in single property income-producing real estate. The estimated fair value of the traditional and held-for-sale real estate
investment portfolios was $12.4 billion and $13.3 billion at December 31, 2015 and 2014, respectively. We classify within real estate joint ventures
and funds, our investments in joint ventures with interests in multi-property projects with varying strategies ranging from the development of properties
to the operation of income-producing properties, as well as our investments in real estate private equity funds. From time to time, if we intend to retain
an interest in the property, we transfer investments from these joint ventures to traditional real estate after the completed property commences
operations.
In connection with our investment management business, we manage real estate investments on behalf of institutional clients, which are unaffiliated
investors. These real estate investments had an estimated fair value of $3.8 billion and $2.8 billion at December 31, 2015 and 2014, respectively.
These assets are not included in our consolidated financial statements.
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MetLife, Inc.
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Real estate and real estate joint venture investments by property type are categorized by sector as follows at:
Office
Apartment
Retail
Real estate investment funds
Hotel
Industrial
Land
Agriculture
Other
December 31,
2015
2014
Carrying
Value
(In millions)
% of
Total
Carrying
Value
(In millions)
% of
Total
$
3,265
1,662
1,032
683
544
483
348
32
384
38.7% $
19.7
12.2
8.1
6.5
5.7
4.1
0.4
4.6
5,574
1,684
782
351
554
614
432
37
497
53.0%
16.0
7.4
3.3
5.3
5.8
4.1
0.4
4.7
Total real estate and real estate joint ventures
$
8,433
100.0% $
10,525
100.0%
The Company's authorized equity investment in real estate property was $1.0 billion and $1.7 billion for the years ended December 31, 2015
and 2014, respectively.
Impairments recognized on real estate and real estate joint ventures were $93 million, $20 million and $10 million for the years ended December 31,
2015, 2014 and 2013, respectively. Depreciation expense on real estate investments was $162 million, $199 million and $179 million for the years
ended December 31, 2015, 2014 and 2013, respectively. Real estate investments are net of accumulated depreciation of $1.2 billion at both
December 31, 2015 and 2014.
Other Limited Partnership Interests
Other limited partnership interests are comprised of private equity funds and hedge funds. The carrying value of other limited partnership interests
was $7.1 billion and $8.1 billion at December 31, 2015 and 2014, respectively, which included $1.9 billion and $2.4 billion of hedge funds, at
December 31, 2015 and 2014, respectively.
Other Invested Assets
The following table presents the carrying value of our other invested assets by type:
Freestanding derivatives with positive estimated fair values
$
14,406
64.0% $
13,452
December 31,
2015
2014
Carrying
Value
(In millions)
% of
Total
Carrying
Value
(In millions)
% of
Total
Tax credit and renewable energy partnerships
Leveraged leases, net of non-recourse debt
Direct financing leases
Funds withheld
Operating joint ventures
Other
Total
3,145
1,712
1,076
771
605
809
13.9
7.6
4.8
3.4
2.7
3.6
2,752
1,785
1,119
763
513
899
63.2%
12.9
8.4
5.3
3.6
2.4
4.2
$
22,524
100.0% $
21,283
100.0%
Leveraged lease impairments were $41 million, $80 million and $26 million for the years ended December 31, 2015, 2014 and 2013, respectively.
See Notes 8 and 9 of the Notes to the Consolidated Financial Statements for information regarding tax credit partnerships, leveraged and direct
financing leases and freestanding derivatives with positive estimated fair values, respectively. See Note 1 of the Notes to the Consolidated Financial
Statements for further information about tax credit and renewable energy partnerships, funds withheld and operating joint ventures.
Our private placement unit originated $9.7 billion and $8.3 billion of private investments, comprised primarily of certain privately placed fixed
maturity securities and tax credit and renewable energy partnerships, during the years ended December 31, 2015 and 2014, respectively. The carrying
value of such private investments included within our consolidated balance sheets was $49.8 billion at both December 31, 2015 and 2014. In addition,
we originated $0 and $94 million of private lease investments during the years ended December 31, 2015 and 2014, respectively. The carrying value
of such private lease investments included within our consolidated balance sheets was $2.0 billion and $2.1 billion at December 31, 2015 and 2014,
respectively.
MetLife, Inc.
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Short-term Investments and Cash Equivalents
The carrying value of short-term investments, which approximates estimated fair value, was $9.3 billion and $8.6 billion, or 1.8% and 1.7% of
total cash and invested assets, at December 31, 2015 and 2014, respectively. The carrying value of cash equivalents, which approximates estimated
fair value, was $7.5 billion and $4.5 billion, or 1.5% and 0.9% of total cash and invested assets, at December 31, 2015 and 2014, respectively.
Derivatives
Derivative Risks
We are exposed to various risks relating to our ongoing business operations, including interest rate, foreign currency exchange rate, credit and
equity market. We use a variety of strategies to manage these risks, including the use of derivatives. See Note 9 of the Notes to the Consolidated
Financial Statements for:
•
•
•
A comprehensive description of the nature of our derivatives, including the strategies for which derivatives are used in managing various
risks.
Information about the gross notional amount, estimated fair value, and primary underlying risk exposure of our derivatives by type of hedge
designation, excluding embedded derivatives held at December 31, 2015 and 2014.
The statement of operations effects of derivatives in net investments in foreign operations, cash flow, fair value, or nonqualifying hedge
relationships for the years ended December 31, 2015, 2014 and 2013.
See “Quantitative and Qualitative Disclosures About Market Risk — Management of Market Risk Exposures — Hedging Activities” for more
information about our use of derivatives by major hedge program.
Fair Value Hierarchy
See Note 10 of the Notes to the Consolidated Financial Statements for derivatives measured at estimated fair value on a recurring basis and
their corresponding fair value hierarchy.
The valuation of Level 3 derivatives involves the use of significant unobservable inputs and generally requires a higher degree of management
judgment or estimation than the valuations of Level 1 and Level 2 derivatives. Although Level 3 inputs are unobservable, management believes they
are consistent with what other market participants would use when pricing such instruments and are considered appropriate given the circumstances.
The use of different inputs or methodologies could have a material effect on the estimated fair value of Level 3 derivatives and could materially affect
net income.
Derivatives categorized as Level 3 at December 31, 2015 include: interest rate forwards with maturities which extend beyond the observable
portion of the yield curve; foreign currency swaps and forwards with certain unobservable inputs, including the unobservable portion of the yield curve;
credit default swaps priced using unobservable credit spreads, or that are priced through independent broker quotations; equity variance swaps with
unobservable volatility inputs; and equity index options with unobservable correlation inputs. At December 31, 2015, less than 1% of the estimated
fair value of our derivatives was priced through independent broker quotations.
See Note 10 of the Notes to the Consolidated Financial Statements for a rollforward of the fair value measurements for derivatives measured at
estimated fair value on a recurring basis using significant unobservable (Level 3) inputs.
The gain (loss) on Level 3 derivatives primarily relates to certain purchased equity index options that are valued using models dependent on an
unobservable market correlation input, equity variance swaps that are valued using observable equity volatility data plus an unobservable equity
variance spread and foreign currency swaps and forwards that are valued using an unobservable portion of the swap yield curve. Other significant
inputs, which are observable, include equity index levels, equity volatility and the swap yield curve. We validate the reasonableness of these inputs
by valuing the positions using internal models and comparing the results to broker quotations.
The gain (loss) on Level 3 derivatives, percentage of gain (loss) attributable to observable and unobservable inputs, and the primary drivers of
observable gain (loss) are summarized as follows:
Gain (loss) recognized in net income (loss)
Percentage of gain (loss) attributable to observable inputs
Primary drivers of observable gain (loss)
Year Ended December 31, 2015
($223) million
26%
Strengthening of U.S. dollar versus foreign currencies on receive foreign,
pay-U.S. dollar forwards and swaps; increases in equity index levels;
and increases in short-term interest rates.
Percentage of gain (loss) attributable to unobservable inputs
74%
See “— Summary of Critical Accounting Estimates — Derivatives” for further information on the estimates and assumptions that affect derivatives.
Credit Risk
See Note 9 of the Notes to the Consolidated Financial Statements for information about how we manage credit risk related to derivatives and
for the estimated fair value of our net derivative assets and net derivative liabilities after the application of master netting agreements and collateral.
Our policy is not to offset the fair value amounts recognized for derivatives executed with the same counterparty under the same master netting
agreement. This policy applies to the recognition of derivatives in the consolidated balance sheets, and does not affect our legal right of offset.
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Credit Derivatives
The following table presents the gross notional amount and estimated fair value of credit default swaps at:
Credit Default Swaps
Purchased (1)
Written (2)
Total
__________________
December 31,
2015
2014
Gross
Notional
Amount
Estimated
Fair Value
Gross
Notional
Amount
Estimated
Fair Value
$
$
1,870
$
10,311
12,181
$
(In millions)
(6) $
65
59
$
2,830
$
10,527
13,357
$
(26)
175
149
(1)
(2)
The gross notional amount and estimated fair value for purchased credit default swaps in the trading portfolio were $175 million and ($2) million,
respectively, at December 31, 2015 and $250 million and ($6) million, respectively, at December 31, 2014.
The gross notional amount and estimated fair value for written credit default swaps in the trading portfolio were $20 million and ($2) million,
respectively, at December 31, 2015 and $15 million and $1 million, respectively, at December 31, 2014.
The following table presents the gross gains, gross losses and net gain (losses) recognized in income for credit default swaps as follows:
Credit Default Swaps
Purchased (2), (4)
Written (3), (4)
Total
__________________
Gross
Gains
(1)
2015
Gross
Losses
(1)
Years Ended December 31,
Net
Gains
(Losses)
Gross
Gains
(1)
2014
Gross
Losses
(1)
Net
Gains
(Losses)
$
$
32
29
61
$
$
(28) $
(112)
(140) $
(In millions)
4
$
(83)
(79) $
30
65
95
$
$
(42) $
(44)
(86) $
(12)
21
9
(1)
(2)
(3)
Gains (losses) are reported in net derivative gains (losses), except for gains (losses) on the trading portfolio, which are reported in net investment
income.
The gross gains and gross (losses) for purchased credit default swaps in the trading portfolio were $8 million and ($11) million, respectively,
for the year ended December 31, 2015 and $5 million and ($5) million, respectively, for the year ended December 31, 2014.
The gross gains and gross (losses) for written credit default swaps in the trading portfolio were $3 million and ($3) million, respectively, for the
year ended December 31, 2015 and were not significant for the year ended December 31, 2014.
(4)
Gains (losses) do not include earned income (expense) on credit default swaps.
The favorable change in net gains (losses) on purchased credit default swaps of $16 million was due to certain credit spreads widening in the
current period compared to the prior period on credit default swaps hedging certain bonds. The unfavorable change in net gains (losses) on written
credit default swaps of ($104) million was due to certain credit spreads widening in the current period compared to the prior on certain credit default
swaps used as replications.
The maximum amount at risk related to our written credit default swaps is equal to the corresponding gross notional amount. In a replication
transaction, we pair an asset on our balance sheet with a written credit default swap to synthetically replicate a corporate bond, a core asset holding
of life insurance companies. Replications are entered into in accordance with the guidelines approved by insurance regulators and are an important
tool in managing the overall corporate credit risk within the Company. In order to match our long-dated insurance liabilities, we will seek to buy long-
dated corporate bonds. In some instances, these may not be readily available in the market, or they may be issued by corporations to which we
already have significant corporate credit exposure. For example, by purchasing Treasury bonds (or other high-quality assets) and associating them
with written credit default swaps on the desired corporate credit name, we, at times, can replicate the desired bond exposures and meet our ALM
needs. In addition, given the shorter tenor of the credit default swaps (generally five-year tenors) versus a long-dated corporate bond, we have more
flexibility in managing our credit exposures.
Embedded Derivatives
See Note 10 of the Notes to the Consolidated Financial Statements for information about embedded derivatives measured at estimated fair value
on a recurring basis and their corresponding fair value hierarchy.
See Note 10 of the Notes to the Consolidated Financial Statements for a rollforward of the fair value measurements for net embedded derivatives
measured at estimated fair value on a recurring basis using significant unobservable (Level 3) inputs.
See Note 9 of the Notes to the Consolidated Financial Statements for information about the nonperformance risk adjustment included in the
valuation of guaranteed minimum benefits accounted for as embedded derivatives.
MetLife, Inc.
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See “— Summary of Critical Accounting Estimates — Derivatives” for further information on the estimates and assumptions that affect embedded
derivatives.
Off-Balance Sheet Arrangements
Credit and Committed Facilities
We maintain an unsecured credit facility, as well as committed facilities with various financial institutions. See “— Liquidity and Capital Resources
— The Company — Liquidity and Capital Sources — Global Funding Sources — Credit and Committed Facilities” for further descriptions of such
arrangements. For the classification of expenses on such credit and committed facilities and the nature of the associated liability for letters of credit
issued and drawdowns on these credit and committed facilities, see Note 12 of the Notes to the Consolidated Financial Statements.
Collateral for Securities Lending, Repurchase Programs and Derivatives
We participate in a securities lending program in the normal course of business for the purpose of enhancing the total return on our investment
portfolio. Periodically we receive non-cash collateral for securities lending from counterparties on deposit from customers, which cannot be sold or
re-pledged, and which has not been recorded on our consolidated balance sheets. The amount of this collateral was $50 million and $83 million at
estimated fair value at December 31, 2015 and 2014, respectively. See Notes 1 and 8 of the Notes to the Consolidated Financial Statements, as well
as “— Investments — Securities Lending” for discussion of our securities lending program, the classification of revenues and expenses, and the nature
of the secured financing arrangement and associated liability.
We also participate in third-party custodian administered repurchase programs for the purpose of enhancing the total return on our investment
portfolio. We loan certain of our fixed maturity securities to financial institutions and, in exchange, non-cash collateral is put on deposit by the financial
institutions on our behalf with third-party custodians. The estimated fair value of securities loaned in connection with these transactions was $738
million and $642 million at December 31, 2015 and December 31, 2014, respectively. Non-cash collateral on deposit with third-party custodians on
our behalf was $781 million and $682 million at December 31, 2015 and December 31, 2014, respectively, which cannot be sold or re-pledged, and
which has not been recorded on our consolidated balance sheets.
We enter into derivatives to manage various risks relating to our ongoing business operations. We have non-cash collateral from counterparties
for derivatives, which can be sold or re-pledged subject to certain constraints, and which has not been recorded on our consolidated balance sheets.
The amount of this non-cash collateral was $2.2 billion and $4.2 billion at December 31, 2015 and 2014, respectively. In certain instances, cash
collateral pledged to the Company as initial margin for derivatives that are contracts between two parties traded over-the-counter (“OTC-bilateral”) is
held in separate custodial accounts and is not recorded on the Company’s balance sheet because the account title is in the name of the counterparty
(but segregated for the benefit of the Company). The amount of this cash collateral was $0 million and $263 million at December 31, 2015 and 2014,
respectively. See “— Liquidity and Capital Resources — The Company — Liquidity and Capital Uses — Pledged Collateral” and “Derivatives” in Note
9 of the Notes to the Consolidated Financial Statements for information regarding the earned income on and the gross notional amount, estimated
fair value of assets and liabilities and primary underlying risk exposure of our derivatives.
Lease Commitments
As lessee, we have entered into various lease and sublease agreements for office space, information technology and other equipment. Our
commitments under such lease agreements are included within the contractual obligations table. See “— Liquidity and Capital Resources — The
Company — Contractual Obligations” and Note 21 of the Notes to the Consolidated Financial Statements.
Guarantees
See “Guarantees” in Note 21 of the Notes to the Consolidated Financial Statements.
Other
Additionally, we enter into commitments in the normal course of business for the purpose of enhancing the total return on our investment portfolio:
mortgage loan commitments and commitments to fund partnerships, bank credit facilities, bridge loans and private corporate bond investments. See
“Net Investment Income” and “Net Investment Gains (Losses)” in Note 8 of the Notes to the Consolidated Financial Statements for information on the
investment income, investment expense, gains and losses from such investments. See also “— Investments — Fixed Maturity and Equity Securities
AFS” and “— Investments — Mortgage Loans” for information on our investments in fixed maturity securities and mortgage loans. See “— Investments
— Real Estate and Real Estate Joint Ventures” and “— Investments — Other Limited Partnership Interests” for information on our partnership
investments.
Other than the commitments disclosed in Note 21 of the Notes to the Consolidated Financial Statements, there are no other material obligations
or liabilities arising from the commitments to fund mortgage loans, partnerships, bank credit facilities, bridge loans, and private corporate bond
investments. For further information on commitments to fund partnership investments, mortgage loans, bank credit facilities, bridge loans and private
corporate bond investments. See “— Liquidity and Capital Resources — The Company — Contractual Obligations.”
Insolvency Assessments
See Note 21 of the Notes to the Consolidated Financial Statements.
Policyholder Liabilities
We establish, and carry as liabilities, actuarially determined amounts that are calculated to meet policy obligations or to provide for future annuity
payments. Amounts for actuarial liabilities are computed and reported in the consolidated financial statements in conformity with GAAP. For more
details on Policyholder Liabilities, see “— Summary of Critical Accounting Estimates.”
Due to the nature of the underlying risks and the uncertainty associated with the determination of actuarial liabilities, we cannot precisely determine
the amounts that will ultimately be paid with respect to these actuarial liabilities, and the ultimate amounts may vary from the estimated amounts,
particularly when payments may not occur until well into the future.
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We periodically review our estimates of actuarial liabilities for future benefits and compare them with our actual experience. We revise estimates,
to the extent permitted or required under GAAP, if we determine that future expected experience differs from assumptions used in the development
of actuarial liabilities. We charge or credit changes in our liabilities to expenses in the period the liabilities are established or re-estimated. If the liabilities
originally established for future benefit payments prove inadequate, we must increase them. Such an increase could adversely affect our earnings
and have a material adverse effect on our business, results of operations and financial condition.
We have experienced, and will likely in the future experience, catastrophe losses and possibly acts of terrorism, as well as turbulent financial
markets that may have an adverse impact on our business, results of operations, and financial condition. Due to their nature, we cannot predict the
incidence, timing, severity or amount of losses from catastrophes and acts of terrorism, but we make broad use of catastrophic and non-catastrophic
reinsurance to manage risk from these perils.
Insurance regulators in many of the non-U.S. countries in which we operate require certain MetLife entities to prepare a sufficiency analysis of
the reserves presented in the locally required regulatory financial statements, and to submit that analysis to the regulatory authorities.
See “Business — Regulation — U.S. Regulation — Insurance Regulation — Policy and Contract Reserve Adequacy Analysis” and “Business —
Regulation — International Regulation” in the 2015 Form 10-K for further information.
Future Policy Benefits
We establish liabilities for amounts payable under insurance policies. See Notes 1 and 4 of the Notes to the Consolidated Financial Statements,
“— Industry Trends — Impact of a Sustained Low Interest Rate Environment — Low Interest Rate Scenario” and “— Variable Annuity Guarantees.”
A discussion of future policy benefits by segment (as well as Corporate & Other) follows.
Retail
Future policy benefits for the life business are comprised mainly of liabilities for traditional life and for universal and variable life insurance
contracts. In order to manage risk, we have often reinsured a portion of the mortality risk on life insurance policies. The reinsurance programs are
routinely evaluated and this may result in increases or decreases to existing coverage. We have entered into various derivative positions, primarily
interest rate swaps and swaptions, to mitigate the risk that investment of premiums received and reinvestment of maturing assets over the life of
the policy will be at rates below those assumed in the original pricing of these contracts. For our property & casualty business, future policy benefits
include unearned premium reserves and liabilities for unpaid claims and claim expenses and represent the amount estimated for claims that have
been reported but not settled and claims incurred but not reported. For the annuities business, future policy benefits are comprised mainly of
liabilities for life-contingent income annuities, and liabilities for the variable annuity guaranteed minimum benefits accounted for as insurance.
Group, Voluntary & Worksite Benefits
With the exception of our property & casualty business, future policy benefits for our Group and Voluntary & Worksite businesses are comprised
mainly of liabilities for disabled lives under disability waiver of premium policy provisions, liabilities for survivor income benefit insurance, long-term
care policies, active life policies and premium stabilization and other contingency liabilities held under life insurance contracts. The components of
future policy benefits for the property & casualty products offered by the Voluntary & Worksite and Retail property & casualty businesses are the
same. Liabilities for unpaid claims are estimated based upon assumptions such as rates of claim frequencies, levels of severities, inflation, judicial
trends, legislative changes or regulatory decisions. Assumptions are based upon our historical experience and analyses of historical development
patterns of the relationship of loss adjustment expenses to losses for each line of business, and we consider the effects of current developments,
anticipated trends and risk management programs, reduced for anticipated salvage and subrogation.
Corporate Benefit Funding
Liabilities for this segment are primarily related to payout annuities, including pension risk transfers, structured settlement annuities and
institutional income annuities. There is no interest rate crediting flexibility on these liabilities. As a result, a sustained low interest rate environment
could negatively impact earnings; however, we mitigate our risks by applying various ALM strategies, including the use of various derivative positions,
primarily interest rate floors and interest rate swaps, to mitigate the risks associated with such a scenario.
Latin America
Future policy benefits for this segment are held primarily for immediate annuities in Chile, Argentina and Mexico and traditional life contracts
mainly in Brazil and Mexico. There are also liabilities held for total return pass-through provisions included in certain universal life and savings
products in Mexico. Factors impacting these liabilities include sustained periods of lower yields than rates established at policy issuance, lower
than expected asset reinvestment rates, and mortality and lapses different than expected. We mitigate our risks by applying various ALM strategies.
Asia
Future policy benefits for this segment are held primarily for traditional life, endowment, annuity and accident & health contracts. They are also
held for total return pass-through provisions included in certain universal life and savings products. They include certain liabilities for variable annuity
and variable life guarantees of minimum death benefits, and longevity guarantees. Factors impacting these liabilities include sustained periods of
lower yields than rates established at policy issuance, lower than expected asset reinvestment rates, market volatility, actual lapses resulting in
lower than expected income, and actual mortality or morbidity resulting in higher than expected benefit payments. We mitigate our risks by applying
various ALM strategies.
EMEA
Future policy benefits for this segment include unearned premium reserves for group life and credit insurance contracts. Future policy benefits
are also held for traditional life, endowment and annuity contracts with significant mortality risk and accident & health contracts. Factors impacting
these liabilities include lower than expected asset reinvestment rates, market volatility, actual lapses resulting in lower than expected income, and
actual mortality or morbidity resulting in higher than expected benefit payments. We mitigate our risks by having premiums which are adjustable
or cancellable in some cases, and by applying various ALM strategies.
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Corporate & Other
Future policy benefits primarily include liabilities for certain run-off long-term care and workers’ compensation business written by MetLife
USA. Additionally, future policy benefits include liabilities for variable annuity guaranteed minimum benefits assumed from a former operating joint
venture in Japan that are accounted for as insurance.
Policyholder Account Balances
Policyholder account balances are generally equal to the account value, which includes accrued interest credited, but excludes the impact of
any applicable charge that may be incurred upon surrender. See “— Industry Trends — Impact of a Sustained Low Interest Rate Environment — Low
Interest Rate Scenario” and “— Variable Annuity Guarantees.” See also Notes 1 and 4 of the Notes to the Consolidated Financial Statements for
additional information. A discussion of policyholder account balances by segment (as well as Corporate & Other) follows.
Retail
Life & Other policyholder account balances are held for retained asset accounts, universal life policies and the fixed account of variable life
insurance policies. For Annuities, policyholder account balances are held for fixed deferred annuities, the fixed account portion of variable annuities,
and non-life contingent income annuities. Interest is credited to the policyholder’s account at interest rates we determine which are influenced by
current market rates, subject to specified minimums. A sustained low interest rate environment could negatively impact earnings as a result of the
minimum credited rate guarantees present in most of these policyholder account balances. We have various derivative positions, primarily interest
rate floors, to partially mitigate the risks associated with such a scenario. Additionally, policyholder account balances are held for variable annuity
guaranteed minimum living benefits that are accounted for as embedded derivatives.
The table below presents the breakdown of account value subject to minimum guaranteed crediting rates for Retail:
Guaranteed Minimum Crediting Rate
Life & Other
Greater than 0% but less than 2%
Equal to 2% but less than 4%
Equal to or greater than 4%
Annuities
Greater than 0% but less than 2%
Equal to 2% but less than 4%
Equal to or greater than 4%
______________
December 31, 2015
Account
Value (1)
Account Value
at Guarantee (1)
(In millions)
$
$
$
$
$
$
94
12,471
10,551
3,429
30,786
2,342
$
$
$
$
$
$
94
5,298
6,251
2,932
27,047
2,302
(1)
These amounts are not adjusted for policy loans.
As a result of acquisitions, we establish additional liabilities known as excess interest reserves for policies with credited rates in excess of
market rates as of the applicable acquisition dates. At December 31, 2015, excess interest reserves were $110 million and $328 million for Life &
Other and Annuities, respectively.
Group, Voluntary & Worksite Benefits
Policyholder account balances in this segment are held for retained asset accounts, universal life policies, the fixed account of variable life
insurance policies and specialized life insurance products for benefit programs. Policyholder account balances are credited interest at a rate we
determine, which are influenced by current market rates. A sustained low interest rate environment could negatively impact earnings as a result of
the minimum credited rate guarantees present in most of these policyholder account balances. We have various derivative positions, primarily
interest rate floors, to partially mitigate the risks associated with such a scenario.
The table below presents the breakdown of account value subject to minimum guaranteed crediting rates for Group, Voluntary & Worksite
Benefits:
Guaranteed Minimum Crediting Rate
Greater than 0% but less than 2%
Equal to 2% but less than 4%
Equal to or greater than 4%
______________
(1)
These amounts are not adjusted for policy loans.
December 31, 2015
Account
Value (1)
Account
Value at
Guarantee (1)
$
$
$
(In millions)
4,845
2,018
683
$
$
$
4,841
1,987
656
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Corporate Benefit Funding
Policyholder account balances in this segment are comprised of funding agreements. Interest crediting rates vary by type of contract, and
can be fixed or variable. Variable interest crediting rates are generally tied to an external index, most commonly (1-month or 3-month) LIBOR. We
are exposed to interest rate risks, as well as foreign currency exchange rate risk, when guaranteeing payment of interest and return of principal at
the contractual maturity date. We may invest in floating rate assets or enter into receive-floating interest rate swaps, also tied to external indices,
as well as caps, to mitigate the impact of changes in market interest rates. We also mitigate our risks by applying various ALM strategies and seek
to hedge all foreign currency exchange rate risk through the use of foreign currency hedges, including cross currency swaps.
Latin America
Policyholder account balances in this segment are held largely for investment-type products and universal life products in Mexico and Chile,
and deferred annuities in Brazil. Some of the deferred annuities in Brazil are unit-linked-type funds that do not meet the GAAP definition of separate
accounts. The rest of the deferred annuities have minimum credited rate guarantees, and these liabilities and the universal life liabilities are generally
impacted by sustained periods of low interest rates. Liabilities for unit-linked-type funds are impacted by changes in the fair value of the associated
investments, as the return on assets is generally passed directly to the policyholder.
Asia
Policyholder account balances in this segment are held largely for fixed income retirement and savings plans, fixed deferred annuities, interest
sensitive whole life products, universal life and, to a lesser degree, liability amounts for unit-linked-type funds that do not meet the GAAP definition
of separate accounts. Also included are certain liabilities for retirement and savings products sold in certain countries in Asia that generally are sold
with minimum credited rate guarantees. Liabilities for guarantees on certain variable annuities in Asia are accounted for as embedded derivatives
and recorded at estimated fair value and are also included within policyholder account balances. These liabilities are generally impacted by sustained
periods of low interest rates, where there are interest rate guarantees. We mitigate our risks by applying various ALM strategies and with reinsurance.
Liabilities for unit-linked-type funds are impacted by changes in the fair value of the associated underlying investments, as the return on assets is
generally passed directly to the policyholder.
The table below presents the breakdown of account value subject to minimum guaranteed crediting rates for Asia:
Guaranteed Minimum Crediting Rate (1)
Annuities
Greater than 0% but less than 2%
Equal to 2% but less than 4%
Equal to or greater than 4%
Life & Other
Greater than 0% but less than 2%
Equal to 2% but less than 4%
Equal to or greater than 4%
______________
December 31, 2015
Account
Value (2)
Account
Value at
Guarantee (2)
(In millions)
$
$
$
$
$
$
19,059
1,043
1
6,296
17,972
268
$
$
$
$
$
$
3,093
224
1
5,960
8,039
—
(1)
Excludes negative VOBA liabilities of $1.2 billion at December 31, 2015, primarily held in Japan. These liabilities were established in instances
where the estimated fair value of contract obligations exceeded the book value of assumed insurance policy liabilities associated with the
acquisition of American Life Insurance Company (“American Life”) and Delaware American Life Insurance Company (“DelAm” and, together
with American Life, “ALICO”). These negative liabilities were established primarily for decreased market interest rates subsequent to the
issuance of the policy contracts.
(2)
These amounts are not adjusted for policy loans.
EMEA
Policyholder account balances in this segment are held mostly for universal life, deferred annuity, pension products, and unit-linked-type funds
that do not meet the GAAP definition of separate accounts. They are also held for endowment products without significant mortality risk. Where
there are interest rate guarantees, these liabilities are generally impacted by sustained periods of low interest rates. We mitigate our risks by applying
various ALM strategies. Liabilities for unit-linked-type funds are impacted by changes in the fair value of the associated investments, as the return
on assets is generally passed directly to the policyholder.
Corporate & Other
Policyholder account balances in Corporate & Other are held for variable annuity guaranteed minimum benefits assumed from a former
operating joint venture in Japan that are accounted for as embedded derivatives.
Variable Annuity Guarantees
We issue, directly and through assumed business, certain variable annuity products with guaranteed minimum benefits that provide the
policyholder a minimum return based on their initial deposit (i.e., the benefit base) less withdrawals. In some cases, the benefit base may be increased
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by additional deposits, bonus amounts, accruals or optional market value resets. See Notes 1 and 4 of the Notes to the Consolidated Financial
Statements for additional information.
Certain guarantees, including portions thereof, have insurance liabilities established that are included in future policy benefits. Guarantees
accounted for in this manner include GMDBs, the life-contingent portion of certain guaranteed minimum withdrawal benefits (“GMWBs”), and the
non-life contingent portions of both GMWBs and GMIBs that require annuitization. These liabilities are accrued over the life of the contract in proportion
to actual and future expected policy assessments based on the level of guaranteed minimum benefits generated using multiple scenarios of separate
account returns. The scenarios are based on best estimate assumptions consistent with those used to amortize DAC. When current estimates of
future benefits exceed those previously projected or when current estimates of future assessments are lower than those previously projected, liabilities
will increase, resulting in a current period charge to net income. The opposite result occurs when the current estimates of future benefits are lower
than those previously projected or when current estimates of future assessments exceed those previously projected. At each reporting period, we
update the actual amount of business remaining in-force, which impacts expected future assessments and the projection of estimated future benefits
resulting in a current period charge or increase to earnings.
Certain guarantees, including portions thereof, accounted for as embedded derivatives, are recorded at estimated fair value and included in
policyholder account balances. Guarantees accounted for as embedded derivatives include guaranteed minimum accumulation benefits (“GMABs”),
and the non-life contingent portions of both GMWBs and GMIBs that do not require annuitization. The estimated fair values of guarantees accounted
for as embedded derivatives are determined based on the present value of projected future benefits minus the present value of projected future fees.
The projections of future benefits and future fees require capital market and actuarial assumptions including expectations concerning policyholder
behavior. A risk neutral valuation methodology is used to project the cash flows from the guarantees under multiple capital market scenarios to
determine an economic liability. The reported estimated fair value is then determined by taking the present value of these risk-free generated cash
flows using a discount rate that incorporates a spread over the risk-free rate to reflect our nonperformance risk and adding a risk margin. For more
information on the determination of estimated fair value, see Note 10 of the Notes to the Consolidated Financial Statements.
The table below contains the carrying value for guarantees at:
Americas
GMDB
GMIB
GMAB
GMWB
Asia
GMDB
GMAB
GMWB
EMEA
GMDB
GMAB
GMWB
Corporate & Other
GMDB
GMAB
GMWB
Total
Future Policy
Benefits
December 31,
Policyholder
Account Balances
December 31,
2015
2014
2015
2014
(In millions)
$
937
$
710
$
— $
2,410
—
127
25
—
89
2
—
8
13
—
104
1,993
—
104
29
—
91
2
—
26
17
—
74
$
3,715
$
3,046
$
(507)
9
338
—
37
151
—
16
(63)
—
13
951
945
$
—
(1,278)
2
38
—
22
129
—
23
(61)
—
23
949
(153)
The carrying amounts for guarantees included in policyholder account balances above include nonperformance risk adjustments of $462 million
and $299 million at December 31, 2015 and 2014, respectively. These nonperformance risk adjustments represent the impact of including a credit
spread when discounting the underlying risk neutral cash flows to determine the estimated fair values. The nonperformance risk adjustment does not
have an economic impact on us as it cannot be monetized given the nature of these policyholder liabilities. The change in valuation arising from the
nonperformance risk adjustment is not hedged.
The carrying values of these guarantees can change significantly during periods of sizable and sustained shifts in equity market performance,
equity volatility, interest rates or foreign currency exchange rates. Carrying values are also impacted by our assumptions around mortality, separate
account returns and policyholder behavior, including lapse rates.
As discussed below, we use a combination of product design, hedging strategies, reinsurance, and other risk management actions to mitigate
the risks related to these benefits. Within each type of guarantee, there is a range of product offerings reflecting the changing nature of these products
over time. Changes in product features and terms are in part driven by customer demand but, more importantly, reflect our risk management practices
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of continuously evaluating the guaranteed benefits and their associated asset-liability matching. Recently, we have been diversifying the concentration
of income benefits in the portfolio of the Company’s Retail Annuities business by focusing on withdrawal benefits, variable annuities without living
benefits and index-linked annuities. To this end, the GMIBs will not be available for new purchases after February 19, 2016.
The sections below provide further detail by total account value for certain of our most popular guarantees. Total account values include amounts
not reported in the consolidated balance sheets from assumed business, contractholder-directed investments which do not qualify for presentation
as separate account assets, and amounts included in our general account. The total account values and the net amounts at risk include direct and
assumed business, but exclude offsets from hedging or ceded reinsurance, if any.
GMDBs
We offer a range of GMDBs to our contractholders. The table below presents GMDBs, by benefit type, at December 31, 2015:
Return of premium or five to seven year step-up
Annual step-up
Roll-up and step-up combination
Total
______________
Total Account Value (1)
Americas
Asia & EMEA
(In millions)
Corporate
& Other
$
$
100,518
$
9,916
$
10,715
27,796
36,539
—
—
—
—
164,853
$
9,916
$
10,715
(1)
Total account value excludes $2.1billion for contracts with no GMDBs. Further, many of our annuity contracts offer more than one type of
guarantee such that GMDB amounts listed above are not mutually exclusive to the amounts in the living benefit guarantees table below.
Based on total account value, less than 39% of our GMDBs included enhanced death benefits such as the annual step-up or roll-up and
step-up combination products. We expect the above GMDB risk profile to be relatively consistent for the foreseeable future.
Living Benefit Guarantees
The table below presents our living benefit guarantees based on total account values at December 31, 2015:
GMIB
GMWB - non-life contingent (2)
GMWB - life-contingent
GMAB
______________
Total Account Value (1)
Americas
Asia & EMEA
(In millions)
90,292
$
— $
5,704
22,144
675
2,647
4,524
1,376
Corporate
& Other
—
2,319
7,416
980
118,815
$
8,547
$
10,715
$
$
(1)
(2)
Total account value excludes $48.1 billion for contracts with no living benefit guarantees. Further, many of our annuity contracts offer more
than one type of guarantee such that living benefit guarantee amounts listed above are not mutually exclusive of the amounts in the GMDBs
table above.
The Asia and EMEA segments include the non-life contingent portion of the GMWB total account value of $948 million with a guarantee at
annuitization.
In terms of total account value, GMIBs are our most significant living benefit guarantee. Our primary risk management strategy for our GMIB
products is our derivatives hedging program as discussed below. Additionally, we have engaged in certain reinsurance agreements covering some
of our GMIB business. As part of our overall risk management approach for living benefit guarantees, we continually monitor the reinsurance markets
for the right opportunity to purchase additional coverage for our GMIB business.
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The table below presents our GMIB associated total account values, by their guaranteed payout basis, at December 31, 2015:
7-year setback, 2.5% interest rate
7-year setback, 1.5% interest rate
10-year setback, 1.5% interest rate
10-year mortality projection, 10-year setback, 1.0% interest rate
10-year mortality projection, 10-year setback, 0.5% interest rate
Total
Account Value
(In millions)
$
$
32,382
5,632
18,340
29,751
4,187
90,292
The annuitization interest rates on GMIBs have been decreased from 2.5% to 0.5% over time, partially in response to the low interest rate
environment, accompanied by an increase in the setback period from seven years to 10 years and the more recent introduction of a 10-year
mortality projection.
Additionally, 33% of the $90.3 billion of GMIB total account value has been invested in managed volatility funds as of December 31, 2015.
These funds seek to manage volatility by adjusting the fund holdings within certain guidelines based on capital market movements. Such activity
reduces the overall risk of the underlying funds while maintaining their growth opportunities. These risk mitigation techniques translate to a reduction
or elimination of the need for us to manage the funds’ volatility through hedging or reinsurance.
Our GMIB products typically have a waiting period of 10 years to be eligible for annuitization. As of December 31, 2015, only 15% of our
contracts with GMIBs were eligible for annuitization. The remaining contracts are not eligible for annuitization for an average of six years.
Once eligible for annuitization, contractholders would only be expected to annuitize if their contracts were in-the-money. We calculate in-the-
moneyness with respect to GMIBs consistent with net amount at risk as discussed in Note 4 of the Notes to the Consolidated Financial Statements,
by comparing the contractholders’ income benefits based on total account values and current annuity rates versus the guaranteed income benefits.
The net amount at risk was $2,762 million at December 31, 2015, of which $2,619 million was related to GMIB guarantees. For those contracts
with GMIB, the table below presents details of contracts that are in-the-money and out-of-the money at December 31, 2015:
In-the-
Moneyness
Total
Account Value
(In millions)
% of Total
In-the-money
30% +
$
Out-of-the-money
20% to 30%
10% to 20%
0% to 10%
-10% to 0%
-20% to 10%
-20% +
Total GMIBs
$
2,460
1,970
3,722
6,180
14,332
12,662
11,540
51,758
75,960
90,292
3%
2%
4%
7%
14%
13%
57%
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Derivatives Hedging Variable Annuity Guarantees
Our risk mitigating hedging strategy uses various OTC and exchange traded derivatives. The table below presents the gross notional amount,
estimated fair value and primary underlying risk exposure of the derivatives hedging our variable annuity guarantees:
December 31,
2015
2014
Gross Notional
Estimated Fair Value
Gross Notional
Estimated Fair Value
Primary Underlying Risk Exposure
Instrument Type
Amount
Assets
Liabilities
Amount
Assets
Liabilities
Interest rate
Interest rate swaps
$
23,430
$ 2,056
$
966
$
22,794
$ 1,881
$
(In millions)
Interest rate futures
Interest rate options
Foreign currency exchange
Foreign currency
rate
forwards
Equity market
Foreign currency futures
Equity futures
Equity options
Variance swaps
Total rate of return
swaps
Total
3,915
24,923
2,305
135
7,104
54,113
23,437
4
994
29
—
61
1,541
195
5
7
7
—
18
1,041
636
2,707
36,510
2,241
522
6,065
37,427
24,598
3
908
1
2
65
1,422
196
3,803
47
58
3,297
22
$
143,165
$ 4,927
$
2,738
$
136,161
$ 4,500
$
834
9
26
137
—
2
1,035
639
101
2,783
The change in estimated fair values of our derivatives is recorded in policyholder benefits and claims if they are hedging guarantees included
in future policy benefits, and in net derivative gains (losses) if they are hedging guarantees included in policyholder account balances.
Our hedging strategy involves the significant use of static longer-term derivative instruments to avoid the need to execute transactions during
periods of market disruption or higher volatility. We continually monitor the capital markets for opportunities to adjust our liability coverage, as
appropriate. Futures are also used to dynamically adjust the daily coverage levels as markets and liability exposures fluctuate.
We remain liable for the guaranteed benefits in the event that reinsurers or derivative counterparties are unable or unwilling to pay. Certain of
our reinsurance agreements and most derivative positions are collateralized and derivatives positions are subject to master netting agreements,
both of which significantly reduce the exposure to counterparty risk. In addition, we are subject to the risk that hedging and other risk management
actions prove ineffective or that unanticipated policyholder behavior or mortality, combined with adverse market events, produces economic losses
beyond the scope of the risk management techniques employed.
Liquidity and Capital Resources
Overview
Our business and results of operations are materially affected by conditions in the global capital markets and the economy generally. Stressed
conditions, volatility and disruptions in global capital markets, particular markets, or financial asset classes can have an adverse effect on us, in part
because we have a large investment portfolio and our insurance liabilities are sensitive to changing market factors. The global markets and economy
continue to experience volatility that may affect our financing costs and market interest for our debt or equity securities. For further information regarding
market factors that could affect our ability to meet liquidity and capital needs, see “— Industry Trends” and “— Investments — Current Environment.”
Liquidity Management
Based upon the strength of our franchise, diversification of our businesses, strong financial fundamentals and the substantial funding sources
available to us as described herein, we continue to believe we have access to ample liquidity to meet business requirements under current market
conditions and reasonably possible stress scenarios. We continuously monitor and adjust our liquidity and capital plans for MetLife, Inc. and its
subsidiaries in light of market conditions, as well as changing needs and opportunities.
Short-term Liquidity
We maintain a substantial short-term liquidity position, which was $11.1 billion and $14.0 billion at December 31, 2015 and 2014,
respectively. Short-term liquidity includes cash and cash equivalents and short-term investments, excluding assets that are pledged or otherwise
committed including: (i) amounts related to cash collateral received under our securities lending program; (ii) amounts related to cash collateral
received from counterparties in connection with derivatives; and (iii) cash held in the closed block.
Liquid Assets
An integral part of our liquidity management includes managing our level of liquid assets, which was $229.4 billion and $237.4 billion at
December 31, 2015 and 2014, respectively. Liquid assets include cash and cash equivalents, short-term investments and publicly-traded
securities, excluding assets that are pledged or otherwise committed. Assets pledged or otherwise committed include: (i) amounts related to
cash collateral received under our securities lending program; (ii) amounts related to cash collateral received from counterparties in connection
with derivatives; (iii) cash and investments held in the closed block, in regulatory custodial accounts or on deposit with regulatory agencies;
(iv) investments held in trust in support of collateral financing arrangements; and (v) investments pledged in support of funding agreements,
derivatives and short sale agreements.
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Capital Management
We have established several senior management committees as part of our capital management process. These committees, including the
Capital Management Committee and the Enterprise Risk Committee (“ERC”), regularly review actual and projected capital levels (under a variety
of scenarios including stress scenarios) and our annual capital plan in accordance with our capital policy. The Capital Management Committee is
comprised of members of senior management, including MetLife, Inc.’s Chief Financial Officer, Treasurer and Chief Risk Officer (“CRO”). The ERC
is also comprised of members of senior management, including MetLife, Inc.’s Chief Financial Officer, CRO and Chief Investment Officer.
Our Board and senior management are directly involved in the development and maintenance of our capital policy. The capital policy sets
forth, among other things, minimum and target capital levels and the governance of the capital management process. All capital actions, including
proposed changes to the annual capital plan, capital targets or capital policy, are reviewed by the Finance and Risk Committee of the Board prior
to obtaining full Board approval. The Board approves the capital policy and the annual capital plan and authorizes capital actions, as required.
See “Risk Factors — Capital-Related Risks — Regulatory Restrictions and Uncertainty and Restrictions Under the Terms of Certain of Our
Securities May Prevent Us from Repurchasing Our Stock and Paying Dividends at the Level We Wish” in the 2015 Form 10-K and Note 16 of the
Notes to the Consolidated Financial Statements for information regarding restrictions on payment of dividends and stock repurchases. See also
“— The Company — Liquidity and Capital Uses — Common Stock Repurchases” for information regarding MetLife, Inc.’s common stock repurchase
authorizations.
The Company
Liquidity
Liquidity refers to a company’s ability to generate adequate amounts of cash to meet its needs. We determine our liquidity needs based on
a rolling 12-month forecast by portfolio of invested assets which we monitor daily. We adjust the asset mix and asset maturities based on this rolling
12-month forecast. To support this forecast, we conduct cash flow and stress testing, which include various scenarios of the potential risk of early
contractholder and policyholder withdrawal. We include provisions limiting withdrawal rights on many of our products, including general account
pension products sold to employee benefit plan sponsors. Certain of these provisions prevent the customer from making withdrawals prior to the
maturity date of the product. In the event of significant cash requirements beyond anticipated liquidity needs, we have various alternatives available
depending on market conditions and the amount and timing of the liquidity need. These available alternatives include cash flows from operations,
sales of liquid assets, global funding sources and various credit facilities.
Under certain stressful market and economic conditions, our access to liquidity may deteriorate, or the cost to access liquidity may increase.
If we require significant amounts of cash on short notice in excess of anticipated cash requirements or if we are required to post or return cash
collateral in connection with derivatives or our securities lending program, we may have difficulty selling investments in a timely manner, be forced
to sell them for less than we otherwise would have been able to realize, or both. In addition, in the event of such forced sale, accounting guidance
requires the recognition of a loss for certain securities in an unrealized loss position and may require the impairment of other securities if there is a
need to sell such securities, which may negatively impact our financial condition. See “Risk Factors — Investment-Related Risks — Should the
Need Arise, We May Have Difficulty Selling Certain Holdings in Our Investment Portfolio or in Our Securities Lending Program in a Timely Manner
and Realizing Full Value Given Their Illiquid Nature” in the 2015 Form 10-K.
In extreme circumstances, all general account assets within a particular legal entity — other than those which may have been pledged to a
specific purpose — are available to fund obligations of the general account of that legal entity.
Capital
We manage our capital position to maintain our financial strength and credit ratings. Our capital position is supported by our ability to generate
strong cash flows within our operating companies and borrow funds at competitive rates, as well as by our demonstrated ability to raise additional
capital to meet operating and growth needs despite adverse market and economic conditions.
Rating Agencies
Rating agencies assign insurer financial strength ratings to MetLife, Inc.’s domestic life insurance subsidiaries and credit ratings to MetLife,
Inc. and certain of its subsidiaries. Financial strength ratings represent the opinion of rating agencies regarding the ability of an insurance company
to pay obligations under insurance policies and contracts in accordance with their terms. Credit ratings indicate the rating agency’s opinion
regarding a debt issuer’s ability to meet the terms of debt obligations in a timely manner. They are important factors in our overall funding profile
and ability to access certain types of liquidity. The level and composition of regulatory capital at the subsidiary level and our equity capital are
among the many factors considered in determining our insurer financial strength ratings and credit ratings. Each agency has its own capital
adequacy evaluation methodology, and assessments are generally based on a combination of factors. In addition to heightening the level of
scrutiny that they apply to insurance companies, rating agencies have increased and may continue to increase the frequency and scope of their
credit reviews, may request additional information from the companies that they rate and may adjust upward the capital and other requirements
employed in the rating agency models for maintenance of certain ratings levels. See “Business — Company Ratings” in the 2015 Form 10-K for
further information on our insurer financial strength ratings.
Downgrades in our insurer financial strength ratings could have a material adverse effect on our financial condition and results of operations
in many ways, including:
•
•
reducing new sales of insurance products, annuities and investment products;
adversely affecting our relationships with our sales force and independent sales intermediaries;
• materially increasing the number or amount of policy surrenders and withdrawals by contractholders and policyholders;
requiring us to post additional collateral under certain of our financing and derivative transactions;
requiring us to reduce prices for our products and services to remain competitive; and
adversely affecting our ability to obtain reinsurance at reasonable prices or at all.
•
•
•
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A downgrade in the credit ratings or insurer financial strength ratings of MetLife, Inc. or its subsidiaries would likely impact us in the following
ways, including:
•
•
•
impact our ability to generate cash flows from the sale of funding agreements and other capital market products offered by our Corporate
Benefit Funding segment;
impact the cost and availability of financing for MetLife, Inc. and its subsidiaries; and
result in additional collateral requirements or other required payments under certain agreements, which are eligible to be satisfied in cash
or by posting investments held by the subsidiaries subject to the agreements. See “— Liquidity and Capital Uses — Pledged Collateral.”
Statutory Capital and Dividends
Our U.S. insurance subsidiaries have statutory surplus well above levels to meet current regulatory requirements.
Risk-based capital (“RBC”) requirements are used as minimum capital requirements by the NAIC and the state insurance departments to
identify companies that merit regulatory action. RBC is based on a formula calculated by applying factors to various asset, premium, claim,
expense and statutory reserve items. The formula takes into account the risk characteristics of the insurer, including asset risk, insurance risk,
interest rate risk, market risk and business risk and is calculated on an annual basis. The formula is used as an early warning regulatory tool to
identify possible inadequately capitalized insurers for purposes of initiating regulatory action, and not as a means to rank insurers generally. These
rules apply to most of our U.S. insurance subsidiaries. State insurance laws provide insurance regulators the authority to require various actions
by, or take various actions against, insurers whose total adjusted capital does not meet or exceed certain RBC levels. At the date of the most
recent annual statutory financial statements filed with insurance regulators, the total adjusted capital of each of these subsidiaries subject to
these requirements was in excess of each of those RBC levels.
As a Delaware corporation, American Life is subject to Delaware law; however, because it does not conduct insurance business in Delaware
or any other domestic state, it is exempt from RBC requirements under Delaware law. American Life’s operations are also regulated by applicable
authorities of the countries in which it operates and is subject to capital and solvency requirements in those countries.
The amount of dividends that our insurance subsidiaries can pay to MetLife, Inc. or to other parent entities is constrained by the amount
of surplus we hold to maintain our ratings and provides an additional margin for risk protection and investment in our businesses. We proactively
take actions to maintain capital consistent with these ratings objectives, which may include adjusting dividend amounts and deploying financial
resources from internal or external sources of capital. Certain of these activities may require regulatory approval. Furthermore, the payment of
dividends and other distributions to MetLife, Inc. and other parent entities by their respective insurance subsidiaries is governed by insurance
laws and regulations. See “Business — Regulation — U.S. Regulation — Insurance Regulation” and “Business — Regulation — International
Regulation” in the 2015 Form 10-K, “— MetLife, Inc. — Liquidity and Capital Sources — Dividends from Subsidiaries” and Note 16 of the Notes
to the Consolidated Financial Statements.
Affiliated Captive Reinsurance Transactions
Various subsidiaries of MetLife, Inc. cede specific policy classes, including term and universal life insurance, participating whole life insurance,
long-term disability insurance, group life insurance and other business to various wholly-owned captive reinsurers. The reinsurance activities
among these affiliated companies are eliminated within our consolidated results of operations. The statutory reserves of such affiliated captive
reinsurers are supported by a combination of funds withheld assets, investment assets and letters of credit issued by unaffiliated financial
institutions. MetLife, Inc. has committed to maintain the surplus of several of the domestic affiliated captive reinsurers, as well as provided
guarantees of the reinsurers’ and other affiliated international insurance entities’ repayment obligations on the letters of credit. MetLife, Inc. has
also provided guarantees of these reinsurers’ repayment obligations on derivative and certain reinsurance agreements entered into by these
reinsurers. See “— MetLife, Inc. — Liquidity and Capital Uses — Support Agreements” for further details on certain of these guarantees. Various
subsidiaries of MetLife, Inc. enter into reinsurance agreements with affiliated captive reinsurers for risk and capital management purposes, as
well as to manage statutory reserve requirements related to universal life and term life insurance policies and other business.
The NAIC continues to review insurance companies’ use of affiliated captive reinsurers and off-shore entities. The New York Department
of Financial Services continues to have a moratorium on new reserve financing transactions involving captive insurers. We are not aware of any
states other than New York and California implementing such a moratorium. While such a moratorium would not impact our existing reinsurance
agreements with captive reinsurers, a moratorium placed on the use of captives for new reserve financing transactions could impact our ability
to write certain products and/or impact our RBC ratios and ability to deploy excess capital in the future. This could result in our need to increase
prices, modify product features or limit the availability of those products to our customers. While this affects insurers across the industry, it could
adversely impact our competitive position and our results of operations in the future. We continue to evaluate product modifications, pricing
structure and alternative means of managing risks, capital and statutory reserves and we expect the discontinued use of captive reinsurance on
new reserve financing transactions would not have a material impact on our future consolidated financial results.
Our variable annuity guaranteed minimum benefit risk and certain other risks were previously ceded to an affiliated captive reinsurer. In
November 2014, this captive reinsurer merged with and into MetLife USA as part of the Mergers, further reducing the Company’s exposure to
and use of captive reinsurers. See “— Executive Summary — Other Key Information — Significant Events” for further information on the Mergers.
See also “Risk Factors — Regulatory and Legal Risks — Our Insurance and Brokerage Businesses Are Highly Regulated, and Changes in
Regulation and in Supervisory and Enforcement Policies May Reduce Our Profitability and Limit Our Growth — U.S. Regulation — Insurance
Regulation” in the 2015 Form 10-K and Note 6 of the Notes to the Consolidated Financial Statements for further information on our reinsurance
activities.
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Summary of the Company’s Primary Sources and Uses of Liquidity and Capital
Our primary sources and uses of liquidity and capital are summarized as follows:
Sources:
Operating activities, net
Changes in policyholder account balances, net
Changes in payables for collateral under securities loaned and other transactions, net
Short-term debt issuances, net
Long-term debt issued
Cash received in connection with redeemable noncontrolling interests
Common stock issued, net of issuance costs
Preferred stock issued, net of issuance costs
Other, net
Total sources
Uses:
Investing activities, net
Changes in policyholder account balances, net
Changes in payables for collateral under securities loaned and other transactions, net
Short-term debt repayments, net
Long-term debt repaid
Collateral financing arrangements repaid
Treasury stock acquired in connection with share repurchases
Repurchase of preferred stock
Preferred stock repurchase premium
Dividends on preferred stock
Dividends on common stock
Other, net
Effect of change in foreign currency exchange rates on cash and cash equivalents
Years Ended December 31,
2015
2014
(In millions)
2013
$
14,129
$
16,376
$
16,131
—
1,544
—
3,893
—
—
1,483
198
21,247
10,398
1,717
—
—
1,438
57
1,930
1,460
42
116
1,653
—
492
1,483
5,031
—
1,000
—
1,000
—
—
—
—
75
1,372
774
1,000
—
—
24,890
19,352
15,055
15,165
—
—
75
2,862
—
1,000
—
—
122
1,499
700
354
5,681
3,276
—
1,746
—
—
—
—
122
1,119
184
212
27,505
(8,153)
Total uses
Net increase (decrease) in cash and cash equivalents
19,303
21,667
$
1,944
$
3,223
$
Cash Flows from Operations
The principal cash inflows from our insurance activities come from insurance premiums, net investment income, annuity considerations
and deposit funds. The principal cash outflows relate to various life insurance, property & casualty, annuity and pension products, operating
expenses and income tax, as well as interest expense. A primary liquidity concern with respect to these cash flows is the risk of early contractholder
and policyholder withdrawal.
Cash Flows from Investments
The principal cash inflows from our investment activities come from repayments of principal, proceeds from maturities and sales of
investments and settlements of freestanding derivatives. The principal cash outflows relate to purchases of investments, issuances of policy
loans and settlements of freestanding derivatives. Additional cash outflows relate to purchases of businesses. We typically have a net cash
outflow from investing activities because cash inflows from insurance operations are reinvested in accordance with our ALM discipline to fund
insurance liabilities. We closely monitor and manage these risks through our comprehensive investment risk management process. The primary
liquidity concerns with respect to these cash flows are the risk of default by debtors and market disruption.
Cash Flows from Financing
The principal cash inflows from our financing activities come from issuances of debt and other securities, deposits of funds associated with
policyholder account balances and lending of securities. The principal cash outflows come from repayments of debt, payments of dividends on
and repurchases of MetLife, Inc.’s securities, withdrawals associated with policyholder account balances and the return of securities on loan.
The primary liquidity concerns with respect to these cash flows are market disruption and the risk of early contractholder and policyholder
withdrawal.
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Liquidity and Capital Sources
In addition to the general description of liquidity and capital sources in “— Summary of the Company’s Primary Sources and Uses of Liquidity
and Capital,” the following additional information is provided regarding our primary sources of liquidity and capital:
Global Funding Sources
Liquidity is provided by a variety of global funding sources, including funding agreements, credit facilities and commercial paper. Capital is
provided by a variety of global funding sources, including short-term and long-term debt, collateral financing arrangements, junior subordinated
debt securities, preferred securities, equity securities and equity-linked securities. The diversity of our global funding sources enhances our
funding flexibility, limits dependence on any one market or source of funds and generally lowers the cost of funds. Our primary global funding
sources include:
Preferred Stock
In June 2015, MetLife, Inc. issued 1,500,000 shares of 5.25% Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series C (the
“Series C preferred stock”), with a $0.01 par value per share and a liquidation preference of $1,000 per share, for aggregate proceeds of $1.5
billion. See Note 16 of the Notes to the Consolidated Financial Statements for further information.
Common Stock
In October 2014 and September 2013, MetLife, Inc. issued 22,907,960 new shares and 22,679,955 new shares, respectively, of its
common stock, each for $1.0 billion, in connection with the remarketing of senior debt securities and settlement of stock purchase contracts.
See “— Remarketing of Senior Debt Securities and Settlement of Stock Purchase Contracts.”
Commercial Paper, Reported in Short-term Debt
MetLife, Inc. and MetLife Funding, Inc. (“MetLife Funding”) each have a commercial paper program that is supported by the $4.0 billion
general corporate credit facility (see “— Credit and Committed Facilities”). MetLife Funding raises cash from its commercial paper program
and uses the proceeds to extend loans through MetLife Credit Corp., another subsidiary of MLIC, to affiliates in order to enhance the financial
flexibility and liquidity of these companies.
Federal Home Loan Bank Funding Agreements, Reported in Policyholder Account Balances
Certain of our domestic insurance subsidiaries are members of a regional Federal Home Loan Bank (“FHLB”). During the years ended
December 31, 2015, 2014 and 2013, we issued $21.6 billion, $13.9 billion and $11.5 billion, respectively, and repaid $21.1 billion, $14.0 billion
and $11.8 billion, respectively, under funding agreements with certain regional FHLBs. At December 31, 2015 and 2014, total obligations
outstanding under these funding agreements were $15.5 billion and $15.0 billion, respectively. See Note 4 of the Notes to the Consolidated
Financial Statements.
Special Purpose Entity Funding Agreements, Reported in Policyholder Account Balances
We issue fixed and floating rate funding agreements which are denominated in either U.S. dollars or foreign currencies, to certain special
purpose entities (“SPEs”) that have issued either debt securities or commercial paper for which payment of interest and principal is secured
by such funding agreements. During the years ended December 31, 2015, 2014 and 2013, we issued $48.1 billion, $48.9 billion and
$37.7 billion, respectively, and repaid $49.9 billion, $45.6 billion and $36.8 billion, respectively, under such funding agreements. At
December 31, 2015 and 2014, total obligations outstanding under these funding agreements were $31.6 billion and $33.9 billion, respectively.
See Note 4 of the Notes to the Consolidated Financial Statements.
Federal Agricultural Mortgage Corporation Funding Agreements, Reported in Policyholder Account Balances
We have issued funding agreements to the Federal Agricultural Mortgage Corporation (“Farmer Mac”), as well as to certain SPEs that
have issued debt securities for which payment of interest and principal is secured by such funding agreements, and such debt securities are
also guaranteed as to payment of interest and principal by Farmer Mac. The obligations under all such funding agreements are secured by a
pledge of certain eligible agricultural real estate mortgage loans. During the years ended December 31, 2015 and 2014, we issued $50 million
and $200 million, respectively, and repaid $250 million and $200 million, respectively, under such funding agreements. During the year ended
December 31, 2013, there were no issuances or repayments under such funding agreements. At December 31, 2015 and 2014, total
obligations outstanding under these funding agreements were $2.6 billion and $2.8 billion, respectively. See Note 4 of the Notes to the
Consolidated Financial Statements.
Debt Issuances and Other Borrowings
See Note 12 of the Notes to the Consolidated Financial Statements for further information on the following issuances of debt and other
borrowings:
•
•
•
•
In December 2015, MetLife Private Equity Holdings, LLC (“MPEH”), a wholly-owned indirect investment subsidiary of MLIC,
borrowed $350 million under term loans that mature in December 2020 (see “Other Notes” in Note 12 of the Notes to the
Consolidated Financial Statements for further information);
In November 2015, MetLife, Inc. issued $1.3 billion of senior notes for general corporate purposes, which include repayment of
certain senior notes upon their maturity in 2016;
In March 2015, MetLife, Inc. issued $1.5 billion of senior notes for general corporate purposes, which included repayment of
certain senior notes upon their maturity in 2015;
In April 2014, MetLife, Inc. issued $1.0 billion of senior notes for general corporate purposes, which included repayment of certain
senior notes upon their maturity in 2014 and the redemption of certain senior notes due in 2033; and
MetLife, Inc.
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•
In November 2013, MetLife, Inc. issued $1.0 billion of senior notes for general corporate purposes, which included repayment
of certain senior notes upon their maturity in 2014.
Remarketing of Senior Debt Securities and Settlement of Stock Purchase Contracts
In each of October 2014 and September 2013, MetLife, Inc. closed the successful remarketings of $1.0 billion of senior debt securities
underlying common equity units issued in November 2010 in connection with the acquisition of ALICO. MetLife, Inc. did not receive any
proceeds from the remarketings. Most common equity unit holders used the remarketing proceeds to settle their payment obligations under
the applicable stock purchase contracts. The subsequent settlement of the stock purchase contracts provided proceeds to MetLife, Inc. of
$1.0 billion in each of October 2014 and September 2013 in exchange for newly issued shares of MetLife, Inc.’s common stock as described
in “— Common Stock” above.
See Note 15 of the Notes to the Consolidated Financial Statements.
Credit and Committed Facilities
At December 31, 2015, we maintained a $4.0 billion unsecured credit facility and certain committed facilities aggregating $11.9 billion.
When drawn upon, these facilities bear interest at varying rates in accordance with the respective agreements.
The unsecured credit facility is used for general corporate purposes, to support the borrowers’ commercial paper programs and for the
issuance of letters of credit. At December 31, 2015, we had outstanding $484 million in letters of credit and no drawdowns against this facility.
Remaining availability was $3.5 billion at December 31, 2015.
The committed facilities are used for collateral for certain of our affiliated reinsurance liabilities. At December 31, 2015, $6.6 billion in
letters of credit and $2.8 billion in aggregate drawdowns under collateral financing arrangements were outstanding. Remaining availability was
$2.4 billion at December 31, 2015.
See Note 12 of the Notes to the Consolidated Financial Statements for further information about these facilities.
We have no reason to believe that our lending counterparties will be unable to fulfill their respective contractual obligations under these
facilities. As commitments associated with letters of credit and financing arrangements may expire unused, these amounts do not necessarily
reflect our actual future cash funding requirements.
Outstanding Debt Under Global Funding Sources
The following table summarizes our outstanding debt at:
Short-term debt
Long-term debt (1), (2)
Collateral financing arrangements (3)
Junior subordinated debt securities (3)
______________
December 31,
2015
2014
(In millions)
100
17,963
4,139
3,194
$
$
$
$
100
16,135
4,196
3,193
$
$
$
$
(1)
(2)
(3)
Excludes $60 million and $151 million at December 31, 2015 and 2014, respectively, of long-term debt relating to CSEs — FVO (see Note 8
of the Notes to the Consolidated Financial Statements). For more information regarding long-term debt, see Note 12 of the Notes to the
Consolidated Financial Statements.
Includes $408 million and $59 million of non-recourse debt at December 31, 2015 and 2014, respectively, for which creditors have no access,
subject to customary exceptions, to the general assets of the Company other than recourse to certain investment subsidiaries.
For information regarding collateral financing arrangements and junior subordinated debt securities, see Notes 13 and 14 of the Notes to the
Consolidated Financial Statements, respectively.
Debt and Facility Covenants
Certain of our debt instruments and committed facilities, as well as our unsecured credit facility, contain various administrative, reporting,
legal and financial covenants. We believe we were in compliance with all such covenants at December 31, 2015.
Dispositions
Cash proceeds from dispositions during the years ended December 31, 2015, 2014 and 2013 were $0, $759 million and $407 million,
respectively. During the year ended December 31, 2013, the sale of MetLife Bank’s depository business resulted in cash outflows of $6.4 billion
as a result of the buyer’s assumption of the bank deposits liability in exchange for our cash payment.
See Note 3 of the Notes to the Consolidated Financial Statements for additional information.
Liquidity and Capital Uses
In addition to the general description of liquidity and capital uses in “— Summary of the Company’s Primary Sources and Uses of Liquidity
and Capital” and “— Contractual Obligations,” the following additional information is provided regarding our primary uses of liquidity and capital:
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Preferred Stock Repurchase
In June 2015, MetLife, Inc. conducted a tender offer for up to 59,850,000 of its 60,000,000 shares of the 6.50% Non-Cumulative Preferred
Stock, Series B (“Series B preferred stock”), at a purchase price of $25 per share, plus an amount equal to accrued, unpaid and undeclared
dividends from, and including, June 15, 2015 to, but excluding, June 29, 2015, the settlement date of the tender offer. In June 2015, MetLife,
Inc. also delivered a notice of redemption to the holders of the Series B preferred stock, pursuant to which it would redeem any Series B preferred
stock not purchased by it in the tender offer at a redemption price of $25 per share, without any payment for accrued, unpaid and undeclared
dividends on the Series B preferred stock from, and including, June 15, 2015 to, but excluding July 1, 2015, the redemption date. On June 29,
2015, MetLife, Inc. repurchased and canceled 37,192,413 shares of Series B preferred stock in the tender offer for $932 million in cash. On July
1, 2015, MetLife, Inc. redeemed and canceled the remaining 22,807,587 shares of Series B preferred stock not tendered in the tender offer for
an aggregate redemption price of $570 million in cash. In connection with the tender offer and redemption, MetLife, Inc. recognized a preferred
stock repurchase premium of $42 million (calculated as the difference between the carrying value of the Series B preferred stock and the total
amount paid by MetLife, Inc. to the holders of the Series B preferred stock in connection with the tender offer and redemption), which was
reflected as a reduction to retained earnings on the consolidated balance sheet. See Note 16 of the Notes to the Consolidated Financial Statements.
Common Stock Repurchases
In August 2014, MetLife, Inc. completed the remaining $261 million in common stock repurchases under a $1.0 billion authorization by the
Board of Directors announced on January 15, 2008. In January 2015, MetLife, Inc. completed $1.0 billion of common stock repurchases pursuant
to a Board of Directors authorization announced on April 22, 2008. On December 12, 2014, MetLife, Inc. announced that its Board of Directors
authorized $1.0 billion of common stock repurchases in addition to previously authorized purchases, and on September 22, 2015, MetLife, Inc.
announced that its Board of Directors authorized additional repurchases of $739 million of its common stock, bringing MetLife, Inc.’s remaining
available repurchase authorizations to $1.0 billion as of September 22, 2015. In October 2015, MetLife, Inc. completed all remaining repurchases
under the $1.0 billion authorization announced by the Board of Directors on December 12, 2014. At December 31, 2015, MetLife, Inc. had $70
million remaining under the September 2015 common stock repurchase authorization. MetLife, Inc. subsequently completed all repurchases
under this authorization in January 2016. Under these authorizations, MetLife, Inc. may purchase its common stock from the MetLife Policyholder
Trust, in the open market (including pursuant to the terms of a pre-set trading plan meeting the requirements of Rule 10b5-1 under the Securities
Exchange Act of 1934) and in privately negotiated transactions.
During the years ended December 31, 2015 and 2014, MetLife, Inc. repurchased 39,491,991 and 18,876,363 shares of common stock
in the open market for $1.9 billion and $1.0 billion, respectively. MetLife, Inc. did not repurchase any shares of common stock during the year
ended December 31, 2013. In 2016, through January 7, 2016, MetLife, Inc. repurchased 1,445,864 shares of its common stock in the open
market for $70 million completing the September 2015 authorization.
Common stock repurchases are dependent upon several factors, including our capital position, liquidity, financial strength and credit ratings,
general market conditions, the market price of MetLife, Inc.’s common stock compared to management’s assessment of the stock’s underlying
value and applicable regulatory approvals, as well as other legal and accounting factors. See “Business — Regulation — U.S. Regulation —
Regulation as a Non-Bank SIFI,” “Business — Regulation — International Regulation — Global Systemically Important Insurers” and “Risk
Factors — Capital-Related Risks — Regulatory Restrictions and Uncertainty and Restrictions Under the Terms of Certain of Our Securities May
Prevent Us from Repurchasing Our Stock and Paying Dividends at the Level We Wish” in the 2015 Form 10-K. See also “Business — Recent
Developments” and Note 16 of the Notes to the Consolidated Financial Statements.
Dividends
During the years ended December 31, 2015, 2014 and 2013, MetLife, Inc. paid dividends on its common stock of $1.7 billion, $1.5 billion
and $1.1 billion, respectively. During the years ended December 31, 2015, 2014 and 2013, MetLife, Inc. paid dividends on its preferred stock
of $116 million, $122 million, and $122 million, respectively. See Note 16 of the Notes to the Consolidated Financial Statements for information
regarding the calculation and timing of these dividend payments.
The declaration and payment of common stock dividends is subject to the discretion of our Board of Directors, and will depend on MetLife,
Inc.’s financial condition, results of operations, cash requirements, future prospects, regulatory restrictions on the payment of dividends by
MetLife, Inc.’s insurance subsidiaries and other factors deemed relevant by the Board. On January 6, 2016, the MetLife, Inc. Board of Directors
declared a first quarter 2016 common stock dividend of $0.375 per share payable on March 14, 2016 to shareholders of record as of February
5, 2016. The Company estimates the aggregate dividend payment will be $413 million.
Preferred stock dividends are paid quarterly in accordance with the terms of MetLife, Inc.’s Floating Rate Non-Cumulative Preferred Stock,
Series A and, ending with the June 15, 2015 payment date for the Series B preferred stock. Dividends are paid semi-annually on MetLife, Inc.’s
Series C preferred stock commencing December 15, 2015 and ending on June 15, 2020, and thereafter are paid quarterly.
The payment of dividends and other distributions by MetLife, Inc. to its security holders may be subject to regulation by the Federal Reserve
as a result of MetLife, Inc.’s designation as a non-bank SIFI. See “Business — Regulation — U.S. Regulation — Regulation as a Non-Bank SIFI”
in the 2015 Form 10-K. In addition, if additional capital requirements are imposed on MetLife, Inc. as a global systemically important insurer (“G-
SII”), its ability to pay dividends could be reduced by any such additional capital requirements that might be imposed. See “Business — Regulation
— International Regulation — Global Systemically Important Insurers” in the 2015 Form 10-K. The payment of dividends is also subject to
restrictions under the terms of our preferred stock and junior subordinated debentures in situations where we may be experiencing financial
stress. See “Risk Factors — Capital-Related Risks — Regulatory Restrictions and Uncertainty and Restrictions Under the Terms of Certain of
Our Securities May Prevent Us from Repurchasing Our Stock and Paying Dividends at the Level We Wish” in the 2015 Form 10-K, and Note 16
of the Notes to the Consolidated Financial Statements.
Debt Repayments
See Notes 12 and 13 of the Notes to the Consolidated Financial Statements for further information on long-term and short-term debt and
collateral financing arrangements, respectively, including:
•
In June 2015, MetLife, Inc. repaid at maturity its $1.0 billion 5.0% senior notes;
MetLife, Inc.
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•
•
•
In 2015, following regulatory approval, MetLife Reinsurance Company of Charleston (“MRC”), a wholly-owned subsidiary of MetLife, Inc.,
repurchased and canceled $57 million in aggregate principal amount of its surplus notes;
In June and February 2014, MetLife, Inc. repaid at maturity its $350 million and $1.0 billion senior notes, respectively;
In May 2014, MetLife, Inc. redeemed $200 million aggregate principal amount of its 5.875% senior notes due in November 2033 at par;
and
•
In November and August 2013, MetLife, Inc. repaid at maturity its $500 million and $250 million senior notes, respectively.
Debt Repurchases
We may from time to time seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for other securities,
in open market purchases, privately negotiated transactions or otherwise. Any such repurchases or exchanges will be dependent upon several
factors, including our liquidity requirements, contractual restrictions, general market conditions, and applicable regulatory, legal and accounting
factors. Whether or not to repurchase any debt and the size and timing of any such repurchases will be determined at our discretion.
Support Agreements
MetLife, Inc. and several of its subsidiaries (each, an “Obligor”) are parties to various capital support commitments and guarantees with
subsidiaries. Under these arrangements, each Obligor, with respect to the applicable entity, has agreed to cause such entity to meet specified
capital and surplus levels or has guaranteed certain contractual obligations. We anticipate that in the event that these arrangements place
demands upon us, there will be sufficient liquidity and capital to enable us to meet anticipated demands. See “— MetLife, Inc. — Liquidity and
Capital Uses — Support Agreements.”
Insurance Liabilities
Liabilities arising from our insurance activities primarily relate to benefit payments under various life insurance, property & casualty, annuity
and group pension products, as well as payments for policy surrenders, withdrawals and loans. For annuity or deposit type products, surrender
or lapse behavior differs somewhat by segment. In the Retail segment, which includes individual annuities, lapses and surrenders tend to occur
in the normal course of business. During the years ended December 31, 2015 and 2014, general account surrenders and withdrawals from
annuity products were $3.8 billion and $4.5 billion, respectively. In the Corporate Benefit Funding segment, which includes pension risk transfers,
bank-owned life insurance and other fixed annuity contracts, as well as funding agreements and other capital market products, most of the
products offered have fixed maturities or fairly predictable surrenders or withdrawals. With regard to the Corporate Benefit Funding segment
liabilities that provide customers with limited rights to accelerate payments, as of December 31, 2015, there were no funding agreements and
other capital market products that could be put back to the Company.
Pledged Collateral
We pledge collateral to, and have collateral pledged to us by, counterparties in connection with our derivatives. At December 31, 2015 and
2014, we were obligated to return cash collateral pledged to the Company of $6.6 billion and $4.6 billion, respectively. At December 31, 2015
and 2014, we had pledged cash collateral of $241 million and $391 million, respectively. With respect to OTC-bilateral derivatives in a net liability
position that have credit contingent provisions, a one-notch downgrade in the Company’s credit rating would have required $1 million of additional
collateral be provided to our counterparties as of December 31, 2015. See Note 9 of the Notes to the Consolidated Financial Statements for
additional information about collateral pledged to us, collateral we pledge and derivatives subject to credit contingent provisions.
We pledged collateral and have had collateral pledged to us, and may be required from time to time to pledge additional collateral or be
entitled to have additional collateral pledged to us, in connection with collateral financing arrangements related to the reinsurance of closed block
and ULSG liabilities. See Note 13 of the Notes to the Consolidated Financial Statements.
We pledged collateral from time to time in connection with funding agreements. See Note 4 of the Notes to the Consolidated Financial
Statements.
Securities Lending
We participate in a securities lending program whereby securities are loaned to third parties, primarily brokerage firms and commercial
banks. We obtain collateral, usually cash, from the borrower, which must be returned to the borrower when the loaned securities are returned
to us. Under our securities lending program, we were liable for cash collateral under our control of $30.2 billion and $30.8 billion at December
31, 2015 and 2014, respectively. Of these amounts, $10.1 billion and $10.7 billion at December 31, 2015 and 2014, respectively, were on open,
meaning that the related loaned security could be returned to us on the next business day requiring the immediate return of cash collateral we
hold. The estimated fair value of the securities on loan related to the cash collateral on open at December 31, 2015 was $9.9 billion, over 99%
of which were U.S. Treasury and agency securities which, if put to us, could be immediately sold to satisfy the cash requirements to immediately
return the cash collateral. See Note 8 of the Notes to the Consolidated Financial Statements.
Litigation
Putative or certified class action litigation and other litigation, and claims and assessments against us, in addition to those discussed
elsewhere herein and those otherwise provided for in the consolidated financial statements, have arisen in the course of our business, including,
but not limited to, in connection with our activities as an insurer, employer, investor, investment advisor, taxpayer and, formerly, a mortgage
lending bank. Further, state insurance regulatory authorities and other federal and state authorities regularly make inquiries and conduct
investigations concerning our compliance with applicable insurance and other laws and regulations. See Note 21 of the Notes to the Consolidated
Financial Statements.
We establish liabilities for litigation and regulatory loss contingencies when it is probable that a loss has been incurred and the amount of
the loss can be reasonably estimated. For material matters where a loss is believed to be reasonably possible but not probable, no accrual is
made but we disclose the nature of the contingency and an aggregate estimate of the reasonably possible range of loss in excess of amounts
accrued, when such an estimate can be made. It is not possible to predict or determine the ultimate outcome of all pending investigations and
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legal proceedings. In some of the matters referred to herein, very large and/or indeterminate amounts, including punitive and treble damages,
are sought. Although in light of these considerations, it is possible that an adverse outcome in certain cases could have a material adverse effect
upon our financial position, based on information currently known by us, in our opinion, the outcome of such pending investigations and legal
proceedings are not likely to have such an effect. However, given the large and/or indeterminate amounts sought in certain of these matters and
the inherent unpredictability of litigation, it is possible that an adverse outcome in certain matters could, from time to time, have a material adverse
effect on our consolidated net income or cash flows in particular quarterly or annual periods.
Acquisitions
Cash outflows for acquisitions and investments in strategic partnerships during the years ended December 31, 2015, 2014 and 2013 were
$0, $277 million and $1.9 billion, respectively. See Note 3 of the Notes to the Consolidated Financial Statements for further information regarding
acquisitions.
Contractual Obligations
The following table summarizes our major contractual obligations at December 31, 2015:
Total
One Year
or Less
More than
One Year to
Three Years
(In millions)
More than
Three Years
to Five Years
More than
Five Years
$
376,995
$
23,088
$
20,349
$
20,203
$
286,125
36,871
43,768
11,444
2,027
18,281
28,278
36,871
2,604
11,231
321
17,810
33,094
21,612
—
4,384
100
475
22
—
4,019
113
357
11
313,355
203,141
—
32,761
—
874
438
$
775,511
$
120,203
$
58,424
$
46,315
$
550,569
Insurance liabilities
Policyholder account balances
Payables for collateral under securities loaned
and other transactions
Debt
Investment commitments
Operating leases
Other
Total
Insurance Liabilities
Insurance liabilities include future policy benefits, other policy-related balances, policyholder dividends payable and the policyholder dividend
obligation, which are all reported on the consolidated balance sheet and are more fully described in Notes 1 and 4 of the Notes to the Consolidated
Financial Statements. The amounts presented reflect future estimated cash payments and (i) are based on mortality, morbidity, lapse and other
assumptions comparable with our experience and expectations of future payment patterns; and (ii) consider future premium receipts on current
policies in-force. All estimated cash payments presented are undiscounted as to interest, net of estimated future premiums on in-force policies
and gross of any reinsurance recoverable. Payment of amounts related to policyholder dividends left on deposit are projected based on
assumptions of policyholder withdrawal activity. Because the exact timing and amount of the ultimate policyholder dividend obligation is subject
to significant uncertainty and the amount of the policyholder dividend obligation is based upon a long-term projection of the performance of the
closed block, we have reflected the obligation at the amount of the liability, if any, presented in the consolidated balance sheet in the more than
five years category. Additionally, the more than five years category includes estimated payments due for periods extending for more than 100
years.
The sum of the estimated cash flows shown for all years of $377.0 billion exceeds the liability amounts of $208.6 billion included on the
consolidated balance sheet principally due to (i) the time value of money, which accounts for a substantial portion of the difference; and
(ii) differences in assumptions, most significantly mortality, between the date the liabilities were initially established and the current date; and are
partially offset by liabilities related to accounting conventions, or which are not contractually due, which are excluded.
Actual cash payments may differ significantly from the liabilities as presented in the consolidated balance sheets and the estimated cash
payments as presented due to differences between actual experience and the assumptions used in the establishment of these liabilities and the
estimation of these cash payments.
For the majority of our insurance operations, estimated contractual obligations for future policy benefits and policyholder account balances,
as presented, are derived from the annual asset adequacy analysis used to develop actuarial opinions of statutory reserve adequacy for state
regulatory purposes. These cash flows are materially representative of the cash flows under GAAP. See “— Policyholder Account Balances.”
Policyholder Account Balances
See Notes 1 and 4 of the Notes to the Consolidated Financial Statements for a description of the components of policyholder account
balances. See “— Insurance Liabilities” regarding the source and uncertainties associated with the estimation of the contractual obligations
related to future policy benefits and policyholder account balances.
Amounts presented represent the estimated cash payments undiscounted as to interest and including assumptions related to the receipt
of future premiums and deposits; withdrawals, including unscheduled or partial withdrawals; policy lapses; surrender charges; annuitization;
mortality; future interest credited; policy loans and other contingent events as appropriate for the respective product type. Such estimated cash
payments are also presented net of estimated future premiums on policies currently in-force and gross of any reinsurance recoverable. For
obligations denominated in foreign currencies, cash payments have been estimated using current spot foreign currency rates.
The sum of the estimated cash flows shown for all years of $286.1 billion exceeds the liability amount of $202.7 billion included on the
consolidated balance sheets principally due to (i) the time value of money, which accounts for a substantial portion of the difference; (ii) differences
MetLife, Inc.
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in assumptions, between the date the liabilities were initially established and the current date; and (iii) liabilities related to accounting conventions,
or which are not contractually due, which are excluded.
Payables for Collateral Under Securities Loaned and Other Transactions
We have accepted cash collateral in connection with securities lending and derivatives. As the securities lending transactions expire within
the next year and the timing of the return of the derivatives collateral is uncertain, the return of the collateral has been included in the one year
or less category in the table. We also held non-cash collateral, which is not reflected as a liability in the consolidated balance sheet of $2.2 billion
at December 31, 2015.
Debt
Amounts presented for debt include short-term debt, long-term debt, collateral financing arrangements and junior subordinated debt
securities, the total of which differs from the total of the corresponding amounts presented on the consolidated balance sheet due to the following:
(i) the amounts presented herein do not include premiums or discounts upon issuance or purchase accounting fair value adjustments; (ii) the
amounts presented herein include future interest on such obligations for the period from January 1, 2016 through maturity; and (iii) the amounts
presented herein do not include $60 million at December 31, 2015 of long-term debt relating to CSEs — FVO as such debt does not represent
our contractual obligation. Future interest on variable rate debt was computed using prevailing rates at December 31, 2015 and, as such, does
not consider the impact of future rate movements. Future interest on fixed rate debt was computed using the stated rate on the obligations for
the period from January 1, 2016 through maturity, except with respect to junior subordinated debt which was computed using the stated rates
through the scheduled redemption dates as it is our expectation that such obligations will be redeemed at that time. Inclusion of interest payments
on junior subordinated debt securities through the final maturity dates would increase the contractual obligation by $7.7 billion. Pursuant to
collateral financing arrangements, MetLife, Inc. may be required to deliver cash or pledge collateral to the respective unaffiliated financial institutions.
See Note 13 of the Notes to the Consolidated Financial Statements.
Investment Commitments
To enhance the return on our investment portfolio, we commit to lend funds under mortgage loans, bank credit facilities, bridge loans and
private corporate bond investments and we commit to fund partnership investments. In the table, the timing of the funding of mortgage loans
and private corporate bond investments is based on the expiration dates of the corresponding commitments. As it relates to commitments to
fund partnerships and bank credit facilities, we anticipate that these amounts could be invested any time over the next five years; however, as
the timing of the fulfillment of the obligation cannot be predicted, such obligations are generally presented in the one year or less category.
Commitments to fund bridge loans are short-term obligations and, as a result, are presented in the one year or less category. See Note 21 of
the Notes to the Consolidated Financial Statements and “— Off-Balance Sheet Arrangements.”
Operating Leases
As a lessee, we have various operating leases, primarily for office space. Contractual provisions exist that could increase or accelerate
those lease obligations presented, including various leases with early buyouts and/or escalation clauses. However, the impact of any such
transactions would not be material to our financial position or results of operations. See Note 21 of the Notes to the Consolidated Financial
Statements.
Other
Other obligations presented are principally comprised of amounts due under reinsurance agreements, payables related to securities
purchased but not yet settled, securities sold short, accrued interest on debt obligations, estimated fair value of derivative obligations, deferred
compensation arrangements, guaranty liabilities, and accruals and accounts payable due under contractual obligations, which are all reported
in other liabilities on the consolidated balance sheets. If the timing of any of these other obligations is sufficiently uncertain, the amounts are
included within the one year or less category. Items reported in other liabilities on the consolidated balance sheets that were excluded from the
table represent accounting conventions or are not liabilities due under contractual obligations. Unrecognized tax benefits and related accrued
interest totaling $2.0 billion was excluded as the timing of payment cannot be reliably determined.
Separate account liabilities are excluded as they are fully funded by cash flows from the corresponding separate account assets and are
set equal to the estimated fair value of separate account assets.
We also enter into agreements to purchase goods and services in the normal course of business; however, such amounts are excluded
as these purchase obligations were not material to our consolidated results of operations or financial position at December 31, 2015.
Additionally, we have agreements in place for services we conduct, generally at cost, between subsidiaries relating to insurance, reinsurance,
loans and capitalization. Intercompany transactions have been eliminated in consolidation. Intercompany transactions among insurance
subsidiaries and affiliates have been approved by the appropriate insurance regulators as required.
74
MetLife, Inc.
Table of Contents
MetLife, Inc.
Liquidity and Capital Management
Liquidity and capital are managed to preserve stable, reliable and cost-effective sources of cash to meet all current and future financial
obligations and are provided by a variety of sources, including a portfolio of liquid assets, a diversified mix of short- and long-term funding sources
from the wholesale financial markets and the ability to borrow through credit and committed facilities. Liquidity is monitored through the use of
internal liquidity risk metrics, including the composition and level of the liquid asset portfolio, timing differences in short-term cash flow obligations,
access to the financial markets for capital and debt transactions and exposure to contingent draws on MetLife, Inc.’s liquidity. MetLife, Inc. is an
active participant in the global financial markets through which it obtains a significant amount of funding. These markets, which serve as cost-
effective sources of funds, are critical components of MetLife, Inc.’s liquidity and capital management. Decisions to access these markets are based
upon relative costs, prospective views of balance sheet growth and a targeted liquidity profile and capital structure. A disruption in the financial
markets could limit MetLife, Inc.’s access to liquidity.
MetLife, Inc.’s ability to maintain regular access to competitively priced wholesale funds is fostered by its current credit ratings from the major
credit rating agencies. We view our capital ratios, credit quality, stable and diverse earnings streams, diversity of liquidity sources and our liquidity
monitoring procedures as critical to retaining such credit ratings. See “— The Company — Capital — Rating Agencies.”
Liquidity
For a summary of MetLife, Inc.’s liquidity, see “— The Company — Liquidity.”
Capital
For a summary of MetLife, Inc.’s capital, see “— The Company — Capital.” For further information regarding potential capital restrictions and
limitations on MetLife, Inc. as a non-bank SIFI and G-SII, see “Business — Regulation — U.S. Regulation — Regulation as a Non-Bank SIFI” and
“Business — Regulation — International Regulation — Global Systemically Important Insurers” in the 2015 Form 10-K. See also “— The Company
— Liquidity and Capital Uses — Common Stock Repurchases” and “— The Company — Liquidity and Capital Uses — Preferred Stock Repurchase”
for information regarding MetLife, Inc.’s common and preferred stock repurchases, respectively.
Liquid Assets
At December 31, 2015 and 2014, MetLife, Inc. and other MetLife holding companies had $6.4 billion and $6.1 billion, respectively, in liquid
assets. Of these amounts, $5.3 billion and $5.4 billion were held by MetLife, Inc. and $1.1 billion and $681 million were held by other MetLife holding
companies at December 31, 2015 and 2014, respectively. Liquid assets include cash and cash equivalents, short-term investments and publicly-
traded securities excluding assets that are pledged or otherwise committed. Assets pledged or otherwise committed include: (i) amounts related
to cash collateral received from counterparties in connection with derivatives; (ii) investments held in trust in support of collateral financing
arrangements; and (iii) investments pledged in support of derivatives.
Liquid assets held in non-U.S. holding companies are generated in part through dividends from non-U.S. insurance operations. Such dividends
are subject to local insurance regulatory requirements, as discussed in “— Liquidity and Capital Sources — Dividends from Subsidiaries.” The
cumulative earnings of certain active non-U.S. operations have been reinvested indefinitely in such non-U.S. operations, as described in Note 19
of the Notes to the Consolidated Financial Statements. Under current tax laws, should we repatriate such earnings, we may be subject to additional
U.S. income taxes and foreign withholding taxes.
MetLife, Inc.
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Table of Contents
MetLife, Inc. and Other MetLife Holding Companies Sources and Uses of Liquid Assets and Sources and Uses of Liquid Assets included in
Free Cash Flow
MetLife, Inc.’s sources and uses of liquid assets, as well as sources and uses of liquid assets included in free cash flow are summarized
as follows.
Year Ended December 31, 2015
Year Ended December 31, 2014
Year Ended December 31, 2013
Sources and Uses
of Liquid Assets
Sources and Uses
of Liquid Assets
Included in Free
Cash Flow
Sources and Uses
of Liquid Assets
Sources and Uses
of Liquid Assets
Included in Free
Cash Flow
Sources and Uses
of Liquid Assets
Sources and Uses
of Liquid Assets
Included in Free
Cash Flow
(In millions)
MetLife, Inc. (Parent Company Only)
Sources:
Dividends and returns of capital from subsidiaries (1)
$
2,340
$
2,340
$
2,388
$
2,388
$
3,301
$
3,301
Long-term debt issued (2)
Common stock issued, net of issuance costs
Repayments on and (issuances of) loans to
subsidiaries and related interest, net (3)
Proceeds from stock-based compensation and
exercise of stock options
Other, net (4)
Total sources
Uses:
Capital contributions to subsidiaries (5)
Long-term debt repaid - unaffiliated
Interest paid on debt and financing arrangements -
unaffiliated
Dividends on common stock
Treasury stock acquired in connection with share
repurchases
Purchase of preferred stock and preferred stock
repurchase premium, net of proceeds from
preferred stock issuance
Dividends on preferred stock
Issuances of and (repayments on) loans to subsidiaries
and related interest, net (3) (5)
Other, net (4)
Total uses
Net increase (decrease) in liquid assets, MetLife, Inc.
(Parent Company Only)
Liquid assets, beginning of year
Liquid assets, end of year
Free Cash Flow, MetLife, Inc. (Parent Company Only) (6)
Net cash provided by operating activities, MetLife, Inc.
(Parent Company Only) (6)
Other MetLife Holding Companies
Sources:
Dividends and returns of capital from subsidiaries
Capital contributions from MetLife, Inc.
Total sources
Uses:
Capital contributions to subsidiaries
Repayments on and (issuance of) loans to subsidiaries
and affiliates and related interest, net
Other, net
Total uses
Net increase (decrease) in liquid assets, Other MetLife
Holding Companies
Liquid assets, beginning of year
Liquid assets, end of year
Free Cash Flow, Other MetLife Holding Companies (6)
Net increase (decrease) in liquid assets, All Holding
Companies
$
$
$
$
$
2,739
—
383
122
652
6,236
667
1,000
965
1,653
1,930
19
116
—
—
6,350
(114)
5,403
5,289
1,606
1,750
—
383
122
673
5,268
667
—
965
—
—
—
116
—
—
1,748
3,520
$
$
1,000
1,000
597
156
1,177
6,318
1,262
1,550
968
1,499
1,000
—
122
—
—
6,401
(83)
5,486
5,403
2,615
445
—
597
156
1,177
4,763
1,011
—
968
—
—
—
122
—
—
2,101
2,662
$
$
1,354
$
1,354
$
1,339
$
1,339
$
150
1,504
27
510
506
1,043
461
681
1,142
347
150
1,504
27
510
506
1,043
461
$
$
—
1,339
48
458
605
1,111
228
453
681
145
—
1,339
48
458
605
1,111
228
$
$
994
1,000
—
202
—
5,497
748
750
946
1,119
—
—
122
1,223
79
4,987
510
4,976
5,486
1,865
822
403
1,225
201
705
585
1,491
(266)
719
453
244
$
—
—
—
202
—
3,503
598
—
946
—
—
—
122
(319)
54
1,401
2,102
822
403
1,225
201
305
585
1,091
134
Free Cash Flow, All Holding Companies (6)
$
3,981
$
2,890
$
2,236
______________
(1)
76
All dividends and returns of capital to MetLife, Inc. were from operating subsidiaries and none were from other MetLife holding companies
during the years ended December 31, 2015, 2014 and 2013.
MetLife, Inc.
Table of Contents
(2)
(3)
(4)
(5)
(6)
Included in free cash flow is the portion of long-term debt issued that represents incremental debt to be at or below target leverage ratios.
See MetLife, Inc. (Parent Company Only) Condensed Statements of Cash Flows included in Schedule II of the Financial Statement Schedules
included in the 2015 Form 10-K for the source of liquid assets from receipts on loans to subsidiaries (excluding interest) and for the use of
liquid assets for the issuances of loans to subsidiaries (excluding interest).
Other, net includes $171 million, $862 million and $69 million of net receipts by MetLife, Inc. to and from subsidiaries under a tax sharing
agreement and tax payments to tax agencies during the years ended December 31, 2015, 2014 and 2013, respectively.
Amounts to fund business acquisitions and strategic insurance partnerships were $0, $251 million and $150 million (included in capital
contributions to subsidiaries) and $0, $0 and $1.5 billion (included in issuances of and (repayments on) loans to subsidiaries and related
interest, net) during the years ended December 31, 2015, 2014 and 2013, respectively.
See “— Non-GAAP and Other Financial Disclosures” for the reconciliation of net cash provided by operating activities of MetLife, Inc. to free
cash flow of all holding companies.
The primary sources of MetLife, Inc.’s liquid assets are dividends and returns of capital from subsidiaries, long-term debt issued, common
stock issued, and net receipts from subsidiaries under a tax sharing agreement. MetLife, Inc.’s insurance subsidiaries are subject to regulatory
restrictions on the payment of dividends imposed by the regulators of their respective domiciles. See “— Liquidity and Capital Sources —
Dividends from Subsidiaries.”
The primary uses of MetLife, Inc.’s liquid assets are principal and interest payments on long-term debt, dividends on or repurchases of
common and preferred stock, capital contributions to subsidiaries, funding of business acquisitions, income taxes and operating expenses.
MetLife, Inc. is party to various capital support commitments and guarantees with certain of its subsidiaries. See “— Liquidity and Capital Uses
— Support Agreements.”
In addition, MetLife, Inc. issues loans to subsidiaries or subsidiaries issue loans to MetLife, Inc. Accordingly, changes in MetLife, Inc. liquid
assets include issuances of loans to subsidiaries, proceeds of loans from subsidiaries and the related repayment of principal and payment of
interest on such loans. See “— Liquidity and Capital Sources — Debt Issuances and Other Borrowings — Issuances of Affiliated Long-term
Debt” and “— Liquidity and Capital Uses — Affiliated Capital Transactions.”
Sources and Uses of Liquid Assets of Other MetLife Holding Companies
The primary sources of liquid assets of other MetLife holding companies are dividends, returns of capital and remittances from their
subsidiaries and branches, principally non-U.S. insurance companies; capital contributions received; receipts of principal and interest on loans
to subsidiaries and affiliates and borrowings from subsidiaries and affiliates. MetLife, Inc.’s non-U.S. operations are subject to regulatory restrictions
on the payment of dividends imposed by local regulators. See “— Liquidity and Capital Sources — Dividends from Subsidiaries.”
The primary uses of liquid assets of other MetLife holding companies are capital contributions paid to their subsidiaries and branches,
principally non-U.S. insurance companies; loans to subsidiaries and affiliates; principal and interest paid on loans from subsidiaries and affiliates;
and the following items, which are reported within other, net: dividends and returns of capital; business acquisitions; and operating expenses.
Uses of liquid assets of other MetLife holding companies included $0, $0 and $400 million to fund business acquisitions during the years ended
December 31, 2015, 2014, and 2013, respectively.
Liquidity and Capital Sources
In addition to the description of liquidity and capital sources in “— The Company — Summary of the Company’s Primary Sources and Uses
of Liquidity and Capital” and “— The Company — Liquidity and Capital Sources,” the following additional information is provided regarding MetLife,
Inc.’s primary sources of liquidity and capital.
Dividends from Subsidiaries
MetLife, Inc. relies, in part, on dividends from its subsidiaries to meet its cash requirements. MetLife, Inc.’s insurance subsidiaries are subject
to regulatory restrictions on the payment of dividends imposed by the regulators of their respective domiciles. The dividend limitation for
U.S. insurance subsidiaries is generally based on the surplus to policyholders at the end of the immediately preceding calendar year and statutory
net gain from operations for the immediately preceding calendar year. Statutory accounting practices, as prescribed by insurance regulators of
various states in which we conduct business, differ in certain respects from accounting principles used in financial statements prepared in
conformity with GAAP. The significant differences relate to the treatment of DAC, certain deferred income tax, required investment liabilities,
statutory reserve calculation assumptions, goodwill and surplus notes.
MetLife, Inc.
77
Table of Contents
The table below sets forth the dividends permitted to be paid by MetLife, Inc.’s primary insurance subsidiaries without insurance regulatory
approval and the respective dividends paid:
Company
Metropolitan Life Insurance
Company (4)
American Life Insurance
Company
MetLife Insurance Company
USA
Metropolitan Property and
Casualty Insurance
Company
Metropolitan Tower Life
Insurance Company
MetLife Investors Insurance
Company (6)
______________
2016
Permitted
without
Approval (1)
2015
2014
2013
Paid (2)
Permitted
without
Approval (3)
Paid (2)
(In millions)
Permitted
without
Approval (3)
Paid (2)
Permitted
without
Approval (3)
$
$
$
$
$
3,753
$ 1,489
— $
—
586
$
500
130
70
$
$
235
102
$
$
$
$
$
1,200
$
821 (5)
— $
—
3,056
$
155 (6)
239
102
$
$
200
73
N/A
N/A
N/A
N/A
$
$
$
$
$
$
1,163
$ 1,428
— $
—
1,013
$ 1,000 (7)
218
73
120
$
$
$
100
109 (8)
129
$
$
$
$
$
$
1,428
523
1,330
74
77
129
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
78
Reflects dividend amounts that may be paid during 2016 without prior regulatory approval. However, because dividend tests may be based
on dividends previously paid over rolling 12-month periods, if paid before a specified date during 2016, some or all of such dividends may
require regulatory approval.
Reflects all amounts paid, including those requiring regulatory approval.
Reflects dividend amounts that could have been paid during the relevant year without prior regulatory approval.
The New York Insurance Law was amended, permitting MLIC to pay dividends without prior regulatory approval under one of two alternative
formulations beginning in 2016. See Note 16 of the Notes to the Consolidated Financial Statements. The dividend amount that MLIC may
pay during 2016 under the new formulation is reflected in the table above.
During December 2014, MLIC distributed shares of an affiliate to MetLife, Inc. as an in-kind dividend of $113 million.
See “Business — Other Key Information” for discussion of the Mergers. MetLife Investors Insurance Company was one of the companies that
was merged into MetLife USA in connection with the Mergers. Prior to the Mergers, Exeter paid dividends of $155 million on its preferred
stock. In August 2014, MICC redeemed for $1.4 billion and retired 4,595,317 shares of its common stock owned by MetLife Investors Group,
LLC (“MLIG”). Following the redemption, in August 2014, MLIG paid a dividend of $1.4 billion to MetLife, Inc. See “— Liquidity and Capital
Uses — Affiliated Capital Transactions.” MetLife USA did not pay dividends in 2014.
During the year ended December 31, 2013, MICC paid dividends of $1.0 billion.
During October 2013, Metropolitan Tower Life Insurance Company (“MTL”) distributed shares of an affiliate to MetLife, Inc. as an in-kind
dividend of $32 million. Also during October 2013, MTL paid a dividend to MetLife, Inc. in the amount of $77 million in cash, which represented
its dividend capacity without regulatory approval at December 31, 2013. Regulatory approval for these dividends was obtained due to the
amount and timing of the payments.
In addition to the amounts presented in the table above, for the years ended December 31, 2015, 2014 and 2013, cash dividends in the
aggregate amount of $9 million, $17 million and $0, respectively, were paid to MetLife, Inc. by certain of its other subsidiaries. Additionally, for
the years ended December 31, 2015, 2014 and 2013, MetLife, Inc. received cash of $5 million, $0 and $267 million, respectively, representing
returns of capital from certain subsidiaries.
The dividend capacity of our non-U.S. operations is subject to similar restrictions established by the local regulators. The non-U.S. regulatory
regimes also commonly limit the dividend payments to the parent to a portion of the prior year’s statutory income, as determined by the local
accounting principles. The regulators of our non-U.S. operations, including the Japan Financial Services Agency, may also limit or not permit
profit repatriations or other transfers of funds to the U.S. if such transfers are deemed to be detrimental to the solvency or financial strength of
the non-U.S. operations, or for other reasons. Most of the non-U.S. subsidiaries are second tier subsidiaries which are owned by various non-
U.S. holding companies. The capital and rating considerations applicable to the first tier subsidiaries may also impact the dividend flow into
MetLife, Inc.
We actively manage target and excess capital levels and dividend flows on a proactive basis and forecast local capital positions as part of
the financial planning cycle. The dividend capacity of certain U.S. and non-U.S. subsidiaries is also subject to business targets in excess of the
minimum capital necessary to maintain the desired rating or level of financial strength in the relevant market. We cannot provide assurance that
MetLife, Inc.’s subsidiaries 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 and that the applicable regulators will not disapprove any dividends that such subsidiaries must submit
for approval. See “Risk Factors — Capital-Related Risks — As a Holding Company, MetLife, Inc. Depends on the Ability of Its Subsidiaries to
Pay Dividends, a Major Component of Holding Company Free Cash Flow” in the 2015 Form 10-K and Note 16 of the Notes to the Consolidated
Financial Statements.
MetLife, Inc.
Table of Contents
Short-term Debt
MetLife, Inc. maintains a commercial paper program, the proceeds of which can be used to finance the general liquidity needs of MetLife,
Inc. and its subsidiaries. MetLife, Inc. had no short-term debt outstanding at both December 31, 2015 and 2014.
Preferred Stock
For information on MetLife, Inc.’s preferred stock, see “— The Company — Liquidity and Capital Sources — Global Funding Sources —
Preferred Stock.”
Debt Issuances and Other Borrowings
For information on MetLife, Inc.’s unaffiliated debt issuances and other borrowings, see “— The Company — Liquidity and Capital Sources —
Global Funding Sources — Debt Issuances and Other Borrowings.”
Issuances of Affiliated Long-term Debt
In June 2014, a $500 million senior note payable to MLIC matured and, subsequently, MetLife, Inc. issued a new $500 million senior
note to MLIC. The note matures in June 2019 and bears interest at a fixed rate of 3.54%, payable semi-annually.
In December 2013, MetLife, Inc. issued a $350 million senior note to MetLife Reinsurance Company of Delaware (“MRD”) due December
2033. The senior note bears interest at a fixed rate of 5.10%, payable semi-annually. MRD issued a $350 million surplus note to MetLife, Inc.
in exchange for the senior note.
Collateral Financing Arrangements and Junior Subordinated Debt Securities
For information on MetLife, Inc.’s collateral financing arrangements and junior subordinated debt securities, see Notes 13 and 14 of the
Notes to the Consolidated Financial Statements, respectively.
Credit and Committed Facilities
See “— The Company — Liquidity and Capital Sources — Global Funding Sources — Credit and Committed Facilities” for information
about MetLife, Inc.’s unsecured credit facility.
MetLife, Inc. maintains a committed facility with a capacity of $425 million. At December 31, 2015, MetLife, Inc. had outstanding $425
million in letters of credit and no drawdowns against this facility. Remaining availability was $0 at December 31, 2015. In addition, MetLife, Inc.
is a party and/or guarantor to committed facilities of certain of its subsidiaries, which aggregated $11.4 billion at December 31, 2015. The
committed facilities are used as collateral for certain of the Company’s affiliated reinsurance liabilities.
See “— The Company — Liquidity and Capital Sources — Global Funding Sources — Credit and Committed Facilities,” as well as Note 12
of the Notes to the Consolidated Financial Statements, for further information regarding these facilities.
Long-term Debt Outstanding
The following table summarizes the outstanding long-term debt of MetLife, Inc. at:
Long-term debt — unaffiliated
Long-term debt — affiliated
Collateral financing arrangements
Junior subordinated debt securities
Debt and Facility Covenants
December 31,
2015
2014
(In millions)
16,994
3,314
2,797
1,748
$
$
$
$
15,317
3,600
2,797
1,748
$
$
$
$
Certain of MetLife, Inc.’s debt instruments and committed facilities, as well as its credit facility, contain various administrative, reporting,
legal and financial covenants. MetLife, Inc. believes it was in compliance with all such covenants at December 31, 2015.
Dispositions
Cash proceeds from dispositions during the years ended December 31, 2015, 2014 and 2013 were $0, $7 million, and $17 million,
respectively. See Note 3 of the Notes to the Consolidated Financial Statements.
Liquidity and Capital Uses
The primary uses of liquidity of MetLife, Inc. include debt service, cash dividends on common and preferred stock, capital contributions to
subsidiaries, common and preferred stock repurchases, payment of general operating expenses and acquisitions. Based on our analysis and
comparison of our current and future cash inflows from the dividends we receive from subsidiaries that are permitted to be paid without prior
insurance regulatory approval, our investment portfolio and other cash flows and anticipated access to the capital markets, we believe there will
be sufficient liquidity and capital to enable MetLife, Inc. to make payments on debt, pay cash dividends on its common and preferred stock,
contribute capital to its subsidiaries, repurchase its common and preferred stock, pay all general operating expenses and meet its cash needs.
In addition to the description of liquidity and capital uses in “— The Company — Liquidity and Capital Uses” and “— The Company —
Contractual Obligations,” the following additional information is provided regarding MetLife, Inc.’s primary uses of liquidity and capital:
MetLife, Inc.
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Affiliated Capital Transactions
During the years ended December 31, 2015, 2014 and 2013, MetLife, Inc. invested an aggregate of $88 million, $1.8 billion and $934
million, respectively, in various subsidiaries.
MetLife, Inc. lends funds, as necessary, to its subsidiaries and affiliates, some of which are regulated, to meet their capital requirements.
MetLife, Inc. had loans to subsidiaries outstanding of $1.2 billion and $1.7 billion at December 31, 2015 and 2014, respectively.
In May 2015, American Life issued a $150 million short-term note to MetLife, Inc. which was repaid in June 2015. The short-term note
bore interest at six-month LIBOR plus 1.00%.
In April 2015, American Life issued a $150 million short-term note to MetLife, Inc. which was repaid in May 2015. The short-term note bore
interest at six-month LIBOR plus 0.875%.
In December 2014, MetLife, Inc. entered into a five-year agreement with MetLife Reinsurance Company of Bermuda, Ltd. (“MrB”), a Bermuda
insurance affiliate and an indirect, wholly-owned subsidiary of MetLife, Inc., to lend up to $500 million to MrB on a revolving basis. There were
no loans outstanding at December 31, 2015 and 2014.
In December 2014, American Life issued a $100 million surplus note to MetLife, Inc. The surplus note bears interest at a fixed rate of 3.17%,
payable semi-annually and matures in June 2020.
In August 2014, MICC paid to MLIG $1.4 billion to redeem and retire its common stock owned by MLIG; as a result, all of the outstanding
shares of common stock of MICC were directly held by MetLife, Inc. Following the redemption, in August 2014, MLIG paid a dividend of $1.4 billion
to MetLife, Inc., and MetLife, Inc. made a capital contribution to MICC of $231 million.
In August 2014, American Life issued a $120 million short-term note to MetLife, Inc. which was repaid in December 2014. In February
2014, American Life issued a $150 million short-term note to MetLife, Inc. which was repaid in June 2014. Both short-term notes bore interest
at six-month LIBOR plus 0.875%.
In December 2013, MRD issued a $350 million surplus note to MetLife, Inc. due December 2033. The surplus note bears interest at a fixed
rate of 6.00%, payable semi-annually. MetLife, Inc. issued a $350 million senior note to MRD in exchange for the surplus note.
In July 2013, MetLife Ireland Treasury Limited (“MITL”) borrowed the Chilean peso equivalent of $1.5 billion from MetLife, Inc., which was
due July 2023. The loan bore interest at a fixed rate of 8.5%, payable annually. In December, September and June 2015, MITL made loan
payments of the Chilean peso equivalent of $77 million, $153 million and $231 million, respectively. In December 2014 and June 2014, MITL
made loan payments of the Chilean peso equivalent of $493 million and $69 million, respectively. In December 2013, MITL made a loan payment
of the Chilean peso equivalent of $245 million. At December 31, 2015, the loan was fully paid.
In April 2013, MetLife Bank’s Board of Directors, with prior approval of the Office of the Comptroller of the Currency, approved the reduction
of its permanent capital by $550 million through a purchase of its $300 million of outstanding preferred stock held by MetLife, Inc. and a return
of capital of $250 million to MetLife, Inc. In May 2013, MetLife, Inc. received $550 million in cash to settle these transactions.
In January 2013, MetLife Bank both drew down and repaid $400 million under an 18-month agreement with MetLife, Inc., which bore
interest at a rate of three-month LIBOR plus 1.75%. On October 29, 2013, MetLife, Inc. and MLHL agreed to terminate the agreement. There
were no loans outstanding at such date.
Debt Repayments
For information on MetLife, Inc.’s debt repayments, see “— The Company — Liquidity and Capital Uses — Debt Repayments.” MetLife,
Inc. intends to repay or refinance, in whole or in part, all the debt that is due in 2016.
Repayments of Affiliated Long-term Debt
In December 2015, MetLife, Inc. repaid $286 million of affiliated long-term debt to MetLife Exchange Trust I, at maturity, in exchange for
a return of capital. The long-term note bore interest at three-month LIBOR plus 0.7%.
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Maturities of Senior Notes
The following table summarizes MetLife, Inc.’s outstanding senior notes by year of maturity through 2020 and 2021 to 2046, excluding any
premium or discount, at December 31, 2015:
Year of Maturity
2016
2016
2017
2017
2018
2019
2019
2019
2020
2021 - 2046
Support Agreements
Principal
(In millions)
Interest Rate
1,250
250
500
500
1,035
1,035
500
250
590
6.75%
7.44%
1.76%
1.90%
6.82%
7.72%
3.54%
3.57%
5.25%
14,215
Ranging from 3.00% - 6.50%
$
$
$
$
$
$
$
$
$
$
MetLife, Inc. is party to various capital support commitments and guarantees with certain of its subsidiaries. Under these arrangements,
MetLife, Inc. has agreed to cause each such entity to meet specified capital and surplus levels or has guaranteed certain contractual obligations.
See “— The Company — Liquidity and Capital Uses — Support Agreements.”
MetLife, Inc., in connection with MRD’s reinsurance of certain universal life and term life risks, entered into capital maintenance agreements
pursuant to which MetLife, Inc. agreed, without limitation as to amount, to cause the first and second protected cells of MRD to maintain total
adjusted capital equal to or greater than 200% of each such protected cell’s company action level RBC, as defined in state insurance statutes.
In addition, MetLife, Inc. entered into an agreement with the Delaware Department of Insurance to increase such capital maintenance threshold
to 300% of each such protected cell’s company action level RBC, in the event of specified downgrades in the senior unsecured debt ratings of
MetLife, Inc.
MetLife, Inc. guarantees the obligations of its subsidiary, DelAm, under a stop loss reinsurance agreement with RGA Reinsurance (Barbados)
Inc. (“RGARe”), pursuant to which RGARe retrocedes to DelAm a portion of the whole life medical insurance business that RGARe assumed
from American Life on behalf of its Japan operations. Also, MetLife, Inc. guarantees the obligations of its subsidiary, Missouri Reinsurance, Inc.
(“MoRe”), under a retrocession agreement with RGARe, pursuant to which MoRe retrocedes certain group term life insurance liabilities (which
retrocession was terminated effective as of January, 2016) and a portion of the closed block liabilities associated with industrial life and ordinary
life insurance policies that it assumed from MLIC.
MetLife, Inc. guarantees the obligations of MrB, a Bermuda insurance affiliate and an indirect, wholly-owned subsidiary of MetLife, Inc.
under a reinsurance agreement with Mitsui Sumitomo Primary Life Insurance Co., Ltd. (“Mitsui”), a former affiliate that is now an unaffiliated third
party, under which MrB reinsures certain variable annuity business written by Mitsui.
MetLife, Inc. guarantees the obligations of MrB in an aggregate amount up to $1.0 billion, under a reinsurance agreement with MetLife
Europe Limited (“MEL”), under which MrB reinsured the guaranteed living benefits and guaranteed death benefits associated with certain unit-
linked annuity contracts issued by MEL.
MetLife, Inc., in connection with reinsurance by MetLife Reinsurance Company of Vermont (“MRV”) of certain universal life and term life
insurance risks, committed to the Vermont Department of Banking, Insurance, Securities and Health Care Administration to take necessary
action to cause the three protected cells of MRV to maintain total adjusted capital in an amount that is equal to or greater than 200% of each
such protected cell’s authorized control level RBC, as defined in Vermont state insurance statutes. See Note 12 of the Notes to the Consolidated
Financial Statements.
MetLife, Inc., in connection with the collateral financing arrangement associated with MRC’s reinsurance of a portion of the liabilities
associated with the closed block, committed to the South Carolina Department of Insurance to make capital contributions, if necessary, to MRC
so that MRC may at all times maintain its total adjusted capital in an amount that is equal to or greater than 200% of the company action
level RBC, as defined in South Carolina state insurance statutes as in effect on the date of determination or December 31, 2007, whichever
calculation produces the greater capital requirement, or as otherwise required by the South Carolina Department of Insurance. See Note 13 of
the Notes to the Consolidated Financial Statements.
MetLife, Inc., in connection with the collateral financing arrangement associated with MetLife Reinsurance Company of South Carolina’s
(“MRSC”) reinsurance of ULSG, committed to the South Carolina Department of Insurance to take necessary action to cause MRSC to maintain
the greater of capital and surplus of $250,000 or total adjusted capital in an amount that is equal to or greater than 100% of authorized control
level RBC, as defined in South Carolina state insurance statutes. See Note 13 of the Notes to the Consolidated Financial Statements.
MetLife, Inc. has a net worth maintenance agreement with its insurance subsidiary, First MetLife Investors Insurance Company (“First
MetLife”). Under this agreement, as amended, MetLife, Inc. agreed, without limitation as to the amount, to cause First MetLife to have capital
and surplus of $10 million, total adjusted capital in an amount that is equal to or greater than 150% of the company action level RBC, as defined
by applicable state insurance statutes, and liquidity necessary to enable it to meet its current obligations on a timely basis.
MetLife, Inc.
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MetLife, Inc. guarantees obligations arising from derivatives of the following subsidiaries: MrB, MetLife International Holdings, LLC and
MetLife Worldwide Holdings, LLC. These subsidiaries are exposed to various risks relating to their ongoing business operations, including interest
rate, foreign currency exchange rate, credit and equity market. These subsidiaries use a variety of strategies to manage these risks, including
the use of derivatives. Further, all of the subsidiaries’ derivatives are subject to industry standard netting agreements and collateral agreements
that limit the unsecured portion of any open derivative position. On a net counterparty basis at December 31, 2015 and 2014, derivative
transactions with positive mark-to-market values (in-the-money) were $583 million and $499 million, respectively, and derivative transactions
with negative mark-to-market values (out-of-the-money) were $32 million and $102 million, respectively. To secure the obligations represented
by the out of-the-money transactions, the subsidiaries had provided collateral to their counterparties with an estimated fair value of $32 million
and $96 million at December 31, 2015 and 2014, respectively. Accordingly, unsecured derivative liabilities guaranteed by MetLife, Inc. were
$0 and $6 million at December 31, 2015 and 2014, respectively.
MetLife, Inc. also guarantees the obligations of certain of its subsidiaries under committed facilities with third-party banks. See Note 12 of
the Notes to the Consolidated Financial Statements.
Acquisitions
During the years ended December 31, 2015, 2014 and 2013, there were no cash outflows from MetLife, Inc. for acquisitions. See Note 3
of the Notes to the Consolidated Financial Statements for information regarding the Company’s acquisitions.
Adoption of New Accounting Pronouncements
See Note 1 of the Notes to the Consolidated Financial Statements.
Future Adoption of New Accounting Pronouncements
See Note 1 of the Notes to the Consolidated Financial Statements.
Non-GAAP and Other Financial Disclosures
In this report, the Company presents certain measures of its performance that are not calculated in accordance with GAAP. We believe that
these non-GAAP financial measures enhance the understanding of our performance by highlighting the results of operations and the underlying
profitability drivers of our business. The following non-GAAP financial measures should not be viewed as substitutes for the most directly comparable
financial measures calculated in accordance with GAAP:
Non-GAAP financial measures:
Comparable GAAP financial measures:
(i)
(ii)
(iii)
(iv)
operating revenues
operating expenses
operating earnings
operating earnings available to common
shareholders
(i)
(ii)
(iii)
(iv)
GAAP revenues
GAAP expenses
income (loss) from continuing operations, net of income tax
net income (loss) available to MetLife, Inc.’s common
shareholders
(v)
free cash flow of all holding companies
(v)
MetLife, Inc.’s net cash provided by operating activities
Reconciliations of these measures to the most directly comparable GAAP measures are included below and in “— Results of Operations.”
Our definitions of the various non-GAAP and other financial measures discussed in this report may differ from those used by other companies:
Operating earnings is the measure of segment profit or loss we use to evaluate segment performance and allocate resources. Consistent with
GAAP accounting guidance for segment reporting, operating earnings is our measure of segment performance. Operating earnings is also a measure
by which senior management’s and many other employees’ performance is evaluated for the purposes of determining their compensation under
applicable compensation plans.
Operating earnings is defined as operating revenues less operating expenses, both net of income tax. Operating earnings available to common
shareholders is defined as operating earnings less preferred stock dividends.
Operating revenues and operating expenses exclude results of discontinued operations and other businesses that have been or will be sold or
exited by MetLife and are referred to as divested businesses. Operating revenues also excludes net investment gains (losses) and net derivative gains
(losses). Operating expenses also excludes goodwill impairments.
The following additional adjustments are made to GAAP revenues, in the line items indicated, in calculating operating revenues:
•
•
Universal life and investment-type product policy fees excludes the amortization of unearned revenue related to net investment gains (losses)
and net derivative gains (losses) and certain variable annuity GMIB fees (“GMIB Fees”);
Net investment income: (i) includes amounts for investment hedge adjustments, (ii) includes income from discontinued real estate operations,
(iii) excludes post-tax operating earnings adjustments relating to insurance joint ventures accounted for under the equity method, (iv) excludes
certain amounts related to contractholder-directed unit-linked investments, and (v) excludes certain amounts related to securitization entities
that are VIEs consolidated under GAAP; and
• Other revenues are adjusted for settlements of foreign currency earnings hedges.
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MetLife, Inc.
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The following additional adjustments are made to GAAP expenses, in the line items indicated, in calculating operating expenses:
•
•
•
•
•
Policyholder benefits and claims and policyholder dividends excludes: (i) changes in the policyholder dividend obligation related to net
investment gains (losses) and net derivative gains (losses), (ii) inflation-indexed benefit adjustments associated with contracts backed by
inflation-indexed investments and amounts associated with periodic crediting rate adjustments based on the total return of a contractually
referenced pool of assets and other pass through adjustments (also known as asymmetrical and non-economic accounting for insurance
contracts), (iii) benefits and hedging costs related to GMIBs (“GMIB Costs”), and (iv) market value adjustments associated with surrenders
or terminations of contracts (“Market Value Adjustments”);
Interest credited to policyholder account balances includes adjustments for earned income on derivatives and amortization of premium on
derivatives that are hedges of policyholder account balances but do not qualify for hedge accounting treatment and excludes amounts
related to net investment income earned on contractholder-directed unit-linked investments;
Amortization of DAC and VOBA excludes amounts related to: (i) net investment gains (losses) and net derivative gains (losses), (ii) GMIB
Fees and GMIB Costs, and (iii) Market Value Adjustments;
Amortization of negative VOBA excludes amounts related to Market Value Adjustments;
Interest expense on debt excludes certain amounts related to securitization entities that are VIEs consolidated under GAAP; and
• Other expenses excludes costs related to: (i) noncontrolling interests, (ii) implementation of new insurance regulatory requirements, and
(iii) acquisition and integration costs.
Operating earnings also excludes the recognition of certain contingent assets and liabilities that could not be recognized at acquisition or adjusted
for during the measurement period under GAAP business combination accounting guidance. In addition to the tax impact of the adjustments mentioned
above, provision for income tax expense (benefit) also includes the impact related to the timing of certain tax credits, as well as certain tax reforms.
The following additional information is relevant to an understanding of our performance results:
• We sometimes refer to sales activity for various products. These sales statistics do not correspond to revenues under GAAP, but are used
as relevant measures of business activity.
•
The impact of changes in our foreign currency exchange rates is calculated using the average foreign currency exchange rates for the
current period and is applied to each of the comparable periods.
• Operating ROE is defined as operating earnings available to common shareholders, divided by average GAAP common stockholders’
equity.
• Operating ROE, excluding AOCI other than FCTA, is defined as operating earnings available to common shareholders divided by average
GAAP common stockholders’ equity, excluding AOCI other than FCTA.
•
•
Allocated equity is defined as the portion of MetLife, Inc.’s common stockholders’ equity that management allocates to each of its segments
and sub-segments based on local capital requirements and economic capital. See “— Economic Capital.” Allocated equity excludes the
impact of AOCI, other than FCTA.
The Company uses a measure of free cash flow to facilitate an understanding of its ability to generate cash for reinvestment into its businesses
or use in discretionary capital actions. The Company defines free cash flow as the sum of cash available at MetLife’s holding companies
from dividends from operating subsidiaries, expenses and other net flows of the holding companies, and net contributions from debt to be
at or below target leverage ratios. This measure of free cash flow is prior to discretionary capital deployment, including common stock
dividends and repurchases, debt reduction and mergers and acquisitions. Free cash flow should not be viewed as a substitute for net cash
provided by (used in) operating activities calculated in accordance with GAAP. The free cash flow ratio is typically expressed as a percentage
of annual operating earnings available to common shareholders. A reconciliation of net cash provided by operating activities of MetLife,
Inc. to free cash flow of all holding companies for the years ended December 31, 2015, 2014 and 2013 is provided below.
MetLife, Inc.
83
—
(598)
567
245
23
2,102
822
403
(201)
(305)
(567)
(18)
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Table of Contents
Reconciliation of Net Cash Provided by Operating Activities of MetLife, Inc. to Free Cash
Flow of All Holding Companies
Years Ended December 31,
2015
2014
(In millions)
2013
MetLife, Inc. (parent company only) net cash provided by operating activities
$
1,606
$
2,615
$
1,865
Adjustments from net cash provided by operating activities to free cash flow:
Add: Incremental debt to be at or below target leverage ratios
Add: Capital contributions to subsidiaries
Add: Returns of capital from subsidiaries
Add: Repayments on and (issuances of) loans to subsidiaries, net
Add: Investment portfolio changes and other, net
MetLife, Inc. (parent company only) free cash flow
Other MetLife holding companies:
1,750
(667)
5
461
365
3,520
445
(1,011)
—
462
151
2,662
Add: Dividends and returns of capital from subsidiaries
1,354
1,339
Add: Capital contributions from MetLife, Inc.
Add: Capital contributions to subsidiaries
Add: Repayments on and (issuances of) loans to subsidiaries, net
Add: Other expenses
Add: Investment portfolio changes and other, net
Total other MetLife holding companies free cash flow
Free cash flow of all holding companies
Ratio of free cash flow to operating earnings available to common shareholders:
Free cash flow of all holding companies
Consolidated operating earnings available to common shareholders (1)
Ratio of free cash flow of all holding companies to consolidated operating
earnings available to common shareholders (1)
Ratio of net cash provided by operating activities to consolidated net income (loss)
available to MetLife, Inc.'s common shareholders:
MetLife, Inc. (parent company only) net cash provided by operating activities
Consolidated net income (loss) available to MetLife, Inc.’s common
shareholders (2)
Ratio of net cash provided by operating activities (parent company only) to
consolidated net income (loss) available to MetLife, Inc.'s common
shareholders (2) (3)
______________
150
(27)
(510)
(729)
223
461
—
(48)
(458)
(637)
32
228
$
$
$
$
$
3,981
$
2,890
$
2,236
3,981
5,484
73%
1,606
5,152
$
$
$
$
2,890
6,560
44%
2,615
6,187
$
$
$
$
2,236
6,261
36%
1,865
3,246
31%
42%
57%
(1) Consolidated operating earnings available to common shareholders for 2015 includes a non-cash charge of $792 million, net of income tax, related
to an uncertain tax position. Excluding this charge from the denominator of the ratio, the adjusted free cash flow ratio would be 63%. See “Risk
Factors — Regulatory and Legal Risks — Changes in Tax Laws or Interpretations of Such Laws Could Reduce Our Earnings and Materially
Impact Our Operations by Increasing Our Corporate Taxes and Making Some of Our Products Less Attractive to Consumers” in the 2015 Form
10-K for additional information on this non-cash charge.
(2) Consolidated net income (loss) available to MetLife, Inc.'s common shareholders for 2015 includes a non-cash charge of $792 million, net of
income tax, related to an uncertain tax position. Excluding this charge from the denominator of the ratio, this ratio, as adjusted, would be 27%.
(3) Including the free cash flow of other MetLife, Inc. holding companies of $461 million, $228 million and $134 million for the years ended December
31, 2015, 2014 and 2013, respectively, in the numerator of the ratio, this ratio, as adjusted, would be 40%, 46% and 62%, respectively.
Finally, in this discussion, we also provide forward-looking guidance on an operating, or non-GAAP, basis. A reconciliation of these non-GAAP
measures to the most directly comparable GAAP measures is not accessible on a forward-looking basis because we believe it is not possible to
provide other than a range of net investment gains and losses and net derivative gains and losses, which can fluctuate significantly within or outside
the range and from period to period and may have a significant impact on GAAP net income.
Subsequent Events
See Note 23 of the Notes to the Consolidated Financial Statements.
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Quantitative and Qualitative Disclosures About Market Risk
Risk Management
We have developed an integrated process for managing risk, which we conduct through multiple Board and senior management committees
(financial and non-financial) within the GRM, ALM Unit, Treasury Department and Investments Department. The risk committee structure is designed
to provide a consolidated enterprise-wide assessment and management of risk. The ERC is responsible for reviewing all material risks to the enterprise
and deciding on actions, if necessary, in the event risks exceed desired tolerances, taking into consideration industry best practices and the current
environment to resolve or mitigate those risks. Additional committees at the MetLife, Inc. and subsidiary insurance company level that manage capital
and risk positions, approve ALM strategies and establish corporate business standards, report to the ERC.
Global Risk Management
Independent from the lines of business, the centralized GRM, led by the CRO, collaborates and coordinates across all committees to ensure
that all material risks are properly identified, measured, aggregated and reported across the Company. The CRO reports to the CEO and is primarily
responsible for maintaining and communicating the Company’s enterprise risk policies and for monitoring and analyzing all material risks.
GRM considers and monitors a full range of risks against the Company’s solvency, liquidity, earnings, business operations and reputation.
GRM’s primary responsibilities consist of:
•
•
•
•
•
•
implementing a corporate risk framework, which outlines our enterprise approach for managing risk;
developing policies and procedures for managing, measuring, monitoring and controlling those risks identified in the corporate risk framework;
establishing appropriate corporate risk tolerance levels;
deploying capital on an economic basis;
recommending capital allocations on an economic capital basis; and
reporting to (i) the Finance and Risk Committee of MetLife, Inc.’s Board of Directors; (ii) the Investment Committee of MetLife, Inc.’s Board
of Directors; and (iii) the financial and non-financial senior management committees on various aspects of risk.
Asset/Liability Management
We actively manage our assets using an approach that balances quality, diversification, asset/liability matching, liquidity, concentration and
investment return. The goals of the investment process are to optimize, net of income tax, risk-adjusted investment income and risk-adjusted total
return while ensuring that the assets and liabilities are reasonably managed on a cash flow and duration basis. The ALM process is the shared
responsibility of the ALM Unit, GRM, the Portfolio Management Unit, and the senior members of the business segments and is governed by the
ALM Committees. The ALM Committees’ duties include reviewing and approving target portfolios, establishing investment guidelines and limits
and providing oversight of the ALM process on a periodic basis. The directives of the ALM Committees are carried out and monitored through ALM
Working Groups which are set up to manage by product type. Generally, our ALM Steering Committee oversees the activities of the underlying
ALM Committees. The ALM Steering Committee reports to the ERC.
We establish target asset portfolios for each major insurance product, which represent the investment strategies used to profitably fund our
liabilities within acceptable levels of risk. The ALM Working Groups monitor these strategies through regular review of portfolio metrics, such as
effective duration, yield curve sensitivity, convexity, liquidity, asset sector concentration and credit quality.
Market Risk Exposures
We regularly analyze our exposure to interest rate, equity market price and foreign currency exchange rate risks. As a result of that analysis, we
have determined that the estimated fair values of certain assets and liabilities are materially exposed to changes in interest rates, foreign currency
exchange rates and changes in the equity markets. We have exposure to market risk through our insurance operations and investment activities. For
purposes of this disclosure, “market risk” is defined as the risk of loss resulting from changes in interest rates, foreign currency exchange rates and
equity markets.
Interest Rates
Our exposure to interest rate changes results most significantly from our holdings of fixed maturity securities, as well as our interest rate
sensitive liabilities. The fixed maturity securities include U.S. and foreign government bonds, securities issued by government agencies, corporate
bonds, mortgage-backed securities and ABS, all of which are mainly exposed to changes in medium- and long-term interest rates. The interest
rate sensitive liabilities for purposes of this disclosure include debt, policyholder account balances related to certain investment type contracts, and
net embedded derivatives on variable annuities with guaranteed minimum benefits which have the same type of interest rate exposure (medium-
and long-term interest rates) as fixed maturity securities. We employ product design, pricing and ALM strategies to reduce the potential effects of
interest rate movements. Product design and pricing strategies include the use of surrender charges or restrictions on withdrawals in some products
and the ability to reset crediting rates for certain products. ALM strategies include the use of derivatives and duration mismatch limits. See “Risk
Factors — Economic Environment and Capital Markets-Related Risks — We Are Exposed to Significant Global Financial and Capital Markets Risks
Which May Adversely Affect Our Results of Operations, Financial Condition and Liquidity, and May Cause Our Net Investment Income to Vary from
Period to Period” in the 2015 Form 10-K.
Foreign Currency Exchange Rates
Our exposure to fluctuations in foreign currency exchange rates against the U.S. dollar results from our holdings in non-U.S. dollar denominated
fixed maturity and equity securities, mortgage loans, and certain liabilities, as well as through our investments in foreign subsidiaries. The principal
currencies that create foreign currency exchange rate risk in our investment portfolios and liabilities are the Euro, the Japanese yen and the British
pound. Selectively, we use U.S. dollar assets to support certain long duration foreign currency liabilities. Through our investments in foreign
subsidiaries and joint ventures, we are primarily exposed to the Japanese yen, the Euro, the Polish zloty, the Australian dollar, the Mexican peso,
the Chilean peso and the Korean won. In addition to hedging with foreign currency swaps, forwards and options, local surplus in some countries
MetLife, Inc.
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is held entirely or in part in U.S. dollar assets which further minimizes exposure to foreign currency exchange rate fluctuation risk. We have matched
much of our foreign currency liabilities in our foreign subsidiaries with their respective foreign currency assets, thereby reducing our risk to foreign
currency exchange rate fluctuation. See “Risk Factors — Risks Related to Our Business — Fluctuations in Foreign Currency Exchange Rates Could
Negatively Affect Our Profitability” in the 2015 Form 10-K.
Equity Market
Along with investments in equity securities, we have exposure to equity market risk through certain liabilities that involve long-term guarantees
on equity performance such as net embedded derivatives on variable annuities with guaranteed minimum benefits and certain policyholder account
balances. We manage this risk on an integrated basis with other risks through our ALM strategies, including the dynamic hedging of certain variable
annuity guarantee benefits, as well as reinsurance, in order to limit losses, minimize exposure to large risks, and provide additional capacity for
future growth. We also manage equity market risk exposure in our investment portfolio through the use of derivatives. Equity exposures associated
with other limited partnership interests are excluded from this discussion as they are not considered financial instruments under GAAP.
Management of Market Risk Exposures
We use a variety of strategies to manage interest rate, foreign currency exchange rate and equity market risk, including the use of derivatives.
Interest Rate Risk Management
To manage interest rate risk, we analyze 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 derivatives. These projections involve evaluating the potential gain
or loss on most of our in-force business under various increasing and decreasing interest rate environments. The Department of Financial Services
regulations require that we perform some of these analyses annually as part of our review of the sufficiency of our regulatory reserves. For several
of our legal entities, we maintain segmented operating and surplus asset portfolios for the purpose of ALM and the allocation of investment income
to product lines. For each segment, invested assets greater than or equal to the GAAP liabilities and any non-invested assets allocated to the
segment are maintained, with any excess allocated to Corporate & Other. The business segments may reflect differences in legal entity, statutory
line of business and any product market characteristic which may drive a distinct investment strategy with respect to duration, liquidity or credit
quality of the invested assets. Certain smaller entities make use of unsegmented general accounts for which the investment strategy reflects the
aggregate characteristics of liabilities in those entities. We measure relative sensitivities of the value of our assets and liabilities to changes in key
assumptions utilizing internal models. These models reflect specific product characteristics and include assumptions based on current and
anticipated experience regarding lapse, mortality and interest crediting rates. In addition, these models include asset cash flow projections reflecting
interest payments, sinking fund payments, principal payments, bond calls, mortgage loan prepayments and defaults.
Common industry metrics, such as duration and convexity, are also used to measure the relative sensitivity of assets and liability values to
changes in interest rates. In computing the duration of liabilities, consideration is given to all policyholder guarantees and to how we intend to set
indeterminate policy elements such as interest credits or dividends. Each asset portfolio has a duration target based on the liability duration and
the investment objectives of that portfolio. Where a liability cash flow may exceed the maturity of available assets, as is the case with certain
retirement and group products, we may support such liabilities with equity investments, derivatives or interest rate curve mismatch strategies.
Foreign Currency Exchange Rate Risk Management
We assume foreign currency exchange rate risk primarily in three ways: investments in foreign subsidiaries, purchases of foreign currency
denominated investments and the sale of certain insurance products.
•
•
The GRM’s Foreign Exchange Committee, in coordination with the Treasury Department, is responsible for managing our exposure to
investments in foreign subsidiaries. Exposure limits are established by the Treasury Department and monitored by GRM. The Investments
Department manages such exposure.
The Investments Department is responsible for managing the exposure to foreign currency denominated investments. Exposure limits to
unhedged foreign currency investments are incorporated into the standing authorizations granted to management by the Board of Directors
and are reported to the Board of Directors on a periodic basis.
• Management of each of the Company’s segments, with oversight from the Foreign Exchange Committee, is responsible for establishing
limits and managing any foreign currency exchange rate exposure caused by the sale or issuance of insurance products.
We use foreign currency swaps, forwards and options to mitigate the liability exposure, risk of loss and financial statement volatility associated
with our investments in foreign subsidiaries, foreign currency denominated fixed income investments and the sale of certain insurance products.
Equity Market Risk Management
The issuance of variable annuities exposes us to market risk. This risk is managed by our ALM Unit in partnership with the Investments
Department. Equity market risk is also assumed through our investment in equity securities and is managed by our Investments Department. We
use derivatives to mitigate our equity exposure both in certain liability guarantees such as variable annuities with guaranteed minimum benefit and
equity securities. These derivatives include exchange-traded equity futures, equity index options contracts and equity variance swaps. We also
employ reinsurance to manage these exposures.
86
MetLife, Inc.
Table of Contents
Hedging Activities
We use derivative contracts primarily to hedge a wide range of risks including interest rate risk, foreign currency exchange rate risk, and equity
market risk. Derivative hedges are designed to reduce risk on an economic basis while considering their impact on accounting results and GAAP
and statutory capital. Our derivative hedge programs vary depending on the type of risk being hedged. Some hedge programs are asset or liability
specific while others are portfolio hedges that reduce risk related to a group of liabilities or assets. Our use of derivatives by major hedge programs
is as follows:
•
Risks Related to Living Guarantee Benefits — We use a wide range of derivative contracts to mitigate the risk associated with variable
annuity living guarantee benefits. These derivatives include equity and interest rate futures, interest rate swaps, currency futures/forwards,
equity indexed options and interest rate option contracts and equity variance swaps.
• Minimum Interest Rate Guarantees — For certain liability contracts, we provide the contractholder a guaranteed minimum interest rate.
These contracts include certain fixed annuities and other insurance liabilities. We purchase interest rate floors to reduce risk associated
with these liability guarantees.
•
•
Reinvestment Risk in Long Duration Liability Contracts — Derivatives are used to hedge interest rate risk related to certain long duration
liability contracts. Hedges include interest rate swaps and swaptions.
Foreign Currency Exchange Rate Risk — We use currency swaps, forwards and options to hedge foreign currency exchange rate risk.
These hedges primarily swap foreign currency denominated bonds, investments in foreign subsidiaries or equity market exposures to U.S.
dollars.
• General ALM Hedging Strategies — In the ordinary course of managing our asset/liability risks, we use interest rate futures, interest rate
swaps, interest rate caps, interest rate floors and inflation swaps. These hedges are designed to reduce interest rate risk or inflation risk
related to the existing assets or liabilities or related to expected future cash flows.
Risk Measurement: Sensitivity Analysis
We measure market risk related to our market sensitive assets and liabilities based on changes in interest rates, equity market prices and foreign
currency exchange rates utilizing a sensitivity analysis. This analysis estimates the potential changes in estimated fair value based on a hypothetical
10% change (increase or decrease) in interest rates, equity market prices and foreign currency exchange rates. We believe that a 10% change (increase
or decrease) in these market rates and prices is reasonably possible in the near term. In performing the analysis summarized below, we used market
rates at December 31, 2015. The sensitivity analysis separately calculates each of our market risk exposures (interest rate, equity market and foreign
currency exchange rate) relating to our trading and non-trading assets and liabilities. We modeled the impact of changes in market rates and prices
on the estimated fair values of our market sensitive assets and liabilities as follows:
•
•
the net present values of our interest rate sensitive exposures resulting from a 10% change (increase or decrease) in interest rates;
the U.S. dollar equivalent estimated fair values of our foreign currency exposures due to a 10% change (increase or decrease) in foreign
currency exchange rates; and
•
the estimated fair value of our equity positions due to a 10% change (increase or decrease) in equity market prices.
The sensitivity analysis is an estimate and should not be viewed as predictive of our future financial performance. We cannot ensure that our
actual losses in any particular period will not exceed the amounts indicated in the table below. Limitations related to this sensitivity analysis include:
•
•
•
•
the market risk information is limited by the assumptions and parameters established in creating the related sensitivity analysis, including
the impact of prepayment rates on mortgage loans;
for the derivatives that qualify as hedges, the impact on reported earnings may be materially different from the change in market values;
the analysis excludes liabilities pursuant to insurance contracts and real estate holdings; and
the model assumes that the composition of assets and liabilities remains unchanged throughout the period.
Accordingly, we use such models as tools and not as substitutes for the experience and judgment of our management. Based on our analysis
of the impact of a 10% change (increase or decrease) in market rates and prices, we have determined that such a change could have a material
adverse effect on the estimated fair value of certain assets and liabilities from interest rate, foreign currency exchange rate and equity market exposures.
The table below illustrates the potential loss in estimated fair value for each market risk exposure of our market sensitive assets and liabilities at:
Non-trading:
Interest rate risk
Foreign currency exchange rate risk
Equity market risk
Trading:
Interest rate risk
MetLife, Inc.
December 31, 2015
(In millions)
$
$
$
$
5,833
5,663
19
2
87
Table of Contents
The table below provides additional detail regarding the potential loss in estimated fair value of our trading and non-trading interest sensitive
financial instruments by type of asset or liability at:
Assets
Fixed maturity securities
Equity securities
Fair value option and trading securities:
Actively traded securities
Fair value option general account securities
Total fair value option and trading securities
Mortgage loans
Policy loans
Short-term investments
Other invested assets
Cash and cash equivalents
Accrued investment income
Premiums, reinsurance and other receivables
Other assets
Net embedded derivatives within asset host contracts (2)
Total assets
Liabilities (3)
Policyholder account balances
Payables for collateral under securities loaned and other transactions
Short-term debt
Long-term debt
Collateral financing arrangements
Junior subordinated debt securities
Other liabilities:
Trading liabilities
Other
Net embedded derivatives within liability host contracts (2)
Total liabilities
Derivative Instruments
Interest rate swaps
Interest rate floors
Interest rate caps
Interest rate futures
Interest rate options
Interest rate forwards
Synthetic GICs
Foreign currency swaps
Foreign currency forwards
Currency futures
Currency options
Credit default swaps
Equity futures
Equity index options
Equity variance swaps
Total rate of return swaps
Total derivative instruments
Net Change
_____________
88
December 31, 2015
Notional
Amount
Estimated
Fair
Value (1)
(In millions)
Assuming a
10% Increase
in the Yield
Curve
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
351,402
$
(5,728)
3,321
404
627
1,031
68,539
13,351
9,299
699
12,752
3,988
2,905
267
391
—
(5)
(5)
(10)
(476)
(140)
(12)
—
—
—
(161)
(4)
(20)
$
(6,551)
125,061
$
36,871
100
19,360
3,899
4,029
153
2,250
935
547
—
—
389
—
105
3
133
470
$
1,647
5,554
$
263
102
(3)
1,147
24
—
(262)
(67)
—
446
59
45
501
(441)
(11)
(637)
(24)
35
(14)
(205)
(7)
—
(22)
(8)
—
(14)
—
(1)
(36)
2
—
$
$
(931)
(5,835)
MetLife, Inc.
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
97,054
23,837
68,928
5,808
30,234
148
4,216
36,896
17,325
930
17,159
12,181
7,206
55,682
23,437
3,803
Table of Contents
(1)
(2)
(3)
Separate account assets and liabilities and contractholder-directed unit-linked investments and associated policyholder account balances,
which are interest rate sensitive, are not included herein as any interest rate risk is borne by the contractholder. Mortgage loans, FVO and
trading securities and long-term debt exclude $172 million, $12 million and $60 million, respectively, related to CSEs. See Note 8 of the Notes
to the Consolidated Financial Statements for information regarding CSEs.
Embedded derivatives are recognized in the consolidated balance sheet in the same caption as the host contract.
Excludes $206.1 billion of liabilities, at carrying value, pursuant to insurance contracts reported within future policy benefits and other policy-
related balances. These liabilities would economically offset a significant portion of the net change in fair value of our financial instruments
resulting from a 10% increase in the yield curve.
Interest rate risk increased by $601 million, or 11%, to $5.8 billion at December 31, 2015 from $5.2 billion at December 31, 2014. This change
was primarily due to an increase of $809 million due to increases in interest rates across the U.S. Treasury curve coupled with changes in durations.
This increase was partially offset by a decrease in the asset base of $232 million.
MetLife, Inc.
89
Table of Contents
The table below provides additional detail regarding the potential loss in estimated fair value of our portfolio due to a 10% change in foreign
currency exchange rates by type of asset or liability at:
Assets
Fixed maturity securities
Equity securities
Fair value option and trading securities:
Actively traded securities
Fair value option general account securities
Total fair value option and trading securities
Mortgage loans
Policy loans
Short-term investments
Other invested assets
Cash and cash equivalents
Accrued investment income
Premiums, reinsurance and other receivables
Other assets
Net embedded derivatives within asset host contracts (2)
Total assets
Liabilities (3)
Policyholder account balances
Payables for collateral under securities loaned and other transactions
Long-term debt
Other liabilities
Net embedded derivatives within liability host contracts (2)
Total liabilities
Derivative Instruments
Interest rate swaps
Interest rate floors
Interest rate caps
Interest rate futures
Interest rate options
Interest rate forwards
Synthetic GICs
Foreign currency swaps
Foreign currency forwards
Currency futures
Currency options
Credit default swaps
Equity futures
Equity index options
Equity variance swaps
Total rate of return swaps
Total derivative instruments
Net Change
______________
December 31, 2015
Notional
Amount
Estimated
Fair
Value (1)
(In millions)
Assuming a
10% Increase
in the Foreign
Exchange Rate
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
351,402
$
3,321
(7,879)
(95)
404
627
1,031
68,539
13,351
9,299
699
12,752
3,988
2,905
267
391
—
(63)
(63)
(703)
(144)
(95)
(75)
(441)
(82)
(62)
(6)
(12)
$
(9,657)
125,061
$
3,258
36,871
19,360
2,403
935
101
127
13
111
$
3,610
5,554
$
263
102
(3)
1,147
24
—
(262)
(67)
—
446
59
45
501
(441)
(11)
(35)
—
—
(1)
(46)
—
—
362
(188)
(91)
399
(2)
(1)
(14)
1
—
$
$
384
(5,663)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
97,054
23,837
68,928
5,808
30,234
148
4,216
36,896
17,325
930
17,159
12,181
7,206
55,682
23,437
3,803
(1)
90
Does not necessarily represent those financial instruments solely subject to foreign currency exchange rate risk. Separate account assets and
liabilities and contractholder-directed unit-linked investments and associated policyholder account balances, which are foreign currency
exchange rate sensitive, are not included herein as any foreign currency exchange rate risk is borne by the contractholder. Mortgage loans,
FVO and trading securities and long-term debt exclude $172 million, $12 million and $60 million, respectively, related to CSEs. See Note 8
of the Notes to Consolidated Financial Statements for information regarding CSEs.
MetLife, Inc.
Table of Contents
(2)
(3)
Embedded derivatives are recognized in the consolidated balance sheet in the same caption as the host contract.
Excludes $206.1 billion of liabilities, at carrying value, pursuant to insurance contracts reported within future policy benefits and other policy-
related balances. These liabilities would economically offset a significant portion of the net change in fair value of our financial instruments
resulting from a 10% increase in foreign currency exchange rates.
Foreign currency exchange rate risk decreased by $93 million, or 2%, to $5.7 billion at December 31, 2015 from $5.8 billion at December 31,
2014. This change was primarily due to a net decrease in exchange risk relating to policyholder account balances, fixed maturity securities and the
use of derivatives by the Company.
The table below provides additional detail regarding the potential loss in estimated fair value of our portfolio due to a 10% change in equity by
type of asset or liability at:
Assets
Equity securities
Net embedded derivatives within asset host contracts (2)
Total assets
Liabilities
Policyholder account balances
Net embedded derivatives within liability host contracts (2)
Total liabilities
Derivative Instruments
Interest rate swaps
Interest rate floors
Interest rate caps
Interest rate futures
Interest rate options
Interest rate forwards
Synthetic GICs
Foreign currency swaps
Foreign currency forwards
Currency futures
Currency options
Credit default swaps
Equity futures
Equity index options
Equity variance swaps
Total rate of return swaps
Total derivative instruments
Net Change
______________
Notional
Amount
December 31, 2015
Estimated
Fair
Value (1)
(In millions)
Assuming a
10% Increase
in Equity
Prices
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
97,054
23,837
68,928
5,808
30,234
148
4,216
36,896
17,325
930
17,159
12,181
7,206
55,682
23,437
3,803
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
3,321
$
391
125,061
935
$
5,554
$
263
102
(3)
1,147
24
—
(262)
(67)
—
446
59
45
501
(441)
(11)
$
$
332
(20)
312
—
979
979
—
—
—
—
—
—
—
—
—
—
—
—
(687)
(258)
15
(380)
(1,310)
(19)
(1)
Does not necessarily represent those financial instruments solely subject to equity price risk. Additionally, separate account assets and liabilities
and contractholder-directed unit-linked investments and associated policyholder account balances, which are equity market sensitive, are
not included herein as any equity market risk is borne by the contractholder.
(2)
Embedded derivatives are recognized in the consolidated balance sheet in the same caption as the host contract.
Equity price risk decreased by $59 million to $19 million at December 31, 2015 from $78 million at December 31, 2014. This decrease was
primarily due to the impact of embedded derivatives offset by the use of derivatives by the Company.
MetLife, Inc.
91
Table of Contents
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Management’s Annual Report on Internal Control Over Financial Reporting
Management of MetLife, Inc. and subsidiaries is responsible for establishing and maintaining adequate internal control over financial reporting.
In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of control
procedures. The objectives of internal control include providing management with reasonable, but not absolute, assurance that assets are safeguarded
against loss from unauthorized use or disposition, and that transactions are executed in accordance with management’s authorization and recorded
properly to permit the preparation of consolidated financial statements in conformity with GAAP.
Management has documented and evaluated the effectiveness of the internal control of the Company at December 31, 2015 pertaining to
financial reporting in accordance with the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
In the opinion of management, MetLife, Inc. maintained effective internal control over financial reporting at December 31, 2015.
Deloitte & Touche LLP, an independent registered public accounting firm, has audited the consolidated financial statements and consolidated
financial statement schedules included in the Annual Report on Form 10-K for the year ended December 31, 2015. The Report of the Independent
Registered Public Accounting Firm on their audit of the consolidated financial statements and consolidated financial statement schedules is included
in the 2015 Form 10-K.
Report of the Company’s Registered Public Accounting Firm
The Company’s independent registered public accounting firm, Deloitte & Touche LLP, has issued their report on their audit of the effectiveness
of internal control over financial reporting which is set forth below.
92
MetLife, Inc.
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
MetLife, Inc.
New York, New York
We have audited the internal control over financial reporting of MetLife, Inc. and subsidiaries (the “Company”) as of December 31, 2015, based on
criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that
a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing
such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and
principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of
the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override
of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of
the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based
on the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial
statements as of and for the year ended December 31, 2015, of the Company and our report dated February 24, 2016 expressed an unqualified
opinion on those consolidated financial statements.
/s/ DELOITTE & TOUCHE LLP
New York, New York
February 24, 2016
MetLife, Inc.
93
Table of Contents
Financial Statements and Supplementary Data
Index to Consolidated Financial Statements and Notes
Report of Independent Registered Public Accounting Firm
Financial Statements at December 31, 2015 and 2014 and for the Years Ended December 31, 2015, 2014 and 2013:
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Statements of Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
Note 1 — Business, Basis of Presentation and Summary of Significant Accounting Policies
Note 2 — Segment Information
Note 3 — Acquisitions and Dispositions
Note 4 — Insurance
Note 5 — Deferred Policy Acquisition Costs, Value of Business Acquired and Other Intangibles
Note 6 — Reinsurance
Note 7 — Closed Block
Note 8 — Investments
Note 9 — Derivatives
Note 10 — Fair Value
Note 11 — Goodwill
Note 12 — Long-term and Short-term Debt
Note 13 — Collateral Financing Arrangements
Note 14 — Junior Subordinated Debt Securities
Note 15 — Common Equity Units
Note 16 — Equity
Note 17 — Other Expenses
Note 18 — Employee Benefit Plans
Note 19 — Income Tax
Note 20 — Earnings Per Common Share
Note 21 — Contingencies, Commitments and Guarantees
Note 22 — Quarterly Results of Operations (Unaudited)
Note 23 — Subsequent Events
Page
95
96
97
98
99
100
102
113
119
119
125
128
131
133
151
162
177
179
181
183
183
184
197
198
206
210
211
218
219
94
MetLife, Inc.
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
MetLife, Inc.
New York, New York
We have audited the accompanying consolidated balance sheets of MetLife, Inc. and subsidiaries (the “Company”) as of December 31, 2015 and
2014, and the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows for each of the three years in the
period ended December 31, 2015. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility
is to express an opinion on the consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of MetLife, Inc. and subsidiaries as
of December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31,
2015, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal
control over financial reporting as of December 31, 2015, based on the criteria established in Internal Control—Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission, and our report, dated February 24, 2016 expressed an unqualified
opinion on the Company’s internal control over financial reporting.
/s/ DELOITTE & TOUCHE LLP
New York, New York
February 24, 2016
MetLife, Inc.
95
Table of Contents
Assets
Investments:
MetLife, Inc.
Consolidated Balance Sheets
December 31, 2015 and 2014
(In millions, except share and per share data)
2015
2014
Fixed maturity securities available-for-sale, at estimated fair value (amortized cost: $332,964 and $334,780, respectively; includes $4,277 and
$4,266, respectively, relating to variable interest entities)
$
351,402
$
Equity securities available-for-sale, at estimated fair value (cost: $2,997 and $3,076, respectively)
Fair value option and trading securities, at estimated fair value (includes $404 and $704, respectively, of actively traded securities; and $13 and
$60, respectively, relating to variable interest entities)
Mortgage loans (net of valuation allowances of $318 and $305, respectively; includes $172 and $280, respectively, at estimated fair value,
relating to variable interest entities; includes $314 and $308, respectively, under the fair value option)
Policy loans (includes $4 and $3, respectively, relating to variable interest entities)
Real estate and real estate joint ventures (includes $0 and $8, respectively, relating to variable interest entities; includes $47 and $172,
respectively, of real estate held-for-sale)
Other limited partnership interests (includes $27 and $34, respectively, relating to variable interest entities)
Short-term investments, principally at estimated fair value (includes $26 and $20, respectively, relating to variable interest entities)
Other invested assets, principally at estimated fair value (includes $43 and $56, respectively, relating to variable interest entities)
Total investments
Cash and cash equivalents, principally at estimated fair value (includes $85 and $57, respectively, relating to variable interest entities)
Accrued investment income (includes $23 and $21, respectively, relating to variable interest entities)
Premiums, reinsurance and other receivables (includes $21 and $21, respectively, relating to variable interest entities)
Deferred policy acquisition costs and value of business acquired (includes $240 and $235, respectively, relating to variable interest entities)
Current income tax recoverable
Goodwill
Other assets (includes $148 and $134, respectively, relating to variable interest entities)
Separate account assets (includes $1,022 and $1,128, respectively, relating to variable interest entities)
Total assets
Liabilities and Equity
Liabilities
Future policy benefits (includes $716 and $579, respectively, relating to variable interest entities)
Policyholder account balances (includes $21 and $33, respectively, relating to variable interest entities)
Other policy-related balances (includes $238 and $198, respectively, relating to variable interest entities)
Policyholder dividends payable
Policyholder dividend obligation
Payables for collateral under securities loaned and other transactions
Short-term debt
Long-term debt (includes $63 and $151, respectively, at estimated fair value, relating to variable interest entities)
Collateral financing arrangements
Junior subordinated debt securities
Current income tax payable
Deferred income tax liability
Other liabilities (includes $81 and $80, respectively, relating to variable interest entities)
Separate account liabilities (includes $1,022 and $1,128, respectively, relating to variable interest entities)
Total liabilities
Contingencies, Commitments and Guarantees (Note 21)
Redeemable noncontrolling interests in partially owned consolidated subsidiaries
Equity
MetLife, Inc.’s stockholders’ equity:
Preferred stock, par value $0.01 per share; $2,100 aggregate liquidation preference
Common stock, par value $0.01 per share; 3,000,000,000 shares authorized; 1,159,590,766 and 1,153,998,144 shares issued, respectively;
1,098,028,525 and 1,131,927,894 shares outstanding, respectively
Additional paid-in capital
Retained earnings
Treasury stock, at cost; 61,562,241 and 22,070,250 shares, respectively
Accumulated other comprehensive income (loss)
Total MetLife, Inc.’s stockholders’ equity
3,321
15,024
67,102
11,258
8,433
7,096
9,299
22,524
495,459
12,752
3,988
22,702
24,130
161
9,477
7,666
$
$
301,598
877,933
$
191,879
$
202,722
14,255
720
1,783
36,871
100
18,023
4,139
3,194
—
10,592
23,561
301,598
809,437
77
—
12
30,749
35,519
(3,102)
4,771
67,949
470
68,419
365,425
3,631
16,689
60,118
11,618
10,525
8,085
8,621
21,283
505,995
10,808
4,120
22,244
24,442
—
9,872
7,862
316,994
902,337
189,586
209,294
14,422
684
3,155
35,326
100
16,286
4,196
3,193
184
11,821
24,437
316,994
829,678
99
1
12
30,543
32,020
(1,172)
10,649
72,053
507
72,560
902,337
MetLife, Inc.
Noncontrolling interests
Total equity
Total liabilities and equity
96
See accompanying notes to the consolidated financial statements.
$
877,933
$
Table of Contents
MetLife, Inc.
Consolidated Statements of Operations
For the Years Ended December 31, 2015, 2014 and 2013
(In millions, except per share data)
Revenues
Premiums
Universal life and investment-type product policy fees
Net investment income
Other revenues
Net investment gains (losses):
Other-than-temporary impairments on fixed maturity securities
Other-than-temporary impairments on fixed maturity securities transferred to other
comprehensive income (loss)
Other net investment gains (losses)
Total net investment gains (losses)
Net derivative gains (losses)
Total revenues
Expenses
Policyholder benefits and claims
Interest credited to policyholder account balances
Policyholder dividends
Other expenses
Total expenses
Income (loss) from continuing operations before provision for income tax
Provision for income tax expense (benefit)
Income (loss) from continuing operations, net of income tax
Income (loss) from discontinued operations, net of income tax
Net income (loss)
Less: Net income (loss) attributable to noncontrolling interests
Net income (loss) attributable to MetLife, Inc.
Less: Preferred stock dividends
Preferred stock repurchase premium
2015
2014
2013
$
38,545
$
39,067
$
37,674
9,507
19,281
1,983
(84)
(6)
687
597
38
69,951
38,714
5,610
1,388
16,769
62,481
7,470
2,148
5,322
—
5,322
12
5,310
116
42
9,946
21,153
2,030
(43)
(17)
(137)
(197)
1,317
73,316
39,102
6,943
1,376
17,091
64,512
8,804
2,465
6,339
(3)
6,336
27
6,309
122
—
9,451
22,232
1,920
(106)
(60)
327
161
(3,239)
68,199
38,107
8,179
1,259
16,602
64,147
4,052
661
3,391
2
3,393
25
3,368
122
—
Net income (loss) available to MetLife, Inc.’s common shareholders
$
5,152
$
6,187
$
3,246
Income (loss) from continuing operations, net of income tax, available to MetLife, Inc.’s common
shareholders per common share:
Basic
Diluted
Net income (loss) available to MetLife, Inc.’s common shareholders per common share:
Basic
Diluted
Cash dividends declared per common share
$
$
$
$
$
4.61
4.57
4.61
4.57
1.475
$
$
$
$
$
5.48
5.42
5.48
5.42
1.325
$
$
$
$
$
2.94
2.91
2.94
2.91
1.010
See accompanying notes to the consolidated financial statements.
MetLife, Inc.
97
Table of Contents
MetLife, Inc.
Consolidated Statements of Comprehensive Income (Loss)
For the Years Ended December 31, 2015, 2014 and 2013
(In millions)
Net income (loss) (1)
Other comprehensive income (loss):
Unrealized investment gains (losses), net of related offsets
Unrealized gains (losses) on derivatives
Foreign currency translation adjustments
Defined benefit plans adjustment
Other comprehensive income (loss), before income tax
Income tax (expense) benefit related to items of other comprehensive income (loss)
Other comprehensive income (loss), net of income tax
Comprehensive income (loss)
Less: Comprehensive income (loss) attributable to noncontrolling interest, net of income tax
2015
2014
2013
$
5,322
$
6,336
$
3,393
(7,443)
589
(1,624)
354
(8,124)
2,266
(5,858)
(536)
32
10,103
1,386
(1,444)
(970)
9,075
(3,528)
5,547
11,883
29
(8,086)
(899)
(975)
1,292
(8,668)
2,329
(6,339)
(2,946)
(21)
Comprehensive income (loss) attributable to MetLife, Inc.
$
(568) $
11,854
$
(2,925)
_______________
(1)
Net income (loss) attributable to noncontrolling interests excludes losses of redeemable noncontrolling interests of less than $1 million for the
year ended December 31, 2015. Net income (loss) attributable to noncontrolling interests excludes gains of redeemable noncontrolling interests
of less than $1 million for each of the years ended December 31, 2014 and 2013.
See accompanying notes to the consolidated financial statements.
98
MetLife, Inc.
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MetLife, Inc.
Consolidated Statements of Equity
For the Years Ended December 31, 2015, 2014 and 2013
(In millions)
Preferred
Stock
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Treasury
Stock
at Cost
Accumulated
Other
Comprehensiv
e
Income (Loss)
Total
MetLife, Inc.’s
Stockholders’
Equity
Noncontrolling
Interests (1)
Total
Equity
Balance at December 31, 2012
$
1
$
11
$ 28,011
$ 25,205
$
(172) $
11,397
$
64,453
$
384
$ 64,837
Common stock issuance
Stock-based compensation
Dividends on preferred stock
Dividends on common stock
Change in equity of noncontrolling interests
Net income (loss)
Other comprehensive income (loss), net of
income tax
1,000
305
(39)
(122)
(1,119)
3,368
Balance at December 31, 2013
1
11
29,277
27,332
(172)
(6,293)
5,104
Treasury stock acquired in connection with
share repurchases
Common stock issuance
Stock-based compensation
Dividends on preferred stock
Dividends on common stock
Change in equity of noncontrolling interests
Net income (loss)
Other comprehensive income (loss), net of
income tax
Balance at December 31, 2014
Repurchase of preferred stock
Preferred stock repurchase premium
Preferred stock issuance
Treasury stock acquired in connection with
share repurchases
Stock-based compensation
Dividends on preferred stock
Dividends on common stock
Change in equity of noncontrolling interests
Net income (loss)
Other comprehensive income (loss), net of
income tax
1
(1)
(1,000)
1
999
267
(122)
(1,499)
6,309
12
30,543
32,020
(1,172)
5,545
10,649
(1,459)
1,483
182
(42)
(116)
(1,653)
5,310
(1,930)
(5,878)
(5,878)
20
(5,858)
Balance at December 31, 2015
$
— $
12
$ 30,749
$ 35,519
$
(3,102) $
4,771
$
67,949
$
470
$ 68,419
______________
(1)
Net income (loss) attributable to noncontrolling interests excludes losses of redeemable noncontrolling interests of less than $1 million for the year
ended December 31, 2015. Net income (loss) attributable to noncontrolling interests excludes gains of redeemable noncontrolling interests of less
than $1 million for each of the years ended December 31, 2014 and 2013.
See accompanying notes to the consolidated financial statements.
MetLife, Inc.
99
1,000
305
(122)
(1,119)
(39)
3,368
(6,293)
61,553
(1,000)
1,000
267
(122)
(1,499)
—
6,309
5,545
72,053
(1,460)
(42)
1,483
(1,930)
182
(116)
(1,653)
—
5,310
1,000
305
(122)
(1,119)
141
3,393
(6,339)
62,096
(1,000)
1,000
267
(122)
(1,499)
(65)
6,336
5,547
72,560
(1,460)
(42)
1,483
(1,930)
182
(116)
(1,653)
(69)
5,322
180
25
(46)
543
(65)
27
2
507
(69)
12
Table of Contents
MetLife, Inc.
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2015, 2014 and 2013
(In millions)
Cash flows from operating activities
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization expenses
Amortization of premiums and accretion of discounts associated with investments, net
(Gains) losses on investments and from sales of businesses, net
(Gains) losses on derivatives, net
(Income) loss from equity method investments, net of dividends or distributions
Interest credited to policyholder account balances
Universal life and investment-type product policy fees
Change in fair value option and trading securities
Change in residential mortgage loans held-for-sale, net
Change in accrued investment income
Change in premiums, reinsurance and other receivables
Change in deferred policy acquisition costs and value of business acquired, net
Change in income tax
Change in other assets
Change in insurance-related liabilities and policy-related balances
Change in other liabilities
Other, net
Net cash provided by (used in) operating activities
Cash flows from investing activities
Sales, maturities and repayments of:
Fixed maturity securities
Equity securities
Mortgage loans
Real estate and real estate joint ventures
Other limited partnership interests
Purchases of:
Fixed maturity securities
Equity securities
Mortgage loans
Real estate and real estate joint ventures
Other limited partnership interests
Cash received in connection with freestanding derivatives
Cash paid in connection with freestanding derivatives
Cash received under repurchase agreements
Cash paid under repurchase agreements
Cash received under reverse repurchase agreements
Cash paid under reverse repurchase agreements
Sales of businesses, net of cash and cash equivalents disposed of $0, $323 and $14, respectively
Sale of bank deposits
Purchases of businesses, net of cash and cash equivalents acquired of $0, $0 and $20, respectively
Purchases of investments in insurance joint ventures
Net change in policy loans
Net change in short-term investments
Net change in other invested assets
Other, net
2015
2014
2013
$
5,322
$
6,336
$
3,393
693
(1,141)
(597)
1,451
481
5,610
(9,507)
784
—
138
(837)
491
825
2,752
6,366
1,134
164
14,129
146,732
1,117
12,647
3,256
1,827
(148,799)
(996)
(20,449)
(1,298)
(1,429)
2,690
(4,211)
199
(199)
199
(199)
—
—
—
—
287
(777)
(936)
(59)
713
(611)
202
(21)
327
6,943
(9,946)
(739)
—
207
(650)
1,134
2,075
2,573
5,847
1,885
101
16,376
118,526
490
14,128
1,012
823
(130,197)
(530)
(17,464)
(2,282)
(1,764)
1,760
(4,003)
—
—
—
—
436
—
—
(277)
(27)
5,167
(512)
(341)
714
(167)
(155)
5,122
99
8,179
(9,451)
(1,433)
373
293
(582)
(920)
871
1,767
6,897
1,008
123
16,131
117,523
725
12,881
356
807
(117,826)
(943)
(14,677)
(1,880)
(1,356)
1,567
(6,710)
—
—
—
—
393
(6,395)
(1,840)
—
(112)
2,955
(547)
(86)
Net cash provided by (used in) investing activities
$
(10,398)
$
(15,055)
$
(15,165)
See accompanying notes to the consolidated financial statements.
100
MetLife, Inc.
Table of Contents
MetLife, Inc.
Consolidated Statements of Cash Flows — (continued)
For the Years Ended December 31, 2015, 2014 and 2013
(In millions)
Cash flows from financing activities
Policyholder account balances:
Deposits
Withdrawals
Net change in payables for collateral under securities loaned and other transactions
Net change in short-term debt
Long-term debt issued
Long-term debt repaid
Collateral financing arrangements repaid
Cash received in connection with redeemable noncontrolling interests
Common stock issued, net of issuance costs
Treasury stock acquired in connection with share repurchases
Preferred stock issued, net of issuance costs
Repurchase of preferred stock
Preferred stock repurchase premium
Dividends on preferred stock
Dividends on common stock
Other, net
Net cash provided by (used in) financing activities
Effect of change in foreign currency exchange rates on cash and cash equivalents balances
Change in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental disclosures of cash flow information:
Net cash paid (received) for:
Interest
Income tax
Non-cash transactions:
Business acquisitions:
Assets acquired
Liabilities assumed
Noncontrolling interests assumed
Cash paid, excluding transaction costs of $0, $0 and $17, respectively
Fixed maturity securities received in connection with pension risk transfer transactions
Deconsolidation of real estate investment vehicles:
Reduction of redeemable noncontrolling interests
Reduction of long-term debt
Reduction of real estate and real estate joint ventures
2015
2014
2013
$
92,904
$
89,520
$
(94,621)
1,544
—
3,893
(1,438)
(57)
—
—
(1,930)
1,483
(1,460)
(42)
(116)
(1,653)
198
(1,295)
(492)
1,944
10,808
(88,037)
5,031
(75)
1,000
(2,862)
—
—
1,000
(1,000)
—
—
—
(122)
(1,499)
(700)
2,256
(354)
3,223
7,585
$
$
$
$
$
$
$
$
$
12,752
$
10,808
$
1,178
1,127
$
$
1,213
748
$
$
— $
— $
—
—
— $
903
$
— $
571
688
$
$
—
—
— $
— $
774
413
1,132
$
$
$
79,193
(84,874)
(3,276)
75
1,372
(1,746)
—
774
1,000
—
—
—
—
(122)
(1,119)
(184)
(8,907)
(212)
(8,153)
15,738
7,585
1,270
677
2,988
(972)
(176)
1,840
—
—
—
—
See accompanying notes to the consolidated financial statements.
MetLife, Inc.
101
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements
1. Business, Basis of Presentation and Summary of Significant Accounting Policies
Business
“MetLife” and the “Company” refer to MetLife, Inc., a Delaware corporation incorporated in 1999, its subsidiaries and affiliates. MetLife is a global
provider of life insurance, annuities, employee benefits and asset management. MetLife is organized into six segments: Retail; Group, Voluntary &
Worksite Benefits; Corporate Benefit Funding; and Latin America (collectively, the “Americas”); Asia; and Europe, the Middle East and Africa (“EMEA”).
Basis of Presentation
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”)
requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported in the consolidated financial
statements. In applying these policies and estimates, management makes subjective and complex judgments that frequently require assumptions
about matters that are inherently uncertain. Many of these policies, estimates and related judgments are common in the insurance and financial
services industries; others are specific to the Company’s business and operations. Actual results could differ from estimates.
Consolidation
The accompanying consolidated financial statements include the accounts of MetLife, Inc. and its subsidiaries, as well as partnerships and
joint ventures in which the Company has control, and variable interest entities (“VIEs”) for which the Company is the primary beneficiary. Intercompany
accounts and transactions have been eliminated.
Certain international subsidiaries have a fiscal year cutoff of November 30th. Accordingly, the Company’s consolidated financial statements
reflect the assets and liabilities of such subsidiaries as of November 30, 2015 and 2014 and the operating results of such subsidiaries for the years
ended November 30, 2015, 2014 and 2013.
Discontinued Operations
The results of operations of a component of the Company that has either been disposed of or is classified as held-for-sale are reported in
discontinued operations if certain criteria are met. Effective January 1, 2014, the Company adopted new guidance regarding reporting of discontinued
operations for disposals or classifications as held-for-sale that have not been previously reported in the consolidated financial statements. A disposal
of a component is reported in discontinued operations if the disposal represents a strategic shift that has or will have a major effect on the Company’s
operations and financial results. See “— Adoption of New Accounting Pronouncements.”
Separate Accounts
Separate accounts are established in conformity with insurance laws. Generally, the assets of the separate accounts cannot be used to settle
the liabilities that arise from any other business of the Company. Separate account assets are subject to general account claims only to the extent
the value of such assets exceeds the separate account liabilities. The Company reports separately, as assets and liabilities, investments held in
separate accounts and liabilities of the separate accounts if:
•
•
•
•
such separate accounts are legally recognized;
assets supporting the contract liabilities are legally insulated from the Company’s general account liabilities;
investments are directed by the contractholder; and
all investment performance, net of contract fees and assessments, is passed through to the contractholder.
The Company reports separate account assets at their fair value which is based on the estimated fair values of the underlying assets comprising
the individual separate account portfolios. Investment performance (including investment income, net investment gains (losses) and changes in
unrealized gains (losses)) and the corresponding amounts credited to contractholders of such separate accounts are offset within the same line in
the statements of operations. Separate accounts credited with a contractual investment return are combined on a line-by-line basis with the
Company’s general account assets, liabilities, revenues and expenses and the accounting for these investments is consistent with the methodologies
described herein for similar financial instruments held within the general account. Unit-linked separate account investments that are directed by
contractholders but do not meet one or more of the other above criteria are included in fair value option (“FVO”) and trading securities.
The Company’s revenues reflect fees charged to the separate accounts, including mortality charges, risk charges, policy administration fees,
investment management fees and surrender charges. Such fees are included in universal life and investment-type product policy fees in the
statements of operations.
Reclassifications
Certain amounts in the prior years’ consolidated financial statements and related footnotes thereto have been reclassified to conform with the
current year presentation as discussed throughout the Notes to the Consolidated Financial Statements.
Summary of Significant Accounting Policies
The following are the Company’s significant accounting policies with references to notes providing additional information on such policies and
critical accounting estimates relating to such policies.
102
MetLife, Inc.
Table of Contents
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Notes to the Consolidated Financial Statements — (continued)
MetLife, Inc.
Accounting Policy
Insurance
Deferred Policy Acquisition Costs, Value of Business Acquired and Other Intangibles
Reinsurance
Investments
Derivatives
Fair Value
Goodwill
Employee Benefit Plans
Income Tax
Litigation Contingencies
Insurance
Note
4
5
6
8
9
10
11
18
19
21
Future Policy Benefit Liabilities and Policyholder Account Balances
The Company establishes liabilities for amounts payable under insurance policies. Generally, amounts are payable over an extended period
of time and related liabilities are calculated as the present value of future expected benefits to be paid reduced by the present value of future
expected premiums. Such liabilities are established based on methods and underlying assumptions in accordance with GAAP and applicable
actuarial standards. Principal assumptions used in the establishment of liabilities for future policy benefits are mortality, morbidity, policy lapse,
renewal, retirement, disability incidence, disability terminations, investment returns, inflation, expenses and other contingent events as appropriate
to the respective product type and geographical area. These assumptions are established at the time the policy is issued and are intended to
estimate the experience for the period the policy benefits are payable. Utilizing these assumptions, liabilities are established on a block of business
basis. For long duration insurance contracts, assumptions such as mortality, morbidity and interest rates are “locked in” upon the issuance of
new business. However, significant adverse changes in experience on such contracts may require the establishment of premium deficiency
reserves. Such reserves are determined based on the then current assumptions and do not include a provision for adverse deviation.
Premium deficiency reserves may also be established for short duration contracts to provide for expected future losses. These reserves
are based on actuarial estimates of the amount of loss inherent in that period, including losses incurred for which claims have not been reported.
The provisions for unreported claims are calculated using studies that measure the historical length of time between the incurred date of a claim
and its eventual reporting to the Company. Anticipated investment income is considered in the calculation of premium deficiency losses for short
duration contracts.
Liabilities for universal and variable life policies with secondary guarantees (“ULSG”) and paid-up guarantees are determined by estimating
the expected value of death benefits payable when the account balance is projected to be zero and recognizing those benefits ratably over the
accumulation period based on total expected assessments. The assumptions used in estimating the secondary and paid-up guarantee liabilities
are consistent with those used for amortizing deferred policy acquisition costs (“DAC”), and are thus subject to the same variability and risk as
further discussed herein. The assumptions of investment performance and volatility for variable products are consistent with historical experience
of appropriate underlying equity indices, such as the Standard & Poor’s Ratings Services (“S&P”) 500 Index. The benefits used in calculating the
liabilities are based on the average benefits payable over a range of scenarios.
The Company regularly reviews its estimates of liabilities for future policy benefits and compares them with its actual experience. Differences
result in changes to the liability balances with related charges or credits to benefit expenses in the period in which the changes occur.
Policyholder account balances relate to contract or contract features where the Company has no significant insurance risk.
The Company issues directly and assumes through reinsurance certain variable annuity products with guaranteed minimum benefits that
provide the policyholder a minimum return based on their initial deposit (i.e., the benefit base) less withdrawals. These guarantees are accounted
for as insurance liabilities or as embedded derivatives depending on how and when the benefit is paid. Specifically, a guarantee is accounted
for as an embedded derivative if a guarantee is paid without requiring (i) the occurrence of specific insurable event, or (ii) the policyholder to
annuitize. Alternatively, a guarantee is accounted for as an insurance liability if the guarantee is paid only upon either (i) the occurrence of a specific
insurable event, or (ii) annuitization. In certain cases, a guarantee may have elements of both an insurance liability and an embedded derivative
and in such cases the guarantee is split and accounted for under both models.
Guarantees accounted for as insurance liabilities in future policy benefits include guaranteed minimum death benefits (“GMDBs”), the portion
of guaranteed minimum income benefits (“GMIBs”) that require annuitization, and the life-contingent portion of guaranteed minimum withdrawal
benefits (“GMWBs”).
Guarantees accounted for as embedded derivatives in policyholder account balances include the non life-contingent portion of GMWBs,
guaranteed minimum accumulation benefits (“GMABs”) and the portion of GMIBs that do not require annuitization. At inception, the Company
attributes to the embedded derivative a portion of the projected future guarantee fees to be collected from the policyholder equal to the present
value of projected future guaranteed benefits. Any additional fees represent “excess” fees and are reported in universal life and investment-type
product policy fees.
MetLife, Inc.
103
Table of Contents
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Notes to the Consolidated Financial Statements — (continued)
Other Policy-Related Balances
MetLife, Inc.
Other policy-related balances include policy and contract claims, unearned revenue liabilities, premiums received in advance, policyholder
dividends due and unpaid, policyholder dividends left on deposit and negative value of business acquired.
The liability for policy and contract claims generally relates to incurred but not reported death, disability, long-term care and dental claims,
as well as claims which have been reported but not yet settled. The liability for these claims is based on the Company’s estimated ultimate cost
of settling all claims. The Company derives estimates for the development of incurred but not reported claims principally from analyses of historical
patterns of claims by business line. The methods used to determine these estimates are continually reviewed. Adjustments resulting from this
continuous review process and differences between estimates and payments for claims are recognized in policyholder benefits and claims
expense in the period in which the estimates are changed or payments are made.
The unearned revenue liability relates to universal life-type and investment-type products and represents policy charges for services to be
provided in future periods. The charges are deferred as unearned revenue and amortized using the product’s estimated gross profits and margins,
similar to DAC as discussed further herein. Such amortization is recorded in universal life and investment-type product policy fees.
The Company accounts for the prepayment of premiums on its individual life, group life and health contracts as premiums received in
advance and applies the cash received to premiums when due.
See “— Deferred Policy Acquisition Costs, Value of Business Acquired and Other Intangibles” for a discussion of negative value of business
acquired.
Recognition of Insurance Revenues and Deposits
Premiums related to traditional life, annuity contracts with life contingencies, long-duration accident & health, and credit insurance policies
are recognized as revenues when due from policyholders. Policyholder benefits and expenses are provided to recognize profits over the estimated
lives of the insurance policies. When premiums are due over a significantly shorter period than the period over which benefits are provided, any
excess profit is deferred and recognized into earnings in a constant relationship to insurance in-force or, for annuities, the amount of expected
future policy benefit payments.
Premiums related to short-duration non-medical health and disability, accident & health, and certain credit insurance contracts are recognized
on a pro rata basis over the applicable contract term.
Deposits related to universal life-type and investment-type products are credited to policyholder account balances. Revenues from such
contracts consist of fees for mortality, policy administration and surrender charges and are recorded in universal life and investment-type product
policy fees in the period in which services are provided. Amounts that are charged to earnings include interest credited and benefit claims incurred
in excess of related policyholder account balances.
Premiums related to property & casualty contracts are recognized as revenue on a pro rata basis over the applicable contract term. Unearned
premiums, representing the portion of premium written related to the unexpired coverage, are also included in future policy benefits.
Premiums, policy fees, policyholder benefits and expenses are presented net of reinsurance.
Deferred Policy Acquisition Costs, Value of Business Acquired and Other Intangibles
The Company incurs significant costs in connection with acquiring new and renewal insurance business. Costs that are related directly to the
successful acquisition or renewal of insurance contracts are capitalized as DAC. Such costs include:
•
•
•
•
incremental direct costs of contract acquisition, such as commissions;
the portion of an employee’s total compensation and benefits related to time spent selling, underwriting or processing the issuance of new
and renewal insurance business only with respect to actual policies acquired or renewed;
other essential direct costs that would not have been incurred had a policy not been acquired or renewed; and
the costs of direct-response advertising, the primary purpose of which is to elicit sales to customers who could be shown to have responded
specifically to the advertising and that results in probable future benefits.
All other acquisition-related costs, including those related to general advertising and solicitation, market research, agent training, product
development, unsuccessful sales and underwriting efforts, as well as all indirect costs, are expensed as incurred.
Value of business acquired (“VOBA”) is an intangible asset resulting from a business combination that represents the excess of book value
over the estimated fair value of acquired insurance, annuity, and investment-type contracts in-force at the acquisition date. The estimated fair value
of the acquired liabilities is based on projections, by each block of business, of future policy and contract charges, premiums, mortality and morbidity,
separate account performance, surrenders, operating expenses, investment returns, nonperformance risk adjustment and other factors. Actual
experience on the purchased business may vary from these projections.
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MetLife, Inc.
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1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Notes to the Consolidated Financial Statements — (continued)
DAC and VOBA are amortized as follows:
MetLife, Inc.
Products:
In proportion to the following over estimated lives of the contracts:
• Nonparticipating and non-dividend-paying traditional contracts:
Actual and expected future gross premiums.
• Term insurance
• Nonparticipating whole life insurance
• Traditional group life insurance
• Non-medical health insurance
• Accident & health insurance
• Participating, dividend-paying traditional contracts
Actual and expected future gross margins.
• Fixed and variable universal life contracts
Actual and expected future gross profits.
• Fixed and variable deferred annuity contracts
• Credit insurance contracts
• Property & casualty insurance contracts
• Other short-duration contracts
Actual and future earned premiums.
See Note 5 for additional information on DAC and VOBA amortization. Amortization of DAC and VOBA is included in other expenses.
The recovery of DAC and VOBA is dependent upon the future profitability of the related business. DAC and VOBA are aggregated in the
financial statements for reporting purposes.
The Company generally has two different types of sales inducements which are included in other assets: (i) the policyholder receives a bonus
whereby the policyholder’s initial account balance is increased by an amount equal to a specified percentage of the customer’s deposit; and (ii) the
policyholder receives a higher interest rate using a dollar cost averaging method than would have been received based on the normal general
account interest rate credited. The Company defers sales inducements and amortizes them over the life of the policy using the same methodology
and assumptions used to amortize DAC. The amortization of sales inducements is included in policyholder benefits and claims. Each year, or more
frequently if circumstances indicate a potential recoverability issue exists, the Company reviews deferred sales inducements (“DSI”) to determine
the recoverability of the asset.
Value of distribution agreements acquired (“VODA”) is reported in other assets and represents the present value of expected future profits
associated with the expected future business derived from the distribution agreements acquired as part of a business combination. Value of customer
relationships acquired (“VOCRA”) is also reported in other assets and represents the present value of the expected future profits associated with
the expected future business acquired through existing customers of the acquired company or business. The VODA and VOCRA associated with
past business combinations are amortized over useful lives ranging from 10 to 40 years and such amortization is included in other expenses. Each
year, or more frequently if circumstances indicate a possible impairment exists, the Company reviews VODA and VOCRA to determine whether
the asset is impaired.
For certain acquired blocks of business, the estimated fair value of the in-force contract obligations exceeded the book value of assumed in-
force insurance policy liabilities, resulting in negative VOBA, which is presented separately from VOBA as an additional insurance liability. The fair
value of the in-force contract obligations is based on projections by each block of business. Negative VOBA is amortized over the policy period in
proportion to the approximate consumption of losses included in the liability usually expressed in terms of insurance in-force or account value.
Such amortization is recorded as a contra-expense in other expenses.
Reinsurance
For each of its reinsurance agreements, the Company determines whether the agreement provides indemnification against loss or liability
relating to insurance risk in accordance with applicable accounting standards. Cessions under reinsurance agreements do not discharge the
Company’s obligations as the primary insurer. The Company reviews all contractual features, including those that may limit the amount of insurance
risk to which the reinsurer is subject or features that delay the timely reimbursement of claims.
For reinsurance of existing in-force blocks of long-duration contracts that transfer significant insurance risk, the difference, if any, between the
amounts paid (received), and the liabilities ceded (assumed) related to the underlying contracts is considered the net cost of reinsurance at the
inception of the reinsurance agreement. The net cost of reinsurance is recorded as an adjustment to DAC and recognized as a component of other
expenses on a basis consistent with the way the acquisition costs on the underlying reinsured contracts would be recognized. Subsequent amounts
paid (received) on the reinsurance of in-force blocks, as well as amounts paid (received) related to new business, are recorded as ceded (assumed)
premiums; and ceded (assumed) premiums, reinsurance and other receivables (future policy benefits) are established.
For prospective reinsurance of short-duration contracts that meet the criteria for reinsurance accounting, amounts paid (received) are recorded
as ceded (assumed) premiums and ceded (assumed) unearned premiums. Unearned premiums are reflected as a component of premiums,
reinsurance and other receivables (future policy benefits). Such amounts are amortized through earned premiums over the remaining contract
period in proportion to the amount of insurance protection provided. For retroactive reinsurance of short-duration contracts that meet the criteria
of reinsurance accounting, amounts paid (received) in excess of the related insurance liabilities ceded (assumed) are recognized immediately as a
loss and are reported in the appropriate line item within the statement of operations. Any gain on such retroactive agreement is deferred and is
amortized as part of DAC, primarily using the recovery method.
MetLife, Inc.
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1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Notes to the Consolidated Financial Statements — (continued)
MetLife, Inc.
Amounts currently recoverable under reinsurance agreements are included in premiums, reinsurance and other receivables and amounts
currently payable are included in other liabilities. Assets and liabilities relating to reinsurance agreements with the same reinsurer may be recorded
net on the balance sheet, if a right of offset exists within the reinsurance agreement. In the event that reinsurers do not meet their obligations to
the Company under the terms of the reinsurance agreements, reinsurance recoverable balances could become uncollectible. In such instances,
reinsurance recoverable balances are stated net of allowances for uncollectible reinsurance.
Premiums, fees and policyholder benefits and claims include amounts assumed under reinsurance agreements and are net of reinsurance
ceded. Amounts received from reinsurers for policy administration are reported in other revenues. With respect to GMIBs, a portion of the directly
written GMIBs are accounted for as insurance liabilities, but the associated reinsurance agreements contain embedded derivatives. These embedded
derivatives are included in premiums, reinsurance and other receivables with changes in estimated fair value reported in policyholder benefits and
claims.
If the Company determines that a reinsurance agreement does not expose the reinsurer to a reasonable possibility of a significant loss from
insurance risk, the Company records the agreement using the deposit method of accounting. Deposits received are included in other liabilities and
deposits made are included within premiums, reinsurance and other receivables. As amounts are paid or received, consistent with the underlying
contracts, the deposit assets or liabilities are adjusted. Interest on such deposits is recorded as other revenues or other expenses, as appropriate.
Periodically, the Company evaluates the adequacy of the expected payments or recoveries and adjusts the deposit asset or liability through other
revenues or other expenses, as appropriate.
Investments
Net Investment Income and Net Investment Gains (Losses)
Income from investments is reported within net investment income, unless otherwise stated herein. Gains and losses on sales of investments,
impairment losses and changes in valuation allowances are reported within net investment gains (losses), unless otherwise stated herein.
Fixed Maturity and Equity Securities
The majority of the Company’s fixed maturity and equity securities are classified as available-for-sale (“AFS”) and are reported at their
estimated fair value. Unrealized investment gains and losses on these securities are recorded as a separate component of other comprehensive
income (loss) (“OCI”), net of policy-related amounts and deferred income taxes. All security transactions are recorded on a trade date basis.
Investment gains and losses on sales are determined on a specific identification basis.
Interest income and prepayment fees are recognized when earned. Interest income is recognized using an effective yield method giving
effect to amortization of premiums and accretion of discounts. Dividends on equity securities are recognized when declared.
The Company periodically evaluates fixed maturity and equity securities for impairment. The assessment of whether impairments have
occurred is based on management’s case-by-case evaluation of the underlying reasons for the decline in estimated fair value, as well as an
analysis of the gross unrealized losses by severity and/or age as described in Note 8 “— Evaluation of AFS Securities for OTTI and Evaluating
Temporarily Impaired AFS Securities.”
For fixed maturity securities in an unrealized loss position, an other-than-temporary impairment (“OTTI”) is recognized in earnings when it
is anticipated that the amortized cost will not be recovered. When either: (i) the Company has the intent to sell the security; or (ii) it is more likely
than not that the Company will be required to sell the security before recovery, the OTTI recognized in earnings is the entire difference between
the security’s amortized cost and estimated fair value. If neither of these conditions exists, the difference between the amortized cost of the
security and the present value of projected future cash flows expected to be collected is recognized as an OTTI in earnings (“credit loss”). If the
estimated fair value is less than the present value of projected future cash flows expected to be collected, this portion of OTTI related to other-
than-credit factors (“noncredit loss”) is recorded in OCI.
With respect to equity securities, the Company considers in its OTTI analysis its intent and ability to hold a particular equity security for a
period of time sufficient to allow for the recovery of its estimated fair value to an amount equal to or greater than cost. If a sale decision is made
for an equity security and recovery to an amount at least equal to cost prior to the sale is not expected, the security will be deemed to be other-
than-temporarily impaired in the period that the sale decision was made and an OTTI loss will be recorded in earnings. The OTTI loss recognized
is the entire difference between the security’s cost and its estimated fair value.
FVO and Trading Securities
FVO and trading securities are stated at estimated fair value and include investments for which the FVO has been elected (“FVO Securities”)
and investments that are actively purchased and sold (“Actively traded securities”). FVO Securities include:
•
•
fixed maturity and equity securities held-for-investment by the general account to support asset and liability management strategies for
certain insurance products and investments in certain separate accounts (“FVO general account securities”); and
contractholder-directed investments supporting unit-linked variable annuity type liabilities which do not qualify for presentation and reporting
as separate account summary total assets and liabilities. These investments are primarily mutual funds and, to a lesser extent, fixed maturity
and equity securities, short-term investments and cash and cash equivalents. The investment returns on these investments inure to
contractholders and are offset by a corresponding change in Policyholder account balances through interest credited to policyholder account
balances (“FVO contractholder-directed unit-linked investments”).
Actively traded securities principally include fixed maturity securities and short sale agreement liabilities, which are included in other liabilities.
Changes in estimated fair value of these securities are included in net investment income, except for certain securities included in FVO
Securities where changes are included in net investment gains (losses).
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MetLife, Inc.
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1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Notes to the Consolidated Financial Statements — (continued)
Mortgage Loans
MetLife, Inc.
The Company disaggregates its mortgage loan investments into three portfolio segments: commercial, agricultural and residential. The
accounting policies that are applicable to all portfolio segments are presented below and the accounting policies related to each of the portfolio
segments are included in Note 8.
Mortgage Loans Held-For-Investment
Mortgage loans held-for-investment are stated at unpaid principal balance, adjusted for any unamortized premium or discount, deferred
fees or expenses, and are net of valuation allowances. Interest income and prepayment fees are recognized when earned. Interest income is
recognized using an effective yield method giving effect to amortization of premiums and accretion of discounts.
Also included in mortgage loans held-for-investment are commercial mortgage loans held by consolidated securitization entities (“CSEs”)
and residential mortgage loans for which the FVO was elected, which are stated at estimated fair value. Changes in estimated fair value are
recognized in net investment gains (losses) for commercial mortgage loans held by CSEs — FVO, and net investment income for residential
mortgage loans — FVO.
Mortgage Loans Held-For-Sale
Mortgage loans held-for-sale that were previously designated as held-for-investment and mortgage loans originated with the intent to sell
for which FVO was not elected, are stated at the lower of amortized cost or estimated fair value.
Policy Loans
Policy loans are stated at unpaid principal balances. Interest income is recorded as earned using the contractual interest rate. Generally,
accrued interest is capitalized on the policy’s anniversary date. Valuation allowances are not established for policy loans, as they are fully
collateralized by the cash surrender value of the underlying insurance policies. Any unpaid principal and accrued interest is deducted from the
cash surrender value or the death benefit prior to settlement of the insurance policy.
Real Estate
Real estate held-for-investment is stated at cost less accumulated depreciation. Depreciation is recorded on a straight-line basis over the
estimated useful life of the asset (typically 20 to 55 years). Rental income is recognized on a straight-line basis over the term of the respective
leases. The Company periodically reviews its real estate held-for-investment for impairment and tests for recoverability whenever events or
changes in circumstances indicate the carrying value may not be recoverable and exceeds its estimated fair value. Properties whose carrying
values are greater than their undiscounted cash flows are written down to their estimated fair value, which is generally computed using the
present value of expected future cash flows discounted at a rate commensurate with the underlying risks.
Real estate for which the Company commits to a plan to sell within one year and actively markets in its current condition for a reasonable
price in comparison to its estimated fair value is classified as held-for-sale. Real estate held-for-sale is stated at the lower of depreciated cost
or estimated fair value less expected disposition costs and is not depreciated.
Real Estate Joint Ventures and Other Limited Partnership Interests
The Company uses the equity method of accounting for equity securities when it has significant influence or at least 20% interest and for
real estate joint ventures and other limited partnership interests (“investees”) when it has more than a minor ownership interest or more than a
minor influence over the investee’s operations, but does not have a controlling financial interest. The Company generally recognizes its share of
the investee’s earnings on a three-month lag in instances where the investee’s financial information is not sufficiently timely or when the investee’s
reporting period differs from the Company’s reporting period.
The Company uses the cost method of accounting for investments in which it has virtually no influence over the investee’s operations. The
Company recognizes distributions on cost method investments as earned or received. Because of the nature and structure of these cost method
investments, they do not meet the characteristics of an equity security in accordance with applicable accounting standards.
The Company routinely evaluates its equity method and cost method investments for impairment. For equity method investees, the Company
considers financial and other information provided by the investee, other known information and inherent risks in the underlying investments, as
well as future capital commitments, in determining whether an impairment has occurred. The Company considers its cost method investments
for impairment when the carrying value of such investments exceeds the net asset value (“NAV”). The Company takes into consideration the
severity and duration of this excess when determining whether the cost method investment is impaired.
Short-term Investments
Short-term investments include securities and other investments with remaining maturities of one year or less, but greater than three months,
at the time of purchase and are stated at estimated fair value or amortized cost, which approximates estimated fair value.
Other Invested Assets
Other invested assets consist principally of the following:
•
•
Freestanding derivatives with positive estimated fair values which are described in “— Derivatives” below.
Tax credit and renewable energy partnerships which derive a significant source of investment return in the form of income tax credits or
other tax incentives. Where tax credits are guaranteed by a creditworthy third party, the investment is accounted for under the effective
yield method. Otherwise, the investment is accounted for under the equity method.
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1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Notes to the Consolidated Financial Statements — (continued)
MetLife, Inc.
•
•
•
Leveraged leases which are recorded net of non-recourse debt. Income is recognized by applying the leveraged lease’s estimated rate of
return to the net investment in the lease. The Company regularly reviews residual values for impairment.
Direct financing leases gross investment is equal to the minimum lease payments plus the unguaranteed residual value. Income is recorded
by applying the pre-tax internal rate of return to the investment balance. The Company regularly reviews lease receivables for impairment.
Certain direct financing leases are linked to inflation.
Funds withheld represent a receivable for amounts contractually withheld by ceding companies in accordance with reinsurance agreements.
The Company recognizes interest on funds withheld at rates defined by the terms of the agreement which may be contractually specified
or directly related to the underlying investments.
•
Investments in operating joint ventures that engage in insurance underwriting activities are accounted for under the equity method.
Securities Lending Program
Securities lending transactions, whereby blocks of securities are loaned to third parties, primarily brokerage firms and commercial banks,
are treated as financing arrangements and the associated liability is recorded at the amount of cash received. The Company obtains collateral
at the inception of the loan, usually cash, in an amount generally equal to 102% of the estimated fair value of the securities loaned, and maintains
it at a level greater than or equal to 100% for the duration of the loan. Securities loaned under such transactions may be sold or re-pledged by
the transferee. The Company is liable to return to the counterparties the cash collateral received. Security collateral on deposit from counterparties
in connection with securities lending transactions may not be sold or re-pledged, unless the counterparty is in default, and is not reflected in the
Company’s financial statements. The Company monitors the estimated fair value of the securities loaned on a daily basis and additional collateral
is obtained as necessary throughout the duration of the loan. Income and expenses associated with securities lending transactions are reported
as investment income and investment expense, respectively, within net investment income.
Derivatives
Freestanding Derivatives
Freestanding derivatives are carried on the Company’s balance sheet either as assets within other invested assets or as liabilities within
other liabilities at estimated fair value. The Company does not offset the estimated fair value amounts recognized for derivatives executed with
the same counterparty under the same master netting agreement.
Accruals on derivatives are generally recorded in accrued investment income or within other liabilities. However, accruals that are not
scheduled to settle within one year are included with the derivatives carrying value in other invested assets or other liabilities.
If a derivative is not designated as an accounting hedge or its use in managing risk does not qualify for hedge accounting, changes in the
estimated fair value of the derivative are reported in net derivative gains (losses) except as follows:
Statement of Operations Presentation:
Policyholder benefits and claims
Derivative:
• Economic hedges of variable annuity guarantees included in future
policy benefits
Net investment income
• Economic hedges of equity method investments in joint ventures
• All derivatives held in relation to trading portfolios
• Derivatives
held within
contractholder-directed unit-linked
investments
Hedge Accounting
To qualify for hedge accounting, at the inception of the hedging relationship, the Company formally documents its risk management objective
and strategy for undertaking the hedging transaction, as well as its designation of the hedge. Hedge designation and financial statement
presentation of changes in estimated fair value of the hedging derivatives are as follows:
•
•
•
Fair value hedge (a hedge of the estimated fair value of a recognized asset or liability) - in net derivative gains (losses), consistent with the
change in estimated fair value of the hedged item attributable to the designated risk being hedged.
Cash flow hedge (a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset
or liability) - effectiveness in OCI (deferred gains or losses on the derivative are reclassified into the statement of operations when the
Company’s earnings are affected by the variability in cash flows of the hedged item); ineffectiveness in net derivative gains (losses).
Net investment in a foreign operation hedge - effectiveness in OCI, consistent with the translation adjustment for the hedged net investment
in the foreign operation; ineffectiveness in net derivative gains (losses).
The changes in estimated fair values of the hedging derivatives are exclusive of any accruals that are separately reported on the statement
of operations within interest income or interest expense to match the location of the hedged item. Accruals on derivatives in net investment
hedges are recognized in OCI.
In its hedge documentation, the Company sets forth how the hedging instrument is expected to hedge the designated risks related to the
hedged item and sets forth the method that will be used to retrospectively and prospectively assess the hedging instrument’s effectiveness and
the method that will be used to measure ineffectiveness. A derivative designated as a hedging instrument must be assessed as being highly
effective in offsetting the designated risk of the hedged item. Hedge effectiveness is formally assessed at inception and at least quarterly throughout
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MetLife, Inc.
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1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Notes to the Consolidated Financial Statements — (continued)
MetLife, Inc.
the life of the designated hedging relationship. Assessments of hedge effectiveness and measurements of ineffectiveness are also subject to
interpretation and estimation and different interpretations or estimates may have a material effect on the amount reported in net income.
The Company discontinues hedge accounting prospectively when: (i) it is determined that the derivative is no longer highly effective in
offsetting changes in the estimated fair value or cash flows of a hedged item; (ii) the derivative expires, is sold, terminated, or exercised; (iii) it is
no longer probable that the hedged forecasted transaction will occur; or (iv) the derivative is de-designated as a hedging instrument.
When hedge accounting is discontinued because it is determined that the derivative is not highly effective in offsetting changes in the
estimated fair value or cash flows of a hedged item, the derivative continues to be carried on the balance sheet at its estimated fair value, with
changes in estimated fair value recognized in net derivative gains (losses). The carrying value of the hedged recognized asset or liability under a
fair value hedge is no longer adjusted for changes in its estimated fair value due to the hedged risk, and the cumulative adjustment to its carrying
value is amortized into income over the remaining life of the hedged item. Provided the hedged forecasted transaction is still probable of occurrence,
the changes in estimated fair value of derivatives recorded in OCI related to discontinued cash flow hedges are released into the statement of
operations when the Company’s earnings are affected by the variability in cash flows of the hedged item.
When hedge accounting is discontinued because it is no longer probable that the forecasted transactions will occur on the anticipated date
or within two months of that date, the derivative continues to be carried on the balance sheet at its estimated fair value, with changes in estimated
fair value recognized currently in net derivative gains (losses). Deferred gains and losses of a derivative recorded in OCI pursuant to the discontinued
cash flow hedge of a forecasted transaction that is no longer probable are recognized immediately in net derivative gains (losses).
In all other situations in which hedge accounting is discontinued, the derivative is carried at its estimated fair value on the balance sheet,
with changes in its estimated fair value recognized in the current period as net derivative gains (losses).
Embedded Derivatives
The Company sells variable annuities and issues certain insurance products and investment contracts and is a party to certain reinsurance
agreements that have embedded derivatives. The Company assesses each identified embedded derivative to determine whether it is required
to be bifurcated. The embedded derivative is bifurcated from the host contract and accounted for as a freestanding derivative if:
•
•
•
the combined instrument is not accounted for in its entirety at estimated fair value with changes in estimated fair value recorded in earnings;
the terms of the embedded derivative are not clearly and closely related to the economic characteristics of the host contract; and
a separate instrument with the same terms as the embedded derivative would qualify as a derivative instrument.
Such embedded derivatives are carried on the balance sheet at estimated fair value with the host contract and changes in their estimated
fair value are generally reported in net derivative gains (losses), except for those in policyholder benefits and claims related to ceded reinsurance
of GMIB. If the Company is unable to properly identify and measure an embedded derivative for separation from its host contract, the entire
contract is carried on the balance sheet at estimated fair value, with changes in estimated fair value recognized in the current period in net
investment gains (losses) or net investment income. Additionally, the Company may elect to carry an entire contract on the balance sheet at
estimated fair value, with changes in estimated fair value recognized in the current period in net investment gains (losses) or net investment
income if that contract contains an embedded derivative that requires bifurcation. At inception, the Company attributes to the embedded derivative
a portion of the projected future guarantee fees to be collected from the policyholder equal to the present value of projected future guaranteed
benefits. Any additional fees represent “excess” fees and are reported in universal life and investment-type product policy fees.
Fair Value
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. In most cases, the
exit price and the transaction (or entry) price will be the same at initial recognition.
Subsequent to initial recognition, fair values are based on unadjusted quoted prices for identical assets or liabilities in active markets that are
readily and regularly obtainable. When such quoted prices are not available, fair values are based on quoted prices in markets that are not active,
quoted prices for similar but not identical assets or liabilities, or other observable inputs. If these inputs are not available, or observable inputs are
not determinable, unobservable inputs and/or adjustments to observable inputs requiring management judgment are used to determine the estimated
fair value of assets and liabilities.
Goodwill
Goodwill represents the future economic benefits arising from net assets acquired in a business combination that are not individually identified
and recognized. Goodwill is calculated as the excess of cost over the estimated fair value of such net assets acquired, is not amortized, and is
tested for impairment based on a fair value approach at least annually or more frequently if events or circumstances indicate that there may be
justification for conducting an interim test. The Company performs its annual goodwill impairment testing during the third quarter of each year based
upon data as of the close of the second quarter. Goodwill associated with a business acquisition is not tested for impairment during the year the
business is acquired unless there is a significant identified impairment event.
The impairment test is performed at the reporting unit level, which is the operating segment or a business one level below the operating
segment, if discrete financial information is prepared and regularly reviewed by management at that level. For purposes of goodwill impairment
testing, if the carrying value of a reporting unit exceeds its estimated fair value, there may be an indication of impairment. In such instances, the
implied fair value of the goodwill is determined in the same manner as the amount of goodwill that would be determined in a business combination.
The excess of the carrying value of goodwill over the implied fair value of goodwill would be recognized as an impairment and recorded as a charge
against net income.
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1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Notes to the Consolidated Financial Statements — (continued)
MetLife, Inc.
On an ongoing basis, the Company evaluates potential triggering events that may affect the estimated fair value of the Company’s reporting
units to assess whether any goodwill impairment exists. Deteriorating or adverse market conditions for certain reporting units may have a significant
impact on the estimated fair value of these reporting units and could result in future impairments of goodwill.
Employee Benefit Plans
Certain subsidiaries of MetLife, Inc. sponsor and/or administer various plans that provide defined benefit pension and other postretirement
benefits covering eligible employees and sales representatives. Measurement dates used for all of the subsidiaries’ defined benefit pension and
other postretirement benefit plans correspond with the fiscal year ends of sponsoring subsidiaries, which are December 31 for U.S. and most non-
U.S. subsidiaries and November 30 for certain non-U.S. subsidiaries.
The Company recognizes the funded status of each of its defined pension and postretirement benefit plans, measured as the difference
between the fair value of plan assets and the benefit obligation, which is the projected benefit obligation (“PBO”) for pension benefits and the
accumulated postretirement benefit obligation (“APBO”) for other postretirement benefits in other assets or other liabilities.
Actuarial gains and losses result from differences between the actual experience and the assumed experience on plan assets or PBO during
a particular period and are recorded in accumulated OCI (“AOCI”). To the extent such gains and losses exceed 10% of the greater of the PBO or
the estimated fair value of plan assets, the excess is amortized into net periodic benefit costs over the average projected future service years of
the active employees. In addition, prior service costs (credit) are recognized in AOCI at the time of the amendment and then amortized to net
periodic benefit costs over the average projected future service years of the active employees affected by the change.
Net periodic benefit costs are determined using management estimates and actuarial assumptions and are comprised of service cost, interest
cost, settlement and curtailment costs, expected return on plan assets, amortization of net actuarial (gains) losses, and amortization of prior service
costs (credit). Fair value is used to determine the expected return on plan assets.
The subsidiaries also sponsor defined contribution plans for substantially all U.S. employees under which a portion of employee contributions
is matched. Applicable matching contributions are made each payroll period. Accordingly, the Company recognizes compensation cost for current
matching contributions. As all contributions are transferred currently as earned to the defined contribution plans, no liability for matching contributions
is recognized in the balance sheets.
Income Tax
MetLife, Inc. and its includable life insurance and non-life insurance subsidiaries file a consolidated U.S. federal income tax return in accordance
with the provisions of the Internal Revenue Code of 1986, as amended (the “Code”). Non-includable subsidiaries file either separate individual
corporate tax returns or separate consolidated tax returns.
The Company’s accounting for income taxes represents management’s best estimate of various events and transactions.
Deferred tax assets and liabilities resulting from temporary differences between the financial reporting and tax bases of assets and liabilities
are measured at the balance sheet date using enacted tax rates expected to apply to taxable income in the years the temporary differences are
expected to reverse.
The realization of deferred tax assets depends upon the existence of sufficient taxable income within the carryback or carryforward periods
under the tax law in the applicable tax jurisdiction. Valuation allowances are established when management determines, based on available
information, that it is more likely than not that deferred income tax assets will not be realized. Significant judgment is required in determining whether
valuation allowances should be established, as well as the amount of such allowances. When making such determination the Company considers
many factors, including:
•
•
•
•
•
•
•
the nature, frequency, and amount of cumulative financial reporting income and losses in recent years;
the jurisdiction in which the deferred tax asset was generated;
the length of time that carryforward can be utilized in the various taxing jurisdiction;
future taxable income exclusive of reversing temporary differences and carryforwards;
future reversals of existing taxable temporary differences;
taxable income in prior carryback years; and
tax planning strategies.
The Company may be required to change its provision for income taxes when estimates used in determining valuation allowances on deferred
tax assets significantly change or when receipt of new information indicates the need for adjustment in valuation allowances. Additionally, the effect
of changes in tax laws, tax regulations, or interpretations of such laws or regulations, is recognized in net income tax expense (benefit) in the period
of change.
The Company determines whether it is more likely than not that a tax position will be sustained upon examination by the appropriate taxing
authorities before any part of the benefit can be recorded in the financial statements. A tax position is measured at the largest amount of benefit
that is greater than 50% likely of being realized upon settlement. Unrecognized tax benefits due to tax uncertainties that do not meet the threshold
are included within other liabilities and are charged to earnings in the period that such determination is made.
The Company classifies interest recognized as interest expense and penalties recognized as a component of income tax expense.
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1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Notes to the Consolidated Financial Statements — (continued)
Litigation Contingencies
MetLife, Inc.
The Company is a party to a number of legal actions and is involved in a number of regulatory investigations. Given the inherent unpredictability
of these matters, it is difficult to estimate the impact on the Company’s financial position. Liabilities are established when it is probable that a loss
has been incurred and the amount of the loss can be reasonably estimated. Except as otherwise disclosed in Note 21, legal costs are recognized
as incurred. On a quarterly and annual basis, the Company reviews relevant information with respect to liabilities for litigation, regulatory investigations
and litigation-related contingencies to be reflected in the Company’s financial statements.
Other Accounting Policies
Stock-Based Compensation
The Company grants certain employees and directors stock-based compensation awards under various plans that are subject to specific
vesting conditions. With the exception of performance shares granted in 2015, 2014 and 2013 which are re-measured quarterly, the cost of all
stock-based transactions is measured at fair value at grant date and recognized over the period during which a grantee is required to provide
services in exchange for the award. Although the terms of the Company’s stock-based plans do not accelerate vesting upon retirement, or the
attainment of retirement eligibility, the requisite service period subsequent to attaining such eligibility is considered non-substantive. Accordingly,
the Company recognizes compensation expense related to stock-based awards over the shorter of the requisite service period or the period to
attainment of retirement eligibility. An estimation of future forfeitures of stock-based awards is incorporated into the determination of compensation
expense when recognizing expense over the requisite service period.
Cash and Cash Equivalents
The Company considers all highly liquid securities and other investments purchased with an original or remaining maturity of three months
or less at the date of purchase to be cash equivalents. Cash equivalents are stated at amortized cost, which approximates estimated fair value.
Property, Equipment, Leasehold Improvements and Computer Software
Property, equipment and leasehold improvements, which are included in other assets, are stated at cost, less accumulated depreciation
and amortization. Depreciation is determined using the straight-line method over the estimated useful lives of the assets, as appropriate. The
estimated life is generally 40 years for company occupied real estate property, from one to 25 years for leasehold improvements, and from three
to seven years for all other property and equipment. The cost basis of the property, equipment and leasehold improvements was $2.0 billion at
both December 31, 2015 and 2014. Accumulated depreciation and amortization of property, equipment and leasehold improvements was
$1.1 billion and $1.0 billion at December 31, 2015 and 2014, respectively. Related depreciation and amortization expense was $216 million,
$182 million and $183 million for the years ended December 31, 2015, 2014 and 2013, respectively.
Computer software, which is included in other assets, is stated at cost, less accumulated amortization. Purchased software costs, as well
as certain internal and external costs incurred to develop internal-use computer software during the application development stage, are capitalized.
Such costs are amortized generally over a four-year period using the straight-line method. The cost basis of computer software was $2.2 billion
and $1.9 billion at December 31, 2015 and 2014, respectively. Accumulated amortization of capitalized software was $1.5 billion and $1.3 billion
at December 31, 2015 and 2014, respectively. Related amortization expense was $212 million, $212 million and $216 million for the years ended
December 31, 2015, 2014 and 2013, respectively.
Other Revenues
Other revenues include, in addition to items described elsewhere herein, advisory fees, broker-dealer commissions and fees, administrative
service fees, and changes in account value relating to corporate-owned life insurance (“COLI”). Such fees and commissions are recognized in
the period in which services are performed. Under certain COLI contracts, if the Company reports certain unlikely adverse results in its financial
statements, withdrawals would not be immediately available and would be subject to market value adjustment, which could result in a reduction
of the account value.
Policyholder Dividends
Policyholder dividends are approved annually by the insurance subsidiaries’ boards of directors. The aggregate amount of policyholder
dividends is related to actual interest, mortality, morbidity and expense experience for the year, as well as management’s judgment as to the
appropriate level of statutory surplus to be retained by the insurance subsidiaries.
Foreign Currency
Assets, liabilities and operations of foreign affiliates and subsidiaries are recorded based on the functional currency of each entity. The
determination of the functional currency is made based on the appropriate economic and management indicators. For most of the Company’s
foreign operations, the local currency is the functional currency. For certain other foreign operations, such as Japan, the local currency and one
or more other currencies qualify as functional currencies. Assets and liabilities of foreign affiliates and subsidiaries are translated from the functional
currency to U.S. dollars at the exchange rates in effect at each year-end and revenues and expenses are translated at the average exchange
rates during the year. The resulting translation adjustments are charged or credited directly to OCI, net of applicable taxes. Gains and losses
from foreign currency transactions, including the effect of re-measurement of monetary assets and liabilities to the appropriate functional currency,
are reported as part of net investment gains (losses) in the period in which they occur.
Earnings Per Common Share
Basic earnings per common share are computed based on the weighted average number of common shares, or their equivalent, outstanding
during the period. The difference between the number of shares assumed issued and number of shares assumed purchased represents the
dilutive shares. Diluted earnings per common share include the dilutive effect of the assumed: (i) exercise or issuance of stock-based awards
MetLife, Inc.
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1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Notes to the Consolidated Financial Statements — (continued)
MetLife, Inc.
using the treasury stock method; (ii) settlement of stock purchase contracts underlying common equity units using the treasury stock method;
and (iii) settlement of accelerated common stock repurchase contracts. Under the treasury stock method, exercise or issuance of stock-based
awards and settlement of stock purchase contracts underlying common equity units is assumed to occur with the proceeds used to purchase
common stock at the average market price for the period.
Adoption of New Accounting Pronouncements
Effective November 18, 2014, the Company adopted new guidance on when, if ever, the cost of acquiring an entity should be used to establish
a new accounting basis (“pushdown”) in the acquired entity’s separate financial statements. The guidance provides an acquired entity and its subsidiaries
with an irrevocable option to apply pushdown accounting in its separate financial statements upon occurrence of an event in which an acquirer obtains
control of the acquired entity. If a reporting entity elects to apply pushdown accounting, its stand-alone financial statements would reflect the acquirer’s
new basis in the acquired entity’s assets and liabilities. The election to apply pushdown accounting should be determined by an acquired entity for
each individual change-in-control event in which an acquirer obtains control of the acquired entity; however, an entity that does not elect to apply
pushdown accounting in the period of a change-in-control can later elect to retrospectively apply pushdown accounting to the most recent change-
in-control transaction as a change in accounting principle. The new guidance did not have a material impact on the consolidated financial statements
upon adoption.
Effective January 1, 2014, the Company adopted new guidance regarding reporting of discontinued operations and disclosures of disposals of
components of an entity. The guidance increases the threshold for a disposal to qualify as a discontinued operation, expands the disclosures for
discontinued operations and requires new disclosures for certain disposals that do not meet the definition of a discontinued operation. Disposals
must now represent a strategic shift that has or will have a major effect on the entity’s operations and financial results to qualify as discontinued
operations.
Effective January 1, 2014, the Company adopted new guidance regarding the presentation of an unrecognized tax benefit. The new guidance
requires that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, be presented in the financial statements as a reduction to a
deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. However, when the carryforwards are not
available at the reporting date to settle any additional income taxes that would result from the disallowance of a tax position or the applicable tax law
does not require, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit will be presented in the
financial statements as a liability and will not be combined with the related deferred tax asset. The adoption was prospectively applied and resulted
in a reduction to other liabilities and a corresponding increase to deferred income tax liability in the amount of $277 million.
Effective January 1, 2014, the Company adopted new guidance on other expenses. The objective of this standard is to address how health
insurers should recognize and classify in their income statements fees mandated by the Patient Protection and Affordable Care Act, as amended by
the Health Care and Education Reconciliation Act. The amendments in this standard specify that the liability for the fee should be estimated and
recorded in full once the entity provides qualifying health insurance in the applicable calendar year in which the fee is payable with a corresponding
deferred cost that is amortized to expense using the straight-line method of allocation unless another method better allocates the fee over the calendar
year that it is payable. In accordance with the adoption of the new accounting pronouncement on January 1, 2014, the Company recorded $57 million
in other liabilities, and a corresponding deferred cost, in other assets.
Effective July 17, 2013, the Company adopted guidance regarding derivatives that permits the Fed Funds Effective Swap Rate (or Overnight
Index Swap Rate) to be used as a U.S. benchmark interest rate for hedge accounting purposes, in addition to the United States Treasury and London
Interbank Offered Rate (“LIBOR”). Also, this new guidance removes the restriction on using different benchmark rates for similar hedges. The new
guidance did not have a material impact on the consolidated financial statements upon adoption.
Effective January 1, 2013, the Company adopted guidance regarding comprehensive income that requires an entity to provide information about
the amounts reclassified out of AOCI by component. In addition, an entity is required to present, either on the face of the statement where net income
is presented or in the notes, significant amounts reclassified out of AOCI by the respective line items of net income but only if the amount reclassified
is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under
GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under GAAP that provide
additional detail about those amounts. The adoption was prospectively applied and resulted in additional disclosures in Note 16.
Effective January 1, 2013, the Company adopted guidance regarding balance sheet offsetting disclosures which requires an entity to disclose
information about offsetting and related arrangements for derivatives, including bifurcated embedded derivatives, repurchase and reverse repurchase
agreements, and securities borrowing and lending transactions, to enable users of its financial statements to understand the effects of those
arrangements on its financial position. Entities are required to disclose both gross information and net information about both instruments and
transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master
netting arrangement. The adoption was retrospectively applied and resulted in additional disclosures related to derivatives in Note 9.
Future Adoption of New Accounting Pronouncements
In January 2016, the Financial Accounting Standards Board (“FASB”) issued new guidance (Accounting Standards Update (“ASU”) 2016-01,
Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities) on the recognition and measurement of
financial instruments. The new guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal
years. Early adoption is permitted for the instrument-specific credit risk provision. The new guidance changes the current accounting guidance related
to (i) the classification and measurement of certain equity investments, (ii) the presentation of changes in the fair value of financial liabilities measured
under the FVO that are due to instrument-specific credit risk, and (iii) certain disclosures associated with the fair value of financial instruments. The
Company is currently evaluating the impact of this guidance on its consolidated financial statements.
In May 2015, the FASB issued new guidance on short-duration insurance contracts (ASU 2015-09, Financial Services - Insurance (Topic 944):
Disclosures about Short-Duration Contracts). The amendments in this new guidance are effective for annual periods beginning after December 15,
2015, and interim periods within annual periods beginning after December 15, 2016. The new guidance should be applied retrospectively by providing
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1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Notes to the Consolidated Financial Statements — (continued)
MetLife, Inc.
comparative disclosures for each period presented, except for those requirements that apply only to the current period. The new guidance requires
insurance entities to provide users of financial statements with more transparent information about initial claim estimates and subsequent adjustments
to these estimates, including information on: (i) reconciling from the claim development table to the balance sheet liability, (ii) methodologies and
judgments in estimating claims, and (iii) the timing, and frequency of claims. The adoption will not have an impact on the Company’s consolidated
financial statements other than expanded disclosures in Note 4.
In May 2015, the FASB issued new guidance on fair value measurement
, Fair Value Measurement (Topic 820): Disclosures for
Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)), effective for fiscal years beginning after December 15,
2015, and interim periods within those fiscal years and which should be applied retrospectively to all periods presented. Earlier application is permitted.
The amendments in this ASU remove the requirement to categorize within the fair value hierarchy all investments for which fair value is measured
using NAV per share (or its equivalent) practical expedient. In addition, the amendments remove the requirement to make certain disclosures for all
investments that are eligible to be measured at fair value using the NAV per share practical expedient. The adoption of this new guidance will not have
a material impact on the Company’s consolidated financial statements.
In April 2015, the FASB issued new guidance on accounting for fees paid in a cloud computing arrangement (ASU 2015-05, Intangibles - Goodwill
and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement), effective for fiscal
years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption of the new guidance is permitted and an entity
can elect to adopt the guidance either: (1) prospectively to all arrangements entered into or materially modified after the effective date; or (2)
retrospectively. The new guidance provides that all software licenses included in cloud computing arrangements be accounted for consistent with
other licenses of intangible assets. However, if a cloud computing arrangement does not include a software license, the arrangement should be
accounted for as a service contract, the accounting for which did not change. The adoption of this new guidance will not have a material impact on
the Company’s consolidated financial statements.
In February 2015, the FASB issued certain amendments to the consolidation analysis to improve consolidation guidance for legal entities (ASU
2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis), effective for fiscal years beginning after December 15, 2015 and
interim periods within those years and early adoption is permitted. The new standard is intended to improve targeted areas of the consolidation
guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures. The amendments in this ASU affect
the consolidation evaluation for reporting organizations. In addition, the amendments in this ASU simplify and improve current GAAP by reducing the
number of consolidation models. The adoption of this new guidance will not have a material impact on the Company’s consolidated financial statements.
In May 2014, the FASB issued a comprehensive new revenue recognition standard
Revenue from Contracts with Customers
(Topic 606)), effective for fiscal years beginning after December 15, 2016 and interim periods within those years and should be applied retrospectively.
In August 2015, the FASB amended the guidance to defer the effective date by one year, effective for the fiscal years beginning after December 15,
2017, including interim periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after
December 15, 2016, including interim reporting periods within that reporting period. The new guidance will supersede nearly all existing revenue
recognition guidance under GAAP; however, it will not impact the accounting for insurance contracts, leases, financial instruments and guarantees.
For those contracts that are impacted by the new guidance, the guidance will require an entity to recognize revenue upon the transfer of promised
goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled, in exchange for those goods
or services. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.
2. Segment Information
MetLife is organized into six segments, reflecting three broad geographic regions: Retail; Group, Voluntary & Worksite Benefits; Corporate Benefit
Funding; and Latin America (collectively, the “Americas”); Asia; and EMEA. In addition, the Company reports certain of its results of operations in
Corporate & Other.
On January 12, 2016, the Company announced its plan to pursue the separation of a substantial portion of its Retail segment, which is organized
into two U.S. businesses, Life & Other and Annuities, as well as certain portions of its Corporate Benefit Funding segment and Corporate & Other (the
“Separation”). See Note 23.
Americas
The Americas consists of the following segments:
Retail
The Retail segment offers a broad range of protection products and services and a variety of annuities to individuals and employees of
corporations and other institutions, and is organized into two U.S. businesses: Life & Other and Annuities. Life & Other insurance products and
services include variable life, universal life, term life and whole life products. Additionally, through broker-dealer affiliates, the Company offers a full
range of mutual funds and other securities products. Life & Other products and services also include individual disability income products and
personal lines property & casualty insurance, including private passenger automobile, homeowners and personal excess liability insurance. Annuities
includes a variety of variable and fixed annuities which provide for both asset accumulation and asset distribution needs.
Group, Voluntary & Worksite Benefits
The Group, Voluntary & Worksite Benefits segment offers a broad range of protection products and services to individuals and corporations,
as well as other institutions and their respective employees. Group, Voluntary & Worksite Benefits insurance products and services include life,
dental, group short- and long-term disability and accidental death and dismemberment (“AD&D”) coverages. In addition, the Group, Voluntary &
Worksite Benefits segment offers property & casualty insurance, including private passenger automobile, homeowners and personal excess liability,
which is offered to employees on a voluntary basis, long-term care, critical illness, vision and accident & health coverages, as well as prepaid legal
plans.
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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
2. Segment Information (continued)
Corporate Benefit Funding
The Corporate Benefit Funding segment offers a broad range of annuity and investment products, including guaranteed interest products and
other stable value products, income annuities and separate account contracts for the investment management of defined benefit and defined
contribution plan assets. This segment also includes structured settlements and certain products to fund postretirement benefits and company-,
bank- or trust-owned life insurance used to finance nonqualified benefit programs for executives.
Latin America
The Latin America segment offers a broad range of products to both individuals and corporations, as well as other institutions and their
respective employees, which include life insurance, accident & health insurance, group medical, dental, credit insurance, endowment and retirement &
savings products written in Latin America. The Latin America segment also includes U.S. direct business, comprised of group and individual products
sold through sponsoring organizations, affinity groups and direct to consumer. Products included are life, dental, group short- and long-term
disability, AD&D coverages, property & casualty and other accident & health coverages, as well as non-insurance products such as identity protection.
Asia
The Asia segment offers a broad range of products to both individuals and corporations, as well as other institutions and their respective
employees, which include whole life, term life, variable life, universal life, accident & health insurance, fixed and variable annuities, credit insurance and
endowment products.
EMEA
The EMEA segment offers a broad range of products to both individuals and corporations, as well as other institutions and their respective
employees, which include life insurance, accident & health insurance, credit insurance, annuities, endowment and retirement & savings products.
Corporate & Other
Corporate & Other contains the excess capital, as well as certain charges and activities, not allocated to the segments, including external
integration costs, internal resource costs for associates committed to acquisitions, enterprise-wide strategic initiative restructuring charges, various
start-up businesses (including expatriate benefits insurance and the investment management business through which the Company offers fee-based
investment management services to institutional clients) and certain run-off businesses. Corporate & Other also includes assumed reinsurance of
certain variable annuity products from the Company’s former operating joint venture in Japan. Under this in-force reinsurance agreement, the Company
reinsures living and death benefit guarantees issued in connection with variable annuity products. Additionally, Corporate & Other includes interest
expense related to the majority of the Company’s outstanding debt and expenses associated with certain legal proceedings and income tax audit
issues. Corporate & Other also includes the elimination of intersegment amounts, which generally relate to intersegment loans, which bear interest
rates commensurate with related borrowings.
Financial Measures and Segment Accounting Policies
Operating earnings is the measure of segment profit or loss the Company uses to evaluate segment performance and allocate resources.
Consistent with GAAP guidance for segment reporting, operating earnings is the Company’s measure of segment performance and is reported below.
Operating earnings should not be viewed as a substitute for income (loss) from continuing operations, net of income tax. The Company believes the
presentation of operating earnings as the Company measures it for management purposes enhances the understanding of its performance by
highlighting the results of operations and the underlying profitability drivers of the business.
Operating earnings is defined as operating revenues less operating expenses, both net of income tax.
Operating revenues and operating expenses exclude results of discontinued operations and other businesses that have been or will be sold or
exited by MetLife and are referred to as divested businesses. Operating revenues also excludes net investment gains (losses) and net derivative
gains (losses). Operating expenses also excludes goodwill impairments.
The following additional adjustments are made to GAAP revenues, in the line items indicated, in calculating operating revenues:
•
•
Universal life and investment-type product policy fees excludes the amortization of unearned revenue related to net investment gains (losses)
and net derivative gains (losses) and certain variable annuity GMIB fees (“GMIB Fees”);
Net investment income: (i) includes investment hedge adjustments which represent earned income on derivatives and amortization of
premium on derivatives that are hedges of investments or that are used to replicate certain investments, but do not qualify for hedge
accounting treatment, (ii) includes income from discontinued real estate operations, (iii) excludes post-tax operating earnings adjustments
relating to insurance joint ventures accounted for under the equity method, (iv) excludes certain amounts related to contractholder-directed
unit-linked investments and (v) excludes certain amounts related to securitization entities that are VIEs consolidated under GAAP; and
• Other revenues are adjusted for settlements of foreign currency earnings hedges.
The following additional adjustments are made to GAAP expenses, in the line items indicated, in calculating operating expenses:
•
Policyholder benefits and claims and policyholder dividends excludes: (i) changes in the policyholder dividend obligation related to net
investment gains (losses) and net derivative gains (losses), (ii) inflation-indexed benefit adjustments associated with contracts backed by
inflation-indexed investments and amounts associated with periodic crediting rate adjustments based on the total return of a contractually
referenced pool of assets and other pass through adjustments, (iii) benefits and hedging costs related to GMIBs (“GMIB Costs”) and
(iv) market value adjustments associated with surrenders or terminations of contracts (“Market Value Adjustments”);
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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
2. Segment Information (continued)
•
•
•
•
Interest credited to policyholder account balances includes adjustments for earned income on derivatives and amortization of premium on
derivatives that are hedges of policyholder account balances but do not qualify for hedge accounting treatment and excludes amounts
related to net investment income earned on contractholder-directed unit-linked investments;
Amortization of DAC and VOBA excludes amounts related to: (i) net investment gains (losses) and net derivative gains (losses), (ii) GMIB
Fees and GMIB Costs and (iii) Market Value Adjustments;
Amortization of negative VOBA excludes amounts related to Market Value Adjustments;
Interest expense on debt excludes certain amounts related to securitization entities that are VIEs consolidated under GAAP; and
• Other expenses excludes costs related to: (i) noncontrolling interests, (ii) implementation of new insurance regulatory requirements and
(iii) acquisition and integration costs.
Operating earnings also excludes the recognition of certain contingent assets and liabilities that could not be recognized at acquisition or adjusted
for during the measurement period under GAAP business combination accounting guidance. In addition to the tax impact of the adjustments mentioned
above, provision for income tax expense (benefit) also includes the impact related to the timing of certain tax credits, as well as certain tax reforms.
Set forth in the tables below is certain financial information with respect to the Company’s segments, as well as Corporate & Other, for the years
ended December 31, 2015, 2014 and 2013 and at December 31, 2015 and 2014. The segment accounting policies are the same as those used to
prepare the Company’s consolidated financial statements, except for operating earnings adjustments as defined above. In addition, segment accounting
policies include the method of capital allocation described below.
Economic capital is an internally developed risk capital model, the purpose of which is to measure the risk in the business and to provide a basis
upon which capital is deployed. The economic capital model accounts for the unique and specific nature of the risks inherent in the Company’s
business.
The Company’s economic capital model, coupled with considerations of local capital requirements, aligns segment allocated equity with emerging
standards and consistent risk principles. The model applies statistics-based risk evaluation principles to the material risks to which the Company is
exposed. These consistent risk principles include calibrating required economic capital shock factors to a specific confidence level and time horizon
while applying an industry standard method for the inclusion of diversification benefits among risk types. The Company’s management is responsible
for the ongoing production and enhancement of the economic capital model and reviews its approach periodically to ensure that it remains consistent
with emerging industry practice standards.
Segment net investment income is credited or charged based on the level of allocated equity; however, changes in allocated equity do not impact
the Company’s consolidated net investment income, operating earnings or income (loss) from continuing operations, net of income tax.
Net investment income is based upon the actual results of each segment’s specifically identifiable investment portfolios adjusted for allocated
equity. Other costs are allocated to each of the segments based upon: (i) a review of the nature of such costs; (ii) time studies analyzing the amount
of employee compensation costs incurred by each segment; and (iii) cost estimates included in the Company’s product pricing.
MetLife, Inc.
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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
2. Segment Information (continued)
Operating Results
Americas
Year Ended December 31, 2015
Retail
Group,
Voluntary
& Worksite
Benefits
Corporate
Benefit
Funding
Latin
America
Total
Asia
EMEA
Corporate
& Other
Total
Adjustments
Total
Consolidated
(In millions)
$ 7,228
$
16,358
$
3,019
$
2,891
$ 29,496
$ 6,937
$ 2,036
$
79
$ 38,548
$
(3)
$
38,545
Revenues
Premiums
Universal life and investment-type
product policy fees
Net investment income
Other revenues
Net investment gains (losses)
Net derivative gains (losses)
Total revenues
Expenses
Policyholder benefits and claims and
policyholder dividends
Interest credited to policyholder
account balances
Capitalization of DAC
Amortization of DAC and VOBA
Amortization of negative VOBA
Interest expense on debt
Other expenses
Total expenses
Provision for income tax expense
(benefit)
Operating earnings
Adjustments to:
Total revenues
Total expenses
4,933
7,814
989
—
—
740
1,898
451
—
—
259
5,710
286
—
—
1,116
1,047
42
—
—
7,048
16,469
1,768
—
—
1,542
2,675
105
—
—
424
326
61
—
—
99
319
86
—
—
9,113
19,789
2,020
—
—
20,964
19,447
9,274
5,096
54,781
11,259
2,847
583
69,470
9,995
15,170
5,447
2,625
33,237
5,275
988
65
39,565
2,198
(1,048)
1,561
—
(1)
4,855
17,560
956
$ 2,448
$
151
(151)
164
—
—
2,703
18,037
499
911
1,184
(19)
21
—
3
349
(426)
303
(1)
—
512
7,148
1,666
4,516
9,736
47,261
3,882
1,309
(1,644)
(1,720)
2,049
1,256
(1)
2
(309)
—
3,611
9,422
120
(472)
497
(16)
—
1,469
2,586
23
(1)
—
—
5,334
(3,837)
3,802
(326)
1,198
1,200
990
15,806
2,275
61,544
739
7
2,201
457
21
(353)
$
1,387
$
573
$ 5,319
$ 1,380
$
240
$
(1,339)
2,326
5,600
481
(937)
178
394
(508)
(37)
597
38
481
537
276
—
134
(35)
8
17
937
9,507
19,281
1,983
597
38
69,951
40,102
5,610
(3,837)
3,936
(361)
1,208
15,823
62,481
(178)
2,148
Provision for income tax (expense) benefit
Income (loss) from continuing operations, net of income tax
$ 5,322
$
5,322
At December 31, 2015
Retail
Group,
Voluntary
& Worksite
Benefits
Corporate
Benefit
Funding
Latin
America
Asia (1)
EMEA
Corporate
& Other
Total
(In millions)
Total assets
Separate account assets
Separate account liabilities
______________
$
$
$
347,257
159,782
159,782
$
$
$
46,476
638
638
$
$
$
225,015
82,157
82,157
$
$
$
65,266
46,061
46,061
$
$
$
113,895
8,964
8,964
$
$
$
26,767
3,996
3,996
$
$
$
53,257
$
877,933
— $
301,598
— $
301,598
(1)
Total assets includes $90.0 billion of assets from the Japan operations which represents 10% of total consolidated assets.
116
MetLife, Inc.
405
669
(3)
(197)
1,317
2,236
9,946
21,153
2,030
(197)
1,317
73,316
1,282
(1)
105
(46)
38
114
6,943
(4,183)
4,132
(442)
1,216
16,368
64,512
Revenues
Premiums
Universal life and investment-type
product policy fees
Net investment income
Other revenues
Net investment gains (losses)
Net derivative gains (losses)
Expenses
Policyholder benefits and claims and
policyholder dividends
Interest credited to policyholder
account balances
Capitalization of DAC
Amortization of DAC and VOBA
Amortization of negative VOBA
Interest expense on debt
Other expenses
Total expenses
Provision for income tax expense
(benefit)
Operating earnings
Adjustments to:
Total revenues
Total expenses
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
2. Segment Information (continued)
Year Ended December 31, 2014
Retail
Group,
Voluntary
& Worksite
Benefits
Americas
Corporate
Benefit
Funding
Operating Results
Latin
America
Total
Asia
EMEA
Corporate
& Other
Total
Adjustments
Total
Consolidated
(In millions)
$ 7,280
$
15,979
$
2,768
$
3,039
$ 29,066
$ 7,566
$ 2,309
$
81
$ 39,022
$
45
$
39,067
5,074
7,887
1,059
—
—
716
1,861
420
—
—
226
5,684
286
—
—
1,239
1,229
35
—
—
7,255
16,661
1,800
—
—
1,693
2,886
106
—
—
466
428
60
—
—
127
509
67
—
—
9,541
20,484
2,033
—
—
Total revenues
21,300
18,976
8,964
5,542
54,782
12,251
3,263
784
71,080
9,851
14,897
5,106
2,786
32,640
5,724
1,053
2,245
(969)
1,515
—
1
4,711
17,354
156
(143)
149
—
1
1,140
(31)
19
—
9
394
(445)
334
(1)
—
3,935
1,544
(1,588)
(1,914)
2,017
1,397
(1)
11
(364)
—
148
(680)
613
(31)
—
2,571
17,631
492
6,735
1,810
4,878
9,584
3,975
46,598
10,362
1,846
2,949
61
34
—
—
—
5,661
(4,182)
4,027
(396)
1,167
1,178
849
16,254
2,111
62,020
2,492
39,478
1,000
40,478
1,130
467
771
96
2,464
582
29
$ 2,816
$
878
$
1,458
$
568
$ 5,720
$ 1,307
$
285
$
(697)
(630)
2,378
6,682
87
2,465
Provision for income tax (expense) benefit
Income (loss) from continuing operations, net of income tax
2,236
(2,492)
(87)
$ 6,339
$
6,339
At December 31, 2014
Retail
Group,
Voluntary
& Worksite
Benefits
Corporate
Benefit
Funding
Latin
America
Asia (1)
EMEA
Corporate
& Other
Total
(In millions)
Total assets
Separate account assets
Separate account liabilities
______________
$
$
$
359,188
171,726
171,726
$
$
$
46,483
669
669
$
$
$
228,543
81,150
81,150
$
$
$
72,259
50,301
50,301
$
$
$
117,894
9,078
9,078
$
$
$
29,217
4,070
4,070
$
$
$
48,753
$
902,337
— $
316,994
— $
316,994
(1)
Total assets includes $95.0 billion of assets from the Japan operations which represents 11% of total consolidated assets.
MetLife, Inc.
117
366
1,838
(34)
161
(3,239)
(817)
9,451
22,232
1,920
161
(3,239)
68,199
2,164
—
(533)
(55)
123
539
8,179
(4,786)
3,550
(579)
1,282
17,135
64,147
Revenues
Premiums
Universal life and investment-type
product policy fees
Net investment income
Other revenues
Net investment gains (losses)
Net derivative gains (losses)
Expenses
Policyholder benefits and claims and
policyholder dividends
Interest credited to policyholder
account balances
Capitalization of DAC
Amortization of DAC and VOBA
Amortization of negative VOBA
Interest expense on debt
Other expenses
Total expenses
Provision for income tax expense
(benefit)
Operating earnings
Adjustments to:
Total revenues
Total expenses
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
2. Segment Information (continued)
Operating Results
Year Ended December 31, 2013
Retail
Americas
Group,
Voluntary
& Worksite
Benefits
Corporate
Benefit
Funding
Latin
America
Total
Asia
EMEA
Corporate
& Other
Total
Adjustments
Total
Consolidated
(In millions)
$ 6,528
$
15,250
$
2,767
$
2,870
$ 27,415
$ 7,801
$ 2,297
$
70
$ 37,583
$
91
$
37,674
4,912
7,796
1,018
—
—
688
1,833
418
—
—
247
5,506
278
—
—
991
6,838
1,145
16,280
1,722
2,943
23
—
—
1,737
—
—
92
—
—
386
425
97
—
—
139
746
28
—
—
9,085
20,394
1,954
—
—
Total revenues
20,254
18,189
8,798
5,029
52,270
12,558
3,205
983
69,016
9,028
14,227
5,180
2,487
30,922
5,755
1,039
37,746
1,620
39,366
2,331
(1,309)
1,384
—
—
5,101
16,535
1,107
$ 2,612
$
155
(141)
140
—
1
2,379
16,761
480
948
1,233
(27)
23
—
9
417
(452)
311
(2)
—
4,136
1,690
(1,929)
(2,143)
1,858
1,542
(2)
10
(427)
—
147
(714)
683
(95)
1
481
6,899
1,722
4,483
9,683
4,317
44,678
10,734
1,812
2,873
30
42
—
—
—
6,015
(4,786)
4,083
(524)
1,148
1,159
784
16,596
2,004
60,289
3,858
667
83
2,337
565
51
$
1,232
$
463
$ 5,255
$ 1,259
$
281
$
(609)
(412)
2,344
6,383
(1,683)
661
(817)
(3,858)
1,683
$ 3,391
$
3,391
Provision for income tax (expense) benefit
Income (loss) from continuing operations, net of income tax
The following table presents total premiums, universal life and investment-type product policy fees and other revenues by major product groups
of the Company’s segments, as well as Corporate & Other:
Life insurance
Accident & health insurance
Annuities
Property & casualty insurance
Non-insurance
Total
Years Ended December 31,
2015
2014
(In millions)
2013
$
23,037
$
23,483
$
13,090
9,653
3,504
751
13,336
9,984
3,524
716
23,189
13,214
8,987
3,270
385
$
50,035
$
51,043
$
49,045
118
MetLife, Inc.
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
2. Segment Information (continued)
The following table presents total premiums, universal life and investment-type product policy fees and other revenues associated with the
Company’s U.S. and foreign operations:
U.S.
Foreign:
Japan
Other
Total
Years Ended December 31,
2015
2014
(In millions)
2013
35,042
$
34,536
$
32,529
6,264
8,729
6,917
9,590
50,035
$
51,043
$
7,373
9,143
49,045
$
$
Revenues derived from any customer did not exceed 10% of consolidated premiums, universal life and investment-type product policy fees and
other revenues for the years ended December 31, 2015, 2014 and 2013.
3. Acquisitions and Dispositions
2014 Disposition
In May 2014, the Company completed the sale of its wholly-owned subsidiary, MetLife Assurance Limited (“MAL”), for $702 million (£418 million)
in net cash consideration. As a result of the sale, a loss of $633 million ($442 million, net of income tax), was recorded for the year ended December 31,
2014, which includes a reduction to goodwill of $60 million ($51 million, net of income tax), as well as $77 million ($50 million, net of income tax)
related to net investments in foreign operation hedges. The loss is reflected within net investment gains (losses) on the consolidated statements of
operations and comprehensive income (loss). Compared to the expected loss at the time of the sales agreement, the actual loss on the sale was
increased by net income from MAL of $77 million for the year ended December 31, 2014. MAL’s results of operations are included in continuing
operations. They were historically included in the Corporate Benefit Funding segment.
2013 Acquisition
In October 2013, MetLife completed the acquisition of Administradora de Fondos de Pensiones Provida S.A. (“ProVida”), the largest private
pension fund administrator in Chile based on assets under management and number of pension fund contributors. The acquisition of ProVida supports
the Company's growth strategy in emerging markets and further strengthens the Company's overall position in Chile. Revenues and net income of
$100 million and $42 million, respectively, resulting from the acquisition of ProVida since the acquisition date, were included in the consolidated
statement of operations within the Latin America segment for the year ended December 31, 2013.
4. Insurance
Insurance Liabilities
Insurance liabilities are comprised of future policy benefits, policyholder account balances and other policy-related balances. Information regarding
insurance liabilities by segment, as well as Corporate & Other, was as follows at:
Retail
Group, Voluntary & Worksite Benefits
Corporate Benefit Funding
Latin America
Asia
EMEA
Corporate & Other
Total
December 31,
2015
2014
(In millions)
$
140,085
$
31,245
112,208
14,335
83,510
19,009
8,464
136,778
30,328
115,440
15,596
86,483
20,520
8,157
$
408,856
$
413,302
MetLife, Inc.
119
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
4. Insurance (continued)
Future policy benefits are measured as follows:
Product Type:
Participating life
Nonparticipating life
Individual and group
traditional fixed annuities
after annuitization
Non-medical health
insurance
Disabled lives
Property & casualty
insurance
Measurement Assumptions:
Aggregate of (i) net level premium reserves for death and endowment policy benefits (calculated based
upon the non-forfeiture interest rate, ranging from 3% to 7% for domestic business and 1% to 11% for
international business and mortality rates guaranteed in calculating the cash surrender values described
in such contracts); and (ii) the liability for terminal dividends for domestic business.
Aggregate of the present value of expected future benefit payments and related expenses less the present
value of expected future net premiums. Assumptions as to mortality and persistency are based upon the
Company’s experience when the basis of the liability is established. Interest rate assumptions for the
aggregate future policy benefit liabilities range from 2% to 11% for domestic business and less than 1%
to 13% for international business.
Present value of expected future payments. Interest rate assumptions used in establishing such liabilities
range from 2% to 11% for domestic business and less than 1% to 12% for international business.
The net level premium method and assumptions as to future morbidity, withdrawals and interest, which
provide a margin for adverse deviation. Interest rate assumptions used in establishing such liabilities
range from 4% to 7% (primarily related to domestic business).
Present value of benefits method and experience assumptions as to claim terminations, expenses and
interest. Interest rate assumptions used in establishing such liabilities range from 2% to 8% for domestic
business and 1% to 9% for international business.
The amount estimated for claims that have been reported but not settled and claims incurred but not reported
are based upon the Company’s historical experience and other actuarial assumptions that consider the
effects of current developments, anticipated trends and risk management programs, reduced for
anticipated salvage and subrogation.
Participating business represented 4% and 5% of the Company’s life insurance in-force at December 31, 2015 and 2014, respectively. Participating
policies represented 19%, 18% and 19% of gross traditional life insurance premiums for the years ended December 31, 2015, 2014 and 2013,
respectively.
Policyholder account balances are equal to: (i) policy account values, which consist of an accumulation of gross premium payments and investment
performance; (ii) credited interest, ranging from less than 1% to 13% for domestic business and 0% to 15% for international business, less expenses,
mortality charges and withdrawals; and (iii) fair value adjustments relating to business combinations.
120
MetLife, Inc.
Table of Contents
4. Insurance (continued)
Guarantees
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
The Company issues directly and assumes through reinsurance variable annuity products with guaranteed minimum benefits. GMABs and the
portions of both non-life-contingent GMWBs and GMIBs that do not require annuitization are accounted for as embedded derivatives in policyholder
account balances and are further discussed in Note 9. Guarantees accounted for as insurance liabilities include:
Guarantee:
Measurement Assumptions:
GMDBs
• A return of purchase payment upon death even if the
account value is reduced to zero.
• Present value of expected death benefits in excess of the
projected account balance recognizing the excess ratably over
the accumulation period based on the present value of total
expected assessments.
• An enhanced death benefit may be available for an
• Assumptions are consistent with those used for amortizing DAC,
additional fee.
and are thus subject to the same variability and risk.
GMIBs
• After a specified period of time determined at the time of
issuance of the variable annuity contract, a minimum
accumulation of purchase payments, even if the account
value is reduced to zero, that can be annuitized to receive
a monthly income stream that is not less than a specified
amount.
• Certain contracts also provide for a guaranteed lump sum
return of purchase premium in lieu of the annuitization
benefit.
• Investment performance and volatility assumptions are
consistent with the historical experience of the appropriate
underlying equity index, such as the S&P 500 Index.
• Benefit assumptions are based on the average benefits payable
over a range of scenarios.
• Present value of expected income benefits in excess of the
projected account balance at any future date of annuitization
and recognizing the excess ratably over the accumulation
period based on present value of total expected assessments.
• Assumptions are consistent with those used for estimating
GMDB liabilities.
• Calculation incorporates an assumption for the percentage of the
the
that may be elected by
potential annuitizations
contractholder.
GMWBs
• A return of purchase payment via partial withdrawals, even
if the account value is reduced to zero, provided that
cumulative withdrawals in a contract year do not exceed
a certain limit.
• Certain contracts include guaranteed withdrawals that are
life contingent.
• Expected value of the life contingent payments and expected
assessments using assumptions consistent with those used
for estimating the GMDB liabilities.
The Company also issues other annuity contracts that apply a lower rate on funds deposited if the contractholder elects to surrender the contract
for cash and a higher rate if the contractholder elects to annuitize. These guarantees include benefits that are payable in the event of death, maturity
or at annuitization. Certain other annuity contracts contain guaranteed annuitization benefits that may be above what would be provided by the current
account value of the contract. Additionally, the Company issues universal and variable life contracts where the Company contractually guarantees to
the contractholder a secondary guarantee or a guaranteed paid-up benefit.
MetLife, Inc.
121
Table of Contents
4. Insurance (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
Information regarding the liabilities for guarantees (excluding base policy liabilities and embedded derivatives) relating to annuity and universal
and variable life contracts was as follows:
$
$
$
$
$
Direct and Assumed
Balance at January 1, 2013
Incurred guaranteed benefits (1)
Paid guaranteed benefits
Balance at December 31, 2013
Incurred guaranteed benefits (1)
Paid guaranteed benefits
Balance at December 31, 2014
Incurred guaranteed benefits (1)
Paid guaranteed benefits
Balance at December 31, 2015
Ceded
Balance at January 1, 2013
Incurred guaranteed benefits
Paid guaranteed benefits
Balance at December 31, 2013
Incurred guaranteed benefits
Paid guaranteed benefits
Balance at December 31, 2014
Incurred guaranteed benefits
Paid guaranteed benefits
Balance at December 31, 2015
Net
Balance at January 1, 2013
Incurred guaranteed benefits
Paid guaranteed benefits
Balance at December 31, 2013
Incurred guaranteed benefits
Paid guaranteed benefits
Balance at December 31, 2014
Incurred guaranteed benefits
Paid guaranteed benefits
Annuity Contracts
GMDBs
GMIBs
Universal and Variable
Life Contracts
Secondary
Guarantees
(In millions)
Paid-Up
Guarantees
Total
567
200
(82)
685
310
(59)
936
319
(48)
$
1,635
$
4,785
$
246
$
229
(13)
1,851
262
—
2,113
417
(1)
(64)
(23)
4,698
411
(17)
5,092
452
(28)
20
—
266
22
—
288
18
—
1,207
$
2,529
$
5,516
$
306
$
56
$
(5)
(10)
41
9
(12)
38
32
(36)
34
$
9
—
(2)
7
—
—
7
—
—
7
$
753
175
—
928
134
—
1,062
195
—
$
173
$
14
—
187
15
—
202
13
—
$
1,257
$
215
$
$
1,626
$
4,032
$
73
$
511
205
(72)
644
301
(47)
898
287
(12)
229
(11)
1,844
262
—
2,106
417
(1)
(239)
(23)
3,770
277
(17)
4,030
257
(28)
6
—
79
7
—
86
5
—
91
$
7,233
385
(118)
7,500
1,005
(76)
8,429
1,206
(77)
9,558
991
184
(12)
1,163
158
(12)
1,309
240
(36)
1,513
6,242
201
(106)
6,337
847
(64)
7,120
966
(41)
8,045
Balance at December 31, 2015
$
1,173
$
2,522
$
4,259
$
______________
(1)
Secondary guarantees include the effects of foreign currency translation of ($80) million, ($343) million and ($597) million at December 31, 2015,
2014 and 2013, respectively.
122
MetLife, Inc.
Table of Contents
4. Insurance (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
Information regarding the Company’s guarantee exposure was as follows at:
Annuity Contracts (1)
Variable Annuity Guarantees
Total account value (2), (3)
Separate account value
Net amount at risk (2)
December 31,
2015
2014
In the
Event of Death
At
Annuitization
In the
Event of Death
At
Annuitization
(In millions)
$
$
$
181,413
151,901
$
$
91,240
87,841
$
$
196,595
163,566
$
$
99,000
95,963
10,339 (4) $
2,762 (5) $
4,230 (4) $
1,770 (5)
Average attained age of contractholders
66 years
66 years
65 years
65 years
Other Annuity Guarantees
Total account value (3)
Net amount at risk
Average attained age of contractholders
Universal and Variable Life Contracts (1)
Total account value (3)
Net amount at risk (7)
Average attained age of policyholders
______________
N/A
N/A
N/A
$
$
1,560
422
(6)
51 years
N/A
N/A
N/A
$
$
1,040
340 (6)
50 years
December 31,
2015
2014
Secondary
Guarantees
Paid-Up
Guarantees
Secondary
Guarantees
Paid-Up
Guarantees
(In millions)
$
$
17,211
175,958
57 years
$
$
3,461 $
16,875
19,047 $
180,069
$
$
3,587
20,344
62 years
56 years
61 years
(1)
(2)
(3)
(4)
(5)
(6)
(7)
The Company’s annuity and life contracts with guarantees may offer more than one type of guarantee in each contract. Therefore, the amounts
listed above may not be mutually exclusive.
Includes amounts, which are not reported on the consolidated balance sheets, from assumed reinsurance of certain variable annuity products
from the Company’s former operating joint venture in Japan.
Includes the contractholder’s investments in the general account and separate account, if applicable.
Defined as the death benefit less the total account value, as of the balance sheet date. It represents the amount of the claim that the Company
would incur if death claims were filed on all contracts on the balance sheet date and includes any additional contractual claims associated
with riders purchased to assist with covering income taxes payable upon death.
Defined as the amount (if any) that would be required to be added to the total account value to purchase a lifetime income stream, based on
current annuity rates, equal to the minimum amount provided under the guaranteed benefit. This amount represents the Company’s potential
economic exposure to such guarantees in the event all contractholders were to annuitize on the balance sheet date, even though the contracts
contain terms that allow annuitization of the guaranteed amount only after the 10th anniversary of the contract, which not all contractholders
have achieved.
Defined as either the excess of the upper tier, adjusted for a profit margin, less the lower tier, as of the balance sheet date or the amount (if
any) that would be required to be added to the total account value to purchase a lifetime income stream, based on current annuity rates,
equal to the minimum amount provided under the guaranteed benefit. These amounts represent the Company’s potential economic exposure
to such guarantees in the event all contractholders were to annuitize on the balance sheet date.
Defined as the guarantee amount less the account value, as of the balance sheet date. It represents the amount of the claim that the Company
would incur if death claims were filed on all contracts on the balance sheet date.
MetLife, Inc.
123
Table of Contents
4. Insurance (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
Account balances of contracts with guarantees were invested in separate account asset classes as follows at:
Fund Groupings:
Balanced
Equity
Bond
Money Market
Total
December 31,
2015
2014
(In millions)
$
79,473
$
69,973
11,783
1,233
87,667
71,742
11,416
1,024
$
162,462
$
171,849
Obligations Under Funding Agreements
The Company issues fixed and floating rate funding agreements, which are denominated in either U.S. dollars or foreign currencies, to certain
special purpose entities (“SPEs”) that have issued either debt securities or commercial paper for which payment of interest and principal is secured
by such funding agreements. During the years ended December 31, 2015, 2014 and 2013, the Company issued $48.1 billion, $48.9 billion and
$37.7 billion, respectively, and repaid $49.9 billion, $45.6 billion and $36.8 billion, respectively, of such funding agreements. At December 31, 2015
and 2014, liabilities for funding agreements outstanding, which are included in policyholder account balances, were $31.6 billion and $33.9 billion,
respectively.
Certain of the Company’s subsidiaries are members of regional banks in the Federal Home Loan Bank (“FHLB”) system (“FHLBanks”). Holdings
of common stock of FHLBanks, included in equity securities, were as follows at:
FHLB of NY
FHLB of Des Moines
FHLB of Boston
FHLB of Pittsburgh
December 31,
2015
2014
(In millions)
$
$
$
$
666
44
36
96
$
$
$
$
661
66
55
35
Such subsidiaries have also entered into funding agreements with FHLBanks and the Federal Agricultural Mortgage Corporation, a federally
chartered instrumentality of the U.S. (“Farmer Mac”). The liability for such funding agreements is included in policyholder account balances. Information
related to such funding agreements was as follows at:
FHLB of NY (1)
Farmer Mac (3)
FHLB of Des Moines (1)
FHLB of Boston (1)
FHLB of Pittsburgh (1)
______________
Liability
Collateral
December 31,
2015
2014
2015
2014
(In millions)
$
$
$
$
$
12,570
2,550
845
250
1,820
$
$
$
$
$
12,570
2,750
1,405
575
435
$
$
$
$
$
14,085 (2)
2,643
999 (2)
311 (2)
2,112 (2)
$
$
$
$
$
15,255 (2)
3,162
1,688 (2)
666 (2)
1,367 (2)
(1)
(2)
(3)
124
Represents funding agreements issued to the applicable FHLBank in exchange for cash and for which such FHLBank has been granted a
lien on certain assets, some of which are in the custody of such FHLBank, including residential mortgage-backed securities (“RMBS”), to
collateralize obligations under advances evidenced by funding agreements. The Company is permitted to withdraw any portion of the collateral
in the custody of such FHLBank as long as there is no event of default and the remaining qualified collateral is sufficient to satisfy the collateral
maintenance level. Upon any event of default by the Company, such FHLBank’s recovery on the collateral is limited to the amount of the
Company’s liability to such FHLBank.
Advances are collateralized by mortgage-backed securities. The amount of collateral presented is at estimated fair value.
Represents funding agreements issued to certain SPEs that have issued debt securities for which payment of interest and principal is secured
by such funding agreements, and such debt securities are also guaranteed as to payment of interest and principal by Farmer Mac. The
MetLife, Inc.
Table of Contents
4. Insurance (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
obligations under these funding agreements are secured by a pledge of certain eligible agricultural real estate mortgage loans and may, under
certain circumstances, be secured by other qualified collateral. The amount of collateral presented is at carrying value.
Liabilities for Unpaid Claims and Claim Expenses
Information regarding the liabilities for unpaid claims and claim expenses relating to property & casualty, group accident and non-medical health
policies and contracts, which are reported in future policy benefits and other policy-related balances, was as follows:
Balance at January 1,
Less: Reinsurance recoverables
Net balance at January 1,
Incurred related to:
Current year
Prior years (1)
Total incurred
Paid related to:
Current year
Prior years
Total paid
Net balance at December 31,
Add: Reinsurance recoverables
Balance at December 31,
______________
Years Ended December 31,
2015
2014
(In millions)
2013
$
11,036
$
10,630
$
1,876
9,160
9,639
(78)
9,561
(6,788)
(2,587)
(9,375)
9,346
2,042
1,661
8,969
9,358
(70)
9,288
(6,714)
(2,383)
(9,097)
9,160
1,876
10,436
1,581
8,855
8,660
(86)
8,574
(6,083)
(2,377)
(8,460)
8,969
1,661
$
11,388
$
11,036
$
10,630
(1)
During 2015, 2014 and 2013, as a result of changes in estimates of insured events in the respective prior year, claims and claim adjustment
expenses associated with prior years decreased due to a reduction in prior year automobile bodily injury and homeowners’ severity. In addition,
2013 included improved loss ratios for non-medical health claim liabilities.
Separate Accounts
Separate account assets and liabilities include two categories of account types: pass-through separate accounts totaling $244.6 billion and
$261.3 billion at December 31, 2015 and 2014, respectively, for which the policyholder assumes all investment risk, and separate accounts for which
the Company contractually guarantees either a minimum return or account value to the policyholder which totaled $57.0 billion and $55.7 billion at
December 31, 2015 and 2014, respectively. The latter category consisted primarily of guaranteed interest contracts. The average interest rate credited
on these contracts was 2.37% and 2.25% at December 31, 2015 and 2014, respectively.
For the years ended December 31, 2015, 2014 and 2013, there were no investment gains (losses) on transfers of assets from the general account
to the separate accounts.
5. Deferred Policy Acquisition Costs, Value of Business Acquired and Other Intangibles
See Note 1 for a description of capitalized acquisition costs.
Nonparticipating and Non-Dividend-Paying Traditional Contracts
The Company amortizes DAC and VOBA related to these contracts (term insurance, nonparticipating whole life insurance, traditional group life
insurance, non-medical health insurance, and accident & health insurance) over the appropriate premium paying period in proportion to the actual
and expected future gross premiums that were set at contract issue. The expected premiums are based upon the premium requirement of each policy
and assumptions for mortality, morbidity, persistency and investment returns at policy issuance, or policy acquisition (as it relates to VOBA), include
provisions for adverse deviation, and are consistent with the assumptions used to calculate future policyholder benefit liabilities. These assumptions
are not revised after policy issuance or acquisition unless the DAC or VOBA balance is deemed to be unrecoverable from future expected profits.
Absent a premium deficiency, variability in amortization after policy issuance or acquisition is caused only by variability in premium volumes.
Participating, Dividend-Paying Traditional Contracts
The Company amortizes DAC and VOBA related to these contracts over the estimated lives of the contracts in proportion to actual and expected
future gross margins. The amortization includes interest based on rates in effect at inception or acquisition of the contracts. The future gross margins
are dependent principally on investment returns, policyholder dividend scales, mortality, persistency, expenses to administer the business,
creditworthiness of reinsurance counterparties and certain economic variables, such as inflation. For participating contracts within the closed block
(dividend-paying traditional contracts) future gross margins are also dependent upon changes in the policyholder dividend obligation. See Note 7. Of
these factors, the Company anticipates that investment returns, expenses, persistency and other factor changes, as well as policyholder dividend
MetLife, Inc.
125
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
5. Deferred Policy Acquisition Costs, Value of Business Acquired and Other Intangibles (continued)
scales, are reasonably likely to impact significantly the rate of DAC and VOBA amortization. Each reporting period, the Company updates the estimated
gross margins with the actual gross margins for that period. When the actual gross margins change from previously estimated gross margins, the
cumulative DAC and VOBA amortization is re-estimated and adjusted by a cumulative charge or credit to current operations. When actual gross
margins exceed those previously estimated, the DAC and VOBA amortization will increase, resulting in a current period charge to earnings. The
opposite result occurs when the actual gross margins are below the previously estimated gross margins. Each reporting period, the Company also
updates the actual amount of business in-force, which impacts expected future gross margins. When expected future gross margins are below those
previously estimated, the DAC and VOBA amortization will increase, resulting in a current period charge to earnings. The opposite result occurs when
the expected future gross margins are above the previously estimated expected future gross margins. Each period, the Company also reviews the
estimated gross margins for each block of business to determine the recoverability of DAC and VOBA balances.
Fixed and Variable Universal Life Contracts and Fixed and Variable Deferred Annuity Contracts
The Company amortizes DAC and VOBA related to these contracts over the estimated lives of the contracts in proportion to actual and expected
future gross profits. The amortization includes interest based on rates in effect at inception or acquisition of the contracts. The amount of future gross
profits is dependent principally upon returns in excess of the amounts credited to policyholders, mortality, persistency, interest crediting rates, expenses
to administer the business, creditworthiness of reinsurance counterparties, the effect of any hedges used and certain economic variables, such as
inflation. Of these factors, the Company anticipates that investment returns, expenses and persistency are reasonably likely to impact significantly the
rate of DAC and VOBA amortization. Each reporting period, the Company updates the estimated gross profits with the actual gross profits for that
period. When the actual gross profits change from previously estimated gross profits, the cumulative DAC and VOBA amortization is re-estimated
and adjusted by a cumulative charge or credit to current operations. When actual gross profits exceed those previously estimated, the DAC and VOBA
amortization will increase, resulting in a current period charge to earnings. The opposite result occurs when the actual gross profits are below the
previously estimated gross profits. Each reporting period, the Company also updates the actual amount of business remaining in-force, which impacts
expected future gross profits. When expected future gross profits are below those previously estimated, the DAC and VOBA amortization will increase,
resulting in a current period charge to earnings. The opposite result occurs when the expected future gross profits are above the previously estimated
expected future gross profits. Each period, the Company also reviews the estimated gross profits for each block of business to determine the
recoverability of DAC and VOBA balances.
Credit Insurance, Property & Casualty Insurance and Other Short-Duration Contracts
The Company amortizes DAC for these contracts, which is primarily composed of commissions and certain underwriting expenses, in proportion
to actual and future earned premium over the applicable contract term.
Factors Impacting Amortization
Separate account rates of return on variable universal life contracts and variable deferred annuity contracts affect in-force account balances on
such contracts each reporting period, which can result in significant fluctuations in amortization of DAC and VOBA. Returns that are higher than the
Company’s long-term expectation produce higher account balances, which increases the Company’s future fee expectations and decreases future
benefit payment expectations on minimum death and living benefit guarantees, resulting in higher expected future gross profits. The opposite result
occurs when returns are lower than the Company’s long-term expectation. The Company’s practice to determine the impact of gross profits resulting
from returns on separate accounts assumes that long-term appreciation in equity markets is not changed by short-term market fluctuations, but is
only changed when sustained interim deviations are expected. The Company monitors these events and only changes the assumption when its long-
term expectation changes.
The Company also periodically reviews other long-term assumptions underlying the projections of estimated gross margins and profits. These
assumptions primarily relate to investment returns, policyholder dividend scales, interest crediting rates, mortality, persistency and expenses to
administer business. Management annually updates assumptions used in the calculation of estimated gross margins and profits which may have
significantly changed. If the update of assumptions causes expected future gross margins and profits to increase, DAC and VOBA amortization will
decrease, resulting in a current period increase to earnings. The opposite result occurs when the assumption update causes expected future gross
margins and profits to decrease.
Periodically, the Company modifies product benefits, features, rights or coverages that occur by the exchange of a contract for a new contract,
or by amendment, endorsement, or rider to a contract, or by election or coverage within a contract. If such modification, referred to as an internal
replacement, substantially changes the contract, the associated DAC or VOBA is written off immediately through income and any new deferrable
costs associated with the replacement contract are deferred. If the modification does not substantially change the contract, the DAC or VOBA
amortization on the original contract will continue and any acquisition costs associated with the related modification are expensed.
Amortization of DAC and VOBA is attributed to net investment gains (losses) and net derivative gains (losses), and to other expenses for the
amount of gross margins or profits originating from transactions other than investment gains and losses. Unrealized investment gains and losses
represent the amount of DAC and VOBA that would have been amortized if such gains and losses had been recognized.
126
MetLife, Inc.
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
5. Deferred Policy Acquisition Costs, Value of Business Acquired and Other Intangibles (continued)
Information regarding DAC and VOBA was as follows:
DAC
Balance at January 1,
Capitalizations
Amortization related to:
Net investment gains (losses) and net derivative gains (losses)
Other expenses
Total amortization
Unrealized investment gains (losses)
Effect of foreign currency translation and other
Balance at December 31,
VOBA
Balance at January 1,
Acquisitions (1)
Amortization related to:
Net investment gains (losses) and net derivative gains (losses)
Other expenses
Total amortization
Unrealized investment gains (losses)
Effect of foreign currency translation and other
Balance at December 31,
Total DAC and VOBA
Balance at December 31,
______________
Years Ended December 31,
2015
2014
(In millions)
2013
$
18,984
$
19,774
$
3,837
4,183
11
(3,354)
(3,343)
539
(552)
19,465
5,458
—
(20)
(573)
(593)
99
(299)
(39)
(3,372)
(3,411)
(676)
(886)
18,984
6,932
—
(1)
(720)
(721)
(26)
(727)
4,665
5,458
17,150
4,786
192
(2,812)
(2,620)
924
(466)
19,774
7,611
947
3
(933)
(930)
358
(1,054)
6,932
$
24,130
$
24,442
$
26,706
(1) See Note 3 for a description of acquisitions.
Information regarding total DAC and VOBA by segment, as well as Corporate & Other, was as follows at:
Retail
Group, Voluntary & Worksite Benefits
Corporate Benefit Funding
Latin America
Asia
EMEA
Corporate & Other
Total
December 31,
2015
2014
(In millions)
$
11,850
$
11,963
365
111
1,880
8,374
1,532
18
377
111
2,063
8,217
1,709
2
$
24,130
$
24,442
MetLife, Inc.
127
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
5. Deferred Policy Acquisition Costs, Value of Business Acquired and Other Intangibles (continued)
Information regarding other intangibles was as follows:
DSI
Balance at January 1,
Capitalization
Amortization
Unrealized investment gains (losses)
Effect of foreign currency translation
Balance at December 31,
VODA and VOCRA
Balance at January 1,
Amortization
Effect of foreign currency translation
Balance at December 31,
Accumulated amortization
Negative VOBA
Balance at January 1,
Amortization
Effect of foreign currency translation and other
Balance at December 31,
Accumulated amortization
Years Ended December 31,
2015
2014
2013
(In millions)
$
$
$
$
$
$
$
$
810
$
950
$
31
(106)
39
—
56
(130)
(64)
(2)
774
$
810
$
930
58
(36)
—
(2)
950
847
$
975
$
1,108
(75)
(53)
719
575
$
$
(82)
(46)
847
500
$
$
(84)
(49)
975
418
1,596
$
2,162
$
2,916
(361)
(42)
1,193
2,765
$
$
(442)
(124)
1,596
2,404
$
$
(579)
(175)
2,162
1,962
The estimated future amortization expense (credit) to be reported in other expenses for the next five years is as follows:
2016
2017
2018
2019
2020
6. Reinsurance
VOBA
VODA and VOCRA
Negative VOBA
(In millions)
$
$
$
$
$
506
429
382
341
299
$
$
$
$
$
65
62
58
53
49
$
$
$
$
$
(249)
(139)
(58)
(38)
(38)
The Company enters into reinsurance agreements primarily as a purchaser of reinsurance for its various insurance products and also as a provider
of reinsurance for some insurance products issued by third parties. The Company participates in reinsurance activities in order to limit losses, minimize
exposure to significant risks and provide additional capacity for future growth.
Accounting for reinsurance requires extensive use of assumptions and estimates, particularly related to the future performance of the underlying
business and the potential impact of counterparty credit risks. The Company periodically reviews actual and anticipated experience compared to the
aforementioned assumptions used to establish assets and liabilities relating to ceded and assumed reinsurance and evaluates the financial strength
of counterparties to its reinsurance agreements using criteria similar to that evaluated in the security impairment process discussed in Note 8.
Americas — Excluding Latin America
For its Retail Life & Other insurance products, the Company has historically reinsured the mortality risk primarily on an excess of retention basis
or on a quota share basis. The Company currently reinsures 90% of the mortality risk in excess of $2 million for most products. In addition to reinsuring
mortality risk as described above, the Company reinsures other risks, as well as specific coverages. Placement of reinsurance is done primarily on
an automatic basis and also on a facultative basis for risks with specified characteristics. On a case by case basis, the Company may retain up to
$20 million per life and reinsure 100% of amounts in excess of the amount the Company retains. The Company evaluates its reinsurance programs
routinely and may increase or decrease its retention at any time.
The Company’s Retail Annuities business reinsures a portion of the living and death benefit guarantees issued in connection with its variable
annuities. Under these reinsurance agreements, the Company pays a reinsurance premium generally based on fees associated with the guarantees
collected from policyholders, and receives reimbursement for benefits paid or accrued in excess of account values, subject to certain limitations. The
128
MetLife, Inc.
Table of Contents
6. Reinsurance (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
value of the embedded derivatives on the ceded risk is determined using a methodology consistent with the guarantees directly written by the Company
with the exception of the input for nonperformance risk that reflects the credit of the reinsurer.
For certain policies within the Group, Voluntary & Worksite Benefits segment, the Company generally retains most of the risk and only cedes
particular risks on certain client arrangements. The majority of the Company’s reinsurance activity within this segment relates to client agreements for
employer sponsored captive programs, risk-sharing agreements and multinational pooling.
The Company, through its property & casualty business within the Retail and Group, Voluntary & Worksite Benefits segments, purchases
reinsurance to manage its exposure to large losses (primarily catastrophe losses) and to protect statutory surplus. The Company cedes to reinsurers
losses and premiums based upon the exposure of the policies subject to reinsurance. To manage exposure to large property & casualty losses, the
Company purchases property catastrophe, casualty and property per risk excess of loss reinsurance protection.
The Company’s Corporate Benefit Funding segment has periodically engaged in reinsurance activities, on an opportunistic basis. The impact of
these activities on the financial results of this segment has not been significant and there were no additional transactions during the periods presented.
Latin America, Asia and EMEA
For certain life insurance products, the Company currently reinsures risks in excess of $5 million to external reinsurers on a yearly renewable
term basis. The Company may also reinsure certain risks with external reinsurers depending upon the nature of the risk and local regulatory requirements.
For selected large corporate clients, the Company reinsures group employee benefits or credit insurance business with various client-affiliated
reinsurance companies, covering policies issued to the employees or customers of the clients. Additionally, the Company cedes and assumes risk
with other insurance companies when either company requires a business partner with the appropriate local licensing to issue certain types of policies
in certain countries. In these cases, the assuming company typically underwrites the risks, develops the products and assumes most or all of the risk.
The Company also has reinsurance agreements in force that reinsure a portion of the living and death benefit guarantees issued in connection with
variable annuity products. Under these agreements, the Company pays reinsurance fees associated with the guarantees collected from policyholders,
and receives reimbursement for benefits paid or accrued in excess of account values, subject to certain limitations.
Corporate & Other
The Company also reinsures, through 100% quota share reinsurance agreements, certain run-off long-term care and workers’ compensation
business written by MetLife Insurance Company USA (“MetLife USA”).
Corporate & Other also has a reinsurance agreement, whereby it assumes the living and death benefit guarantees issued in connection with
certain variable annuity products. Under this agreement, the Company receives reinsurance fees associated with the guarantees collected from
policyholders, and provides reimbursement for benefits paid or accrued in excess of account values, subject to certain limitations.
Catastrophe Coverage
The Company has exposure to catastrophes which could contribute to significant fluctuations in the Company’s results of operations. In the
Americas, excluding Latin America, the Company uses excess of retention and quota share reinsurance agreements to provide greater diversification
of risk and minimize exposure to larger risks. Currently, for Latin America, Asia and EMEA, the Company purchases catastrophe coverage to insure
risks within certain countries deemed by management to be exposed to the greatest catastrophic risks.
Reinsurance Recoverables
The Company reinsures its business through a diversified group of well-capitalized reinsurers. The Company analyzes recent trends in arbitration
and litigation outcomes in disputes, if any, with its reinsurers. The Company monitors ratings and evaluates the financial strength of its reinsurers by
analyzing their financial statements. In addition, the reinsurance recoverable balance due from each reinsurer is evaluated as part of the overall
monitoring process. Recoverability of reinsurance recoverable balances is evaluated based on these analyses. The Company generally secures large
reinsurance recoverable balances with various forms of collateral, including secured trusts, funds withheld accounts and irrevocable letters of credit.
These reinsurance recoverable balances are stated net of allowances for uncollectible reinsurance, which at December 31, 2015 and 2014, were not
significant.
The Company has secured certain reinsurance recoverable balances with various forms of collateral, including secured trusts, funds withheld
accounts and irrevocable letters of credit. The Company had $6.1 billion and $5.9 billion of unsecured reinsurance recoverable balances at
December 31, 2015 and 2014, respectively.
At December 31, 2015, the Company had $15.3 billion of net ceded reinsurance recoverables. Of this total, $10.8 billion, or 71%, were with the
Company’s five largest ceded reinsurers, including $2.3 billion of net ceded reinsurance recoverables which were unsecured. At December 31, 2014,
the Company had $14.9 billion of net ceded reinsurance recoverables. Of this total, $10.8 billion, or 73%, were with the Company’s five largest ceded
reinsurers, including $2.6 billion of net ceded reinsurance recoverables which were unsecured.
The Company has reinsured with an unaffiliated third-party reinsurer, 59.25% of the closed block through a modified coinsurance agreement.
The Company accounts for this agreement under the deposit method of accounting. The Company, having the right of offset, has offset the modified
coinsurance deposit with the deposit recoverable.
MetLife, Inc.
129
Table of Contents
6. Reinsurance (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
The amounts in the consolidated statements of operations include the impact of reinsurance. Information regarding the significant effects of
reinsurance was as follows:
Premiums
Direct premiums
Reinsurance assumed
Reinsurance ceded
Net premiums
Universal life and investment-type product policy fees
Direct universal life and investment-type product policy fees
Reinsurance assumed
Reinsurance ceded
Net universal life and investment-type product policy fees
Policyholder benefits and claims
Direct policyholder benefits and claims
Reinsurance assumed
Reinsurance ceded
Net policyholder benefits and claims
Other expenses
Direct other expenses
Reinsurance assumed
Reinsurance ceded
Net other expenses
Years Ended December 31,
2015
2014
2013
(In millions)
$
$
$
$
$
$
$
$
39,516
$
40,049
$
38,476
1,454
(2,425)
1,472
(2,454)
1,472
(2,274)
38,545
$
39,067
$
37,674
10,424
$
10,768
$
10,197
105
(1,022)
126
(948)
9,507
$
9,946
$
139
(885)
9,451
41,233
$
41,573
$
40,211
1,023
(3,542)
962
(3,433)
1,047
(3,151)
38,714
$
39,102
$
38,107
16,968
$
17,334
$
16,712
130
(329)
165
(408)
147
(257)
16,769
$
17,091
$
16,602
The amounts in the consolidated balance sheets include the impact of reinsurance. Information regarding the significant effects of reinsurance
was as follows at:
2015
2014
December 31,
Direct
Assumed
Ceded
Total
Balance
Sheet
Direct
Assumed
Ceded
Total
Balance
Sheet
(In millions)
$
6,044
$
555
$
16,103
$
22,702
$
6,111
$
491
$
15,642
$
22,244
24,490
$
30,534
$
120
675
(480)
24,130
24,807
$
15,623
$
46,832
$
30,918
$
112
603
(477)
24,442
$
15,165
$
46,686
Assets
Premiums, reinsurance and
other receivables
Deferred policy acquisition
costs and value of business
acquired
Total assets
Liabilities
Future policy benefits
$ 189,817
$
2,062
$
— $ 191,879
$ 187,562
$
2,024
$
— $ 189,586
Policyholder account balances
201,748
Other policy-related balances
Other liabilities
Total liabilities
13,939
19,800
975
310
472
(1)
6
3,289
202,722
208,307
14,255
23,561
14,131
20,752
989
285
481
(2)
6
3,204
209,294
14,422
24,437
$ 425,304
$
3,819
$
3,294
$ 432,417
$ 430,752
$
3,779
$
3,208
$ 437,739
Reinsurance agreements that do not expose the Company to a reasonable possibility of a significant loss from insurance risk are recorded using
the deposit method of accounting. The deposit assets on reinsurance were $2.3 billion at both December 31, 2015 and 2014. The deposit liabilities
on reinsurance were $33 million and $35 million at December 31, 2015 and 2014, respectively.
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MetLife, Inc.
Table of Contents
7. Closed Block
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
On April 7, 2000 (the “Demutualization Date”), Metropolitan Life Insurance Company (“MLIC”) converted from a mutual life insurance company
to a stock life insurance company and became a wholly-owned subsidiary of MetLife, Inc. The conversion was pursuant to an order by the New York
Superintendent of Insurance approving MLIC’s plan of reorganization, as amended (the “Plan of Reorganization”). On the Demutualization Date, MLIC
established a closed block for the benefit of holders of certain individual life insurance policies of MLIC. Assets have been allocated to the closed
block in an amount that has been determined 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 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. At least annually,
the Company compares actual and projected experience against the experience assumed in the then-current dividend scales. Dividend scales are
adjusted periodically to give effect to changes in experience.
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 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 related to the closed block are, in the aggregate, more or less favorable than what was assumed when the closed
block was established, 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. If the closed block has
insufficient funds to make guaranteed policy benefit payments, such payments will be made from assets outside of the closed block. The closed block
will continue in effect as long as any policy in the closed block remains in-force. The expected life of the closed block is over 100 years.
The Company uses the same accounting principles to account for the participating policies included in the closed block as it used prior to the
Demutualization Date. However, the Company establishes a policyholder dividend obligation for earnings that will be paid to policyholders as additional
dividends as described below. The excess of closed block liabilities over closed block assets at the Demutualization Date (adjusted to eliminate the
impact of related amounts in AOCI) represents the estimated maximum future earnings from the closed block expected to result from operations
attributed to the closed block after income taxes. Earnings of the closed block are 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 earnings of the closed block will approximately equal
the expected cumulative earnings due to the effect of dividend changes. If, over the period the closed block remains in existence, the actual cumulative
earnings of the closed block are greater than the expected cumulative earnings of the closed block, the Company will pay the excess of the actual
cumulative earnings of the closed block over the expected cumulative earnings to closed block policyholders as additional policyholder dividends
unless offset by future unfavorable experience of the closed block and, accordingly, will recognize only the expected cumulative earnings in income
with the excess recorded as a policyholder dividend obligation. If over such period, the actual cumulative earnings of the closed block are less than
the expected cumulative earnings of the closed block, the Company will recognize only the actual earnings in income. However, the Company may
change policyholder dividend scales in the future, which would be intended to increase future actual earnings until the actual cumulative earnings
equal the expected cumulative earnings.
Experience within the closed block, in particular mortality and investment yields, as well as realized and unrealized gains and losses, directly
impact the policyholder dividend obligation. Amortization of the closed block DAC, which resides outside of the closed block, is based upon cumulative
actual and expected earnings within the closed block. Accordingly, the Company’s net income continues to be sensitive to the actual performance
of the closed block.
Closed block assets, liabilities, revenues and expenses are combined on a line-by-line basis with the assets, liabilities, revenues and expenses
outside the closed block based on the nature of the particular item.
MetLife, Inc.
131
Table of Contents
7. Closed Block (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
Information regarding the closed block liabilities and assets designated to the closed block was as follows at:
Closed Block Liabilities
Future policy benefits
Other policy-related balances
Policyholder dividends payable
Policyholder dividend obligation
Current income tax payable
Other liabilities
Total closed block liabilities
Assets Designated to the Closed Block
Investments:
Fixed maturity securities available-for-sale, at estimated fair value
Equity securities available-for-sale, at estimated fair value
Mortgage loans
Policy loans
Real estate and real estate joint ventures
Other invested assets
Total investments
Cash and cash equivalents
Accrued investment income
Premiums, reinsurance and other receivables
Current income tax recoverable
Deferred income tax assets
Total assets designated to the closed block
Excess of closed block liabilities over assets designated to the closed block
Amounts included in AOCI:
Unrealized investment gains (losses), net of income tax
Unrealized gains (losses) on derivatives, net of income tax
Allocated to policyholder dividend obligation, net of income tax
Total amounts included in AOCI
December 31,
2015
2014
(In millions)
$
41,278
$
41,667
249
468
1,783
—
380
265
461
3,155
1
646
44,158
46,195
27,556
29,199
111
6,022
4,642
462
1,066
91
6,076
4,646
666
1,065
39,859
41,743
236
474
56
11
234
40,870
3,288
1,382
76
(1,159)
299
227
477
67
—
289
42,803
3,392
2,291
28
(2,051)
268
3,660
Maximum future earnings to be recognized from closed block assets and liabilities
$
3,587
$
Information regarding the closed block policyholder dividend obligation was as follows:
Balance at January 1,
Change in unrealized investment and derivative gains (losses)
Balance at December 31,
Years Ended December 31,
2015
2014
2013
(In millions)
$
$
3,155
$
1,771
$
(1,372)
1,384
1,783
$
3,155
$
3,828
(2,057)
1,771
132
MetLife, Inc.
Table of Contents
7. Closed Block (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
Information regarding the closed block revenues and expenses was as follows:
Revenues
Premiums
Net investment income
Net investment gains (losses)
Net derivative gains (losses)
Total revenues
Expenses
Policyholder benefits and claims
Policyholder dividends
Other expenses
Total expenses
Years Ended December 31,
2015
2014
2013
(In millions)
$
1,850
$
1,918
$
1,982
2,093
(23)
27
7
20
1,987
2,130
25
(6)
3,836
4,038
4,136
2,564
1,015
143
3,722
114
41
73
$
2,598
988
155
3,741
297
104
193
$
2,702
979
165
3,846
290
101
189
Revenues, net of expenses before provision for income tax expense (benefit)
Provision for income tax expense (benefit)
Revenues, net of expenses and provision for income tax expense (benefit)
$
MLIC charges the closed block with federal income taxes, state and local premium taxes and other state or local taxes, as well as investment
management expenses relating to the closed block as provided in the Plan of Reorganization. MLIC also charges the closed block for expenses of
maintaining the policies included in the closed block.
8. Investments
See Note 10 for information about the fair value hierarchy for investments and the related valuation methodologies.
Investment Risks and Uncertainties
Investments are exposed to the following primary sources of risk: credit, interest rate, liquidity, market valuation, currency and real estate risk.
The financial statement risks, stemming from such investment risks, are those associated with the determination of estimated fair values, the diminished
ability to sell certain investments in times of strained market conditions, the recognition of impairments, the recognition of income on certain investments
and the potential consolidation of VIEs. The use of different methodologies, assumptions and inputs relating to these financial statement risks may
have a material effect on the amounts presented within the consolidated financial statements.
The determination of valuation allowances and impairments is highly subjective and is based upon periodic evaluations and assessments of
known and inherent risks associated with the respective asset class. Such evaluations and assessments are revised as conditions change and new
information becomes available.
The recognition of income on certain investments (e.g. structured securities, including mortgage-backed securities, asset-backed
securities (“ABS”), certain structured investment transactions and FVO and trading securities) is dependent upon certain factors such as prepayments
and defaults, and changes in such factors could result in changes in amounts to be earned.
Fixed Maturity and Equity Securities AFS
Fixed Maturity and Equity Securities AFS by Sector
The following table presents the fixed maturity and equity securities AFS by sector. Redeemable preferred stock is reported within U.S.
corporate and foreign corporate fixed maturity securities and non-redeemable preferred stock is reported within equity securities. Included within
fixed maturity securities are structured securities including RMBS, ABS and commercial mortgage-backed securities (“CMBS”).
MetLife, Inc.
133
Table of Contents
8. Investments (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
December 31, 2015
Gross Unrealized
December 31, 2014
Gross Unrealized
Cost or
Amortized
Cost
Gains
Temporary
Losses
OTTI
Losses
Estimated
Fair
Value
Cost or
Amortized
Cost
(In millions)
Gains
Temporary
Losses
OTTI
Losses
Estimated
Fair
Value
Fixed maturity securities
U.S. corporate
$ 96,466
$ 6,583
$
2,255
$ — $100,794
$ 96,235
$10,343
$
624
$ — $105,954
U.S. Treasury and agency
Foreign corporate
Foreign government
RMBS
State and political
subdivision
ABS
CMBS (1)
Total fixed maturity
securities
Equity securities
Common stock
Non-redeemable preferred
stock
56,499
56,003
45,451
37,914
13,723
14,498
12,410
5,373
3,019
5,269
1,366
1,795
131
347
226
1,822
221
424
67
229
125
—
2
—
59
10
6
(1)
61,646
57,198
50,499
38,797
15,441
14,394
12,633
54,654
57,695
47,327
38,064
6,892
4,651
5,500
2,102
12,922
2,291
14,121
13,762
240
615
30
664
161
214
26
112
46
—
7
—
106
—
—
(1)
61,516
61,675
52,666
39,846
15,187
14,249
14,332
$332,964
$23,883
$
5,369
$
76
$351,402
$ 334,780
$32,634
$
1,877
$ 112
$365,425
$
1,962
$
397
$
107
$ — $ 2,252
$
1,990
$ 554
$
28
$ — $
2,516
Total equity securities
$
2,997
$
482
$
158
$ — $ 3,321
$
3,076
$ 622
$
______________
1,035
85
51
—
1,069
1,086
68
39
67
—
1,115
$ — $
3,631
(1)
The noncredit loss component of OTTI losses for CMBS was in an unrealized gain position of $1 million at both December 31, 2015 and
2014, due to increases in estimated fair value subsequent to initial recognition of noncredit losses on such securities. See also “— Net
Unrealized Investment Gains (Losses).”
The Company held non-income producing fixed maturity securities with an estimated fair value of $54 million and $64 million with unrealized
gains (losses) of $12 million and $28 million at December 31, 2015 and 2014, respectively.
Methodology for Amortization of Premium and Accretion of Discount on Structured Securities
Amortization of premium and accretion of discount on structured securities considers the estimated timing and amount of prepayments of
the underlying loans. Actual prepayment experience is periodically reviewed and effective yields are recalculated when differences arise between
the originally anticipated and the actual prepayments received and currently anticipated. Prepayment assumptions for single class and multi-class
mortgage-backed and ABS are estimated using inputs obtained from third-party specialists and based on management’s knowledge of the current
market. For credit-sensitive mortgage-backed and ABS and certain prepayment-sensitive securities, the effective yield is recalculated on a
prospective basis. For all other mortgage-backed and ABS, the effective yield is recalculated on a retrospective basis.
Maturities of Fixed Maturity Securities
The amortized cost and estimated fair value of fixed maturity securities, by contractual maturity date, were as follows at December 31, 2015:
Due in One
Year or Less
Due After One
Year Through
Five Years
Due After Five
Years Through
Ten Years
Due After Ten
Years
Structured
Securities
Total Fixed
Maturity
Securities
(In millions)
Amortized cost
Estimated fair value
$
$
13,109
13,130
$
$
74,554
77,398
$
$
71,590
74,364
$
$
108,889
120,686
$
$
64,822
65,824
$
$
332,964
351,402
Actual maturities may differ from contractual maturities due to the exercise of call or prepayment options. Fixed maturity securities not due at
a single maturity date have been presented in the year of final contractual maturity. Structured securities (RMBS, ABS and CMBS) are shown
separately, as they are not due at a single maturity.
134
MetLife, Inc.
Table of Contents
8. Investments (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
Continuous Gross Unrealized Losses for Fixed Maturity and Equity Securities AFS by Sector
The following table presents the estimated fair value and gross unrealized losses of fixed maturity and equity securities AFS in an unrealized
loss position, aggregated by sector and by length of time that the securities have been in a continuous unrealized loss position.
December 31, 2015
December 31, 2014
Less than 12 Months
Equal to or Greater than
12 Months
Less than 12 Months
Equal to or Greater than
12 Months
Estimated
Fair
Value
Gross
Unrealized
Losses
Estimated
Fair
Value
Gross
Unrealized
Losses
Estimated
Fair
Value
Gross
Unrealized
Losses
Estimated
Fair
Value
Gross
Unrealized
Losses
(In millions, except number of securities)
Fixed maturity securities
U.S. corporate
$ 27,526
$
1,629
$
3,762
$
626
$
11,389
$
331
$
4,658
$
U.S. Treasury and agency
Foreign corporate
Foreign government
RMBS
State and political subdivision
ABS
CMBS
19,628
14,447
3,530
13,467
1,618
7,329
4,876
222
911
166
287
55
124
81
298
5,251
429
2,431
168
2,823
637
4
913
55
196
22
111
43
8,927
9,410
1,085
4,180
83
4,456
1,268
12
505
80
92
1
57
23
1,314
2,074
630
2,534
297
1,440
934
293
18
166
81
228
25
55
22
Total fixed maturity securities
$ 92,421
$
3,475
$ 15,799
$
1,970
$
40,798
$
1,101
$ 13,881
$
888
Equity securities
Common stock
Non-redeemable preferred stock
Total equity securities
Total number of securities in an
unrealized loss position
$
$
203
$
105
$
20
$
2
$
111
$
28
$
1
$
79
2
282
$
107
$
200
220
$
49
51
67
2
$
178
$
30
$
192
193
$
—
37
37
6,366
1,489
3,153
1,435
Evaluation of AFS Securities for OTTI and Evaluating Temporarily Impaired AFS Securities
Evaluation and Measurement Methodologies
Management considers a wide range of factors about the security issuer and uses its best judgment in evaluating the cause of the decline
in the estimated fair value of the security and in assessing the prospects for near-term recovery. Inherent in management’s evaluation of the
security are assumptions and estimates about the operations of the issuer and its future earnings potential. Considerations used in the impairment
evaluation process include, but are not limited to: (i) the length of time and the extent to which the estimated fair value has been below cost or
amortized cost; (ii) the potential for impairments when the issuer is experiencing significant financial difficulties; (iii) the potential for impairments
in an entire industry sector or sub-sector; (iv) the potential for impairments in certain economically depressed geographic locations; (v) the potential
for impairments where the issuer, series of issuers or industry has suffered a catastrophic loss or has exhausted natural resources; (vi) with
respect to fixed maturity securities, whether the Company has the intent to sell or will more likely than not be required to sell a particular security
before the decline in estimated fair value below amortized cost recovers; (vii) with respect to structured securities, changes in forecasted cash
flows after considering the quality of underlying collateral, expected prepayment speeds, current and forecasted loss severity, consideration of
the payment terms of the underlying assets backing a particular security, and the payment priority within the tranche structure of the security;
(viii) the potential for impairments due to weakening of foreign currencies on non-functional currency denominated fixed maturity securities that
are near maturity; and (ix) other subjective factors, including concentrations and information obtained from regulators and rating agencies.
The methodology and significant inputs used to determine the amount of credit loss on fixed maturity securities are as follows:
•
The Company calculates the recovery value by performing a discounted cash flow analysis based on the present value of future cash flows.
The discount rate is generally the effective interest rate of the security prior to impairment.
• When determining collectability and the period over which value is expected to recover, the Company applies considerations utilized in its
overall impairment evaluation process which incorporates information regarding the specific security, fundamentals of the industry and
geographic area in which the security issuer operates, and overall macroeconomic conditions. Projected future cash flows are estimated
using assumptions derived from management’s best estimates of likely scenario-based outcomes after giving consideration to a variety of
variables that include, but are not limited to: payment terms of the security; the likelihood that the issuer can service the interest and principal
payments; the quality and amount of any credit enhancements; the security’s position within the capital structure of the issuer; possible
corporate restructurings or asset sales by the issuer; and changes to the rating of the security or the issuer by rating agencies.
•
Additional considerations are made when assessing the unique features that apply to certain structured securities including, but not limited
to: the quality of underlying collateral, expected prepayment speeds, current and forecasted loss severity, consideration of the payment
terms of the underlying loans or assets backing a particular security, and the payment priority within the tranche structure of the security.
MetLife, Inc.
135
Table of Contents
8. Investments (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
• When determining the amount of the credit loss for U.S. and foreign corporate securities, foreign government securities and state and
political subdivision securities, the estimated fair value is considered the recovery value when available information does not indicate that
another value is more appropriate. When information is identified that indicates a recovery value other than estimated fair value, management
considers in the determination of recovery value the same considerations utilized in its overall impairment evaluation process as described
above, as well as any private and public sector programs to restructure such securities.
With respect to securities that have attributes of debt and equity (perpetual hybrid securities), consideration is given in the OTTI analysis
as to whether there has been any deterioration in the credit of the issuer and the likelihood of recovery in value of the securities that are in a
severe and extended unrealized loss position. Consideration is also given as to whether any perpetual hybrid securities, with an unrealized loss,
regardless of credit rating, have deferred any dividend payments. When an OTTI loss has occurred, the OTTI loss is the entire difference between
the perpetual hybrid security’s cost and its estimated fair value with a corresponding charge to earnings.
The cost or amortized cost of fixed maturity and equity securities is adjusted for OTTI in the period in which the determination is made. The
Company does not change the revised cost basis for subsequent recoveries in value.
In periods subsequent to the recognition of OTTI on a fixed maturity security, the Company accounts for the impaired security as if it had
been purchased on the measurement date of the impairment. Accordingly, the discount (or reduced premium) based on the new cost basis is
accreted over the remaining term of the fixed maturity security in a prospective manner based on the amount and timing of estimated future
cash flows.
Current Period Evaluation
Based on the Company’s current evaluation of its AFS securities in an unrealized loss position in accordance with its impairment policy,
and the Company’s current intentions and assessments (as applicable to the type of security) about holding, selling and any requirements to
sell these securities, the Company concluded that these securities were not other-than-temporarily impaired at December 31, 2015. Future OTTI
will depend primarily on economic fundamentals, issuer performance (including changes in the present value of future cash flows expected to
be collected), changes in credit ratings, collateral valuation, interest rates and credit spreads. If economic fundamentals deteriorate or if there
are adverse changes in the above factors, OTTI may be incurred in upcoming periods.
Gross unrealized losses on fixed maturity securities increased $3.4 billion during the year ended December 31, 2015 to $5.4 billion. The
increase in gross unrealized losses for the year ended December 31, 2015, was primarily attributable to widening credit spreads, an increase in
interest rates and, to a lesser extent, the impact of weakening foreign currencies on non-functional currency denominated fixed maturity securities.
At December 31, 2015, $364 million of the total $5.4 billion of gross unrealized losses were from 69 fixed maturity securities with an
unrealized loss position of 20% or more of amortized cost for six months or greater.
Investment Grade Fixed Maturity Securities
Of the $364 million of gross unrealized losses on fixed maturity securities with an unrealized loss of 20% or more of amortized cost for six
months or greater, $242 million, or 66%, were related to gross unrealized losses on 36 investment grade fixed maturity securities. Unrealized
losses on investment grade fixed maturity securities are principally related to widening credit spreads and, with respect to fixed-rate fixed maturity
securities, rising interest rates since purchase.
Below Investment Grade Fixed Maturity Securities
Of the $364 million of gross unrealized losses on fixed maturity securities with an unrealized loss of 20% or more of amortized cost for six
months or greater, $122 million, or 34%, were related to gross unrealized losses on 33 below investment grade fixed maturity securities. Unrealized
losses on below investment grade fixed maturity securities are principally related to U.S. and foreign corporate securities (primarily utility and
industrial securities) and non-agency RMBS (primarily alternative residential mortgage loans) and are the result of significantly wider credit spreads
resulting from higher risk premiums since purchase, largely due to economic and market uncertainties including concerns over lower oil prices
in the energy sector and valuations of residential real estate supporting non-agency RMBS. Management evaluates U.S. and foreign corporate
securities based on factors such as expected cash flows and the financial condition and near-term and long-term prospects of the issuers and
evaluates non-agency RMBS based on actual and projected cash flows after considering the quality of underlying collateral, expected prepayment
speeds, current and forecasted loss severity, consideration of the payment terms of the underlying assets backing a particular security and the
payment priority within the tranche structure of the security.
Equity Securities
Gross unrealized losses on equity securities increased $91 million during the year ended December 31, 2015 to $158 million. Of the
$158 million, $36 million were from 12 securities with gross unrealized losses of 20% or more of cost for 12 months or greater. Of the $36 million,
64% were rated A or better, and all were from financial services industry investment grade non-redeemable preferred stock securities.
136
MetLife, Inc.
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
8. Investments (continued)
Mortgage Loans
Mortgage Loans by Portfolio Segment
Mortgage loans are summarized as follows at:
Mortgage loans
Commercial
Agricultural
Residential
Subtotal (1)
Valuation allowances
Subtotal mortgage loans, net
Residential — FVO
Commercial mortgage loans held by CSEs — FVO
Total mortgage loans, net
______________
December 31,
2015
2014
Carrying
Value
(In millions)
% of
Total
Carrying
Value
(In millions)
% of
Total
$
44,012
13,188
9,734
66,934
(318)
66,616
314
172
65.6% $
19.6
14.5
99.7
(0.5)
99.2
0.5
0.3
41,088
12,378
6,369
59,835
(305)
59,530
308
280
68.3%
20.6
10.6
99.5
(0.5)
99.0
0.5
0.5
$
67,102
100.0% $
60,118
100.0%
(1)
Purchases of mortgage loans were $4.2 billion and $4.7 billion for the years ended December 31, 2015 and 2014, respectively.
See “— Variable Interest Entities” for discussion of CSEs.
Information on commercial, agricultural and residential mortgage loans is presented in the tables below. Information on residential — FVO and
commercial mortgage loans held by CSEs — FVO is presented in Note 10. The Company elects the FVO for certain mortgage loans and related
long-term debt that are managed on a total return basis.
Mortgage Loans, Valuation Allowance and Impaired Loans by Portfolio Segment
Mortgage loans by portfolio segment, by method of evaluation of credit loss, impaired mortgage loans including those modified in a troubled
debt restructuring, and the related valuation allowances, were as follows at and for the years ended:
Evaluated Individually for Credit Losses
Impaired Loans with a Valuation
Allowance
Impaired Loans without a
Valuation Allowance
Evaluated Collectively for Credit
Losses
Impaired Loans
Unpaid
Principal
Balance
Recorded
Investment
Valuation
Allowances
Unpaid
Principal
Balance
Recorded
Investment
Recorded
Investment
Valuation
Allowances
Carrying
Value
Average
Recorded
Investment
(In millions)
December 31, 2015
Commercial
Agricultural
Residential
Total
December 31, 2014
Commercial
Agricultural
Residential
Total
$
$
$
49
—
49
75
51
—
$
$
47
—
47
75
48
—
$
$
$
126
$
123
$
— $
— $
— $
57
22
141
220
$
$
57
21
131
209
$
$
43,955
$
217
$
13,120
9,603
39
59
66,678
$
315
$
57
65
131
253
$
$
127
63
84
274
3
—
3
$
24
$
101
$
100
$
40,913
$
200
$
151
$
359
2
—
26
14
40
13
37
12,317
6,332
37
42
59
37
80
19
$
155
$
150
$
59,562
$
279
$
247
$
458
The average recorded investment for impaired commercial, agricultural and residential mortgage loans was $526 million, $153 million and
$14 million, respectively, for the year ended December 31, 2013.
MetLife, Inc.
137
Table of Contents
8. Investments (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
Valuation Allowance Rollforward by Portfolio Segment
The changes in the valuation allowance, by portfolio segment, were as follows:
Commercial
Agricultural
Residential
Total
Balance at January 1, 2013
$
293
$
(In millions)
52
$
Provision (release)
Charge-offs, net of recoveries
Balance at December 31, 2013
Provision (release)
Charge-offs, net of recoveries
Balance at December 31, 2014
Provision (release)
Charge-offs, net of recoveries
(35)
—
258
(11)
(23)
224
12
(19)
Balance at December 31, 2015
$
217
$
Valuation Allowance Methodology
4
(12)
44
(4)
(1)
39
3
—
42
2
$
18
—
20
27
(5)
42
33
(16)
347
(13)
(12)
322
12
(29)
305
48
(35)
318
$
59
$
Mortgage loans are considered to be impaired when it is probable that, based upon current information and events, the Company will be
unable to collect all amounts due under the loan agreement. Specific valuation allowances are established using the same methodology for all
three portfolio segments as the excess carrying value of a loan over either (i) the present value of expected future cash flows discounted at the
loan’s original effective interest rate, (ii) the estimated fair value of the loan’s underlying collateral if the loan is in the process of foreclosure or
otherwise collateral dependent, or (iii) the loan’s observable market price. A common evaluation framework is used for establishing non-specific
valuation allowances for all loan portfolio segments; however, a separate non-specific valuation allowance is calculated and maintained for each
loan portfolio segment that is based on inputs unique to each loan portfolio segment. Non-specific valuation allowances are established for pools
of loans with similar risk characteristics where a property-specific or market-specific risk has not been identified, but for which the Company
expects to incur a credit loss. These evaluations are based upon several loan portfolio segment-specific factors, including the Company’s
experience for loan losses, defaults and loss severity, and loss expectations for loans with similar risk characteristics. These evaluations are
revised as conditions change and new information becomes available.
Commercial and Agricultural Mortgage Loan Portfolio Segments
The Company typically uses several years of historical experience in establishing non-specific valuation allowances which captures multiple
economic cycles. For evaluations of commercial mortgage loans, in addition to historical experience, management considers factors that include
the impact of a rapid change to the economy, which may not be reflected in the loan portfolio, and recent loss and recovery trend experience
as compared to historical loss and recovery experience. For evaluations of agricultural mortgage loans, in addition to historical experience,
management considers factors that include increased stress in certain sectors, which may be evidenced by higher delinquency rates, or a change
in the number of higher risk loans. On a quarterly basis, management incorporates the impact of these current market events and conditions on
historical experience in determining the non-specific valuation allowance established for commercial and agricultural mortgage loans.
All commercial mortgage loans are reviewed on an ongoing basis which may include an analysis of the property financial statements and
rent roll, lease rollover analysis, property inspections, market analysis, estimated valuations of the underlying collateral, loan-to-value ratios, debt
service coverage ratios, and tenant creditworthiness. The monitoring process focuses on higher risk loans, which include those that are classified
as restructured, delinquent or in foreclosure, as well as loans with higher loan-to-value ratios and lower debt service coverage ratios. All agricultural
mortgage loans are monitored on an ongoing basis. The monitoring process for agricultural mortgage loans is generally similar to the commercial
mortgage loan monitoring process, with a focus on higher risk loans, including reviews on a geographic and property-type basis. Higher risk
loans are reviewed individually on an ongoing basis for potential credit loss and specific valuation allowances are established using the methodology
described above. Quarterly, the remaining loans are reviewed on a pool basis by aggregating groups of loans that have similar risk characteristics
for potential credit loss, and non-specific valuation allowances are established as described above using inputs that are unique to each segment
of the loan portfolio.
For commercial mortgage loans, the primary credit quality indicator is the debt service coverage ratio, which compares a property’s net
operating income to amounts needed to service the principal and interest due under the loan. Generally, the lower the debt service coverage
ratio, the higher the risk of experiencing a credit loss. The Company also reviews the loan-to-value ratio of its commercial mortgage loan portfolio.
Loan-to-value ratios compare the unpaid principal balance of the loan to the estimated fair value of the underlying collateral. Generally, the higher
the loan-to-value ratio, the higher the risk of experiencing a credit loss. The debt service coverage ratio and the values utilized in calculating the
ratio are updated annually on a rolling basis, with a portion of the portfolio updated each quarter. In addition, the loan-to-value ratio is routinely
updated for all but the lowest risk loans as part of the Company’s ongoing review of its commercial mortgage loan portfolio.
For agricultural mortgage loans, the Company’s primary credit quality indicator is the loan-to-value ratio. The values utilized in calculating
this ratio are developed in connection with the ongoing review of the agricultural mortgage loan portfolio and are routinely updated.
138
MetLife, Inc.
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
8. Investments (continued)
Residential Mortgage Loan Portfolio Segment
The Company’s residential mortgage loan portfolio is comprised primarily of closed end, amortizing residential mortgage loans. For
evaluations of residential mortgage loans, the key inputs of expected frequency and expected loss reflect current market conditions, with expected
frequency adjusted, when appropriate, for differences from market conditions and the Company’s historical experience. In contrast to the
commercial and agricultural mortgage loan portfolios, residential mortgage loans are smaller-balance homogeneous loans that are collectively
evaluated for impairment. Non-specific valuation allowances are established using the evaluation framework described above for pools of loans
with similar risk characteristics from inputs that are unique to the residential segment of the loan portfolio. Loan specific valuation allowances
are only established on residential mortgage loans when they have been restructured and are established using the methodology described
above for all loan portfolio segments.
For residential mortgage loans, the Company’s primary credit quality indicator is whether the loan is performing or nonperforming. The
Company generally defines nonperforming residential mortgage loans as those that are 60 or more days past due and/or in non-accrual status
which is assessed monthly. Generally, nonperforming residential mortgage loans have a higher risk of experiencing a credit loss.
Credit Quality of Commercial Mortgage Loans
The credit quality of commercial mortgage loans was as follows at:
Recorded Investment
Debt Service Coverage Ratios
> 1.20x
1.00x - 1.20x
< 1.00x
Total
(In millions)
% of
Total
Estimated
Fair
Value
(In millions)
% of
Total
December 31, 2015
Loan-to-value ratios
Less than 65%
65% to 75%
76% to 80%
Greater than 80%
Total
December 31, 2014
Loan-to-value ratios
Less than 65%
65% to 75%
76% to 80%
Greater than 80%
Total
$
$
$
38,163
$
1,063
$
544
$
3,270
—
381
138
—
140
41,814
$
1,341
$
76
—
237
857
39,770
3,484
—
758
90.4% $
40,921
90.7%
7.9
—
1.7
3,451
—
732
7.7
—
1.6
$
44,012
100.0% $
45,104
100.0%
33,933
$
1,105
$
1,101
$
36,139
88.0% $
38,166
88.4%
3,306
130
562
405
—
281
87
15
163
3,798
145
1,006
9.2
0.4
2.4
3,873
153
987
9.0
0.3
2.3
$
37,931
$
1,791
$
1,366
$
41,088
100.0% $
43,179
100.0%
Credit Quality of Agricultural Mortgage Loans
The credit quality of agricultural mortgage loans was as follows at:
Loan-to-value ratios
Less than 65%
65% to 75%
76% to 80%
Greater than 80%
Total
December 31,
2015
2014
Recorded
Investment
(In millions)
% of
Total
Recorded
Investment
(In millions)
% of
Total
$
$
12,399
94.0% $
11,743
94.9%
710
21
58
5.4
0.2
0.4
533
17
85
4.3
0.1
0.7
13,188
100.0% $
12,378
100.0%
The estimated fair value of agricultural mortgage loans was $13.5 billion and $12.8 billion at December 31, 2015 and 2014, respectively.
MetLife, Inc.
139
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
8. Investments (continued)
Credit Quality of Residential Mortgage Loans
The credit quality of residential mortgage loans was as follows at:
Performance indicators
Performing
Nonperforming
Total
December 31,
2015
2014
Recorded
Investment
(In millions)
% of
Total
Recorded
Investment
(In millions)
% of
Total
$
$
9,408
326
9,734
96.7% $
3.3
100.0% $
6,196
173
6,369
97.3%
2.7
100.0%
The estimated fair value of residential mortgage loans was $9.9 billion and $6.6 billion at December 31, 2015 and 2014, respectively.
Past Due and Interest Accrual Status of Mortgage Loans
The Company has a high quality, well performing mortgage loan portfolio, with 99% of all mortgage loans classified as performing at both
December 31, 2015 and 2014. The Company defines delinquency consistent with industry practice, when mortgage loans are past due as follows:
commercial and residential mortgage loans — 60 days and agricultural mortgage loans — 90 days. The past due and accrual status of mortgage
loans at recorded investment, prior to valuation allowances, by portfolio segment, were as follows at:
Commercial
Agricultural
Residential
Total
Past Due
Nonaccrual Status
December 31, 2015
December 31, 2014
December 31, 2015
December 31, 2014
$
$
2
$
103
326
431
$
(In millions)
10
$
1
173
184
$
— $
46
318
364
$
75
41
163
279
Mortgage Loans Modified in a Troubled Debt Restructuring
For a small portion of the mortgage loan portfolio, classified as troubled debt restructurings, concessions are granted related to borrowers
experiencing financial difficulties. Generally, the types of concessions include: reduction of the contractual interest rate, extension of the maturity
date at an interest rate lower than current market interest rates, and/or a reduction of accrued interest. The amount, timing and extent of the
concession granted is considered in determining any impairment or changes in the specific valuation allowance. During the years ended December 31,
2015 and 2014, the Company did not have a significant amount of mortgage loans modified in a troubled debt restructuring.
Other Invested Assets
Other invested assets is comprised primarily of freestanding derivatives with positive estimated fair values (see Note 9), tax credit and renewable
energy partnerships, and leveraged and direct financing leases.
Tax Credit Partnerships
The carrying value of tax credit partnerships was $1.6 billion at both December 31, 2015 and 2014. Losses from tax credit partnerships included
within net investment income were $164 million, $149 million, and $139 million for the years ended December 31, 2015, 2014 and 2013, respectively.
140
MetLife, Inc.
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
8. Investments (continued)
Leveraged and Direct Financing Leases
Investment in leveraged and direct financing leases consisted of the following at:
Rental receivables, net
Estimated residual values
Subtotal
Unearned income
Investment in leases, net of non-recourse debt
December 31,
2015
2014
Leveraged
Leases
Direct
Financing
Leases
Leveraged
Leases
Direct
Financing
Leases
(In millions)
1,329
$
1,508
$
1,414
$
1,076
2,405
(693)
80
1,588
(512)
1,148
2,562
(777)
1,712
$
1,076
$
1,785
$
$
$
1,750
145
1,895
(776)
1,119
Rental receivables are generally due in periodic installments. The payment periods for leveraged leases generally range from one to 15 years but
in certain circumstances can be over 30 years, while the payment periods for direct financing leases range from one to 30 years. For rental receivables,
the primary credit quality indicator is whether the rental receivable is performing or nonperforming, which is assessed monthly. The Company generally
defines nonperforming rental receivables as those that are 90 days or more past due. At December 31, 2015 and 2014, all leveraged lease receivables
were performing and over 99% of direct financing rental receivables were performing.
The deferred income tax liability related to leveraged leases was $1.5 billion at both December 31, 2015 and 2014.
The components of income from investments in leveraged and direct financing leases, excluding net investment gains (losses), were as follows:
Years Ended December 31,
2015
2014
2013
Leveraged
Leases
Direct
Financing
Leases
Leveraged
Leases
Direct
Financing
Leases
Leveraged
Leases
Direct
Financing
Leases
$
$
62
22
40
$
$
82
29
53
$
$
(In millions)
66
23
43
$
$
72
25
47
$
$
82
29
53
$
$
75
26
49
Income from investment in leases
Less: Income tax expense on leases
Investment income after income tax
Cash Equivalents
The carrying value of cash equivalents, which includes securities and other investments with an original or remaining maturity of three months
or less at the time of purchase, was $7.5 billion and $4.5 billion at December 31, 2015 and 2014, respectively.
Net Unrealized Investment Gains (Losses)
Unrealized investment gains (losses) on fixed maturity and equity securities AFS and the effect on DAC, VOBA, DSI, future policy benefits and
the policyholder dividend obligation, that would result from the realization of the unrealized gains (losses), are included in net unrealized investment
gains (losses) in AOCI.
MetLife, Inc.
141
Table of Contents
8. Investments (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
The components of net unrealized investment gains (losses), included in AOCI, were as follows:
Fixed maturity securities
Fixed maturity securities with noncredit OTTI losses in AOCI
Total fixed maturity securities
Equity securities
Derivatives
Other
Subtotal
Amounts allocated from:
Future policy benefits
DAC and VOBA related to noncredit OTTI losses recognized in AOCI
DAC, VOBA and DSI
Policyholder dividend obligation
Subtotal
Deferred income tax benefit (expense) related to noncredit OTTI losses recognized in AOCI
Deferred income tax benefit (expense)
Net unrealized investment gains (losses)
Net unrealized investment gains (losses) attributable to noncontrolling interests
Years Ended December 31,
2015
2014
2013
(In millions)
$
18,164
$
30,367
$
16,672
(76)
18,088
422
2,350
287
(112)
30,255
608
1,761
149
(218)
16,454
390
375
(73)
21,147
32,773
17,146
(163)
—
(1,273)
(1,783)
(3,219)
27
(6,151)
11,804
(31)
(2,886)
(4)
(1,946)
(3,155)
(7,991)
42
(8,556)
16,268
(33)
(898)
6
(1,190)
(1,771)
(3,853)
73
(4,956)
8,410
4
Net unrealized investment gains (losses) attributable to MetLife, Inc.
$
11,773
$
16,235
$
8,414
The changes in fixed maturity securities with noncredit OTTI losses included in AOCI were as follows:
Balance at January 1,
Noncredit OTTI losses and subsequent changes recognized
Securities sold with previous noncredit OTTI loss
Subsequent changes in estimated fair value
Balance at December 31,
Years Ended December 31,
2015
2014
(In millions)
(112) $
6
125
(95)
(218)
17
53
36
(76) $
(112)
$
$
142
MetLife, Inc.
Table of Contents
8. Investments (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
The changes in net unrealized investment gains (losses) were as follows:
Balance at January 1,
Fixed maturity securities on which noncredit OTTI losses have been recognized
Unrealized investment gains (losses) during the year
Unrealized investment gains (losses) relating to:
Future policy benefits
DAC and VOBA related to noncredit OTTI losses recognized in AOCI
DAC, VOBA and DSI
Policyholder dividend obligation
Deferred income tax benefit (expense) related to noncredit OTTI losses recognized in AOCI
Deferred income tax benefit (expense)
Net unrealized investment gains (losses)
Net unrealized investment gains (losses) attributable to noncontrolling interests
Balance at December 31,
Change in net unrealized investment gains (losses)
Change in net unrealized investment gains (losses) attributable to noncontrolling interests
Change in net unrealized investment gains (losses) attributable to MetLife, Inc.
$
$
$
Concentrations of Credit Risk
Years Ended December 31,
2015
2014
2013
(In millions)
$
16,235
$
8,414
$
14,419
36
(11,662)
2,723
4
673
1,372
(15)
2,405
11,771
2
106
15,521
(1,988)
(10)
(756)
(1,384)
(31)
(3,600)
16,272
(37)
11,773
$
16,235
(4,464) $
7,858
$
$
2
(37)
143
(17,618)
5,151
(13)
1,295
2,057
(46)
3,017
8,405
9
8,414
(6,014)
9
(4,462) $
7,821
$
(6,005)
Investments in any counterparty that were greater than 10% of the Company’s equity, other than the U.S. government and its agencies, were
in fixed income securities of the Japanese government and its agencies with an estimated fair value of $20.9 billion and $20.3 billion at December
31, 2015 and 2014, respectively. The Company’s investment in fixed maturity and equity securities to counterparties that primarily conduct business
in Japan, including Japan government and agency fixed maturity securities, was $25.4 billion and $25.5 billion at December 31, 2015 and 2014,
respectively.
Securities Lending
Elements of the securities lending program are presented below at:
Securities on loan: (1)
Amortized cost
Estimated fair value
Cash collateral on deposit from counterparties (2)
Security collateral on deposit from counterparties (3)
Reinvestment portfolio — estimated fair value
______________
December 31,
2015
2014
(In millions)
$
$
$
$
$
27,223
29,646
30,197
50
30,258
$
$
$
$
$
26,989
30,269
30,826
83
31,314
(1)
(2)
(3)
Included within fixed maturity securities and short-term investments.
Included within payables for collateral under securities loaned and other transactions.
Security collateral on deposit from counterparties may not be sold or re-pledged, unless the counterparty is in default, and is not reflected in
the consolidated financial statements.
MetLife, Inc.
143
Table of Contents
8. Investments (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
The cash collateral liability by loaned security type and remaining tenor of the agreements were as follows at:
Remaining Tenor of Securities Lending Agreements
December 31, 2015
Open (1)
1 Month or Less
1 to 6 Months
Total
% of Total
(In millions)
Cash collateral liability by loaned security type
U.S. Treasury and agency
$
10,116
$
11,157
$
5,986
$
27,259
90.3%
Agency RMBS
Foreign government
U.S. corporate
Foreign corporate
Total
—
2
9
—
951
510
380
—
600
486
—
—
1,551
998
389
—
5.1
3.3
1.3
—
$
10,127
$
12,998
$
7,072
$
30,197
100.0%
Remaining Tenor of Securities Lending Agreements
December 31, 2014
Open (1)
1 Month or Less
1 to 6 Months
Total
% of Total
(In millions)
Cash collateral liability by loaned security type
U.S. Treasury and agency
$
10,371
$
10,423
$
5,239
$
26,033
84.5%
Agency RMBS
Foreign government
U.S. corporate
Foreign corporate
Total
__________________
—
30
125
175
482
1,034
182
112
2,572
81
—
—
3,054
1,145
307
287
9.9
3.7
1.0
0.9
$
10,701
$
12,233
$
7,892
$
30,826
100.0%
(1)
The related loaned security could be returned to the Company on the next business day which would require the Company to immediately
return the cash collateral.
If the Company is required to return significant amounts of cash collateral on short notice and is forced to sell securities to meet the return
obligation, it may have difficulty selling such collateral that is invested in securities in a timely manner, be forced to sell securities in a volatile or illiquid
market for less than what otherwise would have been realized under normal market conditions, or both. The estimated fair value of the securities on
loan related to the cash collateral on open at December 31, 2015 was $9.9 billion, over 99% of which were U.S. Treasury and agency securities which,
if put back to the Company, could be immediately sold to satisfy the cash requirement.
The reinvestment portfolio acquired with the cash collateral consisted principally of fixed maturity securities (including U.S. Treasury and agency,
agency RMBS, ABS, U.S. corporate securities, non-agency RMBS and foreign corporate securities) with 60% invested in U.S. Treasury and agency
securities, agency RMBS, cash equivalents, short-term investments or held in cash. If the securities on loan or the reinvestment portfolio become
less liquid, the Company has the liquidity resources of most of its general account available to meet any potential cash demands when securities on
loan are put back to the Company.
Invested Assets on Deposit, Held in Trust and Pledged as Collateral
Invested assets on deposit, held in trust and pledged as collateral are presented below at estimated fair value for all asset classes, except
mortgage loans, which are presented at carrying value at:
Invested assets on deposit (regulatory deposits)
Invested assets held in trust (collateral financing arrangements and reinsurance agreements)
Invested assets pledged as collateral (1)
Total invested assets on deposit, held in trust and pledged as collateral
______________
144
December 31,
2015
2014
(In millions)
9,089
$
10,443
23,145
42,677
$
9,437
10,069
25,996
45,502
$
$
MetLife, Inc.
Table of Contents
8. Investments (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
(1)
The Company has pledged invested assets in connection with various agreements and transactions, including funding agreements (see
Notes 4 and 12), collateral financing arrangements (see Note 13) and derivative transactions (see Note 9).
See “— Securities Lending” for information regarding securities on loan and Note 7 for information regarding investments designated to the
closed block.
Purchased Credit Impaired Investments
Investments acquired with evidence of credit quality deterioration since origination and for which it is probable at the acquisition date that the
Company will be unable to collect all contractually required payments are classified as purchased credit impaired (“PCI”) investments. For each
investment, the excess of the cash flows expected to be collected as of the acquisition date over its acquisition date fair value is referred to as the
accretable yield and is recognized as net investment income on an effective yield basis. If, subsequently, based on current information and events, it
is probable that there is a significant increase in cash flows previously expected to be collected or if actual cash flows are significantly greater than
cash flows previously expected to be collected, the accretable yield is adjusted prospectively. The excess of the contractually required
payments (including interest) as of the acquisition date over the cash flows expected to be collected as of the acquisition date is referred to as the
nonaccretable difference, and this amount is not expected to be realized as net investment income. Decreases in cash flows expected to be collected
can result in OTTI or the recognition of mortgage loan valuation allowances.
The Company’s PCI investments, by invested asset class, were as follows at:
Outstanding principal and interest balance (1)
Carrying value (2)
______________
December 31,
2015
2014
2015
2014
Fixed Maturity Securities
Mortgage Loans
$
$
6,410
4,883
$
$
(In millions)
5,287
4,170
$
$
148
129
$
$
239
132
(1)
(2)
Represents the contractually required payments, which is the sum of contractual principal, whether or not currently due, and accrued interest.
Estimated fair value plus accrued interest for fixed maturity securities and amortized cost, plus accrued interest, less any valuation allowances,
for mortgage loans.
The following table presents information about PCI investments acquired during the periods indicated:
Contractually required payments (including interest)
Cash flows expected to be collected (1)
Fair value of investments acquired
______________
Years Ended December 31,
2015
2014
2015
2014
Fixed Maturity Securities
Mortgage Loans
$
$
$
2,220
1,951
1,439
$
$
$
(In millions)
947
745
503
$
$
$
— $
— $
— $
—
—
—
(1)
Represents undiscounted principal and interest cash flow expectations, at the date of acquisition.
The following table presents activity for the accretable yield on PCI investments:
Accretable yield, January 1,
Investments purchased
Accretion recognized in earnings
Disposals
Reclassification (to) from nonaccretable difference
Accretable yield, December 31,
MetLife, Inc.
Years Ended December 31,
2015
2014
2015
2014
Fixed Maturity Securities
Mortgage Loans
(In millions)
2,143
$
2,746
$
512
(325)
(56)
(74)
242
(244)
(60)
(541)
2,200
$
2,143
$
$
$
48
—
(56)
—
29
21
$
$
74
—
(22)
—
(4)
48
145
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
8. Investments (continued)
Collectively Significant Equity Method Investments
The Company holds investments in real estate joint ventures, real estate funds and other limited partnership interests consisting of leveraged
buy-out funds, hedge funds, private equity funds, joint ventures and other funds. The portion of these investments accounted for under the equity
method had a carrying value of $14.6 billion at December 31, 2015. The Company’s maximum exposure to loss related to these equity method
investments is limited to the carrying value of these investments plus unfunded commitments of $5.2 billion at December 31, 2015. Except for certain
real estate joint ventures, the Company’s investments in real estate funds and other limited partnership interests are generally of a passive nature in
that the Company does not participate in the management of the entities.
As described in Note 1, the Company generally records its share of earnings in its equity method investments using a three-month lag methodology
and within net investment income. Aggregate net investment income from these equity method investments exceeded 10% of the Company’s
consolidated pre-tax income (loss) from continuing operations for only one of the three most recent annual periods: 2013. The Company is providing
the following aggregated summarized financial data for such equity method investments, for the most recent annual periods, in order to provide
comparative information. This aggregated summarized financial data does not represent the Company’s proportionate share of the assets, liabilities,
or earnings of such entities.
The aggregated summarized financial data presented below reflects the latest available financial information and is as of, and for, the years ended
December 31, 2015, 2014 and 2013. Aggregate total assets of these entities totaled $447.5 billion and $385.7 billion at December 31, 2015 and
2014, respectively. Aggregate total liabilities of these entities totaled $72.0 billion and $39.5 billion at December 31, 2015 and 2014, respectively.
Aggregate net income (loss) of these entities totaled $25.8 billion, $34.9 billion and $26.3 billion for the years ended December 31, 2015, 2014 and
2013, respectively. Aggregate net income (loss) from the underlying entities in which the Company invests is primarily comprised of investment income,
including recurring investment income and realized and unrealized investment gains (losses).
Variable Interest Entities
The Company has invested in certain structured transactions (including CSEs), formed trusts to invest proceeds from certain collateral financing
arrangements and has insurance operations that are VIEs. In certain instances, the Company holds both the power to direct the most significant
activities of the entity, as well as an economic interest in the entity and, as such, is deemed to be the primary beneficiary or consolidator of the entity.
The determination of the VIE’s primary beneficiary requires an evaluation of the contractual and implied rights and obligations associated with
each party’s relationship with or involvement in the entity, an estimate of the entity’s expected losses and expected residual returns and the allocation
of such estimates to each party involved in the entity. The Company generally uses a qualitative approach to determine whether it is the primary
beneficiary. However, for VIEs that are investment companies or apply measurement principles consistent with those utilized by investment companies,
the primary beneficiary is based on a risks and rewards model and is defined as the entity that will absorb a majority of a VIE’s expected losses,
receive a majority of a VIE’s expected residual returns if no single entity absorbs a majority of expected losses, or both. The Company reassesses its
involvement with VIEs on a quarterly basis. The use of different methodologies, assumptions and inputs in the determination of the primary beneficiary
could have a material effect on the amounts presented within the consolidated financial statements.
Consolidated VIEs
Creditors or beneficial interest holders of VIEs where the Company is the primary beneficiary have no recourse to the general credit of the
Company, as the Company’s obligation to the VIEs is limited to the amount of its committed investment.
The following table presents the total assets and total liabilities relating to VIEs for which the Company has concluded that it is the primary
beneficiary and which are consolidated at December 31, 2015 and 2014.
December 31,
2015
2014
Total
Assets
Total
Liabilities
Total
Assets
Total
Liabilities
(In millions)
MRSC (collateral financing arrangement (primarily securities)) (1)
$
3,374
$
— $
3,471
$
Operating joint venture (2)
CSEs (assets (primarily loans) and liabilities (primarily debt)) (3)
Other investments (4)
Total
______________
2,465
186
76
2,079
62
—
2,405
297
150
$
6,101
$
2,141
$
6,323
$
—
1,999
155
15
2,169
(1)
(2)
(3)
146
See Note 13 for a description of the MetLife Reinsurance Company of South Carolina (“MRSC”) collateral financing arrangement.
Assets of the operating joint venture are primarily fixed maturity securities and separate account assets. Liabilities of the operating joint venture
are primarily future policy benefits, other policyholder funds and separate account liabilities.
The Company consolidates entities that are structured as CMBS and as collateralized debt obligations. The assets of these entities can only
be used to settle their respective liabilities, and under no circumstances is the Company liable for any principal or interest shortfalls should
any arise. The Company’s exposure was limited to that of its remaining investment in these entities of $105 million and $123 million at estimated
fair value at December 31, 2015 and 2014, respectively. The long-term debt bears interest primarily at fixed rates ranging from 2.25% to
MetLife, Inc.
Table of Contents
8. Investments (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
5.57%, payable primarily on a monthly basis. Interest expense related to these obligations, included in other expenses, was $8 million,
$38 million and $122 million for the years ended December 31, 2015, 2014 and 2013 respectively.
(4)
Other investments is comprised of other invested assets, other limited partnerships interests, FVO and trading securities, and real estate joint
ventures.
Unconsolidated VIEs
The carrying amount and maximum exposure to loss relating to VIEs in which the Company holds a significant variable interest but is not the
primary beneficiary and which have not been consolidated were as follows at:
December 31,
2015
2014
Carrying
Amount
Maximum
Exposure
to Loss (1)
Carrying
Amount
Maximum
Exposure
to Loss (1)
(In millions)
Fixed maturity securities AFS:
Structured securities (RMBS, ABS and CMBS) (2)
$
65,824
$
65,824
$
68,427
$
68,427
U.S. and foreign corporate
Other limited partnership interests
Other invested assets
FVO and trading securities
Real estate joint ventures
Other investments (3)
Total
______________
3,261
5,186
1,604
586
65
71
3,261
7,074
2,161
586
82
71
3,829
6,250
1,720
565
100
92
3,829
8,402
2,050
565
125
92
$
76,597
$
79,059
$
80,983
$
83,490
(1)
The maximum exposure to loss relating to fixed maturity securities AFS, FVO and trading securities and equity securities AFS is equal to their
carrying amounts or the carrying amounts of retained interests. The maximum exposure to loss relating to other limited partnership interests,
mortgage loans and real estate joint ventures is equal to the carrying amounts plus any unfunded commitments. For certain of its investments
in other invested assets, the Company’s return is in the form of income tax credits which are guaranteed by creditworthy third parties. For
such investments, the maximum exposure to loss is equal to the carrying amounts plus any unfunded commitments, reduced by income tax
credits guaranteed by third parties of $179 million and $212 million at December 31, 2015 and 2014, respectively. Such a maximum loss
would be expected to occur only upon bankruptcy of the issuer or investee.
(2)
For these variable interests, the Company’s involvement is limited to that of a passive investor in mortgage-backed or asset-backed securities
issued by trusts that do not have substantial equity.
(3)
Other investments is comprised of mortgage loans and non-redeemable preferred stock.
As described in Note 21, the Company makes commitments to fund partnership investments in the normal course of business. Excluding
these commitments, the Company did not provide financial or other support to investees designated as VIEs during the years ended December 31,
2015, 2014 and 2013.
MetLife, Inc.
147
Table of Contents
8. Investments (continued)
Net Investment Income
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
The components of net investment income were as follows:
Investment income:
Fixed maturity securities
Equity securities
FVO and trading securities — Actively traded and FVO general account securities (1)
Mortgage loans
Policy loans
Real estate and real estate joint ventures
Other limited partnership interests
Cash, cash equivalents and short-term investments
Operating joint ventures
Other
Subtotal
Less: Investment expenses
Subtotal, net
FVO and trading securities — FVO contractholder-directed unit-linked investments (1)
FVO CSEs — interest income:
Commercial mortgage loans
Securities
Subtotal
Net investment income
______________
Years Ended December 31,
2015
2014
2013
(In millions)
$
14,235
$
14,868
$
15,071
144
21
3,136
603
981
669
148
25
248
20,210
1,209
19,001
264
16
—
280
133
103
2,928
629
951
1,033
168
10
192
21,015
1,178
19,837
1,266
49
1
1,316
127
65
3,020
620
909
955
181
10
165
21,123
1,198
19,925
2,172
132
3
2,307
$
19,281
$
21,153
$
22,232
(1)
Changes in estimated fair value subsequent to purchase for securities still held as of the end of the respective years included in net investment
income were as follows:
Actively traded and FVO general account securities
FVO contractholder-directed unit-linked investments
See “— Variable Interest Entities” for discussion of CSEs.
Years Ended December 31,
2015
2014
2013
(In millions)
$
$
(23) $
(433) $
(3) $
18
645
$
1,579
FVO Securities include certain fixed maturity and equity securities held-for-investment by the general account to support asset and liability
management strategies for certain insurance products and investments in certain separate accounts; securities held by CSEs; and trading securities,
as further described in Note 1.
148
MetLife, Inc.
Table of Contents
8. Investments (continued)
Net Investment Gains (Losses)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
Components of Net Investment Gains (Losses)
The components of net investment gains (losses) were as follows:
Total gains (losses) on fixed maturity securities:
Total OTTI losses recognized — by sector and industry:
U.S. and foreign corporate securities — by industry:
Consumer
Utility
Industrial
Transportation
Finance
Communications
Total U.S. and foreign corporate securities
RMBS
CMBS
ABS
State and political subdivision
OTTI losses on fixed maturity securities recognized in earnings
Fixed maturity securities — net gains (losses) on sales and disposals
Total gains (losses) on fixed maturity securities
Total gains (losses) on equity securities:
Total OTTI losses recognized — by sector:
Common stock
Non-redeemable preferred stock
OTTI losses on equity securities recognized in earnings
Equity securities — net gains (losses) on sales and disposals
Total gains (losses) on equity securities
FVO and trading securities — FVO general account securities
Mortgage loans
Real estate and real estate joint ventures
Other limited partnership interests
Other
Subtotal
FVO CSEs:
Commercial mortgage loans
Securities
Long-term debt — related to commercial mortgage loans
Long-term debt — related to securities
Non-investment portfolio gains (losses) (1)
Subtotal
Total net investment gains (losses)
______________
Years Ended December 31,
2015
2014
2013
(In millions)
$
(28) $
(7) $
(21)
(5)
—
—
—
(54)
(30)
—
—
(6)
(90)
204
114
(39)
(1)
(40)
61
21
—
(105)
531
(67)
(6)
488
(7)
—
4
—
112
109
597
$
—
—
(2)
—
—
(9)
(31)
(13)
(7)
—
(60)
598
538
(13)
(23)
(36)
101
65
9
(36)
222
(78)
(110)
610
(13)
—
19
(1)
(812)
(807)
$
(197) $
(11)
(48)
—
(3)
(10)
(2)
(74)
(80)
(12)
—
—
(166)
561
395
(6)
(20)
(26)
31
5
15
22
(19)
(48)
22
392
(52)
2
85
(2)
(264)
(231)
161
(1)
Non-investment portfolio gains (losses) for the year ended December 31, 2014 includes a loss of $633 million related to the disposition of
MAL as more fully described in Note 3.
See “— Variable Interest Entities” for discussion of CSEs.
MetLife, Inc.
149
Table of Contents
8. Investments (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
Gains (losses) from foreign currency transactions included within net investment gains (losses) were $46 million, ($183) million and $171 million
for the years ended December 31, 2015, 2014 and 2013, respectively.
Sales or Disposals and Impairments of Fixed Maturity and Equity Securities
Investment gains and losses on sales of securities are determined on a specific identification basis. Proceeds from sales or disposals of fixed
maturity and equity securities and the components of fixed maturity and equity securities net investment gains (losses) were as shown in the table
below.
Years Ended December 31,
2015
2014
2013
2015
2014
2013
Fixed Maturity Securities
Equity Securities
(In millions)
$
$
$
115,395
1,262
(1,058)
(90)
$
$
82,075
1,165
$
$
76,070
1,326
$
$
(567)
(60)
(765)
(166)
$
$
358
99
(38)
(40)
$
$
544
112
(11)
(36)
114
$
538
$
395
$
21
$
65
$
746
56
(25)
(26)
5
Proceeds
Gross investment gains
Gross investment losses
OTTI losses
Net investment gains (losses)
Credit Loss Rollforward
The table below presents a rollforward of the cumulative credit loss component of OTTI loss recognized in earnings on fixed maturity securities
still held for which a portion of the OTTI loss was recognized in OCI:
Balance at January 1,
Additions:
Years Ended December 31,
2015
2014
$
(In millions)
357
$
Initial impairments — credit loss OTTI on securities not previously impaired
Additional impairments — credit loss OTTI on securities previously impaired
Reductions:
Sales (maturities, pay downs or prepayments) of securities previously impaired as credit loss OTTI
Securities impaired to net present value of expected future cash flows
Increase in cash flows — accretion of previous credit loss OTTI
20
26
(124)
—
(2)
Balance at December 31,
$
277
$
378
2
25
(40)
(7)
(1)
357
150
MetLife, Inc.
Table of Contents
9. Derivatives
Accounting for Derivatives
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
See Note 1 for a description of the Company’s accounting policies for derivatives and Note 10 for information about the fair value hierarchy for
derivatives.
Derivative Strategies
The Company is exposed to various risks relating to its ongoing business operations, including interest rate, foreign currency exchange rate,
credit and equity market. The Company uses a variety of strategies to manage these risks, including the use of derivatives.
Derivatives are financial instruments with values derived from interest rates, foreign currency exchange rates, credit spreads and/or other financial
indices. Derivatives may be exchange-traded or contracted in the over-the-counter (“OTC”) market. Certain of the Company’s OTC derivatives are
cleared and settled through central clearing counterparties (“OTC-cleared”), while others are bilateral contracts between two counterparties (“OTC-
bilateral”). The types of derivatives the Company uses include swaps, forwards, futures and option contracts. To a lesser extent, the Company uses
credit default swaps and structured interest rate swaps to synthetically replicate investment risks and returns which are not readily available in the
cash market.
Interest Rate Derivatives
The Company uses a variety of interest rate derivatives to reduce its exposure to changes in interest rates, including interest rate swaps, caps,
floors, swaptions, futures and forwards.
Interest rate swaps are used by the Company primarily to reduce market risks from changes in interest rates and to alter interest rate exposure
arising from mismatches between assets and liabilities (duration mismatches). In an interest rate swap, the Company agrees with another party to
exchange, at specified intervals, the difference between fixed rate and floating rate interest amounts as calculated by reference to an agreed notional
amount. The Company utilizes interest rate swaps in fair value, cash flow and nonqualifying hedging relationships.
The Company uses structured interest rate swaps to synthetically create investments that are either more expensive to acquire or otherwise
unavailable in the cash markets. These transactions are a combination of a derivative and a cash instrument such as a U.S. Treasury, agency, or
other fixed maturity security. Structured interest rate swaps are included in interest rate swaps and are not designated as hedging instruments.
The Company purchases interest rate caps and floors primarily to protect its floating rate liabilities against rises in interest rates above a
specified level, and against interest rate exposure arising from mismatches between assets and liabilities, as well as to protect its minimum rate
guarantee liabilities against declines in interest rates below a specified level, respectively. In certain instances, the Company locks in the economic
impact of existing purchased caps and floors by entering into offsetting written caps and floors. The Company utilizes interest rate caps and floors
in nonqualifying hedging relationships.
In exchange-traded interest rate (Treasury and swap) futures transactions, the Company agrees to purchase or sell a specified number of
contracts, the value of which is determined by the different classes of interest rate securities, and to post variation margin on a daily basis in an
amount equal to the difference in the daily market values of those contracts. The Company enters into exchange-traded futures with regulated
futures commission merchants that are members of the exchange. Exchange-traded interest rate (Treasury and swap) futures are used primarily
to hedge mismatches between the duration of assets in a portfolio and the duration of liabilities supported by those assets, to hedge against
changes in value of securities the Company owns or anticipates acquiring, to hedge against changes in interest rates on anticipated liability issuances
by replicating Treasury or swap curve performance, and to hedge minimum guarantees embedded in certain variable annuity products offered by
the Company. The Company utilizes exchange-traded interest rate futures in nonqualifying hedging relationships.
Swaptions are used by the Company to hedge interest rate risk associated with the Company’s long-term liabilities and invested assets. A
swaption is an option to enter into a swap with a forward starting effective date. In certain instances, the Company locks in the economic impact
of existing purchased swaptions by entering into offsetting written swaptions. The Company pays a premium for purchased swaptions and receives
a premium for written swaptions. The Company utilizes swaptions in nonqualifying hedging relationships. Swaptions are included in interest rate
options.
The Company enters into interest rate forwards to buy and sell securities. The price is agreed upon at the time of the contract and payment
for such a contract is made at a specified future date. The Company utilizes interest rate forwards in cash flow hedging relationships.
Foreign Currency Exchange Rate Derivatives
The Company uses foreign currency exchange rate derivatives, including foreign currency swaps, foreign currency forwards, currency options
and exchange-traded currency futures, to reduce the risk from fluctuations in foreign currency exchange rates associated with its assets and liabilities
denominated in foreign currencies. The Company also uses foreign currency derivatives to hedge the foreign currency exchange rate risk associated
with certain of its net investments in foreign operations.
In a foreign currency swap transaction, the Company agrees with another party to exchange, at specified intervals, the difference between
one currency and another at a fixed exchange rate, generally set at inception, calculated by reference to an agreed upon notional amount. The
notional amount of each currency is exchanged at the inception and termination of the currency swap by each party. The Company utilizes foreign
currency swaps in fair value, cash flow and nonqualifying hedging relationships.
In a foreign currency forward transaction, the Company agrees with another party to deliver a specified amount of an identified currency at a
specified future date. The price is agreed upon at the time of the contract and payment for such a contract is made at the specified future date.
The Company utilizes foreign currency forwards in fair value, net investment in foreign operations and nonqualifying hedging relationships.
The Company enters into currency options that give it the right, but not the obligation, to sell the foreign currency amount in exchange for a
functional currency amount within a limited time at a contracted price. The contracts may also be net settled in cash, based on differentials in the
MetLife, Inc.
151
Table of Contents
9. Derivatives (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
foreign currency exchange rate and the strike price. The Company uses currency options to hedge against the foreign currency exposure inherent
in certain of its variable annuity products. The Company also uses currency options as an economic hedge of foreign currency exposure related
to the Company’s international subsidiaries. The Company utilizes currency options in net investment in foreign operations and nonqualifying hedging
relationships.
To a lesser extent, the Company uses exchange-traded currency futures to hedge currency mismatches between assets and liabilities, and
to hedge minimum guarantees embedded in certain variable annuity products offered by the Company. The Company utilizes exchange-traded
currency futures in nonqualifying hedging relationships.
Credit Derivatives
The Company enters into purchased credit default swaps to hedge against credit-related changes in the value of its investments. In a credit
default swap transaction, the Company agrees with another party to pay, at specified intervals, a premium to hedge credit risk. If a credit event
occurs, as defined by the contract, the contract may be cash settled or it may be settled gross by the delivery of par quantities of the referenced
investment equal to the specified swap notional amount in exchange for the payment of cash amounts by the counterparty equal to the par value
of the investment surrendered. Credit events vary by type of issuer but typically include bankruptcy, failure to pay debt obligations, repudiation,
moratorium, involuntary restructuring or governmental intervention. In each case, payout on a credit default swap is triggered only after the Credit
Derivatives Determinations Committee of the International Swaps and Derivatives Association, Inc. (“ISDA”) deems that a credit event has occurred.
The Company utilizes credit default swaps in nonqualifying hedging relationships.
The Company enters into written credit default swaps to synthetically create credit investments that are either more expensive to acquire or
otherwise unavailable in the cash markets. These transactions are a combination of a derivative and one or more cash instruments, such as
U.S. Treasury securities, agency securities or other fixed maturity securities. These credit default swaps are not designated as hedging instruments.
The Company also enters into certain purchased and written credit default swaps held in relation to trading portfolios for the purpose of
generating profits on short-term differences in price. These credit default swaps are not designated as hedging instruments.
The Company enters into forwards to lock in the price to be paid for forward purchases of certain securities. The price is agreed upon at the
time of the contract and payment for the contract is made at a specified future date. When the primary purpose of entering into these transactions
is to hedge against the risk of changes in purchase price due to changes in credit spreads, the Company designates these transactions as credit
forwards. The Company utilizes credit forwards in cash flow hedging relationships.
Equity Derivatives
The Company uses a variety of equity derivatives to reduce its exposure to equity market risk, including equity index options, equity variance
swaps, exchange-traded equity futures and total rate of return swaps (“TRRs”).
Equity index options are used by the Company primarily to hedge minimum guarantees embedded in certain variable annuity products offered
by the Company. To hedge against adverse changes in equity indices, the Company enters into contracts to sell the equity index within a limited
time at a contracted price. The contracts will be net settled in cash based on differentials in the indices at the time of exercise and the strike price.
Certain of these contracts may also contain settlement provisions linked to interest rates. In certain instances, the Company may enter into a
combination of transactions to hedge adverse changes in equity indices within a pre-determined range through the purchase and sale of options.
The Company utilizes equity index options in nonqualifying hedging relationships.
Equity variance swaps are used by the Company primarily to hedge minimum guarantees embedded in certain variable annuity products
offered by the Company. In an equity variance swap, the Company agrees with another party to exchange amounts in the future, based on changes
in equity volatility over a defined period. The Company utilizes equity variance swaps in nonqualifying hedging relationships.
In exchange-traded equity futures transactions, the Company agrees to purchase or sell a specified number of contracts, the value of which
is determined by the different classes of equity securities, and to post variation margin on a daily basis in an amount equal to the difference in the
daily market values of those contracts. The Company enters into exchange-traded futures with regulated futures commission merchants that are
members of the exchange. Exchange-traded equity futures are used primarily to hedge minimum guarantees embedded in certain variable annuity
products offered by the Company. The Company utilizes exchange-traded equity futures in nonqualifying hedging relationships.
TRRs are swaps whereby the Company agrees with another party to exchange, at specified intervals, the difference between the economic
risk and reward of an asset or a market index and the LIBOR, calculated by reference to an agreed notional amount. No cash is exchanged at the
outset of the contract. Cash is paid and received over the life of the contract based on the terms of the swap. The Company uses TRRs to hedge
its equity market guarantees in certain of its insurance products. TRRs can be used as hedges or to synthetically create investments. The Company
utilizes TRRs in nonqualifying hedging relationships.
152
MetLife, Inc.
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
9. Derivatives (continued)
Primary Risks Managed by Derivatives
The following table presents the gross notional amount, estimated fair value and primary underlying risk exposure of the Company’s derivatives,
excluding embedded derivatives, held at:
December 31,
2015
2014
Estimated Fair Value
Estimated Fair Value
Gross
Notional
Amount
Assets
Liabilities
Gross
Notional
Amount
(In millions)
Assets
Liabilities
Primary Underlying Risk Exposure
Derivatives Designated as Hedging Instruments
Fair value hedges:
Interest rate swaps
Interest rate
$
5,528
$ 2,215
$
12
$
6,044
$
2,064
$
Foreign currency swaps
Foreign currency exchange rate
Foreign currency forwards
Foreign currency exchange rate
Subtotal
Cash flow hedges:
Interest rate swaps
Interest rate forwards
Interest rate
Interest rate
Foreign currency swaps
Foreign currency exchange rate
Subtotal
Foreign operations hedges:
Foreign currency forwards
Foreign currency exchange rate
Currency options
Foreign currency exchange rate
Subtotal
Total qualifying hedges
Derivatives Not Designated or Not Qualifying as Hedging Instruments
Interest rate swaps
Interest rate floors
Interest rate caps
Interest rate futures
Interest rate options
Interest rate forwards
Synthetic GICs
Interest rate
Interest rate
Interest rate
Interest rate
Interest rate
Interest rate
Interest rate
Foreign currency swaps
Foreign currency exchange rate
Foreign currency forwards
Foreign currency exchange rate
Currency futures
Currency options
Credit default
Foreign currency exchange rate
Foreign currency exchange rate
swaps — purchased
Credit
Credit default swaps —
written
Equity futures
Equity index options
Equity variance swaps
TRRs
Credit
Equity market
Equity market
Equity market
Equity market
Total non-designated or nonqualifying derivatives
Total
MetLife, Inc.
2,708
2,335
65
—
11,087
2,129
2,154
1,685
9,367
2,190
105
23,661
25,956
3,916
7,569
11,485
62
—
2,277
487
23
1,303
1,813
63
205
268
159
52
223
—
—
1,803
1,803
12
36
48
46,808
4,358
2,074
89,336
5,111
2,247
23,837
68,928
5,808
311
105
4
30,234
1,177
43
4,216
11,081
11,724
930
9,590
1,870
10,311
7,206
1
—
766
154
—
466
28
78
63
48
3
7
30
—
—
431
220
—
189
34
13
18
55,682
1,542
1,041
23,437
3,803
195
47
636
58
2,560
225
18,325
21,110
4,097
6,419
10,516
42,713
93,266
55,645
49,128
2,707
48,078
—
4,298
11,041
13,206
522
8,324
2,830
10,527
6,073
39,345
24,598
3,297
21
100
291
412
—
—
930
930
11
—
11
528
63
563
1,154
295
415
710
3,993
1,353
4,570
440
145
4
1,241
—
—
447
127
2
585
8
181
65
2,051
199
1
9
75
—
—
385
791
—
340
34
6
2
1,426
1,036
196
22
639
101
5,669
7,022
153
358,036
10,048
4,975
372,885
9,459
$404,844
$14,406
$
7,049
$ 415,598
$ 13,452
$
Table of Contents
9. Derivatives (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
Based on gross notional amounts, a substantial portion of the Company’s derivatives was not designated or did not qualify as part of a hedging
relationship at both December 31, 2015 and 2014. The Company’s use of derivatives includes (i) derivatives that serve as macro hedges of the
Company’s exposure to various risks and that generally do not qualify for hedge accounting due to the criteria required under the portfolio hedging
rules; (ii) derivatives that economically hedge insurance liabilities that contain mortality or morbidity risk and that generally do not qualify for hedge
accounting because the lack of these risks in the derivatives cannot support an expectation of a highly effective hedging relationship; (iii) derivatives
that economically hedge embedded derivatives that do not qualify for hedge accounting because the changes in estimated fair value of the embedded
derivatives are already recorded in net income; and (iv) written credit default swaps that are used to synthetically create credit investments and that
do not qualify for hedge accounting because they do not involve a hedging relationship. For these nonqualified derivatives, changes in market factors
can lead to the recognition of fair value changes on the statement of operations without an offsetting gain or loss recognized in earnings for the item
being hedged.
Net Derivative Gains (Losses)
The components of net derivative gains (losses) were as follows:
Freestanding derivatives and hedging gains (losses) (1)
Embedded derivatives gains (losses)
Total net derivative gains (losses)
______________
Years Ended December 31,
2015
2014
(In millions)
2013
$
$
277
$
(239)
38
$
1,638
$
(321)
1,317
$
(8,343)
5,104
(3,239)
(1)
Includes foreign currency transaction gains (losses) on hedged items in cash flow and nonqualifying hedging relationships, which are not
presented elsewhere in this note.
The following table presents earned income on derivatives:
Qualifying hedges:
Net investment income
Interest credited to policyholder account balances
Other expenses
Nonqualifying hedges:
Net investment income
Net derivative gains (losses)
Policyholder benefits and claims
Total
Years Ended December 31,
2015
2014
(In millions)
2013
$
219
$
25
(6)
(5)
1,024
16
$
158
101
(3)
(4)
828
40
$
1,273
$
1,120
$
135
150
(6)
(6)
328
(292)
309
154
MetLife, Inc.
Table of Contents
9. Derivatives (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
Nonqualifying Derivatives and Derivatives for Purposes Other Than Hedging
The following table presents the amount and location of gains (losses) recognized in income for derivatives that were not designated or qualifying
as hedging instruments:
Year Ended December 31, 2015
Interest rate derivatives
Foreign currency exchange rate derivatives
Credit derivatives — purchased
Credit derivatives — written
Equity derivatives
Total
Year Ended December 31, 2014
Interest rate derivatives
Foreign currency exchange rate derivatives
Credit derivatives — purchased
Credit derivatives — written
Equity derivatives
Total
Year Ended December 31, 2013
Interest rate derivatives
Foreign currency exchange rate derivatives
Credit derivatives — purchased
Credit derivatives — written
Equity derivatives
Total
______________
Net
Derivative
Gains (Losses)
Net
Investment
Income (1)
(In millions)
Policyholder
Benefits and
Claims (2)
$
$
$
$
$
$
(421) $
— $
547
7
(83)
(816)
—
(3)
—
(14)
(766) $
(17) $
1,545
$
— $
(344)
(12)
21
(634)
576
$
(3,458) $
(1,716)
(21)
130
(3,663)
(8,728) $
—
—
—
(18)
(18) $
— $
—
(14)
1
(25)
(38) $
5
—
—
—
(25)
(20)
42
—
—
—
(288)
(246)
(27)
—
—
—
(727)
(754)
(1)
Changes in estimated fair value related to economic hedges of equity method investments in joint ventures, derivatives held in relation to
trading portfolios and derivatives held within contractholder-directed unit-linked investments.
(2)
Changes in estimated fair value related to economic hedges of variable annuity guarantees included in future policy benefits.
Fair Value Hedges
The Company designates and accounts for the following as fair value hedges when they have met the requirements of fair value hedging:
(i) interest rate swaps to convert fixed rate assets and liabilities to floating rate assets and liabilities; (ii) foreign currency swaps to hedge the foreign
currency fair value exposure of foreign currency denominated assets and liabilities; and (iii) foreign currency forwards to hedge the foreign currency
fair value exposure of foreign currency denominated investments.
MetLife, Inc.
155
Table of Contents
9. Derivatives (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
The Company recognizes gains and losses on derivatives and the related hedged items in fair value hedges within net derivative gains (losses).
The following table presents the amount of such net derivative gains (losses):
Derivatives in Fair Value
Hedging Relationships
Hedged Items in Fair Value
Hedging Relationships
Year Ended December 31, 2015
Interest rate swaps:
Fixed maturity securities
Policyholder liabilities (1)
Foreign currency swaps:
Foreign-denominated fixed maturity securities
Foreign currency forwards:
Foreign-denominated fixed maturity securities
Foreign-denominated policyholder account
balances (2)
Total
Year Ended December 31, 2014
Interest rate swaps:
Fixed maturity securities
Policyholder liabilities (1)
Foreign currency swaps:
Foreign-denominated fixed maturity securities
Foreign currency forwards:
Foreign-denominated fixed maturity securities
Foreign-denominated policyholder account
balances (2)
Total
Year Ended December 31, 2013
Interest rate swaps:
Fixed maturity securities
Policyholder liabilities (1)
Foreign currency swaps:
Foreign-denominated fixed maturity securities
Foreign currency forwards:
Foreign-denominated fixed maturity securities
Foreign-denominated policyholder account
balances (2)
Total
______________
Net Derivative
Gains (Losses)
Recognized
for Derivatives
Net Derivative
Gains (Losses)
Recognized for
Hedged Items
(In millions)
Ineffectiveness
Recognized in
Net Derivative
Gains (Losses)
$
$
$
$
$
5
$
— $
(2)
15
(240)
(75)
(8)
(7)
232
68
(297) $
285
$
5
$
(1) $
681
13
(283)
(359)
(667)
(11)
270
330
57
$
(79) $
42
$
(43) $
(830)
13
(97)
(109)
$
(981) $
835
(12)
110
102
992
$
5
(10)
8
(8)
(7)
(12)
4
14
2
(13)
(29)
(22)
(1)
5
1
13
(7)
11
(1)
(2)
Fixed rate liabilities reported in policyholder account balances or future policy benefits.
Fixed rate or floating rate liabilities.
For the Company’s foreign currency forwards, the change in the estimated fair value of the derivative related to the changes in the difference
between the spot price and the forward price is excluded from the assessment of hedge effectiveness. For all other derivatives, all components of
each derivative’s gain or loss were included in the assessment of hedge effectiveness. For the years ended December 31, 2015, 2014 and 2013, the
component of the change in estimated fair value of derivatives that was excluded from the assessment of hedge effectiveness was ($11) million,
$3 million and ($2) million, respectively.
Cash Flow Hedges
The Company designates and accounts for the following as cash flow hedges when they have met the requirements of cash flow hedging:
(i) interest rate swaps to convert floating rate assets and liabilities to fixed rate assets and liabilities; (ii) foreign currency swaps to hedge the foreign
currency cash flow exposure of foreign currency denominated assets and liabilities; (iii) interest rate forwards and credit forwards to lock in the price
to be paid for forward purchases of investments; (iv) interest rate swaps and interest rate forwards to hedge the forecasted purchases of fixed-rate
investments; and (v) interest rate swaps and interest rate forwards to hedge forecasted fixed-rate borrowings.
In certain instances, the Company discontinued cash flow hedge accounting because the forecasted transactions were no longer probable of
occurring. Because certain of the forecasted transactions also were not probable of occurring within two months of the anticipated date, the Company
reclassified amounts from AOCI into net derivative gains (losses). These amounts were $11 million, ($15) million and ($1) million for the years ended
December 31, 2015, 2014 and 2013, respectively.
At December 31, 2015 and 2014, the maximum length of time over which the Company was hedging its exposure to variability in future cash
flows for forecasted transactions did not exceed five years and six years, respectively.
At December 31, 2015 and 2014, the balance in AOCI associated with cash flow hedges was $2.4 billion and $1.8 billion, respectively.
156
MetLife, Inc.
Table of Contents
9. Derivatives (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
The following table presents the effects of derivatives in cash flow hedging relationships on the consolidated statements of operations and the
consolidated statements of equity:
Derivatives in Cash Flow
Hedging Relationships
Year Ended December 31, 2015
Interest rate swaps
Interest rate forwards
Foreign currency swaps
Credit forwards
Total
Year Ended December 31, 2014
Interest rate swaps
Interest rate forwards
Foreign currency swaps
Credit forwards
Total
Year Ended December 31, 2013
Interest rate swaps
Interest rate forwards
Foreign currency swaps
Credit forwards
Total
$
$
$
$
$
$
Amount of Gains
(Losses)Deferred in
AOCI on Derivatives
(Effective Portion)
Amount and Location
of Gains (Losses)
Reclassified from
AOCI into Income (Loss)
(Effective Portion)
Amount and Location
of Gains (Losses)
Recognized in Income
(Loss) on Derivatives
(Ineffective Portion)
Net Derivative
Gains (Losses)
Net Investment
Income
Other
Expenses
Net Derivative
Gains (Losses)
(In millions)
91
$
85
$
12
$
— $
(1)
(109)
—
6
(720)
1
5
(1)
1
(19) $
(628) $
17
$
2
1
—
3
$
$
— $
722
$
42
$
86
(139)
—
(7)
(768)
—
9
4
(2)
1
669
$
(733) $
12
$
(635) $
(59)
(165)
(4)
(863) $
20
10
(3)
—
27
$
$
8
3
(3)
1
9
$
$
2
2
—
4
$
— $
(1)
1
—
— $
3
—
9
—
12
3
—
1
—
4
(3)
1
3
—
1
All components of each derivative’s gain or loss were included in the assessment of hedge effectiveness.
At December 31, 2015, $50 million of deferred net gains (losses) on derivatives in AOCI was expected to be reclassified to earnings within the
next 12 months.
Hedges of Net Investments in Foreign Operations
The Company uses foreign currency exchange rate derivatives, which may include foreign currency forwards and currency options, to hedge
portions of its net investments in foreign operations against adverse movements in exchange rates. The Company measures ineffectiveness on these
derivatives based upon the change in forward rates.
When net investments in foreign operations are sold or substantially liquidated, the amounts in AOCI are reclassified to the statement of operations.
The following table presents the effects of derivatives in net investment hedging relationships on the consolidated statements of operations and
the consolidated statements of equity:
Derivatives in Net Investment
Hedging Relationships (1), (2)
Foreign currency forwards
Currency options
Total
______________
MetLife, Inc.
Amount of Gains (Losses) Deferred in
AOCI (Effective Portion)
Years Ended December 31,
2015
2014
(In millions)
2013
$
$
255
$
(138)
117
$
407
222
629
$
$
69
262
331
157
Table of Contents
9. Derivatives (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
(1)
(2)
During the years ended December 31, 2015 and 2013, there were no sales or substantial liquidations of net investments in foreign operations
that would have required the reclassification of gains or losses from AOCI into earnings. In May 2014, the Company sold its interest in MAL,
which was a hedged item in a net investment hedging relationship. See Note 3. As a result, during the year ended December 31, 2014, the
Company released losses of $77 million from AOCI into earnings upon the sale.
There was no ineffectiveness recognized for the Company’s hedges of net investments in foreign operations. All components of each derivative’s
gain or loss were included in the assessment of hedge effectiveness.
At December 31, 2015 and 2014, the cumulative foreign currency translation gain (loss) recorded in AOCI related to hedges of net investments
in foreign operations was $1.1 billion and $940 million, respectively.
Credit Derivatives
In connection with synthetically created credit investment transactions and credit default swaps held in relation to the trading portfolio, the
Company writes credit default swaps for which it receives a premium to insure credit risk. Such credit derivatives are included within the nonqualifying
derivatives and derivatives for purposes other than hedging table. If a credit event occurs, as defined by the contract, the contract may be cash settled
or it may be settled gross by the Company paying the counterparty the specified swap notional amount in exchange for the delivery of par quantities
of the referenced credit obligation. The Company’s maximum amount at risk, assuming the value of all referenced credit obligations is zero, was
$10.3 billion and $10.5 billion at December 31, 2015 and 2014, respectively. The Company can terminate these contracts at any time through cash
settlement with the counterparty at an amount equal to the then current estimated fair value of the credit default swaps. At December 31, 2015 and
2014, the Company would have received $65 million and $175 million, respectively, to terminate all of these contracts.
The following table presents the estimated fair value, maximum amount of future payments and weighted average years to maturity of written
credit default swaps at:
Rating Agency Designation of Referenced
Credit Obligations (1)
December 31,
2015
2014
Estimated
Fair Value
of Credit
Default
Swaps
Maximum
Amount of Future
Payments under
Credit Default
Swaps
Weighted
Average
Years to
Maturity (2)
Estimated
Fair Value
of Credit
Default
Swaps
Maximum
Amount of Future
Payments under
Credit Default
Swaps
Weighted
Average
Years to
Maturity (2)
(In millions)
(In millions)
Aaa/Aa/A
Single name credit default swaps (corporate)
$
Credit default swaps referencing indices
Subtotal
Baa
Single name credit default swaps (corporate)
Credit default swaps referencing indices
Subtotal
Ba
Single name credit default swaps (corporate)
Credit default swaps referencing indices
Subtotal
B
Single name credit default swaps (corporate)
Credit default swaps referencing indices
Subtotal
Total
______________
$
6
6
12
8
37
45
(2)
(1)
(3)
—
11
11
65
$
661
1,635
2,296
1,349
5,863
7,212
64
100
164
—
639
639
$
10,311
2.5
3.4
3.2
2.5
4.8
4.4
2.3
1.0
1.5
—
4.9
4.9
4.1
$
$
10
10
20
23
94
117
—
(1)
(1)
—
39
39
677
1,700
2,377
1,591
5,774
7,365
60
100
160
—
625
625
$
175
$
10,527
2.4
2.6
2.6
2.8
4.7
4.3
3.0
2.0
2.4
—
4.9
4.9
3.9
(1)
The rating agency designations are based on availability and the midpoint of the applicable ratings among Moody’s Investors
Service (“Moody’s”), S&P and Fitch Ratings. If no rating is available from a rating agency, then an internally developed rating is used.
(2)
The weighted average years to maturity of the credit default swaps is calculated based on weighted average gross notional amounts.
The Company has also entered into credit default swaps to purchase credit protection on certain of the referenced credit obligations in the table
above. As a result, the maximum amounts of potential future recoveries available to offset the $10.3 billion and $10.5 billion from the table above
were $80 million and $75 million at December 31, 2015 and 2014, respectively.
158
MetLife, Inc.
Table of Contents
9. Derivatives (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
Written credit default swaps held in relation to the trading portfolio amounted to $20 million and $15 million in gross notional amount and ($2) million
and $1 million in estimated fair value at December 31, 2015 and 2014, respectively.
Credit Risk on Freestanding Derivatives
The Company may be exposed to credit-related losses in the event of nonperformance by its counterparties to derivatives. Generally, the current
credit exposure of the Company’s derivatives is limited to the net positive estimated fair value of derivatives at the reporting date after taking into
consideration the existence of master netting or similar agreements and any collateral received pursuant to such agreements.
The Company manages its credit risk related to derivatives by entering into transactions with creditworthy counterparties and establishing and
monitoring exposure limits. The Company’s OTC-bilateral derivative transactions are generally governed by ISDA Master Agreements which provide
for legally enforceable set-off and close-out netting of exposures to specific counterparties in the event of early termination of a transaction, which
includes, but is not limited to, events of default and bankruptcy. In the event of an early termination, the Company is permitted to set off receivables
from the counterparty against payables to the same counterparty arising out of all included transactions. Substantially all of the Company’s ISDA
Master Agreements also include Credit Support Annex provisions which require both the pledging and accepting of collateral in connection with its
OTC-bilateral derivatives.
The Company’s OTC-cleared derivatives are effected through central clearing counterparties and its exchange-traded derivatives are effected
through regulated exchanges. Such positions are marked to market and margined on a daily basis (both initial margin and variation margin), and the
Company has minimal exposure to credit-related losses in the event of nonperformance by counterparties to such derivatives.
See Note 10 for a description of the impact of credit risk on the valuation of derivatives.
The estimated fair values of the Company’s net derivative assets and net derivative liabilities after the application of master netting agreements
and collateral were as follows at:
Derivatives Subject to a Master Netting Arrangement or a Similar Arrangement
Assets
Liabilities
Assets
Liabilities
December 31,
2015
2014
Gross estimated fair value of derivatives:
OTC-bilateral (1)
OTC-cleared (1)
Exchange-traded
Total gross estimated fair value of derivatives (1)
Amounts offset on the consolidated balance sheets
(In millions)
$ 13,017
$
5,848
$ 12,256
$
6,017
1,600
67
1,217
25
1,380
71
14,684
7,090
13,707
—
—
—
1,054
11
7,082
—
7,082
Estimated fair value of derivatives presented on the consolidated balance sheets (1)
14,684
7,090
13,707
Gross amounts not offset on the consolidated balance sheets:
Gross estimated fair value of derivatives: (2)
OTC-bilateral
OTC-cleared
Exchange-traded
Cash collateral: (3), (4)
OTC-bilateral
OTC-cleared
Exchange-traded
Securities collateral: (5)
OTC-bilateral
OTC-cleared
Exchange-traded
(4,368)
(1,200)
(1)
(6,140)
(378)
—
(4,368)
(1,200)
(1)
(7)
(10)
(20)
(4,082)
(4,082)
(989)
(5)
(4,153)
(386)
—
(989)
(5)
(133)
(62)
(4)
(2,078)
(1,395)
(3,768)
(1,700)
—
—
—
(3)
—
—
(3)
(2)
Net amount after application of master netting agreements and collateral
$
519
$
86
$
324
$
102
______________
(1)
(2)
(3)
At December 31, 2015 and 2014, derivative assets included income or expense accruals reported in accrued investment income or in other
liabilities of $278 million and $255 million, respectively, and derivative liabilities included income or expense accruals reported in accrued
investment income or in other liabilities of $41 million and $60 million, respectively.
Estimated fair value of derivatives is limited to the amount that is subject to set-off and includes income or expense accruals.
Cash collateral received by the Company for OTC-bilateral and OTC-cleared derivatives is included in cash and cash equivalents, short-term
investments or in fixed maturity securities, and the obligation to return it is included in payables for collateral under securities loaned and other
MetLife, Inc.
159
Table of Contents
9. Derivatives (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
(4)
(5)
transactions on the balance sheet. In certain instances, cash collateral pledged to the Company as initial margin for OTC-bilateral derivatives
is held in separate custodial accounts and is not recorded on the Company’s balance sheet because the account title is in the name of the
counterparty (but segregated for the benefit of the Company). The amount of this off-balance sheet collateral was $0 and $263 million at
December 31, 2015 and 2014, respectively.
The receivable for the return of cash collateral provided by the Company is inclusive of initial margin on exchange-traded and OTC-cleared
derivatives and is included in premiums, reinsurance and other receivables on the balance sheet. The amount of cash collateral offset in the
table above is limited to the net estimated fair value of derivatives after application of netting agreements. At December 31, 2015 and 2014,
the Company received excess cash collateral of $89 million and $87 million (including $0 and $36 million off-balance sheet cash collateral
held in separate custodial accounts), respectively, and provided excess cash collateral of $204 million and $192 million, respectively, which
is not included in the table above due to the foregoing limitation.
Securities collateral received by the Company is held in separate custodial accounts and is not recorded on the balance sheet. Subject to
certain constraints, the Company is permitted by contract to sell or re-pledge this collateral, but at December 31, 2015 none of the collateral
had been sold or re-pledged. Securities collateral pledged by the Company is reported in fixed maturity securities on the balance sheet.
Subject to certain constraints, the counterparties are permitted by contract to sell or re-pledge this collateral. The amount of securities collateral
offset in the table above is limited to the net estimated fair value of derivatives after application of netting agreements and cash collateral. At
December 31, 2015 and 2014, the Company received excess securities collateral with an estimated fair value of $100 million and $395 million,
respectively, for its OTC-bilateral derivatives, which are not included in the table above due to the foregoing limitation. At December 31, 2015
and 2014, the Company provided excess securities collateral with an estimated fair value of $150 million and $117 million, respectively, for
its OTC-bilateral derivatives, $315 million and $199 million, respectively, for its OTC-cleared derivatives, and $224 million and $245 million,
respectively, for its exchange-traded derivatives, which are not included in the table above due to the foregoing limitation.
The Company’s collateral arrangements for its OTC-bilateral derivatives generally require the counterparty in a net liability position, after considering
the effect of netting agreements, to pledge collateral when the estimated fair value of that counterparty’s derivatives reaches a pre-determined threshold.
Certain of these arrangements also include credit-contingent provisions that provide for a reduction of these thresholds (on a sliding scale that
converges toward zero) in the event of downgrades in the credit ratings of the Company and/or the counterparty. In addition, certain of the Company’s
netting agreements for derivatives contain provisions that require both the Company and the counterparty to maintain a specific investment grade
credit rating from each of Moody’s and S&P. If a party’s credit ratings were to fall below that specific investment grade credit rating, that party would
be in violation of these provisions, and the other party to the derivatives could terminate the transactions and demand immediate settlement and
payment based on such party’s reasonable valuation of the derivatives.
The following table presents the estimated fair value of the Company’s OTC-bilateral derivatives that are in a net liability position after considering
the effect of netting agreements, together with the estimated fair value and balance sheet location of the collateral pledged. The table also presents
the incremental collateral that the Company would be required to provide if there was a one notch downgrade in the Company’s credit rating at the
reporting date or if the Company’s credit rating sustained a downgrade to a level that triggered full overnight collateralization or termination of the
derivative position at the reporting date. OTC-bilateral derivatives that are not subject to collateral agreements are excluded from this table.
Derivatives
Subject to
Credit-
Contingent
Provisions
2015
Derivatives
Not Subject
to Credit-
Contingent
Provisions
December 31,
Derivatives
Subject to
Credit-
Contingent
Provisions
Total
(In millions)
2014
Derivatives
Not Subject
to Credit-
Contingent
Provisions
Total
1,270
$
207
$
1,477
$
1,832
$
84
$
1,916
1,365
4
$
$
174
4
$
$
1,539
8
$
$
1,750
131
$
$
65
2
$
$
1,815
133
1
$
— $
1
$
5
$
— $
1
$
— $
1
$
7
$
— $
5
7
Estimated fair value of derivatives in a net liability
position (1)
Estimated Fair Value of Collateral Provided
Fixed maturity securities
Cash
Fair Value of Incremental Collateral Provided Upon
One notch downgrade in the company's credit
rating
Downgrade in the company's credit rating to a
level that triggers full overnight collateralization
or termination of the derivative position
______________
$
$
$
$
$
(1)
After taking into consideration the existence of netting agreements.
Embedded Derivatives
The Company issues certain products or purchases certain investments that contain embedded derivatives that are required to be separated
from their host contracts and accounted for as freestanding derivatives. These host contracts principally include: variable annuities with guaranteed
minimum benefits, including GMWBs, GMABs and certain GMIBs; ceded reinsurance of guaranteed minimum benefits related to certain GMIBs;
160
MetLife, Inc.
Table of Contents
9. Derivatives (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
assumed reinsurance of guaranteed minimum benefits related to GMWBs and GMABs; funding agreements with equity or bond indexed crediting
rates; funds withheld on assumed and ceded reinsurance; fixed annuities with equity-indexed returns; and certain debt and equity securities.
The following table presents the estimated fair value and balance sheet location of the Company’s embedded derivatives that have been separated
from their host contracts at:
Balance Sheet Location
December 31,
2015
2014
(In millions)
Net embedded derivatives within asset host contracts:
Ceded guaranteed minimum benefits
Premiums, reinsurance and other receivables
$
356
$
Funds withheld on assumed reinsurance
Other invested assets
Options embedded in debt or equity securities
Investments
Net embedded derivatives within asset host contracts
Net embedded derivatives within liability host contracts:
Direct guaranteed minimum benefits
Assumed guaranteed minimum benefits
Funds withheld on ceded reinsurance
Other
Net embedded derivatives within liability host contracts
Policyholder account balances
and Future policy benefits
Policyholder account balances
Other liabilities
Policyholder account balances
The following table presents changes in estimated fair value related to embedded derivatives:
35
(220)
171
$
324
53
(217)
160
$
$
(20) $
(1,126)
965
(14)
4
$
935
$
973
83
24
(46)
Net derivative gains (losses) (1)
Policyholder benefits and claims
______________
Years Ended December 31,
2015
2014
2013
(In millions)
$
$
(239) $
21
$
(321) $
87
$
5,104
(139)
(1)
The valuation of guaranteed minimum benefits includes a nonperformance risk adjustment. The amounts included in net derivative gains (losses)
in connection with this adjustment were $163 million, $13 million and ($952) million for the years ended December 31, 2015, 2014 and 2013,
respectively.
MetLife, Inc.
161
Table of Contents
10. Fair Value
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
When developing estimated fair values, the Company considers three broad valuation techniques: (i) the market approach, (ii) the income
approach, and (iii) the cost approach. The Company determines the most appropriate valuation technique to use, given what is being measured and
the availability of sufficient inputs, giving priority to observable inputs. The Company categorizes its assets and liabilities measured at estimated fair
value into a three-level hierarchy, based on the significant input with the lowest level in its valuation. The input levels are as follows:
Level 1
Unadjusted quoted prices in active markets for identical assets or liabilities. The Company defines active markets based on average
trading volume for equity securities. The size of the bid/ask spread is used as an indicator of market activity for fixed maturity securities.
Level 2
Quoted prices in markets that are not active or inputs that are observable either directly or indirectly. These inputs can include quoted
prices for similar assets or liabilities other than quoted prices in Level 1, quoted prices in markets that are not active, or other significant
inputs that are observable or can be derived principally from or corroborated by observable market data for substantially the full term of
the assets or liabilities.
Level 3
Unobservable inputs that are supported by little or no market activity and are significant to the determination of estimated fair value of
the assets or liabilities. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions that market participants
would use in pricing the asset or liability.
Financial markets are susceptible to severe events evidenced by rapid depreciation in asset values accompanied by a reduction in asset liquidity.
The Company’s ability to sell securities, or the price ultimately realized for these securities, depends upon the demand and liquidity in the market and
increases the use of judgment in determining the estimated fair value of certain securities.
Considerable judgment is often required in interpreting market data to develop estimates of fair value, and the use of different assumptions or
valuation methodologies may have a material effect on the estimated fair value amounts.
Recurring Fair Value Measurements
The assets and liabilities measured at estimated fair value on a recurring basis and their corresponding placement in the fair value hierarchy,
including those items for which the Company has elected the FVO, are presented below.
162
MetLife, Inc.
Table of Contents
10. Fair Value (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
Assets
Fixed maturity securities:
U.S. corporate
U.S. Treasury and agency
Foreign corporate
Foreign government
RMBS
State and political subdivision
ABS
CMBS
Total fixed maturity securities
Equity securities
FVO and trading securities:
Actively traded securities
FVO general account securities
FVO contractholder-directed unit-linked investments
FVO securities held by CSEs
Total FVO and trading securities
Short-term investments (1)
Mortgage loans:
Residential mortgage loans — FVO
Commercial mortgage loans held by CSEs — FVO
Total mortgage loans
Other invested assets:
Other investments
Derivative assets: (2)
Interest rate
Foreign currency exchange rate
Credit
Equity market
Total derivative assets
Total other invested assets
Net embedded derivatives within asset host contracts (3)
Separate account assets (4)
Total assets
Liabilities
Derivative liabilities: (2)
Interest rate
Foreign currency exchange rate
Credit
Equity market
Total derivative liabilities
Net embedded derivatives within liability host contracts (3)
Long-term debt of CSEs — FVO
Trading liabilities (5)
Total liabilities
December 31, 2015
Fair Value Hierarchy
Level 1
Level 2
Level 3
Total Estimated
Fair Value
(In millions)
$
— $
93,758
$
7,036
$
100,794
37,660
—
—
—
—
—
—
37,660
1,274
—
506
10,829
—
11,335
2,543
—
—
—
109
4
—
—
63
67
176
—
23,986
51,438
49,643
34,088
15,395
12,731
11,889
292,928
1,615
400
32
2,985
2
3,419
5,985
—
172
172
53
9,405
3,003
99
1,435
13,942
13,995
—
—
5,760
856
4,709
46
1,663
744
20,814
432
4
89
167
10
270
291
314
—
314
—
25
16
7
349
397
397
391
77,080
222,814
1,704
130,068
$
540,928
$
24,613
$
7
$
2,340
$
— $
—
—
18
25
—
—
103
128
$
2,754
45
1,077
6,216
—
49
50
148
2
658
808
935
11
—
61,646
57,198
50,499
38,797
15,441
14,394
12,633
351,402
3,321
404
627
13,981
12
15,024
8,819
314
172
486
162
9,434
3,019
106
1,847
14,406
14,568
391
301,598
695,609
2,347
2,902
47
1,753
7,049
935
60
153
6,315
$
1,754
$
8,197
$
$
$
MetLife, Inc.
163
Table of Contents
10. Fair Value (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
Assets
Fixed maturity securities:
U.S. corporate
U.S. Treasury and agency
Foreign corporate
Foreign government
RMBS
State and political subdivision
ABS
CMBS
Total fixed maturity securities
Equity securities
FVO and trading securities:
Actively traded securities
FVO general account securities
FVO contractholder-directed unit-linked investments
FVO securities held by CSEs
Total FVO and trading securities
Short-term investments (1)
Mortgage loans:
Residential mortgage loans — FVO
Commercial mortgage loans held by CSEs — FVO
Total mortgage loans
Other invested assets:
Other investments
Derivative assets: (2)
Interest rate
Foreign currency exchange rate
Credit
Equity market
Total derivative assets
Total other invested assets
Net embedded derivatives within asset host contracts (3)
Separate account assets (4)
Total assets
Liabilities
Derivative liabilities: (2)
Interest rate
Foreign currency exchange rate
Credit
Equity market
Total derivative liabilities
Net embedded derivatives within liability host contracts (3)
Long-term debt of CSEs — FVO
Trading liabilities (5)
Total liabilities
______________
December 31, 2014
Fair Value Hierarchy
Level 1
Level 2
Level 3
Total Estimated
Fair Value
(In millions)
$
— $
99,012
$
6,942
$
105,954
36,879
—
—
—
—
—
—
36,879
1,558
22
552
11,064
—
11,638
2,104
—
—
—
203
4
2
—
65
71
274
—
83,533
24,637
55,185
51,355
35,463
15,187
12,005
13,567
306,411
1,728
627
57
3,797
3
4,484
5,223
—
280
280
61
8,988
2,472
175
1,287
12,922
12,983
—
231,539
—
6,490
1,311
4,383
—
2,244
765
22,135
345
5
95
455
12
567
336
308
—
308
—
63
25
14
357
459
459
377
1,922
135,986
$
562,648
$
26,449
$
$
$
$
$
2,347
$
— $
2,755
38
1,112
6,252
7
138
24
93
2
664
759
(53)
13
—
9
—
—
2
11
—
—
215
226
$
6,421
$
719
$
7,366
61,516
61,675
52,666
39,846
15,187
14,249
14,332
365,425
3,631
654
704
15,316
15
16,689
7,663
308
280
588
264
9,055
2,499
189
1,709
13,452
13,716
377
316,994
725,083
2,356
2,848
40
1,778
7,022
(46)
151
239
(1)
(2)
164
Short-term investments as presented in the tables above differ from the amounts presented on the consolidated balance sheets because
certain short-term investments are not measured at estimated fair value on a recurring basis.
Derivative assets are presented within other invested assets on the consolidated balance sheets and derivative liabilities are presented within
other liabilities on the consolidated balance sheets. The amounts are presented gross in the tables above to reflect the presentation on the
MetLife, Inc.
Table of Contents
10. Fair Value (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
consolidated balance sheets, but are presented net for purposes of the rollforward in the Fair Value Measurements Using Significant
Unobservable Inputs (Level 3) tables.
Net embedded derivatives within asset host contracts are presented primarily within premiums, reinsurance and other receivables on the
consolidated balance sheets. Net embedded derivatives within liability host contracts are presented within policyholder account balances,
future policy benefits and other liabilities on the consolidated balance sheets. At December 31, 2015 and 2014, debt and equity securities
also included embedded derivatives of ($220) million and ($217) million, respectively.
Investment performance related to separate account assets is fully offset by corresponding amounts credited to contractholders whose liability
is reflected within separate account liabilities. Separate account liabilities are set equal to the estimated fair value of separate account assets.
(3)
(4)
(5)
Trading liabilities are presented within other liabilities on the consolidated balance sheets.
The following describes the valuation methodologies used to measure assets and liabilities at fair value. The description includes the valuation
techniques and key inputs for each category of assets or liabilities that are classified within Level 2 and Level 3 of the fair value hierarchy.
Investments
Valuation Controls and Procedures
On behalf of the Company’s Chief Investment Officer and Chief Financial Officer, a pricing and valuation committee that is independent of
the trading and investing functions and comprised of senior management, provides oversight of control systems and valuation policies for
securities, mortgage loans and derivatives. On a quarterly basis, this committee reviews and approves new transaction types and markets,
ensures that observable market prices and market-based parameters are used for valuation, wherever possible, and determines that judgmental
valuation adjustments, when applied, are based upon established policies and are applied consistently over time. This committee also provides
oversight of the selection of independent third party pricing providers and the controls and procedures to evaluate third party pricing. Periodically,
the Chief Accounting Officer reports to the Audit Committee of MetLife, Inc.’s Board of Directors regarding compliance with fair value accounting
standards.
The Company reviews its valuation methodologies on an ongoing basis and revises those methodologies when necessary based on
changing market conditions. Assurance is gained on the overall reasonableness and consistent application of input assumptions, valuation
methodologies and compliance with fair value accounting standards through controls designed to ensure valuations represent an exit price.
Several controls are utilized, including certain monthly controls, which include, but are not limited to, analysis of portfolio returns to corresponding
benchmark returns, comparing a sample of executed prices of securities sold to the fair value estimates, comparing fair value estimates to
management’s knowledge of the current market, reviewing the bid/ask spreads to assess activity, comparing prices from multiple independent
pricing services and ongoing due diligence to confirm that independent pricing services use market-based parameters. The process includes a
determination of the observability of inputs used in estimated fair values received from independent pricing services or brokers by assessing
whether these inputs can be corroborated by observable market data. The Company ensures that prices received from independent brokers,
also referred to herein as “consensus pricing,” represent a reasonable estimate of fair value by considering such pricing relative to the Company’s
knowledge of the current market dynamics and current pricing for similar financial instruments. While independent non-binding broker quotations
are utilized, they are not used for a significant portion of the portfolio. For example, fixed maturity securities priced using independent non-binding
broker quotations represent less than 1% of the total estimated fair value of fixed maturity securities and 7% of the total estimated fair value of
Level 3 fixed maturity securities at December 31, 2015.
The Company also applies a formal process to challenge any prices received from independent pricing services that are not considered
representative of estimated fair value. If prices received from independent pricing services are not considered reflective of market activity or
representative of estimated fair value, independent non-binding broker quotations are obtained, or an internally developed valuation is prepared.
Internally developed valuations of current estimated fair value, which reflect internal estimates of liquidity and nonperformance risks, compared
with pricing received from the independent pricing services, did not produce material differences in the estimated fair values for the majority of
the portfolio; accordingly, overrides were not material. This is, in part, because internal estimates of liquidity and nonperformance risks are
generally based on available market evidence and estimates used by other market participants. In the absence of such market-based evidence,
management’s best estimate is used.
Securities, Short-term Investments, Other Investments, Long-term Debt of CSEs — FVO and Trading Liabilities
When available, the estimated fair value of these financial instruments is based on quoted prices in active markets that are readily and
regularly obtainable. Generally, these are the most liquid of the Company’s securities holdings and valuation of these securities does not involve
management’s judgment.
When quoted prices in active markets are not available, the determination of estimated fair value is based on market standard valuation
methodologies, giving priority to observable inputs. The significant inputs to the market standard valuation methodologies for certain types of
securities with reasonable levels of price transparency are inputs that are observable in the market or can be derived principally from, or
corroborated by, observable market data. When observable inputs are not available, the market standard valuation methodologies rely on inputs
that are significant to the estimated fair value that are not observable in the market or cannot be derived principally from, or corroborated by,
observable market data. These unobservable inputs can be based in large part on management’s judgment or estimation and cannot be
supported by reference to market activity. Even though these inputs are unobservable, management believes they are consistent with what other
market participants would use when pricing such securities and are considered appropriate given the circumstances.
The estimated fair value of investments in certain separate accounts included in FVO contractholder-directed unit-linked investments, FVO
securities held by CSEs, other investments, long-term debt of CSEs — FVO and trading liabilities is determined on a basis consistent with the
methodologies described herein for securities.
MetLife, Inc.
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Table of Contents
10. Fair Value (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
The valuation of most instruments listed below is determined using independent pricing sources, matrix pricing, discounted cash flow
methodologies or other similar techniques that use either observable market inputs or unobservable inputs.
Instrument
Level 2
Observable Inputs
Level 3
Unobservable Inputs
Fixed Maturity Securities
U.S. corporate and Foreign corporate securities
Valuation Techniques: Principally the market and income approaches.
Valuation Techniques: Principally the market approach.
Key Inputs:
• quoted prices in markets that are not active
Key Inputs:
• illiquidity premium
• benchmark yields; spreads off benchmark yields; new issuances; issuer rating
• delta spread adjustments to reflect specific credit-related issues
• trades of identical or comparable securities; duration
• credit spreads
• Privately-placed securities are valued using the additional key inputs:
• quoted prices in markets that are not active for identical or similar securities that
• market yield curve; call provisions
• observable prices and spreads for similar public or private securities that
incorporate the credit quality and industry sector of the issuer
• delta spread adjustments to reflect specific credit-related issues
U.S. Treasury and agency, Foreign government and State and political subdivision securities
are less liquid and based on lower levels of trading activity than securities
classified in Level 2
• independent non-binding broker quotations
Valuation Techniques: Principally the market approach.
Valuation Techniques: Principally the market approach.
Key Inputs:
• quoted prices in markets that are not active
• benchmark U.S. Treasury yield or other yields
• the spread off the U.S. Treasury yield curve for the identical security
Key Inputs:
• independent non-binding broker quotations
• quoted prices in markets that are not active for identical or similar securities that
are less liquid and based on lower levels of trading activity than securities
classified in Level 2
• issuer ratings and issuer spreads; broker-dealer quotes
• credit spreads
• comparable securities that are actively traded
Structured securities comprised of RMBS, ABS and CMBS
Valuation Techniques: Principally the market and income approaches.
Valuation Techniques: Principally the market and income approaches.
Key Inputs:
• quoted prices in markets that are not active
Key Inputs:
• credit spreads
• spreads for actively traded securities; spreads off benchmark yields
• expected prepayment speeds and volumes
• quoted prices in markets that are not active for identical or similar securities that
are less liquid and based on lower levels of trading activity than securities
classified in Level 2
• current and forecasted loss severity; ratings; geographic region
• independent non-binding broker quotations
• weighted average coupon and weighted average maturity
• average delinquency rates; debt-service coverage ratios
• issuance-specific information, including, but not limited to:
• collateral type; structure of the security; vintage of the loans
• payment terms of the underlying assets
• payment priority within the tranche; deal performance
166
MetLife, Inc.
Table of Contents
10. Fair Value (continued)
Instrument
Equity Securities
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
Level 2
Observable Inputs
Level 3
Unobservable Inputs
Valuation Techniques: Principally the market approach.
Valuation Techniques: Principally the market and income approaches.
Key Input:
Key Inputs:
• quoted prices in markets that are not considered active
• credit ratings; issuance structures
• quoted prices in markets that are not active for identical or similar securities that
are less liquid and based on lower levels of trading activity than securities
classified in Level 2
• independent non-binding broker quotations
FVO and trading securities, Short-term investments, and Other invested assets
• Contractholder-directed unit-linked investments include mutual fund interests without
readily determinable fair values given prices are not published publicly. Valuation
of these mutual funds is based upon quoted prices or reported NAV provided by
the fund managers, which were based on observable inputs.
• FVO and trading securities and short-term investments are of a similar nature and
class to the fixed maturity and equity securities described above; accordingly,
the valuation techniques and unobservable inputs used in their valuation are
also similar to those described above.
• All other investments are of a similar nature and class to the fixed maturity and equity
securities described above; accordingly, the valuation techniques and observable
inputs used in their valuation are also similar to those described above.
Mortgage Loans — FVO
Commercial mortgage loans held by CSEs — FVO
Valuation Techniques: Principally the market approach.
• N/A
Key Input:
• quoted securitization market price determined principally by independent pricing
services using observable inputs
Residential mortgage loans — FVO
• N/A
Separate Account Assets (1)
Valuation Techniques: Principally the market approach, including matrix pricing or
other similar techniques.
Key Inputs: Inputs that are unobservable or cannot be derived principally from, or
corroborated by, observable market data
Mutual funds and hedge funds without readily determinable fair values as prices are not published publicly
Key Input:
• N/A
• quoted prices or reported NAV provided by the fund managers
Other limited partnership interests
• N/A
______________
Valuation Techniques: Valued giving consideration to the underlying holdings of the
partnerships and by applying a premium or discount, if appropriate.
Key Inputs:
• liquidity; bid/ask spreads; performance record of the fund manager
• other relevant variables that may impact the exit value of the particular partnership
interest
(1)
Estimated fair value equals carrying value, based on the value of the underlying assets, including: mutual fund interests, fixed maturity securities,
equity securities, derivatives, hedge funds, other limited partnership interests, short-term investments and cash and cash equivalents. Fixed
maturity securities, equity securities, derivatives, short-term investments and cash and cash equivalents are similar in nature to the instruments
described under “— Securities, Short-term Investments, Other Investments, Long-term Debt of CSEs — FVO and Trading Liabilities” and
“— Derivatives—Freestanding Derivatives Valuation Techniques and Key Inputs.”
Derivatives
The estimated fair value of derivatives is determined through the use of quoted market prices for exchange-traded derivatives, or through the
use of pricing models for OTC-bilateral and OTC-cleared derivatives. The determination of estimated fair value, when quoted market values are not
available, is based on market standard valuation methodologies and inputs that management believes are consistent with what other market
participants would use when pricing such instruments. Derivative valuations can be affected by changes in interest rates, foreign currency exchange
rates, financial indices, credit spreads, default risk, nonperformance risk, volatility, liquidity and changes in estimates and assumptions used in the
pricing models. The valuation controls and procedures for derivatives are described in “— Investments.”
The significant inputs to the pricing models for most OTC-bilateral and OTC-cleared derivatives are inputs that are observable in the market
or can be derived principally from, or corroborated by, observable market data. Certain OTC-bilateral and OTC-cleared derivatives may rely on
inputs that are significant to the estimated fair value that are not observable in the market or cannot be derived principally from, or corroborated
by, observable market data. These unobservable inputs may involve significant management judgment or estimation. Even though unobservable,
these inputs are based on assumptions deemed appropriate given the circumstances and management believes they are consistent with what
other market participants would use when pricing such instruments.
Most inputs for OTC-bilateral and OTC-cleared derivatives are mid-market inputs but, in certain cases, liquidity adjustments are made when
they are deemed more representative of exit value. Market liquidity, as well as the use of different methodologies, assumptions and inputs, may
have a material effect on the estimated fair values of the Company’s derivatives and could materially affect net income.
The credit risk of both the counterparty and the Company are considered in determining the estimated fair value for all OTC-bilateral and OTC-
cleared derivatives, and any potential credit adjustment is based on the net exposure by counterparty after taking into account the effects of netting
MetLife, Inc.
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Table of Contents
10. Fair Value (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
agreements and collateral arrangements. The Company values its OTC-bilateral and OTC-cleared derivatives using standard swap curves which
may include a spread to the risk-free rate, depending upon specific collateral arrangements. This credit spread is appropriate for those parties that
execute trades at pricing levels consistent with similar collateral arrangements. As the Company and its significant derivative counterparties generally
execute trades at such pricing levels and hold sufficient collateral, additional credit risk adjustments are not currently required in the valuation
process. The Company’s ability to consistently execute at such pricing levels is in part due to the netting agreements and collateral arrangements
that are in place with all of its significant derivative counterparties. An evaluation of the requirement to make additional credit risk adjustments is
performed by the Company each reporting period.
Freestanding Derivatives Valuation Techniques and Key Inputs
Level 2
This level includes all types of derivatives utilized by the Company with the exception of exchange-traded derivatives included within
Level 1 and those derivatives with unobservable inputs as described in Level 3.
Level 3
These valuation methodologies generally use the same inputs as described in the corresponding sections for Level 2 measurements of
derivatives. However, these derivatives result in Level 3 classification because one or more of the significant inputs are not observable in the
market or cannot be derived principally from, or corroborated by, observable market data.
Freestanding derivatives are principally valued using the income approach. Valuations of non-option-based derivatives utilize present
value techniques, whereas valuations of option-based derivatives utilize option pricing models. Key inputs are as follows:
Instrument
Interest Rate
Foreign Currency
Exchange Rate
Credit
Equity Market
Inputs common to Level 2 and
Level 3 by instrument type
• swap yield curve
• swap yield curve
• swap yield curve
• swap yield curve
• basis curves
• basis curves
• credit curves
• spot equity index levels
• interest rate volatility (1)
• currency spot rates
• recovery rates
• dividend yield curves
• cross currency basis
curves
• currency volatility (1)
• equity volatility (1)
Level 3
• swap yield curve (2)
• swap yield curve (2)
• swap yield curve (2)
• dividend yield curves (2)
• basis curves (2)
• basis curves (2)
• credit curves (2)
• equity volatility (1), (2)
• interest rate volatility (1), (2)
• cross currency basis
curves (2)
• credit spreads
• correlation between model
inputs (1)
• currency correlation
• repurchase rates
• currency volatility (1)
• independent non-binding
broker quotations
______________
(1)
(2)
Option-based only.
Extrapolation beyond the observable limits of the curve(s).
Embedded Derivatives
Embedded derivatives principally include certain direct, assumed and ceded variable annuity guarantees, equity or bond indexed crediting
rates within certain funding agreements and annuity contracts, and those related to funds withheld on ceded reinsurance agreements. Embedded
derivatives are recorded at estimated fair value with changes in estimated fair value reported in net income.
The Company issues certain variable annuity products with guaranteed minimum benefits. GMWBs, GMABs and certain GMIBs contain
embedded derivatives, which are measured at estimated fair value separately from the host variable annuity contract, with changes in estimated
fair value reported in net derivative gains (losses). These embedded derivatives are classified within policyholder account balances and future policy
benefits on the consolidated balance sheets.
The Company’s actuarial department calculates the fair value of these embedded derivatives, which are estimated as the present value of
projected future benefits minus the present value of projected future fees using actuarial and capital market assumptions including expectations
concerning policyholder behavior. The calculation is based on in-force business, and is performed using standard actuarial valuation software which
projects future cash flows from the embedded derivative over multiple risk neutral stochastic scenarios using observable risk-free rates.
Capital market assumptions, such as risk-free rates and implied volatilities, are based on market prices for publicly traded instruments to the
extent that prices for such instruments are observable. Implied volatilities beyond the observable period are extrapolated based on observable
implied volatilities and historical volatilities. Actuarial assumptions, including mortality, lapse, withdrawal and utilization, are unobservable and are
reviewed at least annually based on actuarial studies of historical experience.
The valuation of these guarantee liabilities includes nonperformance risk adjustments and adjustments for a risk margin related to non-capital
market inputs. The nonperformance adjustment is determined by taking into consideration publicly available information relating to spreads in the
secondary market for MetLife, Inc.’s debt, including related credit default swaps. These observable spreads are then adjusted, as necessary, to
reflect the priority of these liabilities and the claims paying ability of the issuing insurance subsidiaries compared to MetLife, Inc.
168
MetLife, Inc.
Table of Contents
10. Fair Value (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
Risk margins are established to capture the non-capital market risks of the instrument which represent the additional compensation a market
participant would require to assume the risks related to the uncertainties of such actuarial assumptions as annuitization, premium persistency,
partial withdrawal and surrenders. The establishment of risk margins requires the use of significant management judgment, including assumptions
of the amount and cost of capital needed to cover the guarantees. These guarantees may be more costly than expected in volatile or declining
equity markets. Market conditions including, but not limited to, changes in interest rates, equity indices, market volatility and foreign currency
exchange rates; changes in nonperformance risk; and variations in actuarial assumptions regarding policyholder behavior, mortality and risk margins
related to non-capital market inputs, may result in significant fluctuations in the estimated fair value of the guarantees that could materially affect
net income.
The Company ceded the risk associated with certain of the GMIBs previously described. These reinsurance agreements contain embedded
derivatives which are included within premiums, reinsurance and other receivables on the consolidated balance sheets with changes in estimated
fair value reported in net derivative gains (losses) or policyholder benefits and claims depending on the statement of operations classification of the
direct risk. The value of the embedded derivatives on the ceded risk is determined using a methodology consistent with that described previously
for the guarantees directly written by the Company with the exception of the input for nonperformance risk that reflects the credit of the reinsurer.
The estimated fair value of the embedded derivatives within funds withheld related to certain ceded reinsurance is determined based on the
change in estimated fair value of the underlying assets held by the Company in a reference portfolio backing the funds withheld liability. The estimated
fair value of the underlying assets is determined as previously described in “— Investments — Securities, Short-term Investments, Other Investments,
Long-term Debt of CSEs — FVO and Trading Liabilities.” The estimated fair value of these embedded derivatives is included, along with their funds
withheld hosts, in other liabilities on the consolidated balance sheets with changes in estimated fair value recorded in net derivative gains (losses).
Changes in the credit spreads on the underlying assets, interest rates and market volatility may result in significant fluctuations in the estimated fair
value of these embedded derivatives that could materially affect net income.
The estimated fair value of the embedded equity and bond indexed derivatives contained in certain funding agreements is determined using
market standard swap valuation models and observable market inputs, including a nonperformance risk adjustment. The estimated fair value of
these embedded derivatives are included, along with their funding agreements host, within policyholder account balances with changes in estimated
fair value recorded in net derivative gains (losses). Changes in equity and bond indices, interest rates and the Company’s credit standing may result
in significant fluctuations in the estimated fair value of these embedded derivatives that could materially affect net income.
The Company issues certain annuity contracts which allow the policyholder to participate in returns from equity indices. These equity indexed
features are embedded derivatives which are measured at estimated fair value separately from the host fixed annuity contract, with changes in
estimated fair value reported in net derivative gains (losses). These embedded derivatives are classified within policyholder account balances on
the consolidated balance sheets.
The estimated fair value of the embedded equity indexed derivatives, based on the present value of future equity returns to the policyholder
using actuarial and present value assumptions including expectations concerning policyholder behavior, is calculated by the Company’s actuarial
department. The calculation is based on in-force business and uses standard capital market techniques, such as Black-Scholes, to calculate the
value of the portion of the embedded derivative for which the terms are set. The portion of the embedded derivative covering the period beyond
where terms are set is calculated as the present value of amounts expected to be spent to provide equity indexed returns in those periods. The
valuation of these embedded derivatives also includes the establishment of a risk margin, as well as changes in nonperformance risk.
Embedded Derivatives Within Asset and Liability Host Contracts
Level 3 Valuation Techniques and Key Inputs:
Direct and assumed guaranteed minimum benefits
These embedded derivatives are principally valued using the income approach. Valuations are based on option pricing techniques, which
utilize significant inputs that may include swap yield curve, currency exchange rates and implied volatilities. These embedded derivatives result
in Level 3 classification because one or more of the significant inputs are not observable in the market or cannot be derived principally from,
or corroborated by, observable market data. Significant unobservable inputs generally include: the extrapolation beyond observable limits of
the swap yield curve and implied volatilities, actuarial assumptions for policyholder behavior and mortality and the potential variability in
policyholder behavior and mortality, nonperformance risk and cost of capital for purposes of calculating the risk margin.
Reinsurance ceded on certain guaranteed minimum benefits
These embedded derivatives are principally valued using the income approach. The valuation techniques and significant market standard
unobservable inputs used in their valuation are similar to those described above in “— Direct and assumed guaranteed minimum benefits”
and also include counterparty credit spreads.
Transfers between Levels
Overall, transfers between levels occur when there are changes in the observability of inputs and market activity. Transfers into or out of any
level are assumed to occur at the beginning of the period.
Transfers between Levels 1 and 2:
For assets and liabilities measured at estimated fair value and still held at December 31, 2015 and 2014, transfers between Levels 1 and 2
were $203 million and $160 million, respectively.
MetLife, Inc.
169
Table of Contents
10. Fair Value (continued)
Transfers into or out of Level 3:
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
Assets and liabilities are transferred into Level 3 when a significant input cannot be corroborated with market observable data. This occurs
when market activity decreases significantly and underlying inputs cannot be observed, current prices are not available, and/or when there are
significant variances in quoted prices, thereby affecting transparency. Assets and liabilities are transferred out of Level 3 when circumstances
change such that a significant input can be corroborated with market observable data. This may be due to a significant increase in market activity,
a specific event, or one or more significant input(s) becoming observable.
Assets and Liabilities Measured at Fair Value Using Significant Unobservable Inputs (Level 3)
The following table presents certain quantitative information about the significant unobservable inputs used in the fair value measurement,
and the sensitivity of the estimated fair value to changes in those inputs, for the more significant asset and liability classes measured at fair value
on a recurring basis using significant unobservable inputs (Level 3) at:
Valuation Techniques
Significant
Unobservable Inputs
Range
Weighted
Average (1)
Range
Weighted
Average (1)
December 31, 2015
December 31, 2014
Fixed maturity securities (3)
U.S. corporate and foreign
• Matrix pricing
• Delta spread
corporate
adjustments (4)
• Market pricing
• Quoted prices (5)
• Consensus pricing
• Offered quotes (5)
Foreign government
• Market pricing
• Quoted prices (5)
RMBS
ABS
Derivatives
Interest rate
Foreign currency exchange rate
Credit
• Market pricing
• Quoted prices (5)
• Market pricing
• Quoted prices (5)
• Consensus pricing
• Offered quotes (5)
• Present value
techniques
• Present value
techniques
• Present value
techniques
• Swap yield (7)
• Swap yield (7)
• Correlation (8)
• Credit spreads (9)
• Consensus pricing
• Offered quotes (10)
(65)
—
68
96
19
16
66
307
28
—
98
Impact of
Increase in Input
on Estimated
Fair Value (2)
Decrease
Increase
Increase
Increase
Increase (6)
Increase (6)
Increase (6)
Increase (12)
39
156
98
113
92
100
99
-
-
-
-
-
-
-
-
-
240
780
121
135
292
109
105
317
381
(40)
—
31
92
22
15
56
278
62
-
-
-
-
-
-
-
-
-
46
151
99
106
97
100
102
240
750
126
189
120
110
106
297
2,430
Increase (12)
- —
-
100
40% -
55%
98
-
100
Decrease (9)
Equity market
• Present value
• Volatility (11)
15% -
36%
15% -
27%
Increase (12)
techniques or
option pricing
models
• Correlation (8)
70% -
70%
70% -
70%
Embedded derivatives
Direct and assumed guaranteed
minimum benefits
• Option pricing
techniques
• Mortality rates:
Ages 0 - 40
Ages 41 - 60
Ages 61 - 115
• Lapse rates:
0%
- 0.21%
0.01% - 0.78%
0.04% -
100%
0%
-
0.28%
0.04% -
0.88%
0.26% -
100%
Durations 1 - 10
0.25% -
100%
0.50% -
100%
Durations 11 - 20
Durations 21 - 116
• Utilization rates
• Withdrawal rates
2%
1%
0%
0%
-
-
-
-
100%
100%
25%
20%
• Long-term equity volatilities
8.79% -
33%
2%
2%
-
-
100%
100%
20% -
50%
0%
-
20%
7.30% -
33%
Decrease (13)
Decrease (13)
Decrease (13)
Decrease (14)
Decrease (14)
Decrease (14)
Increase (15)
(16)
Increase (17)
• Nonperformance risk
(0.47)% - 1.31%
(0.35)% -
0.81%
Decrease (18)
spread
______________
(1)
(2)
(3)
(4)
170
The weighted average for fixed maturity securities is determined based on the estimated fair value of the securities.
The impact of a decrease in input would have the opposite impact on the estimated fair value. For embedded derivatives, changes are based
on liability positions.
Significant increases (decreases) in expected default rates in isolation would result in substantially lower (higher) valuations.
Range and weighted average are presented in basis points.
MetLife, Inc.
Table of Contents
10. Fair Value (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
Range and weighted average are presented in accordance with the market convention for fixed maturity securities of dollars per hundred
dollars of par.
Changes in the assumptions used for the probability of default is accompanied by a directionally similar change in the assumption used for
the loss severity and a directionally opposite change in the assumptions used for prepayment rates.
Ranges represent the rates across different yield curves and are presented in basis points. The swap yield curve is utilized among different
types of derivatives to project cash flows, as well as to discount future cash flows to present value. Since this valuation methodology uses a
range of inputs across a yield curve to value the derivative, presenting a range is more representative of the unobservable input used in the
valuation.
Ranges represent the different correlation factors utilized as components within the valuation methodology. Presenting a range of correlation
factors is more representative of the unobservable input used in the valuation. Increases (decreases) in correlation in isolation will increase
(decrease) the significance of the change in valuations.
Represents the risk quoted in basis points of a credit default event on the underlying instrument. Credit derivatives with significant unobservable
inputs are primarily comprised of written credit default swaps.
At both December 31, 2015 and 2014, independent non-binding broker quotations were used in the determination of less than 1% of the
total net derivative estimated fair value.
Ranges represent the underlying equity volatility quoted in percentage points. Since this valuation methodology uses a range of inputs across
multiple volatility surfaces to value the derivative, presenting a range is more representative of the unobservable input used in the valuation.
(12)
Changes are based on long U.S. dollar net asset positions and will be inversely impacted for short U.S. dollar net asset positions.
(13) Mortality rates vary by age and by demographic characteristics such as gender. Mortality rate assumptions are based on company experience.
A mortality improvement assumption is also applied. For any given contract, mortality rates vary throughout the period over which cash flows
are projected for purposes of valuing the embedded derivative.
(14)
(15)
(16)
Base lapse rates are adjusted at the contract level based on a comparison of the actuarially calculated guaranteed values and the current
policyholder account value, as well as other factors, such as the applicability of any surrender charges. A dynamic lapse function reduces the
base lapse rate when the guaranteed amount is greater than the account value as in the money contracts are less likely to lapse. Lapse rates
are also generally assumed to be lower in periods when a surrender charge applies. For any given contract, lapse rates vary throughout the
period over which cash flows are projected for purposes of valuing the embedded derivative.
The utilization rate assumption estimates the percentage of contract holders with a GMIB or lifetime withdrawal benefit who will elect to utilize
the benefit upon becoming eligible. The rates may vary by the type of guarantee, the amount by which the guaranteed amount is greater than
the account value, the contract’s withdrawal history and by the age of the policyholder. For any given contract, utilization rates vary throughout
the period over which cash flows are projected for purposes of valuing the embedded derivative.
The withdrawal rate represents the percentage of account balance that any given policyholder will elect to withdraw from the contract each
year. The withdrawal rate assumption varies by age and duration of the contract, and also by other factors such as benefit type. For any given
contract, withdrawal rates vary throughout the period over which cash flows are projected for purposes of valuing the embedded derivative.
For GMWBs, any increase (decrease) in withdrawal rates results in an increase (decrease) in the estimated fair value of the guarantees. For
GMABs and GMIBs, any increase (decrease) in withdrawal rates results in a decrease (increase) in the estimated fair value.
(17)
Long-term equity volatilities represent equity volatility beyond the period for which observable equity volatilities are available. For any given
contract, long-term equity volatility rates vary throughout the period over which cash flows are projected for purposes of valuing the embedded
derivative.
(18)
Nonperformance risk spread varies by duration and by currency. For any given contract, multiple nonperformance risk spreads will apply,
depending on the duration of the cash flow being discounted for purposes of valuing the embedded derivative.
The following is a summary of the valuation techniques and significant unobservable inputs used in the fair value measurement of assets and
liabilities classified within Level 3 that are not included in the preceding table. Generally, all other classes of securities classified within Level 3,
including those within separate account assets, use the same valuation techniques and significant unobservable inputs as previously described
for Level 3 securities. This includes matrix pricing and discounted cash flow methodologies, inputs such as quoted prices for identical or similar
securities that are less liquid and based on lower levels of trading activity than securities classified in Level 2, as well as independent non-binding
broker quotations. The residential mortgage loans — FVO and long-term debt of CSEs — FVO are valued using independent non-binding broker
quotations and internal models including matrix pricing and discounted cash flow methodologies using current interest rates. The sensitivity of the
estimated fair value to changes in the significant unobservable inputs for these other assets and liabilities is similar in nature to that described in
the preceding table. The valuation techniques and significant unobservable inputs used in the fair value measurement for the more significant assets
measured at estimated fair value on a nonrecurring basis and determined using significant unobservable inputs (Level 3) are summarized in “—
Nonrecurring Fair Value Measurements.”
MetLife, Inc.
171
Table of Contents
10. Fair Value (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
The following tables summarize the change of all assets and (liabilities) measured at estimated fair value on a recurring basis using significant
unobservable inputs (Level 3):
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Fixed Maturity Securities
Corporate (1)
U.S.
Treasury
and Agency
Foreign
Government
State and
Political
Subdivision
Equity
Securities
FVO and
Trading
Securities (3)
Structured (2)
(In millions)
Balance, January 1, 2014
$
13,852
$
62
$
2,235
$
8,139
$
10
$
572
$
644
Total realized/unrealized gains (losses) included in
net income (loss) (4) (5)
Total realized/unrealized gains (losses) included in
AOCI
Purchases (6)
Sales (6)
Issuances (6)
Settlements (6)
Transfers into Level 3 (7)
Transfers out of Level 3 (7)
Balance, December 31, 2014
Total realized/unrealized gains (losses) included in
net income (loss) (4) (5)
Total realized/unrealized gains (losses) included in
AOCI
Purchases (6)
Sales (6)
Issuances (6)
Settlements (6)
Transfers into Level 3 (7)
Transfers out of Level 3 (7)
Balance, December 31, 2015
Changes in unrealized gains (losses) included in net
income (loss) for the instruments still held at
December 31, 2013: (8)
Changes in unrealized gains (losses) included in net
income (loss) for the instruments still held at
December 31, 2014: (8)
Changes in unrealized gains (losses) included in net
income (loss) for the instruments still held at
December 31, 2015: (8)
Gains (Losses) Data for the year ended December 31,
2013
Total realized/unrealized gains (losses) included in
net income (loss) (4) (5)
Total realized/unrealized gains (losses) included in
AOCI
$
$
$
$
$
$
13
353
2,928
(1,808)
—
—
526
(2,432)
13,432
69
(761)
2,556
(1,425)
—
—
918
(1,993)
—
—
—
—
—
—
—
(62)
—
—
—
—
—
—
—
—
—
61
(110)
363
(273)
—
—
253
(1,218)
1,311
13
(25)
212
(45)
—
—
7
14
69
3,704
(2,016)
—
—
149
(2,667)
7,392
124
(91)
3,167
(1,585)
—
—
66
(617)
(1,957)
—
—
—
—
—
—
—
(10)
—
—
—
46
—
—
—
—
—
17
(80)
30
(101)
—
—
7
(100)
345
22
(64)
128
(96)
—
—
107
(10)
12,796
$
— $
856
$
7,116
$
46
$
432
$
(26) $
— $
9
$
25
$
— $
(23) $
13
$
— $
12
$
39
$
— $
(5) $
8
—
302
(484)
—
—
147
(50)
567
(30)
—
51
(127)
—
—
56
(247)
270
4
(7)
24
$
— $
12
$
125
$
— $
(1) $
(27)
(45) $
— $
17
$
(169) $
(3) $
(84) $
32
40
$
$
— $
(6) $
(1) $
100
$
4
—
172
MetLife, Inc.
Table of Contents
10. Fair Value (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Short-term
Investments
Mortgage
Loans (9)
Net
Derivatives (10)
Net Embedded
Derivatives (11)
Separate
Account
Assets (12)
Long-term
Debt of
CSEs — FVO
(In millions)
Balance, January 1, 2014
$
254
$
338
$
(286) $
1,258
$
1,465
$
Total realized/unrealized gains (losses) included in net
income (loss) (4) (5)
Total realized/unrealized gains (losses) included in
AOCI
Purchases (6)
Sales (6)
Issuances (6)
Settlements (6)
Transfers into Level 3 (7)
Transfers out of Level 3 (7)
Balance, December 31, 2014
Total realized/unrealized gains (losses) included in net
income (loss) (4) (5)
Total realized/unrealized gains (losses) included in
AOCI
Purchases (6)
Sales (6)
Issuances (6)
Settlements (6)
Transfers into Level 3 (7)
Transfers out of Level 3 (7)
Balance, December 31, 2015
Changes in unrealized gains (losses) included in net
income (loss) for the instruments still held at
December 31, 2013: (8)
Changes in unrealized gains (losses) included in net
income (loss) for the instruments still held at
December 31, 2014: (8)
Changes in unrealized gains (losses) included in net
income (loss) for the instruments still held at
December 31, 2015: (8)
Gains (Losses) Data for the year ended December 31,
2013
Total realized/unrealized gains (losses) included in net
income (loss) (4) (5)
Total realized/unrealized gains (losses) included in
AOCI
______________
$
$
$
$
$
$
(28)
(1)
—
—
—
—
16
—
—
(13)
—
—
—
—
—
2
—
—
1
—
335
(236)
—
—
—
(18)
336
1
(1)
292
(27)
—
—
—
(310)
20
—
124
(120)
—
(54)
—
—
308
20
—
136
(121)
—
(29)
—
—
(83)
101
7
—
(4)
(35)
—
—
(300)
(223)
—
24
—
—
88
—
—
(173)
191
—
—
—
(846)
—
—
430
(159)
2
—
—
—
(817)
—
—
103
—
657
(459)
81
(28)
147
(44)
1,922
8
—
572
(527)
98
(60)
1
(310)
291
$
314
$
(411) $
(544) $
1,704
$
(11)
2
$
1
$
(508) $
4,887
$
— $
1
$
20
$
(67) $
(173) $
— $
— $
20
$
(234) $
(176) $
— $
(20) $
1
$
(537) $
4,902
17
$
— $
(103) $
300
$
$
35
$
— $
—
(1)
—
(2)
—
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Comprised of U.S. and foreign corporate securities.
Comprised of RMBS, ABS, and CMBS.
Comprised of Actively traded securities, FVO general account securities, FVO contractholder-directed unit-linked investments and FVO
securities held by CSEs.
Amortization of premium/accretion of discount is included within net investment income. Impairments charged to net income (loss) on securities
are included in net investment gains (losses), while changes in estimated fair value of residential mortgage loans — FVO are included in net
investment income. Lapses associated with net embedded derivatives are included in net derivative gains (losses). Substantially all realized/
unrealized gains (losses) included in net income for net derivatives and net embedded derivatives are reported in net derivatives gains (losses).
Interest and dividend accruals, as well as cash interest coupons and dividends received, are excluded from the rollforward.
Items purchased/issued and then sold/settled in the same period are excluded from the rollforward. Fees attributed to embedded derivatives
are included in settlements.
Gains and losses, in net income (loss) and OCI, are calculated assuming transfers into and/or out of Level 3 occurred at the beginning of the
period. Items transferred into and then out of Level 3 in the same period are excluded from the rollforward.
MetLife, Inc.
173
Table of Contents
10. Fair Value (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
(8)
Changes in unrealized gains (losses) included in net income (loss) relate to assets and liabilities still held at the end of the respective periods.
Substantially all changes in unrealized gains (losses) included in net income (loss) for net derivatives and net embedded derivatives are reported
in net derivative gains (losses).
(9)
Comprised of residential mortgage loans — FVO.
(10)
Freestanding derivative assets and liabilities are presented net for purposes of the rollforward.
(11)
Embedded derivative assets and liabilities are presented net for purposes of the rollforward.
(12)
Investment performance related to separate account assets is fully offset by corresponding amounts credited to contractholders within separate
account liabilities. Therefore, such changes in estimated fair value are not recorded in net income. For the purpose of this disclosure, these
changes are presented within net investment gains (losses).
Fair Value Option
The following table presents information for certain assets and liabilities accounted for under the FVO. These assets and liabilities were initially
measured at fair value.
Assets
Unpaid principal balance
Difference between estimated fair value and unpaid principal balance
Carrying value at estimated fair value
Loans in non-accrual status
Liabilities
Contractual principal balance
Difference between estimated fair value and contractual principal balance
Carrying value at estimated fair value
______________
Residential Mortgage
Loans — FVO
December 31,
Certain Assets
and Liabilities
of CSEs — FVO (1)
December 31,
2015
2014
2015
2014
(In millions)
436
$
436
$
121
$
(122)
314
122
$
$
(128)
308
125
51
172
$
— $
71
$
(11)
60
$
$
$
$
$
223
57
280
—
159
(8)
151
$
$
$
(1)
These assets and liabilities are comprised of commercial mortgage loans and long-term debt. Changes in estimated fair value on these assets
and liabilities and gains or losses on sales of these assets are recognized in net investment gains (losses). Interest income on commercial
mortgage loans held by CSEs — FVO is recognized in net investment income. Interest expense from long-term debt of CSEs — FVO is
recognized in other expenses.
Nonrecurring Fair Value Measurements
The following table presents information for assets measured at estimated fair value on a nonrecurring basis during the periods and still held at
the reporting dates (for example, when there is evidence of impairment). The estimated fair values for these assets were determined using significant
unobservable inputs (Level 3).
At December 31,
Years Ended December 31,
2015
2014
2013
2015
2014
2013
Carrying Value After Measurement
Gains (Losses)
Mortgage loans: (1)
Other limited partnership interests (2)
$
$
44
59
$
$
97
147
$
$
______________
(In millions)
214
77
$
$
(1) $
(32) $
2
$
(76) $
20
(46)
(1)
(2)
174
Estimated fair values for impaired mortgage loans are based on independent broker quotations or valuation models using unobservable inputs
or, if the loans are in foreclosure or are otherwise determined to be collateral dependent, are based on the estimated fair value of the underlying
collateral or the present value of the expected future cash flows.
For these cost method investments, estimated fair value is determined from information provided in the financial statements of the underlying
entities including NAV data. These investments include private equity and debt funds that typically invest primarily in various strategies including
domestic and international leveraged buyout funds; power, energy, timber and infrastructure development funds; venture capital funds; and
MetLife, Inc.
Table of Contents
10. Fair Value (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
below investment grade debt and mezzanine debt funds. Distributions will be generated from investment gains, from operating income from
the underlying investments of the funds and from liquidation of the underlying assets of the funds. It is estimated that the underlying assets
of the funds will be liquidated over the next two to 10 years. Unfunded commitments for these investments at both December 31, 2015 and
2014 were not significant.
Fair Value of Financial Instruments Carried at Other Than Fair Value
The following tables provide fair value information for financial instruments that are carried on the balance sheet at amounts other than fair value.
These tables exclude the following financial instruments: cash and cash equivalents, accrued investment income, payables for collateral under securities
loaned and other transactions, short-term debt and those short-term investments that are not securities, such as time deposits, and therefore are
not included in the three level hierarchy table disclosed in the “— Recurring Fair Value Measurements” section. The estimated fair value of the excluded
financial instruments, which are primarily classified in Level 2, approximates carrying value as they are short-term in nature such that the Company
believes there is minimal risk of material changes in interest rates or credit quality. All remaining balance sheet amounts excluded from the table below
are not considered financial instruments subject to this disclosure.
The carrying values and estimated fair values for such financial instruments, and their corresponding placement in the fair value hierarchy, are
summarized as follows at:
December 31, 2015
Fair Value Hierarchy
Carrying
Value
Level 1
Level 2
Level 3
(In millions)
Total
Estimated
Fair Value
Assets
Mortgage loans
Policy loans
Real estate joint ventures
Other limited partnership interests
Other invested assets
Premiums, reinsurance and other receivables
Other assets
Liabilities
Policyholder account balances
Long-term debt
Collateral financing arrangements
Junior subordinated debt securities
Other liabilities
Separate account liabilities
$
$
$
$
$
$
$
$
$
$
$
$
$
66,616
11,258
35
524
537
2,822
235
125,040
17,954
4,139
3,194
2,249
112,119
$
$
$
$
$
$
$
$
$
$
$
$
$
— $
— $
— $
— $
155
$
— $
— $
— $
— $
— $
— $
— $
— $
1,279
$
68,539
12,072
— $
— $
2
484
207
$
$
$
104
615
380
2,421
60
$
$
$
$
$
$
$
68,539
13,351
104
615
537
2,905
267
— $
130,125
$
130,125
19,360
$
— $
19,360
— $
3,899
$
4,029
865
$
$
$
— $
1,385
$
— $
112,119
— $
112,119
3,899
4,029
2,250
MetLife, Inc.
175
Table of Contents
10. Fair Value (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
December 31, 2014
Fair Value Hierarchy
Carrying
Value
Level 1
Level 2
Level 3
(In millions)
Total
Estimated
Fair Value
Assets
Mortgage loans
Policy loans
Real estate joint ventures
Other limited partnership interests
Other invested assets
Premiums, reinsurance and other receivables
Other assets
Liabilities
Policyholder account balances
Long-term debt
Collateral financing arrangements
Junior subordinated debt securities
Other liabilities
Separate account liabilities
$
$
$
$
$
$
$
$
$
$
$
$
$
59,530
11,618
67
704
562
3,070
251
134,219
16,128
4,196
3,193
2,544
116,665
$
$
$
$
$
$
$
$
$
$
$
$
$
— $
— $
— $
— $
172
$
— $
— $
— $
— $
— $
— $
— $
— $
1,647
$
62,554
12,287
— $
— $
70
713
175
$
$
$
139
906
320
2,444
68
$
$
$
$
$
$
$
62,554
13,934
139
906
562
3,157
243
— $
139,359
$
139,359
18,357
$
— $
18,357
— $
3,961
$
4,173
1,223
$
$
$
— $
1,323
$
— $
116,665
— $
116,665
3,961
4,173
2,546
The methods, assumptions and significant valuation techniques and inputs used to estimate the fair value of financial instruments are summarized
as follows:
Mortgage Loans
The estimated fair value of mortgage loans is primarily determined by estimating expected future cash flows and discounting them using
current interest rates for similar mortgage loans with similar credit risk, or is determined from pricing for similar loans.
Policy Loans
Policy loans with fixed interest rates are classified within Level 3. The estimated fair values for these loans are determined using a discounted
cash flow model applied to groups of similar policy loans determined by the nature of the underlying insurance liabilities. Cash flow estimates are
developed by applying a weighted-average interest rate to the outstanding principal balance of the respective group of policy loans and an estimated
average maturity determined through experience studies of the past performance of policyholder repayment behavior for similar loans. These cash
flows are discounted using current risk-free interest rates with no adjustment for borrower credit risk, as these loans are fully collateralized by the
cash surrender value of the underlying insurance policy. Policy loans with variable interest rates are classified within Level 2 and the estimated fair
value approximates carrying value due to the absence of borrower credit risk and the short time period between interest rate resets, which presents
minimal risk of a material change in estimated fair value due to changes in market interest rates.
Real Estate Joint Ventures and Other Limited Partnership Interests
The estimated fair values of these cost method investments are generally based on the Company’s share of the NAV as provided in the financial
statements of the investees. In certain circumstances, management may adjust the NAV by a premium or discount when it has sufficient evidence
to support applying such adjustments.
Other Invested Assets
These other invested assets are principally comprised of various interest-bearing assets held in foreign subsidiaries and certain amounts due
under contractual indemnifications. For the various interest-bearing assets held in foreign subsidiaries, the Company evaluates the specific facts
and circumstances of each instrument to determine the appropriate estimated fair values. These estimated fair values were not materially different
from the recognized carrying values.
Premiums, Reinsurance and Other Receivables
Premiums, reinsurance and other receivables are principally comprised of certain amounts recoverable under reinsurance agreements, amounts
on deposit with financial institutions to facilitate daily settlements related to certain derivatives and amounts receivable for securities sold but not
yet settled.
Amounts recoverable under ceded reinsurance agreements, which the Company has determined do not transfer significant risk such that
they are accounted for using the deposit method of accounting, have been classified as Level 3. The valuation is based on discounted cash flow
methodologies using significant unobservable inputs. The estimated fair value is determined using interest rates determined to reflect the appropriate
credit standing of the assuming counterparty.
176
MetLife, Inc.
Table of Contents
10. Fair Value (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
The amounts on deposit for derivative settlements, classified within Level 2, essentially represent the equivalent of demand deposit balances
and amounts due for securities sold are generally received over short periods such that the estimated fair value approximates carrying value.
Other Assets
These other assets are principally comprised of a receivable for cash paid to an unaffiliated financial institution under the MetLife Reinsurance
Company of Charleston (“MRC”) collateral financing arrangement described in Note 13. The estimated fair value of the receivable for the cash paid
to the unaffiliated financial institution under the MRC collateral financing arrangement is determined by discounting the expected future cash flows
using a discount rate that reflects the credit rating of the unaffiliated financial institution.
Policyholder Account Balances
These policyholder account balances include investment contracts which primarily include certain funding agreements, fixed deferred annuities,
modified guaranteed annuities, fixed term payout annuities and total control accounts (“TCA”). The valuation of these investment contracts is based
on discounted cash flow methodologies using significant unobservable inputs. The estimated fair value is determined using current market risk-
free interest rates adding a spread to reflect the nonperformance risk in the liability.
Long-term Debt, Collateral Financing Arrangements and Junior Subordinated Debt Securities
The estimated fair values of long-term debt, collateral financing arrangements and junior subordinated debt securities are principally determined
using market standard valuation methodologies.
Valuations of instruments classified as Level 2 are based primarily on quoted prices in markets that are not active or using matrix pricing that
use standard market observable inputs such as quoted prices in markets that are not active and observable yields and spreads in the market.
Instruments valued using discounted cash flow methodologies use standard market observable inputs including market yield curve, duration, call
provisions, observable prices and spreads for similar publicly traded or privately traded issues.
Valuations of instruments classified as Level 3 are based primarily on discounted cash flow methodologies that utilize unobservable discount
rates that can vary significantly based upon the specific terms of each individual arrangement. The determination of estimated fair values of collateral
financing arrangements incorporates valuations obtained from the counterparties to the arrangements, as part of the collateral management process.
Other Liabilities
Other liabilities consist primarily of interest payable, amounts due for securities purchased but not yet settled, and funds withheld amounts
payable, which are contractually withheld by the Company in accordance with the terms of the reinsurance agreements. The Company evaluates
the specific terms, facts and circumstances of each instrument to determine the appropriate estimated fair values, which are not materially different
from the carrying values, with the exception of certain deposit type reinsurance payables. For such payables, the estimated fair value is determined
as the present value of expected future cash flows, which are discounted using an interest rate determined to reflect the appropriate credit standing
of the assuming counterparty.
Separate Account Liabilities
Separate account liabilities represent those balances due to policyholders under contracts that are classified as investment contracts.
Separate account liabilities classified as investment contracts primarily represent variable annuities with no significant mortality risk to the
Company such that the death benefit is equal to the account balance, funding agreements related to group life contracts and certain contracts
that provide for benefit funding.
Since separate account liabilities are fully funded by cash flows from the separate account assets which are recognized at estimated fair value
as described in the section “— Recurring Fair Value Measurements,” the value of those assets approximates the estimated fair value of the related
separate account liabilities. The valuation techniques and inputs for separate account liabilities are similar to those described for separate account
assets.
11. Goodwill
Goodwill is the excess of cost over the estimated fair value of net assets acquired. Goodwill is not amortized but is tested for impairment at least
annually or more frequently if events or circumstances, such as adverse changes in the business climate, indicate that there may be justification for
conducting an interim test. The goodwill impairment process requires a comparison of the estimated fair value of a reporting unit to its carrying value.
The Company tests goodwill for impairment by either performing a qualitative assessment or a two-step quantitative test. The qualitative assessment
is an assessment of historical information and relevant events and circumstances to determine whether it is more likely than not that the fair value of
a reporting unit is less than its carrying amount, including goodwill. The Company may elect not to perform the qualitative assessment for some or
all of its reporting units and perform a two-step quantitative impairment test. In performing the two-step quantitative impairment test, the Company
may use a market multiple valuation approach and a discounted cash flow valuation approach. For reporting units which are particularly sensitive to
market assumptions, the Company may use additional valuation methodologies to estimate the reporting units’ fair values.
The market multiple valuation approach utilizes market multiples of companies with similar businesses and the projected operating earnings of
the reporting unit. The discounted cash flow valuation approach requires judgments about revenues, operating earnings projections, capital market
assumptions and discount rates. The key inputs, judgments and assumptions necessary in determining estimated fair value of the reporting units
include projected operating earnings, current book value, the level of economic capital required to support the mix of business, long-term growth
rates, comparative market multiples, control premium, the account value of in-force business, projections of new and renewal business, as well as
margins on such business, the level of interest rates, credit spreads, equity market levels, and the discount rate that the Company believes is appropriate
for the respective reporting unit.
MetLife, Inc.
177
Table of Contents
11. Goodwill (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
When testing goodwill for impairment, the Company also considers its market capitalization in relation to the aggregate estimated fair value of
its reporting units. The Company applies significant judgment when determining the estimated fair value of the Company’s reporting units and when
assessing the relationship of market capitalization to the aggregate estimated fair value of its reporting units.
The valuation methodologies utilized are subject to key judgments and assumptions that are sensitive to change. Estimates of fair value are
inherently uncertain and represent only management’s reasonable expectation regarding future developments. These estimates and the judgments
and assumptions upon which the estimates are based will, in all likelihood, differ in some respects from actual future results. Declines in the estimated
fair value of the Company’s reporting units could result in goodwill impairments in future periods which could materially adversely affect the Company’s
results of operations or financial position.
For the 2015 annual goodwill impairment tests, the Company utilized the qualitative assessment for four of its six reporting units and determined
it was not more likely than not that the fair value of any of the reporting units tested using the qualitative assessment was less than its carrying amount
and, therefore no further testing was needed for these reporting units. The Company prepared a quantitative impairment test for Retail and EMEA,
using both the market multiple and discounted cash flow valuation approaches. The Company determined that the fair values of these reporting units
were in excess of their carrying values and, therefore goodwill was not impaired.
Information regarding goodwill by segment, as well as Corporate & Other, was as follows:
Balance at January 1, 2013
Goodwill
Accumulated impairment
Total goodwill, net
Acquisitions (3)
Dispositions
Reduction of goodwill (4)
Reduction of accumulated impairment (4)
Effect of foreign currency translation and other
Balance at December 31, 2013
Goodwill
Accumulated impairment
Total goodwill, net
Dispositions (5)
Effect of foreign currency translation and other
Balance at December 31, 2014
Goodwill
Accumulated impairment
Total goodwill, net
Effect of foreign currency translation and other
Balance at December 31, 2015
Goodwill
Accumulated impairment
Total goodwill, net
______________
Group,
Voluntary
&Worksite
Benefits
Retail
Corporate
Benefit
Funding
Latin
America
Asia (1)
EMEA
Corporate
& Other (2)
Total
(In millions)
$3,125
$
138
$
900
$
527
$ 5,387
$1,339
$
470
$11,886
—
—
(241)
(1,933)
5,387
1,339
(1,692)
1,433
—
—
—
—
—
3,125
(1,692)
1,433
—
—
3,125
(1,692)
1,433
—
3,125
(1,692)
—
138
—
—
—
—
—
138
—
138
—
—
138
—
138
—
138
—
—
900
—
—
—
—
—
900
—
900
(60)
—
840
—
840
—
840
—
—
527
1,140
—
—
—
—
—
—
—
1
(8)
—
—
24
(79)
(489)
1,588
4,898
1,356
—
—
—
1,588
4,898
1,356
—
(3)
(7)
(203)
(280)
(117)
1,385
4,615
1,232
—
—
—
1,385
4,615
1,232
(199)
(107)
(89)
229
9,953
— 1,141
—
(65)
65
—
(8)
(65)
65
(544)
405
12,410
(176)
(1,868)
229
10,542
—
—
(70)
(600)
405
11,740
(176)
(1,868)
229
—
9,872
(395)
$1,433
$
138
$
840
$ 1,186
$ 4,508
$1,143
$
229
$ 9,477
1,186
4,508
1,143
—
—
—
405
11,345
(176)
(1,868)
(1)
(2)
Includes goodwill of $4.3 billion, $4.4 billion and $4.7 billion from the Japan operations at December 31, 2015, 2014 and 2013, respectively.
For purposes of goodwill impairment testing in 2015, the balance of $229 million, of net goodwill in Corporate & Other at December 31, 2014
did not change. This balance resulted from goodwill acquired as part of the 2005 Travelers acquisition and was allocated to business units
of the Retail; Group, Voluntary & Worksite Benefits; and Corporate Benefit Funding segments in the amounts of $34 million, $9 million and
$186 million, respectively.
(3)
See Note 3 for a discussion of the acquisition of ProVida, which is included in the Latin America segment.
178
MetLife, Inc.
Table of Contents
11. Goodwill (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
(4)
(5)
In connection with exiting the businesses of MetLife Bank, National Association (“MetLife Bank”), goodwill and the related accumulated
impairment were reduced by $65 million for the year ended December 31, 2013.
In connection with the sale of MAL, goodwill in the Corporate Benefit Funding reporting unit was reduced by $60 million during the year ended
December 31, 2014. See Note 3. This goodwill was allocated to MAL based on the relative fair values of MAL and the remaining portion of
the Corporate Benefit Funding reporting unit.
12. Long-term and Short-term Debt
Long-term and short-term debt outstanding was as follows:
Interest Rates (1)
Range
1.76% -
7.72%
7.63% -
7.88%
1.36% -
8.00%
Weighted
Average
5.10%
7.80%
4.07%
December 31,
Maturity
2015
2014
2016
2024
2016
-
-
-
2046
2025
2030
(In millions)
$
16,994
$
15,317
502
458
9
17,963
100
$
18,063
$
701
110
7
16,135
100
16,235
Senior notes
Surplus notes
Other notes
Capital lease obligations
Total long-term debt (2)
Total short-term debt
Total
______________
(1)
(2)
Range of interest rates and weighted average interest rates are for the year ended December 31, 2015.
Excludes $60 million and $151 million of long-term debt relating to CSEs — FVO at December 31, 2015 and 2014, respectively. See Note 10.
The aggregate maturities of long-term debt at December 31, 2015 for the next five years and thereafter are $1.3 billion in 2016, $1.0 billion in
2017, $1.0 billion in 2018, $1.0 billion in 2019, $940 million in 2020 and $12.7 billion thereafter.
Capital lease obligations are collateralized and rank highest in priority, followed by unsecured senior debt which consists of senior notes and
other notes, followed by subordinated debt which consists of junior subordinated debt securities (see Note 14). Payments of interest and principal
on the Company’s surplus notes, which are subordinate to all other obligations at the operating company level and are senior to obligations at
MetLife, Inc., may be made only with the prior approval of the insurance department of the state of domicile. Collateral financing arrangements (see
Note 13) are supported by either surplus notes of subsidiaries or financing arrangements with MetLife, Inc. and, accordingly, have priority consistent
with other such obligations.
Certain of the Company’s debt instruments and committed facilities, as well as its credit facility, contain various administrative, reporting, legal
and financial covenants. The Company believes it was in compliance with all such covenants at December 31, 2015.
Senior Notes — Senior Debt Securities Underlying Common Equity Units
In November 2010, in connection with the financing of the acquisition of American Life Insurance Company (“American Life”) and Delaware
American Life Insurance Company (“DelAm”), (collectively “ALICO”), MetLife, Inc. issued to ALICO Holdings LLC (now AM Holdings LLC (“AM Holdings”))
$3.0 billion (estimated fair value of $3.0 billion) of three series of debt securities (the “Series C Debt Securities,” the “Series D Debt Securities,” and
the “Series E Debt Securities,” collectively, the “Debt Securities”), which constituted a part of the common equity units more fully described in Note 15.
In October 2014 and September 2013, MetLife, Inc. closed the successful remarketing of senior debt securities underlying the common equity
units. The Series E Debt Securities were remarketed in September and October 2014 as 1.903% Series E senior debt securities Tranche 1 due
December 2017 and 4.721% Series E senior debt securities Tranche 2 due December 2044. The Series D Debt Securities were remarketed in
September 2013 as 4.368% senior debt securities due September 2023. The Series C Debt Securities were previously remarketed in 2012. MetLife, Inc.
did not receive any proceeds from the remarketings.
Senior Notes — Other Issuances and Repayment
In November 2015, MetLife, Inc. issued $500 million of senior notes due in November 2025 which bear interest at a fixed rate of 3.60%, payable
semi-annually. Also in November 2015, MetLife, Inc. issued $750 million of senior notes due in May 2046 which bear interest at a fixed rate of 4.60%,
payable semi-annually. In connection with the issuances, MetLife, Inc. incurred $10 million of related costs which have been capitalized and included
in other assets. These costs are being amortized over the terms of the senior notes.
In March 2015, MetLife, Inc. issued $500 million of senior notes due in March 2025 which bear interest at a fixed rate of 3.00%, payable semi-
annually. Also in March 2015, MetLife, Inc. issued $1.0 billion of senior notes due in March 2045 which bear interest at a fixed rate of 4.05%, payable
semi-annually. In connection with the issuances, MetLife, Inc. incurred $12 million of related costs which have been capitalized and included in other
assets. These costs are being amortized over the terms of the senior notes.
In May 2014, MetLife, Inc. redeemed $200 million aggregate principal amount of its 5.875% senior notes due November 2033 at par.
MetLife, Inc.
179
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
12. Long-term and Short-term Debt (continued)
In April 2014, MetLife, Inc. issued $1.0 billion of senior notes due April 2024 which bear interest at a fixed rate of 3.60%, payable semi-annually.
In connection with the issuance, MetLife, Inc. incurred $5 million of related costs which have been capitalized and included in other assets. These
costs are being amortized over the term of the senior notes.
In November 2013, MetLife, Inc. issued $1.0 billion of senior notes due in November 2043. The senior notes bear interest at a fixed rate of
4.875%, payable semi-annually. In connection with the issuance, MetLife, Inc. incurred $10 million of costs which have been capitalized and included
in other assets. These costs are being amortized over the term of the senior notes.
Other Notes
In December 2015, MetLife Private Equity Holdings, LLC (“MPEH”), a wholly-owned indirect investment subsidiary of MLIC, entered into a five-
year credit agreement (the “MPEH Credit Agreement”) and borrowed $350 million under term loans that mature in December 2020. The loans bear
interest at a variable rate of three-month LIBOR plus 3.70%, payable quarterly. In connection with the borrowing, $6 million of costs were incurred
which have been capitalized and included in other assets. These costs are being amortized over the term of the loans. Additionally, the MPEH Credit
Agreement provides for MPEH to borrow up to $100 million on a revolving basis at a variable rate of three-month LIBOR plus 3.70%, payable quarterly.
There were no revolving loans outstanding under the MPEH Credit Agreement at December 31, 2015. Term loans and revolving loans borrowed under
the MPEH Credit Agreement are non-recourse to MLIC and MetLife, Inc.
Short-term Debt
Short-term debt with maturities of one year or less was as follows:
Commercial paper
Average daily balance
Average days outstanding
December 31,
2015
2014
$
$
(In millions)
100
100
$
$
100
109
68 days
69 days
During the years ended December 31, 2015, 2014 and 2013, the weighted average interest rate on short-term debt was 0.15%, 0.10% and
0.12%, respectively.
Interest Expense
Interest expense related to long-term and short-term debt included in other expenses was $894 million, $874 million and $854 million for the
years ended December 31, 2015, 2014 and 2013, respectively. Such amounts do not include interest expense on long-term debt related to CSEs
— FVO, collateral financing arrangements, or junior subordinated debt securities. See Notes 8, 13 and 14.
Credit and Committed Facilities
At December 31, 2015, the Company maintained a $4.0 billion unsecured credit facility and certain committed facilities aggregating $11.9 billion.
When drawn upon, these facilities bear interest at varying rates in accordance with the respective agreements.
Credit Facilities
The Company’s unsecured credit facility is used for general corporate purposes, to support the borrowers’ commercial paper programs and
for the issuance of letters of credit. Total fees associated with this credit facility was $13 million, $12 million and $24 million for the years ended
December 31, 2015, 2014 and 2013, respectively, and was included in other expenses. Information on the credit facility at December 31, 2015
was as follows:
Borrower(s)
Expiration
Maximum
Capacity
Letters of
Credit
Issued
Drawdowns
Unused
Commitments
(In millions)
MetLife, Inc. and MetLife Funding, Inc.
May 2019
$
4,000
$
484
$
— $
3,516
All borrowings under this unsecured credit facility must be repaid by May 30, 2019, except that letters of credit outstanding on that date may
remain outstanding until no later than May 30, 2020.
180
MetLife, Inc.
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
12. Long-term and Short-term Debt (continued)
Committed Facilities
The committed facilities are used for collateral for certain of the Company’s affiliated reinsurance liabilities. Total fees associated with these
committed facilities were $90 million, $95 million and $103 million for the years ended December 31, 2015, 2014 and 2013, respectively, and were
included in other expenses. Information on these committed facilities at December 31, 2015 was as follows:
Account Party/Borrower(s)
Expiration
MetLife, Inc. and Missouri Reinsurance, Inc.
June 2016 (1)
$
MetLife, Inc.
June 2018 (2)
MetLife Reinsurance Company of
Vermont and MetLife, Inc.
December 2024 (3),(4)
MetLife Reinsurance Company of South
Carolina and MetLife, Inc.
June 2037 (5)
MetLife Reinsurance Company of
Vermont and MetLife, Inc.
MetLife Reinsurance Company of
Vermont and MetLife, Inc.
Total
______________
December 2037 (3), (6)
September 2038 (7)
Maximum
Capacity
Letters of
Credit
Issued
Drawdowns
(In millions)
Unused
Commitments
$
210
425
575
3,500
2,896
4,250
210
425
465
—
2,159
3,357
$
— $
—
—
2,797
—
—
$
11,856
$
6,616
$
2,797
$
—
—
110
703
737
893
2,443
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Capacity at December 31, 2015 of $210 million decreases in March 2016 and June 2016 to $200 million and $0, respectively.
Capacity at December 31, 2015 of $425 million decreases in June 2017, March 2018 and June 2018 to $395 million, $200 million and $0,
respectively.
MetLife, Inc. is a guarantor under the applicable facility.
Capacity at December 31, 2015 of $575 million decreases periodically commencing in December 2022 to $515 million in July 2024 and
decreases to $0 upon maturity in December 2024.
Capacity of $3.5 billion through maturity in June 2037, after which it is reduced to $0. The drawdown on this facility is associated with a
collateral financing arrangement described more fully in Note 13.
Capacity at December 31, 2015 of $2.3 billion increases periodically to a maximum of $2.9 billion in 2024, decreases periodically commencing
in 2025 to $2.0 billion in 2037, and decreases to $0 upon maturity in December 2037. Unused commitment of $737 million is based on
maximum capacity.
Capacity at December 31, 2015 of $4.3 billion decreases periodically commencing in April 2028 to $3.1 billion in September 2038, and
decreases to $0 upon maturity in September 2038. Unused commitment of $893 million is based on maximum capacity. MetLife Reinsurance
Company of Vermont is responsible only for reimbursement obligations relating to $2.9 billion of the $3.4 billion of letters of credit outstanding
as of December 31, 2015. MetLife, Inc. is responsible only for reimbursement obligations relating to the remaining letters of credit outstanding
as of such date.
In addition to the above committed facilities, see also “— Other Notes” for information about the undrawn line of credit facility in the amount
of $100 million.
13. Collateral Financing Arrangements
Associated with the Closed Block
Information
related
to
the
collateral
financing
arrangement
associated with
the
closed block was
as
follows
at:
Surplus notes outstanding (1)
Receivable from unaffiliated financial institution (1)
Pledged collateral (2)
Assets held in trust (2)
______________
(1)
Carrying value.
MetLife, Inc.
December 31,
2015
2014
$
$
$
$
(In millions)
1,342
174
67
1,181
$
$
$
$
1,399
182
53
1,214
181
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
13. Collateral Financing Arrangements (continued)
(2)
Estimated fair value.
Interest expense on the collateral financing arrangement was $20 million, $19 million and $20 million for the years ended December 31, 2015,
2014 and 2013, respectively, which is included in other expenses.
In December 2007, MLIC reinsured a portion of its closed block liabilities to MRC, a wholly-owned subsidiary of MetLife, Inc. In connection with
this transaction, MRC issued, to investors placed by an unaffiliated financial institution, $2.5 billion in aggregate principal amount of 35-year surplus
notes to provide statutory reserve support for the assumed closed block liabilities. Interest on the surplus notes accrues at an annual rate of three-
month LIBOR plus 0.55%, payable quarterly. The ability of MRC to make interest and principal payments on the surplus notes is contingent upon
South Carolina regulatory approval.
Simultaneously with the issuance of the surplus notes, MetLife, Inc. entered into an agreement with the unaffiliated financial institution, under
which MetLife, Inc. is entitled to the interest paid by MRC on the surplus notes of three-month LIBOR plus 0.55% in exchange for the payment of
three-month LIBOR plus 1.12%, payable quarterly on such amount as adjusted, as described below. MetLife, Inc. may also be required to pledge
collateral or make payments to the unaffiliated financial institution related to any decline in the estimated fair value of the surplus notes. Any such
payments are accounted for as a receivable and included in other assets on the Company’s consolidated balance sheets and do not reduce the
principal amount outstanding of the surplus notes. Such payments, however, reduce the amount of interest payments due from MetLife, Inc. under
the agreement. Any payment received from the unaffiliated financial institution reduces the receivable by an amount equal to such payment and also
increases the amount of interest payments due from MetLife, Inc. under the agreement. In addition, the unaffiliated financial institution may be required
to pledge collateral to MetLife, Inc. related to any increase in the estimated fair value of the surplus notes. MetLife, Inc. may also be required to make
a payment to the unaffiliated financial institution in connection with any early termination of this agreement.
During 2015, following regulatory approval, MRC repurchased $57 million in aggregate principal amount of the surplus notes. Cumulatively, since
December 2007, MRC repurchased $1.2 billion in aggregate principal amount of the surplus notes. Payments made by the Company in 2015 associated
with the repurchases were exclusive of accrued interest on the surplus notes. In connection with the repurchases, the Company received payments
in the aggregate amount of $8 million from the unaffiliated financial institution, which reduced the amount receivable from the unaffiliated financial
institution by $8 million. No other payments were made by MetLife, Inc. or received from the unaffiliated financial institution during 2015, 2014 and
2013, related to an increase or decrease in the estimated fair value of the surplus notes.
A majority of the proceeds from the offering of the surplus notes was placed in a trust, which is consolidated by the Company, to support MRC’s
statutory obligations associated with the assumed closed block liabilities. During the years ended December 31, 2015 and 2014, MRC transferred
$30 million and $467 million, respectively, out of the trust to its general account. No such transfers were made during the year ended December 31,
2013. The assets are principally invested in fixed maturity securities and are presented as such within the Company’s consolidated balance sheets,
with the related income included within net investment income in the Company’s consolidated statements of operations.
Associated with Secondary Guarantees
Information
related
to
the collateral
financing arrangement associated with
secondary guarantees was as
follows at:
Liability outstanding (1)
Assets held in trust (2)
______________
(1)
(2)
Carrying value.
Estimated fair value.
December 31,
2015
2014
$
$
(In millions)
2,797
3,374
$
$
2,797
3,471
Interest expense on the collateral financing arrangement was $28 million, $27 million and $28 million for the years ended December 31, 2015,
2014 and 2013, respectively, which is included in other expenses.
In May 2007, MetLife, Inc. and MRSC, a wholly-owned subsidiary of MetLife, Inc., entered into a 30-year collateral financing arrangement with
an unaffiliated financial institution that provides up to $3.5 billion of statutory reserve support for MRSC associated with reinsurance obligations under
intercompany reinsurance agreements. Such statutory reserves are associated with ULSG and are required under U.S. Valuation of Life Policies Model
Regulation (commonly referred to as Regulation A-XXX). Proceeds from the collateral financing arrangement were placed in trusts to support MRSC’s
statutory obligations associated with the reinsurance of secondary guarantees. The trusts are VIEs which are consolidated by the Company. The
unaffiliated financial institution is entitled to the return on the investment portfolio held by the trusts. The assets are principally invested in fixed maturity
securities and are presented as such within the Company’s balance sheets, with the related income included within net investment income in the
Company’s statements of operations. The collateral financing arrangement may be extended by agreement of MetLife, Inc. and the unaffiliated financial
institution on each anniversary of the closing.
In connection with the collateral financing arrangement, MetLife, Inc. entered into an agreement with the same unaffiliated financial institution
under which MetLife, Inc. is entitled to the return on the investment portfolio held by the trusts established in connection with this collateral financing
arrangement in exchange for the payment of a stated rate of return to the unaffiliated financial institution of three-month LIBOR plus 0.70%, payable
quarterly. MetLife, Inc. may also be required to make payments to the unaffiliated financial institution, for deposit into the trusts, related to any decline
in the estimated fair value of the assets held by the trusts, as well as amounts outstanding upon maturity or early termination of the collateral financing
arrangement. During 2015, 2014 and 2013, no payments were made or received by MetLife, Inc. Cumulatively, since May 2007, MetLife, Inc. has
contributed a total of $680 million as a result of declines in the estimated fair value of the assets in the trusts, all of which was deposited into the trusts.
182
MetLife, Inc.
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
13. Collateral Financing Arrangements (continued)
In addition, MetLife, Inc. may be required to pledge collateral to the unaffiliated financial institution under this agreement. At both December 31,
2015 and 2014, MetLife, Inc. had pledged no collateral under this agreement.
14. Junior Subordinated Debt Securities
Outstanding Junior Subordinated Debt Securities
Outstanding junior subordinated debt securities, and exchangeable surplus trust securities which MetLife, Inc. will exchange for junior subordinated
debt securities prior to redemption or repayment, were as follows:
Issuer
Issue Date
Face Value
(In millions)
Interest
Rate (1)
Scheduled
Redemption
Date
Interest Rate
Subsequent to
Scheduled
Redemption
Date (2)
Final
Maturity
Carrying Value
at December 31,
2015
2014
(In millions)
MetLife, Inc.
MetLife Capital Trust X (3)
MetLife Capital Trust IV (3)
MetLife, Inc.
______________
July 2009
April 2008
December
2007
December
2006
$
$
$
$
500
10.750% August 2039
750
9.250% April 2038
700
7.875%
1,250
6.400%
December
2037
December
2036
LIBOR +
7.548%
LIBOR +
5.540%
LIBOR +
3.960%
LIBOR +
2.205%
August 2069
$
500
$
500
April 2068
December
2067
December
2066
750
696
1,248
$
3,194
$
750
695
1,248
3,193
(1)
(2)
(3)
Prior to the scheduled redemption date, interest is payable semiannually in arrears.
In the event the securities are not redeemed on or before the scheduled redemption date, interest will accrue after such date at an annual
rate of three-month LIBOR plus the indicated margin, payable quarterly in arrears.
MetLife Capital Trust X and MetLife Capital Trust IV are VIEs which are consolidated in the financial statements of the Company. The securities
issued by these entities are exchangeable surplus trust securities, which will be exchanged for a like amount of MetLife, Inc.’s junior subordinated
debt securities on the scheduled redemption date; mandatorily under certain circumstances, and at any time upon MetLife, Inc. exercising
its option to redeem the securities.
In connection with each of the securities described above, MetLife, Inc. may redeem or may cause the redemption of the securities (i) in whole
or in part, at any time on or after the date five years prior to the scheduled redemption date at their principal amount plus accrued and unpaid interest
to, but excluding, the date of redemption, or (ii) in certain circumstances, in whole or in part, prior to the date five years prior to the scheduled redemption
date at their principal amount plus accrued and unpaid interest to, but excluding, the date of redemption or, if greater, a make-whole price. MetLife, Inc.
also has the right to, and in certain circumstances the requirement to, defer interest payments on the securities for a period up to 10 years. Interest
compounds during such periods of deferral. If interest is deferred for more than five consecutive years, MetLife, Inc. is required to use proceeds from
the sale of its common stock or warrants on common stock to satisfy this interest payment obligation. In connection with each of the securities
described above, MetLife, Inc. entered into a separate replacement capital covenant (“RCC”). As part of each RCC, MetLife, Inc. agreed that it will
not repay, redeem, or purchase the securities on or before a date 10 years prior to the final maturity date of each issuance, unless, subject to certain
limitations, it has received cash proceeds during a specified period from the sale of specified replacement securities. Each RCC will terminate upon
the occurrence of certain events, including an acceleration of the applicable securities due to the occurrence of an event of default. The RCCs are
not intended for the benefit of holders of the securities and may not be enforced by them. Rather, each RCC is for the benefit of the holders of a
designated series of MetLife, Inc.’s other indebtedness (the “Covered Debt”). Initially, the Covered Debt for each of the securities described above
was MetLife, Inc.’s 5.700% senior notes due 2035 (the “Senior Notes”). As a result of the issuance of MetLife, Inc.’s 10.750% Fixed-to-Floating Rate
Junior Subordinated Debentures due 2069 (the “10.750% JSDs”), the 10.750% JSDs became the Covered Debt with respect to, and in accordance
with, the terms of the RCC relating to MetLife, Inc.’s 6.40% Fixed-to-Floating Rate Junior Subordinated Debentures due 2066. The Senior Notes
continue to be the Covered Debt with respect to, and in accordance with, the terms of the RCCs relating to each of MetLife Capital Trust IV’s 7.875%
Fixed-to-Floating Rate Exchangeable Surplus Trust Securities, MetLife Capital Trust X’s 9.250% Fixed-to-Floating Rate Exchangeable Surplus Trust
Securities and the 10.750% JSDs. MetLife, Inc. also entered into a replacement capital obligation which will commence during the six month period
prior to the scheduled redemption date of each of the securities described above and under which MetLife, Inc. must use reasonable commercial
efforts to raise replacement capital to permit repayment of the securities through the issuance of certain qualifying capital securities.
Interest expense on outstanding junior subordinated debt securities was $258 million for each of the years ended December 31, 2015, 2014
and 2013, which is included in other expenses.
15. Common Equity Units
In connection with the financing of the acquisition of ALICO in November 2010, MetLife, Inc. issued to AM Holdings 40.0 million common equity
units with an aggregate stated amount at issuance of $3.0 billion and an estimated fair value of $3.2 billion. Each common equity unit had an initial
stated amount of $75 per unit and initially consisted of: (i) three purchase contracts (the Series C Purchase Contracts, the Series D Purchase Contracts
and the Series E Purchase Contracts and, together, the “Purchase Contracts”), obligating the holder to purchase, on a subsequent settlement date,
MetLife, Inc.
183
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
15. Common Equity Units (continued)
a variable number of shares of MetLife, Inc. common stock, par value $0.01 per share, for a purchase price of $25 ($75 in the aggregate); and (ii) a
1/40 undivided beneficial ownership interest in each of three series of Debt Securities issued by MetLife, Inc., each series of Debt Securities having
an aggregate principal amount of $1.0 billion. On March 8, 2011, AM Holdings sold, in a public offering, all the common equity units it received as
consideration from MetLife in connection with the acquisition of ALICO.
As discussed in Note 12, in October 2014, September 2013 and October 2012, MetLife, Inc. closed the successful remarketings of senior debt
securities underlying the common equity units. Most holders of the common equity units used the remarketing proceeds to settle their payment
obligations under the applicable Purchase Contracts. The subsequent settlement of the Purchase Contracts provided proceeds to MetLife, Inc. of
$1.0 billion in each of October 2014, September 2013 and October 2012 in exchange for shares of MetLife, Inc.’s common stock. See Note 16.
16. Equity
Preferred Stock
Preferred stock authorized, issued and outstanding was as follows at:
Series
Floating Rate Non-Cumulative Preferred
Stock, Series A
6.50% Non-Cumulative Preferred Stock,
Series B (1)
5.25% Fixed-to-Floating Rate Non-
Cumulative Preferred Stock, Series C
Not designated (1)
Total
__________________
Series A Junior Participating Preferred Stock
10,000,000
December 31, 2015
December 31, 2014
Shares
Authorized
Shares
Issued
Shares
Outstanding
Shares
Authorized
Shares
Issued
Shares
Outstanding
27,600,000
24,000,000
24,000,000
27,600,000
24,000,000
24,000,000
—
—
—
69,000,000
60,000,000
60,000,000
1,500,000
1,500,000
1,500,000
—
160,900,000
—
—
—
—
10,000,000
93,400,000
—
—
—
—
—
—
200,000,000
25,500,000
25,500,000
200,000,000
84,000,000
84,000,000
(1)
As discussed below, MetLife, Inc. repurchased or redeemed and canceled the 6.50% Non-Cumulative Preferred Stock, Series B (the “Series B
preferred stock”) in 2015. On November 3, 2015, MetLife, Inc. filed a Certificate of Elimination (the “Certificate of Elimination”) of 6.50% Non-
Cumulative Preferred Stock, Series B with the Secretary of State of the State of Delaware to eliminate all references to the Series B preferred
stock in MetLife, Inc.’s Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”), including the related Certificate
of Designations. As a result of the filing of the Certificate of Elimination, MetLife, Inc.’s Certificate of Incorporation was amended to eliminate
all references therein to the Series B preferred stock, and the shares that were designated to such series were returned to the status of
authorized but unissued shares of preferred stock, par value $0.01 per share, of MetLife, Inc., without designation as to series.
In June 2015, MetLife, Inc. issued 1,500,000 shares of 5.25% Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series C (the "Series C
preferred stock"), with a $0.01 par value per share and a liquidation preference of $1,000 per share, for aggregate proceeds of $1.5 billion. In connection
with the offering of the Series C preferred stock, MetLife, Inc. incurred $17 million of issuance costs which have been recorded as a reduction of
additional paid-in capital.
In June 2015, MetLife, Inc. conducted a tender offer for up to 59,850,000 of its 60,000,000 shares of Series B preferred stock, liquidation
preference $25 per share, at a purchase price of $25 per share, plus an amount equal to accrued, unpaid and undeclared dividends from, and
including, June 15, 2015 to, but excluding, June 29, 2015, the settlement date of the tender offer. In June 2015, MetLife, Inc. also delivered a notice
of redemption to the holders of the Series B preferred stock, pursuant to which it would redeem any shares of Series B preferred stock not purchased
by it in the tender offer at a redemption price of $25 per share, without any payment for accrued, unpaid and undeclared dividends on the Series B
preferred stock from, and including, June 15, 2015 to, but excluding, July 1, 2015, the redemption date. On June 29, 2015, MetLife, Inc. repurchased
and canceled 37,192,413 shares of Series B preferred stock in the tender offer for $932 million in cash. On July 1, 2015, MetLife, Inc. redeemed and
canceled the remaining 22,807,587 shares of Series B preferred stock not tendered in the tender offer for an aggregate redemption price of $570 million
in cash. In connection with the tender offer and redemption, MetLife, Inc. recognized a preferred stock repurchase premium of $42 million (calculated
as the difference between the carrying value of the Series B preferred stock and the total amount paid by MetLife, Inc. to the holders of the Series B
preferred stock in connection with the tender offer and redemption), which was reflected as a reduction to retained earnings on the consolidated
balance sheet.
The outstanding preferred stock ranks senior to MetLife, Inc.’s common stock with respect to the payment of dividends and distributions upon
liquidation, dissolution or winding-up. Holders of the outstanding preferred stock are entitled to receive dividend payments only when, as and if
declared by MetLife, Inc.’s Board of Directors or a duly authorized committee of the Board. Dividends on the preferred stock are not cumulative or
mandatory. Accordingly, if dividends are not declared on the preferred stock of the applicable series for any dividend period, then any accrued dividends
for that dividend period will cease to accrue and be payable. If a dividend is not declared before the dividend payment date for any such dividend
period, MetLife, Inc. will have no obligation to pay dividends accrued for such dividend period whether or not dividends are declared for any future
period. No dividends may be paid or declared on MetLife, Inc.’s common stock (or any other securities ranking junior to the preferred stock) and
MetLife, Inc. may not purchase, redeem, or otherwise acquire its common stock (or other such junior stock) unless the full dividends for the latest
completed dividend period on all outstanding shares of preferred stock, and any parity stock, have been declared and paid or provided for. If dividends
are declared on MetLife, Inc.’s Floating Rate Non-Cumulative Preferred Stock, Series A (the “Series A preferred stock”), they will be payable quarterly,
in arrears, at an annual rate of the greater of: (i) 1.00% above three-month LIBOR on the related LIBOR determination date; or (ii) 4.00%. If dividends
184
MetLife, Inc.
Table of Contents
16. Equity (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
are declared on the Series C preferred stock for any dividend period, they are calculated on a non-cumulative basis at a fixed rate per annum of 5.25%
from the date of original issue to, but excluding, June 15, 2020, and will be calculated at a floating rate per annum equal to three-month LIBOR plus
3.575% on the related LIBOR determination date from and after June 15, 2020. Dividends on the Series C preferred stock for any dividend period
are payable, if declared, semi-annually in arrears on the 15th day of June and December of each year commencing on December 15, 2015 and
ending on June 15, 2020, and thereafter quarterly in arrears on the 15th day of September, December, March and June of each year. Information on
payments of dividends on the Series B preferred stock is set forth in the table below.
MetLife, Inc. is prohibited from declaring dividends on the outstanding preferred stock if it fails to meet specified capital adequacy, net income
and stockholders’ equity levels. Beginning on January 1, 2019, MetLife, Inc. will no longer be subject to such limitations with respect to the Series C
preferred stock. See “— Dividend Restrictions — MetLife, Inc.”
Holders of the preferred stock do not have voting rights except in certain circumstances, including where the dividends have not been paid for
an equivalent of six or more dividend payment periods whether or not those periods are consecutive. Under such circumstances, the holders of the
preferred stock have certain voting rights with respect to members of the Board of Directors of MetLife, Inc.
The preferred stock is not subject to any mandatory redemption, sinking fund, retirement fund, purchase fund or similar provisions. The Series
A preferred stock is redeemable at MetLife, Inc.’s option in whole or in part, at a redemption price of $25 per share of preferred stock, plus declared
and unpaid dividends. MetLife, Inc. may, at its option, redeem the Series C preferred stock, (i) in whole but not in part, at any time prior to June 15,
2020, within 90 days after the occurrence of a “regulatory capital event,” and (ii) in whole or in part, from time to time, on or after June 15, 2020, in
each case, at a redemption price equal to $1,000 per Series C preferred share, plus an amount equal to any dividends per share that have accrued
but not been declared and paid for the then-current dividend period to, but excluding, such redemption date. A “regulatory capital event” could occur
as a result of a change or proposed change in capital adequacy rules (or the interpretation or application thereof) that would apply to MetLife, Inc.
from rules (or the interpretation or application thereof) in effect with respect to bank holding companies as of June 1, 2015 that would create a more
than insubstantial risk, as determined by MetLife, Inc., that the Series C preferred stock would not be treated as “Tier 1 Capital” or as capital with
attributes similar to those of Tier 1 Capital.
In December 2008, MetLife, Inc. entered into an RCC related to the Series A and Series B preferred stock and, in June 2015, MetLife, Inc.
entered into an RCC related to the Series C preferred stock. As part of each such RCC, MetLife, Inc. agreed that it will not repay, redeem or purchase
the preferred stock on or before December 31, 2018, unless, subject to certain limitations, it has received proceeds during a specified period from
the sale of specified replacement securities. The repurchase and redemption of Series B preferred stock as described above was in compliance with
the terms of the applicable RCC. The RCC is, in each case, for the benefit of the holders of the related covered debt, which is currently MetLife, Inc.’s
10.750% JSDs. The RCC will terminate upon the occurrence of certain events, including the date on which MetLife, Inc. has no series of outstanding
eligible debt securities.
Information on the declaration, record and payment dates, as well as per share and aggregate dividend amounts, for the Series A, Series B and
Series C preferred stock was as follows:
Declaration Date
Record Date
Payment Date
Series A
Per Share
Series A
Aggregate
Series B
Per Share
Series B
Aggregate
Series C
Per Share
Series C
Aggregate
Dividend
November 16, 2015
November 30, 2015
December 15, 2015
August 17, 2015
August 31, 2015
September 15, 2015
May 15, 2015
May 31, 2015
June 15, 2015
March 5, 2015
February 28, 2015
March 16, 2015
November 17, 2014
November 30, 2014
December 15, 2014
August 15, 2014
August 31, 2014
September 15, 2014
May 15, 2014
May 31, 2014
June 16, 2014
March 5, 2014
February 28, 2014
March 17, 2014
November 15, 2013
November 30, 2013
December 16, 2013
August 15, 2013
August 31, 2013
September 16, 2013
May 15, 2013
May 31, 2013
June 17, 2013
March 5, 2013
February 28, 2013
March 15, 2013
$
$
$
$
$
$
$
$
$
$
$
$
0.253
$
0.256
0.256
0.250
0.253
0.256
0.256
0.250
0.253
0.256
0.256
0.250
$
$
$
$
$
See Note 23 for information on subsequent preferred stock dividends declared.
Common Stock
Issuances
(In millions, except per share data)
$
$
$
$
$
$
$
$
$
$
$
$
6
6
7
6
25
7
6
7
6
26
7
6
7
6
26
— $
— $
28.292
$
—
0.406
0.406
0.406
0.406
0.406
0.406
0.406
0.406
0.406
0.406
$
$
$
$
$
— $
$
$
$
$
$
$
$
$
$
$
24
24
48
24
24
24
24
96
24
24
24
24
96
—
—
—
$
— $
—
—
—
$
— $
—
—
—
$
43
—
—
—
43
—
—
—
—
—
—
—
—
—
—
In October 2014 and September 2013, MetLife, Inc. issued 22,907,960 new shares and 22,679,955 new shares, respectively, of its common
stock, each for $1.0 billion. The issuances were made in connection with the settlement of stock purchase contracts. See Note 15.
MetLife, Inc.
185
Table of Contents
16. Equity (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
During the years ended December 31, 2015, 2014 and 2013, 5,592,622 new shares, 5,866,160 new shares and 7,663,446 new shares of
common stock were issued for $216 million, $220 million and $250 million, respectively, in connection with stock option exercises and other stock-
based awards. There were no shares of common stock issued from treasury stock during any of the years ended December 31, 2015, 2014 and
2013.
Repurchase Authorizations
On December 12, 2014, MetLife, Inc. announced that its Board of Directors authorized $1.0 billion of common stock repurchases in addition
to previously authorized repurchases and on September 22, 2015, MetLife, Inc. announced that its Board of Directors authorized additional
repurchases of $739 million of its common stock, bringing MetLife, Inc.’s available repurchase authorization under the December 2014 and
September 2015 authorizations as of such date to $1.0 billion.
During the years ended December 31, 2015 and 2014, MetLife, Inc. repurchased 39,491,991 shares and 18,876,363 shares under these
repurchase authorizations for $1.9 billion and $1.0 billion, respectively. No shares of common stock were repurchased during the year ended
December 31, 2013. At December 31, 2015, MetLife, Inc. had $70 million remaining under its common stock repurchase authorizations. See
Note 23 for information on subsequent common stock repurchases.
Under these authorizations, MetLife, Inc. may purchase its common stock from the MetLife Policyholder Trust, in the open market (including
pursuant to the terms of a pre-set trading plan meeting the requirements of Rule 10b5-1 under the Securities Exchange Act of 1934 (“Exchange
Act”)), and in privately negotiated transactions. Common stock repurchases are dependent upon several factors, including the Company’s capital
position, liquidity, financial strength and credit ratings, general market conditions, the market price of MetLife, Inc.’s common stock compared to
management’s assessment of the stock’s underlying value and applicable regulatory approvals, as well as other legal and accounting factors.
Dividends
The table below presents declaration, record and payment dates, as well as per share and aggregate dividend amounts, for common stock:
Declaration Date
Record Date
Payment Date
Per Share
Aggregate
(In millions, except per share data)
Dividend
October 27, 2015
November 6, 2015
July 7, 2015
April 28, 2015
January 6, 2015
August 7, 2015
May 11, 2015
February 6, 2015
October 28, 2014
November 7, 2014
July 7, 2014
April 22, 2014
January 6, 2014
August 8, 2014
May 9, 2014
February 6, 2014
October 22, 2013
November 8, 2013
June 25, 2013
April 23, 2013
January 4, 2013
August 9, 2013
May 9, 2013
February 6, 2013
December 11, 2015
September 11, 2015
June 12, 2015
March 13, 2015
December 12, 2014
September 12, 2014
June 13, 2014
March 13, 2014
December 13, 2013
September 13, 2013
June 13, 2013
March 13, 2013
$
$
$
$
$
$
$
$
$
$
$
$
0.375
$
0.375
0.375
0.350
0.350
0.350
0.350
0.275
0.275
0.275
0.275
0.185
$
$
$
$
$
419
420
420
394
1,653
398
395
395
311
1,499
311
303
302
203
1,119
See Note 23 for information on subsequent common stock dividends declared.
The funding of the cash dividends and operating expenses of MetLife, Inc. is primarily provided by cash dividends from MetLife, Inc.’s insurance
subsidiaries. The statutory capital and surplus, or net assets, of MetLife, Inc.’s insurance subsidiaries are subject to regulatory restrictions except
to the extent that dividends are allowed to be paid in a given year without prior regulatory approval. Dividends exceeding these limitations can
generally be made subject to regulatory approval. The nature and amount of these dividend restrictions, as well as the statutory capital and surplus
of MetLife, Inc.’s U.S. insurance subsidiaries, are disclosed in “— Statutory Equity and Income” and “— Dividend Restrictions — Insurance
Operations.” MetLife, Inc.’s principal non-U.S. insurance operations are branches or subsidiaries of American Life, a U.S. insurance subsidiary of
the Company. In addition, the payment of dividends by MetLife, Inc. to its shareholders is also subject to restrictions. See “— Dividend Restrictions
— MetLife, Inc.”
Stock-Based Compensation Plans
Description of Plans for Employees and Agents — General Terms
Under the MetLife, Inc. 2005 Stock and Incentive Compensation Plan (the “2005 Stock Plan”) and the MetLife, Inc. 2015 Stock and Incentive
Compensation Plan (the “2015 Stock Plan”), awards granted to employees and agents may be in the form of Stock Options, Stock Appreciation
Rights, Restricted Stock or Restricted Stock Units, Performance Shares or Performance Share Units, Cash-Based Awards and Stock-Based Awards
186
MetLife, Inc.
Table of Contents
16. Equity (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
(each, as applicable, as defined in the 2005 Stock Plan and 2015 Stock Plan with reference to shares of MetLife, Inc. common stock (“Shares”)).
Awards under the 2005 Stock Plan and 2015 Stock Plan were outstanding at December 31, 2015. All awards in 2015 were granted under the
2015 Stock Plan.
Awards settled in Shares (and Stock Option exercises, if any) under the 2005 Stock Plan or 2015 Stock Plan settled in Shares are satisfied
through the issuance of Shares held in treasury by MetLife, Inc. or by the issuance of new Shares. Awards that are payable in Shares and have
become due may, in some circumstances, be deferred for issuance at a later date (“Deferred Shares”).
The aggregate number of Shares authorized for issuance under the 2015 Stock Plan at December 31, 2015 was equal to:
•
•
•
•
11,750,000 Shares, plus;
Shares available but not utilized under the 2005 Stock Plan, when the 2015 Stock Plan became effective (18,023,959 Shares at January
1, 2015), plus;
Shares utilized under the 2005 Stock Plan or 2015 Stock Plan that are or were recovered since the 2015 Stock Plan became effective on
January 1, 2015 due to: (i) termination of the award by expiration, forfeiture, cancellation, lapse, or otherwise without the issuance of Shares;
(ii) settlement of the award in cash either in lieu of Shares or otherwise; (iii) exchange of the award for awards not involving Shares; (iv)
payment of the exercise price of a Stock Option, or the tax withholding requirements with respect to an award, satisfied by tendering Shares
to MetLife, Inc. (by either actual delivery or by attestation); (v) satisfaction of tax withholding requirements with respect to an award satisfied
by MetLife, Inc. withholding Shares otherwise issuable; and (vi) the payout of the 2012-2014 Performance Shares in 2015 at a performance
factor of 101% rather than the maximum performance factor of 175% (4,475,737 Shares), less;
Shares covered by awards granted under the 2015 Stock Plan since it became effective on January 1, 2015, including Performance Shares
assuming future payout at maximum performance factor, and Shares covered by imputed reinvested dividends credited in 2015 on Deferred
Shares owed to employees or agents (4,380,101 Shares).
If a Share-settled Stock Appreciation Right were to be granted under the 2015 Stock Plan and were to be exercised, only the number of
Shares issued, net of the Shares tendered, if any, would be deemed delivered for purposes of determining the maximum number of Shares available
for issuance under the 2015 Stock Plan.
Each Share issued under the 2005 Stock Plan in connection with a Stock Option reduces the number of Shares remaining for issuance under
that plan by one, and each Share issued under the 2005 Stock Plan in connection with awards other than Stock Options reduces the number of
Shares remaining for issuance under that plan by 1.179 Shares (the “2005 Stock Plan Share Award Ratio”). For this purpose, any Shares issued
pursuant to any Share-settled Stock Appreciation Rights that had been granted under the 2005 Stock Plan would have had (or have) the same
effect as Shares issued pursuant to Stock Options. However, no Share-settled Stock Appreciation Rights were granted under the 2005 Stock Plan.
Shares related to awards under the 2005 Stock Plan that are recovered, and therefore authorized for issuance under the 2015 Stock Plan, are
recovered with consideration of the 2005 Stock Plan Share Award Ratio.
Each Share that will or may be issued under the 2015 Stock Plan reduces the number of Shares remaining for issuance under that plan by
one.
Compensation expense related to awards under the 2005 Stock Plan or 2015 Stock Plan is recognized based on the number of awards
expected to vest, which represents the awards granted less expected forfeitures over the life of the award, as estimated at the date of grant. Unless
a material deviation from the assumed forfeiture rate is observed during the term in which the awards are expensed, any adjustment necessary to
reflect differences in actual experience is recognized in the period the award becomes payable or exercisable.
Compensation expense related to awards under the 2005 Stock Plan is principally related to the issuance of Stock Options, Performance
Shares and Restricted Stock Units. Under the 2015 Stock Plan, compensation expense principally relates to Stock Options, Unit Options,
Performance Shares, Performance Units, Restricted Stock Units and Restricted Units. The majority of the awards granted each year under the
2005 Stock Plan and 2015 Stock Plan were made in the first quarter of each year.
Deferred Shares payable to employees or agents relate to awards under the 2005 Stock Plan, 2015 Stock Plan, or earlier applicable plans
equaled 1,765,120 Shares at December 31, 2015.
Certain stock-based awards provide solely for cash settlement based in whole or in part on the price of Shares or changes in the price of
Shares (“Phantom Stock-Based Awards”). Such awards have been made under the MetLife, Inc. International Unit Option Incentive Plan, the MetLife
International Performance Unit Incentive Plan, and the MetLife International Restricted Unit Incentive Plan prior to 2015, and under the 2015 Stock
Plan in 2015.
Description of Plans for Non-Management Director — General Terms
Under the MetLife, Inc. 2005 Non-Management Director Stock Compensation Plan (the “2005 Director Stock Plan”) and MetLife, Inc. 2015
Non-Management Director Stock Compensation Plan (the “2015 Director Stock Plan”), awards granted may be in the form of nonqualified Stock
Options, Stock Appreciation Rights, Restricted Stock or Restricted Stock Units, or Stock-Based Awards (each, as applicable, as defined in the
2005 Director Stock Plan and 2015 Director Stock Plan with reference to Shares) to non-management Directors of MetLife, Inc. The only awards
made under the 2005 Director Stock Plan and 2015 Director Stock Plan through December 31, 2015 vested immediately, thus, no awards under
the 2005 Director Stock Plan or 2015 Director Stock Plan remained outstanding at December 31, 2015.
Awards settled in Shares (and Stock Option exercises, if any) under the 2015 Director Stock Plan are satisfied through the issuance of Shares
held in treasury by MetLife, Inc. or by the issuance of new Shares.
MetLife, Inc.
187
Table of Contents
16. Equity (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
The aggregate number of Shares authorized for issuance under the 2015 Director Stock Plan at December 31, 2015 was equal to:
•
•
Shares available but not utilized under the 2005 Director Stock Plan when the 2015 Director Stock Plan became effective (1,642,208 Shares
at January 1, 2015), less;
Shares covered by awards granted under the 2015 Director Stock Plan since it became effective and Shares covered by imputed reinvested
dividends credited in 2015 on Deferred Shares owed to Directors (33,684 Shares).
Any Shares utilized under the 2005 Director Stock Plan or 2015 Director Stock Plan that were to be recovered due to (i) termination of the
award by expiration, forfeiture, cancellation, lapse, or otherwise without the issuance of Shares; (ii) settlement of the award in cash either in lieu of
Shares or otherwise; (iii) exchange of the award for awards not involving Shares; and (iv) payment of the exercise price of a Stock Option, or the
tax withholding requirements with respect to an award, satisfied by tendering Shares to MetLife, Inc. (by either actual delivery or by attestation)
would be available for issuance under the 2015 Director Stock Plan. In addition, if a Share-settled Stock Appreciation Right were to be granted
under the 2015 Director Stock Plan, and was exercised, only the number of Shares issued, net of the Shares tendered, if any, would be deemed
delivered for purposes of determining the maximum number of Shares available for issuance under the 2015 Director Stock Plan.
Each Share that will or may be issued under the 2015 Director Stock Plan reduces the number of Shares remaining for issuance under that
plan by one.
Compensation expense related to awards under the 2015 Director Stock Plan is recognized based on the number of Shares awarded. The
only awards made under the 2005 Director Stock Plan and under the 2015 Director Stock Plan through December 31, 2015 were Stock-Based
Awards that vested immediately. The majority of the awards granted in 2015 under the 2015 Director Stock Plan were made in the second quarter
of 2015.
Deferred Shares payable to Directors relate to awards under the 2005 Director Stock Plan, 2015 Director Stock Plan, or earlier applicable
plans equaled 166,102 Shares at December 31, 2015.
Compensation Expense Related to Stock-Based Compensation
The components of compensation expense related to stock-based compensation includes compensation expense related to Phantom Stock-
Based Awards, and excludes the insignificant compensation expense related to the 2015 Director Stock Plan. Those components were:
Stock Options and Unit Options
Performance Shares and Units (1)
Restricted Stock Units and Restricted Units
Total compensation expense
Income tax benefit
______________
Years Ended December 31,
2015
2014
(In millions)
2013
$
$
$
14
65
75
154
54
$
$
$
29
$
111
52
192
67
$
$
39
91
45
175
61
(1)
Performance Shares expected to vest and the related compensation expenses may be further adjusted by the performance factor most likely
to be achieved, as estimated by management, at the end of the performance period.
The following table presents the total unrecognized compensation expense related to stock-based compensation and the expected weighted
average period over which these expenses will be recognized at:
Stock Options
Performance Shares
Restricted Stock Units
Equity Awards
Stock Options
December 31, 2015
Expense
(In millions)
Weighted Average
Period
(Years)
$
$
$
7
30
50
1.58
1.59
1.71
Stock Options are the contingent right of award holders to purchase Shares at a stated price for a limited time. All Stock Options have an
exercise price equal to the closing price of a Share reported on the New York Stock Exchange on the date of grant, and have a maximum term
of 10 years. The vast majority of Stock Options granted has become or will become exercisable at a rate of one-third of each award on each of
the first three anniversaries of the grant date. Other Stock Options have become or will become exercisable on the third anniversary of the grant
188
MetLife, Inc.
Table of Contents
16. Equity (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
date. Vesting is subject to continued service, except for employees who meet specified age and service criteria and in certain other limited
circumstances.
A summary of the activity related to Stock Options was as follows:
Outstanding at January 1, 2015
Granted
Exercised
Expired
Forfeited
Outstanding at December 31, 2015
Vested and expected to vest at December 31, 2015
Exercisable at December 31, 2015
______________
Shares
Under
Option
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value (1)
26,078,927
669,944
$
$
(3,149,247) $
(64,921) $
(27,939) $
23,506,764
23,308,860
21,839,121
$
$
$
43.63
51.39
38.61
55.68
40.47
44.50
44.50
44.29
(Years)
(In millions)
4.67
$
312
4.09
4.06
3.77
$
$
$
166
165
161
(1)
The aggregate intrinsic value was computed using the closing Share price on December 31, 2015 of $48.21 and December 31, 2014 of
$54.09, as applicable.
The fair value of Stock Options is estimated on the date of grant using a binomial lattice model. Significant assumptions used in the
Company’s binomial lattice model are further described below. The assumptions include: expected volatility of the price of Shares; risk-free rate
of return; dividend yield on Shares; exercise multiple; and the post-vesting termination rate.
Expected volatility is based upon an analysis of historical prices of Shares and call options on Shares traded on the open market. The
Company uses a weighted-average of the implied volatility for publicly-traded call options with the longest remaining maturity nearest to the
money as of each valuation date and the historical volatility, calculated using monthly closing prices of Shares. The Company chose a monthly
measurement interval for historical volatility as this interval reflects the Company’s view that employee option exercise decisions are based on
longer-term trends in the price of the underlying Shares rather than on daily price movements.
The binomial lattice model used by the Company incorporates different risk-free rates based on the imputed forward rates for U.S. Treasury
Strips for each year over the contractual term of the option. The table below presents the full range of rates that were used for options granted
during the respective periods.
Dividend yield is determined based on historical dividend distributions compared to the price of the underlying Shares as of the valuation
date and held constant over the life of the Stock Option.
The binomial lattice model used by the Company incorporates the contractual term of the Stock Options. The model also factors in expected
exercise behavior and a post-vesting termination rate, or the rate at which vested options are exercised or expire prematurely due to termination
of employment. From these factors, the model derives an expected life of the Stock Option. The exercise behavior in the model is a multiple that
reflects the ratio of exercise price to the strike price of the Stock Option at which holders are expected to exercise. The exercise multiple is derived
from actual historical exercise activity. The post-vesting termination rate is determined from actual historical exercise experience and expiration
activity under the Incentive Plans.
The following table presents the weighted average assumptions, with the exception of risk-free rate, which is expressed as a range, used
to determine the fair value of Stock Options issued:
Dividend yield
Risk-free rate of return
Expected volatility
Exercise multiple
Post-vesting termination rate
Contractual term (years)
Expected life (years)
Weighted average exercise price of stock options granted
Weighted average fair value of stock options granted
MetLife, Inc.
Years Ended December 31,
2015
2.72%
2014
2.18%
2013
2.13%
0.20%-3.04%
0.12%-5.07%
0.16%-3.89%
32.56%
1.44
2.73%
33.26%
1.45
2.93%
32.98%
1.51
3.16%
10
7
51.39
13.29
$
$
10
6
50.53
13.84
$
$
$
$
10
7
35.96
9.88
189
Table of Contents
16. Equity (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
The following table presents a summary of Stock Option exercise activity:
Total intrinsic value of stock options exercised
Cash received from exercise of stock options
Income tax benefit realized from stock options exercised
Performance Shares
Years Ended December 31,
2015
2014
(In millions)
2013
$
$
$
44
121
15
$
$
$
67
156
24
$
$
$
79
202
28
Performance Shares are units that, if they vest, are multiplied by a performance factor to produce a number of final Performance Shares
which are payable in Shares. Performance Shares are accounted for as equity awards. They are not credited with dividend-equivalents for actual
dividends paid on Shares during the performance period. Performance Share awards normally vest in their entirety at the end of the three-year
performance period. Vesting is subject to continued service, except for employees who meet specified age and in certain other limited
circumstances.
For awards granted prior to the January 1, 2013 – December 31, 2015 performance period, vested Performance Shares are multiplied by
a performance factor of 0% to 200% based on MetLife, Inc.’s adjusted income, total shareholder return, and performance in change in annual
net operating earnings and total shareholder return compared to the performance of its competitors, each measured with respect to the applicable
three-year performance period or portions thereof. The estimated fair value of Performance Shares is based upon the closing price of a Share
on the date of grant, reduced by the present value of estimated dividends to be paid on that stock during the performance period. The performance
factor for the January 1, 2012 – December 31, 2014 performance period was 101%.
For awards granted for the January 1, 2013 – December 31, 2015 and later performance periods in progress through December 31, 2015,
the vested Performance Shares will be multiplied by a performance factor of 0% to 175%. Assuming that MetLife, Inc. has met threshold
performance goals related to its adjusted income or total shareholder return, the MetLife, Inc. Compensation Committee will determine the
performance factor in its discretion. In doing so, the Compensation Committee may consider MetLife, Inc.’s total shareholder return relative to
the performance of its competitors and operating return on MetLife, Inc.’s common stockholder’s equity relative to its financial plan. The estimated
fair value of Performance Shares will be remeasured each quarter until they become payable.
Restricted Stock Units
Restricted Stock Units are units that, if they vest, are payable in an equal number of Shares. Restricted Stock Units are accounted for as
equity awards. They are not credited with dividend-equivalents for dividends paid on Shares. Accordingly, the estimated fair value of Restricted
Stock Units is based upon the closing price of Shares on the date of grant, reduced by the present value of estimated dividends to be paid on
that stock.
The vast majority of Restricted Stock Units normally vest in thirds on the first three anniversaries of their grant date. Other Restricted Stock
Units normally vest in their entirety on the third anniversary of their grant date. Vesting is subject to continued service, except for employees who
meet specified age and service criteria and in certain other limited circumstances.
The following table presents a summary of Performance Share and Restricted Stock Unit activity:
Outstanding at January 1, 2015
Granted
Forfeited
Payable (1)
Outstanding at December 31, 2015
Vested and expected to vest at December 31, 2015
______________
Performance Shares
Restricted Stock Units
Weighted
Average
Grant Date
Fair Value
44.85
43.53
44.08
35.33
44.08
44.09
Shares
4,511,514
1,213,901
$
$
(61,458) $
(1,756,783) $
3,907,174
3,748,479
$
$
Weighted
Average
Grant Date
Fair Value
38.48
46.71
42.75
36.73
43.50
43.50
Units
3,504,230
1,532,272
$
$
(97,496) $
(1,860,047) $
3,078,959
2,771,063
$
$
(1)
Includes both Shares paid and Deferred Shares for later payment.
Performance Share amounts above represent aggregate initial target awards and do not reflect potential increases or decreases resulting
from the performance factor determined after the end of the respective performance periods. At December 31, 2015, the three year performance
period for the 2013 Performance Share grants was completed, but the performance factor had not yet been calculated. Included in the immediately
preceding table are 1,592,641 outstanding Performance Shares to which the 2013 – 2015 performance factor will be applied.
190
MetLife, Inc.
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
16. Equity (continued)
Liability Awards (Phantom Stock-Based Awards)
Certain MetLife international subsidiaries have a liability for Phantom Stock-Based Awards in the form of Unit Options, Restricted Units, and/
or Performance Units. These Share-based cash settled awards are recorded as liabilities until payout is made. Unlike Share-settled awards, which
have a fixed grant-date fair value, the fair value of unsettled or unvested liability awards is remeasured at the end of each reporting period based
on the change in fair value of one Share. The liability and corresponding expense are adjusted accordingly until the award is settled.
Unit Options
Each Unit Option is the contingent right of the holder to receive a cash payment equal to the closing price of a Share on the surrender date,
less the closing price on the grant date, if the difference is greater than zero. The vast majority of Unit Options has become or will become eligible
for surrender at a rate of one-third of each award on each of the first three anniversaries of the grant date. Other Unit Options have become or
will become eligible for surrender on the third anniversary of the grant date. Vesting is subject to continued service, except for employees who
meet specified age and service criteria and in certain other limited circumstances.
Restricted Units
Restricted Units are units that, if they vest, are payable in cash equal to the closing price of a Share on the last day of the restriction period.
The vast majority of Restricted Units normally vest in their entirety on the third anniversary of their grant date. Vesting is subject to continued
service, except for employees meet specified age and service criteria and in certain other limited circumstances. Restricted Units are accounted
for as liability awards. They are not credited with dividend-equivalents for actual dividends paid on Shares during the performance period.
Performance Units
Performance Units are units that, if they vest, are multiplied by a performance factor to produce a number of final Performance Units which
are payable in cash equal to the closing price of a Share on a date following the last day of the three-year performance period. The performance
factor for the Performance Units for any given period is determined on the identical basis as the performance factor for Performance Shares for
the same performance period. Performance Units are accounted for as liability awards. They are not credited with dividend-equivalents for actual
dividends paid on Shares during the performance period. Accordingly, the estimated fair value of Performance Units is based upon the closing
price of a Share on the date of grant, reduced by the present value of estimated dividends to be paid on that stock during the performance
period.
See “— Equity Awards — Performance Shares” for a discussion of the Performance Shares vesting period and award calculation, which
is also used for Performance Units.
The following table presents a summary of Liability Awards activity:
Outstanding at January 1, 2015
Granted
Exercised
Forfeited
Paid
Outstanding at December 31, 2015
Vested and expected to vest at December 31, 2015
Statutory Equity and Income
Unit
Options
1,106,996
17,183
(107,141)
(41,509)
—
975,529
877,976
Restricted
Units
Performance
Units
800,040
405,747
—
(209,357)
(334,538)
661,892
595,703
593,923
211,473
—
(63,062)
(131,062)
611,272
550,145
The states of domicile of MetLife, Inc.’s U.S. insurance subsidiaries impose risk-based capital (“RBC”) requirements that were developed by the
National Association of Insurance Commissioners (“NAIC”). American Life does not write business in Delaware or any other domestic state and, as
such, is exempt from RBC requirements by Delaware law. Regulatory compliance is determined by a ratio of a company’s total adjusted capital,
calculated in the manner prescribed by the NAIC (“TAC”) to its authorized control level RBC, calculated in the manner prescribed by the NAIC (“ACL
RBC”), based on the statutory-based filed financial statements. Companies below specific trigger levels or ratios are classified by their respective
levels, each of which requires specified corrective action. The minimum level of TAC before corrective action commences is twice ACL RBC (“Company
Action Level RBC”). While not required by or filed with insurance regulators, the Company also calculates an internally defined combined RBC
ratio (“Statement-Based Combined RBC Ratio”), which is determined by dividing the sum of TAC for MetLife, Inc.’s principal U.S. insurance subsidiaries,
excluding American Life, by the sum of Company Action Level RBC for such subsidiaries. The Company’s Statement-Based Combined RBC Ratio
was in excess of 390% at both December 31, 2015 and December 31, 2014. In addition, all non-exempted U.S. insurance subsidiaries individually
exceeded Company Action Level RBC for all periods presented.
MetLife, Inc.’s foreign insurance operations are regulated by applicable authorities of the countries in which each entity operates and are subject
to minimum capital and solvency requirements in those countries before corrective action commences. At December 31, 2015 and 2014, the adjusted
capital of American Life’s insurance subsidiary in Japan, the Company’s largest foreign insurance operation, was in excess of four times the 200%
solvency margin ratio that would require corrective action. Excluding Japan, the aggregate required capital and surplus of the Company’s other foreign
insurance operations was $2.8 billion and the aggregate actual regulatory capital and surplus of such operations was $7.1 billion as of the date of the
most recent required capital adequacy calculation for each jurisdiction. Each of those other foreign insurance operations exceeded minimum capital
and solvency requirements of their respective countries for all periods presented.
MetLife, Inc.
191
Table of Contents
16. Equity (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
MetLife, Inc.’s insurance subsidiaries prepare statutory-basis financial statements in accordance with statutory accounting practices prescribed
or permitted by the insurance department of the state of domicile or applicable foreign jurisdiction. The NAIC has adopted the Codification of Statutory
Accounting Principles (“Statutory Codification”). Statutory Codification is intended to standardize regulatory accounting and reporting to state insurance
departments. However, statutory accounting principles continue to be established by individual state laws and permitted practices. Modifications by
the various state insurance departments may impact the effect of Statutory Codification on the statutory capital and surplus of MetLife, Inc.’s
U.S. insurance subsidiaries.
Statutory accounting principles differ from GAAP primarily by charging policy acquisition costs to expense as incurred, establishing future policy
benefit liabilities using different actuarial assumptions, reporting surplus notes as surplus instead of debt and valuing securities on a different basis.
In addition, certain assets are not admitted under statutory accounting principles and are charged directly to surplus. The most significant assets
not admitted by the Company are net deferred income tax assets resulting from temporary differences between statutory accounting principles basis
and tax basis not expected to reverse and become recoverable within three years. Further, statutory accounting principles do not give recognition to
purchase accounting adjustments.
MetLife, Inc.’s U.S. insurance subsidiaries have no material state prescribed accounting practices, except as described below.
New York has adopted certain prescribed accounting practices, primarily consisting of the continuous Commissioners’ Annuity Reserve Valuation
Method, which impacts deferred annuities, and the New York Special Consideration Letter, which mandates certain assumptions in asset adequacy
testing. The collective impact of these prescribed accounting practices decreased the statutory capital and surplus of MLIC for the years ended
December 31, 2015 and 2014 by an amount of $1.2 billion and $2.3 billion, respectively, in excess of the amount of the decrease had capital and
surplus been measured under NAIC guidance.
American Life calculates its policyholder reserves on insurance written in each foreign jurisdiction in accordance with the reserve standards
required by such jurisdiction. American Life is not required to quantify the impact to its statutory capital and surplus as a result of applying this prescribed
practice to its branch operations. Additionally, American Life’s insurance subsidiaries are valued based on each respective subsidiary’s underlying
local statutory equity, adjusted in a manner consistent with the reporting prescribed for its branch operations. This valuation basis resulted in lower
statutory capital and surplus of $1.8 billion and $2.8 billion for the years ended December 31, 2015 and 2014, respectively, than if the insurance
subsidiaries were valued under NAIC guidance.
The Delaware Department of Insurance approved two statutory accounting permitted practices for MetLife Insurance Company USA (“MetLife
USA”). For December 31, 2013, MetLife USA applied a U.S. GAAP reserving methodology for certain foreign blocks of business held by Exeter
Reassurance Company, Ltd. (“Exeter”) prior to the mergers into MetLife USA of certain of its affiliates, including Exeter, and a subsidiary. These blocks
of business were recaptured by the counterparties prior to these mergers and are, therefore, not included in MetLife USA’s statutory reserves as of
December 31, 2014. In addition, the Delaware Department of Insurance granted permission for MetLife USA not to calculate, record or disclose the
effect of this permitted practice on statutory surplus and net income for the year ended December 31, 2013.
The tables below present amounts from MetLife, Inc.’s U.S. insurance subsidiaries, which are derived from the statutory–basis financial statements
as filed with the insurance regulators.
Statutory net income (loss) was as follows:
Company
State of Domicile
2015
2014
2013
Years Ended December 31,
Metropolitan Life Insurance Company
American Life Insurance Company
MetLife Insurance Company USA
Metropolitan Property and Casualty Insurance Company
Metropolitan Tower Life Insurance Company
Other
Statutory capital and surplus was as follows at:
Company
Metropolitan Life Insurance Company
American Life Insurance Company
MetLife Insurance Company USA
Metropolitan Property and Casualty Insurance Company
Metropolitan Tower Life Insurance Company
Other
192
New York
Delaware
Delaware
Rhode Island
Delaware
Various
$
$
$
$
$
$
(In millions)
3,703
335
$
$
1,487
$
(36) $
(1,022) $
1,543
204
$
(42) $
381
$
291
51
454
$
$
$
$
369
631
3,358
282
52
161
December 31,
2015
2014
(In millions)
$
$
$
$
$
$
14,485
6,115
5,942
2,335
710
417
$
$
$
$
$
$
12,008
3,362
6,042
2,388
767
399
MetLife, Inc.
Table of Contents
16. Equity (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
The Company’s domestic captive life reinsurance subsidiaries, which reinsure risks including the closed block, level premium term life and ULSG
assumed from other MetLife subsidiaries, have no state prescribed accounting practices, except for MetLife Reinsurance Company of Vermont (“MRV”)
and MetLife Reinsurance Company of Delaware (“MRD”). MRV, with the explicit permission of the Commissioner of Insurance of the State of Vermont,
has included, as admitted assets, the value of letters of credit serving as collateral for reinsurance credit taken by various affiliated cedants, in connection
with reinsurance agreements entered into between MRV and the various affiliated cedants, which resulted in higher statutory capital and surplus of
$6.0 billion for both the years ended December 31, 2015 and 2014. MRV’s RBC would have triggered a regulatory event without the use of the state
prescribed practice. MRD, with the explicit permission of the Commissioner of Insurance of the State of Delaware, has included, as admitted assets,
the value of letters of credit issued to MRD, which resulted in higher statutory capital and surplus of $200 million and $75 million for the years ended
December 31, 2015 and 2014, respectively. MRD’s RBC would not have triggered a regulatory event without the use of the state prescribed practice.
The combined statutory net income (loss) of MetLife, Inc.’s domestic captive life reinsurance subsidiaries was ($336) million, ($320) million and
($612) million for the years ended December 2015, 2014 and 2013, respectively, and the combined statutory capital and surplus, including the
aforementioned prescribed practice, was $5.0 billion and $5.2 billion at December 31, 2015 and 2014, respectively.
Dividend Restrictions
Insurance Operations
The table below sets forth the dividends permitted to be paid by MetLife, Inc.’s primary insurance subsidiaries without insurance regulatory
approval and dividends paid:
Company
Metropolitan Life Insurance Company (3)
American Life Insurance Company
MetLife Insurance Company USA
Metropolitan Property and Casualty Insurance Company
Metropolitan Tower Life Insurance Company
______________
2016
2015
Permitted Without
Approval (1)
Paid (2)
(In millions)
2014
Paid (2)
$
$
$
$
$
3,753
$
1,489
— $
586
130
70
$
$
$
—
500
235
102
$
$
$
$
$
821 (4)
—
155 (5)
200
73
(1)
(2)
(3)
(4)
(5)
Reflects dividend amounts that may be paid during 2016 without prior regulatory approval. However, because dividend tests may be based
on dividends previously paid over rolling 12-month periods, if paid before a specified date during 2016, some or all of such dividends may
require regulatory approval.
Reflects all amounts paid, including those requiring regulatory approval.
As discussed below, the New York Insurance Law was amended, permitting MLIC to pay dividends without prior regulatory approval under
one of two alternative formulations beginning in 2016. The dividend amount that MLIC may pay during 2016 under the new formulation is
reflected in the table above.
During December 2014, MLIC distributed shares of an affiliate to MetLife, Inc. as an in-kind dividend of $113 million.
Prior to the mergers into MetLife USA of certain of its affiliates and a subsidiary, Exeter paid dividends of $155 million on its preferred stock.
In August 2014, MetLife Insurance Company of Connecticut redeemed for $1.4 billion and retired 4,595,317 shares of its common stock
owned by MetLife Investors Group LLC (“MLIG”). Following the redemption, in August 2014, MLIG paid a dividend of $1.4 billion to MetLife,
Inc. In November 2014, MetLife Insurance Company of Connecticut changed its name to MetLife Insurance Company USA. MetLife USA did
not pay dividends in 2014.
Effective for dividends paid during 2016 and going forward, the New York Insurance Law was amended permitting MLIC, without prior insurance
regulatory clearance, to pay stockholder dividends to MetLife, Inc. in any calendar year based on either of two standards. Under one standard,
MLIC is permitted, without prior insurance regulatory clearance, to pay dividends out of earned surplus (defined as positive “unassigned funds
(surplus)” excluding 85% of the change in net unrealized capital gains or losses (less capital gains tax), for the immediately preceding calendar
year), in an amount up to the greater of: (i) 10% of its surplus to policyholders as of the end of the immediately preceding calendar year, or (ii) its
statutory net gain from operations for the immediately preceding calendar year (excluding realized capital gains), not to exceed 30% of surplus to
policyholders as of the end of the immediately preceding calendar year. In addition, under this standard, MLIC may not, without prior insurance
regulatory clearance, pay any dividends in any calendar year immediately following a calendar year for which its net gain from operations, excluding
realized capital gains, was negative. Under the second standard, if dividends are paid out of other than earned surplus, MLIC may, without prior
insurance regulatory clearance, pay an amount up to the lesser of: (i) 10% of its surplus to policyholders as of the end of the immediately preceding
calendar year, or (ii) its statutory net gain from operations for the immediately preceding calendar year (excluding realized capital gains). In addition,
MLIC will be permitted to pay a dividend to MetLife, Inc. in excess of the amounts allowed under both standards only if it files notice of its intention
to declare such a dividend and the amount thereof with the New York Superintendent of Financial Services (the “Superintendent”) and the
Superintendent either approves the distribution of the dividend or does not disapprove the dividend within 30 days of its filing. Under New York
Insurance Law, the Superintendent has broad discretion in determining whether the financial condition of a stock life insurance company would
support the payment of such dividends to its stockholders.
MetLife, Inc.
193
Table of Contents
16. Equity (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
Under Delaware Insurance Code, each of American Life, MetLife USA and Metropolitan Tower Life Insurance Company (“MTL”) is permitted,
without prior insurance regulatory clearance, to pay a stockholder dividend to MetLife, Inc. as long as the amount of the dividend, when aggregated
with all other dividends in the preceding 12 months, does not exceed the greater of: (i) 10% of its surplus to policyholders as of the end of the
immediately preceding calendar year, or (ii) its net statutory gain from operations for the immediately preceding calendar year (excluding realized
capital gains). Each of American Life, MetLife USA, and MTL will be permitted to pay a dividend to MetLife, Inc. in excess of the greater of such
two amounts only if it files notice of the declaration of such a dividend and the amount thereof with the Delaware Commissioner of Insurance (the
“Delaware Commissioner”) and the Delaware Commissioner either approves the distribution of the dividend or does not disapprove the distribution
within 30 days of its filing. In addition, any dividend that exceeds earned surplus (defined as “unassigned funds (surplus)”) as of the immediately
preceding calendar year requires insurance regulatory approval. Under Delaware Insurance Code, the Delaware Commissioner has broad discretion
in determining whether the financial condition of a stock life insurance company would support the payment of such dividends to its stockholders.
Under the Rhode Island Insurance Code, Metropolitan Property and Casualty Insurance Company (“MPC”) is permitted, without prior insurance
regulatory clearance, to pay a stockholder dividend to MetLife, Inc. as long as the aggregate amount of all such dividends in any 12 month period
does not exceed the lesser of: (i) 10% of its surplus to policyholders as of the end of the immediately preceding calendar year, or (ii) net income,
not including realized capital gains, for the immediately preceding calendar year, not including pro rata distributions of MPC’s own securities. In
determining whether a dividend is extraordinary, MPC may include carry forward net income from the previous two calendar years, excluding
realized capital gains less dividends paid in the second and immediately preceding calendar years. MPC will be permitted to pay a dividend to
MetLife, Inc. in excess of the lesser of such two amounts only if it files notice of its intention to declare such a dividend and the amount thereof with
the Rhode Island Commissioner of Insurance (the “Rhode Island Commissioner”) and the Rhode Island Commissioner either approves the distribution
of the dividend or does not disapprove the distribution within 30 days of its filing. Under the Rhode Island Insurance Code, the Rhode Island
Commissioner has broad discretion in determining whether the financial condition of a stock property and casualty insurance company would
support the payment of such dividends to its stockholders.
MetLife, Inc.
In addition to regulatory restrictions on the payment of dividends by its insurance subsidiaries to MetLife, Inc., the payment of dividends by
MetLife, Inc. to its stockholders is also subject to restrictions. The declaration and payment of dividends is subject to the discretion of MetLife, Inc.’s
Board of Directors, and will depend on its financial condition, results of operations, cash requirements, future prospects and other factors deemed
relevant by the Board. In addition, the payment of dividends on MetLife, Inc.’s common stock, and MetLife, Inc.’s ability to repurchase its common
stock, may be subject to restrictions described below arising out of (i) regulation by the Board of Governors of the Federal Reserve System (the
“Federal Reserve Board”) and the Federal Reserve Bank of New York (collectively, with the Federal Reserve Board, the “Federal Reserve”) as a
result of the designation of MetLife, Inc. by the Financial Stability Oversight Council (“FSOC”) as a non-bank systemically important financial
institution (“non-bank SIFI”), and (ii) restrictions under the terms of MetLife, Inc.’s preferred stock, and junior subordinated debentures in situations
where MetLife, Inc. may be experiencing financial stress, as described below. For purposes of this discussion, “junior subordinated debentures”
are deemed to include MetLife, Inc.’s Fixed-to-Floating Rate Exchangeable Surplus Trust Securities, which are exchangeable at the option of
MetLife, Inc., or in the future upon the occurrence of certain events, for junior subordinated debentures, and which contain terms with the same
substantive effects described in this discussion as the terms in MetLife’s junior subordinated debentures.
Regulatory Restrictions. On December 18, 2014, the FSOC designated MetLife, Inc. as a non-bank SIFI subject to regulation by the Federal
Reserve and to enhanced supervision and prudential standards. On January 13, 2015, MetLife, Inc. filed an action in the U.S. District Court for the
District of Columbia asking the court to review and rescind the FSOC’s designation of MetLife, Inc. as a non-bank SIFI. The court held oral argument
on the parties’ cross motions for summary judgment on February 10, 2016. On January 12, 2016, MetLife, Inc. announced its plan to pursue the
Separation. See Note 23. The proposed Separation has no impact on MetLife, Inc.’s current status as a non-bank SIFI.
The Federal Reserve Board is required under Dodd-Frank to adopt enhanced prudential standards, including heightened capital and stress
testing requirements, for non-bank SIFIs. Under such stress testing requirements, MetLife, Inc.’s ability to pay dividends and repurchase stock will
be dependent on demonstrating the robustness of its capital planning and projection processes, as well as its ability to maintain the Company’s
capital levels above regulatory minimum levels under stress scenarios. While these stress testing requirements have been adopted, they will not
be effective until rules relating to capital requirements are implemented. Although the Federal Reserve Board has indicated that it intends to apply
enhanced prudential standards to non-bank SIFIs by rule or order, it has not yet done so. Therefore, the manner in which these proposed standards
might apply to MetLife, Inc. remains unclear. Enhanced prudential and capital standards imposed on MetLife, Inc. as a non-bank SIFI could adversely
affect its ability to pay dividends to its stockholders, as well as repurchase its common stock or other securities or engage in other transactions
that could affect its capital. In addition, MetLife, Inc. may not be able to pay dividends if it does not receive sufficient funds from its operating
subsidiaries, which are themselves subject to separate regulatory restrictions on their ability to pay dividends. See “— Dividend Restrictions.”
MetLife, Inc. has also been designated as a global systemically important insurer by the Financial Stability Board. As such, it could be subject
to enhanced capital standards and supervision and other additional requirements that would not apply to companies that are not so designated.
These policy proposals would need to be implemented by legislation or regulation in each applicable jurisdiction, and the impact on MetLife, Inc.
is uncertain.
“Dividend Stopper” Provisions in the Preferred Stock and Junior Subordinated Debentures. Certain terms of MetLife, Inc.’s preferred stock
and junior subordinated debentures (sometimes referred to as “dividend stoppers”) may prevent it from repurchasing its common or preferred stock
or paying dividends on its common or preferred stock in certain circumstances. Dividends on the preferred stock are not cumulative. If a dividend
is not declared before the dividend payment date, MetLife, Inc. has no obligation to pay dividends accrued for that dividend period whether or not
dividends are declared and paid in future periods. No dividends may, however, be paid or declared on MetLife, Inc.’s common stock — or any
other securities ranking junior to the preferred stock — unless the full dividends for the latest completed dividend period on all preferred stock, and
any parity stock, have been declared and paid or provided for. Under the junior subordinated debentures, if MetLife, Inc. has not paid in full the
accrued interest on its junior subordinated debentures through the most recent interest payment date, it may not repurchase or pay dividends on
its common stock or other capital stock (including the preferred stock), subject to certain exceptions. The junior subordinated debentures provide
that MetLife may, at its option and provided that certain conditions are met, defer payment of interest without giving rise to an event of default for
194
MetLife, Inc.
Table of Contents
16. Equity (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
periods of up to 10 years (although after five years MetLife, Inc. would be obligated to use commercially reasonable efforts to sell equity securities
to raise proceeds to pay the interest), with no limitation on the number of deferral periods that MetLife, Inc. may begin, so long as all accrued and
unpaid interest is paid with respect to prior deferral periods. If MetLife, Inc. were to elect to defer payments of interest, the “dividend stopper”
provisions in the junior subordinated debentures would thus prevent MetLife, Inc. from repurchasing or paying dividends on its common stock or
other capital stock (including the preferred stock) during the period of deferral, subject to exceptions.
In addition, the preferred stock and the junior subordinated debentures contain provisions that would automatically suspend the payment of
preferred stock dividends and junior subordinated debenture interest payments if MetLife, Inc. fails to meet certain risk based capital ratio, net
income and stockholders’ equity tests at specified times. In such cases, however, MetLife would be permitted to make the payments if it were able
to utilize a prescribed alternative payment mechanism. As a result of the suspension of these payments, the “dividend stopper” provisions would
come into effect.
MetLife, Inc. is a party to certain RCCs which limit its ability to eliminate these restrictions through the repayment, redemption or purchase of
preferred stock or junior subordinated debentures by requiring MetLife, Inc., subject to certain limitations, to receive cash proceeds during a specified
period from the sale of specified replacement securities prior to any such repayment, redemption or purchase. See “— Preferred Stock” for a
description of such covenants in effect with respect to the preferred stock, and Note 14 for a description of such covenants in effect with respect
to junior subordinated debentures.
Accumulated Other Comprehensive Income (Loss)
Information regarding changes in the balances of each component of AOCI attributable to MetLife, Inc., was as follows:
Unrealized
Investment Gains
(Losses), Net of
Related Offsets (1)
Unrealized Gains
(Losses) on
Derivatives
Foreign
Currency
Translation
Adjustments
(In millions)
Defined
Benefit
Plans
Adjustment
Total
Balance at December 31, 2012
$
13,588
$
831
$
(533) $
(2,489) $
11,397
OCI before reclassifications
Deferred income tax benefit (expense)
AOCI before reclassifications, net of income tax
Amounts reclassified from AOCI
Deferred income tax benefit (expense)
Amounts reclassified from AOCI, net of income
tax
Balance at December 31, 2013
OCI before reclassifications
Deferred income tax benefit (expense)
AOCI before reclassifications, net of income tax
Amounts reclassified from AOCI
Deferred income tax benefit (expense)
Amounts reclassified from AOCI, net of income
tax
Sale of subsidiary (2)
Deferred income tax benefit (expense)
Sale of subsidiary, net of income tax
Balance at December 31, 2014
OCI before reclassifications
Deferred income tax benefit (expense)
AOCI before reclassifications, net of income tax
Amounts reclassified from AOCI
Deferred income tax benefit (expense)
Amounts reclassified from AOCI, net of income
tax
(8,487)
2,807
7,908
411
(136)
275
8,183
11,197
(3,419)
15,961
(811)
249
(562)
(320)
80
(240)
15,159
(7,218)
2,519
10,460
(223)
78
(145)
(937)
312
206
36
(11)
25
231
669
(261)
639
717
(280)
437
—
—
—
1,076
(19)
6
1,063
608
(213)
395
(937)
(189)
(1,659)
—
—
—
(1,659)
(1,492)
(208)
(3,359)
77
(27)
50
6
—
6
(3,303)
(1,646)
(1)
(4,950)
—
—
—
1,078
(379)
(1,790)
214
(75)
139
(1,651)
(1,150)
401
(2,400)
180
(63)
117
—
—
—
(2,283)
125
(43)
(2,201)
229
(80)
149
Balance at December 31, 2015
$
10,315
$
1,458
$
(4,950) $
(2,052) $
__________________
(9,283)
2,551
4,665
661
(222)
439
5,104
9,224
(3,487)
10,841
163
(121)
42
(314)
80
(234)
10,649
(8,758)
2,481
4,372
614
(215)
399
4,771
(1)
See Note 8 for information on offsets to investments related to future policy benefits, DAC, VOBA and DSI, and the policyholder dividend
obligation.
MetLife, Inc.
195
Table of Contents
16. Equity (continued)
(2)
See Note 3.
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
Information regarding amounts reclassified out of each component of AOCI was as follows:
AOCI Components
Amounts Reclassified from AOCI
Years Ended December 31,
2015
2014
(In millions)
2013
Consolidated Statement of
Operations
and Comprehensive Income (Loss)
Locations
Net unrealized investment gains (losses):
Net unrealized investment gains (losses)
$
129
$
603
$
344 Net investment gains (losses)
Net unrealized investment gains (losses)
Net unrealized investment gains (losses)
Net unrealized investment gains (losses),
before income tax
Income tax (expense) benefit
Net unrealized investment gains (losses), net
of income tax
Unrealized gains (losses) on derivatives - cash
flow hedges:
Interest rate swaps
Interest rate swaps
Interest rate swaps
Interest rate forwards
Interest rate forwards
Interest rate forwards
Foreign currency swaps
Foreign currency swaps
Foreign currency swaps
Credit forwards
Credit forwards
Gains (losses) on cash flow hedges, before
income tax
Income tax (expense) benefit
Gains (losses) on cash flow hedges, net of
income tax
Foreign currency translation adjustment
Income tax (expense) benefit
Foreign currency translation adjustment, net of
income tax
Defined benefit plans adjustment: (1)
Amortization of net actuarial gains (losses)
Amortization of prior service (costs) credit
Amortization of defined benefit plan items,
before income tax
Income tax (expense) benefit
Amortization of defined benefit plan items,
net of income tax
Total reclassifications, net of income tax
__________________
$
$
$
$
$
$
$
$
49
45
223
(78)
67
141
811
(249)
145
$
562
$
93 Net investment income
(26) Net derivative gains (losses)
411
(136)
275
$
20 Net derivative gains (losses)
$
85
12
—
6
5
2
(720)
(1)
1
1
1
(608)
213
42
9
—
(7)
4
2
(768)
(2)
2
—
1
(717)
280
(395) $
(437) $
— $
—
— $
(77) $
27
(50) $
(233) $
(180) $
4
(229)
80
—
(180)
63
(149) $
(399) $
(117) $
(42) $
8 Net investment income
— Other expenses
10 Net derivative gains (losses)
3 Net investment income
(1) Other expenses
(3) Net derivative gains (losses)
(3) Net investment income
1 Other expenses
— Net derivative gains (losses)
1 Net investment income
36
(11)
25
— Net investment gains (losses)
—
—
283
(69)
214
(75)
139
439
(1)
These AOCI components are included in the computation of net periodic benefit costs. See Note 18.
196
MetLife, Inc.
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
17. Other Expenses
Information on other expenses was as follows:
Compensation
Pension, postretirement and postemployment benefit costs
Commissions
Volume-related costs
Capitalization of DAC
Amortization of DAC and VOBA
Amortization of negative VOBA
Interest expense on debt
Premium taxes, licenses and fees
Professional services
Rent and related expenses, net of sublease income
Other (1)
Total other expenses
__________________
Years Ended December 31,
2015
2014
2013
(In millions)
$
4,938
$
4,894
$
400
4,517
1,002
(3,837)
3,936
(361)
1,208
766
1,511
328
2,361
473
5,153
859
(4,183)
4,132
(442)
1,216
801
1,457
361
2,370
5,108
488
5,428
842
(4,786)
3,550
(579)
1,282
658
1,454
376
2,781
$
16,769
$
17,091
$
16,602
(1)
See Note 19 for information on the charge related to income tax for the year ended December 31, 2015 and the Japan income tax refund for
the year ended December 31, 2013.
Capitalization of DAC and Amortization of DAC and VOBA
See Note 5 for additional information on DAC and VOBA including impacts of capitalization and amortization. See also Note 7 for a description
of the DAC amortization impact associated with the closed block.
Interest Expense on Debt
See Notes 12, 13, and 14 for attribution of interest expense by debt issuance. Interest expense on debt includes interest expense related to
CSEs. See Note 8.
Restructuring Charges
The Company commenced an enterprise-wide strategic initiative in 2012. This global strategy focuses on leveraging the Company’s scale to
improve the value it provides to customers and shareholders in order to reduce costs, enhance revenues, achieve efficiencies and reinvest in its
technology, platforms and functionality to improve its current operations and develop new capabilities.
These restructuring charges are included in other expenses. As the expenses relate to an enterprise-wide initiative, they are reported in Corporate &
Other. Information regarding restructuring charges was as follows:
Years Ended December 31,
2015
Lease and
Asset
Impairment
Severance
Total
Severance
2014
Lease and
Asset
Impairment
(In millions)
2013
Lease and
Asset
Impairment
Total
Total
Severance
Balance at January 1,
Restructuring charges
Cash payments
Balance at December 31,
Total restructuring
charges incurred since
inception of initiative
$
$
$
$
31
60
(73)
6
4
(6)
$ 37
$
64
(79)
$
40
83
(92)
6
8
$ 46
$
91
(8)
(100)
23
99
(82)
$
— $ 23
16
(10)
115
(92)
18
$
4
$ 22
$
31
$
6
$ 37
$
40
$
6
$ 46
383
$
46
$ 429
$
323
$
42
$ 365
$
240
$
34
$ 274
Management estimates the range for further restructuring charges including severance, as well as lease and asset impairments, through the
year ending December 31, 2016 to be $5 million to $10 million.
MetLife, Inc.
197
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
18. Employee Benefit Plans
Pension and Other Postretirement Benefit Plans
Certain subsidiaries of MetLife, Inc. sponsor and/or administer various U.S. qualified and nonqualified defined benefit pension plans and other
postretirement employee benefit plans covering employees and sales representatives who meet specified eligibility requirements. U.S. pension benefits
are provided utilizing either a traditional formula or cash balance formula. The traditional formula provides benefits that are primarily based upon years
of credited service and either final average or career average earnings. The cash balance formula utilizes hypothetical or notional accounts which
credit participants with benefits equal to a percentage of eligible pay, as well as earnings credits, determined annually based upon the average annual
rate of interest on 30-year U.S. Treasury securities, for each account balance. The U.S. nonqualified pension plans provide supplemental benefits in
excess of limits applicable to a qualified plan. The non-U.S. pension plans generally provide benefits based upon either years of credited service and
earnings preceding-retirement or points earned on job grades and other factors in years of service.
These subsidiaries also provide certain postemployment benefits and certain postretirement medical and life insurance benefits for U.S. retired
employees. Employees of these subsidiaries who were hired prior to 2003 (or, in certain cases, rehired during or after 2003) and meet age and service
criteria while working for one of the subsidiaries may become eligible for these other postretirement benefits, at various levels, in accordance with the
applicable plans. Virtually all retirees, or their beneficiaries, contribute a portion of the total costs of postretirement medical benefits. Employees hired
after 2003 are not eligible for any employer subsidy for postretirement medical benefits.
The benefit obligations, funded status and net periodic benefit costs related to these pension and other postretirement benefits were comprised
of the following:
December 31, 2015
December 31, 2014
Pension Benefits
Other Postretirement Benefits
Pension Benefits
Other Postretirement Benefits
U.S.
Plans
Non-
U.S.
Plans
Total
U.S.
Plans
Non-
U.S.
Plans
Total
U.S.
Plans
(In millions)
Non-
U.S.
Plans
Total
U.S.
Plans
Non-
U.S.
Plans
Total
Benefit
obligations
$ 9,759
$
747
$ 10,506
$ 1,895
$
29
$ 1,924
$ 10,262
$
739
$ 11,001
$ 2,110
$
35
$ 2,145
Estimated fair
value of
plan assets
Over (under)
funded
status
Net periodic
benefit
costs
8,490
261
8,751
1,373
9
1,382
8,750
253
9,003
1,426
10
1,436
$ (1,269) $ (486) $ (1,755) $ (522) $
(20) $ (542) $ (1,512) $ (486) $ (1,998) $ (684) $
(25) $ (709)
$
273
$
73
$
346
$
63
$
6
$
69
$
346
$
79
$
425
$
43
$
5
$
48
198
MetLife, Inc.
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
18. Employee Benefit Plans (continued)
Obligations and Funded Status
December 31,
2015
2014
Pension
Benefits (1)
Other
Postretirement
Benefits
Pension
Benefits (1)
Other
Postretirement
Benefits
(In millions)
$
11,001
$
2,145
$
9,335
$
1,875
276
423
—
(627)
(4)
—
(531)
(32)
10,506
9,003
(127)
(3)
—
424
(531)
(15)
8,751
(1,755) $
5
$
(1,760)
(1,755) $
2,945
$
—
2,945
$
10,082
17
90
30
(235)
(2)
(7)
(109)
(5)
1,924
1,436
4
(4)
30
26
(109)
(1)
1,382
(542) $
1
$
(543)
(542) $
222
$
(14)
208
$
N/A $
262
456
—
1,607
(18)
(4)
(536)
(101)
11,001
8,024
1,108
(10)
—
450
(536)
(33)
9,003
(1,998) $
7
$
(2,005)
(1,998) $
3,093
$
(1)
3,092
$
10,355
16
94
30
264
(5)
(9)
(116)
(4)
2,145
1,366
112
—
30
44
(116)
—
1,436
(709)
1
(710)
(709)
425
(10)
415
N/A
$
$
$
$
$
$
Change in benefit obligations
Benefit obligations at January 1,
Service costs
Interest costs
Plan participants’ contributions
Net actuarial (gains) losses
Acquisition, divestitures, settlements and curtailments
Change in benefits
Benefits paid
Effect of foreign currency translation
Benefit obligations at December 31,
Change in plan assets
Estimated fair value of plan assets at January 1,
Actual return on plan assets
Acquisition, divestitures and settlements
Plan participants’ contributions
Employer contributions
Benefits paid
Effect of foreign currency translation
Estimated fair value of plan assets at December 31,
Over (under) funded status at December 31,
Amounts recognized in the consolidated balance sheets
Other assets
Other liabilities
Net amount recognized
AOCI
Net actuarial (gains) losses
Prior service costs (credit)
AOCI, before income tax
Accumulated benefit obligation
_____________
(1)
Includes nonqualified unfunded plans, for which the aggregate PBO was $1.1 billion and $1.3 billion at December 31, 2015 and 2014,
respectively.
MetLife, Inc.
199
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
18. Employee Benefit Plans (continued)
Information for pension plans with PBOs in excess of plan assets and accumulated benefit obligations (“ABO”) in excess of plan assets was
as follows at:
December 31,
2015
2014
2015
2014
PBO Exceeds Estimated Fair Value
of Plan Assets
ABO Exceeds Estimated Fair Value
of Plan Assets
$
$
$
10,437
10,052
8,715
$
$
$
(In millions)
10,944
10,304
8,931
$
$
$
2,476
2,340
839
$
$
$
2,615
2,362
853
Projected benefit obligations
Accumulated benefit obligations
Estimated fair value of plan assets
Net Periodic Benefit Costs
The components of net periodic benefit costs and other changes in plan assets and benefit obligations recognized in OCI were as follows:
Years Ended December 31,
2015
2014
2013
Pension
Benefits
Other
Postretirement
Benefits
Pension
Benefits
Other
Postretirement
Benefits
Pension
Benefits
Other
Postretirement
Benefits
$
276
423
(1)
(542)
191
(1)
346
43
—
(191)
1
(147)
$
17
90
3
(80)
42
(3)
69
(161)
(7)
(42)
3
(207)
(In millions)
$
262
456
19
(482)
169
1
425
960
(20)
(169)
(1)
770
$
16
94
4
(76)
11
(1)
48
223
(13)
(11)
1
200
$
303
403
(2)
(489)
228
6
449
(544)
—
(228)
(6)
(778)
22
94
1
(76)
55
(75)
21
(532)
—
(57)
75
(514)
199
$
(138) $
1,195
$
248
$
(329) $
(493)
Net periodic benefit costs
Service costs
Interest costs
$
Settlement and curtailment costs
Expected return on plan assets
Amortization of net actuarial (gains)
losses
Amortization of prior service costs
(credit)
Total net periodic benefit costs
(credit)
Other changes in plan assets and
benefit obligations recognized in
OCI
Net actuarial (gains) losses
Prior service costs (credit)
Amortization of net actuarial (gains)
losses
Amortization of prior service (costs)
credit
Total recognized in OCI
Total recognized in net
periodic benefit costs and
OCI
$
The estimated net actuarial (gains) losses and prior service costs (credit) for the defined benefit pension plans and other postretirement benefit
plans that will be amortized from AOCI into net periodic benefit costs over the next year are $193 million and ($1) million, and $13 million and
($7) million, respectively.
200
MetLife, Inc.
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
18. Employee Benefit Plans (continued)
Assumptions
Assumptions used in determining benefit obligations for the U.S. plans were as follows:
December 31, 2015
Weighted average discount rate
Rate of compensation increase
December 31, 2014
Weighted average discount rate
Rate of compensation increase
Pension Benefits
Other Postretirement Benefits
4.50%
2.25% - 8.50%
4.10%
2.25% - 8.50%
4.60%
N/A
4.10%
N/A
Assumptions used in determining net periodic benefit costs for the U.S. Plans were as follows:
Year Ended December 31, 2015
Weighted average discount rate
Weighted average expected rate of return on plan assets
Rate of compensation increase
Year Ended December 31, 2014
Weighted average discount rate
Weighted average expected rate of return on plan assets
Rate of compensation increase
Year Ended December 31, 2013
Weighted average discount rate
Weighted average expected rate of return on plan assets
Rate of compensation increase
Pension Benefits
Other Postretirement Benefits
4.10%
6.25%
2.25% - 8.50%
5.15%
6.25%
3.50% - 7.50%
4.20%
6.25%
3.50% - 7.50%
4.10%
5.70%
N/A
5.15%
5.70%
N/A
4.20%
5.76%
N/A
The weighted average discount rate for the U.S. plans is determined annually based on the yield, measured on a yield to worst basis, of a
hypothetical portfolio constructed of high quality debt instruments available on the valuation date, which would provide the necessary future cash
flows to pay the aggregate PBO when due.
The weighted average expected rate of return on plan assets for the U.S. plans is based on anticipated performance of the various asset
sectors in which the plans invest, weighted by target allocation percentages. Anticipated future performance is based on long-term historical returns
of the plan assets by sector, adjusted for the long-term expectations on the performance of the markets. While the precise expected rate of return
derived using this approach will fluctuate from year to year, the policy is to hold this long-term assumption constant as long as it remains within
reasonable tolerance from the derived rate.
The weighted average expected rate of return on plan assets for use in that plan’s valuation in 2016 is currently anticipated to be 6.00% for
U.S. pension benefits and 5.52% for U.S. other postretirement benefits.
The assumed healthcare costs trend rates used in measuring the APBO and net periodic benefit costs were as follows:
Following year
Ultimate rate to which cost increase is assumed to decline
Year in which the ultimate trend rate is reached
December 31,
2015
2014
Before
Age 65
Age 65 and
older
Before
Age 65
Age 65 and
older
6.3%
4.2%
2086
10.3%
4.6%
2091
6.4%
4.4%
2094
6.4%
4.7%
2089
MetLife, Inc.
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Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
18. Employee Benefit Plans (continued)
Assumed healthcare costs trend rates may have a significant effect on the amounts reported for healthcare plans. A 1% change in assumed
healthcare costs trend rates would have the following effects on the U.S. Plans as of December 31, 2015:
Effect on total of service and interest costs components
Effect of accumulated postretirement benefit obligations
$
$
One Percent
Increase
One Percent
Decrease
(In millions)
15
253
$
$
(12)
(207)
As of December 31, 2014, the improved mortality rate assumption used for all U.S. pension and postretirement benefit plans is the RP-2000
healthy mortality table projected generationally using 175% of Scale AA. The mortality rate assumption was revised based upon the results of a
comprehensive study of MetLife’s demographic experience and reflects the current best estimate of expected mortality rates for MetLife’s participant
population. Prior to December 31, 2014, the mortality rate assumption used to value the benefit obligations and net periodic benefit cost for these
plans was the RP-2000 healthy mortality table projected generationally using 100% of Scale AA.
Plan Assets
Certain U.S. subsidiaries provide employees with benefits under various Employee Retirement Income Security Act of 1974 (“ERISA”) benefit
plans. These include qualified pension plans, postretirement medical plans and certain retiree life insurance coverage. The assets of these U.S.
subsidiaries’ qualified pension plans are held in an insurance group annuity contract, and the vast majority of the assets of the postretirement
medical plan and backing the retiree life coverage are held in a trust which largely utilizes insurance contracts to hold the assets. All of these contracts
are issued by the Company’s insurance affiliates, and the assets under the contracts are held in insurance separate accounts that have been
established by the Company. The underlying assets of the separate accounts are principally comprised of cash and cash equivalents, short-term
investments, fixed maturity and equity securities, derivatives, real estate, private equity investments and hedge fund investments.
The insurance contract provider engages investment management firms (“Managers”) to serve as sub-advisors for the separate accounts
based on the specific investment needs and requests identified by the plan fiduciary. These Managers have portfolio management discretion over
the purchasing and selling of securities and other investment assets pursuant to the respective investment management agreements and guidelines
established for each insurance separate account. The assets of the qualified pension plans and postretirement medical plans (the “Invested Plans”)
are well diversified across multiple asset categories and across a number of different Managers, with the intent of minimizing risk concentrations
within any given asset category or with any of the given Managers.
The Invested Plans, other than those held in participant directed investment accounts, are managed in accordance with investment policies
consistent with the longer-term nature of related benefit obligations and within prudent risk parameters. Specifically, investment policies are oriented
toward (i) maximizing the Invested Plan’s funded status; (ii) minimizing the volatility of the Invested Plan’s funded status; (iii) generating asset returns
that exceed liability increases; and (iv) targeting rates of return in excess of a custom benchmark and industry standards over appropriate reference
time periods. These goals are expected to be met through identifying appropriate and diversified asset classes and allocations, ensuring adequate
liquidity to pay benefits and expenses when due and controlling the costs of administering and managing the Invested Plan’s investments.
Independent investment consultants are periodically used to evaluate the investment risk of Invested Plan’s assets relative to liabilities, analyze the
economic and portfolio impact of various asset allocations and management strategies and to recommend asset allocations.
Derivative contracts may be used to reduce investment risk, to manage duration and to replicate the risk/return profile of an asset or asset
class. Derivatives may not be used to leverage a portfolio in any manner, such as to magnify exposure to an asset, asset class, interest rates or
any other financial variable. Derivatives are also prohibited for use in creating exposures to securities, currencies, indices or any other financial
variable that is otherwise restricted.
The table below summarizes the actual weighted average allocation of the estimated fair value of total plan assets by asset class at December 31
for the years indicated and the approved target allocation by major asset class at December 31, 2015 for the Invested Plans:
December 31,
2015
2014
U.S. Pension Benefits
U.S. Other Postretirement
Benefits
U.S. Pension Benefits
U.S. Other
Postretirement Benefits
Target
Actual
Allocation
Target
Actual
Allocation
Actual
Allocation
Actual
Allocation
80%
10%
10%
71%
14%
15%
100%
76%
24%
—%
73%
25%
2%
100%
69%
15%
16%
100%
71%
27%
2%
100%
Asset Class
Fixed maturity securities
Equity securities
Alternative securities (1)
Total assets
______________
(1)
Alternative securities primarily include derivative assets, money market securities, short-term investments and other investments. U.S. other
postretirement benefits do not include postretirement life’s target and actual allocation of plan assets that are all in short-term investments.
202
MetLife, Inc.
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
18. Employee Benefit Plans (continued)
Estimated Fair Value
The pension and other postretirement benefit plan assets are categorized into a three-level fair value hierarchy, as described in Note 10,
based upon the significant input with the lowest level in its valuation. The Level 2 asset category includes certain separate accounts that are
primarily invested in liquid and readily marketable securities. The estimated fair value of such separate accounts is based upon reported NAV
provided by fund managers and this value represents the amount at which transfers into and out of the respective separate account are effected.
These separate accounts provide reasonable levels of price transparency and can be corroborated through observable market data. Directly
held investments are primarily invested in U.S. and foreign government and corporate securities. The Level 3 asset category includes separate
accounts that are invested in assets that provide little or no price transparency due to the infrequency with which the underlying assets trade
and generally require additional time to liquidate in an orderly manner. Accordingly, the values for separate accounts invested in these alternative
asset classes are based on inputs that cannot be readily derived from or corroborated by observable market data.
The pension and other postretirement plan assets measured at estimated fair value on a recurring basis and their corresponding placement
in the fair value hierarchy are summarized as follows:
Pension Benefits
Other Postretirement Benefits
Fair Value Hierarchy
Fair Value Hierarchy
December 31, 2015
Level 1
Level 2
Level 3
Total
Estimated
Fair
Value
Level 1
Level 2
Level 3
Total
Estimated
Fair
Value
(In millions)
Assets
Fixed maturity securities:
Corporate
U.S. government bonds
Foreign bonds
Federal agencies
Municipals
Other (1)
$
— $
2,979
$
994
—
—
—
—
493
764
228
302
354
78
—
17
—
—
7
$
3,057
$
18
$
281
$
1,487
193
781
228
302
361
—
—
—
—
12
69
34
56
47
Total fixed maturity securities
994
5,120
102
6,216
211
499
Equity securities:
Common stock - domestic
Common stock - foreign
Total equity securities
Other investments
Short-term investments
Money market securities
Derivative assets
Total assets
751
378
1,129
32
10
9
26
24
61
85
84
309
49
3
—
—
—
723
—
—
76
775
439
1,214
839
319
58
105
126
111
237
—
1
—
2
—
—
—
—
431
—
—
$
2,200
$
5,650
$
901
$
8,751
$
451
$
930
$
1
—
—
—
—
—
1
—
—
—
—
—
—
—
1
$
300
205
69
34
56
47
711
126
111
237
—
432
—
2
$
1,382
MetLife, Inc.
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Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
18. Employee Benefit Plans (continued)
Pension Benefits
Other Postretirement Benefits
Fair Value Hierarchy
Fair Value Hierarchy
December 31, 2014
Level 1
Level 2
Level 3
Total
Estimated
Fair
Value
Level 1
Level 2
Level 3
Total
Estimated
Fair
Value
(In millions)
Assets
Fixed maturity securities:
Corporate
U.S. government bonds
Foreign bonds
Federal agencies
Municipals
Other (1)
$
— $
2,704
$
1,605
—
—
—
—
223
808
254
270
188
80
—
17
—
—
8
$
2,784
$
42
$
244
$
1,828
169
825
254
270
196
—
—
—
—
12
78
35
74
63
Total fixed maturity securities
1,605
4,447
105
6,157
211
506
Equity securities:
Common stock - domestic
Common stock - foreign
Total equity securities
Other investments
Short-term investments
Money market securities
Derivative assets
Total assets
______________
951
394
1,345
34
189
29
11
—
57
57
24
276
56
7
—
—
—
745
—
—
73
951
451
1,402
803
465
85
91
188
80
268
—
14
—
—
—
—
—
—
433
—
1
$
3,213
$
4,867
$
923
$
9,003
$
493
$
940
$
3
—
—
—
—
—
3
—
—
—
—
—
—
—
3
$
289
181
78
35
74
63
720
188
80
268
—
447
—
1
$
1,436
(1)
Other primarily includes mortgage-backed securities, collateralized mortgage obligations and ABS.
A rollforward of all pension and other postretirement benefit plan assets measured at estimated fair value on a recurring basis using significant
unobservable (Level 3) inputs was as follows:
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Fixed Maturity Securities:
Pension Benefits
Equity
Securities:
Corporate
Foreign Bonds
Other (1)
Common Stock
- Domestic
Other
Investments
Derivative
Assets
59
$
3
—
11
7
80
$
1
(4)
8
(7)
$
$
11
—
—
6
—
17
—
(1)
2
(1)
78
$
17
$
(In millions)
19
—
—
(2)
(9)
8
—
2
(1)
(2)
7
$
$
$
148
$
602
$
—
—
—
(148)
— $
—
—
—
—
(13)
112
(104)
148
745
—
55
(77)
—
$
— $
723
$
37
(16)
18
34
—
73
(11)
(9)
23
—
76
Balance, January 1, 2014
Realized gains (losses)
Unrealized gains (losses)
Purchases, sales, issuances and settlements, net
Transfers into and/or out of Level 3
Balance, December 31, 2014
Realized gains (losses)
Unrealized gains (losses)
Purchases, sales, issuances and settlements, net
Transfers into and/or out of Level 3
Balance, December 31, 2015
______________
$
$
$
(1)
Other includes ABS and collateralized mortgage obligations.
Other postretirement benefit plan assets measured at estimated fair value on a recurring basis using significant unobservable (Level 3)
inputs were not significant for the years ended December 31, 2015 and 2014.
204
MetLife, Inc.
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
18. Employee Benefit Plans (continued)
Expected Future Contributions and Benefit Payments
It is the subsidiaries’ practice to make contributions to the U.S. qualified pension plan to comply with minimum funding requirements of ERISA.
In accordance with such practice, no contributions are required for 2016. The subsidiaries expect to make discretionary contributions to the qualified
pension plan of $300 million in 2016. For information on employer contributions, see “— Obligations and Funded Status.”
Benefit payments due under the U.S. nonqualified pension plans are primarily funded from the subsidiaries’ general assets as they become
due under the provision of the plans, therefore benefit payments equal employer contributions. The U.S. subsidiaries expect to make contributions
of $65 million to fund the benefit payments in 2016.
Postretirement benefits are either: (i) not vested under law; (ii) a non-funded obligation of the subsidiaries; or (iii) both. Current regulations do
not require funding for these benefits. The subsidiaries use their general assets, net of participant’s contributions, to pay postretirement medical
claims as they come due. As permitted under the terms of the governing trust document, the subsidiaries may be reimbursed from plan assets for
postretirement medical claims paid from their general assets. The U.S. subsidiaries expect to make contributions of $50 million towards benefit
obligations in 2016 to pay postretirement medical claims.
Gross benefit payments for the next 10 years, which reflect expected future service where appropriate, are expected to be as follows:
2016
2017
2018
2019
2020
2021-2025
Additional Information
Pension Benefits
Other Postretirement Benefits
(In millions)
545
570
582
606
627
3,463
$
$
$
$
$
$
86
87
90
92
95
508
$
$
$
$
$
$
As previously discussed, most of the assets of the U.S. pension benefit plans are held in a group annuity contract issued by the subsidiaries
while some of the assets of the U.S. postretirement benefit plans are held in a trust which largely utilizes life insurance contracts issued by the
subsidiaries to hold such assets. Total revenues from these contracts recognized in the consolidated statements of operations were $55 million,
$50 million and $49 million for the years ended December 31, 2015, 2014 and 2013, respectively, and included policy charges and net investment
income from investments backing the contracts and administrative fees. Total investment income (loss), including realized and unrealized
gains (losses), credited to the account balances was ($130) million, $1.2 billion and $20 million for the years ended December 31, 2015, 2014 and
2013, respectively. The terms of these contracts are consistent in all material respects with those the subsidiaries offer to unaffiliated parties that
are similarly situated.
Defined Contribution Plans
Certain subsidiaries sponsor defined contribution plans under which a portion of employee contributions are matched. These subsidiaries
contributed $80 million, $77 million and $93 million for the years ended December 31, 2015, 2014 and 2013, respectively.
MetLife, Inc.
205
Table of Contents
19. Income Tax
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
The provision for income tax from continuing operations was as follows:
Current:
Federal
State and local
Foreign
Subtotal
Deferred:
Federal
State and local
Foreign
Subtotal
Years Ended December 31,
2015
2014
(In millions)
2013
$
584
$
(56) $
10
556
1,150
701
—
297
998
9
779
732
1,597
(1)
137
1,733
Provision for income tax expense (benefit)
$
2,148
$
2,465
$
85
2
422
509
(250)
(11)
413
152
661
The Company’s income (loss) from continuing operations before income tax expense (benefit) from domestic and foreign operations were as
follows:
Income (loss) from continuing operations:
Domestic
Foreign
Total
Years Ended December 31,
2015
2014
(In millions)
2013
$
$
3,743
$
3,727
7,470
$
6,043
$
2,761
8,804
$
1,186
2,866
4,052
The reconciliation of the income tax provision at the U.S. statutory rate to the provision for income tax as reported for continuing operations was
as follows:
Tax provision at U.S. statutory rate
Tax effect of:
Dividend received deduction
Tax-exempt income
Prior year tax (1)
Low income housing tax credits
Other tax credits
Foreign tax rate differential (2),(3),(4)
Change in valuation allowance
Deferred tax effects of branch conversions
Other, net
Years Ended December 31,
2015
2014
(In millions)
2013
$
2,615
$
3,081
$
1,418
(216)
(73)
555
(225)
(80)
(465)
5
—
32
(204)
(92)
21
(209)
(77)
(118)
(3)
—
66
(166)
(96)
75
(194)
(54)
(340)
30
4
(16)
661
Provision for income tax expense (benefit)
$
2,148
$
2,465
$
______________
(1)
(2)
206
As discussed further below, prior year tax includes a $557 million non-cash charge related to an uncertain tax position.
For the year ended December 31, 2015, foreign tax rate differential includes one-time tax benefits of $174 million related to a Japan tax rate
change, $61 million related to restructuring in Chile, $57 million related to the repatriation of earnings from Japan, $41 million related to certain
MetLife, Inc.
Table of Contents
19. Income Tax (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
non-portfolio net investment gains that were non-taxable and $31 million related to the devaluation of the peso in Argentina. These benefits
were partially offset by one-time charges of $88 million related to the impact of foreign exchange on investment gains in Argentina and
$36 million as a result of a deferred tax liability true-up in Japan.
(3)
(4)
For the year ended December 31, 2014, foreign tax rate differential includes a one-time tax charge of $54 million related to tax reform in Chile
and $45 million related to the repatriation of earnings from Japan, partially offset by a one-time tax benefit of $13 million related to the change
in repatriation assumption for foreign earnings of the United Arab Emirates (“UAE”).
For the year ended December 31, 2013, foreign tax rate differential includes one-time tax benefits of $119 million related to the receipt of a
Japan tax refund, $69 million related to the estimated reversal of Japan temporary differences, and $65 million related to the change in
repatriation assumptions for foreign earnings of certain European operations.
Deferred income tax represents the tax effect of the differences between the book and tax bases of assets and liabilities. Net deferred income
tax assets and liabilities consisted of the following at:
Deferred income tax assets:
Policyholder liabilities and receivables
Net operating loss carryforwards
Employee benefits
Capital loss carryforwards
Tax credit carryforwards
Litigation-related and government mandated
Other
Total gross deferred income tax assets
Less: Valuation allowance
Total net deferred income tax assets
Deferred income tax liabilities:
Investments, including derivatives
Intangibles
Net unrealized investment gains
DAC
Other
Total deferred income tax liabilities
Net deferred income tax asset (liability)
December 31,
2015
2014
(In millions)
$
1,734
$
1,229
1,094
9
1,264
260
858
6,448
203
6,245
4,469
1,606
5,639
5,000
123
3,022
1,293
1,068
26
1,733
315
831
8,288
224
8,064
4,554
1,877
7,971
5,153
330
16,837
$
(10,592) $
19,885
(11,821)
The Company also has recorded a valuation allowance charge of $5 million related to certain state and foreign net operating loss carryforwards.
In addition, a $21 million reduction was related to foreign currency movement and a $5 million reduction was recorded as a balance sheet reclassification
with other deferred tax assets. The valuation allowance reflects management’s assessment, based on available information, that it is more likely than
not that the deferred income tax asset for certain foreign and state net operating loss carryforwards will not be realized. The tax benefit will be recognized
when management believes that it is more likely than not that these deferred income tax assets are realizable.
MetLife, Inc.
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Table of Contents
19. Income Tax (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
The following table sets forth the domestic, state, and foreign net operating loss carryforwards and the domestic capital loss carryforwards for
tax purposes at December 31, 2015.
Net Operating Loss Carryforwards
Capital Loss
Carryforwards
Domestic
State
Foreign
Domestic
(In millions)
Expiration
2016-2020
2021-2025
2026-2030
2031-2035
Indefinite
$
$
— $
—
1,096
2,107
—
31
52
41
12
—
3,203
$
136
$
$
140
$
24
—
—
668
832
$
27
—
—
—
—
27
The following table sets forth the general business credits, foreign tax credits, and other credit carryforwards for tax purposes at December 31,
2015.
Expiration
2016-2020
2021-2025
2026-2030
2031-2035
Indefinite
General Business
Credits
Tax Credit Carryforwards
Foreign Tax Credits
Other
(In millions)
$
$
— $
— $
—
104
529
—
570
—
—
—
633
$
570
$
—
—
—
—
342
342
In December 2012, the Tokyo District Court ruled in favor of the Japan branch of American Life in a tax case related to the deduction of unrealized
foreign exchange losses on certain securities held by American Life prior to its acquisition by MetLife. During the first quarter of 2013, American Life
received a refund of ¥16 billion ($176 million) related to income tax, interest and penalties. Under the indemnification provisions of the stock purchase
agreement dated March 7, 2010, as amended, by and among MetLife, Inc., American International Group, Inc. (“AIG”) and AM Holdings, MetLife, Inc.
has remitted the refund to AIG, net of certain amounts it can retain as a counter claim. The receipt of the refund, net of obligations to AIG with related
foreign currency exchange impact and corresponding U.S. tax effects, resulted in a net charge of $16 million in the consolidated statements of
operations for the year ended December 31, 2013, which was comprised of a $154 million charge included in other expenses, a $19 million gain
included in other net investment gains (losses) and a $119 million benefit included in provision for income tax expense (benefit).
The Company has not provided U.S. deferred taxes on cumulative earnings of certain non-U.S. affiliates that have been reinvested indefinitely.
These earnings relate to ongoing operations and have been reinvested in active non-U.S. business operations. The Company does not intend to
repatriate these earnings to fund U.S. operations. Deferred taxes are provided for earnings of non-U.S. affiliates when the Company plans to remit
those earnings. At December 31, 2015, the Company had not made a provision for U.S. taxes on approximately $4.9 billion of the excess of the
amount for financial reporting over the tax bases of investments in foreign subsidiaries that are essentially permanent in duration. It is not practicable
to estimate the amount of deferred tax liability related to investments in these foreign subsidiaries.
The Company considers the earnings of Japan and the Middle East (excluding the UAE and Turkey) to be available for repatriation. Earnings
from the remaining foreign countries are considered to be permanently reinvested. In 2014 and 2013, the Company changed its repatriation assumptions
related to the UAE and certain of its European operations, respectively, and now considers these foreign earnings to be permanently reinvested.
The Company files income tax returns with the U.S. federal government and various state and local jurisdictions, as well as foreign jurisdictions.
The Company is under continuous examination by the Internal Revenue Service (“IRS”) and other tax authorities in jurisdictions in which the Company
has significant business operations. The income tax years under examination vary by jurisdiction and subsidiary. The Company is no longer subject
to U.S. federal, state, or local income tax examinations for years prior to 2007, except for i) 2000 through 2002 where the IRS disallowance relates
to certain tax credits claimed - in April 2015, the Company received a Statutory Notice of Deficiency (the “Notice”) and paid the tax thereon in September
2015 (see additional details below); and ii) 2003 through 2006, where the IRS disallowance related predominantly to certain tax credits claimed and
the Company is engaged with IRS Appeals. Management believes it has established adequate tax liabilities and final resolution for the years 2000
through 2006 is not expected to have a material impact on the Company’s consolidated financial statements. In material foreign jurisdictions, the
Company is no longer subject to income tax examination for years prior to 2009.
208
MetLife, Inc.
Table of Contents
19. Income Tax (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
The Company recorded a non-cash charge to net income of $792 million, net of tax, during the third quarter of 2015. The charge was related
to an uncertain tax position and was comprised of a $557 million charge included in provision for income tax expense (benefit) and a $362 million
($235 million, net of tax) charge included in other expenses. This charge is the result of the Company’s consideration of recent decisions of the U.S.
Court of Appeals for the Second Circuit upholding the disallowance of foreign tax credits claimed by other corporate entities not affiliated with the
Company. The Company’s action relates to tax years from 2000 to 2009, during which MLIC held non-U.S. investments in support of its life insurance
business through a United Kingdom investment subsidiary that was structured as a joint venture at the time.
There has been no change in the Company’s position on the disallowance of its foreign tax credits by the IRS. The Company continues to contest
the disallowance of these foreign tax credits by the IRS as management believes the facts strongly support the Company’s position. The Company
will defend its position vigorously and does not expect any additional charges related to this matter.
Also related to the aforementioned foreign tax credit matter, on April 9, 2015, the IRS issued the Notice to the Company. The Notice asserted
that the Company owes additional taxes and interest for 2000 through 2002 primarily due to the disallowance of foreign tax credits. The transactions
that are the subject of the Notice continue through 2009, and it is likely that the IRS will seek to challenge these later periods. On September 18,
2015, the Company paid the assessed tax and interest of $444 million for 2000 through 2002 and will subsequently file a claim for a refund. On
November 19, 2015, $9 million of this amount was refunded from the IRS as an overpayment of interest.
The Company’s liability for unrecognized tax benefits may increase or decrease in the next 12 months. A reasonable estimate of the increase or
decrease cannot be made at this time. However, the Company continues to believe that the ultimate resolution of the pending issues will not result
in a material change to its consolidated financial statements, although the resolution of income tax matters could impact the Company’s effective tax
rate for a particular future period.
A reconciliation of the beginning and ending amount of unrecognized tax benefits was as follows:
Balance at January 1,
Additions for tax positions of prior years (1)
Reductions for tax positions of prior years
Additions for tax positions of current year
Reductions for tax positions of current year
Settlements with tax authorities
Balance at December 31,
Unrecognized tax benefits that, if recognized would impact the effective rate
______________
Years Ended December 31,
2015
779
579
(24)
28
(1)
(38)
2014
(In millions)
$
774
$
2013
74
(88)
23
—
(4)
1,323
1,268
$
$
779
690
$
$
708
117
(37)
39
(1)
(52)
774
661
$
$
$
(1) The significant increase in 2015 is related to the non-cash charge discussed above.
The Company classifies interest accrued related to unrecognized tax benefits in interest expense, included within other expenses, while penalties
are included in income tax expense.
Interest was as follows:
Interest recognized in the consolidated statements of operations (1)
$
388
$
26
$
20
Years Ended December 31,
2015
2014
(In millions)
2013
Interest included in other liabilities in the consolidated balance sheets (1)
______________
(1) The significant increase in 2015 is related to the non-cash charge discussed above.
The Company had insignificant penalties for the years ended December 31, 2015, 2014 and 2013.
December 31,
2015
2014
$
(In millions)
671
$
283
MetLife, Inc.
209
Table of Contents
19. Income Tax (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
The U.S. Treasury Department and the IRS have indicated that they intend to address through regulations the methodology to be followed in
determining the dividends received deduction (“DRD”), related to variable life insurance and annuity contracts. The DRD reduces the amount of dividend
income subject to tax and is a significant component of the difference between the actual tax expense and expected amount determined using the
federal statutory tax rate of 35%. Any regulations that the IRS ultimately proposes for issuance in this area will be subject to public notice and comment,
at which time insurance companies and other interested parties will have the opportunity to raise legal and practical questions about the content,
scope and application of such regulations. As a result, the ultimate timing and substance of any such regulations are unknown at this time. For the
years ended December 31, 2015, 2014, and 2013, the Company recognized an income tax benefit of $220 million, $234 million and $164 million,
respectively, related to the separate account DRD. The 2015 benefit included a benefit of $12 million related to a true-up of the 2014 tax return. The
2014 and 2013 benefit included a benefit of $38 million and $6 million related to a true-up of the 2013 and 2012 tax returns, respectively.
20. Earnings Per Common Share
The following table presents the weighted average shares used in calculating basic earnings per common share and those used in calculating
diluted earnings per common share for each income category presented below:
Weighted Average Shares
Weighted average common stock outstanding for basic earnings per common
share
Incremental common shares from assumed:
Years Ended December 31,
2015
2014
2013
(In millions, except share and per share data)
1,117,775,843
1,128,671,410
1,105,579,693
Stock purchase contracts underlying common equity units (1)
Exercise or issuance of stock-based awards
—
10,567,542
2,928,570
10,863,468
1,164,018
9,458,999
Weighted average common stock outstanding for diluted earnings per
common share
Income (Loss) from Continuing Operations
Income (loss) from continuing operations, net of income tax
Less: Income (loss) from continuing operations, net of income tax, attributable
to noncontrolling interests
Less: Preferred stock dividends
Preferred stock repurchase premium
Income (loss) from continuing operations, net of income tax, available to
MetLife, Inc.’s common shareholders
Basic
Diluted
Income (Loss) from Discontinued Operations
Income (loss) from discontinued operations, net of income tax
Less: Income (loss) from discontinued operations, net of income tax,
attributable to noncontrolling interests
Income (loss) from discontinued operations, net of income tax, available to
MetLife, Inc.’s common shareholders
Basic
Diluted
Net Income (Loss)
Net income (loss)
Less: Net income (loss) attributable to noncontrolling interests
Less: Preferred stock dividends
Preferred stock repurchase premium
Net income (loss) available to MetLife, Inc.’s common shareholders
Basic
Diluted
______________
(1)
See Note 15 for a description of the Company’s common equity units.
$
$
$
$
$
$
$
$
$
$
$
$
1,128,343,385
1,142,463,448
1,116,202,710
5,322
$
6,339
$
3,391
12
116
42
5,152
4.61
4.57
$
$
$
— $
—
— $
— $
— $
27
122
—
6,190
5.48
5.42
$
$
$
(3) $
—
(3) $
— $
— $
25
122
—
3,244
2.94
2.91
2
—
2
—
—
5,322
$
6,336
$
3,393
12
116
42
5,152
4.61
4.57
$
$
$
27
122
—
6,187
5.48
5.42
$
$
$
25
122
—
3,246
2.94
2.91
210
MetLife, Inc.
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
21. Contingencies, Commitments and Guarantees
Contingencies
Litigation
The Company is a defendant in a large number of litigation matters. In some of the matters, very large and/or indeterminate amounts, including
punitive and treble damages, are sought. Modern pleading practice in the U.S. permits considerable variation in the assertion of monetary damages
or other relief. Jurisdictions may permit claimants not to specify the monetary damages sought or may permit claimants to state only that the
amount sought is sufficient to invoke the jurisdiction of the trial court. In addition, jurisdictions may permit plaintiffs to allege monetary damages in
amounts well exceeding reasonably possible verdicts in the jurisdiction for similar matters. This variability in pleadings, together with the actual
experience of the Company in litigating or resolving through settlement numerous claims over an extended period of time, demonstrates to
management that the monetary relief which may be specified in a lawsuit or claim bears little relevance to its merits or disposition value.
Due to the vagaries of litigation, the outcome of a litigation matter and the amount or range of potential loss at particular points in time may
normally be difficult to ascertain. Uncertainties can include how fact finders will evaluate documentary evidence and the credibility and effectiveness
of witness testimony, and how trial and appellate courts will apply the law in the context of the pleadings or evidence presented, whether by motion
practice, or at trial or on appeal. Disposition valuations are also subject to the uncertainty of how opposing parties and their counsel will themselves
view the relevant evidence and applicable law.
The Company establishes liabilities for litigation and regulatory loss contingencies when it is probable that a loss has been incurred and the
amount of the loss can be reasonably estimated. Liabilities have been established for a number of the matters noted below. It is possible that some
of the matters could require the Company to pay damages or make other expenditures or establish accruals in amounts that could not be reasonably
estimated at December 31, 2015. While the potential future charges could be material in the particular quarterly or annual periods in which they
are recorded, based on information currently known to management, management does not believe any such charges are likely to have a material
effect on the Company’s financial position.
Matters as to Which an Estimate Can Be Made
For some of the matters disclosed below, the Company is able to estimate a reasonably possible range of loss. For such matters where a
loss is believed to be reasonably possible, but not probable, no accrual has been made. As of December 31, 2015, the Company estimates the
aggregate range of reasonably possible losses in excess of amounts accrued for these matters to be $0 to $460 million.
Matters as to Which an Estimate Cannot Be Made
For other matters disclosed below, the Company is not currently able to estimate the reasonably possible loss or range of loss. The Company
is often unable to estimate the possible loss or range of loss until developments in such matters have provided sufficient information to support
an assessment of the range of possible loss, such as quantification of a damage demand from plaintiffs, discovery from other parties and
investigation of factual allegations, rulings by the court on motions or appeals, analysis by experts, and the progress of settlement negotiations.
On a quarterly and annual basis, the Company reviews relevant information with respect to litigation contingencies and updates its accruals,
disclosures and estimates of reasonably possible losses or ranges of loss based on such reviews.
Asbestos-Related Claims
MLIC is and has been a defendant in a large number of asbestos-related suits filed primarily in state courts. These suits principally allege
that the plaintiff or plaintiffs suffered personal injury resulting from exposure to asbestos and seek both actual and punitive damages. MLIC has
never engaged in the business of manufacturing, producing, distributing or selling asbestos or asbestos-containing products nor has MLIC
issued liability or workers’ compensation insurance to companies in the business of manufacturing, producing, distributing or selling asbestos
or asbestos-containing products. The lawsuits principally have focused on allegations with respect to certain research, publication and other
activities of one or more of MLIC’s employees during the period from the 1920’s through approximately the 1950’s and allege that MLIC learned
or should have learned of certain health risks posed by asbestos and, among other things, improperly publicized or failed to disclose those health
risks. MLIC believes that it should not have legal liability in these cases. The outcome of most asbestos litigation matters, however, is uncertain
and can be impacted by numerous variables, including differences in legal rulings in various jurisdictions, the nature of the alleged injury and
factors unrelated to the ultimate legal merit of the claims asserted against MLIC. MLIC employs a number of resolution strategies to manage its
asbestos loss exposure, including seeking resolution of pending litigation by judicial rulings and settling individual or groups of claims or lawsuits
under appropriate circumstances.
Claims asserted against MLIC have included negligence, intentional tort and conspiracy concerning the health risks associated with asbestos.
MLIC’s defenses (beyond denial of certain factual allegations) include that: (i) MLIC owed no duty to the plaintiffs — it had no special relationship
with the plaintiffs and did not manufacture, produce, distribute or sell the asbestos products that allegedly injured plaintiffs; (ii) plaintiffs did not
rely on any actions of MLIC; (iii) MLIC’s conduct was not the cause of the plaintiffs’ injuries; (iv) plaintiffs’ exposure occurred after the dangers of
asbestos were known; and (v) the applicable time with respect to filing suit has expired. During the course of the litigation, certain trial courts
have granted motions dismissing claims against MLIC, while other trial courts have denied MLIC’s motions. There can be no assurance that
MLIC will receive favorable decisions on motions in the future. While most cases brought to date have settled, MLIC intends to continue to defend
aggressively against claims based on asbestos exposure, including defending claims at trials.
MetLife, Inc.
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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
21. Contingencies, Commitments and Guarantees (continued)
The approximate total number of asbestos personal injury claims pending against MLIC as of the dates indicated, the approximate number
of new claims during the years ended on those dates and the approximate total settlement payments made to resolve asbestos personal injury
claims at or during those years are set forth in the following table:
Asbestos personal injury claims at year end
Number of new claims during the year
Settlement payments during the year (1)
______________
2015
December 31,
2014
2013
(In millions, except number of claims)
67,787
3,856
68,460
4,636
$
56.1
$
46.0
$
67,983
5,898
37.0
(1)
Settlement payments represent payments made by MLIC during the year in connection with settlements made in that year and in prior years.
Amounts do not include MLIC’s attorneys’ fees and expenses.
The number of asbestos cases that may be brought, the aggregate amount of any liability that MLIC may incur, and the total amount paid
in settlements in any given year are uncertain and may vary significantly from year to year.
The ability of MLIC to estimate its ultimate asbestos exposure is subject to considerable uncertainty, and the conditions impacting its liability
can be dynamic and subject to change. The availability of reliable data is limited and it is difficult to predict the numerous variables that can affect
liability estimates, including the number of future claims, the cost to resolve claims, the disease mix and severity of disease in pending and future
claims, the impact of the number of new claims filed in a particular jurisdiction and variations in the law in the jurisdictions in which claims are
filed, the possible impact of tort reform efforts, the willingness of courts to allow plaintiffs to pursue claims against MLIC when exposure to
asbestos took place after the dangers of asbestos exposure were well known, and the impact of any possible future adverse verdicts and their
amounts.
The ability to make estimates regarding ultimate asbestos exposure declines significantly as the estimates relate to years further in the
future. In the Company’s judgment, there is a future point after which losses cease to be probable and reasonably estimable. It is reasonably
possible that the Company’s total exposure to asbestos claims may be materially greater than the asbestos liability currently accrued and that
future charges to income may be necessary. While the potential future charges could be material in the particular quarterly or annual periods in
which they are recorded, based on information currently known by management, management does not believe any such charges are likely to
have a material effect on the Company’s financial position.
The Company believes adequate provision has been made in its consolidated financial statements for all probable and reasonably estimable
losses for asbestos-related claims. MLIC’s recorded asbestos liability is based on its estimation of the following elements, as informed by the
facts presently known to it, its understanding of current law and its past experiences: (i) the probable and reasonably estimable liability for asbestos
claims already asserted against MLIC, including claims settled but not yet paid; (ii) the probable and reasonably estimable liability for asbestos
claims not yet asserted against MLIC, but which MLIC believes are reasonably probable of assertion; and (iii) the legal defense costs associated
with the foregoing claims. Significant assumptions underlying MLIC’s analysis of the adequacy of its recorded liability with respect to asbestos
litigation include: (i) the number of future claims; (ii) the cost to resolve claims; and (iii) the cost to defend claims.
MLIC reevaluates on a quarterly and annual basis its exposure from asbestos litigation, including studying its claims experience, reviewing
external literature regarding asbestos claims experience in the United States, assessing relevant trends impacting asbestos liability and considering
numerous variables that can affect its asbestos liability exposure on an overall or per claim basis. These variables include bankruptcies of other
companies involved in asbestos litigation, legislative and judicial developments, the number of pending claims involving serious disease, the
number of new claims filed against it and other defendants and the jurisdictions in which claims are pending. As previously disclosed, in 2014,
MLIC increased its recorded liability for asbestos-related claims to $690 million. Based upon its regular reevaluation of its exposure from asbestos
litigation, MLIC has updated its liability analysis for asbestos-related claims through December 31, 2015.
Regulatory Matters
The Company receives and responds to subpoenas or other inquiries seeking a broad range of information from state regulators, including
state insurance commissioners; state attorneys general or other state governmental authorities; federal regulators, including the U.S. Securities
and Exchange Commission (“SEC”); federal governmental authorities, including congressional committees; and the Financial Industry Regulatory
Authority (“FINRA”), as well as from local and national regulators and government authorities in countries outside the United States where MetLife
conducts business. The issues involved in information requests and regulatory matters vary widely. The Company cooperates in these inquiries.
Mortgage Regulatory and Law Enforcement Authorities’ Inquiries
MetLife, through its affiliate, MetLife Bank, was engaged in the origination, sale and servicing of forward and reverse residential mortgage
loans since 2008. In 2012, MetLife Bank exited the business of originating residential mortgage loans. In 2012 and 2013, MetLife Bank sold
its residential mortgage servicing portfolios, and in 2013 wound down its mortgage servicing business. In August 2013, MetLife Bank merged
with and into MetLife Home Loans LLC (“MLHL”), its former subsidiary, with MLHL as the surviving non-bank entity.
In May 2013, MetLife Bank received a subpoena from the U.S. Department of Justice requiring production of documents relating to
MetLife Bank’s payment of certain foreclosure-related expenses to law firms and business entities affiliated with law firms and relating to
MetLife Bank’s supervision of such payments, including expenses submitted to the Federal National Mortgage Association, the Federal Home
212
MetLife, Inc.
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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
21. Contingencies, Commitments and Guarantees (continued)
Loan Mortgage Corp. and the U.S. Department of Housing and Urban Development for reimbursement. It is possible that various state or
federal regulatory and law enforcement authorities may seek monetary penalties from MLHL relating to foreclosure practices.
The inquiry referred to above could adversely affect MetLife’s reputation or result in significant fines, penalties, equitable remedies or
other enforcement actions, and result in significant legal costs in responding to governmental investigations or other litigation. Exiting the
MetLife Bank businesses may not protect MetLife from inquiries and investigations relating to residential mortgage servicing and foreclosure
activities, or any fines, penalties, equitable remedies or enforcement actions that may result, the costs of responding to any such governmental
investigations, or other litigation. Management believes that the Company’s consolidated financial statements as a whole will not be materially
affected by these regulatory matters.
In the Matter of Chemform, Inc. Site, Pompano Beach, Broward County, Florida
In July 2010, the Environmental Protection Agency (“EPA”) advised MLIC that it believed payments were due under two settlement
agreements, known as “Administrative Orders on Consent,” that New England Mutual Life Insurance Company (“New England Mutual”) signed
in 1989 and 1992 with respect to the cleanup of a Superfund site in Florida (the “Chemform Site”). The EPA originally contacted MLIC (as
successor to New England Mutual) and a third party in 2001, and advised that they owed additional clean-up costs for the Chemform Site.
The matter was not resolved at that time. The EPA is requesting payment of an amount under $1 million from MLIC and such third party for
past costs and an additional amount for future environmental testing costs at the Chemform Site. In September 2012, the EPA, MLIC and
the third party executed an Administrative Order on Consent under which MLIC and the third party have agreed to be responsible for certain
environmental testing at the Chemform Site. The Company estimates that its costs for the environmental testing will not exceed $100,000.
The September 2012 Administrative Order on Consent does not resolve the EPA’s claim for past clean-up costs. The EPA may seek additional
costs if the environmental testing identifies issues. The Company estimates that the aggregate cost to resolve this matter will not exceed
$1 million.
New York Licensing Inquiry
The Company entered into a consent order with the Department of Financial Services to resolve its inquiry into whether American Life
and DelAm conducted business in New York without a license and whether representatives acting on behalf of those companies solicited,
sold or negotiated insurance products in New York without a license. The Company entered into a deferred prosecution agreement with the
District Attorney, New York County, regarding the same conduct. Pursuant to these agreements, in the first quarter of 2014, the Company
paid $50 million to the Department of Financial Services and $10 million to the District Attorney, New York County. The Department of Financial
Services consent order allowed certain activities in New York related to American Life and other entities to continue through June 30, 2015.
On July 2, 2015, New York Insurance Law Section 2117 was amended to allow certain activities to take place in New York that relate to a
policy or contract of group life, group annuity, or group accident and health insurance where the policyholder or proposed policyholder is a
multinational entity resident outside the United States. The Company is continuing to cooperate with the New York State Office of the Attorney
General Taxpayer Protection Bureau as to its inquiry concerning American Life’s and DelAm’s New York State tax filings.
Sales Practices Regulatory Matters
Regulatory authorities in a number of states and FINRA, and occasionally the SEC, have had investigations or inquiries relating to sales
of individual life insurance policies or annuities or other products by MLIC, MetLife USA, New England Life Insurance Company (“NELICO”)
and General American Life Insurance Company (“GALIC”), and broker-dealer, MetLife Securities, Inc. (“MSI”). These investigations often focus
on the conduct of particular financial services representatives and the sale of unregistered or unsuitable products or the misuse of client assets.
Over the past several years, these and a number of investigations by other regulatory authorities were resolved for monetary payments and
certain other relief, including restitution payments. The Company may continue to resolve investigations in a similar manner. The Company
believes adequate provision has been made in its consolidated financial statements for all probable and reasonably estimable losses for these
sales practices-related investigations or inquiries.
FINRA Investigation of Sale and Replacement of Variable Annuities
On September 25, 2015, FINRA served notice that it will recommend disciplinary action against MetLife, Inc.’s affiliated broker-dealer,
MSI, in connection with potential violations of FINRA rules regarding alleged misrepresentations, suitability, and supervision in connection with
sales and replacements of variable annuities and certain riders on such annuities. FINRA staff has indicated they will seek a significant fine.
The Company is cooperating in this investigation. The Company has included what it believes to be the probable and estimable amount of
such loss in the Company’s consolidated financial statements, and has included amounts for potential additional liability in excess of that
accrued in the aggregate estimate of reasonably possible loss provided above.
Unclaimed Property Litigation
West Virginia Lawsuits
On September 20, 2012, the West Virginia Treasurer filed an action against MLIC in West Virginia state court (West Virginia ex rel. John
D. Perdue v. Metropolitan Life Insurance Company, Circuit Court of Putnam County, Civil Action No. 12-C-295) alleging that MLIC violated
the West Virginia Uniform Unclaimed Property Act, seeking to compel compliance with the Act, and seeking payment of unclaimed property,
interest, and penalties. On November 14, 2012, November 21, 2012, December 28, 2012, and January 9, 2013, the Treasurer filed
substantially identical suits against MetLife Investors USA, NELICO, MetLife Insurance Company of Connecticut and GALIC, respectively. On
June 16, 2015, the West Virginia Supreme Court of Appeals reversed the Circuit Court’s order that had granted defendants’ motions to dismiss
the actions and remanded them to the Circuit Court for further proceedings. The defendants intend to defend these actions vigorously.
MetLife, Inc.
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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
21. Contingencies, Commitments and Guarantees (continued)
City of Westland Police and Fire Retirement System v. MetLife, Inc., et. al. (S.D.N.Y., filed January 12, 2012)
Seeking to represent a class of persons who purchased MetLife, Inc. common shares between February 2, 2010, and October 6, 2011,
the plaintiff filed a second amended complaint alleging that MetLife, Inc. and several current and former directors and executive officers of
MetLife, Inc. violated the Securities Act of 1933 (“Securities Act”), as well as the Exchange Act and Rule 10b-5 promulgated thereunder by
issuing, or causing MetLife, Inc. to issue, materially false and misleading statements concerning MetLife, Inc.’s potential liability for millions of
dollars in insurance benefits that should have been paid to beneficiaries or escheated to the states. Plaintiff seeks unspecified compensatory
damages and other relief. On September 11, 2015, the court issued an order dismissing all claims under the Exchange Act and Rule 10b-5,
and dismissing all claims under the Securities Act except for those based on alleged misrepresentations of mortality ratios. Following the
court’s September 11, 2015 order, the plaintiff filed a third amended complaint that supplemented the factual allegations of the second
amended complaint. The defendants intend to continue to defend this action vigorously.
City of Birmingham Retirement and Relief System v. MetLife, Inc., et al. (Circuit Court of Jefferson County Alabama, filed July 5, 2012)
Seeking to represent a class of persons who purchased MetLife, Inc. common equity units in or traceable to a public offering in March
2011, the plaintiff filed an action alleging that MetLife, Inc., certain current and former directors and executive officers of MetLife, Inc., and
various underwriters violated several provisions of the Securities Act related to the filing of the registration statement by issuing, or causing
MetLife, Inc. to issue, materially false and misleading statements and/or omissions concerning MetLife, Inc.’s potential liability for millions of
dollars in insurance benefits that should have been paid to beneficiaries or escheated to the states. Plaintiff seeks unspecified compensatory
damages and other relief. On March 31, 2015, a federal court granted plaintiff’s motion to remand this action to state court. On October 14,
2015, the state court denied the defendants’ motion to dismiss the complaint. The defendants intend to defend this action vigorously.
Derivative Actions
Seeking to sue derivatively on behalf of MetLife, Inc., two shareholders commenced separate actions against members of the MetLife, Inc.
Board of Directors, alleging that they breached their fiduciary and other duties to the Company. Plaintiffs alleged that the defendants failed to
ensure that the Company complied with state unclaimed property laws and to ensure that the Company accurately reported its earnings.
Plaintiffs alleged that because of the defendants’ breaches of duty, MetLife, Inc. had incurred damage to its reputation and had suffered other
unspecified damages. The two actions (Mallon v. Kandarian, et al. (S.D.N.Y., filed March 28, 2012) and Martino v. Kandarian, et al. (S.D.N.Y.,
filed April 19, 2012)) were consolidated. On December 25, 2015, the court granted the defendants’ motion to dismiss the consolidated action,
holding that the action is moot.
Total Control Accounts Litigation
MLIC is a defendant in a lawsuit related to its use of retained asset accounts, known as TCA, as a settlement option for death benefits.
Owens v. Metropolitan Life Insurance Company (N.D. Ga., filed April 17, 2014)
Plaintiff filed this putative class action lawsuit on behalf of all persons for whom MLIC established a TCA to pay death benefits under an
ERISA plan. The action alleges that MLIC’s use of the TCA as the settlement option for life insurance benefits under some group life insurance
policies violates MLIC’s fiduciary duties under ERISA. As damages, plaintiff seeks disgorgement of profits that MLIC realized on accounts
owned by members of the putative class. The court denied MLIC’s motion to dismiss the complaint. The Company intends to defend this
action vigorously.
Reinsurance Litigation
Robainas, et al. v. Metropolitan Life Ins. Co. (S.D.N.Y., December 16, 2014)
Plaintiffs filed this putative class action lawsuit on behalf of themselves and all persons and entities who, directly or indirectly, purchased,
renewed or paid premiums on life insurance policies issued by MLIC from 2009 through 2014 (the “Policies”). Two similar actions were
subsequently filed, Yale v. Metropolitan Life Ins. Co. (S.D.N.Y., January 12, 2015) and International Association of Machinists and Aerospace
Workers District Lodge 15 v. Metropolitan Life Ins. Co. (E.D.N.Y., February 2, 2015). Both of these actions were consolidated with the Robainas
action. The consolidated complaint alleges that MLIC inadequately disclosed in its statutory annual statements that certain reinsurance
transactions with affiliated reinsurance companies were collateralized using “contractual parental guarantees,” and thereby allegedly
misrepresented its financial condition and the adequacy of its reserves. The lawsuit sought recovery under Section 4226 of the New York
Insurance Law of a statutory penalty in the amount of the premiums paid for the Policies. On October 9, 2015, the court granted MLIC’s
motion to dismiss the consolidated complaint, finding that plaintiffs lacked Article III standing because they did not allege any concrete injury
as a result of the alleged conduct. Plaintiffs appealed this decision to the Second Circuit Court of Appeals.
Intoccia v. Metropolitan Life Ins. Co. (S.D.N.Y., April 20, 2015)
Plaintiffs filed this putative class action on behalf of themselves and all persons and entities who, directly or indirectly, purchased, renewed
or paid premiums for Guaranteed Benefits Insurance Riders attached to variable annuity contracts with MLIC from 2009 through 2015 (the
“Annuities”). The court consolidated Weilert v. Metropolitan Life Ins. Co. (S.D.N.Y., April 30, 2015) with the Intoccia case, and the consolidated,
amended complaint alleges that MLIC inadequately disclosed in its statutory annual statements that certain reinsurance transactions with
affiliated reinsurance companies were collateralized using “contractual parental guarantees,” and thereby allegedly misrepresented its financial
condition and the adequacy of its reserves. The lawsuits seek recovery under Section 4226 of the New York Insurance Law of a statutory
penalty in the amount of the premiums paid for Guaranteed Benefits Insurance Riders attached to the Annuities. The Court granted MLIC’s
motion to dismiss, adopting the reasoning of the Robainas decision. Plaintiffs appealed this decision to the Second Circuit Court of Appeals.
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MetLife, Inc.
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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
21. Contingencies, Commitments and Guarantees (continued)
Other Litigation
McGuire v. Metropolitan Life Insurance Company (E.D. Mich., filed February 22, 2012)
This lawsuit was filed by the fiduciary for the Union Carbide Employees’ Pension Plan and alleges that MLIC, which issued annuity
contracts to fund some of the benefits the Plan provides, engaged in transactions that ERISA prohibits and violated duties under ERISA and
federal common law by determining that no dividends were payable with respect to the contracts from and after 1999. On August 8, 2014,
the court denied the parties’ motions for summary judgment. The court has set a June 6, 2016 trial date.
Sun Life Assurance Company of Canada Indemnity Claim
In 2006, Sun Life Assurance Company of Canada (“Sun Life”), as successor to the purchaser of MLIC’s Canadian operations, filed a
lawsuit in Toronto, seeking a declaration that MLIC remains liable for “market conduct claims” related to certain individual life insurance policies
sold by MLIC and that were transferred to Sun Life. Sun Life had asked that the court require MLIC to indemnify Sun Life for these claims
pursuant to indemnity provisions in the sale agreement for the sale of MLIC’s Canadian operations entered into in June of 1998. In January
2010, the court found that Sun Life had given timely notice of its claim for indemnification but, because it found that Sun Life had not yet
incurred an indemnifiable loss, granted MLIC’s motion for summary judgment. Both parties appealed but subsequently agreed to withdraw
the appeal and consider the indemnity claim through arbitration. In September 2010, Sun Life notified MLIC that a purported class action
lawsuit was filed against Sun Life in Toronto, Fehr v. Sun Life Assurance Co. (Super. Ct., Ontario, September 2010), alleging sales practices
claims regarding the same individual policies sold by MLIC and transferred to Sun Life. An amended class action complaint in that case was
served on Sun Life in May 2013, again without naming MLIC as a party. On August 30, 2011, Sun Life notified MLIC that a purported class
action lawsuit was filed against Sun Life in Vancouver, Alamwala v. Sun Life Assurance Co. (Sup. Ct., British Columbia, August 2011), alleging
sales practices claims regarding certain of the same policies sold by MLIC and transferred to Sun Life. Sun Life contends that MLIC is obligated
to indemnify Sun Life for some or all of the claims in these lawsuits. These sales practices cases against Sun Life are ongoing and the Company
is unable to estimate the reasonably possible loss or range of loss arising from this litigation.
Fauley v. Metropolitan Life Insurance Co., et al. (Circuit Court of the 19th Judicial Circuit, Lake County, Ill., July 3, 2014).
Plaintiffs filed this lawsuit against defendants, including MLIC and a former MetLife financial services representative, alleging that the
defendants sent unsolicited fax advertisements to plaintiff and others in violation of the Telephone Consumer Protection Act, as amended by
the Junk Fax Prevention Act, 47 U.S.C. § 227. The court issued a final order certifying a nationwide settlement class and approving a settlement
under which MLIC has agreed to pay up to $23 million to resolve claims as to fax ads sent between August 23, 2008 and August 7, 2014.
Objectors to the settlement have appealed the approval order.
MetLife, Inc. v. Financial Stability Oversight Council (D. D.C., January 13, 2015).
MetLife, Inc. filed this action in federal court seeking to overturn the FSOC’s designation of MetLife, Inc. as a non-bank SIFI. The suit is
brought under the section of the Dodd-Frank Wall Street Reform and Consumer Protection Act providing that a company designated as a
non-bank SIFI may petition the federal courts for review, and seeks an order requiring that the final determination be rescinded. The court
held oral argument on the parties’ cross motions for summary judgment on February 10, 2016.
Voshall v. Metropolitan Life Ins. Co. (Superior Court of the State of California, County of Los Angeles, April 8, 2015)
Plaintiff filed this putative class action lawsuit on behalf of himself and all persons covered under a long-term group disability income
insurance policy issued by MLIC to public entities in California between April 8, 2011 and April 8, 2015. Plaintiff alleges that MLIC improperly
reduced benefits by including cost of living adjustments and employee paid contributions in the employer retirement benefits and other income
that reduces the benefit payable under such policies. Plaintiff asserts causes of action for declaratory relief, violation of the California Business
& Professions Code, breach of contract and breach of the implied covenant of good faith and fair dealing. The Company intends to defend
this action vigorously.
Martin v. Metropolitan Life Insurance Company, (Superior Court of the State of California, County of Contra Costa, filed December 17,
2015)
Plaintiffs filed this this putative class action lawsuit on behalf of themselves and all California persons who have been charged compound
interest by MLIC in life insurance policy and/or premium loan balances within the last four years. Plaintiffs allege that MLIC has engaged in a
pattern and practice of charging compound interest on life insurance policy and premium loans without the borrower authorizing such
compounding, and that this constitutes an unlawful business practice under California law. Plaintiff asserts causes of action for declaratory
relief, violation of California’s Unfair Competition Law and Usury Law, and unjust enrichment. Plaintiff seeks declaratory and injunctive relief,
restitution of interest, and damages in an unspecified amount. The Company intends to defend this action vigorously.
Lau v. Metropolitan Life Insurance Co. (S.D.N.Y. filed, December 3, 2015)
This putative class action lawsuit was filed by a single defined contribution plan participant on behalf of all ERISA plans whose assets
were invested in MetLife’s “Group Annuity Contract Stable Value Funds” within the past six years. The suit alleges breaches of fiduciary duty
under ERISA and challenges the “spread” with respect to the stable value fund group annuity products sold to retirement plans. The allegations
focus on the methodology MetLife uses to establish and reset the crediting rate, the terms under which plan participants are permitted to
transfer funds from a stable value option to another investment option, the procedures followed if an employer terminates a contract, and the
level of disclosure provided. Plaintiff seeks declaratory and injunctive relief, as well as damages in an unspecified amount. The Company
intends to defend this action vigorously.
MetLife, Inc.
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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
21. Contingencies, Commitments and Guarantees (continued)
Sales Practices Claims
Over the past several years, the Company has faced numerous claims, including class action lawsuits, alleging improper marketing or
sales of individual life insurance policies, annuities, mutual funds, other products or the misuse of client assets. Some of the current cases
seek substantial damages, including punitive and treble damages and attorneys’ fees. The Company continues to defend vigorously against
the claims in these matters. The Company believes adequate provision has been made in its consolidated financial statements for all probable
and reasonably estimable losses for sales practices matters.
Summary
Putative or certified class action litigation and other litigation and claims and assessments against the Company, in addition to those
discussed previously and those otherwise provided for in the Company’s consolidated financial statements, have arisen in the course of the
Company’s business, including, but not limited to, in connection with its activities as an insurer, mortgage lending bank, employer, investor,
investment advisor and taxpayer. Further, state insurance regulatory authorities and other federal and state authorities regularly make inquiries
and conduct investigations concerning the Company’s compliance with applicable insurance and other laws and regulations.
It is not possible to predict the ultimate outcome of all pending investigations and legal proceedings. In some of the matters referred to
previously, very large and/or indeterminate amounts, including punitive and treble damages, are sought. Although in light of these considerations
it is possible that an adverse outcome in certain cases could have a material effect upon the Company’s financial position, based on information
currently known by the Company’s management, in its opinion, the outcomes of such pending investigations and legal proceedings are not likely
to have such an effect. However, given the large and/or indeterminate amounts sought in certain of these matters and the inherent unpredictability
of litigation, it is possible that an adverse outcome in certain matters could, from time to time, have a material effect on the Company’s consolidated
net income or cash flows in particular quarterly or annual periods.
Commitments
Leases
The Company, as lessee, has entered into various lease and sublease agreements for office space, information technology, aircrafts,
automobiles, and other equipment. Future minimum gross rental payments relating to these lease arrangements are as follows:
2016
2017
2018
2019
2020
Thereafter
Total
Amount
(In millions)
321
251
224
185
172
874
2,027
$
$
Total minimum rentals to be received in the future under non-cancelable subleases were $97 million as of December 31, 2015. Operating
lease expense was $364 million, $347 million and $372 million for the years ended December 31, 2015, 2014 and 2013, respectively.
Insolvency Assessments
Most of the jurisdictions in which the Company is admitted to transact business require insurers doing business within the jurisdiction to
participate in guaranty associations, which are organized to pay contractual benefits owed pursuant to insurance policies issued by impaired,
insolvent or failed insurers. These associations levy assessments, up to prescribed limits, on all member insurers in a particular state on the basis
of the proportionate share of the premiums written by member insurers in the lines of business in which the impaired, insolvent or failed insurer
engaged. Some states permit member insurers to recover assessments paid through full or partial premium tax offsets. In addition, Japan has
established the Life Insurance Policyholders Protection Corporation of Japan as a contingency to protect policyholders against the insolvency of
life insurance companies in Japan through assessments to companies licensed to provide life insurance.
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MetLife, Inc.
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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
21. Contingencies, Commitments and Guarantees (continued)
Assets and liabilities held for insolvency assessments were as follows:
Other Assets:
Premium tax offset for future discounted and undiscounted assessments
Premium tax offsets currently available for paid assessments
Other Liabilities:
Insolvency assessments
Mortgage Loan Commitments
December 31,
2015
2014
(In millions)
$
$
$
$
45
64
109
$
65
$
50
84
134
73
The Company commits to lend funds under mortgage loan commitments. The amounts of these mortgage loan commitments were $4.4 billion
and $4.0 billion at December 31, 2015 and 2014, respectively.
Commitments to Fund Partnership Investments, Bank Credit Facilities, Bridge Loans and Private Corporate Bond Investments
The Company commits to fund partnership investments and to lend funds under bank credit facilities, bridge loans and private corporate
bond investments. The amounts of these unfunded commitments were $7.1 billion and $5.3 billion at December 31, 2015 and 2014, respectively.
Guarantees
In the normal course of its business, the Company has provided certain indemnities, guarantees and commitments to third parties such that it
may be required to make payments now or in the future. In the context of acquisition, disposition, investment and other transactions, the Company
has provided indemnities and guarantees, including those related to tax, environmental and other specific liabilities and other indemnities and guarantees
that are triggered by, among other things, breaches of representations, warranties or covenants provided by the Company. In addition, in the normal
course of business, the Company provides indemnifications to counterparties in contracts with triggers similar to the foregoing, as well as for certain
other liabilities, such as third-party lawsuits. These obligations are often subject to time limitations that vary in duration, including contractual limitations
and those that arise by operation of law, such as applicable statutes of limitation. In some cases, the maximum potential obligation under the indemnities
and guarantees is subject to a contractual limitation ranging from less than $1 million to $800 million, with a cumulative maximum of $1.5 billion, while
in other cases such limitations are not specified or applicable. Since certain of these obligations are not subject to limitations, the Company does not
believe that it is possible to determine the maximum potential amount that could become due under these guarantees in the future. Management
believes that it is unlikely the Company will have to make any material payments under these indemnities, guarantees, or commitments.
In addition, the Company indemnifies its directors and officers as provided in its charters and by-laws. Also, the Company indemnifies its agents
for liabilities incurred as a result of their representation of the Company’s interests. Since these indemnities are generally not subject to limitation with
respect to duration or amount, the Company does not believe that it is possible to determine the maximum potential amount that could become due
under these indemnities in the future.
The Company has also minimum fund yield requirements on certain international pension funds in accordance with local laws. Since these
guarantees are not subject to limitation with respect to duration or amount, the Company does not believe that it is possible to determine the maximum
potential amount that could become due under these guarantees in the future.
The Company’s recorded liabilities were $8 million and $4 million at December 31, 2015 and 2014, respectively, for indemnities, guarantees and
commitments.
MetLife, Inc.
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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
22. Quarterly Results of Operations (Unaudited)
The unaudited quarterly results of operations for 2015 and 2014 are summarized in the table below:
2015
Total revenues
Total expenses
Income (loss) from continuing operations, net of income tax
Income (loss) from discontinued operations, net of income tax
Net income (loss)
Less: Net income (loss) attributable to noncontrolling interests
Net income (loss) attributable to MetLife, Inc.
Less: Preferred stock dividends
Preferred stock repurchase premium
Net income (loss) available to MetLife, Inc.’s common shareholders
Basic earnings per common share
Income (loss) from continuing operations, net of income tax, available to MetLife, Inc.’s
common shareholders
Income (loss) from discontinued operations, net of income tax, attributable to MetLife, Inc.
Net income (loss) attributable to MetLife, Inc.
Net income (loss) available to MetLife, Inc.’s common shareholders
Diluted earnings per common share
Income (loss) from continuing operations, net of income tax, available to MetLife, Inc.’s
common shareholders
Income (loss) from discontinued operations, net of income tax, attributable to MetLife, Inc.
Net income (loss) attributable to MetLife, Inc.
Net income (loss) available to MetLife, Inc.’s common shareholders
2014
Total revenues
Total expenses
Income (loss) from continuing operations, net of income tax
Income (loss) from discontinued operations, net of income tax
Net income (loss)
Less: Net income (loss) attributable to noncontrolling interests
Net income (loss) attributable to MetLife, Inc.
Less: Preferred stock dividends
Net income (loss) available to MetLife, Inc.’s common shareholders
Basic earnings per common share
Income (loss) from continuing operations, net of income tax, available to MetLife, Inc.’s
common shareholders
Income (loss) from discontinued operations, net of income tax, attributable to MetLife, Inc.
Net income (loss) attributable to MetLife, Inc.
Net income (loss) available to MetLife, Inc.’s common shareholders
Diluted earnings per common share
Income (loss) from continuing operations, net of income tax, available to MetLife, Inc.’s
common shareholders
Income (loss) from discontinued operations, net of income tax, attributable to MetLife, Inc.
Net income (loss) attributable to MetLife, Inc.
Net income (loss) available to MetLife, Inc.’s common shareholders
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Three Months Ended
March 31,
June 30,
September 30,
December 31,
(In millions, except per share data)
18,710
15,651
2,163
$
$
$
— $
2,163
5
2,158
30
$
$
$
$
— $
2,128
$
1.89
$
— $
1.92
1.89
$
$
1.87
$
— $
1.90
1.87
17,085
15,259
1,342
(3)
1,339
11
1,328
30
1,298
$
$
$
$
$
$
$
$
$
$
$
1.15
$
— $
1.18
1.15
$
$
1.14
$
— $
1.16
1.14
$
$
16,166
15,053
1,119
$
$
$
— $
1,119
4
1,115
31
42
1,042
$
$
$
$
$
$
0.93
$
— $
1.00
0.93
$
$
0.92
$
— $
0.99
0.92
18,266
16,316
1,376
$
$
$
$
$
— $
1,376
10
1,366
31
1,335
$
$
$
$
$
1.18
$
— $
1.21
1.18
$
$
1.17
$
— $
1.20
1.17
$
$
18,031
15,868
1,198
$
$
$
— $
1,198
(5)
1,203
6
$
$
$
$
— $
1,197
$
1.07
$
— $
1.08
1.07
$
$
1.06
$
— $
1.06
1.06
18,846
15,894
2,094
$
$
$
$
$
— $
2,094
$
— $
2,094
30
2,064
$
$
$
1.83
$
— $
1.86
1.83
$
$
1.81
$
— $
1.84
1.81
$
$
17,044
15,909
842
—
842
8
834
49
—
785
0.71
—
0.75
0.71
0.70
—
0.74
0.70
19,119
17,043
1,527
—
1,527
6
1,521
31
1,490
1.31
—
1.34
1.31
1.30
—
1.33
1.30
218
MetLife, Inc.
Table of Contents
23. Subsequent Events
Common Stock Repurchases
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
In 2016, through January 7, 2016, MetLife, Inc. repurchased 1,445,864 shares of its common stock in the open market for $70 million completing
the September 2015 authorization.
Dividends
Preferred Stock
On February 19, 2016, MetLife, Inc. announced a first quarter 2016 dividend of $0.253 per share, for a total of $6 million, on its Series A
preferred stock, subject to the final confirmation that it has met the financial tests specified in the certificate of designation for the Series A preferred
stock, which the Company anticipates will be made and announced on or about March 7, 2016. The dividend will be payable March 15, 2016 to
shareholders of record as of February 29, 2016.
Common Stock
On January 6, 2016, the MetLife, Inc. Board of Directors declared a first quarter 2016 common stock dividend of $0.375 per share payable
on March 14, 2016 to shareholders of record as of February 5, 2016. The Company estimates that the aggregate dividend payment will be
$413 million.
The Separation
On January 12, 2016, the Company announced its plan to pursue the Separation. The Company is currently evaluating structural alternatives
for the proposed Separation, including a public offering of shares in an independent, publicly traded company, a spin-off, or a sale. The completion
of a public offering would depend on, among other things, the U.S. Securities and Exchange Commission filing and review process, as well as market
conditions. Any Separation that might occur will be subject to the satisfaction of various conditions and approvals, including approval of any transaction
by the MetLife, Inc. Board of Directors, satisfaction of any applicable requirements of the SEC, and receipt of insurance and other regulatory approvals
and other anticipated conditions.
MetLife, Inc.
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Table of Contents
CHERYL W. GRISÉ
(Lead Director)
Former Executive Vice
President, Northeast Utilities
Chair, Governance and
Corporate Responsibility
Committee
Member, Audit Committee,
Compensation Committee
and Executive Committee
CARLOS M. GUTIERREZ
Co-Chair, The Albright
Stonebridge Group
Member, Governance and
Corporate Responsibility
Committee and Investment
Committee
R. GLENN HUBBARD, PH.D.
Dean and Russell L. Carson
Professor of Economics and
Finance, Graduate School of
Business, Columbia University
Chair, Investment Committee
Member, Executive Committee
and Finance and Risk
Committee
STEVEN A. KANDARIAN
Chairman of the Board,
President and Chief
Executive Officer,
MetLife, Inc.
Chair, Executive Committee
BOARD OF DIRECTORS
ALFRED F. KELLY, JR.
President and Chief Executive
Officer, Intersection
Chair, Finance and Risk
Committee
Member, Audit Committee,
Compensation Committee and
Executive Committee
EDWARD J. KELLY, III
Former Chairman, Institutional
Clients Group, Citigroup Inc.
Member Audit Committee and
Finance and Risk Committee
WILLIAM E. KENNARD
Former U.S. Ambassador to
the European Union
Member, Finance and Risk
Committee and Investment
Committee
JAMES M. KILTS
Founding Partner,
Centerview Capital
Chair, Compensation Committee
Member, Executive Committee
and Investment Committee
CATHERINE R. KINNEY
Former President and Co-Chief
Operating Officer, New York
Stock Exchange, Inc.
Member, Audit Committee
and Finance and Risk
Committee
DENISE M. MORRISON
President and Chief Executive
Officer, Campbell Soup
Company
Member, Compensation
Committee and Governance and
Corporate Responsibility
Committee
KENTON J. SICCHITANO
Former Global Managing
Director,
PricewaterhouseCoopers LLP
Chair, Audit Committee
Member, Compensation
Committee, Executive
Committee and Finance
and Risk Committee
LULU C. WANG
Founder and Chief Executive
Officer, Tupelo Capital
Management, LLC
Member, Governance and
Corporate Responsibility
Committee and Investment
Committee
EXECUTIVE OFFICERS
STEVEN A. KANDARIAN
Chairman of the Board,
President and Chief Executive Officer
RICARDO A. ANZALDUA
Executive Vice President
and General Counsel
STEVEN J. GOULART
Executive Vice President
and Chief Investment Officer
JOHN C.R. HELE
Executive Vice President
and Chief Financial Officer
FRANS HIJKOOP
Executive Vice President and
Chief Human Resources Officer
MICHEL KHALAF
President, Europe,
the Middle East and Africa
ESTHER LEE
Executive Vice President and
Global Chief Marketing Officer
MARTIN J. LIPPERT
Executive Vice President and
Head of Global Technology and
Operations
MARIA R. MORRIS
Executive Vice President and
Head of Global Employee Benefits
CHRISTOPHER G. TOWNSEND
President, Asia
220
MetLife, Inc.
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CONTACT INFORMATION
Principal Executive Offices
MetLife, Inc.
200 Park Avenue
New York, NY 10166-0188
212-578-9500
www.metlife.com
Transfer Agent/Shareholder Records
For information or assistance regarding shareholder accounts or
dividend checks, please contact MetLife, Inc.’s transfer agent:
Computershare
P.O. Box 30170
College Station, TX 77842-3170
1-800-649-3593
TDD for hearing impaired: 1-201-680-6611
Internet: www.computershare.com/metlife
CORPORATE INFORMATION
Corporate Profile
MetLife, through its subsidiaries and affiliates, is one of the largest life insurance
companies in the world. Founded in 1868, MetLife is a global provider of life
insurance, annuities, employee benefits and asset management. Serving
approximately 100 million customers, MetLife has operations in nearly 50
countries and holds leading market positions in the United States, Japan, Latin
America, Asia, Europe and the Middle East. For more information, visit
www.metlife.com.
Form 10-K and Other Information
MetLife, Inc. will provide to shareholders without charge, upon written request, a
copy of MetLife, Inc.’s Annual Report on Form 10-K (including financial statements
and financial statement schedules, but without exhibits), for the fiscal year ended
December 31, 2015. MetLife, Inc. will furnish to requesting shareholders any
exhibit to the Form 10-K upon the payment of reasonable expenses incurred by
MetLife, Inc. in furnishing such exhibit. Requests should be directed to MetLife
Investor Relations, MetLife, Inc., 1095 Avenue of the Americas, New York, New
York 10036 or via the Internet by going to http://investor.metlife.com and selecting
“Information Requests.” The Annual Report on Form 10-K may also be accessed
at http://investor.metlife.com by selecting “Financial Information,” “SEC Filings,”
“MetLife, Inc. — View SEC Filings” as well as at the website of the U.S. Securities
and Exchange Commission at www.sec.gov.
Dividend Information and Common Stock Performance
MetLife Inc.’s common stock is traded on the New York Stock Exchange (“NYSE”)
under the trading symbol “MET.” MetLife, Inc. declared a quarterly dividend of
$0.275 on January 6, 2014, a quarterly dividend of $0.35 on April 22, July 7
and October 28, 2014 and January 6, 2015, and a quarterly dividend of $0.375
on April 28, July 7 and October 27, 2015 and January 6, 2016. Future common
stock dividend decisions will be determined by MetLife, Inc.’s Board of Directors
after taking into consideration factors such as MetLife, Inc.’s financial condition,
results of operations, cash requirements, future prospects, regulatory restrictions
on the payment of dividends by MetLife, Inc.’s insurance subsidiaries and other
Trustee, MetLife Policyholder Trust
Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, DE 19890
302-651-1000
www.wilmingtontrust.com
Additional Resources
Investor Information:
http://investor.metlife.com
Governance Information:
www.metlife.com/corporategovernance
MetLife News:
www.metlife.com/about/press-room
factors deemed relevant by the Board of Directors. The payment of dividends
and other distributions to MetLife, Inc. by its insurance subsidiaries is regulated
by insurance laws and regulations and may be subject to certain other
restrictions. See “Management’s Discussion and Analysis of Financial Condition
and Results of Operations — Liquidity and Capital Resources — MetLife, Inc. —
Liquidity and Capital Sources — Dividends from Subsidiaries” and Note 16 of
the Notes to the Consolidated Financial Statements.
The following table presents the high and low closing prices for the common
stock of MetLife, Inc. on the NYSE for the periods indicated.
2015
First quarter
Second quarter
Third quarter
Fourth quarter
2014
First quarter
Second quarter
Third quarter
Fourth quarter
Common Stock
Price
High
Low
53.91
57.70
57.70
51.69
$
$
$
$
Common Stock
Price
High
Low
54.55 $
56.55 $
57.22 $
56.36 $
46.50
50.25
46.07
46.42
47.06
49.19
51.08
47.71
$
$
$
$
$
$
$
$
As of April 19, 2016, there were 80,920 stockholders of record of common stock
of MetLife, Inc.
MetLife, Inc.
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Source: S&P Capital IQ
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MetLife, Inc.