UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________
Form 10-K
(Mark One)
þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
or
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-15787
MetLife, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
200 Park Avenue, New York, N.Y.
(Address of principal executive offices)
13-4075851
(I.R.S. Employer
Identification No.)
10166-0188
(Zip Code)
(212) 578-9500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.01
Floating Rate Non-Cumulative Preferred Stock, Series A, par value $0.01
5.375% Senior Notes
5.25% Senior Notes
Name of each exchange on which registered
New York Stock Exchange
New York Stock Exchange
Irish Stock Exchange
Irish Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series C, par value $0.01
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No þ
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and
post such files). Yes þ No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to
the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth
company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer (Do not check if a smaller reporting company)
þ Accelerated filer
¨ Smaller reporting company
Emerging growth company
¨
¨
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant at June 30, 2017 was approximately $52.1 billion.
At February 16, 2018, 1,036,642,696 shares of the registrant’s common stock were outstanding.
Part III of this Form 10-K incorporates by reference certain information from the registrant’s definitive proxy statement for the Annual Meeting of
Shareholders to be held on June 12, 2018, to be filed by the registrant with the Securities and Exchange Commission pursuant to Regulation 14A not later than
120 days after the year ended December 31, 2017.
DOCUMENTS INCORPORATED BY REFERENCE
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Table of Contents
Part I
Part II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure
Controls and Procedures
Other Information
Part III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
Part IV
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
Exhibit Index
Signatures
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As used in this Form 10-K, “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 on Form 10‑K, 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,” “will be,” “will not,”
and other words and terms of similar meaning, or are tied to future periods, in connection with a discussion of future 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) adverse effects which
may arise in connection with the material weaknesses in our internal control over financial reporting or our failure to promptly
remediate them; (2) difficult conditions in the global capital markets; (3) 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; (4) exposure to global financial and capital market risks, including
as a result of the United Kingdom’s notice of withdrawal from the European Union or other disruption in global political, security
or economic conditions; (5) impact on us of comprehensive financial services regulation reform; (6) 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; (7) 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; (8) adverse results or other
consequences from litigation, arbitration or regulatory investigations; (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, hedging 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 any adjustment for nonperformance risk; (25) 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, including failure to achieve projected operational benefit from such transactions and any
restrictions, liabilities, losses or indemnification obligations arising from any transitional services or tax arrangements related
to the separation of any business, or from the failure of such a separation to qualify for any intended tax-free treatment, (c) entry
into joint ventures, or (d) legal entity reorganizations; (26) unanticipated or adverse developments that could adversely affect
our achieving expected operational or other benefits from the separation of Brighthouse Financial, Inc. and its subsidiaries
(“Brighthouse”); (27) our equity market exposure to Brighthouse Financial, Inc.; (28) liabilities, losses or indemnification
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obligations arising from our transitional services, investment management or tax arrangements or other agreements with
Brighthouse; (29) failure of the separation of Brighthouse to qualify for intended tax-free treatment; (30) legal, regulatory and
other restrictions affecting MetLife, Inc.’s ability to pay dividends and repurchase common stock; (31) MetLife, Inc.’s and its
subsidiary holding companies’ primary reliance, as holding companies, on dividends from subsidiaries to meet free cash flow
targets and debt payment obligations and the applicable regulatory restrictions on the ability of the subsidiaries to pay such
dividends; (32) 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; (33) changes in accounting standards, practices and/or policies;
(34) increased expenses relating to pension and postretirement benefit plans, as well as health care and other employee benefits;
(35) inability to protect our intellectual property rights or claims of infringement of the intellectual property rights of others;
(36) difficulties in marketing and distributing products through our distribution channels; (37) provisions of laws and our
incorporation documents that may delay, deter or prevent takeovers and corporate combinations involving MetLife; (38) 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; (39) any failure to protect the confidentiality
of client information; (40) the effectiveness of our programs and practices in avoiding giving our associates incentives to take
excessive risks; (41) the impact of technological changes on our businesses; and (42) 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.
Note Regarding Reliance on Statements in Our Contracts
See “Exhibit Index — Note Regarding Reliance on Statements in Our Contracts” for information regarding agreements
included as exhibits to this Annual Report on Form 10-K.
3
Part I
Item 1. Business
Index to Business
Table of Contents
Business Overview
Segments and Corporate & Other
Policyholder Liabilities
Underwriting and Pricing
Reinsurance Activity
Regulation
Company Ratings
Competition
Employees
Executive Officers
Trademarks
Available Information
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Table of Contents
Business Overview
As used in this Form 10-K, “MetLife,” the “Company,” “we,” “our” and “us” refer to MetLife, Inc., a Delaware corporation
incorporated in 1999, its subsidiaries and affiliates.
MetLife is one of the world’s leading financial services companies, providing insurance, annuities, employee benefits and
asset management. We hold leading market positions in the United States, Japan, Latin America, Asia, Europe and the Middle
East.
We are also one of the largest institutional investors in the United States with a $457 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, 2017.
Our well-recognized brand, leading market positions, competitive and innovative product offerings and financial strength
and expertise should help drive future growth and enhance shareholder value, building on a long history of fairness, honesty
and integrity. Over the course of the next several years, we will pursue our refreshed enterprise strategy, focusing on transforming
the Company to become more digital, driving efficiencies and innovation to achieve competitive advantage, and simplified,
decreasing the costs and risks associated with our highly complex industry to customers and shareholders. One MetLife remains
at the center of everything we do: collaborating, sharing best practices, and putting the enterprise first. Digital and simplified
are the key enablers of our strategic cornerstones, all of which satisfy the criteria of our Accelerating Value strategic initiative
by offering customers truly differentiated value propositions that allow us to establish clear competitive advantages and ultimately
drive higher levels of free cash flow:
● Optimize value and risk
–
–
–
Focus on in-force and new business opportunities using Accelerating Value analysis
Optimize cash and value
Balance risk across MetLife
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● Drive operational excellence
–
–
Become a more efficient, high performance organization
Focus on the customer with a disciplined approach to unit cost improvement
● Strengthen distribution advantage
–
Transform our distribution channels to drive productivity and efficiency through digital enablement, improved
customer persistency and deeper customer relationships
● Deliver the right solutions for the right customers
–
Use customer insights to deliver differentiated value propositions - products, services and experiences to win the
right customers and earn their loyalty
MetLife is organized into five segments: U.S.; Asia; Latin America; Europe, the Middle East and Africa (“EMEA”); and
MetLife Holdings. In addition, the Company reports certain of its results of operations in Corporate & Other. See “— Segments
and Corporate & Other” and Note 2 of the Notes to the Consolidated Financial Statements for further information on the
Company’s segments and Corporate & Other. Management continues to evaluate the Company’s segment performance and
allocated resources and may adjust related measurements in the future to better reflect segment profitability.
On August 4, 2017, MetLife, Inc. completed the separation of Brighthouse Financial, Inc. and its subsidiaries (“Brighthouse”)
through a distribution of 96,776,670 shares of Brighthouse Financial, Inc. common stock to MetLife, Inc. common shareholders
(the “Separation”). MetLife, Inc. retained the remaining ownership interest of 22,996,436 shares, or 19.2%, of Brighthouse
Financial, Inc. common stock outstanding. The Separation resulted in the elimination of the Brighthouse Financial segment.
The results of Brighthouse are reflected in the Company’s consolidated financial statements as discontinued operations and,
therefore, are presented as assets and liabilities of disposed subsidiary on the consolidated balance sheets and income (loss) from
discontinued operations on the consolidated statements of operations. The reporting of discontinued operations had no impact
on total consolidated assets or liabilities or on total consolidated net income (loss) for any of the years presented. See Note 3 of
the Notes to the Consolidated Financial Statements for further information.
In the United States, we provide a variety of insurance and financial services products, including life, dental, disability,
property & casualty, guaranteed interest, stable value and annuities to both individuals and groups.
Outside the United States, 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 United States businesses.
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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, 2017, 2016 and 2015. Financial information, including
revenues, expenses, adjusted 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. Adjusted revenues and adjusted 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.
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Table of Contents
Segments and Corporate & Other
U.S.
Product Overview
Our businesses in the U.S. segment offer a broad range of protection products and services aimed at serving the financial
needs of our customers throughout their lives. These products are sold to corporations and their respective employees, other
institutions and their respective members, as well as individuals. Our U.S. segment is organized into three businesses: Group
Benefits, Retirement and Income Solutions and Property & Casualty.
Group Benefits
We have built a leading position in the United States group insurance market through long-standing relationships with
many of the largest corporate employers in the United States.
Our Group Benefits business offers life, dental, group short- and long-term disability, individual disability, accidental
death and dismemberment (“AD&D”), vision and accident & health coverages, as well as prepaid legal plans. We also sell
administrative services-only (“ASO”) arrangements to some employers.
Major Products
Term Life Insurance
Variable Life Insurance
Provides a guaranteed benefit upon the death of the insured for a specified time period in return for
the periodic payment of premiums. Premiums may be guaranteed at a level amount for the coverage
period or may be non-level and non-guaranteed. Term contracts expire without value at the end of
the coverage period when the insured party is still living.
Provides insurance coverage through a contract that gives the policyholder flexibility in investment
choices and, depending on the product, in premium payments and coverage amounts, with certain
guarantees. Premiums and account balances can be directed by the policyholder into a variety of
separate account investment options or directed to the Company’s general account. In the separate
account investment options, the policyholder bears the entire risk of the investment results. With
some products, by maintaining certain premium level, policyholders may have the advantage of
various guarantees that may protect the death benefit from adverse investment experience.
Universal Life Insurance Provides insurance coverage on the same basis as variable life, except that premiums, and the
resulting accumulated balances, are allocated only to the Company’s general account. With some
products, by maintaining a certain premium level, policyholders may have the advantage of various
guarantees that may protect the death benefit from adverse investment experience.
Dental Insurance
Provides insurance and ASO arrangements that assist employees, retirees and their families in
maintaining oral health while reducing out-of-pocket expenses.
Disability
For groups and individuals, benefits such as income replacement, payment of business overhead
expenses or mortgage protection, in the event of the disability of the insured.
Accident and Health
Insurance
Provides accident, critical illness or hospital indemnity coverage to the insured.
Retirement and Income Solutions
Our Retirement and Income Solutions business provides funding and financing solutions that help institutional customers
mitigate and manage liabilities primarily associated with their qualified, nonqualified and welfare employee benefit programs
using a spectrum of life and annuity-based insurance and investment products.
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Major Products
Stable Value Products
• General account guaranteed interest contracts (“GICs”) are designed to provide stable value
investment options within tax-qualified defined contribution plans by offering a fixed maturity
investment with a guarantee of liquidity at contract value for participant transactions.
• Separate account GICs are available to defined contribution plan sponsors by offering market
value returns on separate account investments with a general account guarantee of liquidity at
contract value.
• Private floating rate funding agreements are generally privately-placed, unregistered
investment contracts issued as general account obligations with interest credited based on the
three-month London Interbank Offered Rate (“LIBOR”). These agreements are used for money
market funds, securities lending cash collateral portfolios and short-term investment funds.
Pension Risk Transfers
General account and separate account annuities are offered in connection with defined benefit
pension plans which include single premium buyouts allowing for full or partial transfers of
pension liabilities.
• General account annuities include nonparticipating group contract benefits purchased for
retired employees or active employees covered under terminating or ongoing pension plans.
• Separate account annuities include both participating and non-participating group contract
benefits. Participating contract benefits are purchased for retired, terminated, or active
employees covered under active or terminated pension plans. The assets supporting the
guaranteed benefits for each contract are held in a separate account, however, the Company
fully guarantees all benefit payments. Non-participating contracts have economic features
similar to our general account product, but offer the added protection of an insulated separate
account. Under U.S. GAAP, these annuity contracts are treated as general account products.
Institutional Income
Annuities
General account contracts that are guaranteed payout annuities purchased for employees upon
retirement or termination of employment. They can be life or non-life contingent non-
participating contracts which do not provide for any loan or cash surrender value and, with few
exceptions, do not permit future considerations.
Tort Settlements
Capital Markets Investment
Products
• Structured settlement annuities are customized annuities designed to serve as an alternative to
a lump sum payment in a lawsuit initiated because of personal injury, wrongful death, or a
workers’ compensation claim or other claim for damages. Surrenders are generally not allowed,
although commutations are permitted in certain circumstances. Guaranteed payments consist
of life contingent annuities, term certain annuities and lump sums.
• Funding agreement-backed notes are part of a medium term note program, under which funding
agreements are issued to a special-purpose trust that issues marketable notes in U.S. dollars
or foreign currencies. The proceeds of these note issuances are used to acquire a funding
agreement with matching interest and maturity payment terms from Metropolitan Life
Insurance Company (“MLIC”). The notes are underwritten and marketed by major investment
banks’ broker-dealer operations and are sold to institutional investors.
• Funding agreement-backed commercial paper is issued by a special purpose limited liability
company which deposits the proceeds under a master funding agreement issued to it by MLIC.
The commercial paper is issued in U.S. dollars or foreign currencies, receives the same short-
term credit rating as MLIC and is marketed by major investment banks’ broker-dealer
operations.
• Through the Federal Home Loan Bank (“FHLB”) advance program, certain of our insurance
subsidiaries are members of regional FHLBs and issue funding agreements to their respective
FHLBs. Through the Federal Agricultural Mortgage Corporation (“Farmer Mac”) program,
MLIC has issued funding agreements to a subsidiary of Farmer Mac.
Other Products and
Services
Specialized life insurance products and funding agreements designed specifically to provide
solutions for funding postretirement benefits and company-, bank- or trust-owned life insurance
used to finance nonqualified benefit programs for executives.
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Property & Casualty
Our Property & Casualty business offers personal and commercial lines of property and casualty insurance, including
private passenger automobile, homeowners’ and personal excess liability insurance. In addition, we offer to small business
owners property, liability and business interruption insurance.
Major Products
Auto Insurance
Provides coverage for private passenger automobiles, utility automobiles and vans, motorcycles, motor
homes, antique or classic automobiles, trailers, liability, uninsured motorist, no fault or personal injury
protection, as well as collision and comprehensive insurance.
Homeowners’
Insurance
Provides protection for homeowners, renters, condominium owners and residential landlords against
losses arising out of damage to dwellings and contents from a wide variety of perils, as well as coverage
for liability arising from ownership or occupancy.
Small Business
Owners’ Insurance
Provides property, liability and business interruption insurance for small business owners arising out of
damages to property and/or business interruption from a variety of perils.
Operations
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Sales Distribution
In the U.S., we market our products and services through various distribution channels. Our Group Benefits and
Retirement and Income Solutions products are sold via sales forces primarily comprising MetLife employees. Personal
lines property & casualty insurance products are directly marketed to employees at their employer’s worksite. Personal and
commercial lines property & casualty insurance products are also marketed and sold to individuals and small business
owners by independent agents and property & casualty specialists through a direct marketing channel.
Group Benefits Distribution
We distribute Group Benefits products and services through a sales force that is segmented by the size of the target
customer. Marketing representatives sell either directly to corporate and other group customers or through an intermediary,
such as a broker or consultant. In addition, voluntary products are sold by specialists. Employers have been emphasizing
voluntary products and, as a result, we have increased our focus on communicating and marketing to employees in order
to further foster sales of those products.
We have entered into several operating joint ventures and other arrangements with third parties to expand opportunities
to market and distribute Group Benefits products and services. We also sell our Group Benefits products and services
through sponsoring organizations and affinity groups and provide life and dental coverage to certain employees of the
U.S. Government.
Retirement and Income Solutions Distribution
We distribute Retirement and Income Solutions products and services through dedicated sales teams and relationship
managers. We may sell products directly to benefit plan sponsors and advisors or through brokers, consultants or other
intermediaries. In addition, these sales professionals work with individual, group and global distribution areas to better
reach and service customers, brokers, consultants and other intermediaries.
Property & Casualty Distribution
We market and sell Property & Casualty products through independent agents, property & casualty specialists and
association/affinity organizations.
We are a leading provider of personal lines property & casualty insurance products offered to employees at their
employer’s worksite. Marketing representatives market personal lines property & casualty insurance products to
employers through a variety of means, including broker referrals and cross-selling to group customers. Once permitted
by the employer, MetLife commences marketing efforts to employees, enabling them to purchase coverage and to request
payroll deduction over the telephone.
We also offer commercial property & casualty products through a variety of sponsored relationships, including
association/affinity organizations. Marketing representatives market commercial property & casualty insurance products
to small business owners through a variety of means including broker referrals and members of third party professional
organizations. Once permitted by the sponsoring organization, MetLife commences marketing to small business owners,
enabling them to purchase coverage directly over the internet and/or telephone.
Asia
Product Overview
Our Asia segment offers a broad range of products to both individuals and corporations, as well as other institutions and
their respective employees.
Major Products
Life Insurance
Provides whole and term life, endowments, universal and variable life, as well as group products.
Accident & Health
Insurance
Provides a full range of health products, including hospital indemnity, medical reimbursement, critical
illness policies, as well as personal accident coverage.
Retirement and
Savings
Provides both fixed and variable annuities as well as regular savings products.
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Operations
We operate in 10 jurisdictions throughout Asia, with our largest operation in Japan. We also maintain an innovation center
in Singapore and a data analytics center of excellence in Malaysia.
Sales Distribution
Our Asia operations are geographically diverse encompassing both developed and emerging markets. We market our
products and services through a multi-channel, digitally-enabled distribution strategy, including career agency,
bancassurance, direct marketing, brokerage, other third-party distribution and e-commerce.
Japan’s multi-channel distribution strategy consists of career agents, independent agents, bancassurance, direct
marketing and brokers. While digitally-enabled face-to-face channels continue to be core to our business in Japan, other
channels, including bancassurance and direct marketing, are a critical part of Japan’s distribution strategy. Our Japan
operation has maintained its position in bancassurance due to its strong distribution relationship with Japan’s mega banks,
trust banks and various regional banks, as well as with the Japan Post. The direct marketing channel focuses on accident
and health sales using traditional television and print media, as well as a growing e-commerce operation.
Outside of Japan, our distribution strategies differ by market but generally utilize a combination of career agents,
independent agents, bancassurance relationships and direct marketing (including inbound and outbound telemarketing,
online lead generation and sales). Our expertise in direct marketing is supported by our proprietary data analytics center of
excellence in Malaysia that generates improved customer insights and enhanced sales leads. Furthermore, in select markets,
we use independent brokers and an employee sales force to sell group products.
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Latin America
Product Overview
Our Latin America segment offers a broad range of products to both individuals and corporations, as well as other institutions,
and their respective employees.
Major Products
Life Insurance
Retirement and
Savings
Provides universal, variable and term life products. For a description of these products, see “— U.S. —
Product Overview — Group Benefits.”
Provides fixed annuities and pension products. Fixed annuities provide for both asset accumulation and
asset distribution needs. Deposits made into deferred annuity contracts are allocated to the Company’s
general account and are credited with interest at rates we determine, subject to specified minimums.
Fixed income annuities provide a guaranteed monthly income for a specified period of years and/or for
the life of the annuitant. Our savings oriented pension products are offered under a mandatory privatized
social security system. See Note 3 of the Notes to the Consolidated Financial Statements for information
about the disposition of MetLife Afore, S.A. de C.V. (“MetLife Afore”), the Company’s pension fund
management business in Mexico.
Accident & Health
Insurance
Provides group and individual major medical, accidental, and supplemental health products, including
accidental death and disability, medical reimbursement, hospital indemnity and medical coverage for
serious medical conditions, as well as dental products.
Credit Insurance
Provides policies designed to fulfill certain loan obligations in the event of the policyholder’s death.
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Operations
In Latin America, our largest operations are in Mexico and Chile.
Sales Distribution
In Latin America, we market our products and services through a multi-channel distribution strategy which varies by
geographic region and stage of market development.
The region has an exclusive and captive agency distribution network which also sells 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 sales of group and individual life, accident & health, group medical, dental and pension products, and worksite
marketing.
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EMEA
Product Overview
Our EMEA segment offers a broad range of products to both individuals and corporations, as well as to other institutions,
and their respective employees.
Major Products
Life Insurance
Provides both traditional and non-traditional life insurance products, such as whole and term life,
endowments and variable life products, as well as group term life programs in most markets.
Accident & Health
Insurance
Provides individual and group personal accident and supplemental health products, including AD&D,
hospital indemnity, scheduled medical reimbursement plans, and coverage for serious medical
conditions. In addition, we provide individual and group major medical coverage in select markets.
Retirement and
Savings
Provides fixed annuities and pension products, including group pension programs in select markets. In
Romania, we provide through a specialized pension company a savings oriented pension product under
the mandatory privatized social security system.
Credit Insurance
Provides policies designed to fulfill certain loan obligations in the event of the policyholder’s death.
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Operations
We operate in several countries across EMEA, with our largest operations in the Gulf region, Poland, United Kingdom
(“U.K.”) and Turkey.
Sales Distribution
Our EMEA operations are geographically diverse encompassing both developed and emerging markets. We hold leading
positions in several markets in the Middle East and Central & Eastern Europe, and focus on attractive niche segments in
more developed markets. Emerging markets represent a significant part of the region’s overall earnings. Our businesses in
EMEA employ a multi-channel distribution strategy, including captive and independent agency, bancassurance and direct-
to-consumer.
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MetLife Holdings
Product Overview
Our MetLife Holdings segment consists of operations relating to products and businesses that we no longer actively
market in the United States, such as variable, universal, term and whole life insurance, variable, fixed and index-linked
annuities, long-term care insurance, as well as the assumed variable annuity guarantees from our former operating joint venture
in Japan.
Major Products
Variable, Universal
and Term Life
Insurance
Whole Life Insurance
Variable Annuities
These life products are similar to those offered by our Group Benefits business, except that these
products were historically marketed to individuals through various retail distribution channels. For
a description of these products, see “— U.S. — Product Overview — Group Benefits.”
Provides a benefit upon the death of the insured in return for the periodic payment of a fixed premium
over a predetermined period. Whole life insurance includes policies that provide a participation
feature in the form of dividends. Policyholders may receive dividends in cash, or apply them to
increase death benefits, increase cash values available upon surrender or reduce the premiums
required to maintain the contract in-force.
Provides for both asset accumulation and asset distribution needs. Variable annuities allow the
contractholder to allocate deposits into various investment options in a separate account, as
determined by the contractholder. In certain variable annuity products, contractholders may also
choose to allocate all or a portion of their account to the Company’s general account and are credited
with interest at rates we determine, subject to specified minimums. Contractholders may also elect
certain minimum death benefit and minimum living benefit guarantees for which additional fees are
charged and where asset allocation restrictions may apply.
Fixed and Indexed-
Linked Annuities
Fixed annuities provide for both asset accumulation and asset distribution needs. Deposits made into
deferred annuity contracts are allocated to the Company’s general account and are credited with
interest at rates we determine, subject to specified minimums. Fixed income annuities provide a
guaranteed monthly income for a specified period of years and/or for the life of the annuitant.
Additionally, the Company has issued indexed-linked annuities which allow the contractholder to
participate in returns from equity indices.
Long-term Care
Provides protection against the potentially high costs of long-term health care services. Generally
pay benefits to insureds who need assistance with activities of daily living or have a cognitive
impairment.
Corporate & Other
Overview
Corporate & Other contains the excess capital, as well as certain charges and activities, not allocated to the segments,
including external integration and disposition costs, internal resource costs for associates committed to acquisitions and
dispositions, enterprise-wide strategic initiative restructuring charges and 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, as well as the direct to consumer portion of the U.S. Direct business). Corporate &
Other also includes interest expense related to the majority of the Company’s outstanding debt, as well as expenses associated
with certain legal proceedings and income tax audit issues. In addition, Corporate & Other includes the elimination of
intersegment amounts, which generally relate to affiliated reinsurance and intersegment loans, which bear interest rates
commensurate with related borrowings. As a result of the Separation, for the years ended 2016 and 2015, Corporate & Other
includes corporate overhead costs previously allocated to the former Brighthouse Financial segment.
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Policyholder Liabilities
We establish, and carry as liabilities, actuarially determined amounts that are calculated to meet policy obligations when a
policy matures or is surrendered, an insured dies or becomes disabled or upon the occurrence of other covered events, or to
provide for future annuity payments. Our liabilities for future policy benefits and claims are established based on estimates by
actuaries of how much we will need to pay for future benefits and claims. For life insurance and annuity products, we calculate
these liabilities based on assumptions and estimates, including estimated premiums to be received over the assumed life of the
policy, the timing of the event covered by the insurance policy, the amount of benefits or claims to be paid and the investment
returns on the investments we make with the premiums we receive. We establish liabilities for claims and benefits based on
assumptions and estimates of losses and liabilities incurred. Amounts for actuarial liabilities are computed and reported on the
consolidated financial statements in conformity with GAAP. For more details on policyholder liabilities see “Management’s
Discussion and Analysis of Financial Condition and Results of Operations — Summary of Critical Accounting Estimates —
Liability for Future Policy Benefits” and “Management’s Discussion and Analysis of Financial Condition and Results of
Operations — Policyholder Liabilities.”
Pursuant to applicable insurance laws and regulations, MetLife, Inc.’s insurance subsidiaries, including affiliated captive
reinsurers, establish statutory reserves, reported as liabilities, to meet their obligations on their respective policies. These statutory
reserves are established in amounts sufficient to meet policy and contract obligations, when taken together with expected future
premiums and interest at assumed rates. Statutory reserves and actuarial liabilities for future policy benefits generally differ
based on accounting guidance.
U.S. state insurance laws and regulations require certain MetLife entities to submit to superintendents of insurance, with
each annual report, an opinion and memorandum of a qualified actuary that the statutory reserves and related actuarial amounts
recorded in support of specified policies and contracts, and the assets supporting such statutory reserves and related actuarial
amounts, make adequate provision for their statutory liabilities with respect to these obligations. See “— Regulation — U.S.
Regulation — Insurance Regulation — Policy and Contract Reserve Adequacy Analysis.”
Insurance regulators in many of the non-U.S. jurisdictions 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 “— Regulation — International Regulation.”
Underwriting and Pricing
Our Global Risk Management Department (“GRM”) contains a dedicated unit, the primary responsibility of which is the
development of product pricing standards and independent pricing and underwriting oversight for MetLife’s insurance businesses.
Further important controls around management of underwriting and pricing processes include regular experience studies to
monitor assumptions against expectations, formal new product approval processes, periodic updates to product profitability
studies and the use of reinsurance to manage our exposures, as appropriate. See “— Reinsurance Activity.”
Underwriting
Underwriting generally involves an evaluation of applications by a professional staff of underwriters and actuaries, who
determine the type and the amount of insurance risk that we are willing to accept. We employ detailed underwriting policies,
guidelines and procedures designed to assist the underwriter to properly assess and quantify such risks before issuing policies
to qualified applicants or groups.
Insurance underwriting considers not only an applicant’s medical history, but also other factors such as financial profile,
foreign travel, vocations and alcohol, drug and tobacco use. Group underwriting generally evaluates the risk characteristics of
each prospective insured group, although with certain voluntary products and for certain coverages, members of a group may
be underwritten on an individual basis. We generally perform our own underwriting; however, certain policies are reviewed by
intermediaries under guidelines established by us. Generally, we are not obligated to accept any risk or group of risks from, or
to issue a policy or group of policies to, any employer or intermediary. Requests for coverage are reviewed on their merits and
a policy is not issued unless the particular risk or group has been examined and approved in accordance with our underwriting
guidelines.
The underwriting conducted by our remote underwriting offices and intermediaries, as well as our corporate underwriting
office, is subject to periodic quality assurance reviews to maintain high standards of underwriting and consistency. Such offices
are also subject to periodic external audits by reinsurers with whom we do business.
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We have established oversight of the underwriting process that facilitates quality sales and serves the needs of our customers,
while supporting our financial strength and business objectives. Our goal is to achieve the underwriting, mortality and morbidity
levels reflected in the assumptions in our product pricing. This is accomplished by determining and establishing underwriting
policies, guidelines, philosophies and strategies that are competitive and suitable for the customer, the agent and us.
For our Property & Casualty business, our underwriting function has six principal aspects: evaluating potential voluntary
and worksite employer accounts and independent agencies; establishing guidelines for the binding of risks; reviewing coverage
bound by agents; underwriting potential insureds, on a case by case basis, presented by agents outside the scope of their binding
authority; pursuing information necessary in certain cases to enable issuance of a policy within our guidelines; and ensuring
that renewal policies continue to be written at rates commensurate with risk. Subject to very few exceptions, agents in each of
the distribution channels have binding authority for risks which fall within our published underwriting guidelines. Risks falling
outside the underwriting guidelines may be submitted for approval to the underwriting department; alternatively, agents in such
a situation may call the underwriting department to obtain authorization to bind the risk themselves. In most states, we generally
have the right within a specified period (usually the first 60 days) to cancel any policy.
We continually review our underwriting guidelines in light of applicable regulations and to ensure that our policies remain
competitive and supportive of our marketing strategies and profitability goals.
Pricing
Product pricing reflects our pricing standards, which are consistent for our global businesses. GRM, as well as regional
finance and product teams, are responsible for pricing and oversight for all of our insurance businesses. Product pricing is based
on the expected payout of benefits calculated through the use of assumptions for mortality, morbidity, expenses, persistency and
investment returns, as well as certain macroeconomic factors, such as inflation. Investment-oriented products are priced based
on various factors, which may include investment return, expenses, persistency and optionality and possible variability of results.
For certain products, pricing may include prospective and retrospective experience rating features. Prospective experience rating
involves the evaluation of past experience for the purpose of determining future premium rates and we bear all prior year gains
and losses. Retrospective experience rating also involves the evaluation of past experience for the purpose of determining the
actual cost of providing insurance for the customer; however, the contract includes certain features that allow us to recoup certain
losses or distribute certain gains back to the policyholder based on actual prior years’ experience.
Rates for group benefit products are based on anticipated earnings and expenses for the book of business being underwritten.
Renewals are generally reevaluated annually or biannually and are re-priced to reflect actual experience on such products.
Products offered by Retirement and Income Solutions are priced on demand. Pricing reflects expected investment returns, as
well as mortality, longevity and expense assumptions appropriate for each product. This business is generally nonparticipating
and illiquid, as policyholders have few or no options or contractual rights to cash values.
Rates for individual life insurance products are highly regulated and generally must be approved by the regulators of the
jurisdictions in which the product is sold. Generally, such products are renewed annually and may include pricing terms that are
guaranteed for a certain period of time. Individual disability income products are based on anticipated results for the occupation
being underwritten. Fixed and variable annuity products are also highly regulated and approved by the respective regulators.
Such products generally include penalties for early withdrawals and policyholder benefit elections to tailor the form of the
product’s benefits to the needs of the opting policyholder. We periodically reevaluate the costs associated with such options and
will periodically adjust pricing levels on our guarantees. Further, from time to time, we may also reevaluate the type and level
of guarantee features currently being offered.
For our Property & Casualty business, our ability to set and change rates is subject to regulatory oversight. Rates for our
major lines of property & casualty insurance are based on our proprietary database, rather than relying on rating bureaus. We
determine prices in part from a number of variables specific to each risk. The pricing of personal lines insurance products takes
into account, among other things, the expected frequency and severity of losses, the costs of providing coverage (including the
costs of acquiring policyholders and administering policy benefits and other administrative and overhead costs such as
reinsurance), competitive factors and profit considerations. The major pricing variables for personal lines insurance include
characteristics of the insured property, such as age, make and model or construction type, as well as characteristics of the insureds,
such as driving record and loss experience, and the insured’s personal financial management. As a condition of our license to
do business in each state, we, like all other personal lines insurers, are required to write or share the cost of private passenger
automobile and homeowners insurance for higher risk individuals who would otherwise be unable to obtain such insurance.
This “involuntary” market, also called the “shared market,” is governed by the applicable laws and regulations of each state,
and policies written in this market are generally written at rates higher than standard rates and typically afford less coverage.
We continually review our pricing guidelines in light of applicable regulations and to ensure that our policies remain
competitive and supportive of our marketing strategies and profitability goals.
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Reinsurance Activity
We enter into reinsurance agreements primarily as a purchaser of reinsurance for our various insurance products and also
as a provider of reinsurance for some insurance products issued by third parties. We participate in reinsurance activities in order
to limit losses, minimize exposure to significant risks, and provide additional capacity for future growth. We enter into various
agreements with reinsurers that cover individual risks, group risks or defined blocks of business, primarily on a coinsurance,
yearly renewable term, excess or catastrophe excess basis. These reinsurance agreements spread risk and minimize the effect
of losses. The extent of each risk retained by us depends on our evaluation of the specific risk, subject, in certain circumstances,
to maximum retention limits based on the characteristics of coverages. We also cede first dollar mortality risk under certain
contracts. In addition to reinsuring mortality risk, we reinsure other risks, as well as specific coverages. We obtain reinsurance
for capital requirement purposes and also when the economic impact of the reinsurance agreement makes it appropriate to do
so.
Under the terms of the reinsurance agreements, the reinsurer agrees to reimburse us for the ceded amount in the event a
claim is paid. Cessions under reinsurance agreements do not discharge our obligations as the primary insurer. In the event that
reinsurers do not meet their obligations under the terms of the reinsurance agreements, reinsurance recoverable balances could
become uncollectible.
We reinsure our business through a diversified group of well-capitalized, highly rated reinsurers. We analyze recent trends
in arbitration and litigation outcomes in disputes, if any, with our reinsurers. We monitor ratings and evaluate the financial
strength of our 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. We generally secure large reinsurance recoverable balances with various forms of collateral, including
secured trusts, funds withheld accounts and irrevocable letters of credit. Additionally, we enter into reinsurance agreements for
risk and capital management purposes with several affiliated captive reinsurers. Captive reinsurers are affiliated insurance
companies licensed under specific provisions of insurance law of their respective jurisdictions, such as the Special Purpose
Financial Captive law adopted by several states including Vermont and South Carolina, and have a very narrow business plan
that specifically restricts the majority or all of their activity to reinsuring business from their affiliates. See “Management’s
Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — The Company
— Capital — Affiliated Captive Reinsurance Transactions.”
U.S.
For our Group Benefits business, we generally retain most of the risk and only cede particular risk on certain client
arrangements. The majority of our reinsurance activity within this business relates to the following client agreements:
•
•
Employer sponsored captive programs: through these programs, employers buy a group life insurance policy with the
condition that a portion of the risk is reinsured back to a captive insurer sponsored by the client.
Risk-sharing agreements: through these programs, clients require that we reinsure a portion of the risk back to third
parties, such as minority-owned reinsurers.
• Multinational pooling: through these agreements, employers buy many group insurance policies which are aggregated
in a single insurer via reinsurance.
The risks ceded under these agreements are generally quota shares of group life and disability policies. The cessions vary
from 50% to 90% of all the risks of the policies.
For our Property & Casualty business, we purchase reinsurance to manage our exposure to large losses (primarily catastrophe
losses) and to protect statutory surplus. We cede losses and premiums based upon the exposure of the policies subject to
reinsurance. To manage exposure to large property & casualty losses, we purchase property catastrophe, casualty and property
per risk excess of loss reinsurance protection.
For our Retirement and Income Solutions business, we have periodically engaged in reinsurance activities on an opportunistic
basis. There were no such transactions during the periods presented.
Asia, Latin America and EMEA
For certain of our life insurance products, we currently reinsure risks in excess of $5 million to external reinsurers on a
yearly renewable term basis. We may also reinsure certain risks with external reinsurers depending upon the nature of the risk
and local regulatory requirements.
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For selected large corporate clients, we reinsure 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, we cede
and assume 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 jurisdictions. In these cases, the assuming company typically underwrites
the risks, develops the products and assumes most or all of the risk.
We also have 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, we pay reinsurance fees associated with the guarantees
collected from policyholders, and receive reimbursement for benefits paid or accrued in excess of account values, subject to
certain limitations.
MetLife Holdings
For our life products, we have historically reinsured the mortality risk primarily on an excess of retention basis or on a quota
share basis. For the periods presented, we reinsured 90% of the mortality risk in excess of $2 million for most products. In
addition to reinsuring mortality risk as described above, we reinsure 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, we may retain up to $20 million per life and reinsure 100% of amounts in excess of the amount we retain.
We also assume portions of the risk associated with certain whole life policies issued by a former affiliate and reinsure certain
term life policies and universal life policies with secondary death benefit guarantees to such former affiliate. We evaluate our
reinsurance programs routinely and may increase or decrease our retention at any time.
For our other products, we have a reinsurance agreement in-force to reinsure the living and death benefit guarantees issued
in connection with certain variable annuity guarantees from our former operating joint venture in Japan. Under this agreement,
we receive reinsurance fees associated with the guarantees collected from policyholders, and provide reimbursement for benefits
paid or accrued in excess of account values, subject to certain limitations.
Catastrophe Coverage
We have exposure to catastrophes which could contribute to significant fluctuations in our results of operations. We use
excess reinsurance agreements, under which the direct writing company reinsures risk in excess of a specific dollar value for
each policy within a class of policies, to provide greater diversification of risk and minimize exposure to larger risks. Such excess
reinsurance agreements include retention reinsurance agreements and quota share reinsurance agreements. Retention reinsurance
agreements provide for a portion of a risk to remain with the direct writing company, and quota share reinsurance agreements
provide for the direct writing company to transfer a fixed percentage of all risks of a class of policies. Our life insurance products,
particularly group life, subject us to catastrophe risk which we do not reinsure other than through our ongoing mortality reinsurance
program which transfers risk at the individual policy level. For the U.S. and EMEA, we purchase catastrophe coverage to insure
risks issued within territories that we believe are subject to the greatest catastrophic risks. For all of our other segments, we use
excess of retention and quota share reinsurance agreements to provide greater diversification of risk and minimize exposure to
larger risks.
Reinsurance Recoverables
For information regarding ceded reinsurance recoverable balances, included in premiums, reinsurance and other receivables
on the consolidated balance sheets, see Note 6 of the Notes to the Consolidated Financial Statements.
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Regulation
Overview
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. In addition, MetLife, Inc. and its U.S. insurance subsidiaries are subject to regulation under the
insurance holding company laws of various U.S. jurisdictions. Furthermore, some of MetLife’s operations, products and services
are subject to consumer protection laws, securities, broker-dealer and investment adviser regulations, environmental and
unclaimed property laws and regulations, and to the Employee Retirement Income Security Act of 1974 (“ERISA”). See “— U.S.
Regulation.”
Our international insurance operations are principally regulated by insurance regulatory authorities in the jurisdictions in
which they are located or operate. In addition, our investment and pension companies outside of the U.S. are subject to oversight
by the relevant securities, pension and other authorities of the jurisdictions in which the companies operate. Our non-U.S.
insurance businesses are also subject to current and developing solvency regimes which impose various capital and other
requirements. Additionally, we may be subject in the future to enhanced capital standards, supervision and additional requirements
of other international and global regulatory initiatives. See “— International Regulation.”
U.S. Regulation
Insurance Regulation
State insurance regulation generally aims at supervising and regulating insurers, with the goal of protecting policyholders
and ensuring that insurance companies remain solvent. Insurance regulators have increasingly sought information about the
potential impact of activities in holding company systems as a whole, and some jurisdictions have adopted laws and regulations
enhancing “group-wide” supervision, as supported by the National Association of Insurance Commissioners’ (“NAIC”)
Solvency Modernization Initiative. See “— NAIC” for information regarding group-wide supervision.
Each of MetLife’s insurance subsidiaries operating in the United States is licensed and regulated in each U.S. jurisdiction
where it conducts insurance business. The extent of such regulation varies, but most jurisdictions have laws and regulations
governing the financial aspects and business conduct of insurers. State laws in the U.S. grant insurance regulatory authorities
broad administrative powers with respect to, among other things:
•
•
licensing companies and agents to transact business;
calculating the value of assets to determine compliance with statutory requirements;
• mandating certain insurance benefits;
•
•
•
•
•
•
•
•
•
•
•
•
regulating certain premium rates;
reviewing and approving certain policy forms, including required policyholder disclosures;
regulating unfair trade and claims practices, including through the imposition of restrictions on marketing and sales
practices, distribution arrangements and payment of inducements, and identifying and paying to the states benefits and
other property that is not claimed by the owners;
regulating advertising;
protecting privacy;
establishing statutory capital and reserve requirements and solvency standards;
specifying the conditions under which a ceding company can take credit for reinsurance in its statutory financial
statements (i.e., reduce its reserves by the amount of reserves ceded to a reinsurer);
fixing maximum interest rates on insurance policy loans and minimum rates for guaranteed crediting rates on life
insurance policies and annuity contracts;
adopting and enforcing suitability standards with respect to the sale of annuities and other insurance products;
approving changes in control of insurance companies;
restricting the payment of dividends and other transactions between affiliates; and
regulating the types, amounts and valuation of investments.
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Each insurance subsidiary is required to file reports, generally including detailed annual financial statements, with
insurance regulatory authorities in each of the jurisdictions in which it does business, and its operations and accounts are
subject to periodic examination by such authorities. These subsidiaries must also file, and in many jurisdictions and in some
lines of insurance obtain regulatory approval for, rules, rates and forms relating to the insurance written in the jurisdictions
in which they operate.
State and federal insurance and securities regulatory authorities and other state law enforcement agencies and attorneys
general from time to time make inquiries regarding compliance by MetLife, Inc. and its insurance subsidiaries with insurance,
securities and other laws and regulations regarding the conduct of our insurance and securities businesses. We cooperate with
such inquiries and take corrective action when warranted. See Note 20 of the Notes to the Consolidated Financial Statements.
In addition, we have informed the New York State Department of Financial Services (the “NYDFS”) about our practices in
connection with the payment of pension benefits to annuitants and related matters, and the NYDFS is examining the issue.
The U.S. Securities and Exchange Commission (“SEC”) staff is also investigating this matter, and several additional regulators
have made inquiries into these practices, including as to related disclosures. Similarly, the SEC staff is investigating the matter
relating to our calculation of certain reserves associated with variable annuity guarantees assumed from a former operating
joint venture in Japan. We have also informed other regulators of this matter. We are fully cooperating with each. See “Controls
and Procedures” and “Risk Factors — Risks Related to the Material Weaknesses — We Have Identified Material Weaknesses
in Our Internal Control over Financial Reporting, Which Could Adversely Affect Our Business, Reputation, Results of
Operations and Stock Price.”
Holding Company Regulation
Insurance holding company laws and regulations vary from jurisdiction to jurisdiction, but generally require a controlled
insurance company (i.e., insurers that are subsidiaries of insurance holding companies) to register with state regulatory
authorities and to file with those authorities certain reports, including information concerning its capital structure, ownership,
financial condition, certain intercompany transactions and general business operations. These insurance holding company
laws and regulations are generally based on the NAIC Insurance Holding Company System Model Act (“Model Holding
Company Act”) and the Insurance Holding Company System Model Regulation (“Regulation”), which serve as a basis for
action by the states. See “— NAIC” for further information on the Model Holding Company Act and Regulation.
State insurance statutes also typically place restrictions and limitations on the amount of dividends or other distributions
payable by insurance company subsidiaries to their parent companies, as well as on transactions between an insurer and its
affiliates. Dividends in excess of prescribed limits and transactions above a specified size between an insurer and its affiliates
require the approval of the insurance regulator in the insurer’s state of domicile. 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.” See also “Dividend Restrictions” in Note 15 of the Notes to the
Consolidated Financial Statements for further information regarding such limitations, as well as the New York Insurance
Law, which permits MLIC to pay stockholder dividends to MetLife, Inc. in any calendar year without prior insurance
regulatory clearance under one of two alternative formulations.
Federal Initiatives
Although the insurance business in the United States is primarily regulated by the states, federal initiatives often have
an impact on our business in a variety of ways. From time to time, federal measures are proposed that may significantly
affect the insurance business. Impacted areas include financial services regulation, securities regulation, derivatives
regulation, pension regulation, health care regulation, privacy, tort reform legislation and taxation. In addition, various forms
of direct and indirect federal regulation of insurance have been proposed from time to time, including proposals for the
establishment of an optional federal charter for insurance companies. See “Risk Factors — Regulatory and Legal Risks —
Our Insurance, Pensions and Brokerage Businesses Are Highly Regulated, and Changes in Regulation and in Supervisory
and Enforcement Policies May Reduce Our Profitability and Limit Our Growth.”
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The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) effected the most far-reaching
overhaul of financial regulation in the United States in decades, including the creation of the Financial Stability Oversight
Council (“FSOC”), which was given the authority to designate certain financial companies as non-bank systemically
important financial institutions (“non-bank SIFI”) subject to supervision by the Federal Reserve Board and the Federal
Reserve Bank of New York (collectively with the Federal Reserve Board, the “Federal Reserve”). The Trump Administration
has released a memorandum that generally delayed all pending regulations from publication in the Federal Register pending
their review and approval by a department or agency head appointed or designated by President Trump. Additionally,
President Trump and the majority party have expressed goals to amend Dodd-Frank. On October 26, 2017, the Secretary
of the Treasury issued a report on asset management and insurance that recommended activities-based evaluations of systemic
risk in the insurance industry rather than an entity-based approach. The report also supported primary regulation of the U.S.
insurance industry by the states rather than the federal government. On November 17, 2017, the Secretary also issued a
report recommending changes to the FSOC non-bank SIFI designations, including prioritizing an activities-based approach
instead of individual designations, and enhancing the analytical process, engagement, and transparency of the designation
process. We are not able to predict with certainty whether such actions would have a material effect on our business operations
and cannot currently identify all of the risks or opportunities, if any, that may be posed to our businesses as a result of
changes to, or legislative replacements for, Dodd-Frank. See “Risk Factors — Regulatory and Legal Risks — Our Insurance,
Pensions and Brokerage Businesses Are Highly Regulated, and Changes in Regulation and in Supervisory and Enforcement
Policies May Reduce Our Profitability and Limit Our Growth.” On January 23, 2018, the U.S. Court of Appeals for the
District of Columbia Circuit dismissed the FSOC appeal of the district court’s decision rescinding MetLife, Inc.’s designation
as a non-bank SIFI. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations —
Executive Summary — Other Key Information — Non-Bank SIFI.”
Dodd-Frank established the Federal Insurance Office (“FIO”) within the Department of the Treasury, which has the
authority to participate in the negotiations of international insurance agreements with foreign regulators for the U.S., as
well as to collect information about the insurance industry and recommend prudential standards. While not having a general
supervisory or regulatory authority over the business of insurance, the director of this office performs various functions
with respect to insurance, including serving as a non-voting member of the FSOC and making recommendations to the
FSOC regarding insurers to be designated for more stringent regulation. On December 12, 2013, the FIO issued a report,
mandated by Dodd-Frank, which, among other things, urged the states to modernize and promote greater uniformity in
insurance regulation. The report also discussed potential federal solutions if states failed to modernize and improve regulation,
and some of the report’s recommendations, for instance, favored a greater federal role in monitoring financial stability and
identifying issues or gaps in the regulation of large national and internationally active insurers. We cannot predict with
certainty whether such recommendations will be adopted or what impact they may have on us.
Under the provisions of Dodd-Frank relating to the resolution or liquidation of certain types of financial institutions,
if MetLife, Inc. or another financial institution were to become insolvent or were in danger of defaulting on its obligations,
it could be compelled to undergo liquidation with the Federal Deposit Insurance Corporation (“FDIC”) as receiver. For this
new regime to be applicable, a number of determinations would have to be made, including that a default by the affected
company would have serious adverse effects on financial stability in the U.S. While under this new regime an insurance
company would be resolved in accordance with state insurance law, if the FDIC were to be appointed as the receiver for
another type of company (including an insurance holding company such as MetLife, Inc.), the liquidation of that company
would occur under the provisions of the new liquidation authority, and not under the Bankruptcy Code, which ordinarily
governs liquidations. The FDIC’s purpose under the liquidation regime is to mitigate the systemic risks the institution’s
failure poses, which is different from that of a bankruptcy trustee under the Bankruptcy Code. In such a liquidation, the
holders of such company’s debt could in certain respects be treated differently than under the Bankruptcy Code. As required
by Dodd-Frank, the FDIC has established rules relating to the priority of creditors’ claims and the potentially dissimilar
treatment of similarly situated creditors. These provisions could apply to some financial institutions whose outstanding debt
securities we hold in our investment portfolios.
Dodd-Frank also includes provisions that may impact the investments and investment activities of MetLife, Inc. and
its subsidiaries, including the federal regulation of such activities. Until the various final regulations are promulgated pursuant
to Dodd-Frank, and perhaps for some time thereafter, the full impact of Dodd-Frank on such activities will remain unclear.
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Health Care Regulation
The Patient Protection and Affordable Care Act (“PPACA”), signed into law on March 23, 2010, and The Health Care
and Education Reconciliation Act of 2010, signed into law on March 30, 2010 (together, the “Affordable Care Act”), impose
obligations on MetLife as an enterprise, and as a provider of non-medical health insurance benefits and as a purchaser of
certain of these products. In 2014, we became subject to an excise tax called the “health insurer fee,” the cost of which is
primarily passed on to group purchasers of certain of our dental and vision insurance products. The health insurer fee was
suspended pursuant to legislation during the 2017 calendar year but is in force for the 2018 calendar year. On January 22,
2018, the health insurer fee was suspended for the 2019 calendar year. The Affordable Care Act and its related regulations
have resulted in increased and unpredictable costs to provide certain products and may have additional adverse effects. See
“Risk Factors — Regulatory and Legal Risks — Legislative and Regulatory Activity in Health Care and Other Employee
Benefits Could Affect our Profitability as a Provider of Life Insurance, Annuities, and Non-Medical Health Insurance Benefit
Products.” It has also harmed our competitive position, as the Affordable Care Act has a disparate impact on our products
compared to products offered by our not-for-profit competitors. On December 22, 2017, President Trump signed into law
H.R.1, commonly referred to as the Tax Cuts and Jobs Act of 2017 (“U.S. Tax Reform”) which, among other things, reduced
the penalties imposed by the Affordable Care Act for failure to obtain health insurance to zero, effectively repealing the
“individual mandate.” Congress has yet to develop a consensus on whether to make additional changes to the Affordable
Care Act.
On July 14, 2014, the District of Columbia (“DC”) adopted a law that imposes an assessment on health insurers doing
business in DC, including those that issue non-medical health-related products that are not subject to regulation under the
Affordable Care Act. MetLife and other similarly impacted insurers are currently funding litigation sponsored by the
American Council of Life Insurers (ACLI) to challenge the legality of DC’s assessment. While the financial impact to the
Company of DC’s action will be minimal, if other states decide to adopt this model, there could be an impact on product
pricing and sales. Additionally, Connecticut has levied, and Maryland has proposed legislation to levy, assessments in
connection with their healthcare exchanges, and other states may also consider levying assessments on both medical and
non-medical health insurers to fund their healthcare exchanges. On June 25, 2015, the U.S. Supreme Court, in the King v.
Burwell decision, upheld the payment of tax credits to individuals who purchase coverage in states that have a federally
facilitated healthcare exchange rather than a state healthcare exchange. Had the Supreme Court not upheld this payment, it
is likely more states would have been compelled to create their own exchanges and possibly assess insurers for the fees of
running these exchanges.
The Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010 also includes certain
provisions for defined benefit pension plan funding relief. As part of our Retirement and Income Solutions business, we
offer general account and separate account group annuity products that enable a plan sponsor to transfer these risks, often
in connection with the termination of defined benefit pension plans. See “Risk Factors — Regulatory and Legal Risks —
Legislative and Regulatory Activity in Health Care and Other Employee Benefits Could Affect our Profitability as a Provider
of Life Insurance, Annuities, and Non-Medical Health Insurance Benefit Products” for further information regarding the
potential effect of such regulation.
Guaranty Associations and Similar Arrangements
Most of the U.S. jurisdictions in which our insurance subsidiaries are admitted to transact business require life, health
and property & casualty insurers doing business within the jurisdiction to participate in guaranty associations, which are
organized to pay certain contractual insurance benefits owed pursuant to insurance policies issued by impaired, insolvent
or failed insurers, or those that may become impaired, insolvent or fail, for example, following the occurrence of one or
more catastrophic events or for other reasons. 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 is engaged. In addition, certain states have government owned
or controlled organizations providing life, health, and property & casualty insurance to their citizens, whose activities could
place additional stress on the adequacy of guaranty fund assessments. Many of these organizations have the power to levy
assessments similar to those of the guaranty associations described above. Some states permit member insurers to recover
assessments paid through full or partial premium tax offsets.
We have established liabilities for guaranty fund assessments that we consider adequate. See Note 20 of the Notes to
the Consolidated Financial Statements for additional information on the guaranty association assessments.
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Insurance Regulatory Examinations and Other Activities
As part of their regulatory oversight process, state insurance departments conduct periodic detailed examinations of
the books, records, accounts, and business practices of insurers domiciled in their states. State insurance departments also
have the authority to conduct examinations of non-domiciliary insurers that are licensed in their states. Except as otherwise
disclosed in Note 20 of the Notes to the Consolidated Financial Statements, during the years ended December 31, 2017,
2016 and 2015, MetLife did not receive any material adverse findings resulting from state insurance department examinations
of its insurance subsidiaries.
Regulatory authorities in a small number of states, Financial Industry Regulatory Authority (“FINRA”) and,
occasionally, the SEC, have had investigations or inquiries relating to sales of individual life insurance policies or annuities
or other products issued by MLIC, General American Life Insurance Company (“GALIC”) and MetLife Securities, Inc.
(“MSI”), a broker-dealer which was part of the U.S. Retail Advisor Force Divestiture. These investigations have focused
on the conduct of particular financial services representatives, the sale of unregistered or unsuitable products, the misuse
of client assets, and sales and replacements of annuities and certain riders on such annuities. 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. We may continue to receive, and may resolve, further investigations and actions on
these matters in a similar manner. See Note 20 of the Notes to the Consolidated Financial Statements.
In addition, claims payment practices by insurance companies have received increased scrutiny from regulators. See
Note 20 of the Notes to the Consolidated Financial Statements for further information regarding retained asset accounts
and unclaimed property inquiries, including pension benefits, and related litigation and sales practices claims.
The International Association of Insurance Supervisors (“IAIS”) has encouraged U.S. insurance supervisors, such as
the NYDFS, to establish Supervisory Colleges for U.S.-based insurance groups with international operations, including
MetLife, to facilitate cooperation and coordination among the insurance groups’ supervisors and to enhance the member
regulators’ understanding of an insurance group’s risk profile. In October 2017, a Supervisory College meeting was chaired
by the NYDFS and attended by MetLife’s key U.S. and international regulators. We have not received any reports or
recommendations from the Supervisory College meeting, and we do not expect any outcome of the meeting to have a
material adverse effect on our business.
Policy and Contract Reserve Adequacy Analysis
Annually, our U.S. insurance subsidiaries, including affiliated captive reinsurers, are required to conduct an analysis
of the adequacy of all statutory reserves. In each case, a qualified actuary must submit an opinion that states that the statutory
reserves make adequate provision, according to accepted actuarial standards of practice, for the anticipated cash flows
required by the contractual obligations and related expenses of the U.S. insurance subsidiary. The adequacy of the statutory
reserves is considered in light of the assets held by the insurer with respect to such reserves and related actuarial items
including, but not limited to, the investment earnings on such assets, and the consideration anticipated to be received and
retained under the related policies and contracts. The Company may increase reserves in order to submit an opinion without
qualification. Since the inception of this requirement, our U.S. insurance subsidiaries that are required by their states of
domicile to provide these opinions have provided such opinions without qualifications.
NAIC
The NAIC’s mission is to assist state insurance regulatory authorities in serving the public interest and achieving the
insurance regulatory goals of its members, the state insurance regulatory officials. State insurance regulators may act
independently or adopt regulations proposed by the NAIC. State insurance regulators and the NAIC regularly re-examine
existing laws and regulations applicable to insurance companies and their products. Through the NAIC, state insurance
regulators establish standards and best practices, conduct peer reviews, and coordinate their regulatory oversight. The NAIC
provides standardized insurance industry accounting and reporting guidance through its Accounting Practices and Procedures
Manual (the “Manual”), which states have largely adopted by regulation. However, statutory accounting principles continue
to be established by individual state laws, regulations and permitted practices, which may differ from the Manual. Changes
to the Manual or modifications by the various state insurance departments may impact the statutory capital and surplus of
MetLife, Inc.’s U.S. insurance subsidiaries.
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The Model Holding Company Act and Regulation include a requirement that the ultimate controlling person of a U.S.
insurer file an annual enterprise risk report with the lead state of the insurance holding company system identifying risks
likely to have a material adverse effect upon the financial condition or liquidity of the insurer or its insurance holding
company system as a whole. To date, all of the states where MetLife has domestic insurers have enacted a version of the
revised Model Holding Company Act, including the enterprise risk reporting requirement. The Model Holding Company
Act also authorizes state insurance commissioners to act as global group-wide supervisors for internationally active insurance
groups, as well as other insurers that choose to opt in for the group-wide supervision. The Model Holding Company Act
creates a selection process for the group-wide supervisor, extends confidentiality protection to communications with the
group-wide supervisor, and outlines the duties of the group-wide supervisor. To date, a number of jurisdictions have adopted
laws and regulations enhancing group-wide supervision.
The NAIC has concluded its “Solvency Modernization Initiative,” which was designed to review the U.S. financial
regulatory system and all aspects of financial regulation affecting insurance companies. Though broad in scope, the NAIC’s
Solvency Modernization Initiative focused on: (i) capital requirements; (ii) corporate governance and risk management;
(iii) group supervision; (iv) statutory accounting and financial reporting; and (v) reinsurance. In furtherance of this initiative,
the NAIC adopted the Corporate Governance Annual Disclosure Model Act and Regulation. The model, which requires
insurers to make an annual confidential filing regarding their corporate governance policies, has been adopted in nineteen
states as of January 2018, including certain of our insurance subsidiaries’ domiciliary states. In addition, the NAIC adopted
the Risk Management and Own Risk and Solvency Assessment Model Act (“ORSA Model Act”), which has been enacted
by our insurance subsidiaries’ domiciliary states. The ORSA Model Act requires that insurers maintain a risk management
framework and conduct an internal own risk and solvency assessment of the insurer’s material risks in normal and stressed
environments. The assessment must be documented in a confidential annual summary report, a copy of which must be made
available to regulators as required or upon request. MetLife, Inc. has submitted on behalf of the enterprise an Own Risk
and Solvency Assessment (“ORSA”) summary report to the NYDFS annually since this requirement became effective.
The NAIC has approved a new valuation manual containing a principle-based approach to the calculation of life
insurance reserves. Principle-based reserving is designed to better address reserving for products, including the current
generation of products for which the current formulaic basis for reserve determination does not work effectively. The
principle-based approach became effective on January 1, 2017 in the states where it had been adopted, to be followed by a
three-year phase-in period (at the option of insurance companies on a product-by-product basis) for new business since it
was enacted into law by the required number of state legislatures. To date, principle-based reserving has been adopted by
all of the states where our insurance subsidiaries are domiciled, except in New York where the NYDFS has publicly stated
its intention to implement this approach, subject to a working group of the NYDFS establishing the necessary reserves
safeguards and the adoption of enabling legislation by the New York legislature, which is currently pending.
In 2015, the NAIC commenced an initiative to study variable annuity solvency regulations, with the goal of curtailing
the use of variable annuity captives. In connection with this initiative, the NAIC engaged a third-party consultant to develop
recommendations regarding reserve and capital requirements, which the NAIC exposed for comment on December 1, 2017.
The NAIC is expected to consider the recommendations, which, if adopted, likely would apply to insurers’ existing and
new business and likely would materially change the sensitivity of the balance sheet (including reserve and capital
requirements) to capital markets. It is not possible to predict whether the amount of reserves or capital required to support
our variable annuity contracts would increase or decrease if the NAIC adopts any new model laws, regulations and/or other
standards applicable to variable annuity business after considering such recommendations, nor is it possible to predict the
extent to which any such recommendations would affect the effectiveness and design of our risk mitigation and hedging
programs. Furthermore, no assurances can be given to whether any such model laws, regulations and/or other standards
will be adopted or to the timing of any such adoption.
In August of 2017, the NAIC released a paper on macro-prudential initiatives, in which they proposed potential
enhancements in supervisory practices related to liquidity, recovery and resolution, capital stress testing and exposure
concentrations. We expect the NAIC to further develop these proposed enhancements during 2018.
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We currently utilize capital markets solutions to finance a portion of our statutory reserve requirements for several
products, including, but not limited to, our level premium term life subject to the NAIC Model Regulation Valuation of Life
Insurance Policies (commonly referred to as XXX), and universal and variable life policies with secondary guarantees
(“ULSG”) subject to NAIC Actuarial Guideline 38 (commonly referred to as AXXX), as well as MLIC’s closed block.
Future capacity for these statutory reserve funding structures in the marketplace is not guaranteed. In 2014, the NAIC
approved a new regulatory framework applicable to the use of captive insurers in connection with Regulation XXX and
Guideline AXXX transactions. Among other things, the framework called for more disclosure of an insurer’s use of captives
in its statutory financial statements, and narrows the types of assets permitted to back statutory reserves that are required
to support the insurer’s future obligations. In 2014, the NAIC implemented the framework through an actuarial guideline
(“AG 48”), which requires the actuary of the ceding insurer that opines on the insurer’s reserves to issue a qualified opinion
if the framework is not followed. The requirements of AG 48 became effective as of January 1, 2015 in all states without
any further action necessary by state legislatures or insurance regulators to implement them, and apply prospectively to
new policies issued and new reinsurance transactions entered into on or after January 1, 2015. The NAIC has adopted an
update to AG 48 and a model regulation that contains the same substantive requirements as the updated AG 48. The states
have started to adopt the model regulation.
We cannot predict the capital and reserve impacts or compliance costs, if any, that may result from the above initiatives,
or what impact these initiatives will have on our business, financial condition or results of operations, although since the
Separation, principle-based reserving and the potential limitations on the use of variable annuity captives have less of an
impact, given our discontinuance of retail life sales.
Surplus and Capital; Risk-Based Capital
Insurers are required to maintain their capital and surplus at or above minimum levels prescribed by the laws of their
respective jurisdictions. Regulators have discretionary authority, in connection with the continued licensing of our U.S.
insurance subsidiaries, to limit or prohibit an insurer’s sales to policyholders if, in their judgment, the regulators determine
that such insurer has not maintained the minimum surplus or capital or that the further transaction of business will be
hazardous to policyholders. Most of our U.S. insurance subsidiaries are subject to risk-based capital (“RBC”) requirements
that were developed by the NAIC and adopted by their respective states of domicile. 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 and is calculated on an annual basis. The major categories of risk involved are asset
risk, insurance risk, interest rate risk, market risk and business risk. 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. 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. As of the date of
the most recent annual statutory financial statements filed with insurance regulators, the total adjusted capital of each of
our subsidiaries subject to these requirements was in excess of each of those RBC levels. See “Statutory Equity and Income”
in Note 15 of the Notes to the Consolidated Financial Statements and “Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Liquidity and Capital Resources — The Company — Capital — Statutory Capital
and Dividends.” The NAIC is also studying RBC adjustments for bonds, real estate, equity and collateral pledged to support
FHLB advances, as well as longevity risk. It is premature to project the impact of any potential regulatory changes resulting
from such studies. The NAIC is also studying RBC revisions for operational risk.
The NAIC has been considering development of a methodology for the calculation of capital for all the entities in an
insurance holding company group, including non-U.S. entities. The goal is to provide U.S. regulators with a method to
aggregate the available capital and the minimum capital of each entity in a group in a way that applies to all groups regardless
of their structure. The NAIC has stated that the calculation will be a regulatory tool and will not constitute a requirement
or standard. Nonetheless, any new group capital calculation methodology may incorporate existing risk-based capital
concepts. It is not possible to predict what impact any such regulatory tool may have on our business.
While not required by or filed with insurance regulators, we calculate internally defined combined RBC
ratios (“Combined RBC Ratios”), which are determined by dividing the sum of total adjusted capital for MetLife, Inc.’s
principal U.S. insurance subsidiaries, excluding American Life Insurance Company (“American Life”), by the sum of
company action level RBC for such subsidiaries. We calculate Combined RBC Ratios based on NAIC capital and reserving
requirements (“NAIC-Based Combined RBC Ratios”). We also calculate Combined RBC Ratios derived from the statutory-
basis financial statements as filed with insurance regulators (“Statement-Based Combined RBC Ratios”), which include
additional reserve and capital requirements as required by the NYDFS for MLIC, the Company’s New York domiciled
insurance subsidiary.
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NAIC-Based Combined RBC Ratios and Statement-Based Combined RBC Ratios were both negatively impacted by
the Separation and the group annuity reserve increase. The NAIC-Based Combined RBC Ratio was in excess of 400% at
both December 31, 2017 and 2016, and the Statement-Based Combined RBC Ratio was in excess of 390% and 400% at
December 31, 2017 and 2016, respectively. We are not aware of any NAIC adoptions or state insurance department regulation
changes that would have a material impact on the Combined RBC Ratios of our U.S. insurance subsidiaries.
Regulation of Investments
Each of our U.S. insurance subsidiaries is subject to state laws and regulations that require diversification of investment
portfolios and limit the amount of investments that an insurer may have in certain asset categories, such as below investment
grade fixed income securities, real estate equity, other equity investments, and derivatives. Failure to comply with these
laws and regulations would cause investments exceeding regulatory limitations to be treated as non-admitted assets for
purposes of measuring surplus and, in some instances, would require divestiture of such non-qualifying investments. We
believe that the investments made by each of MetLife, Inc.’s U.S. insurance subsidiaries complied, in all material respects,
with such regulations at December 31, 2017.
Cybersecurity Regulation
Pursuant to U.S. federal and state laws, and laws of other jurisdictions in which we operate, various government agencies
have established rules protecting the privacy and security of personal information. In addition, most U.S. states and a number
of jurisdictions outside the United States have enacted laws, which vary significantly from jurisdiction to jurisdiction, to
safeguard the privacy and security of personal information. The area of cybersecurity has also come under increased scrutiny
by insurance regulators. On March 1, 2017, New York’s new cybersecurity regulation for financial services institutions,
including banking and insurance entities under its jurisdiction, became effective. Among other things, this new regulation
requires these entities to establish and maintain a cybersecurity program designed to protect consumers’ private data. The
new regulation specifically provides for: (i) controls relating to the governance framework for a cybersecurity program,
including funding and staffing requirements, management oversight, and periodic reporting to senior management; (ii) risk-
based minimum standards for technology systems, including access controls, for data protection; (iii) minimum standards
for cyber breach responses, including an incident response plan, preservation of data to respond to such breaches, and notice
to NYDFS of material events; and (iv) identification and documentation of material deficiencies, remediation plans and
annual certifications of regulatory compliance to the NYDFS.
In addition, on October 24, 2017, the NAIC adopted the Insurance Data Security Model Law (the “Cybersecurity Model
Law”), which establishes standards for data security and for the investigation of and notification of insurance commissioners
of cybersecurity events involving unauthorized access to, or the misuse of, certain nonpublic information. The Cybersecurity
Model Law now goes on to the states for adoption into state law. If adopted as state legislation, the Cybersecurity Model
Law would impose significant new regulatory burdens intended to protect the confidentiality, integrity and availability of
information systems.
New York Insurance Regulation 210
Insurance Regulation 210 will go into effect in New York on March 19, 2018. Insurance Regulation 210 establishes
standards for the determination and any readjustment of non-guaranteed elements (“NGEs”) that may vary at the insurer's
discretion for life insurance policies and annuity contracts delivered or issued for delivery in New York State. Examples of
NGEs include cost of insurance for life insurance policies or crediting rates for annuities. The regulation requires insurers
to notify policyholders at least 60 days in advance of any adverse change in NGEs and, with respect to life insurance, to
notify the NYDFS at least 120 days prior to any such changes. Additionally, the regulation requires insurers to file annually
with NYDFS to inform the NYDFS of any adverse changes made in the prior year. The regulation does not permit insurers
to increase profit margins for in-force policies or to adjust NGEs in order to recoup past losses.
ERISA and Fiduciary Considerations
We provide products and services to certain employee benefit plans that are subject to ERISA and the Internal Revenue
Code of 1986, as amended (the “Code”). As such, our activities are subject to the restrictions imposed by ERISA and the
Code, including the requirement under ERISA that fiduciaries must perform their duties solely in the interests of ERISA plan
participants and beneficiaries, and that fiduciaries may not cause a covered plan to engage in certain prohibited transactions.
The applicable provisions of ERISA and the Code are subject to enforcement by the Department of Labor (“DOL”), the Internal
Revenue Service (“IRS”) and the Pension Benefit Guaranty Corporation.
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The prohibited transaction rules of ERISA and the Code generally restrict the provision of investment advice to ERISA
plans and participants and Individual Retirement Accounts (“IRAs”) if the investment recommendation results in fees paid
to an individual advisor, the firm that employs the advisor or their affiliates that vary according to the investment
recommendation chosen, unless an exemption or exception is available. Similarly, without an exemption or exception, fiduciary
advisors are prohibited from receiving compensation from third parties in connection with their advice. ERISA also affects
certain of our in-force insurance policies and annuity contracts, as well as insurance policies and annuity contracts we may
sell in the future.
The DOL issued regulations, which became for the most part applicable on June 9, 2017, that substantially expanded the
definition of “investment advice” and require that an impartial or “best interests” standard be met in providing such advice,
thereby broadening the circumstances under which MetLife or its representatives, in providing investment advice with respect
to ERISA plans, plan participants or IRAs, could be deemed a fiduciary under ERISA or the Code. Pursuant to the final
regulations, certain communications with plans, plan participants and IRA holders, including the sales of products and
investment management or advisory services, could be deemed fiduciary investment advice, thus causing increased exposure
to fiduciary liability if the distributor does not recommend what is in the client’s best interests. While the final regulations
also provide that, to a limited extent, contracts sold and advice provided prior to the applicable date do not have to be modified
to comply with the new investment advice regulations, there is a lack of clarity surrounding some of the conditions for
qualifying for this limited exception. The DOL also issued amendments to certain of its prohibited transaction exemptions
and issued a new exemption that applies more onerous disclosure and contract requirements to, and increases fiduciary
requirements and fiduciary liability exposure in respect of, certain transactions involving ERISA plans, plan participants and
IRAs. On November 27, 2017, the changes the rule made to existing prohibited transaction exemptions and contract and
disclosure requirements of the new exemption (other than the impartial interest standard) were delayed until July 1, 2019 in
order to give the DOL the time necessary to consider public comments made in July and September 2017, as well as a February
2017 directive from the President to analyze the rule’s impact on access to retirement information and financial advice. The
rule is also being challenged in the Fifth Circuit Court of Appeals (and elsewhere), where a decision is expected during the
first quarter of 2018.
Concurrent with the rule delay, on November 24, 2017 the NAIC issued an exposure draft of an expanded Suitability in
Annuity Transactions Model Regulation, intended to result in the adoption of a “best interest” standard on a nationwide basis.
We are working with industry trade associations to provide comments on the draft. In addition, on December 27, 2017 the
NYDFS proposed revisions to Insurance Regulation 187, which not only incorporate the “best interest” standard, but also
would expand the scope of the regulations to include sales of life insurance policies, as well as annuities to consumers. The
NYDFS proposed revisions to Insurance Regulation 187 are open for public comment until February 25, 2018. These
developments leave open the possibility of further modifications to the federal rule. In addition, Insurance Regulation 187
may result in additional requirements on insurers and agents concerning both new and in-force annuity and life insurance
products. We cannot predict what other proposals may be made, what legislation or regulations may be introduced or enacted,
or what impact any such legislation or regulations may have on our business, product sales, results of operations and financial
condition. See “Risk Factors — Regulatory and Legal Risks — Our Insurance, Pensions and Brokerage Businesses Are Highly
Regulated, and Changes in Regulation and in Supervisory and Enforcement Policies May Reduce Our Profitability and Limit
Our Growth.”
On December 14, 2017, the DOL released its semiannual regulatory agenda, which proposes revisions to Form 5500, the
form used for ERISA annual reporting, proposed jointly with the IRS and the Pension Benefit Guaranty Corporation in 2016.
The revisions affect employee pension and welfare benefit plans, including our ERISA plans, and require audits of information,
self-directed brokerage account disclosure and additional extensive disclosure. We cannot predict the effect these proposals
will have on our business, if enacted, or what other proposals may be made, what legislation may be introduced or enacted,
or what impact any such legislation may have on our results of operations and financial condition.
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In addition, the DOL has issued a number of regulations that increase the level of disclosure that must be provided to
plan sponsors and participants. The participant disclosure regulations and the regulations that require service providers to
disclose fee and other information to plan sponsors took effect in 2012. In John Hancock Mutual Life Insurance Company v.
Harris Trust and Savings Bank (1993), the U.S. Supreme Court held that certain assets in excess of amounts necessary to
satisfy guaranteed obligations under a participating group annuity general account contract are “plan assets.” Therefore, these
assets are subject to certain fiduciary obligations under ERISA, which requires fiduciaries to perform their duties solely in
the interest of ERISA plan participants and beneficiaries. On January 5, 2000, the Secretary of Labor issued final regulations
indicating, in cases where an insurer has issued a policy backed by the insurer’s general account to or for an employee benefit
plan, the extent to which assets of the insurer constitute plan assets for purposes of ERISA and the Code. The regulations
apply only with respect to a policy issued by an insurer on or before December 31, 1998 (“Transition Policy”). No person will
generally be liable under ERISA or the Code for conduct occurring prior to July 5, 2001, where the basis of a claim is that
insurance company general account assets constitute plan assets. An insurer issuing a new policy that is backed by its general
account and is issued to or for an employee benefit plan after December 31, 1998 will generally be subject to fiduciary
obligations under ERISA, unless the policy is a guaranteed benefit policy.
The regulations indicate the requirements that must be met so that assets supporting a Transition Policy will not be
considered plan assets for purposes of ERISA and the Code. These requirements include detailed disclosures to be made to
the employee benefits plan and the requirement that the insurer must permit the policyholder to terminate the policy on 90
days’ notice and receive without penalty, at the policyholder’s option, either (i) the unallocated accumulated fund balance
(which may be subject to market value adjustment) or (ii) a book value payment of such amount in annual installments with
interest. We have taken and continue to take steps designed to ensure compliance with these regulations.
Consumer Protection Laws
Numerous federal and state laws affect MetLife, Inc.’s earnings and activities, including federal and state consumer
protection laws. As part of Dodd-Frank, Congress established the Consumer Financial Protection Bureau (“CFPB”) to supervise
and regulate institutions that provide certain financial products and services to consumers. Although the consumer financial
services subject to the CFPB’s jurisdiction generally exclude insurance business of the kind in which we engage, the CFPB
does have authority to regulate non-insurance consumer services we provide.
In August 2013, MetLife Bank, National Association (“MetLife Bank”) merged with and into MetLife Home Loans LLC
(“MLHL”), its former subsidiary, with MLHL as the surviving, non-bank entity. The sole purpose of MLHL is to wind-down
the limited remaining activities and fulfill remaining obligations and duties of MetLife Bank, some of which subject MLHL
to certain federal consumer financial protection laws and certain state laws.
Regulation of Over-the-Counter Derivatives
Dodd-Frank includes a framework of regulation of the over-the-counter (“OTC”) derivatives markets which requires
clearing of certain types of transactions currently traded OTC and which imposes additional costs, including new reporting
and margin requirements, and will likely impose additional regulation on the Company, including new capital requirements.
Our costs of risk mitigation are increasing under Dodd-Frank. For example, Dodd-Frank imposes requirements to pledge
variation and/or initial margin (i) for “OTC-cleared” transactions (OTC derivatives that are cleared and settled through central
clearing counterparties), and (ii) for “OTC-bilateral” transactions (OTC derivatives that are bilateral contracts between two
counterparties); the margin requirements for OTC-cleared transactions and the variation margin requirements for OTC-bilateral
derivatives are already in effect, while the initial margin requirements for OTC-bilateral transactions will likely be applicable
to us in September 2020. These increased margin requirements, combined with increased capital charges for our counterparties
and central clearinghouses with respect to non-cash collateral, will likely require increased holdings of cash and highly liquid
securities with lower yields causing a reduction in income and less favorable pricing for OTC-cleared and OTC-bilateral
transactions. Centralized clearing of certain OTC derivatives exposes us to the risk of a default by a clearing member or
clearinghouse with respect to our cleared derivative transactions. We use derivatives to mitigate a wide range of risks in
connection with our businesses, including the impact of increased benefit exposures from certain of our annuity products that
offer guaranteed benefits. We have always been subject to the risk that hedging and other management procedures might prove
ineffective in reducing the risks to which insurance policies expose us or that unanticipated policyholder behavior or mortality,
combined with adverse market events, could produce economic losses beyond the scope of the risk management techniques
employed. Any such losses could be increased by higher costs of writing derivatives (including customized derivatives) and
the reduced availability of customized derivatives that might result from the implementation of Dodd-Frank and comparable
international derivatives regulations.
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Dodd-Frank also expanded the definition of “swap” and mandated the SEC and U.S. Commodity Futures Trading
Commission (“CFTC”) (collectively, the “Commissions”) to study whether “stable value contracts” should be treated as swaps.
Pursuant to the new definition and the Commissions’ interpretive regulations, products offered by our insurance subsidiaries
other than stable value contracts might also be treated as swaps, even though we believe otherwise. Should such products
become regulated as swaps, we cannot predict how the rules would be applied to them or the effect on such products’ profitability
or attractiveness to our clients. Federal banking regulators have recently adopted new rules that will apply to certain qualified
financial contracts, including many derivatives contracts, securities lending agreements and repurchase agreements, with
certain banking institutions and certain of their affiliates. These new rules, which will begin to go into effect in 2019, will
generally require the banking institutions and their applicable affiliates to include contractual provisions in their qualified
financial contracts that limit or delay certain rights of their counterparties including counterparties’ default rights (such as the
right to terminate the contracts or foreclose on collateral) and restrictions on assignments and transfers of credit enhancements
(such as guarantees) arising in connection with the banking institution or an applicable affiliate becoming subject to a
bankruptcy, insolvency, resolution or similar proceeding. To the extent that any of the derivatives, securities lending agreements
or repurchase agreements that we enter into are subject to these new rules, it could limit our recovery in the event of a default
and increase our counterparty risk.
Securities, Broker-Dealer and Investment Adviser Regulation
Federal and state securities laws and regulations apply to insurance products that are also “securities,” including variable
annuity contracts and variable life insurance policies, as well as certain fixed interest rate or index-linked contracts with
features that require them to be registered as securities (“registered fixed contracts”). As a result, some of MetLife, Inc.’s
subsidiaries and their activities in offering and selling variable insurance contracts and policies are subject to extensive
regulation under these securities laws.
Federal and state securities laws and regulations generally grant regulatory agencies broad rulemaking and enforcement
powers, including the power to adopt new rules impacting new or existing products, regulate the issuance, sale and distribution
of our products and limit or restrict the conduct of business for failure to comply with such laws and regulations. We may also
be subject to similar laws and regulations in the foreign countries in which we provide investment advisory services, offer
products similar to those described above, or conduct other activities.
Some of our subsidiaries are registered as investment advisers with the SEC under the Investment Advisers Act of 1940,
as amended, and are also registered as investment advisers in various states, as applicable.
Some of our subsidiaries and their activities in offering and selling variable insurance products and certain fixed interest
rate or index-linked contracts are subject to extensive regulation under the federal securities laws administered by the SEC.
These subsidiaries issue variable annuity contracts and variable life insurance policies through separate accounts that are
registered with the SEC as investment companies under the Investment Company Act of 1940 (the “Investment Company
Act”). Each registered separate account is generally divided into sub-accounts, each of which invests in an underlying mutual
fund which is itself a registered investment company under the Investment Company Act. In addition, the variable annuity
contracts and variable life insurance policies issued by these registered separate accounts are registered with the SEC under
the Securities Act of 1933 (“Securities Act”). Some of our subsidiaries also issue fixed interest rate or index-linked contracts
with features that require them to be registered as securities under the Securities Act. Other subsidiaries are registered with
the SEC as broker-dealers under the Securities Exchange Act of 1934 (“Exchange Act”), and are members of, and subject to
regulation by, FINRA. Certain variable contract separate accounts sponsored by our subsidiaries are exempt from registration,
but may be subject to other provisions of the federal securities laws. As a result of Dodd-Frank, there have been a number of
changes proposed or adopted to the laws and regulations that govern the conduct of our variable and registered fixed insurance
products business and the firms that distribute these products. The future impact of recently adopted revisions to laws and
regulations, as well as revisions that are still in the proposal stage, on the way we conduct our business and the products we
sell is unclear.
Federal and state securities regulatory authorities and FINRA from time to time make inquiries and conduct examinations
regarding compliance by MetLife, Inc. and its subsidiaries with securities and other laws and regulations. We cooperate with
such inquiries and examinations and take corrective action when warranted.
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Environmental Considerations
As an owner and operator of real property, we are subject to extensive federal, state and local environmental laws and
regulations. Inherent in such ownership and operation is also the risk that there may be potential environmental liabilities and
costs in connection with any required remediation of such properties. In addition, we hold equity interests in companies that
could potentially be subject to environmental liabilities. We routinely have environmental assessments performed with respect
to real estate being acquired for investment and real property to be acquired through foreclosure. We cannot provide assurance
that unexpected environmental liabilities will not arise. However, based on information currently available to us, we believe
that any costs associated with compliance with environmental laws and regulations or any remediation of such properties will
not have a material adverse effect on our business, results of operations or financial condition.
Unclaimed Property
We are subject to the laws and regulations of states and other jurisdictions concerning identification, reporting and
escheatment of unclaimed or abandoned funds, and are subject to audit and examination for compliance with these requirements.
See “Controls and Procedures” and “Risk Factors — Risks Related to the Material Weaknesses — We Have Identified Material
Weaknesses in Our Internal Control over Financial Reporting, Which Could Adversely Affect Our Business, Reputation,
Results of Operations and Stock Price.” See also Note 20 of the Notes to the Consolidated Financial Statements.
International Regulation
Our international insurance operations are principally regulated by insurance regulatory authorities in the jurisdictions in
which they are located or operate. Regulation of our insurance operations outside of the U.S. includes minimum capital, solvency
and operational requirements. The authority of our international operations to conduct business is subject to licensing
requirements, permits and approvals, and these authorizations are subject to modification and revocation. Periodic examinations
of insurance company books and records, financial reporting requirements, market conduct examinations and policy filing
requirements are among the techniques used by regulators to supervise our non-U.S. insurance businesses. We also have
investment and pension companies in certain foreign jurisdictions that provide mutual fund, pension and other financial products
and services. Those entities are subject to securities, investment, pension and other laws and regulations. In some jurisdictions,
some of our insurance products are considered “securities” under local law and may be subject to local securities regulations
and oversight by local securities regulators.
Our international operations are exposed to increased political, legal, financial, operational and other risks. See “Risk
Factors — Risks Related to Our Business — Our International Operations Face Political, Legal, Operational and Other Risks,
Including Exposure to Local and Regional Economic Conditions, That Could Negatively Affect Those Operations or Our
Profitability” and “Risk Factors — Regulatory and Legal Risks — Our Insurance, Pensions and Brokerage Businesses Are
Highly Regulated, and Changes in Regulation and in Supervisory and Enforcement Policies May Reduce Our Profitability and
Limit Our Growth.”
On June 23, 2016, the U.K. held a referendum regarding its membership in the European Union (“EU”), resulting in a vote
in favor of leaving the EU. The U.K. government triggered the withdrawal process by notifying the EU on March 29, 2017 of
the U.K.’s intention to withdraw from the EU. The member withdrawal provisions in the applicable EU treaty provide that the
U.K. and the EU will negotiate a withdrawal agreement during a maximum two-year period (unless such period is extended by
unanimous vote of the other EU member states). In the meantime, the U.K. remains a member of the EU with unchanged rights
to access the single EU market in goods and services. Our U.K. business model utilizes certain rights to operate cross-border
insurance and investment operations which may be modified or eliminated as a result of the U.K. exiting the EU. Operating
expenses within our businesses could increase as a result of uncertainties during the negotiation period and upon the U.K.’s
withdrawal.
Other changes in the laws and regulations of jurisdictions that affect our customers and independent sales intermediaries
or their operations also may affect our business relationships with them and their ability to purchase or distribute our products.
Such actions may negatively affect our business in these jurisdictions.
In Chile, in September 2015, a Presidential Advisory Committee issued several recommendations to reform the pension
system and on August 10, 2017, Chilean President Bachelet submitted a pension reform proposal comprised of three legislative
components: (i) a 5% additional contribution from employers; (ii) a public independent entity to manage the additional funds;
and (iii) legislative text that modifies pension fund administrator regulations. When President-elect Piñera assumes office in
March 2018, it is unclear whether he will introduce amendments to the existing bill in Congress or submit a new proposal.
Certain of these proposals, if enacted, may have a significant adverse effect on our business in Chile.
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The European Insurance and Occupational Pensions Authority (“EIOPA”), along with European legislation, requires
European regulators, such as the Central Bank of Ireland (“CBI”), to establish Supervisory Colleges for European Economic
Area (“EEA”)-based insurance groups with significant European operations, including MetLife, to facilitate cooperation and
coordination among the insurance groups’ European supervisors and to enhance the member regulators’ understanding of an
insurance group’s risk profile. A November 2017 Supervisory College was chaired by the CBI and was attended by MetLife’s
key European regulators. We do not expect the outcome of the meeting to have a material adverse effect on our business. The
next European Supervisory College is scheduled to take place in the second half of 2018.
Part of our international insurance operations may be subject to assessments, generally based on their proportionate share
of business written in the relevant jurisdiction, for certain obligations to policyholders and claimants resulting from the insolvency
of insurance companies. See “— Japan.” Annually, many of our international insurance operations are required to conduct an
analysis of the sufficiency of all statutory reserves. In most of those cases, a locally qualified actuary must submit an analysis
of the likelihood that the reserves make good and sufficient provision for the associated contractual obligations and related
expenses of the insurer. Local regulatory and actuarial standards for this vary widely; the required implied certainty of the signing
actuary’s opinion varies equally widely.
We expect the scope and extent of regulation outside of the U.S., as well as regulatory oversight, generally, to continue to
increase. The regulatory environment in the jurisdictions in which we operate and changes in laws could have a material adverse
effect on our results of operations.
Solvency Regimes
Our insurance business throughout the EEA is subject to Solvency II and its implementing rules, which cover the capital
adequacy, risk management and regulatory reporting for issuers and reinsurers. Solvency II codifies and harmonizes the EU
insurance regulation. Capital requirements are forward-looking and based on the risk profile of each individual insurance
company in order to promote comparability, transparency and competitiveness. In line with the requirements, MetLife entities
calculate and report their solvency capital requirement using a standard formula prescribed by the EU Directive and further
regulation by the EIOPA.
Mexico adopted a reform of its Insurance Law in February 2013. In accordance with this reform, a Solvency II-type
regulatory framework became effective on January 1, 2016, which instituted changes to reserve and capital requirements and
corporate governance and fostered greater transparency. In line with the requirements of the local Solvency II, insurance
companies calculate and report their capital requirement using a standard formula designed by the local regulators (“CNSF”).
In addition, as required, certain MetLife entities must submit annual ORSA reports to the CNSF on an ongoing basis.
In Chile, the law implementing Solvency II-like regulation continues in the studies stage. However, the Chilean insurance
regulator has already issued two resolutions, one for governance and the other for risk management and control framework
requirements. MetLife Chile has already implemented governance changes and risk policies to comply with these resolutions.
A fifth impact study was completed and submitted in July 2017. On March 31, 2016, the local regulator issued a final regulation
that requires insurance companies to implement a risk appetite framework and produce an ORSA. The first such report was
submitted to the local regulator in September 2017. Even though a formal implementation date has not yet been set, it is
estimated that the new solvency and supervisory regime could be in force by 2020.
In July 2015, the Superintendence of Private Insurance, the Brazilian insurance regulator (“SUSEP”), issued a regulation
establishing (i) a framework for minimum capital requirements based on risk and (ii) criteria for investment activities in
insurance companies. In November 2015, SUSEP issued an additional regulation requiring insurance companies operating in
Brazil to adopt a formal risk management function by the end of 2016 and to implement a formal enterprise risk management
framework in 2017. In December 2016, MetLife Brazil formalized the designation of a local Risk Manager in Brazil in
compliance with local regulation and in 2017 completed the implementation of governance structures and risk management
framework components in accordance with local regulatory requirements.
In China, the business of our joint venture (as well as the industry) has been implementing China Risk Oriented Solvency
System (“C-ROSS”), a new risk-based solvency regime, which became effective on January 1, 2016. Like Solvency II, C-
ROSS focuses on risk management and has three pillars (strengthen quantitative capital requirements, enhance qualitative
supervision and establish a governance and market discipline process). In September 2017, the regulator announced a three-
year plan aimed at improving C-ROSS rules in line with the changing market environment.
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Other International and Global Regulatory Initiatives
The IAIS, an association of insurance supervisors and regulators and a member of the Financial Stability Board (“FSB”),
an international entity established to coordinate, develop and promote regulatory, supervisory and other financial sector policies
in the interest of financial stability, is participating in the FSB’s initiative to identify and manage systemic risk globally.
Beginning in 2013, the FSB annually designated certain insurers as globally systemically important insurers (“G-SIIs”) using
an assessment methodology developed and implemented by the IAIS. In November 2016, MetLife, Inc. and eight other firms
were designated as G-SIIs; in November 2017, the FSB announced it would not publish a new list of G-SIIs pending further
consideration in late 2018. The FSB also recommended that the IAIS continue development of an activities-based approach
to assessing and managing potential systemic risk in the insurance sector.
Current standards call for additional requirements for G-SIIs, which include higher loss absorbency (“HLA”) requirements,
and more intensive supervision, among other requirements. In February 2017 the IAIS confirmed that the risk-based global
insurance capital standard (“ICS”) will replace basic capital requirements as the basis for a revised HLA and that work on
revisions is deferred until adoption of the ICS by the IAIS in 2019. HLA implementation is to be delayed until 2022 for the
2020 group of G-SIIs. In November 2017, the IAIS announced an agreement regarding further development and implementation
of the ICS, and the impact on timing of further development and implementation of HLA requirements is unclear.
All IAIS proposals would need to be implemented at the consolidated group level by legislation or regulation in each
applicable jurisdiction. As MetLife, Inc. is no longer a U.S. non-bank SIFI and none of its regulators have proposed
implementing the G-SII or other capital requirements, the impact on MetLife, Inc. of such global proposals is uncertain.
Japan
Our operations in Japan are subject to regulation and examination by Japan’s Financial Services Agency (“FSA”). Our
operations in Japan are required to file with the FSA annual reports for each fiscal year (ending March 31) which include
financial statements. These annual reports are not prepared on a U.S. GAAP basis. Similar to the U.S., Japanese law provides
that insurers in Japan must maintain specified solvency standards for the protection of policyholders and to support the financial
strength of licensed insurers. As of September 30, 2017, the solvency margin ratio of our Japan operations was in excess of
four times the 200% solvency margin ratio that would require corrective action, as disclosed in our most recent regulatory
filing in Japan. Most Japanese life insurers maintain a solvency margin ratio well in excess of the legally mandated minimum.
A portion of the annual earnings of our Japan operations may be repatriated each year, and may further be distributed to
MetLife, Inc. as a dividend. We may determine not to repatriate profits from the Japan operations or to repatriate a reduced
amount in order to maintain or improve the solvency margin of the Japan operations or for other reasons. In addition, the FSA
may limit or not permit profit repatriations or other transfers of funds to the U.S. if such transfers would be detrimental to the
solvency or financial strength of our Japan operations or for other reasons.
Our operations in Japan are subject to assessments to cover obligations to policyholders in the event of insolvency of
other insurance companies. Under the Japanese Insurance Business Law, all licensed life insurers in Japan are assessed on an
annual basis by the Life Insurance Policyholders Protection Corporation of Japan. These assessments are aggregated across
all licensed life insurers in Japan and, in the event of a life insurance company insolvency, are used to satisfy certain obligations
to policyholders and claimants of such insolvent company.
Company Ratings
Insurer financial strength ratings represent the opinions of rating agencies, including A.M. Best Company (“A.M. Best”),
Fitch Ratings (“Fitch”), Moody’s Investors Service (“Moody’s”) and Standard & Poor’s Global Ratings (“S&P”), regarding the
ability of an insurance company to meet its financial obligations to policyholders and contractholders.
Rating Stability Indicators
Rating agencies use an “outlook statement” of “positive,” “stable,” ‘‘negative’’ or “developing” to indicate a medium- or
long-term trend in credit fundamentals which, if continued, may lead to a rating change. A rating may have a “stable” outlook
to indicate that the rating is not expected to change; however, a “stable” rating does not preclude a rating agency from changing
a rating at any time, without notice. Certain rating agencies assign rating modifiers such as “CreditWatch” or “under review”
to indicate their opinion regarding the potential direction of a rating. These ratings modifiers are generally assigned in connection
with certain events such as potential mergers, acquisitions, dispositions or material changes in a company’s results, in order for
the rating agency to perform its analysis to fully determine the rating implications of the event.
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Insurer Financial Strength Ratings
The following insurer financial strength ratings represent each rating agency’s opinion of MetLife, Inc.’s principal insurance
subsidiaries’ ability to pay obligations under insurance policies and contracts in accordance with their terms and are not evaluations
directed toward the protection of investors in MetLife, Inc.’s securities. Insurer financial strength ratings are not statements of
fact nor are they recommendations to purchase, hold or sell any security, contract or policy. Each rating should be evaluated
independently of any other rating.
Our insurer financial strength ratings at the date of this filing are indicated in the following table. Outlook is stable unless
otherwise indicated. Additional information about financial strength ratings can be found on the websites of the respective rating
agencies.
Ratings Structure
American Life Insurance Company
General American Life Insurance Company
Metropolitan Life Insurance Company
MetLife Insurance K.K. (MetLife Japan)
Metropolitan Tower Life Insurance Company
__________________
NR = Not rated
A.M. Best
Fitch
Moody's
S&P
“A++ (superior)” to
“S (suspended)”
“AAA (exceptionally
strong)” to “C
(distressed)”
“Aaa (highest
quality)” to “C
(lowest rated)”
“AAA (extremely
strong)” to “SD
(Selective Default)”
or “D (Default)”
NR
A+
2nd of 16
A+
2nd of 16
NR
A+
2nd of 16
NR
AA-
4th of 19
AA-
4th of 19
NR
NR
A1
5th of 21
Aa3
4th of 21
Aa3
4th of 21
NR
Aa3
4th of 21
AA-
4th of 22
AA-
4th of 22
AA-
4th of 22
AA-
4th of 22
NR
See “Risk Factors — Risks Related to Our Business — A Downgrade or a Potential Downgrade in Our Financial Strength
or Credit Ratings Could Result in a Loss of Business and Materially Adversely Affect Our Financial Condition and Results of
Operations.” See also “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity
and Capital Resources — The Company — Capital — Rating Agencies” for an in depth description of the impact of a ratings
downgrade.
Competition
The life insurance industry remains highly competitive. See “Management’s Discussion and Analysis of Financial Condition
and Results of Operations — Industry Trends — Competitive Pressures.” We believe that the competition we face is based on
a number of factors, including service, product features, scale, price, financial strength, claims-paying ratings, credit ratings, e-
business capabilities and name recognition. We compete globally with a large number of other insurance companies, as well as
non-insurance financial services companies, such as banks, broker-dealers and asset managers, for individual consumers,
employer and other group customers, as well as agents and other distributors of insurance and investment products. Some of
these companies offer a broader array of products, have more competitive pricing or, with respect to other insurance companies,
have higher claims paying ability ratings. In the United States and Japan, we compete with a large number of domestic and
foreign-owned life insurance companies, many of which offer products in categories on which we focus. Elsewhere, we compete
with the foreign insurance operations of large U.S. insurers and with global insurance groups and local companies. Many of our
group insurance products are underwritten annually and, accordingly, there is a risk that group purchasers may be able to obtain
more favorable terms from competitors rather than renewing coverage with us.
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We believe that the continued volatility of the financial markets and its impact on the capital position of many competitors
will continue to strain the competitive environment. Although the U.S. regulatory environment has improved at the federal level,
the life insurance industry continues to face challenges globally and, within the U.S., at the state level. In the current environment,
we believe that financial strength, technological efficiency and organizational agility are the most significant differentiators and
that we are building a company that is well positioned to succeed in any environment. For example, the Company primarily
distributes its products through a variety of third-party distribution channels, including banks and broker-dealers. These
distribution partners are currently placing greater emphasis on the financial strength of the company whose products they sell.
An increase in bank and broker-dealer consolidation activity could increase competition for access to distributors. The effects
of financial market volatility may also lead to consolidation in the life insurance industry.
Competition for employees in our industry is intense, and we need to be able to attract and retain highly skilled people with
knowledge of our business and industry experience to support our business. In selected global markets, we continue to undertake
several initiatives to grow our career agency forces, while continuing to enhance the efficiency and production of our sales
representatives. These initiatives may not succeed in attracting and retaining productive agents. See “— Segments and Corporate
& Other” for information on sales distribution.
Numerous aspects of our business are subject to regulation. Legislative and other changes affecting the regulatory
environment can affect our competitive position within the life insurance industry and within the broader financial services
industry. See “— Regulation.”
Employees
At October 1, 2017, we had approximately 49,000 employees, calculated consistent with Regulation S-K Item 402(u) without
exempting any employees under Regulation S-K Item 402(u)(4). We believe that our relations with our employees are satisfactory.
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Executive Officers
Set forth below is information regarding the executive officers of MetLife, Inc.:
Name
Steven A. Kandarian
Stephen W. Gauster
Steven J. Goulart
John C.R. Hele
Michel Khalaf
Esther S. Lee
Martin J. Lippert
Ramy Tadros
Susan Podlogar
Age
65
Position with MetLife and Business Experience
• Chairman of the Board of MetLife, Inc. (January 2012-present) (Director of MetLife, Inc. since 2011)
•
President and Chief Executive Officer (May 2011-present) of MetLife, Inc.
47
59
59
54
59
58
42
54
•
•
•
•
•
Executive Vice President and Chief Investment Officer of MetLife, Inc. (April 2005-April 2011)
Senior Vice President and Interim General Counsel of MetLife, Inc. (July 2017-present)
Senior Vice President and Chief Counsel, General Corporate Section of the Law Department (January 2016-
June 2017)
Senior Vice President, Chief Corporate Counsel and Assistant Secretary, Assurant, Inc., an insurance company
(September 2008-December 2015)
Executive Vice President and Chief Investment Officer of MetLife, Inc. (May 2011-present)
• Head of the Portfolio Management Unit as Senior Managing Director of MLIC (January 2011-April 2011)
•
•
•
•
•
•
Senior Vice President and Treasurer, MetLife, Inc. (July 2009-April 2011)
Executive Vice President and Chief Financial Officer of MetLife, Inc. (September 2012-present)
Executive Vice President, Chief Financial Officer and Treasurer, Arch Capital Group Ltd., an insurance and
reinsurance company (April 2009-August 2012)
President, U.S. Business of MetLife, Inc. (July 2017-present)
President, EMEA of MetLife, Inc. (November 2011-present)
Executive Vice President of MLIC (January 2011-November 2011)
• Regional President, Middle East, Africa and South Asia, ALICO (November 2008-November 2011) (Mr.
Khalaf joined MetLife as a result of the acquisition of ALICO)
•
•
•
•
•
Executive Vice President and Global Chief Marketing Officer of MetLife, Inc. (January 2015-present)
Senior Vice President, Brand Marketing, Advertising and Sponsorships of AT&T, Inc., a communications
company (August 2011-December 2014)
Senior Vice President, Brand Marketing and Advertising of AT&T, Inc. (June 2009-July 2011)
Executive Vice President and Head of Global Technology and Operations of MetLife, Inc. (November 2011-
present)
Executive Vice President and Head of Global Technology of MetLife, Inc. (September 2011-November 2011)
•
Executive Vice President and Chief Risk Officer of MetLife, Inc. (September 2017-present)
• Management Consultant, Oliver Wyman, Inc., a consulting company (September 1997-July 2017)
Executive Vice President and Chief Human Resources Officer of MetLife, Inc. (July 2017-present)
•
• Vice President Human Resources Global Medical Devices, Human Resources Executive Committee, Johnson
& Johnson, a medical devices, pharmaceutical and consumer products company
(May 2016-June 2017)
• Vice President Human Resources EMEA, Global Total Rewards, Human Resources Executive Committee,
Johnson & Johnson (January 2015-May 2016)
• Vice President Human Resources Global Total Rewards, Human Resources Executive Committee, Johnson
& Johnson (January 2012-May 2015)
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Trademarks
We have a worldwide trademark portfolio that we consider important in the marketing of our products and services, including,
among others, the trademark “MetLife.” We also have the exclusive global license to use the Peanuts® characters in the area of
financial services under an advertising and premium agreement with Peanuts Worldwide, LLC up to December 31, 2019. As a
result of the acquisition of American Life and Delaware American Life Insurance Company (“DelAm”) (collectively, “ALICO”),
we acquired trademarks of American Life, including the “ALICO” trademark. In addition, as a result of our acquisition of
ProVida, we acquired “PROVIDA” and other trademarks. We believe that our rights in our trademarks and under our Peanuts®
characters license are well protected.
Available Information
MetLife files periodic reports, proxy statements and other information with the SEC. Such reports, proxy statements and
other information may be obtained by visiting the Public Reference Room of the SEC at its Headquarters Office, 100 F Street,
N.E., Washington D.C. 20549 or by calling the SEC at 1-202-551-8090 or 1-800-SEC-0330 (Office of Investor Education and
Advocacy). In addition, the SEC maintains an internet website (www.sec.gov) that contains reports, proxy statements, and other
information regarding issuers that file electronically with the SEC, including MetLife, Inc.
MetLife makes available, free of charge, on its website (www.metlife.com) through the Investor Relations web page, its
annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to all those reports,
as soon as reasonably practicable after filing (furnishing) such reports to the SEC. MetLife encourages investors to visit the
Investor Relations web page from time to time, where it announces additional financial and other information about it to its
investors, including in press releases, public conference calls and webcasts. The information found on MetLife’s website is not
incorporated by reference into this Annual Report on Form 10-K or in any other report or document MetLife files with the SEC,
and any references to MetLife’s website are intended to be inactive textual references only.
Risks Related to the Material Weaknesses
Item 1A. Risk Factors
We Have Identified Material Weaknesses in Our Internal Control over Financial Reporting, Which Could Adversely Affect
Our Business, Reputation, Results of Operations and Stock Price
We have identified material weaknesses in MetLife, Inc.’s internal control over financial reporting related to the
administrative and accounting practices of certain Retirement and Income Solutions (“RIS”) group annuity reserves, the untimely
communication and escalation of issues regarding those reserves throughout the Company, and controls over the calculation of
reserves relating to variable annuity guarantees assumed from a former operating joint venture in Japan and included within
MetLife Holdings. Based on the material weaknesses, our management has determined that MetLife, Inc. has not maintained
effective internal control over financial reporting as of December 31, 2017, and our independent registered public accounting
firm, Deloitte and Touche LLP, has expressed an adverse opinion on MetLife Inc.’s internal control over financial reporting as
of December 31, 2017. See “Controls and Procedures” for a discussion of MetLife Inc.’s internal control over financial reporting
and the material weaknesses.
The material weaknesses, or a failure to promptly remediate them, may adversely affect our business, our reputation, our
results of operations and the market price of our common stock. If we are unable to remediate the material weaknesses in a
timely manner, our investors, regulators, customers and other business partners may lose confidence in our business or our
financial reports, and our access to capital markets may be adversely affected. In addition, our ability to record, process, and
report financial information accurately, and to prepare financial statements within the time periods specified by the rules and
regulations of the SEC and other regulatory authorities, could be adversely affected, which may result in violations of applicable
securities laws, state insurance laws and regulations, stock exchange listing requirements and the covenants under our debt
agreements. We are also exposed to lawsuits and investigations, and we could be exposed to additional legal actions. In such
actions, a governmental authority may interpret a law, regulation or accounting principle differently than we have, exposing us
to different or additional risks. Legal actions against us may result in payments including damages, fines, penalties, interest and
other amounts assessed or awarded by courts or regulatory authorities under applicable escheat, tax, securities, ERISA, or other
laws and regulations. We could incur significant costs in connection with these actions. We have not accrued for any such
liabilities.
The control deficiencies resulting in the material weaknesses, in the aggregate, if not effectively remediated could also
result in misstatements of accounts or disclosures related to liabilities for certain RIS group annuity contracts or certain assumed
variable annuity guarantees that would result in a material misstatement of the annual or interim consolidated financial statements
that would not be prevented or detected.
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We have informed the New York State Department of Financial Services (the “NYDFS”) about our practices in connection
with the payment of pension benefits to annuitants and related matters, and the NYDFS is examining the issue. The SEC staff
is also investigating this matter, and several additional regulators have made inquiries into these practices, including as to related
disclosures. Similarly, the SEC staff is investigating the matter relating to our calculation of certain reserves associated with
variable annuity guarantees assumed from the former operating joint venture in Japan. We have also informed other regulators
of this matter. We are fully cooperating with each. It is possible that other jurisdictions may pursue similar investigations or
inquiries. See “Controls and Procedures.”
In addition, we cannot be certain that we will not identify additional control deficiencies or material weaknesses in the
future. If we identify future control deficiencies or material weaknesses, these may lead to additional adverse effects on our
business, our reputation, our results of operations, and the market price of our common stock.
Economic Environment and Capital Markets-Related Risks
Difficult Conditions in the Global Capital Markets and the Economy Generally May Materially Adversely Affect Our Business
and Results of Operations
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 financial asset classes or various markets, including global capital
markets, 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 prices, derivative
prices and availability, real estate markets, foreign currency exchange rates, consumer spending, business investment, government
spending, the volatility and strength of the capital markets, and deflation and inflation, all affect our financial condition, as well
as the volume, profitability and results of our business operations and our ability to receive dividends from our insurance
subsidiaries and meet our obligations at MetLife, Inc., either directly or by virtue of their impact on the business and economic
environment generally and on general levels of economic activity, employment and customer behavior specifically. 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 financial condition (including our liquidity and capital levels) as a result of mismatched impacts on the value of our assets
and our liabilities. While our diversified business mix and geographically diverse business operations partially mitigate these
risks, correlation across regions, countries and global market factors may reduce the benefits of diversification.
At times throughout the past several years, volatile conditions have characterized financial markets, including in recent
months. Significant market volatility, and government actions taken in response, may exacerbate some of the risks we face.
Concerns about political, security and/or economic conditions in the U.K., Mexico and South Korea have recently contributed
to global market volatility. This market volatility has affected the performance of various asset classes at various times, and it
could continue. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Investments
— Current Environment.” Events following the U.K.’s referendum on June 23, 2016 and the uncertainties, including foreign
currency exchange risks, associated with its withdrawal from the EU, have contributed to market volatility, both in the United
States and beyond. Such events and uncertainties could contribute to weakening gross domestic product (“GDP”) growth,
primarily in the U.K. and Europe. The magnitude and longevity of the potential negative economic impacts would depend on
the detailed agreements reached by the U.K. and EU as a result of the exit negotiations and negotiations regarding trade and
other arrangements. In addition, the impact on global capital markets, the economy and MetLife of the transition occurring in
the United States government and the priorities of the Trump Administration remains uncertain. See “Management’s Discussion
and Analysis of Financial Condition and Results of Operations — Industry Trends — Financial and Economic Environment.”
Any of these factors could have significant adverse effects on the economy and financial markets generally.
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To the extent these uncertain financial market conditions persist, our revenues, reserves and net investment income, as well
as the demand for certain of our products, are likely to remain under pressure. Similarly, sustained periods of low interest rates
and risk asset returns could reduce income from our investment portfolio, increase our liabilities for claims and future benefits,
and increase the cost of risk transfer measures such as hedging, causing our profit margins to erode as a result of reduced income
from our investment portfolio and increase in insurance liabilities. See “Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Industry Trends — Impact of a Sustained Low Interest Rate Environment.” Also, in the
event of extreme prolonged market events, such as the global credit crisis, we could incur significant capital and/or operating
losses due to, among other reasons, losses incurred in our general account and as a result of the impact on us of guarantees,
including increases in liabilities, capital maintenance obligations and/or collateral requirements associated with our affiliated
reinsurers and other similar arrangements. Even in the absence of a market downturn, we are exposed to substantial risk of loss
due to sustained periods of low market returns, low levels of U.S. interest rates, and/or heightened market volatility, which may
also increase the cost and limit the availability of the hedging instruments and other protective measures we take to mitigate
such risk, or increase the cost of our insurance liabilities, which could have a material adverse effect on the statutory capital and
earnings of our insurance subsidiaries, as well as impair our financial strength ratings.
Following the Separation, we continue to hold a block of variable insurance products and certain other products issued
through separate accounts. The account values of these products decrease as a result of declining equity markets. Lower interest
rates generally increase account values in the near term, but may result in lower returns in fixed income vehicles in the future.
Decreases in account values reduce certain fees generated by these products, cause the amortization of deferred policy acquisition
costs (“DAC”) to accelerate, may increase the level of insurance liabilities we must carry to support such products issued with
any associated guarantees and could require us to provide additional funding to our captive reinsurers.
In an economic downturn characterized by higher unemployment, lower family income, lower corporate earnings, lower
business investment and lower consumer spending, the demand for our financial and insurance products could be adversely
affected. Group insurance, in particular, is affected by higher unemployment rates. In addition, we may experience an elevated
incidence of claims, adverse utilization of benefits relative to our best estimate expectations and lapses or surrenders of policies.
Furthermore, our policyholders may choose to defer paying insurance premiums or stop paying insurance premiums altogether.
Such adverse changes in the economy could negatively affect our earnings and capitalization and have a material adverse effect
on our business, results of operations and financial condition.
Difficult conditions in the global capital markets and the economy may continue to raise the possibility of legislative,
judicial, regulatory and other governmental actions. The Trump Administration has released a memorandum that generally
delayed all pending regulations from publication in the Federal Register pending their review and approval by a department or
agency head appointed or designated by President Trump. See “Business — Regulation — U.S. Regulation — Insurance
Regulation — Federal Initiatives.” In addition, the Trump Administration is currently renegotiating certain international trade
agreements with other countries, including the North American Free Trade Agreement (“NAFTA”) with Canada and Mexico.
We cannot predict with certainty what other proposals may be made or what legislation or regulations may be introduced or
enacted, or what impact any such legislation or regulations may have on our business, results of operations and financial condition.
See “— Regulatory and Legal Risks — Our Insurance, Pensions and Brokerage Businesses Are Highly Regulated, and Changes
in Regulation and in Supervisory and Enforcement Policies May Reduce Our Profitability and Limit Our Growth,” and “—
Risks Related to Our Business — Competitive Factors May Adversely Affect Our Market Share and Profitability” below.
Adverse Global Capital and Credit Market Conditions May Significantly Affect Our Ability to Meet Liquidity Needs, Our
Access to Capital and Our Cost of Capital
The global capital and credit markets may be subject to periods of extreme volatility. Disruptions in capital markets could
cause our liquidity and credit capacity to be limited.
We need liquidity to pay claims and other operating expenses, interest on our debt and dividends on our capital stock,
provide our subsidiaries with cash or collateral, maintain our securities lending activities and replace certain maturing liabilities.
Without sufficient liquidity, we could be forced to curtail our operations and limit our investments, and our business and financial
results may suffer. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity
and Capital Resources.”
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In the event global capital market or other conditions have an adverse impact on our capital and liquidity, or our stress-
testing indicates that such conditions could have such an impact beyond expectations and our current resources do not satisfy
our needs or regulatory requirements, we may have to seek additional financing. The availability of additional financing will
depend on a variety of factors such as the then current market conditions, regulatory considerations, availability of credit to us
and the financial services industry generally, our credit ratings and credit capacity, and the perception of our customers and
lenders regarding our long- or short-term financial prospects if we incur large operating or investment losses or if the level of
our business activity decreases due to a market downturn. Similarly, our access to funds may be impaired if regulatory authorities
or rating agencies take negative actions against us. Our internal sources of liquidity may prove to be insufficient and, in such
case, we may not be able to successfully obtain additional financing on favorable terms, or at all.
Our liquidity requirements may change if, among other things, we are required to return significant amounts of cash collateral
on short notice under securities lending or derivatives agreements or we are required to post collateral or make payments related
to declines in market value of specified counterparty credit risk. See “— Investments-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,” “Management’s Discussion and Analysis of Financial Condition
and Results of Operations — Investments — Securities Lending” and “Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Liquidity and Capital Resources — The Company — Liquidity.”
Disruptions, uncertainty or volatility in the capital and credit markets may also limit our access to capital needed to operate
our business, most significantly in our insurance operations. Such market conditions may limit our ability to replace, in a timely
manner, maturing liabilities, satisfy regulatory capital requirements, and access the capital necessary to grow our business. See
“— Regulatory and Legal Risks — Our Insurance, Pensions and Brokerage Businesses Are Highly Regulated, and Changes in
Regulation and in Supervisory and Enforcement Policies May Reduce Our Profitability and Limit Our Growth.” As a result, we
may be forced to delay raising capital, issue different types of securities than we would have otherwise, less effectively deploy
such capital, issue shorter tenor securities than we prefer, or bear an unattractive cost of capital, which could decrease our
profitability and significantly reduce our financial flexibility. Our results of operations, financial condition, cash flows and
statutory capital position could be materially adversely affected by disruptions in the financial markets.
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
We are exposed to significant global financial and capital markets risks, including changes in interest rates, credit spreads,
equity prices, real estate markets, foreign currency exchange rates, market volatility, global economic performance in general,
the performance of specific obligors, including governments, included in our investment portfolio, derivatives and other factors
outside our control. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Industry
Trends — Financial and Economic Environment” and “Management’s Discussion and Analysis of Financial Condition and
Results of Operations — Investments — Current Environment.”
Interest Rate Risk
Some of our products, principally traditional life, universal life, fixed annuities and guaranteed interest contracts, as well
as funding agreements and structured settlements, expose us to the risk that changes in interest rates will reduce our investment
margin or “spread,” or the difference between the amounts that we are required to pay under the contracts in our general
account and the rate of return we earn on general account investments intended to support obligations under such contracts.
Our spread is a key component of our net income.
In a low interest rate environment, we may be forced to reinvest proceeds from investments that have matured or have
been prepaid or sold at lower yields, which will reduce our investment margin. Moreover, borrowers may prepay or redeem
the fixed income securities and commercial, agricultural or residential mortgage loans in our investment portfolio with greater
frequency in order to borrow at lower market rates, thereby exacerbating this risk. Although lowering interest crediting rates
can help offset decreases in spreads on some products, our ability to lower these rates is limited to the portion of our in-force
product portfolio that has adjustable interest crediting rates, and could be limited by competition or contractually guaranteed
minimum rates and may not match the timing or magnitude of changes in asset yields. As a result, our spread could decrease
or potentially become negative, which could have a material adverse effect on our results of operations and financial condition.
See “— Risks Related to Our Business — Guarantees Within Certain of Our Products May Decrease Our Earnings, Increase
the Volatility of Our Results, Result in Higher Risk Management Costs and Expose Us to Increased Counterparty Risk.”
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Our expectation for future spreads is an important component in the amortization of DAC and value of business acquired
(“VOBA”). Significantly lower spreads may cause us to accelerate amortization, thereby reducing net income in the affected
reporting period and potentially negatively affecting our credit instrument covenants or rating agency assessment of our
financial condition. In addition, during periods of declining interest rates, life insurance and annuity products may be relatively
more attractive investments to consumers. This could result in increased premium payments on products with flexible premium
features, repayment of policy loans and increased persistency, or a higher percentage of insurance policies remaining in-force
from year to year, during a period when our new investments carry lower returns. A decline in market interest rates could also
reduce our return on investments that do not support particular policy obligations. During periods of sustained lower interest
rates, our reserves for policy liabilities may not be sufficient to meet future policy obligations and may need to be strengthened.
Accordingly, declining and sustained lower interest rates may materially affect our results of operations, financial position,
cash flows, and ability to take dividends from operating insurance companies, as well as significantly reduce our profitability.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Industry Trends — Impact
of a Sustained Low Interest Rate Environment.”
As a global insurance company, we are also affected by the monetary policies of the Board of Governors of the Federal
Reserve System (the “Federal Reserve Board”) and of central banks around the world. Actions resulting from these policies
may have an impact on the pricing levels of risk-bearing investments, and may adversely impact the income we earn on our
investments or the level of product sales. See “Management’s Discussion and Analysis of Financial Condition and Results of
Operations — Investments — Current Environment.”
Increases in interest rates could also negatively affect our profitability. In periods of rapidly increasing interest rates, we
may not be able to replace, in a timely manner, the investments in our general account with higher yielding investments needed
to fund the higher crediting rates necessary to keep interest rate sensitive products competitive. We, therefore, may have to
accept a lower spread and, thus, lower profitability or face a decline in sales and greater loss of existing contracts and related
assets. In addition, policy loans, surrenders and withdrawals may tend to increase as policyholders seek investments with
higher perceived returns as interest rates rise. This process may result in cash outflows requiring that we sell investments at
a time when the prices of those investments are adversely affected by the increase in interest rates, which may result in realized
investment losses. Unanticipated withdrawals, terminations and substantial policy amendments may cause us to accelerate
the amortization of DAC and VOBA, which reduces net income and potentially negatively affects our credit instrument
covenants and rating agency assessment of our financial condition, and may also cause us to accelerate the amortization of
negative VOBA, which increases net income. An increase in interest rates could also have a material adverse effect on the
value of our investment portfolio, for example, by decreasing the estimated fair values of the fixed income securities that
comprise a substantial portion of our investment portfolio. Additionally, an increase in interest rates could increase our daily
settlement payments on interest rate futures and cleared swaps, which may result in increased cash outflows and increase our
liquidity needs. Finally, an increase in interest rates could result in decreased fee income associated with a decline in the value
of variable annuity account balances invested in fixed income funds. However, this increase in interest rates would typically
cause any guaranteed living benefits to decline in value. See “Management’s Discussion and Analysis of Financial Condition
and Results of Operations — Industry Trends — Impact of a Sustained Low Interest Rate Environment.”
We manage interest rate risk as part of our asset and liability management strategies, which include maintaining an
investment portfolio with diversified maturities that has a weighted average duration that reflects the duration of our estimated
liability cash flow profile. We also use derivatives to mitigate interest rate risk. Although we take measures to manage the
economic risks of investing in a changing interest rate environment, we may not be able to mitigate the interest rate risk of
our fixed income investments relative to our interest rate sensitive liabilities. In addition, asymmetrical and non-economic
accounting may cause material changes to our net income and stockholders’ equity in any given period because our non-
qualified derivatives are recorded at fair value through earnings, while the related hedged items either follow an accrual-based
accounting model, such as insurance liabilities, or are recorded at fair value through other comprehensive income. See Note
9 of the Notes to the Consolidated Financial Statements for the primary reasons why many of the Company’s derivatives do
not qualify for hedge accounting, even though they may be effective economic hedges.
Significant volatility in the markets could cause changes in the risks set forth above which, individually or in tandem,
could have a material adverse effect on our results of operations, financial condition, liquidity or cash flows through realized
investment losses, derivative losses, changes in insurance liabilities, impairments, increased valuation allowances, increases
in reserves for future policyholder benefits, reduced net investment income and changes in unrealized gain or loss positions.
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Credit Spreads
Our exposure to credit spreads primarily relates to market price volatility and cash flow variability associated with changes
in such spreads. Market price volatility can make it difficult to value certain of our securities if trading becomes less frequent,
as was the case, for example, during the financial crisis which commenced in 2008. In such case, valuations may include
assumptions or estimates that may have significant period-to-period changes, which could have a material adverse effect on
our results of operations or financial condition and may require additional reserves. If there is a resumption of significant
volatility in the markets, it could cause changes in credit spreads and defaults and a lack of pricing transparency which,
individually or in tandem, could have a material adverse effect on our results of operations, financial condition, liquidity or
cash flows. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Investments
— Investment Risks.” An increase in credit spreads relative to U.S. Treasury benchmarks can also adversely affect the cost
of our borrowing should we need to access credit markets.
Equity Risk
Our primary exposure to equity risk relates to the potential for lower earnings associated with certain of our businesses
where fee income is earned based upon the estimated fair value of the assets under management. Downturns and volatility in
equity markets can have a material adverse effect on the revenues and investment returns from our savings and investment
products and services. The retail variable annuity business in particular is highly sensitive to equity markets, and a sustained
weakness or stagnation in the equity markets could decrease revenues and earnings with respect to those products. Furthermore,
certain of our variable annuity products offer guaranteed benefits which increase our potential benefit exposure should equity
markets decline or stagnate. We use derivatives and reinsurance to mitigate the impact of such increased potential benefit
exposures.
We are also exposed to interest rate and equity risk based upon the discount rate and expected long-term rate of return
assumptions associated with our pension and other postretirement benefit obligations. Sustained declines in long-term interest
rates or equity returns likely would have a negative effect on the funded status of these plans.
In addition, we invest a portion of our investments in leveraged buy-out funds, hedge funds and other private equity funds.
The amount and timing of net investment income from such funds tends to be uneven as a result of the performance of the
underlying investments. The timing of distributions from such funds, which depends on particular events relating to the
underlying investments, as well as the funds’ schedules for making distributions and their needs for cash, can be difficult to
predict. As a result, the amount of net investment income from these investments can vary substantially from period to period.
Significant volatility could adversely impact returns and net investment income on these alternative investment classes. In
addition, the estimated fair value of such investments or other equity securities we hold may be impacted by downturns or
volatility in equity markets. See “Quantitative and Qualitative Disclosures About Market Risk.” Additionally, an increase in
equity markets could increase settlement payments on equity futures, which may result in increased cash outflows and increase
our liquidity needs.
Real Estate Risk
Our primary exposure to real estate risk relates to commercial, agricultural and residential real estate. Our exposure to
these risks stems from various factors, including the supply and demand of leasable commercial space, creditworthiness of
tenants and partners, capital markets volatility, interest rate fluctuations, commodity prices and farm incomes. Although we
manage credit risk and market valuation risk for our commercial, agricultural and residential real estate assets through
geographic, property type and product type diversification, as well as asset allocation, general economic conditions in the
commercial, agricultural and residential real estate sectors will continue to influence the performance of these investments.
These factors, which are beyond our control, could have a material adverse effect on our results of operations, financial
condition, liquidity or cash flows.
Obligor-Related Risks
Country specific volatility due to local economic and/or political concerns may affect the performance of certain of our
investments. We have exposure to such volatility, as we maintain general account investments in such countries to support
our insurance operations and related policyholder liabilities in these countries and we also have exposure through our global
portfolio diversification. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations —
Industry Trends — Financial and Economic Environment” and “Management’s Discussion and Analysis of Financial Condition
and Results of Operations — Investments — Current Environment — Selected Country Investments.”
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Our investment portfolio also contains investments in revenue bonds issued under the auspices of U.S. states and
municipalities, and a limited amount of general obligation bonds of U.S. states and municipalities (collectively, “State and
political subdivision securities”). Various U.S. states and municipalities have faced budget deficits and financial difficulties.
The financial difficulties of such U.S. states and municipalities could have an adverse impact on our State and political
subdivision securities and the value of our investment portfolio.
Fixed income securities and mortgage loans represent a significant portion of our investment portfolio. We are subject to
the risk that the issuers, or guarantors, of fixed income securities and mortgage loans we own may default on principal and
interest payments they owe us. We are also subject to the risk that the underlying collateral within asset-backed securities,
including mortgage-backed securities, may default on principal and interest payments causing an adverse change in cash
flows. The occurrence of a major economic downturn, acts of corporate malfeasance, widening mortgage or credit spreads,
or other events that adversely affect the issuers, guarantors or underlying collateral of these securities and mortgage loans
could cause the estimated fair value of our portfolio of fixed income securities and mortgage loans and our earnings to decline
and the default rate of the fixed income securities and mortgage loans in our investment portfolio to increase.
Foreign Currency Exchange Rate Risks
Our primary foreign currency exchange rate risks are described under “— Risks Related to Our Business — Fluctuations
in Foreign Currency Exchange Rates Could Negatively Affect Our Profitability.” Changes in foreign currency exchange rates
can significantly affect our net investment income in any period, and such changes can be substantial. This risk will increase
if a country withdraws from the Euro zone. In such case, the national currency to which such a country may revert will likely
be devalued and contracts using the Euro will need to be renegotiated. Any such devaluation and its related consequences for
our contracts and investments in any such country could be significant and materially adversely affect our operations and
earnings in that country. Any operations we may have in any such withdrawing country could also be materially adversely
affected by legal or governmental actions related to conversion from the Euro to a national currency. See “Quantitative and
Qualitative Disclosures About Market Risk.”
Derivatives Risk
We use the payments we receive from counterparties pursuant to derivative instruments into which we have entered to
offset future changes in the fair value of our assets and liabilities and current or future changes in cash flows. We enter into
a variety of derivative instruments, including options, futures, forwards, and interest rate and credit default swaps with a
number of counterparties. Amounts that we expect to collect under current and future derivatives are subject to counterparty
risk. Our obligations under our products are not changed by our hedging activities and we are liable for our obligations even
if our derivative counterparties do not pay us. Such defaults could have a material adverse effect on our financial condition
and results of operations. Substantially all of our derivatives require us to pledge or receive collateral or make payments related
to any decline in the net estimated fair value of such derivatives executed through a specific broker at a clearinghouse or
entered into with a specific counterparty on a bilateral basis. In addition, ratings downgrades or financial difficulties of
derivative counterparties may require us to utilize additional capital with respect to the impacted businesses. Furthermore,
the valuation of our derivatives could change based on changes to our valuation methodology or the discovery of errors.
Federal banking regulators have recently adopted new rules that will apply to certain qualified financial contracts, including
many derivatives contracts, securities lending agreements and repurchase agreements, with certain banking institutions and
certain of their affiliates. These new rules, which will be applicable beginning in 2019, will generally require the banking
institutions and their applicable affiliates to include contractual provisions in their qualified financial contracts that limit or
delay certain rights of their counterparties including counterparties’ default rights (such as the right to terminate the contracts
or foreclose on collateral) and restrictions on assignments and transfers of credit enhancements (such as guarantees) arising
in connection with the banking institution or an applicable affiliate becoming subject to a bankruptcy, insolvency, resolution
or similar proceeding. To the extent that any of the derivatives, securities lending agreements or repurchase agreements that
we enter into are subject to these new rules, it could increase our counterparty risk or limit our recovery in the event of a
default.
Summary
Significant volatility in the markets could cause changes in interest rates, declines in equity prices, and the strengthening
or weakening of foreign currencies against the U.S. dollar which, individually or in tandem, could have a material adverse
effect on our results of operations, financial condition, liquidity or cash flows through realized investment losses, derivative
losses, changes in insurance liabilities, impairments, increased valuation allowances, increases in reserves for future
policyholder benefits, reduced net investment income and changes in unrealized gain or loss positions.
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Regulatory and Legal Risks
Our Insurance, Pensions and Brokerage Businesses Are Highly Regulated, and Changes in Regulation and in Supervisory
and Enforcement Policies May Reduce Our Profitability and Limit Our Growth
Our insurance operations and our pensions and brokerage businesses are subject to a wide variety of insurance and other
laws and regulations. See “Business — Regulation,” as supplemented by discussions of regulatory developments in our
subsequently filed Quarterly Reports on Form 10-Q under the caption “Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Industry Trends — Regulatory Developments.”
U.S. Regulation
Insurance Regulation
The NAIC is an organization whose mission is to assist state insurance regulatory authorities in serving the public
interest and achieving the insurance regulatory goals of its members, the state insurance regulatory officials. State insurance
regulators may act independently or adopt regulations proposed by the NAIC. State insurance regulators and the NAIC
regularly re-examine existing laws and regulations applicable to insurance companies and their products. Changes in these
laws and regulations, or in interpretations thereof, can sometimes lead to additional expense for the insurer and, thus, could
have a material adverse effect on our financial condition and results of operations.
In 2015, the NAIC commenced an initiative to study variable annuity solvency regulations, with the goal of curtailing
the use of variable annuity captives. In connection with this initiative, the NAIC engaged a third-party consultant to conduct
two quantitative impact studies over a two-year period. The NAIC has exposed the consultant’s recommendations for
comment which, if adopted, likely would apply to insurers’ existing and new business and likely would materially change
the sensitivity of the balance sheet (including reserve and capital requirements) to capital markets. It is not possible to predict
whether the amount of reserves or capital required to support our variable annuity contracts would increase or decrease if
the NAIC adopts any new model laws, regulations and/or other standards applicable to variable annuity business after
considering such recommendations, nor is it possible to predict the extent to which any such model laws, regulations and/
or other standards would affect the effectiveness and design of our risk mitigation and hedging programs. Furthermore, no
assurances can be given as to whether any such model laws, regulations and/or other standards will be adopted or to the
timing of any such adoption.
The NAIC is also studying RBC revisions for bonds, real estate, equity and collateral pledged to support FHLB advances,
as well as longevity risk. It is premature to project the impact of any potential regulatory changes resulting from such studies.
The NAIC is also studying RBC revisions for operational risk.
The NAIC has modernized the calculation of life insurance reserves through the introduction of principle-based
reserving, which became operative on January 1, 2017 in those states where it has been adopted, with a three-year phase-
in period, at the option of insurance companies on a product-by-product basis, for new business. To date, principle-based
reserving has been adopted by all of the states where our insurance subsidiaries are domiciled, except in New York where
the NYDFS has publicly stated its intention to implement this approach, subject to a working group of the NYDFS establishing
the necessary reserves safeguards and the adoption of enabling legislation by the New York legislature, which is currently
pending. We cannot predict how principle-based reserving will impact the reserves or compliance costs, if any, of our
insurance subsidiaries. See “Business — Regulation — U.S. Regulation — Insurance Regulation — NAIC.”
The NAIC has been considering development of the group capital calculation assessment tool, a methodology for the
calculation of capital for all the entities in an insurance holding company group, including non-U.S. entities. The goal is to
provide U.S. regulators with a method to aggregate the available capital and the minimum capital of each entity in a group
in a way that applies to all groups regardless of their structure. The NAIC has stated that the calculation will be a regulatory
tool and will not constitute a requirement or standard. Nonetheless, any new group capital calculation methodology may
incorporate existing risk-based capital concepts. It is not possible to predict what impact any such regulatory tool may have
on our business. In August of 2017, the NAIC released a paper on macro-prudential initiatives, in which it proposed potential
enhancements in supervisory practices related to liquidity, recovery and resolution, capital stress testing and counterparty
exposure concentrations. We expect the NAIC to develop these proposals during 2018. We cannot predict the capital and
reserve impacts or compliance costs, if any, that may result from the above initiatives, or what impact these initiatives will
have on our business, financial condition or results of operations.
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In addition, following the reduction in the federal corporate income tax rate pursuant to U.S. Tax Reform, the NAIC
may revise the methodology or factors used to calculate RBC, which is the denominator of the RBC ratio. If such potential
revisions to the NAIC’s RBC calculation would result in a reduction in the RBC ratio for one or more of our insurance
subsidiaries below certain prescribed levels, we may be required to hold additional capital in such subsidiary or subsidiaries.
Although we do not expect that such potential revisions would impact our current dividend or capital plans, any increase
in the amount of capital our insurance subsidiaries are required to hold could reduce the amount of dividends such subsidiaries
are able to distribute to MetLife, Inc. Any reduction in the RBC ratios of our insurance subsidiaries could adversely affect
their financial strength ratings. For more information regarding U.S. Tax Reform, see “— U.S. Tax Reform Could Have an
Impact on Us” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Executive
Summary — Overview — U.S. Tax Reform.”
U.S. Federal Regulation Affecting Insurance
Currently, the business of insurance is primarily regulated at the state level. However, Dodd-Frank established the FIO
within the Department of the Treasury, which has the authority to participate in the negotiations of international insurance
agreements with foreign regulators for the U.S., as well as to collect information about the insurance industry and recommend
prudential standards. On December 12, 2013, the FIO issued a report, mandated by Dodd-Frank, which, among other things,
urged the states to modernize and promote greater uniformity in insurance regulation. The report raised the possibility of a
greater role for the federal government if states do not achieve greater uniformity in their laws and regulations. We cannot
predict with certainty whether any such legislation or regulatory changes will be adopted, or what impact they will have on
our business, financial condition or results of operations. Dodd-Frank also created the FSOC, which has the authority to
designate certain financial companies as non-bank SIFIs subject to Federal Reserve supervision. On January 23, 2018, the
United States District Court of Appeals for the District of Columbia dismissed the FSOC’s appeal of the D.C. Circuit Court’s
March 30, 2016 decision that rescinded the FSOC’s designation of MetLife, Inc. as a non-bank SIFI. There can be no
assurance that the FSOC will not seek to again designate MetLife, Inc. as a non-bank SIFI subject to regulation that could
materially and adversely affect our business and competitive position, such as RBC requirements and leverage limits,
liquidity requirements, overall risk management requirements, resolution plan and credit exposure requirements,
concentration limits, and other requirements. See “Business — Regulation — U.S. Regulation — Insurance Regulation —
Federal Initiatives.”
Federal legislation and administrative policies can significantly and adversely affect insurance companies, including
policies regarding financial services regulation, securities regulation, derivatives regulation, pension regulation, health care
regulation, privacy, tort reform legislation and taxation. In addition, various forms of direct and indirect federal regulation
of insurance have been proposed from time to time, including proposals for the establishment of an optional federal charter
for insurance companies.
ERISA and Fiduciary Considerations
We provide products and services to certain employee benefit plans that are subject to ERISA and the Code. As such,
our activities are subject to the restrictions imposed by ERISA and the Code, including the requirement under ERISA that
fiduciaries must perform their duties solely in the interests of ERISA plan participants and beneficiaries, and those fiduciaries
may not cause a covered plan to engage in certain prohibited transactions. The prohibited transaction rules of ERISA and
the Code generally restrict the provision of investment advice to ERISA plans and participants and IRAs if the investment
recommendation results in fees paid to the individual advisor, the firm that employs the advisor or their affiliates that vary
according to the investment recommendation chosen, unless an exemption or exception is available. Similarly, without an
exemption or exception, fiduciary advisors are prohibited from receiving compensation from third parties in connection
with their advice. ERISA also affects certain of our in-force insurance policies and annuity contracts, as well as insurance
policies and annuity contracts we may sell in the future.
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The DOL issued new regulations, which became for the most part applicable on June 9, 2017, that substantially expanded
the definition of “investment advice” and require that an impartial or “best interests” standard be met in providing such
advice, thereby broadening the circumstances under which MetLife or its representatives, in providing investment advice
with respect to ERISA plans, plan participants or IRAs, could be deemed a fiduciary under ERISA or the Code. Pursuant
to the final regulations, certain communications with plans, plan participants and IRA holders, including the sales of products,
and investment management or advisory services, could be deemed fiduciary investment advice, thus causing increased
exposure to fiduciary liability if the distributor does not recommend what is in the client’s best interests. While the final
regulations also provide that, to a limited extent, contracts sold and advice provided prior to the applicable date do not have
to be modified to comply with the new investment advice regulations, there is lack of clarity surrounding some of the
conditions for qualifying for this limited exception. There can be no assurance that the DOL will agree with our interpretation
of the provisions of the new regulations, in which case the DOL and IRS could assess significant penalties against a portion
of products sold prior to the applicable date. The assessment of such penalties could also trigger substantial litigation risk.
Any such penalties and related litigation could adversely affect our results of operations and financial condition.
The DOL also issued amendments to certain of its prohibited transaction exemptions, and issued a new exemption that
applies more onerous disclosure and contract requirements to, and increases fiduciary requirements and fiduciary liability
exposure in respect of, certain transactions involving ERISA plans, plan participants and IRAs. On November 27, 2017,
the changes the rule made to existing prohibited transaction exemptions and contract and disclosure requirements of the
new exemption (other than the impartial interest standard) were delayed until July 1, 2019, in order to give the DOL the
time necessary to consider public comments made in July and September 2017, as well as a February 2017 directive from
the President to analyze the rule’s impact to access to retirement information and financial advice. The rule is also being
challenged in the Fifth Circuit Court of Appeals (and elsewhere), where a decision is expected during the first quarter of
2018.
Concurrent with the rule delay, on November 24, 2017 the NAIC issued an exposure draft of an expanded Suitability
in Annuity Transactions Model Regulation, intended to result in the adoption of a “best interest” standard on a nationwide
basis. We are working with industry trade groups to provide comments to this draft. In addition, on December 27, 2017 the
NYDFS proposed revisions to Insurance Regulation 187, which not only incorporate the “best interest” standard, but also
would expand the scope of the regulations to include sales of life insurance policies and annuities to consumers. The NYDFS
proposed revisions to Regulation 187 are open for public comment until February 25, 2018. These developments leave open
the possibility of further modifications to the federal rule. In addition, Insurance Regulation 187 may result in additional
requirements on insurers and agents concerning both new and in-force annuity and life insurance products. We cannot
predict what other proposals may be made, what legislation or regulations may be introduced or enacted, or what impact
any such legislation or regulations may have on our business, product sales, results of operations and financial condition.
While we continue to analyze the impact of the final regulations on our business, we believe they could have an adverse
effect in their present form on sales of annuity products to ERISA qualified plans through our independent distribution
partners. Under the new regulations, advisors (including independent distributors) who sell fixed index-linked annuities to
IRAs, IRA rollovers or 401(k) plans are deemed to be fiduciaries and are prohibited from receiving compensation unless
they comply with a prohibited transaction exemption. The exemption requires advisors to comply with impartial conduct
standards and may require us to exercise additional oversight of the sales process. Compliance with the prohibited transaction
exemption will likely result in increased regulatory burdens on us and our independent distribution partners, changes to our
compensation practices and product offerings and increased litigation risk, which could adversely affect our results of
operations and financial condition. See “Business — Regulation — U.S. Regulation — ERISA and Fiduciary
Considerations.”
There remains uncertainty over whether the regulations will be substantially modified or repealed. Application of a
portion of the rules on June 9, 2017 and an additional 18-month delay on the remaining components, in light of the overall
reconsideration of the rules requested by President Trump, could create confusion among our distribution partners which
could negatively impact product sales. We cannot predict what other proposals may be made, what legislation may be
introduced or enacted, or what impact any such legislation may have on our business, results of operations and financial
condition.
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International Regulation
Our international insurance operations are principally regulated by insurance regulatory authorities in the jurisdictions
in which they are located or operate. A significant portion of our revenues is generated through operations in foreign
jurisdictions, including many countries in early stages of economic and political development. Our international operations
may be materially adversely affected by the actions and decisions of foreign authorities and regulators. See “— Risks Related
to Our Business — Our International Operations Face Political, Legal, Operational and Other Risks, Including Exposure to
Local and Regional Economic Conditions, That Could Negatively Affect Those Operations or Our Profitability.” This may
also impact many of our customers and independent sales intermediaries. Changes in the laws and regulations that affect these
customers and independent sales intermediaries or their operations also may affect our business relationships with them and
their ability to purchase or distribute our products, as well as our product design. Accordingly, these changes and actions may
negatively affect our business in these jurisdictions. We expect the scope and extent of regulation outside of the U.S., as well
as regulatory oversight, generally, to continue to increase. The authority of our international operations to conduct business
is subject to licensing requirements, permits and approvals, and these authorizations are subject to modification and revocation.
The regulatory environment in the countries in which we operate and changes in laws could have a material adverse effect on
our results of operations. See “Business — Regulation — International Regulation.”
Solvency Regimes
Certain of our businesses are subject to Solvency II, which became effective on January 1, 2016 in the EEA and covers
the capital adequacy, risk management and regulatory reporting for issuers and reinsurers, and are subject to Solvency II-
like frameworks in Mexico and China, with other similar solvency standards under development in other markets such as
Brazil and Chile. See “Business — Regulation — International Regulation — Solvency Regimes.” As requirements are
finalized by the regulators, capital requirements might be impacted in a number of jurisdictions. In addition, our legal entity
structure throughout Europe may impact our capital requirements, risk management infrastructure and reporting by country.
Other International and Global Regulatory Initiatives
In the wake of the financial crisis, national and international authorities have proposed measures intended to increase
the intensity of regulation of large financial institutions, requiring greater coordination among regulators and efforts to
harmonize regulatory regimes. There can be no assurance that MetLife will not in the future be subject to enhanced capital
standards, supervision and additional requirements, such as G-SII requirements or other group capital standards or insurer
capital standards outside of the U.S. See “Business — Regulation — International Regulation — Other International and
Global Regulatory Initiatives.”
General
From time to time, regulators raise issues during examinations or audits of MetLife, Inc.’s regulated subsidiaries that
could, if determined adversely, have a material impact on us. In addition, the interpretations of regulations by regulators may
change and statutes may be enacted with retroactive impact, particularly in areas such as accounting or statutory reserve
requirements. Further, a particular regulator or other governmental authority may interpret a law, regulation or accounting
principle differently than we have, exposing us to different or additional risks. Compliance with applicable laws and regulations,
including regulatory and securities filings requirements, is time consuming and personnel-intensive, and changes in these laws
and regulations may materially increase our direct and indirect compliance and other expenses of doing business. Additionally,
any failure to strictly comply with regulatory or securities filing requirements, or any other legal or regulatory requirements,
could harm our reputation or result in regulatory sanctions or legal claims. Changes to or failure to comply with applicable
laws and regulations could thus have a material adverse effect on our financial condition and results of operations.
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The Dodd-Frank Provisions Compelling the Liquidation of Certain Types of Financial Institutions Could Materially and
Adversely Affect MetLife, Inc., as Such a Financial Institution and as an Investor in Other Such Financial Institutions, as
well as Our Investors
Under provisions of Dodd-Frank, if MetLife, Inc. or another financial institution were to become insolvent or were in danger
of defaulting on its obligations and it was determined that such default would have serious effects on financial stability in the
U.S., it could be compelled to undergo liquidation with the FDIC as receiver. While under this new regime an insurance company
would be resolved in accordance with state insurance law, if the FDIC were appointed as the receiver for another type of a
company (including an insurance holding company such as MetLife, Inc.), liquidation of that company would occur under the
provisions of the new liquidation authority, and not under the Bankruptcy Code, which ordinarily governs liquidations. In an
FDIC-managed liquidation, holders of a company’s debt could in certain respects be treated differently than under the Bankruptcy
Code and similarly-situated creditors could be treated differently. In particular, unsecured creditors and shareholders are intended
to bear the losses of the company being liquidated. These provisions could also apply to financial institutions whose debt securities
we hold in our investment portfolio and could adversely affect our position as a creditor and the value of our holdings.
Legislative and Regulatory Activity in Health Care and Other Employee Benefits Could Affect our Profitability as a Provider
of Life Insurance, Annuities, and Non-Medical Health Insurance Benefit Products
The Affordable Care Act has led to fundamental changes in the way that employers, including us, provide health care benefits
and other forms of compensation to their employees and former employees. In addition to imposing obligations on MetLife as
an enterprise, the Affordable Care Act also imposes requirements and taxes on us as a provider of non-medical health insurance
benefits and as a purchaser of certain of these products. See “Business — Regulation — U.S. Regulation — Insurance Regulation
— Health Care Regulation” for information regarding such requirements and taxes, including the effects of the health insurer
fee and of assessments related to public healthcare exchanges. The Affordable Care Act or other related regulations or regulatory
actions may adversely affect our ability to continue to offer certain non-medical health and dental insurance products in the
same manner as we do today and may continue to result in increased and unpredictable costs to provide certain products thereby
harming our competitive position.
In addition, we employ a substantial number of employees in the United States to whom we offer employment-related
benefits. We also currently provide benefits to certain of our retirees. These benefits are provided under complex plans that are
subject to a variety of regulatory requirements. The Affordable Care Act or related regulations or regulatory actions could
adversely affect our ability to attract, retain and motivate our associates. They could also result in increased or unpredictable
costs to provide employee benefits, and could harm our competitive position if we are subject to fees, penalties, tax provisions
or other limitations in the Affordable Care Act and our competitors are not.
The Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010 also includes certain provisions
for defined benefit pension plan funding relief. These provisions may impact the likelihood and/or timing of corporate plan
sponsors terminating their plans and/or engaging in transactions to partially or fully transfer pension obligations to an insurance
company. Consequently, this law could indirectly affect the mix of our business, with fewer pension risk transfers and more
non-guaranteed funding products, and adversely impact our results of operations.
Changes in U.S. Federal, State Securities and State Insurance Laws and Regulations May Affect Our Operations and Our
Profitability
Federal and state securities laws and regulations apply to insurance products that are also “securities,” including variable
annuity contracts and variable life insurance policies, as well as certain fixed interest rate or index-linked contracts with features
that require them to be registered as securities (“registered fixed contracts”). As a result, some of MetLife, Inc.’s subsidiaries
and their activities in offering and selling variable insurance contracts and policies are subject to extensive regulation under
these securities laws.
Federal and state securities laws and regulations are primarily intended to ensure the integrity of the financial markets and
to protect investors in the securities markets, and to protect investment advisory or brokerage clients. These laws and regulations
generally grant regulatory agencies broad rulemaking and enforcement powers, including the power to adopt new rules impacting
new and/or existing products, regulate the issuance, sales and distribution of our products and limit or restrict the conduct of
business for failure to comply with the securities laws and regulations.
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As a result of Dodd-Frank, there have been a number of changes proposed or adopted to the laws and regulations that govern
the conduct of our variable and registered fixed insurance products business and the firms that distribute these products. The
future impact of recently adopted revisions to laws and regulations, as well as revisions that are still in the proposal stage, on
the way we conduct our business and the products we sell is unclear. Such impact could adversely affect our operations and
profitability, including increasing the regulatory and compliance burden upon us, resulting in increased costs, or limiting the
type, amount or structure of compensation arrangements into which we may enter with certain of our employees, negatively
impacting our ability to compete with other companies in recruiting and maintaining key personnel. See “Business — Regulation
— U.S. Regulation — ERISA and Fiduciary Considerations” and “Business — Regulation — U.S. Regulation — Securities,
Broker-Dealer and Investment Adviser Regulation.” However, following the change of Administration, we cannot predict with
certainty whether any such proposals will be adopted, or what impact adopted revisions will have on our business, financial
condition or results of operations. See “— Our Insurance, Pensions and Brokerage Businesses Are Highly Regulated, and Changes
in Regulation and in Supervisory and Enforcement Policies May Reduce Our Profitability and Limit Our Growth” for information
regarding the Trump Administration’s expressed goals to amend Dodd-Frank. We also may be subject to similar laws and
regulations in the foreign countries in which we offer products or conduct other activities similar to those described above. See
“Business — Regulation — International Regulation.”
The global financial crisis has led to significant changes in economic and financial markets that have, in turn, led to a
dynamic competitive landscape for variable and registered fixed product issuers. Our ability to react to rapidly changing market
and economic conditions will depend on the continued efficacy of provisions we have incorporated into our product design
allowing frequent and contemporaneous revisions of key pricing elements and our ability to work collaboratively with federal
securities regulators. Changes in regulatory approval processes, rules and other dynamics in the regulatory process could adversely
impact our ability to react to such changing conditions.
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
Changes in domestic or foreign tax laws or interpretations of such laws could increase our corporate taxes and reduce our
earnings. Global budget deficits make it likely that governments’ need for additional offsetting revenue will result in future tax
proposals that will increase our effective tax rate or have product implications. However, it remains difficult to predict the timing
and effect that future tax law changes could have on our earnings both in the U.S. and in foreign jurisdictions. Such changes
could not only directly impact our corporate taxes but also could adversely impact our products (both life insurance and retirement
plans) by making some of our products less attractive to consumers. A shift away from life insurance and annuity contracts and
other tax-deferred products by our customers would reduce our income from sales of these products, as well as the asset base
upon which we earn investment income and fees, thereby reducing our earnings and potentially affecting the value of our deferred
tax assets.
On December 22, 2017, U.S. Tax Reform was signed into law. See “— U.S. Tax Reform Could Have an Impact on Us” and
“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Executive Summary — Overview
— U.S. Tax Reform.”
U.S. Tax Reform Could Have an Impact on Us
U.S. Tax Reform includes numerous changes in tax law, including a permanent reduction in the federal corporate income
tax rate from 35% to 21%, which took effect for taxable years beginning on or after January 1, 2018, and a participation exemption
system which generally eliminates U.S. federal income tax on dividends received from foreign subsidiaries. See “Management’s
Discussion and Analysis of Financial Condition and Results of Operations — Executive Summary — Overview — U.S. Tax
Reform.”
The overall effect of U.S. Tax Reform may be positive for MetLife. However, U.S. Tax Reform also includes particular
changes that may not be positive for MetLife, including changes to the amortization periods for deferred acquisition costs, the
computation of insurance tax reserves, deductibility of certain corporate expenses, two new international revenue-raising
provisions, and rules relating to the dividends received deduction. In addition, U.S. Tax Reform contains provisions whose
meaning is subject to differing interpretations, and future guidance may differ adversely from our current interpretation.
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Litigation and Regulatory Investigations Are Increasingly Common in Our Businesses and May Result in Significant
Financial Losses and/or Harm to Our Reputation
We face a significant risk of litigation and regulatory investigations and actions in the ordinary course of operating our
businesses, including the risk of class action lawsuits. Our pending legal and regulatory actions include proceedings specific to
us and others generally applicable to business practices in the industries in which we operate. In connection with our insurance
or pension operations, plaintiffs’ lawyers may bring or are bringing class actions and individual suits alleging, among other
things, issues relating to sales or underwriting practices, claims payments and procedures, product design, disclosure,
administration, investments, denial or delay of benefits and breaches of fiduciary or other duties to customers. Plaintiffs in class
action and other lawsuits against us may seek very large and/or indeterminate amounts, including punitive and treble damages.
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. In addition, a court or other
governmental authority may interpret a law, regulation or accounting principle differently than we have, exposing us to different
or additional risks. Disposition valuations are also subject to the uncertainty of how opposing parties and their counsel will
themselves view the relevant evidence and applicable law. Material pending litigation and regulatory matters affecting us and
risks to our business presented by these proceedings are discussed in Note 20 of the Notes to the Consolidated Financial
Statements. Updates are provided in the notes to our interim condensed consolidated financial statements regarding contingencies,
commitments and guarantees included in our subsequently filed quarterly reports on Form 10-Q, as well as in Part II, Item 1
(“Legal Proceedings”) of those quarterly reports. See also “— Risks Related to the Material Weaknesses — We Have Identified
Material Weaknesses in Our Internal Control over Financial Reporting, Which Could Adversely Affect Our Business, Reputation,
Results of Operations and Stock Price.”
A substantial legal liability or a significant federal, state or other regulatory action against us, as well as regulatory inquiries
or investigations, could harm our reputation, result in material fines or penalties, result in significant legal costs and otherwise
have a material adverse effect on our business, financial condition and results of operations. Even if we ultimately prevail in the
litigation, regulatory action or investigation, our ability to attract new customers, retain our current customers and recruit and
retain employees could be materially and adversely impacted. Regulatory inquiries and litigation may also cause volatility in
the price of stocks of companies in our industry.
Current claims, litigation, unasserted claims probable of assertion, investigations and other proceedings against us could
have a material adverse effect on our business, financial condition or results of operations. It is also possible that related or
unrelated claims, litigation, unasserted claims probable of assertion, investigations and proceedings may be commenced in the
future, and we could become subject to further investigations and have lawsuits filed or enforcement actions initiated against
us. We currently have a market presence in numerous non-U.S. jurisdictions and may be subject to additional investigations and
lawsuits in these jurisdictions. Increased regulatory scrutiny and any resulting investigations or proceedings in any of the
jurisdictions in which we operate could result in new legal actions and precedents and industry-wide regulations that could
adversely affect our business, financial condition and results of operations.
Investments-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
There may be a limited market for certain investments we hold in our investment portfolio, making them relatively illiquid.
These include privately-placed fixed maturity securities, certain derivative instruments, mortgage loans, policy loans, leveraged
leases, other limited partnership interests, and real estate equity, such as real estate joint ventures and funds. In recent years,
even some of our very high quality investments experienced reduced liquidity during periods of market volatility or disruption.
If we were forced to sell certain of our investments during periods of market volatility or disruption, market prices may be lower
than our carrying value in such investments. This could result in realized losses which could have a material adverse effect on
our results of operations and financial condition, as well as our financial ratios, which could affect compliance with our credit
instruments and rating agency capital adequacy measures.
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Similarly, we loan blocks of our securities to third parties (primarily brokerage firms and commercial banks) through our
securities lending program, including fixed maturity (primarily U.S. government and U.S. government-backed securities) and
equity securities, short-term investments and cash equivalents. Under this program, we obtain collateral, usually cash, at the
inception of a loan and typically purchase securities with the cash collateral. Upon the return to us of these loaned securities,
we must return to the third party the cash collateral we received. If the cash collateral has been invested in securities, we need
to sell the securities. However, in some cases, the maturity of those securities may exceed the term of the related securities on
loan and the estimated fair value of the securities we need to sell may fall below the amount of cash received.
If we are required to return significant amounts of cash collateral under our securities lending program or otherwise need
significant amounts of cash on short notice and we are forced to sell securities, we 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 we
otherwise would have been able to realize under normal market conditions, or both. In the event of a forced sale, accounting
guidance requires the recognition of a loss for securities in an unrealized loss position and may require the impairment of other
securities based on our ability to hold those securities, which would negatively impact our financial condition, as well as our
financial ratios, which could affect compliance with our credit instruments and rating agency capital adequacy measures. In
addition, under stressful capital market and economic conditions, liquidity broadly deteriorates, which may further restrict our
ability to sell securities. Furthermore, if we decrease the amount of our securities lending activities over time, the amount of net
investment income generated by these activities will also likely decline. See “Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Investments” and “Management’s Discussion and Analysis of Financial Condition and
Results of Operations — Liquidity and Capital Resources — The Company — Liquidity and Capital Uses — Securities Lending.”
Our Requirements to Pledge Collateral or Make Payments Related to Declines in Estimated Fair Value of Derivatives
Transactions or Specified Assets in Connection with OTC-Cleared and OTC-Bilateral Transactions May Adversely Affect
Our Liquidity, Expose Us to Central Clearinghouse and Counterparty Credit Risk, and Increase our Costs of Hedging
Substantially all of our derivatives transactions require us to pledge collateral related to any decline in the net estimated
fair value of such derivatives transactions executed through a specific broker at a clearinghouse or entered into with a specific
counterparty on a bilateral basis. Certain derivatives financing transactions require us to pledge collateral or make payments
related to declines in the estimated fair value of the specified assets under certain circumstances to central clearinghouses or our
counterparties. The amount of collateral we may be required to pledge and the payments we may be required to make under our
derivatives transactions may increase under certain circumstances and will increase as a result of the requirement to pledge
initial margin for OTC-cleared transactions and for OTC-bilateral transactions entered into after the phase-in period, which will
likely be applicable to us in September 2020 as a result of the adoption by the Office of the Comptroller of the Currency, the
Federal Reserve Board, FDIC, Farm Credit Administration and Federal Housing Finance Agency (collectively, the “Prudential
Regulators”) and the CFTC of final margin requirements for non-centrally cleared derivatives. Although the final rules allow
us to pledge a broad range of non-cash collateral as initial and variation margin, the Prudential Regulators, CFTC, central
clearinghouses and counterparties may restrict or eliminate certain types of eligible collateral or charge us to pledge such non-
cash collateral, which would increase our costs and could adversely affect the liquidity of our investments and the composition
of our investment portfolio. See “Business — Regulation — U.S. Regulation — Regulation of Over-the-Counter Derivatives,”
“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources
— The Company — Liquidity and Capital Uses — Pledged Collateral,” and Note 9 of the Notes to the Consolidated Financial
Statements.
Gross Unrealized Losses on Fixed Maturity Securities and Defaults, Downgrades or Other Events May Result in Future
Impairments to the Carrying Value of Such Securities, Resulting in a Reduction in Our Net Income
Fixed maturity securities classified as available-for-sale (“AFS”) securities are reported at their estimated fair value.
Unrealized gains or losses on AFS securities are recognized as a component of other comprehensive income (loss) (“OCI”) and
are, therefore, excluded from net income. In recent periods, as a result of low interest rates, the unrealized gains on our fixed
maturity securities have exceeded the unrealized losses. However, if interest rates rise, our unrealized gains would decrease and
our unrealized losses would increase, perhaps substantially. The accumulated change in estimated fair value of these AFS
securities is recognized in net income when the gain or loss is realized upon the sale of the security or in the event that the decline
in estimated fair value is determined to be other-than-temporary and an impairment charge to earnings is taken. See
“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Investments — Fixed Maturity
and Equity Securities AFS.”
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The occurrence of a major economic downturn, acts of corporate malfeasance, widening credit risk spreads, or other events
that adversely affect the issuers or guarantors of securities or the underlying collateral of structured securities could cause the
estimated fair value of our fixed maturity securities portfolio and corresponding earnings to decline and cause the default rate
of the fixed maturity securities in our investment portfolio to increase. A ratings downgrade affecting issuers or guarantors of
particular securities, or similar trends that could worsen the credit quality of issuers, such as the corporate issuers of securities
in our investment portfolio, could also have a similar effect. With economic uncertainty, credit quality of issuers or guarantors
could be adversely affected. Similarly, a ratings downgrade affecting a security we hold could indicate the credit quality of that
security has deteriorated and could increase the capital we must hold to support that security to maintain our RBC levels. Levels
of writedowns or impairments are impacted by intent to sell, or our assessment of the likelihood that we will be required to sell,
fixed maturity securities. Realized losses or impairments on these securities may have a material adverse effect on our net income
in a particular quarterly or annual period.
Our Valuation of Securities and Investments and the Determination of the Amount of Allowances and Impairments Taken
on Our Investments Are Subjective and Include Methodologies, Estimations and Assumptions Which Are Subject to Differing
Interpretations and Market Conditions and, if Changed, Could Materially Adversely Affect Our Results of Operations or
Financial Condition
Fixed maturity, equity, and fair value option (“FVO”) securities, as well as short-term investments that are reported at
estimated fair value represent the majority of our total cash and investments. We define fair value generally as the price that
would be received to sell an asset or paid to transfer a liability. 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. During periods of market disruption including periods of significantly rising or high
interest rates, rapidly widening credit spreads or illiquidity, it may be difficult to value certain of our securities if trading becomes
less frequent and/or market data becomes less observable. In addition, in times of financial market disruption, certain asset
classes that were in active markets with significant observable data may become illiquid. In those cases, the valuation process
includes inputs that are less observable and require more subjectivity and management judgment. Valuations may result in
estimated fair values which vary significantly from the amount at which the investments may ultimately be sold. Further, rapidly
changing and unprecedented credit and equity market conditions could materially impact the valuation of securities as reported
within our consolidated financial statements and the period-to-period changes in estimated fair value could vary significantly.
Decreases in the estimated fair value of securities we hold may have a material adverse effect on our results of operations or
financial condition. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations —
Investments” and Notes 1 and 10 of the Notes to the Consolidated Financial Statements.
The determination of the amount of allowances and impairments varies by investment type 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. We reflect any changes in allowances
and impairments in earnings as such evaluations are revised. However, historical trends may not be indicative of future
impairments or allowances. In addition, any such future impairments or allowances could have a materially adverse effect on
our earnings and financial position. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations
— Summary of Critical Accounting Estimates — Investment Impairments” and Note 8 of the Notes to the Consolidated Financial
Statements.
Defaults on Our Mortgage Loans and Volatility in Performance May Adversely Affect Our Profitability
Our mortgage loans face default risk and are principally collateralized by commercial, agricultural and residential properties.
We establish valuation allowances for estimated impairments, which are based on loan risk characteristics, historical default
rates and loss severities, real estate market fundamentals and outlooks, as well as other relevant factors. In addition, substantially
all of our commercial and agricultural mortgage loans held-for-investment have balloon payment maturities. An increase in the
default rate of our mortgage loan investments or fluctuations in their performance could have a material adverse effect on our
business, results of operations and financial condition.
Further, any geographic or property type concentration of our mortgage loans may have adverse effects on our investment
portfolio and consequently on our results of operations or financial condition. While we seek to mitigate this risk by having a
broadly diversified portfolio, events or developments that have a negative effect on any particular geographic region or sector
may have a greater adverse effect on the investment portfolio to the extent that the portfolio is concentrated. Moreover, our
ability to sell assets relating to such particular groups of related assets may be limited if other market participants are seeking
to sell at the same time. In addition, legislative proposals that would allow or require modifications to the terms of mortgage
loans could be enacted. We cannot predict whether these proposals will be adopted, or what impact, if any, such proposals or,
if enacted, such laws, could have on our business or investments. See “Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Investments — Mortgage Loans.”
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The Defaults or Deteriorating Credit of Other Financial Institutions Could Adversely Affect Us
We have exposure to many different industries and counterparties, and routinely execute transactions with counterparties
in the financial services industry, including brokers and dealers, central clearinghouses, commercial banks, investment banks,
hedge funds and investment funds and other financial institutions. Many of these transactions expose us to credit risk in the
event of default of our counterparty. In addition, with respect to secured transactions, our credit risk may be exacerbated when
the collateral held by us cannot be realized or is liquidated at prices not sufficient to recover the full amount of the loan or
derivative exposure due to us. We also have exposure to these financial institutions in the form of unsecured debt instruments,
non-redeemable and redeemable preferred securities, derivatives, joint venture, hedge fund and equity investments. Further,
potential action by governments and regulatory bodies in response to the financial crisis affecting the global banking system
and financial markets, such as investment, nationalization, conservatorship, receivership and other intervention, whether under
existing legal authority or any new authority that may be created, or lack of action by governments and central banks, as well
as deterioration in the banks’ credit standing, could negatively impact these instruments, securities, transactions and investments
or limit our ability to trade with them. Any such losses or impairments to the carrying value of these investments or other changes
may materially and adversely affect our business and results of operations.
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Risks Related to Our Business
Our International Operations Face Political, Legal, Operational and Other Risks, Including Exposure to Local and Regional
Economic Conditions, That Could Negatively Affect Those Operations or Our Profitability
Our international operations face political, legal, financial, operational and other risks. These operations may be materially
adversely affected by the actions and decisions of foreign authorities and regulators, such as through nationalization or
expropriation of assets; the imposition of limits on foreign ownership of local companies which may increase our dependence
on joint venture counterparties and/or impact how we account for our joint venture ownership interests; changes in laws (including
tax laws and regulations), their application or interpretation; political instability (including any resulting economic or trade
sanctions); dividend limitations; price controls; changes in applicable currency; currency exchange controls or other restrictions
that prevent us from transferring funds from these operations out of the countries in which they operate or converting local
currencies we hold into U.S. dollars or other currencies, as well as other adverse actions by foreign governmental authorities
and regulators, such as the retroactive application of new requirements on our current and prior activities or operations, the
imposition of regulations limiting our ability to distribute our products, and public or political criticism of our products, practices,
and other aspects of our business and operations. Such actions may negatively affect our business or reputation in these
jurisdictions and could indirectly affect our business or reputation in other jurisdictions as well. Some of our foreign insurance
operations are, and are likely to continue to be, in emerging markets where these risks are heightened. For example, proposed
reform of the Chilean pension system, if enacted, may have a significant adverse effect on our business in Chile. See “Business
— Regulation — International Regulation.”
The United States, Mexico, and Canada are currently renegotiating NAFTA, which had eliminated most trade tariffs between
the three countries. While our current business in Mexico is not directly dependent upon any specific trade agreement provision,
and is tied to the general economy and the growth of the market, if the current rules on government procurement under NAFTA
were modified or eliminated, it could have a material adverse impact on our business in Mexico, given our business model. We
cannot predict with certainty what proposals may be made in connection with international trade agreements or what legislation
or regulations may be introduced or enacted, or what impact any such legislation or regulations may have on our business, results
of operations and financial condition.
Part of our international insurance operations may be subject to assessments, generally based on their proportionate share
of business written in the relevant jurisdiction, for certain obligations to policyholders and claimants resulting from the insolvency
of insurance companies. We cannot predict the timing and scope of any assessments that may be made in the future, which may
materially affect the results of operations of our international insurance operations in particular quarterly or annual periods. See
“Business — Regulation — International Regulation” and “Quantitative and Qualitative Disclosures About Market Risk,” as
well as “— Regulatory and Legal Risks — Our Insurance, Pensions and Brokerage Businesses Are Highly Regulated, and
Changes in Regulation and in Supervisory and Enforcement Policies May Reduce Our Profitability and Limit Our Growth.”
We have market presence in numerous jurisdictions and increased exposure to risks posed by local and regional economic
conditions. Concerns about the political, security and/or economic conditions in the U.K., Mexico and South Korea have recently
contributed to global market volatility. Lack of legal certainty and stability in these regions exposes our operations there to
increased risk of disruption and to adverse or unpredictable actions by regulators and may make it more difficult for us to enforce
our contracts, which may negatively impact our business in these regions. See “Management’s Discussion and Analysis of
Financial Condition and Results of Operations — Industry Trends — Financial and Economic Environment.”
On June 23, 2016, the U.K. held a referendum regarding its membership in the EU, resulting in a vote in favor of leaving
the EU. The U.K. government triggered the withdrawal process by notifying the EU on March 29, 2017 of the U.K.’s intention
to withdraw from the EU. The member withdrawal provisions in the applicable EU treaty provide that the U.K. and the EU will
negotiate a withdrawal agreement during a maximum two-year period (unless such period is extended by unanimous vote of the
EU member states). In the meantime, the U.K. remains a member of the EU with unchanged rights to access the single EU
market in goods and services. Our U.K. business model utilizes certain rights to operate cross-border insurance and investment
operations which may be modified or eliminated as a result of the U.K. exiting the EU. Operating expenses within our businesses
could increase as a result of uncertainties during the negotiation period and upon the U.K.’s withdrawal.
Economic slowdowns and volatility may impact markets where we have a material presence, including Japan, Latin America
and Europe. Unfavorable economic conditions could adversely impact the demand for our products, negatively impact earnings,
adversely affect the performance of our investments or result in impairments, all of which could have a material adverse effect
on our business, results of operations and financial condition. See “— Economic Environment and Capital Markets-Related
Risks — Difficult Conditions in the Global Capital Markets and the Economy Generally May Materially Adversely Affect Our
Business and Results of Operations” and “Management’s Discussion and Analysis of Financial Condition and Results of
Operations — Investments — Current Environment — Selected Country Investments.”
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Furthermore, we rely on local sales forces in these jurisdictions and may encounter labor problems resulting from workers’
associations and trade unions in some jurisdictions. Additionally, if associates fail to adhere to local regulatory requirements or
our policies and procedures, we may be subject to penalties, restrictions or other sanctions by local regulators in such jurisdictions,
and we may suffer reputational harm. If our business model is not successful in a particular jurisdiction, we may lose all or most
of our investment in building and training the sales force in that jurisdiction.
We are continuing to expand our international operations in certain markets where we operate and in selected new markets.
This may require considerable management time, as well as start-up expenses for market development before any significant
revenues and earnings are generated. The prospects of our business also may be materially and adversely affected if we are not
able to manage the growth of such international operations successfully. There can be no assurance that we will be successful
in managing such future growth. Further, operations in new foreign markets may achieve low margins or may be unprofitable,
and expansion in existing markets may be affected by local political, economic and market conditions. Therefore, as we expand
internationally, we may not achieve expected operating margins and our results of operations may be negatively impacted.
Fluctuations in Foreign Currency Exchange Rates Could Negatively Affect Our Profitability
We are exposed to risks associated with fluctuations in foreign currency exchange rates against the U.S. dollar resulting
from our holdings of non-U.S. dollar denominated investments, investments in foreign subsidiaries, net income from foreign
operations and issuance of non-U.S. dollar denominated instruments, including guaranteed interest contracts and funding
agreements. In general, the weakening of foreign currencies versus the U.S. dollar will adversely affect the estimated fair value
of our non-U.S. dollar denominated investments, our investments in foreign subsidiaries, and our net income from foreign
operations. In addition, from time to time, various emerging market countries have experienced severe economic and financial
disruptions, including significant devaluations of their currencies. Our exposure to foreign currency exchange rate risk is
exacerbated by our investments in these emerging markets. See “Quantitative and Qualitative Disclosures About Market Risk.”
In addition, certain of our life and annuity products are exposed to foreign exchange rate risk. Payments under these contracts,
depending on the circumstances, may be required to be made in different currencies and may not be the legal tender in the
country whose law governs the particular product. Changes in exchange rate movements and the imposition of capital controls
may also directly impact the liability valuation that may not be entirely hedged. If the currency upon which expected future
payments are made strengthens, the liability valuation may increase, which may adversely affect our results of operations and
financial condition.
We match substantially all of our foreign currency denominated liabilities in our foreign subsidiaries with investments
denominated in their respective foreign currency, which limits the effect of currency exchange rate fluctuations on local operating
results; however, fluctuations in such rates affect the translation of these results into our U.S. dollar basis consolidated financial
statements. Although we take certain actions to address this risk, including entering into foreign currency derivatives, foreign
currency exchange rate fluctuations could materially adversely affect our reported results due to unhedged positions, asymmetrical
and non-economic accounting resulting from derivative gains (losses) on non-qualifying hedges, or the failure of hedges to
effectively offset the impact of the foreign currency exchange rate fluctuation. Our reported results could also be adversely
affected if the economy of one or more of our foreign subsidiaries is determined to be “highly inflationary,” generally defined
by a cumulative inflation rate of approximately 100% or more over a three-year period.
We face significant exposure to risks associated with fluctuations in the yen/U.S. dollar exchange rate because we have
substantial operations in Japan and a large portion of our premiums and investment income in Japan are received in yen. Most
claims and expenses associated with our operations in Japan are also paid in yen and we primarily purchase yen-denominated
assets to support yen-denominated policy liabilities. These and other yen-denominated financial statement items are, however,
translated into U.S. dollars for financial reporting purposes. Accordingly, fluctuations in the yen/U.S. dollar exchange rate can
have a significant effect on our reported financial position and results of operations. Our Japan operation does assume some
currency exposure by backing a portion of surplus and yen-denominated liabilities with U.S. dollar assets. Although this represents
risk to our Japan operation, most of these U.S. dollar assets are hedged to yen with currency derivatives. Additionally, our Japan
operation sells U.S. dollar and Australian dollar life and annuity products to Japanese customers. We may experience elevated
levels of early policy terminations when the Japanese yen weakens against these currencies. While the cost of early policy
terminations is offset by surrender charges, foreign exchange rate fluctuations will impact both our sales volumes and the amount
of business we have in-force.
Due to our significant international operations, during periods when any foreign currency from which we derive our revenues
weakens (strengthens), translating amounts expressed in that currency into U.S. dollars causes fewer (more) U.S. dollars to be
reported. Any unrealized foreign currency translation adjustments (“FCTA”) are reported in accumulated other comprehensive
income (loss) (“AOCI”). The weakening of a foreign currency relative to the U.S. dollar will generally adversely affect the value
of investments in U.S. dollar terms and reduce the level of reserves denominated in that currency.
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An Inability to Access Our Credit Facility Could Result in a Reduction in Our Liquidity and Lead to Downgrades in Our
Credit and Financial Strength Ratings
We rely on our $3.0 billion unsecured credit facility maintained by MetLife, Inc. and MetLife Funding, Inc. (“MetLife
Funding”), an indirect wholly-owned subsidiary of MetLife, Inc. (the “Credit Facility”), as a potential source of liquidity. The
availability of the Credit Facility could be critical to our credit and financial strength ratings and our ability to meet our obligations
as they come due in a market when alternative sources of credit are tight. The Credit Facility contains certain administrative,
reporting, legal and financial covenants, including a requirement to maintain a specified minimum consolidated net worth. See
“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources
— The Company — Liquidity and Capital Sources — Global Funding Sources — Credit and Committed Facilities” and Note 12
of the Notes to the Consolidated Financial Statements.
Our right to borrow funds under the Credit Facility is subject to the fulfillment of certain important conditions, including
our compliance with all covenants, and our ability to borrow under the Credit Facility is also subject to the continued willingness
and ability of the lenders that are parties to the Credit Facility to provide funds. Our failure to comply with the covenants in the
Credit Facility or fulfill the conditions to borrowings, or the failure of lenders to fund their lending commitments (whether due
to insolvency, illiquidity or other reasons) in the amounts provided for under the terms of the Credit Facility, would restrict our
ability to access the Credit Facility when needed and, consequently, could have a material adverse effect on our financial condition
and results of operations.
We May Need to Fund Deficiencies in Our Closed Block; Assets Allocated to the Closed Block Benefit Only the Holders of
Closed Block Policies
MLIC’s plan of reorganization, as amended, established in connection with its demutualization, required that we establish
and operate an accounting mechanism, known as a closed block, to ensure that the reasonable dividend expectations of
policyholders who own individual participating whole life insurance policies of MLIC in force at the time of the demutualization
are met. We allocated assets to the closed block in an amount that will produce cash flows which, together with anticipated
revenue from the policies included in the closed block, are reasonably expected to be sufficient to support obligations and
liabilities relating to these policies, including, but not limited to, provisions for the payment of claims and certain expenses and
tax, and to provide for the continuation of the policyholder dividend scales in effect for 1999, if the experience underlying such
scales continues, and for appropriate adjustments in such scales if the experience changes. The closed block assets, the cash
flows generated by the closed block assets and the anticipated revenue from the policies included in the closed block may not
be sufficient to provide for the benefits guaranteed under these policies. If they are not, we must fund the shortfall. Even if they
are sufficient, we may choose, for competitive reasons, to support policyholder dividend payments with our general account
funds.
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. In addition, to the extent that these amounts
are greater than the amounts estimated at the time the closed block was funded, dividends payable in respect of the policies
included in the closed block may be greater than they would be in the absence of a closed block. Any excess earnings will be
available for distribution over time only to closed block policyholders. See Note 7 of the Notes to the Consolidated Financial
Statements.
A Downgrade or a Potential Downgrade in Our Financial Strength or Credit Ratings Could Result in a Loss of Business
and Materially Adversely Affect Our Financial Condition and Results of Operations
Financial strength ratings are published by various Nationally Recognized Statistical Rating Organizations (“NRSROs”)
and similar entities not formally recognized as NRSROs. They indicate the NRSROs’ opinion regarding an insurance company’s
ability to meet contractholder and policyholder obligations, and are important to maintaining public confidence in our products
and our competitive position. See “Business — Company Ratings” for additional information regarding our financial strength
ratings.
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Downgrades in our financial strength or credit ratings or changes to our ratings outlooks 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 other investment products;
impacting the cost and availability of financing for MetLife, Inc. and its subsidiaries;
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 many of our products and services to remain competitive;
providing termination rights for the benefit of our derivative instrument counterparties;
adversely affecting our ability to obtain reinsurance at reasonable prices or at all;
limiting our access to the capital markets;
increasing the cost of debt;
requiring us to post collateral; and
subjecting us to increased regulatory scrutiny.
In addition to the financial strength ratings of our insurance subsidiaries, various NRSROs also publish credit ratings for
MetLife, Inc. and several of its subsidiaries. Credit ratings indicate the NRSROs’ opinion regarding a debt issuer’s ability to
meet the terms of debt obligations in a timely manner and are important factors in our overall funding profile and ability to
access certain types of liquidity. See Note 9 of the Notes to the Consolidated Financial Statements for information regarding the
impact of a one-notch downgrade with respect to derivative transactions with financial strength or credit rating downgrade
triggers and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital
Resources — The Company — Liquidity and Capital Uses — Pledged Collateral” for further information on the impact of a
one-notch downgrade. See also “Management’s Discussion and Analysis of Financial Condition and Results of Operations —
Liquidity and Capital Resources — The Company — Capital — Rating Agencies.”
In view of the difficulties experienced by many financial institutions as a result of the financial crisis and ensuing global
recession, including our competitors in the insurance industry, we believe it is possible that the NRSROs will continue to heighten
the level of scrutiny that they apply to insurance companies, will continue to increase the frequency and scope of their credit
reviews, will continue to request additional information from the companies that they rate, and may adjust upward the capital
and other requirements employed in the models for maintenance of certain ratings levels. In addition, the material weaknesses
in our internal control over financial reporting could result in downgrades in our financial strength or credit ratings. See “Controls
and Procedures” and “— Risks Related to the Material Weaknesses — We Have Identified Material Weaknesses in Our Internal
Control over Financial Reporting, Which Could Adversely Affect Our Business, Reputation, Results of Operations and Stock
Price.” Our ratings could be downgraded at any time and without notice by any NRSRO.
Reinsurance May Not Be Available, Affordable or Adequate to Protect Us Against Losses
As part of our overall risk management strategy, we purchase reinsurance for certain risks underwritten by our various
business segments. While reinsurance agreements generally bind the reinsurer for the life of the business reinsured at generally
fixed pricing, market conditions beyond our control determine the availability and cost of the reinsurance protection for new
business. In certain circumstances, the price of reinsurance for business already reinsured may also increase. For example, for
some of our group businesses under which the policies and related reinsurance are subject to periodic (typically annual) renewal,
prices may increase at any renewal. Also, for most of our traditional life reinsurance agreements, it is common for the reinsurer
to have a right to increase reinsurance rates on in-force business if there is a systematic deterioration of mortality in the market
as a whole. Any decrease in the amount of reinsurance will increase our risk of loss and any increase in the cost of reinsurance
will, absent a decrease in the amount of reinsurance, reduce our earnings. Accordingly, we may be forced to incur additional
expenses for reinsurance or may not be able to obtain sufficient reinsurance on acceptable terms, which could adversely affect
our ability to write future business or result in the assumption of more risk with respect to those policies we issue. See “Business
— Reinsurance Activity” and “— If the Counterparties to Our Reinsurance or Indemnification Arrangements or to the Derivatives
We Use to Hedge Our Business Risks Default or Fail to Perform, We May Be Exposed to Risks We Had Sought to Mitigate,
Which Could Materially Adversely Affect Our Financial Condition and Results of Operations.”
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If the Counterparties to Our Reinsurance or Indemnification Arrangements or to the Derivatives We Use to Hedge Our
Business Risks Default or Fail to Perform, We May Be Exposed to Risks We Had Sought to Mitigate, Which Could Materially
Adversely Affect Our Financial Condition and Results of Operations
We use reinsurance, indemnification and derivatives to mitigate our risks in various circumstances. In general, reinsurance,
indemnification and derivatives do not relieve us of our direct liability to our policyholders, even when the reinsurer is liable to
us. Accordingly, we bear credit risk with respect to our reinsurers, indemnitors, counterparties and central clearinghouses. A
reinsurer’s, indemnitor’s, counterparty’s or central clearinghouse’s insolvency, inability or unwillingness to make payments
under the terms of reinsurance agreements, indemnity agreements or derivatives agreements with us or inability or unwillingness
to return collateral could have a material adverse effect on our financial condition and results of operations, including our
liquidity. See “Business — Reinsurance Activity.”
In addition, we use derivatives to hedge various business risks. We enter into a variety of derivatives, including options,
forwards, interest rate, credit default and currency swaps with a number of counterparties on a bilateral basis for uncleared OTC
derivatives and with clearing brokers and central clearinghouses for OTC-cleared derivatives. We also enter into futures and
exchange-traded options with clearing brokers and central clearinghouses. See “Management’s Discussion and Analysis of
Financial Condition and Results of Operations — Derivatives.” If our counterparties, clearing brokers or central clearinghouses
fail or refuse to honor their obligations under these derivatives, our hedges of the related risk will be ineffective. This risk is
more pronounced in light of the stresses suffered by financial institutions over the past few years. Such failure could have a
material adverse effect on our financial condition and results of operations.
Differences Between Actual Claims Experience and Underwriting and Reserving Assumptions May Adversely Affect Our
Financial Results
Our earnings significantly depend upon the extent to which our actual claims experience is consistent with the assumptions
we use in setting prices for our products and establishing liabilities for future policy benefits and claims. Such amounts are
established based on estimates by actuaries of how much we will need to pay for future benefits and claims. To the extent that
actual claims experience is less favorable than the underlying assumptions we used in establishing such liabilities, we could be
required to reduce DAC and/or VOBA, increase our liabilities and/or incur higher costs.
Due to the nature of the underlying risks and the uncertainty associated with the determination of liabilities for future policy
benefits and claims, we cannot determine precisely the amounts which we will ultimately pay to settle our liabilities. Such
amounts may vary from the estimated amounts, particularly when those payments may not occur until well into the future. We
evaluate our liabilities periodically based on accounting requirements, which change from time to time, the assumptions used
to establish the liabilities, as well as our actual experience. Reserve estimates in some instances are affected by our operating
practices and procedures that are used, among other things, to support our assumptions with respect to the Company’s obligations
to its policyholders and contractholders. These practices and procedures include our use of technology, such as database analysis
and electronic communications. To the extent that these practices and procedures do not accurately produce the data to support
our assumptions or cause us to change our assumptions, or to the extent that enhanced technological tools become available to
us, such assumptions and procedures, as well as our reserves, may require adjustment. Furthermore, to the extent that any of
our operating practices and procedures do not accurately produce, or reproduce, data that we use to conduct any or all aspects
of our business, such errors may negatively impact our business, reputation, results of operations, and financial condition. If the
liabilities originally established for future benefit payments prove inadequate, we must increase them and/or reduce associated
DAC and/or VOBA. Such adjustments could affect earnings negatively and have a material adverse effect on our business,
results of operations and financial condition. See “Business — Policyholder Liabilities” and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations — Policyholder Liabilities.” See also “Management’s Discussion
and Analysis of Financial Condition and Results of Operations — Summary of Critical Accounting Estimates — Deferred Policy
Acquisition Costs and Value of Business Acquired,” “Management’s Discussion and Analysis of Financial Condition and Results
of Operations — Summary of Critical Accounting Estimates — Derivatives,” and “Management’s Discussion and Analysis of
Financial Condition and Results of Operations — Results of Operations — Consolidated Results — Year Ended December 31,
2017 Compared with the Year Ended December 31, 2016 — Actuarial Assumption Review” for further information regarding
the manner in which policyholder behavior and other events may differ from our assumptions and, thereby affect our financial
results.
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Catastrophes May Adversely Impact Liabilities for Policyholder Claims and Reinsurance Availability
Our insurance operations are exposed to the risk of catastrophic events. The extent of losses from a catastrophe is a function
of both the total amount of insured exposure in the area affected by the event and the severity of the event. Most catastrophes
are restricted to small geographic areas; however, hurricanes, earthquakes, tsunamis and man-made catastrophes may produce
significant damage or loss of life or property damage in larger areas, especially those that are heavily populated. Claims resulting
from catastrophic events could cause substantial volatility in our financial results for any fiscal quarter or year and could materially
reduce our profitability or harm our financial condition. In addition, catastrophic events could harm the financial condition of
issuers of obligations we hold in our investment portfolio, resulting in impairments to these obligations, and could also harm
the financial condition of our reinsurers, thereby increasing the probability of default on reinsurance recoveries. Large-scale
catastrophes may also reduce the overall level of economic activity in affected countries, which could hurt our business and the
value of our investments or our ability to write new business. It is possible that increases in the value of property, caused by
inflation or other factors, and geographic concentration of insured lives or property, could increase the severity of claims we
receive from future catastrophic events.
Our life insurance operations are exposed to the risk of catastrophic mortality, such as a pandemic or other event that causes
a large number of deaths. Significant influenza pandemics have occurred three times in the last century; however, the likelihood,
timing, and severity of a future pandemic cannot be predicted. A significant pandemic could have a major impact on the global
economy or the economies of particular countries or regions, including travel, trade, tourism, the health system, food supply,
consumption, overall economic output, as well as on the financial markets. In addition, a pandemic that affected our employees
or the employees of our distributors or of other companies with which we do business could disrupt our business operations.
The effectiveness of external parties, including governmental and non-governmental organizations, in combating the spread and
severity of such a pandemic could have a material impact on the losses we experience. In our group insurance operations, a
localized event that affects the workplace of one or more of our group insurance customers could cause a significant loss due
to mortality or morbidity claims. These events could cause a material adverse effect on our results of operations in any period
and, depending on their severity, could also materially and adversely affect our financial condition.
Our property & casualty businesses have experienced, and will likely in the future experience, catastrophe losses that may
have a material adverse impact on their business, results of operations and financial condition. Although we make every effort
to limit our exposure to catastrophic risks through volatility management and reinsurance programs, these efforts do not eliminate
all risk. Catastrophes can be caused by various events, including hurricanes, windstorms, earthquakes, hail, tornadoes, explosions,
severe winter weather (including snow, freezing water, ice storms and blizzards), fires and man-made events such as terrorist
attacks. Historically, most of our property & casualty catastrophe-related claims have related to homeowners coverages. However,
catastrophes may also affect other property & casualty coverages. Due to their nature, we cannot predict the incidence, timing
and severity of catastrophes. In addition, changing climate conditions, primarily rising global temperatures, may increase the
frequency and severity of natural catastrophes such as hurricanes, tornadoes and floods.
We have hurricane exposure in coastal sections of the northeastern U.S. (including lower New York, New Jersey, Connecticut,
Rhode Island and Massachusetts), the south Atlantic states (including Virginia, North Carolina, South Carolina, Georgia and
Florida) and the Gulf Coast (including Alabama, Mississippi, Louisiana and Texas). We also have some earthquake exposure,
primarily along the New Madrid fault line in the central U.S. and in the Pacific Northwest.
Consistent with industry practice and accounting standards, we establish liabilities for claims arising from a catastrophe
only after assessing the probable losses arising from the event. We cannot be certain that the liabilities we have established will
be adequate to cover actual claim liabilities. From time to time, states have passed legislation that has the effect of limiting the
ability of insurers to manage risk, such as legislation restricting an insurer’s ability to withdraw from catastrophe-prone areas.
While we attempt to limit our exposure to acceptable levels, subject to restrictions imposed by insurance regulatory authorities,
a catastrophic event or multiple catastrophic events could have a material adverse effect on our business, results of operations
and financial condition.
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Most of the jurisdictions in which our U.S. insurance subsidiaries are admitted to transact business require life, health, and
property & casualty insurers doing business within the jurisdiction to participate in guaranty associations. These associations
are organized to pay contractual benefits owed pursuant to insurance policies issued by impaired, insolvent or failed insurers.
Among other reasons, these insurers may become impaired, insolvent or fail following the occurrence of one or more catastrophic
events. 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 is engaged. In addition, certain states have government owned or controlled organizations providing life, health,
and property & casualty insurance to their citizens. The activities of such organizations could also place additional stress on the
adequacy of guaranty fund assessments. Many of these organizations also have the power to levy assessments similar to those
of the guaranty associations described above. Some states permit member insurers to recover assessments paid through full or
partial premium tax offsets. See “Business — Regulation — U.S. Regulation — Insurance Regulation — Guaranty Associations
and Similar Arrangements” and “Business — Regulation — International Regulation.”
While in the past five years, the aggregate assessments levied against MetLife have not been material, it is possible that a
large catastrophic event could render such guaranty funds inadequate and we may be called upon to contribute additional amounts,
which may have a material impact on our financial condition or results of operations in a particular period. We have established
liabilities for guaranty fund assessments that we consider adequate, but additional liabilities may be necessary. See Note 20 of
the Notes to the Consolidated Financial Statements.
Our ability to manage this risk and the profitability of our property & casualty, health and life insurance businesses depends
in part on our ability to obtain catastrophe reinsurance, which may not be available at commercially acceptable rates in the future.
See “— Reinsurance May Not Be Available, Affordable or Adequate to Protect Us Against Losses.”
Our Statutory Life Insurance Reserve Financings May Be Subject to Cost Increases and New Financings May Be Subject
to Limited Market Capacity
We currently utilize capital markets solutions to finance a portion of our statutory reserve requirements for several products,
including, but not limited to, our level premium term life subject to the NAIC Model Regulation Valuation of Life Insurance
Policies (commonly referred to as XXX), and ULSG subject to NAIC Actuarial Guideline 38 (commonly referred to as AXXX),
as well as MLIC’s closed block. While we have financing facilities in place for certain previously written business, certain of
these facilities are subject to cost increases upon the occurrence of specified ratings downgrades of MetLife or are subject to
periodic re-pricing. Any resulting cost increases could negatively impact our financial results.
Future capacity for these statutory reserve funding structures in the marketplace is not guaranteed. In 2014, the NAIC
approved a new regulatory framework applicable to the use of captive insurers in connection with Regulation XXX and Guideline
AXXX transactions. Among other things, the framework called for more disclosure of an insurer’s use of captives in its statutory
financial statements, and narrows the types of assets permitted to back statutory reserves that are required to support the insurer’s
future obligations. In 2014, the NAIC implemented the framework through AG 48, which requires the actuary of the ceding
insurer that opines on the insurer’s reserves to issue a qualified opinion if the framework is not followed. The requirements of
AG 48 became effective as of January 1, 2015 in all states without any further action necessary by state legislatures or insurance
regulators to implement them, and apply prospectively to new policies issued and new reinsurance transactions entered into on
or after January 1, 2015. The NAIC has adopted an update to AG 48 and a model regulation that contains the same substantive
requirements as the updated AG 48. The states have started to adopt the model regulation. To the extent the types of assets
permitted under AG 48 and the recent updates are not available in the future to back statutory reserves, we would not be able
to take some or all statutory reserve credit for such transactions and this could materially affect the statutory capitalization of
certain of our insurance subsidiaries.
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Competitive Factors May Adversely Affect Our Market Share and Profitability
We believe competition amongst insurance companies is based on a number of factors, including service, product features,
scale, price, financial strength, claims-paying ratings, credit ratings, e-business capabilities and name recognition. We compete
globally with a large number of other insurance companies, as well as non-insurance financial services companies, such as banks,
broker-dealers and asset managers, for individual consumers, employers and other group customers and agents and other
distributors of insurance and investment products. Some of these companies offer a broader array of products, have more
competitive pricing or, with respect to other insurance companies, have higher claims paying ability ratings. Some may also
have greater financial resources with which to compete. In some circumstances, national banks that sell annuity products of life
insurers may also have pre-existing customer bases for financial services products. Additionally, many of our group insurance
products are underwritten annually. There is a risk that group purchasers may be able to obtain more favorable terms from
competitors than they could by renewing coverage with us. These competitive pressures may adversely affect the persistency
of these and other products, as well as our ability to sell our products in the future. Furthermore, the investment management
and securities brokerage businesses have relatively low barriers to entry and continually attract new entrants. In addition, the
material weaknesses in our internal control over financial reporting could harm our reputation or financial condition, which in
turn could negatively affect our competitive position. See “Business — Competition,” “Controls and Procedures” and “— Risks
Related to the Material Weaknesses — We Have Identified Material Weaknesses in Our Internal Control over Financial Reporting,
Which Could Adversely Affect Our Business, Reputation, Results of Operations and Stock Price.”
The insurance industry distributes many of its individual products through other financial institutions such as banks and
broker-dealers. An increase in bank and broker-dealer consolidation activity may negatively impact the industry’s sales, and
such consolidation could increase competition for access to distributors, result in greater distribution expenses and impair our
ability to market insurance products to our current customer base or to expand our customer base. Consolidation of distributors
and/or other industry changes may also increase the likelihood that distributors will try to renegotiate the terms of any existing
selling agreements to terms less favorable to us.
In addition, since numerous aspects of our business are subject to regulation, legislative and other changes affecting the
regulatory environment for our business may have, over time, the effect of supporting or burdening some aspects of or actors
in the financial services industry more than others. This can adversely affect our competitive position within the life insurance
industry and within the broader financial services industry. See “Business — Regulation,” “— Regulatory and Legal Risks —
Our Insurance, Pensions and Brokerage Businesses Are Highly Regulated, and Changes in Regulation and in Supervisory and
Enforcement Policies May Reduce Our Profitability and Limit Our Growth,” and “— Regulatory and Legal Risks — Changes
in U.S. Federal, State Securities and State Insurance Laws and Regulations May Affect Our Operations and Our Profitability.”
If Our Business Does Not Perform Well, We May Be Required to Recognize an Impairment of Our Goodwill or Other Long-
Lived Assets or to Establish a Valuation Allowance Against the Deferred Income Tax Asset, Which Could Adversely Affect
Our Results of Operations or Financial Condition
We perform our goodwill impairment testing using the fair value approach, which requires the use of estimates and judgment,
at the “reporting unit” level. A reporting unit is the operating segment or a business one level below the operating segment under
certain circumstances.
The estimated fair value of the reporting unit is impacted by the performance of the business, which may be adversely
impacted by prolonged market declines. If it is determined that the goodwill has been impaired, we must write down the goodwill
by the amount of the impairment, with a corresponding charge to net income. Such writedowns could have an adverse effect on
our results of operations or financial position. See “Management’s Discussion and Analysis of Financial Condition and Results
of Operations — Summary of Critical Accounting Estimates — Goodwill” and Notes 1 and 11 of the Notes to the Consolidated
Financial Statements.
Long-lived assets, including but not limited to assets such as real estate, also require impairment testing. This testing is
done to determine whether changes in circumstances indicate that we will be unable to recover the carrying amount of the asset
group. Such writedowns could have a material adverse effect on our results of operations or financial position.
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Deferred income tax represents the tax effect of the differences between the book and tax bases of assets and liabilities.
Deferred tax assets are assessed periodically by management to determine if they are realizable. Factors in management’s
determination include the performance of the business including the ability to generate future taxable income. If, based on
available information, it is more likely than not that the deferred income tax asset will not be realized then a valuation allowance
must be established with a corresponding charge to net income. Such charges could have a material adverse effect on our results
of operations or financial position. In addition, changes in the corporate tax rates could affect the value of our deferred tax assets
and may require a write-off of some of those assets. See “Management’s Discussion and Analysis of Financial Condition and
Results of Operations — Summary of Critical Accounting Estimates — Income Taxes.” See also “Management’s Discussion
and Analysis of Financial Condition and Results of Operations — Executive Summary — Overview — U.S. Tax Reform.”
If Our Business Does Not Perform Well or if Actual Experience Versus Estimates Used in Valuing and Amortizing DAC,
Deferred Sales Inducements (“DSI”) and VOBA Vary Significantly, We May Be Required to Accelerate the Amortization
and/or Impair the DAC, DSI and VOBA Which Could Adversely Affect Our Results of Operations or Financial Condition
We incur significant costs in connection with acquiring new and renewal insurance business. Costs that are related directly
to the successful acquisition of new and renewal insurance business are deferred and referred to as DAC. Bonus amounts credited
to certain policyholders, either immediately upon receiving a deposit or as excess interest credits for a period of time, are deferred
and referred to as DSI. 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. The estimated fair value of the acquired liabilities is based on
actuarially determined 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. DAC, DSI and VOBA related to fixed and variable universal life and deferred annuity contracts are amortized
in proportion to actual and expected future gross profits and for most participating contracts in proportion to actual and expected
future gross margins. The amount of future gross profit or margin is dependent principally on investment returns in excess of
the amounts credited to policyholders, mortality, morbidity, persistency, interest crediting rates, dividends paid to policyholders,
expenses to administer the business, creditworthiness of reinsurance counterparties and certain economic variables, such as
inflation. Of these factors, we anticipate that investment returns are most likely to impact the rate of amortization of DAC for
the aforementioned contracts.
If actual gross profits or margins are less than originally expected, then the amortization of such costs would be accelerated
in the period the actual experience is known and would result in a charge to net income. Significant or sustained equity market
declines could result in an acceleration of amortization of DAC, DSI and VOBA related to variable annuity and variable universal
life contracts, resulting in a charge to net income. Such adjustments could have a material adverse effect on our results of
operations or financial condition. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations
— Industry Trends — Impact of a Sustained Low Interest Rate Environment” for a discussion of how significantly lower spreads
may cause us to accelerate amortization, thereby reducing net income in the affected reporting period.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Summary of Critical
Accounting Estimates — Deferred Policy Acquisition Costs and Value of Business Acquired” and Note 1 of the Notes to the
Consolidated Financial Statements for further consideration of DAC and VOBA.
Guarantees Within Certain of Our Products May Decrease Our Earnings, Increase the Volatility of Our Results, Result in
Higher Risk Management Costs and Expose Us to Increased Counterparty Risk
Certain of our variable annuity products, variable universal life products, assumed reinsurance contracts and other products
contain guaranteed benefits, including guaranteed minimum death benefits (“GMDBs”) (including but not limited to no-lapse
guarantee benefits), guaranteed minimum withdrawal benefits (“GMWBs”), guaranteed minimum accumulation benefits
(“GMABs”) and guaranteed minimum income benefits (“GMIBs”). Certain of our interest rate sensitive products include a
minimum crediting rate feature which could be guaranteed for a period of time or life time of the policies. These guarantees are
designed to protect policyholders against significant downturns in equity markets and interest rates. Any such periods of
significant and sustained downturns in equity markets, increased equity volatility, or reduced interest rates could result in an
increase in the valuation of our liabilities associated with those products. An increase in these liabilities would result in a decrease
in our net income.
We use derivatives and other risk management strategies to hedge the economic exposure inherent in these liabilities. These
economically effective hedges do not generally qualify for hedge accounting treatment, and, as result, such non-qualifying
derivatives may introduce volatility in the results of our operations, including net income, to the extent the financial measurement
of the hedged liability does not fully reflect the sensitivity to the underlying economic exposure.
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We also use derivatives and other risk management strategies to directly mitigate the volatility in net income associated
with certain of these liabilities that are measured at fair value. These strategies involve the use of reinsurance and derivatives,
which may not be completely effective. For example, in the event that reinsurers, derivative counterparties or central
clearinghouses are unable or unwilling to pay, we remain liable for the guaranteed benefits. See “— If the Counterparties to Our
Reinsurance or Indemnification Arrangements or to the Derivatives We Use to Hedge Our Business Risks Default or Fail to
Perform, We May Be Exposed to Risks We Had Sought to Mitigate, Which Could Materially Adversely Affect Our Financial
Condition and Results of Operations.”
In addition, hedging instruments may not effectively offset the costs of guarantees or may otherwise be insufficient in
relation to our obligations. Furthermore, we are subject to the risk that changes in policyholder behavior or mortality, combined
with adverse market events, produce economic losses not addressed by the risk management techniques employed. These,
individually or collectively, may have a material adverse effect on our results of operations, including net income, capitalization,
financial condition or liquidity, including our ability to receive dividends from our operating insurance companies. See
“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Policyholder Liabilities — Variable
Annuity Guarantees” and Note 1 of the Notes to the Consolidated Financial Statements for further consideration of the risks
associated with guaranteed benefits.
Risks Related to Acquisitions, Dispositions or Other Structural Changes
We Could Face Difficulties, Unforeseen Liabilities, Asset Impairments or Rating Actions Arising from Business Acquisitions
or Integrating and Managing Growth of Such Businesses, Dispositions of Businesses, or Legal Entity Reorganizations
We have engaged in dispositions and acquisitions of businesses in the past, and expect to continue to do so in the future.
See Note 3 of the Notes to the Consolidated Financial Statements for information regarding the Separation and the U.S. Retail
Advisor Force Divestiture. Such activity exposes us to a number of risks arising from (i) potential difficulties achieving projected
financial results, including the costs and benefits of integration or deconsolidation; (ii) unforeseen liabilities or asset impairments;
(iii) the scope and duration of rights to indemnification for losses; (iv) the use of capital which could be used for other purposes;
(v) rating agency reactions; (vi) regulatory requirements that could impact our operations or capital requirements; (vii) changes
in statutory or U.S. GAAP accounting principles, practices or policies; and (viii) certain other risks specifically arising from
activities relating to an initial public offering, spin-off, joint venture or legal entity reorganization, including in connection with
the Separation.
The valuation and structure for any transaction reflect our financial projections and other qualitative and quantitative factors.
Every transaction exposes us to the risk that actual results may materially differ from what we have projected. Factors that can
cause our ultimate experience to vary materially from financial projections made at the time we enter into a transaction include,
but are not limited to, macroeconomic, business growth, demographic, policyholder behavior and other actuarial assumptions,
regulatory and political conditions.
Risks Relating to Acquisitions
Our ability to achieve certain financial benefits we anticipate from any acquisitions of businesses will depend in part
upon our ability to successfully integrate such businesses in an efficient and effective manner. We may not be able to integrate
such businesses smoothly or successfully, and the process may take longer than expected. The integration of operations and
differences in organizational culture may require the dedication of significant management resources, which may distract
management’s attention from day-to-day business. If we are unable to successfully integrate the operations of such acquired
businesses, we may be unable to realize the benefits we expect to achieve as a result of such acquisitions and our business
and results of operations may be less than expected.
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The success with which we are able to integrate acquired operations will depend on our ability to manage a variety of
issues, including the following:
•
•
•
•
•
•
Loss of key personnel or higher than expected employee attrition rates could adversely affect the performance of the
acquired business and our ability to integrate it successfully.
Customers of the acquired business may reduce, delay or defer decisions concerning their use of its products and services
as a result of the acquisition or uncertainty related to the consummation of the acquisition, including, for example,
potential unfamiliarity with the MetLife brand in regions where we did not have a market presence prior to the acquisition.
If the acquired business relies upon independent distributors to distribute its products, these distributors may not continue
to generate the same volume of business for us after the acquisition. Independent distributors may reexamine the scope
of their relationship with the acquired business or us as a result of the acquisition and decide to curtail or eliminate
distribution of our products.
If the acquired business relies on continued distribution access with another party, we are also exposed to the risk of
loss of exclusivity or change in access due to regulatory changes.
Integrating acquired operations with our existing operations may require us to coordinate geographically separated
organizations, address possible differences in corporate culture and management philosophies, merge financial
processes and risk and compliance procedures, combine separate information technology platforms and integrate
operations that were previously closely tied to the former parent of the acquired business or other service providers.
In cases where we or an acquired business operates in certain markets through joint ventures, the acquisition may affect
the continued success and prospects of the joint venture.
• We may incur significant costs in connection with any acquisition and the related integration. The costs and liabilities
actually incurred in connection with an acquisition and subsequent integration process may exceed those anticipated.
There could also be unforeseen liabilities or asset impairments, including goodwill impairments, which arise in connection
with the businesses that we may sell or the businesses that we may acquire in the future.
In addition, there may be liabilities or asset impairments that we fail, or are unable, to discover in the course of performing
acquisition-related due diligence investigations. Furthermore, even for obligations and liabilities that we do discover during
the due diligence process, neither the valuation adjustment nor the contractual protections we negotiate may be sufficient to
fully protect us from losses. Although we generally have rights to indemnification for certain losses, our rights may be limited
by survival periods for bringing claims and limitations on the nature and amount of losses we may recover, and we cannot be
certain that indemnification will be, among other things, collectible or sufficient in amount, scope or duration to fully offset
any loss we may suffer. The use of our own funds as consideration in any acquisition would consume capital resources, which
could affect our capital plan and render those funds unavailable for other corporate purposes. We also may not be able to raise
sufficient funds to consummate an acquisition if, for example, we are unable to sell our securities or close related bridge credit
facilities.
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Risks Relating to Dispositions
We may from time to time dispose of business or blocks of in-force business through an outright sale, reinsurance
transaction or by alternate means such as a public offering of shares in a publicly traded company or a spin-off, which would
also result in a separate, publicly traded company. See Note 3 of the Notes to the Consolidated Financial Statements for
information on the Separation and the U.S. Retail Advisor Force Divestiture. When we dispose of subsidiaries or operations,
we may remain liable to the acquirer or to third parties for certain losses or costs arising from the divested business or on
other bases. We may also not realize the anticipated profit on a disposition or incur a loss on the disposition. In anticipation
of any disposition, we may need to restructure our operations, which could disrupt such operations and affect our ability to
recruit key personnel needed to operate and grow such business pending the completion of such transaction. In addition, the
actions of key employees of the business to be divested could adversely affect the success of such disposition as they may be
more focused on obtaining employment, or the terms of their employment, than on maximizing the value of the business to
be divested. Furthermore, transitional services or tax arrangements related to any such separation, including the Separation,
could further disrupt our operations and may impose restrictions, liabilities, losses or indemnification obligations on us.
Depending on its particulars, a separation could increase our exposure to certain risks, such as by decreasing the diversification
of our sources of revenue or by changing the percentage of our revenue being derived from non-U.S. sources. See “— Risks
Related to Our Business — Our International Operations Face Political, Legal, Operational and Other Risks, Including
Exposure to Local and Regional Economic Conditions, That Could Negatively Affect Those Operations or Our Profitability.”
Any such separation could also affect the dividends available to be paid to MetLife, Inc. by the subsidiaries that are part of
such separation. Furthermore, we may be unable to timely dissolve all contractual relationships with the divested business in
the course of the proposed transaction, which may materially adversely affect our ability to realize value from the disposition.
Such restructuring could also adversely affect our internal controls and procedures and impair our relationships with key
customers, distributors and suppliers. An interruption or significant change in certain key relationships could materially affect
our ability to market our products and could have a material adverse effect on our business, operating results and financial
condition. After any such disposition, shares of our common stock will represent an investment in a company different in size
and characteristics from the present. These changes may cause some existing shareholders to sell their shares of our common
stock, which could, if excessive, cause the market price of our common stock to decrease.
Risks Relating to Joint Ventures
We participate in joint ventures, which may also include exclusive or semi-exclusive distribution relationships, in several
countries, including China and India. We may enter into joint ventures with other companies or government sponsored
enterprises in various other international markets, including joint ventures where we may have a lesser degree of control over
the business operations, which may expose us to additional operational, financial, legal or compliance risks. We may be
dependent on a joint venture counterparty for capital, product distribution, local market knowledge, or other resources. Limits
on our ownership levels under local laws or regulations may increase our dependence on joint venture counterparties and
subsequent changes to such laws or regulations may impact how we account for our joint venture ownership interests or
manage the joint venture. Regulations regarding the level of foreign ownership or operations of such entities or limitation on
distribution exclusivity may affect the value of a joint venture. See “— Risks Related to Our Business — Our International
Operations Face Political, Legal, Operational and Other Risks, Including Exposure to Local and Regional Economic
Conditions, That Could Negatively Affect Those Operations or Our Profitability.”
A joint venture may require an investment of considerable management, financial and operational resources to establish
sufficient infrastructure such as underwriting, actuarial, risk management, compliance or other processes. If we are unable to
effectively cooperate with joint venture counterparties, or any joint venture counterparty fails to meet its obligations under
the joint venture arrangement, encounters financial difficulty, or elects to alter, modify or terminate the relationship, we may
be unable to exercise management control or influence over these joint venture operations and our ability to achieve our
objectives and our results of operations may be negatively impacted thereby impairing our investment. Additionally, any event
having a negative financial, operational or reputational impact on any of our joint venture counterparties may also negatively
affect our results of operations in the joint venture investment.
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Risks Relating to Legal Entity Reorganizations
In addition, we may reorganize or consolidate the legal entities through which we conduct business. The implementation
of legal entity reorganizations is a complex undertaking and involves a number of risks similar to those outlined above that
are present in the case of an acquisition, including additional costs and expenses, information technology-related delays and
problems, loss of key personnel and distraction of management. For example, over the past several years, we have pursued
three significant reorganizations. In 2015 and 2016, we substantially completed a reorganization of many of our foreign entities
under a single holding company, in 2017, we effected the Separation, and in 2018, we announced plans to merge our subsidiary
General American Life Insurance Company with and into another subsidiary, Metropolitan Tower Life Insurance Company.
Many aspects of these types of transactions are subject to regulatory approvals from a number of different jurisdictions. We
may not obtain needed regulatory approvals in the timeframe anticipated or at all, which could reduce or prevent us from
realizing the anticipated benefits of these transactions. These transactions or the related regulatory approvals may entail
modifications of certain aspects of our operations, the composition of certain of our investment portfolios, and/or the cost of
our derivatives hedging activities, which could result in additional costs or reduce net investment income. These transactions
are often effected to achieve certain operational, capital or tax benefits and to the extent not realized could affect the ongoing
value and financial results of such entities. Any of these risks, if realized, could result in a material adverse effect on our
business, results of operations or financial condition.
We May Not Achieve Expected Benefits of the Separation and Will Have Equity Market Exposure to Brighthouse
We believe that the Separation allows us and Brighthouse to pursue distinct strategies appropriate to our respective markets.
However, there can be no assurance that we will realize any or all of the expected strategic, financial, operational or other benefits
of the Separation. A failure to realize expected benefits of the Separation could result in a material adverse effect on our business,
results of operations and financial condition. Additionally, we continue to have a significant equity ownership position in
Brighthouse, and changes in the market price of Brighthouse common stock may have a material impact on us.
We May be Subject to Claims by Plaintiffs in the Event that Brighthouse is Not Successful as a Standalone Entity
We cannot guarantee that Brighthouse will be successful as a standalone entity. In the event that Brighthouse is not successful,
it is possible that plaintiffs could assert a variety of claims against us. Depending on their nature and number, such claims could
have a material adverse effect on our business, financial condition or results of operations.
We Could be Exposed to Claims from Brighthouse or Third Parties Under Our Agreements with Brighthouse or Otherwise
We have entered into agreements with Brighthouse and its subsidiaries, including among others a master separation
agreement, registration rights agreement, transition services agreement, investment management agreements, investment finance
services agreements, tax receivables agreement, tax separation agreement and intellectual property license agreement. Our
agreements with Brighthouse or its subsidiaries may not reflect terms that would have resulted from negotiations between
unaffiliated parties and, in certain instances, may relate to the continuation of certain business arrangements among us and
Brighthouse in existence prior to the Separation. Such agreements include, among other things, the parties’ respective
indemnification rights and obligations with respect to certain losses relating to specified liabilities as well as certain losses
relating to specified information included in certain securities filings, the allocations of assets and liabilities, payment obligations
and other obligations between us and Brighthouse. There can be no assurance that any remedies available under these
arrangements will be sufficient to compensate us in the event of a dispute or non-performance. In addition, there can be no
assurance that the attention we must pay, and resources we must devote, to our obligations under one or more of these agreements,
or the results of any failure to perform those obligations, or successful claim by Brighthouse that we have failed to perform those
obligations or have an indemnification obligation under these agreements, will not have a material impact on our own business
performance, results of operations or financial condition.
Under the master separation agreement, Brighthouse has agreed to indemnify us for certain liabilities. However, in certain
instances, the indemnity from Brighthouse may be insufficient to fully protect us from such liabilities, and third parties may
also seek to hold us responsible for liabilities not intended to be covered by the indemnity from Brighthouse. Additionally, under
the tax separation agreement, Brighthouse could be required, under certain circumstances, to indemnify us against certain tax-
related liabilities to the extent those liabilities result from an action or breach of the tax separation agreement by Brighthouse.
Brighthouse may be unable to satisfy or have an adverse interpretation of or object to its indemnification obligations to us under
one or more of these agreements and the underlying liabilities could have a material adverse effect on our financial condition
and results of operations.
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The transition services agreement provides for the performance of certain services by each of MetLife and Brighthouse, or
their respective subsidiaries, for the benefit of the other. The investment management agreements and investment finance services
agreements provide for the performance by us of certain services for Brighthouse. Further, under the tax receivables agreement,
Brighthouse is expected to pay us certain tax benefits it realizes as a result of certain transactions involved in the Separation.
We will rely on Brighthouse to satisfy its performance and payment obligations under these and all other agreements entered
into in connection with the Separation. If Brighthouse fails to satisfy such obligations it could have a material adverse effect on
our financial condition and results of operations.
If the Spin-off Distribution Were to Fail to Qualify for Non-recognition Treatment for U.S. Federal Income Tax Purposes,
Then We and Our Shareholders Could be Subject to Significant Tax Liabilities
Prior to the spin-off distribution, we received a private letter ruling from the IRS regarding certain significant issues under
the Code, as well as an opinion from tax counsel that the distribution qualified for non-recognition of gain or loss to us and our
shareholders pursuant to Sections 355 and 361 of the Code, except to the extent of cash received in lieu of fractional shares,
each subject to the accuracy of and compliance with certain representations, assumptions and covenants therein.
Notwithstanding the receipt of the private letter ruling and the tax opinion, the IRS could determine that the distribution
should be treated as a taxable transaction, for example, if it determines that any of the representations, assumptions or covenants
on which the private letter ruling is based are untrue or have been violated. Similarly, the IRS could determine that our disposal
of (and MetLife, Inc. shareholders’ receipt of) Brighthouse common stock in the potential exchange offer should be treated as
a taxable transaction to both MetLife, Inc. and the exchanging shareholders. Furthermore, as part of the IRS’s policy, the IRS
did not determine whether the distribution or potential exchange offer satisfies certain conditions that are necessary to qualify
for non-recognition treatment. Rather, the private letter ruling is based on representations by us and Brighthouse that these
conditions have been satisfied. The tax opinion addressed the satisfaction of these conditions. If we do not divest our retained
Brighthouse common stock in a timely manner, through an exchange offer for MetLife, Inc. common stock or otherwise, the
ultimate disposition of these shares would likely be a taxable transaction for MetLife, Inc.
The tax opinion is not binding on the IRS or the courts, and there can be no assurance that the IRS or a court will not take
a contrary position. In addition, the tax counsel relied on certain representations and covenants delivered by us and Brighthouse.
If the IRS ultimately determines that the distribution is taxable, the distribution could be treated as a taxable dividend or
capital gain to MetLife shareholders who received shares of Brighthouse stock in the distribution for U.S. federal income tax
purposes, and such shareholders could incur significant U.S. federal income tax liabilities. In addition, if the IRS ultimately
determines that the distribution is taxable, we and Brighthouse could incur significant U.S. federal income tax liabilities, and
either we or Brighthouse could have an indemnification obligation to the other, depending on the circumstances. Similarly, a
potential exchange offer could be treated as a taxable transaction for both us and the exchanging shareholders.
We Have Agreed to Certain Restrictions to Preserve the Non-recognition Tax Treatment of the Transactions, Which May
Reduce Our Strategic and Operating Flexibility
Even if the spin-off distribution otherwise qualifies for non-recognition of gain or loss under Section 355 of the Code, it
may be taxable to us, but not our shareholders, under Section 355(e) of the Code if 50% or more (by vote or value) of our
common stock or Brighthouse’s common stock is acquired as part of a plan or series of related transactions that include the
distribution. For this purpose, any acquisitions of our or Brighthouse’ s common stock within two years before or after the
distribution are presumed to be part of such a plan, although we or Brighthouse may be able to rebut that presumption based on
either applicable facts and circumstances or a “safe harbor” described in the tax regulations. Therefore, under the tax separation
agreement with Brighthouse, we are restricted from certain activities and have indemnity obligations which may limit our ability
to pursue strategic transactions or engage in new business or other transactions that may maximize the value of our business,
and might discourage or delay a strategic transaction that our shareholders may consider favorable. Any payments required
under these indemnity obligations could be significant and could materially adversely affect our business, results of operations
and financial condition.
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Capital-Related Risks
Legal and 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
The declaration and payment of dividends is subject to the discretion of our Board of Directors, and will depend on our
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. There is no requirement or assurance
that we will declare and pay any dividends. See “— Regulatory and Legal Risks — Our Insurance, Pensions and Brokerage
Businesses Are Highly Regulated, and Changes in Regulation and in Supervisory and Enforcement Policies May Reduce Our
Profitability and Limit Our Growth.”
In addition, our ability to pay dividends on our common stock and repurchase our common stock is subject to restrictions
under the terms of our preferred stock, junior subordinated debentures and trust securities. These instruments have so called
“dividend stopper” provisions for situations where we may be experiencing financial stress. “Junior subordinated debentures”
include MetLife’s Fixed-to-Floating Exchangeable Surplus Trust Securities, which are exchangeable for junior subordinated
debentures, and which contain terms with the same substantive effects for these purposes as do the terms of MetLife, Inc.’s
junior subordinated debentures. In addition, our ability to pay dividends on our preferred stock and interest on our junior
subordinated debentures is also restricted by the terms of those securities.
We may also be restricted from time to time in our ability to repurchase shares or to enter into share repurchase programs
under Rule 10b5-1 of the Exchange Act. That rule requires, among other things, that we establish any share repurchase program
in good faith at a time when we are not aware of any material non-public information in order for us to have an affirmative
defense against accusations of insider trading. Therefore, we may be unable to repurchase shares or to enter into share repurchase
programs during various periods of time, including periods of significant corporate reorganization such as a spin-off or a sale
of a substantial portion of the Company.
Regulatory Restrictions
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 “— 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.” See also “— Regulatory and Legal Risks — Our Insurance, Pensions and Brokerage Businesses Are Highly
Regulated, and Changes in Regulation and in Supervisory and Enforcement Policies May Reduce Our Profitability and Limit
Our Growth,” and “Business — Regulation — U.S. Regulation — Insurance Regulation — Holding Company Regulation.”
“Dividend Stopper” Provisions in Our Preferred Stock and Junior Subordinated Debentures
Certain terms of our preferred stock and our junior subordinated debentures may prevent us from repurchasing our common
stock or paying dividends on our common stock in certain circumstances. MetLife, Inc. also has entered into certain replacement
capital covenants. These covenants limit our ability to eliminate these restrictions through the repayment, redemption or
purchase of preferred stock or junior subordinated debentures by requiring MetLife, with some limitations, to receive cash
proceeds during a specified period from the sale of specified replacement securities prior to any repayment, redemption or
purchase. See Note 14 of the Notes to the Consolidated Financial Statements for a description of such covenants in effect with
respect to junior subordinated debentures.
If we have not paid the full dividends on our preferred stock for the latest completed dividend period, we may not repurchase
or pay dividends on our common stock during a dividend period. Under our junior subordinated debentures, if we have not
paid in full the accrued interest through the most recent interest payment date on our junior subordinated debentures, we may
not repurchase or pay dividends on our common stock or other capital stock (including the preferred stock), subject to certain
exceptions.
Trigger Events for the Restrictions on the Payment of Dividends on Our Preferred Stock and Restrictions on the Payment
of Interest on Our Junior Subordinated Debentures
In addition, the preferred stock and the junior subordinated debentures contain provisions that would automatically suspend
the payment of preferred stock dividends and interest on junior subordinated debentures if MetLife, Inc. fails to meet certain
tests (“Trigger Events”). In such cases, and subject to the terms of the instruments, MetLife, Inc. could make payments up to
the amount of net proceeds from sales of (i) common stock during the 90 days preceding the dividend declaration date or (ii)
common stock or certain kinds of warrants to purchase common stock generally during the 180 days prior to the interest
payment date (the “New Equity Proceeds”). If the New Equity Proceeds were insufficient to make such payments, the “dividend
stopper” provisions would come into effect and we would be unable to repurchase or pay dividends on our common stock.
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A “Trigger Event” would occur if:
•
•
the RBC ratio of MetLife’s largest U.S. insurance subsidiaries in the aggregate (as defined in the applicable instrument)
were to be less than 175% of the company action level based on the subsidiaries’ prior year annual financial statements
filed (generally around March 1) with state insurance commissioners; or
at the end of a quarter (“Final Quarter End Test Date”), consolidated GAAP net income for the four-quarter period
ending two quarters before such quarter-end (the “Preliminary Quarter End Test Date”) is zero or a negative amount
and the consolidated GAAP stockholders’ equity, minus AOCI (the “adjusted stockholders’ equity amount”), as of the
Final Quarter End Test Date and the Preliminary Quarter End Test Date, declined by 10% or more from (A) its level
10 quarters before the Final Quarter End Test Date (the “Benchmark Quarter End Test Date”), for Benchmark Quarter
End Test Dates after August 4, 2017 (the date of the Separation), or (B) $49,282,000,000, the consolidated GAAP
stockholders’ equity, minus AOCI as of June 30, 2017 as reported on a pro forma basis reflecting the Separation in
MetLife’s Form 8-K filed with the SEC on August 9, 2017, for Benchmark Quarter End Test Dates prior to August 4,
2017.
Once a Trigger Event occurs for a Final Quarter End Test Date, the suspension of payments of dividends and interest (in
the absence of sufficient New Equity Proceeds) would continue until there is no Trigger Event at a subsequent Final Quarter
End Test Date, and, if the test in the second paragraph above caused the Trigger Event, the adjusted stockholders’ equity
amount is no longer 10% or more below its level at the Benchmark Quarter End Test Date that is associated with the Trigger
Event. In the case of successive Trigger Events, the suspension would continue until MetLife satisfies these conditions for
each of the Trigger Events.
Dividends on Our Preferred Stock Are Subject to Declaration by Our Board of Directors
In addition, dividends on our preferred stock are subject to declaration each quarter by our Board of Directors. If our
Board of Directors does not declare dividends on the preferred stock for any quarterly dividend period, the “dividend stopper”
provisions in our preferred stock would prevent us from repurchasing or paying dividends on our common stock for that
period.
Optional Deferral of Interest on the Junior Subordinated Debentures
The junior subordinated debentures provide that we may, at our option and provided that certain conditions are met, defer
payment of interest without giving rise to an event of default for periods of up to 10 years. In that case, after five years MetLife,
Inc. would be obligated to use commercially reasonable efforts to sell equity securities to raise proceeds to pay the interest.
We would not be subject to limitations on the number of deferral periods that we could begin, so long as all accrued and unpaid
interest is paid with respect to prior deferral periods. If we were to defer payments of interest, the “dividend stopper” provisions
in the junior subordinated debentures would thus prevent us from repurchasing or paying dividends on our common stock or
other capital stock (including the preferred stock) during the period of deferral, subject to exceptions.
See Note 14 of the Notes to the Consolidated Financial Statements for additional information about these restrictions.
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
MetLife, Inc. is a holding company for its insurance and financial subsidiaries and does not have any significant operations
of its own. Dividends from its subsidiaries and permitted payments to it under its tax sharing agreement with its subsidiaries are
its principal sources of cash to meet its obligations and to pay preferred and common stock dividends. If the cash MetLife, Inc.
receives from its subsidiaries is insufficient for it to fund its debt service and other holding company obligations, MetLife, Inc.
may be required to raise cash through the incurrence of debt, the issuance of additional equity or the sale of assets.
The payment of dividends and other distributions to MetLife, Inc. by its U.S. insurance subsidiaries is regulated by insurance
laws and regulations. In general, dividends in excess of prescribed limits require insurance regulatory approval. In addition,
insurance regulators may prohibit the payment of dividends or other payments by its insurance subsidiaries to MetLife, Inc. if
they determine that the payment could be adverse to our policyholders or contractholders. The payment of dividends and other
distributions by insurance companies is also influenced by business conditions and rating agency considerations. See “Business
— Regulation — U.S. Regulation — Insurance Regulation” and “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.” See also “— Regulatory and Legal Risks — Our Insurance, Pensions and Brokerage Businesses Are Highly
Regulated, and Changes in Regulation and in Supervisory and Enforcement Policies May Reduce Our Profitability and Limit
Our Growth.”
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Any payment of interest, dividends, distributions, loans or advances by our foreign subsidiaries and branches to MetLife,
Inc. could be subject to taxation, insurance regulatory or other restrictions on dividends or repatriation of earnings under applicable
law, monetary transfer restrictions and foreign currency exchange regulations in the jurisdiction in which such foreign subsidiaries
operate. See “Business — Regulation — International Regulation” and “— Risks Related to Our Business — Our International
Operations Face Political, Legal, Operational and Other Risks, Including Exposure to Local and Regional Economic Conditions,
That Could Negatively Affect Those Operations or Our Profitability.”
From time to time, MetLife, Inc. or its subsidiaries may establish net worth maintenance or other support agreements with
other subsidiaries. Those commitments may limit such supported subsidiary’s ability to pay MetLife, Inc. dividends, or require
MetLife, Inc. or another subsidiary to transfer capital to such supported subsidiary, in either case limiting capital that is available
for other purposes. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity
and Capital Resources — MetLife, Inc. — Liquidity and Capital Uses — Support Agreements.”
Dividends from operating subsidiaries are a major component of holding company free cash flow. See “Management’s
Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP and Other Financial Disclosures.” If
MetLife, Inc.’s operating subsidiaries were unable to make expected dividend payments to MetLife, Inc., we may be unable to
meet our free cash flow goals and our ability to distribute cash to shareholders could be adversely affected.
Operational Risks
Our Risk Management Policies and Procedures or Our Models May Leave Us Exposed to Unidentified or Unanticipated
Risk, Which Could Negatively Affect Our Business
Our enterprise risk management program is designed to mitigate material risks and loss to the Company. We have developed
and continue to develop our risk management policies and procedures to reflect the ongoing review of our risks and expect to
continue to do so in the future. Nonetheless, our policies and procedures may not be comprehensive and may not identify every
risk to which we are exposed. Many of our methods for managing risk and exposures are based upon the use of observed historical
market behavior to model or project potential future exposure.
Models used by our business are based on assumptions, projections and data which may be inaccurate. Business or other
decisions, including determination of reserves, based on incorrect or misused model output and reports could have a material
adverse impact on our results of operations. Model risk may be the result of a model being misspecified for its intended purpose,
being misused or producing incorrect or inappropriate results. Models used by our business may not operate properly and could
contain errors related to model inputs, data, assumptions, calculations, or output. We perform model reviews that could give rise
to adjustments to models that may adversely impact our results of operations. Additionally, our model review process may not
adequately identify or remediate errors in or related to our models. As a result, our models may not fully predict future exposures
or correctly reflect past experience, which may have a material impact on our business, reputation, results of operations or
financial condition.
Other risk management methods depend upon the evaluation of information regarding markets, clients, catastrophe
occurrence or other matters that are publicly available or otherwise accessible to us. This information may not always be accurate,
complete, up-to-date or properly evaluated. Furthermore, there can be no assurance that we can effectively review and monitor
all risks or that all of our employees will follow our risk management policies and procedures, nor can there be any assurance
that our risk management policies and procedures will enable us to accurately identify all risks and limit our exposures based
on our assessments. In addition, we may have to implement more extensive and perhaps different risk management policies and
procedures under pending regulations. See “Business — Regulation — U.S. Regulation,” “Business — Regulation —
International Regulation — Global Systemically Important Insurers” and “Quantitative and Qualitative Disclosures About Market
Risk.”
We are highly dependent on our ability to process a large number of complex transactions across our businesses. The large
number of transactions we process makes it possible that errors will occasionally occur, and the controls and procedures we
have in place to prevent such errors may not be entirely effective. The occurrence of mistakes, particularly significant ones, can
subject us to claims from our customers and may have a material adverse effect on our reputation, business, results of operations,
or financial condition.
We are dependent on our group product customers or their employees for certain information to accurately review and pay
claims on many of our products. If we are unable to obtain necessary and accurate information from our customers, we may be
unable provide coverage and to pay claims, or we may pay claims without accurate or complete documentation, which may
have a material adverse effect on our reputation, business, results of operations, or financial condition.
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From time to time, we rely on vendors or other service providers for services related to the administration of our products,
investment management, or other business operations. To the extent our efforts to ensure such vendors’ controls meet our
standards are inadequate, our vendors fail to perform their services accurately or timely, the exchange of information between
us and our vendors is imperfect, or our vendors suffer financial or reputational distress, any errors or misconduct that result
could have a material adverse effect on our business, reputation, results of operations, or financial condition.
The Continued Threat of Terrorism and Ongoing Military Actions May Adversely Affect the Value of Our Investment Portfolio
and the Level of Claim Losses We Incur
The continued threat of terrorism, both within the U.S. and abroad, ongoing military and other actions and heightened
security measures in response to these types of threats may cause significant volatility in global financial markets and result in
loss of life, property damage, additional disruptions to commerce and reduced economic activity. The value of assets in our
investment portfolio may be adversely affected by declines in the credit and equity markets and reduced economic activity
caused by the continued threat of terrorism. Companies in which we maintain investments may suffer losses as a result of
financial, commercial or economic disruptions and such disruptions might affect the ability of those companies to pay interest
or principal on their securities or mortgage loans. Terrorist actions also could disrupt our operations centers in the U.S. or abroad
and result in higher than anticipated claims under our insurance policies. See “— Economic Environment and Capital Markets-
Related Risks — Difficult Conditions in the Global Capital Markets and the Economy Generally May Materially Adversely
Affect Our Business and Results of Operations.”
The Failure in Cyber- or Other Information Security Systems, as well as the Occurrence of Events Unanticipated in Our
Disaster Recovery Systems and Management Continuity Planning, Could Result in a Loss or Disclosure of Confidential
Information, Damage to Our Reputation and Impairment of Our Ability to Conduct Business Effectively
Our business is highly dependent upon the effective operation of our computer systems. We rely on these systems throughout
our business for a variety of functions, including processing claims, transactions and applications, providing information to
customers and distributors, performing actuarial analyses and maintaining financial records. We also retain confidential and
proprietary information on our computer systems and we rely on sophisticated technologies to maintain the security of that
information. Our computer systems have been, and will likely continue to be, subject to computer viruses or other malicious
codes, unauthorized or fraudulent access, cyberattacks or other computer-related penetrations. Publicly reported cyber-security
threats and incidents have increased over recent periods. The administrative and technical controls and other preventive actions
we take to reduce the risk of cyber-incidents and protect our information technology may be insufficient to prevent physical and
electronic break-ins, cyber-attacks, compromised credentials, fraud, other security breaches or other unauthorized access to our
computer systems. In some cases, such physical and electronic break-ins, cyber-attacks, compromised credentials, fraud, other
security breaches or other unauthorized access may not be immediately detected. This may impede or interrupt our business
operations and could adversely affect our business, financial condition and results of operations. In addition, the availability and
cost of insurance for operational and other risks relating to our business and systems may change and any such change may
affect our results of operations.
In the event of a disaster such as a natural catastrophe, epidemic, industrial accident, blackout, computer virus, terrorist
attack, cyberattack or war, unanticipated problems with our disaster recovery systems could have a material adverse impact on
our ability to conduct business and on our results of operations and financial position, particularly if those problems affect our
computer-based data processing, transmission, storage and retrieval systems and destroy valuable data. In addition, in the event
that a significant number of our managers, or employees generally, were unavailable following a disaster, our ability to effectively
conduct business could be severely compromised. These interruptions also may interfere with our suppliers’ ability to provide
goods and services and our employees’ ability to perform their job responsibilities.
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The failure of our computer systems and/or our disaster recovery plans for any reason could cause significant interruptions
in our operations and result in a failure to maintain the security, confidentiality or privacy of sensitive data, including personal
information relating to our customers. Such a failure could harm our reputation, subject us to regulatory investigations and
sanctions, expose us to legal claims, lead to a loss of customers and revenues and otherwise adversely affect our business and
financial results. Although we conduct due diligence, negotiate contractual provisions and, in many cases, conduct periodic
reviews of our vendors, distributors, and other third parties that provide operational or information technology services to us to
confirm compliance with MetLife’s information security standards, the failure of such third parties’ computer systems and/or
their disaster recovery plans for any reason might cause significant interruptions in our operations and result in a failure to
maintain the security, confidentiality or privacy of sensitive data, including personal information relating to our customers. Such
a failure could harm our reputation, subject us to regulatory sanctions and legal claims, lead to a loss of customers and revenues
and otherwise adversely affect our business and financial results. While we maintain cyber liability insurance that provides both
third-party liability and first-party liability coverages, our insurance may not be sufficient to protect us against all losses. MetLife,
Inc. and its subsidiaries maintain a primary cybersecurity and privacy liability insurance policy with a limit of $15 million, and
have additional coverage for cybersecurity and privacy liability available under blended professional liability excess coverage
policies with a total limit of $210 million. There can be no assurance that our information security policies and systems in place
can prevent unauthorized access use or disclosure of confidential information, including nonpublic personal information, nor
can we be certain that we will be able to reliably access all of the documents and records in the information storage systems we
use, whether electronic or physical. In some circumstances, we may fail to obtain or maintain all of the records we need to
accurately and timely administer, and establish appropriate reserves for benefits and claims with respect to, our products, which
failure could adversely affect our business, reputation, results of operations or our financial condition.
We are continuously evaluating and enhancing systems and creating new systems and processes as our business depends
on our ability to maintain and improve our technology systems. Due to the complexity and interconnectedness of our systems
and processes, these changes, as well as changes designed to update and enhance our protective measures to address new threats,
increase the risk of a system or process failure or the creation of a gap in our security measures. Any such failure or gap could
adversely affect our business, reputation, results of operations or financial condition.
Any Failure to Protect the Confidentiality of Client Information Could Adversely Affect Our Reputation and Have a Material
Adverse Effect on Our Business, Financial Condition and Results of Operations
Pursuant to U.S. federal and state laws, and laws of other jurisdictions in which we operate, various government agencies
have established rules protecting the privacy and security of personal information. In addition, most U.S. states and a number
of jurisdictions outside the United States have enacted laws, which vary significantly from jurisdiction to jurisdiction, to safeguard
the privacy and security of personal information. The area of cybersecurity has also come under increased scrutiny by insurance
regulators. On March 1, 2017, New York’s cybersecurity regulation for financial services institutions, including banking and
insurance entities, became effective, and on October 24, 2017, the NAIC adopted the Insurance Data Security Model Law, which,
if adopted as state legislation, would establish standards for data security and for the investigation of and notification of insurance
commissioners of cybersecurity events. See “Business — Regulation — U.S. Regulation — Insurance Regulation —
Cybersecurity Regulation.” Many of the associates who conduct our business have access to, and routinely process, personal
information of clients through a variety of media, including information technology systems. We rely on various internal processes
and controls to protect the confidentiality of client information that is accessible to, or in the possession of, our company and
our associates. It is possible that an associate could, intentionally or unintentionally, disclose or misappropriate confidential
client information or our data could be the subject of a cybersecurity attack. If we fail to maintain adequate internal controls or
if our associates fail to comply with our policies and procedures, misappropriation or intentional or unintentional inappropriate
disclosure or misuse of client information could occur. Such internal control inadequacies or non-compliance could materially
damage our reputation or lead to regulatory, civil or criminal investigations and penalties, which, in turn, could have a material
adverse effect on our business, financial condition and results of operations. In addition, we analyze customer data to better
manage our business. There has been increased scrutiny, including from U.S. state and federal regulators, regarding the use of
“big data” techniques such as price optimization. We cannot predict what, if any, actions may be taken with regard to “big data,”
but any inquiries could cause reputational harm and any limitations could have a material impact on our business, financial
condition and results of operations.
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Our Associates May Take Excessive Risks Which Could Negatively Affect Our Financial Condition and Business
As an insurance enterprise, we are in the business of accepting certain risks. The associates who conduct our business,
including executive officers and other members of management, sales managers, investment professionals, product managers,
sales agents, wholesalers, underwriters, and other associates, do so in part by making decisions and choices that involve exposing
us to risk. These include decisions such as setting underwriting guidelines and standards, product design and pricing, determining
what assets to purchase for investment and when to sell them, which business opportunities to pursue, and other decisions. We
endeavor, in the design and implementation of our compensation programs and practices, to avoid giving our associates incentives
to take excessive risks; however, associates may take such risks regardless of the structure of our compensation programs and
practices. Similarly, although we employ controls and procedures designed to monitor associates’ business decisions and prevent
us from taking excessive risks, and to prevent employee misconduct, these controls and procedures may not be effective. If our
associates take excessive risks, the impact of those risks could harm our reputation and have a material adverse effect on our
financial condition and business operations.
Technological Changes May Present New and Increased Challenges to Our Business
Recent and future changes in technology may present us with new challenges and may intensify many of the challenges
that we already face. For example, as a result of the availability of new technological tools for data collection and analysis, we
have access to an increasing amount of data, from an increasing variety of sources, regarding deaths of our policyholders and
annuitants. We may be unable to accurately or completely process this increased volume of information within the time periods
required by applicable standards. Furthermore, the additional information that we obtain as a result of technological improvements
may require us to modify our assumptions, models, or reserves. Changes in technology related to collection and analysis of data
regarding customers could, in these ways or others, expose us to regulatory or legal actions and may have a material adverse
effect on our business, reputation, results of operations, and financial condition. See “— Risks Related to Our Business —
Differences Between Actual Claims Experience and Underwriting and Reserving Assumptions May Adversely Affect Our
Financial Results.”
Technological changes may also impact the ways in which we interact with our customers. As technology evolves, customers
may expect increased choices in the ways in which they interact with us. We may also be required to redesign certain of our
products to meet changing customer preferences. Our distribution channels may become more automated in order to provide
customers with increased flexibility to access our services and products at times and places of their choosing. Such changes may
require significant costs to implement. If we are unsuccessful in implementing such changes, our competitive position may be
harmed and our relationships with our distribution partners may suffer. See “— Risks Related to Our Business — Competitive
Factors May Adversely Affect Our Market Share and Profitability” and “— General Risks — We May Experience Difficulty in
Marketing and Distributing Products Through Our Distribution Channels.”
Technological advances may also impact the composition and results of our investment portfolio. For example, changes in
energy technology may impact the relative attractiveness of investments in a variety of energy sources, and increasing consumer
preferences for e-commerce may negatively impact the profitability of retail and commercial real estate. If we are unable to
adjust our investments in reaction to such changes, our results of operations and financial condition may be materially and
adversely affected.
Advances in medical technology may also adversely affect us. Improvements in medical technologies that extend lives may
require us to modify our assumptions, models, or reserves. Additionally, increases in the prevalence and accuracy of genetic
testing, or legislation or regulation regarding the use by insurers of information produced by such testing, may exacerbate adverse
selection risks. Such changes in medical technologies may thus have a material adverse effect on our business, results of
operations, and financial condition.
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General Risks
MetLife, Inc.’s Board of Directors May Influence the Outcome of Stockholder Votes on Many Matters Due to the Voting
Provisions of the MetLife Policyholder Trust
Under the plan of reorganization, we established the MetLife Policyholder Trust to hold the shares of MetLife, Inc. common
stock allocated to eligible policyholders not receiving cash or policy credits under the plan. As of February 16, 2018, the Trust
held 154,420,615 shares, or 14.9%, of the outstanding shares of MetLife, Inc. common stock. Because of voting provisions of
the Trust and the number of shares held by it, the Trust may affect the outcome of matters brought to a stockholder vote. Except
on votes regarding certain fundamental corporate actions described below, the trustee will vote all of the shares of common
stock held in the Trust in accordance with the recommendations given by MetLife, Inc.’s Board of Directors to its stockholders
or, if the Board gives no such recommendations, as directed by the Board. As a result of the voting provisions of the Trust, the
Board of Directors may be able to influence the outcome of votes on matters submitted to a vote of stockholders, excluding
certain fundamental corporate actions, so long as the Trust holds a substantial number of shares of common stock.
If the vote relates to fundamental corporate actions specified in the Trust, the trustee will solicit instructions from the Trust
beneficiaries and vote all shares held in the Trust in proportion to the instructions it receives. These actions include:
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•
•
an election or removal of directors in which a stockholder has properly nominated one or more candidates in opposition
to a nominee or nominees of MetLife, Inc.’s Board of Directors or a vote on a stockholder’s proposal to oppose a Board
nominee for director, remove a director for cause or fill a vacancy caused by the removal of a director by stockholders,
subject to certain conditions;
a merger or consolidation, a sale, lease or exchange of all or substantially all of the assets, or a recapitalization or
dissolution, of MetLife, Inc., in each case requiring a vote of stockholders under applicable Delaware law;
any transaction that would result in an exchange or conversion of shares of common stock held by the Trust for cash,
securities or other property; and
any proposal requiring MetLife, Inc.’s Board of Directors to amend or redeem the rights under MetLife, Inc.’s stockholder
rights plan, other than a proposal with respect to which we have received advice of nationally-recognized legal counsel
to the effect that the proposal is not a proper subject for stockholder action under Delaware law. MetLife, Inc. does not
currently have a stockholder rights plan.
If a vote concerns any of these fundamental corporate actions, the trustee will vote all of the shares of common stock held
by the Trust in proportion to the instructions it received, which will give disproportionate weight to the instructions actually
given by Trust beneficiaries.
The MetLife Policyholder Trust Agreement provides that we may terminate the Trust once the percentage of outstanding
shares held in the Trust falls to 25%. The winding up of the Trust must commence 90 days after we provide the trustee with
notice that the percentage of outstanding shares held in the Trust is 10% or less. In connection with any termination of the Trust,
all of the shares of common stock then held in the Trust will need to be distributed to the respective Trust beneficiaries, unless
we offer to purchase all or a portion of such Trust shares. In connection with the termination of the Trust and such a distribution,
we may incur costs related to regulatory filings, mailings to Trust beneficiaries or others, and costs related to an increase in the
number of shareholders, which may include increased mailing and proxy solicitation expenses. After such a distribution, the
addition of the respective Trust beneficiaries to our shareholder base with full voting rights may have a significant impact on
matters brought to a stockholder vote and other aspects of our corporate governance.
Changes in Accounting Standards Issued by the Financial Accounting Standards Board or Other Standard-Setting Bodies
May Adversely Affect Our Financial Statements
Our financial statements are subject to the application of GAAP, which is periodically revised and/or expanded. Accordingly,
from time to time we are required to adopt new or revised accounting standards issued by recognized authoritative bodies,
including the Financial Accounting Standards Board (the “FASB”). The impact of accounting pronouncements that have been
issued but not yet implemented is disclosed in our reports filed with the SEC. See Note 1 of the Notes to the Consolidated
Financial Statements. An assessment of proposed standards is not provided as such proposals are subject to change through the
exposure process and official positions of the FASB are determined only after extensive due process and deliberations. Therefore,
the effects on our financial statements cannot be meaningfully assessed. The required adoption of future accounting standards
could have a material adverse effect on our financial condition and results of operations.
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Changes in Our Assumptions Regarding the Discount Rate, Expected Rate of Return, Mortality Rates and Expected Increase
in Compensation Used for Our Pension and Other Postretirement Benefit Plans May Result in Increased Expenses and
Reduce Our Profitability
We determine our pension and other postretirement benefit plan costs based on our best estimates of future plan experience.
These assumptions are reviewed regularly and include discount rates, expected rates of return on plan assets, mortality rates,
expected increases in compensation levels and expected medical inflation. Changes in these assumptions may result in increased
expenses and reduce our profitability. See Note 17 of the Notes to the Consolidated Financial Statements for details on how
changes in these assumptions would affect plan costs.
We May Not be Able to Protect Our Intellectual Property and May be Subject to Infringement Claims
We rely on a combination of contractual rights with third parties and copyright, trademark, patent and trade secret laws to
establish and protect our intellectual property. Although we endeavor to protect our rights, third parties may infringe or
misappropriate our intellectual property. We may have to litigate to enforce and protect our copyrights, trademarks, patents,
trade secrets and know-how or to determine their scope, validity or enforceability. This would represent a diversion of resources
that may be significant and our efforts may not prove successful. The inability to secure or protect our intellectual property assets
could harm our reputation and have a material adverse effect on our business and our ability to compete with other insurers and
financial institutions.
In addition, we may be subject to claims by third parties for (i) patent, trademark or copyright infringement, (ii) breach of
patent, trademark or copyright license usage rights, or (iii) misappropriation of trade secrets. Any such claims or resulting
litigation could result in significant expense and liability for damages. If we were found to have infringed or misappropriated a
third-party patent or other intellectual property right, we could in some circumstances be enjoined from providing certain products
or services to our customers or from utilizing and benefiting from certain patents, copyrights, trademarks, trade secrets or licenses.
Alternatively, we could be required to enter into costly licensing arrangements with third parties or implement a costly alternative.
Any of these scenarios could harm our reputation and have a material adverse effect on our business and results of operations.
We May Experience Difficulty in Marketing and Distributing Products Through Our Distribution Channels
Since the completion of the U.S. Retail Advisor Force Divestiture in July 2016, we primarily distribute our products through
a variety of third-party distribution channels. We may periodically negotiate the terms of these relationships, and there can be
no assurance that such terms will remain acceptable to us or such third parties. An interruption in certain key relationships could
materially affect our ability to market our products and could have a material adverse effect on our business, operating results
and financial condition. Distributors may elect to suspend, alter, reduce or terminate their distribution relationships with us for
various reasons, including changes in our distribution strategy, adverse developments in our business, adverse rating agency
actions or concerns about market-related risks. We are also at risk that key distribution partners may merge, change their business
models in ways that affect how our products are sold, or terminate their distribution contracts with us, or that new distribution
channels could emerge and adversely impact the effectiveness of our distribution efforts. Consolidation of distributors and/or
other industry changes may also increase the likelihood that distributors will try to renegotiate the terms of any existing selling
agreements to terms less favorable to us.
When our products are distributed through unaffiliated firms, we may not be able to monitor or control the manner of their
distribution despite our training and compliance programs. If our products are distributed by such firms in an inappropriate
manner, or to customers for whom they are unsuitable, we may suffer reputational and other harm to our business.
State Laws, Federal Laws, Our Certificate of Incorporation and Our By-Laws May Delay, Deter or Prevent Takeovers and
Business Combinations that Stockholders Might Consider in Their Best Interests
State laws, federal laws and our certificate of incorporation and by-laws may delay, deter or prevent a takeover attempt that
stockholders might consider in their best interests. For instance, such restrictions may prevent stockholders from receiving the
benefit from any premium over the market price of MetLife, Inc.’s common stock offered by a bidder in a takeover context.
Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of
MetLife, Inc.’s common stock if they are viewed as discouraging takeover attempts in the future.
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Any person seeking to acquire a controlling interest in us would face various regulatory obstacles, including:
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applicable state insurance laws and regulations may delay or impede a business combination involving us by prohibiting
an entity from acquiring control (generally presumed to exist at direct or indirect ownership of 10% or more of voting
stock) of an insurance company domiciled in the United States without the prior approval of the domestic insurance
regulator. Many foreign jurisdictions in which we operate have similar regulatory approval requirements.
if the acquiring entity is a bank or non-bank SIFI, Dodd-Frank provisions that restrict or impede consolidations, mergers
and acquisitions by systemically significant firms.
Provisions of the Investment Company Act that require approval by the contract owners of our variable contracts in
order to effectuate a change of control of any affiliated investment adviser to a mutual fund underlying our variable
contracts.
FINRA approval requirements for a change of control of any FINRA registered broker-dealer that is a direct or indirect
subsidiary of MetLife, Inc.
Provisions of the Delaware General Corporation Law may affect the ability of an “interested stockholder” (the owner
of 15% or more of the outstanding voting stock of a corporation) to engage in certain business combinations for a period
of three years following the time that the stockholder becomes an “interested stockholder.”
In addition, MetLife, Inc.’s certificate of incorporation and by-laws also contain provisions that may delay, deter or prevent
a takeover attempt that stockholders might consider in their best interests or may otherwise adversely affect prevailing market
prices for MetLife, Inc.’s common stock. These provisions include: a prohibition on the calling of special meetings or action by
written consent by stockholders; and advance notice procedures for the nomination of candidates to the Board of Directors and
stockholder proposals to be considered at stockholder meetings.
A majority of the combined voting power of the outstanding shares entitled to vote generally in the election of Directors
may amend MetLife, Inc.’s certificate of incorporation or by-laws. This may allow shareholders to change the Company’s
corporate governance and, therefore, make it more difficult for the Board of Directors to protect shareholders’ interests, e.g., if
they are presented with an acquisition proposal that undervalues the Company.
Item 1B. Unresolved Staff Comments
MetLife has no unresolved comments from the SEC staff regarding its periodic or current reports under the Exchange Act.
Item 2. Properties
As of December 31, 2017, we leased our headquarters building located at 200 Park Avenue, New York, New York. Including
our headquarters, throughout the U.S. we own eight buildings and have approximately 115 leases used in support of all segments,
as well as Corporate & Other.
Also, as of December 31, 2017, we owned three properties and have approximately 180 leases in Japan, which are used
primarily by our Asia segment. Excluding the U.S. and Japan, we own approximately 100 properties and have approximately
990 leases in various countries used primarily in support of our Asia, Latin America, and EMEA segments, as well as Corporate
& Other.
We believe our properties are adequate and suitable for our business as currently conducted, and are adequately maintained.
The above properties do not include properties we own for investment-only purposes.
Item 3. Legal Proceedings
See Note 20 of the Notes to the Consolidated Financial Statements.
Item 4. Mine Safety Disclosures
Not applicable.
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Table of Contents
Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Issuer Common Equity
MetLife, Inc.’s common stock, par value $0.01 per share, began trading on the New York Stock Exchange (“NYSE”) under
the symbol “MET” on April 5, 2000.
The following table presents high and low closing prices for our common stock on the NYSE for the periods indicated:
Common Stock Price
High
Low
Common Stock Price
High
Low
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
2017
50.04
45.80
$
$
49.07
44.39
$
$
51.95
46.68
$
$
55.73
50.56
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
2016
42.17
31.38
$
$
41.80
32.56
$
$
39.84
33.73
$
$
51.15
39.55
$
$
$
$
At February 16, 2018, there were 77,054 stockholders of record of our common stock.
The following table presents common stock dividend declaration, record and payment dates, as well as per share and
aggregate dividend amounts, for the years ended December 31, 2017 and 2016:
Declaration Date
Record Date
Payment Date
Per Share
Dividend
Aggregate
(In millions)
October 24, 2017
July 7, 2017
April 25, 2017
January 6, 2017
October 25, 2016
July 7, 2016
April 26, 2016
January 6, 2016
November 6, 2017
December 13, 2017
August 7, 2017
September 13, 2017
May 8, 2017
June 13, 2017
February 6, 2017
March 13, 2017
November 7, 2016
December 13, 2016
August 8, 2016
September 13, 2016
May 9, 2016
June 13, 2016
February 5, 2016
March 14, 2016
$
$
$
$
$
$
$
$
0.400
$
0.400
0.400
0.400
0.400
0.400
0.400
0.375
$
$
$
422
427
431
437
1,717
441
441
441
413
1,736
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. 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 — Legal and 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” and Note 15 of the Notes to the Consolidated Financial Statements.
See also “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital
Resources — The Company — Liquidity and Capital Uses — Dividends” and Note 22 of the Notes to the Consolidated Financial
Statements for further information regarding preferred and common stock dividends.
79
Table of Contents
See Item 12 for information about our equity compensation plans.
Issuer Purchases of Equity Securities
Purchases of MetLife, Inc. common stock made by or on behalf of MetLife, Inc. or its affiliates during the quarter ended
December 31, 2017 are set forth below:
Period
October 1 - October 31, 2017
November 1 - November 30, 2017
December 1 - December 31, 2017
__________________
(a) Total Number of
Shares
Purchased (1)
(b) Average Price
Paid per Share
(c) Total Number of
Shares
Purchased as Part of
Publicly Announced
Plans or Programs
(d) Maximum Number (or
Approximate Dollar Value)
of Shares that May Yet
Be Purchased Under the
Plans or Programs (2)
2,466,869
1,664,085
7,730,961
$52.73
$52.16
$52.31
2,466,869
1,664,085
7,730,961
$253,120,134
$2,166,319,397
$1,761,926,649
(1)
(2)
Except for the foregoing, there were no shares of MetLife, Inc. common stock repurchased by MetLife, Inc.
On November 1, 2017, MetLife, Inc. announced that its Board of Directors authorized $2.0 billion of common stock
repurchases. At December 31, 2017, MetLife, Inc. had $1.8 billion of common stock repurchases remaining under the
authorization. For more information on common stock repurchases, see “Management’s Discussion and Analysis of
Financial Condition and Results of Operations — Liquidity and Capital Resources — The Company — Liquidity and
Capital Uses — Common Stock Repurchases,” “Risk Factors — Capital-Related Risks — Legal and 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” and Notes 15 and 22 of the Notes to the Consolidated
Financial Statements.
Common Stock Performance Graph
The graph and table below compare the total return on our common shares with the total return on the S&P 500, S&P 500
Insurance, and S&P 500 Financials indices, respectively, for the five year period ended on December 31, 2017. The graph and
table show the total return on a hypothetical $100 investment in our common shares and in each index, respectively, on December
31, 2012, including the reinvestment of all dividends. The graph and table below shall not be deemed to be “soliciting material”
or to be “filed,” or to be incorporated by reference in future filings with the SEC, or to be subject to the liabilities of Section 18
of the Exchange Act, except to the extent that we specifically incorporate it by reference into a document filed under the Securities
Act or the Exchange Act.
80
CUMULATIVE TOTAL RETURN
Based upon an initial investment of $100 on December 31, 2012
with dividends reinvested
Table of Contents
$300
$250
$200
$150
$100
$50
$0
31-Dec-12
31-Dec-13
31-Dec-14
31-Dec-15
31-Dec-16
31-Dec-17
MetLife, Inc.
S&P 500
S&P 500 Insurance
S&P 500 Financials
As of December 31,
2012
2013
2014
2015
2016
2017
MetLife, Inc. common stock
$
100.00
$
167.43
$
172.20
$
157.96
$
182.79
$
S&P 500
S&P 500 Insurance
S&P 500 Financials
100.00
100.00
100.00
132.39
146.71
135.63
150.51
158.86
156.25
152.59
162.56
153.86
170.84
191.15
188.94
198.34
208.14
222.09
230.85
81
Table of Contents
Item 6. Selected Financial Data
The statement of operations data for the years ended December 31, 2017, 2016 and 2015, and the balance sheet data at
December 31, 2017 and 2016 have been derived from the Company’s audited consolidated financial statements included
elsewhere herein. See Note 1 of the Notes to the Consolidated Financial Statements for revisions to prior periods. The statement
of operations data for the years ended December 31, 2014 and 2013 have been derived from the Company’s consolidated financial
statements, without revisions for immaterial errors. The balance sheet data at December 31, 2015, 2014 and 2013 have also been
immaterially revised as applicable. The Company’s consolidated financial statements for such periods are 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
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
Net income (loss) available to MetLife, Inc.’s
common shareholders
Years Ended December 31,
2017
2016
2015
2014
2013
(In millions)
$
38,992
$
37,202
$
36,403
$
36,970
$
36,222
5,510
17,363
1,341
(308)
(590)
5,483
16,790
1,685
317
(690)
5,570
16,205
1,927
609
629
5,824
18,158
1,962
338
722
62,308
60,787
61,343
63,974
38,313
5,607
1,231
13,621
58,772
3,536
(1,470)
5,006
(986)
4,020
10
4,010
103
—
36,358
5,176
1,223
13,749
56,506
4,281
693
3,588
(2,734)
854
4
850
103
—
35,144
4,415
1,356
14,777
55,692
5,651
1,590
4,061
1,324
5,385
12
5,373
116
42
35,393
5,726
1,353
14,619
57,091
6,883
1,936
4,947
1,389
6,336
27
6,309
122
—
5,381
18,956
1,834
198
(1,475)
61,116
34,239
6,881
1,236
15,074
57,430
3,686
687
2,999
394
3,393
25
3,368
122
—
$
3,907
$
747
$
5,215
$
6,187
$
3,246
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Table of Contents
EPS Data
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
Assets of disposed subsidiary (2)
Separate account assets
Total assets
Policyholder liabilities and other policy-related balances (3)
Short-term debt
Long-term debt
Collateral financing arrangement
Junior subordinated debt securities
Liabilities of disposed subsidiary (2)
Separate account liabilities
Accumulated other comprehensive income (loss)
Total MetLife, Inc.’s stockholders’ equity
Noncontrolling interests
Years Ended December 31,
2017
2016
2015
2014
2013
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
4.57
4.53
$
$
3.16
3.13
$
$
(0.92) $
(0.91) $
(2.48) $
(2.46) $
3.48
3.44
1.19
1.18
3.65
3.62
1.600
$
$
$
0.68
0.67
1.575
$
$
$
4.67
4.62
1.475
$
$
$
$
$
$
$
4.25
4.20
1.23
1.22
5.48
5.42
1.325
$
$
$
$
$
$
$
2.58
2.55
0.36
0.36
2.94
2.91
1.010
2017
2016
2015 (1)
2014 (1)
2013 (1)
December 31,
— $
216,983
205,001
719,892
378,810
477
15,686
1,121
3,144
$
$
$
$
$
$
$
195,578
898,764
355,151
242
16,441
1,274
3,169
— $
202,707
205,001
7,427
58,676
194
$
$
$
$
195,578
5,366
67,531
171
(In millions)
$
$
$
$
$
$
$
$
$
$
$
$
$
216,437
187,152
877,912
342,047
100
17,936
1,342
3,194
204,314
187,152
4,767
68,098
470
$
$
$
$
$
$
$
$
$
$
$
$
$
219,937
194,072
902,322
349,651
100
16,108
1,399
3,193
208,341
194,072
10,714
72,208
507
$
$
$
$
$
$
$
$
$
$
$
$
$
225,223
192,763
886,826
347,078
175
17,153
1,399
3,193
215,645
192,763
5,158
61,711
543
Years Ended December 31,
2017
2016
2015
2014
2013
Other Data (4)
Return on MetLife, Inc.’s common stockholders’ equity
6.3%
1.0%
7.7%
9.5%
5.3%
__________________
83
Table of Contents
(1)
See Note 1 of the Notes to the Consolidated Financial Statements for information on prior period revisions.
The impact of the revisions is shown in the tables below:
December 31, 2015
December 31, 2014
December 31, 2013
As
Previously
Reported
Revisions
As Revised
As
Previously
Reported
Revisions
As Revised
(In millions)
As
Previously
Reported
Revisions
As Revised
216,437
877,933
342,279
204,374
4,771
67,949
—
(21)
(232)
(60)
(4)
149
216,437
877,912
342,047
204,314
219,951
902,337
349,845
208,406
4,767
10,649
68,098
72,053
(14)
(15)
(194)
(65)
65
155
219,937
902,322
349,651
208,341
225,226
886,825
347,281
215,702
10,714
5,104
72,208
61,553
(3)
1
(203)
(57)
54
158
225,223
886,826
347,078
215,645
5,158
61,711
Balance Sheet Data
Assets of disposed subsidiary
Total Assets
Policyholder liabilities and other
policy-related balances
Liabilities of disposed subsidiary
Accumulated other comprehensive
income (loss)
Total MetLife, Inc.’s stockholders’
equity
Year Ended December 31, 2016
Year Ended December 31, 2015
Year Ended December 31, 2014
Year Ended December 31, 2013
As
Previously
Reported
Revisions
As
Revised
As
Previously
Reported
Revisions
As
Revised
As
Previously
Reported
Revisions
As
Revised
As
Previously
Reported
Revisions
As
Revised
Other Data
Return on
MetLife,
Inc.’s
stockholders’
equity
1.0%
—%
1.0%
7.5%
0.2%
7.7%
9.4%
0.1%
9.5%
5.4%
(0.1%)
5.3%
(2)
(3)
(4)
See Note 3 of the Notes to the Consolidated Financial Statements.
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.
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Table of Contents
Item 7. 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
86
87
92
98
106
106
108
134
135
151
155
156
156
164
185
185
185
190
85
Table of Contents
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,” “Risk Factors,” “Selected Financial Data,”
“Quantitative and Qualitative Disclosures About Market Risk” and the Company’s consolidated financial statements included
elsewhere herein.
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,” “will be,” “will not,” and other words and terms of similar meaning,
or are tied to future periods, in connection with a discussion of future 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, adjusted earnings and adjusted earnings available to common shareholders, that are not based on GAAP.
These measures are used by management to evaluate performance and allocate resources. Consistent with GAAP guidance for
segment reporting, adjusted earnings is also our GAAP measure of segment performance. Adjusted earnings and other financial
measures based on adjusted earnings are also the measures by which senior management’s and many other employees’
performance is evaluated for the purposes of determining their compensation under applicable compensation plans. Adjusted
earnings and other financial measures based on adjusted earnings allow analysis of our performance relative to our business
plan and facilitate comparisons to industry results. Forward-looking guidance provided on a non-GAAP basis cannot be reconciled
to the most directly comparable GAAP measures on a forward-looking basis because net income may fluctuate significantly if
net investment gains and losses and net derivative gains and losses move outside of estimated ranges. See “— Non-GAAP and
Other Financial Disclosures” for definitions and a discussion of these measures, and “— Results of Operations” for reconciliations
of historical non-GAAP financial measures to the most directly comparable GAAP measures.
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Table of Contents
Executive Summary
Overview
MetLife is one of the world’s leading financial services companies, providing insurance, annuities, employee benefits and
asset management. MetLife is organized into five segments: U.S.; Asia; Latin America; EMEA; and MetLife Holdings. In
addition, the Company reports certain of its results of operations in Corporate & Other. See “Business — Segments and Corporate
& Other” and Note 2 of the Notes to the Consolidated Financial Statements for further information on the Company’s segments
and Corporate & Other. Management continues to evaluate the Company’s segment performance and allocated resources and
may adjust related measurements in the future to better reflect segment profitability.
Group Annuity Reserves, Assumed Variable Annuity Guarantee Reserves and Other Revisions
On December 15, 2017, the Company announced that it was undertaking a review of practices and procedures used to
estimate its reserves related to certain RIS group annuitants who have been unresponsive or missing over time. As a result of
this process, the Company increased reserves by $510 million, before income tax, to reinstate reserves previously released,
and to reflect accrued interest and other related liabilities. Of the increase of $510 million ($331 million, net of income tax),
$138 million ($90 million, net of income tax) was incurred in 2017 and $372 million ($241 million, net of income tax) was
considered an error and, recording this amount in the fourth quarter of 2017 financial statements would have had a material
effect on the results of operations for 2017. Approximately 25 years ago, companies that are or have been MetLife, Inc.
subsidiaries established a practice of releasing the full insurance liability after two attempts at contacting these annuitants,
based on the presumption that these annuitants would never respond and had not become entitled to benefits based on certain
contractual provisions. The number of impacted annuitants for whom the Company released the full insurance liability was
no more than 1,000 in any one year, and over the entire period totaled approximately 13,500 as of December 31, 2017, which
is approximately 2% of the total group annuitant population.
Further, an additional internal review of practices and procedures was completed in early 2018, focusing on the calculation
of certain reserves associated with MetLife Holdings variable annuity guarantees assumed from a former operating joint
venture in Japan. As a result, the Company reduced these reserves by $896 million ($582 million, net of income tax). Of this
amount, $214 million ($139 million, net of income tax) was incurred in 2017 and $682 million ($443 million, net of income
tax) was considered an error. Recording this amount in the fourth quarter of 2017 financial statements would have had a
material effect on the results of operations for 2017. MetLife uses a valuation model to estimate the fair value of the embedded
derivative portion of this reserve. In reviewing the model inputs, the Company determined that customer withdrawals were
not properly incorporated into this valuation model, resulting in an overstatement of the reserve.
As a result of these adjustments, amounts previously reported have been immaterially restated. In addition, the Company
has corrected other unrelated immaterial errors which were previously recorded in the periods the Company identified them.
Management, in consultation with the Audit Committee of MetLife, Inc.’s Board of Directors, had identified material
weaknesses in the Company’s internal control over financial reporting related to certain RIS group annuity reserves and
assumed variable annuity guarantee reserves. See “Risk Factors” and “Controls and Procedures” for further information, as
well as Note 1 of the Notes to the Consolidated Financial Statements for information regarding prior period revisions related
to the Company’s consolidated results.
U.S. Tax Reform
On December 22, 2017, U.S. Tax Reform was signed into law. U.S. Tax Reform includes numerous changes in tax law,
including a permanent reduction in the U.S. federal corporate income tax rate from 35% to 21%, which took effect for taxable
years beginning on or after January 1, 2018, a participation exemption system which generally eliminates U.S. federal income
tax on dividends received from foreign subsidiaries, and a number of other revenue raisers.
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Table of Contents
The impact of U.S. Tax Reform was a net benefit of $1.3 billion in 2017. U.S. GAAP requires that the impact of tax
legislation be recognized in the period in which the law was enacted. As a result, in the fourth quarter of 2017 the Company
revalued its net U.S. deferred tax liability to the new corporate tax rate of 21%, resulting in a one-time benefit of
$1.5 billion. Additionally, the Company also recorded a one-time charge of $170 million related to the deemed repatriation
of untaxed accumulated foreign earnings. Given the complexities of U.S. Tax Reform, amounts recorded may change, possibly
materially, due to, among other things, changes in interpretations and assumptions made by the Company, additional guidance
that may be issued and actions that the Company may take. See Note 18 of the Notes to the Consolidated Financial Statements
for a further discussion of U.S. Tax Reform and the impact to the Company in the fourth quarter of 2017. See also “—
Consolidated Company Outlook” for a discussion of U.S. Tax Reform’s projected near-term impacts to the Company.
Separation of Brighthouse
On August 4, 2017, MetLife, Inc. completed the Separation. MetLife, Inc. retained the remaining ownership interest of
22,996,436 shares, or 19.2%, of Brighthouse Financial, Inc. common stock outstanding. The Separation resulted in the
elimination of the Brighthouse Financial segment. The results of Brighthouse are reflected in the Company’s consolidated
financial statements as discontinued operations and, therefore, are presented as assets and liabilities of disposed subsidiary
on the consolidated balance sheets and income (loss) from discontinued operations on the consolidated statements of operations.
The reporting of discontinued operations had no impact on total consolidated assets or liabilities or on total consolidated net
income (loss) for any of the years presented. See Note 3 of the Notes to the Consolidated Financial Statements for further
information.
Current Year Highlights
During the year ended December 31, 2017, overall sales increased compared to the year ended December 31, 2016, reflecting
improved sales in our RIS and Group Benefits businesses, as well as in the majority of our segments abroad, largely offset by
declines in sales of our U.S. life and annuity products due to the discontinued marketing of these products in connection with
the Separation. U.S. Tax Reform positively impacted net income in 2017. In addition, while positive net flows drove an increase
in our investment portfolio, investment yields were down despite improved equity market performance. Results improved due
to the impact in both 2017 and 2016 of our annual actuarial assumption review. An unfavorable change in net investment gains
(losses) was primarily the result of losses recognized in connection with the Separation. Despite the 2017 loss on Separation,
income (loss) from discontinued operations increased due to significant net derivative losses in 2016.
The following represents segment level results and percentage contributions to total segment level adjusted earnings available
to common shareholders for the year ended December 31, 2017:
_______________
(1) Excludes Corporate & Other adjusted loss available to common shareholders of $1.1 billion.
(2) Consistent with GAAP guidance for segment reporting, adjusted earnings is our GAAP measure of segment performance.
See “— Non-GAAP and Other Financial Disclosures.”
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Table of Contents
Year Ended December 31, 2017 Compared with the Year Ended December 31, 2016
Consolidated Results - Highlights
Net income (loss) available to MetLife, Inc.’s
common shareholders up $3.2 billion:
• Lower losses from discontinued operations, net
of income tax, of $1.7 billion
• Net tax-related benefit of $1.3 billion due to U.S.
Tax Reform
• Unfavorable change in divested businesses of
$861 million ($618 million, net of income tax)
• Unfavorable change in net investment gains
(losses) of $625 million ($406 million, net of
income tax)
• Adjusted earnings available to common
shareholders up $202 million
(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 - Adjusted Earnings
Adjusted earnings available to common shareholders up $202 million:
• Results of operations positively impacted by annuities reinsurance activity with Brighthouse, the impact of 2017 and 2016
refinements made to DAC and certain insurance-related liabilities and the impact in both 2017 and 2016 of our annual
actuarial assumption review, partially offset by the unfavorable impact of U.S. Tax Reform and other tax items
• Our results for 2017 included the following:
• a tax charge of $298 million related to U.S. Tax Reform
• net tax charges of $139 million consisting of (i) a $180 million net tax charge related to the repatriation of approximately
$3.0 billion of cash following the post-Separation review of our capital needs, partially offset by a tax benefit associated
with dividends from our non-U.S. operations, and (ii) a $41 million tax benefit from the finalization of certain tax audits
• a $102 million, net of income tax, increase in expenses associated with our previously announced unit cost initiative
• a $73 million, net of income tax, charge for expenses incurred related to a guaranty fund assessment for Penn Treaty
Network America Insurance Company (“Penn Treaty”) and increases in asbestos and litigation reserves
• a $90 million, net of income tax, charge to increase certain RIS policy reserves
• a favorable reserve adjustment of $55 million, net of income tax, resulting from modeling improvements in the
reserving process for our life business
• a charge of $36 million, net of income tax, for lease impairments
• a benefit of $12 million, net of income tax, related to a refinement to prior period reinsurance receivables in Australia
• Our results for 2016 included the following:
• unfavorable reserve adjustments of $65 million, net of income tax, resulting from modeling improvements in the
reserving process
• a $44 million, net of income tax, charge related to an adjustment to reinsurance receivables in Australia
• tax benefit of $25 million related to a change in tax rate in Japan, which includes a benefit of $20 million that pertains to
prior periods
• a $23 million, net of income tax, charge for an increase in litigation reserves
• tax charge in Chile of $12 million as a result of tax reform legislation, which includes a charge of $10 million that pertains
to prior periods
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For a more in-depth discussion of our consolidated results, see “— Results of Operations — Consolidated Results” and
“— Results of Operations — Consolidated Results — Adjusted Earnings.”
Year Ended December 31, 2016 Compared with the Year Ended December 31, 2015
Consolidated Results – Highlights
Net income (loss) available to MetLife, Inc.’s
common shareholders down $4.5 billion:
• Income (loss) from discontinued operations, net
of income tax, down $4.0 billion
• Unfavorable change in net derivative gains
(losses) of $1.3 billion ($857 million, net of
income tax) primarily driven by the impact of our
variable annuity hedging program
• Unfavorable change in net investment gains
(losses) of $292 million ($190 million, net of
income tax)
• Adjusted
earnings
available
to
common
shareholders up $119 million
• Results for 2016 include the financial impact of
converting the Company’s Japan operations to
calendar year-end reporting without retrospective
application of this change to prior years
(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 - Adjusted Earnings
Adjusted earnings available to common shareholders up $119 million:
• Results of operations impacted by: (i) higher net investment income from portfolio growth; (ii) lower tax and related interest
expense; (iii) lower investment yields; (iv) refinements made to DAC and certain insurance-related liabilities; (v) unfavorable
underwriting; (vi) the impact of affiliated reinsurance activity; and (vii) the impact of our annual actuarial assumption review.
• Our 2016 results included the following:
• unfavorable reserve adjustments of $65 million, net of income tax, resulting from modeling improvements in the
reserving process
• a $44 million, net of income tax, charge related to an adjustment to reinsurance receivables in Australia
• tax benefit of $25 million related to a change in tax rate in Japan, which includes a benefit of $20 million that pertains to
prior periods
• a $23 million, net of income tax, charge for an increase in litigation reserves
• tax charge in Chile of $12 million as a result of tax reform legislation, which includes a charge of $10 million that pertains
to prior periods
• Our 2015 results included the following:
• a $557 million tax charge and a $362 million ($235 million, net of income tax) charge for interest on uncertain tax positions
that were recorded under accounting guidance for the recognition of tax uncertainties related to the U.S. tax treatment of
taxes paid by a wholly-owned U.K. investment subsidiary of 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
For a more in-depth discussion of our consolidated results, see “— Results of Operations — Consolidated Results” and
“— Results of Operations — Consolidated Results — Adjusted Earnings.”
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Consolidated Company Outlook
Our strategy is founded on the principle of One MetLife, where digital and simplified are the key enablers of our four
strategic cornerstones: (i) optimizing value and risk by focusing on our businesses with higher internal rates of return, lower
capital intensity, and maximum cash generation, (ii) driving operational excellence, by transforming into a high-performance
operating company with a competitive cost structure, (iii) enabling our distribution channels to drive efficiency and productivity
through digitalization and improved customer persistency, and (iv) undertaking a targeted approach to find the right solutions
for the right customers through differentiated customer value propositions. This enterprise strategy will enhance our ability to
focus on the right markets, build clear differentiators, and continue to make the right investments to deliver shareholder value.
We expect our results to be less sensitive to interest rates as we continue to position ourselves into less volatile and fee-
based businesses. Assuming interest rates follow the observable forward yield curves as of the year ended December 31, 2017,
we expect the average ratio of free cash flow to adjusted earnings over the two-year period of 2018 and 2019 to be at the lower
end of the 65% to 75% range due to timing of tax cash flows in 2018 and dependent upon a 10-year U.S. Treasury rate between
1.5% and 4.0%. We believe that free cash flow is a key determinant of common share dividends and common share repurchases.
We anticipate U.S. Tax Reform will reduce our 2018 effective tax rate from an estimated 25% to a range of 18% to 20%.
Based on this change over time, we target an adjusted return on equity, excluding AOCI other than FCTA, of 800 to 900 basis
points above the risk-free rate as measured by the 10-year U.S. Treasury rate. Over the longer-term, we believe this can rise to
1,000 basis points as the impact of business growth compounds and our expense initiative takes hold. These targets reflect our
unit cost improvement program and the related initiative to invest $1.0 billion by 2020 to generate $800 million pre-tax run rate
annual savings, net of stranded overhead. Book value per share, excluding AOCI other than FCTA, was $42.92 as of December
31, 2017. As of January 1, 2018, we expect this amount to decrease by approximately 2% reflecting the adoption of certain new
accounting pronouncements, primarily relating to the impact of U.S. Tax Reform. See “— Overview — U.S. Tax Reform” for
further information.
A key element of our enterprise strategy is to return excess capital to common shareholders through dividends and share
repurchases. In 2018, we expect to complete repurchases under the current $2.0 billion MetLife, Inc. common stock repurchase
authorization, approved by the Board of Directors in November 2017. As previously announced, we intend to divest our retained
Brighthouse common stock through an exchange offer for MetLife, Inc. common stock during 2018, subject to market conditions
and regulatory approval. In 2018, our baseline capital management plan would result in a return of approximately $5.0 billion
to common shareholders through common stock dividends, common share repurchases, and the anticipated Brighthouse common
stock exchange offer. Any shares of MetLife, Inc. common stock that MetLife, Inc. receives in the Brighthouse common stock
exchange offer would be in addition to other share repurchase authorizations. Common stock repurchases and exchange offers
are dependent upon several factors, which could include the necessary approval of our Board of Directors, our capital position,
liquidity, financial strength and credit ratings, general market conditions, the market price of the related 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.
We anticipate the net impact to holding company cash from liability management transactions to be between $1.0 billion
to $2.0 billion in 2018. This is in addition to the impact to net cash due to the repayment of $1.0 billion debt maturity in December
2017. Further, we plan to maintain a liquidity buffer of $3.0 to $4.0 billion of liquid assets at the holding companies.
When making these and other 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. For example, given the significant
complexities and uncertainties of U.S. Tax Reform, additional guidance from the U.S. Treasury, Securities and Exchange
Commission or the Financial Accounting Standards Board may require the Company to revise these estimates in future periods.
See “Risk Factors — Regulatory and Legal Risks — U.S. Tax Reform Could Have an Impact on Us.” In addition, the group
annuity reserve increase within RIS was substantially based on actuarial, legal, statistical, and other assumptions. If actual facts
and factors differ from those we have assumed, the reserve established could be adversely or positively affected. For further
information on this matter, see “— Overview — Group Annuity Reserves, Assumed Variable Annuity Guarantee Reserves and
Other Revisions.”
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Other Key Information
Basis of Presentation
Consolidation
Prior to January 1, 2016, certain international subsidiaries had a fiscal year cutoff of November 30th. The Company’s
consolidated financial statements reflect the operating results of such subsidiaries for the year ended November 30, 2015.
Effective January 1, 2016, the Company converted its Japan operations to calendar year-end reporting. The Company
reported the cumulative effect of the change in accounting principle in net income for the year ended December 31, 2016
and did not retrospectively apply the effects of this change to prior periods. See Notes 1 and 2 of the Notes to the Consolidated
Financial Statements.
Discontinued Operations
As previously discussed, the results of Brighthouse are reflected in the Company’s consolidated financial statements
as discontinued operations. See “— Overview — Separation of Brighthouse” and Note 3 of the Notes to the Consolidated
Financial Statements for information on discontinued operations and transactions with Brighthouse.
Revisions
See “— Overview — Group Annuity Reserves, Assumed Variable Annuity Guarantee Reserves and Other Revisions”
and Note 1 of the Notes to the Consolidated Financial Statements for information regarding prior period revisions related
to the Company’s consolidated results.
Non-Bank SIFI
On January 23, 2018, the U.S. Court of Appeals for the District of Columbia Circuit dismissed the FSOC’s appeal of the
district court’s decision rescinding MetLife, Inc.’s designation as a non-bank SIFI. As a result, MetLife, Inc.’s non-bank SIFI
designation remains rescinded and MetLife, Inc. is not subject to regulation by the Federal Reserve and the FDIC, or to
enhanced supervision and prudential standards. However, the FSOC could again seek to designate MetLife, Inc. as a non-
bank SIFI as part of its ongoing review of non-bank financial companies.
Hurricanes
In the third quarter of 2017, Hurricanes Irma and Harvey made landfall in Florida and Texas, respectively, causing loss
of life and extensive property damage. MetLife’s property & casualty business’ gross losses from Hurricanes Irma and Harvey
were approximately $65 million, before income tax. As of December 31, 2017, we recognized total net losses related to these
hurricanes of $42 million, net of income tax, which impacted the U.S. segment. Additional storm-related losses may be recorded
in future periods as claims are received from insureds.
Industry Trends
We continue to be impacted by the changing 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 and derivatives
are sensitive to changing market factors. 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 — Difficult Conditions in the Global Capital
Markets and the Economy Generally May Materially Adversely Affect Our Business and Results of Operations.”
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We have market presence in numerous countries and, therefore, our business operations are exposed to risks posed by local
and regional economic conditions. See “Risk Factors — Risks Related to Our Business — Our International Operations Face
Political, Legal, Operational and Other Risks, Including Exposure to Local and Regional Economic Conditions, That Could
Negatively Affect Those Operations or Our Profitability.” We are closely monitoring political and/or economic conditions in
the U.K., Mexico, and South Korea that might contribute to global market volatility and impact our business operations,
investment portfolio and derivatives. For example, events following the U.K.’s referendum on June 23, 2016 and the uncertainties,
including foreign currency exchange risks, associated with its pending withdrawal from the EU, have contributed to market
volatility, both in the U.S. and beyond. These factors could contribute to weakening GDP growth, primarily in the U.K. and, to
a lesser degree, continental Europe. The magnitude and longevity of the potential negative economic impacts would depend on
the detailed agreements reached by the U.K. and the EU as a result of the negotiations regarding future trade and other
arrangements. See “— Investments — Current Environment — Selected Country Investments.”
Central banks around the world are using monetary policy to address regional economic conditions. For example, in the
United States, citing a strengthening economy, the Federal Reserve Board has begun its balance sheet tapering and the Federal
Reserve Board’s Federal Open Market Committee has continued to increase the federal funds rate, most recently in December
2017. While the European Central Bank has continued to implement support measures, it is doing so at a slower place. In Japan,
however, the Japanese government and the Bank of Japan are maintaining stimulus measures in order to boost inflation
expectations and achieve sustainable economic growth in Japan. Such measures include the imposition of a negative rate on
commercial bank deposits, continued government bond purchases and tax reform, including the lowering of the Japanese
corporate tax rate and the delay until 2019 of an increase in the consumption tax to 10%. 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. Further actions by central banks in the future may
affect interest rates and risk markets in the U.S., Europe, Japan and other developed and emerging economies, and may ultimately
result in market volatility. We cannot predict with certainty the effect of these actions or the impact on our business operations,
investment portfolio or derivatives. See “— Investments — Current Environment.”
Impact of a Sustained Low Interest Rate Environment
During 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, 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 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 actuarial assumption review.
Some of our separate account products, including variable annuities, have certain minimum guarantee benefits. Declining
interest rates increase the reserves we need to set up to protect the guarantee benefits, thereby reducing net income in the affected
reporting period.
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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 interest rate derivatives. 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, EMEA,
and Asia (exclusive of our Japan business) segments, which accounted for approximately 26% of our adjusted earnings in
2017, 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 adjusted earnings will continue to increase, although at a slower growth
rate.
Low Interest Rate Scenario
In formulating economic assumptions for 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 2.41% at
December 31, 2017 to 4.25% in 10 years, by 2027 and that 10-year yields will reach 2.61%, 2.72% and 2.80% by December
31, 2018, 2019 and 2020, respectively. Also included is the projection that the three-month LIBOR rate will move from 1.69%
at December 31, 2017 to 2.19%, 2.31% and 2.35% by December 31, 2018, 2019 and 2020, respectively. The low interest rate
scenario reflects an assumed constant 10-year Treasury rate of 1.50% and a constant three-month LIBOR rate of 0.65%, 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 on our U.S. dollar and non-U.S. dollar denominated
positions. In addition, we have included disclosure on the potential impact on 2018, 2019 and 2020 net income using the same
Low Interest Rate Scenario on the mark-to-market of derivative positions that do not qualify as accounting hedges.
Below is a summary of the rates we used for the Low Interest Rate Scenario versus our business plan through 2020. These
rates represent the most relevant short-term and long-term rates for our business plan.
Years Ended December 31,
2017
2018
2019
2020
Low
Interest
Rate
Scenario
0.65%
1.50%
Business
Plan
1.69%
2.41%
Low
Interest
Rate
Scenario
0.65%
1.50%
Business
Plan
2.19%
2.61%
Low
Interest
Rate
Scenario
0.65%
1.50%
Business
Plan
2.31%
2.72%
Low
Interest
Rate
Scenario
0.65%
1.50%
Business
Plan
2.35%
2.80%
Three-month LIBOR
10-year U.S. Treasury
The Low Interest Rate Scenario assumes three-month LIBOR to be 0.65% and the 10-year U.S. Treasury rate to be 1.50%
at December 31, 2017 and remain constant at those levels until December 31, 2020. We make similar assumptions for interest
rates at other maturities, and hold this interest rate curve constant through December 31, 2020. In addition, in the Low Interest
Rate Scenario, we assume credit spreads remain constant from December 2017 through the end of 2020 as compared to our
business plan which assumes rising credit spreads through 2018 and thereafter remaining constant through the end of 2020.
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.
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Hypothetical Impact to Adjusted Earnings
Based on the above assumptions, we estimate an unfavorable combined long-term and short-term interest rate impact
on our consolidated adjusted earnings from the Low Interest Rate Scenario of approximately $55 million in 2018, $50 million
in 2019 and $260 million in 2020. 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. Further, the
favorable derivative impact under the flat rate scenario is lower in 2020 than in 2018 and 2019. This is driven by higher
rates on forward derivative positions protection that begin in 2020.
Hypothetical Impact to Our Mark-to-Market Derivative Positions
In addition to its impact on adjusted 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.
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 a decrease in net income of $74 million in 2018, $151 million in 2019 and $34 million in 2020. 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 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 adjusted 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.
U.S.
Group Benefits
In general, most of our group life insurance products in the U.S. 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 derivatives
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 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 estimate a favorable combined long-term and short-term interest rate impact on the adjusted earnings of our
Group Benefits business from the Low Interest Rate Scenario of $35 million, $50 million and $20 million in 2018,
2019 and 2020, respectively.
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Retirement and Income Solutions
Retirement and Income Solutions 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 2018, 2019 and 2020 that would impact
adjusted earnings due to reinvesting cash flows in the Low Interest Rate Scenario.
We estimate the following combined long-term and short-term interest rate impact on adjusted earnings on our
Retirement and Income Solutions business from the Low Interest Rate Scenario: (i) an unfavorable impact of $15 million
in 2018, (ii) a favorable impact of $10 million in 2019 and (iii) an unfavorable impact of $55 million in 2020.
Property & Casualty
The product portfolio within Property & Casualty is primarily made up of six-month and annual term renewable
policies, which allow for significant re-pricing flexibility with no policyholder benefits tied to interest rates. As a result,
the interest rate risk for the Property & Casualty business is minimal, tied only to our portfolio reinvestment rates and
our ability to offset the change of those rates through re-pricing efforts.
We estimate an unfavorable combined long-term and short-term interest rate impact on adjusted earnings on our
Property & Casualty business from the Low Interest Rate Scenario of $5 million, $5 million and $10 million in 2018,
2019 and 2020, respectively.
Asia
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,
adjusted earnings will decline. We manage interest rate risk on our life products through a combination of product design
features and ALM strategies.
We sell annuities in Japan 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 adjusted earnings of our
Asia segment from the Low Interest Rate Scenario of $25 million, $45 million and $70 million in 2018, 2019 and 2020,
respectively.
MetLife Holdings
Our interest rate sensitive life products include traditional and universal life products. 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 interest rate
derivative hedges. 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.
In annuities, the impact on adjusted 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 interest rate derivative positions to partially
mitigate this risk.
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Long-term care and retained assets accounts are interest rate sensitive. Long-term care reserves have exposure to
lower reinvestment rates that 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. We review the discount rate assumptions
and other assumptions associated with our long-term disability claim reserves no less frequently than annually and, with
respect to interest rates, we set the discount rate on these reserves based on the prevailing interest rate environment at the
time. 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 should partially mitigate this
risk.
Reinvestment risk is defined for this purpose as the amount of reinvestment in 2018, 2019 and 2020 that would
impact adjusted earnings due to reinvesting cash flows in the Low Interest Rate Scenario. For the life business, $2.4 billion,
$2.7 billion and $4.4 billion in 2018, 2019 and 2020, respectively, of the asset base will be subject to reinvestment risk
on an average asset base of $60.8 billion, $60.6 billion and $60.4 billion in 2018, 2019 and 2020, respectively. For our
deferred annuities business, $1.1 billion, $1.4 billion, and $1.4 billion in 2018, 2019, and 2020, respectively, of the asset
base will be subject to reinvestment risk on an average asset base of $17.7 billion, $17.5 billion and $17.3 billion in 2018,
2019 and 2020, respectively. For our long-term care portfolio, $0.4 billion, $0.5 billion and $0.4 billion of the asset base
in 2018, 2019 and 2020, respectively, will be subject to reinvestment risk on an average asset base of $12.1 billion,
$12.7 billion and $13.4 billion in 2018, 2019 and 2020, respectively.
We estimate the following combined long-term and short-term interest rate impact on the adjusted earnings of our
MetLife Holdings segment from the Low Interest Rate Scenario: (i) a favorable impact of $5 million in 2018 and (ii)
unfavorable impacts of $30 million and $110 million in 2019 and 2020, 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 adjusted earnings of
Corporate & Other from the Low Interest Rate Scenario of $50 million, $30 million and $35 million in 2018, 2019 and
2020, respectively.
Competitive Pressures
The life insurance industry remains highly competitive. Product development is focused on differentiation leading to more
intense competition with respect to product features and services. Several of the industry’s products can be quite homogeneous
and subject to intense price competition. Cost reduction efforts are a priority for industry players, with benefits resulting in price
adjustments to favor customers and reinvestment capacity. Larger companies have the ability to invest in brand equity, product
development, technology optimization, risk management, and innovation, which are among the fundamentals for sustained
profitable growth in the life insurance industry. Insurers are focused on their core businesses, specifically in markets where they
can achieve scale. Financial strength and flexibility, and technology modernization are prerequisites for sustainable growth in
the life insurance industry. Larger market participants tend to have the capacity to invest in analytics, distribution, and information
technology and have the capability to engage with the new digital entrants. There is a shift in distribution from proprietary to
third party models in mature markets, due to the lower cost structure. Evolving customer expectations are having a significant
impact on the competitive environment as insurers strive to offer the superior customer service demanded by an increasingly
sophisticated industry client base. We believe that the continued volatility of the financial markets and its impact on the capital
position of many competitors will continue to strain the competitive environment. Legislative and other changes affecting the
regulatory environment can also affect the competitive environment within the life insurance industry and within the broader
financial services industry. See “Business — Regulation.” We believe that the aforementioned factors have highlighted financial
strength, technology efficiency, and organizational agility as the most significant differentiators and, as a result, we believe the
Company is well positioned to compete in this environment.
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Regulatory Developments
In the United States, 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. See “Risk Factors — Regulatory
and Legal Risks — Our Insurance, Pensions and Brokerage Businesses Are Highly Regulated, and Changes in Regulation and
in Supervisory and Enforcement Policies May Reduce Our Profitability and Limit Our Growth.” Regulators have also 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. See “Business — Regulation,” “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.”
Summary of Critical Accounting Estimates
The preparation of financial statements in conformity with GAAP requires management to adopt accounting policies and
make estimates and assumptions that affect amounts reported on the 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
(ix) 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 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 our business and operations. Actual results could differ
from these estimates.
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.
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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 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 capitalized 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 obligations is based on projections, by each block of business, of future policy and contract charges,
premiums, mortality and morbidity, separate account performance, surrenders, 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.
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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 $30 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 7.0%.
We periodically review 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. 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, 2017, 2016 and 2015, DAC and VOBA for the Company was $18.4 billion, $17.6 billion and $17.4 billion,
respectively. Amortization of DAC and VOBA associated with the variable and universal life and 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, 2017, 2016 and 2015. 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,
2017
2016
2015
(In millions)
$
(5) $
5
$
21
60
(2)
12
(10)
56
(3)
226
44
2
(63)
(189)
$
132
$
22
$
(3)
(27)
(151)
11
(96)
106
(73)
(233)
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The following represent significant items contributing to the changes to DAC and VOBA amortization in 2017:
•
Changes in net investment and net derivative 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 approximately $80 million, including the
impact from our nonperformance risk and risk margins in the valuation. This is more than offset by the mark-to-
market losses and adjustments on the freestanding derivatives hedging such guarantee obligations which resulted
in a decrease in DAC and VOBA amortization of approximately $90 million.
–
The remainder of the impact decreased DAC amortization by approximately $45 million and was attributable to
2017 investment activities.
•
The change in policyholder dividends and other is primarily driven by a decrease of approximately $60 million of DAC
amortization resulting from the annual actuarial assumption update of the closed block, partially offset by an increase
of approximately $40 million of DAC amortization from the dividend scale update of the open block. In addition, DAC
amortization decreased by approximately $55 million due to an adjustment related to certain participating whole life
business assumed from Brighthouse.
The following represent significant items contributing to the changes to DAC and VOBA amortization in 2016:
•
Changes in net investment and net derivative 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 approximately $60 million, excluding the
impact from our nonperformance risk and risk margins, which are described below. Mark-to-market losses on the
freestanding derivatives hedging such guarantee obligations resulted in a decrease in DAC and VOBA amortization
of approximately $180 million.
–
–
The Company’s nonperformance risk adjustment decreased the valuation of guaranteed liabilities, increased actual
gross profits and increased DAC and VOBA amortization by approximately $40 million. This is more than offset
by higher risk margins, which increased the guarantee liability valuations, decreased actual gross profits and
decreased DAC and VOBA amortization by approximately $120 million.
The remainder of the impact decreased DAC and VOBA amortization by approximately $30 million and was
attributable to 2016 investment activities and assumption updates.
•
The change in policyholder dividends and other is primarily driven by:
– An increase of approximately $110 million of DAC and VOBA amortization resulting from the annual actuarial
assumption update of the closed block.
– An increase of approximately $70 million of DAC and VOBA amortization resulting from the dividend scale
update.
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 approximately $90 million. Mark-
to-market changes on the freestanding derivatives hedging such guarantee obligations resulted in an increase in
DAC and VOBA amortization of approximately $70 million.
–
The remainder of the impact increased DAC and VOBA amortization by approximately $170 million and was
attributable to 2015 investment activities.
•
•
Better than expected persistency and updates in persistency assumptions caused an increase in actual and expected
future gross profits resulting in a decrease in DAC and VOBA amortization of approximately $110 million.
The change in expense resulted in an increase to DAC and VOBA amortization of approximately $100 million primarily
attributable to the annual actuarial assumption update.
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•
The change in policyholder dividends and other is primarily driven by an increase of approximately $70 million of
DAC and VOBA amortization resulting from the actuarial assumption update, primarily related to closed block, and
other model refinements.
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 increase in unrealized investment gains
(losses) decreased the DAC and VOBA balance by $529 million and $163 million in 2017 and 2016, respectively, while the
change in unrealized investment gains increased the DAC and VOBA balance by $448 million in 2015. 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 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 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. 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.
The impact of the range of reasonably likely variances in credit spreads increased significantly as compared to prior periods.
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 statements under the credit spread variance scenarios presented below.
100% increase in our credit spread
As reported
50% decrease in our credit spread
Changes in Balance Sheet Carrying Value
At December 31, 2017
Policyholder
Account Balances
DAC and VOBA
$
$
$
(In millions)
230
323
386
$
$
$
19
27
35
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 on the consolidated financial statements and respective
changes in estimated fair value could materially affect net income.
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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 key inputs, judgments and assumptions necessary in
determining estimated fair value of the reporting units include projected adjusted earnings, current book value, the level of
economic capital required to support the mix of business, long-term growth rates, comparative market multiples, the account
value of in-force business, projections of new and renewed 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.
In the third quarter of 2017, the Company tested the MetLife Holdings life reporting unit for impairment using the
actuarial‑based embedded value fair valuation approach. The estimated fair value of the reporting unit exceeded the carrying
value by approximately 19% and, therefore, the reporting unit was not impaired. If we had assumed that the discount rate was
100 basis points higher than the discount rate used, the estimated fair value of the MetLife Holdings life reporting unit would
have been higher than the carrying value by approximately 1%. The MetLife Holdings life reporting unit consists of operations
relating to products and businesses no longer actively marketed by the Company. As of December 31, 2017, the amount of
goodwill allocated to the MetLife Holdings life reporting unit was $887 million.
The Company also performed its annual goodwill impairment tests of all other reporting units during the third quarter of
2017 using a qualitative assessment and/or quantitative assessments under the market multiple and discounted cash flow valuation
approaches based on best available data as of June 30, 2017 and concluded that the estimated fair values of all such 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 . 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 retirement, 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.
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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, 2016, 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 $101 million and an increase of $101 million, respectively, in 2017. 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 Company’s 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, 2016, 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 $97 million and an increase of $111 million, respectively, in
2017. 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 impact on the Company’s consolidated financial statements
and liquidity.
See Note 17 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 on the financial statements in the year these changes occur.
On December 22, 2017, U.S. Tax Reform was signed into law. U.S. GAAP requires that the impact of tax legislation be
recognized in the period in which the law was enacted. As a result, the Company recognized the tax effects of U.S. Tax Reform
for the year ended December 31, 2017. See “— Executive Summary — Overview — U.S. Tax Reform” for additional information.
See also Notes 1 and 18 of the Notes to the Consolidated Financial Statements for additional information on our income
taxes.
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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 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 20 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, income (loss) from continuing operations, net of income tax, or
adjusted earnings.
Net investment income is based upon the actual results of each segment’s specifically identifiable investment portfolios
adjusted for allocated equity. Other costs are allocated to each of the segments based upon: (i) a review of the nature of such
costs; (ii) time studies analyzing the amount of employee compensation costs incurred by each segment; and (iii) cost estimates
included in the Company’s product pricing.
Acquisitions and Dispositions
2017 Acquisition
On September 15, 2017, the Company completed the acquisition of Logan Circle Partners, L.P. (“Logan Circle Partners”),
from Fortress Investment Group LLC, for approximately $250 million in cash. Logan Circle Partners is a fundamental research-
based investment manager providing institutional clients actively managed investment solutions across a broad spectrum of
fixed income strategies, with more than 100 institutional clients and more than $37 billion in assets under management as of
August 31, 2017.
2017 Pending Disposition
See Note 3 of the Notes to the Consolidated Financial Statements for information regarding the Company’s disposition of
MetLife Afore, its pension fund management business in Mexico.
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2017 Disposition
Separation of Brighthouse
On August 4, 2017, MetLife, Inc. completed the Separation. See Note 3 of the Notes to the Consolidated Financial
Statements.
2016 Disposition
In July 2016, MetLife, Inc. completed the sale to Massachusetts Mutual Life Insurance Company (“MassMutual”) of its
U.S. retail advisor force and certain assets associated with the MetLife Premier Client Group, including all of the issued and
outstanding shares of MetLife’s affiliated broker-dealer, MSI, a wholly-owned subsidiary of MetLife, Inc. (collectively, the
“U.S. Retail Advisor Force Divestiture”) for $291 million. MassMutual assumed all of the liabilities related to such assets that
arise or occur at or after the closing of the sale. As part of the transactions, MetLife, Inc. and MassMutual entered into a product
development agreement under which the part of MetLife’s former U.S. retail business now in Brighthouse will be the exclusive
developer of certain annuity products to be issued by MassMutual. In the MassMutual purchase agreement, MetLife, Inc. agreed
to indemnify MassMutual for certain claims, liabilities and breaches of representations and warranties up to limits described in
the purchase agreement. See Note 3 of the Notes to the Consolidated Financial Statements for further information.
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Results of Operations
Consolidated Results
Business Overview. Overall sales for the year ended December 31, 2017 increased over 2016 levels reflecting an increase
in sales in the majority of our businesses. An overall increase in sales from our U.S. segment was primarily driven by improved
sales in our RIS business, as well as strong sales from core and voluntary products in our Group Benefits business. The
improvement in RIS was the result of higher sales of pension risk transfers, specialized life insurance, stable value and structured
settlement products. Sales in our Asia segment increased primarily driven by a successful sales campaign in Korea, agency
growth and the continued success of our whole life critical illness product in China, as well as a large group case in Australia.
Sales in EMEA also improved as a result of growth in Turkey, Egypt and several European markets, partially offset by a decrease
in sales due to the closing of the wealth management product to new business in the U.K. and the loss of a credit life contract
in Poland. In our MetLife Holdings segment, sales declined, as we have discontinued the marketing of life and annuity products
in connection with the U.S. Retail Advisor Force Divestiture and the Separation. In our Latin America segment, sales declined
as higher group accident & health and credit life product sales in Mexico were more than offset by a large group medical sale
in Mexico in 2016.
Years Ended December 31,
2017
2016
(In millions)
2015
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
$
38,992
$
37,202
$
5,510
17,363
1,341
(308)
(590)
62,308
39,544
5,607
(3,002)
2,681
(140)
1,129
12,953
58,772
3,536
(1,470)
5,006
(986)
4,020
10
4,010
103
—
5,483
16,790
1,685
317
(690)
60,787
37,581
5,176
(3,152)
2,718
(269)
1,157
13,295
56,506
4,281
693
3,588
(2,734)
854
4
850
103
—
Net income (loss) available to MetLife, Inc.’s common shareholders
$
3,907
$
747
$
36,403
5,570
16,205
1,927
609
629
61,343
36,500
4,415
(3,319)
3,184
(361)
1,168
14,105
55,692
5,651
1,590
4,061
1,324
5,385
12
5,373
116
42
5,215
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Year Ended December 31, 2017 Compared with the Year Ended December 31, 2016
During the year ended December 31, 2017, net income (loss) increased $3.2 billion from 2016 primarily driven by
favorable changes in discontinued operations and adjusted earnings, as well as the favorable impact of U.S. Tax Reform,
partially offset by an unfavorable 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. In addition, our general account investment portfolio
includes, within FVO securities, contractholder-directed unit-linked investments supporting unit-linked variable annuity type
liabilities, which do not qualify as separate account assets. The returns 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 also use derivatives as an integral part of our management of the investment portfolio and insurance liabilities to
hedge certain risks, including changes in interest rates, foreign currency exchange rates, credit spreads and equity market
levels. We use freestanding interest rate, equity, credit and currency derivatives to hedge certain invested assets and insurance
liabilities. A small portion of these hedges are designated and qualify as accounting hedges, which reduce volatility in earnings.
For those hedges not designated as accounting hedges, changes in market factors lead to the recognition of fair value changes
in net derivative gains (losses) generally without an offsetting gain or loss recognized in earnings for the item being hedged,
which creates volatility in earnings. During 2017, we restructured certain derivative hedges to decrease volatility from
nonqualified interest rate derivatives and to help meet prospective dividend and free cash flow objectives under varying interest
rate scenarios. As part of this restructuring, we replaced certain nonqualified derivatives with derivatives that qualify for hedge
accounting treatment. In addition, we also entered into replication transactions using interest rate swaps, which are accounted
for at amortized cost under statutory guidelines and are nonqualified derivatives under GAAP. We actively evaluate market
risk hedging needs and strategies to ensure our free cash flow and capital objectives are met under a range of market conditions.
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.
Ongoing refinement of the strategy may be required to adapt to changing NAIC rules, which may become effective as early
as January 1, 2019. The restructured hedge strategy will be classified as a macro hedge program to protect our overall statutory
capital from significant adverse economic conditions. 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.
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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 adjustment 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,
2017
2016
(In millions)
$
$
(39) $
(379)
198
6
(131)
(345)
1,052
(190)
68
930
(1,175)
(245)
(590) $
(449)
352
108
12
26
49
364
156
(727)
(207)
(532)
(739)
(690)
The unfavorable change in net derivative gains (losses) on non-VA program derivatives was $394 million ($256 million,
net of income tax). This was primarily due to the U.S. dollar, relative to other key currencies, weakening in 2017 versus mostly
strengthening in 2016, unfavorably impacting foreign currency swaps that primarily hedge foreign currency-denominated
bonds. Additionally, there was a change in the value of the underlying assets unfavorably impacting non-VA embedded
derivatives related to funds withheld on a certain reinsurance agreement. These decreases were partially offset by long-term
interest rates mostly decreasing in 2017 and mostly increasing in 2016, favorably impacting receive-fixed interest rate swaps
and total rate of return swaps hedging long-duration liability portfolios. 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 $494 million ($321 million, net of
income tax). This was due to a favorable change of $795 million ($517 million, net of income tax) in other risks in embedded
derivatives and a favorable change of $45 million ($29 million, net of income tax) in market risks in embedded derivatives,
net of the impact of freestanding derivatives hedging those risks, partially offset by an unfavorable change of $346 million,
($225 million, net of income tax) 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 $45 million ($29 million, net of income tax) favorable change reflects a $688 million ($447 million, net
of income tax) favorable change in market risks in embedded derivatives, partially offset by a $643 million ($418 million,
net of income tax) unfavorable change in freestanding derivatives hedging market risks in embedded derivatives.
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The primary changes in market factors are summarized as follows:
•
•
•
Changes in foreign currency exchange rates contributed to an unfavorable change in our freestanding derivatives and
a favorable change in our embedded derivatives related to the assumed variable annuity guarantees from our former
operating joint venture in Japan. For example, the Japanese yen weakened against the euro by 10% in 2017 and
strengthened by 6% in 2016.
Key equity index levels increased more in 2017 than in 2016, contributing to an unfavorable change in our freestanding
derivatives and a favorable change in our embedded derivatives. For example, the S&P 500 Index increased 19% in
2017 and increased 10% in 2016.
Long-term interest rates in Japan increased in 2017 and decreased in 2016, contributing to a favorable change in our
embedded derivatives and an unfavorable change in our freestanding derivatives related to the assumed variable annuity
guarantees from our former operating joint venture in Japan. This was partially offset by long-term U.S. interest rates
mostly decreasing in 2017 and mostly increasing in 2016. For example, the 30-year Japan swap rate increased five
basis points in 2017 and decreased 41 basis points in 2016, and the 20-year U.S. swap rate decreased three basis points
in 2017 and increased three basis points in 2016.
The foregoing $795 million ($517 million, net of income tax) favorable change in other risks in embedded derivatives
reflects:
•
•
•
Updates to actuarial policyholder behavior assumptions within the valuation model.
A change in the risk margin adjustment measuring policyholder behavior risks, along with market and interest rate
changes, and
The partially offsetting impact of a combination of other factors, which include fees being deducted from accounts and
changes in the benefit base, premiums, lapses, withdrawals and mortality rates.
The aforementioned $346 million ($225 million, net of income tax) unfavorable change in the nonperformance risk
adjustment on embedded derivatives resulted from an unfavorable change of $209 million, before income tax, as a result of
model changes and changes in capital market inputs, such as long-term interest rates and key equity index levels, on variable
annuity guarantees, in addition to an unfavorable change of $137 million, before income tax, related to changes in our own
credit spread.
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 unfavorable change in net investment gains (losses) of $625 million ($406 million,
net of income tax) primarily reflects a 2017 loss recognized in connection with the Separation, while the 2016 results include
gains from the U.S. Retail Advisor Force Divestiture and foreign currency transactions. These unfavorable changes were
partially offset by higher gains on sales of real estate joint ventures and a lower provision for mortgage loan losses.
Actuarial Assumption Review. Results for 2017 include a $37 million ($25 million, net of income tax) gain associated
with our annual review of actuarial assumptions related to reserves and DAC, of which a $21 million ($14 million, net of
income tax) gain was recognized in net derivative gains (losses). Of the $37 million gain, a $96 million ($64 million, net of
income tax) gain was associated with DAC, and a loss of $59 million ($39 million, net of income tax) was related to reserves.
The $21 million gain recognized in net derivative gains (losses) associated with this review of actuarial assumptions was
included within the other risks in embedded derivatives caption in the table above.
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As a result of our annual review of actuarial assumptions, changes were made to economic, policyholder behavior,
biometric and operational assumptions. These are summarized as follows:
•
•
•
•
Changes in operational assumptions, most notably related to updates to maintenance expense and closed block
projections, resulted in a net gain of $114 million ($74 million net of income tax).
Changes in policyholder behavior assumptions resulted in reserve increases, partially offset by favorable DAC, resulting
in a net charge of $47 million ($29 million, net of income tax).
Economic assumption updates resulted in reserve increases and DAC releases, resulting in a charge of $19 million
($13 million net of income tax).
Changes to biometric assumptions resulted in an increase in reserves, partially offset by favorable DAC, resulting in
a charge of $11 million ($7 million, net of income tax).
The most significant impacts were in the MetLife Holdings Life and Annuities businesses.
Results for 2016 include a $648 million ($421 million, net of income tax) loss associated with our annual review of
actuarial assumptions related to reserves and DAC, of which a $709 million ($461 million, net of income tax) loss was
recognized in net derivative gains (losses) and a $103 million ($67 million, net of income tax) loss was recognized in updates
to the closed block projection. Of the $648 million loss, a $729 million ($474 million, net of income tax) loss was related to
reserves while an $81 million ($53 million, net of income tax) gain was associated with DAC.
Divested Businesses and Lag Elimination. Income (loss) before provision for income tax related to the divested businesses
and lag elimination, excluding net investment gains (losses) and net derivative gains (losses), decreased $861 million
($618 million, net of income tax) to a loss of $1.1 billion ($747 million, net of income tax) in 2017 from a loss of $197 million
($129 million, net of income tax) in 2016. Included in this decline was a decrease in total revenues of $272 million, before
income tax, and an increase in total expenses of $589 million, before income tax. Divested businesses include activity primarily
related to the Separation. In addition, divested businesses for 2016 also include the financial impact of converting our Japan
operations to calendar year-end reporting without retrospective application of this change to prior years.
Discontinued Operations. Loss from discontinued operations, net of income tax, decreased $1.7 billion for the year ended
December 31, 2017 to a loss of $986 million, net of income tax, from a loss of $2.7 billion, net of income tax, for the year
ended December 31, 2016. Income (loss) from discontinued operations reflects the results of our former Brighthouse Financial
segment. The favorable change in income (loss) from discontinued operations was primarily due to a favorable change in net
derivative gains (losses) of $3.1 billion, net of income tax, primarily driven by the impact of the 2016 annual actuarial
assumption review on certain variable annuity products that contain embedded derivatives, partially offset by a loss of
$1.2 billion, net of income tax, as a result of the Separation in 2017. For further information regarding the Separation, see
Note 3 of the Notes to the Consolidated Financial Statements.
Taxes. Income tax benefit for the year ended December 31, 2017 was $1.5 billion, or 42% of income from continuing
operations before provision for income tax, compared with income tax expense of $693 million, or 16% of income before
provision for income tax, for the year ended December 31, 2016. Our effective tax rates differ from the U.S. statutory rate of
35% 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 2017 results include the following tax items: (i) a net benefit of $1.3 billion related to the
impact of U.S. Tax Reform, which includes a net benefit of $1.6 billion (comprised of a $1.8 billion tax benefit and a $222 million
increase in other divested expenses reflective of a reduction in other receivables due to the revaluation of a tax receivable
from Brighthouse) and an adjusted earnings charge of $298 million (comprised of a $254 million tax charge and a $44 million,
net of income tax, reduction in net investment income), (ii) a tax-related benefit of $540 million related to the Separation, (iii)
a $41 million tax benefit from the finalization of certain tax audits, (iv) a net tax charge of $180 million as a result of the
repatriation of approximately $3.0 billion of cash following the post-Separation review of our capital needs, partially offset
by a tax benefit associated with dividends from our non-U.S. operations, and (v) a tax benefit of $9 million related to the
settlement of an audit in Argentina. Our 2016 results include a tax benefit of $110 million in Japan related to a change in tax
rate, a tax charge of $26 million related to the repatriation of earnings from Japan and a tax charge of $19 million in Chile,
related to a change in tax rate. In addition, 2016 results include a one-time tax benefit of $46 million for the finalization of
certain tax audits.
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Adjusted Earnings. As more fully described in “— Non-GAAP and Other Financial Disclosures,” we use adjusted 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 adjusted earnings and adjusted 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. Adjusted earnings and other financial measures based on adjusted earnings allow analysis of our performance
relative to our business plan and facilitate comparisons to industry results. Adjusted earnings and adjusted earnings available
to common shareholders should not be viewed as substitutes for net income (loss) and net income (loss) available to MetLife,
Inc.’s common shareholders, respectively. Adjusted earnings available to common shareholders increased $202 million, net
of income tax, to $4.2 billion, net of income tax, for the year ended December 31, 2017 from $4.0 billion, net of income tax,
for the year ended December 31, 2016.
Year Ended December 31, 2016 Compared with the Year Ended December 31, 2015
During the year ended December 31, 2016, net income (loss) decreased $4.5 billion from 2015 primarily driven by
unfavorable changes in income (loss) from discontinued operations and net derivative gains (losses). In addition, in 2016, net
income (loss) includes the financial impact of converting the Company’s Japan operations to calendar year-end reporting
without retrospective application of this change to prior years.
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 adjustment 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,
2016
2015
(In millions)
$
$
(449) $
352
108
12
26
49
364
156
(727)
(207)
(532)
(739)
(690) $
61
393
7
(1)
66
526
246
52
(164)
134
(31)
103
629
The unfavorable change in net derivative gains (losses) on non-VA program derivatives was $477 million ($310 million,
net of income tax). This was primarily due to long-term interest rates increasing during 2016 and decreasing during 2015,
unfavorably impacting receive-fixed interest rate swaps and total rate of return swaps primarily hedging long-duration liability
portfolios. 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.
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The unfavorable change in net derivative gains (losses) on VA program derivatives was $842 million ($547 million, net
of income tax). This was due to an unfavorable change of $563 million ($366 million, net of income tax) in other risks in
embedded derivatives and an unfavorable change of $383 million ($249 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
$104 million ($68 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 $383 million ($249 million, net of income tax) unfavorable change reflects a $501 million ($326 million,
net of income tax) unfavorable change in freestanding derivatives hedging market risks in embedded derivatives, partially
offset by a favorable change of $118 million ($77 million, net of income tax) in market risks in embedded derivatives.
The primary changes in market factors are summarized as follows:
•
•
Long-term interest rates increased in 2016 and decreased in 2015, contributing to an unfavorable change in our
freestanding derivatives and a favorable change in our embedded derivatives. For example, the 10-year U.S. swap rate
increased 15 basis points in 2016 and decreased 10 basis points in 2015.
Key equity index levels mostly increased in 2016 and decreased in 2015, contributing to an unfavorable change in our
freestanding derivatives and a favorable change in our embedded derivatives. For example, the S&P 500 Index increased
10% in 2016 and decreased 1% in 2015.
The aforementioned $104 million ($68 million, net of income tax) favorable change in the nonperformance risk adjustment
on embedded derivatives resulted from a favorable change of $97 million, before income tax, as a result of model changes
and changes in capital market inputs, such as long-term interest rates and key equity index levels, on variable annuity guarantees,
and a favorable change of $7 million, before income tax, related to changes in our own credit spread.
The foregoing $563 million ($366 million, net of income tax) unfavorable change in other risks in embedded derivatives
reflected:
• Updates to actuarial policyholder behavior assumptions within the valuation model; and
• An increase in the risk margin adjustment, measuring policyholder behavior risks along with market and interest rate
changes; partially offset by
• The cross effect of capital market changes and the mismatch of fund performance between actual and modeled funds;
and
• A combination of other factors, including reserve changes influenced by benefit features and actual policyholder behavior,
as well as FCTA.
Net Investment Gains (Losses). The unfavorable change in net investment gains (losses) of $292 million ($190 million,
net of income tax) primarily reflects higher gains on sales of real estate, fixed maturity securities and equity securities in 2015
than in 2016 and an increase in the provision for mortgage loan losses in 2016. These unfavorable changes were partially
offset by lower foreign currency transaction losses, as well as a gain in 2016 from the U.S. Retail Advisor Force Divestiture.
Actuarial Assumption Review. Results for 2016 include a $648 million ($421 million, net of income tax) loss associated
with the annual review of assumptions related to reserves and DAC, of which a $709 million ($461 million, net of income
tax) loss was recognized in net derivative gains (losses) and a loss of $103 million ($67 million, net of income tax) was
recognized in updates to the closed block projection. Of the $648 million charge, $729 million ($474 million, net of income
tax) was related to reserves and a benefit of $81 million ($53 million, net of income tax) was associated with DAC. The
$709 million loss recognized in net derivative gains (losses) associated with this review of assumptions was included within
the other risks in embedded derivatives caption in the table above.
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As a result of our annual review of assumptions related to reserves and DAC, changes were made to economic, policyholder
behavior, mortality and other assumptions. These are summarized as follows:
•
•
•
Changes in policyholder behavior and mortality assumptions resulted in reserve increases, partially offset by favorable
DAC amortization, resulting in a loss of $356 million ($231 million, net of income tax).
Changes in economic assumptions resulted in reserve increases and unfavorable DAC amortization resulting in a loss
of $125 million ($81 million, net of income tax).
The remaining updates resulted in reserve increases and unfavorable DAC amortization, resulting in a loss of
$167 million ($109 million, net of income tax).
The most significant impacts of this review were in the MetLife Holdings life and annuity blocks of business.
Results for 2015 include a $142 million ($92 million, net of income tax) loss associated with our annual assumption
review related to reserves and DAC, of which a $134 million ($87 million, net of income tax) loss was recognized in updates
to the closed block projection. Of the $142 million loss, $94 million ($61 million, net of income tax) was related to DAC and
$48 million ($31 million, net of income tax) was associated with reserves.
Divested Businesses and Lag Elimination. Income (loss) from continuing operations before provision for income tax
related to the divested businesses and lag elimination, excluding net investment gains (losses) and net derivative gains (losses),
increased $358 million ($228 million, net of income tax) to a loss of $197 million ($129 million, net of income tax) in 2016
from a loss of $555 million ($357 million, net of income tax) in 2015. Included in this decline was an increase in total revenues
of $393 million, before income tax, and an increase in total expenses of $35 million, before income tax. Divested businesses
include activity primarily related to the Separation. In addition, divested businesses for 2016 include the financial impact of
converting the Company’s Japan operations to calendar year-end reporting without retrospective application of this change
to prior years.
Discontinued Operations. Income (loss) from discontinued operations, net of income tax, decreased $4.0 billion for the
year ended December 31, 2016 to a loss of $2.7 billion, net of income tax, from income of $1.3 billion, net of income tax, for
the comparable 2015 period. Income (loss) from discontinued operations reflects the results of our former Brighthouse Financial
segment, which were lower in 2016, primarily due to an unfavorable change in net derivative gains (losses) of $3.5 billion,
net of income tax, primarily driven by the impact of the 2016 annual actuarial assumption review on certain variable annuity
products that contain embedded derivatives. The most significant impact from the review was the result of changes in
policyholder behavior assumptions, which resulted in reserve increases, partially offset by favorable DAC amortization. The
policyholder behavior assumption changes included: (i) lower utilization of the elective annuitization option on the guarantee
riders on the contracts; (ii) lower election of the guaranteed principal option in certain of our GMIBs, which, if exercised,
returns to the policyholder the original purchase payment amounts; and (iii) adjusting the rate at which policyholders withdrew
funds through systematic withdrawals.
The 2016 loss also included (i) a $340 million, net of income tax, charge for a write-off of DAC and increases to insurance
related liabilities for its variable and universal life policies; (ii) a $223 million, net of income tax non-cash charge for goodwill
impairment; (iii) unfavorable reserve adjustments of $192 million, net of income tax, resulting from modeling improvements
in the reserving process; and (iv) unfavorable DAC unlockings of $161 million, net of income tax, related to the annual
actuarial assumption review of the variable annuity business. For further information, see Note 3 of the Notes to the Consolidated
Financial Statements.
Taxes. Income tax expense for the year ended December 31, 2016 was $693 million, or 16% of income from continuing
operations before provision for income tax, compared with $1.6 billion, or 28% of income from continuing operations before
provision for income tax, for the year ended December 31, 2015. The Company’s effective tax rates differ from the U.S.
statutory rate of 35% typically 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 2016 results include the following tax items: (i) a $110 million benefit
related to a change in tax rate in Japan, (ii) an $8 million expense due to a deferred tax adjustment related to goodwill, (iii) a
$46 million benefit for the finalization of certain tax audits, and (iv) a $22 million benefit related to an investment tax credit,
partially offset by a $19 million charge related to a change in tax rate in Chile. Our 2015 results include tax charges of
$580 million, of which $557 million was recorded under accounting guidance for the recognition of tax uncertainties, and
$23 million was related to foreign exchange-related gains on investments in Argentina. These charges were partially offset
by the following tax benefits: (i) $174 million related to a change in tax rate in Japan, (ii) $61 million related to the restructuring
of our business in Chile, (iii) $57 million related to the repatriation of earnings from Japan, and (iv) $31 million related to the
devaluation of the peso in Argentina.
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Adjusted Earnings. Adjusted earnings available to common shareholders increased $119 million, net of income tax, to
$4.0 billion, net of income tax, for the year ended December 31, 2016 from $3.9 billion, net of income tax, for the year ended
December 31, 2015.
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Reconciliation of income (loss) from continuing operations, net of income tax, to adjusted earnings available to common
shareholders
Year Ended December 31, 2017
Net income (loss)
Less: Income (loss) from discontinued operations, net of income tax
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
Adjusted earnings
Less: Preferred stock dividends
Adjusted earnings available to common shareholders
Year Ended December 31, 2016
Net income (loss)
Less: Income (loss) from discontinued operations, net of income tax
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
Adjusted earnings
Less: Preferred stock dividends
Adjusted earnings available to common shareholders
Year Ended December 31, 2015
U.S.
Asia
Latin
America
EMEA
(In millions)
MetLife
Holdings
Corporate
& Other
Total
$
$
2,001
—
2,001
180
(21)
(197)
12
$
$
1,298
—
1,298
$
$
128
31
(43)
(47)
$
$
613
—
613
(47)
108
8
(41)
$
$
301
—
301
(10)
32
17
(35)
914
—
914
71
(339)
(337)
337
$
2,027
$
1,229
$
585
$
297
$
1,182
$
$
(1,107)
$
4,020
(986)
(986)
(121)
$
5,006
(630)
(401)
(1,070)
2,962
(982)
103
(308)
(590)
(1,622)
3,188
4,338
103
$
(1,085)
$
4,235
U.S.
Asia
Latin
America
EMEA
(In millions)
MetLife
Holdings
Corporate
& Other
Total
$
$
1,756
—
1,756
(15)
53
(263)
85
$
$
1,420
—
1,420
$
$
230
(47)
26
(13)
$
$
629
—
629
93
3
58
$
$
311
—
311
42
24
33
(68)
(61)
$
1,896
$
1,224
$
543
$
273
$
300
—
300
182
(757)
(50)
219
706
$
$
(3,562)
$
854
(2,734)
(2,734)
(828)
$
3,588
(215)
34
(285)
144
(506)
103
317
(690)
(481)
306
4,136
103
$
(609)
$
4,033
Net income (loss)
Less: Income (loss) from discontinued operations, net of income tax
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
Adjusted earnings
Less: Preferred stock dividends
Adjusted earnings available to common shareholders
__________________
U.S.
Asia
Latin
America
EMEA
(In millions)
MetLife
Holdings
Corporate
& Other
Total
$
$
$
$
2,080
—
2,080
256
98
(149)
(72)
$
$
1,813
—
1,813
459
67
(120)
19
$
$
503
—
503
82
(135)
(72)
3
$
$
288
—
288
27
40
3
(22)
1,175
—
1,175
(37)
391
(455)
36
$
1,947
$
1,388
$
625
$
240
$
1,240
$
$
(474)
$
1,324
(1,798)
$
(178)
168
(568)
190
(1,410)
116
5,385
1,324
4,061
609
629
(1,361)
154
4,030
116
$
(1,526)
$
3,914
(1)
See definitions of adjusted revenues and adjusted expenses under “— Non-GAAP and Other Financial Disclosures” for
the components of such adjustments and Note 2 of the Notes to the Consolidated Financial Statements for additional
details on these adjustments by financial statement line item.
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Table of Contents
Reconciliation of revenues to adjusted revenues and expenses to adjusted expenses
Year Ended December 31, 2017
U.S.
Asia
Latin
America
EMEA
(In millions)
MetLife
Holdings
Corporate
& Other
Total
$
31,810
$
11,875
$
5,118
$
3,729
$
11,005
$
(1,229)
$
62,308
Total revenues
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)
180
(21)
—
(195)
128
31
13
336
(47)
108
—
69
(10)
32
(1)
875
71
(339)
—
(83)
Total adjusted revenues
Total expenses
$
$
31,846
28,797
$
$
11,367
9,910
$
$
4,988
4,308
$
$
2,833
3,334
$
$
11,356
9,881
$
$
Less: Adjustments related to net investment gains (losses)
and net derivative gains (losses)
Less: Other adjustments to expenses (1)
—
2
9
383
—
61
(1)
858
(70)
324
(630)
(401)
—
(552)
354
2,542
2
516
(308)
(590)
12
450
$
$
62,744
58,772
(60)
2,144
Total adjusted expenses
$
28,795
$
9,518
$
4,247
$
2,477
$
9,627
$
2,024
$
56,688
Year Ended December 31, 2016
U.S.
Asia
Latin
America
EMEA
(In millions)
MetLife
Holdings
Corporate
& Other
Total
$
29,254
$
11,973
$
4,816
$
3,810
$
11,710
$
(776)
$
60,787
Total revenues
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)
(15)
53
—
(264)
230
(47)
31
601
93
3
—
48
42
24
(1)
936
182
(757)
—
(182)
Total adjusted revenues
Total expenses
$
$
29,480
26,607
$
$
11,158
10,061
$
$
4,672
3,961
$
$
2,809
3,396
$
$
12,467
11,337
$
$
Less: Adjustments related to net investment gains (losses)
and net derivative gains (losses)
Less: Other adjustments to expenses (1)
—
(1)
42
564
—
(10)
—
902
(268)
136
(215)
34
—
(925)
330
1,144
—
(640)
317
(690)
30
214
$
$
60,916
56,506
(226)
951
Total adjusted expenses
$
26,608
$
9,455
$
3,971
$
2,494
$
11,469
$
1,784
$
55,781
Year Ended December 31, 2015
U.S.
Asia
Latin
America
EMEA
(In millions)
MetLife
Holdings
Corporate
& Other
Total
$
28,929
$
11,944
$
4,736
$
2,930
$
13,255
$
(451)
$
61,343
Total revenues
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)
256
98
—
(163)
459
67
12
147
82
(135)
—
12
27
40
(5)
21
(37)
391
—
(245)
Total adjusted revenues
Total expenses
$
$
28,738
25,768
$
$
11,259
9,689
$
$
4,777
4,199
$
$
2,847
2,599
$
$
13,146
11,534
$
$
Less: Adjustments related to net investment gains (losses)
and net derivative gains (losses)
Less: Other adjustments to expenses (1)
—
(14)
9
270
—
84
(5)
18
162
48
(178)
168
—
(674)
233
1,903
(9)
(97)
$
$
609
629
7
(902)
61,000
55,692
157
309
Total adjusted expenses
__________________
$
25,782
$
9,410
$
4,115
$
2,586
$
11,324
$
2,009
$
55,226
(1)
See definitions of adjusted revenues and adjusted expenses under “— Non-GAAP and Other Financial Disclosures” for
the components of such adjustments and Note 2 of the Notes to the Consolidated Financial Statements for additional
details on these adjustments by financial statement line item.
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Table of Contents
Consolidated Results — Adjusted Earnings
Year Ended December 31, 2017 Compared with the Year Ended December 31, 2016
Unless otherwise stated, all amounts discussed below are net of income tax.
Overview. The primary drivers of the increase in adjusted earnings were annuities reinsurance activity with Brighthouse,
the impact of 2017 and 2016 refinements made to DAC and certain insurance-related liabilities, and the impact in both 2017
and 2016 of our annual actuarial assumption review, partially offset by the negative impact of U.S. Tax Reform and other
unfavorable tax items.
Foreign Currency. Changes in foreign currency exchange rates had a $22 million negative impact on adjusted earnings
for 2017 compared to 2016. Unless otherwise stated, all amounts discussed below are net of foreign currency fluctuations.
Foreign currency fluctuations can result in significant variances in the financial statement line items.
Business Growth. An increase of $70 million in adjusted earnings was attributable to business growth. We benefited from
positive net flows from many of our businesses. As a result, growth in the investment portfolios of our U.S., Asia and Latin
America segments generated higher net investment income. However, this was partially offset by a corresponding increase
in interest credited expense on certain insurance-related liabilities. In our U.S. segment, an increase in average premium per
policy in our auto and homeowners business, partially offset by a decrease in exposures, improved adjusted earnings. Growth
in our segments abroad also contributed to the increase in adjusted earnings. In our MetLife Holdings segment, negative net
flows contributed to a decrease in average separate account balances and, consequently, asset-based fee income. Improved
results from our start-up operations increased adjusted earnings.
Market Factors. Market factors, including interest rate levels, variability in equity market returns, and foreign currency
exchange rate fluctuations, continued to impact our results; however, certain impacts were mitigated by derivatives used to
hedge these risks. Excluding the impact of changes in foreign currency exchange rates on reported net investment income in
our non-U.S. segments and changes in inflation rates on our inflation-indexed investments, investment yields decreased.
Investment yields were negatively affected by lower prepayment fees, lower derivative income and lower returns on real estate
joint ventures. In addition, earnings on our securities lending program decreased, which primarily resulted from lower margins
due to a flatter yield curve, and lower returns on alternative investments (excluding the impact of U.S. Tax Reform). These
decreases in net investment income were partially offset by higher returns on other limited partnership interests, driven by
improvements in equity market performance. In addition, higher interest credited expenses, primarily driven by our U.S.
segment as a result of a higher average interest credited rate, reduced adjusted earnings. These decreases were partially offset
by higher asset-based fees in our MetLife Holdings segment as a result of favorable equity market performance in 2017. The
changes in market factors discussed above resulted in a $69 million decrease in adjusted earnings.
Underwriting, Actuarial Assumption Review and Other Insurance Adjustments. Unfavorable underwriting resulted in a
$13 million decrease in adjusted earnings primarily as a result of unfavorable claims experience, higher catastrophe losses
and unfavorable mortality, largely offset by favorable morbidity and favorable development of prior year non-catastrophe
losses in our Property & Casualty business. Favorable morbidity in our U.S. segment was partially offset by unfavorable
morbidity in our MetLife Holdings segment. Higher lapses and claims in Japan, partially offset by favorable claims experience
in other countries, drove unfavorable claims experience in our Asia segment. Unfavorable mortality in our Latin America and
U.S. segments was partially offset by favorable mortality in our MetLife Holdings segment. The impact in both 2017 and
2016 of our annual actuarial assumption review resulted in a $166 million increase in adjusted earnings, primarily due to
favorable DAC unlockings in 2017 compared to unfavorable DAC unlockings in 2016 in our MetLife Holdings segment.
Refinements to DAC and certain insurance-related liabilities, which were recorded in both 2017 and 2016 across our segments,
resulted in a $191 million increase in adjusted earnings. This includes favorable 2017 refinements of (i) a $36 million DAC
adjustment related to certain participating whole life business assumed from Brighthouse; and (ii) a reserve adjustment resulting
from modeling improvements in the reserving process of $55 million in our life business, as well as (iii) a 2017 unfavorable
charge of $90 million to increase certain RIS policy reserves. This also includes an unfavorable 2016 refinement of $65 million
resulting from modeling improvements in the reserving process.
Expenses. A $46 million decrease in expenses was primarily driven by lower costs as a result of the U.S. Retail Advisor
Force Divestiture, a decrease in certain corporate expenses, and favorable net adjustments to certain reinsurance assets and
liabilities, partially offset by (i) Separation-related costs, (ii) higher employee-related expenses, (iii) higher costs associated
with corporate initiatives and projects (including leasehold impairments and costs related to our unit cost initiative), (iv) an
increase in asbestos and litigation reserves, and (v) an increase in expenses incurred related to the guaranty fund assessment
for Penn Treaty.
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Table of Contents
Interest Expense on Debt. Interest expense on debt decreased by $35 million, mainly due to the maturity of $1.25 billion
of our senior notes in June 2016.
Taxes. Our effective tax rates differ from the U.S. statutory rate of 35% due to non-taxable investment income, tax credits
for investments in low income housing, and foreign earnings taxed at lower rates than the U.S. statutory rate. This incremental
tax benefit was lower in 2017 compared to 2016 which resulted in a $7 million decrease in adjusted earnings. Our results for
2017 include the following tax items: (i) a charge of $298 million related to the impact of U.S. Tax Reform, which includes
a $254 million tax charge and a $44 million, net of income tax, reduction in net investment income, (ii) a tax benefit of
$41 million related to the finalization of certain tax audits, (iii) tax charges of $180 million related to the repatriation of offshore
earnings, and (iv) a tax benefit of $9 million related to the settlement of an audit in Argentina. Our results for 2016 include
the following tax items: (i) a tax benefit of $25 million in Japan and a tax charge of $12 million in Chile, both related to
changes in tax rates that pertain to periods prior to 2016, (ii) a tax charge of $26 million related to the repatriation of earnings
from Japan, and (iii) a tax benefit of $46 million for the finalization of certain tax audits.
Other. In connection with the Separation, annuities reinsurance activity with Brighthouse increased adjusted earnings by
$267 million. This favorable impact was primarily due to the recapture in 2016 of certain assumed single-premium deferred
annuity reinsurance agreements, and the elimination of interest credited payments on the related reinsurance payable, as well
as lower DAC amortization. This increase was partially offset by the net unfavorable impact in 2017 from the recapture and
novation of, as well as refinements to, assumed and ceded agreements covering certain variable annuity business.
Year Ended December 31, 2016 Compared with the Year Ended December 31, 2015
Unless otherwise stated, all amounts discussed below are net of income tax.
Overview. The primary drivers of the increase in adjusted earnings were higher net investment income from portfolio
growth and 2015 charges for taxes and related interest expense, partially offset by lower investment yields, unfavorable
underwriting, refinements made to DAC and certain insurance-related liabilities, the impact of affiliated reinsurance activity,
and the impact of our annual actuarial assumption review.
Foreign Currency. Changes in foreign currency exchange rates had a $51 million negative impact on adjusted earnings
compared to 2015. Unless otherwise stated, all amounts discussed below are net of foreign currency fluctuations. Foreign
currency fluctuations can result in significant variances in the financial statement line items.
Business Growth. A $331 million increase in adjusted earnings was attributable to business growth. We benefited from
positive net flows from many of our products. As a result, growth in the investment portfolios of our U.S., Asia and Latin
America segments generated higher net investment income. However, this was partially offset by a corresponding increase
in interest credited expense on certain insurance-related liabilities. In addition, improved results from our start-up operations
also increased adjusted earnings.
Market Factors. Market factors, including low interest rates, volatile equity markets, and foreign currency exchange rate
fluctuations, continued to impact our investment yields; however, certain impacts were mitigated by derivatives used to hedge
these risks. Excluding the impact of changes in foreign currency exchange rates on reported net investment income in our
non-U.S. segments and inflation-indexed investments, investment yields decreased. Investment yields were negatively affected
by the adverse impact of the low interest rate environment on fixed maturity securities and mortgage loans, as proceeds from
maturing investments and the growth in the investment portfolio were invested at lower yields than the portfolio average. In
addition, we experienced a decrease in returns on real estate joint ventures and alternative investments. Lower investment
earnings on our securities lending program resulted primarily from lower margins due to the impact of a flatter yield curve.
These decreases in net investment income were partially offset by higher income on derivatives. In our MetLife Holdings
segment, a decline in our average separate account balances resulted in a decrease in asset-based fee income. The changes in
market factors discussed above resulted in a $443 million decrease in adjusted earnings.
Underwriting, Actuarial Assumption Review and Other Insurance Adjustments. Unfavorable underwriting resulted in a
$176 million decrease in adjusted earnings primarily as a result of higher non-catastrophe claim costs, less favorable
development of prior year non-catastrophe losses and a charge related to an adjustment to reinsurance receivables in our Asia
segment. Favorable mortality and morbidity experience in our Latin America and U.S. segments was largely offset by
unfavorable experience in our MetLife Holdings segment. The impact of our annual actuarial assumption review, which
occurred in both 2016 and 2015, resulted in a $75 million decrease in adjusted earnings. Refinements to DAC and certain
insurance-related liabilities, which were recorded in both 2016 and 2015, resulted in a $176 million decrease in adjusted
earnings, primarily as a result of a 2016 reserve adjustment of $65 million resulting from modeling improvements in the
reserving process.
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Table of Contents
Interest Expense on Debt. The maturity of $1.0 billion of senior notes in June 2015 and $1.3 billion of senior notes in
June 2016 and the maturity of other long-term debt in 2015 and 2016, partially offset by the issuance of $1.5 billion of senior
notes in March 2015 and $1.3 billion of senior notes in November 2015 and higher interest on floating rate debt resulted in a
net decrease to interest expense on debt of $29 million.
Expenses and Taxes. Our results for 2015 include the aforementioned $235 million charge for interest on uncertain tax
positions. In addition, other expenses declined by $86 million primarily due to expense savings related to the U.S. Retail
Advisor Force Divestiture. The Company’s effective tax rates differ from the U.S. statutory rate of 35% typically 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. This incremental tax benefit was higher in 2016 compared to 2015 which resulted in a $68 million increase in adjusted
earnings. Our results for 2016 include the following tax items: (i) a $46 million benefit for the finalization of certain tax audits,
(ii) a $25 million benefit related to a change in the tax rate in Japan, and (iii) a $22 million benefit related to an investment
tax credit, partially offset by a $12 million charge related to a change in the tax rate in Chile. The $25 million benefit in Japan
includes a benefit of $20 million that pertains to prior years; the $12 million tax charge in Chile includes a charge of $10 million
that pertains to prior years. Our results for 2015 include the following tax items: (i) a charge of $557 million recorded under
accounting guidance for the recognition of tax uncertainties, (ii) a benefit of $61 million related to a change in the tax rate in
Japan, (iii) a benefit of $60 million related to the restructuring of our business in Chile, (iv) a benefit of $31 million related
to the repatriation of earnings from Japan, and (v) a $31 million benefit related to devaluation of the peso in Argentina.
Other. Annuities reinsurance activity with Brighthouse decreased adjusted earnings by $160 million. This was primarily
due to the recapture of certain assumed single-premium deferred annuity reinsurance agreements that resulted in unfavorable
recapture settlements and an increase in the related DAC amortization, partially offset by lower interest credited on the related
reinsurance payables. The impact of the lower interest credited was largely offset by the lower net investment income earned
on the assets transferred in connection with the recapture.
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Table of Contents
Segment Results and Corporate & Other
U.S.
Business Overview. Sales increased compared to 2016, primarily driven by our RIS business, with higher sales of pension
risk transfers, specialized life insurance, stable value and structured settlement products. Funding agreement issuances were
essentially flat. Changes in premiums for the RIS business were almost entirely offset by the related changes in policyholder
benefits and claims. Sales increased 19% compared to 2016 in the Group Benefits business, with strong sales across our core
and voluntary products. The resulting increase in premiums, fees and other revenues was partially offset by the loss of a large
dental contract in the second quarter of 2017. In our Property & Casualty business, sales increased slightly over 2016. The
number of exposures decreased from 2016, reflecting management actions to improve the quality of the business.
Adjusted revenues
Premiums
Universal life and investment-type product policy fees
Net investment income
Other revenues
Total adjusted revenues
Adjusted 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 adjusted expenses
Provision for income tax expense (benefit)
Adjusted earnings
Years Ended December 31,
2017
2016
2015
(In millions)
$
23,632
$
21,501
$
20,861
1,012
6,396
806
31,846
989
6,206
784
29,480
943
6,183
751
28,738
23,627
21,591
20,899
1,474
(458)
459
11
3,682
28,795
1,024
1,302
(471)
471
9
3,706
26,608
976
$
2,027
$
1,896
$
1,216
(493)
471
4
3,685
25,782
1,009
1,947
Year Ended December 31, 2017 Compared with the Year Ended December 31, 2016
Unless otherwise stated, all amounts discussed below are net of income tax.
Business Growth. The impact of deposits, net flows from funding agreements and increased premiums in 2017 resulted
in higher average invested assets, improving net investment income. However, consistent with the growth in average invested
assets from increased premiums, interest credited on long-duration contracts increased. An increase in average premium
per policy in both our auto and homeowners businesses, partially offset by the decrease in exposures, improved adjusted
earnings. The remaining increase in premiums, fees and other revenues, coupled with a decline in direct expenses, was
partially offset by higher volume-related expenses. The 2017 abatement of the annual health insurer fee under PPACA was
offset by a corresponding decrease in premiums, fees and other revenues. The combined impact of the items discussed above
increased adjusted earnings by $198 million.
Market Factors. Market factors, including interest rate levels, variability in equity market returns and foreign currency
exchange rate fluctuations, continued to impact our results; however, certain impacts were mitigated by derivatives used to
hedge these risks. Investment yields decreased, primarily due to lower prepayment fees, derivative income and lower returns
on real estate and real estate joint ventures. In addition, lower investment earnings on our securities lending program resulted
primarily from lower margins, due to a flatter yield curve. These decreases in investment yields were largely offset by higher
returns on other limited partnership interests, primarily in private equities, driven by improvements in equity market
performance. Higher average interest credited rates drove an increase in interest credited expenses; however, this was
partially offset by an increase in adjusted earnings due to a decrease in the crediting rate on certain long-duration insurance
contracts. The changes in market factors discussed above resulted in a $74 million decrease in adjusted earnings.
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Underwriting and Other Insurance Adjustments. Favorable prior year reserve development, lower utilization and the
positive impact of pricing actions in our dental business, as well as favorable claims experience in our accident & health
and group disability businesses were partially offset by slightly less favorable claims experience in our individual disability
business, which resulted in a $120 million increase in adjusted earnings. Less favorable mortality in 2017, mainly due to
less favorable claim experience in our group life businesses resulted in a $20 million decrease in adjusted earnings. Favorable
mortality from our pension risk transfer and structured settlement businesses was mostly offset by less favorable mortality
in our specialized life insurance and income annuities businesses. In our Property & Casualty business, catastrophe-related
losses increased $24 million in 2017, primarily due to severe storm activity. Non-catastrophe claim costs increased slightly
as a result of higher auto-related severities and higher homeowners-related frequencies, mostly offset by lower auto-related
frequencies and lower homeowners-related severities. Favorable development of prior year non-catastrophe losses of
$12 million increased adjusted earnings. Refinements to certain insurance and other liabilities, which were recorded in both
2017 and 2016, resulted in a $75 million decrease in adjusted earnings, which included a $90 million charge in 2017 to
increase certain RIS policy reserves.
Year Ended December 31, 2016 Compared with the Year Ended December 31, 2015
Unless otherwise stated, all amounts discussed below are net of income tax.
Business Growth. The impact of deposits, funding agreement issuances and increased premiums in 2016 resulted in
higher average invested assets, improving net investment income. However, consistent with the growth in average invested
assets from increased premiums, interest credited on long-duration contracts increased. An increase in average premium
per policy in both our auto and homeowners businesses improved adjusted earnings. In addition, an increase in other adjusted
expenses, mainly the result of growth across the segment, was more than offset by the remaining increase in premiums,
fees and other revenues. The combined impact of the items discussed above increased adjusted earnings by $173 million.
Market Factors. Market factors, including low interest rates, volatile equity markets, and foreign currency exchange
rate fluctuations, continued to impact our investment yields; however, certain impacts were mitigated by derivatives used
to hedge these risks. Investment yields decreased as a result of the impact of the low interest rate environment on fixed
maturity securities and mortgage loans, as proceeds from maturing investments and the growth in the investment portfolio
were invested at lower yields than the portfolio average. In addition, lower returns on other limited partnership interests,
lower prepayment fees and lower returns on alternative investments reduced yields.
Lower investment earnings on our securities lending program resulted primarily from lower margins due to the impact
of a flatter yield curve. These unfavorable changes were partially offset by higher income on derivatives and real estate.
Certain of our funding agreements and guaranteed interest contract liabilities have interest credited rates that are contractually
tied to current market rates, specifically the 3-month LIBOR and, as a result, a higher average interest credited rate drove
an increase in interest credited expense. However, consistent with the decrease in yields on average invested assets, interest
credited on certain long-duration insurance contracts decreased. The changes in market factors discussed above resulted in
a $129 million decrease in adjusted earnings.
Underwriting. Favorable claims experience in our individual disability and accident & health businesses were partially
offset by unfavorable claims experience in our group disability and dental businesses and resulted in a $12 million increase
in adjusted earnings. Favorable mortality in 2016, mainly due to favorable claims experience in our life business, resulted
in a $26 million increase in adjusted earnings. Less favorable mortality from our pension risk transfer business and specialized
life insurance products resulted in a $9 million decrease in adjusted earnings. In our Property & Casualty business, non-
catastrophe claim costs increased by $85 million, resulting from higher frequencies and severities in both our auto and
homeowners businesses, as well as an increase in claims adjustment expenses. In addition, less favorable development of
prior year non-catastrophe losses reduced adjusted earnings by $43 million. These increases were partially offset by a
decrease in catastrophe losses, which improved adjusted earnings by $3 million.
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Asia
Business Overview. Sales increased compared to 2016 primarily driven by a successful sales campaign in Korea, agency
growth and the continued success of our whole life critical illness product in China, as well as a large group case in Australia.
In Japan, we have completed a successful shift in sales to foreign currency-denominated life products from yen-denominated
life products.
Adjusted revenues
Premiums
Universal life and investment-type product policy fees
Net investment income
Other revenues
Total adjusted revenues
Adjusted 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 adjusted expenses
Provision for income tax expense (benefit)
Adjusted earnings
Years Ended December 31,
2017
2016
2015
(In millions)
$
6,755
$
6,902
$
1,584
2,985
43
11,367
5,075
1,351
(1,710)
1,300
(111)
3,613
9,518
620
1,488
2,707
61
11,158
5,211
1,298
(1,668)
1,236
(208)
3,586
9,455
479
$
1,229
$
1,224
$
6,937
1,542
2,675
105
11,259
5,266
1,309
(1,720)
1,253
(309)
3,611
9,410
461
1,388
Year Ended December 31, 2017 Compared with the Year Ended December 31, 2016
Unless otherwise stated, all amounts discussed below are net of income tax.
Foreign Currency. Changes in foreign currency exchange rates decreased adjusted earnings by $8 million for 2017
compared to 2016 primarily due to the weakening of the Japanese yen, partially offset by the strengthening of the Korean
won, against the U.S. dollar. Unless otherwise stated, all amounts discussed below are net of foreign currency fluctuations.
Foreign currency fluctuations can result in significant variances in the financial statement line items.
Business Growth. Asia’s premiums and policy fee income increased from 2016 mainly driven by growth in our foreign
currency-denominated life and accident & health businesses in Japan, as well as our group insurance business in Australia.
Changes in premiums for these businesses were partially offset by related changes in policyholder benefits. Positive net
flows in Japan and Korea resulted in higher average invested assets, which improved net investment income. The combined
impact of the items discussed above improved adjusted earnings by $61 million.
Market Factors. Market factors, including interest rate levels and variability in equity market returns continued to
impact our results; however, certain impacts were mitigated by derivatives used to hedge these risks. Investment results
were favorably impacted by higher returns on other limited partnership interests, driven by improvements in equity market
performance, and higher income on real estate investments, which included a lease termination fee. These increases were
partially offset by the unfavorable impact of lower interest rates on fixed maturity securities in Japan. The decrease in returns
from lower interest rates in Japan was partially offset by the favorable impact of increased sales of foreign currency-
denominated fixed annuities in Japan, primarily in its Australian dollar-denominated portfolio, which drove an increase in
higher yielding foreign currency-denominated fixed maturity securities. The combined impact of the items discussed above
increased adjusted earnings by $45 million.
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Underwriting, Actuarial Assumption Review and Other Insurance Adjustments. Higher lapses and claims in Japan,
partially offset by favorable claims experience in other countries, decreased adjusted earnings by $51 million. The impact
in both 2017 and 2016 of our annual actuarial assumption review resulted in a slight increase in adjusted earnings.
Refinements to certain insurance and other liabilities, which were recorded in both 2017 and 2016, resulted in a $69 million
increase in adjusted earnings, which includes a $12 million favorable refinement in 2017 of the $44 million charge in 2016
related to reinsurance receivables in Australia.
Expenses and Taxes. Higher expenses, primarily driven by project costs, reduced adjusted earnings by $11 million.
Results for 2017 include a charge of $70 million related to a U.S. tax on dividends from our Japan operations. Results for
2016 include a $25 million tax benefit related to a change in the corporate tax rate in Japan (which includes a benefit of
$20 million that pertains to prior periods).
Year Ended December 31, 2016 Compared with the Year Ended December 31, 2015
Unless otherwise stated, all amounts discussed below are net of income tax.
Following a change in the foreign investment law in India, the Company no longer consolidates its India operating
joint venture, effective January 1, 2016. While this change in accounting does affect the comparability of the financial
statement line items, it did not have a significant impact on adjusted earnings and, therefore, is not discussed below.
Foreign Currency. The impact of changes in foreign currency exchange rates increased adjusted earnings by $46 million
for 2016 compared to 2015 primarily due to the strengthening of the Japanese yen against the U.S. dollar. Unless otherwise
stated, all amounts discussed below are net of foreign currency fluctuations. Foreign currency fluctuations can result in
significant variances in the financial statement line items.
Business Growth. Positive net flows in Japan and Korea resulted in higher average invested assets and an increase in
net investment income. Asia’s premiums and fees decreased from 2015 mainly driven by lower fixed annuity surrenders
and the shift from premium-based to fee-based products in 2016. The discontinuation of single premium products in our
accident & health business in Japan in the third quarter of 2015 also contributed to the decline in premiums. Changes in
premiums for these businesses were partially offset by related changes in policyholder benefits. The combined impact of
the items discussed above improved adjusted earnings by $64 million.
Market Factors. Market factors, including low interest rates, volatile equity markets, and foreign currency exchange
rate fluctuations, continued to impact our investment yields; however, certain impacts were mitigated by derivatives used
to hedge these risks. Investment returns were unfavorably impacted by lower interest rates on fixed maturity securities, and
the impact of incremental income recognized in 2015 from the recovery of a previously impaired mortgage loan, both in
Japan. The decreases in investment returns were partially offset by the favorable impact of increased sales of foreign currency-
denominated fixed annuities in Japan, primarily in its Australian currency-denominated portfolio, which drove an increase
in higher yielding foreign currency-denominated fixed maturity securities, as well as higher returns on other limited
partnership interests. Lower investment yields, partially offset by the impact of credit and foreign currency hedges, decreased
adjusted earnings by $113 million.
Underwriting, Actuarial Assumption Review and Other Insurance Adjustments. Our results for 2016 include a
$44 million charge related to an adjustment to reinsurance receivables in Australia. Excluding this charge, lower fixed
annuity surrender gains and higher lapses in Japan, partially offset by favorable claims experience in Australia and Korea,
decreased adjusted earnings by $15 million. The impact of our annual actuarial assumption review, which occurred in both
2016 and 2015, resulted in a net decrease of $35 million in adjusted earnings. Refinements to certain insurance and other
liabilities, which were recorded in 2016, resulted in a $10 million increase in adjusted earnings.
Expenses and Taxes. An increase in expenses, primarily driven by costs associated with growth of our agency channel
in Hong Kong, information technology, and marketing, partially offset by lower consumption tax in Japan and a decline in
corporate overhead, reduced adjusted earnings by $13 million. Results for 2016 include a $25 million tax benefit related to
a change in the corporate tax rate in Japan (which includes a benefit of $20 million that pertains to prior periods). Results
for 2015 include 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, as well as a $6 million tax refund in Korea in
2015 related to unclaimed surrender value.
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Latin America
Business Overview. Total sales for Latin America decreased compared to 2016, as higher group accident & health and
credit life product sales in Mexico were more than offset by a large group medical sale in Mexico in 2016.
Years Ended December 31,
2017
2016
2015
(In millions)
Adjusted revenues
Premiums
Universal life and investment-type product policy fees
Net investment income
Other revenues
Total adjusted revenues
Adjusted 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 adjusted expenses
Provision for income tax expense (benefit)
Adjusted earnings
$
$
2,693
$
2,529
$
1,044
1,219
32
4,988
2,535
369
(364)
224
(1)
5
1,479
4,247
156
585
$
1,025
1,084
34
4,672
2,443
328
(321)
184
(1)
2
1,336
3,971
158
543
$
2,581
1,117
1,038
41
4,777
2,408
349
(341)
271
(1)
—
1,429
4,115
37
625
Year Ended December 31, 2017 Compared with the Year Ended December 31, 2016
Unless otherwise stated, all amounts discussed below are net of income tax.
Foreign Currency. Changes in foreign currency exchange rates resulted in a slight decrease to adjusted earnings for
2017 as compared to 2016 mainly due to the weakening of the Mexican and Argentinean pesos against the U.S. dollar.
Unless otherwise stated, all amounts discussed below are net of foreign currency fluctuations. Foreign currency fluctuations
can result in significant variances in the financial statement line items.
Business Growth. Latin America experienced growth across several lines of business within Chile, Mexico and Brazil.
This growth resulted in increased premiums and policy fee income which was partially offset by related changes in
policyholder benefits. Positive net flows, primarily from Mexico and Chile, resulted in an increase in average invested
assets and generated higher net investment income. This was partially offset by an increase in interest credited expense on
certain insurance liabilities. Business growth also drove an increase in adjusted expenses and commissions, which were
partially offset by higher DAC capitalization. The items discussed above resulted in an $86 million increase in adjusted
earnings.
Market Factors. Market factors, including interest rate levels and variability in equity market returns continued to
impact our results; however, certain impacts were mitigated by derivatives used to hedge these risks. Changes in market
factors resulted in a $19 million increase in adjusted earnings primarily due to higher investment yields. The increase in
investment yields was primarily driven by higher returns from FVO securities in Chile and mortgage loans in Mexico. These
increases were largely offset by higher interest credited expenses and lower yields on fixed income securities in Chile and
Argentina.
Underwriting, Actuarial Assumption Review and Other Insurance Adjustments. Unfavorable underwriting resulted in
a $37 million decrease to adjusted earnings driven by higher claims experience in Mexico. The impact in both 2017 and
2016 of our annual actuarial assumption review resulted in a slight decrease in adjusted earnings. In addition, refinements
to certain insurance liabilities, primarily in the ProVida pension business, and other adjustments in both 2017 and 2016
resulted in a $5 million increase to adjusted earnings.
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Expenses and Taxes. Higher expenses, primarily driven by employee-related and marketing costs, decreased adjusted
earnings by $48 million as compared to 2016. Our results for 2017 include a $9 million tax benefit related to the settlement
of a tax audit and a $4 million tax charge incurred as a result of tax reform legislation, both in Argentina. Our results for
2016 included a tax charge of $12 million as a result of tax reform legislation in Chile (including a charge of $10 million
that pertains to periods prior to 2016). Also, our results for 2016 included a tax charge of $11 million related to the 2015
filing of local tax returns in Mexico and Chile. Other tax-related items in both 2017 and 2016 resulted in a $6 million
decrease in adjusted earnings, primarily driven by a 2016 tax benefit due to inflation in Argentina.
Year Ended December 31, 2016 Compared with the Year Ended December 31, 2015
Unless otherwise stated, all amounts discussed below are net of income tax.
Foreign Currency. The impact of changes in foreign currency exchange rates decreased adjusted earnings by $81 million
for 2016 as compared to 2015 mainly due to the weakening of the Mexican and Argentinean pesos against the U.S. dollar.
Unless otherwise stated, all amounts discussed below are net of foreign currency fluctuations. Foreign currency fluctuations
can result in significant variances in the financial statement line items.
Business Growth. Latin America experienced business growth across several lines of business within Mexico, Chile
and Argentina. This business growth resulted in increased premiums and policy fee income which was partially offset by
the related changes in policyholder benefits. Positive net flows, primarily from Chile, Mexico and Argentina, resulted in
an increase in average invested assets and generated higher net investment income. This was partially offset by an increase
in interest credited expense on certain insurance liabilities. Business growth also drove an increase in adjusted expenses,
commissions and DAC amortization, which were partially offset by higher DAC capitalization. The items discussed above
resulted in a $59 million increase in adjusted earnings.
Market Factors. Changes in market factors resulted in a $17 million increase to adjusted earnings as higher investment
yields were partially offset by higher interest credited expense. An increase in investment yields was primarily driven by a
2016 change in the crediting rate on allocated equity in Mexico, Chile and Argentina, as well as higher yields from fixed
maturity securities in Mexico. These increases were partially offset by lower returns on fixed maturity securities, alternative
investments and mortgage loans in Chile.
Underwriting, Actuarial Assumption Review and Other Insurance Adjustments. Favorable underwriting resulted in a
$38 million increase in adjusted earnings driven by lower claims experience in Mexico and Chile. The impact of the annual
actuarial assumption review, which occurred in both 2016 and 2015, resulted in a net adjusted earnings increase of
$16 million. Refinements to certain insurance liabilities and other adjustments in both 2016 and 2015 resulted in a $26 million
decrease to adjusted earnings.
Taxes. Effective September 1, 2015, AFP ProVida was merged into MetLife Chile Acquisition Company resulting in
an income tax benefit of $60 million in 2015. In the first quarter of 2016, our Chilean businesses, including ProVida, incurred
a tax charge of $12 million as a result of tax reform legislation in Chile (including a charge of $10 million that pertains to
prior periods). In addition, other tax-related adjustments in both 2016 and 2015 resulted in a net decrease in adjusted earnings
of $20 million. These adjustments were mainly driven by tax charges related to the filing of local tax returns in Mexico and
Chile in 2016 and a tax benefit in 2015 due to the devaluation of the peso in Argentina, partially offset by a 2016 tax benefit
due to inflation in Argentina.
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EMEA
Business Overview. Sales increased in 2017 due to growth in Turkey, Egypt and several European markets, partially offset
by a decrease in sales due to the closing of the wealth management product to new business in the U.K. and the loss of a credit
life contract in Poland.
Adjusted revenues
Premiums
Universal life and investment-type product policy fees
Net investment income
Other revenues
Total adjusted revenues
Adjusted 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 adjusted expenses
Provision for income tax expense (benefit)
Adjusted earnings
Years Ended December 31,
2017
2016
2015
(In millions)
$
2,061
$
2,027
$
2,036
405
309
58
2,833
1,077
100
(414)
357
(19)
1,376
2,477
59
391
318
73
2,809
1,067
112
(403)
408
(13)
1,323
2,494
42
$
297
$
273
$
424
326
61
2,847
988
120
(472)
497
(16)
1,469
2,586
21
240
Year Ended December 31, 2017 Compared with the Year Ended December 31, 2016
Unless otherwise stated, all amounts discussed below are net of income tax.
Foreign Currency. Changes in foreign currency exchange rates reduced adjusted earnings by $12 million for 2017 as
compared to 2016, primarily driven by the strengthening of the U.S. dollar against the Egyptian pound and Turkish lira,
partially offset by the weakening of the U.S. dollar against the Russian ruble and the Euro. Unless otherwise stated, all
amounts discussed below are net of foreign currency fluctuations. Foreign currency fluctuations can result in significant
variances in the financial statement line items.
Business Growth. Growth from our accident & health and credit life businesses in Turkey and our employee benefits
business in the U.K., as well as growth across several European markets, partially offset by lower premium persistency in
our employee benefits business in the Gulf, increased adjusted earnings by $25 million.
Underwriting, Actuarial Assumption Review and Other Insurance Adjustments. Underwriting experience was
essentially unchanged as unfavorable underwriting, primarily in our credit life business in Turkey and across several
European markets, was offset by favorable underwriting in our accident & health business in Greece. The impact in both
2017 and 2016 of our annual actuarial assumption review resulted in an $8 million increase in net adjusted earnings.
Refinements to certain insurance liabilities and other adjustments in both 2017 and 2016 resulted in a $4 million decrease
in adjusted earnings.
Expenses. Adjusted earnings increased by $5 million primarily due to expense discipline across the region, as well as
enterprise-wide initiatives, notably the closing of the wealth management product to new business in the U.K., partially
offset by additional costs related to regulatory and compliance requirements.
Taxes and Other. Our 2017 results include an unfavorable revision to the estimate of the valuation allowance required
for a deferred tax asset in our non-life business of $5 million and an incremental tax expense in Russia of $2 million. This
was offset by lower effective tax rates, which resulted in a $7 million increase to adjusted earnings. In addition, a 2017
reinsurance profit share of $2 million was offset by a 2016 benefit of $3 million following the cancellation of a distribution
agreement with one of our bancassurance partners.
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Year Ended December 31, 2016 Compared with the Year Ended December 31, 2015
Unless otherwise stated, all amounts discussed below are net of income tax.
Foreign Currency. The impact of changes in foreign currency exchange rates reduced adjusted earnings by $16 million
for 2016 as compared to 2015, primarily driven by the strengthening of the U.S. dollar against the British pound, Turkish
lira, Egyptian pound and Polish zloty. Unless otherwise stated, all amounts discussed below are net of foreign currency
fluctuations. Foreign currency fluctuations can result in significant variances in the financial statement line items.
Business Growth. Adjusted earnings increased by $35 million as a result of business growth mainly in the employee
benefits business in the Middle East and the U.K.
Underwriting, Actuarial Assumption Review and Other Insurance Adjustments. Favorable underwriting, primarily in
our accident & health business in Greece, was largely offset by unfavorable underwriting, primarily in our employee benefits
business and resulted in an adjusted earnings increase of $2 million. The impact of the annual actuarial assumption review,
which occurred in both 2016 and 2015, resulted in a net adjusted earnings decrease of $22 million. Refinements to certain
insurance liabilities and other adjustments in 2016 resulted in a $4 million increase to adjusted earnings.
Expenses. Adjusted earnings increased by $43 million primarily due to expense discipline across the region and lower
allocated corporate overhead expenses.
Taxes and Other. The Company received tax benefits in both 2016 and 2015; however, since the 2015 benefit exceeded
the 2016 benefit, adjusted earnings decreased by $19 million. Adjusted earnings for 2015 were positively impacted by the
conversion to calendar year reporting for certain of our subsidiaries; however, this was offset by certain one-time items,
including re-branding and legal expenses. Our 2016 adjusted earnings benefited from the cancellation of a distribution
agreement with one of our bancassurance partners, which improved adjusted earnings by $3 million.
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MetLife Holdings
Business Overview. In connection with the Separation and the U.S. Retail Advisor Force Divestiture, we have discontinued
the marketing of life and annuity products in this segment, which has led to lower revenues. This will result in a declining
DAC asset over time and we anticipate an average decline in premiums, fees and other revenues of approximately 5% per
year from expected business run-off. A significant portion of our adjusted 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 increased due to equity market performance, partially offset
by the impact of negative net flows, as benefits, surrenders and withdrawals exceeded sales. 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, and we expect the related reserves to grow as this block matures.
Adjusted revenues
Premiums
Universal life and investment-type product policy fees
Net investment income
Other revenues
Total adjusted revenues
Adjusted 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 adjusted expenses
Provision for income tax expense (benefit)
Adjusted earnings
Years Ended December 31,
2017
2016
2015
(In millions)
$
4,144
$
4,506
$
1,361
5,607
244
11,356
7,000
1,018
(82)
302
24
1,365
9,627
547
$
1,182
$
1,436
5,944
581
12,467
7,523
1,042
(281)
736
57
2,392
11,469
292
706
$
4,545
1,482
6,189
930
13,146
7,346
1,062
(410)
577
55
2,694
11,324
582
1,240
Year Ended December 31, 2017 Compared with the Year Ended December 31, 2016
Unless otherwise stated, all amounts discussed below are net of income tax.
Business Growth. Lower net investment income, resulting from a reduced invested asset base, decreased adjusted
earnings. The reduced asset base is primarily the result of the 2016 recapture of certain assumed single-premium deferred
annuity reinsurance agreements with Brighthouse. This decline was partially offset by net asset growth in our long-term
care and life businesses. Consistent with this asset growth, interest credited on insurance liabilities increased. In our deferred
annuities business, negative net flows contributed to a decrease in average separate account balances, and consequently,
asset-based fee income. The discontinuance of a distribution agreement, resulting from the Separation, also contributed to
the decline in variable annuity fee income. In our life business, a decrease in universal life sales resulted in lower fee income,
net of DAC amortization, decreasing adjusted earnings. The combined impact of the items discussed above resulted in a
$314 million decrease in adjusted earnings.
Market Factors. Market factors, including interest rate levels, variability in equity market returns, and foreign currency
exchange rate fluctuations, continued to impact our results; however, certain impacts were mitigated by derivatives used to
hedge these risks. Investment yields decreased primarily due to declines in prepayment fees and derivative income, as well
as lower returns on real estate joint ventures. These reductions in yields were partially offset by higher returns on other
limited partnership interests, driven by improvements in equity market performance. In our deferred annuity business, higher
equity returns drove an increase in average separate account balances which resulted in higher asset-based fee income.
Adjusted earnings increased due to declines in DAC amortization. The changes in market factors discussed above resulted
in an $8 million increase in adjusted earnings.
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Underwriting, Actuarial Assumption Review and Other Insurance Adjustments. Unfavorable claims experience in our
long-term care business, partially offset by favorable mortality in our life business, resulted in a $20 million decrease in
adjusted earnings. The impact in both 2017 and 2016 of our annual actuarial assumption review resulted in an increase of
$156 million in adjusted earnings and was primarily related to favorable DAC unlockings in 2017 compared to unfavorable
DAC unlockings in 2016, primarily in our life business. Refinements to DAC and certain insurance-related liabilities that
were recorded in 2017 and 2016 resulted in a $196 million increase in adjusted earnings. This includes favorable 2017
refinements of (i) a $36 million DAC adjustment related to certain participating whole life business assumed from
Brighthouse; and (ii) a $55 million reserve adjustment resulting from modeling improvements in our life business reserving
process. This also includes a 2017 net unfavorable impact from a life reinsurance recapture and an unfavorable 2016
adjustment of $30 million resulting from modeling improvements in the reserving process in our universal life business.
Expenses. Adjusted earnings increased by $181 million as a result of lower expenses, primarily due to lower costs as
a result of the U.S. Retail Advisor Force Divestiture, partially offset by Separation-related expenses.
Other. Adjusted earnings increased by $267 million as a result of the Separation and continued annuities reinsurance
activity with Brighthouse. This favorable impact was primarily due to the recapture in 2016 of certain assumed single-
premium deferred annuity reinsurance agreements, and the elimination of interest credited payments on the related
reinsurance payable, as well as lower DAC amortization. This increase was partially offset by the net unfavorable impact
in 2017 from the recapture and novation of, as well as refinements to, assumed and ceded agreements covering certain
variable annuity business. Favorable results from our reinsurance agreement with our former operating joint venture in
Japan due to higher fund returns resulted in a $13 million increase in adjusted earnings.
Year Ended December 31, 2016 Compared with the Year Ended December 31, 2015
Unless otherwise stated, all amounts discussed below are net of income tax.
Business Growth. Net investment income increased slightly resulting from a larger invested asset base. Net asset growth
in our life, annuities and long-term care businesses was largely offset by negative net flows as a result of the recapture of
two assumed single-premium deferred annuity reinsurance agreements with Brighthouse, which decreased our invested
asset base. Consistent with the aforementioned asset growth, interest credited on insurance liabilities also increased. Lower
universal life sales resulted in lower fee income. Additionally, adjusted earnings increased since the adjusted loss from
broker-dealer operations was included in the U.S. Retail Advisor Force Divestiture; this also resulted in declines in both
revenues and expenses. The combined impact of the items discussed above resulted in a $7 million decrease in adjusted
earnings.
Market Factors. Market factors, including low interest rates, volatile equity markets, and foreign currency exchange
rate fluctuations, continued to impact our investment yields; however, certain impacts were mitigated by derivatives used
to hedge these risks. Investment yields decreased on our fixed maturity securities as proceeds from maturing investments
and the growth in the investment portfolio were invested at lower yields than the portfolio average. We also had lower
income on derivatives and alternative investments. These decreases in net investment income were partially offset by higher
returns on private equities. In our deferred annuity business, lower equity returns in 2015 drove a decline in average separate
account balances which resulted in a decrease in asset-based fee income in 2016 relative to 2015. This decrease was partially
offset by lower average interest crediting rates and declines in DAC amortization. The changes in market factors discussed
above resulted in a $179 million decrease in adjusted earnings.
Underwriting, Actuarial Assumption Review and Other Insurance Adjustments. Unfavorable mortality, primarily in our
universal life business, and unfavorable claim experience in our long-term care business resulted in a $58 million decrease
in adjusted earnings. The impact of our annual actuarial assumption review, which occurred in both 2016 and 2015, resulted
in a net adjusted earnings decrease of $34 million and was primarily related to unfavorable DAC unlockings. Refinements
to DAC and certain insurance-related liabilities that were recorded in both 2016 and 2015, including a 2016 reserve adjustment
resulting from modeling improvements in the reserving process in our universal life business, resulted in a $165 million
decrease in adjusted earnings.
Expenses. Adjusted earnings increased by $78 million as a result of lower expenses, primarily due to lower costs as a
result of the U.S. Retail Advisor Force Divestiture.
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Other. Annuities reinsurance activity with Brighthouse decreased adjusted earnings by $160 million. This was primarily
due to the aforementioned recapture of certain assumed single-premium deferred annuity reinsurance agreements that
resulted in unfavorable recapture settlements and an increase in the related DAC amortization, partially offset by lower
interest credited on the related reinsurance payables. The impact of the lower interest credited was largely offset by the
lower net investment income earned on the assets transferred in connection with the recapture. Unfavorable results from
our reinsurance agreement with our former operating joint venture in Japan resulted in a $14 million decrease in adjusted
earnings.
Corporate & Other
Adjusted revenues
Premiums
Universal life and investment-type product policy fees
$
Net investment income
Other revenues
Total adjusted revenues
Adjusted 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 adjusted expenses
Provision for income tax expense (benefit)
Adjusted earnings
Less: Preferred stock dividends
Adjusted earnings available to common shareholders
$
Years Ended December 31,
2017
2016
2015
(In millions)
$
54
1
28
271
354
26
1
(8)
6
1,105
894
2,024
(688)
(982)
103
(1,085) $
$
40
2
178
110
330
41
6
(7)
8
1,139
597
1,784
(948)
(506)
103
(609) $
(92)
(4)
260
69
233
(114)
23
(3)
(1)
1,169
935
2,009
(366)
(1,410)
116
(1,526)
The table below presents adjusted 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
Corporate initiatives and projects
Incremental tax benefit (expense) and other tax-related items
Other
Adjusted earnings available to common shareholders
Years Ended December 31,
2017
2016
2015
(In millions)
$
$
18
$
144
(779)
(103)
(179)
61
(247)
(1,085) $
(5) $
220
(814)
(103)
(129)
438
(216)
(609) $
(41)
291
(843)
(116)
(169)
(256)
(392)
(1,526)
Year Ended December 31, 2017 Compared with the Year Ended December 31, 2016
Unless otherwise stated, all amounts discussed below are net of income tax.
Other Business Activities. Adjusted earnings from other business activities increased $23 million. This was primarily
due to growth and improved results from our start-up operations predominantly from our investment management business.
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Other Net Investment Income. Other net investment income decreased by $76 million primarily driven by a lower
invested asset base and lower returns on alternative investments (excluding the impact of U.S. Tax Reform) and real estate
joint ventures. These decreases were partially offset by a decrease in the amount credited to the segments due to both a
reduction in the crediting rate and the amount of economic capital managed by Corporate & Other on their behalf.
Interest Expense on Debt. Interest expense on debt decreased by $35 million, mainly due to the maturity of $1.3 billion
of our senior notes in June 2016.
Corporate Initiatives and Projects. Expenses associated with corporate initiatives and projects increased by $50 million,
primarily due to higher costs associated with enterprise-wide initiatives, primarily related to lease impairments and costs
related to our unit cost initiative.
Incremental Tax Benefit and Other Tax-Related Items. Corporate & Other benefits from the impact of certain permanent
tax preferenced items, 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%. In 2017, we had a $180 million net tax charge
related to the repatriation of approximately $3.0 billion of cash following the post-Separation review of our capital needs,
partially offset by a tax benefit associated with dividends from our non-U.S. operations and a $41 million tax benefit from
the finalization of certain tax audits. Results for 2016 include a $46 million tax benefit related to the finalization of certain
tax audits. In addition, higher utilization of tax preferenced items increased adjusted earnings by $106 million over 2016.
U.S. Tax Reform resulted in a $298 million charge in 2017, which includes a $44 million reduction in net investment
income and a $254 million tax charge.
Other. Adjusted earnings decreased from 2016 as a result of a $32 million increase in asbestos and litigation reserves,
a $25 million increase in employee-related expenses, $18 million of expenses incurred in 2017 related to the guaranty fund
assessment for Penn Treaty, and a $13 million increase in expenses for interest on uncertain tax positions. These decreases
in adjusted earnings were partially offset by a $31 million decrease in certain corporate expenses and $26 million of favorable
net adjustments to certain reinsurance assets and liabilities in both 2017 and 2016.
Year Ended December 31, 2016 Compared with the Year Ended December 31, 2015
Unless otherwise stated, all amounts discussed below are net of income tax.
Other Business Activities. Adjusted earnings from other business activities increased $36 million. This was primarily
related to improved results from our start-up operations.
Other Net Investment Income. A $71 million decrease in other net investment income was primarily driven by lower
returns on fixed maturity securities as a result of the low interest rate environment and a decrease in average total portfolio
holdings, primarily driven by a capital contribution to Brighthouse Life Insurance Company (formerly MetLife Insurance
Company USA) (“Brighthouse Insurance”). Additionally, lower returns on real estate, real estate joint ventures and private
equities decreased other net investment income.
Interest Expense on Debt. The maturity of $1.0 billion of senior notes in June 2015 and $1.3 billion of senior notes in
June 2016 and the maturity of other long-term debt in 2015 and 2016, partially offset by the issuance of $1.5 billion of
senior notes in March 2015 and $1.3 billion of senior notes in November 2015 and higher interest on floating rate debt
resulted in a net decrease to interest expense on debt of $29 million.
Preferred Stock Dividends. Preferred stock dividends decreased by $13 million. In June 2015, MetLife, Inc. repurchased
its 6.50% Non-Cumulative Preferred Stock, Series B (the “Series B preferred stock”) on which dividends had been paid
quarterly. Also in June 2015, MetLife, Inc. issued 1,500,000 shares of its 5.25% Fixed-to-Floating Rate Non-Cumulative
Preferred Stock, Series C (the “Series C preferred stock”) on which dividends are payable semi-annually until June 15,
2020, and are payable quarterly thereafter.
Corporate Initiatives and Projects. Expenses associated with corporate initiatives and projects decreased by $40 million,
primarily due to lower costs associated with enterprise-wide initiatives taken by the Company.
Incremental Tax Benefit and Other Tax-Related Items. Corporate & Other benefits from the impact of certain permanent
tax preferenced items, 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%. In 2016, we had higher utilization of tax preferenced
investments, which increased our adjusted earnings by $69 million over 2015. In addition, our results for 2016 include a
tax benefit of $46 million for the finalization of certain tax audits and $22 million related to an investment tax credit. Our
2015 results included the aforementioned tax charge of $557 million, which was recorded under accounting guidance for
the recognition of tax uncertainties.
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Other. Our 2015 results include the aforementioned $235 million charge for interest on uncertain tax positions. In 2016,
adjusted earnings decreased by $23 million due to an increase in litigation reserves and $9 million as a result of net adjustments
to certain reinsurance assets and liabilities. In addition, adjusted earnings decreased $27 million due to higher employee-
related costs, including those related to the Separation. An impairment charge on a real estate property in 2015, partially
offset by higher real estate costs in 2016, increased adjusted earnings by $10 million.
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.
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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 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;
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 and equity market levels. 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 borrowers and their tenants and joint venture partners, capital markets volatility and inherent interest
rate movements.
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, market and liquidity risk through industry and issuer diversification
and asset allocation. These risk limits, approved annually by a committee of directors that oversees our investment portfolio,
promote diversification by asset sector, avoid concentrations in any single issuer and limit overall aggregate credit and equity
risk exposure, as measured by our economic capital framework. For real estate assets, we manage credit and market risk through
asset allocation and by diversifying by geography, property and product type. 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 reflects 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 market valuation risk.
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.
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We 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 determines that a credit event has occurred.
Current Environment
As a global insurance company, we continue to be impacted by the changing global financial and economic environment,
as well as the monetary policy of central banks around the world. See “— Industry Trends — Financial and Economic
Environment.” Measures taken by central banks, including with respect to the level of interest rates, may have an impact on the
pricing levels of risk-bearing investments and may adversely impact our business operations, investment portfolio and derivatives.
The current environment continues 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 “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.”
European Investments
We maintain general account investments in Europe to support our insurance operations and related policyholder liabilities
in these countries and certain of our non-European operations invest in Europe for diversification. In Europe, 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, including the U.K., Germany, France, the Netherlands, Poland, Norway and Sweden.
The sovereign and agency debt of these countries continues to maintain investment grade credit ratings from all major rating
agencies. European sovereign and agency fixed maturity securities, at estimated fair value, were $8.6 billion at December 31,
2017. Our European 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 $19.3 billion, or
66%, of European total corporate securities, at estimated fair value, at December 31, 2017. Of these European fixed maturity
securities, 94% were investment grade and, for the 6% that were below investment grade, the majority were non-financial
services corporate securities at December 31, 2017. European financial services corporate securities, at estimated fair value,
were $9.8 billion (including $6.4 billion within the banking sector) with 99% investment grade, at December 31, 2017. Total
European fixed maturity securities, at estimated fair value, were $38.2 billion at December 31, 2017, including $417 million
of structured securities.
Selected Country Investments
We have country specific exposure to volatility, as we maintain general account investments in the selected countries as
summarized below to support our insurance operations and related policyholder liabilities in these countries and we also have
exposure through our global portfolio diversification.
The following table presents a summary of fixed maturity securities in these countries. The information below is presented
on a country of risk basis (e.g. the country where the issuer primarily conducts business). Sovereign includes government and
agency.
United Kingdom
South Korea
Mexico
Total
Investment grade %
__________________
Selected Country Fixed Maturity Securities at December 31, 2017
Sovereign
Financial
Services
Non-
Financial
Services
Structured
Total (1)
$
27
6,458
3,520
$ 10,005
(Dollars in millions)
$ 8,117
$
375
2,219
$ 10,711
$
$ 3,117
14
580
$ 3,711
99%
99%
94%
310
103
78
491
90%
$ 11,571
6,950
6,397
$ 24,918
97%
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(1)
The par value and amortized cost were $23.9 billion and $23.7 billion, respectively, at December 31, 2017.
We manage direct and indirect investment exposure in the selected countries 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 will have a material adverse effect on our results of operations or financial condition.
Investment Portfolio Results
The following yield table presents the yield and net investment income, as reported on an adjusted basis, for our investment
portfolio for the periods indicated. We calculate yields using reported net investment income, as reported on an adjusted basis.
Net investment income, as reported on an adjusted basis, includes the impact of changes in foreign currency exchange rates.
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.
Fixed maturity securities (2) (3)
Mortgage loans (3)
Real estate and real estate joint ventures
Policy loans
Equity securities
Other limited partnership interests
Cash and short-term investments
Other invested assets
Investment income
Investment fees and expenses
Net investment income including divested businesses and
lag elimination (4)
Less: net investment income from divested businesses
and lag elimination (4)
Net investment income, as reported on an adjusted basis
__________________
For the Years Ended December 31,
2017
2016
2015
Yield% (1)
Amount
Yield% (1)
Amount
Yield% (1)
Amount
4.29 % $
11,401
4.38 % $
11,665
4.62 % $
11,788
(Dollars in millions)
4.58 %
3.18 %
5.39 %
5.15 %
14.93 %
1.48 %
3,081
297
517
129
797
132
655
4.61 %
3.73 %
5.29 %
4.82 %
9.23 %
1.17 %
2,858
322
511
120
478
111
856
4.89 %
4.28 %
5.30 %
4.79 %
9.32 %
1.17 %
2,772
395
525
124
535
125
767
4.53 %
17,009
4.58 %
16,921
4.79 %
17,031
(0.14)
(511)
(0.14)
(507)
(0.15)
(548)
4.39 %
16,498
4.44 %
16,414
4.64 %
16,483
(46)
$
16,544
(23)
$
16,437
(188)
$
16,671
(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. Asset carrying values exclude unrealized gains (losses), collateral received in
connection with our securities lending program, annuities funding structured settlement claims, 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”), contractholder-directed unit-linked
investments and FVO Brighthouse Common Stock. 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 from fixed maturity securities includes amounts from FVO securities of $68 million, $37 million and
$21 million for the years ended December 31, 2017, 2016 and 2015, respectively.
Investment income from fixed maturity securities and mortgage loans includes prepayment fees.
See Note 2 of the Notes to the Consolidated Financial Statements for further information, as well as the presentation of
net investment income, as reported on an adjusted basis compared to the most directly comparable GAAP financial
measure. See “— Non-GAAP and Other Financial Disclosures” for discussion of divested businesses and lag elimination.
See “— Results of Operations — Consolidated Results — Year Ended December 31, 2017 Compared with the Year Ended
December 31, 2016” and “— Results of Operations — Consolidated Results —Year Ended December 31, 2016 Compared
with the Year Ended December 31, 2015,” for an analysis of the year over year changes in net investment income.
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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, 2017
December 31, 2016
Estimated Fair
Value
% of
Total
Estimated Fair
Value
% of
Total
(Dollars in millions)
$
$
$
$
$
$
262,078
46,853
84.8 % $
15.2
247,229
42,334
85.4 %
14.6
308,931
100.0 % $
289,563
100.0 %
67.6%
1,490
1,023
2,513
0.6%
440
884
59.3 % $
40.7
100.0 % $
$
$
66.8%
1,854
1,040
2,894
0.7%
527
758
64.1 %
35.9
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 a broad array of securities, limited partnership interests
and liquid investments on behalf of institutional clients, which are unaffiliated investors. Assets under management, by sector,
as of December 31, 2017, at estimated fair value, were as follows: investment grade corporate fixed maturity securities, including
privately-placed, infrastructure and state and political subdivision, $66.6 billion; structured finance fixed maturity securities,
including residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities (“CMBS”) and asset-
backed securities (“ABS”) (collectively, “Structured Securities”), $15.8 billion; U.S. government and agency fixed maturity
securities, $21.7 billion; foreign government fixed maturity securities, $2.1 billion; below investment grade corporate fixed
maturity securities, including emerging market and high yield, $7.7 billion; equity securities, $0.3 billion; other limited partnership
interests, $1.7 billion; and cash equivalents and short-term investments, $3.0 billion. Assets under management, by sector, as of
December 31, 2016, at estimated fair value, were as follows: investment grade corporate fixed maturity securities, including
privately-placed and infrastructure, $7.9 billion; and below investment grade corporate fixed maturity securities, including high
yield, $0.4 billion. As these assets are managed on behalf of, and owned by, our institutional clients, they are not included in
our consolidated financial statements.
In connection with both our general account business and our investment management business as described above, we
manage a large portfolio of fixed maturity and equity securities, short-term investments and cash and cash equivalents, which
includes privately-placed securities. The estimated fair value of privately-placed and certain public securities managed by our
Private Placement Unit for both our general account and our institutional clients was $66.1 billion at December 31, 2017,
including $16.5 billion of infrastructure debt. The portion of such securities managed for our general account and included in
our consolidated financial statements was $43.9 billion, at estimated fair value at December 31, 2017.
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In connection with our investment management business, we manage index investment portfolios that track the return of
industry fixed income and equity market indices such as the Bloomberg Barclays U.S. Aggregate Bond Index and S&P 500® Index.
These assets had an estimated fair value of $28.5 billion and $27.2 billion at December 31, 2017 and 2016 respectively. Index
investment portfolios included within separate account assets in our consolidated financial statements were $14.9 billion at both
December 31, 2017 and 2016. Index investment portfolios managed on behalf of our institutional clients were $13.6 billion at
December 31, 2017 and are not included in our consolidated financial statements. Index investment portfolios managed on behalf
of our institutional clients, by sector, as of December 31, 2017, at estimated fair value, were as follows: investment grade
corporate fixed maturity securities and state and political subdivision securities, $794 million; structured securities, $828 million;
U.S. government and agency fixed maturity securities, $1.1 billion; equity securities, $10.4 billion; and cash equivalents and
short-term investments, $517 million. Index investment portfolios of $12.3 billion at December 31, 2016 were included within
assets of disposed subsidiary on 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 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, 2017.
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.
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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, 2017
Fixed Maturity
Securities
Equity
Securities
(Dollars in millions)
Level 1
Quoted prices in active markets for identical assets
$
26,052
8.4% $
1,104
44.0%
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
263,815
2,795
266,610
11,526
4,271
472
16,269
308,931
$
85.4
0.9
86.3
3.7
1.4
0.2
5.3
885
96
981
299
128
1
428
35.2
3.8
39.0
11.9
5.1
—
17.0
100.0% $
2,513
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, 2017 are
as follows:
•
•
•
The majority of the Level 3 fixed maturity and equity securities AFS were concentrated in three sectors: U.S. and
foreign corporate securities and RMBS.
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) and less liquid ABS.
During the year ended December 31, 2017, Level 3 fixed maturity securities decreased by $782 million, or 5%. The
decrease was driven by transfers out of Level 3 in excess of transfers into Level 3, partially offset by purchases in
excess of sales and an increase in estimated fair value recognized in OCI.
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.
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.
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Fixed Maturity Securities Credit Quality — Ratings
The Securities Valuation Office of the 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 NRSRO 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, S&P, Fitch, Dominion Bond Rating Service,
A.M. Best, Kroll Bond Rating Agency, Egan Jones Ratings Company and Morningstar Credit Ratings, LLC (“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, 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. NAIC designations may not correspond to NRSRO
ratings.
The following table presents total fixed maturity securities by NRSRO rating and the applicable NAIC designation from
the NAIC published comparison of NRSRO ratings to NAIC designations, 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 NAIC designation is comprised of at:
2017
2016
December 31,
NAIC
Designation
NRSRO Rating
Amortized
Cost
Unrealized
Gain (Loss)
Estimated
Fair
Value
% of
Total
Amortized
Cost
Unrealized
Gain (Loss)
(Dollars in millions)
Estimated
Fair
Value
% of
Total
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
$ 201,806
$
17,024
$ 218,830
70.8 % $ 191,867
$
14,078
$ 205,945
71.1 %
67,270
5,126
72,396
23.4
62,526
3,294
65,820
22.7
22,150
291,226
94.2
17,372
271,765
93.8
269,076
11,155
5,004
824
10
556
151
9
(4)
11,711
5,155
833
6
3.8
1.7
0.3
—
5.8
254,393
11,729
4,710
840
4
427
78
13
(3)
12,156
4,788
853
1
4.2
1.7
0.3
—
6.2
16,993
712
17,705
17,283
515
17,798
$ 286,069
$
22,862
$ 308,931
100.0 % $ 271,676
$
17,887
$ 289,563
100.0 %
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Table of Contents
The following tables present total fixed maturity securities, based on estimated fair value, by sector classification and by
NRSRO rating and the applicable NAIC designations from the NAIC published comparison of NRSRO ratings to NAIC
designations, except for certain Structured Securities, which are presented using the revised NAIC methodologies as described
above:
NAIC Designation:
1
2
NRSRO Rating:
Aaa/Aa/A
Baa
3
Ba
4
B
5
6
Caa and
Lower
In or Near
Default
Total
Estimated
Fair Value
(Dollars in millions)
Fixed Maturity Securities — by Sector & Credit Quality Rating
December 31, 2017
U.S. corporate
Foreign government
Foreign corporate
U.S. government and agency
RMBS
State and political subdivision
ABS
CMBS
$
37,305
$ 35,096
$ 6,153
$ 3,387
$
717
$
53,027
21,925
47,067
28,209
11,921
11,311
8,065
5,135
30,214
327
297
454
760
113
2,376
2,616
—
224
78
215
49
947
759
—
61
—
1
—
49
55
—
9
—
3
—
Total fixed maturity securities
$ 218,830
$ 72,396
$ 11,711
$ 5,155
$
833
$
3
—
—
—
—
2
1
—
6
$
82,661
61,534
55,569
47,394
28,800
12,455
12,291
8,227
$ 308,931
Percentage of total
December 31, 2016
U.S. corporate
Foreign government
Foreign corporate
U.S. government and agency
RMBS
State and political subdivision
ABS
CMBS
70.8%
23.4%
3.8%
1.7%
0.3%
—%
100.0%
$
34,753
$ 32,823
$ 6,949
$ 3,289
$
729
$
— $
78,543
48,371
21,033
44,118
28,252
11,670
10,433
7,315
4,578
26,292
315
504
470
693
145
2,144
2,638
—
244
87
94
—
830
638
—
30
—
1
—
53
62
—
2
4
3
—
853
$
—
—
—
—
—
1
—
1
55,976
50,663
44,433
29,032
12,231
11,225
7,460
$ 289,563
Total fixed maturity securities
$ 205,945
$ 65,820
$ 12,156
$ 4,788
$
Percentage of total
71.1%
22.7%
4.2%
1.7%
0.3%
—%
100.0%
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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 10 holdings comprised 1% and
2% of total investments at December 31, 2017 and 2016, respectively. The tables below present our U.S. and foreign corporate
securities holdings by industry at:
Industrial
Consumer
Finance
Utility
Communications
Other
Total
Structured Securities
December 31,
2017
2016
Estimated
Fair
Value
% of
Total
Estimated
Fair
Value
% of
Total
$
42,273
31,419
29,884
21,773
11,072
1,809
(Dollars in millions)
30.6% $
22.7
21.6
15.8
8.0
1.3
39,320
29,783
27,787
19,931
10,635
1,750
30.4%
23.1
21.5
15.4
8.2
1.4
$
138,230
100.0% $
129,206
100.0%
We held $49.3 billion and $47.7 billion of Structured Securities, at estimated fair value, at December 31, 2017 and 2016,
respectively, as presented in the RMBS, ABS and CMBS sections below.
RMBS
The table below presents our RMBS holdings at:
Estimated
Fair
Value
2017
% of
Total
December 31,
Net
Unrealized
Gains (Losses)
Estimated
Fair
Value
(Dollars in millions)
2016
% of
Total
Net
Unrealized
Gains (Losses)
$
$
$
$
$
$
15,388
13,412
28,800
53.4% $
913
$
46.6
41
100.0% $
954
$
16,842
12,190
29,032
58.0% $
42.0
100.0% $
20,010
69.5% $
274
$
18,808
64.8% $
1,209
4,182
3,399
4.2
14.5
11.8
28,800
100.0% $
20,465
28,209
71.1%
97.9%
73
372
235
954
$
$
$
1,398
4,964
3,862
4.8
17.1
13.3
29,032
100.0% $
19,207
28,252
66.2%
97.3%
575
64
639
268
65
160
146
639
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
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.
143
Table of Contents
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, 2017 and 2016. 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 is 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 focusing primarily on senior tranche
securities, stress testing the portfolio with severe loss assumptions and closely monitoring the performance of the portfolio.
Our sub-prime RMBS portfolio consists predominantly of securities that were purchased after 2012 at significant discounts
to par value and discounts to the expected principal recovery value of these securities. The vast majority of these securities
are investment grade under the NAIC designations (e.g., NAIC 1 and NAIC 2). The estimated fair value of our sub-prime
RMBS holdings purchased since 2012 was $3.1 billion and $3.5 billion at December 31, 2017 and 2016, respectively, with
unrealized gains (losses) of $200 million and $123 million at December 31, 2017 and 2016, respectively.
ABS
Our ABS holdings are diversified both by collateral type and by issuer. The following table presents our ABS holdings
at:
Estimated
Fair
Value
2017
% of
Total
December 31,
Net
Unrealized
Gains (Losses)
Estimated
Fair
Value
(Dollars in millions)
2016
% of
Total
Net
Unrealized
Gains (Losses)
45
1
(1)
—
20
6
7
78
$
5,711
50.9% $
871
984
1,121
1,171
509
858
7.8
8.7
10.0
10.4
4.5
7.7
(42)
10
(25)
1
8
—
7
$
$
$
11,225
100.0% $
(41)
5,704
10,433
50.8%
92.9%
By collateral type:
Collateralized debt obligations
$
Credit card loans
Student loans
Automobile loans
Foreign residential loans
Consumer loans
Other loans
Total
Ratings profile:
Rated Aaa/AAA
Designated NAIC 1
5,703
1,686
1,266
1,193
965
605
873
46.4% $
13.7
10.3
9.7
7.9
4.9
7.1
$
$
$
12,291
100.0% $
7,108
11,311
57.8%
92.0%
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Table of Contents
CMBS
Our CMBS holdings are diversified by vintage year. The following tables present our CMBS holdings by NRSRO rating
and by vintage year at:
Aaa
Aa
A
Baa
Below
Investment
Grade
Total
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
December 31, 2017
2003 - 2010
$
2011
2012
2013
2014
2015
2016
2017
Total
Ratings
Distribution
(Dollars in millions)
$
$
$
116
170
289
787
537
124
184
302
835
552
1,122
1,140
401
898
404
899
$
$
4
34
257
717
513
191
69
685
5
35
263
748
522
196
68
687
$
22
—
230
285
129
117
40
246
23
—
237
292
130
120
40
246
$
15
—
7
60
—
—
65
41
15
—
7
45
—
—
66
42
$
— $
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
157
204
783
1,849
1,179
1,430
575
1,870
$
167
219
809
1,920
1,204
1,456
578
1,874
$
4,320
$ 4,440
$
2,470
$ 2,524
$
1,069
$ 1,088
$
188
$
175
$
— $
— $
8,047
$ 8,227
54.0%
30.7%
13.2%
2.1%
—%
100.0%
Aaa
Aa
A
Baa
Below
Investment
Grade
Total
December 31, 2016
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 - 2010
$
2011
2012
2013
2014
2015
2016
$
246
185
292
844
655
1,322
516
$
258
207
308
899
667
1,326
514
$
46
41
262
699
617
222
77
46
43
271
743
626
214
75
$
102
$
—
228
339
212
165
30
(Dollars in millions)
$
104
—
236
327
204
164
31
Total
$
4,060
$ 4,179
$
1,964
$ 2,018
$
1,076
$ 1,066
$
$
24
—
6
—
—
8
24
—
6
—
—
9
130
168
$
130
169
$
$
26
—
—
—
—
—
—
26
$
$
28
—
—
—
—
—
—
28
$
444
226
788
1,882
1,484
1,717
753
$
460
250
821
1,969
1,497
1,713
750
$
7,294
$ 7,460
Ratings
Distribution
56.0%
27.1%
14.3%
2.2%
0.4%
100.0%
The tables above reflect NRSRO ratings including Moody’s, S&P, Fitch and Morningstar. CMBS designated NAIC 1
were 98.0% and 98.1% of total CMBS at December 31, 2017 and 2016, 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.
Fixed Maturity and Equity Security OTTI Losses Recognized in Earnings
Credit-related impairments of fixed maturity securities were $10 million, $97 million and $59 million for the years ended
December 31, 2017, 2016 and 2015, respectively.
Explanations of changes in fixed maturity and equity securities impairments are as follows:
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Table of Contents
Year Ended December 31, 2017 Compared with the Year Ended December 31, 2016
Overall OTTI losses recognized in earnings on fixed maturity and equity securities were $35 million for the year ended
December 31, 2017, as compared to $182 million for the year ended December 31, 2016. The most significant decrease in
OTTI losses was in U.S. and foreign corporate securities and common stock, which comprised $28 million for the year
ended December 31, 2017, as compared to $162 million for the year ended December 31, 2016. A decrease of $134 million
in OTTI losses on U.S. and foreign corporate securities and common stock was concentrated in industrial securities and
was the result of lower oil prices impacting the energy sector in 2016.
Year Ended December 31, 2016 Compared with the Year Ended December 31, 2015
Overall OTTI losses recognized in earnings on fixed maturity and equity securities were $182 million for the year
ended December 31, 2016, as compared to $96 million for the year ended December 31, 2015. The most significant increase
in OTTI losses was in U.S. and foreign corporate securities and common stock, which comprised $162 million for the year
ended December 31, 2016, as compared to $73 million for the year ended December 31, 2015. An increase of $89 million
in OTTI losses on U.S. and foreign corporate securities and common stock was concentrated in industrial securities and
was the result of lower oil prices impacting the energy sector in 2016.
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 Securities
FVO securities were $16.7 billion and $13.9 billion at estimated fair value, or 3.7% and 3.2% of cash and invested assets,
at December 31, 2017 and 2016, respectively. FVO securities are primarily comprised of contractholder-directed investments
supporting unit-linked variable annuity type liabilities which do not qualify as separate accounts. See Notes 8 and 10 of the
Notes to the Consolidated Financial Statements for a description of our FVO securities portfolio, the FVO securities fair value
hierarchy and a rollforward of the fair value measurements for FVO 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 on 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.
Repurchase Agreements
The Company participates in short-term repurchase agreements with unaffiliated financial institutions. Under these
agreements, the Company lends fixed maturity securities and receives cash as collateral in an amount generally equal to 85%
to 100% of the estimated fair value of the securities loaned at the inception of the transaction. The associated liability is recorded
at the amount of cash received. The Company monitors the estimated fair value of the collateral and the securities loaned
throughout the duration of the transaction and additional collateral is obtained as necessary. Securities loaned under such
transactions may be sold or re-pledged by the transferee.
See Note 8 of the Notes to the Consolidated Financial Statements for information regarding our repurchase agreement
transactions.
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Table of Contents
FHLB Boston Advance Agreements
A subsidiary of the Company participates in short-term advance agreements with the Federal Home Loan Bank of Boston
(“FHLB Boston”). Under these agreements, such subsidiary pledges fixed maturity securities as collateral and receives cash.
The associated liability is recorded at the amount of cash received. FHLB Boston has minimum collateral requirements which
vary depending on the type of collateral pledged. Securities pledged as collateral under such transactions may not be sold or re-
pledged by the transferee.
See Note 8 of the Notes to the Consolidated Financial Statements for information regarding our FHLB Boston advance
agreements.
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:
2017
2016
December 31,
Recorded
Investment
% of
Total
Valuation
Allowance
% of
Recorded
Investment
Recorded
Investment
% of
Total
Valuation
Allowance
% of
Recorded
Investment
(Dollars in millions)
Commercial
Agricultural
Residential
Total
$
$
44,375
13,014
11,136
68,525
64.8% $
19.0
16.2
100.0% $
214
41
59
314
0.5% $
0.3%
0.5%
0.5% $
41,512
12,564
10,829
64,905
64.0% $
19.4
16.6
100.0% $
202
39
63
304
0.5%
0.3%
0.6%
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. The carrying value of all mortgage loans, net of
valuation allowance was 15.0% of cash and invested assets at both December 31, 2017 and 2016.
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, 82% are collateralized by properties located in the United States,
with the remaining 18% collateralized by properties located outside the United States, which includes 7% of properties located
in the U.K., at December 31, 2017. The carrying values of our commercial and agricultural mortgage loans located in California,
New York and Texas were 19%, 11% and 7%, respectively, of total commercial and agricultural mortgage loans at December 31,
2017. 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 90%
collateralized by properties located in the United States, and the remaining 10% collateralized by properties located outside the
United States, at December 31, 2017. The carrying values of our residential mortgage loans located in California, Florida, and
New York were 31%, 9%, and 6%, respectively, of total residential mortgage loans at December 31, 2017.
In connection with our investment management business, we manage commercial, agricultural and residential mortgage
loans on behalf of institutional clients, which are unaffiliated investors. These commercial, agricultural and residential mortgage
loans had an estimated fair value of $14.7 billion and $3.0 billion at December 31, 2017 and 2016, respectively. As these assets
are managed on behalf of, and owned by, our institutional clients, they are not included in our consolidated financial statements.
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Table of Contents
Commercial Mortgage Loans by Geographic Region and Property Type. Commercial mortgage loans are the largest
component of the mortgage loan invested asset class. The tables below present the diversification across geographic regions and
property types of commercial mortgage loans at:
Region
Pacific
International
Middle Atlantic
South Atlantic
West South Central
East North Central
Mountain
New England
East South Central
West North 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,
2017
2016
Amount
% of
Total
Amount
% of
Total
(Dollars in millions)
22.3% $
20.5
16.3
12.0
8.6
6.0
2.7
2.0
1.9
1.1
6.6
100.0%
$
9,506
7,772
7,263
5,192
3,585
2,037
1,202
1,199
410
497
2,849
41,512
202
41,310
9,875
9,101
7,231
5,311
3,819
2,683
1,188
901
840
477
2,949
44,375
214
44,161
22.9%
18.7
17.5
12.5
8.6
4.9
2.9
2.9
1.0
1.2
6.9
100.0%
22,602
50.9% $
20,868
50.3%
8,032
6,113
3,620
3,125
883
44,375
214
44,161
18.1
13.8
8.2
7.0
2.0
100.0%
$
8,708
5,240
3,747
2,659
290
41,512
202
41,310
21.0
12.6
9.0
6.4
0.7
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.
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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 54% and 53% at December 31,
2017 and 2016, respectively, and our average debt service coverage ratio was 2.7x at both December 31, 2017 and 2016. 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 44% and 43% at December 31, 2017 and 2016, respectively. The values utilized in calculating 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,
2017, 2016 and 2015.
Real Estate and Real Estate Joint Ventures
Real estate and real estate joint ventures is comprised of wholly-owned real estate and joint ventures with interests in single
property income-producing real estate, and to a lesser extent 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 a runoff
portfolio of real estate private equity funds. The carrying values of real estate and real estate joint ventures was $9.6 billion and
$8.9 billion, or 2.1% and 2.1% of cash and invested assets, including properties acquired through foreclosure of $48 million and
$59 million, at December 31, 2017 and 2016, respectively. The estimated fair value of our real estate investments was $14.9 billion
and $14.0 billion at December 31, 2017 and 2016, respectively. The total gross market value of such real estate investments was
$19.1 billion and $18.7 billion at December 31, 2017 and 2016, respectively. Gross market value is the total estimated fair value
of these investments regardless of encumbering debt.
Impairments recognized on real estate and real estate joint ventures were $13 million, less than $1 million and $92 million
for the years ended December 31, 2017, 2016 and 2015, respectively. Depreciation expense on real estate investments was
$103 million, $92 million and $157 million for the years ended December 31, 2017, 2016 and 2015, respectively. Real estate
investments were net of accumulated depreciation of $898 million and $789 million at December 31, 2017 and 2016, respectively.
In connection with our investment management business, we manage commercial real estate investments on behalf of
institutional clients, which are unaffiliated investors. These commercial real estate investments under management for unaffiliated
investors had an estimated fair value of $5.2 billion and $4.3 billion at December 31, 2017 and 2016, respectively. The total
gross market value of commercial real estate investments under management for unaffiliated investors was $6.7 billion and
$6.4 billion at December 31, 2017 and 2016, respectively. Gross market value is the total estimated fair value of these investments
regardless of encumbering debt. As these assets are managed on behalf of, and owned by, our institutional clients, they are not
included in our consolidated financial statements.
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We diversify our real estate investments by both geographic region and property type to reduce risk of concentration.
Geographical diversification: Of our real estate investments, excluding funds, 69% were located in the United States, with
the remaining 31% located outside the United States, at December 31, 2017. The carrying value of our real estate investments,
excluding funds, located in Japan, California and District of Columbia were 27%, 14% and 10%, respectively, of total real estate
investments, excluding funds, at December 31, 2017. Real estate funds were 14% of our real estate investments at December 31,
2017. The majority of these funds hold underlying real estate investments that are well diversified across the United States.
Property type diversification: Real estate and real estate joint venture investments by property type are categorized by sector
as follows at:
Office
Apartment
Real estate funds
Retail
Land
Hotel
Industrial
Agriculture
Other
December 31,
2017
2016
Carrying
Value
% of
Total
Carrying
Value
% of
Total
$
3,728
1,521
1,324
1,114
727
475
361
29
358
(Dollars in millions)
38.7% $
15.8
13.7
11.6
7.5
4.9
3.8
0.3
3.7
3,478
1,534
908
1,040
558
505
461
40
367
39.1%
17.3
10.2
11.7
6.3
5.7
5.2
0.4
4.1
100.0%
Total real estate and real estate joint ventures
$
9,637
100.0% $
8,891
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 $5.7 billion, or 1.3% of cash and invested assets, and $5.1 billion, or 1.2% of cash and invested
assets, at December 31, 2017 and 2016, respectively, which included $643 million and $834 million of hedge funds, at
December 31, 2017 and 2016, respectively. Cash distributions on these investments are generated from investment gains, income
from operations from the underlying investments of the funds and liquidation of the underlying investments of the funds. We
estimate that the underlying investments of the funds will be liquidated over the next two to 10 years.
Other Invested Assets
The following table presents the carrying value of our other invested assets by type at:
Freestanding derivatives with positive estimated fair values
$
Tax credit and renewable energy partnerships
Direct financing leases
Annuities funding structured settlement claims
Leveraged leases, net of non-recourse debt
Operating joint ventures
Funds withheld
Other
Total
December 31,
2017
2016
% of
Total
Carrying
Value
(Dollars in millions)
49.5% $
12,139
% of
Total
18.3
7.7
7.4
7.4
3.1
1.7
4.8
3,118
1,115
—
1,521
576
110
724
Carrying
Value
8,551
3,167
1,323
1,284
1,278
539
298
823
62.8%
16.1
5.8
—
7.9
3.0
0.6
3.8
$
17,263
100% $
19,303
100%
Percentage of cash and invested assets
3.8%
4.5%
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Leveraged lease impairments were $79 million, $77 million and $41 million for the years ended December 31, 2017, 2016
and 2015, respectively.
See Notes 1, 8 and 9 of the Notes to the Consolidated Financial Statements for information regarding freestanding derivatives
with positive estimated fair values, tax credit and renewable energy partnerships, leveraged and direct financing leases, annuities
funding structured settlement claims, operating joint ventures and funds withheld.
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, 2017 and 2016.
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, 2017, 2016 and 2015.
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, 2017 include: interest rate forwards with maturities which extend beyond
the observable portion of the yield curve; interest rate total return swaps with unobservable repurchase rates; 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, 2017, 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 interest rate total return swaps with unobservable repurchase
rates; 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 curves. Other significant
inputs, which are observable, include equity index levels, equity volatility and the swap yield curves. We validate the
reasonableness of these inputs by valuing the positions using internal models and comparing the results to broker quotations.
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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)
Year Ended December 31, 2017
$87 million
Percentage of gain (loss) attributable to observable inputs
91%
Primary drivers of observable gain (loss)
Percentage of gain (loss) attributable to unobservable
inputs
Decreases in interest rates on interest rate derivatives;
weakening of the US dollar versus foreign currencies on receive
inflation-linked foreign currency derivatives; partially offset by
decreases in certain equity volatility levels and increases in
certain equity index levels on equity derivatives.
9%
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 on 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
Written
Total
December 31,
2017
2016
Gross
Notional
Amount
Estimated
Fair Value
Gross
Notional
Amount
Estimated
Fair Value
$
$
2,020
11,375
13,395
$
$
(In millions)
(36) $
271
235
$
2,001
10,732
12,733
$
$
(26)
152
126
As of December 31, 2016, the Company no longer maintained a trading portfolio for derivatives.
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
__________________
Years Ended December 31,
Gross
Gains
(1)
2017
Gross
Losses
(1)
Net
Gains
(Losses)
Gross
Gains
(1)
2016
Gross
Losses
(1)
Net
Gains
(Losses)
$
$
5
152
157
$
$
(29) $
(7)
(36) $
(In millions)
(24) $
145
121
$
7
95
102
$
$
(47) $
(24)
(71) $
(40)
71
31
(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.
As of December 31, 2016, the Company no longer maintained a trading portfolio for derivatives. The gross gains and
gross (losses) for purchased credit default swaps in the trading portfolio were $4 million and ($4) million, respectively,
for the year ended December 31, 2016.
As of December 31, 2016, the Company no longer maintained a trading portfolio for derivatives. The gross gains and
gross (losses) for written credit default swaps in the trading portfolio were $3 and ($3) million, respectively, for the year
ended December 31, 2016.
(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
on credit default swaps hedging certain bonds, narrowing less in the current period as compared to the prior period. The favorable
change in net gains (losses) on written credit default swaps of $74 million was due to certain credit spreads on certain credit
default swaps used as replications narrowing more in the current period as compared to the prior period.
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 state insurance regulators and the NAIC 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 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 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.
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Table of Contents
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
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.
See “— Summary of Critical Accounting Estimates — Derivatives” for further information on the estimates and assumptions
that affect embedded derivatives.
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Table of Contents
Off-Balance Sheet Arrangements
Credit and Committed Facilities
We maintain an unsecured revolving 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, Third-Party Custodian Administered 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 $19 million and $20 million at estimated fair value at December 31, 2017 and 2016, 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 $182 million and $382 million at December 31, 2017 and
December 31, 2016, respectively. Non-cash collateral on deposit with third-party custodians on our behalf was $194 million
and $401 million at December 31, 2017 and December 31, 2016, 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 $1.1 billion and $1.7 billion at
December 31, 2017 and 2016, 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 20 of the Notes to the Consolidated Financial
Statements.
Guarantees
See “Guarantees” in Note 20 of the Notes to the Consolidated Financial Statements.
Other
We enter into the following additional 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,
and 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 20 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.”
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Table of Contents
Insolvency Assessments
See Note 20 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 on 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.
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. We also use hedging,
reinsurance and other risk management activities to mitigate financial market volatility.
Insurance regulators in many of the non-U.S. jurisdictions 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” 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.
U.S.
Amounts payable under insurance policies for this segment are comprised of group insurance and annuities, as well as
property & casualty policies. For group insurance, future policyholder benefits are comprised mainly of liabilities for disabled
lives under disability waiver of premium policy provisions, liabilities for survivor income benefit insurance, active life policies
and premium stabilization and other contingency liabilities held under life insurance contracts. For group annuity contracts,
future policyholder benefits 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 interest rate derivative positions. The components of future policy benefits related
to our property & casualty policies are liabilities for unpaid claims, 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 analysis 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.
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Table of Contents
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.
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 Mexico, Brazil and Colombia. 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.
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.
MetLife Holdings
Future policy benefits for the life business are comprised mainly of liabilities for traditional life insurance contracts. In
order to manage risk, we have often reinsured a portion of the mortality risk on life insurance policies. We routinely evaluate
our reinsurance programs which may result in increases or decreases to existing coverage. We have entered into various interest
rate derivative positions 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 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 which are accounted for as insurance. Other future policyholder benefits are comprised
mainly of liabilities for disabled lives under disability waiver of premium policy provisions, and active life policies. In addition,
for our other products, future policyholder benefits related to the reinsurance of our former Japan joint venture are comprised
of liabilities for the variable annuity guaranteed minimum benefits which are accounted for as insurance.
Corporate & Other
Future policy benefits primarily include liabilities for the global employee benefits and other reinsurance business.
Additionally, future policy benefits include liabilities for the U.S. direct business sold directly to consumers.
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 follows.
U.S.
Policyholder account balances in this segment are comprised of funding agreements, retained asset accounts, universal
life policies, the fixed account of variable life insurance policies and specialized life insurance products for benefit programs.
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Group Benefits
Policyholder account balances in this business 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 is 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 interest rate derivative positions 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
Benefits:
Guaranteed Minimum Crediting Rate
Greater than 0% but less than 2%
Equal to or greater than 2% but less than 4%
Equal to or greater than 4%
__________________
(1)
These amounts are not adjusted for policy loans.
Retirement and Income Solutions
December 31, 2017
Account
Value (1)
Account
Value at
Guarantee (1)
(In millions)
4,824
$
1,832
736
$
$
4,705
1,832
710
$
$
$
Policyholder account balances in this business are primarily 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 interest rate
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.
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.
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The table below presents the breakdown of account value subject to minimum guaranteed crediting rates for Asia:
Guaranteed Minimum Crediting Rate
Annuities
Greater than 0% but less than 2%
Equal to or greater than 2% but less than 4%
Equal to or greater than 4%
Life & Other
Greater than 0% but less than 2%
Equal to or greater than 2% but less than 4%
Equal to or greater than 4%
__________________
(1) These amounts are not adjusted for policy loans.
Latin America
December 31, 2017
Account
Value (1)
Account
Value at
Guarantee (1)
(In millions)
$
$
$
$
$
$
22,364
1,248
2
9,015
21,992
277
$
$
$
$
$
$
2,791
424
2
8,723
8,943
277
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.
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.
MetLife Holdings
Life policyholder account balances are held for retained asset accounts, universal life policies, the fixed account of variable
life insurance policies, and funding agreements. For annuities, policyholder account balances are held for fixed deferred
annuities, the fixed account portion of variable annuities, non-life contingent income annuities, and embedded derivatives
related to variable annuity guarantees. 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 interest rate derivative positions to partially mitigate the risks associated with such a scenario.
Additionally, for our other products, policyholder account balances are held for variable annuity guarantees assumed from a
former operating joint venture in Japan that are accounted for as embedded derivatives.
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The table below presents the breakdown of account value subject to minimum guaranteed crediting rates for the MetLife
Holdings segment:
Guaranteed Minimum Crediting Rate
Greater than 0% but less than 2%
Equal to or greater than 2% but less than 4%
Equal to or greater than 4%
__________________
(1)
These amounts are not adjusted for policy loans.
Variable Annuity Guarantees
December 31, 2017
Account
Value (1)
Account
Value at
Guarantee (1)
(In millions)
1,729
$
19,688
9,136
$
$
1,627
16,975
6,123
$
$
$
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 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 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 the end of 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 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.
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The table below presents the carrying value for guarantees at:
Asia
GMDB
GMAB
GMWB
EMEA
GMDB
GMAB
GMWB
MetLife Holdings
GMDB
GMIB
GMAB
GMWB
Total
Future Policy
Benefits
December 31,
Policyholder
Account Balances
December 31,
2017
2016
2017
2016
(In millions)
$
$
38
—
92
1
—
42
304
581
—
183
$
29
—
98
1
—
30
257
471
—
161
$
1,241
$
1,047
$
— $
19
182
—
15
(90)
—
(125)
—
322
323
$
—
36
189
—
17
(50)
—
93
13
586
884
The carrying amounts for guarantees included in policyholder account balances above include nonperformance risk
adjustments of $130 million and $326 million at December 31, 2017 and 2016, 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 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 annuities business by focusing on withdrawal benefits, variable annuities without living benefits and index-
linked annuities. To this end, the GMIBs were no longer 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 on 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.
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GMDBs
We offer a range of GMDBs to our contractholders. The table below presents GMDBs, by benefit type, at December 31,
2017:
Return of premium or five to seven year step-up
Annual step-up
Roll-up and step-up combination
Total
__________________
Total Account Value (1)
Asia & EMEA
MetLife
Holdings
(In millions)
7,928
$
—
—
7,928
$
54,797
3,719
6,605
65,121
$
$
(1)
Total account value excludes $242 million 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 19% 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, 2017:
GMIB
GMWB - non-life contingent (2)
GMWB - life-contingent
GMAB
__________________
Total Account Value (1)
Asia & EMEA
MetLife
Holdings
(In millions)
— $
2,364
3,801
1,214
7,379
$
25,257
3,327
11,208
571
40,363
$
$
(1)
(2)
Total account value excludes $25.0 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 $966 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,
2017:
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)
$
$
6,578
1,077
5,597
10,206
1,799
25,257
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
introduction of a 10-year mortality projection.
Additionally, 40% of the $25.3 billion of GMIB total account value has been invested in managed volatility funds as of
December 31, 2017. 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 reduce or eliminate 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, 2017,
only 15% of our contracts with GMIBs were eligible for annuitization. The remaining contracts are not eligible for annuitization
for an average of five years.
Once eligible for annuitization, contractholders would be expected to annuitize only 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 $525 million at December 31,
2017, of which $353 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, 2017:
In-the-money
Out-of-the-money
Total GMIBs
In-the-
Moneyness
Total
Account Value
(In millions)
% of Total
30% +
$
20% to 30%
10% to 20%
0% to 10%
-10% to 0%
-20% to 10%
-20% +
$
322
278
545
1,014
2,159
2,571
3,145
17,382
23,098
25,257
1%
1%
2%
4%
10%
13%
69%
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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:
Primary Underlying
Risk Exposure
Instrument Type
Amount
Assets
Liabilities
Amount
Assets
Liabilities
Gross Notional
Estimated Fair Value
Gross Notional
Estimated Fair Value
December 31,
2017
2016
Interest rate
Interest rate swaps
$
16,080
$
433
$
Foreign currency exchange
rate
Equity market
Interest rate futures
Interest rate options
Foreign currency
forwards
Currency futures
Equity futures
Equity index options
Equity variance swaps
Equity total return
swaps
Total
3,060
10,173
2,288
—
3,781
9,546
4,661
1,117
1
486
5
—
17
383
54
—
(In millions)
22
4
11
36
—
4
690
199
41
$
19,715
$ 1,590
$
2,671
3,423
3,086
85
4,283
13,975
8,263
1,046
2
449
10
—
29
403
83
1
924
11
1
222
—
3
524
239
43
$
50,706
$ 1,379
$
1,007
$
56,547
$ 2,567
$
1,967
The change in estimated fair values of our derivatives is recorded in policyholder benefits and claims if such derivatives
are hedging guarantees included in future policy benefits, and in net derivative gains (losses) if such derivatives 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 substantially all 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 and derivatives
are sensitive to changing market factors. Changing conditions in the global capital markets and the economy 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.
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Short-term Liquidity
We maintain a substantial short-term liquidity position, which was $10.0 billion and $9.1 billion at December 31, 2017
and 2016, respectively. Short-term liquidity includes cash and cash equivalents and short-term investments, excluding assets
that are pledged or otherwise committed, including amounts received in connection with securities lending, repurchase
agreements, derivatives, and secured borrowings, as well as amounts held in the closed block.
Liquid Assets
An integral part of our liquidity management includes managing our level of liquid assets, which was $209.1 billion
and $199.1 billion at December 31, 2017 and 2016, 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 amounts received in connection with securities lending, repurchase agreements, derivatives,
regulatory deposits, the collateral financing arrangement, funding agreements and secured borrowings, as well as amounts
held in the closed block.
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 (“CFO”), Treasurer and Chief Risk Officer (“CRO”). The ERC is also comprised of members
of senior management, including MetLife, Inc.’s CFO, CRO and Chief Investment Officer.
Our Board of Directors 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 — Legal and 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” and Note 15 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 the ability to generate adequate amounts of cash to meet our 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 including commercial paper and various credit and
committed 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, for securities in an unrealized loss position, realized losses
would be incurred on securities sold and impairments would be incurred, if there is a need to sell securities prior to recovery,
which may negatively impact our financial condition. See “Risk Factors — Investments-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.”
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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.
Downgrades in our insurer financial strength ratings could have a material adverse effect on our financial condition
and results of operations in many ways. See “Risk Factors — Risks Related to Our Business — A Downgrade or a Potential
Downgrade in Our Financial Strength or Credit Ratings Could Result in a Loss of Business and Materially Adversely Affect
Our Financial Condition and Results of Operations.”
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 Retirement and Income Solutions business;
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.
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 jurisdictions in which it operates and is subject to capital and
solvency requirements in those jurisdictions.
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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,” “Business — Regulation — International
Regulation,” “— MetLife, Inc. — Liquidity and Capital Sources — Dividends from Subsidiaries” and Note 15 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 two 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
NYDFS 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. See 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
Long-term debt issued
Financing element on certain derivative instruments and other derivative related
transactions, net
Preferred stock issued, net of issuance costs
Other, net
Effect of change in foreign currency exchange rates on cash and cash equivalents
Total sources
Uses:
Investing activities, net
Changes in policyholder account balances, net
Changes in payables for collateral under securities loaned and other transactions,
net
Long-term debt repaid
Collateral financing arrangements repaid
Distribution of Brighthouse
Financing element on certain derivative instruments and other derivative related
transactions, net
Treasury stock acquired in connection with share repurchases
Repurchase of preferred stock
Preferred stock repurchase premium
Dividends on preferred stock
Dividends on common stock
Effect of change in foreign currency exchange rates on cash and cash equivalents
Total uses
Years Ended December 31,
2017
2016
2015
(In millions)
$
12,283
$
14,774
$
14,052
6,131
903
3,657
—
—
118
323
4,925
—
—
—
—
139
—
—
1,544
3,893
181
1,483
94
—
23,415
19,838
21,247
16,876
—
—
1,073
2,951
2,793
151
2,927
—
—
103
1,717
—
28,591
5,850
—
3,636
1,279
68
—
1,367
372
—
—
103
1,736
302
14,713
10,398
1,717
—
1,438
57
—
—
1,930
1,460
42
116
1,653
492
19,303
1,944
Net increase (decrease) in cash and cash equivalents
$
(5,176) $
5,125
$
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 are the result of 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. The cash flows from
discontinued operations are not separately classified, but generally arise from the same activities described above.
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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. The cash flows from discontinued
operations are not separately classified, but generally arise from the same activities described above.
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 and collateral financing arrangements, payments of dividends on and repurchases of MetLife, Inc.’s
securities, withdrawals associated with policyholder account balances, cash disposed of in the distribution of Brighthouse
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. The cash flows from discontinued operations are not
separately classified, but generally arise from the same activities described above.
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. See Note 3 of the Notes to the Consolidated Financial Statements for information regarding financing transactions
related to the Separation.
Global Funding Sources
Liquidity is provided by a variety of global funding sources, including funding agreements, credit and committed
facilities and commercial paper. Capital is provided by a variety of global funding sources, including short-term and long-
term debt, the collateral financing arrangement, 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 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 15 of the Notes to the
Consolidated Financial Statements.
Commercial Paper, Reported in Short-term Debt
MetLife, Inc. and MetLife Funding each have a commercial paper program that is supported by our unsecured
revolving 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 FHLB. During the years ended December 31,
2017, 2016 and 2015, we issued $22.4 billion, $17.0 billion and $17.5 billion, respectively, and repaid $22.4 billion,
$15.2 billion and $17.8 billion, respectively, under funding agreements with certain regional FHLBs. At both
December 31, 2017 and 2016, total obligations outstanding under these funding agreements were $15.3 billion. See Note 4
of the Notes to the Consolidated Financial Statements.
Federal Home Loan Bank Advance Agreements, Reported in Payables for Collateral Under Securities Loaned and Other
Transactions
During the year ended December 31, 2017, we issued $301 million and repaid $1 million, under advance agreements
with a regional FHLB. At December 31, 2017, total obligations outstanding under these advance agreements were
$300 million. There were no such transactions during the years ended December 31, 2016 or 2015. See Note 8 of the
Notes to the Consolidated Financial Statements.
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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, 2017, 2016 and
2015, we issued $42.7 billion, $39.7 billion and $35.1 billion, respectively, and repaid $41.4 billion, $38.5 billion and
$35.5 billion, respectively, under such funding agreements. At December 31, 2017 and 2016, total obligations outstanding
under these funding agreements were $34.2 billion and $30.8 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 a subsidiary of 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 mortgage loans. During the years ended December 31,
2017, 2016 and 2015, we issued $1.0 billion, $1.2 billion and $50 million, respectively, and repaid $1.0 billion, $1.2 billion
and $50 million, respectively, under such funding agreements. At both December 31, 2017 and 2016, total obligations
outstanding under these funding agreements were $2.6 billion. See Note 4 of the Notes to the Consolidated Financial
Statements.
Long-term Debt Issued
Senior Notes
In November 2015 and March 2015, MetLife, Inc. issued $1.3 billion and $1.5 billion of senior notes, respectively.
Net proceeds from these issuances were used for general corporate purposes, which included the early redemption or
repayment upon maturity of certain senior notes.
Term Loans
In December 2015, MetLife Private Equity Holdings, LLC, a wholly-owned indirect investment subsidiary of
MLIC, borrowed $350 million under term loans.
See Note 12 of the Notes to the Consolidated Financial Statements for further information on long-term debt issued.
Credit and Committed Facilities
At December 31, 2017, we maintained a $3.0 billion unsecured revolving credit facility and certain committed
facilities aggregating $3.7 billion. When drawn upon, these facilities bear interest at varying rates in accordance with the
respective agreements.
The unsecured revolving 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, 2017, we had outstanding $130 million in letters
of credit and no drawdowns against this facility. Remaining availability was $2.9 billion at December 31, 2017.
The committed facilities are used as collateral for certain of our affiliated reinsurance liabilities. At December 31,
2017, we had outstanding $3.1 billion in letters of credit and no drawdowns against these facilities. Remaining availability
was $562 million at December 31, 2017. As of December 31, 2017, Brighthouse was a beneficiary of $2.4 billion of
letters of credit issued under these committed facilities. See Note 3 of the Notes to the Consolidated Financial Statements.
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.
Affiliated Preferred Units Issuances
In June 2017, Brighthouse Holdings, LLC issued 50,000 6.50% fixed rate cumulative preferred units to MetLife,
Inc. and, in turn, MetLife, Inc. sold the preferred units to third-party investors, for net proceeds of $49 million. See Note 3
of the Notes to the Consolidated Financial Statements.
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Outstanding Debt Under Global Funding Sources
The following table summarizes our outstanding debt excluding long-term debt relating to CSEs at:
Short-term debt (1)
Long-term debt (2)
Collateral financing arrangement (3)
Junior subordinated debt securities (4)
__________________
December 31,
2017
2016
(In millions)
$
$
$
$
477
15,680
1,121
3,144
$
$
$
$
242
16,429
1,274
3,169
(1)
(2)
(2)
(3)
Includes $377 million and $142 million of debt that is non-recourse to MetLife, Inc. and MLIC, subject to customary
exceptions, at December 31, 2017 and 2016, respectively. Certain subsidiaries have pledged assets to secure this debt.
Includes $523 million and $366 million of debt that is non-recourse to MetLife, Inc. and MLIC, subject to customary
exceptions, at December 31, 2017 and 2016, respectively. Certain investment subsidiaries have pledged assets to secure
this debt.
In April 2017, in connection with the Separation, MetLife, Inc. and MetLife Reinsurance Company of South Carolina
(“MRSC”) terminated the MRSC collateral financing arrangement associated with secondary guarantees. As a result, the
$2.8 billion collateral financing arrangement liability outstanding was extinguished utilizing $2.8 billion of assets held
in trust with the remaining $590 million of assets held in trust returned to MetLife, Inc. as a cash return of capital from
a subsidiary. For information regarding the remaining collateral financing arrangement, see Note 13 of the Notes to the
Consolidated Financial Statements.
For information regarding the junior subordinated debt securities, see Note 14 of the Notes to the Consolidated Financial
Statements and Note 5 in Schedule II of the Notes to the MetLife, Inc. (Parent Company Only) Condensed Financial
Information.
Debt and Facility Covenants
Certain of our debt instruments and committed facilities, as well as our unsecured revolving credit facility, contain
various administrative, reporting, legal and financial covenants. We believe we were in compliance with all applicable
covenants at December 31, 2017.
Dispositions
Cash proceeds from dispositions during the years ended December 31, 2017, 2016 and 2015 were $0, $291 million,
and $0, respectively. See Note 3 of the Notes to the Consolidated Financial Statements.
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:
Preferred Stock Repurchase
In June 2015, MetLife, Inc. repurchased and canceled all of its Series B preferred stock for $1.5 billion in a series of
related transactions as described in Note 15 of the Notes to the Consolidated Financial Statements.
Common Stock Repurchases
See Note 15 of the Notes to the Consolidated Financial Statements for information relating to authorizations by the
Board of Directors to repurchase MetLife, Inc. common stock, amounts of common stock repurchased pursuant to such
authorizations during the years ended December 31, 2017, 2016 and 2015, and the amount remaining under such
authorizations at December 31, 2017. See Note 22 of the Notes to the Consolidated Financial Statements for information
regarding shares of common stock repurchased subsequent to December 31, 2017.
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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 — International Regulation — Global Systemically Important Insurers,”
and “Risk Factors — Capital-Related Risks — Legal and 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.”
Dividends
During each of the years ended December 31, 2017, 2016 and 2015, MetLife, Inc. paid $1.7 billion of dividends on its
common stock. During the years ended December 31, 2017, 2016 and 2015, MetLife, Inc. paid dividends on its preferred
stock of $103 million, $103 million, and $116 million, respectively. See Note 15 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. See Note 22 of the Notes to the Consolidated Financial Statements for information regarding a common stock
dividend declared subsequent to December 31, 2017.
Preferred stock dividends are paid quarterly in accordance with the terms of MetLife, Inc.’s Floating Rate Non-
Cumulative Preferred Stock, Series A. MetLife, Inc. paid dividends on its Series B preferred stock through the June 15,
2015 payment date. 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 will be paid quarterly.
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 —
Legal and 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” and Note 15 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 the collateral financing arrangement, respectively, including:
•
•
•
•
•
During 2017, 2016 and 2015, following regulatory approval, MetLife Reinsurance Company of Charleston (“MRC”),
a wholly-owned subsidiary of MetLife, Inc., repurchased and canceled $153 million, $68 million, and $57 million,
respectively, in aggregate principal amount of its surplus notes, which were reported in collateral financing arrangement
on the consolidated balance sheet;
In December 2017, MetLife, Inc. repaid at maturity its $500 million 1.756% senior notes;
In December 2017, MetLife, Inc. repaid at maturity its $500 million 1.903% senior notes;
In June 2016, MetLife, Inc. repaid at maturity its $1.3 billion 6.750% senior notes; and
In June 2015, MetLife, Inc. repaid at maturity its $1.0 billion 5.000% senior notes.
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.”
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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 MetLife Holdings segment,
which includes individual annuities, lapses and surrenders tend to occur in the normal course of business. During the years
ended December 31, 2017 and 2016, general account surrenders and withdrawals from annuity products were $1.6 billion
and $1.5 billion, respectively. In the Retirement and Income Solutions business within the U.S. 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 Retirement and Income Solutions business products that provide customers with limited rights to accelerate
payments, as of December 31, 2017, there were funding agreements totaling $114 million 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, 2017 and 2016, we had received pledged cash collateral of $5.0 billion and $5.7 billion, respectively. At
December 31, 2017 and 2016, we had pledged cash collateral of $456 million and $788 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 or financial strength rating, as applicable, would have required $15 million of additional collateral be
provided to our counterparties as of December 31, 2017. 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 pledge 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 the collateral financing arrangement
related to the reinsurance of closed block liabilities. See Note 13 of the Notes to the Consolidated Financial Statements.
We pledge 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 $19.4 billion and $20.1 billion at December 31, 2017 and 2016, respectively. Of these amounts, $3.8 billion and
$4.5 billion at December 31, 2017 and 2016, 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, 2017 was $3.7 billion, all of which were
U.S. government and agency securities which, if put to us, could be immediately sold to satisfy the cash requirement. See
Note 8 of the Notes to the Consolidated Financial Statements.
Repurchase Agreements
We participate in short-term repurchase agreements whereby securities are loaned to unaffiliated financial institutions.
We obtain collateral, usually cash, from the borrower, which must be returned to the borrower when the loaned securities
are returned to us. Under these repurchase agreements, we were liable for cash collateral under our control of $1.1 billion
and $102 million at December 31, 2017 and 2016, respectively. The estimated fair value of the securities on loan at
December 31, 2017 was $1.1 billion which were primarily U.S. government and agency securities which, if put to us, could
be immediately sold to satisfy the cash requirement. 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 on 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 20 of the Notes to the Consolidated Financial Statements.
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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 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, 2017,
2016 and 2015 were $211 million, $0 and $0, respectively.
Contractual Obligations
The following table summarizes our major contractual obligations at December 31, 2017:
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
$
298,966
$
20,761
$
16,084
$
15,627
$
224,784
25,723
36,153
9,513
2,262
18,258
31,285
25,723
2,659
9,098
302
17,856
23,109
15,684
—
3,569
312
521
11
—
3,689
91
446
—
246,494
154,706
—
26,236
12
993
391
$
615,659
$
107,684
$
43,606
$
35,537
$
428,832
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 on 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 of $299.0 billion exceeds the liability amounts of $196.3 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; (ii) differences in assumptions, most significantly mortality, 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.
Actual cash payments may differ significantly from the liabilities as presented on the consolidated balance sheet 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.
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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 of $224.8 billion exceeds the liability amount of $182.5 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; (ii) differences 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 above. We also held non-cash collateral, which
is not reflected as a liability on the consolidated balance sheet, of $1.1 billion at December 31, 2017.
Debt
Amounts presented for debt include short-term debt, long-term debt, the collateral financing arrangement and junior
subordinated debt securities, the total of which differs from the total of the corresponding amounts presented on the
consolidated balance sheet as the amounts presented herein (i) do not include premiums or discounts upon issuance or
purchase accounting fair value adjustments; (ii) include future interest on such obligations for the period from January 1,
2018 through maturity; and (iii) do not include long-term debt relating to CSEs at December 31, 2017 as such debt does
not represent our contractual obligation. Future interest on variable rate debt was computed using prevailing rates at
December 31, 2017 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, 2018 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 as scheduled. 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 the
collateral financing arrangement, MetLife, Inc. may be required to deliver cash or pledge collateral to the unaffiliated
financial institution. 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 above,
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 20 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 20 of the Notes to the Consolidated Financial Statements.
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Table of Contents
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 sheet. 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 sheet 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 $1.7 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, 2017.
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.
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 G-SII, see “Business — Regulation — International Regulation —
Global Systemically Important Insurers.” 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, 2017 and 2016, MetLife, Inc. and other MetLife holding companies had $5.7 billion and $5.8 billion,
respectively, in liquid assets. Of these amounts, $4.1 billion and $3.7 billion were held by MetLife, Inc. and $1.6 billion and
$2.1 billion were held by other MetLife holding companies at December 31, 2017 and 2016, 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 amounts received in connection with derivatives and a collateral
financing arrangement.
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Table of Contents
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 historically
been reinvested indefinitely in such non-U.S. operations. Following a post-Separation review of our capital needs in the third
quarter of 2017, we expect to repatriate approximately $3.0 billion of pre-2017 earnings in the future. As a result, in the third
quarter of 2017, we recorded a $444 million tax charge related to this future repatriation of pre-2017 earnings. This charge
was partially offset by a $264 million tax benefit associated with dividends from other non-U.S. operations, accordingly, the
Company recorded a $180 million net tax charge in the third quarter of 2017. The enactment of U.S. Tax Reform in the fourth
quarter of 2017 moves the U.S. from a worldwide tax system to a participation exemption system by imposing a one-time
transition tax on untaxed earnings of foreign subsidiaries by deeming those earnings to be repatriated. As a result, we recorded
a $170 million charge in the fourth quarter of 2017. Subsequent to 2017, we expect to repatriate future foreign earnings back
to the U.S. with minimal or no additional U.S. tax. See further information in Note 18 of the Notes to the Consolidated Financial
Statements and “— Risk Factors — Regulatory and Legal Risks— U.S. Tax Reform Could Have an Impact on Us.”
See “— Executive Summary — Consolidated Company Outlook,” for the targeted level of liquid assets at the holding
companies.
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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, 2017
Year Ended December 31, 2016
Year Ended December 31, 2015
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)
$
7,404
$
7,404
$
4,550
$
4,550
$
2,340
$
Long-term debt issued (2)
Repayments on and (issuances of) loans to subsidiaries and
related interest, net (3)
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
Dividends on preferred stock
Issuances of and (repayments on) loans to subsidiaries and
related interest, net (3)
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)
Net cash provided by operating activities, MetLife, Inc. (Parent
Company Only)
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
Dividends and returns of capital to MetLife, Inc.
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
Net increase (decrease) in liquid assets, All Holding Companies
$
$
$
$
$
—
—
107
—
—
4
—
—
120
7,511
7,408
4,670
339
1,000
980
1,717
2,927
103
33
7,099
412
3,683
4,095
6,462
124
—
980
—
—
103
33
1,240
6,168
$
$
1,733
1,250
983
1,736
372
103
99
6,276
(1,606)
5,289
3,683
3,747
—
—
(210)
4,340
1,733
—
983
—
—
103
99
2,918
1,422
$
$
2,739
383
755
6,217
667
1,000
965
1,653
1,930
116
—
6,331
(114)
5,403
5,289
1,606
2,125
$
2,125
$
1,485
$
1,485
$
1,354
$
—
2,125
12
6
2,200
408
2,626
(501)
2,144
1,643
(89)
—
2,125
12
6
2,200
408
2,626
(501)
$
$
—
1,485
53
307
—
123
483
1,002
1,142
2,144
(604)
—
1,485
53
307
—
123
483
1,002
$
$
150
1,504
27
510
—
506
1,043
461
681
1,142
347
2,340
1,750
383
795
5,268
667
—
965
—
—
116
—
1,748
3,520
1,354
150
1,504
27
510
—
506
1,043
461
Free Cash Flow, All Holding Companies (6) (7)
$
5,667
$
2,424
$
3,981
__________________
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Table of Contents
(1)
(2)
(3)
(4)
(5)
(6)
Dividends and returns of capital to MetLife, Inc. included $5.2 billion, $4.6 billion and $2.3 billion from operating
subsidiaries and $2.2 billion, $0 and $0 from other MetLife holding companies during the years ended December 31,
2017, 2016 and 2015, respectively. Included in dividends and returns of capital to MetLife, Inc. above are the following
which increased MetLife, Inc. liquid assets and free cash flow: dividends from Brighthouse subsidiaries, of $1.8 billion,
$556 million and $500 million, and returns of capital from Brighthouse subsidiaries of $590 million, $0 and $0, during
the years ended December 31, 2017, 2016 and 2015, respectively. Also, includes $49 million from the June 2017, issuance
by Brighthouse Holdings, LLC of 50,000 units of 6.50% fixed rate cumulative preferred units to MetLife, Inc. and in
turn MetLife, Inc. sold the preferred units to third-party investors.
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 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 $860 million, $433 million and $171 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, 2017, 2016 and
2015, respectively.
Amounts to fund business acquisitions were $215 million, $0 and $0 (included in capital contributions to subsidiaries)
during the years ended December 31, 2017, 2016 and 2015, respectively.
In 2017, $2.1 billion of Separation-related items (comprised of certain Separation-related inflows primarily related to
dividends from Brighthouse, net of outflows) were included in free cash flow, which increased our holding companies’
liquid assets, as well as our free cash flow. Excluding these Separation-related items, adjusted free cash flow would be
$3.6 billion for the year ended December 31, 2017. In 2016, we incurred $2.3 billion of Separation-related items (comprised
of certain Separation-related outflows, net of inflows related to dividends from Brighthouse subsidiaries) which reduced
our holding companies’ liquid assets, as well as our free cash flow. Excluding these Separation-related items, adjusted
free cash flow would be $4.7 billion for the year ended December 31, 2016.
(7)
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.
Sources and Uses of Liquid Assets of MetLife, Inc.
The primary sources of MetLife, Inc.’s liquid assets are dividends and returns of capital from subsidiaries, issuances
of long-term debt, issuance of common or preferred stock, 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 — Long-term Debt
Issued — Maturities and Issuances of Affiliated Long-term Debt” and “— Liquidity and Capital Uses — Affiliated Capital
and Debt 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.”
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Table of Contents
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; dividends and returns of capital to MetLife, Inc. and the following items, which are
reported within other, net: business acquisitions; and operating expenses. There were no uses of liquid assets of other MetLife
holding companies to fund business acquisitions during the years ended December 31, 2017, 2016, or 2015.
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.
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
2018
Permitted
Without
Approval (1)
2017
2016
2015
Paid (2)
Permitted
Without
Approval (3)
Paid (2)
(In millions)
Permitted
Without
Approval (3)
Paid (2)
Permitted
Without
Approval (3)
Metropolitan Life
Insurance Company (4)
American Life Insurance
Company
Brighthouse Life Insurance
Company
Metropolitan Property and
Casualty Insurance
Company
Metropolitan Tower Life
Insurance Company
New England Life
Insurance Company
General American Life
Insurance Company
__________________
$
$
$
$
$
3,075
$ 2,523
—
$ 2,200 (6)
N/A
$ —
125
73
N/A
118
$
185
$ —
$ —
$
1
$
$
$
$
$
$
$
2,723
$ 5,740 (5)
—
$ —
473
(7) $
261
98
66
$
$
228
60
106
(7) $
295 (8)
91
$ —
$
$
$
$
$
$
$
3,753
$ 1,489
— $ —
586
$
500
130
70
156
$
$
$
235
102
199 (9)
136
$ —
$
$
$
$
$
$
$
1,200
—
3,056
239
102
199
88
(1)
(2)
(3)
(4)
Reflects dividend amounts that may be paid during 2018 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
2018, some or all of such dividends may require regulatory approval. See also note (7) below regarding the impact of the
Separation on the dividends permitted to be paid by Brighthouse Insurance and New England Life Insurance Company
(“NELICO”).
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 15 of the Notes to the Consolidated Financial Statements.
The dividend amounts that MLIC was permitted to pay starting in 2016 and going forward were calculated using the new
formulation.
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Table of Contents
(5)
(6)
(7)
(8)
(9)
In 2016, MLIC paid an ordinary cash dividend to MetLife, Inc. in the amount of $3.6 billion. In addition, in December
2016, MLIC distributed all of the issued and outstanding shares of common stock of each of NELICO and GALIC to
MetLife, Inc. in the form of a non-cash extraordinary dividend in the amount of $981 million and $1.2 billion, respectively,
as calculated on a statutory basis.
Represents an extraordinary dividend.
Effective April 28, 2017 in connection with the Separation, MetLife, Inc. contributed all of the issued and outstanding
shares of common stock of each of Brighthouse Insurance and NELICO to Brighthouse Holdings, LLC. As a result of
the Separation, Brighthouse Insurance and NELICO ceased to be subsidiaries of MetLife, Inc. Accordingly, MetLife, Inc.
will no longer receive dividends from Brighthouse Insurance or NELICO after the Separation. See Note 3 of the Notes
to the Consolidated Financial Statements.
Represents an extraordinary dividend paid by NELICO in 2016 to MetLife, Inc.
Dividends paid by NELICO in 2015 were paid to its former parent, MLIC.
In addition to the amounts presented in the table above, on August 3, 2017, Brighthouse Financial, Inc. paid a cash
dividend to MetLife, Inc. of $1.8 billion in connection with the Separation. For the years ended December 31, 2017, 2016
and 2015, MetLife, Inc. also received cash payments of $39 million, $26 million and $9 million, respectively, representing
dividends from non-Brighthouse subsidiaries. Additionally, for the year ended December 31, 2017, MetLife, Inc. received
cash returns of capital of $610 million from certain subsidiaries, including $590 million from MRSC in connection with
the Separation. For the years ended December 31, 2016 and 2015, MetLife, Inc. received cash of $80 million and $5 million,
respectively, representing returns of capital from certain subsidiaries. See Note 3 of the Notes to the Consolidated Financial
Statements.
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 dividend payments to the parent company to a portion of the
subsidiary’s prior year statutory income, as determined by the local accounting principles. The regulators of our non-
U.S. operations, including the FSA, 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 our 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 our first tier subsidiaries may also impact the dividend flow
into MetLife, Inc.
We proactively manage target and excess capital levels and dividend flows 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. 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” and Note 15 of the Notes to the
Consolidated Financial Statements.
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 either December 31, 2017
or 2016.
Preferred Stock
For information on MetLife, Inc.’s preferred stock, see “— The Company — Liquidity and Capital Sources — Global
Funding Sources — Preferred Stock.”
Long-term Debt Issued
For information on MetLife, Inc.’s unaffiliated long-term debt issued, see “— The Company — Liquidity and Capital
Sources — Global Funding Sources — Long-term Debt Issued.”
Maturities and Issuances of Affiliated Long-term Debt
In September 2016, a $250 million senior note issued to MLIC matured and, subsequently, in September 2016 MetLife,
Inc. issued a new $250 million senior note to MLIC. The note matures in September 2020 and bears interest at a rate per
annum of 3.03%, payable semi-annually.
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Collateral Financing Arrangement and Junior Subordinated Debt Securities
For information on MetLife, Inc.’s collateral financing arrangement and junior subordinated debt securities, see Notes 13
and 14 of the Notes to the Consolidated Financial Statements, respectively and Note 5 in Schedule II of the Notes to the
MetLife, Inc. (Parent Company Only) Condensed Financial Information.
Credit and Committed Facilities
The committed facilities are used as collateral for certain of the Company’s affiliated reinsurance liabilities. MetLife,
Inc. maintains a committed facility with a capacity of $395 million. At December 31, 2017, MetLife, Inc. had outstanding
under this facility $395 million in letters of credit, no drawdowns outstanding and no remaining availability. In addition,
MetLife, Inc. is a party and/or guarantor to committed facilities of certain of its subsidiaries, which aggregated $3.3 billion
at December 31, 2017. See Note 3 of the Notes to the Consolidated Financial Statements for discussion of reductions in the
committed facilities totaling $7.8 billion in April 2017 in connection with the Separation.
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 the unsecured
revolving credit facility and these committed facilities.
In June 2016, MetLife, Inc. entered into a five-year agreement with an indirect wholly-owned subsidiary, MetLife
Ireland Treasury d.a.c. (formerly known as MetLife Ireland Treasury Limited) (“MIT”), to borrow up to $1.3 billion on a
revolving basis, at interest rates based on the United States Internal Revenue Service’s safe harbor interest rate in effect at
the time of the borrowing. MetLife, Inc. may borrow funds under the agreement at MIT’s discretion and subject to the
availability of funds. There were no outstanding borrowings at December 31, 2017.
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 (1)
Collateral financing arrangement (2)
Junior subordinated debt securities (3)
__________________
$
$
$
$
December 31,
2017
2016
(In millions)
14,599
$
15,505
2,000
$
— $
$
2,454
3,100
2,797
1,734
(1)
(2)
(3)
On April 28, 2017, in connection with the Separation, MetLife, Inc. repaid $750 million and $350 million of senior notes
to MetLife Reinsurance Company of Delaware (“MRD”) due September 2032 and December 2033, respectively, in an
exchange transaction. The $750 million senior note bore interest at a fixed rate of 4.21% and the $350 million senior note
bore interest at a fixed rate of 5.10%. Simultaneously, MRD repaid $750 million and $350 million of surplus notes to
MetLife, Inc. See “— Liquidity and Capital Uses — Affiliated Capital and Debt Transactions.”
See Note 3 of the Notes to the Consolidated Financial Statements for discussion of a $2.8 billion repayment on the MRSC
collateral financing agreement liability in April 2017 in connection with the Separation, utilizing assets held in trust.
See “— Liquidity and Capital Uses — Affiliated Capital and Debt Transactions” for discussion of a $750 million junior
subordinated debt securities exchange. Also see Note 5 in Schedule II of the Notes to the MetLife, Inc. (Parent Company
Only) Condensed Financial Information for information regarding the Junior Subordinated Debt Securities exchange
transaction in February 2017.
Debt and Facility Covenants
Certain of MetLife, Inc.’s debt instruments and committed facilities, as well as its unsecured revolving credit facility,
contain various administrative, reporting, legal and financial covenants. MetLife, Inc. believes it was in compliance with
all applicable covenants at December 31, 2017.
Dispositions
Cash proceeds from dispositions during the years ended December 31, 2017, 2016 and 2015 were $0, $291 million,
and $0, respectively. See Note 3 of the Notes to the Consolidated Financial Statements.
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Table of Contents
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:
Affiliated Capital and Debt Transactions
During the year ended December 31, 2017, MetLife, Inc. invested a net amount of $729 million in various non-
Brighthouse subsidiaries. During the years ended December 31, 2016 and 2015, MetLife, Inc. invested a net amount of
$1.5 billion and $88 million, respectively, in various subsidiaries. The investment in 2016 included a cash capital contribution
of $1.5 billion to Brighthouse Insurance in connection with the Separation.
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 $100 million and $1.2 billion at December 31,
2017 and 2016, respectively.
In April 2017, in connection with the Separation, MRD repaid $750 million and $350 million surplus notes to MetLife,
Inc., in an exchange transaction. The $750 million surplus note bore interest at a fixed rate of 5.13% and the $350 million
surplus note bore interest at a fixed rate of 6.00%, both payable semi-annually. Simultaneously, MetLife, Inc. repaid
$750 million and $350 million senior notes to MRD.
In February 2017, MetLife, Inc. exchanged $750 million aggregate principal amount of its 9.250% Fixed-to-Floating
Rate Junior Subordinated Debentures due 2068 for $750 million aggregate liquidation preference of the 9.250% Fixed-to-
Floating Rate Exchangeable Surplus Trust Securities of MetLife Capital Trust X (the “Trust”). As a result of the exchange,
MetLife, Inc. became the sole beneficial owner of the Trust, a special purpose entity which issued the exchangeable surplus
trust securities to third-party investors. In March 2017, MetLife, Inc. dissolved the Trust and became the direct holder of
$750 million 8.595% surplus notes previously held by the Trust that were issued by Brighthouse Insurance. See Note 14 of
the Notes to the Consolidated Financial Statements. In June 2017, MetLife, Inc. forgave Brighthouse Insurance’s obligation
to pay the principal amount of such surplus notes. This transaction, which was a non-cash capital contribution to Brighthouse
Holdings, LLC, and a corresponding non-cash capital contribution to Brighthouse Insurance, had no impact on the
consolidated financial statements of MetLife, Inc. as of the date of the transaction.
In April 2016, American Life issued a $140 million short-term note to MetLife, Inc. which was repaid in June 2016.
The short-term note bore interest at six-month LIBOR plus 1.00%.
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 July 2013, MIT 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, MIT made loan
payments of the Chilean peso equivalent of $77 million, $153 million and $231 million, respectively. At December 31,
2015, the loan was fully paid.
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 2018.
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Repayments of Affiliated Long-term Debt
In April 2017, in connection with the Separation, MetLife, Inc. in an exchange transaction repaid $750 million and
$350 million of senior notes to MRD due September 2032 and December 2033, respectively. The $750 million senior
note bore interest at a fixed rate of 4.21% and the $350 million senior note bore interest at a fixed rate of 5.10%.
Simultaneously, MRD repaid $750 million and $350 million of surplus notes to MetLife, Inc.
In June 2016, March 2016 and December 2015, MetLife, Inc. repaid $204 million, $10 million and $286 million,
respectively, of affiliated long-term debt to MetLife Exchange Trust I, at maturity, in exchange for returns of capital. The
long-term notes bore interest at three-month LIBOR plus 0.70%.
Maturities of Senior Notes
The following table summarizes MetLife, Inc.’s outstanding senior notes by year of maturity through 2022 and 2023
to 2046, excluding any premium or discount and unamortized issuance costs, at December 31, 2017:
Year of Maturity
Principal
(In millions)
Interest Rate
2018
2019
2019
2019
2020
2020
2021
2021
2021
2022
2023 - 2046
Support Agreements
$
$
$
$
$
$
$
$
$
$
$
1,035
1,035
500
250
541
250
1,000
500
500
500
6.82%
7.72%
3.54%
3.57%
5.25%
3.03%
4.75%
5.64%
5.86%
3.05%
10,574
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. 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 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 MetLife Reinsurance Company of Bermuda, Ltd. (“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 d.a.c. (“MEL”) (formerly known as MetLife Europe Limited), 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 MetLife Reinsurance Company of Vermont (“MRV”) reinsurance 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 two 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.
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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. 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, 2017 and 2016, derivative transactions with
positive mark-to-market values (in-the-money) were $515 million and $495 million, respectively, and derivative transactions
with negative mark-to-market values (out-of-the-money) were $126 million and $237 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 $114 million and $233 million at December 31, 2017 and 2016, respectively. Accordingly,
unsecured derivative liabilities guaranteed by MetLife, Inc. were $12 million and $4 million at December 31, 2017 and
2016, 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
Cash outflows for acquisitions during the year ended December 31, 2017 were $211 million. There were no cash
outflows from MetLife, Inc. for acquisitions during either of the years ended December 31, 2016 or 2015.
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:
adjusted revenues
(i)
(ii) adjusted expenses
(iii) adjusted earnings
(iv) adjusted earnings available to common
shareholders
free cash flow of all holding companies
(v)
Comparable GAAP financial measures:
revenues
(i)
(ii) expenses
(iii) income (loss) from continuing operations, net of income
tax
(iv) net income (loss) available to MetLife, Inc.’s common
shareholders
(v) MetLife, Inc.’s net cash provided by operating activities
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Reconciliations of these non-GAAP measures to the most directly comparable historical GAAP measures are included in
this section and the results of operations, see “— Results of Operations.” Reconciliations 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
without unreasonable efforts to provide other than a range of net investment gains and losses and net derivative gains and losses,
which can fluctuate significantly within or outside the range and from period to period and may have a material impact on net
income. These “adjusted” non-GAAP financial measures were formerly referred to as “operating” non-GAAP financial measures.
Our definitions of the various non-GAAP and other financial measures discussed in this report may differ from those used
by other companies:
Adjusted earnings and related measures:
•
•
adjusted earnings; and
adjusted earnings available to common shareholders.
These measures are used by management to evaluate performance and allocate resources. Consistent with GAAP guidance
for segment reporting, adjusted earnings is also our GAAP measure of segment performance. Adjusted earnings and other
financial measures based on adjusted earnings are also the measures by which senior management’s and many other employees’
performance is evaluated for the purposes of determining their compensation under applicable compensation plans. Adjusted
earnings and other financial measures based on adjusted earnings allow analysis of our performance relative to our business
plan and facilitate comparisons to industry results.
Adjusted earnings is defined as adjusted revenues less adjusted expenses, both net of income tax. Adjusted earnings available
to common shareholders is defined as adjusted earnings less preferred stock dividends.
Adjusted revenues and adjusted expenses
These financial measures focus on our primary businesses principally by excluding the impact of market volatility, which
could distort trends, and revenues and costs related to non-core products and certain entities required to be consolidated under
GAAP. Also, these measures exclude results of discontinued operations under GAAP and other businesses that have been or
will be sold or exited by MetLife but do not meet the discontinued operations criteria under GAAP and are referred to as
divested businesses. Divested businesses also includes the net impact of transactions with exited businesses that have been
eliminated in consolidation under GAAP and costs relating to businesses that have been or will be sold or exited by MetLife
that do not meet the criteria to be included in results of discontinued operations under GAAP. In addition, for the year ended
December 31, 2016, adjusted revenues and adjusted expenses exclude the financial impact of converting the Company’s Japan
operations to calendar year-end reporting without retrospective application of this change to prior periods and is referred to
as lag elimination. Adjusted revenues also excludes net investment gains (losses) and net derivative gains (losses). Adjusted
expenses also excludes goodwill impairments.
The following additional adjustments are made to revenues, in the line items indicated, in calculating adjusted 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 earned income on derivatives and amortization of premium on derivatives that are
hedges of investments or that are used to replicate certain investments, but do not qualify for hedge accounting treatment,
(ii) excludes post-tax adjusted earnings adjustments relating to insurance joint ventures accounted for under the equity
method, (iii) excludes certain amounts related to contractholder-directed unit-linked investments and (iv) 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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The following additional adjustments are made to expenses, in the line items indicated, in calculating adjusted 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”);
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, integration and other costs.
Adjusted earnings also excludes the recognition of certain contingent assets and liabilities that could not be recognized
at acquisition or adjusted for during the measurement period under GAAP business combination accounting guidance.
The tax impact of the adjustments mentioned above are calculated net of the U.S. or foreign statutory tax rate, which
could differ from the Company’s effective tax rate. Additionally, the provision for income tax (expense) benefit also includes
the impact related to the timing of certain tax credits, as well as certain tax reforms.
Return on equity, allocated equity and related measures:
• MetLife, Inc.’s common stockholders’ equity, excluding AOCI other than FCTA, is defined as MetLife, Inc.’s common
stockholders’ equity, excluding the net unrealized investment gains (losses) and defined benefit plans adjustment
components of AOCI, net of income tax.
•
•
•
Adjusted ROE is defined as adjusted earnings available to common shareholders, divided by average GAAP common
stockholders’ equity.
Adjusted ROE, excluding AOCI other than FCTA, is defined as adjusted earnings available to common shareholders
divided by average GAAP common stockholders’ equity, excluding AOCI other than FCTA.
Allocated equity is 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 above measures represent a level of equity consistent with the view that, in the ordinary course of business, we do not
plan to sell most investments for the sole purpose of realizing gains or losses. Also refer to the utilization of adjusted earnings
and other financial measures based on adjusted earnings mentioned above.
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The following additional information is relevant to an understanding of our performance results:
•
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 (“Constant Currency Basis”).
• 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. Further, sales statistics for our Latin America, Asia and
EMEA segments are on a Constant Currency Basis.
•
•
Asymmetrical and non-economic accounting refers to: (i) the portion of net derivative gains (losses) on embedded
derivatives attributable to the inclusion of our credit spreads in the liability valuations, (ii) hedging activity that generates
net derivative gains (losses) and creates fluctuations in net income because hedge accounting cannot be achieved and
the item being hedged does not a have an offsetting gain or loss recognized in earnings, (iii) 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, and (iv) impact of changes in foreign currency exchange rates on the re-measurement of foreign
denominated unhedged funding agreements and financing transactions to the U.S. dollar and the re-measurement of
certain liabilities from non-functional currencies to functional currencies. We believe that excluding the impact of
asymmetrical and non-economic accounting from total GAAP results enhances investor understanding of our
performance by disclosing how these accounting practices affect reported GAAP results.
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 non-mandatory 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 (including capital contributions to subsidiaries), and net contributions from debt
to be at or below target leverage ratios. This measure of free cash flow is prior to capital actions, such as 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 adjusted 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, 2017, 2016 and 2015 is provided below.
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Reconciliation of Net Cash Provided by Operating Activities of MetLife, Inc.
to Free Cash Flow of All Holding Companies
Years Ended December 31,
2017
2016
(In millions)
2015
MetLife, Inc. (parent company only) net cash provided by operating activities
$
6,462
$
3,747
$
1,606
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 and derivatives changes and other, net
MetLife, Inc. (parent company only) free cash flow
Other MetLife, Inc. holding companies:
—
(124)
610
—
(780)
6,168
—
(1,733)
80
—
(672)
1,422
1,750
(667)
5
461
365
3,520
Add: Dividends and returns of capital from subsidiaries
2,125
1,485
1,354
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: Dividends and returns of capital to MetLife, Inc.
Add: Investment portfolio and derivative changes and other, net
Total other MetLife, Inc. holding companies free cash flow
Free cash flow of all holding companies (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 (1)
Ratio of net cash provided by operating activities (parent company only) to
consolidated net income (loss) available to MetLife, Inc.'s common
shareholders (1) (2)
Ratio of free cash flow to adjusted earnings available to common
shareholders:
Free cash flow of all holding companies (3)
Consolidated adjusted earnings available to common shareholders (3)
Ratio of free cash flow of all holding companies to consolidated adjusted
earnings available to common shareholders (3)
__________________
—
(12)
(6)
(626)
(2,200)
218
(501)
5,667
$
6,462
3,907
165%
5,667
4,235
$
$
$
$
$
$
$
$
$
—
(53)
(307)
(671)
—
548
1,002
2,424
3,747
747
502%
2,424
4,033
$
$
$
$
$
150
(27)
(510)
(729)
—
223
461
3,981
1,606
5,215
31%
3,981
3,914
134%
60%
102%
(1) Consolidated net income (loss) available to MetLife, Inc.’s common shareholders for 2017 includes Separation-related
costs of $312 million, net of income tax. Excluding this amount from the denominator of the ratio, this ratio, as adjusted,
would be 153%. Consolidated net income (loss) available to MetLife, Inc.'s common shareholders for 2016 includes
Separation-related costs of $73 million, net of income tax. Excluding this amount from the denominator of the ratio,
this ratio, as adjusted, would be 457%. 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%. See “— Liquidity and Capital
Resources — MetLife, Inc. — Liquid Assets — 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.”
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(2) Including the free cash flow of other MetLife, Inc. holding companies of ($501) million, $1.0 billion and $461 million
for the years ended December 31, 2017, 2016 and 2015, respectively, in the numerator of the ratio, this ratio, as adjusted,
would be 153%, 636% and 40%, respectively. Including the free cash flow of other MetLife, Inc. holding companies
in the numerator of the ratio and excluding the Separation-related costs and uncertain tax position non-cash charge
from the denominator of the ratio, this ratio, as adjusted, would be 141%, 579% and 34% for the years ended December
31, 2017, 2016 and 2015, respectively.
(3) i) In 2017, $2.1 billion of Separation-related items (comprised of certain Separation-related inflows primarily related
to dividends from Brighthouse, net of outflows) were included, which increased our holding companies’ liquid assets,
as well as our free cash flow. Excluding these Separation-related items, adjusted free cash flow would be $3.6 billion
for the year ended December 31, 2017. Consolidated adjusted earnings available to common shareholders for 2017
was negatively impacted by notable items, primarily related to tax adjustments, of $622 million, net of income tax.
Excluding the Separation-related items, which increased free cash flow, from the numerator of the ratio and excluding
such notable items negatively impacting consolidated adjusted earnings available to common shareholders from the
denominator of the ratio, the adjusted free cash flow ratio for 2017 would be 75%.
ii) In 2016, we incurred $2.3 billion of Separation-related items (comprised of certain Separation-related outflows, net
of inflows related to dividends from Brighthouse subsidiaries) which reduced our holding companies’ liquid assets, as
well as our free cash flow. Excluding these Separation-related items, adjusted free cash flow would be $4.7 billion for
the year ended December 31, 2016. Consolidated adjusted earnings available to common shareholders for 2016 was
negatively impacted by notable items, primarily related to the actuarial assumption review and other insurance
adjustments, of $709 million, net of income tax, and Separation-related costs of $15 million, net of income tax. Excluding
the Separation-related items, which reduced free cash flow, from the numerator of the ratio and excluding such notable
items and Separation-related costs negatively impacting consolidated adjusted earnings available to common
shareholders from the denominator of the ratio, the adjusted free cash flow ratio for 2016 would be 98%.
iii) In 2015, dividends from Brighthouse subsidiaries of $500 million were included in and increased our holding
companies’ liquid assets, as well as our free cash flow. Excluding these inflows related to dividends from Brighthouse
subsidiaries, adjusted free cash flow would be $3.5 billion for the year ended December 31, 2015. Consolidated adjusted
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 these Brighthouse inflows, which increased free cash flow, from the
numerator of the ratio and excluding such non-cash charge negatively impacting consolidated adjusted earnings available
to common shareholders from the denominator of the ratio, the adjusted free cash flow ratio for 2015 would be 74%.
Subsequent Events
See Note 22 of the Notes to the Consolidated Financial Statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Risk Management
We have an integrated process for managing risk, which we conduct through multiple Board and senior management
committees (financial and non-financial) across the GRM, ALM, Finance, Treasury, Investments and business segment
departments. 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 manage capital and
risk positions, and establish corporate business standards.
Global Risk Management
Independent from the lines of business, the centralized GRM, led by the CRO, coordinates across all committees to ensure
that all material risks are properly identified, measured, aggregated, managed 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.
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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;
coordinating Own Risk and Solvency Assessments for the Board, senior management and regulator use;
establishing appropriate corporate risk tolerance levels;
recommending risk appetite statements and investment general authorizations to the Board;
• measuring 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 (iii) the Compensation Committee of MetLife, Inc.’s Board of Directors; and (iv)
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 is liability driven and 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
aligned on a cash flow and duration basis. The ALM process is the shared responsibility of the ALM, GRM, and Investments
departments, with the engagement of senior members of the business segments, and is governed by the ALM Committees.
The ALM Committees’ duties include reviewing and approving target portfolios investment guidelines and limits, approving
significant portfolio and ALM strategies and providing oversight of the ALM process. The directives of the ALM Committees
are carried out and monitored through ALM Working Groups which are set up to manage risk by geography, product or
portfolio type. Generally, our ALM Steering Committee and the Hybrid Guarantee Product ALM Committee oversee the
activities of the underlying ALM Committees and Working Groups. The ALM Steering Committee and Hybrid Guarantee
Product ALM Committee report to the ERC.
We establish portfolio guidelines that define ranges and limits related to asset allocation, interest rate risk, liquidity,
concentration and other risks for each major business segment, legal entity or insurance product group. These guidelines
support implementation of investment strategies used to adequately fund our liabilities within acceptable levels of risk. We
also establish VA hedging programs and associated investment portfolios for different blocks of VA business. The ALM
Working Groups monitor these strategies and programs through regular review of portfolio metrics, such as effective duration,
yield curve sensitivity, convexity, value at risk, VA market sensitivities (to interest rates, equity market levels, equity volatility,
and foreign exchange rates), stress scenario payoffs, liquidity, foreign exchange, asset sector concentration and credit quality.
Market Risk Exposures
We regularly analyze our exposure to interest rate, foreign currency exchange rate and equity market price risk. 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 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 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. The interest rate sensitive liabilities for purposes of this disclosure exclude a significant portion
of the liabilities relating to insurance contracts. 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.”
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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 foreign currency exchange rate liabilities for purposes of this disclosure exclude a
significant portion of the liabilities relating to insurance contracts. 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 Australian dollar, the British pound,
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 may be held entirely or in part in U.S. dollar assets, which further minimize 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.”
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 embedded derivatives on variable annuities with guaranteed minimum
benefits and certain policyholder account balances. In addition, we have a significant equity ownership position in Brighthouse
Financial, Inc., and changes in the market price of its common stock may have a material impact on us. Our equity exposure
to Brighthouse Financial, Inc. is included in the analysis. 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 NYDFS 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 net of certain 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.
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. We also use reinsurance to
mitigate interest rate risk.
We also use common industry metrics, such as duration and convexity, to measure the relative sensitivity of assets and
liability values to changes in interest rates. In computing the duration of liabilities, we consider all policyholder guarantees
and how we intend to set indeterminate policy elements such as interest credits or dividends. Each asset portfolio or portfolio
group 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, we may support such liabilities with equity investments, derivatives
or interest rate curve mismatch strategies.
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Foreign Currency Exchange Rate Risk Management
MetLife has a well-established Enterprise Foreign Exchange (“FX”) Risk Policy to ensure it manages foreign currency
exchange rate exposures within its risk tolerance. In general, investments backing specific liabilities are currency matched.
This is achieved through direct investments in matching currency or through the use of FX derivatives. Enterprise FX risk
limits are established by the ERC. Management of each of our segments, with oversight from our FX Risk Committee and
the respective ALM committee for the segment, is responsible for managing any foreign currency exchange rate exposure.
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
We manage equity market 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. These derivatives include exchange-traded equity futures, equity index options
contracts, total rate of return swaps and equity variance swaps. This risk is managed by our ALM Unit in partnership with the
Investments Department.
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 financial results under different accounting regimes, including U.S. GAAP and local statutory accounting. 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 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, total rate of return swaps, 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 are generally used to swap foreign currency denominated bonds, investments in foreign
subsidiaries or equity market exposures to U.S. dollars. Our foreign subsidiaries also use these hedges to swap non-
local currency assets to local currency, to match liabilities.
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, 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.
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Table of Contents
Risk Measurement: Sensitivity Analysis
We measure market risk related to our market sensitive assets and liabilities based on changes in interest rates, foreign
currency exchange rates and equity market prices utilizing a sensitivity analysis. For purposes of this disclosure, a significant
portion of the liabilities relating to insurance contracts is excluded, as discussed further below. This analysis estimates the
potential changes in estimated fair value based on a hypothetical 10% change (increase or decrease) in interest rates, foreign
currency exchange rates and equity market prices. 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, 2017. The sensitivity analysis separately calculates each of our market risk exposures (interest rate, foreign
currency exchange rate and equity market) relating to our 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 in the
value of the U.S. dollar compared to all foreign currencies or decrease in the value of the U.S. dollar compared to all
foreign currencies) 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:
•
•
•
•
•
•
•
interest sensitive and foreign currency exchange sensitive liabilities do not include $193.5 billion of insurance contracts,
which are accounted for on a book value basis. Management believes that the changes in the economic value of those
contracts under changing interest rates and changing foreign currency exchange rates would offset a significant portion
of the fair value changes of interest sensitive and foreign currency exchange rate sensitive assets.
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;
sensitivities do not include the impact on asset or liability valuation of changes in market liquidity or changes in market
credit spreads;
foreign currency risk is not isolated for certain embedded derivatives within host asset and liability contracts, as the
risk on these instruments is reflected as equity;
for the derivatives that qualify as hedges, and for certain other assets such as mortgage loans, 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:
Interest rate risk
Foreign currency exchange rate risk
Equity market risk
__________________
194
December 31, 2017
(In millions)
$
$
$
5,862
7,867
71
Table of Contents
In 2016, the Company reinvested its trading securities portfolio into other asset classes and, at December 31, 2016, the
Company no longer held any actively traded securities. The potential losses in estimated fair value presented are for non-trading
securities.
The risk sensitivities derived used a 10% increase to interest rates, a 10% strengthening of the U.S. dollar against foreign
currencies, and a 10% decrease in equity prices.
195
Table of Contents
The table below provides additional detail regarding the potential loss in estimated fair value of our interest sensitive financial
instruments due to a 10% increase in yield curve by type of asset or liability at:
Assets
Fixed maturity securities
Equity securities
FVO general account 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
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 arrangement
Junior subordinated debt securities
Other liabilities
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
Interest rate total return swaps
Synthetic GICs
Foreign currency swaps
Foreign currency forwards
Currency futures
Currency options
Credit default swaps
Equity futures
Equity index options
Equity variance swaps
Equity total return swaps
Total derivative instruments
Net Change
__________________
Notional
Amount
December 31, 2017
Estimated
Fair
Value (1)
(In millions)
Assuming a
10% Increase
in the Yield
Curve
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
308,931
$
(5,130)
$
$
$
$
2,513
2,224
69,797
11,512
4,870
608
12,701
3,524
4,339
328
144
111,415
25,723
477
17,773
894
4,319
3,841
418
4,144
92
76
(2)
645
(170)
6
—
(304)
(149)
2
(70)
235
14
(121)
(145)
(41)
—
(7)
(657)
(103)
(4)
—
—
—
(236)
(3)
—
(6,140)
581
—
—
380
—
106
(43)
105
1,129
(629)
(22)
43
34
(25)
(130)
(53)
—
(62)
2
—
(4)
(1)
—
(4)
—
—
$
$
(851)
(5,862)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
67,912
7,201
53,079
4,366
12,009
3,549
1,048
11,318
43,170
15,823
846
12,531
13,395
4,005
19,886
4,661
1,117
(1)
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. FVO general account securities and long-term debt exclude $6 million and $5 million, respectively, related
to CSEs. See Note 8 of the Notes to the Consolidated Financial Statements for information regarding CSEs.
196
Table of Contents
(2)
(3)
Embedded derivatives are recognized on the consolidated balance sheet in the same caption as the host contract.
Excludes $193.5 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.
Sensitivity to rising interest rates increased $0.1 billion to $5.9 billion at December 31, 2017 from $5.8 billion December
31, 2016. Sensitivity increased $0.2 billion as a result of increased rates and durations, since the sensitivity is calculated based
on a 10% increase in the yield curve, offset with a decrease of $0.1 billion from our use of derivatives, used by the Company
as hedges against low rates.
197
Table of Contents
The table below provides additional detail regarding the potential loss in estimated fair value of our portfolio due to a 10%
increase in the U.S. dollar compared to all foreign currencies at:
Assets
Fixed maturity securities
Equity securities
FVO general account 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
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
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
Interest rate total return swaps
Synthetic GICs
Foreign currency swaps
Foreign currency forwards
Currency futures
Currency options
Credit default swaps
Equity futures
Equity index options
Equity variance swaps
Equity total return swaps
Total derivative instruments
Net Change
__________________
Notional
Amount
December 31, 2017
Estimated
Fair
Value (1)
(In millions)
Assuming a
10% Increase
in the Foreign
Exchange Rate
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
308,931
$
(9,746)
$
$
$
$
2,513
2,224
69,797
11,512
4,870
608
12,701
3,524
4,339
328
144
111,415
25,723
17,773
3,841
418
4,144
92
76
(2)
645
(170)
6
—
(304)
(149)
2
(70)
235
14
(121)
(145)
(41)
(59)
(93)
(870)
(157)
(312)
(207)
(478)
(103)
(43)
(8)
(14)
(12,090)
3,722
123
118
9
42
4,014
(37)
—
—
—
(51)
4
—
—
629
(804)
(85)
542
(6)
—
17
—
—
$
$
209
(7,867)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
67,912
7,201
53,079
4,366
12,009
3,549
1,048
11,318
43,170
15,823
846
12,531
13,395
4,005
19,886
4,661
1,117
(1)
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. FVO general securities and long-term debt exclude $6 million and $5 million,
respectively, related to CSEs. See Note 8 of the Notes to the Consolidated Financial Statements for information regarding
CSEs.
198
Table of Contents
(2)
(3)
Embedded derivatives are recognized on the consolidated balance sheet in the same caption as the host contract.
Excludes $193.5 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.
Sensitivity to foreign currency exchange rates increased by $1.0 billion, or 13%, to $7.9 billion at December 31, 2017 from
$6.9 billion at December 31, 2016. This change was primarily due to an increase in the fair value of foreign currency assets
which may be backing foreign currency liabilities that are not included in this analysis.
The table below provides additional detail regarding the potential loss in estimated fair value of our portfolio due to a 10%
decrease in equity prices by type of asset or liability at:
Assets
Equity securities
FVO general account securities
Embedded derivatives within asset host contracts (2)
Total assets
Liabilities
Policyholder account balances
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
Interest rate total return swaps
Synthetic GICs
Foreign currency swaps
Foreign currency forwards
Currency futures
Currency options
Credit default swaps
Equity futures
Equity index options
Equity variance swaps
Equity total return swaps
Total derivative instruments
Net Change
__________________
Notional
Amount
December 31, 2017
Estimated
Fair
Value (1)
(In millions)
Assuming a
10% Decrease
in Equity
Prices
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
67,912
7,201
53,079
4,366
12,009
3,549
1,048
11,318
43,170
15,823
846
12,531
13,395
4,005
19,886
4,661
1,117
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2,513
$
2,224
144
111,415
418
4,144
92
76
(2)
645
(170)
6
—
(304)
(149)
2
(70)
235
14
(121)
(145)
(41)
$
$
$
$
$
$
(251)
(157)
—
(408)
—
(228)
(228)
—
—
—
—
—
—
—
—
—
—
—
—
—
313
125
3
124
565
(71)
(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 on the consolidated balance sheet in the same caption as the host contract.
As of December 31, 2017, sensitivity to a 10% equity market decrease was $71 million. This compares to a $23 million
sensitivity to a 10% equity market increase at December 31,2016. The change is primarily due to the application of shock to
BHF stock acquired in the Separation.
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Table of Contents
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements, Notes and Schedules
Report of Independent Registered Public Accounting Firm
Financial Statements at December 31, 2017 and 2016 and for the Years Ended December 31, 2017, 2016
and 2015:
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 — 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 Arrangement
Note 14 — Junior Subordinated Debt Securities
Note 15 — Equity
Note 16 — Other Expenses
Note 17 — Employee Benefit Plans
Note 18 — Income Tax
Note 19 — Earnings Per Common Share
Note 20 — Contingencies, Commitments and Guarantees
Note 21 — Quarterly Results of Operations (Unaudited)
Note 22 — Subsequent Events
Financial Statement Schedules at December 31, 2017 and 2016 and for the Years Ended December 31,
2017, 2016 and 2015:
Schedule I — Consolidated Summary of Investments — Other Than Investments in Related Parties
Schedule II — Condensed Financial Information (Parent Company Only)
Schedule III — Consolidated Supplementary Insurance Information
Schedule IV — Consolidated Reinsurance
200
Page
201
202
203
204
205
206
208
230
237
247
265
268
272
274
294
308
328
330
332
334
335
354
355
366
373
374
384
385
386
387
396
398
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of MetLife, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of MetLife, Inc. and subsidiaries (the "Company") as of December
31, 2017 and 2016, 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, 2017, and the related notes and the schedules listed in the Index to
Consolidated Financial Statements, Notes and Schedules (collectively referred to as the “consolidated financial statements”).
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company
as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period
ended December 31, 2017, 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)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated March 1, 2018, expressed an adverse opinion on the Company’s internal control over financial
reporting because of material weaknesses.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered
with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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,
whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a
reasonable basis for our opinion.
/s/ DELOITTE & TOUCHE LLP
New York, New York
March 1, 2018
We have served as the Company’s auditor since at least 1968; however, the specific year has not been determined.
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Table of Contents
Assets
Investments:
MetLife, Inc.
Consolidated Balance Sheets
December 31, 2017 and 2016
(In millions, except share and per share data)
2017
2016
Fixed maturity securities available-for-sale, at estimated fair value (amortized cost: $286,069 and $271,676, respectively)
$
308,931
$
289,563
Equity securities available-for-sale, at estimated fair value (cost: $2,140 and $2,464, respectively)
Fair value option securities, at estimated fair value ($6 and $8, respectively, relating to variable interest entities)
Mortgage loans (net of valuation allowances of $314 and $304, respectively; includes $520 and $566, respectively, under the fair value option)
Policy loans
Real estate and real estate joint ventures (includes $25 and $59, respectively, of real estate held-for-sale)
Other limited partnership interests (includes $0 and $14, respectively, relating to variable interest entities)
Short-term investments, principally at estimated fair value
Other invested assets (includes $125 and $31, respectively, relating to variable interest entities)
Total investments
Cash and cash equivalents, principally at estimated fair value (includes $12 and $1, respectively, relating to variable interest entities)
Accrued investment income
Premiums, reinsurance and other receivables (includes $3 and $2, respectively, relating to variable interest entities)
Deferred policy acquisition costs and value of business acquired
Current income tax recoverable
Goodwill
Assets of disposed subsidiary
Other assets (includes $2 and $3, respectively, relating to variable interest entities)
Separate account assets
Total assets
Liabilities and Equity
Liabilities
Future policy benefits
Policyholder account balances
Other policy-related balances
Policyholder dividends payable
Policyholder dividend obligation
Payables for collateral under securities loaned and other transactions
Short-term debt
Long-term debt (includes $6 and $12, respectively, at estimated fair value, relating to variable interest entities)
Collateral financing arrangement
Junior subordinated debt securities
Liabilities of disposed subsidiary
Current income tax payable
Deferred income tax liability
Other liabilities (includes $3 and $0, respectively, relating to variable interest entities)
Separate account liabilities
Total liabilities
Contingencies, Commitments and Guarantees (Note 20)
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; 1,168,710,101 and 1,164,029,985 shares issued, respectively;
1,043,588,396 and 1,095,519,005 shares outstanding, respectively
Additional paid-in capital
Retained earnings
Treasury stock, at cost; 125,121,705 and 68,510,980 shares, respectively
Accumulated other comprehensive income (loss)
Total MetLife, Inc.’s stockholders’ equity
Noncontrolling interests
Total equity
Total liabilities and equity
See accompanying notes to the consolidated financial statements.
202
2,513
16,745
68,731
9,669
9,637
5,708
4,870
17,263
444,067
12,701
3,524
18,423
18,419
—
9,590
—
8,167
$
$
205,001
719,892
$
177,974
$
182,518
15,515
682
2,121
25,723
477
15,686
1,121
3,144
—
311
6,767
23,982
205,001
661,022
—
12
31,111
26,527
(6,401)
7,427
58,676
194
58,870
$
719,892
$
2,894
13,923
65,167
9,511
8,891
5,136
6,523
19,303
420,911
12,651
3,308
15,445
17,590
20
9,220
216,983
7,058
195,578
898,764
166,636
172,486
13,402
696
1,931
25,873
242
16,441
1,274
3,169
202,707
—
6,892
23,735
195,578
831,062
—
12
30,944
34,683
(3,474)
5,366
67,531
171
67,702
898,764
Table of Contents
MetLife, Inc.
Consolidated Statements of Operations
For the Years Ended December 31, 2017, 2016 and 2015
(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
2017
2016
2015
$
38,992
$
37,202
$
36,403
5,510
17,363
1,341
5,483
16,790
1,685
5,570
16,205
1,927
(11)
1
(298)
(308)
(590)
(96)
(11)
424
317
(690)
(61)
2
668
609
629
62,308
60,787
61,343
38,313
5,607
1,231
13,621
58,772
3,536
(1,470)
5,006
(986)
4,020
10
4,010
103
—
36,358
5,176
1,223
13,749
56,506
4,281
693
3,588
(2,734)
854
4
850
103
—
35,144
4,415
1,356
14,777
55,692
5,651
1,590
4,061
1,324
5,385
12
5,373
116
42
Net income (loss) available to MetLife, Inc.’s common shareholders
$
3,907
$
747
$
5,215
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
$
$
$
$
$
4.57
4.53
3.65
3.62
1.600
$
$
$
$
$
3.16
3.13
0.68
0.67
1.575
$
$
$
$
$
3.48
3.44
4.67
4.62
1.475
See accompanying notes to the consolidated financial statements.
203
Table of Contents
MetLife, Inc.
Consolidated Statements of Comprehensive Income (Loss)
For the Years Ended December 31, 2017, 2016 and 2015
(In millions)
Net income (loss)
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)
2017
2016
2015
$
4,020
$
854
$
5,385
4,623
(1,165)
767
144
4,369
(984)
3,385
7,405
796
573
(363)
131
1,137
(450)
687
1,541
(7,449)
589
(1,624)
354
(8,130)
2,203
(5,927)
(542)
32
(574)
Less: Comprehensive income (loss) attributable to noncontrolling interest, net of income
tax
Comprehensive income (loss) attributable to MetLife, Inc.
14
92
$
7,391
$
1,449
$
See accompanying notes to the consolidated financial statements.
204
Table of Contents
MetLife, Inc.
Consolidated Statements of Equity
For the Years Ended December 31, 2017, 2016 and 2015
(In millions)
Balance at December 31, 2014, as previously reported
Prior-period revisions (Note 1)
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
Balance at December 31, 2015
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
Balance at December 31, 2016
Treasury stock acquired in connection with share repurchases
Stock-based compensation
Dividends on preferred stock
Dividends on common stock
Distribution of Brighthouse, net of income tax (Note 3)
Change in equity of noncontrolling interests
Net income (loss)
Other comprehensive income (loss), net of income tax
Balance at December 31, 2017
Preferred
Stock
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Treasury
Stock
at Cost
Accumulated
Other
Comprehensive
Income (Loss)
Total
MetLife, Inc.’s
Stockholders’
Equity
Noncontrolling
Interests
Total
Equity
$
$
$
$
1
—
1
(1)
12
—
12
$
$
$
$
30,543
—
30,543
(1,459)
1,483
182
32,020
90
32,110
$
$
(42)
(116)
(1,653)
5,373
—
12
30,749
35,672
195
(103)
(1,736)
850
—
12
30,944
34,683
167
(103)
(1,717)
(10,346)
4,010
(1,172)
$
—
(1,172)
$
10,649
65
10,714
$
$
(1,930)
(3,102)
(372)
(3,474)
(2,927)
(5,947)
4,767
599
5,366
(1,320)
3,381
72,053
155
72,208
(1,460)
(42)
1,483
(1,930)
182
(116)
(1,653)
—
5,373
(5,947)
68,098
(372)
195
(103)
(1,736)
—
850
599
67,531
(2,927)
167
(103)
(1,717)
(11,666)
—
4,010
3,381
$
$
507
—
507
$
$
(69)
12
20
470
(391)
4
88
171
9
10
4
$
— $
12
$
31,111
$
26,527
$
(6,401)
$
7,427
$
58,676
$
194
$
See accompanying notes to the consolidated financial statements.
72,560
155
72,715
(1,460)
(42)
1,483
(1,930)
182
(116)
(1,653)
(69)
5,385
(5,927)
68,568
(372)
195
(103)
(1,736)
(391)
854
687
67,702
(2,927)
167
(103)
(1,717)
(11,666)
9
4,020
3,385
58,870
205
Table of Contents
MetLife, Inc.
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2017, 2016 and 2015
(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
Goodwill impairment
Change in fair value option and trading securities
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
Cash disposed due to distribution of Brighthouse
Sales of businesses, net of cash and cash equivalents disposed of $0, $135 and $0, respectively
Purchases of businesses
Purchases of investments in operating joint ventures
Net change in policy loans
Net change in short-term investments
Net change in other invested assets
Other, net
2017
2016
2015
$
4,020
$
854
$
5,385
795
(1,044)
363
3,610
194
6,260
(7,708)
—
(436)
(280)
(991)
(693)
(2,796)
691
8,511
1,603
184
12,283
95,945
1,433
10,353
972
1,082
(105,683)
(920)
(14,374)
(1,446)
(1,486)
5,315
(8,696)
—
—
—
—
(663)
—
(211)
—
(67)
2,087
(171)
(346)
652
(1,110)
(183)
8,779
475
6,282
(9,207)
260
111
(31)
(2,158)
(937)
(1,522)
3,248
6,321
2,801
139
14,774
150,658
1,241
12,977
826
1,542
(146,397)
(1,006)
(21,017)
(1,515)
(1,313)
4,259
(6,963)
—
—
—
—
—
156
—
(39)
195
1,270
(267)
(457)
693
(1,141)
(560)
1,371
481
5,610
(9,507)
—
784
138
(831)
488
715
2,752
6,408
1,172
94
14,052
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)
Net cash provided by (used in) investing activities
$
(16,876)
$
(5,850)
$
(10,398)
See accompanying notes to the consolidated financial statements.
206
Table of Contents
MetLife, Inc.
Consolidated Statements of Cash Flows — (continued)
For the Years Ended December 31, 2017, 2016 and 2015
(In millions)
Cash flows from financing activities
Policyholder account balances:
Deposits
Withdrawals
Net change in payables for collateral under securities loaned and other transactions
Long-term debt issued
Long-term debt repaid
Collateral financing arrangements repaid
Distribution of Brighthouse
Financing element on certain derivative instruments and other derivative related transactions, net
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
Cash and cash equivalents, of disposed subsidiary, beginning of year
Cash and cash equivalents, of disposed subsidiary, end of year
Cash and cash equivalents, from continuing operations, beginning of year
Cash and cash equivalents, from continuing operations, end of year
Supplemental disclosures of cash flow information:
Net cash paid (received) for:
Interest
Income tax
Non-cash transactions
Disposal of Brighthouse (See Note 3):
Assets disposed
Liabilities disposed
Net assets disposed
Cash disposed
Net non-cash disposed
Fixed maturity securities received in connection with pension risk transfer transactions
Reduction of fixed maturity securities in connection with a reinsurance transaction
Reduction of other invested assets in connection with a reinsurance transaction
Deconsolidation of operating joint venture:
Reduction of fixed maturity securities
Reduction of noncontrolling interests
Deconsolidation of real estate investment vehicles:
Reduction of long-term debt
Reduction of real estate and real estate joint ventures
2017
2016
2015
$
88,511
$
88,188
$
(82,380)
903
3,657
(1,073)
(2,951)
(2,793)
(151)
(2,927)
—
—
—
(103)
(1,717)
118
(906)
323
(5,176)
17,877
12,701
5,226
$
$
— $
12,651
12,701
1,118
1,530
$
$
$
$
(83,263)
(3,636)
—
(1,279)
(68)
—
(1,367)
(372)
—
—
—
(103)
(1,736)
139
(3,497)
(302)
5,125
12,752
17,877
1,570
5,226
11,182
12,651
1,202
672
$
$
$
$
$
$
$
225,502
$
— $
(210,999)
14,503
(3,456)
—
—
—
11,047
$
— $
— $
— $
— $
— $
— $
— $
— $
985
224
676
917
373
$
$
$
$
$
— $
— $
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
92,904
(94,621)
1,544
3,893
(1,438)
(57)
—
181
(1,930)
1,483
(1,460)
(42)
(116)
(1,653)
94
(1,218)
(492)
1,944
10,808
12,752
1,603
1,570
9,205
11,182
1,178
1,127
—
—
—
—
—
903
—
—
—
—
571
688
See accompanying notes to the consolidated financial statements.
207
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 one of the world’s leading financial services companies, providing insurance, annuities, employee benefits
and asset management. MetLife is organized into five segments: U.S.; Asia; Latin America; Europe, the Middle East and Africa
(“EMEA”); and MetLife Holdings.
On August 4, 2017, MetLife, Inc. completed the separation of Brighthouse Financial, Inc. and its subsidiaries (“Brighthouse”)
through a distribution of 96,776,670 shares of Brighthouse Financial, Inc. common stock to the MetLife, Inc. common
shareholders (the “Separation”). See Note 3 for additional information on the Separation.
Basis of Presentation
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of
America (“GAAP”) requires management to adopt accounting policies and make estimates and assumptions that affect amounts
reported on the consolidated financial statements. In applying these policies and estimates, management makes subjective and
complex judgments that frequently require assumptions about matters that are inherently uncertain. Many of these policies,
estimates and related judgments are common in the insurance and financial services industries; others are specific to the
Company’s business and operations. Actual results could differ from these estimates.
Consolidation
The accompanying 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.
Prior to January 1, 2016, certain international subsidiaries had a fiscal year cutoff of November 30th. The Company’s
consolidated financial statements for 2015 reflect the operating results of such subsidiaries for the year ended November 30,
2015. Effective January 1, 2016, the Company converted its Japan operations to calendar year-end reporting. The elimination
of a one-month reporting lag of a subsidiary is considered a change in accounting principle and requires retrospective
application. While the Company believes that eliminating the lag in the reporting of its Japan operations was preferable in
order to consistently reflect events, economic conditions and global trends on the financial statements, the Company determined
that it was impracticable to apply the effects of the lag elimination to financial reporting periods prior to January 1, 2015. The
effect of not retroactively applying this change in accounting, however, was not material to the 2015 or 2016 consolidated
financial statements. Therefore, the Company reported the cumulative effect of the change in accounting principle in net
income for the year ended December 31, 2016 and did not retrospectively apply the effects of this change to prior periods.
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. 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.
The results of Brighthouse are reflected in MetLife, Inc.'s consolidated financial statements as discontinued operations
and, therefore, are presented as assets and liabilities of disposed subsidiary on the consolidated balance sheets and income
(loss) from discontinued operations on the consolidated statements of operations. Intercompany transactions between the
Company and Brighthouse prior to the Separation have been eliminated. See Note 3 for information on discontinued operations
and transactions with Brighthouse.
208
Table of Contents
MetLife, Inc.
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Notes to the Consolidated Financial Statements — (continued)
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 on 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”) 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 on 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.
Revisions
As a result of the following adjustments, amounts previously reported have been immaterially restated. In addition, the
Company has corrected other unrelated immaterial errors which were previously recorded in the periods the Company identified
them.
Group Annuity Reserves
On December 15, 2017, the Company announced that it was undertaking a review of practices and procedures used to
estimate its reserves related to certain Retirement and Income Solutions (“RIS”) group annuitants who have been
unresponsive or missing over time. As a result of this process, the Company increased reserves by $510 million, before
income tax, to reinstate reserves previously released, and to reflect accrued interest and other related liabilities. Of this
increase, $372 million was considered an error and, recording this amount in the fourth quarter of 2017 financial statements
would have had a material effect on the results of operations for 2017.
Assumed Variable Annuity Guarantee Reserves
An internal review of practices and procedures was completed in early 2018, focusing on the calculation of certain
reserves associated with MetLife Holdings variable annuity guarantees assumed from a former operating joint venture in
Japan. As a result, the Company reduced these reserves by $896 million, before income tax. Of this decrease, $682 million
was considered an error and, recording this amount in the fourth quarter of 2017 financial statements would have had a
material effect on the results of operations for 2017.
209
Table of Contents
MetLife, Inc.
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Notes to the Consolidated Financial Statements — (continued)
A summary of the revisions to prior period net income (loss) available to MetLife, Inc.’s common shareholders is shown
in the table below:
For the Years Ended December 31,
2016
2015
Assumed variable annuity guarantee reserves
Group annuity reserves
Other revisions to continuing operations, net
Impact to income (loss) from continuing operations before provision for income tax
Provision for income tax expense (benefit) (1)
Impact to income (loss) from continuing operations, net of income tax
Other revisions to discontinued operations, net of income tax (1)
Impact to net income (loss) available to MetLife, Inc.’s common shareholders
__________________
(1)
Includes impact of certain tax-specific revisions.
The impact of the revisions is shown in the tables below:
$
$
$
(In millions)
184
(33)
(10)
141
27
114
(64)
50
$
80
(31)
(106)
(57)
(110)
53
10
63
Consolidated Balance Sheets
Liabilities
Future policy benefits
Policyholder account balances
Other policy-related balances
Deferred income tax liability
Other liabilities
Total liabilities
Stockholders’ Equity
Retained earnings
Accumulated other comprehensive income
Total MetLife, Inc.’s stockholders’ equity
Total equity
December 31, 2016
As
Previously
Reported
$ 166,701
$ 173,168
$
$
$
13,030
6,774
23,700
$ 831,284
$
$
$
$
34,480
5,347
67,309
67,480
As
Revised
Revisions
(In millions)
$
$
$
$
$
$
$
$
$
$
(65) $ 166,636
(682) $ 172,486
372
118
35
$
$
$
13,402
6,892
23,735
(222) $ 831,062
203
19
222
222
$
$
$
$
34,683
5,366
67,531
67,702
210
Table of Contents
MetLife, Inc.
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Notes to the Consolidated Financial Statements — (continued)
Consolidated Statements of Operations
Revenues
Universal life and investment-type product policy fees
Net investment income
Other net investment gains (losses)
Total net investment gain (losses)
Net derivatives gain (losses)
Total revenues
Expenses
Policyholder benefits and claims
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)
Net income (loss)attributable to MetLife, Inc.
Net income (loss) available to MetLife, Inc.’s common
shareholders
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
For the Years Ended December 31,
2016
2015
As
Previously
Reported
Revisions
As
Revised
As
Previously
Reported
Revisions
As
Revised
(In millions, except per share data)
5,570
16,243
705
646
545
61,334
35,102
14,753
55,626
5,708
1,700
4,008
1,314
5,322
5,310
5,152
3.43
3.40
4.61
4.57
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
— $
5,570
(38) $
16,205
(37) $
(37) $
84
9
42
24
66
$
$
$
$
$
(57) $
(110) $
53
10
63
63
63
0.05
0.04
0.06
0.05
$
$
$
$
$
$
$
$
$
668
609
629
61,343
35,144
14,777
55,692
5,651
1,590
4,061
1,324
5,385
5,373
5,215
3.48
3.44
4.67
4.62
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
5,482
16,790
412
305
(874)
60,590
36,316
13,735
56,450
4,140
666
3,474
$
$
$
$
$
$
$
$
$
$
$
1
$ 5,483
— $16,790
$
$
$
12
12
184
197
424
317
(690) $
$60,787
42
14
56
$36,358
$13,749
$56,506
141
$ 4,281
27
$
693
114
$ 3,588
$
$
$
$
$
$
$
$
$
$
$
(2,670) $
(64) $ (2,734) $
804
800
697
3.06
3.04
0.63
0.63
$
$
$
$
$
$
$
50
50
50
0.10
0.09
0.05
0.04
$
$
$
$
$
$
$
854
850
747
3.16
3.13
0.68
0.67
$
$
$
$
$
$
$
211
Table of Contents
MetLife, Inc.
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Notes to the Consolidated Financial Statements — (continued)
Consolidated Statements of Comprehensive Income (Loss)
For the Years Ended December 31,
2016
2015
As
Previously
Reported
Revisions
As
Revised
As
Previously
Reported
Revisions
As
Revised
Net income (loss)
Unrealized investment gains (losses), net of related offsets
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)
Comprehensive income (loss) attributable to MetLife, Inc.
$
$
$
$
$
$
$
(In millions)
804
760
1,101
$
$
$
50
36
36
$
$
854
796
$ 1,137
$
$
$
5,322
$
63
$
5,385
(7,443) $
(8,124) $
(6) $
(6) $
(7,449)
(8,130)
(437) $
(13) $
(450) $
2,266
$
(63) $
2,203
664
1,468
1,376
$
$
$
23
73
73
$
687
$ 1,541
$ 1,449
$
$
$
(5,858) $
(69) $
(5,927)
(536) $
(568) $
(6) $
(6) $
(542)
(574)
As
Previously
Reported
As
Revised
Revisions
(In millions)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
32,020
5,310
35,519
800
34,480
10,649
$
$
$
$
$
$
90
63
$32,110
$ 5,373
153
$35,672
50
$
850
203
$34,683
65
$10,714
(5,878) $
(69) $ (5,947)
4,771
576
5,347
72,053
67,949
67,309
72,560
68,419
67,480
$
$
$
$
$
$
$
$
$
(4) $ 4,767
23
19
$
599
$ 5,366
155
149
222
155
149
222
$72,208
$68,098
$67,531
$72,715
$68,568
$67,702
Consolidated Statements of Equity
Retained Earnings
Balance at December 31, 2014
Net income (loss)
Balance at December 31, 2015
Net income (loss)
Balance at December 31, 2016
Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2014
Other comprehensive income (loss), net of income tax
Balance at December 31, 2015
Other comprehensive income (loss), net of income tax
Balance at December 31, 2016
Total MetLife, Inc.'s Stockholders' Equity
Balance at December 31, 2014
Balance at December 31, 2015
Balance at December 31, 2016
Total Equity
Balance at December 31, 2014
Balance at December 31, 2015
Balance at December 31, 2016
212
Table of Contents
MetLife, Inc.
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Notes to the Consolidated Financial Statements — (continued)
Consolidated Statements of Cash Flows
Cash flows from operating activities
Net income (loss)
(Gains) losses on investments and from sales of businesses,
net
(Gains) losses on derivatives, net
Universal life and investment-type product policy fees
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 insurance-related liabilities and policy-related
balances
Change in other liabilities
Other, net (1)
__________________
For the Years Ended December 31,
2016
2015
As
Previously
Reported
Revisions
As
Revised
As
Previously
Reported
Revisions
As
Revised
(In millions)
$
$
$
$
$
$
$
$
$
$
804
$
50
$
854
$
5,322
$
63
$ 5,385
(171) $
(12) $
(183) $
(597) $
37
$
(560)
8,963
$
(184) $ 8,779
$
1,451
$
(80) $ 1,371
(9,206) $
(1) $ (9,207) $
(9,507) $
— $ (9,507)
(2,125) $
(33) $ (2,158) $
(837) $
6
$
(831)
(949) $
(1,557) $
6,279
2,766
136
$
$
$
12
35
42
35
56
$
(937) $
$ (1,522) $
$ 6,321
$ 2,801
$
192
$
$
$
491
825
6,366
1,134
164
$
$
$
$
$
(3) $
(110) $
488
715
42
38
7
$ 6,408
$ 1,172
$
171
(1)
Excludes impact related to adoption during 2017 of stock-based compensation guidance which decreased Other, net by
$53 million and $77 million for the years ended December 31, 2016 and 2015, respectively. See “— Adoption of New
Accounting Pronouncements.”
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.
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
Note
4
5
6
8
9
10
11
17
18
20
213
Table of Contents
MetLife, Inc.
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Notes to the Consolidated Financial Statements — (continued)
Insurance
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 Global Ratings (“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 contracts 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.
214
Table of Contents
MetLife, Inc.
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Notes to the Consolidated Financial Statements — (continued)
Other Policy-Related Balances
Other policy-related balances include policy and contract claims, premiums received in advance, unearned revenue
liabilities, obligations assumed under structured settlements, 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 (“IBNR”) 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 IBNR 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 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.
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.
See Note 3 for additional information on obligations assumed under structured settlement assignments.
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.
All revenues and expenses are presented net of reinsurance as applicable.
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.
215
Table of Contents
MetLife, Inc.
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Notes to the Consolidated Financial Statements — (continued)
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.
DAC and VOBA are amortized as follows:
Products:
• Nonparticipating and non-dividend-paying traditional contracts:
In proportion to the following over estimated lives of the 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
• Fixed and variable universal life contracts
• Fixed and variable deferred annuity contracts
• Credit insurance contracts
• Property & casualty insurance contracts
• Other short-duration contracts
Actual and expected future gross margins.
Actual and expected future gross profits.
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 on 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.
216
Table of Contents
MetLife, Inc.
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Notes to the Consolidated Financial Statements — (continued)
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
an offset 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.
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.
217
Table of Contents
MetLife, Inc.
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Notes to the Consolidated Financial Statements — (continued)
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, and is based on the estimated economic
life of the securities, which for mortgage-backed and asset-backed securities considers the estimated timing and amount of
prepayments of the underlying loans. See Note 8 “— Investments — Fixed Maturity and Equity Securities AFS —
Methodology for Amortization of Premium and Accretion of Discount on Structured Securities.” The amortization of
premium and accretion of discount of fixed maturity securities also takes into consideration call and maturity dates. 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 Securities
FVO securities are stated at estimated fair value and include investments for which the FVO has been elected (“FVO
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”).
218
Table of Contents
MetLife, Inc.
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Notes to the Consolidated Financial Statements — (continued)
Investments that are actively purchased and sold (“Actively traded securities”) principally include fixed maturity
securities and short sale agreement liabilities, which are included in other liabilities.
The Company previously maintained a trading securities portfolio. During 2016, the Company reinvested this portfolio
into other asset classes and at December 31, 2016 the Company no longer held any Actively traded securities. Changes in
estimated fair value of FVO Securities and Actively traded securities are included in net investment income, except for
certain securities included in FVO Securities, where changes are included in net investment gains (losses).
Mortgage Loans
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 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 are residential mortgage loans for which the FVO was elected, and which are stated
at estimated fair value. Changes in estimated fair value are recognized in net investment income.
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. 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 when such distributions become
payable 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.
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1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Notes to the Consolidated Financial Statements — (continued)
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.
See Note 18.
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. Leveraged leases derive investment returns in part from their
income tax treatment. 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.
Annuities funding structured settlement claims represent annuities funding claims assumed by the Company in its
capacity as a structured settlements assignment company. The annuities are stated at their contract value, which
represents the present value of the future periodic claim payments to be provided. The net investment income recognized
reflects the amortization of discount of the annuity at its implied effective interest rate. See Note 3.
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
on 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.
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MetLife, Inc.
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Notes to the Consolidated Financial Statements — (continued)
Repurchase Agreements
The Company participates in short-term repurchase agreements with unaffiliated financial institutions. Under these
agreements, the Company lends fixed maturity securities and receives cash as collateral in an amount generally equal to
85% to 100% of the estimated fair value of the securities loaned at the inception of the transaction. The associated liability
is recorded at the amount of cash received. The Company monitors the estimated fair value of the collateral and the securities
loaned throughout the duration of the transaction and additional collateral is obtained as necessary. Securities loaned under
such transactions may be sold or re-pledged by the transferee.
FHLB Boston Advance Agreements
A subsidiary of the Company has entered into short-term advance agreements with the Federal Home Loan Bank
(“FHLB”) of Boston (“FHLB Boston”). Under these advance agreements, the subsidiary pledges fixed maturity securities
as collateral and receives cash, which is segregated and reinvested, primarily into fixed maturity securities and cash
equivalents. While the collateral management practices are unique to this program, these transactions are accounted for and
have collateral maintenance requirements similar to securities lending and repurchase agreement transactions, as described
above, but securities pledged as collateral may not be sold or re-pledged by the transferee.
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
Net investment income
Hedge Accounting
Derivative:
• Economic hedges of variable annuity guarantees included in future
policy benefits
• 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
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).
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1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Notes to the Consolidated Financial Statements — (continued)
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 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.
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1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Notes to the Consolidated Financial Statements — (continued)
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’s 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 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.
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. 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 is
December 31 for U.S. and non-U.S. subsidiaries.
The Company recognizes the funded status of each of its defined benefit 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.
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1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Notes to the Consolidated Financial Statements — (continued)
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, generally 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.
Net periodic benefit costs are determined using management’s 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 on 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. 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 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. 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 jurisdictions;
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 on 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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MetLife, Inc.
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Notes to the Consolidated Financial Statements — (continued)
On December 22, 2017, President Trump signed into law H.R.1, commonly referred to as the Tax Cuts and Jobs Act of
2017 (“U.S. Tax Reform”). See Note 18 for additional information on U.S. Tax Reform and related Staff Accounting Bulletin
(“SAB”) 118 provisional amounts.
Litigation Contingencies
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 20, 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 on 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 2013 and after 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 the attainment of the applicable criteria for post-employment award
continuation, the requisite service period subsequent to attaining such criteria 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 such criteria. 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 $2.5 billion and $2.4 billion at December 31, 2017 and 2016,
respectively. Accumulated depreciation and amortization of property, equipment and leasehold improvements was
$1.1 billion at both December 31, 2017 and 2016. Related depreciation and amortization expense was $207 million,
$206 million and $215 million for the years ended December 31, 2017, 2016 and 2015, 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 $2.8 billion and $2.2 billion at December 31, 2017 and 2016, respectively.
Accumulated amortization of capitalized software was $2.0 billion and $1.5 billion at December 31, 2017 and 2016,
respectively. Related amortization expense was $250 million, $208 million and $212 million for the years ended
December 31, 2017, 2016 and 2015, respectively.
Other Revenues
Other revenues primarily include, in addition to items described elsewhere herein, prepaid legal plan fees, administrative
service fees, and fees related to certain stable value products. Such fees are recognized in the period in which services are
performed.
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MetLife, Inc.
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Notes to the Consolidated Financial Statements — (continued)
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. Diluted earnings per common share include the dilutive effect of the assumed
exercise or issuance of stock-based awards using the treasury stock method. Under the treasury stock method, exercise or
issuance of stock-based awards is assumed to occur with the proceeds used to purchase common stock at the average market
price for the period. The difference between the number of shares assumed issued and number of shares assumed purchased
represents the dilutive shares.
Adoption of New Accounting Pronouncements
Effective January 1, 2017, the Company early adopted guidance relating to business combinations. The new guidance
clarifies the definition of a business and requires that an entity apply certain criteria in order to determine when a set of assets
and activities qualifies as a business. The adoption of this standard will result in fewer acquisitions qualifying as businesses and,
accordingly, acquisition costs for those acquisitions that do not qualify as businesses will be capitalized rather than expensed.
The adoption did not have a material impact on the Company’s consolidated financial statements.
Effective January 1, 2017, the Company retrospectively adopted guidance relating to consolidation. The new guidance does
not change the characteristics of a primary beneficiary under current GAAP. It changes how a reporting entity evaluates whether
it is the primary beneficiary of a VIE by changing how a reporting entity that is a single decisionmaker of a VIE handles indirect
interests in the entity held through related parties that are under common control with the reporting entity. The adoption of this
new guidance did not have a material impact on the Company’s consolidated financial statements.
Effective January 1, 2017, the Company adopted guidance related to stock-based compensation. The new guidance changes
several aspects of the accounting for share-based payment and award transactions, including (i) income tax consequences when
awards vest or are settled; (ii) classification as either equity or liability due to statutory tax withholding requirements; and
(iii) classification on the statement of cash flows. In addition, the new guidance provides an accounting policy election to account
for forfeitures as they occur, rather than to account for them based on an estimate of expected forfeitures. The Company has
elected to continue to account for forfeitures based on an estimate of expected forfeitures. In addition, the Company elected to
apply the change in presentation in the consolidated statements of cash flows related to excess tax benefits prospectively and
prior periods have not been adjusted. The change in presentation for cash paid to a taxing authority when directly withholding
equivalent shares has been classified as a financing activity in the consolidated statements of cash flows. The change was applied
retrospectively and thus the directly withheld share equivalent amount was reclassified from an operating activity to a financing
activity in the consolidated statements of cash flows. The adoption of this new guidance did not have a material impact on the
Company’s consolidated financial statements.
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1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Notes to the Consolidated Financial Statements — (continued)
Effective January 1, 2016, the Company retrospectively adopted guidance relating to short-duration contracts. 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 did not have an impact on the Company’s consolidated financial statements other than expanded
disclosures in Note 4.
Effective January 1, 2016, the Company retrospectively adopted new guidance relating to the consolidation of certain
entities. The objective of the new standard is to improve targeted areas of the consolidation guidance and to reduce the number
of consolidation models. The new consolidation standard provides guidance on how a reporting entity (i) evaluates whether the
entity should consolidate limited partnerships and similar entities, (ii) assesses whether the fees paid to a decisionmaker or
service provider are variable interests in a VIE, and (iii) assesses the variable interests in a VIE held by related parties of the
reporting entity. The new guidance also eliminates the VIE consolidation model based on majority exposure to variability that
applied to certain investment companies and similar entities. The adoption of the new guidance did not impact which entities
are consolidated by the Company. The consolidated VIE assets and liabilities and unconsolidated VIE carrying amounts and
maximum exposure to loss as of December 31, 2016, disclosed in Note 8, reflect the application of the new guidance.
Other
Effective January 3, 2017, the Chicago Mercantile Exchange (“CME”) amended its rulebook, resulting in the characterization
of variation margin transfers as settlement payments, as opposed to adjustments to collateral. These amendments impacted the
accounting treatment of the Company’s centrally cleared derivatives for which the CME serves as the central clearing party. As
of the effective date, the application of the amended rulebook reduced gross derivative assets by $1.8 billion, gross derivative
liabilities by $2.0 billion, accrued investment income by $101 million, accrued investment expense recorded within other
liabilities by $14 million, collateral receivables recorded within premiums, reinsurance and other receivables of $991 million,
and collateral payables recorded within payables for collateral under securities loaned and other transactions of $816 million.
Future Adoption of New Accounting Pronouncements
In February 2018, the Financial Accounting Standards Board (“FASB”) issued new guidance on reporting comprehensive
income (Accounting Standards Update (“ASU”) 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220):
Reclassification of Certain Tax Effects from AOCI). The new guidance is effective for fiscal years beginning after December 15,
2018 and interim periods within those fiscal years and should be applied either in the period of adoption or retrospectively to
each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate or law in U.S. Tax Reform
is recognized. Early adoption is permitted. Current GAAP guidance requires that the effect of a change in tax laws or rates on
deferred tax liabilities or assets to be included in income from continuing operations in the reporting period that includes the
enactment date, even if the related income tax effects were originally charged or credited directly to AOCI. The new guidance
allows a reclassification of AOCI to retained earnings for stranded tax effects resulting from U.S. Tax Reform. Also, the new
guidance requires certain disclosures about stranded tax effects. The Company will early adopt the new guidance in the first
quarter of 2018. The Company expects the impact of this new guidance at adoption will be a decrease to retained earnings as
of January 1, 2018 of approximately $1.2 billion with a corresponding increase to AOCI.
In August 2017, the FASB issued new guidance on hedging activities (ASU 2017-12, Derivatives and Hedging (Topic 815):
Targeted Improvements to Accounting for Hedging Activities). The new guidance is effective for fiscal years beginning after
December 15, 2018 and interim periods within those fiscal years and should be applied on a modified retrospective basis through
a cumulative-effect adjustment to retained earnings. Early adoption is permitted. The new guidance simplifies the application
of hedge accounting in certain situations and amends the hedge accounting model to enable entities to better portray the economics
of their risk management activities in the financial statements. The Company is currently evaluating the impact of the new
guidance on its consolidated financial statements.
In May 2017, the FASB issued new guidance on share-based payment awards (ASU 2017-09, Compensation - Stock
Compensation (Topic 718) - Scope of Modification Accounting). The new guidance is effective for fiscal years beginning after
December 15, 2017 and interim periods within those fiscal years. The new guidance should be applied prospectively to an award
modified on or after the adoption date. Early adoption is permitted. The ASU includes guidance on determining which changes
to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718.
The adoption of this new guidance will not have a material impact on the Company’s consolidated financial statements.
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MetLife, Inc.
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Notes to the Consolidated Financial Statements — (continued)
In March 2017, the FASB issued new guidance on purchased callable debt securities (ASU 2017-08, Receivables -
Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities). The
new guidance is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years and
should be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings. Early adoption
is permitted. The ASU shortens the amortization period for certain callable debt securities held at a premium and requires the
premium to be amortized to the earliest call date. However, the new guidance does not require an accounting change for securities
held at a discount whose discount continues to be amortized to maturity. The Company is currently evaluating the impact of the
new guidance on its consolidated financial statements.
In March 2017, the FASB issued new guidance on the presentation of net periodic pension cost and net periodic postretirement
benefit cost (ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension
Cost and Net Periodic Postretirement Benefit Cost). The new guidance is effective for annual periods beginning after
December 15, 2017 and interim periods within those annual periods. The guidance requires that an employer that offers to its
employees defined benefit pension or other postretirement benefit plans report the service cost component in the same line item
or items as other compensation costs. The other components of net benefit cost are required to be presented in the income
statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. If
a separate line item is not used, the line item used in the income statement to present the other components of net benefit cost
must be disclosed. In addition, the guidance allows only the service cost component to be eligible for capitalization when
applicable. The guidance should be applied retrospectively for the presentation of the service cost component in the income
statement with a practical expedient for the estimation basis for applying the retrospective presentation requirements, and
prospectively for the capitalization of the service component. The adoption of this new guidance will not have a material impact
on the Company’s consolidated financial statements.
In February 2017, the FASB issued new guidance on derecognition of nonfinancial assets (ASU 2017-05, Other Income -
Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition
Guidance and Accounting for Partial Sales of Nonfinancial Assets). The new guidance is effective for fiscal years beginning
after December 15, 2017 and interim periods within those fiscal years. Early adoption is permitted for interim or annual reporting
periods beginning after December 15, 2016. The guidance may be applied retrospectively for all periods presented or
retrospectively with a cumulative-effect adjustment to retained earnings at the date of adoption. The new guidance clarifies the
scope and accounting of a financial asset that meets the definition of an “in-substance nonfinancial asset” and defines the term,
“in-substance nonfinancial asset.” The ASU also adds guidance for partial sales of nonfinancial assets. The adoption of this new
guidance will not have a material impact on the Company’s consolidated financial statements.
In January 2017, the FASB issued new guidance on goodwill impairment (ASU 2017- 04, Intangibles - Goodwill and Other
(Topic 350): Simplifying the Test for Goodwill Impairment). The new guidance is effective for fiscal years beginning after
December 15, 2019 and interim periods within those fiscal years, and should be applied on a prospective basis. Early adoption
is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The new guidance
simplifies the current two-step goodwill impairment test by eliminating Step 2 of the test. The new guidance requires a one-step
impairment test in which an entity compares the fair value of a reporting unit with its carrying amount and recognizes an
impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, if any. The Company
expects the adoption of this new guidance will reduce the complexity involved with the evaluation of goodwill for impairment.
The impact of this guidance will depend on the outcomes of future goodwill impairment tests.
In November 2016, the FASB issued new guidance on restricted cash (ASU 2016-18, Statement of Cash Flows (Topic 230):
A consensus of the FASB Emerging Issues Task Force). The new guidance is effective for fiscal years beginning after December 15,
2017 and interim periods within those fiscal years, and should be applied on a retrospective basis. Early adoption is permitted.
The new guidance requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents,
and amounts generally described as restricted cash or restricted cash equivalents. As a result, the new guidance requires that
amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents
when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The new
guidance does not provide a definition of restricted cash or restricted cash equivalents. The adoption of this new guidance will
not have a material impact on the Company’s consolidated financial statements.
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MetLife, Inc.
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Notes to the Consolidated Financial Statements — (continued)
In October 2016, the FASB issued new guidance on tax accounting for intra-entity transfers of assets (ASU 2016-16, Income
Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory). The new guidance is effective for fiscal years beginning
after December 15, 2017 and interim periods within those fiscal years, and should be applied on a modified retrospective basis.
The Company will apply this guidance as of January 1, 2018. Current guidance prohibits the recognition of current and deferred
income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. The new guidance requires an
entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer
occurs. Based on the Company’s assessment of the intra-entity asset transfers and related deferred income taxes that are in scope,
the Company expects the adoption of this new guidance will not have a material impact on the Company’s consolidated financial
statements.
In August 2016, the FASB issued new guidance on cash flow statement presentation (ASU 2016-15, Statement of Cash
Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments). The new guidance is effective for fiscal years
beginning after December 15, 2017 and interim periods within those fiscal years, and should be applied retrospectively to all
periods presented. Early adoption is permitted in any interim or annual period. The new guidance addresses diversity in how
certain cash receipts and cash payments are presented and classified in the statement of cash flows. The adoption of this new
guidance will not have a material impact on the Company’s consolidated financial statements.
In June 2016, the FASB issued new guidance on measurement of credit losses on financial instruments (ASU 2016-13,
Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments). The new guidance
is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption
is permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. This ASU replaces
the incurred loss impairment methodology with one that reflects expected credit losses. The measurement of expected credit
losses should be based on historical loss information, current conditions, and reasonable and supportable forecasts. The new
guidance requires that an OTTI on a debt security will be recognized as an allowance going forward, such that improvements
in expected future cash flows after an impairment will no longer be reflected as a prospective yield adjustment through net
investment income, but rather a reversal of the previous impairment and recognized through realized investment gains and losses.
The guidance also requires enhanced disclosures. The Company has assessed the asset classes impacted by the new guidance
and is currently assessing the accounting and reporting system changes that will be required to comply with the new guidance.
The Company believes that the most significant impact upon adoption will be to its mortgage loan investments. The Company
is continuing to evaluate the overall impact of the new guidance on its consolidated financial statements.
In February 2016, the FASB issued new guidance on leasing transactions (ASU 2016-02, Leases - Topic 842). The new
guidance is effective for the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years,
and requires a modified retrospective transition approach. Early adoption is permitted. The new guidance requires a lessee to
recognize assets and liabilities for leases with lease terms of more than 12 months. Leases would be classified as finance or
operating leases and both types of leases will be recognized on the balance sheet. Lessor accounting will remain largely unchanged
from current guidance except for certain targeted changes. The new guidance will also require new qualitative and quantitative
disclosures. The Company’s implementation efforts are primarily focused on the review of its existing lease contracts,
identification of other contracts that may fall under the scope of the new guidance, and performing a gap analysis on the current
state of lease-related activities compared with the future state of lease-related activities. The Company is currently evaluating
the overall impact of the new guidance on its consolidated financial statements.
229
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MetLife, Inc.
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Notes to the Consolidated Financial Statements — (continued)
In January 2016, the FASB issued new guidance (ASU 2016-01, Financial Instruments-Overall: Recognition and
Measurement of Financial Assets and Financial Liabilities, as amended by ASU 2018-03, Financial Instruments-Overall:
Technical Corrections and Improvements, issued in February 2018) 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. Additionally, there will no longer be a requirement
to assess equity securities for impairment since such securities will be measured at fair value through net income. The Company
has assessed the population of financial instruments that are subject to the new guidance and has determined that the most
significant impact will be the requirement to report changes in fair value in net income each reporting period for all equity
securities currently classified as AFS and to a lesser extent, other limited partnership interests and real estate joint ventures that
are currently accounted for under the cost method. The Company will utilize a modified retrospective approach to adopt the
new guidance effective January 1, 2018. The expected impact related to the change in accounting for equity securities AFS will
be $280 million of net unrealized investment gains, net of income tax, which will be reclassified from AOCI to retained earnings.
The estimated financial statement impact related to cost method other limited partnership interests and real estate joint ventures
was not material.
In May 2014, the FASB issued a comprehensive new revenue recognition standard (ASU 2014-09, Revenue from Contracts
with Customers - Topic 606), effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal
years. The Company will apply this guidance retrospectively with a cumulative-effect adjustment as of January 1, 2018. The
new guidance supersedes nearly all existing revenue recognition guidance under U.S. GAAP. However, it does not impact the
accounting for insurance and investment contracts within the scope of Accounting Standards Codification (ASC) Topic 944,
Financial Services - Insurance, leases, financial instruments and certain guarantees. For those contracts that are impacted, the
new guidance requires 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
identified revenue streams within the scope of the guidance that are all included within other revenues in the consolidated
statements of operations and evaluated the related contracts, primarily consisting of prepaid legal plans and administrative-only
contracts within the U.S. segment, distribution and administrative services fees within the MetLife Holdings segment, and fee-
based investment management services within Corporate & Other. As other revenues represents approximately 2% of
consolidated total revenues for the year ended December 31, 2017, the modified retrospective adoption as of January 1, 2018,
did not have a material impact on the Company’s consolidated financial position and the Company has not identified any material
prospective changes in the recognition and measurement of other revenue. The Company expects to expand its qualitative
disclosures within the notes to the consolidated financial statements.
Other
Effective January 16, 2018, the London Clearing House (“LCH”) amended its rulebook, resulting in the characterization
of variation margin transfers as settlement payments, as opposed to adjustments to collateral. These amendments will impact
the accounting treatment of the Company’s centrally cleared derivatives, for which the LCH serves as the central clearing party.
The application of the amended rulebook is expected to reduce the gross derivative assets and liabilities, as well as the related
collateral, recorded on the consolidated balance sheet for trades cleared through the LCH. The Company is currently evaluating
the impact of these amendments on its consolidated financial statements.
2. Segment Information
Following the Separation and the elimination of the Brighthouse Financial segment, as described in Note 3, MetLife is
organized into five segments: U.S.; Asia; Latin America; EMEA; and MetLife Holdings. In addition, the Company reports certain
of its results of operations in Corporate & Other.
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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
2. Segment Information (continued)
U.S.
The U.S. segment offers a broad range of protection products and services aimed at serving the financial needs of customers
throughout their lives. These products are sold to corporations and their respective employees, other institutions and their
respective members, as well as individuals. The U.S. segment is organized into three businesses: Group Benefits, Retirement
and Income Solutions and Property & Casualty.
The Group Benefits business offers insurance products and services which include life, dental, group short- and
long-term disability, individual disability, accidental death and dismemberment, vision and accident & health
coverages, as well as prepaid legal plans. This business also sells administrative services-only arrangements to some
employers.
The Retirement and Income Solutions business offers a broad range of annuity and investment products, including
capital market investment products, institutional income annuities, stable value and pension risk transfer products.
This business also includes products to fund tort settlements, as well as postretirement benefits and company-, bank-
or trust-owned life insurance.
The Property & Casualty business offers personal and commercial lines of property and casualty insurance,
including private passenger automobile, homeowners’ and personal excess liability insurance. In addition, Property
& Casualty offers small business owners property, liability and business interruption insurance.
•
•
•
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 and endowment products.
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, credit insurance and retirement and
savings 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 and retirement and savings
products.
MetLife Holdings
The MetLife Holdings segment consists of operations relating to products and businesses no longer actively marketed by
the Company in the United States, such as variable, universal, term and whole life insurance, variable, fixed and index-linked
annuities, long-term care insurance, as well as the assumed variable annuity guarantees from the Company’s former operating
joint venture in Japan.
Corporate & Other
Corporate & Other contains the excess capital, as well as certain charges and activities, not allocated to the segments,
including external integration and disposition costs, internal resource costs for associates committed to acquisitions and
dispositions, enterprise-wide strategic initiative restructuring charges and 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, as well as the direct to consumer portion of the U.S. Direct business). Corporate &
Other also includes interest expense related to the majority of the Company’s outstanding debt, as well as expenses associated
with certain legal proceedings and income tax audit issues. In addition, Corporate & Other includes the elimination of
intersegment amounts, which generally relate to affiliated reinsurance and intersegment loans, which bear interest rates
commensurate with related borrowings. As a result of the Separation, for the years ended 2016 and 2015, Corporate & Other
includes corporate overhead costs previously allocated to the former Brighthouse Financial segment.
231
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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
2. Segment Information (continued)
Financial Measures and Segment Accounting Policies
Adjusted earnings is used by management to evaluate performance and allocate resources. Consistent with GAAP guidance
for segment reporting, adjusted earnings is also the Company’s GAAP measure of segment performance and is reported below.
Adjusted earnings should not be viewed as a substitute for income (loss) from continuing operations, net of income tax. The
Company believes the presentation of adjusted 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.
Adjusted earnings allows analysis of the Company’s performance relative to the Company’s business plan and facilitates
comparisons to industry results.
Adjusted earnings is defined as adjusted revenues less adjusted expenses, net of income tax.
The financial measures of adjusted revenues and adjusted expenses focus on the Company’s primary businesses principally
by excluding the impact of market volatility, which could distort trends, and revenues and costs related to non-core products
and certain entities required to be consolidated under GAAP. Also, these measures exclude results of discontinued operations
under GAAP and other businesses that have been or will be sold or exited by MetLife but do not meet the discontinued operations
criteria under GAAP and are referred to as divested businesses. Divested businesses also includes the net impact of transactions
with exited businesses that have been eliminated in consolidation under GAAP and costs relating to businesses that have been
or will be sold or exited by MetLife that do not meet the criteria to be included in results of discontinued operations under GAAP.
In addition, for the year ended December 31, 2016, adjusted revenues and adjusted expenses exclude the financial impact of
converting the Company’s Japan operations to calendar year-end reporting without retrospective application of this change to
prior periods and is referred to as lag elimination. Adjusted revenues also excludes net investment gains (losses) and net derivative
gains (losses). Adjusted expenses also excludes goodwill impairments.
The following additional adjustments are made to revenues, in the line items indicated, in calculating adjusted 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 earned income on derivatives and amortization of premium on derivatives that are
hedges of investments or that are used to replicate certain investments, but do not qualify for hedge accounting treatment,
(ii) excludes post-tax adjusted earnings adjustments relating to insurance joint ventures accounted for under the equity
method, (iii) excludes certain amounts related to contractholder-directed unit-linked investments and (iv) 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 expenses, in the line items indicated, in calculating adjusted 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”);
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, integration and other costs.
232
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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
2. Segment Information (continued)
Adjusted earnings also excludes the recognition of certain contingent assets and liabilities that could not be recognized at
acquisition or adjusted for during the measurement period under GAAP business combination accounting guidance.
The tax impact of the adjustments mentioned above are calculated net of the U.S. or foreign statutory tax rate, which could
differ from the Company’s effective tax rate. Additionally, the provision for income tax (expense) benefit also includes the
impact related to the timing of certain tax credits, as well as certain tax reforms.
Set forth in the tables below is certain financial information with respect to the Company’s segments, as well as Corporate &
Other, for the years ended December 31, 2017, 2016 and 2015 and at December 31, 2017 and 2016. The segment accounting
policies are the same as those used to prepare the Company’s consolidated financial statements, except for adjusted 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, income (loss) from continuing operations, net of
income tax or adjusted earnings.
Net investment income is based upon the actual results of each segment’s specifically identifiable investment portfolios
adjusted for allocated equity. Other costs are allocated to each of the segments based upon: (i) a review of the nature of such
costs; (ii) time studies analyzing the amount of employee compensation costs incurred by each segment; and (iii) cost estimates
included in the Company’s product pricing.
233
Table of Contents
2. Segment Information (continued)
Year Ended December 31, 2017
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)
Adjusted earnings
Adjustments to:
Total revenues
Total expenses
Provision for income tax (expense) benefit
Income (loss) from continuing operations, net of income tax
At December 31, 2017
Total assets
Separate account assets
Separate account liabilities
__________________
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
U.S.
Asia
Latin
America
EMEA
MetLife
Holdings
Corporate
& Other
Total
Adjustments
Total
Consolidated
$
23,632
$
1,012
6,396
806
—
—
$
6,755
1,584
2,985
43
—
—
2,693
1,044
1,219
32
—
—
$
2,061
$
405
309
58
—
—
(In millions)
$
4,144
1,361
5,607
244
—
—
31,846
11,367
4,988
2,833
11,356
23,627
1,474
(458)
459
—
11
3,682
28,795
1,024
2,027
$
5,075
1,351
(1,710)
1,300
(111)
—
3,613
9,518
620
$
1,229
$
2,535
369
(364)
224
(1)
5
1,479
4,247
156
585
1,077
100
(414)
357
(19)
—
1,376
2,477
59
7,000
1,018
(82)
302
—
24
1,365
9,627
547
$
297
$
1,182
$
54
1
28
271
—
—
354
26
1
(8)
6
—
1,105
894
2,024
(688)
(982)
38,992
5,510
17,363
1,341
(308)
(590)
62,308
39,544
5,607
(3,002)
2,681
(140)
1,129
12,953
58,772
(1,470)
$
39,339
$
(347) $
103
819
(113)
(308)
(590)
(436)
204
1,294
34
33
(9)
(16)
544
2,084
(3,188)
5,407
16,544
1,454
—
—
62,744
39,340
4,313
(3,036)
2,648
(131)
1,145
12,409
56,688
1,718
4,338
(436)
(2,084)
3,188
5,006
$
$
5,006
U.S.
Asia (1)
Latin
America
EMEA
(In millions)
MetLife
Holdings
Corporate
& Other
Total
$
$
$
255,428
81,243
81,243
$
$
$
136,928
10,032
10,032
$
$
$
79,670
56,218
56,218
$
$
$
30,500
5,975
5,975
$
$
$
183,160
51,533
51,533
$
$
$
34,206
$
— $
— $
719,892
205,001
205,001
(1)
Total assets includes $111.0 billion of assets from the Japan operations which represents 15% of total consolidated assets.
234
Table of Contents
2. Segment Information (continued)
Year Ended December 31, 2016
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)
Adjusted earnings
Adjustments to:
Total revenues
Total expenses
Provision for income tax (expense) benefit
Income (loss) from continuing operations, net of income tax
At December 31, 2016
Total assets
Separate account assets
Separate account liabilities
__________________
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
U.S.
Asia
Latin
America
EMEA
MetLife
Holdings
Corporate
& Other
Total
Adjustments
Total
Consolidated
$
21,501
$
989
6,206
784
—
—
$
6,902
1,488
2,707
61
—
—
2,529
1,025
1,084
34
—
—
$
2,027
$
391
318
73
—
—
(In millions)
$
4,506
1,436
5,944
581
—
—
29,480
11,158
4,672
2,809
12,467
21,591
1,302
(471)
471
—
9
3,706
26,608
976
5,211
1,298
(1,668)
1,236
(208)
—
3,586
9,455
479
$
1,896
$
1,224
$
2,443
328
(321)
184
(1)
2
1,336
3,971
158
543
1,067
112
(403)
408
(13)
—
1,323
2,494
42
$
273
$
7,523
1,042
(281)
736
—
57
2,392
11,469
292
706
$
40
2
178
110
—
—
330
41
6
(7)
8
—
1,139
597
1,784
(948)
(506)
37,202
5,483
16,790
1,685
317
(690)
60,787
37,581
5,176
(3,152)
2,718
(269)
1,157
13,295
56,506
693
$
37,505
$
(303) $
152
353
42
317
(690)
(129)
(295)
1,088
(1)
(325)
(47)
(50)
355
725
(306)
5,331
16,437
1,643
—
—
60,916
37,876
4,088
(3,151)
3,043
(222)
1,207
12,940
55,781
999
4,136
(129)
(725)
306
$
3,588
$
3,588
U.S.
Asia (1)
Latin
America
EMEA
(In millions)
MetLife
Holdings
Corporate
& Other (2)
Total
$
$
$
253,926
85,950
85,950
$
$
$
120,656
8,020
8,020
$
$
$
67,233
48,455
48,455
$
$
$
25,596
4,329
4,329
$
$
$
183,832
48,823
48,823
$
$
$
247,521
1
1
$
$
$
898,764
195,578
195,578
(1)
(2)
Total assets includes $98.0 billion of assets from the Japan operations which represents 11% of total consolidated assets.
Includes assets of disposed subsidiary of $216,983 million at December 31, 2016.
235
Table of Contents
2. Segment Information (continued)
Year Ended December 31, 2015
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)
Adjusted earnings
Adjustments to:
Total revenues
Total expenses
Provision for income tax (expense) benefit
Income (loss) from continuing operations, net of income tax
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
U.S.
Asia
Latin
America
EMEA
MetLife
Holdings
Corporate
& Other
Total
Adjustments
Total
Consolidated
$
(92) $
36,868
$
(465) $
36,403
5,570
16,205
1,927
609
629
61,343
36,500
4,415
(3,319)
3,184
(361)
1,168
14,105
55,692
1,590
66
(466)
(30)
609
629
343
(293)
336
120
116
(35)
(60)
282
466
(154)
5,504
16,671
1,957
—
—
61,000
36,793
4,079
(3,439)
3,068
(326)
1,228
13,823
55,226
1,744
4,030
343
(466)
154
$
4,061
$
4,061
$
20,861
$
943
6,183
751
—
—
$
6,937
1,542
2,675
105
—
—
2,581
1,117
1,038
41
—
—
$
2,036
$
424
326
61
—
—
(In millions)
4,545
1,482
6,189
930
—
—
28,738
11,259
4,777
2,847
13,146
20,899
1,216
(493)
471
—
4
3,685
25,782
1,009
1,947
$
5,266
1,309
(1,720)
1,253
(309)
—
3,611
9,410
461
2,408
349
(341)
271
(1)
—
1,429
4,115
37
988
120
(472)
497
(16)
—
1,469
2,586
21
7,346
1,062
(410)
577
—
55
2,694
11,324
582
(4)
260
69
—
—
233
(114)
23
(3)
(1)
—
1,169
935
2,009
(366)
$
1,388
$
625
$
240
$
1,240
$
(1,410)
236
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 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,
2017
2016
2015
(In millions)
$
20,330
$
20,436
$
14,002
6,999
3,613
899
14,128
5,552
3,560
694
20,847
13,109
5,730
3,504
710
$
45,843
$
44,370
$
43,900
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,
2017
2016
2015
(In millions)
30,971
$
29,166
$
29,094
6,444
8,428
7,089
8,115
45,843
$
44,370
$
6,264
8,542
43,900
$
$
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, 2017, 2016 and 2015.
3. Dispositions
2017 Pending Disposition
On October 25, 2017, the Company entered into a definitive agreement to sell MetLife Afore, S.A. de C.V. (“MetLife
Afore”), its pension fund management business in Mexico. As a result of the agreement, a loss of $98 million ($73 million, net
of income tax), which includes a reduction to goodwill of $16 million, was recorded for the year ended December 31, 2017 and
is reflected within net investment gains (losses).
At December 31, 2017, MetLife Afore reported $3.9 billion and $3.7 billion of total assets and total liabilities, respectively,
which primarily consisted of $3.7 billion of separate account assets and liabilities. MetLife Afore’s results of operations are
included in continuing operations and are reported in the Latin America segment. The transaction closed on February 20, 2018.
2017 Disposition
Separation of Brighthouse
In January 2016, MetLife, Inc. announced its plan to separate a substantial portion of its former Retail segment, as well
as certain portions of its former Corporate Benefit Funding segment and Corporate & Other. MetLife, Inc. subsequently re-
segmented the business to be separated and rebranded it as “Brighthouse Financial.” On July 6, 2017, MetLife, Inc. announced
that the U.S. Securities and Exchange Commission (“SEC”) declared Brighthouse Financial, Inc.’s registration statement on
Form 10 effective. Additionally, all required state regulatory approvals were granted.
237
Table of Contents
3. Dispositions (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
On August 4, 2017, MetLife, Inc. completed the separation of Brighthouse. MetLife, Inc. common shareholders received
a distribution of one share of Brighthouse Financial, Inc. common stock for every 11 shares of MetLife, Inc. common stock
they owned as of 5:00 p.m., New York City time, on the July 19, 2017 record date. Shareholders of MetLife, Inc. who owned
less than 11 shares of common stock, or others who would have otherwise received fractional shares, received cash. MetLife,
Inc. distributed 96,776,670 of the 119,773,106 shares of Brighthouse Financial, Inc. common stock outstanding, representing
approximately 80.8% of those shares. Certain MetLife affiliates hold MetLife, Inc. common stock and, as a result, participated
in the distribution.
The loss recognized in connection with the Separation was $1,302 million, net of income tax, which included: (i) a
$1,016 million loss on MetLife's retained investment in Brighthouse Financial, Inc., (ii) a $42 million net tax charge and (iii)
a $306 million charge, net of income tax, for transaction costs, partially offset by a $61 million gain, net of income tax, for
previously deferred intercompany gains realized upon Separation. The $42 million net tax charge is comprised of a
$1,093 million tax separation agreement charge offset by $1,051 million of Separation tax benefits. Of the $1,302 million
total loss, net of income tax, a $131 million loss, net of income tax, was reported within continuing operations as (i) a
$693 million net investment loss, (ii) a $147 million charge within policyholder benefits and claims, (iii) a $218 million charge
within other expenses, and (iv) a $927 million income tax benefit. The remaining $1,171 million loss was reported within
discontinued operations, which primarily includes a tax-related charge.
MetLife, Inc. retained the remaining ownership interest of 22,996,436 shares, or 19.2%, of Brighthouse Financial, Inc.
common stock and recognized its investment in Brighthouse Financial, Inc. common stock based on the NASDAQ reported
market price. The Company elected to record the investment under the FVO as an observable measure of estimated fair value
that is aligned with the Company’s intent to divest of the retained shares as soon as practicable. Subsequent changes in estimated
fair value of the investment are recorded to net investment gains (losses).The estimated fair value of the Brighthouse Financial,
Inc. common stock held by the Company (“FVO Brighthouse Common Stock”) as of December 31, 2017 was $1.3 billion
reported within FVO securities. The Company recorded a $1,016 million mark-to-market loss on its retained investment in
Brighthouse Financial, Inc. to net investment gains (losses) at the Separation date and an additional $95 million loss to net
investment gains (losses) for the change in Brighthouse Financial, Inc.’s common stock share price from the Separation date
to December 31, 2017.
In 2016, the Company recorded a non-cash charge of $260 million ($223 million, net of income tax) for the impairment
of Brighthouse goodwill included in discontinued operations. As of the Separation date, the Company evaluated the assets of
Brighthouse for potential impairment, and determined that no additional impairment charge was required.
The Company incurred pre-tax Separation-related transaction costs of $470 million for the year ended December 31,
2017, primarily related to fees for the terminations of financing arrangements and professional services. The Company incurred
pre-tax Separation-related transaction costs of $212 million for the year ended December 31, 2016 primarily related to
professional services. For the year ended December 31, 2017, the Company reported $333 million within discontinued
operations for fees for the terminations of financing arrangements and costs required to complete the Separation. All other
Separation-related transaction costs are recorded in other expenses and reported within continuing operations.
In connection with the Separation, MetLife, Inc. terminated various support agreements with Brighthouse.
Agreements
In connection with the Separation, MetLife and Brighthouse entered into various agreements. The significant
agreements were as follows:
Master Separation Agreement
MetLife entered into a master separation agreement with Brighthouse prior to the completion of the distribution. The
master separation agreement sets forth agreements with Brighthouse relating to the ownership of certain assets and the
allocation of certain liabilities in connection with the Separation. It also sets forth other agreements governing the
relationship with Brighthouse after the distribution, including certain payment obligations between the parties.
238
Table of Contents
3. Dispositions (continued)
Tax Agreements
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
Immediately prior to the Separation, MetLife entered into a tax separation agreement with Brighthouse. Among other
things, the tax separation agreement governs the allocation between MetLife and Brighthouse of the responsibility for the
taxes of the MetLife group. The tax separation agreement also allocates rights, obligations and responsibilities in connection
with certain administrative matters relating to the preparation of tax returns and control of tax audits and other proceedings
relating to taxes. For the taxable periods prior to Separation, MetLife and Brighthouse have joint and several liability for
the MetLife consolidated U.S. federal income tax returns’ current taxes (and the benefits of tax attributes such as losses)
allocated to Brighthouse. The tax separation agreement provides that the Brighthouse allocation of taxes could vary
depending upon the outcome of Internal Revenue Service (“IRS”) examinations. Upon Separation, MetLife, Inc. recorded
a current income tax receivable of $1.4 billion and a corresponding payable to Brighthouse reported in other liabilities. On
October 2, 2017, in accordance with the tax separation agreement, $729 million of this amount was paid by MetLife, Inc.
to Brighthouse.
As part of the tax separation agreement, MetLife, Inc. is liable for the U.S. federal income tax cost of a discrete
Separation‑related tax charge incurred by Brighthouse. The income tax charge arises from the recapture of certain tax
benefits incurred prior to Separation, and is caused by the deconsolidation of Brighthouse from the MetLife tax group at
Separation. As a result, MetLife, Inc. recorded a decrease to current income tax recoverable and a charge to provision for
income tax expense (benefit) of $1,093 million, which was reported in discontinued operations for the Company.
Additionally, MetLife, Inc. has the right to receive future payments from Brighthouse for a tax asset that Brighthouse
received as a result of restructuring prior to the Separation. Included in other assets at December 31, 2017, is a receivable
from Brighthouse of $333 million related to these future payments, after a reduction of $222 million as a result of U.S. Tax
Reform.
Transactions Prior to the Separation
Prior to the Separation, the Company completed the following transactions in 2017.
Contributions of Entities, Mergers and Dividend
In April 2017, following receipt of applicable regulatory approvals, MetLife contributed certain captive reinsurance
companies to Brighthouse Life Insurance Company (“Brighthouse Insurance”), which were merged into Brighthouse
Reinsurance Company of Delaware (“BRCD”), a newly-formed captive reinsurance company that is wholly-owned by
Brighthouse Insurance.
In July 2017, MetLife, Inc. contributed the voting common interests of Brighthouse Holdings, LLC, a subsidiary of
MetLife, Inc. at that time, to Brighthouse Financial, Inc. Brighthouse Holdings, LLC was at that time an intermediate holding
company which owned all of the subsidiaries within Brighthouse.
In August 2017, Brighthouse Financial, Inc. paid a cash dividend to MetLife, Inc. of $1.8 billion in connection with
the Separation.
Termination of Financing Arrangements
In April 2017, MetLife, Inc. and MetLife Reinsurance Company of South Carolina (“MRSC”) terminated the MRSC
collateral financing arrangement associated with secondary guarantees. As a result, the $2.8 billion collateral financing
arrangement liability outstanding was extinguished utilizing $2.8 billion of assets held in trust, with the remaining
$590 million of assets held in trust returned to MetLife, Inc. as a cash return of capital from a subsidiary. Total fees associated
with the termination were $37 million and were reported in discontinued operations.
In April 2017, MetLife, Inc. and MetLife Reinsurance Company of Vermont (“MRV”) terminated the $4.3 billion
committed facility, and MetLife, Inc. and MRSC terminated the $3.5 billion committed facility. Total fees associated with
the terminations were $257 million and were reported in discontinued operations.
See Note 14 for information on the junior subordinated debentures in connection with the Separation.
New Financing Arrangements
In April 2017, BRCD entered into a new financing arrangement with a pool of highly rated third-party reinsurers with
a total capacity of $10.0 billion. This financing arrangement consists of credit-linked notes that each have a term of 20 years.
239
Table of Contents
3. Dispositions (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
In June 2017, Brighthouse Holdings, LLC issued 50,000 units of 6.50% fixed rate cumulative preferred units to MetLife,
Inc. and in turn MetLife, Inc. sold the preferred units to third-party investors, for net proceeds of $49 million.
In June 2017, Brighthouse Financial, Inc. issued $1.5 billion of senior notes due in June 2027 (the “2027 Senior Notes”)
which bear interest at a fixed rate of 3.70%, payable semi-annually. Also in June 2017, Brighthouse Financial, Inc. issued
$1.5 billion of senior notes due in June 2047 (the “2047 Senior Notes,” and together with the 2027 Senior Notes, the “Senior
Notes”) which bear interest at a fixed rate of 4.70%, payable semi-annually. In connection with the issuance of the Senior
Notes, MetLife, Inc. had initially guaranteed the Senior Notes on a senior unsecured basis. The guarantee was released, in
accordance with its terms, upon Separation.
In June 2017, subsequent to the issuance of the Senior Notes, the borrowing capacity under Brighthouse Financial,
Inc.’s three-year senior unsecured delayed draw term loan agreement (the “2016 Term Loan Agreement”) was decreased
from $3.0 billion to $536 million. On July 21, 2017, concurrently with entering into a new term loan agreement described
below, Brighthouse Financial, Inc. terminated the 2016 Term Loan Agreement without penalty.
In July 2017, Brighthouse Financial, Inc. entered into a new $600 million senior unsecured delayed draw term loan
agreement (the “2017 Term Loan Agreement”). Under the 2017 Term Loan Agreement, Brighthouse Financial, Inc. may
borrow up to a maximum of $600 million which may be used for general corporate purposes, including in connection with
the Separation, of which $500 million was available prior to the Separation. The 2017 Term Loan Agreement contains
certain covenants that could restrict the operations and use of funds of Brighthouse. On August 2, 2017, Brighthouse
Financial, Inc. borrowed $500 million under the 2017 Term Loan Agreement in connection with the Separation.
Ongoing Transactions with Brighthouse
The Company considered all of its continuing involvement with Brighthouse in determining whether to deconsolidate
and present Brighthouse results as discontinued operations, including the agreements described above and the ongoing
transactions described below.
The Company entered into reinsurance, committed facility, structured settlement, and contract administrative services
transactions with Brighthouse in the normal course of business and such transactions will continue based upon business needs.
In addition, prior to and in connection with the Separation, the Company entered into various other agreements with Brighthouse
for services necessary for both the Company and Brighthouse to conduct their activities. Intercompany transactions prior to
the Separation between the Company and Brighthouse are eliminated and excluded from the consolidated statements of
operations and consolidated balance sheets. Transactions between the Company and Brighthouse that continue after the
Separation are included on the Company’s consolidated statements of operations and consolidated balance sheets.
240
Table of Contents
3. Dispositions (continued)
Reinsurance
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
The Company entered into reinsurance transactions with Brighthouse in the normal course of business and such transactions
will continue based upon business needs. Information regarding the significant effects of reinsurance transactions with
Brighthouse was as follows:
Included on Consolidated
Statements of Operations
Excluded from Consolidated Statements
of Operations
Year
Ended
December 31,
2017 (1)
Years
Ended
December 31,
2017 (2)
2016
2015
(In millions)
183
(4)
179
$
$
248
(7)
241
$
$
462
(9)
453
$
$
(4)
$
(6)
$
(2) $
(44)
(48)
150
(22)
128
6
(30)
(24)
39
7
46
$
$
$
$
$
$
$
(55)
(61)
196
(16)
180
10
(42)
(32)
10
(28)
(18)
$
$
$
$
$
$
$
(102)
(104) $
$
$
$
385
(23)
362
16
(75)
(59) $
88
(29)
59
$
$
416
(8)
408
2
(114)
(112)
330
(28)
302
14
(78)
(64)
76
(45)
31
Premiums
Reinsurance assumed
Reinsurance ceded
Net premiums
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
Reinsurance assumed
Reinsurance ceded
Net policyholder benefits and claims
Interest credited to policyholder account balances
Reinsurance assumed
Reinsurance ceded
Net interest credited to policyholder account balances
Other expenses
Reinsurance assumed
Reinsurance ceded
Net other expenses
__________________
(1)
(2)
Includes transactions after the Separation.
Includes transactions prior to the Separation.
$
$
$
$
$
$
$
$
$
$
241
Table of Contents
3. Dispositions (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
Information regarding the significant effects of reinsurance transactions with Brighthouse included on the consolidated
balance sheets was as follows at:
Assets
Premiums, reinsurance and other receivables
Deferred policy acquisition costs and value of business acquired
Total assets
Liabilities
Future policy benefits
Other policy-related balances
Other liabilities
Total liabilities
Investment Management
December 31, 2017
Assumed
Ceded
(In millions)
$
$
$
$
$
$
$
167
384
551
1,734
119
1,458
3,311
$
1,793
(40)
1,753
—
28
19
47
In connection with the Separation, the Company entered into investment management services agreements with
Brighthouse. Each agreement has an initial term of 18 months after the date of Separation, after which period either party
to the agreement is permitted to terminate upon notice to the other party. After the Separation, for the year ended December
31, 2017, the Company recognized $48 million in other revenues for services provided under the agreements. Prior to the
Separation, for the year ended December 31, 2017, the Company charged Brighthouse $57 million for services provided
under the agreements, which were intercompany transactions and eliminated and excluded from the consolidated statements
of operations.
Debt
MRV and MetLife, Inc. have a $2.9 billion committed facility which is used as collateral for certain affiliated reinsurance
liabilities. As of December 31, 2017, Brighthouse is a beneficiary of $2.4 billion of letters of credit issued under this
committed facility and in consideration Brighthouse reimburses MetLife, Inc. a portion of the letter of credit fees. The
Company entered into the committed facility with Brighthouse in the normal course of business and such transactions will
continue based upon business needs.
See “— Transactions Prior to the Separation — Termination of Financing Arrangements” for additional transactions
with Brighthouse.
242
Table of Contents
3. Dispositions (continued)
Transition Services
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
In connection with the Separation, the Company entered into a transition services agreement with Brighthouse for
services necessary for Brighthouse to conduct its activities. The services are expected to continue up to 36 months, with
certain services potentially to be made available for several years thereafter. After the Separation, for the year ended December
31, 2017, the Company recognized $140 million as a reduction to other expenses for transitional services provided under
the agreement. Prior to the Separation, for the year ended December 31, 2017, the Company charged Brighthouse
$191 million for services provided under the agreement, which were intercompany transactions and eliminated and excluded
from the consolidated statements of operations.
Other
The Company has existing assumed structured settlement claim obligations as an assignment company for Brighthouse.
These liabilities are measured at the present value of the periodic claims to be provided and reported as other policy-related
balances. The Company receives a fee for assuming these claim obligations and, as the assignee of the claim, is legally
obligated to ensure periodic payments are made to the claimant. The Company purchased annuities from Brighthouse to
fund these obligations and designates payments to be made directly to the claimant by Brighthouse as the annuity writer.
The aggregate contract values of annuities funding structured settlement claims are recorded as an asset for which the
Company has also recorded an unpaid claim obligation reported in other policy-related balances. Such aggregated contract
values were $1.3 billion at December 31, 2017. The Company entered into these transactions with Brighthouse in the normal
course of business and such transactions will continue based upon business needs.
The Company provides services necessary for Brighthouse to conduct its business, which primarily include contract
administrative services for certain Brighthouse investment-type products. After the Separation, for the year ended December
31, 2017, the Company recognized revenue of $54 million for administrative services provided to Brighthouse. Prior to the
Separation, during the year ended December 31, 2017, the Company provided administrative services to Brighthouse for
$73 million which were intercompany transactions and eliminated and excluded from the consolidated statements of
operations. The Company entered into these transactions with Brighthouse in the normal course of business and such
transactions will continue based upon business needs.
In connection with the Separation, the Company entered into an employee matters agreement with Brighthouse to
allocate obligations and responsibilities relating to employee compensation and benefit plans and other related matters. The
employee matters agreement provides that MetLife will reimburse Brighthouse for certain pension benefit payments, retiree
health and life benefit payments and deferred compensation payments. Included in other liabilities at December 31, 2017,
is a payable to Brighthouse of $186 million related to these future payments.
At December 31, 2017, the Company had a receivable from Brighthouse of $97 million related to services provided
and a payable to Brighthouse of $50 million related to services received.
Discontinued Operations
The following table presents the amounts related to the operations and loss on disposal of Brighthouse that have been
reflected in discontinued operations:
243
Table of Contents
3. Dispositions (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
For the Years Ended December 31,
2016
2015
2017 (1)
(In millions)
Revenues
Premiums
Universal life and investment-type product policy fees
Net investment income
Other revenues
Total 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 discontinued operations before provision for income tax and
loss on disposal of discontinued operations
Provision for income tax expense (benefit)
Income (loss) from discontinued operations before loss on disposal of
discontinued operations, net of income tax
Transaction costs associated with the Separation, net of income tax
Tax charges associated with the Separation
Income (loss) on disposal of discontinued operations, net of income tax
$
820
$
1,951
$
2,201
1,783
150
(48)
(1,061)
3,845
2,217
620
16
—
853
3,706
139
(46)
185
(216)
(955)
(1,171)
3,724
3,157
74
(140)
(5,886)
2,880
4,487
1,107
34
260
1,333
7,221
(4,341)
(1,607)
(2,734)
—
—
—
(2,734) $
2,142
3,936
3,038
58
(48)
(466)
8,660
3,612
1,195
32
—
2,043
6,882
1,778
454
1,324
—
—
—
1,324
Income (loss) from discontinued operations, net of income tax
$
(986) $
__________________
(1)
Includes transactions prior to the Separation.
244
Table of Contents
3. Dispositions (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
The following table presents the amounts related to the financial position of Brighthouse that have been reflected in the
assets and liabilities of disposed subsidiary:
December 31, 2016
(In millions)
$
61,326
300
9,378
1,517
150
1,642
1,288
3,881
79,482
5,226
680
10,636
7,207
709
113,043
216,983
33,270
37,066
1,356
12
7,390
60
2,797
2,594
5,119
113,043
202,707
$
$
$
Assets
Investments:
Fixed maturity securities available-for-sale
Equity securities available-for-sale
Mortgage loans
Policy loans
Real estate and real estate joint ventures
Other limited partnership interests
Short-term investments
Other invested assets
Total investments
Cash and cash equivalents
Accrued investment income
Premiums, reinsurance and other receivables
Deferred policy acquisition costs and value of business acquired
Other assets
Separate account assets
Total assets of disposed subsidiary
Liabilities
Future policy benefits
Policyholder account balances
Other policy-related balances
Policyholder dividends payable
Payables for collateral under securities loaned and other transactions
Long-term debt
Collateral financing arrangements
Deferred income tax liability
Other liabilities
Separate account liabilities
Total liabilities of disposed subsidiary
245
Table of Contents
3. Dispositions (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
In the consolidated statements of cash flows, the cash flows from discontinued operations are not separately classified.
The following table presents selected financial information regarding cash flows of the discontinued operations.
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
2016 Disposition
For the Years Ended December 31,
2017
2016
2015
(In millions)
$
$
$
1,329
$
(2,732) $
(367) $
3,697
4,674
$
$
(4,715) $
4,559
(7,042)
2,452
In July 2016, MetLife, Inc. completed the sale to Massachusetts Mutual Life Insurance Company (“MassMutual”) of its
U.S. retail advisor force and certain assets associated with the MetLife Premier Client Group, including all of the issued and
outstanding shares of MetLife’s affiliated broker-dealer, MetLife Securities, Inc. (“MSI”), a wholly-owned subsidiary of
MetLife, Inc. (collectively, the “U.S. Retail Advisor Force Divestiture”) for $291 million. MassMutual assumed all of the
liabilities related to such assets that arise or occur after the closing of the sale. The Company recorded a gain of $103 million
($58 million, net of income tax), in net investment gains (losses) for the year ended December 31, 2016. See Notes 10 and 17
for discussion of certain charges related to the sale.
246
Table of Contents
4. Insurance
Insurance Liabilities
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
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:
U.S.
Asia
Latin America
EMEA
MetLife Holdings
Corporate & Other
Total
December 31,
2017
2016
(In millions)
$
136,065
$
129,117
99,404
16,758
19,579
103,372
829
$
376,007
$
89,422
14,760
18,075
104,271
(3,121)
352,524
Future policy benefits are measured as follows:
Product Type:
Participating life
Nonparticipating life
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
less than 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 future expected benefit payments and related expenses less
the present value of future expected 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.
Individual and group
traditional fixed annuities
after annuitization
Present value of future expected payments. Interest rate assumptions used in establishing such
liabilities range from 1% to 11% for domestic business and less than 1% to 12% for international
business.
Non-medical health
insurance
Disabled lives
Property & casualty
insurance
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 less than 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 3% and 4% of the Company’s life insurance in-force at December 31, 2017 and 2016,
respectively. Participating policies represented 15%, 16% and 17% of gross traditional life insurance premiums for the years
ended December 31, 2017, 2016 and 2015, 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 less
than 1% to 12% for international business, less expenses, mortality charges and withdrawals; and (iii) fair value adjustments
relating to business combinations.
247
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:
GMDBs
• A return of purchase payment upon death even if
the account value is reduced to zero.
• An enhanced death benefit may be available for an
additional fee.
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.
Measurement Assumptions:
• 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.
• Assumptions are consistent with those used for
amortizing DAC, and are thus subject to the same
variability and risk.
•
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 potential annuitizations that may
be elected by the 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.
248
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:
Annuity Contracts
Universal and Variable
Life Contracts
GMDBs
GMIBs
Secondary
Guarantees
(In millions)
Paid-Up
Guarantees
Total
$
307
$
463
$
2,711
$
288
$
$
$
$
$
68
(11)
364
102
(15)
451
91
(14)
528
23
(1)
(3)
19
—
5
24
4
6
34
284
69
(8)
345
102
(20)
427
87
(20)
$
$
$
$
62
(1)
524
78
(1)
601
121
(2)
720
6
—
—
6
(1)
—
5
1
—
6
457
62
(1)
518
79
(1)
596
120
(2)
$
$
$
$
43
(28)
2,726
291
(28)
2,989
233
(34)
3,188
187
31
—
218
(27)
—
191
50
—
241
2,524
12
(28)
2,508
318
(28)
2,798
183
(34)
$
$
$
$
18
—
306
25
—
331
16
—
347
201
13
—
214
17
—
231
11
—
242
87
5
—
92
8
—
100
5
—
$
$
$
$
$
494
$
714
$
2,947
$
105
$
3,769
191
(40)
3,920
496
(44)
4,372
461
(50)
4,783
417
43
(3)
457
(11)
5
451
66
6
523
3,352
148
(37)
3,463
507
(49)
3,921
395
(56)
4,260
Direct and Assumed:
Balance at January 1, 2015
Incurred guaranteed benefits (1)
Paid guaranteed benefits
Balance at December 31, 2015
Incurred guaranteed benefits (1)
Paid guaranteed benefits
Balance at December 31, 2016
Incurred guaranteed benefits (1)
Paid guaranteed benefits
Balance at December 31, 2017
Ceded:
Balance at January 1, 2015
Incurred guaranteed benefits
Paid guaranteed benefits
Balance at December 31, 2015
Incurred guaranteed benefits
Paid guaranteed benefits
Balance at December 31, 2016
Incurred guaranteed benefits
Paid guaranteed benefits
Balance at December 31, 2017
Net:
Balance at January 1, 2015
Incurred guaranteed benefits
Paid guaranteed benefits
Balance at December 31, 2015
Incurred guaranteed benefits
Paid guaranteed benefits
Balance at December 31, 2016
Incurred guaranteed benefits
Paid guaranteed benefits
Balance at December 31, 2017
__________________
(1) Secondary guarantees include the effects of foreign currency translation of $78 million, $119 million and ($80) million at
December 31, 2017, 2016 and 2015, respectively.
249
Table of Contents
4. Insurance (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
Information regarding the Company’s guarantee exposure, which includes direct and assumed business, but excludes
offsets from hedging or ceded reinsurance, if any, was as follows at:
2017
2016
December 31,
In the
Event of Death
At
Annuitization
In the
Event of Death
At
Annuitization
(Dollars in millions)
$
$
$
66,724
45,431
1,238 (4)
65 years
N/A
N/A
N/A
$
$
$
$
$
26,223
24,336
525
(5)
65 years
$
$
$
66,176
43,359
1,842 (4)
64 years
1,424
569
(6)
50 years
N/A
N/A
N/A
$
$
$
$
$
25,335
23,330
521
(5)
65 years
1,393
490
(6)
50 years
December 31,
2017
2016
Secondary
Guarantees
Paid-Up
Guarantees
Secondary
Guarantees
Paid-Up
Guarantees
(Dollars in millions)
$
$
9,036
66,956
$
$
3,207
16,615
$
$
8,363
70,225
$
$
56 years
63 years
55 years
3,337
17,785
62 years
Annuity Contracts (1):
Variable Annuity Guarantees:
Total account value (2), (3)
Separate account value
Net amount at risk (2)
Average attained age of contractholders
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
__________________
(1)
(2)
(3)
(4)
(5)
(6)
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 variable annuity guarantees
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.
250
Table of Contents
4. Insurance (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
(7)
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.
Account balances of contracts with guarantees were invested in separate account asset classes as follows at:
Fund Groupings:
Equity
Balanced
Bond
Money Market
Total
__________________
December 31,
2017
2016 (1)
(In millions)
$
$
23,213
$
20,859
5,983
252
21,169
20,070
5,827
218
50,307
$
47,284
(1) Account balances at December 31, 2016 decreased in total by $6.7 billion from those amounts previously reported to
correct for the inclusion of contracts without guarantees.
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 unconsolidated 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,
2017, 2016 and 2015, the Company issued $42.7 billion, $39.7 billion and $35.1 billion, respectively, and repaid $41.4 billion,
$38.5 billion and $35.5 billion, respectively, of such funding agreements. At December 31, 2017 and 2016, liabilities for funding
agreements outstanding, which are included in policyholder account balances, were $34.2 billion and $30.8 billion, respectively.
Certain of the Company’s subsidiaries are members of regional banks in the FHLB system (“FHLBanks”). Holdings of
common stock of FHLBanks, included in equity securities, were as follows at:
FHLB of New York
FHLB of Des Moines
FHLB of Pittsburgh
December 31,
2017
2016
(In millions)
$
$
$
733
35
11
$
$
$
748
35
11
251
Table of Contents
4. Insurance (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
Such subsidiaries have also entered into funding agreements with FHLBanks and a subsidiary of 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 New York (1)
Farmer Mac (3)
FHLB of Des Moines (1)
FHLB of Pittsburgh (1)
__________________
Liability
Collateral
December 31,
2017
2016
2017
2016
(In millions)
$
$
$
$
14,445
2,550
625
250
$
$
$
$
14,445
2,550
625
250
$
$
$
$
16,605 (2)
2,644
701 (2)
311 (2)
$
$
$
$
16,828 (2)
2,645
811 (2)
383 (2)
(1)
(2)
(3)
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 applicable subsidiary of 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 such subsidiary, the applicable FHLBank’s recovery on the collateral is
limited to the amount of such subsidiary’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 a subsidiary of Farmer Mac, as well as 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 these funding agreements
are secured by a pledge of certain eligible agricultural 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
The following is information about incurred and paid claims development by segment as of December 31, 2017. Such
amounts are presented net of reinsurance, and are not discounted. The tables present claims development and cumulative claim
payments by incurral year. The development tables are only presented for significant short-duration product liabilities within
each segment. Where practical, up to 10 years of history has been provided. In order to eliminate potential fluctuations related
to foreign exchange rates, liabilities and payments denominated in a foreign currency have been translated using the 2017 year
end spot rates for all periods presented. The information about incurred and paid claims development prior to 2016 is presented
as supplementary information, as described in Note 1.
252
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
Table of Contents
4. Insurance (continued)
U.S.
Group Life - Term
Incurred Claims and Allocated Claim Adjustment Expense, Net of Reinsurance
At December 31, 2017
Incurral Year
2011
2012
2013
2014
2015
2016
2017
For the Years Ended December 31,
(Unaudited)
Total IBNR
Liabilities Plus
Expected
Development on
Reported Claims
Cumulative
Number of
Reported
Claims
$
6,318
$
6,290
$
6,293
$
6,269
$
6,287
$
6,295
$
6,294
$
(Dollars in millions)
2011
2012
2013
2014
2015
2016
2017
Total
6,503
6,579
6,637
6,569
6,713
6,986
6,546
6,719
6,919
7,040
6,568
6,720
6,913
7,015
7,125
1
3
15
5
12
21
898
207,301
208,626
210,643
210,797
211,597
206,610
186,954
6,569
6,730
6,910
7,014
7,085
7,432
48,034
(46,136)
5
Cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance
All outstanding liabilities for incurral years prior to 2011, net of reinsurance
Total unpaid claims and claim adjustment expenses, net of reinsurance
$
1,903
Cumulative Paid Claims and Paid Allocated Claim Adjustment Expenses, Net of Reinsurance
Incurral Year
2011
2012
$
4,982
$
6,194
$
5,132
2011
2012
2013
2014
2015
2016
2017
For the Years Ended December 31,
(Unaudited)
2013
2014
(In millions)
2015
2016
2017
6,239
$
6,256
$
6,281
$
6,290
$
6,472
5,216
6,518
6,614
5,428
6,532
6,664
6,809
5,524
6,558
6,678
6,858
6,913
5,582
6,292
6,565
6,711
6,869
6,958
6,980
5,761
Total cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance
$
46,136
Average Annual Percentage Payout
The following is supplementary information about average historical claims duration as of December 31, 2017:
Years
Group Life - Term
1
2
3
4
5
6
7
78.3%
20.0%
0.7%
0.2%
0.4%
0.1%
—%
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
253
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
4. Insurance (continued)
Group Long-Term Disability
Incurred Claims and Allocated Claim Adjustment Expense, Net of Reinsurance
At December 31, 2017
Incurral Year
2011
2012
2013
2014
2015
2016
2017
For the Years Ended December 31,
(Unaudited)
Total IBNR
Liabilities Plus
Expected
Development on
Reported Claims
Cumulative
Number of
Reported
Claims
(Dollars in millions)
$
924
$
923
$
918
$
$
955
$
$
916
966
$
894
979
1,008
914
980
1,027
1,076
2011
2012
2013
2014
2015
2016
2017
Total
1,014
1,032
1,077
1,082
1,034
1,049
1,079
1,105
1,131
Cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance
All outstanding liabilities for incurral years prior to 2011, net of reinsurance
Total unpaid claims and claim adjustment expenses, net of reinsurance
$
1,037
1,070
1,101
1,093
1,139
1,244
7,602
(3,006)
2,539
7,135
—
—
—
—
4
26
585
21,642
20,085
21,123
22,838
21,136
17,585
9,258
Cumulative Paid Claims and Paid Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
(Unaudited)
Incurral Year
2011
2012
2013
2014
2015
2016
2017
$
44
$
217
$
43
$
337
229
43
(In millions)
$
411
365
234
51
2011
2012
2013
2014
2015
2016
2017
$
478
453
382
266
50
$
537
524
475
428
264
49
588
591
551
526
427
267
56
Total cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance
$
3,006
Average Annual Percentage Payout
The following is supplementary information about average historical claims duration as of December 31, 2017:
Years
Group Long-Term Disability
1
4.4%
2
18.8%
3
13.9%
4
8.5%
5
7.1%
6
6.4%
7
5.6%
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
Significant Methodologies and Assumptions
Group Life - Term and Group Long-Term Disability incurred but not paid (“IBNP”) liabilities are developed using
a combination of loss ratio and development methods. Claims in the course of settlement are then subtracted from the
IBNP liabilities, resulting in the IBNR liabilities. The loss ratio method is used in the period in which the claims are
neither sufficient nor credible. In developing the loss ratios, any material rate increases that could change the underlying
premium without affecting the estimated incurred losses are taken into account. For periods where sufficient and credible
claim data exists, the development method is used based on the claim triangles which categorize claims according to both
the period in which they were incurred and the period in which they were paid, adjudicated or reported. The end result
is a triangle of known data that is used to develop known completion ratios and factors. Claims paid are then subtracted
from the estimated ultimate incurred claims to calculate the IBNP liability.
254
Table of Contents
4. Insurance (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
An expense liability is held for the future expenses associated with the payment of incurred but not yet paid claims
(IBNR and pending). This is expressed as a percentage of the underlying claims liability and is based on past experience
and the anticipated future expense structure.
For Group Life - Term and Group Long-Term Disability, first year incurred claims and allocated loss adjustment
expenses increased in 2017 compared to the 2016 incurral year due to the growth in the size of the business.
There were no significant changes in methodologies during 2017. The assumptions used in calculating the unpaid
claims and claim adjustment expenses for Group Life - Term and Group Long-Term Disability are updated annually to
reflect emerging trends in claim experience.
No additional premiums or return premiums have been accrued as a result of the prior year development.
Liabilities for Group Life - Term unpaid claims and claim adjustment expenses are not discounted.
The liabilities for Group Long-Term Disability unpaid claims and claim adjustment expenses were $6.0 billion and
$5.8 billion at December 31, 2017 and 2016, respectively. These amounts were discounted using interest rates ranging
from 3% to 8%, based on the incurral year. The total discount applied to these liabilities was $1.3 billion at both
December 31, 2017 and 2016. The amount of interest accretion recognized was $510 million, $565 million and
$517 million for the years ended December 31, 2017, 2016 and 2015, respectively. These amounts were reflected in
policyholder benefits and claims.
For Group Life - Term, claims were based upon individual death claims. For Group Long-Term Disability, claim
frequency was determined by the number of reported claims as identified by a unique claim number assigned to individual
claimants. Claim counts initially include claims that do not ultimately result in a liability. These claims are omitted from
the claim counts once it is determined that there is no liability.
The Group Long-Term Disability IBNR included in the development tables above was developed using discounted
cash flows, and is presented on a discounted basis.
Property & Casualty - Auto Liability
Incurred Claims and Allocated Claim Adjustment Expense, Net of Reinsurance
At December 31, 2017
Incurral Year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
For the Years Ended December 31,
(Unaudited)
Total IBNR
Liabilities Plus
Expected
Development on
Reported Claims
Cumulative
Number of
Reported
Claims
$
818
$
$
839
862
$
828
877
863
$
805
853
873
863
$
799
826
853
876
882
(Dollars in millions)
$
794
823
847
869
881
911
$
793
817
833
855
869
900
897
791
815
826
846
851
882
910
975
$
790
815
825
843
846
878
913
984
1,012
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
Cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance
All outstanding liabilities for incurral years prior to 2008, net of reinsurance
Total unpaid claims and claim adjustment expenses, net of reinsurance
—
—
1
2
3
6
12
30
77
161
200,517
201,579
202,098
202,513
196,928
201,297
203,560
207,485
204,497
173,607
$
$
791
814
822
843
847
876
910
979
1,002
957
8,841
(7,672)
27
$ 1,196
255
Table of Contents
4. Insurance (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
Incurral Year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Cumulative Paid Claims and Paid Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
(Unaudited)
$
304
$
$
553
321
$
657
563
319
$
725
681
572
324
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
(In millions)
$
764
755
695
590
333
$
778
789
762
711
600
346
$
785
803
796
777
715
618
352
$
787
810
810
810
783
743
648
384
$
788
813
816
825
815
809
777
691
396
789
813
818
831
831
843
844
822
702
379
Total cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance
$
7,672
Average Annual Percentage Payout
The following is supplementary information about average historical claims duration as of December 31, 2017:
Years
Auto Liability
1
39.3%
2
31.3%
3
14.0%
4
7.9%
5
4.0%
6
1.8%
7
0.9%
8
0.5%
9
0.1%
10
0.2%
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
Property & Casualty - Home
Incurred Claims and Allocated Claim Adjustment Expense, Net of Reinsurance
At December 31, 2017
Incurral Year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
For the Years Ended December 31,
(Unaudited)
Total IBNR
Liabilities Plus
Expected
Development on
Reported Claims
Cumulative
Number of
Reported
Claims
$
644
$
$
636
506
$
599
523
573
$
590
510
589
891
$
588
507
587
868
714
(Dollars in millions)
$
589
503
584
843
713
654
$
588
501
582
840
703
652
707
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
Cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance
All outstanding liabilities for incurral years prior to 2008, net of reinsurance
Total unpaid claims and claim adjustment expenses, net of reinsurance
—
—
—
—
2
4
7
12
20
66
127,479
106,616
115,510
166,455
146,536
107,525
113,604
107,073
106,537
106,915
$
586
498
581
835
698
635
702
759
$
585
497
580
835
696
635
704
753
740
$
585
497
579
834
694
634
705
752
743
747
6,770
(6,545)
1
$
226
256
Table of Contents
4. Insurance (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
Cumulative Paid Claims and Paid Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
(Unaudited)
Incurral Year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
$
446
$
$
558
385
$
574
476
436
$
579
486
546
690
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
(In millions)
$
582
492
562
804
559
$
583
495
571
819
668
505
$
584
495
574
825
681
604
574
$
584
496
577
827
687
618
670
603
$
584
496
578
830
689
626
685
717
593
584
496
578
832
690
628
692
731
704
610
Total cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance
$
6,545
Average Annual Percentage Payout
The following is supplementary information about average historical claims duration as of December 31, 2017:
Years
Home
1
2
80.5%
14.8%
3
2.3%
4
1.0%
5
$
6
0.6%
0.3%
7
0.2%
8
0.1%
9
—%
10
0.1%
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
Significant Methodologies and Assumptions
The liability for unpaid claim and claim adjustment expenses for the Property & Casualty business is determined by
examining the historical claims and allocated claim adjustment expenses data. This data, which is gross of salvage and
subrogation, is classified by incurral year and coverage and includes paid claims data and reported liabilities. For
homeowners and auto liability injury claims, the reported liabilities are set by the Company’s claims adjusters based on
the individual case, and a supplemental liability is added based on the historical development of reported claims. These
supplemental liabilities are estimated by coverage based on adjusted report year data triangles developed to estimate
ultimate claim liability. Adjustments are made for settlement rates and average case liabilities. For auto non-injury claims,
the Company holds an average statistical liability for every reported claim. This statistical liability is based on an estimated
average payment that varies by coverage, report year and state. These average estimated payments are updated monthly.
For all property and casualty coverages, many actuarial methods such as adjusted loss development (adjusted for
settlement rates and average case liabilities) and loss ratio methods are employed to develop a best estimate of the IBNR
for each coverage type. Similar actuarial methods are used to determine the best estimate of the expected salvage and
subrogation; methods that look at recoveries by age and ratios of recoveries to paid loss are compared for each coverage.
A liability for unpaid allocated claim adjustment expenses is held for the future claim adjustment costs associated with
the payment of incurred but not yet paid claims. This liability is calculated as a percentage of the underlying unpaid claims
liability. The percentage is based on historical ratios of essential claim department expenses compared with paid losses.
There were no significant changes in methodologies or assumptions during 2017.
No additional premiums or return premiums have been accrued as a result of the prior year development.
Liabilities for unpaid claims and claim adjustment expenses were not discounted.
The cumulative number of reported claims for auto liability coverages are counted by individual coverages (i.e.
bodily injury and property damage) and, if multiple occupants are injured, then each injury is counted as a separate claim.
For home coverages, each exposure is counted separately, so a house fire would, for example, have separate claim counts
for the building, the contents, and additional living expenses. Claim counts include claims that do not ultimately result
in a liability. Any liability established upon receipt of these claims would subsequently be reversed.
257
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
4. Insurance (continued)
Asia
Group Disability & Group Life
Incurred Claims and Allocated Claim Adjustment Expense, Net of Reinsurance
At December 31, 2017
Incurral Year
2010
2011
2012
2013
2014
2015
2016
2017
For the Years Ended December 31,
(Unaudited)
Total IBNR
Liabilities Plus
Expected
Development on
Reported Claims
Cumulative
Number of
Reported
Claims
$
82
$
$
78
64
84
67
98
$
107
$
107
$
103
$
(Dollars in millions)
88
104
148
88
103
150
297
94
118
174
279
280
2010
2011
2012
2013
2014
2015
2016
2017
Total
Cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance
All outstanding liabilities for incurral years prior to 2010, net of reinsurance
Total unpaid claims and claim adjustment expenses, net of reinsurance
24
24
10
19
54
78
102
215
135
124
119
168
256
267
234
$
$
$
144
132
122
167
256
271
238
303
1,633
(1,108)
27
552
Cumulative Paid Claims and Paid Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
(Unaudited)
Incurral Year
2010
2011
2012
2013
2014
2015
2016
2017
$
20
$
$
40
13
$
53
40
30
(In millions)
$
65
54
65
44
$
79
67
85
99
69
$
89
81
99
121
144
81
$
114
102
106
136
180
154
66
2010
2011
2012
2013
2014
2015
2016
2017
2,490
2,629
3,962
4,448
5,020
4,473
2,314
1,456
121
109
112
149
202
192
135
88
Total cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance
$
1,108
Average Annual Percentage Payout
The following is supplementary information about average historical claims duration as of December 31, 2017:
Years
1
2
3
Group Disability & Group Life
23.6%
25.8%
13.0%
4
9.3%
5
8.6%
6
8.9%
7
11.3%
8
5.5%
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
Significant Methodologies and Assumptions
This business line consists of employer sponsored and industry sponsored Group Life and Group Disability risks.
For Group Life, the IBNR liability is determined by using the Bornhuetter-Ferguson Method, with factors derived
by examining the experience of historical claims. A pending liability is also calculated for claims that have been reported
but have not been paid. A claim eligibility ratio based on past experience is applied to the face amount of individual
claims.
258
Table of Contents
4. Insurance (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
For Group Disability, the IBNR liability is calculated by applying a percentage to premiums in-force based on the
expected delay as evidenced by the experience in the portfolio. This is then allocated back into different incurral years
based on an assumed run-off. A claims in course of payment liability is also calculated for claims that have been admitted
and are in the course of payment. The assumptions employed are based on economic conditions and industry experience,
as adjusted for the Company’s own experience.
An expense liability is held for the future expenses associated with the payment of incurred but not yet paid claims.
This is expressed as a percentage of the underlying claims liability and is based on past experience and the future expense
structure.
There were no significant changes in methodologies or assumptions during 2017.
No additional premiums or return premiums have been accrued as a result of the prior year development.
The liabilities for unpaid claims and claim adjustment expenses were $756 million and $627 million at December 31,
2017 and 2016, respectively. These amounts were discounted using interest rates ranging from 3% to 7%, based on the
incurral year. The total discount applied to these liabilities was $57 million and $42 million at December 31, 2017 and
2016, respectively. The amount of interest accretion recognized was $26 million, $22 million and $20 million for the
years ended December 31, 2017, 2016 and 2015, respectively. These amounts were reflected in policyholder benefits and
claims.
The Company tracks claim frequency by the number of reported claims as identified by a unique claim number
assigned to individual claimants. Claim counts include claims that do not ultimately result in a liability. A liability is only
established for those claims that are expected to result in a liability, based on historical factors.
Latin America
Protection Life
Incurred Claims and Allocated Claim Adjustment Expense, Net of Reinsurance
At December 31, 2017
Incurral Year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
For the Years Ended December 31,
(Unaudited)
Total IBNR
Liabilities Plus
Expected
Development on
Reported Claims
Cumulative
Number of
Reported
Claims
$
208
$
$
277
236
$
281
319
259
$
282
324
333
150
$
283
325
340
229
159
(Dollars in millions)
$
283
325
341
236
215
176
$
283
325
342
237
221
246
252
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
Cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance
All outstanding liabilities for incurral years prior to 2008, net of reinsurance
Total unpaid claims and claim adjustment expenses, net of reinsurance
—
—
—
—
—
—
1
2
14
117
31,642
31,322
33,386
28,103
29,244
33,170
41,566
47,111
40,972
25,103
$
283
326
342
238
222
253
381
330
$
283
326
342
238
223
254
392
470
359
$
284
327
343
235
221
253
361
440
456
372
3,292
(3,024)
12
280
$
259
Table of Contents
4. Insurance (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
Cumulative Paid Claims and Paid Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
(Unaudited)
Incurral Year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
$
205
$
$
271
234
$
276
311
239
$
277
316
311
147
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
(In millions)
$
277
317
318
225
157
$
277
317
319
231
212
172
$
277
317
319
232
217
238
226
$
278
317
319
232
218
243
336
271
$
278
317
320
232
219
244
342
379
245
281
321
322
234
219
244
346
404
437
216
Total cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance
$
3,024
Average Annual Percentage Payout
The following is supplementary information about average historical claims duration as of December 31, 2017:
Years
Protection Life
1
2
65.1%
27.8%
3
2.3%
4
0.5%
5
0.1%
6
—%
7
0.2%
8
0.2%
9
0.6%
10
1.3%
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
Protection Health
Incurred Claims and Allocated Claim Adjustment Expense, Net of Reinsurance
At December 31, 2017
Incurral Year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
For the Years Ended December 31,
(Unaudited)
Total IBNR
Liabilities Plus
Expected
Development on
Reported Claims
Cumulative
Number of
Reported
Claims
$
133
$
$
149
153
$
151
171
180
$
151
173
201
216
$
151
173
202
240
209
(Dollars in millions)
$
152
174
203
242
235
226
$
152
174
204
243
237
255
235
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
Cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance
All outstanding liabilities for incurral years prior to 2008, net of reinsurance
Total unpaid claims and claim adjustment expenses, net of reinsurance
—
—
—
—
—
1
2
3
7
48
89,217
92,530
96,276
105,965
99,498
103,110
96,260
84,678
101,478
101,116
$
152
174
204
243
237
257
261
202
$
152
174
204
243
238
258
263
229
265
$
154
177
207
240
236
255
261
231
305
383
2,449
(2,365)
3
87
$
260
Table of Contents
4. Insurance (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
Cumulative Paid Claims and Paid Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
(Unaudited)
Incurral Year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
$
133
$
$
149
153
$
151
171
180
$
151
173
201
216
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
(In millions)
$
151
173
202
240
209
$
152
174
203
242
235
226
$
152
174
203
243
237
255
233
$
152
174
204
243
237
257
259
202
$
152
174
204
243
238
258
262
229
249
154
177
207
240
236
255
258
228
298
312
Total cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance
$
2,365
Average Annual Percentage Payout
The following is supplementary information about average historical claims duration as of December 31, 2017:
Years
1
2
3
4
5
6
7
8
9
10
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
Protection Health
86.7%
11.2%
0.6%
0.1%
—%
—%
(0.3)%
0.5%
0.8%
1.4%
Significant Methodologies and Assumptions
The Latin America segment establishes liabilities for unpaid losses, which are equal to the accumulation of unpaid
reported claims, plus an estimate for claims incurred but not reported.
In general terms, for both the Protection Life and Protection Health products, the methodology for IBNR is a weighted
loss ratio combined with the Bornhuetter-Ferguson Method. The factors are derived by examining the experience of
historical claims. In the initial months, the credibility is higher on premiums and lower on claims. As the premiums are
earned, the credibility grows for the factors. For one major medical Protection Health product, a different methodology
is employed, which estimates the IBNR based on a percentage of policy cancellations and the accrued premium.
For Protection Health products, claim duration can be very long due to the multiple incidences over time that may
occur for a single claim. The number of claims reported per year is based on the original claim occurrence date for each
individual claim. Any subsequent claims that are considered part of the original claim occurrence are not counted as a
new claim. For Protection Life products, claims are based upon individual death claims.
During 2017, there was an increase in first year incurred claims and allocated loss adjustment expenses as compared
to 2016 due to an increase in claims duration experience for one product and due to an overall increase in sales of certain
plan sponsored and individual protection health products.
There were no significant changes in methodologies or assumptions during 2017.
No additional premiums or return premiums have been accrued as a result of the prior year development.
Liabilities for unpaid claims and claim adjustment expenses were not discounted.
For Protection Life and Protection Health products, claim counts initially include claims that do not ultimately result
in a liability. These claims are omitted from the claim counts once it is determined that there is no liability.
261
Table of Contents
4. Insurance (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
Reconciliation of the Disclosure of Incurred and Paid Claims Development to the Liability for Unpaid Claims and Claim
Adjustment Expenses
The reconciliation of the net incurred and paid claims development tables to the liability for unpaid claims and claims
adjustment expenses on the consolidated balance sheet was as follows at:
Short-Duration:
Unpaid claims and allocated claims adjustment expenses, net of reinsurance:
U.S.:
Group Life - Term
Group Long-Term Disability
Property & Casualty - Auto
Property & Casualty - Home
Total
Asia - Group Disability & Group Life
Latin America:
Protection Life
Protection Health
Total
Other insurance lines - all segments combined
Total unpaid claims and allocated claims adjustment expenses, net of reinsurance
Reinsurance recoverables on unpaid claims:
U.S.:
Group Life - Term
Group Long-Term Disability
Property & Casualty - Auto
Property & Casualty - Home
Total
Asia - Group Disability & Group Life
Latin America:
Protection Life
Protection Health
Total
Other insurance lines - all segments combined
Total reinsurance recoverable on unpaid claims
Total unpaid claims and allocated claims adjustment expense
Unallocated claims adjustment expenses
Discounting
Liability for unpaid claims and claim adjustment liabilities - short-duration
Liability for unpaid claims and claim adjustment liabilities - all long-duration lines
Total liability for unpaid claims and claim adjustment expense (included in future policy
benefits and other policy-related balances)
262
$
December 31, 2017
(In millions)
1,903
7,135
1,196
226
280
87
16
95
73
5
4
4
$
10,460
552
367
970
12,349
189
261
8
203
661
13,010
107
(1,328)
11,789
5,305
$
17,094
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
4. Insurance (continued)
Rollforward of Claims and Claim Adjustment Expenses
Information regarding the liabilities for unpaid claims and claim adjustment expenses was as follows:
Balance at December 31 of prior period
Less: Reinsurance recoverables
Net balance at December 31 of prior period
Cumulative adjustment (3)
Net balance at January 1,
Incurred related to:
Current year
Prior years (4)
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,
2017
2016 (1)
(In millions)
2015 (2)
$
16,157
$
9,669
$
1,968
14,189
—
14,189
24,370
133
24,503
(18,525)
(5,271)
(23,796)
14,896
2,198
476
9,193
4,819
14,012
24,011
382
24,393
(18,696)
(5,520)
(24,216)
14,189
1,968
$
17,094
$
16,157
$
9,525
454
9,071
—
9,071
9,533
(78)
9,455
(6,759)
(2,574)
(9,333)
9,193
476
9,669
(1)
(2)
(3)
(4)
In addition to the revisions discussed in Note 1, at December 31, 2016, the Net balance decreased by $736 million and
the Reinsurance recoverables increased by $742 million from those amounts previously reported primarily to correct for
the improper classification of reinsurance recoverables.
Limited to property & casualty, group accident and non-medical health policies and contracts.
Reflects the accumulated adjustment, net of reinsurance, upon implementation of the new short-duration contracts
guidance which clarified the requirement to include claim information for long-duration contracts. The accumulated
adjustment primarily reflects unpaid claim liabilities, net of reinsurance, for long-duration contracts as of the beginning
of the period presented. Prior periods have not been restated. See Note 1.
During 2017, as a result of changes in estimates of insured events in the respective prior year, claims and claim adjustment
expenses associated with prior years increased due to events incurred in prior years but reported during current year.
During 2016, as a result of changes in estimates of insured events in the respective prior year, claims and claim adjustment
expenses associated with prior years increased due to the implementation of new guidance related to short-duration
contracts. During 2015, 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.
Separate Accounts
Separate account assets and liabilities include two categories of account types: pass-through separate accounts totaling
$148.2 billion and $134.5 billion at December 31, 2017 and 2016, 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 $56.8 billion and $61.1 billion at December 31, 2017 and 2016, respectively. The latter category
consisted primarily of guaranteed interest contracts. The average interest rate credited on these contracts was 2.34% and 2.35%
at December 31, 2017 and 2016, respectively.
263
Table of Contents
4. Insurance (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
For the years ended December 31, 2017, 2016 and 2015, there were no investment gains (losses) on transfers of assets from
the general account to the separate accounts.
264
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
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 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 significantly impact 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.
265
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)
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, policyholder behavior 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.
266
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,
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,
2017
2016
(In millions)
2015
$
13,830
$
13,464
$
3,002
3,152
60
(2,426)
(2,366)
(525)
848
14,789
229
(2,555)
(2,326)
(171)
(289)
13,830
13,024
3,319
(150)
(2,590)
(2,740)
443
(582)
13,464
3,760
3,966
4,705
—
(315)
(315)
(4)
189
3,630
(3)
(389)
(392)
8
178
3,760
(1)
(443)
(444)
5
(300)
3,966
$
18,419
$
17,590
$
17,430
Information regarding total DAC and VOBA by segment, as well as Corporate & Other, was as follows at:
U.S.
Asia
Latin America
EMEA
MetLife Holdings
Corporate & Other
Total
December 31,
2017
2016
$
(In millions)
614
$
9,261
2,050
1,673
4,797
24
$
18,419
$
616
8,707
1,808
1,472
5,246
(259)
17,590
267
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,
2017
2016
2015
(In millions)
$
$
$
$
$
$
$
$
241
$
242
$
16
(29)
(6)
(2)
220
509
(51)
1
459
345
935
(140)
32
827
3,174
$
$
$
$
$
$
$
22
(23)
—
—
241
583
(57)
(17)
509
294
1,193
(269)
11
935
3,034
$
$
$
$
$
$
$
224
28
(30)
20
—
242
692
(56)
(53)
583
237
1,596
(361)
(42)
1,193
2,765
The estimated future amortization expense (credit) to be reported in other expenses for the next five years was as follows:
2018
2019
2020
2021
2022
6. Reinsurance
VOBA
VODA and VOCRA
Negative VOBA
(In millions)
$
$
$
$
$
293
272
248
222
208
$
$
$
$
$
47
43
40
36
33
$
$
$
$
$
(60)
(40)
(41)
(40)
(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.
268
Table of Contents
6. Reinsurance (continued)
U.S.
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
For its Group Benefits business, the Company generally retains most of the risk and only cedes particular risk on certain
client arrangements. The majority of the Company’s reinsurance activity within this business relates to client agreements for
employer sponsored captive programs, risk-sharing agreements and multinational pooling.
The Company, through its Property & Casualty business, purchases reinsurance to manage its exposure to large losses
(primarily catastrophe losses) and to protect statutory surplus. The Company cedes 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 Retirement and Income Solutions business has periodically engaged in reinsurance activities, on an
opportunistic basis. There were no such transactions during the periods presented.
Asia, Latin America and EMEA
For certain of its 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
jurisdictions. 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.
MetLife Holdings
For its life products, the Company has historically reinsured the mortality risk primarily on an excess of retention basis or
on a quota share basis. For the periods presented, the Company reinsured 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 also assumes portions of the risk associated with certain whole life
policies issued by a former affiliate and reinsures certain term life policies and universal life policies with secondary death
benefit guarantees to such former affiliate. The Company evaluates its reinsurance programs routinely and may increase or
decrease its retention at any time.
For its other products, the Company has a reinsurance agreement in-force to reinsure the living and death benefit guarantees
issued in connection with certain variable annuity products from our former operating joint venture in Japan. 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. For the U.S. and EMEA, the Company purchases catastrophe coverage to insure risks issued within territories that
the Company believes are subject to the greatest catastrophic risks. For all other segments, the Company uses excess of retention
and quota share reinsurance agreements to provide greater diversification of risk and minimize exposure to larger risks.
269
Table of Contents
6. Reinsurance (continued)
Reinsurance Recoverables
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
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, 2017 and 2016, 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 $3.5 billion and $3.4 billion of unsecured
reinsurance recoverable balances at December 31, 2017 and 2016, respectively.
At December 31, 2017, the Company had $7.2 billion of net ceded reinsurance recoverables. Of this total, $4.4 billion, or
61%, were with the Company’s five largest ceded reinsurers, including $1.5 billion of net ceded reinsurance recoverables which
were unsecured. At December 31, 2016, the Company had $5.3 billion of net ceded reinsurance recoverables. Of this total,
$3.0 billion, or 57%, were with the Company’s five largest ceded reinsurers, including $1.8 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.
270
Table of Contents
6. Reinsurance (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
The amounts on 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,
2017
2016
2015
(In millions)
$
$
$
$
$
$
$
$
39,595
$
37,975
$
1,773
(2,376)
38,992
5,978
83
(551)
5,510
39,354
1,388
(2,429)
38,313
13,610
246
(235)
$
$
$
$
$
$
1,363
(2,136)
37,202
5,884
96
(497)
5,483
37,186
1,085
(1,913)
36,358
13,958
169
(378)
$
$
$
$
$
$
37,044
1,382
(2,023)
36,403
5,952
105
(487)
5,570
36,143
984
(1,983)
35,144
14,934
146
(303)
13,621
$
13,749
$
14,777
The amounts on the consolidated balance sheets include the impact of reinsurance. Information regarding the significant
effects of reinsurance was as follows at:
Assets
Premiums, reinsurance and other
receivables
Deferred policy acquisition costs and
value of business acquired
Total assets
Liabilities
Future policy benefits
Policyholder account balances
Other policy-related balances
Other liabilities
Total liabilities
December 31,
2017
2016
Direct
Assumed
Ceded
Total
Balance
Sheet
Direct
Assumed
Ceded
Total
Balance
Sheet
(In millions)
$
6,300
$
866
$ 11,257
$ 18,423
$
5,927
$
543
$ 8,975
$ 15,445
18,350
398
(329)
18,419
17,878
16
(304)
17,590
$ 24,650
$ 1,264
$ 10,928
$ 36,842
$ 23,805
$
559
$ 8,671
$ 33,035
$ 174,694
$ 3,280
$
— $ 177,974
$ 165,121
$ 1,515
$
— $ 166,636
182,226
14,962
17,077
293
520
(1)
33
1,896
5,009
182,518
171,961
15,515
23,982
13,071
18,815
527
324
405
(2)
7
4,515
172,486
13,402
23,735
$ 388,959
$ 5,989
$ 5,041
$ 399,989
$ 368,968
$ 2,771
$ 4,520
$ 376,259
271
Table of Contents
6. Reinsurance (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
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 $2.8 billion and $2.9 billion
at December 31, 2017 and 2016, respectively. The deposit liabilities on reinsurance were $1.4 billion and $31 million at
December 31, 2017 and 2016, respectively.
7. Closed Block
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 from the Demutualization Date.
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 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.
272
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
Accrued investment income
Premiums, reinsurance and other receivables; cash and cash equivalents
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,
2017
2016
(In millions)
$
40,463
$
40,834
222
437
2,121
—
212
257
443
1,931
4
196
43,455
43,665
27,904
27,220
70
5,878
4,548
613
731
39,744
477
14
35
36
40,306
3,149
1,863
(7)
(1,379)
477
100
5,935
4,553
655
1,246
39,709
467
86
—
177
40,439
3,226
1,517
95
(1,255)
357
3,583
Maximum future earnings to be recognized from closed block assets and liabilities
$
3,626
$
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,
2017
2016
2015
(In millions)
$
$
1,931
190
2,121
$
$
1,783
148
1,931
$
$
3,155
(1,372)
1,783
273
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:
Years Ended December 31,
2017
2016
2015
(In millions)
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
Revenues, net of expenses before provision for income tax expense (benefit)
Provision for income tax expense (benefit)
$
1,736
$
1,804
$
1,818
1
(32)
3,523
2,453
976
125
3,554
(31)
12
1,902
(10)
25
3,721
2,563
953
133
3,649
72
24
48
$
1,850
1,982
(23)
27
3,836
2,564
1,015
143
3,722
114
41
73
Revenues, net of expenses and provision for income tax expense (benefit)
$
(43) $
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 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”) (collectively, “Structured Securities”).
274
Table of Contents
8. Investments (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
December 31, 2017
Gross Unrealized
Gains
Temporary
Losses
OTTI
Losses (1)
Cost or
Amortized
Cost
Estimated
Fair
Value
Cost or
Amortized
Cost
(In millions)
December 31, 2016
Gross Unrealized
Gains
Temporary
Losses
OTTI
Losses (1)
Estimated
Fair
Value
Fixed maturity securities:
U.S. corporate
Foreign government
Foreign corporate
U.S. government and agency
RMBS
State and political subdivision
ABS
CMBS
Total fixed maturity
securities
Equity securities:
Common stock
Non-redeemable preferred
stock
$ 76,005
$ 7,007
$
55,351
52,409
43,446
27,846
10,752
12,213
8,047
6,495
3,836
4,227
1,145
1,717
116
222
$ 286,069
$24,765
$
1,687
$
364
453
29
$
$
Total equity securities
$
2,140
$
393
$
__________________
351
312
676
279
233
13
39
42
1,945
16
4
20
$
$
$
$
— $ 82,661
$ 73,280
$ 6,027
$
—
—
—
(42)
1
(1)
—
61,534
55,569
47,394
28,800
12,455
12,291
8,227
49,864
49,308
41,294
28,393
10,977
11,266
7,294
6,485
2,926
3,682
1,039
1,340
90
237
(42) $ 308,931
$ 271,676
$21,826
— $
2,035
$
1,827
$
464
$
$
—
478
637
19
— $
2,513
$
2,464
$
483
$
764
373
1,572
543
410
85
128
71
3,946
13
40
53
$
— $ 78,543
—
(1)
—
(10)
1
3
—
55,976
50,663
44,433
29,032
12,231
11,225
7,460
$
$
$
(7) $ 289,563
— $
2,278
—
616
— $
2,894
(1)
Noncredit OTTI losses included in AOCI in an unrealized gain position are due to increases in estimated fair value
subsequent to initial recognition of noncredit losses on such securities. See also “— Net Unrealized Investment Gains
(Losses).”
The Company held non-income producing fixed maturity securities with an estimated fair value of $6 million and
$1 million with unrealized gains (losses) of ($4) million and ($3) million at December 31, 2017 and 2016, 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 Structured Securities are estimated using inputs obtained from third-party specialists
and based on management’s knowledge of the current market. For credit-sensitive Structured Securities and certain prepayment-
sensitive securities, the effective yield is recalculated on a prospective basis. For all other Structured Securities, 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, 2017:
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
$
$
11,378
11,437
$
$
62,647
65,423
$
$
61,043
64,499
$
$
102,895
118,254
$
$
48,106
49,318
$
$
286,069
308,931
Actual maturities may differ from contractual maturities due to the exercise of call or prepayment options. Fixed maturity
securities not due at a single maturity date have been presented in the year of final contractual maturity. Structured Securities
are shown separately, as they are not due at a single maturity.
275
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 at:
December 31, 2017
December 31, 2016
Less than 12 Months
Equal to or Greater than
12 Months
Less than 12 Months
Equal to or Greater
than 12 Months
Estimated
Fair
Value
Gross
Unrealized
Losses
Estimated
Fair
Value
Gross
Unrealized
Losses
Estimated
Fair
Value
Gross
Unrealized
Losses
Estimated
Fair
Value
Gross
Unrealized
Losses
(Dollars in millions)
Fixed maturity securities:
U.S. corporate
Foreign government
Foreign corporate
U.S. government and agency
RMBS
State and political subdivision
ABS
CMBS
Total fixed maturity securities
Equity securities:
Common stock
Non-redeemable preferred stock
Total equity securities
Total number of securities in an
unrealized loss position
$
$
$
$
$
5,604
4,234
4,422
18,273
6,359
182
1,695
1,174
$ 41,943
$
$
126
42
168
2,651
92
83
99
93
50
2
7
9
435
$
4,115
3,251
6,802
3,560
4,159
346
729
413
$ 23,375
16
1
17
$
$
4
41
45
1,965
$
$
$
$
259
229
577
186
141
12
31
33
1,468
$ 11,471
5,955
10,147
9,104
9,449
1,747
2,224
998
$ 51,095
— $
3
3
$
105
139
244
3,580
$
$
$
$
466
260
573
523
291
80
28
22
2,243
$
2,938
918
5,493
141
1,800
56
2,328
564
$ 14,238
13
7
20
$
$
11
125
136
1,307
$
$
$
$
298
113
998
20
109
6
103
49
1,696
—
33
33
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.
276
Table of Contents
8. Investments (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
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.
• 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, 2017. 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 decreased $2.0 billion during the year ended December 31, 2017
to $1.9 billion. The decrease in gross unrealized losses for the year ended December 31, 2017, was primarily attributable
to narrowing credit spreads and strengthening foreign currencies on non-functional currency denominated fixed maturity
securities.
277
Table of Contents
8. Investments (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
At December 31, 2017, $117 million of the total $1.9 billion of gross unrealized losses were from 31 fixed maturity
securities with an unrealized loss position of 20% or more of amortized cost for six months or greater.
Gross unrealized losses on equity securities decreased $33 million during the year ended December 31, 2017 to
$20 million.
Investment Grade Fixed Maturity Securities
Of the $117 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, $73 million, or 62%, were related to gross unrealized losses on 12 investment
grade fixed maturity securities. Unrealized losses on investment grade fixed maturity securities are principally related to
widening credit spreads since purchase and, with respect to fixed-rate fixed maturity securities, rising interest rates since
purchase.
Below Investment Grade Fixed Maturity Securities
Of the $117 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, $44 million, or 38%, were related to gross unrealized losses on 19 below investment
grade fixed maturity securities. Unrealized losses on below investment grade fixed maturity securities are principally related
to U.S. and foreign corporate securities (primarily industrial and utility securities) and 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 uncertainty 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.
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
Total mortgage loans, net
__________________
December 31,
2017
2016
Carrying
Value
% of
Total
Carrying
Value
(Dollars in millions)
% of
Total
$
44,375
13,014
11,136
68,525
(314)
68,211
520
64.6% $
18.9
16.2
99.7
(0.5)
99.2
0.8
41,512
12,564
10,829
64,905
(304)
64,601
566
63.7%
19.3
16.6
99.6
(0.5)
99.1
0.9
$
68,731
100.0% $
65,167
100.0%
(1)
Purchases of mortgage loans, primarily residential, were $3.1 billion and $2.9 billion for the years ended December 31,
2017 and 2016, respectively.
Information on commercial, agricultural and residential mortgage loans is presented in the tables below. Information on
residential — FVO is presented in Note 10. The Company elects the FVO for certain residential mortgage loans that are
managed on a total return basis.
278
Table of Contents
8. Investments (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
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)
$
$
$
$
— $
— $
— $
— $
— $
44,375
$
214
$
— $
22
—
22
$
21
—
21
$
2
—
2
$
— $
— $
— $
11
—
11
$
10
—
10
$
1
—
1
$
27
358
385
12
27
265
304
$
$
$
27
324
351
12
27
241
280
$
$
$
12,966
10,812
68,153
41,500
12,527
10,588
$
$
39
59
312
202
38
63
$
$
64,615
$
303
$
46
324
370
12
36
241
289
$
$
$
5
32
285
322
90
49
188
327
December 31, 2017
Commercial
Agricultural
Residential
Total
December 31, 2016
Commercial
Agricultural
Residential
Total
The average recorded investment for impaired commercial, agricultural and residential mortgage loans was $127 million,
$60 million and $84 million, respectively, for the year ended December 31, 2015.
Valuation Allowance Rollforward by Portfolio Segment
The changes in the valuation allowance, by portfolio segment, were as follows:
Balance at January 1, 2015
Provision (release)
Charge-offs, net of recoveries
Balance at December 31, 2015
Provision (release) (1)
Charge-offs, net of recoveries (1)
Balance at December 31, 2016
Provision (release)
Charge-offs, net of recoveries
Balance at December 31, 2017
__________________
Commercial
Agricultural
Residential
Total
$
202
$
5
(19)
188
157
(143)
202
12
—
(In millions)
$
35
2
—
37
3
(1)
39
4
(2)
$
42
30
(16)
56
23
(16)
63
8
(12)
$
214
$
41
$
59
$
279
37
(35)
281
183
(160)
304
24
(14)
314
(1)
In connection with an acquisition in 2010, certain impaired commercial mortgage loans were acquired and accordingly,
were not originated by the Company. Such commercial mortgage loans have been accounted for as purchased credit
impaired (“PCI”) commercial mortgage loans. Decreases in cash flows expected to be collected on PCI commercial
mortgage loans can result in provisions for losses on mortgage loans. For the year ended December 31, 2016, in connection
with the maturity of an acquired PCI commercial mortgage loan, an increase to the commercial mortgage loan valuation
allowance of $143 million was recorded and charged-off upon maturity. The Company has recovered a substantial portion
of the loss on the loan incurred through an indemnification agreement entered into in connection with the acquisition in
2010.
279
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
8. Investments (continued)
Valuation Allowance Methodology
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 capture 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.
280
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 nonaccrual 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
% of
Total
Estimated
Fair
Value
% of
Total
(Dollars in millions)
$
37,073
$
1,483
$
$
$
4,183
235
401
98
210
168
41,892
$
1,959
$
36,067
$
1,077
$
3,044
195
118
—
—
27
$
$
$
201
119
57
147
524
707
202
—
75
38,757
4,400
502
716
87.4% $
39,528
87.7%
9.9
1.1
1.6
4,408
476
672
9.8
1.0
1.5
44,375
100.0% $
45,084
100.0%
37,851
3,246
195
220
91.2% $
38,237
91.5%
7.8
0.5
0.5
3,185
182
213
7.6
0.4
0.5
$
39,424
$
1,104
$
984
$
41,512
100.0% $
41,817
100.0%
December 31, 2017
Loan-to-value ratios:
Less than 65%
65% to 75%
76% to 80%
Greater than 80%
Total
December 31, 2016
Loan-to-value ratios:
Less than 65%
65% to 75%
76% to 80%
Greater than 80%
Total
281
Table of Contents
8. Investments (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
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,
2017
2016
Recorded
Investment
% of
Total
Recorded
Investment
% of
Total
(Dollars in millions)
$
$
12,347
94.9% $
12,023
95.7%
618
40
9
4.7
0.3
0.1
436
17
88
3.5
0.1
0.7
13,014
100.0% $
12,564
100.0%
The estimated fair value of agricultural mortgage loans was $13.1 billion and $12.7 billion at December 31, 2017 and
2016, respectively.
Credit Quality of Residential Mortgage Loans
The credit quality of residential mortgage loans was as follows at:
Performance indicators:
Performing
Nonperforming
Total
December 31,
2017
2016
Recorded
Investment
% of
Total
Recorded
Investment
% of
Total
(Dollars in millions)
$
$
10,622
514
95.4% $
4.6
10,448
381
96.5%
3.5
11,136
100.0% $
10,829
100.0%
The estimated fair value of residential mortgage loans was $11.6 billion and $11.2 billion at December 31, 2017 and
2016, respectively.
Past Due and Nonaccrual Mortgage Loans
The Company has a high quality, well performing mortgage loan portfolio, with 99% of all mortgage loans classified as
performing at both December 31, 2017 and 2016. 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 nonaccrual mortgage loans at recorded investment, prior to valuation allowances, by
portfolio segment, were as follows at:
Past Due
Greater than 90 Days Past Due and Still
Accruing Interest
Nonaccrual
December 31, 2017 December 31, 2016
December 31, 2017
December 31, 2016 December 31, 2017 December 31, 2016
Commercial $
Agricultural
Residential
Total
$
— $
134
514
648
$
3
$
127
381
511
(In millions)
— $
125
33
104
37
3
$
— $
36
481
517
$
—
23
344
367
$
158
$
144
$
282
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
8. Investments (continued)
Mortgage Loans Modified in a Troubled Debt Restructuring
The Company may grant concessions related to borrowers experiencing financial difficulties, which are classified as
troubled debt restructurings. 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 concessions granted are considered in determining any impairment or changes in the specific
valuation allowance recorded with the restructuring. Through the continuous monitoring process, a specific valuation allowance
may have been recorded prior to the quarter when the mortgage loan is modified in a troubled debt restructuring.
For the year ended December 31, 2017, the Company had 500 residential mortgage loans modified in a troubled debt
restructuring with carrying value after specific valuation allowance of $120 million and $108 million pre-modification and
post-modification, respectively. For the year ended December 31, 2016, the Company had 557 residential mortgage loans
modified in a troubled debt restructuring with carrying value after specific valuation allowance of $136 million and
$122 million pre-modification and post-modification, respectively. For the years ended December 31, 2017 and 2016, the
Company did not have a significant amount of agricultural mortgage loans and no commercial mortgage loans modified in a
troubled debt restructuring.
For both the years ended December 31, 2017 and 2016, the Company did not have a significant amount of mortgage loans
modified in a troubled debt restructuring with subsequent payment default.
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 $1.8 billion and $1.7 billion at December 31, 2017 and 2016, respectively.
Losses from tax credit partnerships included within net investment income were $259 million, $167 million, and $163 million
for the years ended December 31, 2017, 2016 and 2015, respectively.
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,
2017
2016
Leveraged
Leases
Direct
Financing
Leases
Leveraged
Leases
Direct
Financing
Leases
(In millions)
$
2,303
$
1,172
$
42
2,345
(1,022)
952
2,124
(603)
912
838
1,750
(472)
1,278
$
1,323
$
1,521
$
$
$
1,683
71
1,754
(639)
1,115
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 25 years, while the payment periods for direct financing leases
range from one to 20 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 both December 31, 2017 and 2016, 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 $934 million and $1.4 billion at December 31, 2017 and
2016, respectively.
283
Table of Contents
8. Investments (continued)
Cash Equivalents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
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 $6.2 billion and $7.4 billion at December 31, 2017 and 2016,
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.
The components of net unrealized investment gains (losses) included in AOCI were as follows:
Fixed maturity securities
Fixed maturity securities with noncredit OTTI losses included 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,
2017
2016
2015
(In millions)
$
22,645
$
20,330
$
18,158
41
22,686
421
1,453
46
24,606
(77)
—
(1,768)
(2,121)
(3,966)
(12)
(6,958)
13,670
(8)
8
20,338
485
2,923
23
23,769
(1,114)
(3)
(1,430)
(1,931)
(4,478)
(1)
(6,634)
12,656
(6)
(76)
18,082
422
2,350
287
21,141
(163)
—
(1,273)
(1,783)
(3,219)
27
(6,149)
11,800
(31)
Net unrealized investment gains (losses) attributable to MetLife, Inc.
$
13,662
$
12,650
$
11,769
Net unrealized investment gains (losses) attributable to MetLife, Inc. in the above table include, on a net of income tax
basis, $1,250 million and $1,554 million for the years ended December 31, 2016 and 2015, respectively, related to assets and
liabilities of a disposed subsidiary.
284
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.
Years Ended December 31,
2017
2016
2015
(In millions)
$
12,650
$
11,769
$
16,300
33
804
84
36
2,544
(11,668)
1,037
3
(338)
(190)
(11)
(324)
(951)
(3)
(157)
(148)
(28)
(485)
13,664
12,625
(2)
13,662
1,014
(2)
1,012
$
$
$
25
12,650
856
25
881
$
$
$
$
$
$
2,723
4
673
1,372
(15)
2,342
11,767
2
11,769
(4,533)
2
(4,531)
Net unrealized investment gains (losses) attributable to MetLife, Inc. in the above table include, on a net of income tax
basis, ($304) million and ($1,128) million for the years ended December 31, 2016 and 2015, respectively, related to assets and
liabilities of a disposed subsidiary.
Concentrations of Credit Risk
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
$27.5 billion and $24.7 billion at December 31, 2017 and 2016, respectively, and in fixed income securities of the South Korean
government and its agencies with an estimated fair value of $6.5 billion at December 31, 2017. At December 31, 2016, the
investments in South Korean government and agency fixed income securities were less than 10% of the Company’s equity.
Securities Lending
Elements of the securities lending program are presented below at:
Securities on loan: (1)
Amortized cost
Estimated fair value
Cash collateral received from counterparties (2)
Security collateral received from counterparties (3)
Reinvestment portfolio — estimated fair value
__________________
(1)
(2)
Included within fixed maturity securities.
Included within payables for collateral under securities loaned and other transactions.
285
December 31,
2017
2016
(In millions)
$
$
$
$
$
17,801
19,028
19,417
19
19,508
$
$
$
$
$
18,798
19,753
20,114
20
20,133
Table of Contents
8. Investments (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
(3)
Security collateral received from counterparties may not be sold or re-pledged, unless the counterparty is in default, and
is not reflected on the consolidated financial statements.
The cash collateral liability by loaned security type and remaining tenor of the agreements was as follows at:
December 31, 2017
December 31, 2016
Remaining Tenor of Securities
Lending Agreements
Open (1)
1 Month
or Less
Over
1 to 6
Months
Remaining Tenor of Securities
Lending Agreements
1 Month
or Less
Over
1 to 6
Months
Total
Total
Open (1)
(In millions)
Cash collateral liability by loaned security type:
U.S. government and agency
$
3,753
$
6,031
$
8,607
$ 18,391
$
4,480
$
6,496
$
8,383
$ 19,359
Foreign government
U.S. corporate
Total
__________________
—
—
192
—
834
—
1,026
—
—
—
569
43
143
—
712
43
$
3,753
$
6,223
$
9,441
$ 19,417
$
4,480
$
7,108
$
8,526
$ 20,114
(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, 2017
was $3.7 billion, all of which were U.S. government and agency securities which, if put back to the Company, could be
immediately sold to satisfy the cash requirement.
The reinvestment portfolio acquired with the cash collateral consisted principally of fixed maturity securities (including
agency RMBS, U.S. government and agency securities, ABS, U.S. corporate securities) and short-term investments with 59%
invested in agency RMBS, U.S. government and agency securities, short-term investments, cash equivalents or held in cash. If
the securities on loan or the reinvestment portfolio become less liquid, the Company has the liquidity resources of most of its
general account available to meet any potential cash demands when securities on loan are put back to the Company.
Repurchase Agreements
Elements of the short-term repurchase agreements are presented below at:
Securities on loan: (1)
Amortized cost
Estimated fair value
Cash collateral received from counterparties (2)
Reinvestment portfolio — estimated fair value
__________________
December 31, 2017
December 31, 2016
(In millions)
994
1,141
1,102
1,102
$
$
$
$
98
113
102
100
$
$
$
$
(1)
(2)
Included within fixed maturity securities, short-term investments and cash equivalents.
Included within payables for collateral under securities loaned and other transactions and other liabilities.
286
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 was as follows at:
December 31, 2017
December 31, 2016
Remaining Tenor of
Repurchase Agreements
1 Month
or Less
Over
1 to 6
Months
Remaining Tenor of
Repurchase Agreements
Total
1 Month
or Less
(In millions)
Over
1 to 6
Months
Total
$
$
1,005
44
1,049
$
$
— $
1,005
53
53
97
$
1,102
$
$
5
46
51
$
$
— $
51
51
$
5
97
102
Cash collateral liability by loaned security type:
U.S. government and agency
All other corporate and government
Total
The reinvestment portfolio acquired with the cash collateral consisted principally of fixed maturity securities (including
U.S. government and agency securities, agency RMBS, ABS), short-term investments and cash equivalents, with 63% invested
in U.S. government and agency securities, agency RMBS, short-term investments, cash equivalents or held in cash. If the
securities on loan or the reinvestment portfolio become less liquid, the Company has the liquidity resources of most of its general
account available to meet any potential cash demands when securities on loan are put back to the Company.
FHLB Boston Advance Agreements
At December 31, 2017, a subsidiary of the Company had pledged state and political subdivision fixed maturity securities
with an estimated fair value of $564 million as collateral and received $300 million in cash advances under short-term advance
agreements with the FHLB Boston. The liability to return the cash advances is included within payables for collateral under
securities loaned and other transactions and the remaining tenor of all liabilities under these agreements was one to six months
at December 31, 2017. The estimated fair value of the reinvestment portfolio acquired with the cash advances was $300 million
at December 31, 2017 and consisted primarily of U.S. government and agency fixed maturity securities. At December 31, 2017,
the reinvestment portfolio also included a $12 million, at estimated fair value, required investment in FHLB Boston common
stock. The subsidiary is permitted to withdraw any portion of the pledged collateral over the minimum collateral requirement
at any time, other than in the event of a default by the subsidiary. No such transactions were outstanding at December 31, 2016.
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 arrangement and reinsurance agreements)
Invested assets pledged as collateral (1)
Total invested assets on deposit, held in trust and pledged as collateral
__________________
December 31,
2017
2016
(In millions)
1,879
$
2,490
24,174
28,543
$
1,925
2,057
23,882
27,864
$
$
(1)
The Company has pledged invested assets in connection with various agreements and transactions, including funding
agreements (see Note 4), derivative transactions (see Note 9), secured debt (see Note 12), and a collateral financing
arrangement (see Note 13).
See “— Securities Lending,” “— Repurchase Agreements” and “— FHLB Boston Advance Agreements” for information
regarding securities on loan and Note 7 for information regarding investments designated to the closed block.
287
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
8. Investments (continued)
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 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.
The Company’s PCI investments were as follows at:
Outstanding principal and interest balance (1)
Carrying value (2)
__________________
December 31,
2017
2016
Fixed Maturity Securities
(In millions)
4,763
3,954
$
$
5,624
4,427
$
$
(1)
Represents the contractually required payments, which include contractual principal, whether or not currently due, and
accrued interest.
(2)
Estimated fair value plus accrued interest.
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,
2017
2016
Fixed Maturity Securities
(In millions)
$
$
$
95
73
67
$
$
$
1,464
1,338
984
(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,
288
Years Ended December 31,
2017
2016
Fixed Maturity Securities
(In millions)
1,733
$
6
(281)
(42)
104
1,520
$
1,780
354
(269)
(2)
(130)
1,733
$
$
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 $13.8 billion at December 31, 2017. 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 $4.8 billion at December 31, 2017. 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 two of the three
most recent annual periods: 2017 and 2016. 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, 2017, 2016 and 2015. Aggregate total assets of these entities totaled $505.6 billion at
December 31, 2017 and $436.9 billion at December 31, 2016 (which includes $9.6 billion related to Brighthouse). Aggregate
total liabilities of these entities totaled $68.9 billion at December 31, 2017 and $56.4 billion at December 31, 2016 (which
includes $177 million related to Brighthouse). Aggregate net income (loss) of these entities totaled $37.9 billion, $26.8 billion
and $25.8 billion for the years ended December 31, 2017, 2016 and 2015, respectively, with $270 million and $1.1 billion related
to Brighthouse for the years ended December 31, 2016 and 2015, 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 legal entities that are VIEs. In certain instances, the Company holds both the power to direct
the most significant activities of the entity, as well as an economic interest in the entity and, as such, is deemed to be the primary
beneficiary or consolidator of the entity. The determination of the VIE’s primary beneficiary requires an evaluation of the
contractual and implied rights and obligations associated with each party’s relationship with or involvement in the entity, an
estimate of the entity’s expected losses and expected residual returns and the allocation of such estimates to each party involved
in the entity.
Consolidated VIEs
Creditors or beneficial interest holders of VIEs where the Company is the primary beneficiary have no recourse to the
general credit of the Company, as the Company’s obligation to the VIEs is limited to the amount of its committed investment.
The following table presents the total assets and total liabilities relating to investment related VIEs for which the Company
has concluded that it is the primary beneficiary and which are consolidated at December 31, 2017 and 2016.
December 31,
2017
2016
Total
Assets
Total
Liabilities
Total
Assets
Total
Liabilities
$
$
116
$
7
25
148
$
(In millions)
3
6
—
9
$
$
— $
9
50
59
$
—
12
—
12
Renewable energy partnership (1)
Securitization entities (assets (primarily FVO securities) and liabilities
(primarily debt)) (2)
Other investments (3)
Total
__________________
289
Table of Contents
8. Investments (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
(1)
(2)
Assets of the renewable energy partnership, primarily consisting of other invested assets, were consolidated in earlier
periods as the two investors are subsidiaries of MLIC and Brighthouse, respectively. As a result of the Separation and a
reassessment in 2017, the renewable energy partnership was determined to be a consolidated VIE.
The Company consolidates entities that are structured as collateralized debt obligations. The assets of these entities can
only be used to settle their respective liabilities, and under no circumstances is the Company liable for any principal or
interest shortfalls should any arise.
(3)
Other investments is primarily comprised of other invested assets.
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,
2017
2016
Carrying
Amount
Maximum
Exposure
to Loss (1)
Carrying
Amount
Maximum
Exposure
to Loss (1)
(In millions)
$
47,614
$
47,614
$
46,773
$
46,773
1,560
4,834
2,291
82
1,560
8,543
2,625
87
1,940
4,714
2,206
199
1,940
8,990
2,777
215
$
56,381
$
60,429
$
55,832
$
60,695
Fixed maturity securities AFS:
Structured Securities (2)
U.S. and foreign corporate
Other limited partnership interests
Other invested assets
Other (3)
Total
__________________
(1)
The maximum exposure to loss relating to fixed maturity securities AFS is equal to their carrying amounts or the carrying
amounts of retained interests. The maximum exposure to loss relating to other limited partnership interests and real estate
joint ventures is equal to the carrying amounts plus any unfunded commitments. For certain of its investments in other
invested assets, the Company’s return is in the form of income tax credits which are guaranteed by creditworthy third
parties. For such investments, the maximum exposure to loss is equal to the carrying amounts plus any unfunded
commitments, reduced by income tax credits guaranteed by third parties of $117 million and $150 million at December 31,
2017 and 2016, respectively. Such a maximum loss would be expected to occur only upon bankruptcy of the issuer or
investee.
(2)
For these variable interests, the Company’s involvement is limited to that of a passive investor in mortgage-backed or
asset-backed securities issued by trusts that do not have substantial equity.
(3)
Other is primarily comprised of real estate joint ventures and a joint venture related loan.
As described in Note 20, 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 each of the years ended December 31, 2017, 2016 and 2015.
290
Table of Contents
8. Investments (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
During 2017, the Company securitized certain residential mortgage loans and acquired an interest in the related RMBS
issued. While the Company has a variable interest in the issuer of the securities, it is not the primary beneficiary of the issuer
of the securities since it does not have any rights to remove the servicer or veto rights over the servicer’s actions. The carrying
value and the estimated fair value of mortgage loans sold during 2017 were $319 million and $339 million, respectively,
resulting in a gain of $20 million during the year ended December 31, 2017, which was included within net investment gains
(losses). The estimated fair value of RMBS acquired in connection with the securitization was $52 million. Included in the
carrying amount and maximum exposure to loss for Structured Securities presented above at December 31, 2017 were
$51 million of such investments. See Note 10 for information on how the estimated fair value of mortgage loans and RMBS
is determined, the valuation approaches and key inputs, their placement in the fair value hierarchy, and for certain RMBS,
quantitative information about the significant unobservable inputs and the sensitivity of their estimated fair value to changes
in those inputs.
Net Investment Income
The components of net investment income were as follows:
Investment income:
Fixed maturity securities
Equity securities
FVO securities — 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 securities — FVO contractholder-directed unit-linked investments (1)
Net investment income
__________________
Years Ended December 31,
2017
2016
2015
(In millions)
$
11,497
$
11,721
$
11,809
129
68
3,082
517
646
798
228
28
192
17,185
1,122
16,063
1,300
121
37
2,858
511
652
478
153
33
248
16,812
972
15,840
950
124
21
2,772
525
872
535
140
25
200
17,023
1,082
15,941
264
$
17,363
$
16,790
$
16,205
(1)
Changes in estimated fair value subsequent to purchase for securities still held as of the end of the respective periods
included in net investment income were principally from FVO contractholder-directed unit-linked investments, and were
$662 million, $427 million and ($456) million for the years ended December 31, 2017, 2016, and 2015, respectively.
FVO securities are primarily comprised of contractholder-directed investments supporting unit-linked variable annuity type
liabilities which do not qualify as separate accounts. The remainder is comprised of FVO Brighthouse Common Stock (see
Note 3), FVO general account securities and FVO securities held by consolidated securitization entities (“CSEs”). The Company
previously maintained a trading securities portfolio, principally invested in fixed maturity securities. During 2016, the Company
reinvested this portfolio into other asset classes and at December 31, 2016, the Company no longer held any Actively traded
securities.
See “— Variable Interest Entities” for discussion of CSEs.
291
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
8. Investments (continued)
Net Investment Gains (Losses)
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
Industrial
Utility
Communications
Total U.S. and foreign corporate securities
ABS
RMBS
State and political subdivision
OTTI losses on fixed maturity securities recognized in earnings
Fixed maturity securities — net gains (losses) on sales and disposals (1)
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 securities — FVO general account securities
Mortgage loans (2)
Real estate and real estate joint ventures
Other limited partnership interests
Other
Subtotal
FVO CSEs:
Securities
Long-term debt — related to securities
Non-investment portfolio gains (losses) (3) (4) (5) (6)
Subtotal
Total net investment gains (losses)
__________________
Years Ended December 31,
2017
2016
2015
(In millions)
$
(4) $
— $
—
—
—
(4)
(3)
—
(3)
(10)
328
318
(24)
(1)
(25)
117
92
—
14
603
(59)
(113)
855
—
(1)
(1,162)
(1,163)
(308) $
$
(63)
(21)
(3)
(87)
(2)
(18)
—
(107)
251
144
(75)
—
(75)
19
(56)
—
(231)
182
(64)
(130)
(155)
1
—
471
472
317
$
(20)
(2)
(15)
—
(37)
—
(16)
(6)
(59)
318
259
(36)
(1)
(37)
43
6
—
(93)
433
(66)
1
540
—
—
69
69
609
(1)
Fixed maturity securities net gains (losses) on sales and disposals for the year ended December 31, 2017 includes
$276 million in previously deferred gains on prior period transfers of securities to Brighthouse, as such gains are no longer
eliminated in consolidation after the Separation. See Note 3.
292
Table of Contents
8. Investments (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
(2) Mortgage loans gains (losses) for the year ended December 31, 2017 include $47 million of previously deferred gains
on prior period transfers of mortgage loans to Brighthouse as such gains are no longer eliminated in consolidation after
the Separation. See Note 3.
(3)
(4)
(5)
(6)
Non-investment portfolio gains (losses) for the year ended December 31, 2017 includes a loss of $1,016 million which
represents a mark-to-market loss attributable to the FVO Brighthouse Common Stock held by the Company at Separation.
See Note 3.
Non-investment portfolio gains (losses) for the year ended December 31, 2017 includes a loss of $95 million which
represents the change in estimated fair value of FVO Brighthouse Common Stock held by the Company from the date of
Separation to December 31, 2017. See Note 3.
Non-investment portfolio gains (losses) for the year ended December 31, 2017 includes a $98 million loss due to the
disposition of MetLife Afore. See Note 3.
Non-investment portfolio gains (losses) for the year ended December 31, 2016 includes a gain of $102 million in
connection with the U.S. Retail Advisor Force Divestiture. See Note 3.
See “— Variable Interest Entities” for discussion of CSEs.
Gains (losses) from foreign currency transactions included within net investment gains (losses) were ($6) million,
$225 million and $57 million for the years ended December 31, 2017, 2016 and 2015, 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,
2017
2016
2015
2017
2016
2015
Fixed Maturity Securities
Equity Securities
(In millions)
$
$
$
56,509
753
(425)
(10)
$
$
86,179
1,048
$
$
82,871
1,144
$
$
(797)
(107)
(826)
(59)
$
$
1,255
131
(14)
(25)
$
$
278
36
(17)
(75)
318
$
144
$
259
$
92
$
(56) $
278
73
(30)
(37)
6
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,
2017
2016
$
(In millions)
187
$
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
—
—
(48)
—
(1)
Balance at December 31,
$
138
$
293
211
1
18
(43)
(1)
1
187
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 markets.
Interest Rate Derivatives
The Company uses a variety of interest rate derivatives to reduce its exposure to changes in interest rates, including
interest rate swaps, interest rate total return swaps, caps, floors, swaptions, futures and forwards.
Interest rate swaps are used by the Company primarily to reduce market risks from changes in interest rates and to alter
interest rate exposure arising from mismatches between assets and liabilities (duration mismatches). In an interest rate swap,
the Company agrees with another party to exchange, at specified intervals, the difference between fixed rate and floating rate
interest amounts as calculated by reference to an agreed notional amount. The Company utilizes interest rate swaps in fair
value, cash flow and nonqualifying hedging relationships.
The Company uses structured interest rate swaps to synthetically create investments that are either more expensive to
acquire or otherwise unavailable in the cash markets. These transactions are a combination of a derivative and a cash instrument
such as a U.S. government and agency, or other fixed maturity security. Structured interest rate swaps are included in interest
rate swaps and are not designated as hedging instruments.
Interest rate total return swaps are swaps whereby the Company agrees with another party to exchange, at specified
intervals, the difference between the economic risk and reward of an asset or a market index and the London Interbank Offered
Rate (“LIBOR”), calculated by reference to an agreed notional amount. No cash is exchanged at the outset of the contract.
Cash is paid and received over the life of the contract based on the terms of the swap. These transactions are entered into
pursuant to master agreements that provide for a single net payment to be made by the counterparty at each due date. Interest
rate total return swaps are used by the Company to reduce market risks from changes in interest rates and to alter interest rate
exposure arising from mismatches between assets and liabilities (duration mismatches). The Company utilizes interest rate
total return swaps in nonqualifying hedging relationships.
The Company purchases interest rate caps 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, and interest
rate floors primarily to protect its minimum rate guarantee liabilities against declines in interest rates below a specified level.
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 and to
pledge initial margin based on futures exchange requirements. 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.
294
Table of Contents
9. Derivatives (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
Swaptions are used by the Company to hedge interest rate risk associated with the Company’s long-term liabilities and
invested assets. A swaption is an option to enter into a swap with a forward starting effective date. In certain instances, the
Company locks in the economic impact of existing purchased swaptions by entering into offsetting written swaptions. The
Company pays a premium for purchased swaptions and receives a premium for written swaptions. The Company utilizes
swaptions in nonqualifying hedging relationships. Swaptions are included in interest rate options.
The Company enters into interest rate forwards to buy and sell securities. The price is agreed upon at the time of the
contract and payment for such a contract is made at a specified future date. The Company utilizes interest rate forwards in
cash flow and nonqualifying hedging relationships.
A synthetic guaranteed interest contract (“GIC”) is a contract that simulates the performance of a traditional GIC through
the use of financial instruments. Under a synthetic GIC, the policyholder owns the underlying assets. The Company guarantees
a rate return on those assets for a premium. Synthetic GICs are not designated as hedging instruments.
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 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 and involuntary restructuring
for corporate obligors, as well as repudiation, moratorium or governmental intervention for sovereign obligors. 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.
295
Table of Contents
9. Derivatives (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
The Company enters into written credit default swaps to synthetically create credit investments that are either more
expensive to acquire or otherwise unavailable in the cash markets. These transactions are a combination of a derivative and
one or more cash instruments, such as U.S. government and agency securities, or other fixed maturity securities. These credit
default swaps are not designated as hedging instruments.
The Company also entered 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 were not designated as
hedging instruments. As of December 31, 2016, the Company no longer maintained a trading portfolio for derivatives.
The Company enters into forwards to lock in the price to be paid for forward purchases of certain securities. The price
is agreed upon at the time of the contract and payment for the contract is made at a specified future date. When the primary
purpose of entering into these transactions is to hedge against the risk of changes in purchase price due to changes in credit
spreads, the Company designates these transactions as credit forwards. The Company utilizes credit forwards in cash flow
hedging relationships.
Equity Derivatives
The Company uses a variety of equity derivatives to reduce its exposure to equity market risk, including equity index
options, equity variance swaps, exchange-traded equity futures and equity total return swaps.
Equity index options are used by the Company primarily to hedge minimum guarantees embedded in certain variable
annuity products offered by the Company. To hedge against adverse changes in equity indices, the Company enters into
contracts to sell the underlying 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, to post variation margin on a daily basis in an
amount equal to the difference in the daily market values of those contracts and to pledge initial margin based on futures
exchange requirements. The Company enters into exchange-traded futures with regulated futures commission merchants that
are members of the exchange. Exchange-traded equity futures are used primarily to hedge minimum guarantees embedded in
certain variable annuity products offered by the Company. The Company utilizes exchange-traded equity futures in
nonqualifying hedging relationships.
In an equity total return swap, the Company agrees with another party to exchange, at specified intervals, the difference
between the economic risk and reward of an asset or a market index and LIBOR, calculated by reference to an agreed notional
amount. No cash is exchanged at the outset of the contract. Cash is paid and received over the life of the contract based on
the terms of the swap. The Company uses equity total return swaps to hedge its equity market guarantees in certain of its
insurance products. Equity total return swaps can be used as hedges or to synthetically create investments. The Company
utilizes equity total return swaps in nonqualifying hedging relationships.
296
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 primary underlying risk exposure, gross notional amount, and estimated fair value of the
Company’s derivatives, excluding embedded derivatives, held at:
December 31,
2017
2016
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
$
3,843
$ 2,289
$
$
5,021
$ 2,221
$
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
Subtotal
Total qualifying hedges
Foreign currency exchange rate
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
Interest rate
Interest rate
Interest rate
Interest rate
Interest rate forwards
Interest rate total return swaps
Synthetic GICs
Foreign currency swaps
Interest rate
Interest rate
Interest rate
Foreign currency exchange rate
Foreign currency forwards
Foreign currency exchange rate
Currency futures
Foreign currency exchange rate
Currency options
Credit default swaps — purchased Credit
Credit default swaps — written
Credit
Foreign currency exchange rate
Equity futures
Equity index options
Equity variance swaps
Equity total return swaps
Equity market
Equity market
Equity market
Equity market
1,116
3,253
8,212
3,584
3,332
32,152
39,068
332
9,408
9,740
50
2
2,341
235
—
1,142
1,377
2
44
46
3
18
37
58
4
128
1,665
1,797
5
163
168
57,020
3,764
2,023
60,485
2,203
7,201
53,079
4,366
12,009
217
1,048
11,318
9,902
12,238
846
3,123
2,020
11,375
4,005
19,886
4,661
1,117
92
78
2
656
—
8
—
693
79
2
55
7
271
18
569
54
—
576
—
2
4
11
42
2
—
506
190
—
6
43
—
4
690
199
41
1,221
1,085
7,327
2,040
4,032
26,680
32,752
1,394
8,878
10,272
50,351
53,349
12,101
78,358
4,793
5,334
613
1,549
5,566
11,651
15,422
915
3,615
2,001
10,732
4,457
16,527
8,263
1,046
34
—
2,255
325
—
1,877
2,202
47
148
195
181
112
3
628
—
2
—
1,445
117
—
195
14
161
30
426
83
1
Total non-designated or nonqualifying derivatives
218,896
4,787
2,316
236,292
7,487
Total
$ 275,916
$ 8,551
$
4,339
$ 286,643
$12,139
$
297
6
224
54
284
34
370
2,054
2,458
5
45
50
7
2
12
1
25
127
—
462
977
—
17
40
9
3
523
240
43
4,129
6,921
4,652
2,792
4,089
1,641
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, 2017 and 2016. 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 and interest rate swaps that are used to
synthetically create investments and that do not qualify for hedge accounting because they do not involve a hedging relationship.
For these nonqualified derivatives, changes in market factors can lead to the recognition of fair value changes on the statement
of operations without an offsetting gain or loss recognized in earnings for the item being hedged.
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,
2017
2016
(In millions)
2015
$
$
(1,389) $
799
(590) $
(509) $
(181)
(690) $
429
200
629
(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,
2017
2016
(In millions)
2015
$
299
$
267
$
(64)
(10)
—
551
9
(1)
(12)
(1)
705
7
$
785
$
965
$
206
27
(6)
(6)
663
2
886
298
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 not qualifying as hedging instruments:
Year Ended December 31, 2017
Interest rate derivatives
Foreign currency exchange rate derivatives
Credit derivatives — purchased
Credit derivatives — written
Equity derivatives
Total
Year Ended December 31, 2016
Interest rate derivatives
Foreign currency exchange rate derivatives
Credit derivatives — purchased
Credit derivatives — written
Equity derivatives
Total
Year Ended December 31, 2015
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)
$
$
$
$
$
$
(549) $
(742)
(24)
145
(1,046)
(2,216) $
$
1
—
—
—
(9)
(8) $
(990) $
— $
882
(40)
71
(681)
(758) $
—
—
—
(16)
(16) $
(354) $
— $
502
7
(69)
(340)
—
(3)
—
(10)
(254) $
(13) $
(1)
5
—
—
(252)
(248)
46
(18)
—
—
(138)
(110)
—
—
—
—
—
—
(1)
(2)
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. As of
December 31, 2016, the Company no longer maintained a trading portfolio for derivatives.
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.
299
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, 2017
Interest rate swaps:
Foreign currency swaps:
Fixed maturity securities
Policyholder liabilities (1)
Foreign-denominated fixed maturity securities
Foreign-denominated policyholder account
balances (2)
Foreign currency forwards:
Foreign-denominated fixed maturity securities
Total
Year Ended December 31, 2016
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, 2015
Interest rate swaps:
Foreign currency swaps:
Fixed maturity securities
Policyholder liabilities (1)
Foreign-denominated fixed maturity securities
Foreign-denominated policyholder account
balances (2)
Foreign currency forwards:
Foreign-denominated fixed maturity securities
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)
$
$
$
$
$
4
$
(4) $
(69)
(27)
65
13
134
29
(44)
(11)
(14) $
104
$
7
$
(9) $
(108)
13
(95)
127
90
(12)
92
(119)
(56) $
42
$
4
$
(4)
15
(240)
(75)
(1) $
(6)
(7)
232
68
$
(300) $
286
$
—
65
2
21
2
90
(2)
(18)
1
(3)
8
(14)
3
(10)
8
(8)
(7)
(14)
(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, 2017, 2016 and 2015, the component of the change in estimated fair value of derivatives that was
excluded from the assessment of hedge effectiveness was ($40) million, ($23) million and ($11) 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.
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Table of Contents
9. Derivatives (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
In certain instances, the Company discontinued cash flow hedge accounting because the forecasted transactions were no longer
probable of occurring. Because certain of the forecasted transactions also were not probable of occurring within two months of the
anticipated date, the Company reclassified amounts from AOCI into net derivative gains (losses). These amounts were $13 million,
$12 million and $8 million for the years ended December 31, 2017, 2016 and 2015, respectively.
At both December 31, 2017 and 2016, the maximum length of time over which the Company was hedging its exposure to
variability in future cash flows for forecasted transactions did not exceed five years.
At December 31, 2017 and 2016, the balance in AOCI associated with cash flow hedges was $1.5 billion and $2.9 billion,
respectively. Upon the Separation, the Company recorded a reduction of $414 million of deferred gains within AOCI. For the years
ended December 31, 2016, and 2015, the amounts of deferred gains (losses) in AOCI from Brighthouse were $71 million and
$102 million, respectively. For the years ended December 31, 2017, 2016, and 2015, the amounts of income reclassified from AOCI
into income (loss) from discontinued operations were $16 million, $45 million and $7 million, respectively.
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. The table excludes the effects of Brighthouse derivatives prior to the Separation.
Derivatives in Cash Flow
Hedging Relationships
Year Ended December 31, 2017
Interest rate swaps
Interest rate forwards
Foreign currency swaps
Credit forwards
Total
Year Ended December 31, 2016
Interest rate swaps
Interest rate forwards
Foreign currency swaps
Credit forwards
Total
Year Ended December 31, 2015
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)
$
$
$
$
$
$
78
$
24
$
210
(335)
—
(47) $
50
$
(366)
589
—
273
76
(3)
(194)
—
$
$
(11)
974
1
988
56
(1)
(350)
3
$
$
(292) $
$
84
4
(720)
1
(121) $
(631) $
16
2
—
—
18
12
4
(2)
1
15
11
3
(1)
—
13
$
— $
1
2
—
3
$
— $
1
2
—
3
$
— $
2
1
—
3
$
$
$
$
$
$
18
(2)
(4)
—
12
(1)
—
1
—
—
2
—
9
—
11
All components of each derivative’s gain or loss were included in the assessment of hedge effectiveness.
At December 31, 2017, the Company expected to reclassify ($101) million of deferred net gains (losses) on derivatives in
AOCI, included in the table above, 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.
301
Table of Contents
9. Derivatives (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
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)
2017
2016
(In millions)
2015
Amount of Gains (Losses) Deferred in AOCI
Years Ended December 31,
Foreign currency forwards
Currency options
Total
__________________
$
$
(155) $
(290)
(445) $
(267) $
(35)
(302) $
255
(138)
117
(1)
(2)
During the years ended December 31, 2017, 2016 and 2015, 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.
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, 2017 and 2016, the cumulative foreign currency translation gain (loss) recorded in AOCI related to hedges
of net investments in foreign operations was $309 million and $754 million, respectively.
Credit Derivatives
In connection with synthetically created credit investment transactions, the Company writes credit default swaps for which
it receives a premium to insure credit risk. Such credit derivatives are included within the 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 $11.4 billion and $10.7 billion at December 31, 2017 and 2016, 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, 2017 and 2016, the Company would have received $271 million
and $152 million, respectively, to terminate all of these contracts.
302
Table of Contents
9. Derivatives (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
The following table presents the estimated fair value, maximum amount of future payments and weighted average years to
maturity of written credit default swaps at:
Rating Agency Designation of Referenced
Credit Obligations (1)
2017
Maximum
Amount of
Future
Payments under
Credit Default
Swaps
Estimated
Fair Value
of Credit
Default
Swaps
December 31,
Weighted
Average
Years to
Maturity (2)
Estimated
Fair Value
of Credit
Default
Swaps
(Dollars in millions)
2016
Maximum
Amount of
Future
Payments under
Credit Default
Swaps
Weighted
Average
Years to
Maturity (2)
Aaa/Aa/A
Single name credit default swaps (3)
$
Credit default swaps referencing indices
Subtotal
Baa
Single name credit default swaps (3)
Credit default swaps referencing indices
Subtotal
Ba
Single name credit default swaps (3)
Credit default swaps referencing indices
Subtotal
B
Single name credit default swaps (3)
Credit default swaps referencing indices
Subtotal
Total
__________________
$
7
44
51
7
183
190
1
—
1
2
27
29
375
2,268
2,643
605
7,662
8,267
115
—
115
20
330
350
$
271
$
11,375
2.6
2.7
2.7
1.8
5.0
4.8
3.4
—
3.4
3.5
5.0
4.9
4.3
$
$
6
34
40
5
88
93
(2)
—
(2)
1
20
21
449
2,335
2,784
751
6,711
7,462
135
—
135
70
281
351
$
152
$
10,732
3.1
3.6
3.5
2.5
5.0
4.8
4.1
—
4.1
1.8
5.0
4.3
4.4
(1)
(2)
(3)
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.
The weighted average years to maturity of the credit default swaps is calculated based on weighted average gross notional
amounts.
Single name credit default swaps may be referenced to the credit of corporations, foreign governments, or state and
political subdivisions.
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 amount of potential future recoveries available to offset the $11.4 billion
and $10.7 billion from the table above were $27 million and $30 million at December 31, 2017 and 2016, 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.
303
Table of Contents
9. Derivatives (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
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 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 (1)
Assets
Liabilities
Assets
Liabilities
December 31,
2017
2016
Gross estimated fair value of derivatives:
OTC-bilateral (1)
OTC-cleared (1), (6)
Exchange-traded
Total gross estimated fair value of derivatives (1)
Amounts offset on the consolidated balance sheets
(In millions)
$
7,955
$
4,059
$
9,976
$
649
22
8,626
—
223
8
2,275
33
4,290
12,284
—
—
5,721
1,142
15
6,878
—
Estimated fair value of derivatives presented on the consolidated balance
sheets (1), (6)
8,626
4,290
12,284
6,878
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
(2,528)
(2,528)
(3,787)
(3,787)
(35)
(1)
(4,169)
(584)
—
(35)
(1)
—
(179)
(5)
(903)
(5)
(4,244)
(1,335)
—
(903)
(5)
(84)
(234)
(9)
(1,004)
(1,474)
(1,640)
(1,818)
—
—
(9)
(2)
—
—
—
—
38
Net amount after application of master netting agreements and collateral
$
305
$
57
$
370
$
__________________
(1)
At December 31, 2017 and 2016, derivative assets included income or (expense) accruals reported in accrued investment
income or in other liabilities of $75 million and $145 million, respectively, and derivative liabilities included (income)
or expense accruals reported in accrued investment income or in other liabilities of ($49) million and ($43) million,
respectively.
304
Table of Contents
9. Derivatives (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
(2)
(3)
(4)
(5)
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 transactions on the balance sheet.
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, 2017 and 2016, the Company received excess cash collateral of $253 million
and $164 million, respectively, and provided excess cash collateral of $272 million and $461 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, 2017, none of the collateral had been sold or re-pledged. Securities collateral pledged by the Company is
reported in fixed maturity securities on the balance sheet. Subject to certain constraints, the counterparties are permitted
by contract to sell or re-pledge this collateral. The amount of securities collateral offset in the table above is limited to
the net estimated fair value of derivatives after application of netting agreements and cash collateral. At December 31,
2017 and 2016, the Company received excess securities collateral with an estimated fair value of $108 million and
$82 million, respectively, for its OTC-bilateral derivatives, which are not included in the table above due to the foregoing
limitation. At December 31, 2017 and 2016, the Company provided excess securities collateral with an estimated fair
value of $305 million and $189 million, respectively, for its OTC-bilateral derivatives, $522 million and $544 million,
respectively, for its OTC-cleared derivatives, and $89 million and $116 million, respectively, for its exchange-traded
derivatives, which are not included in the table above due to the foregoing limitation.
(6)
Effective January 3, 2017, the CME amended its rulebook, resulting in the characterization of variation margin transfers
as settlement payments, as opposed to adjustments to collateral. See Note 1 for further information on the CME
amendments.
The Company’s collateral arrangements for its OTC-bilateral derivatives generally require the counterparty in a net liability
position, after considering the effect of netting agreements, to pledge collateral when the collateral amount owed by that
counterparty reaches a minimum transfer amount. A small number of these arrangements also include credit-contingent provisions
that include a threshold above which collateral must be posted. Such agreements provide for a reduction of these thresholds (on
a sliding scale that converges toward zero) in the event of downgrades in the credit ratings of MetLife, Inc. and/or the counterparty.
In addition, substantially all 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 or
financial strength rating, as applicable, 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.
305
Table of Contents
9. Derivatives (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
The following table presents the estimated fair value of the Company’s OTC-bilateral derivatives that were 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 MetLife, Inc. would be required to provide if there
was a one-notch downgrade in MetLife, Inc.’s senior unsecured debt rating at the reporting date or if the Company’s credit or
financial strength rating, as applicable, at the reporting date sustained a downgrade to a level that triggered full overnight
collateralization or termination of the derivative position. OTC-bilateral derivatives that are not subject to collateral agreements
are excluded from this table.
December 31,
Derivatives
Subject to
Credit-
Contingent
Provisions
2017
Derivatives
Not Subject
to Credit-
Contingent
Provisions
Total
Derivatives
Subject to
Credit-
Contingent
Provisions
2016
Derivatives
Not Subject
to Credit-
Contingent
Provisions
Total
(In millions)
Estimated Fair Value of Derivatives in a Net
Liability Position (1)
Estimated Fair Value of Collateral Provided:
Fixed maturity securities
Cash
Estimated Fair Value of Incremental Collateral
Provided Upon:
One-notch downgrade in the Company’s credit or
financial strength rating, as applicable
Downgrade in the Company’s credit or financial
strength rating, as applicable, to a level that
triggers full overnight collateralization or
termination of the derivative position
__________________
$
$
$
$
$
1,508
1,675
$
$
24
$
1,532
26
$
1,701
$
$
— $
— $
— $
1,909
1,965
91
$
$
$
25
$
1,934
31
$
1,996
— $
91
15
$
— $
15
$
6
$
— $
20
$
— $
20
$
9
$
— $
6
9
(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; assumed reinsurance of guaranteed minimum benefits related to GMWBs
and GMABs; funding agreements with equity or bond indexed crediting rates; funds withheld on ceded reinsurance; fixed
annuities with equity-indexed returns; and certain debt and equity securities.
306
Table of Contents
9. Derivatives (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
The following table presents the estimated fair value and balance sheet location of the Company’s embedded derivatives
that have been separated from their host contracts at:
Balance Sheet Location
Embedded derivatives within asset host contracts:
Ceded guaranteed minimum benefits
Premiums, reinsurance and other
Options embedded in debt or equity securities
Embedded derivatives within asset host contracts
Embedded derivatives within liability host contracts:
Direct guaranteed minimum benefits
Assumed guaranteed minimum benefits
Funds withheld on ceded reinsurance
receivables
Investments
Policyholder account balances
Policyholder account balances
Other liabilities
Fixed annuities with equity indexed returns
Policyholder account balances
Embedded derivatives within liability host contracts
The following table presents changes in estimated fair value related to embedded derivatives:
December 31,
2017
2016
(In millions)
$
$
$
$
$
$
144
(132)
12
32
291
25
70
$
418
$
143
(88)
55
361
523
(30)
18
872
Net derivative gains (losses) (1)
__________________
Years Ended December 31,
2017
2016
2015
(In millions)
$
799
$
(181) $
200
(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 ($190) million, $156 million and $52 million for the
years ended December 31, 2017, 2016 and 2015, respectively.
307
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 approaches: (i) the market approach,
(ii) the income approach, and (iii) the cost approach. The Company determines the most appropriate valuation approach 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 at:
308
Table of Contents
10. Fair Value (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
Assets
Fixed maturity securities:
U.S. corporate
Foreign government
Foreign corporate
U.S. government and agency
RMBS
State and political subdivision
ABS
CMBS
Total fixed maturity securities
Equity securities
FVO securities (1)
Short-term investments (2)
Residential mortgage loans — FVO
Other investments
Derivative assets: (3)
Interest rate
Foreign currency exchange rate
Credit
Equity market
Total derivative assets
Embedded derivatives within asset host contracts (4)
Separate account assets (5)
Total assets
Liabilities
Derivative liabilities: (3)
Interest rate
Foreign currency exchange rate
Credit
Equity market
Total derivative liabilities
Embedded derivatives within liability host contracts (4)
Separate account liabilities (5)
Total liabilities
December 31, 2017
Fair Value Hierarchy
Level 1
Level 2
Level 3
(In millions)
Total
Estimated
Fair Value
$
— $
78,171
$
4,490
$
—
—
26,052
—
—
—
—
26,052
1,104
14,028
3,001
—
81
2
2
—
18
22
—
61,325
48,840
21,342
25,339
12,455
11,204
7,934
266,610
981
2,355
1,252
—
84
5,553
1,954
240
548
8,295
—
89,916
114,124
209
6,729
—
3,461
—
1,087
293
16,269
428
362
33
520
—
8
113
38
75
234
144
961
$
$
$
134,204
$
393,701
$
18,951
$
4
—
—
4
8
—
—
8
$
638
$
130
$
2,553
43
731
3,965
—
7
$
3,972
$
37
—
199
366
418
2
786
$
82,661
61,534
55,569
47,394
28,800
12,455
12,291
8,227
308,931
2,513
16,745
4,286
520
165
5,563
2,069
278
641
8,551
144
205,001
546,856
772
2,590
43
934
4,339
418
9
4,766
309
Table of Contents
10. Fair Value (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
Assets
Fixed maturity securities:
U.S. corporate
Foreign government
Foreign corporate
U.S. government and agency
RMBS
State and political subdivision
ABS
CMBS
Total fixed maturity securities
Equity securities
FVO securities (1)
Short-term investments (2)
Residential mortgage loans — FVO
Other investments
Derivative assets: (3)
Interest rate
Foreign currency exchange rate
Credit
Equity market
Total derivative assets
Embedded derivatives within asset host contracts (4)
Separate account assets (5)
Total assets
Liabilities
Derivative liabilities: (3)
Interest rate
Foreign currency exchange rate
Credit
Equity market
Total derivative liabilities
Embedded derivatives within liability host contracts (4)
Separate account liabilities (5)
Total liabilities
__________________
December 31, 2016
Fair Value Hierarchy
Level 1
Level 2
Level 3
(In millions)
Total
Estimated
Fair Value
$
— $
72,811
$
5,732
$
—
—
24,943
—
—
—
—
24,943
1,334
11,123
4,091
—
86
3
—
—
30
33
—
82,818
55,687
44,858
19,490
25,194
12,221
10,196
7,112
247,569
1,092
2,513
1,868
—
71
7,556
3,783
145
390
11,874
—
111,612
289
5,805
—
3,838
10
1,029
348
17,051
468
287
46
566
—
2
80
30
120
232
143
1,148
$
$
$
124,428
$
376,599
$
19,941
$
12
—
—
3
15
—
—
15
$
1,713
3,784
49
566
6,112
—
16
$
500
$
54
—
240
794
872
7
$
6,128
$
1,673
$
78,543
55,976
50,663
44,433
29,032
12,231
11,225
7,460
289,563
2,894
13,923
6,005
566
157
7,561
3,863
175
540
12,139
143
195,578
520,968
2,225
3,838
49
809
6,921
872
23
7,816
(1)
(2)
(3)
FVO securities were comprised of over 85% FVO contractholder-directed unit-linked investments at both December 31,
2017 and 2016.
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 consolidated balance sheets, but are presented net for purposes of the rollforward
in the Fair Value Measurements Using Significant Unobservable Inputs (Level 3) tables.
310
Table of Contents
10. Fair Value (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
(4)
(5)
Embedded derivatives within asset host contracts are presented within premiums, reinsurance and other receivables and
other invested assets on the consolidated balance sheets. Embedded derivatives within liability host contracts are presented
within policyholder account balances and other liabilities on the consolidated balance sheets. At December 31, 2017 and
2016, debt and equity securities also included embedded derivatives of ($132) million and ($88) 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. Separate account liabilities presented in the tables above represent
derivative liabilities.
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 3% of the total estimated
fair value of Level 3 fixed maturity securities at December 31, 2017.
The Company also applies a formal process to challenge any prices received from independent pricing services that
are not considered representative of estimated fair value. If prices received from independent pricing services are not
considered reflective of market activity or representative of estimated fair value, independent non-binding broker quotations
are obtained, or an internally developed valuation is prepared. Internally developed valuations of current estimated fair
value, which reflect internal estimates of liquidity and nonperformance risks, compared with pricing received from the
independent pricing services, did not produce material differences in the estimated fair values for the majority of the portfolio;
accordingly, overrides were not material. This is, in part, because internal estimates of liquidity and nonperformance risks
are generally based on available market evidence and estimates used by other market participants. In the absence of such
market-based evidence, management’s best estimate is used.
311
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
10. Fair Value (continued)
Securities, Short-term Investments and Other Investments
When available, the estimated fair value of these financial instruments is based on quoted prices in active markets that
are readily and regularly obtainable. Generally, these are the most liquid of the Company’s securities holdings and valuation
of these securities does not involve management’s judgment.
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 and other investments is determined on a basis consistent with the methodologies
described herein for securities.
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.
312
Table of Contents
10. Fair Value (continued)
Instrument
Fixed maturity securities
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
Level 2
Observable Inputs
Level 3
Unobservable Inputs
U.S. corporate and Foreign corporate securities
Valuation Approaches: Principally the market and income approaches.
Valuation Approaches: 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
• 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
securities that are less liquid and based on lower levels of trading
activity than securities classified in Level 2
•
independent non-binding broker quotations
Foreign government, U.S. government and agency and State and political subdivision securities
Valuation Approaches: Principally the market approach.
Valuation Approaches: Principally the market approach.
Key Inputs:
Key Inputs:
• quoted prices in markets that are not active
•
independent non-binding broker quotations
• benchmark U.S. Treasury yield or other yields
• the spread off the U.S. Treasury yield curve for the identical security
• 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
Valuation Approaches: Principally the market and income approaches.
Valuation Approaches: 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
• quoted prices in markets that are not active for identical or similar
• expected prepayment speeds and volumes
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
313
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 Approaches: Principally the market approach.
Valuation Approaches: Principally the market and income approaches.
Key Input:
Key Inputs:
• quoted prices in markets that are not considered active
• credit ratings; issuance structures
FVO securities, Short-term investments, and Other investments
• 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.
• All other investments are of a similar nature and class to the fixed maturity
and equity securities described above; accordingly, the valuation
approaches and observable inputs used in their valuation are also similar
to those described above.
Residential mortgage loans — FVO
• N/A
• 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 securities and short-term investments are of a similar nature and class
to the fixed maturity and equity securities described above; accordingly,
the valuation approaches and unobservable inputs used in their
valuation are also similar to those described above.
Valuation Approaches: Principally the market approach.
Valuation Techniques and Key Inputs: These investments are based primarily
on matrix pricing or other similar techniques that utilize inputs from
mortgage servicers that are unobservable or cannot be derived
principally from, or corroborated by, observable market data.
Separate account assets and Separate account liabilities (1)
Mutual funds and hedge funds without readily determinable fair values as prices are not published publicly
Key Input:
• N/A
• quoted prices or reported NAV provided by the fund managers
Other limited partnership interests
• N/A
__________________
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 and Other Investments” and “— Derivatives — Freestanding Derivatives.”
314
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10. Fair Value (continued)
Derivatives
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
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 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
Level 2 Valuation Approaches and Key Inputs:
This level includes all types of derivatives utilized by the Company with the exception of exchange-traded derivatives
included within Level 1 and those derivatives with unobservable inputs as described in Level 3.
Level 3 Valuation Approaches and Key Inputs:
These valuation methodologies generally use the same inputs as described in the corresponding sections for Level 2
measurements of derivatives. However, these derivatives result in Level 3 classification because one or more of the
significant inputs are not observable in the market or cannot be derived principally from, or corroborated by, observable
market data.
315
Table of Contents
10. Fair Value (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
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 curves
• swap yield curves
• swap yield curves
• swap yield curves
• basis curves
• basis curves
• credit curves
• spot equity index levels
•
interest rate volatility (1)
• currency spot rates
•
recovery rates
• dividend yield curves
Level 3
• swap yield curves (2)
• cross currency basis
curves
• currency volatility (1)
• swap yield curves (2)
• equity volatility (1)
• swap yield curves (2)
• dividend yield curves (2)
• basis curves (2)
• basis curves (2)
• credit curves (2)
• equity volatility (1), (2)
•
repurchase rates
• cross currency basis
curves (2)
• currency correlation
• currency volatility (1)
• credit spreads
• correlation between
model inputs (1)
•
•
repurchase rates
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 on the consolidated balance sheets.
The Company’s actuarial department calculates the fair value of these embedded derivatives, which are estimated as the
present value of projected future benefits minus the present value of projected future fees using actuarial and capital market
assumptions including expectations concerning policyholder behavior. The calculation is based on in-force business, and is
performed using standard actuarial valuation software which projects future cash flows from the embedded derivative over
multiple risk neutral stochastic scenarios using observable risk-free rates.
Capital market assumptions, such as risk-free rates and implied volatilities, are based on market prices for publicly traded
instruments to the extent that prices for such instruments are observable. Implied volatilities beyond the observable period
are extrapolated based on observable implied volatilities and historical volatilities. Actuarial assumptions, including mortality,
lapse, withdrawal and utilization, are unobservable and are reviewed at least annually based on actuarial studies of historical
experience.
The valuation of these guarantee liabilities includes nonperformance risk adjustments and adjustments for a risk margin
related to non-capital market inputs. The nonperformance adjustment is determined by taking into consideration publicly
available information relating to spreads in the secondary market for MetLife, Inc.’s debt, including related credit default
swaps. These observable spreads are then adjusted, as necessary, to reflect the priority of these liabilities and the claims paying
ability of the issuing insurance subsidiaries as compared to MetLife, Inc.
316
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 described in
“— Investments — Securities, Short-term Investments and Other Investments.” 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.
317
Table of Contents
10. Fair Value (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
Embedded Derivatives Within Asset and Liability Host Contracts
Level 3 Valuation Approaches and Key Inputs:
Direct and assumed guaranteed minimum benefits
These embedded derivatives are principally valued using the income approach. Valuations are based on option
pricing techniques, which utilize significant inputs that may include swap yield curves, currency exchange rates and
implied volatilities. These embedded derivatives result in Level 3 classification because one or more of the significant
inputs are not observable in the market or cannot be derived principally from, or corroborated by, observable market
data. Significant unobservable inputs generally include: the extrapolation beyond observable limits of the swap yield
curves and implied volatilities, actuarial assumptions for policyholder behavior and mortality and the potential
variability in policyholder behavior and mortality, nonperformance risk and cost of capital for purposes of calculating
the risk margin.
Reinsurance ceded on certain guaranteed minimum benefits
These embedded derivatives are principally valued using the income approach. The valuation techniques and
significant market standard unobservable inputs used in their valuation are similar to those described above in “— Direct
and assumed guaranteed minimum benefits” and also include counterparty credit spreads.
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:
There were no transfers between Levels 1 and 2 for assets and liabilities measured at estimated fair value and still held
at December 31, 2017. Transfers between Levels 1 and 2 for assets and liabilities measured at estimated fair value and still
held at December 31, 2016, were not significant.
Transfers into or out of Level 3:
Assets and liabilities are transferred into Level 3 when a significant input cannot be corroborated with market observable
data. This occurs when market activity decreases significantly and underlying inputs cannot be observed, current prices are
not available, and/or when there are significant variances in quoted prices, thereby affecting transparency. Assets and
liabilities are transferred out of Level 3 when circumstances change such that a significant input can be corroborated with
market observable data. This may be due to a significant increase in market activity, a specific event, or one or more
significant input(s) becoming observable.
318
Table of Contents
10. Fair Value (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
Assets and Liabilities Measured at Fair Value Using Significant Unobservable Inputs (Level 3)
The following table presents certain quantitative information about the significant unobservable inputs used in the fair
value measurement, and the sensitivity of the estimated fair value to changes in those inputs, for the more significant asset
and liability classes measured at fair value on a recurring basis using significant unobservable inputs (Level 3) at:
Valuation Techniques
Significant
Unobservable Inputs
Range
Weighted
Average (1)
Range
Weighted
Average (1)
December 31, 2017
December 31, 2016
110
121
101
94
100
100
83
10
97
—
5
100
200
(5)
(14)
-
-
-
-
-
-
-
-
-
142
443
104
126
117
103
300
5
309
Fixed maturity securities (3)
U.S. corporate and foreign
• Matrix pricing
• Offered quotes (4)
corporate
RMBS
ABS
Derivatives
Interest rate
• Market pricing
• Quoted prices (4)
• Consensus pricing
• Offered quotes (4)
• Market pricing
• Quoted prices (4)
• Market pricing
• Quoted prices (4)
• Consensus pricing
• Offered quotes (4)
• Present value
techniques
• Swap yield (6)
Foreign currency exchange rate
Credit
• Present value
techniques
• Present value
techniques
• Repurchase rates (8)
• Swap yield (6)
• Credit spreads (9)
—
- —
Equity market
• Present value
• Volatility (11)
11%
-
31%
• Consensus pricing
• Offered quotes (10)
techniques or
option pricing
models
• Correlation (12)
10%
-
30%
Embedded derivatives
Direct, assumed and ceded
guaranteed minimum
benefits
• Option pricing
techniques
• Mortality rates:
Ages 0 - 40
Ages 41 - 60
Ages 61 - 115
• Lapse rates:
0%
- 0.21%
0.03% - 0.75%
0.15% - 100%
Durations 1 - 10
Durations 11 - 20
0.25% - 100%
2%
- 100%
Durations 21 - 116
1.25% - 100%
• Utilization rates
• Withdrawal rates
• Long-term equity
volatilities
0%
0%
-
-
25%
20%
8.25% -
33%
Impact of
Increase in Input
on Estimated
Fair Value (2)
Increase
Increase
Increase
Increase (5)
Increase (5)
Increase (5)
Increase (7)
Decrease (7)
Increase (7)
Decrease (7)
Increase (7)
Decrease (13)
Decrease (13)
Decrease (13)
Decrease (14)
Decrease (14)
Decrease (14)
Increase (15)
(16)
Increase (17)
106
116
102
91
99
100
18
6
37
19
5
96
200
(44)
50
97
12%
40%
-
-
-
-
-
-
-
-
-
-
-
-
138
700
120
137
106
102
300
18
328
98
32%
40%
0%
- 0.21%
0.01% - 0.78%
0.04% -
100%
0.25% -
100%
2%
-
100%
1.25% -
100%
0%
0%
-
-
9.95% -
25%
20%
33%
• Nonperformance risk
0.02% - 1.32%
0.04% - 1.70%
Decrease (18)
spread
__________________
(1)
(2)
(3)
(4)
(5)
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 estimated fair value. For embedded derivatives,
changes to direct and assumed guaranteed minimum benefits are based on liability positions; changes to ceded guaranteed
minimum benefits are based on asset positions.
Significant increases (decreases) in expected default rates in isolation would result in substantially lower (higher)
valuations.
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 are accompanied by a directionally similar change in the
assumption used for the loss severity and a directionally opposite change in the assumptions used for prepayment rates.
319
Table of Contents
10. Fair Value (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
(6)
(7)
(8)
(9)
Ranges represent the rates across different yield curves and are presented in basis points. The swap yield curves are
utilized among different types of derivatives to project cash flows, as well as to discount future cash flows to present
value. Since this valuation methodology uses a range of inputs across a yield curve to value the derivative, presenting a
range is more representative of the unobservable input used in the valuation.
Changes in estimated fair value are based on long U.S. dollar net asset positions and will be inversely impacted for short
U.S. dollar net asset positions.
Ranges represent different repurchase rates utilized as components within the valuation methodology and are presented
in basis points.
Represents the risk quoted in basis points of a credit default event on the underlying instrument. Credit derivatives with
significant unobservable inputs are primarily comprised of written credit default swaps.
(10) At both December 31, 2017 and 2016, independent non-binding broker quotations were used in the determination of less
than 1% of the total net derivative estimated fair value.
(11) Ranges represent the underlying equity volatility quoted in percentage points. Since this valuation methodology uses a
range of inputs across multiple volatility surfaces to value the derivative, presenting a range is more representative of the
unobservable input used in the valuation.
(12) Ranges represent the different correlation factors utilized as components within the valuation methodology. Presenting
a range of correlation factors is more representative of the unobservable input used in the valuation. Increases (decreases)
in correlation in isolation will increase (decrease) the significance of the change in valuations.
(13) Mortality rates vary by age and by demographic characteristics such as gender. Mortality rate assumptions are based on
company experience. A mortality improvement assumption is also applied. For any given contract, mortality rates vary
throughout the period over which cash flows are projected for purposes of valuing the embedded derivative.
(14) Base lapse rates are adjusted at the contract level based on a comparison of the actuarially calculated guaranteed values
and the current policyholder account value, as well as other factors, such as the applicability of any surrender charges.
A dynamic lapse function reduces the base lapse rate when the guaranteed amount is greater than the account value as in
the money contracts are less likely to lapse. Lapse rates are also generally assumed to be lower in periods when a surrender
charge applies. For any given contract, lapse rates vary throughout the period over which cash flows are projected for
purposes of valuing the embedded derivative.
(15) The utilization rate assumption estimates the percentage of contractholders with a GMIB or lifetime withdrawal benefit
who will elect to utilize the benefit upon becoming eligible. The rates may vary by the type of guarantee, the amount by
which the guaranteed amount is greater than the account value, the contract’s withdrawal history and by the age of the
policyholder. For any given contract, utilization rates vary throughout the period over which cash flows are projected for
purposes of valuing the embedded derivative.
(16) The withdrawal rate represents the percentage of account balance that any given policyholder will elect to withdraw from
the contract each year. The withdrawal rate assumption varies by age and duration of the contract, and also by other factors
such as benefit type. For any given contract, withdrawal rates vary throughout the period over which cash flows are
projected for purposes of valuing the embedded derivative. For GMWBs, any increase (decrease) in withdrawal rates
results in an increase (decrease) in the estimated fair value of the guarantees. For GMABs and GMIBs, any increase
(decrease) in withdrawal rates results in a decrease (increase) in the estimated fair value.
(17) Long-term equity volatilities represent equity volatility beyond the period for which observable equity volatilities are
available. For any given contract, long-term equity volatility rates vary throughout the period over which cash flows are
projected for purposes of valuing the embedded derivative.
(18) Nonperformance risk spread varies by duration and by currency. For any given contract, multiple nonperformance risk
spreads will apply, depending on the duration of the cash flow being discounted for purposes of valuing the embedded
derivative.
320
Table of Contents
10. Fair Value (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
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, and embedded derivatives within
funds withheld related to certain ceded reinsurance, use the same valuation techniques and significant unobservable inputs as
previously described for Level 3 securities. This includes matrix 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 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.”
321
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)
Foreign
Government
Structured
Securities
State and
Political
Subdivision
Equity
Securities
FVO
Securities
(In millions)
Balance, January 1, 2016
$
10,311
$
829
$
5,121
$
34
$
334
$
270
Total realized/unrealized gains (losses) included in net
income (loss) (2) (3)
Total realized/unrealized gains (losses) included in AOCI
Purchases (4)
Sales (4)
Issuances (4)
Settlements (4)
Transfers into Level 3 (5)
Transfers out of Level 3 (5)
Balance, December 31, 2016
Total realized/unrealized gains (losses) included in net
income (loss) (2) (3)
Total realized/unrealized gains (losses) included in AOCI
Purchases (4)
Sales (4)
Issuances (4)
Settlements (4)
Transfers into Level 3 (5)
Transfers out of Level 3 (5)
Balance, December 31, 2017
Changes in unrealized gains (losses) included in net
income (loss) for the instruments still held at
December 31, 2015: (6)
Changes in unrealized gains (losses) included in net
income (loss) for the instruments still held at
December 31, 2016: (6)
Changes in unrealized gains (losses) included in net
income (loss) for the instruments still held at
December 31, 2017: (6)
Gains (Losses) Data for the year ended December 31,
2015:
Total realized/unrealized gains (losses) included in net
income (loss) (2) (3)
Total realized/unrealized gains (losses) included in AOCI
$
$
$
$
$
$
5
59
2,754
(996)
—
—
969
(1,565)
11,537
3
708
3,830
(1,763)
—
—
72
(3,168)
11,219
$
12
(42)
44
(45)
—
—
3
(512)
289
4
—
30
(53)
—
—
5
(66)
103
56
2,221
(1,483)
—
—
25
(828)
5,215
94
133
1,376
(1,598)
—
—
70
1
2
—
—
—
—
7
(34)
10
—
—
—
—
—
—
—
(24)
19
23
(15)
—
—
327
(196)
468
—
19
25
(51)
—
—
1
(449)
(10)
(34)
209
$
4,841
$
— $
428
$
2
—
99
(35)
—
—
18
(67)
287
22
—
292
(141)
—
—
8
(106)
362
13
$
12
$
103
$
— $
— $
(27)
6
$
12
$
103
$
1
$
(29) $
1
$
4
$
84
$
— $
(17) $
3
19
53
$
(637) $
13
$
(23) $
103
$
(77) $
— $
1
$
11
$
(54) $
(30)
—
322
Table of Contents
10. Fair Value (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
Balance, January 1, 2016
$
244
$
314
$
(179) $
(178) $
1,558
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Short-term
Investments
Residential
Mortgage
Loans - FVO
Net
Derivatives (7)
Net Embedded
Derivatives (8)
Separate
Accounts (9)
(In millions)
Total realized/unrealized gains (losses) included in net
income (loss) (2) (3)
Total realized/unrealized gains (losses) included in AOCI
Purchases (4)
Sales (4)
Issuances (4)
Settlements (4)
Transfers into Level 3 (5)
Transfers out of Level 3 (5)
Balance, December 31, 2016
Total realized/unrealized gains (losses) included in net
income (loss) (2) (3)
Total realized/unrealized gains (losses) included in AOCI
Purchases (4)
Sales (4)
Issuances (4)
Settlements (4)
Transfers into Level 3 (5)
Transfers out of Level 3 (5)
Balance, December 31, 2017
Changes in unrealized gains (losses) included in net
income (loss) for the instruments still held at
December 31, 2015: (6)
Changes in unrealized gains (losses) included in net
income (loss) for the instruments still held at
December 31, 2016: (6)
Changes in unrealized gains (losses) included in net
income (loss) for the instruments still held at
December 31, 2017: (6)
Gains (Losses) Data for the year ended December 31,
2015:
Total realized/unrealized gains (losses) included in net
income (loss) (2) (3)
Total realized/unrealized gains (losses) included in AOCI
__________________
1
4
50
(50)
—
—
—
(203)
46
—
—
32
(1)
—
—
—
(44)
8
—
297
(11)
—
(42)
—
—
566
40
—
175
(179)
—
(82)
—
—
(31)
(367)
28
—
—
(13)
—
—
(562)
87
216
—
—
(7)
134
—
—
(214)
(20)
—
—
—
(317)
—
—
(729)
823
(46)
—
—
—
(322)
—
—
$
$
$
$
$
$
33
$
520
$
(132) $
(274) $
— $
20
$
(170) $
216
$
1
$
8
$
(56) $
(242) $
— $
27
$
53
$
793
$
1
$
(1) $
20
$
— $
(149) $
(2) $
155
1
$
$
(2)
—
375
(512)
62
(51)
19
(308)
1,141
(8)
—
187
(80)
1
(93)
35
(224)
959
—
—
—
14
—
(1)
(2)
(3)
(4)
(5)
Comprised of U.S. and foreign corporate securities.
Amortization of premium/accretion of discount is included within net investment income. Impairments charged to net
income (loss) on securities are included in net investment gains (losses), while changes in estimated fair value of residential
mortgage loans — FVO are included in net investment income. Lapses associated with net embedded derivatives are
included in net derivative gains (losses). Substantially all realized/unrealized gains (losses) included in net income (loss)
for net derivatives and net embedded derivatives are reported in net derivatives gains (losses).
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.
323
Table of Contents
10. Fair Value (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
(6)
(7)
(8)
(9)
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).
Freestanding derivative assets and liabilities are presented net for purposes of the rollforward.
Embedded derivative assets and liabilities are presented net for purposes of the rollforward.
Investment performance related to separate account assets is fully offset by corresponding amounts credited to
contractholders within separate account liabilities. Therefore, such changes in estimated fair value are not recorded in
net income (loss). For the purpose of this disclosure, these changes are presented within net investment gains (losses).
Separate account assets and liabilities are presented net for the purposes of the rollforward.
Fair Value Option
The Company elects the FVO for certain residential mortgage loans that are managed on a total return basis. The following
table presents information for residential mortgage loans which are accounted for under the FVO and were initially measured
at fair value.
Unpaid principal balance
Difference between estimated fair value and unpaid principal balance
Carrying value at estimated fair value
Loans in nonaccrual status
Loans more than 90 days past due
Loans in nonaccrual status or more than 90 days past due, or both — difference between
aggregate estimated fair value and unpaid principal balance
Nonrecurring Fair Value Measurements
December 31,
2017
2016
(In millions)
650
(130)
520
198
94
$
$
$
$
(102) $
794
(228)
566
214
137
(150)
$
$
$
$
$
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,
2017
2016
2015
2017
2016
2015
Carrying Value After Measurement
Gains (Losses)
Other limited partnership interests (1)
Other assets (2)
__________________
$
$
58
$
— $
96
$
— $
(In millions)
57
$
— $
(65) $
10
$
(64) $
(30) $
(31)
—
(1)
For these cost method investments, estimated fair value is determined from information provided on 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 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. The Company estimates 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, 2017 and 2016 were not significant.
(2)
As discussed in Note 3, during the year ended December 31, 2016, the Company recognized an impairment of computer
software in connection with the U.S. Retail Advisor Force Divestiture.
324
Table of Contents
10. Fair Value (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
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 tables 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, 2017
Fair Value Hierarchy
Carrying
Value
Level 1
Level 2
Level 3
(In millions)
Total
Estimated
Fair Value
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
336
$
— $
— $
1,283
189
$
$
69,797
11,176
216
443
3,056
139
— $
116,534
$
$
$
$
$
$
$
69,797
11,512
216
443
4,339
328
116,534
17,773
$
— $
17,773
— $
4,319
1,496
$
$
$
894
$
— $
2,345
$
894
4,319
3,841
— $
124,011
— $
124,011
Assets
Mortgage loans
Policy loans
Other limited partnership interests
Other invested assets
Premiums, reinsurance and other receivables
Other assets
Liabilities
Policyholder account balances
Long-term debt
Collateral financing arrangement
Junior subordinated debt securities
Other liabilities
Separate account liabilities
$
$
$
$
$
$
$
$
$
$
$
$
68,211
9,669
219
443
4,155
285
114,355
15,675
1,121
3,144
3,208
124,011
$
$
$
$
$
$
$
$
$
$
$
$
325
Table of Contents
10. Fair Value (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
December 31, 2016
Fair Value Hierarchy
Carrying
Value
Level 1
Level 2
Level 3
(In millions)
Total
Estimated
Fair Value
Assets
Mortgage loans
Policy loans
Other limited partnership interests
Other invested assets
Premiums, reinsurance and other receivables
Other assets
Liabilities
Policyholder account balances
Long-term debt
Collateral financing arrangement
Junior subordinated debt securities
Other liabilities
Separate account liabilities
$
$
$
$
$
$
$
$
$
$
$
$
64,601
9,511
340
497
4,088
237
108,255
16,422
1,274
3,169
1,767
118,385
$
$
$
$
$
$
$
$
$
$
$
$
— $
— $
— $
145
$
— $
— $
— $
— $
— $
— $
— $
— $
335
$
— $
— $
1,152
198
$
$
65,742
10,921
371
352
3,127
71
— $
110,359
$
$
$
$
$
$
$
65,742
11,256
371
497
4,279
269
110,359
17,972
$
— $
17,972
— $
3,982
1,493
$
$
$
978
$
— $
275
$
978
3,982
1,768
— $
118,385
— $
118,385
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.
Other Limited Partnership Interests
The estimated fair values of these cost method investments are generally based on the Company’s share of the NAV as
provided on the financial statements of the investees. In certain circumstances, management may adjust the NAV by a premium
or discount when it has sufficient evidence to support applying such adjustments.
Other Invested Assets
These other invested assets are principally comprised of various interest-bearing assets held in foreign subsidiaries. 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.
326
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
10. Fair Value (continued)
Premiums, Reinsurance and Other Receivables
Premiums, reinsurance and other receivables are principally comprised of certain amounts recoverable under reinsurance
agreements, amounts on deposit with financial institutions to facilitate daily settlements related to certain derivatives and
amounts receivable for securities sold but not yet settled.
Amounts recoverable under ceded reinsurance agreements, which the Company has determined do not transfer significant
risk such that they are accounted for using the deposit method of accounting, have been classified as Level 3. The valuation
is based on discounted cash flow methodologies using significant unobservable inputs. The estimated fair value is determined
using interest rates determined to reflect the appropriate credit standing of the assuming counterparty.
The amounts on deposit for derivative settlements, classified within Level 2, essentially represent the equivalent of demand
deposit balances and amounts due for securities sold are generally received over short periods such that the estimated fair
value approximates carrying value.
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 Arrangement and Junior Subordinated Debt Securities
The estimated fair values of long-term debt, a collateral financing arrangement 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 the estimated fair value of a collateral financing arrangement incorporates valuations obtained from the
counterparty to the arrangement 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, funds
withheld amounts payable, which are contractually withheld by the Company in accordance with the terms of the reinsurance
agreements, and amounts payable under certain assumed reinsurance agreements, which are recorded using the deposit method
of accounting. The Company evaluates the specific terms, facts and circumstances of each instrument to determine the
appropriate estimated fair values, which are not materially different from the carrying values, with the exception of certain
deposit type reinsurance payables. For such payables, the estimated fair value is determined as the present value of expected
future cash flows, which are discounted using an interest rate determined to reflect the appropriate credit standing of the
assuming counterparty.
327
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
10. Fair Value (continued)
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 determine the fair values of its reporting units by applying a market multiple, discounted
cash flow, and/or an actuarial based valuation approach.
The market multiple valuation approach utilizes market multiples of companies with similar businesses and the projected
adjusted earnings of the reporting unit. The discounted cash flow valuation approach requires judgments about revenues, adjusted
earnings projections, capital market assumptions and discount rates. The actuarial-based valuation approach, such as embedded
value, estimates the net worth of the reporting unit and the value of existing and new business. The actuarial based approaches
require judgments and assumptions about the level of economic capital required to support the mix of business, long-term growth
rates, 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.
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 its 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.
The Company performed its annual goodwill impairment tests of its reporting units using a qualitative assessment and/or
quantitative assessments under the market multiple, discounted cash flow and/or actuarial-based valuation approaches and
concluded that the estimated fair values of all such reporting units were in excess of their carrying values and, therefore, goodwill
was not impaired.
328
Table of Contents
11. Goodwill (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
Information regarding goodwill by segment, as well as Corporate & Other, was as follows:
Balance at January 1, 2015
Goodwill
Accumulated impairment (2)
Total goodwill, net
Effect of foreign currency translation and other
Balance at December 31, 2015
Goodwill
Accumulated impairment
Total goodwill, net
Dispositions (3)
Effect of foreign currency translation and other
Balance at December 31, 2016
Goodwill
Accumulated impairment
Total goodwill, net
Acquisition
Dispositions (4)
Effect of foreign currency translation and other
Balance at December 31, 2017
Goodwill
Accumulated impairment
Total goodwill, net
__________________
U.S.
Asia (1)
Latin
America
EMEA
(In millions)
MetLife
Holdings
Corporate
& Other
Total
$
1,451
$
4,615
$
1,385
$
1,232
$
1,567
$
—
1,451
—
1,451
—
1,451
—
—
1,451
—
1,451
—
—
—
1,451
—
—
4,615
(107)
4,508
—
4,508
—
88
4,596
—
4,596
—
—
77
4,673
—
—
1,385
(199)
1,186
—
1,186
—
40
1,226
—
1,226
—
(16)
96
1,306
—
—
1,232
(89)
1,143
—
1,143
—
(83)
1,060
—
1,060
—
—
110
1,170
—
(680)
887
—
1,567
(680)
887
—
—
1,567
(680)
887
—
—
—
1,567
(680)
42
—
42
—
42
—
42
(42)
—
—
—
—
103
—
—
103
—
$
10,292
(680)
9,612
(395)
9,897
(680)
9,217
(42)
45
9,900
(680)
9,220
103
(16)
283
10,270
(680)
$
1,451
$
4,673
$
1,306
$
1,170
$
887
$
103
$
9,590
(1)
(2)
(3)
(4)
Includes goodwill of $4.5 billion, $4.4 billion and $4.3 billion from the Japan operations at December 31, 2017, 2016
and 2015, respectively.
The $680 million accumulated impairment in the MetLife Holdings segment relates to the retail annuities business
impaired in 2012 that was not part of the separation of Brighthouse. See Note 3.
In connection with the U.S. Retail Advisor Force Divestiture, goodwill in Corporate & Other was reduced by $42 million
for the year ended December 31, 2016. See Note 3.
In connection with the disposition of Mexico Afore, goodwill was reduced by $16 million for the year ended December 31,
2017. See Note 3.
329
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
12. Long-term and Short-term Debt
Long-term and short-term debt outstanding, excluding debt relating to CSEs, was as follows:
Interest Rates (1)
Range
Weighted
Average
Maturity
Face
Value
3.00% -
7.72%
7.63% -
7.88%
2.20% -
7.29%
4.84%
7.79%
4.56%
2018 - 2046
$
14,685
2024 - 2025
2018 - 2058
507
578
5
15,775
477
2017
Unamortized
Discount and
Issuance
Costs
December 31,
Carrying
Value
Face
Value
(In millions)
2016
Unamortized
Discount and
Issuance
Costs
Carrying
Value
$
$
(86)
$
14,599
$
15,597
$
(92)
$
15,505
(5)
(4)
—
(95)
—
502
574
5
507
420
8
15,680
16,532
477
242
(6)
(5)
—
(103)
—
501
415
8
16,429
242
$
16,252
$
(95)
$
16,157
$
16,774
$
(103)
$
16,671
Senior notes
Surplus notes
Other notes (2)
Capital lease obligations
Total long-term debt
Total short-term debt
Total
__________________
(1)
(2)
Range of interest rates and weighted average interest rates are for the year ended December 31, 2017.
During 2017, an affiliate issued $139 million of long-term debt to a third party.
The aggregate maturities of long-term debt at December 31, 2017 for the next five years and thereafter are $1.1 billion in
2018, $1.0 billion in 2019, $540 million in 2020, $999 million in 2021, $846 million in 2022 and $11.2 billion thereafter.
Capital lease obligations are collateralized and rank highest in priority, followed by unsecured 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 of the operating company issuing the
notes and are senior to obligations of MetLife, Inc., may be made only with the prior approval of the insurance department of
the state of domicile of the notes issuer. The Company’s collateral financing arrangement (see Note 13) is supported by surplus
notes of a subsidiary and, accordingly, has priority consistent with surplus notes.
Certain of the Company’s debt instruments and committed facilities, as well as its unsecured revolving credit facility, contain
various administrative, reporting, legal and financial covenants. The Company believes it was in compliance with all applicable
covenants at December 31, 2017.
Senior Notes
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 issuance costs which have been capitalized and 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 issuance costs which have been capitalized and are being amortized over the terms of the senior notes.
Term Loans
MetLife Private Equity Holdings, LLC (“MPEH”), a wholly-owned indirect investment subsidiary of MLIC, borrowed
$350 million in December 2015 under a five-year credit agreement included within other notes in the table above. In November
2017, this agreement was amended to extend the maturity to November 2022, change the amount MPEH may borrow on a
revolving basis to $75 million from $100 million, and change the interest rate to a variable rate of three-month LIBOR plus
3.25%, payable quarterly, from a variable rate of three-month LIBOR plus 3.70%. In connection with the initial borrowing in
2015, $6 million of costs were incurred, and additional costs of $1 million were incurred in connection with the 2017 amendment,
which have been capitalized and are being amortized over the term of the loans. MPEH has pledged invested assets to secure
the loans; however, these loans are non-recourse to MLIC and MetLife, Inc.
330
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
12. Long-term and Short-term Debt (continued)
Short-term Debt
Short-term debt with maturities of one year or less was as follows:
Commercial paper
Short-term borrowings (1)
Total short-term debt
Average daily balance
Average days outstanding
__________________
December 31,
2017
2016
(Dollars in millions)
$
$
$
100
377
477
280
$
$
$
100
142
242
135
27 days
21 days
(1)
Includes $374 million and $133 million at December 31, 2017 and 2016, respectively, of short-term debt related to
repurchase agreements, secured by assets of subsidiaries.
During the years ended December 31, 2017, 2016 and 2015, the weighted average interest rate on short-term debt was
2.41%, 1.32% and 0.15%, respectively.
Interest Expense
Interest expense included in other expenses was $841 million, $874 million and $890 million for the years ended
December 31, 2017, 2016 and 2015, respectively. Such amounts do not include interest expense on long-term debt related to
CSEs, the collateral financing arrangement, or junior subordinated debt securities. See Notes 13 and 14.
Credit and Committed Facilities
At December 31, 2017, the Company maintained a $3.0 billion unsecured revolving credit facility (the “Credit Facility”)
and certain committed facilities (the “Committed Facilities”) aggregating $3.7 billion. When drawn upon, these facilities bear
interest at varying rates in accordance with the respective agreements.
Credit Facility
The Company’s 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 the Credit Facility were $13 million, $15 million
and $13 million for the years ended December 31, 2017, 2016 and 2015, respectively, and were included in other expenses.
Information on the Credit Facility at December 31, 2017 was as follows:
Borrower(s)
Expiration
Maximum
Capacity
Letters of
Credit
Issued
Drawdowns
Unused
Commitments
(In millions)
MetLife, Inc. and MetLife Funding, Inc. December 2021 (1)
$
3,000 (1)
$
130
$
— $
2,870
__________________
(1)
All borrowings under the Credit Facility must be repaid by December 20, 2021, except that letters of credit outstanding
upon termination may remain outstanding until December 20, 2022.
331
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
12. Long-term and Short-term Debt (continued)
Committed Facilities
Letters of credit issued under the Committed Facilities are used for collateral for certain of the Company’s affiliated
reinsurance liabilities. Total fees associated with the Committed Facilities, included in other expenses, were $21 million,
$27 million and $29 million for the years ended December 31, 2017, 2016 and 2015, respectively. Total fees associated with
the Committed Facilities, included in income (loss) from discontinued operations, net of income tax, were $305 million,
$69 million and $61 million for the years ended December 31, 2017, 2016 and 2015, respectively. See Note 3 for fees associated
with termination of financing arrangements included within 2017 amounts. Information on the Committed Facilities at
December 31, 2017 was as follows:
Account Party/Borrower(s)
Expiration
MetLife, Inc.
June 2018 (1)
MetLife Reinsurance Company of
Vermont and MetLife, Inc.
MetLife Reinsurance Company of
Vermont and MetLife, Inc.
Total
__________________
December 2024 (2), (3)
December 2037 (2), (4)
Maximum
Capacity
Letters of
Credit
Issued
Drawdowns
Unused
Commitments
(In millions)
395
$
395
$
— $
400
2,896
380
2,354
—
—
3,691
$
3,129
$
— $
$
$
—
20
542
562
(1)
Capacity decreases in March 2018 and June 2018 to $200 million and $0, respectively.
(2) MetLife, Inc. is a guarantor under the applicable facility.
(3)
(4)
Capacity decreases in June 2022, December 2022, June 2023, December 2023 and December 2024 to $380 million,
$360 million, $310 million, $260 million and $0, respectively.
Capacity at December 31, 2017 of $2.6 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 at expiration in December 2037. Unused
commitment of $542 million is based on maximum capacity. As of December 31, 2017, Brighthouse is a beneficiary of
$2.4 billion of letters of credit issued under this committed facility. See Note 3.
In addition to the Committed Facilities, see also “— Term Loans” for information about the undrawn line of credit facility
in the amount of $75 million.
13. Collateral Financing Arrangement
Information related to the collateral financing arrangement associated with the closed block (see Note 7) was as follows at:
Surplus notes outstanding (1)
Receivable from unaffiliated financial institution (1)
Pledged collateral (2)
Assets held in trust (2)
__________________
(1)
(2)
Carrying value.
Estimated fair value.
December 31,
2017
2016
(In millions)
1,121
146
97
1,248
$
$
$
$
1,274
166
160
1,211
$
$
$
$
Interest expense on the collateral financing arrangement was $30 million, $24 million and $20 million for the years ended
December 31, 2017, 2016 and 2015, respectively, which is included in other expenses.
332
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
13. Collateral Financing Arrangement (continued)
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 2017, 2016 and 2015 following regulatory approval, MRC repurchased $153 million, $68 million and $57 million,
respectively, in aggregate principal amount of the surplus notes. Cumulatively, since December 2007, MRC repurchased
$1.4 billion in aggregate principal amount of the surplus notes as of December 31, 2017. Payments made by the Company in
2017, 2016 and 2015 associated with the repurchases were exclusive of accrued interest on the surplus notes. In connection with
the repurchases during 2017, 2016 and 2015, the Company received payments in the aggregate amount of $20 million, $8 million
and $8 million, respectively, from the unaffiliated financial institution, which reduced the amount receivable from the unaffiliated
financial institution by the same amounts. No other payments related to an increase or decrease in the estimated fair value of
the surplus notes were made by MetLife, Inc. or received from the unaffiliated financial institution during 2017, 2016 or 2015.
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,
2017, 2016 and 2015, MRC transferred $3 million, $1 million and $30 million, respectively, out of the trust to its general account.
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 on the Company’s consolidated statements of
operations.
333
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
14. Junior Subordinated Debt Securities
Outstanding Junior Subordinated Debt Securities
Outstanding junior subordinated debt securities and exchangeable surplus trust securities which are exchangeable for junior
subordinated debt securities prior to redemption or repayment, were as follows:
Issuer
Issue
Date
Interest
Rate (1)
MetLife, Inc.
MetLife Capital
Trust IV (3)
December
2006
December
2007
6.400%
7.875%
Scheduled
Redemption
Date
December
2036
December
2037
MetLife, Inc. (4)
April 2008
9.250%
April 2038
MetLife, Inc.
July 2009
10.750%
August 2039
Interest Rate
Subsequent to
Scheduled
Redemption
Date (2)
LIBOR +
2.205%
LIBOR +
3.960%
LIBOR +
5.540%
LIBOR +
7.548%
_________________
2017
Unamortized
Discount
and Issuance
Costs
December 31,
Carrying
Value
Face
Value
(In millions)
2016
Unamortized
Discount
and Issuance
Costs
Carrying
Value
Final
Maturity
Face
Value
December
2066
December
2067
April 2068
August 2069
$ 1,250
$
(21)
$ 1,229
$ 1,250
$
(11)
$ 1,239
700
750
500
(17)
(11)
(7)
683
739
493
700
750
500
(10)
(6)
(4)
690
744
496
$ 3,200
$
(56)
$ 3,144
$ 3,200
$
(31)
$ 3,169
(1)
(2)
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.
(3) MetLife Capital Trust IV is a VIE which is consolidated on the financial statements of the Company. The securities issued
by this entity are exchangeable surplus trust securities, which are exchangeable 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.
(4)
On February 10, 2017, in connection with the Separation, MetLife, Inc. exchanged $750 million aggregate principal
amount of its 9.250% Fixed-to-Floating Rate Junior Subordinated Debentures due 2068 for $750 million aggregate
liquidation preference of the 9.250% Fixed-to-Floating Rate Exchangeable Surplus Trust Securities of MetLife Capital
Trust X (the “Trust”). As a result of the exchange, MetLife, Inc. became the sole beneficial owner of the Trust, a special
purpose entity which issued the exchangeable surplus trust securities to third-party investors. On March 23, 2017, MetLife,
Inc. dissolved the Trust.
334
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
14. Junior Subordinated Debt Securities (continued)
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 “5.700% 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 5.700% 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, Inc.’s 9.250% Fixed-to-Floating Rate Junior Subordinated
Debentures 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, 2017, 2016 and 2015, which is included in other expenses.
15. Equity
Preferred Stock
Preferred stock authorized, issued and outstanding was as follows at both December 31, 2017 and 2016:
Series
Floating Rate Non-Cumulative Preferred Stock, Series A
5.25% Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series C
Series A Junior Participating Preferred Stock
Not designated
Total
Shares
Authorized
Shares
Issued
Shares
Outstanding
27,600,000
1,500,000
10,000,000
160,900,000
200,000,000
24,000,000
1,500,000
24,000,000
1,500,000
—
—
—
—
25,500,000
25,500,000
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.
335
Table of Contents
15. Equity (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
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 thereof.
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 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.
336
Table of Contents
15. Equity (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
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.
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 15, 2017
November 30, 2017
December 15, 2017
August 15, 2017
August 31, 2017
September 15, 2017
May 15, 2017
March 6, 2017
May 31, 2017
June 15, 2017
February 28, 2017
March 15, 2017
November 15, 2016
November 30, 2016
December 15, 2016
August 15, 2016
August 31, 2016
September 15, 2016
May 16, 2016
March 7, 2016
May 31, 2016
June 15, 2016
February 29, 2016
March 15, 2016
November 16, 2015
November 30, 2015
December 15, 2015
August 17, 2015
August 31, 2015
September 15, 2015
May 15, 2015
March 5, 2015
May 31, 2015
June 15, 2015
February 28, 2015
March 16, 2015
$
$
$
$
$
$
$
$
$
$
$
$
0.253
$
0.256
0.256
0.250
0.253
0.256
0.256
0.253
0.253
0.256
0.256
0.250
$
$
$
$
$
(In millions, except per share data)
$
$
$
$
$
$
$
$
$
$
$
$
6
6
7
6
25
6
6
7
6
25
6
6
7
6
25
— $
— $
26.250
$
—
—
—
— $
—
— $
26.250
— $
—
$
—
— $
— $
26.250
—
—
—
— $
—
— $
26.250
— $
—
$
—
— $
— $
28.292
—
0.406
0.406
$
— $
$
$
24
24
48
—
—
—
$
$
$
$
$
39
—
39
—
78
39
—
39
—
78
43
—
—
—
43
See Note 22 for information on subsequent preferred stock dividends declared.
Common Stock
Issuances
During the years ended December 31, 2017, 2016 and 2015, MetLife, Inc. issued 4,680,116, 4,439,219 and 5,592,622 new
shares of its common stock for $158 million, $166 million and $216 million, respectively, in connection with stock option
exercises and other stock-based awards. There were no shares of common stock issued from treasury stock for each of the
years ended December 31, 2017, 2016 and 2015.
Repurchase Authorizations
On September 22, 2015, MetLife, Inc. announced that its Board of Directors authorized $739 million of common stock
repurchases in addition to previously authorized repurchases. On November 10, 2016, MetLife, Inc. announced that its Board
of Directors authorized $3.0 billion of common stock repurchases. On November 1, 2017, MetLife, Inc. announced that its
Board of Directors authorized $2.0 billion of common stock repurchases.
During the years ended December 31, 2017, 2016 and 2015, MetLife, Inc. repurchased 56,599,540 shares, 6,948,739
shares and 39,491,991 shares under these repurchase authorizations for $2.9 billion, $372 million, and $1.9 billion,
respectively. At December 31, 2017, MetLife, Inc. had $1.8 billion remaining under its common stock repurchase authorization.
See Note 22 for information on subsequent common stock repurchases.
337
Table of Contents
15. Equity (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
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 declaration, record and payment dates, as well as per share and aggregate dividend amounts, for common stock was
as follows:
Declaration Date
Record Date
Payment Date
Per Share
Aggregate
(In millions, except per share data)
Dividend
October 24, 2017
November 6, 2017
July 7, 2017
April 25, 2017
January 6, 2017
August 7, 2017
May 8, 2017
February 6, 2017
October 25, 2016
November 7, 2016
July 7, 2016
April 26, 2016
January 6, 2016
August 8, 2016
May 9, 2016
February 5, 2016
October 27, 2015
November 6, 2015
July 7, 2015
April 28, 2015
January 6, 2015
August 7, 2015
May 11, 2015
February 6, 2015
December 13, 2017
September 13, 2017
June 13, 2017
March 13, 2017
December 13, 2016
September 13, 2016
June 13, 2016
March 14, 2016
December 11, 2015
September 11, 2015
June 12, 2015
March 13, 2015
$
$
$
$
$
$
$
$
$
$
$
$
0.400
$
0.400
0.400
0.400
0.400
0.400
0.400
0.375
0.375
0.375
0.375
0.350
$
$
$
$
$
422
427
431
437
1,717
441
441
441
413
1,736
419
420
420
394
1,653
See Note 22 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 Insurance Company
(“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
Plans for Employees and Agents
Under the MetLife, Inc. 2015 Stock and Incentive Compensation Plan (the “2015 Stock Plan”), MetLife, Inc. may grant
awards to employees and agents in the form of Stock Options, Stock Appreciation Rights, Performance Shares or Performance
Share Units, Restricted Stock or Restricted Stock Units, Cash-Based Awards and Stock-Based Awards (each, as applicable,
as defined in the 2015 Stock Plan with reference to shares of MetLife, Inc. common stock (“Shares”)). Awards under the 2015
Stock Plan and its predecessor plan, the MetLife, Inc. 2005 Stock and Incentive Compensation Plan (the “2005 Stock Plan”)
were outstanding at December 31, 2017. MetLife, Inc. granted all awards to employees and agents in 2017 under the 2015
Stock Plan.
338
Table of Contents
15. Equity (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
The aggregate number of Shares authorized for issuance under the 2015 Stock Plan at December 31, 2017 was 36,166,517.
With the exception of performance shares granted in 2013 and after, which are re-measured quarterly, MetLife recognizes
compensation expense related to awards under the 2005 Stock Plan or 2015 Stock Plan based on the number of awards it
expects 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, MetLife recognizes any adjustment necessary to reflect differences in actual experience 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.
Under the 2015 Stock Plan, compensation expense principally relates to Stock Options, Unit Options, Performance Shares,
Performance Units, Restricted Stock Units and Restricted Units. MetLife, Inc. granted the majority of each year’s awards
under the 2005 Stock Plan and 2015 Stock Plan in the first quarter of the year.
Deferred Shares are Shares that are covered by awards that have become payable under a plan, but the issuance of which
has been deferred. Deferred Shares payable to employees or agents related to awards under the 2005 Stock Plan, 2015 Stock
Plan, or earlier applicable plans equaled 1,351,798 Shares at December 31, 2017.
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”). MetLife granted such awards 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 and later.
Plans for Non-Management Directors
Under the MetLife, Inc. 2015 Non-Management Director Stock Compensation Plan (the “2015 Director Stock Plan”),
MetLife, Inc. may grant non-management Directors of MetLife, Inc. awards 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 2015 Director Stock Plan with reference to Shares). The only awards MetLife, Inc. granted under the 2015 Director Stock
Plan and its predecessor plan, the MetLife, Inc. 2005 Non-Management Director Stock Compensation Plan (the “2005 Director
Stock Plan”), through December 31, 2017 vested immediately and no awards under the 2005 Director Stock Plan or 2015
Director Stock Plan remained outstanding at December 31, 2017.
The aggregate number of Shares authorized for issuance under the 2015 Director Stock Plan at December 31, 2017 was
1,702,903.
MetLife recognizes compensation expense related to awards under the 2015 Director Stock Plan 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, 2017 were Stock-Based Awards that vested immediately. MetLife, Inc. granted the majority of the awards in
2015 and 2016 under the 2015 Director Stock Plan in the second quarter of each year.
Deferred Shares payable to Directors related to awards under the 2005 Director Stock Plan, 2015 Director Stock Plan,
or earlier applicable plans equaled 223,176 Shares at December 31, 2017.
339
Table of Contents
15. Equity (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
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 Performance Units (1)
Restricted Stock Units and Restricted Units
Total compensation expense
Income tax benefit
__________________
Years Ended December 31,
2017
2016
2015
(In millions)
$
$
$
8
62
58
128
45
$
$
$
9
75
63
147
51
$
$
$
12
59
66
137
48
(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, 2017
Expense
(In millions)
Weighted Average
Period
(Years)
$
$
$
4
30
40
1.77
1.59
1.84
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 (“NYSE”)
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 date. Vesting is subject to continued
service, except for employees who meet specified age and service criteria and in certain other limited circumstances.
340
Table of Contents
15. Equity (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
A summary of the activity related to Stock Options was as follows:
Outstanding at January 1, 2017
Granted (2)
Exercised (2)
Expired (2)
Forfeited (2)
Other Separation adjustment (2)
Outstanding at December 31, 2017
Vested and expected to vest at December 31, 2017
Exercisable at December 31, 2017
__________________
Shares
Under
Option
Weighted
Average
Exercise
Price
19,482,388
$
709,085
$
(3,475,198) $
(2,913,457) $
(115,670) $
2,322,606
$
16,009,754
15,991,119
14,487,455
$
$
$
44.73
46.85
33.36
56.06
40.06
38.40
38.77
38.76
38.46
Weighted
Average
Remaining
Contractual
Term
(Years)
3.68
Aggregate
Intrinsic
Value (1)
(In millions)
218
$
3.54
3.13
3.02
$
$
$
198
238
185
(1)
(2)
The intrinsic value of each Stock Option is the closing price on a particular date less the exercise price of the Stock Option,
so long as the difference is greater than zero. The aggregate intrinsic value of all outstanding Stock Options is computed
using the closing Share price on December 31, 2017 of $50.56 and December 31, 2016 of $48.02, as applicable.
For Stock Options outstanding as of August 4, 2017, MetLife, Inc. increased the number of Stock Options by an adjustment
ratio, and lowered their exercise price by dividing it by the same adjustment ratio, to maintain the intrinsic value of the
award pursuant to the anti-dilution provisions of the 2015 Stock Plan and the 2005 Stock Plan as a result of the Separation.
MetLife, Inc. determined the adjustment ratio by dividing the $53.92 closing price of MetLife, Inc. common stock on
August 4, 2017 by the $48.17 opening price of MetLife, Inc. common stock on August 7, 2017, the next trading day. Each
of “Granted,” “Exercised,” “Expired,” and “Forfeited” reflects the impact of this adjustment, as applicable, regardless of
the date of the transaction during 2017. “Other Separation adjustment” reflects the remaining adjustment to produce the
Stock Options outstanding at December 31, 2017.
MetLife estimates the fair value of Stock Options on the date of grant using a binomial lattice model. The significant
assumptions the Company uses in its 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.
341
Table of Contents
15. Equity (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
The binomial lattice model used by the Company incorporates the 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 stock price at the time of exercise over the exercise
price of the Stock Option at the time the model expects holders to exercise. The model derives the exercise multiple from
actual exercise activity. The model determines the post-vesting termination rate from actual 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, that the model uses to determine the fair value of unexercised Stock Options that MetLife, Inc. has granted:
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
Years Ended December 31,
2017
3.05%
0.94% - 3.22%
2016
3.90%
2015
2.72%
0.62% - 2.85%
0.20% - 3.04%
34.19%
1.43
2.94%
10
6
$46.85
$12.36
33.58%
1.43
2.58%
10
7
$34.33
$8.27
32.56%
1.44
2.73%
10
7
$45.91
$11.87
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,
2017
2016
(In millions)
2015
$
$
$
59
116
20
$
$
$
42
84
15
$
$
$
44
121
15
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. MetLife accounts for Performance Shares as equity awards. MetLife, Inc.
does not credit Performance Shares with dividend-equivalents for dividends paid on Shares. 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 service criteria, and in certain other limited circumstances.
For awards granted for the 2015 – 2017 and later performance periods in progress through December 31, 2017, 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 adjusted return on MetLife, Inc.’s
common stockholders’ equity relative to its financial plan. MetLife estimates the fair value of Performance Shares each
quarter until they become payable. The performance factor for the 2014 - 2016 performance period was 44.4%.
Restricted Stock Units
Restricted Stock Units are units that, if they vest, are payable in an equal number of Shares. MetLife accounts for
Restricted Stock Units as equity awards. MetLife, Inc. does not credit Restricted Stock Units 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.
342
Table of Contents
15. Equity (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
The vast majority of Restricted Stock Units normally vest in thirds on or shortly after the first three anniversaries of
their grant date. Other Restricted Stock Units normally vest in their entirety on the third or later 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, 2017
Granted (2)
Forfeited (2)
Payable (2) (3)
Other Separation adjustment (2)
Outstanding at December 31, 2017
Vested and expected to vest at December 31, 2017
__________________
Performance Shares
Restricted Stock Units
Weighted
Average
Fair Value (1)
49.88
$
Shares
3,817,100
Weighted
Average
Fair Value (1)
39.08
$
Units
3,422,013
1,225,333
$
(270,292) $
(1,192,734) $
454,353
$
4,033,760
3,971,002
$
$
45.60
42.94
44.84
42.34
46.02
46.02
1,445,238
$
(251,216) $
(1,720,168) $
408,510
$
3,304,377
3,246,476
$
$
42.45
35.64
36.81
37.07
37.17
37.14
(1)
(2)
Values for shares outstanding at January 1, 2017, represent weighted average number of shares multiplied by the fair
value per share at December 31, 2016. Otherwise, all values represent weighted average of number of shares multiplied
by the fair value per share at December 31, 2017. Fair value per share of Restricted Stock Units on December 31, 2017
was equal to Grant Date fair value per share.
For Performance Shares, Restricted Stock Units, and Deferred Shares outstanding as of August 4, 2017, MetLife, Inc.
increased the number of units by an adjustment ratio to maintain the intrinsic value of the award or Deferred Shares
pursuant to the anti-dilution provisions of the 2015 Stock Plan and the 2005 Stock Plan as a result of the Separation.
MetLife, Inc. determined the adjustment ratio by dividing the $53.92 closing price of MetLife, Inc. common stock on
August 4, 2017 by the $48.17 opening price of MetLife, Inc. common stock on August 7, 2017, the next trading day. Each
of “Granted,” “Forfeited,” and “Payable” reflects the impact of this adjustment, as applicable, regardless of the date of
the transaction during 2017. “Other Separation adjustment” reflects the remaining adjustment to produce the Performance
Shares and Restricted Stock Units outstanding at December 31, 2017.
(3)
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, 2017, the performance period for the 2015 — 2017 Performance Share grants was completed, but the
performance factor had not yet been determined. Included in the immediately preceding table are 1,194,283 outstanding
Performance Shares to which the 2015 — 2017 performance factor will be applied.
Liability Awards (Phantom Stock-Based Awards)
Certain MetLife subsidiaries have a liability for Phantom Stock-Based Awards in the form of Unit Options, Performance
Units, and/or Restricted 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 re-
measured 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.
343
Table of Contents
15. Equity (continued)
Unit Options
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
Unit Options are the contingent right of award holders to receive a cash payment equal to the closing price of a Share on
the exercise date, less the closing price on the grant date, if the difference is greater than zero, for a limited time. All Unit
Options have an exercise price equal to the closing price of a Share reported on the NYSE on the date of grant, and have a
maximum term of 10 years. The vast majority of Unit Options has become or will become eligible for exercise 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 exercise 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.
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. Performance Units are accounted for as liability awards. They are not credited with dividend-
equivalents for dividends paid on Shares. 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 performance
factor calculation, which are also used for Performance Units.
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. They are not credited with dividend-equivalents for dividends paid on Shares. The vast majority of Restricted
Units normally vest in thirds on or shortly after the first three anniversaries of their grant date. Other Restricted Units normally
vest in their entirety on the third or later 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. Restricted Units are accounted
for as liability awards.
The following table presents a summary of Liability Awards activity:
Outstanding at January 1, 2017
Granted (1)
Exercised (1)
Forfeited (1)
Paid (1)
Other Separation adjustment (1)
Outstanding at December 31, 2017
Vested and expected to vest at December 31, 2017
__________________
Unit
Options
Performance
Units
Restricted
Units
855,897
24,175
(200,687)
(100,439)
—
102,066
681,012
612,911
615,356
238,487
—
(53,499)
(185,178)
73,063
688,229
619,406
763,723
375,414
—
(82,940)
(368,049)
90,928
779,076
701,168
(1)
For Unit Options, Performance Units, and Restricted Units outstanding as of August 4, 2017, MetLife, Inc. increased the
number of units, and for Units Options lowered the exercise price by an adjustment ratio to maintain the intrinsic value
of the award pursuant to the anti-dilution provisions of the 2015 Stock Plan and the 2005 Stock Plan as a result of the
Separation. MetLife, Inc. determined the adjustment ratio by dividing the $53.92 closing price of MetLife, Inc. common
stock on August 4, 2017 by the $48.17 opening price of MetLife, Inc. common stock on August 7, 2017, the next trading
day. Each of “Granted,” “Exercised,” “Forfeited,” and “Paid” reflects the impact of this adjustment, as applicable,
regardless of the date of the transaction during 2017. “Other Separation adjustment” reflects the remaining adjustment
to produce the Unit Options, Performance Units, and Restricted Units outstanding at December 31, 2017.
344
Table of Contents
15. Equity (continued)
Statutory Equity and Income
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
The states of domicile of MetLife, Inc.’s U.S. insurance subsidiaries each 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 December 31,
2017.The Company’s Statement-Based Combined RBC Ratio (both including and excluding Brighthouse insurance subsidiaries)
was in excess of 400% at December 31, 2016. 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 jurisdictions in which each entity
operates and are subject to minimum capital and solvency requirements in those jurisdictions before corrective action commences.
At December 31, 2017 and 2016, 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 $3.7 billion
and the aggregate actual regulatory capital and surplus of such operations was $10.5 billion as of the date of the most recent
required capital adequacy calculation for each jurisdiction, adjusted for the revision of assumed variable annuity guarantee
reserves. See Note 1. Each of those other foreign insurance operations exceeded minimum capital and solvency requirements
of their respective jurisdictions for all periods presented.
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, 2017 and 2016 by an amount of $1.1 billion and
$909 million, 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. 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. The prescribed practice exempts American Life from calculating and disclosing the impact to its statutory
capital and surplus. 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.
345
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
15. Equity (continued)
Statutory net income (loss) was as follows:
Company
State of Domicile
2017
Metropolitan Life Insurance Company (1)
American Life Insurance Company
Brighthouse Life Insurance Company (2)
Metropolitan Property and Casualty Insurance Company
Metropolitan Tower Life Insurance Company
New England Life Insurance Company (2)
General American Life Insurance Company
Other (3)
__________________
New York
Delaware
Delaware
Rhode Island
Delaware
Massachusetts
Missouri
Various
$
$
$
$
$
$
Years Ended December 31,
2016
(In millions)
2015
1,982
3,077
$
$
N/A $
197
74
$
$
N/A $
90
11
$
$
3,444
341
1,186
171
8
109
$
$
$
$
$
$
(2) $
(70) $
3,703
335
(1,022)
204
(42)
157
204
20
(1)
(2)
(3)
In December 2016, MLIC transferred all of the issued and outstanding shares of the common stock of each of New
England Life Insurance Company (“NELICO”) and General American Life Insurance Company (“GALIC”) to MetLife,
Inc., in the form of a non-cash extraordinary dividend.
Effective April 28, 2017 in connection with the Separation, MetLife, Inc. contributed all of the issued and outstanding
shares of common stock of each of Brighthouse Insurance and NELICO to Brighthouse Holdings, LLC. As a result of
the Separation, Brighthouse Insurance and NELICO ceased to be subsidiaries of MetLife, Inc.
Effective April 28, 2017 in connection with the Separation, MetLife, Inc. contributed all of the issued and outstanding
shares of Brighthouse Life Insurance Company of NY (“Brighthouse NY”) to Brighthouse Holdings, LLC. As a result
of the Separation, Brighthouse NY ceased to be a subsidiary of MetLife, Inc. For the years ended December 31, 2016
and 2015, statutory net income (loss) of Brighthouse NY was ($87) million and $17 million, respectively.
Statutory capital and surplus was as follows at:
Company
Metropolitan Life Insurance Company (1)
American Life Insurance Company
Brighthouse Life Insurance Company (2)
Metropolitan Property and Casualty Insurance Company
Metropolitan Tower Life Insurance Company
New England Life Insurance Company (2)
General American Life Insurance Company
Other (3)
__________________
December 31,
2017
2016
(In millions)
$
$
$
$
$
$
10,384
6,548
$
$
N/A $
2,266
733
$
$
N/A $
988
100
$
$
11,195
5,895
4,374
2,271
669
455
923
303
(1)
(2)
(3)
In December 2016, MLIC transferred all of the issued and outstanding shares of the common stock of each of NELICO
and GALIC to MetLife, Inc. in the form of a non-cash extraordinary dividend.
Effective April 28, 2017 in connection with the Separation, MetLife, Inc. contributed all of the issued and outstanding
shares of common stock of each of Brighthouse Insurance and NELICO to Brighthouse Holdings, LLC. As a result of
the Separation, Brighthouse Insurance and NELICO ceased to be subsidiaries of MetLife, Inc.
Effective April 28, 2017 in connection with the Separation, MetLife, Inc. contributed all of the issued and outstanding
shares of Brighthouse NY to Brighthouse Holdings, LLC. As a result of the Separation, Brighthouse NY ceased to be a
subsidiary of MetLife, Inc. At December 31, 2016, Brighthouse NY statutory capital and surplus was $196 million.
346
Table of Contents
15. 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 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 $2.7 billion and $5.6 billion for the years ended December 31, 2017 and 2016. MRV’s RBC would have
triggered a regulatory event without the use of the state prescribed practice. A designated protected cell of MRV (“MRV Cell 2”)
ceased being part of MetLife upon Separation.
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 $260 million for
the year ended December 31, 2016. MRD’s RBC would not have triggered a regulatory event without the use of the state
prescribed practice. MRD ceased to be a subsidiary of MetLife, Inc. upon Separation.
The combined statutory net income (loss) of MetLife, Inc.’s domestic captive life reinsurance subsidiaries was $2.1 billion,
($344) million and ($336) million for the years ended December 2017, 2016 and 2015, respectively, and the combined statutory
capital and surplus, including the aforementioned prescribed practice, was $1.7 billion and $4.4 billion at December 31, 2017
and 2016, respectively.
347
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
Table of Contents
15. Equity (continued)
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:
2018
2017
Company
Permitted Without
Approval (1)
Metropolitan Life Insurance Company
American Life Insurance Company
Brighthouse Life Insurance Company (5)
Metropolitan Property and Casualty Insurance Company
Metropolitan Tower Life Insurance Company
New England Life Insurance Company (5)
General American Life Insurance Company
__________________
$
$
$
$
$
3,075
$
— $
N/A $
125
73
$
$
N/A $
118
$
Paid (2)
(In millions)
2,523
2,200 (4)
—
185
—
—
1
$
$
$
$
$
$
$
2016
Paid (2)
5,740
(3)
—
261
228
60
295
(6)
—
(1)
(2)
(3)
(4)
(5)
Reflects dividend amounts that may be paid during 2018 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
2018, some or all of such dividends may require regulatory approval.
Reflects all amounts paid, including those requiring regulatory approval.
In 2016, MLIC paid an ordinary cash dividend to MetLife, Inc. in the amount of $3.6 billion. In addition, in December
2016, MLIC distributed all of the issued and outstanding shares of common stock of each of NELICO and GALIC to
MetLife, Inc. in the form of a non-cash extraordinary dividend in the amount of $981 million and $1.2 billion, respectively,
as calculated on a statutory basis.
Represents an extraordinary dividend.
Effective April 28, 2017 in connection with the Separation, MetLife, Inc. contributed all of the issued and outstanding
shares of common stock of each of Brighthouse Insurance and NELICO to Brighthouse Holdings, LLC. As a result of
the Separation, Brighthouse Insurance and NELICO ceased to be subsidiaries of MetLife, Inc. See Note 3 for other
Brighthouse dividend transactions prior to the Separation.
(6)
Represents an extraordinary dividend paid by NELICO in 2016 to MetLife, Inc.
348
Table of Contents
15. Equity (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
Under New York State Insurance Law, MLIC is permitted, 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 State 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 stockholder.
Under Delaware Insurance Code, each of American Life 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), not including pro rata distributions
of each insurer's own securities. Each of American Life 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 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 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.
349
Table of Contents
15. Equity (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
Under Missouri State Insurance Law, GALIC is permitted, without prior insurance regulatory clearance, to pay a
stockholder dividend to MetLife, Inc. as long as the amount of such 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 statutory net gain from operations for the immediately preceding calendar year (excluding
net realized capital gains), not including pro rata distributions of GALIC’s own securities. GALIC 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 Missouri Director of Insurance (the “Missouri Director”) and the Missouri Director 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 by us to mean “unassigned funds (surplus)”) as of the last filed annual statutory
statement requires insurance regulatory approval. Under Missouri State Insurance Law, the Missouri Director 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.
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 other 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 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,
as discussed in Note 14.
“Dividend Stopper” Provisions in the Preferred Stock and Junior Subordinated Debentures. MetLife, Inc.’s preferred
stock and junior subordinated debentures contain provisions that would automatically suspend the payment of preferred stock
dividends and interest on junior subordinated debentures if MetLife, Inc. fails to meet certain risk based capital ratio, net
income and stockholders’ equity tests at specified times, except to the extent of the net proceeds from the issuance of certain
securities during specified periods. If preferred stock dividends or interest on junior subordinated debentures are not paid,
certain provisions in those instruments (sometimes referred to as “dividend stoppers”) may restrict MetLife, Inc. from
repurchasing its common or preferred stock or paying dividends on its common or preferred stock and interest on its junior
subordinated debentures. If MetLife, Inc. has not paid the full dividends on its preferred stock for the latest completed dividend
period, MetLife, Inc. may not repurchase or pay dividends on its common stock during a dividend period. 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. After obtaining the approval of the holders of a majority of
MetLife, Inc.’s outstanding common stock on October 19, 2017, MetLife, Inc. amended the stockholders’ equity test applicable
to the preferred stock to reflect the Separation of Brighthouse, so that prospectively the test will reflect the decrease in MetLife’s
shareholders’ equity as a result of the Separation. On August 28, 2017, with the consent of holders of each series of junior
subordinated debentures (or securities exchangeable for junior subordinated debentures), MetLife, Inc. amended the
stockholders’ equity test in the junior subordinated debentures to the same effect.
The junior subordinated debentures further provide that MetLife, Inc. may, at its option and provided that certain conditions
are met, defer payment of interest without giving rise to an event of default for periods of up to 10 years. In that case, after
five years MetLife, Inc. would be obligated to use commercially reasonable efforts to sell equity securities to raise proceeds
to pay the interest. MetLife, Inc. would not be subject to limitations on the number of deferral periods that MetLife, Inc. could
begin, so long as all accrued and unpaid interest is paid with respect to prior deferral periods. If MetLife, Inc. were 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.
350
Table of Contents
15. Equity (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
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., with some limitations,
to receive cash proceeds during a specified period from the sale of specified replacement securities prior to any 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.
351
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
15. Equity (continued)
Accumulated Other Comprehensive Income (Loss)
Information regarding changes in the balances of each component of AOCI attributable to MetLife, Inc., was as follows:
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
Balance at December 31, 2015
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, 2016
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
Disposal of subsidiary (2)
Deferred income tax benefit (expense)
Disposal of subsidiary, net of income tax
Balance at December 31, 2017
__________________
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
$
15,224
$
1,076
$
(3,303) $
(2,283) $
(7,224)
2,456
10,456
(223)
78
(145)
10,311
800
(338)
10,773
21
(9)
12
10,785
5,392
(1,732)
14,445
(289)
87
(202)
(2,286)
800
(1,486)
(19)
6
1,063
608
(213)
395
1,458
344
(100)
1,702
229
(66)
163
1,865
(140)
47
1,772
(1,025)
356
(669)
(305)
107
(198)
(1,646)
(1)
(4,950)
—
—
—
(4,950)
(476)
114
(5,312)
—
—
—
125
(43)
(2,201)
229
(80)
149
(2,052)
(62)
24
(2,090)
193
(75)
118
(5,312)
(1,972)
765
125
(23)
8
(4,422)
(1,987)
—
—
—
51
(19)
32
167
(43)
124
28
(10)
18
$
12,757
$
905
$
(4,390) $
(1,845) $
10,714
(8,764)
2,418
4,368
614
(215)
399
4,767
606
(300)
5,073
443
(150)
293
5,366
5,994
(1,552)
9,808
(1,147)
400
(747)
(2,512)
878
(1,634)
7,427
(1)
See Note 8 for information on offsets to investments related to future policy benefits, DAC, VOBA and DSI, and the
policyholder dividend obligation.
(2)
See Note 3.
352
Table of Contents
15. Equity (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
Information regarding amounts reclassified out of each component of AOCI was as follows:
AOCI Components
Net unrealized investment gains (losses):
Net unrealized investment gains (losses)
Net unrealized investment gains (losses)
Net unrealized investment gains (losses)
Net unrealized investment gains (losses)
Net unrealized investment gains (losses), 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
Interest rate forwards
Foreign currency swaps
Foreign currency swaps
Foreign currency swaps
Foreign currency swaps
Credit forwards
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
Defined benefit plans adjustment: (1)
Amortization of net actuarial gains (losses)
Amortization of prior service (costs) credit
Discontinued operations
Amortization of defined benefit plan items, before income tax
Income tax (expense) benefit
Amortization of defined benefit plan items, net of income tax
Amounts Reclassified from AOCI
Years Ended December 31,
2017
2016
2015
(In millions)
Consolidated Statements of
Operations Locations
$
404
$
20
(49)
(86)
289
(87)
202
24
16
2
(11)
2
1
3
974
—
2
11
1
—
—
1,025
(356)
669
(190)
23
—
(167)
43
(124)
$
78
39
(37)
(101)
(21)
9
(12)
56
12
36
(1)
4
1
4
(350)
(2)
2
5
3
1
—
(229)
66
(163)
(199)
6
—
(193)
75
(118)
263 Net investment gains (losses)
35 Net investment income
56 Net derivative gains (losses)
(131) Discontinued operations
223
(78)
145
84 Net derivative gains (losses)
11 Net investment income
2 Discontinued operations
4 Net derivative gains (losses)
3 Net investment income
2 Other expenses
4 Discontinued operations
(720) Net derivative gains (losses)
(1) Net investment income
1 Other expenses
— Discontinued operations
1 Net derivative gains (losses)
— Net investment income
1 Discontinued operations
(608)
213
(395)
(231)
6
(4)
(229)
80
(149)
(399)
Total reclassifications, net of income tax
$
747
$
(293) $
__________________
(1)
These AOCI components are included in the computation of net periodic benefit costs. See Note 17.
353
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
16. Other Expenses
Information on other expenses was as follows:
Employee and related costs
Professional services
General and administrative expenses
Pension, postretirement and postemployment benefit costs
Premium taxes, other taxes, and licenses & fees
Commissions and other variable expenses
Capitalization of DAC
Amortization of DAC and VOBA
Amortization of negative VOBA
Interest expense on debt
Total other expenses
Years Ended December 31,
2017
2016
2015
(In millions)
$
3,595
$
3,840
$
1,693
1,129
307
842
5,387
(3,002)
2,681
(140)
1,129
1,619
1,007
400
688
5,741
(3,152)
2,718
(269)
1,157
$
13,621
$
13,749
$
3,950
1,568
1,417
367
691
6,112
(3,319)
3,184
(361)
1,168
14,777
Certain prior year amounts have been reclassified to conform to the current year presentation, which has been revised to
align the expense categories with the Company’s businesses. The reclassifications did not result in a change to total other
expenses.
See Note 3 for further information on Separation-related transaction costs.
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.
Income Tax
See Note 18 for information on the charge related to income tax for the year ended December 31, 2015.
354
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
16. Other Expenses (continued)
Restructuring Charges
The Company commenced in 2016 a unit cost improvement program related to the Company’s refreshed enterprise strategy.
This global strategy focuses on transforming the Company to become more digital, driving efficiencies and innovation to achieve
competitive advantage, and simplified, decreasing the costs and risks associated with the Company’s highly complex industry
to customers and shareholders. Restructuring charges related to this program are included in other expenses. As the expenses
relate to an enterprise-wide initiative, they are reported in Corporate & Other. Such restructuring charges were as follows:
Balance at January 1,
Restructuring charges
Cash payments
Balance at December 31,
Total restructuring charges incurred since inception of initiative
Years Ended December 31,
2017
2016
Severance
(In millions)
35
38
(51)
22
73
$
$
$
—
35
—
35
35
$
$
$
Management anticipates further restructuring charges through the year ending December 31, 2019. However, such
restructuring plans were not sufficiently developed to enable management to make an estimate of such restructuring charges at
December 31, 2017.
In 2016, the Company completed a previous enterprise-wide strategic initiative. These restructuring charges were included
in other expenses. As the expenses related to an enterprise-wide initiative, they were reported in Corporate & Other. Information
regarding such restructuring charges was as follows:
Years Ended December 31,
2016
Lease and
Asset
Impairment
Severance
2015
Lease and
Asset
Impairment
Total
Total
Severance
$
$
$
18
—
(17)
1
383
$
$
$
(In millions)
$ 22
$
1
(21)
$
2
$ 430
$
$
4
1
(4)
1
47
31
60
(73)
18
383
$
$
$
6
4
(6)
4
46
$ 37
64
(79)
$ 22
$ 429
Balance at January 1,
Restructuring charges
Cash payments
Balance at December 31,
Total restructuring charges incurred since inception of initiative
17. 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 interest credits, determined annually based upon the 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.
355
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
17. Employee Benefit Plans (continued)
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, 2017
December 31, 2016
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 $10,500
$
909
$11,409
$ 1,648
$
26
$ 1,674
$ 9,859
$
882
$10,741
$ 1,734
$
25
$ 1,759
Estimated
fair value
of plan
assets
Over (under)
funded
status
Net periodic
benefit
costs
9,371
317
9,688
1,426
8
1,434
8,721
288
9,009
1,379
7
1,386
$ (1,129) $ (592) $ (1,721) $ (222) $
(18) $ (240) $ (1,138) $ (594) $ (1,732) $ (355) $
(18) $ (373)
$
267
$
82
$
349
$
(12) $
2
$
(10) $
278
$
81
$
359
$
37
$
2
$
39
356
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
17. Employee Benefit Plans (continued)
Obligations and Funded Status
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 on 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
__________________
December 31,
2017
2016
Pension
Benefits (1)
Other
Postretirement
Benefits
Pension
Benefits (1)
Other
Postretirement
Benefits
(In millions)
$
10,741
$
1,759
$
10,293
$
1,892
238
429
—
595
(27)
—
(600)
33
11,409
9,009
968
(30)
—
329
(600)
12
9,688
6
76
33
(95)
—
—
(107)
2
1,674
1,386
125
(1)
33
(2)
(107)
—
1,434
272
423
—
362
(37)
(11)
(582)
21
10,741
8,603
618
(7)
—
374
(582)
3
9,009
$
$
$
$
$
$
(1,721) $
(240) $
(1,732) $
59
$
(1,780)
(1,721) $
$
$
2,917
(11)
2,906
10,996
160
$
(400)
3
$
(1,735)
(240) $
(1,732) $
(55) $
(27)
(82) $
N/A $
$
$
2,993
(11)
2,982
10,340
9
82
30
(115)
18
(43)
(111)
(3)
1,759
1,382
75
(1)
30
13
(111)
(2)
1,386
(373)
1
(374)
(373)
89
(49)
40
N/A
(1)
Includes nonqualified unfunded plans, for which the aggregate PBO was $1.2 billion and $1.1 billion at December 31,
2017 and 2016, respectively.
357
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
17. 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,
2017
2016
2017
2016
PBO Exceeds Estimated Fair Value
of Plan Assets
ABO Exceeds Estimated Fair Value
of Plan Assets
$
$
$
2,016
1,904
285
$
$
$
(In millions)
10,670
10,318
8,979
$
$
$
1,996
1,890
266
$
$
$
1,894
1,785
228
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,
2017
2016
2015
Pension
Benefits
Other
Postretirement
Benefits
Pension
Benefits
Other
Postretirement
Benefits
Pension
Benefits
Other
Postretirement
Benefits
Net periodic benefit costs:
Service costs
Interest costs
$
Settlement and curtailment costs (1)
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
Discontinued operations
Disposal of subsidiary
Total recognized in OCI
Total recognized in net periodic
benefit costs and OCI
__________________
$
238
429
4
(516)
195
(1)
349
149
(1)
(195)
1
—
(30)
(76)
6
76
2
(72)
—
(22)
(10)
(146)
—
—
22
—
2
(122)
$
(In millions)
$
272
423
2
(527)
189
—
359
238
(11)
(189)
—
(1)
—
37
$
9
82
19
(75)
10
(6)
39
(124)
(41)
(10)
6
1
—
(168)
$
275
414
(1)
(534)
189
(1)
342
43
—
(189)
1
(2)
—
(147)
17
89
3
(80)
42
(5)
66
(161)
(7)
(42)
5
(2)
—
(207)
(141)
$
273
$
(132) $
396
$
(129) $
195
$
(1)
The Company recognized curtailment charges in 2016 on certain postretirement benefit plans in connection with the U.S.
Retail Advisor Force Divestiture. See Note 3.
358
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
17. Employee Benefit Plans (continued)
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 $171 million
and ($1) million, and ($6) million and ($19) million, respectively.
Assumptions
Assumptions used in determining benefit obligations for the U.S. plans were as follows:
December 31, 2017
Weighted average discount rate
Rate of compensation increase
December 31, 2016
Weighted average discount rate
Rate of compensation increase
Pension Benefits
Other Postretirement Benefits
3.65%
2.25% - 8.50%
4.30%
2.25% - 8.50%
3.70%
N/A
4.45%
N/A
Assumptions used in determining net periodic benefit costs for the U.S. plans were as follows:
Year Ended December 31, 2017
Weighted average discount rate
Weighted average expected rate of return on plan assets
Rate of compensation increase
Year Ended December 31, 2016
Weighted average discount rate
Weighted average expected rate of return on plan assets
Rate of compensation increase
Year Ended December 31, 2015
Weighted average discount rate
Weighted average expected rate of return on plan assets
Rate of compensation increase
Pension Benefits
Other Postretirement Benefits
4.30%
6.00%
2.25% - 8.50%
4.13%
6.00%
2.25% - 8.50%
4.10%
6.25%
2.25% - 8.50%
4.45%
5.36%
N/A
4.37%
5.53%
N/A
4.10%
5.70%
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 2018 is currently anticipated
to be 5.75% for U.S. pension benefits and 5.11% for U.S. other postretirement benefits.
359
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
17. Employee Benefit Plans (continued)
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,
2017
2016
Before
Age 65
Age 65 and
older
Before
Age 65
Age 65 and
older
5.6%
4.0%
2086
6.6%
4.3%
2098
6.8%
4.0%
2077
13.0%
4.3%
2092
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, 2017:
Effect on total of service and interest costs components
Effect of accumulated postretirement benefit obligations
Plan Assets
One Percent
Increase
One Percent
Decrease
$
$
(In millions)
9
186
$
$
(8)
(154)
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 the Invested Plan’s assets relative
to liabilities, analyze the economic and portfolio impact of various asset allocations and management strategies and 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.
360
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
17. Employee Benefit Plans (continued)
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,
2017 for the Invested Plans:
December 31,
2017
2016
U.S. Pension
Benefits
U.S. Other
Postretirement
Benefits (1)
Target
Actual
Allocation
Target
Actual
Allocation
U.S. Pension
Benefits
Actual
Allocation
U.S. Other
Postretirement
Benefits (1)
Actual
Allocation
82%
10%
8%
82%
10%
8%
100%
85%
15%
—%
84%
15%
1%
100%
81%
11%
8%
100%
76%
24%
—%
100%
Asset Class
Fixed maturity securities
Equity securities (2)
Alternative securities (3)
Total assets
__________________
(1)
(2)
(3)
U.S. other postretirement benefits do not reflect postretirement life’s plan assets invested in fixed maturity securities.
Equity securities percentage includes derivative assets.
Alternative securities primarily include hedge, private equity and real estate funds.
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.
361
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
17. Employee Benefit Plans (continued)
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:
December 31, 2017
Pension Benefits
Fair Value Hierarchy
Other Postretirement Benefits
Fair Value Hierarchy
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
Short-term investments
Other (1)
$
— $
3,833
$
1,256
—
35
—
135
7
528
1,037
134
335
192
388
Total fixed maturity securities
1,433
6,447
Equity securities:
Common stock - domestic
Common stock - foreign
Total equity securities
Other investments
Derivative assets
Total assets
480
317
797
19
33
90
87
177
144
2
1
—
—
—
—
—
10
11
—
3
3
622
—
$
3,834
$
20
$
362
$
— $
1,784
1,037
169
335
327
405
7,891
570
407
977
785
35
269
—
—
—
8
—
297
80
74
154
—
1
6
102
17
28
390
68
973
—
—
—
9
—
—
—
—
—
—
—
—
—
—
—
—
—
382
275
102
17
28
398
68
1,270
80
74
154
9
1
$
2,282
$
6,770
$
636
$
9,688
$
452
$
982
$
— $
1,434
362
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
17. Employee Benefit Plans (continued)
December 31, 2016
Pension Benefits
Fair Value Hierarchy
Other Postretirement Benefits
Fair Value Hierarchy
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
Short-term investments
Other (1)
Equity securities:
Common stock - domestic
Common stock - foreign
Total equity securities
Other investments
Derivative assets
Total assets
__________________
Total fixed maturity securities
1,774
5,453
$
— $
3,499
$
— $
3,499
$
20
$
306
$
— $
1,656
—
—
—
118
—
4
862
196
313
217
362
474
380
854
30
16
—
69
69
105
(3)
—
—
—
—
—
9
9
—
—
—
637
65
1,660
210
862
196
313
335
371
7,236
474
449
923
772
78
—
—
—
13
—
243
113
122
235
—
1
1
79
27
23
416
55
907
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
326
211
79
27
23
429
55
1,150
113
122
235
—
1
$
2,674
$
5,624
$
711
$
9,009
$
479
$
907
$
— $
1,386
(1)
Other primarily includes money market securities, mortgage-backed securities, collateralized mortgage obligations and
ABS.
363
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
17. Employee Benefit Plans (continued)
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)
Pension Benefits
Fixed Maturity Securities:
Corporate
Foreign
Bonds
Other (1)
Equity
Securities:
Common
Stock -
Foreign
(In millions)
Other
Investments
Derivative
Assets
Balance, January 1, 2016
Realized gains (losses)
Unrealized gains (losses)
Purchases, sales, issuances and settlements, net
Transfers into and/or out of Level 3
Balance, December 31, 2016
Realized gains (losses)
Unrealized gains (losses)
Purchases, sales, issuances and settlements, net
Transfers into and/or out of Level 3
Balance, December 31, 2017
__________________
$
$
$
77
$
2
3
(20)
(62)
— $
(10)
10
—
1
1
$
17
—
(3)
(3)
(11)
— $
—
—
—
—
$
— $
$
$
7
—
—
—
2
9
—
—
8
(7)
10
$
— $
723
$
—
—
—
—
—
33
(119)
—
— $
637
$
2
—
(4)
5
3
—
(12)
—
(3)
$
622
$
76
3
(18)
6
(2)
65
(22)
6
(48)
(1)
—
(1)
Other includes ABS and collateralized mortgage obligations.
For the years ended December 31, 2017 and 2016, there were no other postretirement benefit plan assets measured at
estimated fair value on a recurring basis using significant unobservable (Level 3) inputs.
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 2018. The subsidiaries expect to
make discretionary contributions to the qualified pension plan of $150 million in 2018. 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 provisions of the plans, and therefore benefit payments equal employer contributions. The U.S.
subsidiaries expect to make contributions of $70 million to fund the benefit payments in 2018.
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 2018 to pay
postretirement medical claims.
364
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
17. Employee Benefit Plans (continued)
Gross benefit payments for the next 10 years, which reflect expected future service where appropriate, are expected to
be as follows:
2018
2019
2020
2021
2022
2023-2027
Additional Information
Pension Benefits
Other Postretirement Benefits
(In millions)
604
618
634
645
664
3,523
$
$
$
$
$
$
87
90
90
89
90
450
$
$
$
$
$
$
As previously discussed, most of the assets of the U.S. pension benefit plans are held in group annuity contracts 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 on the
consolidated statements of operations were $56 million, $58 million and $55 million for the years ended December 31, 2017,
2016 and 2015, 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 $1.1 billion, $660 million and ($125) million for the years ended December 31, 2017, 2016 and 2015,
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 $72 million, $81 million and $80 million for the years ended December 31, 2017, 2016 and 2015,
respectively.
365
Table of Contents
18. Income Tax
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
On December 22, 2017, President Trump signed into law U.S. Tax Reform. U.S. Tax Reform includes numerous changes
in tax law, including a permanent reduction in the federal corporate income tax rate from 35% to 21%, which took effect for
taxable years beginning on or after January 1, 2018. U.S. Tax Reform moves the United States from a worldwide tax system to
a participation exemption system by providing corporations a 100% dividends received deduction (“DRD”) for dividends
distributed by a controlled foreign corporation. To transition to that new system, U.S. Tax Reform imposes a one-time deemed
repatriation tax on unremitted earnings and profits at a rate of 8.0% for illiquid assets and 15.5% for cash and cash equivalents.
The incremental financial statement impact related to U.S. Tax Reform was as follows:
Income (loss) from continuing operations before provision for income tax
Provision for income tax expense (benefit):
Deemed repatriation
Deferred tax revaluation
Total provision for income tax expense (benefit)
Income (loss) from continuing operations, net of income tax
Income tax (expense) benefit related to items of other comprehensive income (loss)
Increase to net equity from U.S. Tax Reform
U.S. Tax Reform
(In millions)
(289)
170
(1,790)
(1,620)
1,331
144
1,475
$
$
In accordance with SAB 118 issued by the SEC in December 2017, the Company has recorded provisional amounts for
certain items for which the income tax accounting is not complete. For these items, the Company has recorded a reasonable
estimate of the tax effects of U.S. Tax Reform. The estimates will be reported as provisional amounts during a measurement
period, which will not exceed one year from the date of enactment of U.S. Tax Reform. The Company may reflect adjustments
to its provisional amounts upon obtaining, preparing, or analyzing additional information about facts and circumstances that
existed as of the enactment date that, if known, would have affected the income tax effects initially reported as provisional
amounts.
The following items are considered provisional estimates due to complexities and ambiguities in U.S. Tax Reform which
resulted in incomplete accounting for the tax effects of these provisions. Further guidance, either legislative or interpretive, and
analysis will be required to complete the accounting for these items:
•
•
•
Deemed Repatriation Transition Tax - The Company has recorded a $170 million charge for this item. This charge is
in addition to the $180 million charge recorded in the third quarter of 2017 resulting from the post-Separation review
of the Company’s capital needs. The total transition tax liability recorded for the year ended December 31, 2017 is
$350 million.
Global Intangible Low-Tax Income - U.S. Tax Reform imposes a minimum tax on global intangible low-tax income,
which is generally the excess income of foreign subsidiaries over a 10% rate of routine return on tangible business
assets. The Company has not yet formally adopted an accounting policy for this item. For the year ended December
31, 2017, the Company did not record a tax charge and tax incurred in future periods related to global intangible low-
tax income will be recorded in the period incurred.
Compensation and Fringe Benefits - U.S. Tax Reform limits certain employer deductions for fringe benefit and related
expenses and also repeals the exception allowing the deduction of certain performance-based compensation paid to
certain senior executives. The Company has recorded an $8 million tax charge, included within the deferred tax
revaluation.
366
Table of Contents
18. Income Tax (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
•
•
Alternative Minimum Tax Credits - U.S. Tax Reform eliminates the corporate alternative minimum tax and allows for
minimum tax credit carryforwards to be used to offset future regular tax or to be refunded over the next few years.
However, pursuant to the requirements of the Balanced Budget and Emergency Deficit Control Act of 1985, as amended,
refund payments issued for corporations claiming refundable prior year alternative minimum tax credits are subject to
a sequestration rate of 6.6%. The application of this fee to refunds in future years is subject to further guidance.
Additionally, the sequestration reduction rate in effect at the time is subject to uncertainty. The Company has recorded
a $9 million tax charge included within the deferred tax revaluation.
Tax Credit Partnerships - Certain tax credit partnership investments derive returns in part from income tax credits. The
Company recognizes changes in tax attributes at the partnership level when reported by the investee in its financial
information. U.S. Tax Reform may impact the tax attributes of tax credit partnerships. However, investee financial
information is not yet available to enable the Company to determine the impacts of U.S. Tax Reform. Accordingly, the
Company has applied prior law to these equity method investments in accordance with SAB 118. During the one year
measurement period under SAB 118, the impacts of U.S. Tax Reform will be recognized as the investee financial
information is made available.
U.S. Tax Reform requires the Company to recognize a transition tax on all previously unremitted foreign earnings at
December 31, 2017. However, the Company has not provided for U.S. deferred taxes on the remaining excess of book bases
over tax bases of certain investments in foreign subsidiaries that are essentially permanent in duration. It is not practicable to
estimate the amount of remaining deferred tax liability related to the Company’s remaining basis difference in these foreign
subsidiaries.
The provision for income tax from continuing operations was as follows:
Years Ended December 31,
2017
2016
2015
(In millions)
Current:
Federal
State and local
Foreign
Subtotal
Deferred:
Federal
Foreign
Subtotal
Provision for income tax expense (benefit)
$
$
(246) $
5
891
650
(2,373)
253
(2,120)
(1,470) $
520
$
3
628
1,151
(827)
369
(458)
693
632
10
556
1,198
194
198
392
$
1,590
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
367
Years Ended December 31,
2017
2016
2015
(In millions)
$
$
684
2,852
3,536
$
$
185
4,096
4,281
$
$
1,874
3,777
5,651
Table of Contents
18. Income Tax (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
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
Separation tax benefits
U.S. Tax Reform impact (5)
Other, net
2017
Years Ended December 31,
2016
(In millions)
2015
$
1,238
$
1,498
$
1,977
(67)
(97)
(27)
(278)
(102)
(95)
(8)
(540)
(1,519)
25
(1,470) $
(69)
(86)
(13)
(270)
(98)
(332)
(9)
—
—
72
(71)
(70)
559
(221)
(67)
(555)
5
—
—
33
693
$
1,590
Provision for income tax expense (benefit)
$
__________________
(1)
(2)
(3)
(4)
As discussed further below, for the year ended December 31, 2015, prior year tax includes a $557 million non-cash charge
related to an uncertain tax position.
For the year ended December 31, 2017, foreign tax rate differential includes a net tax charge of $180 million as a result
of repatriation. Included in the net tax charge of $180 million is a $444 million tax charge related to the repatriation of
approximately $3.0 billion of pre-2017 earnings following the post-Separation review of the Company’s capital needs.
This charge was partially offset by a $264 million tax benefit associated with dividends from other non-U.S. operations.
This charge was recorded prior to U.S. Tax Reform and is incremental to the $170 million repatriation transition tax
recorded for the year ended December 31, 2017.
For the year ended December 31, 2016, foreign tax rate differential includes a tax benefit of $110 million in Japan related
to a change in tax rate, offset by a tax charge of $19 million in Chile related to a change in tax rate.
For the year ended December 31, 2015, foreign tax rate differential includes 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 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 charges of $23 million related to the
impact of foreign exchange on investment gains in Argentina.
(5)
U.S. Tax Reform impact of ($1.5) billion excludes ($101) million of tax provision at the U.S. statutory rate for a total tax
reform benefit of ($1.6) billion.
368
Table of Contents
18. Income Tax (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
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,
2017
2016
(In millions)
$
2,654
$
512
802
6
1,322
160
657
6,113
189
5,924
2,772
1,321
4,783
3,206
609
2,029
1,420
1,045
9
1,375
268
743
6,889
161
6,728
2,940
1,213
5,423
3,619
425
12,691
(6,767) $
13,620
(6,892)
$
The Company also has recorded a valuation allowance benefit of $8 million related to certain state and foreign net operating
loss carryforwards for the year ended December 31, 2017. In addition, a $19 million increase was related to foreign currency
movement and a $17 million increase was recorded as a balance sheet reclassification with other deferred tax assets for the year
ended December 31, 2017. 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.
369
Table of Contents
18. 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, 2017.
Expiration:
2018-2022
2023-2027
2028-2032
2033-2037
Indefinite
Net Operating Loss Carryforwards
Capital Loss Carryforwards
Domestic
State
Foreign
Domestic
(In millions)
$
$
1
—
8
2,095
—
$
49
64
13
2
—
$
2,104
$
128
$
46
28
—
—
397
471
$
$
27
—
—
—
—
27
The following table sets forth the general business credits, foreign tax credits, and other credit carryforwards for tax purposes
at December 31, 2017.
Expiration:
2018-2022
2023-2027
2028-2032
2033-2037
Indefinite
General Business
Credits
Tax Credit Carryforwards
Foreign Tax
Credits
(In millions)
Other
$
$
— $
—
236
832
—
42
$
200
1
—
21
1,068
$
264
$
—
—
—
—
263
263
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 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, for which in April 2015, the
Company received a Statutory Notice of Deficiency (the “Notice”) and paid the tax thereon in September 2015 (see note (1)
below); and ii) 2003 through 2006, where the IRS disallowance relates 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. The
IRS audit cycle for the years 2007-2009, which began in December of 2015, is scheduled to conclude in 2018. In material foreign
jurisdictions, the Company is no longer subject to income tax examinations for years prior to 2009.
The Company’s liability for unrecognized tax benefits may increase or decrease in the next 12 months. For example, federal
tax legislation could impact unrecognized tax benefits. 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.
370
Table of Contents
18. Income Tax (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
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, (1)
Unrecognized tax benefits that, if recognized, would impact the effective
rate
__________________
2017
Years Ended December 31,
2016
(In millions)
2015
$
1,146
$
1,259
$
70
(101)
33
(3)
(43)
1,102
1,073
$
$
24
(112)
23
—
(48)
1,146
1,112
$
$
$
$
719
574
(24)
24
—
(34)
1,259
1,215
(1)
The significant increase in 2015 is related to a non-cash charge the Company recorded to net income of $792 million, net
of tax. 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 certain 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.
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 on the consolidated statements of operations (1)
$
37
$
(41) $
388
Years Ended December 31,
2017
2016
2015
(In millions)
Interest included in other liabilities on the consolidated balance sheets
__________________
(1)
The significant increase in 2015 is related to the non-cash charge discussed above.
December 31,
2017
2016
(In millions)
659
$
623
$
The Company had insignificant penalties for the years ended December 31, 2017, 2016 and 2015.
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.
371
Table of Contents
18. Income Tax (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
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. On November 19, 2015, $9 million of this amount was refunded from the IRS as an overpayment of
interest. On May 30, 2017, the Company filed a claim for refund with the IRS for the remaining tax and interest.
Prior to U.S. Tax Reform, the DRD related to variable life insurance and annuity contracts was generally based on a company-
specific percentage referred to as the company’s share. The calculation of this amount was subject to significant dispute between
taxpayers and the IRS. U.S. Tax Reform eliminated this dispute by fixing the calculation to a specific percentage subsequent to
2017.
For the years ended December 31, 2017, 2016, and 2015, the Company recognized an income tax benefit of $61 million,
$63 million and $66 million, respectively, related to the separate account DRD. The 2017 and 2016 benefit each included an
expense of $1 million related to a true-up of the 2016 and 2015 tax returns. The 2015 benefit included a benefit of $1 million
related to a true-up of the 2014 tax return.
372
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
19. Earnings Per Common Share
The following table presents the weighted average shares, basic earnings per common share and diluted earnings per common
share for each income category presented:
Weighted Average Shares:
Weighted average common stock outstanding for basic earnings per
common share
Incremental common shares from assumed exercise or issuance of
stock-based awards
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
$
$
$
$
$
$
$
$
$
$
$
$
Years Ended December 31,
2017
2016
2015
(In millions, except per share data)
1,069.7
1,100.5
1,117.8
8.8
8.0
10.5
1,078.5
1,108.5
1,128.3
5,006
$
3,588
$
4,061
10
103
—
4
103
—
4,893
4.57
4.53
$
$
$
3,481
3.16
3.13
$
$
$
12
116
42
3,891
3.48
3.44
(986) $
(2,734) $
1,324
—
—
(986) $
(0.92) $
(0.91) $
(2,734) $
(2.48) $
(2.46) $
—
1,324
1.19
1.18
4,020
$
854
$
5,385
10
103
—
3,907
3.65
3.62
$
$
$
4
103
—
747
0.68
0.67
$
$
$
12
116
42
5,215
4.67
4.62
373
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
20. 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, at trial or on appeal. Disposition valuations
are also subject to the uncertainty of how opposing parties and their counsel will view the relevant evidence and applicable
law.
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, 2017. 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, the Company has not made an accrual. As of
December 31, 2017, the Company estimates the aggregate range of reasonably possible losses in excess of amounts accrued
for these matters to be $0 to $425 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.
374
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
20. Contingencies, Commitments and Guarantees (continued)
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.
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)
__________________
2017
December 31,
2016
(In millions, except number of claims)
62,930
67,223
2015
$
3,514
48.6
$
4,146
50.2
$
67,787
3,856
56.1
(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.
375
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
20. Contingencies, Commitments and Guarantees (continued)
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 U.S., assessing relevant trends
impacting asbestos liability and considering numerous variables that can affect its asbestos liability exposure on an overall
or per claim basis. These variables include bankruptcies of other companies involved in asbestos litigation, legislative and
judicial developments, the number of pending claims involving serious disease, the number of new claims filed against it
and other defendants and the jurisdictions in which claims are pending. Based upon its regular reevaluation of its exposure
from asbestos litigation, MLIC has updated its liability analysis for asbestos-related claims through December 31, 2017.
MLIC increased its recorded liability for asbestos-related claims to $551 million at December 31, 2017.
Regulatory Matters
The Company receives and responds to subpoenas or other inquiries seeking a broad range of information from state
regulators, including state insurance commissioners; state attorneys general or other state governmental authorities; federal
regulators, including the SEC; federal governmental authorities, including congressional committees; and the Financial
Industry Regulatory Authority (“FINRA”), as well as from local and national regulators and government authorities in
jurisdictions 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.
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. In
September 2012, the EPA, MLIC and the third party executed an Administrative Order on Consent under which MLIC
and the third party agreed to be responsible for certain environmental testing at the Chemform Site. The EPA may seek
additional costs if the environmental testing identifies issues. The EPA and MLIC have reached a settlement in principal
on the EPA’s claim for past costs. The Company estimates that the aggregate cost to resolve this matter, including the
settlement for claims of past costs and the costs of environmental testing, will not exceed $300 thousand.
376
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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
20. Contingencies, Commitments and Guarantees (continued)
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 and GALIC, as
well as former subsidiaries of the Company that are part of Brighthouse as a result of the Separation, and a former
broker‑dealer subsidiary. 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.
Unclaimed Property Litigation
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 alleges that MetLife, Inc. and several current and former directors and executive officers
of MetLife, Inc. violated the Securities Act of 1933, 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 22, 2017, the Court granted
plaintiff’s motion to certify its proposed class of persons who purchased or acquired MetLife, Inc. common stock in the
Company’s August 3, 2010 offering or the Company’s March 4, 2011 offering. The defendants intend to defend this action
vigorously.
Total Asset Recovery Services, LLC. v. MetLife, Inc., et al. (Supreme Court of the State of New York, County of New
York, filed November 17, 2017)
Alleging that MetLife, Inc., MLIC, and several other insurance companies violated the New York False Claims Act
(the “Act”) by filing false unclaimed property reports from 1986 to 2017 with New York to avoid having to escheat the
proceeds of more than 25,000 life insurance policies, including policies for which the defendants escheated funds as part
of their demutualization in the late 1990s, Total Asset Recovery Services (“The Relator”) has brought an action under
the qui tam provision of the Act on behalf of itself and New York. The Relator originally filed this action under seal in
2010, and the complaint was unsealed on December 19, 2017. The Relator seeks treble damages and other relief. The
Company intends to defend this action vigorously.
Total Control Accounts Litigation
MLIC is a defendant in a lawsuit related to its use of retained asset accounts, known as TCAs, as a settlement option
for death benefits.
Owens v. Metropolitan Life Insurance Company (N.D. Ga., filed April 17, 2014)
Plaintiff filed this class action lawsuit on behalf of all persons for whom 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 class. In addition, plaintiff, on
behalf of a subgroup of the class, seeks interest under Georgia’s delayed settlement interest statute, alleging that the use
of the TCA as the settlement option did not constitute payment. On September 27, 2016, the court denied MLIC’s summary
judgment motion in full and granted plaintiff’s partial summary judgment motion. On September 29, 2017, the court
certified a nationwide class. The court also certified a Georgia subclass. The Company intends to defend this action
vigorously.
377
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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
20. Contingencies, Commitments and Guarantees (continued)
Diversified Lending Group Litigation
Hartshorne v. MetLife, Inc., et al. (Los Angeles County Superior Court, filed March 25, 2015)
Plaintiffs named MetLife, Inc., MSI and NELICO in 12 related lawsuits in California state court alleging various
causes of action including multiple negligence and statutory claims relating to a Ponzi scheme involving the Diversified
Lending Group. All but one of the plaintiffs have resolved their claims with the Company. The Company intends to
vigorously defend the remaining claim.
Inquiries into Pension Benefits and Assumed Variable Annuity Guarantee Reserves and Related Litigation
The Company informed its primary state regulator, the New York Department of Financial Services (“NYDFS”), about
its practices in connection with the payment of certain pension benefits to annuitants and related matters. The NYDFS is
examining the issue. The Division of Enforcement of the SEC is also investigating this matter and several additional
regulators, including, but not limited to, the Massachusetts Securities Division, have made inquiries into these practices,
including as to related disclosures. It is possible that other jurisdictions may pursue similar investigations or inquiries. On
February 13, 2018, the Company announced that in connection with a review of practices and procedures used to estimate
reserves related to certain RIS group annuitants who have been unresponsive or missing over time, the Company had
identified a material weakness in its internal control over financial reporting related to certain RIS group annuity reserves.
In conjunction with the material weakness, the Company increased reserves by $510 million pre-tax to reinstate reserves
previously released, and to reflect accrued interest and other related liabilities. See Note 1.
The Company informed the SEC that as a result of its review of the calculation of reserves associated with certain
variable annuity guarantees assumed from the former operating joint venture in Japan, the Company had identified a material
weakness in its internal control over financial reporting related to these reserves. In conjunction with the material weakness,
the Company decreased these reserves by $896 million pre-tax. See Note 1. The SEC staff is investigating this matter and
the Company has informed other regulators. It is possible that other jurisdictions may pursue similar investigations or
inquiries.
The Company is exposed to lawsuits and regulatory investigations, and could be exposed to additional legal actions.
These may result in payments, including damages, fines, penalties, interest and other amounts assessed or awarded by courts
or regulatory authorities under applicable escheat, tax, securities, ERISA, or other laws or regulations. The Company could
incur significant costs in connection with these actions. The Company’s increase in reserves does not reflect, and the
Company has not recorded an accrual for, any such potential amounts. An estimate of the possible loss or range of loss
cannot be made at this time.
Parchmann v. MetLife, Inc., et. al. (E.D.N.Y., filed February 5, 2018)
Seeking to represent a class of persons who purchased MetLife, Inc. common stock from February 27, 2013 through
January 29, 2018, the plaintiff alleges that MetLife, Inc., its Chief Executive Officer and Chairman of the Board, and its
Chief Financial Officer violated Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder by issuing
materially false and/or misleading statements because the defendants failed to disclose that MetLife’s practices and
procedures used to estimate its reserves set aside for annuity and pension payments were inadequate, and that MetLife
had inadequate internal control over financial reporting. The plaintiff seeks unspecified compensatory damages and other
relief. The defendants intend to defend this action vigorously.
378
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
20. Contingencies, Commitments and Guarantees (continued)
Other Litigation
Sun Life Assurance Company of Canada Indemnity Claim
In 2006, Sun Life Assurance Company of Canada (“Sun Life”), as successor to the purchaser of 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 that were subsequently transferred to Sun Life. In January 2010,
the court found that Sun Life had given timely notice of its claim for indemnification but, because it found that Sun Life
had not yet incurred an indemnifiable loss, granted MLIC’s motion for summary judgment. Both parties agreed to 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 alleging sales practices claims regarding the policies sold by MLIC and transferred
to Sun Life. On August 30, 2011, Sun Life notified MLIC that another purported class action lawsuit was filed against
Sun Life in Vancouver, BC alleging sales practices claims regarding certain of the same policies sold by 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.
MetLife, Inc. v. Financial Stability Oversight Council (D. D.C., January 13, 2015).
MetLife, Inc. filed this action in U.S. District Court for the District of Columbia (“D.C. District Court”) seeking to
overturn the Financial Stability Oversight Council (“FSOC”) designation of MetLife, Inc. as a non-bank systemically
important financial institution (“non-bank SIFI”). The suit was 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 sought an order requiring that the final determination be rescinded. On January 23, 2018, the United
States District Court of Appeals for the District of Columbia dismissed the FSOC’s appeal of the D.C. District Court’s
March 30, 2016 decision that rescinded the Company’s designation as a non-bank SIFI.
Voshall v. Metropolitan Life Insurance Company (Superior Court of the State of California, County of Los Angeles,
April 8, 2015)
Plaintiff filed this putative class action lawsuit on behalf of himself and all persons covered under a long-term group
disability income insurance policy issued by 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 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. On April 12, 2016, the court granted MLIC’s motion to dismiss. Plaintiffs
have appealed this ruling.
379
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MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
20. Contingencies, Commitments and Guarantees (continued)
Lau v. Metropolitan Life Insurance Company (S.D.N.Y. filed, December 3, 2015)
This putative class action lawsuit was filed by a single defined contribution plan participant on behalf of all ERISA
plans whose assets were invested in 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 parties have
settled and the court has dismissed the action.
Newman v. Metropolitan Life Insurance Company (N.D. Ill., filed March 23, 2016)
Plaintiff filed this putative class action alleging causes of action for breach of contract, fraud, and violations of the
Illinois Consumer Fraud and Deceptive Business Practices Act, based on MLIC’s class-wide increase in premiums charged
for long-term care insurance policies. Plaintiff alleges a class consisting of herself and all persons over age 65 who selected
a Reduced Pay at Age 65 payment feature and whose premium rates were increased after age 65. Plaintiff asserts that
premiums could not be increased for these class members and/or that marketing material was misleading as to MLIC’s
right to increase premiums. Plaintiff seeks unspecified compensatory, statutory and punitive damages, as well as
recessionary and injunctive relief. On April 12, 2017, the court granted MLIC’s motion, dismissing the action with
prejudice. Plaintiff appealed this ruling to the United States Court of Appeals for the Seventh Circuit and on February 6,
2018, the Seventh Circuit reversed and remanded for further proceedings, ruling that Plaintiff is entitled to relief on her
contract claim.
Miller, et al. v. MetLife, Inc., et al. (C.D. Cal., filed April 7, 2017)
Plaintiffs filed this putative class action against MetLife, Inc. and MLIC in the U.S. District Court for the Central
District of California, purporting to assert claims on behalf of all persons who replaced their MetLife Optional Term Life
or Group Universal Life policy with a Group Variable Universal Life policy wherein MetLife allegedly charged smoker
rates for certain non-smokers. Plaintiffs seek unspecified compensatory and punitive damages, as well as other relief. On
September 25, 2017, plaintiffs dismissed the action and refiled the complaint in U.S. District Court for the Southern
District of New York. On November 9, 2017, plaintiffs dismissed MetLife, Inc. without prejudice from the action. MLIC
intends to defend this action vigorously.
Julian & McKinney v. Metropolitan Life Insurance Company (S.D.N.Y., filed February 9, 2017)
Plaintiffs filed this putative class and collective action on behalf of themselves and all current and former long-term
disability (“LTD”) claims specialists between February 2011 and the present for alleged wage and hour violations under
the Fair Labor Standards Act, the New York Labor Law, and the Connecticut Minimum Wage Act. The suit alleges that
MetLife improperly reclassified the plaintiffs and similarly situated LTD claims specialists from non-exempt to exempt
from overtime pay in November 2013. As a result, they and members of the putative class were no longer eligible for
overtime pay even though they allege they continued to work more than 40 hours per week. The Company intends to
defend this action vigorously.
Sales Practices Claims
Over the past several years, the Company has faced numerous claims, including class action lawsuits, alleging
improper marketing or sales of individual life insurance policies, annuities, mutual funds, other products or the misuse
of client assets. Some of the current cases seek substantial damages, including punitive and treble damages and attorneys’
fees. The Company continues to defend vigorously against the claims in these matters. The Company believes adequate
provision has been made in its consolidated financial statements for all probable and reasonably estimable losses for sales
practices matters.
380
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
20. Contingencies, Commitments and Guarantees (continued)
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.
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.
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
Total
Other Liabilities:
Insolvency assessments
December 31,
2017
2016
(In millions)
$
$
$
56
50
106
75
$
$
$
30
33
63
47
381
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
20. Contingencies, Commitments and Guarantees (continued)
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:
2018
2019
2020
2021
2022
Thereafter
Total
Amount
(In millions)
302
265
256
237
209
993
2,262
$
$
Total minimum rental payments to be received in the future under non-cancelable subleases were $572 million as of
December 31, 2017. Operating lease expense was $374 million, $383 million and $364 million for the years ended
December 31, 2017, 2016 and 2015, respectively.
Mortgage Loan Commitments
The Company commits to lend funds under mortgage loan commitments. The amounts of these mortgage loan
commitments were $3.4 billion and $4.3 billion at December 31, 2017 and 2016, 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 $6.1 billion and $8.2 billion at
December 31, 2017 and 2016, 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
$329 million, with a cumulative maximum of $750 million, while in other cases such limitations are not specified or applicable.
Since certain of these obligations are not subject to limitations, the Company does not believe that it is possible to determine
the maximum potential amount that could become due under these guarantees in the future. Management believes that it is
unlikely the Company will have to make any material payments under these indemnities, guarantees, or commitments.
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.
382
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
20. Contingencies, Commitments and Guarantees (continued)
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 $5 million and $10 million at December 31, 2017 and 2016, respectively, for
indemnities, guarantees and commitments.
383
Table of Contents
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
21. Quarterly Results of Operations (Unaudited)
The unaudited quarterly results of operations for 2017 and 2016 are summarized in the table below:
March 31, 2017
June 30, 2017
September 30, 2017
December 31, 2017
Prior to
Revision (1)
Revisions (2)
As
Revised
Prior to
Revision (1)
Revisions (2)
As
Revised
As
Previously
Reported
Revisions (2)
As
Revised
As
Previously
Reported
Revisions (2)
As
Revised
Three Months Ended
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
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
14,925
13,921
908
(79)
829
3
826
6
820
0.82
(0.07)
0.76
0.75
0.82
(0.07)
0.75
0.75
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
39
$ 14,964
(29)
$ 13,892
44
3
47
$
$
$
952
(76)
876
— $
3
47
$
873
— $
6
47
$
867
0.05
$
0.87
— $ (0.07)
0.04
0.05
$
$
0.80
0.80
0.04
$
0.86
— $ (0.07)
0.04
0.04
$
$
0.79
0.79
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
15,286
14,309
829
58
887
3
884
46
838
0.73
0.05
0.82
0.78
0.72
0.05
0.82
0.77
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(in millions, except per share data)
47
6
27
$ 15,333
$ 14,315
$
856
— $
58
27
$
914
— $
3
27
$
911
— $
46
27
$
865
0.03
$
0.76
— $
0.05
0.04
0.03
$
$
0.86
0.81
0.03
$
0.75
— $
0.05
0.03
0.03
$
$
0.85
0.80
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
16,104
15,603
893
(968)
(75)
6
(81)
6
(87)
0.83
(0.91)
(0.08)
(0.08)
0.82
(0.90)
(0.08)
(0.08)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
67
83
$ 16,171
$ 15,686
(10)
$
883
— $
(968)
(10)
$
(85)
— $
6
(10)
$
(91)
— $
6
(10)
$
(97)
(0.01)
$
0.82
— $ (0.91)
(0.01)
$ (0.09)
(0.01)
$ (0.09)
(0.01)
$
0.81
— $ (0.90)
— $ (0.08)
(0.01)
$ (0.09)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
15,754
14,879
2,134
$
$
$
86
$ 15,840
— $ 14,879
181
$ 2,315
— $
— $ —
2,134
(2)
2,136
45
2,091
$
$
$
$
$
181
$ 2,315
— $
(2)
181
$ 2,317
— $
45
181
$ 2,272
1.99
$
0.17
$
2.16
— $
— $ —
2.03
1.99
$
$
0.17
0.17
$
$
2.20
2.16
1.97
$
0.17
$
2.14
— $
— $ —
2.01
1.97
$
$
0.17
0.17
$
$
2.18
2.14
384 (1 of 2)
Table of Contents
21. Quarterly Results of Operations (Unaudited) (continued)
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
March 31, 2016
June 30, 2016
September 30, 2016
December 31, 2016
As
Previously
Reported
Revisions (2)
As
Revised
As
Previously
Reported
Revisions (2)
As
Revised
As
Previously
Reported
Revisions (2)
As
Revised
As
Previously
Reported
Revisions (2)
As
Revised
Three Months Ended
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 (3)
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
__________________
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
16,097
13,780
1,770
433
2,203
2
2,201
6
2,195
1.60
0.39
2.00
1.99
1.59
0.39
1.99
1.98
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
148
$ 16,245
(28)
$ 13,752
130
$ 1,900
(1)
$
432
129
$ 2,332
— $
2
129
$ 2,330
— $
6
129
$ 2,324
0.12
$
1.72
— $
0.39
0.12
0.12
$
$
2.12
2.11
0.12
$
1.71
— $
0.39
0.11
0.12
$
$
2.10
2.10
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
16,025
13,979
1,475
(1,361)
114
4
110
46
64
1.30
(1.24)
0.10
0.06
1.29
(1.23)
0.10
0.06
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(in millions, except per share data)
324
$ 16,349
— $ 13,979
211
$ 1,686
— $ (1,361)
211
$
325
— $
4
211
$
321
— $
46
211
$
275
0.19
$
1.49
— $ (1.24)
0.19
0.19
$
$
0.29
0.25
0.19
$
1.48
— $ (1.23)
0.19
0.19
$
$
0.29
0.25
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
15,833
14,674
1,024
(451)
573
(4)
577
6
571
0.93
(0.41)
0.52
0.52
0.92
(0.41)
0.52
0.51
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(27)
$ 15,806
43
$ 14,717
(51)
16
(35)
$
$
$
973
(435)
538
— $
(4)
(35)
$
542
— $
6
(35)
$
536
(0.05)
$
0.88
0.02
$ (0.39)
(0.03)
(0.03)
$
$
0.49
0.49
(0.05)
$
0.87
0.02
$ (0.39)
(0.03)
(0.03)
$
$
0.49
0.48
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
12,635
14,017
(795)
(1,291)
(2,086)
2
(2,088)
45
(2,133)
(0.77)
(1.17)
(1.90)
(1.94)
(0.77)
(1.17)
(1.90)
(1.94)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(248)
$ 12,387
41
$ 14,058
(176)
$
(971)
(79)
$ (1,370)
(255)
$ (2,341)
— $
2
(255)
$ (2,343)
— $
45
(255)
$ (2,388)
(0.15)
$ (0.92)
(0.08)
$ (1.25)
(0.23)
$ (2.13)
(0.23)
$ (2.17)
(0.15)
$ (0.92)
(0.08)
$ (1.25)
(0.23)
$ (2.13)
(0.23)
$ (2.17)
(1)
(2)
(3)
Results of operations were revised to reflect Brighthouse as discontinued operations. See Note 3.
See Note 1 information on prior period revisions.
For the three months ended December 31, 2016, 9.2 million shares related to the assumed exercise or issuance of stock-based awards have been excluded from the
weighted average common shares outstanding - diluted, as to include these assumed shares would be anti-dilutive to net income (loss) available to common shareholders
per common share - diluted.
384 (2 of 2)
Table of Contents
22. Subsequent Events
Common Stock Repurchases
MetLife, Inc.
Notes to the Consolidated Financial Statements — (continued)
In 2018, through February 16, 2018, MetLife, Inc. repurchased 7,499,116 shares of its common stock in the open market
for $392 million.
Disposition
See Note 3 for additional information related to the disposition of MetLife Afore.
Dividends
Preferred Stock
On February 16, 2018, MetLife, Inc. announced a first quarter 2018 dividend of $0.25 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 5, 2018. The dividend will be payable on March 15, 2018 to shareholders of record as of February 28, 2018.
Common Stock
On January 5, 2018, the MetLife, Inc. Board of Directors declared a first quarter 2018 common stock dividend of $0.40 per
share payable on March 13, 2018 to shareholders of record as of February 5, 2018. The Company estimates that the aggregate
dividend payment will be $416 million.
385
Table of Contents
Types of Investments
Fixed maturity securities:
Bonds:
Foreign government securities
U.S. government and agency securities
Public utilities
State and political subdivision securities
All other corporate bonds
Total bonds
Mortgage-backed and asset-backed securities
Redeemable preferred stock
Total fixed maturity securities
FVO securities
Equity securities:
Common stock:
Industrial, miscellaneous and all other
Banks, trust and insurance companies
Public utilities
Non-redeemable preferred stock
Total equity securities
Mortgage loans
Policy loans
Real estate and real estate joint ventures
Real estate acquired in satisfaction of debt
Other limited partnership interests
Short-term investments
Other invested assets
Total investments
__________________
MetLife, Inc.
Schedule I
Consolidated Summary of Investments —
Other Than Investments in Related Parties
December 31, 2017
(In millions)
Cost or
Amortized Cost (1)
Estimated Fair
Value
Amount at
Which Shown on
Balance Sheet
$
55,351
$
61,534
$
43,446
12,087
10,752
115,238
236,874
48,106
1,089
286,069
14,656
1,538
83
66
453
2,140
68,731
9,669
9,589
48
5,708
4,870
17,263
418,743
47,394
13,581
12,455
123,445
258,409
49,318
1,204
308,931
16,745
1,807
154
74
478
2,513
$
$
61,534
47,394
13,581
12,455
123,445
258,409
49,318
1,204
308,931
16,745
1,807
154
74
478
2,513
68,731
9,669
9,589
48
5,708
4,870
17,263
444,067
(1)
The FVO securities portfolio is mainly comprised of fixed maturity and equity securities, including mutual funds and, to
a lesser extent, short-term investments and cash and cash equivalents. Cost or amortized cost for fixed maturity securities
and mortgage loans represents original cost reduced by repayments, valuation allowances and impairments from other-
than-temporary declines in estimated fair value that are charged to earnings and adjusted for amortization of premiums
or accretion of discounts; for equity securities, cost represents original cost reduced by impairments from other-than-
temporary declines in estimated fair value; for real estate, cost represents original cost reduced by impairments and
depreciation; for real estate joint ventures and other limited partnership interests, cost represents original cost reduced
for impairments or original cost adjusted for equity in earnings and distributions.
386
Table of Contents
MetLife, Inc.
Schedule II
Condensed Financial Information
(Parent Company Only)
December 31, 2017 and 2016
(In millions, except share and per share data)
Condensed Balance Sheets
Assets
Investments:
Fixed maturity securities available-for-sale, at estimated fair value (amortized cost: $4,520 and
$3,900, respectively)
Fair value option securities, at estimated fair value
Short-term investments, principally at estimated fair value
Other invested assets, at estimated fair value
Total investments
Cash and cash equivalents
Accrued investment income
Investment in subsidiaries
Loans to subsidiaries
Other assets
Total assets
Liabilities and Stockholders’ Equity
Liabilities
Payables for collateral under derivatives transactions
Long-term debt — unaffiliated
Long-term debt — affiliated
Collateral financing arrangement
Junior subordinated debt securities
Other liabilities
Total liabilities
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; 1,168,710,101 and
1,164,029,985 shares issued, respectively; 1,043,588,396 and 1,095,519,005 shares
outstanding, respectively
Additional paid-in capital
Retained earnings
Treasury stock, at cost; 125,121,705 and 68,510,980 shares, respectively
Accumulated other comprehensive income (loss)
Total stockholders’ equity
Total liabilities and stockholders’ equity
2017
2016
$
4,510
$
1,357
30
127
6,024
516
24
73,274
100
1,153
$
$
81,091
$
36
$
14,599
2,000
—
2,454
3,326
22,415
—
12
31,111
26,527
(6,401)
7,427
58,676
$
81,091
$
3,894
—
148
499
4,541
334
74
85,429
1,200
1,529
93,107
147
15,505
3,100
2,797
1,734
2,294
25,577
—
12
30,944
34,683
(3,474)
5,366
67,531
93,108
See accompanying notes to the condensed financial information.
387
Table of Contents
MetLife, Inc.
Schedule II
Condensed Financial Information — (continued)
(Parent Company Only)
For the Years Ended December 31, 2017, 2016 and 2015
(In millions)
Condensed Statements of Operations
Revenues
Equity in earnings of subsidiaries
Net investment income
Other revenues
Net investment gains (losses)
Net derivative gains (losses)
Total revenues
Expenses
Interest expense
Goodwill impairment
Termination of financing arrangements
Other expenses
Total expenses
Income (loss) before provision for income tax
Provision for income tax expense (benefit)
Net income (loss)
Less: Preferred stock dividends
Preferred stock repurchase premium
Net income (loss) available to common shareholders
Comprehensive income (loss)
2017
2016
2015
$
7,162
$
1,833
$
6,048
101
59
(1,142)
(186)
5,994
1,108
—
294
657
2,059
3,935
(75)
4,010
103
—
$
$
3,907
7,391
$
$
129
151
86
(68)
2,131
1,152
147
2
388
1,689
442
(408)
850
103
—
747
1,449
$
$
170
124
12
(7)
6,347
1,171
—
—
180
1,351
4,996
(377)
5,373
116
42
5,215
(574)
See accompanying notes to the condensed financial information.
388
Table of Contents
MetLife, Inc.
Schedule II
Condensed Financial Information — (continued)
(Parent Company Only)
For the Years Ended December 31, 2017, 2016 and 2015
(In millions)
2017
2016
2015
Condensed Statements of Cash Flows
Cash flows from operating activities
Net income (loss)
Earnings of subsidiaries
Dividends from subsidiaries
(Gains) losses on investments and from sales of businesses, net
Goodwill impairment
Tax separation agreement charge
Other, net
Net cash provided by (used in) operating activities
Cash flows from investing activities
Sales of fixed maturity securities
Purchases of fixed maturity securities
Cash received in connection with freestanding derivatives
Cash paid in connection with freestanding derivatives
Sales of businesses
Expense paid on behalf of subsidiaries
Receipts on loans to subsidiaries
Issuances of loans to subsidiaries
Returns of capital from subsidiaries
Capital contributions to subsidiaries
Net change in short-term investments
Other, net
Net cash provided by (used in) investing activities
Cash flows from financing activities
Net change in payables for collateral under derivative transactions
Long-term debt issued
Long-term debt repaid
Fees paid for the termination of a committed facility related to Separation
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
Change in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
$
4,010
$
(7,162)
6,745
1,142
—
1,093
634
6,462
7,217
(7,733)
452
(629)
—
(42)
—
—
610
(339)
118
(14)
(360)
(111)
—
(1,000)
(244)
(2,927)
—
—
—
(103)
(1,717)
182
(5,920)
850
$
(1,833)
4,470
(86)
147
—
199
5,373
(6,048)
2,335
(12)
—
—
(42)
3,747
1,606
8,603
(7,409)
311
(561)
291
(68)
140
(140)
80
(1,733)
120
(18)
(384)
(80)
—
(1,250)
(2)
(372)
—
—
—
(103)
(1,736)
93
(3,450)
7,952
(7,957)
930
(510)
—
(40)
761
(300)
5
(667)
110
2
286
(122)
2,739
(1,000)
—
(1,930)
1,483
(1,460)
(42)
(116)
(1,653)
187
(1,914)
(22)
443
421
182
334
516
$
(87)
421
334
$
$
389
Table of Contents
MetLife, Inc.
Schedule II
Condensed Financial Information — (continued)
(Parent Company Only)
For the Years Ended December 31, 2017, 2016 and 2015
(In millions)
Supplemental disclosures of cash flow information
Net cash paid (received) for:
Interest
Income tax:
Amounts paid to (received from) subsidiaries, net
Amounts paid to Brighthouse in accordance with the tax separation agreement
Income tax paid (received) by MetLife, Inc., net
Total income tax, net
Non-cash transactions:
Dividends from subsidiary
Returns of capital from subsidiaries
Capital contributions to subsidiaries
Distribution of Brighthouse
Payables to subsidiaries for future capital contributions
Allocation of interest expense to subsidiary
Allocation of interest income to subsidiary
2017
2016
2015
$
$
$
$
$
$
$
$
$
$
1,096
$
1,146
$
1,133
(1,552) $
(569) $
729
(37)
—
136
(860) $
(433) $
— $
17,518
15,655
10,346
$
$
$
— $
15
4
$
$
2,652
372
157
$
$
$
— $
— $
39
54
$
$
(226)
—
55
(171)
—
4,284
4,120
—
120
28
57
390
Table of Contents
MetLife, Inc.
Schedule II
Notes to the Condensed Financial Information
(Parent Company Only)
1. Basis of Presentation
The condensed financial information of MetLife, Inc. (the “Parent Company”) should be read in conjunction with the
consolidated financial statements of MetLife, Inc. and its subsidiaries and the notes thereto (the “Consolidated Financial
Statements”). These condensed unconsolidated financial statements reflect the results of operations, financial position and cash
flows for MetLife, Inc. Investments in subsidiaries are accounted for using the equity method of accounting.
The preparation of these condensed unconsolidated financial statements in conformity with GAAP requires management
to adopt accounting policies and make certain estimates and assumptions. The most important of these estimates and assumptions
relate to the fair value measurements, the accounting for goodwill and identifiable intangible assets and the provision for potential
losses that may arise from litigation and regulatory proceedings and tax audits, which may affect the amounts reported in the
condensed unconsolidated financial statements and accompanying notes. Actual results could differ from these estimates.
See Note 1 of the Notes to the Consolidated Financial Statements for information on prior period revisions.
The impact of the revisions is shown in the tables below:
Condensed Balance Sheets
Assets
Investment in subsidiaries
Total assets
Stockholders’ Equity
Retained earnings
Accumulated other comprehensive income (loss)
Total stockholders’ equity
Total liabilities and stockholders’ equity
Condensed Statements of Operations
Revenues
Equity in earnings of subsidiaries
Total revenues
Income (loss) before provision for income tax
Net income (loss)
Net income (loss) available to common shareholders
Comprehensive income (loss)
December 31, 2016
As
Previously
Reported
As
Revised
Revisions
(In millions)
$
$
$
$
$
$
85,207
92,885
34,480
5,347
67,309
92,886
$
$
$
$
$
$
222
222
$ 85,429
$ 93,107
203
$ 34,683
19
$ 5,366
222
222
$ 67,531
$ 93,108
For the Years Ended December 31,
2016
2015
As
Previously
Reported
Revisions
As
Revised
As
Previously
Reported
Revisions
As
Revised
(In millions)
$
$
$
$
$
$
1,783
2,081
392
800
697
1,376
$
$
$
$
$
$
50
50
50
50
50
73
$ 1,833
$ 2,131
$
$
$
442
850
747
$ 1,449
$
$
$
$
$
$
5,985
6,284
4,933
5,310
5,152
$
$
$
$
$
63
63
63
63
63
$ 6,048
$ 6,347
$ 4,996
$ 5,373
$ 5,215
(568) $
(6) $ (574)
391
Table of Contents
MetLife, Inc.
Schedule II
Notes to the Condensed Financial Information — (continued)
(Parent Company Only)
Condensed Statements of Cash Flows
Cash flows from operating activities
Net income (loss)
Earnings of subsidiaries
2. Investment in Subsidiaries
For the Years Ended December 31,
2016
2015
As
Previously
Reported
Revisions
As
Revised
As
Previously
Reported
Revisions
As
Revised
(In millions)
$
$
800
$
50
$
850
$
5,310
$
63
$ 5,373
(1,783) $
(50) $ (1,833) $
(5,985) $
(63) $ (6,048)
On August 3, 2017, Brighthouse Financial, Inc. paid a cash dividend to MetLife, Inc. of $1.8 billion in connection with the
Separation.
In December 2016, MLIC transferred the issued and outstanding shares of the common stock of each of NELICO and
GALIC to MetLife, Inc. in the form of a non-cash extraordinary dividend of $2.7 billion.
In February 2016, MetLife, Inc. paid a cash capital contribution of $1.5 billion to Brighthouse Insurance in connection with
the Separation.
In December 2015, MetLife, Inc. accrued $50 million, $45 million and $25 million in capital contributions payable to the
following captive reinsurers: MRV, MRD and MRSC, respectively, which were included in payables to subsidiaries at
December 31, 2015. The payables were settled for cash in February 2016.
In December 2014, MetLife, Inc. accrued $350 million and $95 million in capital contributions payable to MRV and MRD,
respectively, which were included in payables to subsidiaries at December 31, 2014. The payables were settled for cash in
February 2015.
3. Loans to Subsidiaries
MetLife, Inc. lends funds as necessary to its subsidiaries, some of which are regulated, to meet their capital requirements.
Payments of interest and principal on surplus notes of regulated subsidiaries, which are subordinate to all other obligations of
the issuing company, may be made only with the prior approval of the insurance department of the state of domicile.
In April 2017, in connection with the Separation, MetLife, Inc. repaid $750 million and $350 million senior notes to MRD
due September 2032 and December 2033, respectively, in an exchange transaction. The $750 million senior note bore interest
at a fixed rate of 4.21% and the $350 million senior note bore interest at a fixed rate of 5.10%. Simultaneously, MRD repaid
$750 million and $350 million surplus notes to MetLife, Inc. The $750 million surplus note bore interest at a fixed rate of 5.13%
and the $350 million surplus note bore interest at a fixed rate of 6.00% (the “MRD Notes Exchange”).
In April 2016, American Life issued a $140 million short-term note to MetLife, Inc. which was repaid in July 2016. The
short-term note bore interest at six-month LIBOR plus 1.00%.
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 July 2013, MetLife Ireland Treasury d.a.c. (formerly known as MetLife Ireland Treasury Limited) (“MIT”) borrowed
the Chilean peso equivalent of $1.5 billion from MetLife, Inc., which was due in July 2023. The loan bore interest at a fixed
rate of 8.5%, payable annually. In December, September and June 2015, MIT made loan payments of the Chilean peso equivalent
of $77 million, $153 million and $231 million, respectively. At December 31, 2015, the loan was fully paid.
Interest income earned on loans to subsidiaries of $44 million, $64 million and $91 million for the years ended December 31,
2017, 2016 and 2015, respectively, is included in net investment income.
392
Table of Contents
MetLife, Inc.
Schedule II
Notes to the Condensed Financial Information — (continued)
4. Long-term Debt
(Parent Company Only)
Long-term debt outstanding was as follows:
Senior notes — unaffiliated (2)
Senior notes — affiliated
Total
__________________
Interest Rates (1)
Range
Weighted
Average
December 31,
Maturity
2017
2016
(Dollars in millions)
3.00% - 7.72%
3.03% - 5.86%
4.84%
4.58%
2018
2019
-
-
2046
2021
$ 14,599
$ 15,505
2,000
3,100
$ 16,599
$ 18,605
(1)
(2)
Range of interest rates and weighted average interest rates are for the year ended December 31, 2017.
Net of $86 million and $92 million of unamortized issuance costs and net premiums and discounts at December 31, 2017
and 2016, respectively.
See Note 12 of the Notes to the Consolidated Financial Statements.
The aggregate maturities of long-term debt at December 31, 2017 for the next five years and thereafter are $1.0 billion in
2018, $1.8 billion in 2019, $789 million in 2020, $2.0 billion in 2021, $500 million in 2022 and $10.5 billion thereafter.
Credit Facility – Affiliated
In June 2016, MetLife, Inc. entered into a five-year agreement with an indirect wholly-owned subsidiary, MIT, to borrow
up to $1.3 billion on a revolving basis, at interest rates based on the IRS safe harbor interest rate in effect at the time of the
borrowing. MetLife, Inc. may borrow funds under the agreement at the lender’s discretion and subject to the availability of
funds. There were no outstanding borrowings at December 31, 2017.
Long-term Debt – Affiliated
In June 2016, March 2016 and December 2015, MetLife, Inc. repaid $204 million, $10 million and $286 million,
respectively, of affiliated long-term debt to MetLife Exchange Trust I at maturity in exchange for a return of capital. The long-
term notes bore interest at three-month LIBOR plus 0.7%.
Senior Notes – Affiliated
In September 2016, a $250 million senior note issued to MLIC matured and, subsequently, in September 2016 MetLife, Inc.
issued a new $250 million senior note to MLIC. The senior note matures in September 2020 and bears interest at a rate per
annum of 3.03%, payable semi-annually.
See Note 3 for information on the MRD Notes Exchange in 2017.
393
Table of Contents
MetLife, Inc.
Schedule II
Notes to the Condensed Financial Information — (continued)
(Parent Company Only)
4. Long-term Debt (continued)
Interest Expense
Interest expense was comprised of the following:
Long-term debt — unaffiliated
Long-term debt — affiliated
Collateral financing arrangements
Junior subordinated debt securities
Total
2017
Years Ended December 31,
2016
(In millions)
2015
$
$
$
774
112
27
195
$
811
160
47
134
833
168
36
134
1,108
$
1,152
$
1,171
See Notes 13 and 14 of the Notes to the Consolidated Financial Statements for information about the collateral financing
arrangement and junior subordinated debt securities. See also Note 3 of the Notes to the Consolidated Financial Statements
regarding the termination of the MRSC collateral financing arrangement.
5. Junior Subordinated Debt Securities
In February 2017, in connection with the Separation, MetLife, Inc. exchanged $750 million aggregate principal amount of
its 9.250% Fixed-to-Floating Rate Junior Subordinated Debentures due 2068 for $750 million aggregate liquidation preference
of the 9.250% Fixed-to-Floating Rate Exchangeable Surplus Trust Securities of MetLife Capital Trust X (the “Trust”). As a
result of the exchange, MetLife, Inc. is the sole beneficial owner of the Trust, a special purpose entity which issued the
exchangeable surplus trust securities to investors, and is the beneficiary of $750 million of 8.595% surplus notes held by the
Trust that were issued by Brighthouse Insurance. In March 2017, MetLife, Inc. dissolved the Trust. In June 2017, MetLife, Inc.
forgave Brighthouse Insurance’s obligation to pay the principal amount of $750 million affiliated surplus notes held by MetLife,
Inc.
6. Support Agreements
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.
MetLife, Inc. guarantees the obligations of its subsidiary, Delaware American Life Insurance Company (“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 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 MetLife Reinsurance Company of Bermuda, Ltd. (“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 d.a.c. (“MEL”) (formerly known as MetLife Europe Limited), under which MrB reinsured the guaranteed
living benefits and guaranteed death benefits associated with certain unit-linked annuity contracts issued by MEL.
394
Table of Contents
MetLife, Inc.
Schedule II
Notes to the Condensed Financial Information — (continued)
(Parent Company Only)
6. Support Agreements (continued)
MetLife, Inc., in connection with MRV’s reinsurance 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 two 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. 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, 2017 and 2016, derivative transactions with positive mark-to-market values (in-
the-money) were $515 million and $495 million, respectively, and derivative transactions with negative mark-to-market values
(out-of-the-money) were $126 million and $237 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 $114 million
and $233 million at December 31, 2017 and 2016, respectively. Accordingly, unsecured derivative liabilities guaranteed by
MetLife, Inc. were $12 million and $4 million at December 31, 2017 and 2016, 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.
395
Table of Contents
Segment
2017
U.S.
Asia
Latin America
EMEA
MetLife Holdings
Corporate & Other
Total
2016
U.S.
Asia
Latin America
EMEA
MetLife Holdings
Corporate & Other
Total
2015
U.S.
Asia
Latin America
EMEA
MetLife Holdings
Corporate & Other
Total
__________________
MetLife, Inc.
Schedule III
Consolidated Supplementary Insurance Information
December 31, 2017, 2016 and 2015
(In millions)
Future Policy Benefits,
Other Policy-Related
Balances and
Policyholder Dividend
Obligation
DAC
and
VOBA
Policyholder
Account
Balances
Policyholder
Dividends
Payable
Unearned
Premiums (1), (2)
Unearned
Revenue (1)
$
614
$
65,610
$
70,455
$
— $
9,261
2,050
1,673
4,797
24
$18,419
$
616
8,707
1,808
1,472
5,246
(259)
$17,590
$
615
8,386
1,753
1,532
5,436
(292)
$
$
$
$
39,702
10,397
5,768
73,317
816
195,610
61,578
36,308
9,163
5,439
72,220
(2,739)
181,969
59,413
34,397
8,142
5,837
70,764
(2,345)
$
$
$
$
59,702
6,361
13,811
32,176
13
182,518
67,539
53,114
5,597
12,636
33,982
(382)
172,486
63,986
49,094
5,880
13,172
33,320
(322)
$
$
$
$
80
—
7
595
—
1,907
$
2,378
115
24
167
1
$
$
$
$
682
$
4,592
— $
95
—
6
604
(9)
1,843
2,167
448
64
204
(2)
696
$
4,724
— $
88
—
7
621
(7)
1,820
1,859
491
60
171
—
24
916
675
454
205
—
2,274
30
912
563
372
209
(27)
2,059
33
974
597
336
218
(23)
$17,430
$
176,208
$
165,130
$
709
$
4,401
$
2,135
(1)
Amounts are included within the future policy benefits, other policy-related balances and policyholder dividend obligation
column.
(2)
Includes premiums received in advance.
396
Table of Contents
Segment
2017
U.S.
Asia
Latin America
EMEA
MetLife Holdings
Corporate & Other
Total
2016
U.S.
Asia
Latin America
EMEA
MetLife Holdings
Corporate & Other
Total
2015
U.S.
Asia
Latin America
EMEA
MetLife Holdings
Corporate & Other
Total
______________
MetLife, Inc.
Schedule III
Consolidated Supplementary Insurance Information — (continued)
December 31, 2017, 2016 and 2015
(In millions)
Premiums and
Universal Life
and Investment-Type
Product Policy Fees
Net
Investment
Income
Policyholder
Benefits and
Claims and
Interest Credited
to Policyholder
Account Balances
Amortization of
DAC and
VOBA
Charged to
Other
Expenses
Other
Expenses (1)
$
$
$
$
$
$
24,644
$
6,201
$
25,103
$
459
$
8,352
3,737
2,492
5,603
(326)
44,502
22,490
8,914
3,554
2,442
6,034
(749)
42,685
21,804
8,491
3,702
2,455
6,116
(595)
$
$
$
$
3,299
1,288
1,157
5,426
(8)
17,363
5,942
2,807
1,133
1,229
5,670
9
16,790
6,020
2,859
1,046
347
5,855
78
$
$
$
$
6,799
2,973
2,012
7,097
(64)
43,920
22,892
6,916
2,770
2,064
7,521
(629)
41,534
22,100
6,808
2,853
1,109
7,215
(526)
$
$
$
$
1,310
224
356
234
98
2,681
471
1,350
184
408
424
(119)
2,718
471
1,262
271
492
722
(34)
$
$
$
$
3,235
1,802
1,111
966
2,550
2,507
12,171
3,244
1,795
1,007
924
3,392
1,892
12,254
3,197
1,619
1,075
998
3,597
2,463
41,973
$
16,205
$
39,559
$
3,184
$
12,949
(1)
Includes other expenses and policyholder dividends, excluding amortization of DAC and VOBA charged to other expenses.
397
Table of Contents
2017
Life insurance in-force
Insurance premium
Life insurance (1)
Accident & health insurance
Property & casualty insurance
Total insurance premium
2016
Life insurance in-force
Insurance premium
Life insurance (1)
Accident & health insurance
Property & casualty insurance
Total insurance premium
2015
Life insurance in-force
Insurance premium
Life insurance (1)
Accident & health insurance
Property & casualty insurance
Total insurance premium
__________________
MetLife, Inc.
Schedule IV
Consolidated Reinsurance
December 31, 2017, 2016 and 2015
(Dollars in millions)
Gross Amount
Ceded
Assumed
Net Amount
% Amount
Assumed
to Net
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
4,594,523
22,379
13,593
3,623
39,595
4,098,780
20,857
13,551
3,567
37,975
4,080,869
20,854
12,677
3,513
$
$
$
$
$
$
$
$
513,091
1,863
442
71
2,376
481,028
1,614
447
75
2,136
546,122
1,570
377
76
$
$
$
$
$
$
$
$
581,246
1,531
223
19
1,773
613,693
1,089
257
17
1,363
593,722
1,150
219
13
37,044
$
2,023
$
1,382
$
4,662,678
12.5%
22,047
13,374
3,571
38,992
6.9%
1.7%
0.5%
4.5%
4,231,445
14.5%
20,332
13,361
3,509
37,202
5.4%
1.9%
0.5%
3.7%
4,128,469
14.4%
20,434
12,519
3,450
36,403
5.6%
1.7%
0.4%
3.8%
(1)
Includes annuities with life contingencies.
398
Table of Contents
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Overview
Item 9A. Controls and Procedures
Based on the Company’s internal review, MetLife, Inc.’s Chief Executive Officer (“CEO”) and Chief Financial Officer
(“CFO”) identified material weaknesses in the design and operation of its internal control over financial reporting. Management
concluded that the Company has not maintained effective controls over (i) the administrative and accounting practices relating
to certain Retirement and Income Solutions (“RIS”) group annuity reserves and the timely communication and escalation of
issues regarding those reserves throughout the Company, and (ii) controls over the calculation of reserves relating to variable
annuity guarantees issued by a former operating joint venture in Japan and reinsured by the Company and included within
MetLife Holdings. Management identified errors in reserve balances in connection with these material weaknesses. For more
information on these reserve adjustments, see Note 1 of the Notes to the Consolidated Financial Statements.
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act that are
designed to ensure that information required to be disclosed in the Company’s reports filed under the Exchange Act, is recorded,
processed, summarized and reported within the time periods specified in the SEC’s rules, and that such information is accumulated
and communicated to Company management, including the CEO and CFO, as appropriate, to allow timely decisions regarding
required disclosure.
Company management, including the CEO and CFO, evaluated the effectiveness of the design and operation of the
Company’s disclosure controls and procedures pursuant to Rule 13a-15(b) under the Exchange Act as of December 31, 2017,
the end of the period covered by this Annual Report on Form 10-K. Based on such evaluation, the CEO and CFO concluded
that the disclosure controls and procedures were not effective due to the material weaknesses in internal control over financial
reporting described below.
Management’s Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined
in Rule 13a-15(f) under the Exchange Act. 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 evaluated the design and operating effectiveness of the Company’s internal control over financial reporting
based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the “COSO framework”). Solely because of the material weaknesses in internal
control over financial reporting described below, in the opinion of management, MetLife, Inc. did not maintain effective internal
control over financial reporting as of December 31, 2017.
A material weakness (as defined in Rule 12b-2 under the Exchange Act) is a deficiency, or a combination of deficiencies,
in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s
annual or interim financial statements will not be prevented or detected on a timely basis.
Identification of the Material Weaknesses in Internal Control over Financial Reporting
The Company has identified the following deficiencies in the principles associated with both the control activities and
information and communication components of the COSO framework:
RIS Group Annuity Reserves:
•
•
Ineffective design and operating effectiveness of the controls related to processes and procedures for identifying
unresponsive and missing group annuity annuitants and pension beneficiaries (Control Activities); and
Ineffective design and operating effectiveness of the controls intended to ensure timely communication and escalation of
the issue throughout the Company (Information & Communication).
Assumed Variable Annuity Guarantee Reserves:
399
Table of Contents
•
Ineffective design and operating effectiveness of the controls related to data validation and monitoring of reserves for
variable annuity guarantees issued by a former operating joint venture in Japan and reinsured by the Company and included
within MetLife Holdings (Control Activities).
These deficiencies, if not effectively remediated, could result in unprevented and undetected misstatements of accounts or
disclosures related to liabilities for certain RIS group annuity contracts and MetLife Holdings assumed variable annuity guarantee
reserves. Such misstatements could result in a material misstatement of the annual or interim consolidated financial statements.
The Company’s independent registered public accounting firm, Deloitte & Touche LLP, has issued its report on its audit of
the effectiveness of internal control over financial reporting, which is included on page 401.
Changes in Internal Control Over Financial Reporting
There were no changes to the Company’s internal control over financial reporting as defined in Rule 13a-15(f) under the
Exchange Act during the quarter ended December 31, 2017 that have materially affected, or are reasonably likely to materially
affect, the Company’s internal control over financial reporting.
Remediation Steps to Address Material Weaknesses
Although the Company’s remediation plan remains under development, the Company has begun remediation efforts and
will continue initiatives to implement, document, and communicate policies, procedures, and internal controls. The Company’s
remediation of the identified material weaknesses and strengthening of its internal control environment will require a substantial
effort in 2018.
The following remediation activities highlight the Company’s commitment to remediating its identified material weaknesses.
RIS Group Annuity Reserves:
•
•
•
The Company is implementing immediate changes to its administrative and accounting procedures and search practices
to identify, contact, and record responses from “unresponsive and missing” plan annuitants and to otherwise locate
missing annuitants.
The Company is reviewing its practices regarding timely communication and escalation of issues throughout the
Company.
The Company will engage third party advisors to undertake a comprehensive examination and analysis of the facts and
circumstances giving rise to the material weakness, under the supervision of MetLife, Inc.’s Chief Risk Officer.
Assumed Variable Annuity Guarantee Reserves:
•
•
The Company is implementing immediate changes to how data for MetLife Holdings assumed variable annuity
guarantee reserves is controlled and reviewed.
The Company will engage third party advisors to undertake a comprehensive examination and analysis of the facts
and circumstances giving rise to the material weakness.
The Company will make further changes and improve its internal control over financial reporting following management’s
review and development of the complete remediation plans for these material weaknesses that is responsive to the findings of
the examinations.
400
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of MetLife, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of MetLife, Inc. and subsidiaries (the "Company") as of December 31, 2017,
based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO). In our opinion, because of the effect of material weaknesses identified below on the achievement of the
objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2017,
based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
consolidated financial statements as of and for the year ended December 31, 2017, of the Company and our report dated March 1, 2018,
expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
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 are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed 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 its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate.
401
Table of Contents
Material Weaknesses
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable
possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely
basis. The following material weaknesses have been identified and included in management's assessment:
RIS Group Annuity Reserves:
•
•
Ineffective design and operating effectiveness of the controls related to processes and procedures for identifying unresponsive and
missing group annuity annuitants and pension beneficiaries; and
Ineffective design and operating effectiveness of the controls intended to ensure timely communication and escalation of the issue
throughout the Company
Assumed Variable Annuity Guarantee Reserves:
•
Ineffective design and operating effectiveness of the controls related to data validation and monitoring of reserves for variable annuity
guarantees issued by a former operating joint venture in Japan and reinsured by the Company and included within MetLife Holdings
These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the consolidated
financial statements as of and for the year ended December 31, 2017, of the Company, and this report does not affect our report on such
consolidated financial statements.
/s/ DELOITTE & TOUCHE LLP
New York, New York
March 1, 2018
402
Table of Contents
None.
Item 9B. Other Information
Part III
Item 10. Directors, Executive Officers and Corporate Governance
The information called for by this Item pertaining to Directors is incorporated herein by reference to the sections entitled
“Proxy Summary — Director Nominees,” “Proposal 1 — Election of Directors For a One-Year Term Ending at the 2019 Annual
Meeting of Shareholders — Director Nominees” and “Proposal 1 — Election of Directors For a One-Year Term Ending at the
2019 Annual Meeting of Shareholders — Corporate Governance — Information About the Board of Directors ” and “Other
Information — Section 16(a) Beneficial Ownership Reporting Compliance” in MetLife, Inc.’s definitive proxy statement for
the Annual Meeting of Shareholders to be held on June 12, 2018, to be filed by MetLife, Inc. with the SEC pursuant to
Regulation 14A within 120 days after the year ended December 31, 2017 (the “2018 Proxy Statement”).
The information called for by this Item pertaining to Executive Officers appears in “Business — Executive Officers” in this
Annual Report on Form 10-K and “Other Information — Section 16(a) Beneficial Ownership Reporting Compliance” in the
2018 Proxy Statement.
The Company has adopted the MetLife Financial Management Code of Professional Conduct (the “Financial Management
Code”), a “code of ethics” as defined under the rules of the SEC, that applies to MetLife, Inc.’s Chief Executive Officer, Chief
Financial Officer, Chief Accounting Officer and all professionals in finance and finance-related departments. In addition, the
Company has adopted the Directors’ Code of Business Conduct and Ethics (the “Directors’ Code”) which applies to all members
of MetLife, Inc.’s Board of Directors, including the Chief Executive Officer, and the Code of Conduct (together with the Financial
Management Code and the Directors’ Code, collectively, the “Ethics Codes”), which applies to all employees of the Company,
including MetLife, Inc.’s Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer. The Ethics Codes are
available on the Company’s website at http://www.metlife.com/about/corporate-profile/corporate-governance/corporate-
conduct/index.html. The Company intends to satisfy its disclosure obligations under Item 5.05 of Form 8-K by posting
information about amendments to, or waivers from a provision of, the Ethics Codes that apply to MetLife, Inc.’s Chief Executive
Officer, Chief Financial Officer and Chief Accounting Officer on the Company’s website at the address given above.
Item 11. Executive Compensation
The information called for by this Item is incorporated herein by reference to the sections entitled “Proposal 1 — Election
of Directors for a One-Year Term Ending at the 2019 Annual Meeting of Shareholders — Corporate Governance — Information
About the Board of Directors ,” “Proposal 1 — Election of Directors for a One-Year Term Ending at the 2019 Annual Meeting
of Shareholders — Director Compensation in 2017,” and “Proposal 3 — Advisory Vote to Approve the Compensation Paid to
the Company’s Named Executive Officers” in the 2018 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information called for by this Item pertaining to ownership of shares of MetLife, Inc.’s common stock (“Shares”) is
incorporated herein by reference to the sections entitled “Other Information — Security Ownership of Directors and Executive
Officers” and “Other Information — Security Ownership of Certain Beneficial Owners” in the 2018 Proxy Statement.
403
Table of Contents
The following table provides information at December 31, 2017, regarding MetLife, Inc.’s equity compensation plans:
Equity Compensation Plan Information at December 31, 2017
Plan Category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security
holders
Total
______________
Number of
Securities to be
Issued upon
Exercise of
Outstanding
Options, Warrants
and Rights (1)
(a)
27,948,185
None
27,948,185
$
Weighted-average
Exercise Price of
Outstanding
Options, Warrants
and Rights (2)
(b)
$
38.77
—
38.77
(1) Column (a) reflects the following items outstanding as of December 31, 2017:
Stock Options
Restricted Stock Units
Performance Shares (assuming future payout at maximum performance factor)
Deferred Shares
Shares that will or may be issued
As of December 31, 2017:
Number of
Securities
Remaining
Available for
Future Issuance
Under Equity
Compensation
Plans (Excluding
Securities Reflected
in Column (a))(3)
(c)
37,869,420
None
37,869,420
16,009,754
3,304,377
7,059,080
1,574,974
27,948,185
•
•
•
Stock Options under the MetLife, Inc. 2015 Stock and Incentive Compensation Plan (the “2015 Stock Plan”) and its
predecessor plan, the MetLife, Inc. 2005 Stock and Incentive Compensation Plan (the “2005 Stock Plan) were
outstanding;
Restricted Stock Units and Performance Shares under the 2015 Stock Plan were outstanding; and
Deferred Shares related to awards under the 2015 Stock Plan, MetLife, Inc. 2015 Non-Management Directors Stock
Compensation Plan (the “2015 Director Stock Plan”), 2005 Stock Plan, MetLife, Inc. 2005 Non-Management Directors
Stock Compensation Plan (the “2005 Director Stock Plan”), and earlier plans, were outstanding. Deferred Shares are
Shares that are covered by awards that have become payable under any plan, but the issuance of which has been deferred.
The maximum performance factor for Performance Shares granted in 2015, 2016, and 2017 was 175%. The number of
Performance Shares outstanding as of December 31, 2017 at target (100%) performance factor was 4,033,760.
MetLife, Inc. may issue Shares pursuant to awards (including Stock Option exercises, if any) under any plan using Shares
held in treasury by MetLife, Inc. or by issuing new Shares.
For a general description of how the number of Shares paid out on account of Performance Shares and Restricted Stock
Units is determined, and the vesting periods applicable to Performance Shares and Restricted Stock Units, see Note 15 of the
Notes to the Consolidated Financial Statements.
(2)
Column (b) reflects the weighted average exercise price of all Stock Options under any plan that, as of December 31,
2017, had been granted but not forfeited, expired, or exercised. Performance Shares, Restricted Stock Units, and Deferred
Shares are not included in determining the weighted average in column (b) because they have no exercise price.
404
Table of Contents
(3) Column (c) reflects the following items outstanding as of December 31, 2017:
At January 15, 2015, the effective date of the 2015 Stock Plan and 2015 Director Stock Plan:
Shares newly authorized for issuance under the 2015 Stock Plan
Shares remaining authorized for issuance under the 2005 Stock Plan or other plans that were not covered
by awards (i)
Shares authorized for issuance under the 2015 Director Stock Plan (ii)
Total Shares authorized for issuance at January 1, 2015
Additional Shares recovered for issuance (iii) in:
2015
2016
2017
Total Shares recovered for issuance since January 1, 2015
Less: Shares covered by new awards and new imputed reinvested dividends on Deferred Shares (iv) in:
2015
2016
2017
Total Shares covered by new awards and new imputed reinvested dividends on Deferred Shares since
January 1, 2015
Number of
Shares
11,750,000
18,023,959
1,642,208
31,416,167
4,475,737
6,344,455
6,636,193
17,456,385
4,413,785
6,036,177
4,532,897
14,982,859
Net shares added to the 2015 Stock Plan and 2015 Director Plan authorizations in light of the Separation (v)
3,979,727
Shares remaining available for future issuance under the 2015 Stock Plan and 2015 Director Stock Plan
37,869,420
______________
(i)
(ii)
(iii)
(iv)
(v)
Consisting of Shares that were not covered by awards, including Shares previously covered by awards but recovered
due to forfeiture of awards or other reasons and once again available for issuance.
Consists of Shares remaining authorized for issuance under the predecessor plan, the 2005 Director Stock Plan, that
were not covered by awards, including Shares previously covered by awards but recovered due to forfeiture of awards
or other reasons and once again available.
Consists of Shares utilized under the 2005 Stock Plan or 2015 Stock Plan that were recovered during each of the
indicated calendar years, and therefore once again available for issuance, due to: (i) termination of the award by
expiration, forfeiture, cancellation, lapse, or otherwise without issuing 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 Performance Shares
at any performance factor less than the maximum performance factor.
Consists of Shares covered by awards granted under the 2015 Stock Plan (including Performance Shares assuming
future payout at maximum performance factor). Shares covered by awards granted under the 2015 Directors Stock Plan
and Shares covered by imputed reinvested dividends credited on Deferred Shares owed to directors, employees or
agents, in each case during each of the indicated calendar years.
In light of the Separation, and in order to maintain the Share authorizations under each plan at the levels that shareholders
had approved, MetLife, Inc. increased the number of Shares authorized for issuance under the 2015 Stock Plan and
2015 Director Plan as of August 4, 2017, excluding those Shares from the authorizations that had already been issued,
by the Adjustment Ratio. MetLife, Inc. also increased the number of Shares covered by outstanding Stock Options,
Performance Shares, Restricted Stock Units, and Deferred Shares on that date by the Adjustment Ratio, in order to
maintain the intrinsic value of those awards and Deferred Shares, which decreased the number of Shares available for
issuance under both plans. The amount in this row is the net increase in the Share authorization under both the 2015
Stock Plan and 2015 Director Plan as a result of these adjustments. For a description of the adjustment to Stock Options,
Performance Shares, Restricted Stock Units, and Deferred Shares, see Note 15 of the Notes to the Consolidated Financial
Statements.
405
Table of Contents
Each Share MetLife, Inc. issues in connection with awards granted under the MetLife, Inc. 2005 Stock Plan other than
Stock Options or Stock Appreciation Rights (such as Shares payable on account of Performance Shares or Restricted Stock
Units under that plan, including any Deferred Shares resulting from such awards) reduces the number of Shares remaining for
issuance by 1.179 (“2005 Stock Plan Share Award Ratio”). Each Share MetLife, Inc. issues in connection with a Stock Option
or Stock Appreciation Right granted under the 2005 Stock Plan, or in connection with any award under any other plan for
employees and agents (including any Deferred Shares resulting from such awards), reduces the number of Shares remaining for
issuance by 1.0. (“Standard Award Ratio”). Shares related to awards 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 and Standard Award
Ratio, as applicable. Each Share MetLife, Inc. issues under the 2005 Director Stock Plan or 2015 Director Stock Plan (including
any Deferred Shares resulting from such awards) reduces the number of Shares remaining for issuance under that plan by one.
Shares related to awards that are recovered, and therefore authorized for issuance under the 2015 Director Stock Plan are recovered
with consideration of this ratio. If MetLife, Inc. was to grant a Share-settled Stock Appreciation Right under the 2015 Stock
Plan and the award holder exercised it, only the number of Shares MetLife, Inc. issued, net of the Shares tendered, if any, would
be deemed delivered for purposes of determining the maximum number of Shares MetLife, Inc. may issue under the 2015 Stock
Plan.
Any Shares covered by awards under the 2015 Director Stock Plan that were to be recovered due to (i) termination of the
award by expiration, forfeiture, cancellation, lapse, or otherwise without issuing 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 to be issued under the 2015 Director Stock Plan. In addition,
if MetLife, Inc. was to grant a Share-settled Stock Appreciation Right under the 2015 Director Stock Plan, 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.
Under both the 2015 Stock Plan and the 2015 Director Stock Plan, in the event of a corporate event or transaction (including,
but not limited to, a change in the Shares or the capitalization of MetLife) such as a merger, consolidation, reorganization,
recapitalization, separation, stock dividend, extraordinary dividend, stock split, reverse stock split, split up, spin-off, or other
distribution of stock or property of MetLife, combination of securities, exchange of securities, dividend in kind, or other like
change in capital structure or distribution (other than normal cash dividends) to shareholders of MetLife, or any similar corporate
event or transaction, the appropriate committee of the Board of Directors of MetLife, in order to prevent dilution or enlargement
of participants’ rights under the applicable plan, shall substitute or adjust, as applicable, the number and kind of Shares that may
be issued under that plan and shall adjust the number and kind of Shares subject to outstanding awards. Any Shares related to
awards under either plan which: (i) terminate by expiration, forfeiture, cancellation, or otherwise without the issuance of Shares;
(ii) are settled in cash either in lieu of Shares or otherwise; or (iii) are exchanged with the appropriate committee’s permission
for awards not involving Shares, are available again for grant under the applicable plan. If the option price of any Stock Option
granted under either plan or the tax withholding requirements with respect to any award granted under either plan is satisfied
by tendering Shares to MetLife (by either actual delivery or by attestation), or if a Stock Appreciation Right is exercised, only
the number of Shares issued, net of the Shares tendered, if any, will be deemed delivered for purposes of determining the
maximum number of Shares available for issuance under that plan. The maximum number of Shares available for issuance under
either plan shall not be reduced to reflect any dividends or dividend equivalents that are reinvested into additional Shares or
credited as additional Restricted Stock or Restricted Stock Units.
For a description of the kinds of awards that have been or may be made under the 2015 Stock Plan and 2015 Director Stock
Plan and awards that remained outstanding under the 2005 Stock Plan, see Note 15 of the Notes to the Consolidated Financial
Statements.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information called for by this Item is incorporated herein by reference to the sections entitled “Proposal 1 — Election
of Directors for a One-Year Term Ending at the 2019 Annual Meeting of Shareholders — Corporate Governance — Procedures
for Reviewing Related Person Transactions,” “Proposal 1 — Election of Directors for a One-Year Term Ending at the 2019
Annual Meeting of Shareholders — Corporate Governance — Related Person Transactions” and “Proposal 1 — Election of
Directors for a One-Year Term Ending at the 2019 Annual Meeting of Shareholders — Corporate Governance — Information
About the Board of Directors — Composition and Independence of the Board of Directors” in the 2018 Proxy Statement.
406
Table of Contents
Item 14. Principal Accountant Fees and Services
The information called for by this item is incorporated herein by reference to the section entitled “Proposal 2 — Ratification
of Appointment of the Independent Auditor” in the 2018 Proxy Statement.
Part IV
Item 15. Exhibits and Financial Statement Schedules
The following documents are filed as part of this report:
1. Financial Statements
The financial statements are listed in the Index to Consolidated Financial Statements, Notes and Schedules on page 200.
2. Financial Statement Schedules
The financial statement schedules are listed in the Index to Consolidated Financial Statements, Notes and Schedules on
page 200.
3. Exhibits
The exhibits are listed in the Exhibit Index which begins on page 407.
None.
Item 16. Form 10-K Summary
Exhibit Index
(Note Regarding Reliance on Statements in Our Contracts: In reviewing the agreements included as exhibits to this Annual
Report on Form 10-K, please remember that they are included to provide you with information regarding their terms and are
not intended to provide any other factual or disclosure information about MetLife, Inc., its subsidiaries or affiliates, or the other
parties to the agreements. The agreements contain representations and warranties by each of the parties to the applicable
agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable
agreement and (i) should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the
risk to one of the parties if those statements prove to be inaccurate; (ii) have been qualified by disclosures that were made to
the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected
in the agreement; (iii) may apply standards of materiality in a way that is different from what may be viewed as material to
investors; and (iv) were made only as of the date of the applicable agreement or such other date or dates as may be specified
in the agreement and are subject to more recent developments. Accordingly, these representations and warranties may not
describe the actual state of affairs as of the date they were made or at any other time. Additional information about MetLife,
Inc., its subsidiaries and affiliates may be found elsewhere in this Annual Report on Form 10-K and MetLife, Inc.’s other public
filings, which are available without charge through the U.S. Securities and Exchange Commission website at www.sec.gov.)
Incorporated by Reference
2.1
2.2
2.3
3.1
3.2
Exhibit
No.
Description
Plan of Reorganization.
Form
File
Number
S-1
333-91517
Amendment to Plan of Reorganization, dated as of March 9,
2000.
S-1/A
333-91517
Master Separation Agreement, dated August 4, 2017, between
MetLife, Inc. and Brighthouse Financial, Inc.
8-K
001-15787
Amended and Restated Certificate of Incorporation of MetLife,
Inc.
10-K
001-15787
Certificate of Designation, Preferences and Rights of Series A
Junior Participating Preferred Stock of MetLife, Inc., filed with
the Secretary of State of Delaware on April 7, 2000.
10-K
001-15787
407
Exhibit
Filing Date
Filed or
Furnished
Herewith
2.1
2.2
2.1
3.1
3.2
November
23, 1999
March 29,
2000
August 7,
2017
March 1,
2017
March 1,
2017
Table of Contents
Exhibit
No.
Description
Certificate of Designations of Floating Rate Non-Cumulative
Preferred Stock, Series A, of MetLife, Inc., filed with the
Secretary of State of Delaware on June 10, 2005.
Certificate of Amendment of Amended and Restated Certificate
of Incorporation of MetLife, Inc., dated April 29, 2011.
10-K
001-15787
Certificate of Retirement of Series B Contingent Convertible
Junior Participating Non-Cumulative Perpetual Preferred Stock
of MetLife, Inc., filed with the Secretary of State of Delaware
on November 5, 2013.
Certificate of Amendment of Amended and Restated Certificate
of Incorporation of MetLife, Inc., dated April 29, 2015.
Certificate of Designations of 5.250% Fixed-to-Floating Rate
Non-Cumulative Preferred Stock, Series C, of MetLife, Inc.,
filed with the Secretary of State of Delaware on May 28, 2015.
Certificate of Elimination of 6.500% Non-Cumulative
Preferred Stock, Series B, of MetLife, Inc., filed with the
Secretary of State of Delaware on November 3, 2015.
Certificate of Amendment of Amended and Restated Certificate
of Incorporation of MetLife, Inc., dated October 23, 2017
3.10
Amended and Restated By-Laws of MetLife, Inc., effective
September 27, 2016.
Incorporated By Reference
File
Number
Exhibit
Filing Date
Filed or
Furnished
Herewith
Form
10-K
001-15787
3.3
10-Q
001-15787
8-K
8-K
001-15787
001-15787
10-Q
001-15787
3.7
8-K
8-K
001-15787
001-15787
3.4
3.6
3.1
3.1
3.1
3.2
4.1
March 1,
2017
March 1,
2017
November
7, 2013
April 30,
2015
May 28,
2015
November
5, 2015
October 24,
2017
September
29, 2016
March 9,
2000
Form of Certificate for Common Stock, par value $0.01 per
share.
S-1/A
333-91517
Certificate of Designation, Preferences and Rights of Series A
Junior Participating Preferred Stock of MetLife, Inc., filed with
the Secretary of State of Delaware on April 7, 2000 (See Exhibit
3.2 above).
Certificate of Designations of Floating Rate Non-Cumulative
Preferred Stock, Series A, of MetLife, Inc., filed with the
Secretary of State of Delaware on June 10, 2005. (See Exhibit
3.3 above).
Form of Stock Certificate, Floating Rate Non-Cumulative
Preferred Stock, Series A, of MetLife, Inc.
8-A
001-15787
99.6
June 10,
2005
Certificate of Designations of 5.250% Fixed-to-Floating Rate
Non-Cumulative Preferred Stock, Series C, of MetLife, Inc.,
filed with the Secretary of State of Delaware on May 28, 2015.
(See Exhibit 3.7 above).
Form of Stock Certificate, 5.250% Fixed-to-Floating Rate Non-
Cumulative Preferred Stock, Series C, of MetLife, Inc.
8-K
001-15787
4.2
May 28,
2015
Certificate of Amendment of Amended and Restated Certificate
of Incorporation of MetLife, Inc., dated October 23, 2017 (See
Exhibit 3.9 above).
Certain instruments defining the rights of holders of long-term
debt of MetLife, Inc. and its consolidated subsidiaries are
omitted pursuant to Item 601(b)(4)(iii) of Regulation S-K.
MetLife, Inc. hereby agrees to furnish to the Securities and
Exchange Commission, upon request, copies of such
instruments.
MetLife Executive Severance Plan (as amended and restated,
effective June 14, 2010).*
10-K
001-15787
10.1
Offer Letter, dated March 25, 2009, between American Life
Insurance Company and Michel Khalaf.*
10-K
001-15787
10.2
Adjustment of certain compensation items for Michel Khalaf,
effective July 1, 2012.*
10-Q
001-15787
10.2
February 27,
2015
March 1,
2017
November
7, 2012
408
3.3
3.4
3.5
3.6
3.7
3.8
3.9
4.1
4.2
4.3
4.4
4.5
4.6
4.7
10.1
10.2
10.3
Table of Contents
Exhibit
No.
Description
Incorporated By Reference
File
Number
Exhibit
Filing Date
Filed or
Furnished
Herewith
Form
8-K
001-15787
10.1
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
Employment Agreement between Christopher G. Townsend
and MetLife Asia Pacific Limited, dated May 11, 2012.*
Letter Agreement dated June 11, 2015 between MetLife, Inc.
and Christopher Townsend.*
8-K
001-15787
10.1
Tax Equalization Agreement dated June 10, 2015 between
MetLife, Inc. and Michel Khalaf.*
10-Q
001-15787
10.1
Separation Agreement, Waiver and General Release, dated
July 30, 2015, between MetLife Group, Inc. and William J.
Wheeler.*
10-Q
001-15787
10.1
Agreement to Protect Corporate Property executed by William
J. Wheeler on June 21, 2001.*
10-Q
001-15787
10.2
Agreement to Protect Corporate Property, dated January 1,
2015, executed by Esther S. Lee.*
10-K
001-15787
10.13
Form of Agreement to Protect Corporate Property executed by
Steven A. Kandarian, Steven J. Goulart, and Maria M. Morris.*
10-K
001-15787
10.14
Form of Agreement to Protect Corporate Property executed by
Ricardo A. Anzaldua, John C. R. Hele, Frans Hijkoop, and
Esther Lee on May 25, 2016; Steven A. Kandarian on May 31,
2016; Steven J. Goulart on June 2, 2016; Maria M. Morris on
June 8, 2016 and Martin J. Lippert on July 6, 2016.*
10-Q
001-15787
10.1
MetLife, Inc. 2005 Stock and Incentive Compensation Plan,
effective April 15, 2005 (the “2005 SIC Plan”).*
10-K
001-15787
10.24
Form of Management Stock Option Agreement under the 2005
SIC Plan (effective as of April 25, 2007).*
10-K
001-15787
10.24
Amendment to Stock Option Agreements under the 2005 SIC
Plan (effective as of April 25, 2007).*
10-K
001-15787
10.25
Form of Management Stock Option Agreement under the 2005
SIC Plan (effective December 15, 2009).*
10-K
001-15787
10.28
Form of Management Stock Option Agreement under the 2005
SIC Plan.*
10-K
001-15787
10.29
Form of Stock Option Agreement under the 2005 SIC Plan
(effective February 11, 2013).*
Form of Stock Option Agreement (Three-Year “Cliff”
Exercisability) under the 2005 SIC Plan (effective February
11, 2013).*
Form of Restricted Stock Unit Agreement (effective February
11, 2013).*
Form of Restricted Stock Unit Agreement (Three-Year “Cliff”
Period of Restriction; No Code 162(m) Goals) (effective
February 11, 2013).*
Form of Performance Share Agreement (effective February 11,
2013).*
MetLife International Performance Unit Incentive Plan (as
amended and restated effective February 11, 2013).*
Form of Performance Unit Agreement (effective February 11,
2013).*
MetLife International Unit Option Incentive Plan, dated July
21, 2011 (as amended and restated effective February 23,
2011).*
Form of Unit Option Agreement under
the MetLife
International Unit Option Incentive Plan (effective February
23, 2011).*
8-K
8-K
8-K
8-K
8-K
8-K
8-K
001-15787
10.9
001-15787
10.10
001-15787
10.4
001-15787
10.5
001-15787
10.1
001-15787
10.2
001-15787
10.3
10-K
001-15787
10.24
10-K
001-15787
10.25
10.26
MetLife International Unit Option Incentive Plan (as amended
and restated December 3, 2012).*
8-K
001-15787
10.11
409
May 16,
2012
June 15,
2015
August 6,
2015
November
5, 2015
November
5, 2015
February 25,
2016
February 25,
2016
August 5,
2016
February 27,
2015
February 27,
2013
February 27,
2013
February 27,
2015
February 27,
2015
February 15,
2013
February 15,
2013
February 15,
2013
February 15,
2013
February 15,
2013
February 15,
2013
February 15,
2013
March 1,
2017
March 1,
2017
February 15,
2013
Table of Contents
Exhibit
No.
10.27
10.28
10.29
10.30
10.31
Description
Form of Unit Option Agreement (effective February 11,
2013).*
Form of Unit Option Agreement (Three-Year “Cliff”
Exercisability) (effective February 11, 2013).*
MetLife International Restricted Unit Incentive Plan (as
amended and restated effective February 11, 2013).*
Form of Restricted Unit Agreement (effective February 11,
2013).*
Form of Restricted Unit Agreement (Three-Year “Cliff” Period
of Restriction; No Code 162(m) Goals) (effective February 11,
2013).*
Form
8-K
8-K
8-K
8-K
8-K
Incorporated By Reference
File
Number
Exhibit
Filing Date
Filed or
Furnished
Herewith
001-15787
10.12
001-15787
10.13
001-15787
10.6
001-15787
10.7
001-15787
10.8
February 15,
2013
February 15,
2013
February 15,
2013
February 15,
2013
February 15,
2013
November
23, 1999
February 27,
2013
10.32
MetLife Policyholder Trust Agreement.
S-1
333-91517
10.12
10.33
Amendment to MetLife Policyholder Trust Agreement.
10-K
001-15787
10.62
10.34
10.35
10.36
10.37
10.38
10.39
10.40
10.41
10.42
10.43
Five-Year Credit Agreement, dated as of May 30, 2014, among
MetLife, Inc. and MetLife Funding, Inc., as borrowers, and
the other parties signatory thereto, amending and restating (i)
the Five-Year Credit Agreement, dated as of August 12, 2011,
among MetLife, Inc. and MetLife Funding, Inc., as borrowers,
and the other parties signatory thereto and (ii) the Five-Year
Credit Agreement dated as of September 13, 2012 among
MetLife, Inc. and MetLife Funding, Inc., as borrowers, and
the other parties signatory thereto.
First Amendment dated as of November 20, 2015 to the Five-
Year Credit Agreement dated as of May 30, 2014, among
MetLife, Inc. and MetLife Funding, Inc., as Borrowers, Bank
of America, N.A., as Administrative Agent, Fronting L/C
Issuer, Several L/C Agent and a Limited Fronting Lender,
JPMorgan Chase Bank, N.A. and Wells Fargo Bank, National
Association, as Fronting L/C Issuers and Limited Fronting
Lenders, and the other Lenders party thereto.
Second Amendment dated December 20, 2016 to the Five-
Year Credit Agreement, dated as of May 30, 2014, among
MetLife, Inc. and MetLife Funding, Inc., as borrowers, and
the other parties signatory thereto, providing for the
amendment and restatement of such Credit Agreement.
8-K
001-15787
10.1
June 4, 2014
8-K
001-15787
10.1
November
24, 2015
8-K
001-15787
10.1
December
21, 2016
Metropolitan Life Auxiliary Savings and Investment Plan (as
amended and restated, effective January 1, 2008).*
10-K
001-15787
10.72
Amendment 1 to the Metropolitan Life Auxiliary Savings and
Investment Plan (as amended and restated, effective January
1, 2008).*
Amendment Number 2 to the Metropolitan Life Auxiliary
Savings and Investment Plan (Amended and Restated
Effective January 1, 2008).*
Amendment Number 3 to the Metropolitan Life Auxiliary
Savings and Investment Plan (Amended and Restated
Effective January 1, 2008).*
Amendment Number 4 to the Metropolitan Life Auxiliary
Savings and Investment Plan (Amended and Restated
Effective January 1, 2008).*
10-K
001-15787
10.74
10-K
001-15787
10.48
10-K
001-15787
10.75
10-K
001-15787
10.77
MetLife Deferred Compensation Plan for Officers, as
amended and restated, effective November 1, 2003.*
10-K
001-15787
10.78
Amendment Number One
the MetLife Deferred
Compensation Plan for Officers (as amended and restated as
of November 1, 2003), dated May 4, 2005.*
to
10-K
001-15787
10.52
February 27,
2013
February 27,
2015
February 25,
2016
February 27,
2013
February 27,
2014
February 27,
2014
February 25,
2016
410
Table of Contents
Incorporated By Reference
Form
10-K
File
Number
Exhibit
Filing Date
001-15787
10.53
February 25,
2016
Filed or
Furnished
Herewith
Exhibit
No.
10.44
10.45
10.46
10.47
10.48
10.49
10.50
10.51
10.52
10.53
10.54
10.55
10.56
10.57
10.58
10.59
10.60
10.61
Description
Amendment Number Two
the MetLife Deferred
Compensation Plan for Officers (as amended and restated as
of November 1, 2003, effective December 14, 2005).*
to
Amendment Number Three
the MetLife Deferred
Compensation Plan for Officers (as amended and restated as
of November 1, 2003, effective February 26, 2007).*
to
MetLife Leadership Deferred Compensation Plan, dated
November 2, 2006 (as amended and restated, effective with
respect to salary and cash incentive compensation, January 1,
2005, and with respect to stock compensation, April 15, 2005).*
Amendment Number One to the MetLife Leadership Deferred
Compensation Plan, dated December 13, 2007 (effective as of
December 31, 2007).*
Amendment Number Two to the MetLife Leadership Deferred
Compensation Plan, dated December 11, 2008 (effective
December 31, 2008).*
Amendment Number Three to the MetLife Leadership
Deferred Compensation Plan, dated December 11, 2009
(effective January 1, 2010).*
Amendment Number Four to the MetLife Leadership Deferred
Compensation Plan, dated December 11, 2009 (effective
December 31, 2009).*
Amendment Number Five to the MetLife Leadership Deferred
Compensation Plan, dated December 11, 2009 (effective
January 1, 2011).*
Amendment Number Six to the MetLife Leadership Deferred
Compensation Plan, dated December 27, 2011 (effective
January 1, 2011).*
Amendment Number Seven to the MetLife Leadership
Deferred Compensation Plan, dated December 26, 2012
(effective January 1, 2013).*
Amendment Number Eight to the MetLife Leadership Deferred
Compensation Plan, dated December 17, 2013 (effective
January 1, 2014).*
Amendment Number Nine to the MetLife Leadership Deferred
Compensation Plan, dated December 30, 2014 (effective
January 1, 2015).*
Amendment Number Ten to the MetLife Leadership Deferred
Compensation Plan, dated September 30, 2016 (effective
October 1, 2016).*
Amendment Number Eleven to the MetLife Leadership
Deferred Compensation Plan, dated September 30, 2016
(effective October 1, 2016).*
10-K
001-15787
10.45
10-K
001-15787
10.46
10-K
001-15787
10.81
10-K
001-15787
10.84
10-K
001-15787
10.85
10-K
001-15787
10.86
10-K
001-15787
10.60
10-K
001-15787
10.52
10-K
001-15787
10.53
10-K
001-15787
10.54
10-K
001-15787
10.88
10-K
001-15787
10.56
10-K
001-15787
10.57
MetLife Non-Management Director Deferred Compensation
Plan (as amended and restated, effective January 1, 2005).*
S-8
333-214710
4.1
MetLife, Inc. Director Indemnity Plan (dated and effective July
22, 2008).*
10-K
001-15787
10.94
MetLife Auxiliary Pension Plan, dated August 7, 2006 (as
amended and restated, effective June 30, 2006).*
10-K
001-15787
10.60
MetLife Auxiliary Pension Plan, dated December 21, 2006
(amending and restating Part I thereof, effective January 1,
2007).*
10-K
001-15787
10.61
411
March 1,
2017
March 1,
2017
February 27,
2013
February 27,
2014
February 27,
2015
February 27,
2015
February 25,
2016
March 1,
2017
March 1,
2017
March 1,
2017
February 27,
2015
March 1,
2017
March 1,
2017
November
18, 2016
February 27,
2014
March 1,
2017
March 1,
2017
Table of Contents
Exhibit
No.
10.62
10.63
10.64
10.65
10.66
10.67
10.68
10.69
Description
MetLife Auxiliary Pension Plan, dated December 21, 2007
(amending and restating Part I thereof, effective January 1,
2008).*
Amendment #1 to the MetLife Auxiliary Pension Plan (as
amended and restated, effective January 1, 2008), dated
October 24, 2008 (effective October 1, 2008).*
Amendment Number Two to the MetLife Auxiliary Pension
Plan (as amended and restated, effective January 1, 2008),
dated December 12, 2008 (effective December 31, 2008).*
Amendment Number Three to the MetLife Auxiliary Pension
Plan (as amended and restated, effective January 1, 2008)
dated March 25, 2009 (effective January 1, 2009).*
Amendment Number Four to the MetLife Auxiliary Pension
Plan (as amended and restated, effective January 1, 2008),
dated December 16, 2009 (effective January 1, 2010).*
Amendment Number Five to the MetLife Auxiliary Pension
Plan (as amended and restated, effective January 1, 2008)
dated December 21, 2010 (effective January 1, 2010).*
Amendment Number Six to the MetLife Auxiliary Pension
Plan (as amended and restated, effective January 1, 2008)
dated December 20, 2012 (effective January 1, 2012).*
Amendment Number Seven to the MetLife Auxiliary Pension
Plan (as amended and restated, effective January 1, 2008)
dated December 27, 2013 (effective December 10, 2013).*
10.71
10.72
10.73
10.74
10.75
10.76
10.77
10.78
10.79
Amendment Number Two to the Alico Overseas Pension Plan
(effective as of November 1, 2011), dated December 13,
2011.*
Amendment Number Three to the Alico Overseas Pension
Plan, dated May 1, 2012 (effective January 1, 2012).*
Member’s Explanatory Handbook for the Metropolitan Life
Insurance Company of Hong Kong Limited Healthcare Plan
(2014).*
MetLife Plan for Transition Assistance for Officers, dated
April 21, 2014 (as amended and restated, effective April 1,
2014 (the “MPTA”)).*
Amendment Number One to the MPTA, dated December
30, 2014 (effective January 1, 2015).*
Amendment Number Two to the MPTA, dated March 30,
2016 (effective April 1, 2016).*
Amendment Number Three to the MPTA, dated June 30,
2016 (effective June 30, 2016).*
Incorporated By Reference
File
Number
Exhibit
Filing Date
Filed or
Furnished
Herewith
Form
10-K
001-15787
10.95
10-K
001-15787
10.98
10-K
001-15787
10.99
10-K
001-15787
10.71
10-K
001-15787
10.102
10-K
001-15787
10.73
10-K
001-15787
10.101
10-K
001-15787
10.69
8-K
001-15787
10.1
May 4, 2012
10-K
001-15787
10.79
10-Q
001-15787
10.2
10-K
001-15787
10.111
10-K
001-15787
10.77
10-K
001-15787
10.78
February 27,
2013
February 27,
2014
February 27,
2014
February 25,
2016
February 27,
2015
February 25,
2016
February 27,
2013
March 1,
2017
March 1,
2017
March 1,
2017
March 1,
2017
February 25,
2016
August 8,
2014
February 27,
2015
March 1,
2017
March 1,
2017
March 1,
2017
10.70
Alico Overseas Pension Plan, dated January 2009.*
10-K
001-15787
10.70
Amendment Number One to the Alico Overseas Pension Plan
(effective November 1, 2010), dated December 20, 2010.*
10-K
001-15787
10.71
10-K
001-15787
10.72
Amendment Number Four to the MPTA, dated October 24,
2016 (effective October 31, 2016).*
10-K
001-15787
10.79
412
Table of Contents
Incorporated By Reference
File
Number
Exhibit
Filing Date
Filed or
Furnished
Herewith
Exhibit
No.
10.80
10.81
10.82
10.83
10.84
10.85
10.86
10.87
10.88
10.89
10.90
10.91
10.92
10.93
10.94
10.95
10.96
10.97
10.98
10.99
Description
Amendment Number Five to the MPTA, dated November 3,
2016 (effective October 1, 2016).*
MetLife, Inc. 2015 Non-Management Director Stock
Compensation Plan, effective January 1, 2015.*
MetLife, Inc. 2015 Stock and Incentive Plan, effective January
1, 2015 (the “2015 SIC Plan”).*
Form of Performance Share Agreement under the 2015 SIC
Plan.*
Form of Performance Unit Agreement under the 2015 SIC
Plan.*
Form of Restricted Stock Unit Agreement (Ratable Period of
Restriction Ends in Thirds; Code Section 162(m) Goals) under
the 2015 SIC Plan.*
Form of Restricted Stock Unit Agreement (Three-Year “Cliff”
Period of Restriction; No Code Section 162(m) Goals).*
Form of Restricted Unit Agreement (Ratable Period of
Restriction Ends in Thirds; Code Section 162(m) Goals).*
Form of Restricted Unit Agreement (Three-Year “Cliff”
Period of Restriction; No Code Section 162(m) Goals.*
Form of Stock Option Agreement (Ratable Exercisability in
Thirds).*
Form of Stock Option Agreement (Three-Year “Cliff”
Exercisability).*
Form of Unit Option Agreement (Ratable Exercisability in
Thirds).*
Form of Unit Option Agreement (Three-Year “Cliff”
Exercisability).*
MetLife Annual Variable Incentive Plan (effective as
amended and restated January 1, 2015).*
Form
10-K
S-8
S-8
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
001-15787
10.80
333-198141
333-198145
4.1
4.1
001-15787
10.1
001-15787
10.2
001-15787
10.3
001-15787
10.4
001-15787
10.5
001-15787
10.6
001-15787
10.7
001-15787
10.8
001-15787
10.9
001-15787
10.10
001-15787
10.11
Form of Performance Share Agreement under the 2015 SIC
Plan, effective January 1, 2016.*
10-K
001-15787
10.95
Form of Performance Unit Agreement under the 2015 SIC
Plan, effective January 1, 2016.*
10-K
001-15787
10.96
Form of Restricted Stock Unit Agreement (Ratable Period
of Restriction Ends in Thirds; Code Section 162(m) Goals)
under the 2015 SIC Plan, effective January 1, 2016.*
Form of Restricted Stock Unit Agreement (Three-Year
“Cliff” Period of Restriction; No Code Section 162(m)
Goals), effective January 1, 2016.*
Form of Restricted Unit Agreement (Ratable Period of
Restriction Ends in Thirds; Code Section 162(m) Goals),
effective January 1, 2016.*
Form of Restricted Unit Agreement (Three-Year “Cliff”
Period of Restriction; No Code Section 162(m) Goals),
effective January 1, 2016.*
10-K
001-15787
10.97
10-K
001-15787
10.98
10-K
001-15787
10.99
10-K
001-15787
10.100
10.100
Form of Stock Option Agreement (Ratable Exercisability in
Thirds), effective January 1, 2016.*
10-K
001-15787
10.101
413
March 1,
2017
August 14,
2014
August 14,
2014
December
11, 2014
December
11, 2014
December
11, 2014
December
11, 2014
December
11, 2014
December
11, 2014
December
11, 2014
December
11, 2014
December
11, 2014
December
11, 2014
December
11, 2014
February 25,
2016
February 25,
2016
February 25,
2016
February 25,
2016
February 25,
2016
February 25,
2016
February 25,
2016
Table of Contents
Incorporated By Reference
File
Number
Exhibit
Filing Date
Filed or
Furnished
Herewith
001-15787
10.102
Description
Form of Stock Option Agreement (Three-Year “Cliff”
Exercisability), effective January 1, 2016.*
Form
10-K
Form of Unit Option Agreement (Ratable Exercisability in
Thirds), effective January 1, 2016.*
10-K
001-15787
10.103
Form of Unit Option Agreement (Three-Year “Cliff”
Exercisability), effective January 1, 2016.*
10-K
001-15787
10.104
10.104
Award Agreement Supplement, effective January 1, 2016.*
10-K
001-15787
10.105
Exhibit
No.
10.101
10.102
10.103
10.105
10.106
10.107
10.108
10.109
10.110
10.111
10.112
10.113
10.114
10.115
10.116
10.117
10.118
10.119
February 25,
2016
February 25,
2016
February 25,
2016
February 25,
2016
August 14,
2014
August 14,
2014
August 14,
2014
August 14,
2014
August 14,
2014
August 14,
2014
MetLife
Compensation Plan, effective January 1, 2010.*
Individual Distribution
Sales Deferred
Amendment Number One
the MetLife Individual
Distribution Sales Deferred Compensation Plan, effective
January 1, 2010.*
to
Amendment Number Two to the MetLife Individual
Distribution Sales Deferred Compensation Plan, effective
January 1, 2010.*
Amendment Number Three to the MetLife Individual
Distribution Sales Deferred Compensation Plan, effective
January 1, 2013.*
Amendment Number Four to the MetLife Individual
Distribution Sales Deferred Compensation Plan, effective
January 1, 2014.*
Amendment Number Five to the MetLife Individual
Distribution Sales Deferred Compensation Plan, effective
June 1, 2014.*
Purchase Agreement by and among MetLife, Inc. and
Massachusetts Mutual Life Insurance Company, dated as of
February 28, 2016.
S-8
S-8
333-198143
333-198143
4.1
4.2
S-8
333-198143
4.3
S-8
333-198143
4.4
S-8
333-198143
4.5
S-8
333-198143
4.6
10-Q
001-15787
10.1
May 6, 2016
Sign-on Payments Letter, dated May 24, 2017, effective July
10, 2017, between MetLife Group, Inc. and Susan Podlogar.*
10-Q
001-15787
10.1
Sign-on Payments Letter, dated June 14, 2017, effective
September 11, 2017, between MetLife Group, Inc. and
Ramy Tadros.*
10-Q
001-15787
10.2
Letter of Understanding, dated June 15, 2017, effective July
1, 2017, with Michel Khalaf.*
10-Q
001-15787
10.3
MetLife Deferred Compensation Plan For Globally Mobile
Employees, effective July 31, 2014, for which Michel
Khalaf became eligible July 1, 2017.*
MetLife, Inc. and Metropolitan Life Insurance Company
Compensation Committee and Board of Directors
Resolutions of June 13, 2017 approving Michel Khalaf’s
eligibility to participate in the MetLife Deferred
Compensation Plan For Globally Mobile Employees.*
Amendment Number Four to the Alico Overseas Pension
Plan, dated June 19, 2017, effective July 1, 2017.*
Form of Agreement to Protect Corporate Property executed
by Susan Podlogar, effective July 10, 2017, and executed by
Ramy Tadros, effective September 11, 2017.*
10-Q
001-15787
10.4
10-Q
001-15787
10.5
10-Q
001-15787
10.6
10-Q
001-15787
10.1
Form of Agreement to Protect Corporate Property executed
by Michel Khalaf, effective April 9, 2012.*
10-Q
001-15787
10.15
November
6, 2017
November
6, 2017
November
6, 2017
November
6, 2017
November
6, 2017
November
6, 2017
August 5,
2016
February 25,
2016
414
Description
Tax Separation Agreement, dated as of July 27, 2017, by
and among MetLife, Inc. and its affiliates and Brighthouse
Financial, Inc. and its affiliates.
MetLife Performance-Based Compensation Recoupment
Policy (effective as amended and restated November 1,
2017).*
Incorporated By Reference
File
Number
Exhibit
Filing Date
Filed or
Furnished
Herewith
Form
8-K
001-15787
10.1
8-K
001-15787
10.1
Table of Contents
Exhibit
No.
10.120
10.121
10.122
10.123
10.124
10.125
10.126
10.127
10.128
10.129
Letter Agreement entered December 15, 2017 between
MetLife, Inc. and Christopher Townsend.*
8-K
001-15787
10.1
Separation Agreement, Waiver, And General Release,
effective October 4, 2017, between MetLife Group, Inc. and
Maria Morris*
Form of Performance Share Agreement, effective February
27, 2018.*
Form of Performance Unit Agreement, effective February 27,
2018.*
Form of Restricted Stock Unit Agreement (Ratable Period of
Restriction Ends in Thirds), effective February 27, 2018.*
Form of Restricted Stock Unit Agreement (Three-Year “Cliff”
Period of Restriction), effective February 27, 2018.*
Form of Restricted Unit Agreement (Ratable Period of
Restriction Ends in Thirds), effective February 27, 2018.*
Form of Restricted Unit Agreement (Three-Year “Cliff”
Period of Restriction), effective February 27, 2018.*
8-K
8-K
8-K
8-K
8-K
8-K
001-15787
10.1
001-15787
10.2
001-15787
10.3
001-15787
10.4
001-15787
10.5
001-15787
10.6
10.130
Award Agreement Supplement, effective February 27, 2018.*
8-K
001-15787
10.7
12.1
21.1
23.1
31.1
31.2
32.1
32.2
Statement re: Computation of Ratios of Earnings to Fixed
Charges
Subsidiaries of the Registrant.
Consent of Deloitte & Touche LLP.
Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase
Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase
Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
__________
* Indicates management contracts or compensatory plans or arrangements.
415
August 7,
2017
November
6, 2017
November
21, 2017
February 20,
2018
February 20,
2018
February 20,
2018
February 20,
2018
February 20,
2018
February 20,
2018
February 20,
2018
X
X
X
X
X
X
X
X
X
X
X
X
X
X
Table of Contents
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
March 1, 2018
Signatures
METLIFE, INC.
By
/s/ Steven A. Kandarian
Name: Steven A. Kandarian
Title: Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
/s/ Cheryl W. Grisé
Cheryl W. Grisé
/s/ Carlos M. Gutierrez
Carlos M. Gutierrez
Gerald L. Hassell
/s/ David L. Herzog
David L. Herzog
/s/ R. Glenn Hubbard
R. Glenn Hubbard
/s/ Alfred F. Kelly, Jr.
Alfred F. Kelly, Jr.
/s/ Edward J. Kelly, III
Edward J. Kelly, III
/s/ William E. Kennard
William E. Kennard
/s/ James M. Kilts
James M. Kilts
/s/ Catherine R. Kinney
Catherine R. Kinney
/s/ Denise M. Morrison
Denise M. Morrison
Title
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
416
Date
March 1, 2018
March 1, 2018
March 1, 2018
March 1, 2018
March 1, 2018
March 1, 2018
March 1, 2018
March 1, 2018
March 1, 2018
March 1, 2018
Table of Contents
Signature
/s/ Steven A. Kandarian
Steven A. Kandarian
/s/ John C. R. Hele
John C. R. Hele
/s/ William O’Donnell
William O’Donnell
Title
Chairman of the Board, President and
Chief Executive Officer
(Principal Executive Officer)
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Executive Vice President and
Chief Accounting Officer
(Principal Accounting Officer)
Date
March 1, 2018
March 1, 2018
March 1, 2018
417