MetLife
Annual Report 2018

Plain-text annual report

2018 Annual Report 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, 2018 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 Depositary Shares each representing a 1/1,000th interest in a share of 5.625% Non-Cumulative Preferred Stock, Series E Name of each exchange on which registered New York Stock Exchange New York Stock Exchange New York 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 Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series D, 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 every Interactive Data File required to be submitted 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 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, a 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 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, 2018 was approximately $43.6 billion. At February 14, 2019, 957,270,842 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 18, 2019, 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, 2018. 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 Page 4 38 61 61 61 61 62 64 66 171 180 366 366 369 369 369 369 372 373 373 373 374 384 Table of Contents 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 and terms such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “will,” and other words and terms of similar meaning, or are tied to future periods, in connection with a discussion of future 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. Many factors will be important in determining the results of MetLife, Inc., its subsidiaries and affiliates. Forward-looking statements are based on our assumptions and current expectations, which may be inaccurate, and on the current economic environment, which may change. These statements are not guarantees of future performance. They involve a number of risks and uncertainties that are difficult to predict. Results could differ materially from those expressed or implied in the forward- looking statements. Risks, uncertainties, and other factors that might cause such differences include the risks, uncertainties and other factors identified in MetLife, Inc.’s filings with the U.S. Securities and Exchange Commission. These factors include: (1) difficult economic conditions, including risks relating to interest rates, credit spreads, equity, real estate, obligors and counterparties, currency exchange rates, derivatives, and terrorism and security; (2) adverse global capital and credit market conditions, which may affect our ability to meet liquidity needs and access capital, including through our credit facilities; (3) downgrades in our claims paying ability, financial strength or credit ratings; (4) availability and effectiveness of reinsurance, hedging or indemnification arrangements; (5) increasing cost and limited market capacity for statutory life insurance reserve financings; (6) the impact on us of changes to and implementation of the wide variety of laws and regulations to which we are subject; (7) regulatory, legislative or tax changes relating to our operations that may affect the cost of, or demand for, our products or services; (8) adverse results or other consequences from litigation, arbitration or regulatory investigations; (9) legal, regulatory and other restrictions affecting MetLife, Inc.’s ability to pay dividends and repurchase common stock; (10) MetLife, Inc.’s primary reliance, as a holding company, 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; (11) investment losses, defaults and volatility; (12) potential liquidity and other risks resulting from our participation in a securities lending program and other transactions; (13) changes to investment valuations, allowances and impairments taken on investments, and methodologies, estimates and assumptions; (14) differences between actual claims experience and underwriting and reserving assumptions; (15) political, legal, operational, economic and other risks relating to our global operations; (16) competitive pressures, 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; (17) the impact of technological changes on our businesses; (18) catastrophe losses; (19) a deterioration in the experience of the closed block established in connection with the reorganization of Metropolitan Life Insurance Company; (20) impairment of goodwill or other long-lived assets, or the establishment of a valuation allowance against our deferred income tax asset; (21) changes in assumptions related to deferred policy acquisition costs, deferred sales inducements or value of business acquired; (22) exposure to losses related to guarantees in certain products; (23) ineffectiveness of risk management policies and procedures or models; (24) a failure in our cybersecurity systems or other information security systems or our disaster recovery plans; (25) any failure to protect the confidentiality of client information; (26) changes in accounting standards; (27) our associates taking excessive risks; (28) difficulties in marketing and distributing products through our distribution channels; (29) increased expenses relating to pension and other postretirement benefit plans; (30) inability to protect our intellectual property rights or claims of infringement of others’ intellectual property rights; (31) difficulties, unforeseen liabilities, asset impairments, or rating agency actions arising from business acquisitions and dispositions, joint ventures, or other legal entity reorganizations; (32) unanticipated or adverse developments that could adversely affect our expected operational or other benefits from the separation of Brighthouse Financial, Inc. and its subsidiaries; (33) 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; (34) provisions of laws and our incorporation documents that may delay, deter or prevent takeovers and corporate combinations involving MetLife; and (35) other risks and uncertainties described from time to time in MetLife, Inc.’s filings with the U.S. Securities and Exchange Commission. MetLife, Inc. does not undertake any obligation to publicly correct or update any forward-looking statement if MetLife, Inc. later becomes aware that such statement is not likely to be achieved. Please consult any further disclosures MetLife, Inc. makes on related subjects in reports to the U.S. Securities and Exchange Commission. 2 Table of Contents 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 Page 5 7 17 17 19 21 34 35 36 37 38 38 4 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 $452.0 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, 2018. 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. We continue to 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 5 Table of Contents ● 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. In the United States, we provide a variety of insurance and financial services products, including life, dental, disability, property and 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. Revenues derived from FedEx Corporation were $6.0 billion for the year ended December 31, 2018, which represented 12% of consolidated premiums, universal life and investment-type product policy fees and other revenues. The revenue was from a single premium received for a pension risk transfer. Revenues derived from any other 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, 2018, 2017 and 2016. 6 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 (“RIS”) 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 (“LTD”), 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 & Health Insurance Provides accident, critical illness or hospital indemnity coverage to the insured. Retirement and Income Solutions Our RIS 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. 7 Table of Contents 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. Institutional Income Annuities Tort Settlements Capital Markets Investment Products • 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 accounting principles generally accepted in the United States of America (“GAAP”), these annuity contracts are treated as general account products. 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. • 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. 8 Table of Contents 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 Personal 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. Commercial Multi- Peril and Commercial Auto Insurance Provides a broad package of property and liability coverages for small and medium sized apartment buildings, offices, and retail stores, as well as for coverage for motor vehicles owned by a business engaged in commerce that protects the insured against financial loss. Operations 9 Table of Contents Sales Distribution In the U.S., we market our products and services through various distribution channels. Our Group Benefits and RIS products are sold via sales forces primarily comprised of MetLife employees. Personal lines property and casualty insurance products are directly marketed to employees at their employer’s worksite. Personal and commercial lines property and casualty insurance products are also marketed and sold to individuals and small business owners by independent agents and property and 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 RIS 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 and casualty specialists and brokers. We are a leading provider of personal lines property and casualty insurance products offered to employees at their employer’s worksite. Marketing representatives market personal lines property and 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 sold primarily through our network of independent agents and group broker relationships. Asia Product Overview Our Asia 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 whole and term life, endowments, universal and variable life, as well as group life products. Accident & Health Insurance Provides a full range of accident & health products, including medical reimbursement, hospitalization, cancer, critical illness, disability, income protection, personal accident coverage and group health products. Retirement and Savings Provides both fixed and variable annuities, as well as regular savings products. 10 Table of Contents Operations We operate in 10 jurisdictions throughout Asia, with our largest operation in Japan. We also have 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 digitally-enabled multi-channel distribution, including career and independent agencies, bancassurance, direct marketing and e-commerce, brokers and other third-party distribution channels. Digitally-enabled face-to-face channels continue to be core to our business in Japan, but other distribution channels, including bancassurance and direct marketing, are critical to Japan’s overall distribution strategy. Our Japan operation’s competitive position in bancassurance is based on robust distribution relationships with Japan’s mega banks, trust banks and various regional banks. The direct marketing channel focuses on providing accident & health solutions to customers using traditional television and print media, as well as e-commerce. Outside of Japan, our distribution strategies vary by market and leverage a combination of career and independent agencies, bancassurance 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 customer insights and improves lead management. In select markets, we use independent brokers and an employee sales force to sell group products. 11 Table of Contents Latin America Product Overview Our Latin America 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 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 AD&D, hospital indemnity, medical reimbursement, 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. 12 Table of Contents 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. 13 Table of Contents 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. 14 Table of Contents Operations We operate in many 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. 15 Table of Contents 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, and 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 and developing businesses (including the investment management business through which the Company, as a manager of assets such as global fixed income and real estate, provides differentiated investment solutions to institutional investors worldwide). Additionally, Corporate & Other includes run-off businesses. 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, investment expenses and intersegment loans, which bear interest rates commensurate with related borrowings. As a result of the separation of Brighthouse, for the year ended 2016, Corporate & Other includes corporate overhead costs previously allocated to the former Brighthouse Financial segment. See Note 3 of the Notes to the Consolidated Financial Statements. 16 Table of Contents 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. 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 — Insurance Regulation — Policy and Contract Reserve Adequacy Analysis.” 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. 17 Table of Contents 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 returns, 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 RIS 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 and 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. 18 Table of Contents 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 a 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 and casualty losses, we purchase property catastrophe, casualty and property per risk excess of loss reinsurance protection. For our RIS 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. 19 Table of Contents 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. We may also reinsure certain risks with external reinsurers depending upon the nature of the risk and local regulatory requirements. 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. 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. 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. 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. For the U.S. and EMEA, we purchase catastrophe coverage to reinsure risks issued within territories that we believe are subject to the greatest catastrophic risks. For 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. Excess of 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. 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. 20 Table of Contents Regulation Overview In the United States, our life insurance companies are regulated primarily at the state level by state insurance regulators, with some products and services also subject to federal regulation. 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”). Outside of the United States, our 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. We expect the scope and extent of regulation and regulatory oversight generally to continue to increase. The regulatory environment and changes in laws in the jurisdictions in which we operate could have a material adverse effect on our results of operations. Insurance Regulation 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, including as developed through the National Association of Insurance Commissioners’ (“NAIC”) Solvency Modernization Initiative. See “— NAIC” for information regarding group-wide supervision. Each of MetLife’s insurance subsidiaries is licensed and regulated in each 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. Insurance laws, including state laws in the United States, 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 or local authorities 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 and amounts of investments. 21 Table of Contents 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. Insurance and securities regulatory authorities and other 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. U.S. 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 Businesses Are Highly Regulated, and Changes in Laws, Regulation and in Supervisory and Enforcement Policies May Reduce Our Profitability, Limit Our Growth, or Otherwise Adversely Affect Our Business, Results of Operations and Financial Condition.” 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 Board of Governors of the Federal Reserve System (“Federal Reserve Board”) and the Federal Reserve Bank of New York (collectively with the Federal Reserve Board, the “Federal Reserve”). We are not able to predict with certainty whether or what changes may be made to Dodd-Frank in the future or whether such changes would have a material effect on our business operations. As such, we 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 Businesses Are Highly Regulated, and Changes in Laws, Regulation and in Supervisory and Enforcement Policies May Reduce Our Profitability, Limit Our Growth, or Otherwise Adversely Affect Our Business, Results of Operations and Financial Condition.” Dodd-Frank also established the Federal Insurance Office 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. 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. 22 Table of Contents 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 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 was 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. 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. See “Risk Factors — Regulatory and Legal Risks — Our Businesses Are Highly Regulated, and Changes in Laws, Regulation and in Supervisory and Enforcement Policies May Reduce Our Profitability, Limit Our Growth, or Otherwise Adversely Affect Our Business, Results of Operations and Financial Condition.” 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. 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 RIS 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. These provisions may impact the likelihood or timing of corporate plan sponsors terminating their plans or engaging in transactions to transfer pension obligations to an insurance company. Such rules could thus affect our mix of business, resulting in fewer pension risk transfers and more non-guaranteed funding products. Guaranty Associations and Similar Arrangements Many jurisdictions in which our insurance subsidiaries are admitted to transact business require life, health and property and casualty insurers doing business within the jurisdiction to participate in guaranty associations or similar arrangements in order 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. 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. Insurance Regulatory Examinations and Other Activities As part of their regulatory oversight process, U.S. 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 below regarding the consent order and in Note 20 of the Notes to the Consolidated Financial Statements, during the years ended December 31, 2018, 2017 and 2016, MetLife did not receive any material adverse findings resulting from state insurance department examinations of its insurance subsidiaries. On October 15, 2018, MetLife received notice that insurance regulators for the states of Pennsylvania, California, Florida, North Dakota and New Hampshire have scheduled a multistate market conduct re-examination of MetLife and its affiliates relating to compliance with the Regulatory Settlement Agreement on unclaimed proceeds. On January 28, 2019, MetLife entered into a consent order with the New York State Department of Financial Services (“NYDFS”) relating to the open quinquennial exam and agreed to pay a $19.75 million fine, an additional $1.5 million in customer restitution and submit remediation plans for approval within 60 days. 23 Table of Contents Regulatory authorities in a small number of states, the Financial Industry Regulatory Authority (“FINRA”) and, occasionally, the U.S. Securities and Exchange Commission (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”), which merged with and into Metropolitan Tower Life Insurance Company (“MTL”) on April 30, 2018, and MetLife Securities, Inc. (“MSI”), a broker-dealer which was part of the U.S. Retail Advisor Force Divestiture (as defined below). 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. Insurance standard-setting and regulatory support organizations, including the NAIC, encourage insurance supervisors to establish Supervisory Colleges for U.S.-based insurance groups with international operations to facilitate cooperation and coordination among the insurance groups’ supervisors and to enhance the member regulators’ understanding of an insurance group’s risk profile. MetLife’s regulators, such as the NYDFS, regularly chair Supervisory College meetings that are attended by MetLife’s key U.S. and non-U.S. regulators. Regulators supervise our non-U.S. insurance businesses using techniques such as periodic examinations of insurance company books and records, financial reporting requirements, market conduct examinations and policy filing requirements. 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 state regulators’ understanding of an insurance group’s risk profile. On July 13, 2018, the Chilean insurance regulator requested information from us and other companies regarding sales practices related to our annuities business in Chile. We have provided the requested information. In addition, on February 1, 2017, the National Economic Prosecutor of Chile initiated an investigation of insurance companies in the Chilean market, including us, regarding fair competition in the insurance market, particularly bidding processes for mortgage insurance. We are cooperating with the investigation. 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. 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. Many of our non-U.S. insurance operations are also required to conduct analyses of the adequacy of all statutory reserves. In most of those cases, a locally qualified actuary must submit an analysis of the likelihood that the reserves make adequate provision for the associated contractual obligations and related expenses of the insurer. Local regulatory and actuarial standards for this analysis vary widely. 24 Table of Contents NAIC The NAIC assists U.S. 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. U.S. state insurance holding company laws and regulations are generally based on the Model Holding Company Act and Regulation. These 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. 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 act, which requires insurers to make an annual confidential filing regarding their corporate governance policies, has been adopted in twenty-seven states as of January 2019, 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. New York has enacted legislation which will allow principle-based reserving no later than January 1, 2020. New York’s implementing regulation establishes that the reserving standard in New York will be consistent with the reserve standards, valuation methods and related requirements of the NAIC Valuation Manual (the “Valuation Manual”), while also authorizing the NYDFS to deviate from the Valuation Manual, by regulation, if it determines that an alternative requirement would be in the best interest of the policyholders of New York. 25 Table of Contents 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. Following several public exposures of the consultant’s recommendations, the NAIC adopted a new variable annuity framework, which is designed to reduce the level and volatility of the non-economic aspect of reserve and risk-based capital (“RBC”) requirements for variable annuity products. The NAIC is now preparing technical language to be included in various NAIC manuals and guidelines to implement the new framework. We cannot predict the impact of this framework on our business until such technical requirements of the framework are completed, and we cannot predict whether the NYDFS or other state insurance regulators will adopt standards different from the NAIC framework. In August 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. The NAIC has adopted extensive changes to Statutory Annual Statement reporting, effective for year-end 2019, which it believes will improve liquidity risk monitoring. 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. In late 2016, the NAIC 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. Surplus and Capital Insurers are required to maintain their capital and surplus at or above minimum levels prescribed by the laws of their respective jurisdictions. Regulators generally have discretionary authority, in connection with the continued licensing of our 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. 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. Our operations in non-U.S. jurisdictions may also be subject to restrictions on dividends and other distributions. For example, 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 Financial Services Agency (“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. For developments that could affect our ratio of free cash flow to adjusted earnings results, and thus our surplus and capital, see “Risk Factors,” as amended or supplemented in our subsequently filed Quarterly Reports on Form 10-Q. 26 Table of Contents Risk-Based Capital Most of our U.S. insurance subsidiaries are subject to 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.” In December 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”). Following the reduction in the federal corporate income tax rate pursuant to U.S. Tax Reform, the NAIC adopted revisions to certain factors used to calculate Life RBC, which is the denominator of the RBC ratio. These revisions to the NAIC’s Life RBC calculation have resulted in increases in RBC charges and reductions in the RBC ratios of our insurance subsidiaries. The NAIC is also studying RBC revisions for bonds, real estate, and longevity risk, but it is premature to project the impact of any potential regulatory changes resulting from such proposals. The NAIC is continuing to develop a group capital calculation tool using an RBC aggregation methodology for all entities within the insurance holding company system, 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 expects to conduct field testing in the first half of 2019. 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 RBC 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, 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 such combined RBC ratios based on NAIC capital and reserving requirements (“NAIC-Based Combined RBC Ratios”). The NAIC-Based Combined RBC Ratio was in excess of 380% at December 31, 2018 and in excess of 400% at December 31, 2017. The changes due to U.S. Tax Reform discussed above were the primary driver of the reduction. With the exception of changes related to the NAIC’s principle-based reserving framework, discussed above under “— NAIC,” we are not aware of any upcoming NAIC adoptions or state insurance department regulation changes that would have a material impact on the NAIC-Based Combined RBC Ratios of our U.S. insurance subsidiaries. Solvency Regimes Our insurance business throughout the EEA is subject to the Solvency II Directive (2009/138/EC) and its implementing rules, which cover the capital adequacy, risk management and regulatory reporting for insurers and reinsurers. Solvency II codifies and harmonizes the European Union (“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. 27 Table of Contents In Chile, the law implementing Solvency II-like regulation continues in the studies stage. The implementation date for the new solvency regime has not yet been set; however, it could be in force within four years after the final regulation is published. The Chilean insurance regulator had already issued two resolutions in 2011, 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. 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 second such report was submitted to the local regulator in June 2018. 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. 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 December 31, 2018, 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. In addition, Japan is expected to introduce an economic value-based solvency regime within the next few years. In China, the business of our joint venture (as well as the industry) has been implementing China Risk Oriented Solvency System (“C-ROSS”), a 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. In Korea, the Financial Supervisory Service is planning to implement by 2022 a new solvency system mirroring the International Capital Standard but reflecting certain product portfolio and other features specific to the Korean market. Mark-to-market valuation is expected to be a key feature of the new system, which would generally increase capital requirements. IAIS The International Association of Insurance Supervisors (“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 and recommended that the IAIS continue development of an activities-based approach (“ABA”) to assessing and managing potential systemic risk in the insurance sector. In November 2018, the FSB decided not to designate any G-SIIs in 2018. The FSB explained that this decision was made in light of progress made by the IAIS to develop a holistic framework for sector-wide risk monitoring and management of systemic risk and policy tools to deal with the build-up of risk within insurers. The FSB announcement coincided with the release of an IAIS consultative document on a Holistic Framework for the Assessment and Mitigation of Systemic Risk in the Insurance Sector. The FSB noted that it will reassess suspension of G-SII designations in November 2022 after implementation of the holistic framework and decide whether to permanently discontinue or re-establish the G-SII identification process. Current standards remain as drafted for entity-based designation and 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. 28 Table of Contents 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. Investments Regulation 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, 2018. In addition, many of our non-U.S. insurance subsidiaries are subject to local investment laws and regulations. As a global insurance company, we are also affected by the monetary policies of central banks around the world. Actions resulting from these policies, including with respect to interest rates, may have an impact on the pricing levels of risk-bearing investments, and may 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.” New York Insurance Regulation 210 Insurance Regulation 210 went 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. Examples of NGEs include cost of insurance for universal life insurance policies, as well as interest crediting rates for annuities and universal life insurance policies. The regulation requires insurers to notify policyholders at least 60 days in advance of any change in NGEs that is adverse to policyholders 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 changes adverse to policyholders made in the prior year. The regulation generally prohibits insurers from increasing profit margins for in-force policies or adjusting NGEs in order to recoup past losses. Cybersecurity and Privacy 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 and other regulators. New York’s cybersecurity regulation for financial services institutions, including banking and insurance entities under its jurisdiction, requires these entities to establish and maintain a cybersecurity program designed to protect consumers’ private data. The regulation specifically provides for: (i) controls relating to the governance framework for a cybersecurity program; (ii) risk-based minimum standards for technology systems for data protection; (iii) minimum standards for cyber breach responses, including 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. To date, the Cybersecurity Model Law has only been adopted by South Carolina. As adopted by South Carolina, and if adopted as state legislation elsewhere, the Cybersecurity Model Law would impose significant new regulatory burdens intended to protect the confidentiality, integrity and availability of information systems. However, a drafting note in the Cybersecurity Model Law states that a licensee’s compliance with the New York cybersecurity regulation is intended to constitute compliance with the Cybersecurity Model Law. The General Data Protection Regulation (“GDPR”), which is intended to establish uniform data privacy laws across the EU, became effective for all EU member states on May 25, 2018. GDPR is extraterritorial in that it applies to EU entities, as well as entities not established in the EU that offer goods or services to data subjects in the EU or monitor consumer behavior that takes place in the EU. Fines may be imposed for non-compliance with the requirements of the GDPR. 29 Table of Contents The California Consumer Privacy Act of 2018 (the “CCPA”) grants all California residents the right to know what information a business has collected from them and the sourcing and sharing of that information, as well as a right to have a business delete their personal information (with some exceptions). Its definition of “personal information” is more expansive than those found in other privacy laws applicable to us in the United States. Failure to comply with the CCPA could result in regulatory fines, and the law grants a private right of action for any unauthorized disclosure of personal information as a result of failure to maintain reasonable security procedures. We expect that exceptions to the CCPA will apply to a significant portion of our business. The CCPA is expected to become operational on January 1, 2020, but California’s Attorney General is expected to delay enforcement actions until six months after a final regulation is promulgated or July 1, 2020, whichever is sooner. ERISA, Fiduciary Considerations, and Other Pension and Retirement Regulation 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. 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 that largely were applicable in 2017 that expanded the definition of “investment advice” and required an advisor to meet an impartial or “best interests” standard, but the regulations were formally vacated by the U.S. Court of Appeals for the Fifth Circuit in 2018. The Court of Appeals decision also vacated certain DOL amendments to prohibited transaction exemptions. The DOL has announced that it plans to issue revised fiduciary investment advice regulations in September 2019. At this time, we cannot predict what form those regulations may take or their potential impact on us. Separately, on April 18, 2018, the SEC proposed and opened for public comment a package of the rule proposals and interpretations regarding Regulation Best Interest, which would require broker-dealers to act in the best interest of “retail” customers including participants in ERISA-covered plans and IRAs when making a recommendation of any securities transaction or investment strategy involving securities. The comment period for these proposals has closed. We cannot predict the timing of any final rules or interpretations. On December 14, 2017, the DOL released its semiannual regulatory agenda, which proposed 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. 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. 30 Table of Contents 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. Several other regulatory organizations have also proposed various “best interest” standards. The NAIC has been discussing proposed revisions to the Suitability in Annuity Transactions Model Regulation throughout 2018. The revisions are intended to elevate the standard of care in existing suitability standards for the sale of annuities and to make consumers aware of any material conflicts of interest. A further updated draft of the Suitability in Annuity Transactions Model Regulation was exposed for public comment through mid-February 2019. The NAIC intends to finalize the revisions to the Suitability in Annuity Transactions Model Regulation in 2019. In addition, on December 27, 2017, the NYDFS proposed initial revisions to Insurance Regulation 187, which not only incorporate the “best interest” standard but also would expand the scope of the regulation beyond annuity transactions to include sales of life insurance policies to consumers. On July 22, 2018, the NYDFS issued the final version of revised Insurance Regulation 187, which takes effect on August 1, 2019. On October 29, 2018, Chilean President Sebastien Piñera submitted to Congress a new pension reform bill. The bill would increase employer mandatory contributions and affirm private pension fund administration. We are not able to predict with certainty whether such bill will be adopted and cannot currently identify all of the risks or opportunities, if any, that may be posed to our business in Chile. We expect that the Congressional debate may last through most of 2019. On January 1, 2018, new regulations went into effect in Korea that reduced commission on savings retirement products. These regulations have negatively impacted sales of savings retirement products across the Korean market, including for us. Consumer Protection Laws Numerous federal and state laws affect MetLife, Inc.’s earnings and activities, including federal and state consumer protection laws, and MetLife, Inc. may be impacted by consumer protection laws in non-U.S. jurisdictions as well. 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. Derivatives Regulation 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 reporting and margin 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. 31 Table of Contents Dodd-Frank also expanded the definition of “swap” and mandated the SEC and U.S. Commodity Futures Trading Commission (“CFTC”) to study whether “stable value contracts” should be treated as swaps. Pursuant to the new definition and the SEC’s and CFTC’s 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 went into effect on January 1, 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. The amount of collateral we are required to pledge and the payments we are required to make under our derivatives transactions are expected to 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 adoption by the Office of the Comptroller of the Currency (“OCC”), the Federal Reserve Board, the FDIC, the Farm Credit Administration and the Federal Housing Finance Agency (collectively, the “Prudential Regulators”) and the CFTC of final margin requirements for non-centrally cleared derivatives. Securities, Broker-Dealer and Investment Adviser Regulation U.S. 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 (such as “registered fixed contracts”) or sold through private placement issuances. 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. In some non- U.S. jurisdictions, some of our insurance products are considered “securities” under local law, and we may be subject to local securities regulations and oversight by local securities regulators. 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 and regulations 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”) or are exempt from registration under the Investment Company Act. Such separate accounts are 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 associated with these registered separate accounts are registered with the SEC under the Securities Act of 1933 (the “Securities Act”) or are exempt from registration under the 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. Some of our subsidiaries are registered with the SEC as broker-dealers under the Securities Exchange Act of 1934 (the “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. The SEC, CFTC and FINRA from time to time propose rules and regulations that impact products deemed to be securities. The future impact of any adopted rules and regulations on the way we conduct our business and the products we sell is unclear. 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 and non-U.S. jurisdictions, as applicable. We may also be subject to similar laws and regulations in non-U.S. jurisdictions where we provide investment advisory services or conduct other activities. 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. 32 Table of Contents Environmental Laws and Regulations As an owner and operator of real property in many jurisdictions, we are subject to extensive environmental laws and regulations in such jurisdictions. 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 “—Insurance Regulation — Insurance Regulatory Examinations and Other Activities” for discussion of the Regulatory Settlement Agreement relating to unclaimed proceeds. See also “Controls and Procedures” and Note 20 of the Notes to the Consolidated Financial Statements. Brighthouse Separation Tax Treatment Prior to the spin-off distribution of Brighthouse Financial, Inc. common stock, 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 FVO Brighthouse Common Stock (as defined below) in the debt-for-equity exchange should be treated as a taxable transaction to MetLife, Inc. Furthermore, as part of the IRS’s policy, the IRS did not determine whether the distribution or the debt-for- equity exchange 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. 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 Financial, Inc. common 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. 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 Financial, Inc.’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 Financial, Inc.’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. 33 Table of Contents Cross-Border Trade 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 “Article 50 Notification”). 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 or the U.K. withdraws its Article 50 Notification). 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. If the U.K. does not approve and conclude a withdrawal agreement with the EU by March 29, 2019, the U.K. will cease to be a member of the EU, but there will be no agreement governing its future relationship with the EU. In such a scenario, MetLife expects to maintain its existing operating model, including as an inbound EEA-insurer under the U.K.’s Temporary Permissions Regime (“TPR”), which is expected to last for at least three years and will permit MetLife to carry on its insurance business in the U.K. during that period. Operating expenses within our businesses could increase as a result of such changes. One of the Trump Administration’s priorities has been renegotiating certain international trade agreements, including the North American Free Trade Agreement (“NAFTA”) with Canada and Mexico. On September 30, 2018, the United States, Canada and Mexico agreed to the framework for a new international trade agreement, known as the United States-Mexico-Canada Agreement (“USMCA”), which would replace NAFTA. President Trump, former Mexican President Enrique Peña Nieto, and Canadian Prime Minister Justin Trudeau signed the USMCA on November 30, 2018. Each signatory’s legislature must ratify the agreement before it goes into effect. Fiscal Measures The new administration of President López Obrador in Mexico is implementing an austerity plan which, among other measures, has eliminated benefits such as major medical insurance and contributions to additional savings benefit insurance for Mexican federal government personnel and public officials. Mexican state governments or other government institutions may introduce similar austerity policies as well. MetLife is the largest provider of benefits to Mexican federal government personnel and public officials, and such austerity plans may have an adverse effect on our business. If the U.S. Congress does not approve annual appropriations or otherwise extend appropriations by continuing resolution, many federal government agencies must discontinue most non-essential, discretionary functions, known as a “partial government shutdown.” Most recently, the United States government operated under a partial shutdown from December 22, 2018 to January 25, 2019. During a partial government shutdown, financial markets, including the government bond market, continue to function. If the SEC is shut down, although certain SEC functions continue, the SEC may not process new or pending registration statements, qualifications of new or pending offering statements or applications for exemptive relief, which could disrupt or delay new public bond issuances. The partial shutdown of certain other federal agencies could also delay or otherwise impact certain transactions or projects. An extended partial government shutdown could also negatively impact capital markets and economic conditions generally. 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. 34 Table of Contents 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 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+ NR AA- 2nd of 16 4th of 19 NR A+ NR AA- A1 5th of 21 Aa3 4th of 21 NR Aa3 2nd of 16 4th of 19 4th of 21 AA- 4th of 22 AA- 4th of 22 AA- 4th of 22 AA- 4th of 22 See “Risk Factors — Economic Environment and Capital Markets Risks — 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. 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. 35 Table of Contents 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, 2018, we had approximately 48,000 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. We invest in our employees by continuing to create learning and development opportunities, promote inclusion, support work- life balance, and enhance ownership mindset. Fostering a culture of innovation and employee learning is fundamental to how we compete. 36 Table of Contents Executive Officers Set forth below is information regarding the executive officers of MetLife, Inc.: Name Steven A. Kandarian Age 66 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. John D. McCallion 45 Stephen W. Gauster 48 Steven J. Goulart Michel A. Khalaf Esther S. Lee Martin J. Lippert Susan M. Podlogar Kishore Ponnavolu Oscar A. Schmidt Ramy Tadros 60 54 60 59 55 54 59 43 • • • • • Executive Vice President and Chief Investment Officer of MetLife, Inc. (April 2005-April 2011) Executive Vice President and Chief Financial Officer of MetLife, Inc. (August 2018-present) Executive Vice President and Chief Financial Officer and Treasurer of MetLife, Inc. (May 2018-August 2018) Executive Vice President and Treasurer of MetLife, Inc. (July 2016 - April 2018) Senior Vice President and Chief Financial Officer, EMEA, of MetLife Group, Inc. (August 2014-June 2016) • Vice President and Chief Financial Officer, EMEA, of MLIC (September 2012 - July 2014) • • • • • Executive Vice President and General Counsel of MetLife, Inc. (May 2018-present) Senior Vice President and Interim General Counsel of MetLife, Inc. (July 2017-May 2018) 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) • • • • • • • • 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) 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) 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 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) President, Asia of MetLife, Inc. (September 2018-present) Executive Vice President, MetLife Auto and Home (November 2013-August 2018) President of Latin America of MetLife, Inc. (May 2018-present) Executive Vice President, Head of Latin America of MLIC (January 2010-April 2018) 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) 37 Table of Contents 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 (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. The SEC maintains an internet website (www.sec.gov) that contains reports, proxy and information 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 (http:// investor.metlife.com), 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 news 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. Economic Environment and Capital Markets Risks Item 1A. Risk Factors Difficult Economic Conditions May Adversely Affect Our Business, Results of Operations and Financial Condition Stressed conditions, volatility and disruptions in financial asset classes or various 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, and government actions taken in response to any of these factors, could all adversely affect our financial condition (including our liquidity and capital levels), our business operations and our ability to receive dividends from our insurance subsidiaries and meet our obligations at MetLife, Inc., by virtue of their impact on levels of economic activity, employment, customer behavior, or mismatched impacts on the value of our assets and our liabilities. Such factors could also 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. 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. In the event of extreme prolonged market events, such as a global credit crisis, a market downturn, or sustained low market returns we could incur significant capital 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 collateral requirements associated with our affiliated reinsurers and other similar arrangements. Any of these events could also impair our financial strength ratings. The demand for our financial and insurance products could be adversely affected by an economic downturn resulting in higher unemployment, lower family income, lower corporate earnings, lower business investment, lower consumer spending, elevated incidence of claims, adverse utilization of benefits relative to our best estimate expectations, lapses or surrenders of policies, and policyholders choosing 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. 38 Table of Contents Declining equity markets could decrease the account value of our variable insurance products and other products issued through separate accounts. Lower interest rates may result in lower returns in fixed income vehicles. Decreases in account values reduce certain fees generated by these products, which could increase the level of insurance liabilities we must carry to support such products issued with any associated guarantees, cause the amortization of deferred policy acquisition costs (“DAC”) to accelerate, and require us to provide additional funding to our captive reinsurers. See: • • • • “Business — Regulation;” “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Industry Trends — Financial and Economic Environment;” “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Industry Trends — Impact of a Sustained Low Interest Rate 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, GICs, funding agreements and structured settlements, expose us to the risk that changes in interest rates, including reductions in the difference between short-term and long-term interest rates, could reduce our investment margin or “spread,” which could in turn reduce 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 could reduce our investment spread. 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. Significantly lower spreads may cause us to accelerate amortization, thereby reducing net income 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 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. 39 Table of Contents 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 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 value of business acquired (“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 fixed income securities. 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. Furthermore, if interest rates rise, our unrealized gains on fixed income securities would decrease and our unrealized losses would increase, perhaps substantially. The accumulated change in estimated fair value of these fixed income securities would be recognized in net income when a gain or loss is realized upon the sale of the security or if the decline in estimated fair value is determined to be other than temporary and an impairment charge to earnings is taken. 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. Actions resulting from the monetary policies of the Federal Reserve Board and of central banks around the world, including with respect to interest rates, may also impact the pricing levels of risk-bearing investments and may adversely impact the income we earn on our investments or the level of product sales. 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. For some of our liability portfolios it is not possible to invest assets to the full liability duration, thereby creating some asset/liability mismatch. 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. Regulators, law enforcement agencies, or the ICE Benchmark Association (the current administrator of LIBOR) may take actions resulting in changes to the way LIBOR is determined, the discontinuance of reliance on LIBOR as a benchmark rate or the establishment of alternative reference rates. The U.K. Financial Conduct Authority has announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021. The Federal Reserve Bank of New York has begun publishing a Secured Overnight Funding Rate (“SOFR”), which is intended to replace U.S. dollar LIBOR, and central banks in several other jurisdictions have also announced plans for alternative reference rates for other currencies. At this time, we cannot predict how markets will respond to these new rates, and we cannot predict the effect of any changes to or discontinuation of LIBOR on new or existing financial instruments to which we have exposure. Any changes to or discontinuation of LIBOR may have an adverse effect on interest rates on certain derivatives and floating-rate securities we hold, securities we have issued, or other assets or liabilities whose value is tied to LIBOR or to a LIBOR alternative. Any uncertainty regarding the continued use and reliability of LIBOR could adversely affect the value of such instruments. Furthermore, changes to or the discontinuation of LIBOR may impact other aspects of our business, including products, pricing, and models. Any change to or discontinuation of similar benchmark rates besides LIBOR could have similar effects. See: • • • • “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Industry Trends — Impact of a Sustained Low Interest Rate Environment;” “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Investments — Current Environment;” “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Investments — Fixed Maturity Securities AFS and Equity Securities;” and Note 9 of the Notes to the Consolidated Financial Statements. 40 Table of Contents Credit Spread Risk Changes in credit spreads may result in market price volatility and cash flow variability. Market price volatility can make it difficult to value certain of our securities if trading becomes less frequent. 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. Significant volatility in the markets could cause changes in credit spreads and defaults and a lack of pricing transparency, which could have a material adverse effect on our results of operations, financial condition, liquidity or cash flows. 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. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Investments — Investment Risks.” Equity Risk 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, where fee income is earned based upon the estimated fair value of the assets that we manage. The 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 that increase our potential benefit exposure should equity markets decline or stagnate. Sustained declines in long-term equity returns or interest rates likely would have a negative effect on the funded status of our pension plans and other postretirement benefit obligations. An increase in equity markets could increase settlement payments on equity futures, which may result in increased cash outflows and increase our liquidity needs. The timing of distributions from and valuations of leveraged buy-out funds, hedge funds and other private equity funds in which we invest can be difficult to predict and depends on the performance of the underlying investments, the funds’ schedules for making distributions, and their needs for cash. 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 alternative investments or equity securities we hold may be adversely impacted by downturns or volatility in equity markets. See “Quantitative and Qualitative Disclosures About Market Risk.” Real Estate Risk Our investments in commercial, agricultural and residential mortgage loans, and our investments in real estate and real estate joint ventures, can be adversely affected by changes in the supply and demand of leasable commercial space, creditworthiness of tenants and partners, capital markets volatility, interest rate fluctuations, commodity prices, farm incomes and housing and commercial property market conditions. 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 and Counterparty Risk Our general account investments in certain countries, which we maintain to support our insurance operations and related policyholder liabilities in these countries and as part of our global portfolio diversification, could be adversely affected by volatility resulting from local economic and political concerns, as well as volatility in specific sectors. Additionally, U.S. states, municipalities may face budget deficits and other financial difficulties, which could have an adverse impact on the value of securities we hold issued by and political subdivisions or under the auspices of such U.S. states, municipalities and political subdivisions. The issuers or guarantors of fixed income securities and mortgage loans we own may default on principal and interest payments they owe us. Additionally, 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 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. 41 Table of Contents Many of our transactions with counterparties such as brokers and dealers, central clearinghouses, commercial banks, investment banks, hedge funds and investment funds and other financial institutions expose us to the risk of counterparty default. Such credit risk may be exacerbated if we cannot realize the collateral held by us in secured transactions or cannot liquidate such collateral at prices sufficient to recover the full amount of the loan or derivative exposure due to us. Furthermore, potential action by governments and regulatory bodies, 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. 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 and Sector Investments.” Currency Exchange Rate Risk 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 non- U.S. operations and issuance of non-U.S. dollar denominated instruments, including GICs 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 non-U.S. subsidiaries, and our net income from non-U.S. operations. Fluctuations in foreign currency exchange rates may make certain of our products less attractive to customers, particularly products denominated in a currency that is not the local currency of the market in which such products are sold, which may increase levels of early policy terminations and decrease sales volume and our amount of business in force. The negative effects described above may be exacerbated if international markets, particularly emerging markets, experience severe economic or financial disruptions or significant currency devaluations, if a foreign economy is determined to be “highly inflationary,” or if a country withdraws from the Euro zone. Fluctuations in foreign currency exchange rates could thus have a material adverse effect on our operations, earnings and investments in the affected countries. We may be unable to mitigate the risk of such changes in exchange rates due to unhedged positions, asymmetrical and non-economic accounting resulting from derivative gains (losses) on non-qualifying hedges, the failure of hedges to effectively offset the impact of the foreign currency exchange rate fluctuation, or other factors. Even if foreign currency denominated liabilities are matched with investments denominated in the respective foreign currencies, fluctuations in currency exchange rates may adversely affect the translation of results into our U.S. dollar basis consolidated financial statements. See: • • “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Executive Summary — Other Key Information — Argentina Highly Inflationary” and “Quantitative and Qualitative Disclosures About Market Risk.” Derivatives Risk If our counterparties, clearing brokers or central clearinghouses fail or refuse to honor their obligations under our derivatives, our hedges of the related risk will be ineffective. A counterparty’s or central clearinghouse’s insolvency, inability or unwillingness to make payments under the terms of derivatives agreements or inability or unwillingness to return collateral could have a material adverse effect on our financial condition and results of operations, including our liquidity. If the net estimated fair value of a derivative to which we are a party declines, we may be required to pledge collateral or make payments related to such decline. 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 in such valuation or valuation methodology. See: “Business — Regulation — Derivatives Regulation” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Derivatives.” • • 42 Table of Contents Terrorism and Security Risks The continued threat of terrorism, both within the U.S. and abroad, ongoing military and other actions, potential military conflicts, 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 our investment portfolio may be adversely affected by declines in the credit and equity markets and reduced economic activity caused by such threats. 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 or military actions also could disrupt our operations centers and result in higher than anticipated claims under our insurance policies. Adverse Capital and Credit Market Conditions May Significantly Affect Our Ability to Meet Liquidity Needs, Our Access to Capital and Our Cost of Capital Volatility, disruptions, or other conditions in global capital markets could also have an adverse impact on our capital, credit capacity, and liquidity. If our stress-testing indicates that such conditions could have an impact beyond expectations, or our business otherwise requires, we may have to seek additional financing, the availability and cost of which could be adversely affected by market conditions, regulatory considerations, availability of credit to our 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 specified counterparty agreements. Without sufficient liquidity, our ability to pay claims, other operating expenses, interest on our debt and dividends on our capital stock, to provide our subsidiaries with cash or collateral, to maintain our securities lending activities, to replace certain maturing liabilities, to sustain our operations and investments, and to repurchase our common stock could be adversely affected, and our business and financial results may suffer. 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. 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. See: • • “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Investments — Securities Lending and Repurchase Agreements;” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — The Company — Liquidity.” 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 Our failure to comply with or fulfill all conditions and covenants under the unsecured credit facility (the “Credit Facility”) maintained by MetLife, Inc. and MetLife Funding, Inc. (“MetLife Funding”), 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, could restrict our ability to access the Credit Facility when needed. This could adversely affect our ability to meet our obligations as they come due and our credit and financial strength ratings, and could thus have a material adverse effect on our liquidity, financial condition and results of operations. 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. 43 Table of Contents 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 Nationally Recognized Statistical Rating Organizations (“NRSROs”) and similar entities could downgrade our insurance companies’ financial strength ratings or our credit ratings, or lower our ratings outlooks, at any time and without notice. Such changes 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 collateral, including 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; and subjecting us to increased regulatory scrutiny. NRSROs may heighten the level of scrutiny that they apply to insurance companies, increase the frequency and scope of their credit reviews, request additional information from the companies that they rate, and adjust upward the capital and other requirements employed in the models for maintenance of certain ratings levels. See: • • • • “Business — Company Ratings;” “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — The Company — Liquidity and Capital Uses — Pledged Collateral;” “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — The Company — Capital — Rating Agencies;” and Note 9 of the Notes to the Consolidated Financial Statements. Reinsurance May Not Be Available, Affordable or Adequate to Protect Us Against Losses Market conditions beyond our control determine the availability and cost of reinsurance protection for new business, and in certain circumstances, the price of reinsurance for business already reinsured may also increase. 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 the policies we issue. Because reinsurance does not relieve us of our direct liability to policyholders, a reinsurer’s insolvency, inability or unwillingness to make payments under the terms of a reinsurance agreement, or a reinsurer’s inability or unwillingness to maintain collateral, could have a material adverse effect on our financial condition and results of operations, including our liquidity. See “Business — Reinsurance Activity.” 44 Table of Contents Our Statutory Life Insurance Reserve Financings May Be Subject to Cost Increases, and New Financings May Be Subject to Limited Market Capacity Certain of our financing facilities that support statutory life insurance reserves for previously written business 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. Furthermore, future capacity for such statutory reserve financing structures in the marketplace is not guaranteed. If types of assets permitted under current regulations are not available in the future to back statutory reserves, as a result of new legislation or regulations or otherwise, we would not be able to take some or all statutory reserve credit for such transactions, which could materially and adversely affect the statutory capitalization of certain of our insurance subsidiaries. See: • • “Business — Regulation — Insurance Regulation — NAIC” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — The Company — Capital — Affiliated Captive Reinsurance Transactions.” Regulatory and Legal Risks Our Businesses Are Highly Regulated, and Changes in Laws, Regulation and in Supervisory and Enforcement Policies May Reduce Our Profitability, Limit Our Growth, or Otherwise Adversely Affect Our Business, Results of Operations and Financial Condition Our businesses are subject to a wide variety of insurance and other laws and regulations in the jurisdictions in which they operate across the world. Authorities and regulators may take actions or make decisions, including implementing or modifying licensing, permit, or approval requirements, that may negatively affect our business. They may also take actions or make decisions that adversely affect our customers and independent sales intermediaries or their operations, which may affect our business relationships with them and their ability to purchase or distribute our products, and thus may negatively affect our business in a variety of jurisdictions. The overall regulatory environment (or changes to that environment) in the countries in which we operate, and changes in laws in those jurisdictions, could have a material adverse effect on our results of operations. We cannot predict with any certainty the impact on our business, financial condition or results of operations of changes to legislative or administrative policies that can affect insurance, such as policies regarding financial services regulation, securities regulation, derivatives regulation, pension regulation, health care regulation, privacy, tort reform legislation and taxation, or any new legislation or regulatory changes that may be adopted. 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, changing interpretations of regulations by regulators and statutes may be enacted with retroactive impact, particularly in areas such as accounting or statutory reserve requirements, may adversely affect our businesses. 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. In addition, solvency standards under development in several markets may impact our capital requirements, risk management infrastructure and reporting. Furthermore, 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. Under provisions of Dodd-Frank, if MetLife, Inc. 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., MetLife, Inc. could be compelled to undergo liquidation with the FDIC as receiver. If the FDIC were appointed as the receiver, liquidation would occur under the provisions of the new liquidation authority and not under the Bankruptcy Code. In an FDIC-managed liquidation, our shareholders and unsecured creditors could bear greater losses than they would in a liquidation under the Bankruptcy Code. 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. We could also be subject to assessment of charges to cover the costs of liquidating any financial company subject to the new liquidation authority, which could have a material adverse effect on our financial condition. 45 Table of Contents Changes 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 could adversely affect our operations and profitability. Such changes could increase our regulatory and compliance burden, resulting in increased costs, or limit the type, amount or structure of compensation arrangements into which we may enter with certain of our associates, which could negatively impact our ability to compete with other companies in recruiting and retaining key personnel. Additionally, our ability to react to rapidly changing economic conditions and the dynamic, competitive market for variable and registered fixed products will depend on the continued efficacy of provisions we have incorporated into our product design allowing frequent and contemporaneous revisions of key pricing elements, as well as our ability to work collaboratively with 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. We also cannot predict with certainty the impact of rules, should they take effect, substantially expanding the definition of “investment advice” and imposing an impartial or “best interests” standard in providing such advice, thereby broadening the circumstances under which MetLife or its representatives could be deemed a fiduciary under ERISA or the Code, or amendments to certain prohibited transaction exemptions, will have on our products and services to certain employee benefit plans that are subject to ERISA or the Code. Furthermore, we cannot predict the impact that “best interest” standards recently proposed by various regulators may have on our business, results of operations, or financial condition. Compliance with new or changed rules or legislation in this area may increase our regulatory burden and that of our independent sales intermediaries, require changes to our compensation practices and product offerings, and increase litigation risk, which could adversely affect our results of operations and financial condition. Laws, regulations, or regulatory actions regarding health care and other areas may also adversely affect our ability to continue to offer our products, including non-medical health and dental insurance products, in the same manner as we do today and may result in increased and unpredictable costs to provide certain products, thereby harming our competitive position. We are unable to predict how future changes, if any, to laws or regulations may affect us or the products that we offer. We provide employment-related benefits to our associates and to certain of our retirees under complex plans that are subject to a variety of regulatory requirements. If laws, regulations or regulatory actions result in changes to those benefits, it could adversely affect our ability to attract, retain and motivate our associates. Such laws, regulations and regulatory actions 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 and our competitors are not. In addition, rules on defined benefit pension plan funding may negatively impact the likelihood or timing of corporate plan sponsors terminating their plans or engaging in transactions to partially or fully transfer pension obligations to an insurance company. Consequently, such rules could indirectly affect the mix of our business, resulting in fewer pension risk transfers and more non-guaranteed funding products, and could adversely impact our results of operations. Changes in laws and regulations 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 and results of operations. If our associates fail to adhere to regulatory requirements or our policies and procedures, we may be subject to penalties, restrictions or other sanctions by applicable regulators, and we may suffer reputational harm. 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.” 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 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. Such changes could not only directly impact our corporate taxes but also could adversely impact our products (including 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. 46 Table of Contents The precise impact of certain provisions of U.S. Tax Reform is still uncertain. For instance, many regulations under the new law have not been finalized or have only recently been finalized, including certain rules on international taxation. U.S. Tax Reform thus contains provisions whose meaning is subject to differing interpretations, and future guidance may materially differ from our current interpretation. See: • • “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Executive Summary — Overview — U.S. Tax Reform” and Note 18 of the Notes to the Consolidated Financial Statements. Litigation and Regulatory Investigations Are Increasingly Common in Our Businesses and May Result in Significant Financial Losses and Harm to Our Reputation We face a significant risk of litigation and regulatory investigations and actions in the ordinary course of operating our businesses. 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 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 often 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. 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 associates 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 arise or be commenced in the future, and we could become subject to further investigations, lawsuits, or enforcement actions. Increased regulatory scrutiny and any resulting investigations or proceedings could result in new legal actions and precedents and industry-wide regulations that could adversely affect our business, financial condition and results of operations. 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. Capital Risks Legal and Regulatory Restrictions May Prevent Us from Paying Dividends and Repurchasing Our Stock at the Level We Wish There is no assurance that we will declare and pay any dividends or repurchase any of our common stock. Dividends are 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. Common stock repurchases are also subject to the discretion of our Board of Directors and will depend upon our capital position, liquidity, financial strength and credit ratings, general market conditions, the market price of our common stock compared to management’s assessment of the stock’s underlying value, applicable regulatory approvals, and other legal and accounting factors. 47 Table of Contents Terms applicable to our Floating Rate Non-Cumulative Preferred Stock, Series A (the “Series A preferred stock”), junior subordinated debentures and trust securities may restrict our ability to pay dividends or interest on those instruments in certain circumstances. MetLife is also permitted under the terms of our junior subordinated debentures to suspend payments of interest during certain periods of time. Such suspension of payments, whether required or optional, could cause “dividend stopper” provisions applicable under those and other instruments to restrict our ability to pay dividends on our common stock and repurchase our common stock in various situations, including situations where we may be experiencing financial stress, and may restrict our ability to pay dividends or interest on our preferred stock and junior subordinated debentures as well. Replacement capital covenants may limit our ability to eliminate some of these restrictions through the repayment, redemption or purchase of junior subordinated debentures. Under Rule 10b5-1 of the Exchange Act, we may be restricted from repurchasing shares or entering into share repurchase programs when we are aware of material non-public information. These restrictions may limit our ability to repurchase shares from time to time, including but not limited to periods of significant corporate reorganization. See: • • “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — MetLife, Inc. — Liquidity and Capital Sources — Dividends from Subsidiaries” and “Dividend Restrictions” in Note 15 of the Notes to the Consolidated Financial Statements. 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 If the cash MetLife, Inc. receives from its subsidiaries through dividends and permitted payments under the tax sharing agreement with 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. If MetLife, Inc.’s operating subsidiaries are 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. Dividends to MetLife, Inc. by its insurance subsidiaries in excess of prescribed limits generally require insurance regulatory approval. In addition, insurance regulators may prohibit the payment of dividends or other payments to MetLife, Inc. by its insurance subsidiaries if they determine that the payment could be adverse to our policyholders or contractholders. The payment of dividends and other distributions by insurance companies may also be limited by business conditions and rating agency considerations. Furthermore, 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. Net worth maintenance or other support agreements, which MetLife, Inc. or its subsidiaries may from time to time establish with their subsidiaries, may require MetLife, Inc. or such other supporting subsidiary to transfer capital to such supported subsidiary, thereby limiting capital that is available for other purposes. See: • • • • “Business — Regulation —Insurance Regulation — Surplus and Capital;” “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;” “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — MetLife, Inc. — Liquidity and Capital Uses — Support Agreements;” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP and Other Financial Disclosures.” Investment Risks 48 Table of Contents Defaults, Downgrades, Volatility or Other Events May Adversely Affect the Investments We Hold, Resulting in a Reduction in Our Net Income and Profitability A major economic downturn, acts of corporate malfeasance, widening credit risk spreads, ratings downgrades or other events could adversely affect the issuers or guarantors of securities or the underlying collateral of structured securities that we hold, which could cause the estimated fair value of our fixed income securities portfolio and corresponding earnings to decline and the default rate of the fixed income securities in our investment portfolio to increase. Similarly, a ratings downgrade affecting a security we hold could require us to hold more capital to support that security in order to maintain our RBC levels. Our intent to sell, or our assessment of the likelihood that we will be required to sell, fixed income securities may adversely impact levels of writedowns or impairments. Realized losses or impairments on these securities may have a material adverse effect on our net income in a particular quarterly or annual period. 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. Substantially all of our commercial and agricultural mortgage loans held for investment have balloon payment maturities, which may increase the risk of default. 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, and 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, legislation that would allow or require modifications to the terms of mortgage loans could have an adverse effect on our investment portfolio, results of operations or financial condition. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Investments — Mortgage Loans.” 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 There may be a limited market for certain investments we hold in our investment portfolio, making them relatively illiquid. These include privately-placed fixed income securities, certain derivative instruments, mortgage loans, policy loans, direct financing and leveraged leases, other limited partnership interests, tax credit and renewable energy partnerships and real estate equity, including real estate joint ventures and funds. Even some of our very high quality investments may experience reduced liquidity during periods of market volatility or disruption. If we are forced to sell certain assets in our investment portfolio during periods of market volatility or disruption, market prices may be lower than our carrying value in such investments, and we may have difficulty selling such investments in a timely manner, be forced to sell investments in a volatile or illiquid market for less than we otherwise would have been able to realize under normal market conditions, or both. This may result in realized losses that could have a material adverse effect on our results of operations and financial condition, as well as our financial ratios, which could in turn affect compliance with our credit instruments and rating agency capital adequacy measures. We may face similar risks if we are required under our securities lending program to return significant amounts of cash collateral that we have invested. If we decrease the amount of our securities lending activities over time in response to such risks, the amount of net investment income generated by these activities will also likely decline. 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 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. The OCC, the Federal Reserve Board, FDIC, Prudential Regulators, the 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 — Derivatives Regulation;” “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. 49 Table of Contents Changes to Our Valuation of Securities and Investments, the Allowances and Impairments Taken on Our Investments, and Our Methodologies, Estimations and Assumptions Could Materially Adversely Affect Our Results of Operations or Financial Condition 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, or if trading becomes less frequent or market data becomes less observable, it may be difficult to value certain of our securities, and certain asset classes may become illiquid. In such cases, our valuations may be based on inputs that are less observable and more subjective, which may result in estimated fair values that significantly exceed the amount at which the investments may ultimately be sold. Furthermore, rapidly changing credit and equity market conditions could materially and adversely 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. Historical trends may not be indicative of future impairments or allowances. 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, 8 and 10 of the Notes to the Consolidated Financial Statements. Business Risks 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. 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 or VOBA, increase our liabilities or incur higher costs. We cannot determine precisely the amounts that we will ultimately pay to settle our liabilities, particularly when those payments may not occur until well into the future. We evaluate our actual experience and liabilities periodically based on accounting requirements, and that evaluation can result in a change to liability assumptions that may increase our liabilities. Reserve estimates in some instances are also 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, among other things, obtaining, accumulating, and filtering data, and 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. Increased longevity due to improvements in medical technologies 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. See: • • • • • “Business — Policyholder Liabilities;” “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Policyholder Liabilities;” “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, 2018 Compared with the Year Ended December 31, 2017 — Actuarial Assumption Review and Certain Other Insurance Adjustments.” 50 Table of Contents The Global Nature of Our Operations Exposes Us to a Variety of Political, Legal, Operational, Economic and Other Risks The global nature of our business operations exposes us to a wide range of political, legal, operational, economic and other risks, including but not limited to: • • • • • • • • • • • • nationalization or expropriation of assets; imposition of limits on foreign ownership of local companies; changes in laws (including insurance and tax laws and regulations), their application or interpretation, including retroactive application of such changes; political instability (including any government’s inability to maintain operations or funding); economic or trade sanctions; dividend limitations; price controls; changes in applicable currency; currency exchange controls or other restrictions that prevent us from transferring funds out of the countries in which we operate or converting local currencies we hold into U.S. dollars or other currencies; difficulty in enforcing contracts; 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 or events may negatively affect our business or reputation in the relevant jurisdictions and could indirectly affect our business or reputation in other jurisdictions as well. Some of our operations are, and are likely to continue to be, in emerging markets, where many of these risks are heightened. Additionally, we face risks related to a number of issues or concerns that may impact our global operations, including but not limited to international trade agreements (e.g., NAFTA/USMCA), uncertainties in intergovernmental organizations (e.g., the EU and the U.K.’s planned withdrawal from it), pension system reforms, and others. If we encounter labor problems with workers’ associations or trade unions, or if any of our businesses is not successful, we may lose all or most of our investment in building and training the sales force in that business, which may adversely affect our results of operations. Expanding our operations to new businesses or jurisdictions may require considerable management time and start-up expenses before significant, if any, revenues and earnings are generated, which may reduce the amount of management and financial resources available for other uses. Our operations in new or existing markets may achieve low margins or may be unprofitable, which may negatively impact our operating margins and results of operations. See: • • • • “Business — Regulation;” “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Industry Trends — Financial and Economic Environment;” “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Investments — Current Environment — Selected Country and Sector Investments;” and “Quantitative and Qualitative Disclosures About Market Risk.” 51 Table of Contents Competitive Factors May Adversely Affect Our Market Share and Profitability Competitive pressures, based on a number of factors including service, product features, scale, price, financial strength, claims-paying ratings, credit ratings, e-business capabilities, name recognition, and other factors, may adversely affect the persistency of our products and our ability to sell products in the future. We can be adversely affected by competition from other insurance companies, as well as non-insurance financial services companies such as banks, broker-dealers and asset managers, which may have a broader array of products, more competitive pricing, higher claims paying ability ratings, greater financial resources with which to compete, or pre-existing customer bases for financial services products. Additionally, we may lose purchasers of group insurance products that are underwritten annually if they are 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. Our customers and clients may engage other financial service providers, and the resulting loss of business could negatively affect our results of operations or financial condition. An increase in consolidation activity among banks and broker-dealers, through which the insurance industry distributes many of its individual products, 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 or other industry changes may also increase the likelihood that distributors will try to renegotiate the terms of existing selling agreements to terms less favorable to us. In addition, legislative and other changes affecting the regulatory environment for our business may have the effect of supporting or burdening some aspects of or actors in the financial services industry more than others, which could adversely affect our competitive position within the life insurance industry and within the broader financial services industry. See: • • • “Business — Competition;” “Business — Regulation;” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Industry Trends — Competitive Pressures.” Technological Changes May Present New and Intensified 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. Technological changes may 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, and we may 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. 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. 52 Table of Contents Catastrophes May Adversely Impact Liabilities for Policyholder Claims and Reinsurance Availability 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 catastrophic events 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. Due to their nature, we cannot predict the incidence, timing and severity of catastrophic events. Our life insurance operations face the risk of catastrophic mortality, such as a pandemic or other event that causes a large number of deaths. A significant pandemic could have a major impact on the global economy and financial markets or could result in disruption to our business operations. The effectiveness of external parties, including governmental and non- governmental organizations, in combating the spread and severity of such a pandemic is outside of our control and could have a material impact on the losses we experience. 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 have a material adverse effect on our business, results of operations and financial condition in any period. Our Property & Casualty businesses will likely experience, from time to time, catastrophe losses as a result of various events, including hurricanes, windstorms, earthquakes, hail, tornadoes, explosions, severe winter weather, fires and man-made events such as terrorist attacks, which may have a material adverse impact on our business, results of operations and financial condition in any period. Climate change may increase the frequency and severity of weather related disasters and pandemics. In addition, climate change regulation may affect the prospects of companies and other entities whose securities we hold or our willingness to continue to hold their securities. It may also impact other counterparties, including reinsurers, and affect the value of our investments, including real estate investments. We cannot predict the long-term impacts on us from climate change or related regulation. 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. State 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 or requiring regulatory approval of internal reinsurance transactions, may impede our efforts to manage our catastrophe risk. Our ability to manage catastrophe risk also depends in part on our ability to obtain catastrophe reinsurance, which may not be available at commercially acceptable rates, or at all, in the future. A catastrophic event could render inadequate the funds of guaranty associations or similar organizations, and we may be called upon to contribute additional amounts, which may have a material impact on our financial condition or results of operations. See: • • • “Business — Regulation — Insurance Regulation — Guaranty Associations and Similar Arrangements;” “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Executive Summary — Other Key Information — Hurricanes;” and Note 20 of the Notes to the Consolidated Financial Statements. We May Need to Fund Deficiencies in Our Closed Block; Assets Allocated to the Closed Block Benefit Only the Holders of Closed Block Policies The closed block assets established in connection with the demutualization of MLIC, 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. Such actions may reduce funds that would otherwise be available to us for other uses and could thus adversely impact our results of operations or financial condition. See Note 7 of the Notes to the Consolidated Financial Statements. 53 Table of Contents We May Be Required to Recognize an Impairment of Our Goodwill or Other Long-Lived Assets or to Establish a Valuation Allowance Against Our Deferred Income Tax Assets If the performance of our businesses are negatively impacted by prolonged market declines or other factors, the estimated fair value of the reporting units on which we perform our goodwill impairment testing may be reduced, which may result in a determination that the goodwill has been impaired. In such case, we must write down the goodwill by the amount of the impairment, with a corresponding charge to net income. Such write-downs could have an adverse effect on our results of operations or financial position. Similarly, if impairment testing of long-lived assets, including but not limited to real estate, indicates that we will be unable to recover the carrying amount of such an asset, we must write down the asset, which could have a material adverse effect on our results of operations or financial position. Management may determine that it is more likely than not that any particular deferred income tax asset will not be realized, based on factors such as the performance of the business including the ability to generate future taxable income. In such circumstance, 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 — Goodwill;” “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Summary of Critical Accounting Estimates — Income Taxes;” “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Executive Summary — Overview — U.S. Tax Reform;” and Notes 1 and 11 of the Notes to the Consolidated Financial Statements. We May Be Required to Accelerate the Amortization of or Impair DAC, DSI or VOBA DAC, deferred sales inducements (“DSI”) and VOBA for certain products are amortized in proportion to actual and expected gross profits or margins. Low investment returns, 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 may negatively affect the amount of future gross profit or margins. 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 or significantly lower spreads could result in an acceleration of amortization of DAC, DSI and VOBA, 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 — 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 — Industry Trends — Impact of a Sustained Low Interest Rate Environment;” and Note 1 of the Notes to the Consolidated Financial Statements. Guarantees Within Certain Products May Decrease Our Earnings, Increase the Volatility of Our Results, Result in Higher Risk Management Costs and Expose Us to Increased Counterparty Risk The valuation of our liabilities associated with products that include 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”), guaranteed minimum income benefits (“GMIBs”), and minimum crediting rate features could increase in the event of significant and sustained downturns in equity markets, increased equity volatility, or reduced interest rates. An increase in these liabilities would result in a decrease in our net income. 54 Table of Contents The derivatives and other risk management strategies we use to hedge the economic exposure to these liabilities that do not qualify for hedge accounting treatment may result in 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. The risk management strategies and hedging instruments that we use to directly mitigate the volatility in net income associated with certain of these liabilities, including the use of reinsurance and derivatives, may not effectively offset the costs of guarantees and may not be completely effective. Furthermore, changes in policyholder behavior or mortality, combined with adverse market events, may produce economic losses not addressed by the risk management techniques employed. These factors 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. Operational Risks Our Risk Management Policies and Procedures or Our Models May Leave Us Exposed to Unidentified or Unanticipated Risk Our enterprise risk management policies and procedures may not be sufficiently 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 that 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. Models used by our business may be misspecified for their intended purpose, may be misused, may not operate properly, and may 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 associates 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 in the future due to legal and regulatory requirements, which could result in increased costs and may adversely affect our results of operations. See: • • “Business — Regulation — Insurance Regulation” and “Quantitative and Qualitative Disclosures About Market Risk.” Our Policies and Procedures May Be Insufficient To Protect Us From Certain Operational Risks 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, and complexity of our administrative systems, 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 to provide or verify 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. 55 Table of Contents 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, misconduct, or discontinuation of services that result could have a material adverse effect on our business, reputation, results of operations, or financial condition. From time to time, our administrative and operational practices may fail to timely and completely identify all of the property that we are legally required to escheat to a variety of jurisdictions as unclaimed property. As a result, we may be subject to unexpected charges, reserve strengthening, and expenses, as well as regulatory examinations, penalties or other fines. Each of these affects may harm our reputation or regulatory relationships that may harm our business, financial condition, or results of operations. Our practices and procedures are evaluated periodically and from time to time may limit our efforts to contact all of our customers, which may result in delayed, untimely, or missed customer payments that may have a material adverse effect on the Company, including reputational harm. We are subject to risks related to fraud, including fraud committed by our associates, as well as fraud through claims and other processes. Our policies and procedures may be ineffective in preventing, detecting or mitigating fraud and other illegal or improper acts, which could have a material adverse effect on our business, reputation, financial condition, or results of operations. If our policies and practices to attract, motivate and retain employees, to develop talent, and to plan for management succession are not effective, our business, results of operations, and financial condition could be adversely affected. We cannot be certain that we will not identify 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. See “Business — Regulation — Unclaimed Property.” A Failure in Our Cybersecurity or Other Information Security Systems or Our Disaster Recovery Plans, or Those of Our Suppliers, Could Result in a Loss or Disclosure of Confidential Information, Damage to Our Reputation and Impairment of Our Ability to Conduct Business Effectively We rely on the effective operation of our and our suppliers’ computer 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 and our suppliers’ computer systems, and we rely on sophisticated technologies to maintain the security of that information. Our and our suppliers’ computer systems are subject to computer viruses or other malicious codes, unauthorized or fraudulent access, social engineering, phishing, human error, cyberattacks or other computer-related penetrations, and such threats 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 and our suppliers’ computer systems. In some cases, such cyber-incidents may not be immediately detected. Such incidents may impede or interrupt our business operations and could adversely affect our business, reputation, financial condition and 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 and our suppliers’ 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 and our suppliers’ computer-based data processing, transmission, storage and retrieval systems and destroy valuable data. In addition, if a significant number of our managers, or associates generally, are 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 associates’ ability to perform their job responsibilities. The failure of our and our suppliers’ computer systems or our and our suppliers’ disaster recovery plans for any reason, or any such failure on the part of vendors, distributors, and other third parties that provide operational or information technology services to us, 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. Insurance for cyber liability, operational and other risks relating to our business and systems may not be sufficient to protect us against such losses or may become less readily available or more expensive, which could adversely affect our results of operations. In addition, increased scrutiny of cybersecurity issues by regulators, including new laws or regulations, could result in increased compliance costs. 56 Table of Contents 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 or Result in Legal or Regulatory Penalties If we or our suppliers fail to maintain adequate internal controls or if our or our suppliers’ associates fail to comply with relevant policies and procedures, misappropriation or intentional or unintentional inappropriate disclosure or misuse of our clients’ confidential personal information could occur. Such internal control inadequacies or non-compliance could materially damage our reputation or lead to civil or criminal penalties, which, in turn, could have a material adverse effect on our business, financial condition and results of operations. Increased scrutiny of privacy issues by regulators, including new laws or regulations, could result in increased compliance costs. In addition, any inquiries from U.S. state, federal or other regulators regarding the use of “big data” techniques could result in harm to our reputation, and any limitations could have a material impact on our business, financial condition and results of operations. See “Business — Regulation — Cybersecurity and Privacy Regulation.” Changes in Accounting Standards May Adversely Affect Our Financial Statements 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”) and the IFRS Foundation. We cannot always meaningfully assess the effects of such new or revised accounting standards on our financial statements. Our adoption of future accounting standards could have a material adverse effect on our financial condition and results of operations. See Note 1 of the Notes to the Consolidated Financial Statements. Our Associates May Take Excessive Risks, Which Could Negatively Affect Our Financial Condition and Business 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, may take excessive risks in a wide variety of business decisions, including setting underwriting guidelines and standards, determining claims, designing and pricing products, determining what assets to purchase for investment and when to sell them, evaluating business opportunities, and other decisions. The design and implementation of our compensation programs and practices may not be effective in deterring our associates from taking excessive risks, and our controls and procedures may not be sufficient to monitor associates’ business decisions, prevent excessive risk-taking, or prevent associate misconduct. If our associates take excessive risks, the impact of those risks could have a material adverse effect on our reputation, financial condition and business operations. We May Experience Difficulty in Marketing and Distributing Products Through Our Distribution Channels Third-party distributors, through whom we primarily distribute our products, may 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. There can be no assurance that the terms of our agreements with third-party distributors will remain acceptable to us or such third parties. 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, and new distribution channels could emerge, and such developments could adversely impact the effectiveness of our distribution efforts. Consolidation of distributors and 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. Interruptions or changes to our relationships with distributors could materially hinder our ability to market our products and could have a material adverse effect on our business, operating results and financial condition. We may not be able to monitor or control the manner in which unaffiliated firms or agents distribute our products. If our products are distributed by such firms or agents in an inappropriate manner, or to customers for whom they are unsuitable, we may be subject to reputational harm, regulatory fines and other harm to our business. 57 Table of Contents Changes in Our Assumptions Used for Our Pension and Other Postretirement Benefit Plans May Result in Increased Expenses and Reduce Our Profitability Changes in our assumptions regarding discount rates, rates of return on plan assets, mortality rates, compensation levels and medical inflation may adversely affect our estimates of pension and other postretirement benefit plan experience, which could result in increased expenses and reduce our profitability. See Note 17 of the Notes to the Consolidated Financial Statements. We May Not be Able to Protect Our Intellectual Property and May be Subject to Infringement Claims Contractual rights with third parties and copyright, trademark, patent and trade secret laws may be insufficient to prevent third parties from infringing on or misappropriating 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 may result in a significant diversion of resources, 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: • • patent, trademark or copyright infringement; breach of patent, trademark or copyright license usage rights; or • misappropriation of trade secrets. Any such claims or resulting litigation could result in significant expense and liability for damages. If we are 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. 58 Table of Contents 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 Acquisitions and dispositions of businesses, joint ventures, and other structural changes expose us to a number of risks arising from, among other factors: • • • • • • • • • • • • • • • potential difficulties achieving projected financial results, including the costs and benefits of integration or deconsolidation, due to macroeconomic, business, demographic, actuarial, regulatory, or political factors; unforeseen liabilities or asset impairments; the scope and duration of rights to indemnification for losses, and the recoverability of such indemnification; the use of capital that could be used for other purposes; liquidity requirements; reactions of ratings agencies, shareholders, policyholders and contractholders, distributors, suppliers and other contractual counterparties; regulatory requirements that could impact our operations or capital requirements; changes in statutory or U.S. GAAP accounting principles, practices or policies; dedication of management resources that could otherwise be deployed to other business, or distraction of key personnel from maximizing business value; providing or receiving transition services that may disrupt operations or impose liabilities or restrictions on us; loss of key personnel or difficulties recruiting personnel; loss of customers; loss of distribution resources or suppliers; inefficiencies as we integrate operations and address differences in cultural, management, information, compliance and financial systems and procedures; and impacts on internal controls and procedures. The success with which we are able to conduct business through joint ventures, including exclusive or semi-exclusive distribution relationships, will depend on our ability to manage a variety of issues, including the following: • • • Entering into joint ventures with other companies or government sponsored entities in various international markets, including joint ventures where we have a lesser degree of control over the business operation, may expose us to additional operational, financial, legal or compliance risks. Dependence on a joint venture counterparty for capital, product distribution, local market knowledge, or other resources, or dependence on a joint venture counterparty due to limits on our ownership levels or distribution exclusivity requirements under local laws or regulations, may reduce our control over, our financial returns from, or the value of a joint venture. If we are unable to effectively cooperate with joint venture counterparties, or a 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. Reorganizing or consolidating the legal entities through which we conduct business may raise similar risks. The success with which we are able to realize benefits from legal entity reorganizations will also depend on our ability to manage a variety of issues, including regulatory approvals, modification of our operations and changes to our investment portfolios or derivatives hedging activities. Any of these risks, if realized, could prevent us from achieving the benefits we expect or could otherwise have a material adverse effect on our business, results of operations or financial condition. 59 Table of Contents See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Acquisitions and Dispositions.” We Are Subject to Risks Related to Our Separation from and Continuing Relationship with Brighthouse We remain subject to certain risks related to our separation from and continuing relationship with Brighthouse. There can be no assurance that we will realize any or all of the expected strategic, financial, operational or other benefits of the separation of Brighthouse, and 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. Our agreements with Brighthouse, and the tax treatment of the separation, also expose us to risk. In addition, we cannot guarantee that Brighthouse will be successful as a standalone entity. If Brighthouse is not successful, plaintiffs could assert a variety of claims against us, which could have a material adverse effect on our business, financial condition or results of operations. See: • • “Business — Regulation — Brighthouse Separation Tax Treatment” and Note 3 of the Notes to the Consolidated Financial Statements. Governance 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 As a result of the voting provisions of the MetLife Policyholder Trust and the number of shares held by it, 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. Additionally, if a vote concerns certain fundamental corporate actions, the trustee will vote all of the shares of common stock held by the Trust in proportion to instructions it receives from Trust beneficiaries, which will give disproportionate weight to the instructions actually given by Trust beneficiaries. The winding up of the Trust must commence within 90 days after we notify the trustee that the Trust holds 10% or less of MetLife’s outstanding common stock. When the Trust is terminated and the shares of common stock then held in the Trust are distributed to the respective Trust beneficiaries, we may incur costs related to the termination of the Trust, such as regulatory filings and mailings to Trust beneficiaries or others, and afterward we may incur costs related to an increase in the number of shareholders, such as 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. State Laws, Federal Laws, and Our Certificate of Incorporation 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. 60 Table of Contents Any person seeking to acquire a controlling interest in us would face various regulatory obstacles, including: • • • • • • applicable U.S. state or foreign insurance laws and regulations that may delay or impede a business combination involving us by prohibiting an entity from acquiring control of an insurance company without the prior approval of its domestic insurance regulator; 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 registered broker-dealer; provisions of the Delaware General Corporation Law that may affect the ability of an “interested stockholder” to engage in certain business combinations; and applicable antitrust and competition laws. In addition, provisions of MetLife, Inc.’s certificate of incorporation and by-laws 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, including 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 consideration of stockholder proposals. Additionally, stockholders may change MetLife, Inc.’s corporate governance through amendments to MetLife, Inc.’s certificate of incorporation or by-laws in ways that make it more difficult for the Board of Directors to protect stockholders’ interests, for example, if the Board of Directors is 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, 2018, 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 112 leases used in support of all segments, as well as Corporate & Other. Also, as of December 31, 2018, we owned three properties and have approximately 169 leases in Japan, which are used primarily by our Asia segment. Excluding the U.S. and Japan, we own approximately 112 properties and have approximately 986 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. 61 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 under the symbol “MET” on April 5, 2000. At February 14, 2019, there were 75,017 stockholders of record of our common stock. 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, 2018 are set forth below: Period October 1 - October 31, 2018 November 1 - November 30, 2018 December 1 - December 31, 2018 Total __________________ (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) — 13,447,275 14,979,095 28,426,370 — $44.40 $40.26 — 13,447,275 14,978,937 28,426,212 $470,341,462 $1,873,338,798 $1,270,341,498 (1) (2) Except for the foregoing, there were no shares of MetLife, Inc. common stock repurchased by MetLife, Inc. During the periods October 1 through October 31, 2018, November 1 through November 30, 2018 and December 1 through December 31, 2018, separate account index funds purchased 0 shares, 0 shares and 158 shares, respectively, of MetLife, Inc. common stock on the open market in non-discretionary transactions. In November 2018, MetLife, Inc. announced that its Board of Directors authorized $2.0 billion of common stock repurchases. At December 31, 2018, MetLife, Inc. had $1.3 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 Risks — Legal and Regulatory Restrictions May Prevent Us from Paying Dividends and Repurchasing Our Stock 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, 2018. 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, 2013, 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. 62 CUMULATIVE TOTAL RETURN Based upon an initial investment of $100 on December 31, 2013 with dividends reinvested Table of Contents $300 $250 $200 $150 $100 $50 $0 31-Dec-13 31-Dec-14 31-Dec-15 31-Dec-16 31-Dec-17 31-Dec-18 MetLife, Inc. S&P 500 S&P 500 Insurance S&P 500 Financials As of December 31, 2013 2014 2015 2016 2017 2018 MetLife, Inc. common stock $ 100.00 $ 102.85 $ 94.34 $ 109.17 $ 118.46 $ S&P 500 S&P 500 Insurance S&P 500 Financials 100.00 100.00 100.00 113.69 108.29 115.20 115.26 110.81 113.44 129.05 130.29 139.31 157.22 151.38 170.21 99.74 150.33 134.42 148.03 63 Table of Contents Item 6. Selected Financial Data The following selected financial data has been derived from the Company’s audited consolidated financial statements. The statement of operations data for the years ended December 31, 2018, 2017 and 2016, and the balance sheet data at December 31, 2018 and 2017 have been derived from the Company’s audited consolidated financial statements included elsewhere herein. The statement of operations data for the years ended December 31, 2015 and 2014, and the balance sheet data at December 31, 2016, 2015 and 2014 have been derived from the Company’s audited consolidated financial statements not included herein. The selected financial data set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the audited consolidated financial statements and related notes included elsewhere herein. Statement of Operations Data Revenues Premiums Universal life and investment-type product policy fees Net investment income Other revenues Net investment gains (losses) Net derivative gains (losses) Total revenues Years Ended December 31, 2018 2017 2016 2015 2014 (In millions) $ 43,840 $ 38,992 $ 37,202 $ 36,403 $ 36,970 5,502 16,166 1,880 (298) 851 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 67,941 62,308 60,787 61,343 63,974 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 (1) 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 42,656 4,013 1,251 13,714 61,634 6,307 1,179 5,128 — 5,128 5 5,123 141 — 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 — $ 4,982 $ 3,907 $ 747 $ 5,215 $ 6,187 64 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 (1): 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 (1) Separate account assets Total assets Policyholder liabilities and other policy-related balances (2) Short-term debt Long-term debt Collateral financing arrangement Junior subordinated debt securities Liabilities of disposed subsidiary (1) Separate account liabilities Accumulated other comprehensive income (loss) Total MetLife, Inc.’s stockholders’ equity Noncontrolling interests Years Ended December 31, 2018 2017 2016 2015 2014 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 4.95 4.91 $ $ 4.57 4.53 $ $ 3.16 3.13 $ $ — $ — $ (0.92) $ (0.91) $ (2.48) $ (2.46) $ 3.48 3.44 1.19 1.18 4.95 4.91 1.660 $ $ $ 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 2018 2017 2016 2015 2014 December 31, (In millions) — $ — $ 216,983 175,556 687,538 388,107 268 12,829 1,060 3,147 $ $ $ $ $ $ $ 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 — $ — $ 202,707 175,556 1,722 52,741 217 $ $ $ $ 205,001 7,427 58,676 194 $ $ $ $ 195,578 5,366 67,531 171 $ $ $ $ $ $ $ $ $ $ $ $ $ 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 Years Ended December 31, 2018 2017 2016 2015 2014 Other Data (3) Return on MetLife, Inc.’s common stockholders’ equity 9.6% 6.3% 1.0% 7.7% 9.5% __________________ (1) (2) (3) 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. 65 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 67 67 73 79 87 87 89 116 117 134 136 137 137 145 166 166 166 171 66 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. 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. See “Note Regarding Forward-Looking Statements” for cautionary language 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. 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. 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. U.S. Tax Reform In December 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. While the Company recorded a reasonable estimate of the tax effects of U.S. Tax Reform in the period of enactment, its income tax accounting was not complete due to uncertainties that existed at the time. Accordingly, certain U.S. Tax Reform amounts were revised in the Company’s consolidated financial statements for the year ended December 31, 2018. In addition, given the complexities of U.S. Tax Reform, there still remain uncertainties surrounding aspects of the new law that may impact results in the future. See Note 18 of the Notes to the Consolidated Financial Statements for a further discussion of U.S. Tax Reform.  Separation of Brighthouse In August 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”). For information regarding the Separation, the Company’s 2018 sale of the fair value option (“FVO”) Brighthouse Financial, Inc. common stock (“FVO Brighthouse Common Stock”), and ongoing transactions between MetLife and Brighthouse, see Notes 3 and 12 of the Notes to the Consolidated Financial Statements. Current Year Highlights During the year ended December 31, 2018, overall sales increased compared to the year ended December 31, 2017 primarily from improved sales in our RIS business and in Japan. Positive net flows drove an increase in our investment portfolio and investment yields improved, however, interest credited rates were higher. A favorable change in net derivative gains (losses) was primarily the result of changes in foreign currency exchange rates and interest rates. While U.S. Tax Reform positively impacted net income in both 2018 and 2017, the impact in 2017 was significantly larger. In addition, our annual actuarial assumption review negatively impacted results when compared to 2017. Our results for 2017 included a loss from the operations of Brighthouse that is reflected in discontinued operations. 67 Table of Contents 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, 2018: _______________ (1) Excludes Corporate & Other adjusted loss available to common shareholders of $704 million. (2) Consistent with GAAP guidance for segment reporting, adjusted earnings is our GAAP measure of segment performance. For additional information, see Note 2 of the Notes to the Consolidated Financial Statements. 68 Table of Contents Year Ended December 31, 2018 Compared with the Year Ended December 31, 2017 Consolidated Results - Highlights Net income (loss) available to MetLife, Inc.’s common shareholders up $1.1 billion: • Favorable change in net derivative gains (losses) of $1.4 billion ($1.1 billion, net of income tax) • Favorable change in results from divested businesses of $936 million ($650 million, net of income tax) included in continuing operations • Favorable change in income (loss) from discontinued operations, net of income tax, of $986 million • Net tax-related benefit in 2017 of $1.3 billion due to U.S. Tax Reform • Net unfavorable change from our annual actuarial assumption reviews of $395 million ($297 million, net of income tax) • Adjusted earnings available to common shareholders up $1.2 billion (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 Highlights Adjusted earnings available to common shareholders up $1.2 billion: • The primary drivers of the increase in adjusted earnings were higher net investment income due to a larger asset base and higher investment yields, the favorable impact of U.S. Tax Reform, other favorable tax items, favorable refinements to DAC and certain insurance-related liabilities, lower expenses and favorable underwriting, partially offset by higher interest credited expenses and the net unfavorable change from our annual actuarial assumption review. • Our results for the year ended December 31, 2018 included the following: • a $349 million benefit from the IRS audit settlement related to the tax treatment of a wholly-owned U.K. investment subsidiary of MLIC, which was comprised of a $168 million tax benefit and a $181 million interest benefit • favorable impact from U.S. Tax Reform of $179 million, which includes a $78 million charge related to a revision in the estimate from the enactment of this reform • favorable reserve adjustment of $62 million, net of income tax, relating to certain variable annuity guarantees assumed from a former joint venture in Japan • a $37 million, net of income tax, favorable net insurance adjustment resulting from reserve and DAC modeling improvements in our individual disability insurance business • expenses associated with our previously announced unit cost initiative of $284 million, net of income tax • a $63 million, net of income tax, charge due to a current period increase in our incurred but not reported (“IBNR”) life reserves, reflecting enhancements to our processes related to potential claims • a $60 million, net of income tax, increase in litigation reserves • unfavorable impact from our annual actuarial assumption review of $42 million, net of income tax • Our results for 2017 included the following: • a tax charge of $298 million related to U.S. Tax Reform • net tax-related 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 net tax-related benefit from the finalization of certain tax audits 69 Table of Contents • expenses associated with our previously announced unit cost initiative of $102 million, net of income tax • 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”) • 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 For a more in-depth discussion of our consolidated results, see “— Results of Operations — Consolidated Results,” “— Results of Operations — Consolidated Results — Adjusted Earnings” and “— Results of Operations — Segment Results and Corporate & Other.” 70 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 Highlights 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 • expenses associated with our previously announced unit cost initiative of $102 million, net of income tax • a $73 million, net of income tax, charge for expenses incurred related to a guaranty fund assessment for 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 71 Table of Contents For a more in-depth discussion of our consolidated results, see “— Results of Operations — Consolidated Results,” “— Results of Operations — Consolidated Results — Adjusted Earnings” and “— Results of Operations — Segment Results and Corporate & Other.” Consolidated Company Outlook Our enterprise 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 has enhanced our ability to focus on the right markets, build clear differentiators, and continue to make the right investments to deliver shareholder value. Post-Separation, we are well-positioned in less volatile and fee-based businesses; as a result, we expect our results to be less sensitive to interest rates. Assuming interest rates follow the observable forward yield curves as of the year ended December 31, 2018, we expect the average ratio of free cash flow to adjusted earnings over the two-year period of 2019 and 2020 to be 65% to 75%, assuming a 10-year U.S. Treasury rate between 2.0% and 4.5%. We believe that free cash flow is a key determinant of common stock dividends and common stock repurchases. In light of the move away from a sustained low interest rate environment, compounding business growth and our expense initiative, we are targeting an adjusted return on equity, excluding accumulated other comprehensive income (“AOCI”) other than foreign currency translation adjustments (“FCTA”), of 12% to 14% over the near-term. This target reflects our unit cost improvement program and the related initiative to invest $1.0 billion by 2020 to generate a pre-tax profit margin improvement of $800 million, which represents an approximate 200 basis point decline in our direct expense ratio, excluding total notable items related to direct expenses and pension risk transfers, by 2020 from our 2015 baseline year. A key element of our enterprise strategy is to return excess capital to common shareholders through dividends and stock repurchases. In 2018, we returned $5.7 billion of capital to common shareholders through common stock dividends and common stock repurchases. Common stock repurchases are subject to the discretion of our Board of Directors and will depend upon 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, applicable regulatory approvals, and other legal and accounting factors. 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. Additional guidance from the U.S. Treasury, SEC or the FASB may require us to revise these projections in future periods. 72 Table of Contents Other Key Information Basis of Presentation Consolidation Effective January 1, 2016, the Company converted its Japan operations from a fiscal year cutoff of November 30th 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. See Notes 1 and 2 of the Notes to the Consolidated Financial Statements. Discontinued Operations The results of Brighthouse are reflected in the Company’s consolidated financial statements as discontinued operations and, therefore, are presented as income (loss) from discontinued operations on the consolidated statements of operations. The reporting of discontinued operations had no impact on total consolidated net income (loss) for any of the years presented. See Note 3 of the Notes to the Consolidated Financial Statements for information on discontinued operations and ongoing transactions with Brighthouse. Hurricanes In 2018, Hurricanes Michael and Florence made landfall in the Florida Panhandle and North and South Carolina, respectively, causing loss of life and extensive property damage. As of December 31, 2018, MetLife’s Property & Casualty business recognized losses from these hurricanes of $27 million ($21 million, net of income tax). Additional storm-related losses may be recorded in future periods as claims are received from insureds. In 2017, Hurricanes Irma and Harvey made landfall in Florida and Texas, respectively, causing loss of life and extensive property damage. As of December 31, 2017, MetLife’s Property & Casualty business recognized losses from these hurricanes of $65 million ($42 million, net of income tax). Argentina Highly Inflationary The inflation levels in Argentina have been elevated for several years. In the first half of 2018, Argentina’s reported inflation rates began to increase dramatically and the Argentine central bank significantly increased interest rates in an effort to combat inflation. Based on Argentina’s reported inflation rates and trends, as of July 1, 2018, we designated Argentina as a highly inflationary economy for accounting purposes. The change to highly inflationary accounting did not have a material impact on the Company’s consolidated financial statements for the year ended December 31, 2018. 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 Risks — Difficult Economic Conditions May Adversely Affect Our Business, Results of Operations and Financial Condition.” We have market presence in numerous countries and, therefore, our business operations are exposed to risks posed by local and regional economic conditions. For example, MetLife is the largest provider of benefits to Mexican federal government personnel and public officials, however, the new administration of President López Obrador of Mexico is implementing an austerity plan which, among other measures, has eliminated benefits such as major medical insurance and contributions to additional savings benefit insurance for such individuals. See “Business — Regulation — Fiscal Measures” and “Risk Factors — Economic Environment and Capital Markets Risks — Difficult Economic Conditions May Adversely Affect Our Business, Results of Operations and Financial Condition — Currency Exchange Rate Risk.” See “— Executive Summary — Other Key Information — Argentina Highly Inflationary” for further information regarding the impact of Argentina’s highly inflationary economy on the Company’s consolidated financial statements. 73 Table of Contents We are closely monitoring political and economic conditions 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 planned withdrawal from the EU, have contributed to global market volatility. These factors could contribute to weakening Gross Domestic Product growth, primarily in the U.K. and, to a lesser degree, in 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 and Sector Investments.” We are also monitoring the imposition of tariffs or other barriers to international trade, changes to international trade agreements, and their potential impacts on our business, results of operations and financial condition. In addition, the possibility of additional government shutdowns or a failure to raise the debt ceiling, due to a policy impasse or otherwise, could adversely impact our business and liquidity. See “Business — Regulation — Cross-Border Trade” and “Business — Regulation — Fiscal Measures.” See also “Risk Factors — Economic Environment and Capital Markets Risks — Difficult Economic Conditions May Adversely Affect Our Business, Results of Operations and Financial Condition” and “Risk Factors — Business Risks — The Global Nature of Our Operations Exposes Us to a Variety of Political, Legal, Operational, Economic and Other Risks.” 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 continued along its stated path of 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 2018. Similarly, recognizing the economic recovery, the European Central Bank ended quantitative easing in December 2018 and left interest rates unchanged. 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 October 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 sustained periods of low 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. See “— Results of Operations — Consolidated Results — Year Ended December 31, 2018 Compared with the Year Ended December 31, 2017 — Actuarial Assumption Review and Certain Other Insurance Adjustments” for further information. 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. 74 Table of Contents 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 businesses reported within our Latin America, EMEA, and Asia (exclusive of our Japan business) segments are not significantly interest rate or market sensitive; in particular, they have limited 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 2.69% at December 31, 2018 to 4.25% in 8 years, by 2026 and remains level afterwards and that 10-year yields will reach 2.76%, 2.84% and 2.93% by December 31, 2019, 2020 and 2021, respectively. Also included is the projection that the three-month LIBOR rate will move from 2.81% at December 31, 2018 to 2.63%, 2.41% and 2.46% by December 31, 2019, 2020 and 2021, respectively. The low interest rate scenario reflects an assumed 100 basis point decline in all interest rate maturities compared to the base scenario from December 31, 2018 through December 31, 2021 (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 2019, 2020 and 2021 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 base scenario through 2021. These rates represent the most relevant short-term and long-term rates for our base scenario which uses LIBOR as the benchmark rate. See “Risk Factors — Economic Environment and Capital Risks — Difficult Economic Conditions May Adversely Affect Our Business, Results of Operations and Financial Condition — Interest Rate Risk” for information regarding the potential change from LIBOR to SOFR. 2019 2020 2021 Low Interest Rate Scenario Base Scenario Low Interest Rate Scenario Base Scenario Low Interest Rate Scenario Base Scenario Three-month LIBOR 10-year U.S. Treasury 1.63% 1.76% 2.63% 2.76% 1.41% 1.84% 2.41% 2.84% 1.46% 1.93% 2.46% 2.93% The Low Interest Rate Scenario assumes the three-month LIBOR to be 1.81% and the 10-year U.S. Treasury rate to be 1.69% at December 31, 2018. We assume the low interest rate scenario to be 100 basis points lower than the base scenario until December 31, 2021 for all interest rate maturities. In addition, in the Low Interest Rate Scenario, we assume credit spreads to remain constant from December 31, 2018 through the end of 2021 as compared to our base scenario. 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. 75 Table of Contents 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 $15 million in 2019, $140 million in 2020 and $265 million in 2021. 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 base scenario rates and the yield curve steepens beyond 2018. For example, our securities lending business performs better than our base scenario 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 Low Interest Rate Scenario will decrease in 2020 and 2021 compared to 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 base scenario. 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 an increase in net income of $719 million in 2019, and a decline in net income of $35 million in 2020 and $69 million in 2021. 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%. Approximately half 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, $15 million and $5 million in 2019, 2020 and 2021, respectively. 76 Table of Contents Retirement and Income Solutions RIS contains both short and long-duration products consisting of capital market products, pension risk transfers, structured settlements, and other benefit funding products. A significant portion 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 sensitivities below do not include the impact of additional ALM actions that we may take in our capital markets business. The long- duration products have very predictable cash flows and our strategy is to match asset and liability durations consistent with our ALM policies. We also use interest rate swaps as part of our ALM strategy and to help protect income in this business. While we expect to experience margin compression as we reinvest at lower rates, the interest rate derivatives and the ALM strategy this portfolio follows should partially mitigate this risk. Also, based on cash flow estimates, only a small component of the invested asset base is subject to reinvestment risk. Reinvestment risk is defined for this purpose as the amount of reinvestment in 2019, 2020 and 2021 that would impact adjusted earnings due to reinvesting cash flows in the Low Interest Rate Scenario. We estimate an unfavorable combined long-term and short-term interest rate impact on adjusted earnings on our RIS business from the Low Interest Rate Scenario of $15 million, $20 million, and $20 million in 2019, 2020, and 2021, respectively. 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 $0 million, $5 million and $10 million in 2019, 2020 and 2021, respectively. Asia Our Japan business offers traditional life insurance and accident & health products, many of which are denominated in U.S. dollars. 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 $20 million, $45 million and $85 million in 2019, 2020 and 2021, 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. 77 Table of Contents 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 2019, 2020 and 2021 that would impact adjusted earnings due to reinvesting cash flows in the Low Interest Rate Scenario. For the life business, $3.4 billion, $4.5 billion and $4.0 billion in 2019, 2020 and 2021, respectively, of the asset base will be subject to reinvestment risk on an average asset base of $59.9 billion, $59.9 billion and $59.6 billion in 2019, 2020 and 2021, respectively. For our deferred annuities business, $1.1 billion, $0.8 billion, and $1.2 billion in 2019, 2020, and 2021, respectively, of the asset base will be subject to reinvestment risk on an average asset base of $16.2 billion, $15.4 billion and $14.7 billion in 2019, 2020 and 2021, respectively. For our long-term care portfolio, $1.6 billion, $1.6 billion and $1.6 billion of the asset base in 2019, 2020 and 2021, respectively, will be subject to reinvestment risk on an average asset base of $12.8 billion, $13.5 billion and $14.2 billion in 2019, 2020 and 2021, respectively. We estimate an unfavorable combined long-term and short-term interest rate impact on the adjusted earnings of our MetLife Holdings segment from the Low Interest Rate Scenario of $10 million, $55 million and $100 million in 2019, 2020 and 2021, 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 $5 million, $30 million and $55 million in 2019, 2020 and 2021, respectively. Competitive Pressures The life insurance industry remains highly competitive. See “Business — Competition.” 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. Insurers are increasingly seeking alternative sources of revenue; there is a focus on monetization of assets, fee-based services, and opportunities to offer comprehensive solutions, which include providing value-added services along with traditional products. 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. 78 Table of Contents 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 Businesses Are Highly Regulated, and Changes in Laws, Regulation and in Supervisory and Enforcement Policies May Reduce Our Profitability, Limit Our Growth, or Otherwise Adversely Affect Our Business, Results of Operations and Financial Condition.” Regulators have also undertaken market and sales practices reviews of several markets or products, including equity-indexed annuities, variable annuities and group products and, in some states, instituted a moratorium on new reserve financing transactions. See “Business — Regulation,” “Risk Factors — Economic Environment and Capital Markets Risks — Our Statutory Life Insurance Reserve Financings May Be Subject to Cost Increases, and New Financings May Be Subject to Limited Market Capacity,” “Risk Factors — Regulatory and Legal Risks — Our Businesses Are Highly Regulated, and Changes in Laws, Regulation and in Supervisory and Enforcement Policies May Reduce Our Profitability, Limit Our Growth, or Otherwise Adversely Affect Our Business, Results of Operations and Financial Condition” and “— Liquidity and Capital Resources — The Company — Capital — Affiliated Captive Reinsurance Transactions.” 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 the 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. 79 Table of Contents 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 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. 80 Table of Contents 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 $40 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, 2018, 2017 and 2016, DAC and VOBA for the Company was $18.9 billion, $18.4 billion and $17.6 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, 2018, 2017 and 2016. 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/Net derivative gains (losses) and GMIB In-force/Persistency Policyholder dividends, expense and other Total Years Ended December 31, 2018 2017 2016 (In millions) 22 $ (5) $ (42) (215) 26 — 21 58 (10) 68 (209) $ 132 $ 5 (3) 270 (63) (187) 22 $ $ 81 Table of Contents Significant items contributing to the changes to DAC and VOBA amortization in 2018 consisted of the following: • Net increase in amortization of $215 million associated with net investment/net derivative gains (losses) and GMIB, primarily driven by the following: – An increase in amortization of $90 million from net derivative gains from freestanding derivatives hedging the variable annuity guarantees, partially offset by a decrease in amortization of approximately $30 million from net derivative losses resulting from the increases in variable annuity guarantee obligations. – An increase in amortization of approximately $35 million associated with gains from GMIB hedges and the decreases in GMIB obligations. – Net increase in amortization of approximately $100 million from the annual actuarial assumption update and other investment activities. Significant items contributing to the changes to DAC and VOBA amortization in 2017 consisted of the following: • • Net decrease in amortization of $58 million associated with net investment/net derivative gains (losses) and GMIB, primarily driven by the following: – A decrease in amortization of approximately $90 million from net derivative losses from freestanding derivatives hedging the variable annuity guarantees, largely offset by an increase in amortization of approximately $80 million from net derivative gains resulting from the decreases in variable annuity guarantee obligations. – Net decrease in amortization of approximately $45 million from other investment activities. Net decrease in amortization of $68 million related to policyholder dividends, expense and other primarily driven by the following: – A decrease in amortization of approximately $60 million from the annual actuarial assumption update of the closed block, partially offset by an increase in amortization of approximately $40 million from updating the dividend scales of the participating life contracts. – A decrease in amortization of approximately $55 million due to an adjustment related to certain participating whole life business assumed from Brighthouse. Significant items contributing to the changes to DAC and VOBA amortization in 2016 consisted of the following: • Net decrease in amortization of $270 million associated with net investment/net derivatives gains (losses) and GMIB, primarily driven by the following: – A decrease in amortization of approximately $180 million from net derivative losses from freestanding derivatives hedging the variable annuity guarantees. – A decrease in amortization of approximately $20 million from net derivative losses resulting from the increases in the variable annuity guarantee obligations. – A decrease in amortization of approximate $40 million primarily associated with losses from GMIB hedges and the decreases in GMIB obligations. – Net decrease in amortization of approximately $30 million from the annual actuarial assumption update and other investment activities. • An increase in amortization of $187 million related to policyholder dividends, expense and other primarily driven by the following: – An increase in amortization of approximately $110 million from the annual actuarial assumption update of the closed block. – An increase in amortization of approximately $70 million from updating the dividend scales of the participating life contracts. Our DAC and VOBA balance is also impacted by unrealized investment gains (losses) and the amount of amortization which would have been recognized if such gains and losses had been realized. The decrease in unrealized investment gains (losses) increased the DAC and VOBA balance by $521 million, $529 million and $163 million in 2018, 2017 and 2016, respectively. See Notes 5 and 8 of the Notes to the Consolidated Financial Statements for information regarding the DAC and VOBA offset to unrealized investment gains (losses). 82 Table of Contents 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 unadjusted quoted prices are not available, estimated 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 fixed maturity securities available-for-sale (“AFS”) 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 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 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. 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. 83 Table of Contents 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, 2018 Policyholder Account Balances DAC and VOBA $ $ $ (In millions) 595 793 906 $ $ $ 36 70 89 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. 84 Table of Contents 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 2018, 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 25% 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 5%. 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, 2018, 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 2018 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, 2018 and concluded that the estimated fair values of all such reporting units were substantially 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. See Note 17 of the Notes to the Consolidated Financial Statements for information on amendments to our U.S. benefit plans. 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. 85 Table of Contents 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, 2017, 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 $109 million and an increase of $109 million, respectively, in 2018. 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, 2017, 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 $117 million and an increase of $113 million, respectively, in 2018. 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 in which we conduct business. 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 consolidated financial statements in the year these changes occur. In December 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. While the Company recorded a reasonable estimate of the tax effects of U.S. Tax Reform in the period of enactment, its income tax accounting was not complete due to uncertainties that existed at the time. Accordingly, certain U.S. Tax Reform amounts were revised in the Company’s consolidated financial statements for the year ended December 31, 2018. See also Notes 1 and 18 of the Notes to the Consolidated Financial Statements for additional information on our income taxes. 86 Table of Contents Litigation Contingencies We are a defendant in a large number of litigation matters and are involved in a number of regulatory investigations. 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. 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 reliable data and uncertainty regarding numerous variables that can affect liability estimates. 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 Separation of Brighthouse For information regarding the Separation, the Company’s 2018 sale of the FVO Brighthouse Common Stock, and ongoing transactions between MetLife and Brighthouse, see Notes 3 and 12 of the Notes to the Consolidated Financial Statements. Disposition of MetLife Afore, S.A. de C.V. For information regarding the Company’s 2018 disposition of MetLife Afore, its pension fund management business in Mexico, see Note 3 of the Notes to the Consolidated Financial Statements. Acquisition of Logan Circle Partners, L.P. In 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 was a fundamental research-based investment manager providing institutional clients actively managed investment solutions across a broad spectrum of fixed income strategies. 87 Table of Contents U.S. Retail Advisor Force Divestiture In 2016, MetLife, Inc. completed the sale to Massachusetts Mutual Life Insurance Company 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. See Note 3 of the Notes to the Consolidated Financial Statements for further information. 88 Table of Contents Results of Operations Consolidated Results Business Overview. Overall sales for the year ended December 31, 2018 increased over 2017 levels reflecting higher sales in the majority of our businesses. In our U.S. segment, improved sales in our RIS business were partially offset by slightly lower sales in our Group Benefits business as the impact of strong jumbo case sales in our core products in 2017 more than offset strong sales in our voluntary products in 2018. The improvement in RIS was the result of higher sales of pension risk transfers, most notably a large pension risk transfer transaction in the second quarter of 2018, stable value, specialized life insurance, and structured settlement products, partially offset by lower funding agreement issuances. An increase in sales in our Asia segment was primarily driven by growth in sales of foreign currency-denominated annuity and life products, as well as accident & health products, in Japan, partially offset by a decrease in sales in Korea and Hong Kong. In our Latin America segment, sales increased compared to 2017, driven by higher individual accident & health, credit life and retirement product sales in Chile, partially offset by lower pension and group medical sales in Mexico. Sales in EMEA decreased primarily due to the closure of the U.K. wealth management product to new business in the third quarter of 2017 and a decline in sales of our employee benefits product in the Gulf region. Revenues in our MetLife Holdings segment decreased as a result of the discontinuance of the marketing of life and annuity products in early 2017. Years Ended December 31, 2018 2017 (In millions) 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 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 $ 43,840 $ 38,992 $ 5,502 16,166 1,880 (298) 851 67,941 43,907 4,013 (3,254) 2,975 (56) 1,122 12,927 61,634 6,307 1,179 5,128 — 5,128 5 5,123 141 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 Net income (loss) available to MetLife, Inc.’s common shareholders $ 4,982 $ 3,907 $ 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 4,281 693 3,588 (2,734) 854 4 850 103 747 89 Table of Contents Year Ended December 31, 2018 Compared with the Year Ended December 31, 2017 During the year ended December 31, 2018, net income (loss) increased $1.1 billion from 2017, primarily driven by favorable changes in net derivative gains (losses), adjusted earnings, income (loss) from discontinued operations, and results from our divested businesses, partially offset by 2017 tax-related benefits, primarily related to U.S. Tax Reform. 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 AFS 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 contractholder-directed equity securities and fair value option securities (collectively, “Unit-linked and FVO Securities”), contractholder-directed equity securities supporting unit-linked variable annuity type liabilities (“Unit- linked investments”), which do not qualify as separate account assets. The returns on these 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 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. 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. For example, 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. 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 take advantage of recently adopted NAIC rules related to a statutory accounting election for derivatives that mitigate interest rate sensitivity related to variable annuity guarantees. The restructured hedge strategy is classified as a macro hedge program, included in the non-VA program derivatives section of the table below, 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. 90 Table of Contents Net Derivative Gains (Losses). The variable annuity embedded derivatives and associated freestanding derivative hedges are collectively referred to as “VA program derivatives.” All other derivatives that are economic hedges of certain invested assets and insurance liabilities are referred to as “non-VA program derivatives.” 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, 2018 2017 (In millions) $ 177 $ 464 (52) 115 78 782 (51) 133 (310) (228) 297 69 $ 851 $ (39) (379) 198 6 (131) (345) 1,052 (190) 68 930 (1,175) (245) (590) The favorable change in net derivative gains (losses) on non-VA program derivatives was $1.1 billion ($890 million, net of income tax). This was primarily due to the U.S. dollar strengthening relative to other key currencies in 2018 versus mostly weakening in 2017, favorably impacting foreign currency swaps that primarily hedge foreign currency-denominated bonds. In addition, there was a favorable change in interest rate impact due to: (i) the impact of the 2017 restructuring of the hedge program to decrease volatility from nonqualified interest rate derivatives and to help meet prospective dividend and free cash flow objectives under varying interest rate scenarios; (ii) long-term U.S. interest rates increased in 2018 and mostly decreased in 2017, favorably impacting receive float interest rate swaps; (iii) mid-term rates increased more significantly in 2018 than 2017, positively impacting interest rate caps; and (iv) certain foreign interest rates decreased in 2018 and increased in 2017, favorably impacting receive fixed interest rate swaps indexed to those rates. Also, equity markets decreased in 2018 and increased in 2017, favorably impacting new equity options acquired primarily as part of our macro hedge program. There was also a change in the value of the underlying assets favorably impacting non-VA embedded derivatives related to funds withheld on a certain reinsurance agreement. These increases were partially offset by credit spreads widening in 2018 and narrowing in 2017, unfavorably impacting written credit default swaps used in replications. 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 items being hedged. The favorable change in net derivative gains (losses) on VA program derivatives was $314 million ($248 million, net of income tax). This was due to a favorable change of $369 million ($292 million, net of income tax) in market risks in embedded derivatives, net of the impact of freestanding derivatives hedging those risks, and a favorable change of $323 million ($255 million, net of income tax) in the nonperformance risk adjustment on embedded derivatives, partially offset by an unfavorable change of $378 million, ($299 million, net of income tax) in other risks in embedded derivatives. Other risks relate primarily to the impact of policyholder behavior and other non-market risks that generally cannot be hedged. The aforementioned $369 million ($292 million, net of income tax) favorable change reflects a $1.5 billion ($1.2 billion, net of income tax) favorable change in freestanding derivatives hedging market risks in embedded derivatives, partially offset by a $1.1 billion ($871 million, net of income tax) unfavorable change in market risks in embedded derivatives. 91 Table of Contents The primary changes in market factors are summarized as follows: • • • Key equity index levels decreased in 2018 and increased in 2017, contributing to a favorable change in our freestanding derivatives and an unfavorable change in our embedded derivatives. For example, the S&P 500 Index decreased 6% in 2018 and increased 19% in 2017. Long-term U.S. interest rates increased in 2018 and mostly decreased in 2017, contributing to a favorable change in our embedded derivatives. Our freestanding interest rate derivatives were favorably impacted by the restructuring of the VA hedging strategy, partially offset by the increase in interest rates. For example, the 30-year U.S. swap rate increased 30 basis points in 2018 and decreased 5 basis points in 2017. Changes in foreign currency exchange rates contributed to a favorable change in our freestanding derivatives and an unfavorable change in our embedded derivatives related to the assumed variable annuity guarantees from our former operating joint venture in Japan. For example, the Japanese yen strengthened against the euro by 7% in 2018 and weakened by 10% in 2017. The aforementioned $378 million ($299 million, net of income tax) unfavorable change in other risks in embedded derivatives reflects: • • • Actuarial assumption updates associated with variable annuity guarantees assumed from our former operating joint venture in Japan, Updates to actuarial policyholder behavior assumptions within the valuation model, and A combination of other factors, which include fees being deducted from accounts, changes in the benefit base, premiums, lapses, withdrawals and deaths. The aforementioned $323 million ($255 million, net of income tax) favorable change in the nonperformance risk adjustment on embedded derivatives resulted from a favorable change of $172 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 a favorable change of $151 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 favorable change in net investment gains (losses) of $10 million ($8 million, net of income tax) primarily reflects lower non-investment portfolio losses in 2018. In 2017, we recognized a mark-to-market loss on our retained investment in Brighthouse Financial, Inc. in connection with the Separation. In 2018, we recognized lower losses representing both the change in estimated fair value of FVO Brighthouse Common Stock we held through date of disposal and the loss upon disposal in June 2018. In addition, in 2018, we recognized mark-to-market losses on equity securities which are measured at fair value through net income and in 2018 compared to 2017, there were lower gains on sales of fixed maturity securities AFS and real estate joint ventures. Actuarial Assumption Review and Certain Other Insurance Adjustments. Results for 2018 include a $358 million ($272 million, net of income tax) charge associated with our annual review of actuarial assumptions related to reserves and DAC, of which a $131 million loss ($94 million, net of income tax) was recognized in net derivative gains (losses). Of the $358 million charge, $20 million ($20 million, net of income tax) was related to DAC and $338 million ($252 million, net of income tax) was associated with reserves. The portion of the $358 million charge that was included in adjusted earnings was $53 million ($42 million, net of income tax). 92 Table of Contents The $131 million loss recognized in net derivative gains (losses) associated with our annual review of actuarial assumptions was included within the other risks in embedded derivatives caption in the table above. As a result of our annual review of actuarial assumptions, changes were made to economic, biometric, policyholder behavior, and operational assumptions. The most significant impacts were in the Asia and MetLife Holdings segments related to Japan variable annuities and the projection of closed block results, respectively, and are summarized as follows: • • • • Economic assumption updates resulted in net favorable changes in reserves and DAC of $38 million ($29 million, net of income tax). Changes to biometric assumptions resulted in net favorable changes in reserves and DAC of $55 million ($44 million, net of income tax). Changes in policyholder behavior assumptions resulted in a net charge of $321 million ($241 million, net of income tax). Changes in operational assumptions, most notably related to closed block projections, resulted in a net charge of $130 million ($104 million, net of income tax). Results for 2017 include a $37 million ($25 million, net of 2017 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 2017 income tax) gain was recognized in net derivative gains (losses). Of the $37 million gain, a $96 million ($64 million, net of 2017 income tax) gain was associated with DAC and a loss of $59 million ($39 million, net of 2017 income tax) was related to reserves. The portion of the $37 million gain that is included in adjusted earnings is $100 million ($66 million, net of 2017 income tax). Certain other insurance adjustments recorded in 2018 include a $79 million ($63 million, net of income tax) charge due to a 2018 increase in our IBNR life reserves, reflecting enhancements to our processes related to potential claims in our MetLife Holdings segment, and a favorable net insurance adjustment of $47 million ($37 million, net of income tax) resulting from reserve and DAC modeling improvements in our individual disability insurance business in our U.S. segment. These adjustments were included in adjusted earnings. Divested Businesses. Income (loss) before provision for income tax related to the divested businesses, excluding net investment gains (losses) and net derivative gains (losses), increased $936 million ($650 million, net of income tax) to a loss of $122 million ($97 million, net of income tax) in 2018 from a loss of $1.1 billion ($747 million, net of income tax) in 2017. Included in this increase was an increase in total revenues of $570 million, before income tax, and a decrease in total expenses of $366 million, before income tax. Divested businesses primarily include activity related to the Separation. Discontinued Operations. Income (loss) from discontinued operations, net of income tax, increased $986 million for the year ended December 31, 2018 from a loss of $986 million, net of income tax, for the year ended December 31, 2017. Income (loss) from discontinued operations reflects the results of our former Brighthouse Financial segment. For further information, see Note 3 of the Notes to the Consolidated Financial Statements. 93 Table of Contents Taxes and Other Tax-Related Items. Income tax expense for the year ended December 31, 2018 was $1.2 billion, or 19% of income (loss) from continuing operations before provision for income tax, compared with an income tax benefit of $1.5 billion, or 42% of income (loss) from continuing operations before provision for income tax, for the year ended December 31, 2017. The Company’s effective tax rates differ from the U.S. statutory rate of 21% typically due to non-taxable investment income, tax credits for investments in low income housing, and foreign earnings taxed at different rates than the U.S. statutory rate. Our 2018 results include the following tax items: (i) a net tax-related benefit of $366 million related to the settlement of tax audits, which includes a $349 million benefit related to the tax treatment of a wholly-owned U.K. investment subsidiary of MLIC (comprised of a $168 million tax benefit and a $181 million interest benefit), (ii) an adjusted earnings charge of $124 million related to U.S. Tax Reform (comprised of a $78 million tax charge and a $46 million, net of income tax, reduction in net investment income), (iii) a benefit of $36 million related to a non-cash transfer of assets from a wholly-owned U.K. investment subsidiary to MLIC, (iv) a charge of $69 million related to the non-deductible loss incurred on the mark-to-market and disposition of FVO Brighthouse Common Stock, (v) a charge of $17 million related to a tax adjustment in Chile, and (vi) a charge of $5 million in Colombia to establish a deferred tax liability due to a change in tax status. 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 benefit from the finalization of certain tax audits, (iv) a net 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 benefit associated with dividends from our non-U.S. operations, and (v) a benefit of $9 million related to the settlement of a tax audit in Argentina. 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 $1.2 billion, net of income tax, to $5.5 billion, net of income tax, for the year ended December 31, 2018 from $4.2 billion, net of income tax, for the year ended December 31, 2017. 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). 94 Table of Contents 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. 95 Table of Contents 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. 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. 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. 96 Table of Contents 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. 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. Adjusted Earnings. 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. 97 Table of Contents Reconciliation of income (loss) from continuing operations, net of income tax, to adjusted earnings available to common shareholders Year Ended December 31, 2018 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, 2017 U.S. Asia Latin America EMEA (In millions) MetLife Holdings Corporate & Other Total $ $ $ $ 2,755 — 2,755 (72) 268 (259) 14 $ $ 1,547 — 1,547 142 312 (29) (115) $ $ 477 — 477 18 (64) (94) 25 $ $ 296 — 296 5 28 (21) 7 1,016 — 1,016 (164) 263 (401) 63 $ 2,804 $ 1,237 $ 592 $ 277 $ 1,255 $ $ (963) $ 5,128 — — (963) $ 5,128 (227) 44 (137) (80) (563) 141 (298) 851 (941) (86) 5,602 141 $ (704) $ 5,461 U.S. Asia Latin America EMEA (In millions) MetLife Holdings Corporate & Other Total 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 $ $ 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 Adjusted earnings available to common shareholders on a constant currency basis $ 2,027 $ 1,235 $ 572 $ 297 $ 1,182 $ (1,085) $ 4,228 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 Adjusted earnings available to common shareholders on a constant currency basis __________________ 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 $ 1,896 $ 1,216 $ 541 $ 261 $ 706 $ (609) $ 4,011 (1) See definitions and components of adjusted revenues and adjusted expenses under “— Non-GAAP and Other Financial Disclosures.” Further, see “— Reconciliation of revenues to adjusted revenues and expenses to adjusted expenses” for additional details on these adjustments by financial statement line item. 98 Table of Contents Reconciliation of revenues to adjusted revenues and expenses to adjusted expenses Year Ended December 31, 2018 Total revenues $ 36,959 $ 11,969 $ 5,000 $ 2,491 $ 10,762 $ 760 $ 67,941 U.S. Asia Latin America EMEA (In millions) MetLife Holdings Corporate & Other Total Less: Adjustments from total revenues to adjusted revenues, in the line items indicated: Net investment gains (losses) Net derivative gains (losses) Premiums Universal life and investment-type product policy fees Net investment income Other revenues Total adjusted revenues Total expenses Less: Adjustments from total expenses to adjusted expenses, in the line items indicated: 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 Year Ended December 31, 2017 (72) 268 — — (274) — 142 312 — (6) (262) 19 18 (64) — 7 (45) — 5 28 — 25 (488) — (164) 263 — 94 (157) — $ $ 37,037 33,482 $ $ 11,764 9,759 $ $ 5,084 4,310 $ $ 2,921 2,114 $ $ 10,726 9,501 $ $ (11) (4) — — — — — (3) (218) — (5) (1) — 7 40 21 (1) — — — (4) 31 (479) — (1) — — 7 117 — — 221 — — — (227) 44 — — 9 305 629 2,468 $ $ — — — — — 63 388 (298) 851 — 120 (1,217) 324 68,161 61,634 174 (680) (1) 215 (1) 63 398 $ 33,497 $ 9,979 $ 4,254 $ 2,556 $ 9,163 $ 2,017 $ 61,466 Total revenues $ 31,810 $ 11,875 $ 5,118 $ 3,729 $ 11,005 $ (1,229) $ 62,308 U.S. Asia Latin America EMEA (In millions) MetLife Holdings Corporate & Other Total Less: Adjustments from total revenues to adjusted revenues, in the line items indicated: Net investment gains (losses) Net derivative gains (losses) Premiums Universal life and investment-type product policy fees Net investment income Other revenues Total adjusted revenues Total expenses Less: Adjustments from total expenses to adjusted expenses, in the line items indicated: 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 180 (21) — — (195) — 128 31 — 13 314 22 (47) 108 — — 69 — (10) 32 — 26 848 — 71 (339) — 98 (181) — $ $ 31,846 28,797 $ $ 11,367 9,910 $ $ 4,988 4,308 $ $ 2,833 3,334 $ $ 11,356 9,881 $ $ 5 (3) — — — — — 20 345 — 9 (9) — 27 (36) 105 — — — — (8) 28 814 — (1) — — 16 322 — — (68) — — — (630) (401) (347) (34) (36) (135) 354 2,542 (135) 33 34 93 — (16) 509 (308) (590) (347) 103 819 (113) $ $ 62,744 58,772 204 1,294 34 33 (9) (16) 544 $ 28,795 $ 9,518 $ 4,247 $ 2,477 $ 9,627 $ 2,024 $ 56,688 99 Table of Contents Year Ended December 31, 2016 Total revenues $ 29,254 $ 11,973 $ 4,816 $ 3,810 $ 11,710 $ (776) $ 60,787 U.S. Asia Latin America EMEA (In millions) MetLife Holdings Corporate & Other Total Less: Adjustments from total revenues to adjusted revenues, in the line items indicated: Net investment gains (losses) Net derivative gains (losses) Premiums Universal life and investment-type product policy fees Net investment income Other revenues Total adjusted revenues Total expenses Less: Adjustments from total expenses to adjusted expenses, in the line items indicated: 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 (15) 53 — — (264) — 230 (47) 426 98 100 8 93 3 — — 48 — $ $ 29,480 26,607 $ $ 11,158 10,061 $ $ 4,672 3,961 $ $ 2 (3) — — — — — 347 70 (105) 114 (47) — 227 (86) 85 — — — — (9) 42 24 — 24 911 — 2,809 3,396 11 878 — — — — 13 182 (757) — 92 (274) — $ $ 12,467 11,337 $ $ 166 — — (312) — — 14 (215) 34 (729) (62) (168) 34 330 1,144 (735) 58 104 (127) — (50) 110 317 (690) (303) 152 353 42 $ $ 60,916 56,506 (295) 1,088 (1) (325) (47) (50) 355 $ 26,608 $ 9,455 $ 3,971 $ 2,494 $ 11,469 $ 1,784 $ 55,781 Consolidated Results — Adjusted Earnings Year Ended December 31, 2018 Compared with the Year Ended December 31, 2017 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 due to a larger asset base and higher investment yields, the favorable impact of U.S. Tax Reform, other favorable tax items, favorable refinements to DAC and certain insurance-related liabilities, lower expenses and favorable underwriting, partially offset by higher interest credited expenses and the net unfavorable change from our annual actuarial assumption review. Foreign Currency. Changes in foreign currency exchange rates had a $7 million negative impact on adjusted earnings for 2018 compared to 2017. 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. U.S. Tax Reform. The changes from U.S. Tax Reform resulted in a net increase in adjusted earnings of $477 million for 2018 compared to 2017, which includes a slight reduction in net investment income related to tax credit partnership investments. Our 2018 results include a tax benefit of $303 million, primarily related to the lower tax rate. Our 2017 results include a tax charge of $254 million to reflect the enactment of U.S. Tax Reform. Our 2018 results also include an additional tax charge of $78 million to reflect a revision to the estimate of this enactment. Business Growth. We benefited from positive net flows from many of our businesses, which increased our invested asset base. Growth in the investment portfolios of our U.S., Asia, and Latin America segments resulted in higher net investment income. However, this was partially offset by a corresponding increase in interest credited expenses on certain insurance- related liabilities. In our U.S. segment, an increase in average premium per policy in our auto business, partially offset by a decrease in exposures, improved adjusted earnings. Business growth also drove an increase in commissions and other variable expenses, which were partially offset by higher DAC capitalization. The combined impact of the items affecting our business growth resulted in a $153 million increase in adjusted earnings. 100 Table of Contents 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 net investment income in our non- U.S. segments and changes in inflation rates on our inflation-indexed investments, investment yields increased. Investment yields were positively affected by higher yields on fixed income securities and mortgage loans, income on derivatives, returns on real estate investments and a reduction in investment expenses. These increases were partially offset by lower returns on private equities, driven by a decrease in partnership distributions, lower returns on hedge funds and lower returns on fair value option securities (“FVO Securities”). The improvement in yields was more than offset by the impact of higher average interest credited rates, which drove an increase in interest credited expenses, primarily in our U.S. segment. The changes in market factors discussed above resulted in a $79 million decrease in adjusted earnings. Underwriting, Actuarial Assumption Review and Other Insurance Adjustments. Favorable underwriting resulted in a $74 million increase in adjusted earnings primarily as a result of lower catastrophe losses, as well as favorable morbidity in our U.S. and MetLife Holdings segments, partially offset by unfavorable claims experience in our EMEA and Asia segments, as well as higher non-catastrophe losses in our Property & Casualty business. In addition, favorable mortality in our Latin America and U.S. segments was partially offset by unfavorable mortality in our MetLife Holdings segment. Our annual actuarial assumption review resulted in a decrease of $121 million in adjusted earnings when compared to 2017, primarily due to less favorable assumption changes in our MetLife Holdings and Asia segments. Refinements to DAC and certain insurance-related liabilities, which were recorded in both 2018 and 2017 across all of our segments, resulted in a $103 million increase in adjusted earnings, most notably in our U.S. segment. Expenses. Our unit cost initiative improved expense margins and contributed to a $101 million decrease in expenses from lower (i) Separation-related expenses, (ii) employee-related costs, including expenses related to pension and postretirement benefits, and (iii) expenses for interest on certain tax positions, as well as expenses incurred in 2017 related to the guaranty fund assessment for Penn Treaty. These decreases were partially offset by higher expenses in 2018 associated with enterprise- wide initiatives, including the continued investment in our unit cost initiative. Taxes and Other Tax-Related Items. Our effective tax rates differ from the U.S. statutory rate of 21% typically due to nontaxable investment income, tax credits for investments in low income housing and foreign earnings taxed at different rates than the U.S. statutory rate. This incremental tax benefit was lower in 2018 compared to 2017 which resulted in a $47 million decrease in adjusted earnings. Our results for 2018 include the following tax items: (i) a net tax-related benefit of $366 million related to the settlement of tax audits, which included a $349 million benefit related to the tax treatment of a wholly-owned U.K. investment subsidiary of MLIC (comprised of a $168 million tax benefit and a $181 million interest benefit), (ii) a benefit of $36 million related to a non-cash transfer of assets from a wholly-owned U.K. investment subsidiary to MLIC, (iii) a charge of $17 million related to a tax adjustment in Chile, and (iv) a $5 million charge in Colombia to establish a deferred tax liability due to a change in tax status. Our results for 2017 include the following tax items: (i) a benefit of $41 million related to the finalization of certain tax audits, (ii) charges of $180 million 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 (iii) a benefit of $9 million related to the settlement of a tax audit in Argentina. Other tax-related items in both 2018 and 2017, primarily due to the changes in the valuation of the peso in Argentina, resulted in a $45 million increase in 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. 101 Table of Contents 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. 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. 102 Table of Contents 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. 103 Table of Contents Segment Results and Corporate & Other U.S. Business Overview. Sales increased compared to 2017, primarily driven by our RIS business, as higher sales of pension risk transfers (driven by a large transaction in the second quarter of 2018), stable value, specialized life insurance and structured settlement products were partially offset by lower funding agreement issuances. Changes in premiums for the RIS business were almost entirely offset by the related changes in policyholder benefits and claims. Sales were slightly lower compared to 2017 in the Group Benefits business, as strong sales in our voluntary products were offset by the impact of strong jumbo case sales in our core products in 2017. 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 over 2017. In addition, the number of exposures decreased from 2017, 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, 2018 2017 2016 (In millions) $ 28,186 $ 23,632 $ 21,501 1,053 6,977 821 37,037 1,012 6,396 806 31,846 989 6,206 784 29,480 27,765 23,627 21,591 1,790 (449) 477 12 3,902 33,497 736 1,474 (458) 459 11 3,682 28,795 1,024 $ 2,804 $ 2,027 $ 1,302 (471) 471 9 3,706 26,608 976 1,896 Year Ended December 31, 2018 Compared with the Year Ended December 31, 2017 Unless otherwise stated, all amounts discussed below are net of income tax. U.S. Tax Reform. The changes from U.S. Tax Reform resulted in an increase in adjusted earnings of $417 million for 2018 compared to 2017. Business Growth. Net investment income improved as a result of higher average invested assets due to the impact of increased premiums and deposits, primarily due to pension risk transfer sales, partially offset by a decrease in net flows from funding agreements. However, consistent with the growth in average invested assets from increased premiums, interest credited expenses on long-duration and deposit-type liabilities increased. An increase in average premium per policy in our auto business, partially offset by the decrease in exposures, improved adjusted earnings. Higher volume-related, direct and premium tax expenses were partially offset by lower pension and postretirement expenses. This net increase in expenses, coupled with the increase due to the 2018 reinstatement of the annual health insurer fee under the PPACA, were more than offset by a corresponding increase in premiums, fees and other revenues. The combined impact of the items affecting our business growth increased adjusted earnings by $171 million. 104 Table of Contents 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 increased, primarily due to higher yields on fixed income securities and mortgage loans, coupled with higher returns on real estate investments, partially offset by lower returns on private equities, as a result of a decrease in partnership distributions. The net increase in investment yields was more than offset by the impact of higher average interest credited rates on both our long-duration and deposit-type liabilities, which drove an increase in interest credited expenses. The changes in market factors discussed above resulted in an $86 million decrease in adjusted earnings. Underwriting and Other Insurance Adjustments. In our Property & Casualty business, catastrophe-related losses decreased $88 million as compared to 2017. Losses from our commercial business increased $26 million. Non-catastrophe claim costs increased $21 million, as a result of higher auto and homeowner severities, as well as an increase in auto frequencies, partially offset by lower homeowner frequencies. As a result of overall lower claim activity, loss adjustment expenses decreased, increasing adjusted earnings by $15 million. In addition, less favorable development of prior period losses decreased adjusted earnings by $8 million. Favorable claims experience in our Group Benefits business resulted in a $47 million increase in adjusted earnings. This was primarily driven by favorable renewal results in our group disability business, as well as lower claim incidence and severity, coupled with growth and favorable claims experience in our accident & health business, partially offset by less favorable claims experience in our dental, vision and individual disability businesses. Mortality results were flat as less favorable claim experience in our term life business was offset by favorable mortality in our universal life and accidental death & dismemberment businesses. Favorable mortality in our specialized life insurance, pension risk transfer and structured settlement businesses increased adjusted earnings by $57 million. Refinements to certain insurance and other liabilities, which were recorded in both 2018 and 2017, resulted in a $131 million increase in adjusted earnings. Such refinements include favorable insurance adjustments resulting from reserve and DAC modeling improvements in our individual disability insurance business in 2018 and a charge in 2017 to increase certain RIS policy reserves. 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. 105 Table of Contents 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. Asia Business Overview. Sales increased compared to 2017 primarily driven by growth in foreign currency-denominated annuity and life products as well as accident & health product sales in Japan. This was partially offset by a decrease in sales in Korea, as a result of the continued negative impact of regulatory changes on sales of savings retirement products, as well as a decrease in life sales in Hong Kong. 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, 2018 2017 2016 (In millions) $ 6,766 $ 6,755 $ 1,630 3,317 51 11,764 5,326 1,465 (1,915) 1,302 (39) 3,840 9,979 548 1,584 2,985 43 11,367 5,075 1,351 (1,710) 1,300 (111) 3,613 9,518 620 $ 1,237 $ 1,229 $ 6,902 1,488 2,707 61 11,158 5,211 1,298 (1,668) 1,236 (208) 3,586 9,455 479 1,224 Year Ended December 31, 2018 Compared with the Year Ended December 31, 2017 Unless otherwise stated, all amounts discussed below are net of income tax. Foreign Currency. Changes in foreign currency exchange rates increased adjusted earnings by $6 million for 2018 compared to 2017, primarily due to 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. U.S. Tax Reform. The changes from U.S. Tax Reform resulted in an increase in adjusted earnings of $47 million for 2018 compared to 2017. 106 Table of Contents Business Growth. Asia’s premiums, fees and other revenues remained flat compared to 2017 as growth in our foreign currency-denominated life and accident & health products was offset by the decline in yen-denominated life products in Japan. Changes in premiums from these products 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. Business growth also drove an increase in commissions and other variable expenses, which were partially offset by higher DAC capitalization. The combined impact of the items affecting our business growth improved adjusted earnings by $109 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 real estate investments, derivative income, and yields on mortgage loans. In addition, higher earnings from our operating joint venture in China improved net investment income. An increase in higher- yielding fixed income securities supporting U.S. dollar-denominated products sold in Japan was partially offset by lower yields on fixed income securities in Korea. Investment yields were negatively impacted by increased investment expenses and lower returns on hedge funds. The net increase in investment yields was partially offset by an increase in interest credited expenses on certain insurance liabilities. The combined impact of the items discussed above increased adjusted earnings by $7 million. Underwriting, Actuarial Assumption Review and Other Insurance Adjustments. Higher lapses and claims in Japan decreased adjusted earnings by $48 million. Our annual actuarial assumption review resulted in a decrease of $63 million in adjusted earnings when compared to 2017. Refinements to certain insurance and other liabilities, which were recorded in both 2018 and 2017, resulted in a $31 million decrease in adjusted earnings. Our results for 2018 include favorable liability refinements of $11 million in Japan and $6 million in Australia, largely offset by an unfavorable liability refinement of $16 million in Bangladesh. Our 2017 results include a favorable refinement of $12 million related to reinsurance receivables in Australia. Expenses and Taxes. Higher expenses, primarily driven by higher employee-related and project costs, as well as an increase in corporate overhead costs, reduced adjusted earnings by $24 million. Various tax items in both 2018 and 2017 resulted in a $5 million increase in 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. 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 AFS 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 AFS. The combined impact of the items discussed above increased adjusted earnings by $45 million. 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. 107 Table of Contents 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). Latin America Business Overview. Total sales for Latin America increased compared to 2017, driven by higher individual accident & health, credit life and retirement product sales in Chile, partially offset by lower pension and group medical sales in Mexico. Years Ended December 31, 2018 2017 2016 (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 $ 2,760 $ 2,693 $ 1,050 1,239 35 5,084 2,602 394 (377) 209 (1) 6 1,421 4,254 238 592 $ 1,044 1,219 32 4,988 2,535 369 (364) 224 (1) 5 1,479 4,247 156 585 $ 2,529 1,025 1,084 34 4,672 2,443 328 (321) 184 (1) 2 1,336 3,971 158 543 Provision for income tax expense (benefit) Adjusted earnings $ Year Ended December 31, 2018 Compared with the Year Ended December 31, 2017 Unless otherwise stated, all amounts discussed below are net of income tax. Foreign Currency. Changes in foreign currency exchange rates decreased adjusted earnings by $13 million for 2018 compared to 2017 mainly due to the weakening of the Mexican and Argentine 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. U.S. Tax Reform. The changes from U.S. Tax Reform resulted in a decrease in adjusted earnings of $40 million for 2018 compared to 2017. Business Growth. Latin America experienced growth across several lines of business primarily within Chile and Mexico. This growth resulted in increased premiums and policy fee income, which was largely offset by related changes in policyholder benefits. Positive net flows, primarily from Chile 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 expenses on certain insurance liabilities. Business growth also drove an increase in commissions, which was partially offset by higher DAC capitalization. The combined impact of the items affecting our business growth increased adjusted earnings by $10 million. 108 Table of Contents 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 an $8 million decrease in adjusted earnings despite higher investment yields. This was primarily due to lower returns on FVO Securities in Chile and higher interest credited expenses, partially offset by improved yields on fixed income securities in Mexico and Chile, as well as higher derivative income in Chile. Underwriting, Actuarial Assumption Review and Other Insurance Adjustments. Favorable underwriting resulted in a $57 million increase to adjusted earnings primarily driven by lower claims experience in Mexico. Our annual actuarial assumption review resulted in a $13 million increase to adjusted earnings when compared to 2017. In addition, refinements to certain insurance liabilities and other adjustments in both 2018 and 2017, primarily in Brazil, Mexico and Chile, resulted in an $18 million decrease to adjusted earnings. Expenses and Taxes. A $17 million decrease in expenses was primarily the result of a 2018 reduction of a litigation reserve in Argentina. Our results for 2018 include a $17 million tax charge related to a tax adjustment in Chile, a $5 million tax charge in Colombia to establish a deferred tax liability due to a change in tax status, a $2 million tax charge as a result of tax reform legislation also in Colombia, partially offset by a $4 million tax benefit due to inflation in Argentina. 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. Other tax-related items in both 2018 and 2017, primarily due to the changes in the valuation of the peso in Argentina, resulted in a $14 million increase in 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. 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. 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. 109 Table of Contents EMEA Business Overview. Sales decreased in 2018 primarily due to the closure of the U.K. wealth management product to new business in the third quarter of 2017 and a decline in sales of our employee benefits product in the Gulf region. 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, 2018 2017 2016 (In millions) $ 2,131 $ 2,061 $ 2,027 431 293 66 2,921 1,127 100 (468) 434 (15) 1,378 2,556 88 405 309 58 2,833 1,077 100 (414) 357 (19) 1,376 2,477 59 $ 277 $ 297 $ 391 318 73 2,809 1,067 112 (403) 408 (13) 1,323 2,494 42 273 Year Ended December 31, 2018 Compared with the Year Ended December 31, 2017 Unless otherwise stated, all amounts discussed below are net of income tax. Foreign Currency. The impact of changes in foreign currency exchange rates resulted in a slight increase in adjusted earnings for 2018 compared to 2017, primarily driven by the weakening of the U.S. dollar against the euro, the British pound, and the Polish zloty, almost entirely offset by the strengthening of the U.S. dollar against the Turkish lira. 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. U.S. Tax Reform. The changes from U.S. Tax Reform resulted in a decrease in adjusted earnings of $21 million for 2018 as compared to 2017. Business Growth. Growth from our credit life and accident & health businesses in Turkey and across several European markets resulted in a $25 million increase in adjusted earnings. Underwriting, Actuarial Assumption Review and Other Insurance Adjustments. Less favorable underwriting, primarily in our accident & health business in Greece and our employee benefits business in the U.K., as well as unfavorable underwriting in the Gulf region and in our life insurance business in France, decreased adjusted earnings by $55 million. Our annual actuarial assumption review resulted in a decrease in adjusted earnings of $15 million when compared to 2017. In addition, adjusted earnings decreased by $2 million due to refinements recorded in 2017 in our employee benefits business in the U.K. and the Gulf region and, in 2018, in our life insurance business in the Gulf region. Expenses. Adjusted earnings increased by $62 million due to lower costs associated with enterprise-wide initiatives, notably the closing of the wealth management product to new business in the U.K. in the third quarter of 2017, declines in various other expenses and the release of provisions arising from finalization of historic corporate tax filings. 110 Table of Contents Taxes and Other. A decrease in our invested asset base, primarily due to dividend payments, negatively impacted net investment income resulting in an $8 million decrease in adjusted earnings. In addition, adjusted earnings decreased by $5 million due to unfavorable revisions to tax assets in both 2018 and 2017 and a reinsurance profit share in 2017 resulted in a $2 million decrease in 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. 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. 111 Table of Contents 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 decreased primarily due to the impact of negative net flows, as benefits, surrenders and withdrawals exceeded sales, as well as equity market performance. 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, 2018 2017 2016 (In millions) $ 3,879 $ 4,144 $ 1,218 5,379 250 10,726 6,833 944 (36) 332 9 1,081 9,163 308 1,361 5,607 244 11,356 7,000 1,018 (82) 302 24 1,365 9,627 547 $ 1,255 $ 1,182 $ 4,506 1,436 5,944 581 12,467 7,523 1,042 (281) 736 57 2,392 11,469 292 706 Year Ended December 31, 2018 Compared with the Year Ended December 31, 2017 Unless otherwise stated, all amounts discussed below are net of income tax. U.S. Tax Reform. The changes from U.S. Tax Reform resulted in an increase in adjusted earnings of $213 million for 2018 compared to 2017. Business Growth. Lower net investment income, resulting from a reduced invested asset base, primarily in fixed income securities, decreased adjusted earnings. The reduced invested asset base is primarily the result of negative net flows in our deferred annuities and life businesses. This decline was partially offset by invested asset growth in our long-term care business. The negative net flows in our annuities business and a decrease in universal life deposits resulted in lower fee income and lower interest credited expenses. The continued maturing of the existing long-term care block of business resulted in higher interest credited expenses. The combined impact of the items affecting our business growth, partially offset by lower DAC amortization, resulted in a $192 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. Higher DAC amortization from annuities, driven by lower equity market returns, resulted in a decrease in adjusted earnings. Investment yields were favorably impacted by a reduction in investment expenses in addition to higher returns on both real estate investments and FVO Securities. These improvements in investment yields were partially offset by a decline in mortgage loan yields and lower returns on private equities. The changes in market factors discussed above resulted in a $31 million decrease in adjusted earnings. 112 Table of Contents Underwriting, Actuarial Assumption Review, and Other Insurance Adjustments. Unfavorable mortality in our life businesses, partially offset by favorable underwriting, primarily due to the impact of favorable rate actions in our long-term care business, and mortality gains on life-contingent annuities, resulted in a $32 million decrease in adjusted earnings. Our annual actuarial assumption review resulted in a decrease of $56 million in adjusted earnings when compared to 2017. Changes in operational assumptions, including updates to closed block projections, maintenance and other expenses, were less favorable in the current period. Refinements to DAC and certain insurance-related liabilities that were recorded in both 2018 and 2017 resulted in a $23 million increase in adjusted earnings. This includes the following 2018 refinements: (i) a charge relating to an increase in our IBNR life reserves, reflecting enhancements to our processes related to potential claims; (ii) a favorable reserve adjustment relating to certain variable annuity guarantees assumed from a former joint venture in Japan; and (iii) two separate favorable reserve adjustments resulting from modeling improvements in our life business. This also includes the following 2017 refinements: (i) a favorable DAC adjustment related to certain assumed participating whole life business; (ii) two separate favorable reserve adjustments resulting from modeling improvements in our life business; (iii) an unfavorable adjustment related to the recapture and novation of, as well as adjustments to, assumed and ceded agreements covering certain variable annuity business; (iv) an unfavorable net impact from a life reinsurance recapture; and (v) an unfavorable reserve adjustment resulting from modeling improvements in our long-term care business. Expenses. Adjusted earnings increased by $145 million as a result of lower expenses, primarily due to declines in Separation-related expenses, as well as lower employee-related costs, including expenses related to pension and postretirement benefits. 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. 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. 113 Table of Contents 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. Corporate & Other Years Ended December 31, 2018 2017 2016 (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 Interest expense on debt Other expenses Total adjusted expenses Provision for income tax expense (benefit) Adjusted earnings Less: Preferred stock dividends $ 118 $ — 178 333 629 80 — (8) 6 1,032 907 2,017 (825) (563) 141 (704) $ $ 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) Adjusted earnings available to common shareholders $ The table below presents adjusted earnings available to common shareholders by source: Other business activities Other net investment income Interest expense on debt Corporate initiatives and projects Other Provision for income tax (expense) benefit and other tax-related items Preferred stock dividends Adjusted earnings available to common shareholders Years Ended December 31, 2018 2017 2016 (In millions) 28 $ $ 41 263 (1,076) (405) (368) 982 (141) (704) $ 221 (1,198) (275) (384) 626 (103) (1,085) $ $ $ (8) 338 (1,252) (198) (332) 946 (103) (609) 114 Table of Contents Year Ended December 31, 2018 Compared with the Year Ended December 31, 2017 Unless otherwise stated, all amounts discussed below are net of income tax. U.S. Tax Reform. The changes from U.S. Tax Reform resulted in a decrease in adjusted earnings of $139 million for 2018 compared to 2017. Our 2018 results included a decrease in adjusted earnings of $315 million, primarily related to the lower tax rate along with a slight reduction in net investment income. Our 2017 results included a tax charge of $254 million to reflect the enactment of U.S. Tax Reform. Our 2018 results also include an additional tax charge of $78 million to reflect a revision to the estimate of this enactment. Other Net Investment Income. Higher yields on fixed income securities, as well as higher returns on private equities and real estate investments, were partially offset by lower returns on the remainder of the portfolio, resulting in an increase of $33 million in other net investment income. Interest Expense on Debt. Interest expense on debt decreased by $96 million, primarily due to: (i) the exchange of senior notes for FVO Brighthouse Common Stock; (ii) the redemption of senior notes for cash; (iii) the maturity of senior notes during 2018; (iv) lower interest rates on certain intercompany senior notes redenominated to Japanese yen; and (v) the maturity of $1.0 billion of senior notes in December 2017. These redenominated intercompany senior notes, which eliminate in consolidation, are held by our business segments. Corporate Initiatives and Projects. Expenses associated with corporate initiatives and projects increased by $103 million, primarily due to higher costs associated with the continued investment in our unit cost initiative, partially offset by 2017 lease impairments and lower costs associated with certain other enterprise-wide initiatives. Other. Adjusted earnings increased $13 million, primarily as a result of a $45 million decrease in expenses for interest on certain tax positions and $18 million of expenses incurred in 2017 and taxed at the 2017 rate related to the guaranty fund assessment for Penn Treaty. These favorable items are partially offset by a $39 million increase in certain corporate-related expenses and a $20 million increase in litigation accruals. Provision for Income Tax (Expense) Benefit and Other Tax-Related Items. In addition to the impact of U.S. Tax Reform, Corporate & Other’s effective tax rate differs from the U.S. statutory rate of 21% typically due to benefits from the impact of certain permanent tax-preferenced items, including non-taxable investment income, tax credits for investments in low income housing and foreign earnings taxed at different rates than the U.S. statutory rate. In 2018, the Company recognized net tax-related benefits of $364 million related to the settlement of tax audits. Of this amount, $349 million related to the tax treatment of a wholly-owned U.K. investment subsidiary of MLIC which was comprised of a $168 million tax benefit and a $181 million interest benefit. Our 2018 results also included a $36 million tax benefit related to a non-cash transfer of assets from a wholly-owned U.K. investment subsidiary to MLIC, as well as a $32 million tax charge for decreased utilization of tax-preferenced items. In 2017, the Company recognized 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. Our 2017 results also included a $41 million net tax-related benefit from the finalization of certain tax audits. Preferred Stock Dividends. Preferred stock dividends increased $38 million as a result of the issuance of Series D and Series E preferred stock in 2018. 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. 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. 115 Table of Contents 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. 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. 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. 116 Table of Contents 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 AFS 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 including with respect to the U.K.’s planned withdrawal from the EU. 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 supply and demand of leasable commercial space, creditworthiness of borrowers and their tenants and joint venture partners, capital markets volatility, changes in market interest rates, commodity prices, farm incomes and U.S. housing market conditions. 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 NGEs 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 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 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. 117 Table of Contents 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, which gives us more flexibility in managing our credit exposures. We believe that our purchased credit default swaps serve as effective economic hedges of our credit exposure. 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 Risks — Difficult Economic Conditions May Adversely Affect Our Business, Results of Operations and Financial Condition.” 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., France, Germany, the Netherlands, Poland, Switzerland and Belgium. 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 AFS, at estimated fair value, were $8.4 billion at December 31, 2018. 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 $21.3 billion, or 68%, of European corporate securities, at estimated fair value, at December 31, 2018. Of these European fixed maturity securities AFS, 96% were investment grade and, for the 4% that were below investment grade, the majority were non-financial services corporate securities at December 31, 2018. European financial services corporate securities, at estimated fair value, were $10.0 billion (including $6.3 billion within the banking sector) with 99% investment grade, at December 31, 2018. Total European fixed maturity securities AFS, at estimated fair value, were $40.0 billion at December 31, 2018, including $348 million of Structured Securities (see “— Fixed Maturity Securities AFS and Equity Securities”). Selected Country and Sector 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. In addition, we have sector specific exposure to volatility, including the impact of lower oil prices and variability in oil prices, on the energy sector. 118 Table of Contents Selected Country: The following table presents a summary of fixed maturity securities AFS 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 Argentina Turkey Total Investment grade % __________________ Selected Country Fixed Maturity Securities AFS at December 31, 2018 Sovereign Financial Services Non- Financial Services Structured Total (1) $ $ 25 349 189 563 (Dollars in millions) $ 9,840 $ 20 77 $ 9,937 $ $ 3,973 24 5 $ 4,002 4% 99% 94% 291 — — 291 85% $ 14,129 393 271 $ 14,793 91% (1) The par value and amortized cost of these selected country fixed maturity securities AFS were $14.4 billion and $15.4 billion, respectively, at December 31, 2018. Selected Sector: Our exposure to energy sector fixed maturity securities AFS was $8.5 billion (comprised of fixed maturity securities AFS of $8.5 billion at estimated fair value and related net written credit default swaps of $55 million at notional value), of which 86% were investment grade, with unrealized losses of $15 million at December 31, 2018. We maintain a diversified energy sector fixed maturities securities portfolio across sub-sectors and issuers. This portfolio comprised less than 2% of total investments at December 31, 2018. We manage direct and indirect investment exposure in the selected countries and the energy sector through fundamental credit analysis and we continually monitor and adjust our level of investment exposure. We do not expect that our general account investments in these countries or the energy sector will have a material adverse effect on our results of operations or financial condition. Investment Portfolio Results The reconciliation of net investment income under GAAP to net investment income, as reported on an adjusted earnings basis, is presented below. Net investment income — GAAP basis Investment hedge adjustments Unit-linked contract income Other Net investment income, as reported on an adjusted basis (1) __________________ For the Years Ended December 31, 2018 2017 (In millions) 2016 $ $ 16,166 475 683 59 17,383 $ $ 17,363 435 (1,300) 46 16,544 $ $ 16,790 580 (950) 17 16,437 (1) See “— Non-GAAP and Other Financial Disclosures — Adjusted earnings and related measures — Adjusted revenues and adjusted expenses — Net investment income” for a discussion of the adjustments made to net investment income under GAAP in calculating net investment income, as reported on an adjusted basis. 119 Table of Contents The following yield table presents our investment portfolio results for the periods indicated. We calculate yields on our investment portfolio using the non-GAAP performance metric of 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 AFS (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, 2018 2017 2016 Yield% (1) Amount Yield% (1) Amount Yield% (1) Amount 4.26 % $ 11,678 4.29 % $ 11,401 4.38 % $ 11,665  (Dollars in millions) 4.66 % 3.59 % 5.21 % 4.79 % 12.97 % 2.41 % 3,340 352 506 64 792 244 887 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 4.56 % 17,863 4.53 % 17,009 4.58 % 16,921 (0.12) (479) (0.14) (511) (0.14) (507) 4.44 % 17,384 4.39 % 16,498 4.44 % 16,414 1 $ 17,383 (46) $ 16,544 (23) $ 16,437 (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”), 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 AFS includes amounts from FVO Securities of $51 million, $68 million and $37 million for the years ended December 31, 2018, 2017 and 2016, respectively. Investment income from fixed maturity securities AFS and mortgage loans includes prepayment fees. See “— Non-GAAP and Other Financial Disclosures” for discussion of divested businesses and lag elimination. See “— Results of Operations — Consolidated Results — Adjusted Earnings” for an analysis of the period over period changes in investment portfolio results. 120 Table of Contents Fixed Maturity Securities AFS and Equity Securities The following table presents fixed maturity securities AFS and equity securities by type (public or private) and information about perpetual and redeemable securities held at: Fixed maturity securities AFS Publicly-traded Privately-placed Total fixed maturity securities AFS Percentage of cash and invested assets Equity securities Publicly-traded Privately-held Total equity securities Percentage of cash and invested assets Perpetual and redeemable securities Perpetual securities included within fixed maturity securities AFS and equity securities Redeemable preferred stock with a stated maturity included within fixed maturity securities AFS December 31, 2018 December 31, 2017 Estimated Fair Value % of Total Estimated Fair Value % of Total (Dollars in millions) $ $ $ $ $ $ 249,595 48,670 83.7 % $ 16.3 262,078 46,853 84.8 % 15.2 298,265 100.0 % $ 308,931 100.0 % 66.0% 1,282 158 1,440 0.3% 367 911 89.0 % $ 11.0 100.0 % $ 67.6% 1,490 1,023 2,513 0.6% 59.3 % 40.7 100.0 % $ $ 440 884 Included within fixed maturity securities AFS are structured securities including residential mortgage-backed securities (“RMBS”), asset-backed securities (“ABS”) and commercial mortgage-backed securities (“CMBS”) (collectively, “Structured Securities”). Perpetual securities are included within fixed maturity securities AFS and equity securities. Upon acquisition, we classify perpetual securities that have attributes of both debt and equity as fixed maturity securities AFS 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 AFS. 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. 121 Table of Contents 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 AFS were valued using non-binding quotations from independent brokers at December 31, 2018. Senior management, independent of the trading and investing functions, is responsible for the oversight of control systems and valuation policies for securities, mortgage loans and derivatives. On a quarterly basis, new transaction types and markets are reviewed and approved to ensure 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. Senior management oversees the selection of independent third-party pricing providers and the controls and procedures to evaluate third-party pricing. We review our valuation methodologies on an ongoing basis and revise 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. We ensure that prices received from independent brokers, also referred to herein as “consensus pricing,” are representative of estimated fair value by considering such pricing relative to our 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. We also apply 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, 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 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. 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. 122 Table of Contents Fair Value of Fixed Maturity Securities AFS and Equity Securities Fixed maturity securities AFS and equity securities measured at estimated fair value on a recurring basis and their corresponding fair value pricing sources are as follows: December 31, 2018 Fixed Maturity Securities AFS Equity Securities (Dollars in millions) Level 1 Quoted prices in active markets for identical assets $ 19,656 6.6% $ 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 261,605 2,133 263,738 10,506 3,976 389 14,871 298,265 $ 87.7 0.7 88.4 3.6 1.3 0.1 5.0 916 70 35 105 307 107 5 419 63.6% 4.9 2.4 7.3 21.3 7.4 0.4 29.1 100.0% $ 1,440 100.0% See Note 10 of the Notes to the Consolidated Financial Statements for the fixed maturity securities AFS and equity securities fair value hierarchy. The majority of the Level 3 fixed maturity securities AFS and equity securities were concentrated in three sectors: U.S. and foreign corporate securities and RMBS at December 31, 2018. During the year ended December 31, 2018, Level 3 fixed maturity securities AFS decreased by $1.4 billion, or 9%. The decrease was driven by transfers out of Level 3 in excess of transfers into Level 3 and a decrease in estimated fair value recognized in OCI, partially offset by purchases in excess of sales. See “— Fixed Maturity Securities AFS and Equity Securities — Valuation of Securities” for further information regarding the composition of fair value pricing sources for securities. See Note 10 of the Notes to the Consolidated Financial Statements for a rollforward of the fair value measurements for securities 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 approaches 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. Fixed Maturity Securities AFS 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 AFS, 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. 123 Table of Contents 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 NAIC designation becomes available. NAIC designations may not correspond to NRSRO ratings. The following table presents total fixed maturity securities AFS 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: 2018 2017 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 AFS $ 197,604 $ 11,202 $ 208,806 70.0 % $ 201,806 $ 17,024 $ 218,830 70.8 % 72,482 659 73,141 24.5 67,270 5,126 72,396 23.4 11,861 281,947 94.5 22,150 291,226 94.2 270,086 11,249 4,745 720 16 (91) (247) (73) (1) 11,158 4,498 647 15 3.7 1.6 0.2 — 5.5 269,076 11,155 5,004 824 10 556 151 9 (4) 11,711 5,155 833 6 3.8 1.7 0.3 — 5.8 16,730 (412) 16,318 16,993 712 17,705 $ 286,816 $ 11,449 $ 298,265 100.0 % $ 286,069 $ 22,862 $ 308,931 100.0 % 124 Table of Contents The following tables present total fixed maturity securities AFS, 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 AFS — by Sector & Credit Quality Rating December 31, 2018 U.S. corporate Foreign government Foreign corporate U.S. government and agency RMBS ABS Municipals CMBS $ 34,363 $ 35,081 $ 5,850 $ 3,102 $ 544 $ 54,149 22,602 38,915 27,370 11,467 11,056 8,884 5,140 30,849 407 350 772 439 103 2,389 2,534 — 138 204 38 5 604 669 — 94 26 — 3 5 49 — 3 3 — 43 Total fixed maturity securities AFS $ 208,806 $ 73,141 $ 11,158 $ 4,498 $ 647 $ 8 1 — — 6 — — — 15 $ 78,948 62,288 56,703 39,322 27,961 12,472 11,533 9,038 $ 298,265 70.0% 24.5% 3.7% 1.6% 0.2% —% 100.0% Percentage of total December 31, 2017 U.S. corporate Foreign government Foreign corporate U.S. government and agency RMBS ABS Municipals CMBS $ 37,305 $ 35,096 $ 6,153 $ 3,387 $ 717 $ 53,027 21,925 47,067 28,209 11,311 11,921 8,065 5,135 30,214 327 297 760 454 113 2,376 2,616 — 224 215 78 49 947 759 — 61 1 — — 49 55 — 9 3 — — 3 — — — — 1 2 — 6 $ 82,661 61,534 55,569 47,394 28,800 12,291 12,455 8,227 $ 308,931 Total fixed maturity securities AFS $ 218,830 $ 72,396 $ 11,711 $ 5,155 $ 833 $ Percentage of total 70.8% 23.4% 3.8% 1.7% 0.3% —% 100.0% 125 Table of Contents U.S. and Foreign Corporate Fixed Maturity Securities AFS We maintain a diversified portfolio of corporate fixed maturity securities AFS 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% of total investments at both December 31, 2018 and 2017. The tables below present our U.S. and foreign corporate securities holdings by industry at: Industrial Finance Consumer Utility Communications Other Total Structured Securities December 31, 2018 2017 Estimated Fair Value % of Total Estimated Fair Value % of Total $ 40,556 30,546 30,140 22,206 10,406 1,797 (Dollars in millions) 29.9% $ 22.5 22.2 16.4 7.7 1.3 42,273 29,884 31,419 21,773 11,072 1,809 30.6% 21.6 22.7 15.8 8.0 1.3 $ 135,651 100.0% $ 138,230 100.0% We held $49.5 billion and $49.3 billion of Structured Securities, at estimated fair value, at December 31, 2018 and 2017, respectively, as presented in the RMBS, ABS and CMBS sections below. RMBS Our RMBS holdings by security type, risk profile and ratings profile are as follows at: Estimated Fair Value 2018 % of Total December 31, Net Unrealized Gains (Losses) Estimated Fair Value (Dollars in millions) 2017 % of Total Net Unrealized Gains (Losses) $ $ $ $ $ $ 15,302 12,659 27,961 54.7% $ 726 $ 45.3 (174) 100.0% $ 552 $ 15,388 13,412 28,800 53.4% $ 46.6 100.0% $ 19,834 70.9% $ 5 $ 20,010 69.5% $ 1,123 3,361 3,643 4.0 12.0 13.1 27,961 100.0% $ 20,666 27,370 73.9% 97.9% 47 277 223 552 $ $ $ 1,209 4,182 3,399 4.2 14.5 11.8 28,800 100.0% $ 20,465 28,209 71.1% 97.9% 913 41 954 274 73 372 235 954 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 1 126 Table of Contents Collateralized mortgage obligations are structured by dividing the cash flows of mortgage loans 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 loan or collection of mortgage loans. The monthly mortgage loan 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. 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, 2018 and 2017. 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 $3.4 billion and $3.1 billion at December 31, 2018 and 2017, respectively, with unrealized gains (losses) of $201 million and $200 million at December 31, 2018 and 2017, respectively. ABS  Our ABS holdings are diversified both by collateral type and by issuer. The following table presents our ABS holdings by collateral type and ratings profile at: Estimated Fair Value 2018 % of Total December 31, Net Unrealized Gains (Losses) Estimated Fair Value (Dollars in millions) 2017 % of Total Net Unrealized Gains (Losses) By collateral type: Collateralized debt obligations $ Student loans Foreign residential loans Automobile loans Credit card loans Consumer loans Other loans Total Ratings profile: Rated Aaa/AAA Designated NAIC 1 $ $ $ 6,724 1,256 1,066 895 668 580 1,283 12,472 7,142 11,467 53.9% $ (112) $ 10.1 8.5 7.2 5.3 4.7 10.3 13 11 1 — 4 3 5,703 1,266 965 1,193 1,686 605 873 46.4% $ 10.3 7.9 9.7 13.7 4.9 7.1 100.0% $ (80) $ 12,291 100.0% $ 57.3% 91.9% $ $ 7,108 11,311 57.8% 92.0% 45 (1) 20 — 1 6 7 78 127 Table of Contents CMBS Our CMBS holdings are diversified by vintage year. The following tables present our CMBS holdings by NRSRO rating and 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, 2018 (Dollars in millions) $ — $ — $ — $ — $ — $ — $ 2003 - 2011 $ 2012 2013 2014 2015 2016 2017 2018 $ 257 231 723 381 523 345 862 271 237 746 379 514 339 851 1,434 1,445 $ 40 $ 226 644 488 81 84 666 690 40 224 655 485 80 80 654 695 229 279 128 34 46 234 292 227 277 127 34 46 228 293 Total $ 4,756 $ 4,782 $ 2,919 $ 2,913 $ 1,242 $ 1,232 $ Ratings Distribution 7 — — — — 39 23 69 $ 6 — — — — 39 23 68 $ — 59 — — — — — 59 $ — 43 — — — — — 43 $ 297 693 311 694 1,705 1,721 997 638 475 1,801 2,439 991 628 465 1,772 2,456 $ 9,045 $ 9,038 52.9% 32.2% 13.6% 0.8% 0.5% 100.0% 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 $ 286 289 787 537 308 302 835 552 1,122 1,140 401 898 404 899 $ 38 $ 257 717 513 191 69 685 $ 22 $ 230 285 129 117 40 246 (Dollars in millions) $ 23 237 292 130 120 40 246 $ 15 7 60 — — 65 41 15 7 45 — — 66 42 40 263 748 522 196 68 687 $ — $ — $ — — — — — — — — — — 361 783 1,849 1,179 1,430 575 1,870 $ 386 809 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 2003 - 2011 $ 2012 2013 2014 2015 2016 2017 Total Ratings Distribution 54.0% 30.7% 13.2% 2.1% —% 100.0% The tables above reflect NRSRO ratings including Moody’s, S&P, Fitch and Morningstar. CMBS designated NAIC 1 were 98.3% and 98.0% of total CMBS at December 31, 2018 and 2017, respectively. Evaluation of Fixed Maturity Securities AFS for OTTI and Evaluating Temporarily Impaired Fixed Maturity Securities AFS See Note 8 of the Notes to the Consolidated Financial Statements for information about the evaluation of fixed maturity securities AFS for OTTI and evaluation of temporarily impaired fixed maturity securities AFS. OTTI Losses on Fixed Maturity 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 fixed maturity securities AFS sold. 128 Table of Contents Overview of OTTI Losses on Securities Recognized in Earnings Credit-related impairments of fixed maturity securities AFS were $40 million, $10 million and $97 million for the years ended December 31, 2018, 2017 and 2016, respectively. Explanations of changes in fixed maturity securities AFS and equity securities impairments are as follows: Year Ended December 31, 2018 Compared with the Year Ended December 31, 2017 Overall OTTI losses recognized in earnings on fixed maturity securities AFS were $40 million for the year ended December 31, 2018, as compared to $10 million for the year ended December 31, 2017. The most significant increase in OTTI losses was in U.S. and foreign corporate securities and foreign government securities, which comprised $40 million for the year ended December 31, 2018, as compared to $4 million for the year ended December 31, 2017. An increase of $36 million in OTTI losses was mainly concentrated in consumer and Argentine foreign government securities and was a result of issuer specific factors and from weakening of the Argentine peso. In 2018, we adopted new guidance under which equity securities are no longer evaluated for impairment, rather are measured at fair value through net income. Accordingly, there were no equity securities impairments for the year ended December 31, 2018. See Note 1 of the Notes to the Consolidated Financial Statements. Year Ended December 31, 2017 Compared with the Year Ended December 31, 2016 Overall OTTI losses recognized in earnings on fixed maturity securities AFS were $10 million for the year ended December 31, 2017, as compared to $107 million for the year ended December 31, 2016. The most significant decrease in OTTI losses was in U.S. and foreign corporate securities, which comprised $4 million for the year ended December 31, 2017, as compared to $87 million for the year ended December 31, 2016. A decrease of $83 million in OTTI losses was concentrated in industrial securities and was the result of lower oil prices impacting the energy sector in 2016. Overall OTTI losses recognized in earnings on equity securities were $25 million for the year ended December 31, 2017, as compared to $75 million for the year ended December 31, 2016, a decrease of $50 million, reflecting the impact of lower oil prices impacting the energy sector in 2016. Future Impairments Future OTTI on fixed maturity securities AFS 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 and foreign currency exchange rates. If economic fundamentals deteriorate or if there are adverse changes in the above factors, OTTI may be incurred in upcoming periods. See Note 1 of the Notes to the Consolidated Financial Statements for a description of new guidance to be adopted in 2020 regarding the measurement of credit losses on financial instruments. Contractholder-Directed Equity Securities and Fair Value Option Securities The estimated fair value of these investments, which are primarily comprised of Unit-linked investments, was $12.6 billion and $16.7 billion, or 2.8% and 3.7% of cash and invested assets, at December 31, 2018 and 2017, respectively. See Notes 1 and 10 of the Notes to the Consolidated Financial Statements for a description of this portfolio, its fair value hierarchy and a rollforward of the fair value measurements for these investments measured at estimated fair value on a recurring basis using significant unobservable (Level 3) inputs. Securities Lending and Repurchase Agreements We participate in a securities lending program whereby securities are loaned to third parties, primarily brokerage firms and commercial banks. In addition, we participate in short-term repurchase agreement transactions with unaffiliated financial institutions. See “— Liquidity and Capital Resources — The Company — Liquidity and Capital Uses — Securities Lending,” “— Liquidity and Capital Resources — The Company — Liquidity and Capital Uses — Repurchase Agreements” and Notes 1 and 8 of the Notes to the Consolidated Financial Statements for information regarding our securities lending program and our repurchase agreement transactions. FHLB of Boston Advance Agreements A subsidiary of the Company has entered into short-term advance agreements with the FHLB of Boston. See Note 8 of the Notes to the Consolidated Financial Statements for information regarding our FHLB of Boston advance agreement transactions. 129 Table of Contents Mortgage Loans Our mortgage loans are principally collateralized by commercial, agricultural and residential properties. Mortgage loans and the related valuation allowances are summarized as follows at: 2018 2017 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 $ $ 48,463 14,905 12,427 75,795 63.9% $ 19.7 16.4 100.0% $ 238 46 58 342 0.5% $ 0.3% 0.5% 0.5% $ 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% 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 16.8% and 15.0% of cash and invested assets at December 31, 2018 and 2017, respectively. 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, 84% are collateralized by properties located in the United States, with the remaining 16% collateralized by properties located outside the United States, which includes 5% of properties located in the U.K., at December 31, 2018. 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, 2018. 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 92% collateralized by properties located in the United States, and the remaining 8% collateralized by properties located outside the United States, at December 31, 2018. 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, 2018. 130 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: December 31, 2018 2017 Amount % of Total Amount % of Total (Dollars in millions) Region Pacific International Middle Atlantic South Atlantic West South Central East North Central New England Mountain West North Central East South Central Multi-Region and Other Total recorded investment Less: valuation allowances Carrying value, net of valuation allowances Property Type Office Retail Apartment Industrial Hotel Other Total recorded investment Less: valuation allowances Carrying value, net of valuation allowances __________________ $ 10,884 22.5% $ 9,281 7,911 6,347 3,951 2,840 1,481 1,387 594 564 3,223 48,463 238 48,225 19.1 16.3 13.1 8.1 5.9 3.1 2.9 1.2 1.2 6.6 100.0% $ 22.3% 20.5 16.3 12.0 8.6 6.0 2.0 2.7 1.1 1.9 6.6 100.0% 9,875 9,101 7,231 5,311 3,819 2,683 901 1,188 477 840 2,949 44,375 214 44,161 23,995 49.5% $ 22,602 50.9% 9,089 7,018 3,719 3,479 1,163 48,463 238 48,225 18.7 14.5 7.7 7.2 2.4 100.0% $ 8,032 6,113 3,125 3,620 883 44,375 214 44,161 18.1 13.8 7.0 8.2 2.0 100.0% $ $ $ 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, impaired loans, as well as the carrying value of foreclosed mortgage loans included in real estate and real estate joint ventures. 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. 131 Table of Contents 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 55% and 54% at December 31, 2018 and 2017, respectively, and our average debt service coverage ratio was 2.5x and 2.7x at December 31, 2018 and 2017, respectively. 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 46% and 44% at December 31, 2018 and 2017, 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 Note 8 of the Notes to the Consolidated Financial Statements for information about how valuation allowances are established and monitored and activity in and balances of the valuation allowance as of and for the years ended December 31, 2018, 2017 and 2016. 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. The carrying values of real estate and real estate joint ventures was $9.7 billion and $9.6 billion, or 2.1% and 2.1% of cash and invested assets, at December 31, 2018 and 2017, respectively. The estimated fair value of our real estate investments was $15.4 billion and $14.9 billion at December 31, 2018 and 2017, respectively. The total gross market value of such real estate investments was $20.1 billion and $19.1 billion at December 31, 2018 and 2017, respectively. Gross market value is the total estimated fair value of these investments regardless of encumbering debt. There were no impairments recognized on real estate and real estate joint ventures for the year ended December 31, 2018, however impairments were $13 million and less than $1 million for the years ended December 31, 2017 and 2016, respectively. Depreciation expense on real estate investments was $92 million, $103 million and $92 million for the years ended December 31, 2018, 2017 and 2016, respectively. Real estate investments were net of accumulated depreciation of $931 million and $898 million at December 31, 2018 and 2017, respectively. 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, 63% were located in the United States, with the remaining 37% located outside the United States, at December 31, 2018. The carrying value of our real estate investments, excluding funds, located in Japan, California and DC were 33%, 13% and 10%, respectively, of total real estate investments, excluding funds, at December 31, 2018. Real estate funds were 20% of our real estate investments at December 31, 2018. The majority of these funds hold underlying real estate investments that are well diversified across the United States. 132 Table of Contents Property type diversification: Real estate and real estate joint venture investments by property type are categorized by sector as follows at: Office Real estate funds Retail Apartment Land Hotel Industrial Agriculture Other December 31, 2018 2017 Carrying Value % of Total Carrying Value % of Total $ 3,922 1,921 1,206 872 676 555 307 27 212 (Dollars in millions) 40.4% $ 19.8 12.4 9.0 7.0 5.7 3.2 0.3 2.2 3,728 1,324 1,114 1,521 727 475 361 29 358 38.7% 13.7 11.6 15.8 7.5 4.9 3.8 0.3 3.7 100.0% Total real estate and real estate joint ventures $ 9,698 100.0% $ 9,637 Other Limited Partnership Interests Other limited partnership interests are comprised of investments in private funds, including private equity funds and hedge funds. At December 31, 2018 and 2017, the carrying value of other limited partnership interests was $6.6 billion and $5.7 billion, or 1.5% and 1.3% of cash and invested assets, which included $634 million and $643 million of hedge funds, respectively. Cash distributions on these investments are generated from investment gains, operating income from the underlying investments of the funds and liquidation of the underlying investments of the funds. Other Invested Assets The following table presents the carrying value of our other invested assets by type at: December 31, 2018 2017 Carrying Value % of Total Carrying Value % of Total Freestanding derivatives with positive estimated fair values $ Tax credit and renewable energy partnerships Annuities funding structured settlement claims (1) Direct financing leases Leveraged leases Operating joint ventures FHLB common stock (2) Funds withheld Other Total Percentage of cash and invested assets 8,969 2,457 1,279 1,192 1,108 796 793 416 $ 1,180 18,190 4.0% (Dollars in millions) 49.3% $ 13.5 7.0 6.5 6.1 4.4 4.4 2.3 6.5 8,551 3,167 1,284 1,323 1,278 539 — 298 823 49.5% 18.3 7.4 7.7 7.4 3.1 — 1.7 4.9 100% $ 17,263 100% 3.8% (1) See Note 3 of the Notes to the Consolidated Financial Statements. (2) See Note 8 of the Notes to the Consolidated Financial Statements. Leveraged lease impairments were $105 million, $79 million and $77 million for the years ended December 31, 2018, 2017 and 2016, respectively. 133       Table of Contents 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, FHLB common stock, 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, 2018 and 2017. 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, 2018, 2017 and 2016. 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, 2018 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, 2018, 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 foreign currency swaps and forwards that are valued using an unobservable portion of the swap yield curves and interest rate total return swaps with unobservable repurchase rates. 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. 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, 2018 ($161) million Approximate percentage of gain (loss) attributable to observable inputs 31% Primary drivers of observable gain (loss) Increases in interest rates on interest rate total return swaps Approximate percentage of gain (loss) attributable to unobservable inputs 69% See “— Summary of Critical Accounting Estimates — Derivatives” for further information on the estimates and assumptions that affect derivatives. 134 Table of Contents 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. 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, 2018 2017 Gross Notional Amount Estimated Fair Value Gross Notional Amount Estimated Fair Value $ $ 1,903 11,391 13,294 $ $ (In millions) (14) $ 82 68 $ 2,020 11,375 13,395 $ $ (36) 271 235 The following table presents the gross gains, gross losses and net gains (losses) recognized in net derivative gains (losses) for credit default swaps as follows:  Credit Default Swaps Purchased (1) Written (1) Total __________________ 2018 Gross Losses  Gross Gains  Years Ended December 31, Net Gains (Losses) Gross Gains  (In millions) 2017 Gross Losses  Net Gains (Losses) $ $ 17 24 41 $ $ (11) $ (156) (132) (167) $ (126) $ 6 $ 5 $ (29) $ 152 157 (7) $ (36) $ (24) 145 121 (1) 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 $30 million was due to certain credit spreads on credit default swaps hedging certain bonds widening in the current period as compared to narrowing in the prior period. The unfavorable change in net gains (losses) on written credit default swaps of ($277) million was due to certain credit spreads on certain credit default swaps used as replications widening in the current period as compared to narrowing 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. 135 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 and 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. 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 and third-party custodian administered repurchase programs in the normal course of business for the purpose of enhancing the total return on our investment portfolio. See Notes 1 and 8 of the Notes to the Consolidated Financial Statements for further discussion of our securities lending program and repurchase agreement transactions, the classification of revenues and expenses, and the nature of the secured financing arrangements and associated liabilities. Securities lending: Periodically we receive non-cash collateral for securities lending from counterparties, which cannot be sold or re-pledged, and which is not reflected on our consolidated balance sheets. The amount of this non-cash collateral was $78 million and $19 million at estimated fair value at December 31, 2018 and 2017, respectively. Third-party custodian administered repurchase programs: We loan certain of our fixed maturity securities AFS to unaffiliated financial institutions and, in exchange, non-cash collateral is put on deposit by the unaffiliated financial institutions on our behalf with third-party custodians. The estimated fair value of securities loaned in connection with these transactions was $78 million and $182 million at December 31, 2018 and December 31, 2017, respectively. Non-cash collateral on deposit with third-party custodians on our behalf was $84 million and $194 million, at estimated fair value, at December 31, 2018 and December 31, 2017, respectively, which cannot be sold or re-pledged, and which is not reflected on our consolidated balance sheets. Derivatives: We enter into derivatives to manage various risks relating to our ongoing business operations. We receive non- cash collateral from counterparties for derivatives, which can be sold or re-pledged subject to certain constraints, and which is not reflected on our consolidated balance sheets. The amount of this non-cash collateral was $1.3 billion and $1.1 billion, at estimated fair value, at December 31, 2018 and 2017, respectively. See “— Liquidity and Capital Resources — The Company — Liquidity and Capital Uses — Pledged Collateral” and 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 and 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. 136 Table of Contents 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 Securities AFS and Equity Securities” and “— Investments — Mortgage Loans” for information on our investments in fixed maturity securities AFS 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.” 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. See “Business — Regulation — Insurance Regulation — Policy and Contract Reserve Adequacy Analysis” for information regarding required analyses of the adequacy of statutory reserves of our insurance operations. 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. 137 Table of Contents U.S. Amounts payable under insurance policies for this segment are comprised of group insurance and annuities, as well as property and 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 and 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. 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 that 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 that are accounted for as insurance. Corporate & Other Future policy benefits primarily include liabilities for other reinsurance business. 138 Table of Contents 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. 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 adversely impact liabilities and 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% Retirement and Income Solutions December 31, 2018 Account Value Account Value at Guarantee  (In millions) 4,776 $ 1,766 742 $ $ 4,655 1,766 713 $ $ $ 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. The table below presents the breakdown of account value subject to minimum guaranteed crediting rates for RIS: 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% December 31, 2018 Account Value Account Value at Guarantee  (In millions) 143 1,096 4,624 $ $ $ — 121 4,621 $ $ $ 139 Table of Contents 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 investments 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. A sustained low interest rate environment could adversely impact liabilities and earnings as a result of the minimum credited rate guarantees present in most of these policyholder account balances. We mitigate our risks by applying various ALM strategies and with reinsurance. Liabilities for Unit-linked investments are impacted by changes in the fair value of the associated underlying investments, as the return on assets is generally passed directly to the policyholder. The table below presents the breakdown of account value subject to minimum guaranteed crediting rates for Asia: Guaranteed Minimum Crediting Rate 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% Latin America December 31, 2018 Account Value  Account Value at Guarantee (In millions) $ $ $ $ $ $ 25,586 1,205 1 10,268 24,573 279 $ $ $ $ $ $ 1,926 395 1 9,961 9,174 279 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 investments that do not meet the GAAP definition of separate accounts. The rest of the deferred annuities have minimum credited rate guarantees, which could adversely impact liabilities and earnings in a sustained low interest rate environment. Liabilities for Unit-linked investments 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 investments that do not meet the GAAP definition of separate accounts. They are also held for endowment products without significant mortality risk. A sustained low interest rate environment could adversely impact liabilities and earnings as a result of the minimum credited rate guarantees present in many of these policyholder account balances. We mitigate our risks by applying various ALM strategies. Liabilities for Unit-linked investments 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 adversely impact liabilities and 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. 140 Table of Contents 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% Variable Annuity Guarantees December 31, 2018 Account Value Account Value at Guarantee (In millions) 1,510 $ 18,733 8,098 $ $ 1,430 16,064 5,539 $ $ $ 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 GMWBs, elective GMIB annuitizations, and the life contingent portion of GMIBs that require annuitization when the account balance goes to zero. 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, the non- life contingent portion of GMWBs and certain non-life contingent portions of GMIBs. 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. 141 Table of Contents 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, 2018 2017 2018 2017 (In millions) $ $ 3 — 81 7 — 70 289 743 — 129 $ 38 — 92 1 — 42 304 581 — 183 $ 1,322 $ 1,241 $ — $ 34 143 — 24 (82) — 106 5 563 793 $ — 19 182 — 15 (90) — (125) — 322 323 The carrying amounts for guarantees included in policyholder account balances above include nonperformance risk adjustments of $263 million and $130 million at December 31, 2018 and 2017, 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. We continue to diversify the concentration of income benefits in our portfolio by focusing on withdrawal benefits, variable annuities without living benefits and index-linked annuities. 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, Unit-linked investments that 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. 142 Table of Contents GMDBs We offer a range of GMDBs to our contractholders. The table below presents GMDBs, by benefit type, at December 31, 2018: 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) 6,180 $ — — 6,180 $ 46,207 3,074 5,500 54,781 $ $ (1) Total account value excludes $230 million for contracts with no GMDBs. The Company’s annuity contracts with guarantees may offer more than one type of guarantee in each contract. Therefore, the amounts listed for GMDBs and for living benefit guarantees are not mutually exclusive. 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, 2018: GMIB GMWB - non-life contingent (2) GMWB - life-contingent GMAB Total __________________ Total Account Value (1) Asia & EMEA MetLife Holdings (In millions) — $ 1,954 2,961 988 20,692 2,608 9,373 368 5,903 $ 33,041 $ $ (1) (2) Total account value excludes $22.0 billion for contracts with no living benefit guarantees. The Company’s annuity contracts with guarantees may offer more than one type of guarantee in each contract. Therefore, the amounts listed for GMDBs and for living benefit guarantee amounts are not mutually exclusive. The Asia and EMEA segments include the non-life contingent portion of the GMWB total account value of $936 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. We stopped selling GMIBs in February 2016. 143 Table of Contents The table below presents our GMIB associated total account values, by their guaranteed payout basis, at December 31, 2018: 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) $ $ 5,508 899 4,384 8,389 1,512 20,692 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, 42% of the $20.7 billion of GMIB total account value has been invested in managed volatility funds as of December 31, 2018. 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, 2018, only 19% 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 $483 million at December 31, 2018, of which $418 million was related to GMIBs. 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, 2018: 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% + $ 382 302 546 1,184 2,414 2,321 3,077 12,880 18,278 20,692 2% 2% 3% 6% 11% 15% 62% 144 Table of Contents 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, 2018 2017 Interest rate Interest rate swaps $ 8,209 $ Foreign currency exchange rate Equity market Interest rate futures Interest rate options Foreign currency forwards Equity futures Equity index options Equity variance swaps Equity total return swaps Total (In millions) $ 89 1 163 44 11 408 40 91 3 3 — 9 77 546 87 — $ 16,080 $ 433 $ 3,060 10,173 2,288 3,781 9,546 4,661 1,117 1 486 5 17 383 54 — 22 4 11 36 4 690 199 41 1,559 838 1,815 2,730 9,933 2,269 929 $ 28,282 $ 847 $ 725 $ 50,706 $ 1,379 $ 1,007 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. 145 Table of Contents Short-term Liquidity We maintain a substantial short-term liquidity position, which was $11.1 billion and $10.0 billion at December 31, 2018 and 2017, 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 $202.7 billion and $209.1 billion at December 31, 2018 and 2017, 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 of Directors prior to obtaining full Board of Directors approval. The Board of Directors approves the capital policy and the annual capital plan and authorizes capital actions, as required. See “Risk Factors — Capital Risks — Legal and Regulatory Restrictions May Prevent Us from Paying Dividends and Repurchasing Our Stock 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 — Investment Risks — 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.” 146 Table of Contents All general account assets within a particular legal entity — other than those which may have been pledged to a specific purpose — are generally 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 U.S. 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 — Economic Environment and Capital Markets Risks — 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 RIS 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. As of 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 U.S. 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. 147 Table of Contents 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 — Insurance 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 MLIC cedes specific policy classes, including term and universal life insurance, participating whole life insurance, LTD 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 entered into various support agreements in connection with the activities of these captive reinsurers. See “— MetLife, Inc. — Liquidity and Capital Uses — Support Agreements” for further details on certain of these guarantees. MLIC has entered 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 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. 148 Table of Contents 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 Net change in policyholder account balances Net change in payables for collateral under securities loaned and other transactions Cash received for other transactions with tenors greater than three months 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 Net change in payables for collateral under securities loaned and other transactions 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 Dividends on preferred stock Dividends on common stock Other, net Effect of change in foreign currency exchange rates on cash and cash equivalents Total uses Net increase (decrease) in cash and cash equivalents Cash Flows from Operations Years Ended December 31, 2018 2017 2016 (In millions) $ 11,738 $ 12,283 $ 4,266 — 200 24 144 1,274 — — 6,131 903 — 3,657 — — 118 323 14,774 4,925 — — — — — 139 — 17,646 23,415 19,838 5,634 821 1,871 61 — — 3,992 141 1,678 145 183 16,876 — 1,073 2,951 2,793 151 2,927 103 1,717 — — 14,526 28,591 $ 3,120 $ (5,176) $ 5,850 3,636 1,279 68 — 1,367 372 103 1,736 — 302 14,713 5,125 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 and 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. 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. 149 Table of Contents 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 Company’s primary sources of liquidity and capital are set forth below. 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. MetLife, Inc. maintains a shelf registration statement with the SEC that permits the issuance of public debt, equity and hybrid securities. As a “Well-Known Seasoned Issuer” under SEC rules, MetLife, Inc.’s shelf registration statement provides for automatic effectiveness upon filing and has no stated issuance capacity. 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 2018, MetLife, Inc. issued 32,200 shares of 5.625% Non-Cumulative Preferred Stock, Series E (the “Series E preferred stock”) with a $0.01 par value per share and a liquidation preference of $25,000 per share, for aggregate net proceeds of $780 million. In March 2018, MetLife, Inc. issued 500,000 shares of 5.875% Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series D (the “Series D preferred stock”) with a $0.01 par value per share and a liquidation preference of $1,000 per share, for aggregate net proceeds of $494 million. See Note 15 of the Notes to the Consolidated Financial Statements. Common Stock 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 U.S. insurance subsidiaries are members of a regional FHLB. During the years ended December 31, 2018, 2017 and 2016, we issued $27.3 billion, $22.4 billion and $17.0 billion, respectively, and repaid $27.5 billion, $22.4 billion and $15.2 billion, respectively, under funding agreements with certain regional FHLBs. At December 31, 2018 and 2017, total obligations outstanding under these funding agreements were $15.1 billion and $15.3 billion, respectively. See Note 4 of the Notes to the Consolidated Financial Statements. 150 Table of Contents Federal Home Loan Bank Advance Agreements, Reported in Payables for Collateral Under Securities Loaned and Other Transactions During the years ended December 31, 2018 and 2017, we issued $3.1 billion and $301 million, respectively, and repaid $2.6 billion and $1 million, respectively, under advance agreements with a regional FHLB. At December 31, 2018 and 2017, total obligations outstanding under these advance agreements were $800 million and $300 million, respectively. There were no such transactions during the year ended December 31, 2016. See Note 8 of the Notes to the Consolidated Financial Statements. Special Purpose Entity Funding Agreements, Reported in Policyholder Account Balances We issue fixed and floating rate funding agreements which are denominated in either U.S. dollars or foreign currencies, to certain special purpose entities (“SPEs”) that have issued either debt securities or commercial paper for which payment of interest and principal is secured by such funding agreements. During the years ended December 31, 2018, 2017 and 2016, we issued $41.8 billion, $42.7 billion and $39.7 billion, respectively, and repaid $43.7 billion, $41.4 billion and $38.5 billion, respectively, under such funding agreements. At December 31, 2018 and 2017, total obligations outstanding under these funding agreements were $32.3 billion and $34.2 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, 2018, 2017 and 2016, we issued $900 million, $1.0 billion and $1.2 billion, respectively, and repaid $900 million, $1.0 billion and $1.2 billion, respectively, under such funding agreements. At both December 31, 2018 and 2017, total obligations outstanding under these funding agreements were $2.6 billion. See Note 4 of the Notes to the Consolidated Financial Statements. Credit and Committed Facilities At December 31, 2018, we maintained a $3.0 billion unsecured revolving credit facility and certain committed facilities aggregating $3.3 billion, of which MetLife, Inc. is a party and/or guarantor. When drawn upon, these facilities bear interest at varying rates in accordance with the respective agreements. See Note 12 of the Notes to the Consolidated Financial Statements. 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, 2018, we had outstanding $446 million in letters of credit and no drawdowns against this facility. Remaining availability was $2.6 billion at December 31, 2018. The committed facilities are used as collateral for certain of our affiliated reinsurance liabilities. At December 31, 2018, we had outstanding $2.8 billion in letters of credit and no drawdowns against these facilities. Remaining availability was $491 million at December 31, 2018. As of December 31, 2018, 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 under our credit and committed facilities 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 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. See Note 3 of the Notes to the Consolidated Financial Statements. 151 Table of Contents 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 Junior subordinated debt securities (3) __________________ December 31, 2018 2017 (In millions) $ $ $ $ 268 12,824 1,060 3,147 $ $ $ $ 477 15,680 1,121 3,144 (1) (2) (3) Includes $168 million and $377 million of debt that is non-recourse to MetLife, Inc. and MLIC, subject to customary exceptions, at December 31, 2018 and 2017, respectively. Certain subsidiaries have pledged assets to secure this debt. Includes $422 million and $523 million of debt that is non-recourse to MetLife, Inc. and MLIC, subject to customary exceptions, at December 31, 2018 and 2017, respectively. Certain investment subsidiaries have pledged assets to secure this debt. For information regarding the junior subordinated debt securities, see Note 14 of the Notes to the Consolidated Financial Statements and Note 5 of the Notes to the MetLife, Inc. (Parent Company Only) Condensed Financial Information in Schedule II. 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 financial covenants at December 31, 2018. Dispositions Cash proceeds from dispositions during the years ended December 31, 2018, 2017 and 2016 were $0, $0, and $291 million, 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 Company’s primary uses of liquidity and capital are set forth below. 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, 2018, 2017 and 2016, and the amount remaining under such authorizations at December 31, 2018. See Note 22 of the Notes to the Consolidated Financial Statements for information regarding shares of common stock repurchased subsequent to December 31, 2018. Common stock repurchases are subject to the discretion of our Board of Directors and will depend upon 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, applicable regulatory approvals, and other legal and accounting factors. Restrictions on the payment of dividends that may arise under so-called “Dividend Stopper” provisions would also restrict MetLife, Inc.’s ability to repurchase common stock. See “— Dividends” for information about these restrictions. See also “Risk Factors — Capital Risks — Legal and Regulatory Restrictions May Prevent Us from Paying Dividends and Repurchasing Our Stock at the Level We Wish.” Dividends During the years ended December 31, 2018, 2017 and 2016, MetLife, Inc. paid dividends on its preferred stock of $141 million, $103 million and $103 million, respectively. During each of the years ended December 31, 2018, 2017 and 2016, MetLife, Inc. paid $1.7 billion of dividends on its common stock. See Note 15 of the Notes to the Consolidated Financial Statements for information regarding the calculation and timing of these dividend payments. 152 Table of Contents Dividends are paid quarterly on MetLife, Inc.’s Floating Rate Non-Cumulative Preferred Stock, Series A. Dividends are paid semi-annually on MetLife, Inc.’s 5.25% Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series C, until June 15, 2020 and, thereafter, will be paid quarterly. Dividends are paid semi-annually on MetLife, Inc.’s 5.875% Fixed- to-Floating Rate Non-Cumulative Preferred Stock, Series D, in September and March until March 15, 2028 and, thereafter, will be paid quarterly. Dividends are paid quarterly on MetLife, Inc.’s 5.625% Non-Cumulative Preferred Stock, Series E. The declaration and payment of common stock dividends are 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, 2018. “Dividend Stopper” Provisions in MetLife’s Preferred Stock and Junior Subordinated Debentures MetLife, Inc.’s preferred stock and junior subordinated debentures contain “dividend stopper” provisions under which MetLife, Inc. may not pay dividends on instruments junior to those instruments if payments have not been made on those instruments. Moreover, MetLife, Inc.’s Series A preferred stock and its junior subordinated debentures contain provisions that would limit the payment of dividends or interest on those instruments if MetLife, Inc. fails to meet certain tests (“Trigger Events”), to an amount not greater than the net proceeds from sales of common stock and other specified instruments during a period preceding the dividend declaration date or the interest payment date, as applicable. If such proceeds were under the circumstances insufficient to make such payments on those instruments, the dividend stopper provisions affecting common stock (and preferred stock, as applicable) would come into effect. 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 net proceeds from the issuance of certain securities during specified periods) 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. The junior subordinated debentures further provide that MetLife, Inc. may, at its option and provided that certain conditions are met, elect to defer payment of interest. See Note 14 of the Notes to the Consolidated Financial Statements. Any such elective deferral would trigger the dividend stopper provisions. Further, MetLife, Inc. is a party to certain replacement capital covenants which limit its ability to eliminate these restrictions through the repayment, redemption or purchase of the 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 Note 14 of the Notes to the Consolidated Financial Statements for a description of such covenants. 153 Table of Contents 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 2018, 2017 and 2016, following regulatory approval, MetLife Reinsurance Company of Charleston (“MRC”), a wholly-owned subsidiary of MetLife, Inc., repurchased and canceled $61 million, $153 million and $68 million, respectively, in aggregate principal amount of its surplus notes, which were reported in collateral financing arrangement on the consolidated balance sheets; In August 2018, MetLife, Inc. repaid at maturity the remaining $533 million of its 6.817% senior notes; 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; and In June 2016, MetLife, Inc. repaid at maturity its $1.3 billion 6.750% senior notes. Debt Repurchases, Redemptions and Exchanges We may from time to time seek to retire or purchase our outstanding debt through cash purchases, redemptions and/or exchanges for other securities, in open market purchases, privately negotiated transactions or otherwise. Any such repurchases, redemptions, 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 or redeem any debt and the size and timing of any such repurchases or redemptions will be determined at our discretion. In June 2018, MetLife, Inc. sold FVO Brighthouse Common Stock in exchange for $944 million in aggregate principal amount of its senior notes. In December, August and June 2018, MetLife, Inc. purchased for cash $500 million, $566 million and $160 million, respectively, in aggregate principal amount of its senior notes. See Note 12 of the Notes to the Consolidated Financial Statements for further information on long-term and short-term debt. 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 has agreed to cause the applicable entity to meet specified capital and surplus levels or has guaranteed certain contractual obligations. We anticipate that in the event these arrangements place demands upon us, there will be sufficient liquidity and capital to enable us to meet such demands. See “— MetLife, Inc. — Liquidity and Capital Uses — Support Agreements.” Insurance Liabilities Liabilities arising from our insurance activities primarily relate to benefit payments under various life insurance, property and 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, 2018 and 2017, general account surrenders and withdrawals from annuity products were $1.8 billion and $1.6 billion, respectively. In the RIS 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 RIS business products that provide customers with limited rights to accelerate payments, at December 31, 2018, there were funding agreements totaling $148 million that could be put back to the Company. 154 Table of Contents Pledged Collateral We pledge collateral to, and have collateral pledged to us by, counterparties in connection with our derivatives. At both December 31, 2018 and 2017, we had received pledged cash collateral from counterparties of $5.0 billion. At December 31, 2018 and 2017, we had pledged cash collateral to counterparties of $283 million and $456 million, respectively. With respect to OTC-bilateral derivatives in a net liability position and have credit contingent provisions, a one-notch downgrade in the Company’s credit or financial strength rating, as applicable, would have required $10 million of additional collateral be provided to our counterparties as of December 31, 2018. 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 and advance 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 $18.0 billion and $19.4 billion at December 31, 2018 and 2017, respectively. Of these amounts, $2.7 billion and $3.8 billion at December 31, 2018 and 2017, 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, 2018 was $2.7 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 at both December 31, 2018 and 2017. The estimated fair value of the securities on loan at December 31, 2018 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 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 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. 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. See Note 20 of the Notes to the Consolidated Financial Statements. Acquisitions Cash outflows for acquisitions and investments in strategic partnerships during the years ended December 31, 2018, 2017 and 2016 were $0, $211 million and $0, respectively. 155 Table of Contents Contractual Obligations The following table summarizes our major contractual obligations at December 31, 2018: 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 $ 318,082 $ 22,246 $ 17,927 $ 17,298 $ 234,958 24,794 31,950 11,734 2,126 19,059 32,036 24,794 1,247 11,344 292 18,707 22,784 16,733 — 2,772 330 542 — — 3,602 60 433 — 260,611 163,405 — 24,329 — 859 352 $ 642,703 $ 110,666 $ 44,355 $ 38,126 $ 449,556 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 $318.1 billion exceeds the liability amounts of $204.4 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. 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. 156 Table of Contents The sum of the estimated cash flows of $235.0 billion exceeds the liability amount of $183.7 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 $1.4 billion at December 31, 2018. 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, 2019 through maturity; and (iii) do not include long-term debt relating to CSEs at December 31, 2018 as such debt does not represent our contractual obligation. Future interest on variable rate debt was computed using prevailing rates at December 31, 2018 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, 2019 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. 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 $1.3 billion were excluded as the timing of payment could not be reliably determined at December 31, 2018. 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, 2018. 157 Table of Contents 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.” See also “— The Company — Liquidity and Capital Uses — Common Stock Repurchases” for information regarding MetLife, Inc.’s common stock repurchases. Liquid Assets At December 31, 2018 and 2017, MetLife, Inc. and other MetLife holding companies had $3.0 billion and $5.7 billion, respectively, in liquid assets. Of these amounts, $2.4 billion and $4.1 billion were held by MetLife, Inc. and $607 million and $1.6 billion were held by other MetLife holding companies at December 31, 2018 and 2017, 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. 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 disclosed our intent to repatriate approximately $3.0 billion of pre-2017 earnings. The Company repatriated $2.6 billion in the fourth quarter of 2017 and the remaining $400 million in the second quarter of 2018. As a result of U.S. Tax Reform, we expect to repatriate future foreign earnings back to the U.S. with minimal or no additional U.S. tax. See Note 18 of the Notes to the Consolidated Financial Statements and “— Risk Factors — Regulatory and Legal Risks — Changes in Tax Laws or Interpretations of Such Laws Could Reduce Our Earnings and Materially Impact Our Operations by Increasing Our Corporate Taxes and Making Some of Our Products Less Attractive to Consumers.” See “— Executive Summary — Consolidated Company Outlook,” for the targeted level of liquid assets at the holding companies. 158 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, 2018 Year Ended December 31, 2017 Year Ended December 31, 2016 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) $ 7,454 $ 7,454 $ 7,404 $ 7,404 $ 4,550 $ 4,550 Long-term debt issued (2) Repayments on and (issuances of) loans to subsidiaries and related interest, net (3) Preferred stock issued 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) Other, net (4) Total uses Net increase (decrease) in liquid assets, MetLife, Inc. (Parent Company Only) Liquid assets, beginning of year Liquid assets, end of year Free Cash Flow, MetLife, Inc. (Parent Company Only) 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 $ $ $ $ $ — — 1,274 — 8,728 767 1,759 964 1,678 3,992 141 63 1,029 10,393 (1,665) 4,095 2,430 5,494 — — — — 7,454 767 — 964 — — 141 63 1,083 3,018 4,436 $ $ — — — 107 7,511 339 1,000 980 1,717 2,927 103 33 — 7,099 412 3,683 4,095 6,462 — — — 4 7,408 124 — 980 — — 103 33 — — — — 120 4,670 1,733 1,250 983 1,736 372 103 99 — — — — (210) 4,340 1,733 — 983 — — 103 99 — 1,240 6,276 2,918 (1,606) 5,289 3,683 3,747 6,168 $ $ 2,836 $ 2,836 $ 2,125 $ 2,125 $ 1,485 $ — 2,836 57 6 3,200 603 3,866 (1,030) 1,643 613 (2,695) — 2,836 57 6 3,200 603 3,866 (1,030) $ $ — 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) 1,422 1,485 — 1,485 53 307 — 123 483 1,002 Free Cash Flow, All Holding Companies (6) (7) $ 3,406 $ 5,667 $ 2,424 __________________ 159 Table of Contents (1) (2) (3) (4) (5) (6) Dividends and returns of capital to MetLife, Inc. included $4.3 billion, $5.2 billion and $4.6 billion from operating subsidiaries and $3.2 billion, $2.2 billion and $0 from other MetLife holding companies during the years ended December 31, 2018, 2017 and 2016, respectively. Included in dividends and returns of capital to MetLife, Inc. are the following which increased MetLife, Inc. liquid assets and free cash flow: dividends from Brighthouse subsidiaries of $0, $1.8 billion and $556 million, and returns of capital from Brighthouse subsidiaries of $0, $590 million and $0, during the years ended December 31, 2018, 2017 and 2016, respectively. Also, dividends and returns of capital to MetLife, Inc. 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. which MetLife, Inc. sold 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 ($877) million, $860 million and $433 million of net receipts (payments) by MetLife, Inc. to and from subsidiaries under a tax sharing agreement and tax payments to tax agencies during the years ended December 31, 2018, 2017 and 2016, respectively. Amounts to fund business acquisitions were $0, $215 million and $0 (included in capital contributions to subsidiaries) during the years ended December 31, 2018, 2017 and 2016, respectively. In 2018, $268 million of Separation-related items (comprised of certain Separation-related inflows primarily related to reinsurance benefit from Brighthouse) were included in free cash flow, which increased our holding companies’ liquid assets, as well as our free cash flow ratio. Excluding these Separation-related items, adjusted free cash flow would be $3.1 billion for the year ended December 31, 2018. 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 the free cash flow, which increased our holding companies’ liquid assets, as well as our free cash flow ratio. 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 and free cash flow ratio. 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, issuances of common and 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 and 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 — 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.” 160 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, 2018, 2017, or 2016. 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,” MetLife, Inc.’s primary sources of liquidity and capital are set forth below. 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. See Note 15 of the Notes to the Consolidated Financial Statements. 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 actual dividends paid: 2018 2017 2016 2019 Permitted Without Approval (1) Paid (2) Permitted Without Approval (3) $ $ $ $ 3,096 $ 3,736 (3) — $ 3,200 N/A N/A 171 154 $ $ 233 191 (6) N/A N/A N/A $ — $ $ $ $ $ 3,075 — N/A 125 73 N/A 118 Paid (2) (In millions) $ $ $ $ $ $ $ 2,523 2,200 — 185 — — 1 Permitted Without Approval (3) Paid (2) Permitted Without Approval (3) $ $ $ $ $ $ $ 2,723 — 473 (5) 98 66 106 (5) 91 $ $ $ $ $ $ $ 5,740 (4) — 261 228 60 295 — $ $ $ $ $ $ $ 3,753 — 586 130 70 156 136 Company Metropolitan Life Insurance Company American Life Insurance Company Brighthouse Life Insurance Company Metropolitan Property and Casualty Insurance Company Metropolitan Tower Life Insurance Company (6) New England Life Insurance Company General American Life Insurance Company (6) __________________ (1) (2) (3) (4) Reflects dividend amounts that may be paid during the relevant year without prior regulatory approval (“ordinary dividends”). However, because dividend tests may be based on dividends previously paid over rolling 12-month periods, if paid before a specified date during such year, some or all of such dividends may require regulatory approval. Reflects all amounts paid, including those where regulatory approval was obtained as required (“extraordinary dividends”). Represents ordinary dividends of $3.0 billion and an extraordinary dividend of $705 million. The extraordinary dividend was paid in cash with proceeds from the sale to an affiliate of certain property, equipment, leasehold improvements and computer software that were non-admitted by MLIC for statutory accounting purposes. The affiliate received a capital contribution in cash from MetLife, Inc. to fund the purchase. 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 New England Life Insurance Company (“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. 161 Table of Contents (5) (6) In April 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 of the Notes to the Consolidated Financial Statements for information regarding the Separation. In April 2018, MTL merged with GALIC (“MTL Merger”). The surviving entity of the merger was MTL, which re- domesticated from Delaware to Nebraska immediately prior to the merger. The total dividends paid of $191 million is equal to the sum of the individual 2018 ordinary dividends that MTL and GALIC would each have been permitted to pay computed on a stand-alone basis if the MTL Merger had not occurred. In addition to the amounts presented in the table above, in August 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, 2018, 2017 and 2016, MetLife, Inc. also received cash payments of $7 million, $39 million and $26 million, respectively, representing dividends from non-Brighthouse subsidiaries. Additionally, for the year ended December 31, 2018, MetLife, Inc. received cash returns of capital of $87 million. For the year ended December 31, 2017, MetLife, Inc. received cash returns of capital of $610 million from certain subsidiaries, including $590 million from MetLife Reinsurance Company of South Carolina (“MRSC”), in connection with the Separation. For the year ended December 31, 2016, MetLife, Inc. received cash of $80 million, 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 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, 2018 or 2017. Preferred Stock For information on MetLife, Inc.’s preferred stock, see “— The Company — Liquidity and Capital Sources — Global Funding Sources — Preferred Stock.” Affiliated Long-term Debt In May 2018, $500 million in senior notes previously issued by MetLife, Inc. to MLIC and other subsidiaries were redenominated to new 54.6 billion Japanese yen senior notes. The 54.6 billion Japanese yen senior notes mature in December 2021 and bear interest at a rate per annum of 3.14%, payable semi-annually. In April 2018, $500 million in senior notes previously issued by MetLife, Inc. to MLIC and other subsidiaries were redenominated to new 53.7 billion Japanese yen senior notes. The 53.7 billion Japanese yen senior notes mature in July 2021 and bear interest at a rate per annum of 2.97%, payable semi-annually. In March 2018, three senior notes previously issued by MetLife, Inc. to MLIC were redenominated to Japanese yen. A $500 million senior note was redenominated to a new 53.3 billion Japanese yen senior note. The 53.3 billion Japanese yen senior note matures in June 2019 and bears interest at a rate per annum of 1.45%, payable semi-annually. A $250 million senior note was redenominated to a new 26.5 billion Japanese yen senior note. The 26.5 billion Japanese yen senior note matures in October 2019 and bears interest at a rate per annum of 1.72%, payable semi-annually. A $250 million senior note was also redenominated to a new 26.5 billion Japanese yen senior note. The 26.5 billion Japanese yen senior note matures in September 2020 and bears interest at a rate per annum of 0.82%, payable semi-annually. 162 Table of Contents 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. 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 of the Notes to the MetLife, Inc. (Parent Company Only) Condensed Financial Information in Schedule II. Credit and Committed Facilities 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 IRS 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, 2018. 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) Junior subordinated debt securities __________________ (1) See “— Affiliated Long-term Debt.” Debt and Facility Covenants December 31, 2018 2017 (In millions) $ $ $ 11,844 1,957 2,456 $ $ $ 14,599 2,000 2,454 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 financial covenants at December 31, 2018. Dispositions Cash proceeds from dispositions during the years ended December 31, 2018, 2017 and 2016 were $0, $0 and $291 million, respectively. See Note 3 of the Notes to the Consolidated Financial Statements. Liquidity and Capital Uses The primary uses of liquidity of MetLife, Inc. include debt service, cash dividends on common and preferred stock, capital contributions to subsidiaries, common stock, preferred stock and debt 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 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,” MetLife, Inc.’s primary uses of liquidity and capital are set forth below. 163 Table of Contents Affiliated Capital and Debt Transactions During the years ended December 31, 2018 and 2017, MetLife, Inc. invested a net amount of $778 million and $729 million, respectively, in various non-Brighthouse subsidiaries. During the year ended December 31, 2016, MetLife, Inc. invested a net amount of $1.5 billion, in various subsidiaries, which included a cash capital contribution of $1.5 billion to Brighthouse Insurance in connection with the Separation. MetLife, Inc. lends funds, as necessary, through credit agreements or otherwise to its subsidiaries and affiliates, some of which are regulated, to meet their capital requirements or to provide liquidity. MetLife, Inc. had loans to subsidiaries outstanding of $100 million at both December 31, 2018 and 2017. In April 2017, in connection with the Separation, MetLife Reinsurance Company of Delaware (“MRD”) repaid $750 million and $350 million of 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, 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. 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%. 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 2019. 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. 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 and March 2016, MetLife, Inc. repaid $204 million and $10 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%. 164 Table of Contents Maturities of Senior Notes The following table summarizes MetLife, Inc.’s outstanding senior notes by year of maturity through 2023 and 2024 to 2046, excluding any premium or discount and unamortized issuance costs, at December 31, 2018: Year of Maturity Principal (In millions) Interest Rate 2019 2019 2020 2020 2021 2021 2021 2022 2023 2024 - 2046 __________________ (1) Represents affiliated debt. Support Agreements $ $ $ $ $ $ $ $ $ $ (1) (1) (1) (1) (1) 486 242 509 242 368 490 497 500 1,000 9,546 1.45% 1.72% 5.25% 0.82% 4.75% 2.97% 3.14% 3.05% 4.37% 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, Missouri Reinsurance, Inc. (“MoRe”), under a retrocession agreement with RGA Reinsurance (Barbados) Inc., 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 variable annuity type liability contracts issued by MEL. MetLife, Inc., in connection with MetLife Reinsurance Company of Vermont’s (“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. 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. 165 Table of Contents MetLife, Inc. guarantees obligations arising from OTC-bilateral 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, 2018 and 2017, derivative transactions with positive mark-to-market values (in-the-money) were $302 million and $515 million, respectively, and derivative transactions with negative mark-to-market values (out-of-the-money) were $84 million and $126 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 $84 million and $114 million at December 31, 2018 and 2017, respectively. Accordingly, unsecured derivative liabilities guaranteed by MetLife, Inc. were $0 and $12 million at December 31, 2018 and 2017, 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 years ended December 31, 2018, 2017 and 2016 were $0, $211 million and $0, respectively. 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. (parent company only) net cash provided by operating activities 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 are not accessible on a forward-looking basis because we believe it is not possible without unreasonable effort 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. Our definitions of the various non-GAAP and other financial measures discussed in this report may differ from those used by other companies. 166 Table of Contents 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, net of income tax. Adjusted loss is defined as negative adjusted earnings. Adjusted earnings available to common shareholders is defined as adjusted earnings less preferred stock dividends. Adjusted revenues and adjusted expenses The financial measures of adjusted revenues and adjusted expenses 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 (“Investment hedge adjustments”), (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 equity securities (“Unit-linked contract income”), (iv) excludes certain amounts related to securitization entities that are VIEs consolidated under GAAP and (v) includes distributions of profits from certain other limited partnership interests that were previously accounted for under the cost method, but are now accounted for at estimated fair value, where the change in estimated fair value is recognized in net investment gains (losses) under GAAP; and Other revenues is adjusted for settlements of foreign currency earnings hedges and excludes fees received in association with services provided under transition service agreements (“TSA fees”). 167 Table of Contents 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 certain amounts related to net investment income earned on contractholder-directed equity securities; 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. Other expenses includes TSA fees. 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 return on MetLife, Inc.’s common stockholders’ equity is defined as adjusted earnings available to common shareholders divided by MetLife, Inc.’s average common stockholders’ equity. Adjusted return on MetLife, Inc.’s common stockholders’ equity, excluding AOCI other than FCTA is defined as adjusted earnings available to common shareholders divided by MetLife, Inc.’s average 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. Expense ratio and direct expense ratio: • • • Expense ratio: other expenses, net of capitalization of DAC, divided by premiums, fees and other revenues. Direct expense ratio: direct expenses, on an adjusted basis, divided by adjusted premiums, fees and other revenues. Direct expenses are comprised of employee-related costs, third party staffing costs, and general and administrative expenses. Direct expense ratio, excluding total notable items related to direct expenses and pension risk transfers: direct expenses, on an adjusted basis, excluding total notable items related to direct expenses, divided by adjusted premiums, fees and other revenues, excluding pension risk transfers. 168 Table of Contents 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 most recent year being compared and applied to the comparable prior year (“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. • • • • Near-term represents one to three years. 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. Notable items represent a positive (negative) impact to adjusted earnings available to common shareholders. Notable items reflect the unexpected impact of events that affect MetLife’s results, but that were unknown and that MetLife could not anticipate when it devised its Business Plan. Notable items also include certain items regardless of the extent anticipated in the Business Plan, to help investors have a better understanding of MetLife’s results and to evaluate and forecast those 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. (parent company only) to free cash flow of all holding companies for the years ended December 31, 2018, 2017 and 2016 is provided below. 169 Table of Contents Reconciliation of Net Cash Provided by Operating Activities of MetLife, Inc. to Free Cash Flow of All Holding Companies Years Ended December 31, 2018 2017 (In millions) 2016 MetLife, Inc. (parent company only) net cash provided by operating activities $ 5,494 $ 6,462 $ 3,747 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: Investment portfolio and derivatives changes and other, net MetLife, Inc. (parent company only) free cash flow Other MetLife, Inc. holding companies: Add: Dividends and returns of capital from subsidiaries 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) __________________ — (767) 87 (378) 4,436 2,836 (57) (6) (771) (3,200) 168 (1,030) — (124) 610 (780) 6,168 2,125 (12) (6) (626) (2,200) 218 (501) $ $ $ $ $ 3,406 $ 5,667 $ 5,494 4,982 110% 3,406 5,461 $ $ $ $ 6,462 3,907 165% 5,667 4,235 $ $ $ $ — (1,733) 80 (672) 1,422 1,485 (53) (307) (671) — 548 1,002 2,424 3,747 747 502% 2,424 4,033 62% 134% 60% (1) Consolidated net income (loss) available to MetLife, Inc.’s common shareholders for 2018 includes Separation-related costs of $80 million, net of income tax. Excluding this amount from the denominator of the ratio, this ratio, as adjusted, would be 109%. 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%. 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.” 170 Table of Contents (2) Including the free cash flow of other MetLife, Inc. holding companies of ($1.0) billion, ($501) million and $1.0 billion for the years ended December 31, 2018, 2017 and 2016, respectively, in the numerator of the ratio, this ratio, as adjusted, would be 90%, 153% and 636%, 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 88%, 141% and 579% for the years ended December 31, 2018, 2017 and 2016, respectively. (3) i) In 2018, $268 million of Separation-related items (comprised of certain Separation-related inflows primarily related to reinsurance benefit from Brighthouse) were included in free cash flow, which increased our holding companies’ liquid assets, as well as our free cash flow ratio. Excluding these Separation-related items, adjusted free cash flow would be $3.1 billion for the year ended December 31, 2018. Consolidated adjusted earnings available to common shareholders for 2018 was negatively impacted by notable items, primarily related to expense initiative costs of $284 million, net of income tax, partially offset by tax adjustments of $247 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 2018 would be 56%. ii) 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 the free cash flow, which increased our holding companies’ liquid assets, as well as our free cash flow ratio. 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%. iii) 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 and free cash flow ratio. 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%. 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 Chief Executive Officer (“CEO”) and is primarily responsible for maintaining and communicating the Company’s enterprise risk policies and for monitoring and analyzing all material risks. 171 Table of Contents 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 identifying, managing, measuring, monitoring and controlling those risks identified in the corporate risk framework; coordinating Own Risk and Solvency Assessments for 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. The ALM Steering Committee oversees the activities of the underlying ALM Committees and Working Groups. The ALM Steering Committee reports 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 hedging programs and associated investment portfolios for different blocks of 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, 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 AFS 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 AFS. 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 Risks — Difficult Economic Conditions May Adversely Affect Our Business, Results of Operations and Financial Condition.” 172 Table of Contents 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 — Economic Environment and Capital Markets Risks — Difficult Economic Conditions May Adversely Affect Our Business, Results of Operations and Financial Condition.” 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. Equity exposures associated with 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. In the U.S., 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. 173 Table of Contents Foreign Currency Exchange Rate Risk Management MetLife has a well-established Enterprise Foreign Exchange (“FX”) Risk Policy to manage 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 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 caps and 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. 174 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, 2018. 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 $203.3 billion, at carrying value, of insurance contracts. 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 __________________ 175 December 31, 2018 (In millions) $ $ $ 5,656 7,807 (1) Table of Contents 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% increase in equity prices. The potential losses in estimated fair value presented are for non-trading securities. 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 interest rates by type of asset or liability at: Assets Fixed maturity securities AFS Equity securities FVO 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 __________________ December 31, 2018 Notional Amount Estimated Fair Value (1) (In millions) Assuming a 10% Increase in Interest Rates $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 298,265 $ (5,180) $ $ $ $ 1,440 871 76,379 11,366 3,937 1,413 15,821 3,582 3,797 350 71 110,313 24,794 268 13,611 853 3,738 3,518 810 3,958 102 153 (2) 416 (230) 31 — 445 (28) 4 (192) 68 (64) 334 (47) 91 — (8) (816) (131) (5) — — — (23) (4) — (6,167) 757 — — 342 — 104 68 161 1,432 (565) (26) 62 8 (91) (121) (54) — (139) 22 — (1) — (1) (15) — — $ $ (921) (5,656) $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 60,852 12,701 54,575 2,353 26,690 3,256 1,048 25,700 48,552 16,517 847 7,177 13,294 2,992 27,707 2,269 929 (1) Separate account assets and liabilities and 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, notwithstanding any general account guarantees which are included within embedded derivatives (see footnote (2) below) or included within future policy benefits and other policy-related balances (see footnote (3) below). FVO Securities and long-term debt exclude $4 million and $5 million, respectively, related to CSEs. 176 Table of Contents (2) (3) Embedded derivatives are recognized on the consolidated balance sheet in the same caption as the host contract. Excludes $203.3 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 interest rates. Sensitivity to rising interest rates decreased $206 million, or 4%, to $5.7 billion at December 31, 2018 from $5.9 billion at December 31, 2017. 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 AFS Equity securities FVO 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 __________________ 177 Notional Amount December 31, 2018 Estimated Fair Value (1) (In millions) Assuming a 10% Increase in the Foreign Exchange Rate $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 298,265 $ (9,560) $ $ $ $ 1,440 871 76,379 11,366 3,937 1,413 15,821 3,582 3,797 350 71 110,313 24,794 13,611 3,518 810 3,958 102 153 (2) 416 (230) 31 — 445 (28) 4 (192) 68 (64) 334 (47) 91 (47) (88) (856) (161) (329) (264) (472) (94) (101) (18) (7) (11,997) 3,453 136 106 20 61 3,776 (71) — — — (21) 1 — — 1,037 (769) (87) 319 (4) — 9 — — $ $ 414 (7,807) $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 60,852 12,701 54,575 2,353 26,690 3,256 1,048 25,700 48,552 16,517 847 7,177 13,294 2,992 27,707 2,269 929 Table of Contents (1) (2) (3) Does not necessarily represent those financial instruments solely subject to foreign currency exchange rate risk. Separate account assets and liabilities and 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, notwithstanding any general account guarantees which are included within embedded derivatives (see footnote (2) below) or included within future policy benefits and other policy-related balances (see footnote (3) below). FVO Securities and long-term debt exclude $4 million and $5 million, respectively, related to CSEs. Embedded derivatives are recognized on the consolidated balance sheet in the same caption as the host contract. Excludes $203.3 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% appreciation in the U.S. dollar relative to all other currencies. Sensitivity to foreign currency exchange rates decreased $60 million to $7.8 billion at December 31, 2018 from $7.9 billion at December 31, 2017. These sensitivities exclude those 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% appreciation in the U.S. dollar relative to all other currencies. 178 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 equity prices by type of asset or liability at: Assets Equity securities FVO Securities Embedded derivatives within asset host contracts (2) Total assets Liabilities (3) 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, 2018 Estimated Fair Value (1) (In millions) Assuming a 10% Increase in Equity Prices $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 60,852 12,701 54,575 2,353 26,690 3,256 1,048 25,700 48,552 16,517 847 7,177 13,294 2,992 27,707 2,269 929 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 1,440 $ 871 71 110,313 810 3,958 102 153 (2) 416 (230) 31 — 445 (28) 4 (192) 68 (64) 334 (47) 91 $ $ $ $ $ $ 144 33 — 177 — 329 329 — — — — — — — — — — — — — (227) (198) 1 (81) (505) 1 (1) (2) (3) Does not necessarily represent those financial instruments solely subject to equity price risk. Additionally, separate account assets and liabilities and 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, notwithstanding any general account guarantees which are included within embedded derivatives (see footnote (2) below) or included within future policy benefits and other policy-related balances (see footnote (3) below). Embedded derivatives are recognized on the consolidated balance sheet in the same caption as the host contract. Excludes $203.3 billion of liabilities, at carrying value, pursuant to insurance contracts reported within future policy benefits and other policy-related balances. As of December 31, 2018, sensitivity to a 10% equity market increase was $1 million. This compares to a $71 million sensitivity to a 10% equity market decrease at December 31, 2017. 179 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, 2018 and 2017 and for the Years Ended December 31, 2018, 2017 and 2016: 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 Revenues and 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, 2018 and 2017 and for the Years Ended December 31, 2018, 2017 and 2016: 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 180 Page 181 182 183 184 185 186 188 207 213 222 240 243 247 249 270 284 301 303 306 307 308 325 326 336 343 344 352 353 354 355 363 365 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, 2018 and 2017, 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, 2018, 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, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, 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, 2018, 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 February 21, 2019, expressed an unqualified opinion on the Company’s internal control over financial reporting. 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 February 21, 2019 We have served as the Company’s auditor since at least 1968; however, an earlier year could not be reliably determined. 181 Table of Contents Assets Investments: MetLife, Inc. Consolidated Balance Sheets December 31, 2018 and 2017 (In millions, except share and per share data) 2018 2017 Fixed maturity securities available-for-sale, at estimated fair value (amortized cost: $286,816 and $286,069, respectively) $ 298,265 $ Equity securities, at estimated fair value Contractholder-directed equity securities and fair value option securities, at estimated fair value (includes $4 and $6, respectively, relating to variable interest entities) Mortgage loans (net of valuation allowances of $342 and $314, respectively; includes $299 and $520, respectively, under the fair value option) Policy loans Real estate and real estate joint ventures (includes $0 and $25, respectively, of real estate held-for-sale) Other limited partnership interests Short-term investments, principally at estimated fair value Other invested assets (includes $141 and $125, respectively, relating to variable interest entities) Total investments Cash and cash equivalents, principally at estimated fair value (includes $52 and $12, respectively, relating to variable interest entities) Accrued investment income Premiums, reinsurance and other receivables (includes $3 and $3, respectively, relating to variable interest entities) Deferred policy acquisition costs and value of business acquired Goodwill Other assets (includes $2 and $2, 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 $5 and $6, respectively, at estimated fair value, relating to variable interest entities) Collateral financing arrangement Junior subordinated debt securities Current income tax payable Deferred income tax liability Other liabilities (includes $1 and $3, 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; $3,405 and $2,100 aggregate liquidation preference, respectively Common stock, par value $0.01 per share; 3,000,000,000 shares authorized; 1,171,824,242 and 1,168,710,101 shares issued, respectively; 958,613,542 and 1,043,588,396 shares outstanding, respectively Additional paid-in capital Retained earnings Treasury stock, at cost; 213,210,700 and 125,121,705 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. 182 1,440 12,616 75,752 9,699 9,698 6,613 3,937 18,190 436,210 15,821 3,582 19,644 18,895 9,422 8,408 $ $ 175,556 687,538 $ 186,780 $ 183,693 16,529 677 428 24,794 268 12,829 1,060 3,147 441 5,414 22,964 175,556 634,580 — 12 32,474 28,926 (10,393) 1,722 52,741 217 52,958 $ 687,538 $ 308,931 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 Table of Contents MetLife, Inc. Consolidated Statements of Operations For the Years Ended December 31, 2018, 2017 and 2016 (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 available-for-sale Other-than-temporary impairments on fixed maturity securities available-for-sale 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 2018 2017 2016 $ 43,840 $ 38,992 $ 37,202 5,502 16,166 1,880 5,510 17,363 1,341 5,483 16,790 1,685 (40) — (258) (298) 851 (11) 1 (298) (308) (590) (96) (11) 424 317 (690) 67,941 62,308 60,787 42,656 4,013 1,251 13,714 61,634 6,307 1,179 5,128 — 5,128 5 5,123 141 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 4 850 103 747 3.16 3.13 0.68 0.67 Net income (loss) available to MetLife, Inc.’s common shareholders $ 4,982 $ 3,907 $ 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 $ $ $ $ 4.95 4.91 4.95 4.91 $ $ $ $ 4.57 4.53 3.65 3.62 $ $ $ $ See accompanying notes to the consolidated financial statements. 183 Table of Contents MetLife, Inc. Consolidated Statements of Comprehensive Income (Loss) For the Years Ended December 31, 2018, 2017 and 2016 (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) 2018 2017 2016 $ 5,128 $ 4,020 $ 854 (8,719) 674 (587) 263 (8,369) 1,754 (6,615) (1,487) 4,623 (1,165) 767 144 4,369 (984) 3,385 7,405 796 573 (363) 131 1,137 (450) 687 1,541 Less: Comprehensive income (loss) attributable to noncontrolling interest, net of income tax Comprehensive income (loss) attributable to MetLife, Inc. 7 14 92 $ (1,494) $ 7,391 $ 1,449 See accompanying notes to the consolidated financial statements. 184 Table of Contents MetLife, Inc. Consolidated Statements of Equity For the Years Ended December 31, 2018, 2017 and 2016 (In millions) Balance at December 31, 2015 $ — $ 12 $ 30,749 $ 35,672 $ (3,102) $ 4,767 $ 68,098 $ 470 $ 68,568 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 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 Cumulative effects of changes in accounting principles, net of income tax (Note 1) Balance at January 1, 2018 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 195 (103) (1,736) 850 — 12 30,944 34,683 — — 12 12 167 31,111 31,111 1,274 89 (103) (1,717) (10,346) 4,010 26,527 (905) 25,622 (141) (1,678) 5,123 (372) (3,474) (2,927) (6,401) (6,401) (3,992) (372) 195 (103) (1,736) — 850 599 67,531 (2,927) 167 (103) (1,717) (11,666) — 4,010 3,381 58,676 7 58,683 1,274 (3,992) 89 (141) (1,678) — 5,123 (6,617) 599 5,366 (1,320) 3,381 7,427 912 8,339 (6,617) (391) 4 88 171 9 10 4 194 194 16 5 2 Balance at December 31, 2018 $ — $ 12 $ 32,474 $ 28,926 $ (10,393) $ 1,722 $ 52,741 $ 217 $ See accompanying notes to the consolidated financial statements. (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 7 58,877 1,274 (3,992) 89 (141) (1,678) 16 5,128 (6,615) 52,958 185 Table of Contents MetLife, Inc. Consolidated Statements of Cash Flows For the Years Ended December 31, 2018, 2017 and 2016 (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 contractholder-directed equity securities and fair value option 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 available-for-sale Equity securities Mortgage loans Real estate and real estate joint ventures Other limited partnership interests Purchases and originations of: Fixed maturity securities available-for-sale 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 disposed due to distribution of Brighthouse Sales of businesses, net of cash and cash equivalents disposed of $0, $0 and $135, respectively Purchases of businesses Net change in policy loans Net change in short-term investments Net change in other invested assets Other, net 2018 2017 2016 $ 5,128 $ 4,020 $ 854 628 (1,013) 298 (207) 251 4,013 (5,502) — 2,212 (121) (1,809) (249) 940 260 7,454 (483) (62) 11,738 106,677 342 9,918 1,227 675 (105,401) (235) (17,059) (1,118) (1,406) 3,778 (4,173) — — — (37) 870 340 (32) 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 — 195 1,270 (306) (457) (5,850) Net cash provided by (used in) investing activities $ (5,634) $ (16,876) $ See accompanying notes to the consolidated financial statements. 186 Table of Contents MetLife, Inc. Consolidated Statements of Cash Flows — (continued) For the Years Ended December 31, 2018, 2017 and 2016 (In millions) Cash flows from financing activities Policyholder account balances: Deposits Withdrawals Payables for collateral under securities loaned and other transactions: Net change in payables for collateral under securities loaned and other transactions Cash received for other transactions with tenors greater than three months 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 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 Fixed maturity securities available-for-sale received in connection with pension risk transfer transactions Brighthouse common stock exchange transaction (Note 3): Reduction of long-term debt Reduction of fair value option securities Disposal of Brighthouse (See Note 3): Assets disposed Liabilities disposed Net assets disposed Cash disposed Net non-cash disposed Reduction of fixed maturity securities available-for-sale 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 available-for-sale Reduction of noncontrolling interests $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 2018 2017 2016 $ 92,327 $ 88,511 $ (88,061) (82,380) 88,188 (83,263) 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 $ $ $ $ (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 — $ 985 (821) 200 24 (1,871) (61) — 144 (3,992) 1,274 (141) (1,678) (145) (2,801) (183) 3,120 12,701 15,821 $ — $ — $ 12,701 15,821 1,130 1,935 3,016 944 1,030 $ $ $ $ $ $ $ — $ — $ — $ 225,502 $ — — — — $ — $ — $ — $ — $ (210,999) 14,503 (3,456) 11,047 $ — $ — $ — $ — $ — — — — — — — 224 676 917 373 See accompanying notes to the consolidated financial statements. 187 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. 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. Effective January 1, 2016, the Company converted its Japan operations from a fiscal year cutoff of November 30th 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 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. 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. 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”). The results of Brighthouse are reflected in MetLife, Inc.’s consolidated financial statements as discontinued operations and, therefore, are presented as 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. Transactions between the Company and Brighthouse after the Separation are reflected in continuing operations for the Company. See Note 3 for information on discontinued operations and transactions with Brighthouse. 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. 188 Table of Contents MetLife, Inc. 1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued) Notes to the Consolidated Financial Statements — (continued) 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 (“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 to the current year presentation as discussed throughout the Notes to the Consolidated Financial Statements. Summary of Significant Accounting Policies The following are the Company’s significant accounting policies with references to notes providing additional information on such policies and critical accounting estimates relating to such policies. Accounting Policy Insurance Deferred Policy Acquisition Costs, Value of Business Acquired and Other Intangibles Reinsurance Investments Derivatives Fair Value Goodwill Employee Benefit Plans Income Tax Litigation Contingencies Insurance Note 4 5 6 8 9 10 11 17 18 20 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. 189 Table of Contents MetLife, Inc. 1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued) Notes to the Consolidated Financial Statements — (continued) 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 life of the contract 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 S&P 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 variable annuity products with guaranteed minimum benefits that provide the policyholder a minimum return based on their initial deposit adjusted for 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 a 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 life-contingent portion of guaranteed minimum withdrawal benefits (“GMWBs”), elective annuitizations of guaranteed minimum income benefits (“GMIBs”), and the life contingent portion of GMIBs that require annuitization when the account balance goes to zero. Guarantees accounted for as embedded derivatives in policyholder account balances include guaranteed minimum accumulation benefits (“GMABs”), the non-life contingent portion of GMWBs and certain non-life contingent portions of GMIBs. 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. Other Policy-Related Balances Other policy-related balances include policy and contract claims, premiums received in advance, unearned revenue liabilities, obligations assumed under structured settlement assignments, policyholder dividends due and unpaid, policyholder dividends left on deposit and negative value of business acquired (“VOBA”). 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. 190 Table of Contents MetLife, Inc. 1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued) Notes to the Consolidated Financial Statements — (continued) 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 VOBA. 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. 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. 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. 191 Table of Contents MetLife, Inc. 1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued) Notes to the Consolidated Financial Statements — (continued) DAC and VOBA are amortized as follows: 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. 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. 192 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 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 when there is a gain at inception on the ceding entity, and to other liabilities when there is a loss at inception. The net cost of reinsurance is recognized as a component of other expenses when there is a gain at inception, and as policyholder benefits and claims when there is a loss at inception and is subsequently amortized on a basis consistent with the methodology used for amortizing DAC related to the underlying reinsured contracts. 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. 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 Securities The majority of the Company’s fixed maturity 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. Sales of securities are determined on a specific identification basis. 193 Table of Contents MetLife, Inc. 1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued) Notes to the Consolidated Financial Statements — (continued) Interest income and prepayment fees are recognized when earned. Interest income is recognized using an effective yield method giving effect to amortization of premium and accretion of discount, 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 “— Fixed Maturity Securities AFS — Methodology for Amortization of Premium and Accretion of Discount on Structured Securities.” The amortization of premium and accretion of discount also takes into consideration call and maturity dates. The Company periodically evaluates these 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 Fixed Maturity Securities AFS for OTTI and Evaluating Temporarily Impaired Fixed Maturity Securities AFS.” For securities in an unrealized loss position, an other-than-temporary impairment (“OTTI”) is recognized in earnings within net investment gains (losses) 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. Equity Securities Equity securities are reported at their estimated fair value, with changes in estimated fair value included in net investment gains (losses). Sales of securities are determined on a specific identification basis. Dividends are recognized in net investment income when declared. Contractholder-Directed Equity Securities and FVO Securities Contractholder-directed equity securities and FVO Securities (collectively, “Unit-linked and FVO Securities”) are investments for which the FVO has been elected, or are otherwise required to be carried at estimated fair value, and include: • • • contractholder-directed investments supporting unit-linked variable annuity type liabilities (“Unit-linked investments”) which do not qualify for presentation and reporting as separate account summary total assets and liabilities. These investments are primarily equity securities (including mutual funds) and, to a lesser extent, fixed maturity 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; 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; and securities held by consolidated securitization entities (“CSEs”). At December 31, 2017, Unit-linked and FVO Securities also included the estimated fair value of the Brighthouse Financial, Inc. common stock held by the Company (“FVO Brighthouse Common Stock”). See Note 3. 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 premium and accretion of discount. 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. 194 Table of Contents MetLife, Inc. 1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued) Notes to the Consolidated Financial Statements — (continued) 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. 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 real estate joint ventures and other limited partnership interests (“investee”) 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 in net investment income 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 accounts for its interest in real estate joint ventures and other limited partnership interests in which it has virtually no influence over the investee’s operations at fair value. Changes in estimated fair value of these investments are included in net investment gains (losses). Because of the nature and structure of these investments, they do not meet the characteristics of an equity security in accordance with applicable accounting standards. The Company routinely evaluates its equity 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. Short-term Investments Short-term investments include highly liquid securities and other investments with remaining maturities of one year or less, but greater than three months, at the time of purchase. Securities included within short-term investments are stated at estimated fair value, while other investments included within short-term investments are stated at amortized cost, which approximates estimated fair value. 195 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 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. 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. Direct financing leases net investment is equal to the minimum lease payments plus the unguaranteed residual value, less the unearned income. Income is determined 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. Leveraged leases net investment is equal to the minimum lease payments plus the unguaranteed residual value, less the unearned income, and is recorded net of non-recourse debt. Income is determined by applying the leveraged lease’s estimated rate of return to the net investment in the lease in those periods in which the net investment at the beginning of the period is positive. Leveraged leases derive investment returns in part from their income tax treatment. The Company regularly reviews residual values for impairment. Investments in operating joint ventures that engage in insurance underwriting activities are accounted for under the equity method. Investments in Federal Home Loan Bank (“FHLB”) common stock are carried at redemption value and are considered restricted investments until redeemed by the respective FHLB regional banks (“FHLBanks”). 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. Securities Lending and Repurchase Agreements The Company accounts for securities lending transactions and repurchase agreements as financing arrangements and the associated liability is recorded at the amount of cash received. Income and expenses associated with securities lending transactions and repurchase agreements are reported as investment income and investment expense, respectively, within net investment income. Securities Lending The Company enters into securities lending transactions, whereby blocks of securities are loaned to third parties, primarily brokerage firms and commercial banks. 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. 196 Table of Contents 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 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 of Boston Advance Agreements A subsidiary of the Company has entered into short-term advance agreements with the FHLB of Boston. Under these advance agreements, the subsidiary pledges fixed maturity securities AFS as collateral and receives cash, which is segregated and reinvested, primarily into fixed maturity securities AFS and cash equivalents. While the collateral management practices are unique to this program, these transactions are accounted for, have collateral maintenance requirements and have restrictions on securities pledged similar to securities lending transactions, as described above. 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 derivative’s 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 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 Unit-linked investments Hedge Accounting To qualify for hedge accounting, at the inception of the hedging relationship, the Company formally documents its risk management objective and strategy for undertaking the hedging transaction, as well as its designation of the hedge. Hedge designation and financial statement presentation of changes in estimated fair value of the hedging derivatives are as follows: • • • Fair value hedge (a hedge of the estimated fair value of a recognized asset or liability) - in net derivative gains (losses), consistent with the change in estimated fair value of the hedged item attributable to the designated risk being hedged. Cash flow hedge (a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability) - effectiveness in OCI (deferred gains or losses on the derivative are reclassified into the statement of operations when the Company’s earnings are affected by the variability in cash flows of the hedged item); ineffectiveness in net derivative gains (losses). Net investment in a foreign operation hedge - effectiveness in OCI, consistent with the translation adjustment for the hedged net investment in the foreign operation; ineffectiveness in net derivative gains (losses). The changes in estimated fair values of the hedging derivatives are exclusive of any accruals that are separately reported on the statement of operations within interest income or interest expense to match the location of the hedged item. Accruals on derivatives in net investment hedges are recognized in OCI. 197 Table of Contents MetLife, Inc. 1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued) Notes to the Consolidated Financial Statements — (continued) 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. 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). 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. 198 Table of Contents MetLife, Inc. 1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued) Notes to the Consolidated Financial Statements — (continued) 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 unadjusted quoted prices are not available, estimated 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. 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. 199 Table of Contents MetLife, Inc. 1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued) Notes to the Consolidated Financial Statements — (continued) 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. 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. 200 Table of Contents MetLife, Inc. 1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued) Notes to the Consolidated Financial Statements — (continued) Litigation Contingencies The Company is a defendant in a large number of litigation matters and is involved in a number of regulatory investigations. 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. 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 through 2018, and cash- payable awards, each of which are re-measured quarterly, the Company measures the cost of all stock-based transactions at fair value at grant date and recognizes it over the period during which a grantee must provide services in exchange for the award. Employees who meet certain age-and-service criteria receive payment or may exercise their awards regardless of ending employment. However, the award’s payment or exercisability takes place at the originally-scheduled time, i.e., is not accelerated. As a result, the award does not require the employee to provide any substantive service after attaining those age-and-service criteria. Accordingly, the Company recognizes compensation expense related to stock-based awards from the beginning of the vesting to the earlier of the end of the vesting period or the date the employee attains the age- and-service criteria. The Company incorporates an estimation of future forfeitures of stock-based awards into the determination of compensation expense when recognizing expense over the requisite service period. Cash and Cash Equivalents The Company considers 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. Securities included within cash equivalents are stated at estimated fair value, while other investments included within 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 $2.6 billion and $2.5 billion at December 31, 2018 and 2017, respectively. Accumulated depreciation and amortization of property, equipment and leasehold improvements was $1.2 billion and $1.1 billion at December 31, 2018 and 2017, respectively. Related depreciation and amortization expense was $191 million, $207 million and $206 million for the years ended December 31, 2018, 2017 and 2016, 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 $3.1 billion and $2.8 billion at December 31, 2018 and 2017, respectively. Accumulated amortization of capitalized software was $2.2 billion and $2.0 billion at December 31, 2018 and 2017, respectively. Related amortization expense was $276 million, $250 million and $208 million for the years ended December 31, 2018, 2017 and 2016, respectively. 201 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 Revenues Other revenues primarily include fees related to service contracts from customers related to prepaid legal plans, administrative services-only (“ASO”) contracts, and investment management services. Substantially all of the revenue from the services is recognized over time as the applicable services are provided or are made available to the customers. The revenue recognized includes variable consideration to the extent it is probable that a significant reversal will not occur. In addition to the service fees, other revenues also include certain stable value fee and other miscellaneous revenues. These fees and miscellaneous revenues are recognized as earned. 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. Recent Accounting Pronouncements Changes to GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of accounting standards updates (“ASUs”) to the FASB Accounting Standards Codification. The Company considers the applicability and impact of all ASUs. The following tables provide a description of new ASUs issued by the FASB and the impact of the adoption on the Company’s consolidated financial statements. 202 Table of Contents MetLife, Inc. 1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued) Notes to the Consolidated Financial Statements — (continued) Adoption of New Accounting Pronouncements Except as noted below, the ASUs adopted by the Company effective January 1, 2018 did not have a material impact on its consolidated financial statements. Effective Date and Method of Adoption January 1, 2018, the Company applied the ASU in the period of adoption. January 1, 2018, the Company adopted, using a modified retrospective approach. Impact on Financial Statements The adoption of this guidance resulted in the release of stranded tax effects in AOCI resulting from the U.S. Tax Reform by decreasing retained earnings as of January 1, 2018 by $1.2 billion with a corresponding increase to AOCI. The Company’s accounting policy for the release of stranded tax effects in AOCI is on an aggregate portfolio basis. The adoption of this guidance resulted in a $328 million, net of income tax, increase to retained earnings largely offset by a decrease to AOCI that was primarily attributable to $1.7 billion of equity securities previously classified and measured as equity securities AFS. At December 31, 2017, equity securities of $16.0 billion primarily associated with Unit- linked investments were accounted for using the FVO and therefore were unaffected by the new guidance. The Company has included the required disclosures related to equity securities AFS within Note 8. January 1, 2018, the Company adopted, using a modified retrospective approach. The adoption of the guidance did not have a material impact on the Company’s consolidated financial statements other than expanded disclosures in Note 16. Standard Description ASU 2018-02, Income Statement— Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income ASU 2016-01, Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, as clarified and amended by ASU 2018-03, Technical Corrections and Improvements to Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2014-09, Revenue from Contracts with Customers (Topic 606) The new guidance allows a reclassification of AOCI to retained earnings for stranded tax effects resulting from the U.S. Tax Reform. Due to the change in corporate tax rates resulting from the U.S. Tax Reform, the Company reported stranded tax effects in AOCI related to unrealized gains and losses on AFS securities, cumulative foreign translation adjustments and deferred costs on pension benefit plans. The new guidance changed the previous 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. There is no longer a requirement to assess equity securities for impairment since such securities are now measured at fair value through net income. Additionally, there is no longer a requirement to assess equity securities for embedded derivatives requiring bifurcation. The new guidance supersedes nearly all existing revenue recognition guidance under GAAP. However, it does not impact the accounting for insurance and investment contracts within the scope of FASB Accounting Standard Codification 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. 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 impacted the accounting treatment of the Company’s centrally cleared derivatives, for which the LCH serves as the central clearing party. As of the effective date, the application of the amended rulebook reduced gross derivative assets by $369 million, gross derivative liabilities by $203 million, accrued investment income by $14 million, collateral receivables recorded within premiums, reinsurance and other receivables by $184 million, and collateral payables recorded within payables for collateral under securities loaned and other transactions by $365 million. The application of the amended rulebook increased accrued investment expense recorded within other liabilities by $1 million. 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 by $991 million, and collateral payables recorded within payables for collateral under securities loaned and other transactions by $816 million. 203 Table of Contents MetLife, Inc. 1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued) Notes to the Consolidated Financial Statements — (continued) Future Adoption of New Accounting Pronouncements ASUs not listed below were assessed and either determined to be not applicable or are not expected to have a material impact on the Company’s consolidated financial statements. ASUs issued but not yet adopted as of December 31, 2018 that are being assessed and may or may not have a material impact on the Company’s consolidated financial statements are summarized in the table below. Standard Description ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities ASU 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes ASU 2018-15, Intangibles— Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract The new guidance provides that indirect interests held through related parties in common control arrangements should be considered on a proportional basis for determining whether fees paid to decisionmakers and service providers are variable interests. The new guidance permits the use of the overnight index swap rate based on the Secured Overnight Financing Rate as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815. The new guidance requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance to determine which implementation costs to capitalize as an asset and which costs to expense as incurred. Implementation costs that are capitalized under the new guidance are required to be amortized over the term of the hosting arrangement, beginning when the module or component of the hosting arrangement is ready for its intended use. Effective Date and Method of Adoption January 1, 2020, to be applied retrospectively with a cumulative effect adjustment to retained earnings at the beginning of the earliest period presented. January 1, 2019, to be applied prospectively for qualifying new or redesignated hedging relationships entered into after January 1, 2019. January 1, 2020. The new guidance can be applied either prospectively to eligible costs incurred on or after the guidance is first applied, or retrospectively to all periods presented. Impact on Financial Statements The Company does not expect the adoption to have a material impact on its consolidated financial statements. The Company does not expect the adoption to have a material impact on its consolidated financial statements. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements. ASU 2018-14, Compensation— Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework— Changes to the Disclosure Requirements for Defined Benefit Plans The new guidance removes certain disclosures that no longer are considered cost beneficial, clarifies the specific requirements of disclosures, and adds disclosure requirements identified as relevant for employers that sponsor defined benefit pension or other postretirement plans. December 31, 2020, to be applied on a retrospective basis to all periods presented (with early adoption permitted). The Company is currently evaluating the impact of the new guidance on its consolidated financial statements. ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement The new guidance modifies the disclosure requirements on fair value by removing some requirements, modifying others, adding changes in unrealized gains and losses included in OCI for recurring Level 3 fair value measurements, and under certain circumstances, providing the option to disclose certain other quantitative information with respect to significant unobservable inputs in lieu of a weighted average. As of December 31, 2018, the Company early adopted the provisions of the guidance that removed the requirements relating to transfers between fair value hierarchy levels and certain disclosures about valuation processes for Level 3 fair value measurements. The Company will adopt the remainder of the new guidance at the effective date, and is currently evaluating the impact of those changes on its consolidated financial statements. January 1, 2020. Amendments related to changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively. All other amendments should be applied retrospectively. 204 Table of Contents MetLife, Inc. 1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued) Notes to the Consolidated Financial Statements — (continued) Standard Description ASU 2018-12, Financial Services— Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts The new guidance (i) prescribes the discount rate to be used in measuring the liability for future policy benefits for traditional and limited payment long-duration contracts, and requires assumptions for those liability valuations to be updated after contract inception, (ii) requires more market-based product guarantees on certain separate account and other account balance long- duration contracts to be accounted for at fair value, (iii) simplifies the amortization of DAC for virtually all long-duration contracts, and (iv) introduces certain financial statement presentation requirements, as well as significant additional quantitative and qualitative disclosures. Effective Date and Method of Adoption January 1, 2021, to be applied retrospectively to January 1, 2019 (with early adoption permitted). Impact on Financial Statements The Company has started its implementation efforts and is currently evaluating the impact of the new guidance. Given the nature and extent of the required changes to a significant portion of the Company’s operations, the adoption of this standard is expected to have a material impact on its consolidated financial statements. Upon adoption, the Company will make certain changes to its assessment of hedge effectiveness for fair value hedging relationships, and the Company will also reclassify hedge ineffectiveness for cash flow hedging relationships existing as of the adoption date, which was previously recorded to earnings, to AOCI. The estimated impact of adoption is a decrease to retained earnings of less than $250 million. The adoption of the new guidance will not have a material impact on the Company’s consolidated financial statements. The new guidance will reduce the complexity involved with the evaluation of goodwill for impairment. The impact of the new guidance will depend on the outcomes of future goodwill impairment tests. The Company believes that the most significant impact upon adoption will be to its mortgage loan investments. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements. ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities 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 their financial statements. January 1, 2019, to be applied on a modified retrospective basis through a cumulative effect adjustment to retained earnings. ASU 2017-08, Receivables — Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities ASU 2017-04, Intangibles— Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment The new guidance 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. January 1, 2019, to be applied on a modified retrospective basis through a cumulative effect adjustment to retained earnings. 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. January 1, 2020, to 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. ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as clarified and amended by ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses January 1, 2020. For substantially all financial assets, the ASU is to be applied on a modified retrospective basis through a cumulative effect adjustment to retained earnings. For previously impaired debt securities and certain debt securities acquired with evidence of credit quality deterioration since origination, the new guidance is to be applied prospectively. This new guidance 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. In November 2018, the FASB issued ASU 2018-19, clarifying that receivables arising from operating leases should be accounted for in accordance with Topic 842, Leases. 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. 205 Table of Contents MetLife, Inc. 1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued) Notes to the Consolidated Financial Statements — (continued) Effective Date and Method of Adoption January 1, 2019, to be applied on a modified retrospective basis using the optional transition method with a cumulative effect adjustment recorded at January 1, 2019. Impact on Financial Statements The Company believes the most significant changes relate to (i) the recognition of new right of use assets and lease liabilities on the consolidated balance sheet for real estate operating leases; and (ii) the recognition of deferred gains associated with previous sale- leaseback transactions as a cumulative effect adjustment to retained earnings. On adoption, the Company will recognize additional operating liabilities, with corresponding right of use assets of the same amount adjusted for prepaid/deferred rent, unamortized initial direct costs and potential impairment of right of use assets based on the present value of the remaining minimum rental payments. These assets and liabilities will represent less than 1% of the Company’s total assets and total liabilities. The adoption will not have a material impact on its consolidated financial statements. Standard Description ASU 2016-02, Leases (Topic 842), as clarified and amended by ASU 2018-10, Codification Improvements to Topic 842, Leases, ASU 2018-11, Leases (Topic 842): Targeted Improvements, and ASU 2018-20, Leases (Topic 842): Narrow-Scope Improvements for Lessors 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. In July 2018, two amendments to the new guidance were issued. The amendments provide the option to adopt the new guidance prospectively without adjusting comparative periods. Also, the amendments provide lessors with a practical expedient not to separate lease and non-lease components for certain operating leases. In December 2018, an amendment was issued to clarify lessor accounting relating to taxes, certain lessor’s costs and variable payments related to both lease and non-lease components. The Company will adopt the new guidance and related amendments on January 1, 2019 and expects to elect certain practical expedients permitted under the transition guidance. In addition, the Company will elect the prospective transition option and recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. The Company has been executing an integrated implementation plan which includes a multi-functional working group with a project governance structure to address any resource, system, data and process gaps related to the implementation of the new standard. The Company is currently integrating a lease accounting technology solution and finalizing updated reporting processes and additional internal controls to facilitate compliance with the new guidance. 206 Table of Contents 2. Segment Information MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) 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. 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 (“RIS”) and Property & Casualty. The Group Benefits business offers 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 ASO arrangements to some employers. The RIS business offers a broad range of life and annuity-based insurance and investment products, including stable value and pension risk transfer products, institutional income annuities, tort settlements, and capital markets investment products, as well as solutions for funding 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 to 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 to other institutions, and their respective employees, which include whole and term life, endowments, universal and variable life, accident & health insurance and fixed and variable annuities. Latin America The Latin America segment offers a broad range of products to both individuals and corporations, as well as to other institutions, and their respective employees, which include life insurance, retirement and savings products, accident & health insurance and credit insurance. EMEA The EMEA segment offers a broad range of products to both individuals and corporations, as well as to other institutions, and their respective employees, which include life insurance, accident & health insurance, retirement and savings products and credit insurance. MetLife Holdings The MetLife Holdings segment consists of operations relating to products and businesses that the Company no longer actively markets in the United States, such as variable, universal, term and whole life insurance, variable, fixed and index-linked annuities, and 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 and developing businesses (including the investment management business through which the Company, as a manager of assets such as global fixed income and real estate, provides differentiated investment solutions to institutional investors worldwide). Additionally, Corporate & Other includes run-off businesses. 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, investment expenses and intersegment loans, which bear interest rates commensurate with related borrowings. As a result of the Separation, for the year ended 2016, Corporate & Other includes corporate overhead costs previously allocated to the former Brighthouse Financial segment. 207 Table of Contents 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 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 equity securities, (iv) excludes certain amounts related to securitization entities that are VIEs consolidated under GAAP and (v) includes distributions of profits from certain other limited partnership interests that were previously accounted for under the cost method, but are now accounted for at estimated fair value, where the change in estimated fair value is recognized in net investment gains (losses) under GAAP; and Other revenues is adjusted for settlements of foreign currency earnings hedges and excludes fees received in association with services provided under transition service agreements (“TSA fees”). 208 Table of Contents MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) 2. Segment Information (continued) 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 certain amounts related to net investment income earned on contractholder-directed equity securities; 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. Other expenses includes TSA fees. 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, 2018, 2017 and 2016 and at December 31, 2018 and 2017. 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. 209 Table of Contents 2. Segment Information (continued) Year Ended December 31, 2018 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, 2018 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 $ 28,186 $ 1,053 6,977 821 — — $ 6,766 1,630 3,317 51 — — 2,760 1,050 1,239 35 — — $ 2,131 $ 431 293 66 — — (In millions) 3,879 1,218 5,379 250 — — 37,037 11,764 5,084 2,921 10,726 27,765 1,790 (449) 477 — 12 3,902 33,497 736 5,326 1,465 (1,915) 1,302 (39) — 3,840 9,979 548 $ 2,804 $ 1,237 $ 2,602 394 (377) 209 (1) 6 1,421 4,254 238 592 1,127 6,833 100 (468) 434 (15) — 1,378 2,556 88 944 (36) 332 — 9 1,081 9,163 308 $ 277 $ 1,255 $ $ 118 $ 43,840 $ — $ 120 (1,217) 324 (298) 851 (220) 174 (680) (1) 215 (1) 63 398 168 86 — 178 333 — — 629 80 — (8) 6 — 1,032 907 2,017 (825) (563) 5,382 17,383 1,556 — — 68,161 43,733 4,693 (3,253) 2,760 (55) 1,059 12,529 61,466 1,093 5,602 (220) (168) (86) 43,840 5,502 16,166 1,880 (298) 851 67,941 43,907 4,013 (3,254) 2,975 (56) 1,122 12,927 61,634 1,179 U.S. Asia (1) Latin America EMEA (In millions) MetLife Holdings Corporate & Other Total $ $ $ 248,174 71,436 71,436 $ $ $ 146,278 8,849 8,849 $ $ $ 70,417 47,757 47,757 $ $ $ 27,829 5,306 5,306 $ $ $ 166,872 42,208 42,208 $ $ $ 27,968 $ — $ — $ 687,538 175,556 175,556 $ 5,128 $ 5,128 (1) Total assets includes $120.0 billion of assets from the Japan operations which represents 17% of total consolidated assets. 210 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. 211 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 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 $ 3,588 212 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 and casualty insurance Other Total Years Ended December 31, 2018 2017 2016 (In millions) $ 20,550 $ 20,330 $ 14,489 10,990 3,651 1,542 14,002 6,999 3,613 899 20,436 14,128 5,552 3,560 694 $ 51,222 $ 45,843 $ 44,370 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, 2018 2017 2016 (In millions) 36,078 $ 30,971 $ 29,166 6,435 8,709 6,444 8,428 51,222 $ 45,843 $ 7,089 8,115 44,370 $ $ Revenues derived from one U.S. segment customer were $6.0 billion for the year ended December 31, 2018, which represented 12% of consolidated premiums, universal life and investment-type product policy fees and other revenues. The revenue was from a single premium received for a pension risk transfer. Revenues derived from any other 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, 2018, 2017 and 2016. 3. Dispositions Disposition of MetLife Afore, S.A. de C.V. In October 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. Separation of Brighthouse 2018 Sale of FVO Brighthouse Common Stock In June 2018, the Company sold FVO Brighthouse Common Stock in exchange for $944 million aggregate principal amount of MetLife, Inc. senior notes, which MetLife, Inc. canceled. The Company recorded $327 million of mark-to-market and disposition losses on the FVO Brighthouse Common Stock to net investment gains (losses) for the year ended December 31, 2018. At December 31, 2018, the Company no longer held any shares of Brighthouse Financial, Inc. for its own account; however, certain insurance company separate accounts managed by the Company held shares of Brighthouse Financial, Inc. See Note 12 for further information on this transaction. 213 Table of Contents MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) 3. Dispositions (continued) 2017 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. On August 4, 2017, MetLife, Inc. completed the Separation. 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. MetLife, Inc. retained the remaining ownership interest of 22,996,436 shares, or 19.2%, of Brighthouse Financial, Inc. common stock outstanding 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 was 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 were recorded to net investment gains (losses). FVO Brighthouse Common Stock at 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. The loss recognized in 2017 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. 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 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. In connection with the Separation, MetLife, Inc. terminated various support agreements with Brighthouse. 214 Table of Contents 3. Dispositions (continued) Agreements MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) 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. Tax Agreements 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. In October 2017, in accordance with the tax separation agreement, $729 million of this amount was paid by MetLife, Inc. to Brighthouse. Accordingly, at December 31, 2017, the Company’s current income tax receivable and corresponding payable to Brighthouse, reported in other liabilities, was $726 million. In 2018, as a result of filing its U.S. tax return, the Company increased its current income tax receivable and corresponding payable to Brighthouse by $183 million. The adjusted payable of $909 million was settled in 2018 in accordance with the tax separation agreement. In addition, at December 31, 2018, the Company also reported a receivable from Brighthouse of $111 million in other assets, offset by a tax payable of $111 million, of which $68 million was reported in current income tax payable and $43 million was reported in other liabilities. These amounts represent Brighthouse uncertain tax items and audit adjustments while it was a member of the Company’s U.S. consolidated tax return. 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 is a receivable from Brighthouse of $330 million and $333 million, at December 31, 2018 and 2017, respectively, related to these future payments, after a reduction in 2017 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. 215 Table of Contents 3. Dispositions (continued) MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) 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. 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. 216 Table of Contents 3. Dispositions (continued) MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) 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, including investment management, transition services and employee matters 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. In June 2018, the Company sold FVO Brighthouse Common Stock and as a result the Company no longer considers Brighthouse to be a related party. Therefore, the following discussion of the ongoing transactions with Brighthouse only includes disclosures of related party amounts through June 30, 2018 and at December 31, 2017. However, since the Company considers the reinsurance transactions and the transition service agreement discussed below to have a significant impact on its consolidated statements of operations, it has updated these disclosures through December 31, 2018. Reinsurance 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 Years Ended December 31, Years Ended December 31, 2018 2017 (1) 2017 (2) 2016 (In millions) $ $ $ 401 (13) 388 7 (96) (89) $ $ $ $ 328 (36) 292 14 (71) 183 (4) 179 $ $ (4) $ (44) (48) $ $ $ $ 150 (22) 128 6 (30) (57) $ (24) $ 105 (29) 76 $ $ 39 7 46 $ $ 248 (7) 241 $ $ (6) $ (55) (61) 196 (16) 180 10 (42) (32) 10 (28) (18) $ $ $ $ $ $ $ 462 (9) 453 (2) (102) (104) 385 (23) 362 16 (75) (59) 88 (29) 59 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. $ $ $ $ $ $ $ $ $ $ 217 Table of Contents 3. Dispositions (continued) MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) Information regarding the related party 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 Transition Services 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 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 after the date of Separation, with certain services potentially to be made available for several years thereafter. For the year ended December 31, 2018, the Company recognized $305 million in other revenues for services provided under such transition services agreement. 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. Investment Management In connection with the Separation, the Company entered into investment management services agreements with Brighthouse. Each agreement had an initial term of 18 months after the date of Separation, after which period either party to the agreements was permitted to terminate upon notice to the other party. On February 5, 2019, the Company entered into a new investment management services agreement with Brighthouse that remains in effect until terminated by either party upon notice. After the Separation, for the years ended December 31, 2018 and 2017, the Company recognized related party revenue of $61 million and $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. Committed Facility MRV and MetLife, Inc. have a $2.9 billion committed facility which is used as collateral for certain affiliated reinsurance liabilities. At December 31, 2017, Brighthouse was a related party beneficiary of $2.4 billion of letters of credit issued under this committed facility and in consideration Brighthouse reimbursed MetLife, Inc. for a portion of the letter of credit fees. Prior to the Separation, 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. 218 Table of Contents 3. Dispositions (continued) Other MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) 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 related party 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 years ended December 31, 2018 and 2017, the Company recognized related party revenue of $63 million and $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 related party payable to Brighthouse of $186 million related to these future payments. At December 31, 2017, the Company had a related party receivable from Brighthouse of $97 million related to services provided and a related party 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: 219 Table of Contents 3. Dispositions (continued) MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) For the Years Ended December 31, 2017 (1) 2016 (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 $ 2,201 1,783 150 (48) (1,061) 3,845 2,217 620 16 — 853 3,706 139 (46) 185 (216) (955) (1,171) Income (loss) from discontinued operations, net of income tax $ (986) $ __________________ (1) Includes transactions prior to the Separation. 1,951 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) 220 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 U.S. Retail Advisor Force Divestiture For the Years Ended December 31, 2017 2016 (In millions) $ $ $ 1,329 $ (2,732) $ (367) $ 3,697 4,674 (4,715) 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., 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. 221 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, 2018 2017 (In millions) $ 141,641 $ 136,065 108,456 16,131 17,069 102,371 1,334 99,404 16,758 19,579 103,372 829 $ 387,002 $ 376,007 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 U.S. business and less than 1% to 14% for non-U.S. business and mortality rates guaranteed in calculating the cash surrender values described in such contracts); and (ii) the liability for terminal dividends for U.S. 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 U.S. business and less than 1% to 13% for non-U.S. 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 U.S. business and less than 1% to 11% for non-U.S. business. Non-medical health insurance Disabled lives Property and 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 1% to 7% (primarily related to U.S. 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 U.S. business and less than 1% to 9% for non-U.S. 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% of the Company’s life insurance in-force at both December 31, 2018 and 2017. Participating policies represented 14%, 15% and 16% of gross traditional life insurance premiums for the years ended December 31, 2018, 2017 and 2016, 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 U.S. business and less than 1% to 15% for non-U.S. business, less expenses, mortality charges and withdrawals; and (iii) fair value adjustments relating to business combinations. 222 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, the non-life contingent portion of GMWBs and certain non-life contingent portions of GMIBs 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. 223 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 GMDBs and GMWBs GMIBs Universal and Variable Life Contracts Secondary Guarantees (In millions) Paid-Up Guarantees Total $ 524 $ 2,726 $ 306 $ Direct and Assumed: Balance at January 1, 2016 Incurred guaranteed benefits (1) Paid guaranteed benefits Balance at December 31, 2016 Incurred guaranteed benefits (1) Paid guaranteed benefits Balance at December 31, 2017 Incurred guaranteed benefits (1) Paid guaranteed benefits Balance at December 31, 2018 Ceded: Balance at January 1, 2016 Incurred guaranteed benefits Paid guaranteed benefits Balance at December 31, 2016 Incurred guaranteed benefits Paid guaranteed benefits Balance at December 31, 2017 Incurred guaranteed benefits Paid guaranteed benefits Balance at December 31, 2018 Net: Balance at January 1, 2016 Incurred guaranteed benefits Paid guaranteed benefits Balance at December 31, 2016 Incurred guaranteed benefits Paid guaranteed benefits Balance at December 31, 2017 Incurred guaranteed benefits Paid guaranteed benefits Balance at December 31, 2018 __________________ $ $ $ $ $ 364 102 (15) 451 91 (14) 528 (78) (22) 428 19 — 5 24 4 6 34 (38) 4 $ $ — $ $ 345 102 (20) 427 87 (20) 494 (40) (26) 78 (1) 601 121 (2) 720 178 — 898 6 (1) — 5 1 — 6 4 — 10 518 79 (1) 596 120 (2) 714 174 — $ $ $ $ 291 (28) 2,989 233 (34) 3,188 291 (37) 3,442 218 (27) — 191 50 — 241 28 — 269 2,508 318 (28) 2,798 183 (34) 2,947 263 (37) $ $ $ $ 25 — 331 16 — 347 12 — 359 214 17 — 231 11 — 242 9 — 251 92 8 — 100 5 — 105 3 — $ $ $ $ 3,920 496 (44) 4,372 461 (50) 4,783 403 (59) 5,127 457 (11) 5 451 66 6 523 3 4 530 3,463 507 (49) 3,921 395 (56) 4,260 400 (63) 4,597 $ 428 $ 888 $ 3,173 $ 108 $ (1) Secondary guarantees include the effects of foreign currency translation of $62 million, $78 million and $119 million at December 31, 2018, 2017 and 2016, respectively. 224 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: 2018 2017 December 31, In the Event of Death At Annuitization In the Event of Death At Annuitization (Dollars in millions) $ $ $ 56,235 37,342 2,768 (4) 66 years N/A N/A N/A $ $ $ $ $ 21,628 19,839 483 (5) 65 years $ $ $ 66,724 45,431 1,238 (4) 65 years 1,272 489 (6) 50 years N/A N/A N/A $ $ $ $ $ 26,223 24,336 525 (5) 65 years 1,424 569 (6) 50 years December 31, 2018 2017 Secondary Guarantees Paid-Up Guarantees Secondary Guarantees Paid-Up Guarantees (Dollars in millions) $ $ 8,943 64,154 $ $ 3,070 15,539 $ $ 9,036 66,956 $ $ 57 years 64 years 56 years 3,207 16,615 63 years Annuity Contracts: Variable Annuity Guarantees: Total account value (1), (2), (3) Separate account value (1) Net amount at risk (2) Average attained age of contractholders Other Annuity Guarantees: Total account value (1), (3) Net amount at risk Average attained age of contractholders Universal and Variable Life Contracts: Total account value (1), (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. 225 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, 2018 2017 (In millions) $ $ 19,579 $ 17,073 5,299 277 23,213 20,859 5,983 252 42,228 $ 50,307 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, 2018, 2017 and 2016, the Company issued $41.8 billion, $42.7 billion and $39.7 billion, respectively, and repaid $43.7 billion, $41.4 billion and $38.5 billion, respectively, of such funding agreements. At December 31, 2018 and 2017, liabilities for funding agreements outstanding, which are included in policyholder account balances, were $32.3 billion and $34.2 billion, respectively. Certain of the Company’s subsidiaries are members of FHLBanks. Holdings of common stock of FHLBanks, included in other invested assets, were as follows at: FHLB of New York FHLB of Des Moines FHLB of Pittsburgh December 31, 2018 2017 (In millions) $ $ $ 724 17 19 $ $ $ 733 35 11 226 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, 2018 2017 2018 2017 (In millions) $ $ $ $ 14,245 2,550 425 450 $ $ $ $ 14,445 2,550 625 250 $ $ $ $ 16,557 (2) 2,639 709 (2) 590 (2) $ $ $ $ 16,605 (2) 2,644 701 (2) 311 (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, 2018. 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 2018 year end spot rates for all periods presented. The information about incurred and paid claims development prior to 2016 is presented as supplementary information. 227 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, 2018 Incurral Year 2011 2012 2013 2014 2015 2016 2017 2018 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 $ 6,295 $ (Dollars in millions) 6,503 6,579 6,637 6,569 6,713 6,986 6,546 6,719 6,919 7,040 1 1 3 5 11 14 31 899 207,608 209,047 211,341 213,388 213,243 210,706 246,364 203,329 6,568 6,720 6,913 7,015 7,125 6,569 6,730 6,910 7,014 7,085 7,432 6,569 6,720 6,914 7,021 7,095 7,418 7,757 55,789 (53,786) 9 $ 2,012 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 2011 2012 2013 2014 2015 2016 2017 2018 Total 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 2018 2011 2012 2013 2014 2015 2016 2017 2018 $ 4,982 $ 6,194 $ 6,239 $ 6,256 $ 6,281 $ 6,290 $ 6,292 $ (In millions) 5,132 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 6,565 6,711 6,869 6,958 6,980 5,761 6,295 6,566 6,715 6,902 6,974 7,034 7,292 6,008 Total cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance $ 53,786 Average Annual Percentage Payout The following is supplementary information about average historical claims duration as of December 31, 2018: Years Group Life - Term 1 78.2% 2 20.2% 3 0.7% 4 0.2% 5 0.4% 6 0.1% 7 —% 8 —% Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance 228 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, 2018 Incurral Year 2011 2012 2013 2014 2015 2016 2017 2018 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 $ 917 $ $ 955 $ $ 916 966 $ 894 979 1,008 914 980 1,027 1,076 2011 2012 2013 2014 2015 2016 2017 2018 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 1,021 1,069 1,109 1,100 1,159 1,202 1,240 8,817 (3,815) 2,110 7,112 $ — — — — — 6 29 621 21,643 20,085 21,135 22,846 21,177 17,897 15,968 8,208 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 2018 $ 44 $ 217 $ 43 $ 337 229 43 (In millions) $ 411 365 234 51 2011 2012 2013 2014 2015 2016 2017 2018 $ 478 453 382 266 50 $ 537 524 475 428 264 49 $ 588 591 551 526 427 267 56 635 648 622 609 524 433 290 54 Total cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance $ 3,815 Average Annual Percentage Payout The following is supplementary information about average historical claims duration as of December 31, 2018: Years Group Long-Term Disability 1 4.4% 2 18.9% 3 14.0% 4 8.6% 5 7.2% 6 6.5% 7 5.6% 8 5.1% Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance 229 Table of Contents MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) 4. Insurance (continued) 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. 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 2018 compared to the 2017 incurral year due to the growth in the size of the business. There were no significant changes in methodologies during 2018. 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 at both December 31, 2018 and 2017. 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, 2018 and 2017. The amount of interest accretion recognized was $509 million, $510 million and $565 million for the years ended December 31, 2018, 2017 and 2016, 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. 230 Table of Contents MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) 4. Insurance (continued) Property & Casualty - Auto Liability Incurred Claims and Allocated Claim Adjustment Expense, Net of Reinsurance At December 31, 2018 Incurral Year 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 (Dollars in millions) For the Years Ended December 31, (Unaudited) Total IBNR Liabilities Plus Expected Development on Reported Claims Cumulative Number of Reported Claims $ 862 $ $ 877 863 $ 853 873 863 $ 826 853 876 882 $ 823 847 869 881 911 $ 817 833 855 869 900 897 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Total Cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance All outstanding liabilities for incurral years prior to 2009, net of reinsurance Total unpaid claims and claim adjustment expenses, net of reinsurance 815 826 846 851 882 910 975 $ 815 825 843 846 878 913 984 1,012 $ $ 814 822 843 847 876 910 979 1,002 957 $ 814 823 842 846 876 911 980 997 960 938 — — 1 1 3 6 14 36 64 166 204,751 204,481 204,974 199,362 204,367 207,572 212,693 210,627 190,601 167,521 8,987 (7,854) 27 $ 1,160 Cumulative Paid Claims and Paid Allocated Claim Adjustment Expenses, Net of Reinsurance For the Years Ended December 31, (Unaudited) Incurral Year 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 $ 321 $ $ 563 319 $ 681 572 324 $ 755 695 590 333 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 (In millions) $ 789 762 711 600 346 $ 803 796 777 715 618 352 $ 810 810 810 783 743 648 384 $ 813 816 825 815 809 777 691 396 $ 813 818 831 831 843 844 822 702 379 814 820 835 840 859 884 903 842 686 371 Total cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance $ 7,854 Average Annual Percentage Payout The following is supplementary information about average historical claims duration as of December 31, 2018: Years Auto Liability 1 2 3 39.2% 31.2% 14.2% 4 8.0% 5 4.0% 6 1.8% 7 0.9% 8 0.4% 9 0.1% 10 —% Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance 231 Table of Contents MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) 4. Insurance (continued) Property & Casualty - Home Incurred Claims and Allocated Claim Adjustment Expense, Net of Reinsurance At December 31, 2018 Incurral Year 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 For the Years Ended December 31, (Unaudited) Total IBNR Liabilities Plus Expected Development on Reported Claims Cumulative Number of Reported Claims $ 506 $ $ 523 573 $ 510 589 891 $ 507 587 868 714 $ 503 584 843 713 654 (Dollars in millions) $ 501 582 840 703 652 707 $ 498 581 835 698 635 702 759 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Total Cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance All outstanding liabilities for incurral years prior to 2009, net of reinsurance Total unpaid claims and claim adjustment expenses, net of reinsurance — — — 2 1 3 4 14 19 67 106,620 115,517 166,461 146,545 107,548 113,649 107,211 107,128 115,043 91,726 $ 497 580 835 696 635 704 753 740 $ 497 579 834 694 634 705 752 743 747 $ 497 579 833 693 632 701 746 743 763 671 6,858 (6,634) 1 $ 225 Cumulative Paid Claims and Paid Allocated Claim Adjustment Expenses, Net of Reinsurance For the Years Ended December 31, (Unaudited) Incurral Year 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 $ 385 $ $ 476 436 $ 486 546 690 $ 492 562 804 559 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 (In millions) $ 495 571 819 668 505 $ 495 574 825 681 604 574 $ 496 577 827 687 618 670 603 $ 496 578 830 689 626 685 717 593 $ 496 578 832 690 628 692 731 704 610 496 579 833 690 629 695 736 720 727 529 Total cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance $ 6,634 Average Annual Percentage Payout The following is supplementary information about average historical claims duration as of December 31, 2018: Years Home 1 2 79.8% 15.7% 3 2.1% 4 1.0% 5 0.4% 6 0.2% 7 0.2% 8 —% 9 —% 10 0.1% Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance 232 Table of Contents MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) 4. Insurance (continued) 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 to determine the estimated 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 2018. The assumptions used in calculating the unpaid claims and claim adjustment expenses for Property & Casualty - Auto Liability and Property & Casualty - Home 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 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. 233 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, 2018 Incurral Year 2010 2011 2012 2013 2014 2015 2016 2017 2018 For the Years Ended December 31, (Unaudited) Total IBNR Liabilities Plus Expected Development on Reported Claims Cumulative Number of Reported Claims $ 74 $ $ 70 58 $ 75 61 88 $ 96 80 94 134 $ 96 80 92 135 267 (Dollars in millions) $ 93 84 106 157 251 252 $ 122 112 107 152 230 240 211 2010 2011 2012 2013 2014 2015 2016 2017 2018 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 9 16 18 12 38 50 63 90 178 2,781 2,985 4,434 5,064 5,890 5,606 3,499 3,382 2,122 $ 130 119 110 151 231 244 214 273 $ 121 116 120 159 242 238 202 254 333 1,785 (1,223) 16 578 $ 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 2018 $ 18 $ $ 36 12 $ 48 36 27 2010 2011 2012 2013 2014 2015 2016 2017 2018 (In millions) $ 58 49 58 39 $ 71 60 77 89 62 80 73 89 109 130 73 $ 102 $ 108 $ 92 96 123 162 139 59 98 101 134 182 173 122 80 113 100 102 147 204 187 139 144 87 Total cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance $ 1,223 Average Annual Percentage Payout The following is supplementary information about average historical claims duration as of December 31, 2018: Years 1 2 3 Group Disability & Group Life 23.9% 25.2% 12.2% 4 8.9% 5 8.9% 6 8.8% 7 8.3% 8 3.9% 9 3.8% 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. 234 Table of Contents 4. Insurance (continued) MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) 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. 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 during 2018. The assumptions used in calculating the unpaid claims and claim adjustment expenses for Group Disability and Group Life 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. The liabilities for unpaid claims and claim adjustment expenses were $733 million and $756 million at December 31, 2018 and 2017, 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 $61 million and $57 million at December 31, 2018 and 2017, respectively. The amount of interest accretion recognized was $19 million, $26 million and $22 million for the years ended December 31, 2018, 2017 and 2016, 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, 2018 Incurral Year 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 For the Years Ended December 31, (Unaudited) Total IBNR Liabilities Plus Expected Development on Reported Claims Cumulative Number of Reported Claims $ 229 $ $ 309 251 $ 314 323 141 $ 315 330 218 150 $ 315 331 224 204 166 (Dollars in millions) $ 315 331 225 209 232 242 $ 315 331 226 210 239 366 316 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Total Cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance All outstanding liabilities for incurral years prior to 2009, net of reinsurance Total unpaid claims and claim adjustment expenses, net of reinsurance 235 — — — — — — 1 3 16 119 30,643 32,102 26,146 26,105 29,581 38,071 43,426 37,555 30,116 21,926 $ 315 331 226 211 240 377 451 340 $ 317 332 222 209 239 346 422 437 351 $ 320 334 226 211 242 350 428 448 345 328 3,232 (2,933) 9 $ 308 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 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 $ 227 $ $ 302 231 $ 306 301 139 $ 307 308 213 149 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 (In millions) $ 307 309 220 201 162 $ 307 309 220 206 225 216 $ 307 309 221 207 230 322 259 $ 307 309 221 208 230 327 363 235 $ 311 311 222 207 230 331 386 420 206 312 312 222 208 232 335 394 440 312 166 Total cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance $ 2,933 Average Annual Percentage Payout The following is supplementary information about average historical claims duration as of December 31, 2018: Years Protection Life 1 2 62.4% 28.4% 3 2.7% 4 0.7% 5 0.2% 6 0.1% 7 0.2% 8 0.3% 9 0.7% 10 0.3% 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, 2018 Incurral Year 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 For the Years Ended December 31, (Unaudited) Total IBNR Liabilities Plus Expected Development on Reported Claims Cumulative Number of Reported Claims $ 152 $ $ 170 179 $ 172 200 215 $ 172 201 239 208 $ 173 202 240 233 225 (Dollars in millions) $ 173 202 241 235 254 233 $ 173 202 242 236 255 260 201 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Total Cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance All outstanding liabilities for incurral years prior to 2009, net of reinsurance Total unpaid claims and claim adjustment expenses, net of reinsurance — — — — — — 1 2 4 30 92,576 96,334 106,023 99,576 103,132 96,296 84,767 102,167 113,183 101,992 $ 173 203 242 236 256 262 228 263 $ 175 206 239 234 253 260 229 303 381 $ 175 206 239 235 253 259 228 300 355 407 2,657 (2,588) 4 73 $ 236 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 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 $ 152 $ $ 170 179 $ 172 200 215 $ 172 201 239 208 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 (In millions) $ 173 202 240 233 225 $ 173 202 241 235 254 231 $ 173 202 242 236 255 258 200 $ 173 203 242 236 256 260 228 247 $ 175 205 239 235 253 256 227 296 310 175 206 239 235 253 256 227 298 350 349 Total cumulative paid claims and paid allocated claim adjustment expenses, net of reinsurance $ 2,588 Average Annual Percentage Payout The following is supplementary information about average historical claims duration as of December 31, 2018: Years 1 2 Protection Health 87.3% 11.3% 3 0.6% 4 —% 5 —% 6 —% 7 8 (0.3)% 0.5% 9 0.7% 10 0.1% Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance 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 IBNR. 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. There were no significant changes in methodologies or assumptions during 2018. The assumptions used in calculating the unpaid claims and claim adjustment expenses for Protection Life and Protection Health 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 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. 237 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) 238 $ December 31, 2018 (In millions) 2,012 7,112 1,160 225 308 73 20 109 66 4 4 6 $ 10,509 578 381 1,107 12,575 199 216 10 353 778 13,353 90 (1,314) 12,129 5,659 $ 17,788 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 (1) Net balance at January 1, Incurred related to: Current year Prior years (2) 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, 2018 2017 (In millions) 2016 $ 17,094 $ 16,157 $ 2,198 14,896 — 14,896 24,571 454 25,025 (18,757) (5,708) (24,465) 15,456 2,332 1,968 14,189 — 14,189 24,370 133 24,503 (18,525) (5,271) (23,796) 14,896 2,198 $ 17,788 $ 17,094 $ 9,669 476 9,193 4,819 14,012 24,011 382 24,393 (18,696) (5,520) (24,216) 14,189 1,968 16,157 (1) (2) Reflects the accumulated adjustment, net of reinsurance, upon implementation of the 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. During 2018 and 2017, claims and claim adjustment expenses associated with prior years increased due to events incurred in prior years but reported during current year. During 2016, claims and claim adjustment expenses associated with prior years increased due to the implementation of guidance related to short-duration contracts. Separate Accounts Separate account assets and liabilities include two categories of account types: pass-through separate accounts totaling $129.2 billion and $148.2 billion at December 31, 2018 and 2017, 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 $46.4 billion and $56.8 billion at December 31, 2018 and 2017, respectively. The latter category consisted primarily of guaranteed interest contracts (“GICs”). The average interest rate credited on these contracts was 2.60% and 2.34% at December 31, 2018 and 2017, respectively. For the years ended December 31, 2018, 2017 and 2016, there were no investment gains (losses) on transfers of assets from the general account to the separate accounts. 239 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 and 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. 240 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. 241 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, 2018 2017 (In millions) 2016 $ 14,789 $ 13,830 $ 3,254 3,002 (109) (2,599) (2,708) 511 (276) 15,570 60 (2,426) (2,366) (525) 848 14,789 13,464 3,152 229 (2,555) (2,326) (171) (289) 13,830 3,630 3,760 3,966 — (267) (267) 10 (48) 3,325 — (315) (315) (4) 189 3,630 (3) (389) (392) 8 178 3,760 $ 18,895 $ 18,419 $ 17,590 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, 2018 2017 $ (In millions) 633 $ 10,156 1,984 1,622 4,474 26 614 9,261 2,050 1,673 4,797 24 $ 18,895 $ 18,419 242 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, 2018 2017 2016 (In millions) $ $ $ $ $ $ $ $ 220 $ 241 $ 7 (33) 16 — 210 459 (47) (28) 384 392 827 (56) 8 779 3,230 $ $ $ $ $ $ $ 16 (29) (6) (2) 220 509 (51) 1 459 345 935 (140) 32 827 3,174 $ $ $ $ $ $ $ 242 22 (23) — — 241 583 (57) (17) 509 294 1,193 (269) 11 935 3,034 The estimated future amortization expense (credit) to be reported in other expenses for the next five years was as follows: 2019 2020 2021 2022 2023 6. Reinsurance VOBA VODA and VOCRA Negative VOBA (In millions) $ $ $ $ $ 267 247 223 209 195 $ $ $ $ $ 42 38 35 32 29 $ $ $ $ $ (41) (41) (39) (37) (36) 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. 243 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 RIS 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. 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. The Company may also reinsure certain risks with external reinsurers depending upon the nature of the risk and local regulatory requirements. 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. 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. 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. 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 guarantees from the Company’s 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 reinsure risks issued within territories that the Company believes are subject to the greatest catastrophic risks. For its 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. Excess of 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. 244 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, 2018 and 2017, 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 $3.4 billion and $3.5 billion of unsecured reinsurance recoverable balances at December 31, 2018 and 2017, respectively. At December 31, 2018, the Company had $7.5 billion of net ceded reinsurance recoverables. Of this total, $4.5 billion, or 60%, were with the Company’s five largest ceded reinsurers, including $1.1 billion of net ceded reinsurance recoverables which were unsecured. 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. 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. 245 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, 2018 2017 2016 (In millions) $ $ $ $ $ $ $ $ 44,199 $ 39,595 $ 2,021 (2,380) 43,840 6,008 86 (592) 5,502 43,456 1,583 (2,383) 42,656 13,704 321 (311) $ $ $ $ $ $ 1,773 (2,376) 38,992 5,978 83 (551) 5,510 39,354 1,388 (2,429) 38,313 13,610 246 (235) $ $ $ $ $ $ 37,975 1,363 (2,136) 37,202 5,884 96 (497) 5,483 37,186 1,085 (1,913) 36,358 13,958 169 (378) 13,714 $ 13,621 $ 13,749 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, 2018 2017 Direct Assumed Ceded Total Balance Sheet Direct Assumed Ceded Total Balance Sheet (In millions) $ 5,988 $ 1,603 $ 12,053 $ 19,644 $ 6,300 $ 866 $ 11,257 $ 18,423 18,812 385 (302) 18,895 18,350 398 (329) 18,419 $ 24,800 $ 1,988 $ 11,751 $ 38,539 $ 24,650 $ 1,264 $ 10,928 $ 36,842 $ 183,367 $ 3,413 $ — $ 186,780 $ 174,694 $ 3,280 $ — $ 177,974 183,207 15,519 14,848 488 986 (2) 24 2,131 5,985 183,693 182,226 16,529 22,964 14,962 17,077 293 520 (1) 33 1,896 5,009 182,518 15,515 23,982 $ 396,941 $ 7,018 $ 6,007 $ 409,966 $ 388,959 $ 5,989 $ 5,041 $ 399,989 246 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 $2.7 billion and $2.8 billion at December 31, 2018 and 2017, respectively. The deposit liabilities on reinsurance were $1.4 billion at both December 31, 2018 and 2017. 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 net of income tax, to the closed block. 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. 247 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 Deferred income tax liability Other liabilities Total closed block liabilities Assets Designated to the Closed Block Investments: December 31, 2018 2017 (In millions) $ 40,032 $ 40,463 317 431 428 28 328 222 437 2,121 — 212 41,564 43,455 Fixed maturity securities available-for-sale, at estimated fair value 25,354 27,904 Equity securities, at estimated fair value Contractholder-directed equity securities and fair value option securities, 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 asset 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 61 43 6,778 4,527 544 643 37,950 443 83 69 — 38,545 3,019 1,089 86 (338) 837 Maximum future earnings to be recognized from closed block assets and liabilities $ 3,856 $ See Note 1 for discussion of new accounting guidance related to U.S. Tax Reform. Information regarding the closed block policyholder dividend obligation was as follows: 70 — 5,878 4,548 613 731 39,744 477 14 35 36 40,306 3,149 1,863 (7) (1,379) 477 3,626 Balance at January 1, Change in unrealized investment and derivative gains (losses) Balance at December 31, 248 Years Ended December 31, 2018 2017 2016 (In millions) $ $ 2,121 (1,693) 428 $ $ 1,931 190 2,121 $ $ 1,783 148 1,931 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, 2018 2017 2016 (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) $ 1,672 $ 1,736 $ 1,758 (71) 22 3,381 2,475 968 117 3,560 (179) (39) 1,818 1 (32) 3,523 2,453 976 125 3,554 (31) 12 Revenues, net of expenses and provision for income tax expense (benefit) $ (140) $ (43) $ 1,804 1,902 (10) 25 3,721 2,563 953 133 3,649 72 24 48 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 Securities AFS Fixed Maturity Securities AFS by Sector The following table presents the fixed maturity securities AFS by sector. Municipals includes taxable and tax-exempt revenue bonds, and to a much lesser extent, general obligations of states, municipalities and political subdivisions. Redeemable preferred stock is reported within U.S. corporate and foreign corporate fixed maturity securities AFS. Included within fixed maturity securities AFS are structured securities including RMBS, ABS and commercial mortgage-backed securities (“CMBS”) (collectively, “Structured Securities”). 249 Table of Contents 8. Investments (continued) MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) December 31, 2018 Gross Unrealized Amortized Cost Gains Temporary Losses OTTI Losses (1) Estimated Fair Value December 31, 2017 Gross Unrealized Amortized Cost Gains Temporary Losses OTTI Losses (1) Estimated Fair Value (In millions) U.S. corporate Foreign government Foreign corporate U.S. government and agency RMBS ABS Municipals CMBS Total fixed maturity securities AFS __________________ $ 77,761 $ 3,467 $ 2,280 $ — $ 78,948 $ 76,005 $ 7,007 $ 56,353 56,290 37,030 27,409 12,552 10,376 9,045 6,406 2,438 2,756 920 74 1,228 115 471 2,025 464 394 153 71 122 — — — (26) 1 — — 62,288 56,703 39,322 27,961 12,472 11,533 9,038 55,351 52,409 43,446 27,846 12,213 10,752 8,047 6,495 3,836 4,227 1,145 116 1,717 222 351 312 676 279 233 39 13 42 $ — $ 82,661 — — — (42) (1) 1 — 61,534 55,569 47,394 28,800 12,291 12,455 8,227 $ 286,816 $17,404 $ 5,980 $ (25) $ 298,265 $ 286,069 $ 24,765 $ 1,945 $ (42) $ 308,931 (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 AFS with an estimated fair value of $15 million and $6 million with unrealized gains (losses) of ($1) million and ($4) million at December 31, 2018 and 2017, 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 and certain prepayment-sensitive Structured 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 AFS The amortized cost and estimated fair value of fixed maturity securities AFS, by contractual maturity date, were as follows at December 31, 2018: 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 AFS (In millions) Amortized cost Estimated fair value $ $ 12,704 12,734 $ $ 54,663 55,876 $ $ 59,986 61,116 $ $ 110,457 119,068 $ $ 49,006 49,471 $ $ 286,816 298,265 Actual maturities may differ from contractual maturities due to the exercise of call or prepayment options. Fixed maturity securities AFS 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. 250 Table of Contents 8. Investments (continued) MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) Continuous Gross Unrealized Losses for Fixed Maturity Securities AFS by Sector The following table presents the estimated fair value and gross unrealized losses of fixed maturity 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, 2018 December 31, 2017 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) U.S. corporate Foreign government Foreign corporate U.S. government and agency RMBS ABS Municipals CMBS Total fixed maturity securities AFS Total number of securities in an unrealized loss position $ $ $ 32,430 4,392 19,564 6,813 6,506 8,230 1,380 3,893 1,663 243 1,230 58 120 138 46 67 $ 5,826 2,902 5,765 8,937 6,423 392 349 707 $ 617 228 795 406 248 16 25 55 $ 5,604 4,234 4,422 18,273 6,359 1,695 182 1,174 $ $ 92 83 99 93 50 7 2 9 4,115 3,251 6,802 3,560 4,159 729 346 413 259 229 577 186 141 31 12 33 $ 83,208 $ 3,565 $ 31,301 $ 2,390 $ 41,943 $ 435 $ 23,375 $ 1,468 6,913 2,335 2,598 1,955 Evaluation of Fixed Maturity Securities AFS for OTTI and Evaluating Temporarily Impaired Fixed Maturity Securities AFS 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 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) 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 securities that are near maturity; and (ix) other subjective factors, including concentrations and information obtained from regulators and rating agencies. 251 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 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 the following types of securities: U.S. and foreign corporate, foreign government and municipals, 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 amortized cost of 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 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 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 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, 2018. 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 and foreign currency exchange rates. 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 AFS increased $4.1 billion during the year ended December 31, 2018 to $6.0 billion. The increase in gross unrealized losses for the year ended December 31, 2018 was primarily attributable to increases in interest rates, widening credit spreads and, to a lesser extent, the impact of weakening of certain foreign currencies on non-functional currency denominated fixed maturity securities AFS. At December 31, 2018, $155 million of the total $6.0 billion of gross unrealized losses were from 42 fixed maturity securities AFS with an unrealized loss position of 20% or more of amortized cost for six months or greater. 252 Table of Contents MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) 8. Investments (continued) Investment Grade Fixed Maturity Securities AFS Of the $155 million of gross unrealized losses on fixed maturity securities AFS with an unrealized loss of 20% or more of amortized cost for six months or greater, $91 million, or 59%, were related to gross unrealized losses on 20 investment grade fixed maturity securities AFS. Unrealized losses on investment grade fixed maturity securities AFS are principally related to widening credit spreads since purchase and, with respect to fixed-rate fixed maturity securities AFS, rising interest rates since purchase. Below Investment Grade Fixed Maturity Securities AFS Of the $155 million of gross unrealized losses on fixed maturity securities AFS with an unrealized loss of 20% or more of amortized cost for six months or greater, $64 million, or 41%, were related to gross unrealized losses on 22 below investment grade fixed maturity securities AFS. Unrealized losses on below investment grade fixed maturity securities AFS are principally related to U.S. and foreign corporate securities (primarily industrial and utility securities) and CMBS and are the result of significantly wider credit spreads resulting from higher risk premiums since purchase, largely due to economic and market uncertainty. 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 CMBS based on actual and projected cash flows after considering the quality of underlying collateral, expected prepayment speeds, current and forecasted loss severity, the payment terms of the underlying assets backing a particular security and the payment priority within the tranche structure of the security. Equity Securities Equity securities are summarized as follows at: Common stock Non-redeemable preferred stock Total equity securities December 31, 2018 December 31, 2017 Estimated Fair Value Estimated % of Fair Total Value (Dollars in millions) % of Total $ $ 1,037 403 1,440 72.0% $ 28.0 100.0% $ 2,035 478 2,513 81.0% 19.0 100.0% In connection with the adoption of new guidance related to the recognition and measurement of financial instruments (see Note 1), effective January 1, 2018, the Company has reclassified its investment in common stock in FHLB from equity securities to other invested assets. These investments are carried at redemption value and are considered restricted investments until redeemed by the respective FHLBanks. The carrying value of these investments at December 31, 2017 was $792 million. 253 Table of Contents 8. Investments (continued) Mortgage Loans MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) Mortgage Loans by Portfolio Segment Mortgage loans are summarized as follows at: Mortgage loans: Commercial Agricultural Residential Total recorded investment Valuation allowances Subtotal mortgage loans, net Residential — FVO Total mortgage loans, net December 31, 2018 2017 Carrying Value % of Total Carrying Value (Dollars in millions) % of Total $ 48,463 14,905 12,427 75,795 (342) 75,453 299 64.0% $ 19.7 16.4 100.1 (0.5) 99.6 0.4 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 $ 75,752 100.0% $ 68,731 100.0% Information on commercial, agricultural and residential mortgage loans is presented in the tables below. Information on residential mortgage loans — FVO is presented in Note 10. The Company elects the FVO for certain residential mortgage loans that are managed on a total return basis. The amount of net discounts, included within total recorded investment, is primarily attributable to residential mortgage loans, and at December 31, 2018 and 2017 was $944 million and $1.1 billion, respectively. The carrying value of foreclosed mortgage loans included in real estate and real estate joint ventures was $45 million and $48 million at December 31, 2018 and 2017, respectively. Purchases of mortgage loans, primarily residential, were $3.5 billion, $3.1 billion and $2.9 billion for the years ended December 31, 2018, 2017 and 2016, respectively. 254 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) December 31, 2018 Commercial Agricultural Residential Total December 31, 2017 Commercial Agricultural Residential Total $ $ $ $ — $ — $ — $ — $ — $ 48,463 $ 238 $ — $ 31 — 31 $ 31 — 31 $ 3 — 3 $ 169 431 600 $ 169 386 555 $ — $ — $ — $ — $ — $ 22 — 22 $ 21 — 21 $ 2 — 2 $ 27 358 385 $ 27 324 351 14,705 12,041 75,209 44,375 12,966 10,812 $ $ 43 58 339 214 39 59 $ $ 197 386 583 $ — $ 46 324 370 $ $ 68,153 $ 312 $ — 123 358 481 5 32 285 322 The average recorded investment for impaired commercial, agricultural and residential mortgage loans was $90 million, $49 million and $188 million, respectively, for the year ended December 31, 2016. Valuation Allowance Rollforward by Portfolio Segment The changes in the valuation allowance, by portfolio segment, were as follows: Commercial Agricultural Residential Total Balance at January 1, 2016 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 Provision (release)  Charge-offs, net of recoveries  Balance at December 31, 2018 __________________ $ $ 188 157 (143) 202 12 — 214 24 — $ 238 $ (In millions) 37 3 (1) 39 4 (2) 41 5 — 46 $ $ $ 56 23 (16) 63 8 (12) 59 7 (8) 58 $ 281 183 (160) 304 24 (14) 314 36 (8) 342 (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. 255 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 with 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. 256 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: December 31, 2018 Loan-to-value ratios: Less than 65% 65% to 75% 76% to 80% Greater than 80% Total December 31, 2017 Loan-to-value ratios: Less than 65% 65% to 75% 76% to 80% Greater than 80% Total 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) $ 40,360 $ 827 $ 101 $ 5,790 423 496 — 209 176 25 56 — 41,288 5,815 688 672 85.2% $ 41,599 85.3% 12.0 1.4 1.4 5,849 664 635 12.0 1.4 1.3 47,069 $ 1,212 $ 182 $ 48,463 100.0% $ 48,747 100.0% 201 119 57 147 524 $ 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% $ $ 37,073 $ 1,483 $ 4,183 235 401 98 210 168 $ 41,892 $ 1,959 $ 257 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, 2018 2017 Recorded Investment % of Total Recorded Investment % of Total (Dollars in millions) $ $ 13,704 1,145 33 23 92.0% $ 12,347 94.9% 7.7 0.2 0.1 618 40 9 4.7 0.3 0.1 14,905 100.0% $ 13,014 100.0% The estimated fair value of agricultural mortgage loans was $14.9 billion and $13.1 billion at December 31, 2018 and 2017, respectively. Credit Quality of Residential Mortgage Loans The credit quality of residential mortgage loans was as follows at: Performance indicators: Performing Nonperforming (1) Total __________________ December 31, 2018 2017 Recorded Investment % of Total Recorded Investment % of Total (Dollars in millions) $ $ 11,956 471 96.2% $ 3.8 10,622 514 95.4% 4.6 12,427 100.0% $ 11,136 100.0% (1) Includes residential mortgage loans in process of foreclosure of $140 million and $133 million at December 31, 2018 and 2017, respectively. The estimated fair value of residential mortgage loans was $12.7 billion and $11.6 billion at December 31, 2018 and 2017, respectively. 258 Table of Contents MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) 8. Investments (continued) 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, 2018 and 2017. 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, 2018 December 31, 2017 December 31, 2018 December 31, 2017 December 31, 2018 December 31, 2017 Commercial $ Agricultural Residential Total $ 9 $ — $ 204 471 684 $ 134 514 648 (In millions) 9 $ 109 35 — $ 125 33 $ 153 $ 158 $ 176 105 436 717 $ $ — 36 481 517 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, 2018, the Company had 440 residential mortgage loans modified in a troubled debt restructuring with carrying value of $96 million and $92 million pre-modification and post-modification, respectively. For the year ended December 31, 2017, the Company had 500 residential mortgage loans modified in a troubled debt restructuring with carrying value of $120 million and $108 million pre-modification and post-modification, respectively. For the years ended December 31, 2018 and 2017, 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, 2018 and 2017, 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, annuities funding structured settlement claims, leveraged and direct financing leases and operating joint ventures. Tax Credit Partnerships The carrying value of tax credit partnerships was $1.7 billion and $1.8 billion at December 31, 2018 and 2017, respectively. Losses from tax credit partnerships included within net investment income were $257 million, $259 million, and $167 million for the years ended December 31, 2018, 2017 and 2016, respectively. 259 Table of Contents MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) 8. Investments (continued) Leveraged and Direct Financing Leases Investment in leveraged and direct financing leases consisted of the following at: Rental receivables, net Estimated residual values Subtotal Unearned income Investment in leases December 31, 2018 2017 Leveraged Leases Direct Financing Leases Leveraged Leases Direct Financing Leases (In millions) $ 1,855 $ 42 1,897 (705) 715 807 1,522 (414) $ 912 838 1,750 (472) 1,108 $ 1,192 $ 1,278 $ $ $ 2,303 42 2,345 (1,022) 1,323 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 generally range from one to 25 years but in certain circumstances can be over 25 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, 2018 and 2017, all leveraged lease receivables were performing and over 99% of direct financing rental receivables were performing. The Company’s deferred income tax liability related to leveraged leases was $519 million and $934 million at December 31, 2018 and 2017, respectively. The components of income from investment in leveraged and direct financing leases, excluding net investment gains (losses), were as follows: Years Ended December 31, 2018 2017 2016 Leveraged Leases Direct Financing Leases Leveraged Leases Direct Financing Leases Leveraged Leases Direct Financing Leases $ $ 47 10 37 $ $ 95 20 75 $ $ (In millions) 19 7 12 $ $ 89 31 58 $ $ 51 18 33 $ $ 51 18 33 Lease investment income Less: Income tax expense Lease investment income, net of income tax Cash Equivalents The carrying value of cash equivalents, which includes securities and other investments with an original or remaining maturity of three months or less at the time of purchase, was $9.0 billion and $6.2 billion at December 31, 2018 and 2017, respectively. Net Unrealized Investment Gains (Losses) Unrealized investment gains (losses) on fixed maturity securities AFS, equity securities and derivatives 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. 260 Table of Contents 8. Investments (continued) MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) The components of net unrealized investment gains (losses) included in AOCI were as follows: Fixed maturity securities AFS Fixed maturity securities AFS with noncredit OTTI losses included in AOCI Total fixed maturity securities AFS 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, 2018 2017 2016 (In millions) $ 11,356 $ 22,645 $ 20,330 25 11,381 — 2,127 290 13,798 31 — (1,231) (428) (1,628) (3) (3,502) 8,665 (10) 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) Net unrealized investment gains (losses) attributable to MetLife, Inc. $ 8,655 $ 13,662 $ 12,650 Net unrealized investment gains (losses) attributable to MetLife, Inc. in the above table include, on a net of income tax basis, $1,250 million for the year ended December 31, 2016, related to assets and liabilities of a disposed subsidiary. 261 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, Cumulative effects of changes in accounting principles, net of income tax (Note 1) Fixed maturity securities AFS 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, 2018 2017 2016 (In millions) $ 13,662 $ 12,650 $ 11,769 1,258 (16) (10,367) 108 — 537 1,693 9 1,773 8,657 — 33 804 1,037 3 (338) (190) (11) (324) — 84 2,544 (951) (3) (157) (148) (28) (485) 13,664 12,625 (2) (2) $ $ $ 8,655 $ 13,662 (5,005) $ 1,014 (2) (2) (5,007) $ 1,012 $ $ $ 25 12,650 856 25 881 Net unrealized investment gains (losses) attributable to MetLife, Inc. in the above table include, on a net of income tax basis, ($304) million for the year ended December 31, 2016, 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 $30.2 billion and $27.5 billion at December 31, 2018 and 2017, respectively, and in fixed income securities of the South Korean government and its agencies with an estimated fair value of $7.1 billion and $6.5 billion at December 31, 2018 and 2017, respectively. Securities Lending and Repurchase Agreements Securities, Collateral and Reinvestment Portfolio A summary of the securities lending and repurchase agreements transactions is as follows: 2018 2017 December 31, Securities on Loan (1) Securities on Loan (1) Amortized Cost Estimated Fair Value Cash Collateral Received from Counterparties (2) (3) Reinvestment Portfolio at Estimated Fair Value Amortized Cost Estimated Fair Value Cash Collateral Received from Counterparties (2) (3) Reinvestment Portfolio at Estimated Fair Value (In millions) Securities lending Repurchase agreements $ $ __________________ 16,969 1,033 $ $ 17,724 1,093 $ $ 18,005 1,067 $ $ 18,074 1,069 $ $ 17,801 994 $ $ 19,028 1,141 $ $ 19,417 1,102 $ $ 19,508 1,102 262 Table of Contents 8. Investments (continued) MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) (1) (2) (3) Securities on loan in connection with securities lending are included within fixed maturities securities AFS and securities on loan in connection with repurchase agreements are included within fixed maturities securities AFS, cash equivalents and short-term investments. In connection with securities lending, in addition to cash collateral received, the Company received from counterparties security collateral of $78 million and $19 million at December 31, 2018 and 2017, respectively, which may not be sold or re-pledged, unless the counterparty is in default, and is not reflected on the consolidated financial statements. The securities lending liability for cash collateral is included within payables for collateral under securities loaned and other transactions, and the repurchase agreements liability for cash collateral is included within payables for collateral under securities loaned and other transactions and other liabilities. Contractual Maturities A summary of the remaining contractual maturities of securities lending agreements and repurchase agreements is as follow: 2018 Remaining Maturities of the Agreements Open (1) 1 Month or Less Over 1 to 6 Months December 31, 2017 Remaining Maturities of the Agreements 1 Month or Less Over 1 to 6 Months Total Total Open (1) (In millions) Cash collateral liability by loaned security type: Securities lending: U.S. government and agency $ 2,736 $ 8,995 $ 5,220 $ 16,951 $ 3,753 $ 6,031 $ 8,607 $ 18,391 Foreign government Agency RMBS Total — — 214 79 761 — 975 79 — — 192 — 834 — 1,026 — $ 2,736 $ 9,288 $ 5,981 $ 18,005 $ 3,753 $ 6,223 $ 9,441 $ 19,417 Repurchase agreements: U.S. government and agency All other corporate and government Total __________________ $ $ — $ 1,000 $ — $ 1,000 $ — $ 1,005 $ — $ 1,005 — — — $ 1,000 $ 67 67 67 — 44 $ 1,067 $ — $ 1,049 $ 53 53 97 $ 1,102 (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, 2018 was $2.7 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 securities lending and repurchase agreements reinvestment portfolios acquired with the cash collateral consisted principally of high quality, liquid, publicly-traded fixed maturity securities AFS, 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. 263 Table of Contents MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) 8. Investments (continued) FHLB of Boston Advance Agreements At December 31, 2018 and 2017, a subsidiary of the Company had pledged municipals with an estimated fair value of $1.2 billion and $564 million, respectively, as collateral and received $800 million and $300 million, respectively, in cash advances under short-term advance agreements with the FHLB of Boston. The liability to return the cash advances is included within payables for collateral under securities loaned and other transactions. The estimated fair value of the reinvestment portfolio acquired with the cash advances was $799 million and $300 million at December 31, 2018 and 2017, respectively, and consisted primarily of U.S. government and agency securities and Structured Securities. At December 31, 2018 and 2017, the reinvestment portfolio also included a $33 million and $12 million, at redemption value, required investment in FHLB of 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. The cash advance liability by loaned security type and remaining contractual maturities of the agreements was as follows at: December 31, 2018 December 31, 2017 Remaining Maturities of the Agreements 1 Month or Less Over 1 to 6 Months 6 Months to 1 Year Remaining Maturities of the Agreements 1 Month or Less Over 1 to 6 Months Total (In millions) 6 Months to 1 Year Total Cash advance liability by loaned security type: Municipals $ 150 $ 650 $ — $800 $ — $ 300 $ — $ 300 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, 2018 2017 (In millions) 1,788 $ 2,971 24,168 28,927 $ 1,879 2,490 24,174 28,543 $ $ (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 and Repurchase Agreements” for information regarding securities supporting securities lending and repurchase agreement transactions and Note 7 for information regarding investments designated to the closed block. In addition, the restricted investment in FHLB common stock was $793 million and $792 million, at redemption value, at December 31, 2018 and 2017, respectively (see Note 1). 264 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 had an outstanding principal balance of $4.0 billion and $4.8 billion at December 31, 2018 and 2017, respectively, which represents the contractually required principal and accrued interest payments whether or not currently due and a carrying value (estimated fair value of the investments plus accrued interest) of $3.3 billion and $4.0 billion at December 31, 2018 and 2017, respectively. Accretion of accretable yield on PCI investments recognized in earnings in net investment income was $275 million and $281 million for the years ended December 31, 2018 and 2017, respectively. Purchases of PCI investments were insignificant in both of the years ended December 31, 2018 and 2017. Collectively Significant Equity Method Investments The Company holds investments in real estate joint ventures, real estate funds and other limited partnership interests consisting of leveraged buy-out funds, hedge funds, private equity funds, joint ventures and other funds. The portion of these investments accounted for under the equity method had a carrying value of $14.7 billion at December 31, 2018. The Company’s maximum exposure to loss related to these equity method investments is limited to the carrying value of these investments plus unfunded commitments of $5.3 billion at December 31, 2018. Except for certain real estate joint ventures and certain funds, the Company’s investments in its remaining 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, 2018, 2017 and 2016. Aggregate total assets of these entities totaled $529.1 billion and $505.6 billion at December 31, 2018 and 2017, respectively. Aggregate total liabilities of these entities totaled $65.5 billion and $68.9 billion at December 31, 2018 and 2017, respectively. Aggregate net income (loss) of these entities totaled $52.5 billion, $37.9 billion and $26.8 billion for the years ended December 31, 2018, 2017 and 2016, respectively, with $270 million related to Brighthouse for the year ended December 31, 2016. 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. 265 Table of Contents 8. Investments (continued) Consolidated VIEs MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) 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: Renewable energy partnership (1) Investment funds (2) Other investments (1) Total __________________ December 31, 2018 2017 Total Assets Total Liabilities Total Assets Total Liabilities (In millions) 102 $ — $ 116 $ 79 21 202 $ 1 5 6 — 32 $ 148 $ $ $ 3 — 6 9 (1) (2) Assets of the renewable energy partnership and other investments primarily consisted of other invested assets. Assets of the investment funds primarily consisted of cash and cash equivalents. 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, 2018 2017 Carrying Amount Maximum Exposure to Loss (1) Carrying Amount Maximum Exposure to Loss (1) (In millions) $ 47,874 $ 47,874 $ 47,614 $ 47,614 932 5,641 1,906 296 932 9,888 2,063 300 1,560 4,834 2,291 82 1,560 8,543 2,625 87 $ 56,649 $ 61,057 $ 56,381 $ 60,429 Fixed maturity securities AFS: Structured Securities (2) U.S. and foreign corporate Other limited partnership interests Other invested assets Other investments 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 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 $94 million and $117 million at December 31, 2018 and 2017, 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. 266 Table of Contents 8. Investments (continued) MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) 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, 2018, 2017 and 2016. During 2018 and 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 were $451 million and $478 million, respectively, for loans sold during 2018, and $319 million and $339 million, respectively, for loans sold during 2017. Gains on securitizations of $27 million and $20 million during the years ended December 31, 2018 and 2017, respectively, were included within net investment gains (losses). The estimated fair value of RMBS acquired in connection with the securitizations was $98 million and $52 million at December 31, 2018 and 2017, respectively, which was included in the carrying amount and maximum exposure to loss for Structured Securities presented above. 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 AFS Equity securities FVO 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 Unit-linked investments (1) Net investment income __________________ Years Ended December 31, 2018 2017 2016 (In millions) $ 11,946 $ 11,497 $ 11,721 64 51 3,340 506 694 731 387 51 364 18,134 1,285 16,849 (683) 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 $ 16,166 $ 17,363 $ 16,790 (1) Changes in estimated fair value subsequent to purchase for investments still held as of the end of the respective periods included in net investment income were principally from Unit-linked investments, and were ($771) million, $662 million and $427 million for the years ended December 31, 2018, 2017, and 2016, respectively. The Company invests in real estate joint ventures, other limited partnership interests and tax credit and renewable energy partnerships, and also does business through certain operating joint ventures, the majority of which are accounted for under the equity method. Net investment income from other limited partnership interests and operating joint ventures, accounted for under the equity method; and real estate joint ventures and tax credit and renewable energy partnerships, primarily accounted for under the equity method, totaled $592 million, $495 million and $337 million for the years ended December 31, 2018, 2017 and 2016, respectively. 267 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 AFS: Total OTTI losses recognized — by sector and industry: U.S. and foreign corporate securities — by industry: Consumer Finance Industrial Utility Communications Total U.S. and foreign corporate securities Foreign government ABS RMBS Municipals OTTI losses on fixed maturity securities AFS recognized in earnings Fixed maturity securities AFS — net gains (losses) on sales and disposals (1) Total gains (losses) on fixed maturity securities AFS Total gains (losses) on equity securities: Total OTTI losses recognized — by security type: Common stock Non-redeemable preferred stock OTTI losses on equity securities recognized in earnings Equity securities — net gains (losses) on sales and disposals Change in estimated fair value of equity securities (2) Total gains (losses) on equity securities Mortgage loans (1) Real estate and real estate joint ventures Other limited partnership interests Other Subtotal Change in estimated fair value of other limited partnership interests and real estate joint ventures Non-investment portfolio gains (losses) (3), (4), (5) Other Subtotal Total net investment gains (losses) __________________ Years Ended December 31, 2018 2017 2016 (In millions) $ (20) $ (4) $ (9) (2) — — (31) (9) — — — (40) 45 5 — — — 118 (193) (75) (56) 326 9 (169) 40 12 (350) — (338) — — — — (4) — (3) — (3) (10) 328 318 (24) (1) (25) 117 — 92 14 603 (59) (113) 855 — (1,162) (1) (1,163) $ (298) $ (308) $ — — (63) (21) (3) (87) — (2) (18) — (107) 251 144 (75) — (75) 19 — (56) (231) 182 (64) (130) (155) — 471 1 472 317 (1) Fixed maturity securities AFS — net gains (losses) on sales and disposals and mortgage loans for the year ended December 31, 2017, included $276 million and $47 million, respectively, in previously deferred gains on prior period transfers of such investments to Brighthouse. Such gains are no longer eliminated in consolidation after the Separation. See Note 3. 268 Table of Contents 8. Investments (continued) MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) (2) (3) (4) (5) Changes in estimated fair value subsequent to purchase for equity securities still held as of the end of the period included in net investment gains (losses) were ($81) million for the year ended December 31, 2018. See Note 1. Non-investment portfolio gains (losses) for the year ended December 31, 2018 includes a loss of $327 million which represents both the change in estimated fair value of FVO Brighthouse Common Stock held by the Company through the date of disposal and the loss on disposal in June 2018. Non-investment portfolio gains (losses) for the year ended December 31, 2017 included (i) a loss of $1,016 million which represents a mark-to-market loss on the Company’s retained investment in Brighthouse Financial, Inc. at Separation and (ii) 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. Gains (losses) from foreign currency transactions included within net investment gains (losses) were ($16) million, ($6) million and $225 million for the years ended December 31, 2018, 2017 and 2016, respectively. Sales or Disposals and Impairments of Fixed Maturity Securities AFS Sales of securities are determined on a specific identification basis. Proceeds from sales or disposals and the components of net investment gains (losses) were as shown in the table below: Years Ended December 31, 2018 2017 2016 Proceeds Gross investment gains Gross investment losses OTTI losses Net investment gains (losses) Credit Loss Rollforward $ $ $ (In millions) $ $ 85,058 856 (811) (40) 56,509 753 (425) (10) 5 $ 318 $ $ $ 86,179 1,048 (797) (107) 144 The table below presents a rollforward of the cumulative credit loss component of OTTI loss recognized in earnings on fixed maturity securities AFS still held for which a portion of the OTTI loss was recognized in OCI: Balance at January 1, Sales (maturities, pay downs or prepayments) of securities previously impaired as credit loss OTTI Increase in cash flows — accretion of previous credit loss OTTI Balance at December 31, Years Ended December 31, 2018 2017 $ $ (In millions) 138 $ (47) (2) 89 $ 187 (48) (1) 138 269 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 securities AFS. 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 a benchmark interest rate, 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 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. 270 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 GIC is a contract that simulates the performance of a traditional GIC through the use of financial instruments. Under a synthetic GIC, the contractholder owns the underlying assets. The Company guarantees a rate of 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 non-U.S. 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. 271 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, or other fixed maturity securities AFS. 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 a benchmark interest rate, 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. 272 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, 2018 2017 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 $ 2,446 $ 2,197 $ 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 1,233 2,140 5,819 3,515 3,022 35,931 42,468 960 5,137 6,097 54 28 2,279 143 — 1,796 1,939 4 3 7 2 — 18 20 1 216 1,831 2,048 27 202 229 $ 3,843 $ 2,289 $ 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 54,384 4,225 2,297 57,020 3,764 2,023 54,891 12,701 54,575 2,353 26,690 234 1,048 25,700 11,388 13,417 847 2,040 1,903 11,391 2,992 27,707 2,269 929 1,796 102 154 1 416 1 33 — 884 198 4 7 25 95 13 884 40 91 175 — 1 3 — 15 2 — 458 213 — — 39 13 77 550 87 — 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 2,316 4,339 Total non-designated or nonqualifying derivatives 253,075 4,744 1,633 218,896 4,787 Total $ 307,459 $ 8,969 $ 3,930 $ 275,916 $ 8,551 $ 273 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, 2018 and 2017. 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 derivative and hedging gains (losses) (1) Embedded derivative gains (losses) Total net derivative gains (losses) __________________ Years Ended December 31, 2018 2017 (In millions) 2016 $ $ 1,001 (150) 851 $ $ (1,389) $ 799 (590) $ (509) (181) (690) (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, 2018 2017 (In millions) 2016 $ 360 $ 299 $ (113) (11) — 547 11 (64) (10) — 551 9 $ 794 $ 785 $ 267 (1) (12) (1) 705 7 965 274 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, 2018 Interest rate derivatives Foreign currency exchange rate derivatives Credit derivatives — purchased Credit derivatives — written Equity derivatives Total 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 __________________ Net Derivative Gains (Losses) Net Investment Income (1) (In millions) Policyholder Benefits and Claims (2) $ $ $ $ $ $ (158) $ 518 6 (132) 360 594 $ (549) $ (742) (24) 145 (1,046) (2,216) $ $ $ $ 4 — — — 1 5 1 — — — (9) (8) $ (990) $ — $ 882 (40) 71 (681) (758) $ — — — (16) (16) $ (6) (6) — — 60 48 (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 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. 275 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, 2018 Interest rate swaps: Fixed maturity securities AFS Foreign currency swaps: Policyholder liabilities (1) Foreign-denominated fixed maturity securities AFS and mortgage loans Foreign-denominated policyholder account balances (2) Foreign currency forwards: Foreign-denominated fixed maturity securities Total Year Ended December 31, 2017 AFS Interest rate swaps: Fixed maturity securities AFS Foreign currency swaps: Policyholder liabilities (1) Foreign-denominated fixed maturity securities AFS Foreign-denominated policyholder account balances (2) Foreign currency forwards: Foreign-denominated fixed maturity securities Total Year Ended December 31, 2016 AFS Interest rate swaps: Fixed maturity securities AFS Foreign currency swaps: Policyholder liabilities (1) Foreign-denominated fixed maturity securities AFS Foreign-denominated policyholder account balances (2) Foreign currency forwards: Foreign-denominated fixed maturity securities AFS 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) $ $ $ $ $ $ 1 $ (221) (1) $ 227 55 23 78 (57) (23) (70) (64) $ 76 $ 4 $ (4) $ (69) (27) 65 13 134 29 (44) (11) (14) $ 104 $ 7 $ (108) 13 (95) (9) $ 90 (12) 92 127 (56) $ (119) 42 $ — 6 (2) — 8 12 — 65 2 21 2 90 (2) (18) 1 (3) 8 (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, 2018, 2017 and 2016, the component of the change in estimated fair value of derivatives that was excluded from the assessment of hedge effectiveness was ($58) million, ($40) million and ($23) million, respectively. 276 Table of Contents 9. Derivatives (continued) Cash Flow Hedges MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) The Company designates and accounts for the following as cash flow hedges when they have met the requirements of cash flow hedging: (i) interest rate swaps to convert floating rate assets and liabilities to fixed rate assets and liabilities; (ii) foreign currency swaps to hedge the foreign currency cash flow exposure of foreign currency denominated assets and liabilities; (iii) interest rate forwards and credit forwards to lock in the price to be paid for forward purchases of investments; (iv) interest rate swaps and interest rate forwards to hedge the forecasted purchases of fixed rate investments; and (v) interest rate swaps and interest rate forwards to hedge forecasted fixed rate borrowings. In certain instances, the Company discontinued cash flow hedge accounting because the forecasted transactions were no longer probable of occurring. Because certain of the forecasted transactions also were not probable of occurring within two months of the anticipated date, the Company reclassified amounts from AOCI into net derivative gains (losses). These amounts were $5 million, $13 million and $12 million for the years ended December 31, 2018, 2017 and 2016, respectively. At December 31, 2018 and 2017, 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 four years and five years, respectively. At December 31, 2018 and 2017, the balance in AOCI associated with cash flow hedges was $2.1 billion and $1.5 billion, respectively. Upon the Separation, the Company recorded a reduction of $414 million of deferred gains within AOCI. For the years ended December 31, 2017 and 2016, the amounts of deferred gains (losses) in AOCI related to Brighthouse derivatives were ($92) million and $71 million, respectively. For the years ended December 31, 2017 and 2016, the amounts of income reclassified from AOCI into income (loss) from discontinued operations were $16 million and $45 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, 2018 Interest rate swaps Interest rate forwards Foreign currency swaps Credit forwards Total 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 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) $ $ $ $ $ $ (143) $ (114) $ $ 414 — 157 78 210 (335) — (47) $ 50 $ (366) 589 — 23 $ (2) (558) 1 (536) $ 24 $ (11) 974 1 988 56 (1) (350) 3 $ $ 273 $ (292) $ 18 2 (5) 1 16 16 2 — — 18 12 4 (2) 1 15 $ — $ 1 2 — 3 $ — $ 1 2 — 3 $ — $ 1 2 — 3 $ $ $ $ $ $ 3 — 8 — 11 18 (2) (4) — 12 (1) — 1 — — All components of each derivative’s gain or loss were included in the assessment of hedge effectiveness. 277 Table of Contents 9. Derivatives (continued) MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) At December 31, 2018, the Company expected to reclassify ($63) 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. 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) 2018 2017 (In millions) 2016 Amount of Gains (Losses) Deferred in AOCI Years Ended December 31, Foreign currency forwards Currency options Total __________________ $ $ 35 $ (160) (125) $ (155) $ (290) (445) $ (267) (35) (302) (1) 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, 2018 and 2017, the cumulative foreign currency translation gain (loss) recorded in AOCI related to hedges of net investments in foreign operations was $184 million and $309 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 at both December 31, 2018 and 2017. 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, 2018 and 2017, the Company would have received $82 million and $271 million, respectively, to terminate all of these contracts. 278 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) 2018 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) 2017 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 __________________ $ 4 28 32 3 40 43 — — — — 7 7 354 2,154 2,508 482 8,056 8,538 15 — 15 — 330 330 $ 82 $ 11,391 1.7 2.5 2.4 1.5 5.0 4.8 2.0 — 2.0 — 5.0 5.0 4.3 $ $ 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 (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 amounts of potential future recoveries available to offset the $11.4 billion of future payments under credit default provisions at both December 31, 2018 and 2017 set forth in the table above were $16 million and $27 million at December 31, 2018 and 2017, 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. 279 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 Assets Liabilities Assets Liabilities December 31, 2018 2017 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 Estimated fair value of derivatives presented on the consolidated balance sheets (1), (6) 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 (In millions) $ 8,805 $ 3,758 $ 7,955 $ 4,059 245 18 9,068 — 33 80 3,871 — 649 22 8,626 — 223 8 4,290 — 9,068 3,871 8,626 4,290 (2,570) (2,570) (2,528) (2,528) (25) (1) (4,709) (145) — (25) (1) — — (57) (35) (1) (4,169) (584) — (35) (1) — (179) (5) (1,266) (1,134) (1,004) (1,474) — — (8) (7) — — (9) (2) 57 Net amount after application of master netting agreements and collateral $ 352 $ 69 $ 305 $ __________________ (1) At December 31, 2018 and 2017, derivative assets included income or (expense) accruals reported in accrued investment income or in other liabilities of $99 million and $75 million, respectively, and derivative liabilities included (income) or expense accruals reported in accrued investment income or in other liabilities of ($59) million and ($49) million, respectively. 280 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 AFS, 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, 2018 and 2017, the Company received excess cash collateral of $135 million and $253 million, respectively, and provided excess cash collateral of $226 million and $272 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, 2018, none of the collateral had been sold or re-pledged. Securities collateral pledged by the Company is reported in fixed maturity securities AFS 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, 2018 and 2017, the Company received excess securities collateral with an estimated fair value of $70 million and $108 million, respectively, for its OTC-bilateral derivatives, which are not included in the table above due to the foregoing limitation. At December 31, 2018 and 2017, the Company provided excess securities collateral with an estimated fair value of $212 million and $305 million, respectively, for its OTC-bilateral derivatives, $601 million and $522 million, respectively, for its OTC-cleared derivatives, and $90 million and $89 million, respectively, for its exchange- traded derivatives, which are not included in the table above due to the foregoing limitation. (6) Effective January 16, 2018, the LCH amended its rulebook, resulting in the characterization of variation margin transfers as settlement payments, as opposed to adjustments to collateral. 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 LCH and 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. 281 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 2018 Derivatives Not Subject to Credit- Contingent Provisions Total Derivatives Subject to Credit- Contingent Provisions 2017 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 AFS 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 __________________ $ $ $ $ $ 1,148 1,218 6 $ $ $ 40 $ 1,188 9 $ 1,227 — $ 6 $ $ $ 1,508 1,675 $ $ — $ 24 $ 1,532 26 $ 1,701 — $ — 10 $ — $ 10 $ 15 $ — $ 15 10 $ — $ 10 $ 20 $ — $ 20 (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. 282 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 December 31, 2018 2017 (In millions) Embedded derivatives within asset host contracts: Ceded guaranteed minimum benefits Premiums, reinsurance and other Options embedded in debt or equity securities (1) 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 $ $ $ $ $ $ 71 — 71 298 495 (41) 58 Embedded derivatives within liability host contracts $ 810 $ __________________ 144 (132) 12 32 291 25 70 418 (1) Effective January 1, 2018, in connection with the adoption of new guidance related to the recognition and measurement of financial instruments, the Company was no longer required to bifurcate and account separately for derivatives embedded in equity securities (see Note 1). Beginning January 1, 2018, the change in fair value of equity securities was recognized as a component of net investment gains and losses. The following table presents changes in estimated fair value related to embedded derivatives: Net derivative gains (losses) (1) __________________ Years Ended December 31, 2018 2017 2016 (In millions) $ (150) $ 799 $ (181) (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 $133 million, ($190) million and $156 million for the years ended December 31, 2018, 2017 and 2016, respectively. 283 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 AFS. 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, as well as 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. 284 Table of Contents MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) 10. Fair Value (continued) 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: Assets Fixed maturity securities AFS: U.S. corporate Foreign government Foreign corporate U.S. government and agency RMBS ABS Municipals CMBS Total fixed maturity securities AFS Equity securities Unit-linked and 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 (6) 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, 2018 Fair Value Hierarchy Level 1 Level 2 Level 3 (In millions) Total Estimated Fair Value $ — $ 74,874 $ 4,074 $ — — 19,656 — — — — 19,656 916 10,216 1,470 — 80 1 4 — 13 18 — 79,726 62,150 50,310 19,666 24,734 11,775 11,533 8,696 138 6,393 — 3,227 697 — 342 263,738 14,871 105 1,995 1,746 — 118 4,809 2,922 91 956 8,778 — 94,886 419 405 33 299 39 33 52 29 59 173 71 944 $ $ $ 112,082 $ 371,366 $ 17,254 $ 3 — — 77 80 — 1 81 $ $ 194 2,660 48 550 3,452 — 20 $ 218 89 4 87 398 810 7 $ 3,472 $ 1,215 $ 78,948 62,288 56,703 39,322 27,961 12,472 11,533 9,038 298,265 1,440 12,616 3,249 299 237 4,843 2,978 120 1,028 8,969 71 175,556 500,702 415 2,749 52 714 3,930 810 28 4,768 285 Table of Contents 10. Fair Value (continued) MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) Assets Fixed maturity securities AFS: U.S. corporate Foreign government Foreign corporate U.S. government and agency RMBS ABS Municipals CMBS Total fixed maturity securities AFS Equity securities Unit-linked and 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 11,204 12,455 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 37 — 199 366 418 2 $ 3,972 $ 786 $ 82,661 61,534 55,569 47,394 28,800 12,291 12,455 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 (1) (2) (3) Unit-linked and FVO Securities were primarily comprised of Unit-linked investments at both December 31, 2018 and 2017. 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. 286 Table of Contents 10. Fair Value (continued) MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) (4) (5) (6) 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, 2018 and 2017, debt and equity securities also included embedded derivatives of $0 and ($132) 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. In connection with the adoption of new guidance related to the recognition and measurement of financial instruments (see Note 1), other limited partnership interests are measured at estimated fair value on a recurring basis, effective January 1, 2018. This represents the former cost method investments held as of January 1, 2018 that were measured at estimated fair value on a recurring basis upon adoption of this guidance. Total assets included in the fair value hierarchy exclude these other limited partnership interests that are measured at estimated fair value using the net asset value (“NAV”) per share (or its equivalent) practical expedient. At December 31, 2018, the estimated fair value of such investments was $145 million. The following describes the valuation methodologies used to measure assets and liabilities at fair value. Investments 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 other investments is determined on a basis consistent with the methodologies described herein for securities. The valuation approaches and key inputs for each category of assets or liabilities that are classified within Level 2 and Level 3 of the fair value hierarchy are presented below. 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. 287 Table of Contents 10. Fair Value (continued) Instrument Fixed maturity securities AFS 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 Foreign government securities, U.S. government and agency securities and Municipals securities that are less liquid and based on lower levels of trading activity than securities classified in Level 2 • independent non-binding broker quotations 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 288 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 • 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 Unit-linked and FVO Securities, Short-term investments and Other investments • Unit-linked and FVO Securities 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. • Unit-linked and FVO Securities, short-term investments and other investments are of a similar nature and class to the fixed maturity securities AFS and equity securities described above; accordingly, the valuation approaches and unobservable inputs used in their valuation are also similar to those described above. • Short-term investments and other investments are of a similar nature and class to the fixed maturity securities AFS 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 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 adjusting, 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.” 289 Table of Contents 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 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. 290 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 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, projecting 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. 291 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. 292 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 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. 293 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, 2018 December 31, 2017 Fixed maturity securities AFS (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) 85 25 100 — 3 100 268 (5) (20) 97 Equity market • Present value • Volatility (11) 21% • Consensus pricing • Offered quotes (10) 104 110 102 94 97 101 - - - - - - - - - - - 134 638 110 106 116 103 317 6 328 103 26% 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% - 0.18% 0.03% - 0.80% 0.12% - 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% 7.16% - 30% 110 121 101 94 100 100 83 10 97 — 5 100 200 (5) (14) - - - - - - - - - 142 443 104 126 117 103 300 5 309 — - — 11% 10% - - 31% 30% 0% - 0.21% 0.03% - 0.75% 0.15% - 100% 0.25% - 100% 2% - 100% 1.25% - 100% 0% 0% - - 8.25% - 25% 20% 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) • Nonperformance risk 0.04% - 1.77% 0.02% - 1.32% Decrease (18) spread __________________ (1) (2) (3) (4) The weighted average for fixed maturity securities AFS is determined based on the estimated fair value of the securities. The impact of a decrease in input would have resulted in 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 have resulted in substantially lower (higher) valuations. Range and weighted average are presented in accordance with the market convention for fixed maturity securities AFS of dollars per hundred dollars of par. 294 Table of Contents 10. Fair Value (continued) MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) (5) (6) (7) (8) (9) Changes in the assumptions used for the probability of default would have been accompanied by a directionally similar change in the assumption used for the loss severity and a directionally opposite change in the assumptions used for prepayment rates. Ranges represent the rates across different yield curves and are presented in basis points. The swap yield 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, 2018 and 2017, 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. 295 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.” 296 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 AFS Corporate (1) Foreign Government Structured Securities Municipals Equity Securities Unit-linked and FVO Securities (In millions) Balance, January 1, 2017 $ 11,537 $ 289 $ 5,215 $ 10 $ 468 $ 287 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 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, 2018 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) Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at December 31, 2018: (6) Gains (Losses) Data for the year ended December 31, 2016: Total realized/unrealized gains (losses) included in net income (loss) (2) (3) Total realized/unrealized gains (losses) included in AOCI 3 708 3,830 (1,763) — — 72 (3,168) 11,219 9 (745) 1,903 (1,464) — — 152 (607) 4 — 30 (53) — — 5 (66) 209 3 (14) 5 (47) — — — (18) 94 133 1,376 (1,598) — — 70 (449) 4,841 82 (23) 1,142 (946) — — 59 (889) — — — — — — — (10) — — — — — — — — — — 19 25 (51) — — 1 (34) 428 (36) — 13 (28) — — 52 (10) $ $ $ $ $ $ 10,467 $ 138 $ 4,266 $ — $ 419 $ 6 $ 12 $ 103 $ 1 $ (29) $ 1 $ 1 $ 4 $ 84 $ — $ (17) $ 1 $ 70 $ — $ (26) $ 5 59 $ $ 12 $ (42) $ 103 56 $ $ 1 2 $ $ (24) $ 19 $ 22 — 292 (141) — — 8 (106) 362 6 — 263 (176) — — 9 (59) 405 3 19 8 2 — 297 Table of Contents 10. Fair Value (continued) MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Short-term Investments Residential Mortgage Loans - FVO Other Investments Net Derivatives (7) (In millions) Net Embedded Derivatives (8) Separate Accounts (9) Balance, January 1, 2017 $ 46 $ 566 $ — $ (562) $ (729) $ 1,141 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 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, 2018 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) Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at December 31, 2018: (6) Gains (Losses) Data for the year ended December 31, 2016: Total realized/unrealized gains (losses) included in net income (loss) (2) (3) Total realized/unrealized gains (losses) included in AOCI __________________ $ $ $ $ $ $ — — 32 (1) — — — (44) 33 (1) (1) 34 (12) — — — (20) 33 1 $ $ — $ 40 — 175 (179) — (82) — — 520 7 — — (162) — (66) — — 299 8 27 $ $ $ — — — — — — — — — — — 39 — — — — — 39 87 216 — — (7) 134 — — (132) (161) (140) 5 — (1) 204 — — 823 (46) — — — (322) — — (274) (150) (15) — — — (300) — — $ (225) $ (739) $ — $ (56) $ (242) $ — $ 53 $ 793 $ (1) $ (15) $ — $ (59) $ (150) $ 1 4 $ $ 8 $ — $ — $ — $ (31) $ (214) $ (367) $ (20) $ (8) — 187 (80) 1 (93) 35 (224) 959 7 — 198 (168) (3) (1) 53 (108) 937 — — — (2) — (1) (2) (3) (4) (5) (6) 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 derivative 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. Items transferred into and then out of Level 3 in the same period are excluded from the rollforward. 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). 298 Table of Contents 10. Fair Value (continued) MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) (7) (8) (9) 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, 2018 2017 (In millions) 344 (45) 299 89 41 $ $ $ $ (36) $ 650 (130) 520 198 94 (102) $ $ $ $ $ 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, 2018 2017 2016 2018 2017 2016 Carrying Value After Measurement Gains (Losses) Other limited partnership interests (1) N/A (2) Other assets (3) __________________ $ — (In millions) $ $ 58 $ — $ 96 — $ N/A (2) — $ $ (65) $ 10 $ (64) (30) (1) (2) (3) 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 leveraged buyout funds; power, energy, timber and infrastructure development funds; venture capital funds; and below investment grade debt and mezzanine debt funds. In the future, 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 exact timing of which is uncertain. In connection with the adoption of new guidance related to the recognition and measurement of financial instruments (see Note 1), other limited partnership interests are measured at estimated fair value on a recurring basis effective January 1, 2018. 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. 299 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, 2018 Fair Value Hierarchy Carrying Value Level 1 Level 2 Level 3 (In millions) Total Estimated Fair Value — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ 338 793 903 164 $ $ $ $ 76,379 11,028 383 2,894 186 — $ 114,924 $ $ $ $ $ $ 76,379 11,366 1,176 3,797 350 114,924 13,611 $ — $ 13,611 — $ 3,738 1,324 $ $ $ 853 $ — $ 2,194 $ 853 3,738 3,518 — $ 104,010 — $ 104,010 Assets Mortgage loans Policy loans 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 $ $ $ $ $ $ $ $ $ $ $ 75,453 9,699 1,177 3,658 326 114,040 12,820 1,060 3,147 2,963 104,010 $ $ $ $ $ $ $ $ $ $ $ 300 Table of Contents 10. Fair Value (continued) MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) December 31, 2017 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 11. Goodwill $ $ $ $ $ $ $ $ $ $ $ $ 68,211 9,669 219 443 4,155 285 114,355 15,675 1,121 3,144 3,208 124,011 $ $ $ $ $ $ $ $ $ $ $ $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ 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 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 quantitative test. The qualitative impairment 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 impairment assessment for some or all of its reporting units and perform a quantitative impairment test. In performing the 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 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. 301 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, 2016 Goodwill Accumulated impairment (2) 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 Effect of foreign currency translation and other Balance at December 31, 2018 Goodwill Accumulated impairment Total goodwill, net __________________ U.S. Asia (1) Latin America EMEA (In millions) MetLife Holdings Corporate & Other Total $ 1,451 $ 4,508 $ 1,186 $ 1,143 $ 1,567 $ — 1,451 — — 1,451 — 1,451 — — — 1,451 — 1,451 — 1,451 — — 4,508 — 88 4,596 — 4,596 — — 77 4,673 — 4,673 17 4,690 — — 1,186 — 40 1,226 — 1,226 — (16) 96 1,306 — 1,306 (134) 1,172 — — 1,143 — (83) 1,060 — 1,060 — — 110 1,170 — 1,170 (51) 1,119 — (680) 887 — — 1,567 (680) 887 — — — 1,567 (680) 887 — 1,567 (680) 42 — 42 (42) — — — — 103 — — 103 — 103 — 103 — $ 9,897 (680) 9,217 (42) 45 9,900 (680) 9,220 103 (16) 283 10,270 (680) 9,590 (168) 10,102 (680) $ 1,451 $ 4,690 $ 1,172 $ 1,119 $ 887 $ 103 $ 9,422 (1) (2) (3) (4) Includes goodwill of $4.5 billion, $4.5 billion and $4.4 billion from the Japan operations at December 31, 2018, 2017 and 2016, 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. 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 MetLife Afore, goodwill was reduced by $16 million for the year ended December 31, 2017. See Note 3. 302 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% - 6.50% 7.63% - 7.88% 2.99% - 6.50% 4.96% 7.79% 4.92% 2020 - 2046 $ 11,923 2024 - 2025 2020 - 2058 507 477 4 12,911 268 2018 Unamortized Discount and Issuance Costs December 31, Carrying Value Face Value (In millions) 2017 Unamortized Discount and Issuance Costs Carrying Value $ $ (79) $ 11,844 $ 14,685 $ (86) $ 14,599 (4) (4) — (87) — 503 473 4 507 578 5 12,824 15,775 268 477 (5) (4) — (95) — 502 574 5 15,680 477 $ 13,179 $ (87) $ 13,092 $ 16,252 $ (95) $ 16,157 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, 2018. 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, 2018 for the next five years and thereafter are $2 million in 2019, $512 million in 2020, $368 million in 2021, $797 million in 2022, $1.0 billion in 2023 and $10.1 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 financial covenants at December 31, 2018. Senior Notes In June 2018, MetLife, Inc. sold FVO Brighthouse Common Stock in exchange for $944 million aggregate principal amount of MetLife Inc.’s senior notes. MetLife, Inc. purchased and canceled $343 million of its $1,035 million aggregate principal amount 6.817% senior notes due August 2018; $469 million of its $1,035 million aggregate principal amount 7.717% senior notes due February 2019 and $132 million of its $1,000 million aggregate principal amount 4.750% senior notes due February 2021. In June 2018, MetLife, Inc. additionally purchased for cash and canceled $160 million of its $1,035 million aggregate principal amount 6.817% senior notes due August 2018. The Company recorded a premium of $30 million paid in excess of the debt principal and incurred $37 million of advisory and other fees related to the exchange transaction to other expenses for the year ended December 31, 2018. See Note 3 for additional information on the FVO Brighthouse Common Stock exchange transaction. In August 2018, MetLife, Inc. purchased for cash and canceled the remaining $566 million of its $1,035 million aggregate principal amount 7.717% senior notes due February 2019. The Company recorded a premium of $14 million paid in excess of the debt principal and accrued, unpaid interest to other expenses for the year ended December 31, 2018. In December 2018, MetLife, Inc. purchased for cash and canceled an additional $500 million of its $1,000 million aggregate principal amount 4.750% senior notes due February 2021. The Company recorded a premium of $18 million paid in excess of the debt principal and accrued, unpaid interest to other expenses for the year ended December 31, 2018. 303 Table of Contents MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) 12. Long-term and Short-term Debt (continued) 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 London Interbank Offered Rate (“LIBOR”) plus 3.25%, payable quarterly, from a variable rate of three-month LIBOR plus 3.70%. In December 2018, this agreement was further amended to change the interest rate to a variable rate of three-month LIBOR plus 3.10%. 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. In December 2018, MPEH repaid $50 million of the initial borrowing. 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, 2018 2017 (Dollars in millions) $ $ $ 99 $ 169 268 429 $ $ 100 377 477 280 32 days 27 days (1) Includes $169 million and $374 million at December 31, 2018 and 2017, respectively, of short-term debt related to repurchase agreements, secured by assets of subsidiaries. During the years ended December 31, 2018, 2017 and 2016, the weighted average interest rate on short-term debt was 3.02%, 2.41% and 1.32%, respectively. Interest Expense Interest expense included in other expenses was $827 million, $841 million and $874 million for the years ended December 31, 2018, 2017 and 2016, 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, 2018, the Company maintained a $3.0 billion unsecured revolving credit facility (the “Credit Facility”) and certain committed facilities (the “Committed Facilities”) aggregating $3.3 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 $10 million, $13 million and $15 million for the years ended December 31, 2018, 2017 and 2016, respectively, and were included in other expenses. Information on the Credit Facility at December 31, 2018 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) $ 446 $ — $ 2,554 __________________ 304 Table of Contents MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) 12. Long-term and Short-term Debt (continued) (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. 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 $15 million, $21 million and $27 million for the years ended December 31, 2018, 2017 and 2016, respectively. Total fees associated with the Committed Facilities, included in income (loss) from discontinued operations, net of income tax, were $305 million and $69 million for the years ended December 31, 2017 and 2016, respectively. See Note 3 for fees associated with termination of financing arrangements included within 2017 amounts. Information on the Committed Facilities at December 31, 2018 was as follows: Account Party/Borrower(s) Expiration Maximum Capacity Letters of Credit Issued Drawdowns Unused Commitments (In millions) MetLife Reinsurance Company of Vermont and MetLife, Inc. MetLife Reinsurance Company of Vermont and MetLife, Inc. Total __________________ December 2024 (1), (2) $ 400 $ 385 $ December 2037 (1), (3) 2,896 2,420 $ 3,296 $ 2,805 $ — $ — — $ 15 476 491 (1) MetLife, Inc. is a guarantor under the applicable facility. (2) (3) 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, 2018 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 $476 million is based on maximum capacity. At December 31, 2018, Brighthouse is a beneficiary of $2.4 billion of letters of credit issued under this facility and, in consideration, Brighthouse reimburses MetLife, Inc. for a portion of the letter of credit fees. 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. 305 Table of Contents MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) 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, 2018 2017 (In millions) 1,060 139 83 1,370 $ $ $ $ 1,121 146 97 1,248 $ $ $ $ Interest expense on the collateral financing arrangement was $37 million, $30 million and $24 million for the years ended December 31, 2018, 2017 and 2016, respectively, which is included in other expenses. In December 2007, MLIC reinsured a portion of its closed block liabilities to MetLife Reinsurance Company of Charleston (“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 2018, 2017 and 2016 following regulatory approval, MRC repurchased $61 million, $153 million and $68 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, 2018. Payments made by the Company in 2018, 2017 and 2016 associated with the repurchases were exclusive of accrued interest on the surplus notes. In connection with the repurchases during 2018, 2017 and 2016, the Company received payments in the aggregate amount of $7 million, $20 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 2018, 2017 or 2016. 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 year ended December 31, 2018, MRC transferred $97 million to the trust out of its general account. During the years ended December 31, 2017 and 2016, MRC transferred $3 million and $1 million, respectively, out of the trust to its general account. The assets are principally invested in fixed maturity securities AFS 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. 306 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% _________________ 2018 Unamortized Discount and Issuance Costs December 31, Carrying Value Face Value (In millions) 2017 Unamortized Discount and Issuance Costs Carrying Value Final Maturity Face Value December 2066 December 2067 April 2068 August 2069 $ 1,250 $ (19) $ 1,231 $ 1,250 $ (21) $ 1,229 700 750 500 (16) (11) (7) 684 739 493 700 750 500 (17) (11) (7) 683 739 493 $ 3,200 $ (53) $ 3,147 $ 3,200 $ (56) $ 3,144 (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, an SPE, which issued the exchangeable surplus trust securities to third-party investors. On March 23, 2017, MetLife, Inc. dissolved the Trust. 307 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, 2018, 2017 and 2016, which is included in other expenses. 15. Equity Preferred Stock Preferred stock authorized, issued and outstanding was as follows: December 31, 2018 December 31, 2017 Series Series A preferred stock Series C preferred stock Series D preferred stock Series E preferred stock Series A Junior Participating Preferred Stock Not designated Total Shares Authorized 27,600,000 1,500,000 500,000 32,200 10,000,000 160,367,800 200,000,000 Shares Issued 24,000,000 1,500,000 500,000 32,200 Shares Outstanding 24,000,000 1,500,000 500,000 32,200 Shares Authorized 27,600,000 1,500,000 — — Shares Issued 24,000,000 1,500,000 — — Shares Outstanding 24,000,000 1,500,000 — — — — 10,000,000 — — — 26,032,200 — 26,032,200 160,900,000 200,000,000 — 25,500,000 — 25,500,000 In June 2018, MetLife, Inc. issued 32,200 shares of 5.625% Non-Cumulative Preferred Stock, Series E (the “Series E preferred stock”) with a $0.01 par value per share and a liquidation preference of $25,000 per share, for aggregate net proceeds of $780 million. MetLife, Inc. deposited the Series E preferred stock under a deposit agreement with a depositary, which issued interests in fractional shares of the Series E preferred stock in the form of depositary shares (“Depositary Shares”) evidenced by depositary receipts; each Depositary Share representing 1/1,000th interest in a share of the Series E preferred stock. In connection with the offering of the Depositary Shares, MetLife, Inc. incurred approximately $25 million of issuance costs which have been recorded as a reduction of additional paid-in capital. 308 Table of Contents 15. Equity (continued) MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) In March 2018, MetLife, Inc. issued 500,000 shares of 5.875% Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series D (the “Series D preferred stock”) with a $0.01 par value per share and a liquidation preference of $1,000 per share, for aggregate net proceeds of $494 million. In connection with the offering of the Series D preferred stock, MetLife, Inc. incurred $6 million of issuance costs which have been recorded as a reduction of additional paid-in capital. 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. The table below presents the dividend rates of MetLife, Inc.’s preferred stock outstanding at December 31, 2018: Series A C D E Per Annum Dividend Rate Three-month LIBOR + 1.00%, with floor of 4.00%, payable quarterly in March, June, September and December 5.250% from issuance date to, but excluding, June 15, 2020, payable semiannually in June and December; three-month LIBOR + 3.575%, payable quarterly in March, June, September and December, thereafter 5.875% from issuance date to, but excluding, March 15, 2028, payable semiannually in March and September commencing in September 2018; three-month LIBOR + 2.959% payable quarterly in March, June, September and December, thereafter 5.625% from issuance date, payable quarterly in March, June, September and December, commencing in September 2018 In the table above, dividends on each series of preferred stock are payable in arrears for the periods specified, if declared. MetLife, Inc. is prohibited from declaring dividends on the Floating Rate Non-Cumulative Preferred Stock, Series A (the “Series A preferred stock”) if it fails to meet specified capital adequacy, net income and stockholders’ equity levels. 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 5.25% Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series C (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. 309 Table of Contents 15. Equity (continued) MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) MetLife, Inc. may, at its option, redeem the Series D preferred stock, (i) in whole but not in part at any time prior to March 15, 2028, within 90 days after the occurrence of a “rating agency event,” at a redemption price equal to $1,020 per share of Series D preferred stock, plus an amount equal to any dividends per share that have accrued but have not been declared and paid for the then-current dividend period to, but excluding, the redemption date; (ii) in whole but not in part, at any time prior to March 15, 2028, within 90 days after the occurrence of a “regulatory capital event”; and (iii) in whole or in part, from time to time, on or after March 15, 2028, in the case of (ii) or (iii), at a redemption price equal to $1,000 per share of Series D preferred stock, 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. MetLife, Inc. may, at its option, redeem the Series E preferred stock, (i) in whole but not in part at any time prior to June 15, 2023, within 90 days after the occurrence of a “rating agency event,” at a redemption price equal to $25,500 per share of Series E preferred stock, plus an amount equal to any dividends per share that have accrued but have not been declared and paid for the then-current dividend period to, but excluding, the redemption date; (ii) in whole but not in part, at any time prior to June 15, 2023, within 90 days after the occurrence of a “regulatory capital event”; and (iii) in whole or in part, from time to time, on or after June 15, 2023, in the case of (ii) or (iii), at a redemption price equal to $25,000 per share of Series E preferred stock, 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 “rating agency event” means that any nationally recognized statistical rating organization that then publishes a rating for MetLife, Inc. amends, clarifies or changes the criteria used to assign equity credit to securities like the Series D preferred stock or Series E preferred stock, which results in the lowering of the equity credit assigned to the Series D preferred stock or Series E preferred stock, as applicable, or shortens the length of time that the Series D preferred stock or Series E preferred stock, as applicable, is assigned a particular level of equity credit. 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) of any capital regulator, including but not limited to the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”), the Federal Insurance Office, the National Association of Insurance Commissioners (“NAIC”) or any state insurance regulator as may then have group-wide oversight of MetLife, Inc.’s regulatory capital, from rules (or the interpretation or application thereof) in effect as of March 22, 2018, in the case of the Series D preferred stock, or June 4, 2018, in the case of the Series E preferred stock, that would create a more than insubstantial risk, as determined by MetLife, Inc., that the Series D preferred stock or the Series E preferred stock, as applicable, would not be treated as “Tier 1 capital” or as capital with attributes similar to those of Tier 1 capital, except that a “regulatory capital event” will not include a change or proposed change (or the interpretation or application thereof) that would result in the adoption of any criteria substantially the same as the criteria in the capital adequacy rules of the Federal Reserve Board applicable to bank holding companies as of March 22, 2018, in the case of the Series D preferred stock, or June 4, 2018, in the case of the Series E preferred stock. On December 31, 2018, RCCs related to the Series A preferred stock and the Series C preferred stock expired. 310 Table of Contents 15. Equity (continued) MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) The declaration, record and payment dates, as well as per share and aggregate dividend amounts, for MetLife, Inc.’s preferred stock were as follows for the years ended December 31, 2018, 2017 and 2016: Declaration Date Record Date Payment Date Per Share Aggregate Per Share Aggregate Per Share Aggregate Per Share Aggregate (In millions, except per share data) Series A Series C Series D Series E Preferred Stock Dividend Year Ended December 31, 2018 November 15, 2018 November 30, 2018 December 17, 2018 $ 0.253 $ August 31, 2018 September 17, 2018 May 31, 2018 June 15, 2018 February 28, 2018 March 15, 2018 0.256 0.256 0.250 Year Ended December 31, 2017 November 15, 2017 November 30, 2017 December 15, 2017 $ 0.253 $ August 31, 2017 September 15, 2017 May 31, 2017 June 15, 2017 February 28, 2017 March 15, 2017 0.256 0.256 0.250 Year Ended December 31, 2016 November 15, 2016 November 30, 2016 December 15, 2016 $ 0.253 $ August 31, 2016 September 15, 2016 May 31, 2016 June 15, 2016 February 29, 2016 March 15, 2016 0.256 0.256 0.253 August 15, 2018 May 15, 2018 March 5, 2018 Total August 15, 2017 May 15, 2017 March 6, 2017 Total August 15, 2016 May 16, 2016 March 7, 2016 Total $ 1.015 $ 25 $ 52.500 $ $ 1.015 $ 25 $ 52.500 $ 6 6 7 6 $ 26.250 $ — 26.250 — 6 6 7 6 $ 26.250 $ — 26.250 — 6 6 7 6 $ 26.250 $ — 26.250 — 40 — 39 — 79 39 — 39 — 78 39 — 39 — 78 $ — $ — $ 351.563 $ 28.233 — — $ 28.233 $ 14 — — 14 394.531 — — $ 746.094 $ $ — $ — $ — $ $ $ — — — — — — — — — — $ — $ — $ — $ — $ — $ — — — — — — — — — $ — $ — $ — $ 11 12 — — 23 — — — — — — — — — — $ 1.018 $ 25 $ 52.500 $ See Note 22 for information on subsequent preferred stock dividends declared. Common Stock Issuances During the years ended December 31, 2018, 2017 and 2016, MetLife, Inc. issued 3,114,141 shares, 4,680,116 shares and 4,439,219 shares of its common stock for $108 million, $158 million and $166 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, 2018, 2017 and 2016. Repurchase Authorizations In November 2016, MetLife, Inc. announced that its Board of Directors authorized $3.0 billion of common stock repurchases in addition to previously authorized repurchases. In November 2017, MetLife, Inc. announced that its Board of Directors authorized $2.0 billion of common stock repurchases. In May 2018 and November 2018, MetLife, Inc. announced that its Board of Directors authorized $1.5 billion and $2.0 billion of common stock repurchases, respectively. During the years ended December 31, 2018, 2017 and 2016, MetLife, Inc. repurchased 88,029,138 shares, 56,599,540 shares and 6,948,739 shares under these repurchase authorizations for $4.0 billion, $2.9 billion, and $372 million, respectively. At December 31, 2018, MetLife, Inc. had $1.3 billion remaining under its common stock repurchase authorization. See Note 22 for information on subsequent common stock repurchases. Under these authorizations, MetLife, Inc. may purchase its common stock from the MetLife Policyholder Trust, in the open market (including pursuant to the terms of a pre-set trading plan meeting the requirements of Rule 10b5-1 under the Securities Exchange Act of 1934 (“Exchange Act”)), and in privately negotiated transactions. Common stock repurchases are subject to the discretion of MetLife, Inc.’s Board of Directors and will depend upon 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, applicable regulatory approvals, and other legal and accounting factors. 311 Table of Contents 15. Equity (continued) Dividends MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) The declaration, record and payment dates, as well as per share and aggregate dividend amounts, for MetLife, Inc.’s common stock were as follows for the years ended December 31, 2018, 2017 and 2016: Declaration Date  Record Date  Payment Date Per Share Aggregate (In millions, except per share data) Dividend Year Ended December 31, 2018 October 23, 2018 July 6, 2018 April 24, 2018 January 5, 2018 Total Year Ended December 31, 2017 October 24, 2017 July 7, 2017 April 25, 2017 January 6, 2017 Total Year Ended December 31, 2016 October 25, 2016 July 7, 2016 April 26, 2016 January 6, 2016 Total November 6, 2018 August 6, 2018 May 7, 2018 February 5, 2018 November 6, 2017 August 7, 2017 May 8, 2017 February 6, 2017 November 7, 2016 August 8, 2016 May 9, 2016 February 5, 2016 December 13, 2018 September 13, 2018 June 13, 2018 March 13, 2018 December 13, 2017 September 13, 2017 June 13, 2017 March 13, 2017 December 13, 2016 September 13, 2016 June 13, 2016 March 14, 2016 $ $ $ $ $ $ 0.420 $ 0.420 0.420 0.400 1.660 0.400 0.400 0.400 0.400 1.600 0.400 0.400 0.400 0.375 $ $ $ $ 415 419 428 416 1,678 422 427 431 437 1,717 441 441 441 413 1.575 $ 1,736 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, 2018. MetLife, Inc. granted all awards to employees and agents in 2018 under the 2015 Stock Plan. The aggregate number of Shares authorized for issuance under the 2015 Stock Plan at December 31, 2018 was 37,344,024. 312 Table of Contents 15. Equity (continued) MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) With the exception of Performance Shares MetLife, Inc. granted in 2013 through 2018, 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 MetLife observes a material deviation from the assumed forfeiture rate 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 principally relates 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. Awards that have become payable in Shares but the issuance of which has been deferred (“Deferred Shares”), payable to employees or agents related to awards under all plans equaled 1,188,792 Shares at December 31, 2018. MetLife granted cash-settled awards based in whole or in part on the price of Shares or changes in the price of Shares (“Phantom Stock-Based 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, 2018 were Stock-Based Awards that vested immediately. As a result, no awards under the 2005 Director Stock Plan or 2015 Director Stock Plan remained outstanding at December 31, 2018. The aggregate number of Shares authorized for issuance under the 2015 Director Stock Plan at December 31, 2018 was 1,660,961. MetLife recognizes compensation expense related to awards under the 2015 Director Stock Plan based on the number of Shares awarded. 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 246,391 Shares at December 31, 2018. 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 __________________ 313 Years Ended December 31, 2018 2017 2016 (In millions) $ $ $ 6 23 57 86 18 $ $ $ 8 62 58 128 45 $ $ $ 9 75 63 147 51 Table of Contents 15. Equity (continued) MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) (1) The Company may further adjust the number of Performance Shares it expects to vest, and the related compensation expense, if management changes its estimate of the most likely final performance factor. 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, 2018 Expense (In millions) Weighted Average Period (Years) $ $ $ 3 21 32 1.12 1.72 1.27 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 majority of Stock Options MetLife, Inc. has granted have 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. A summary of the activity related to Stock Options was as follows: Outstanding at January 1, 2018 Granted Exercised Expired (2) Forfeited (3) Outstanding at December 31, 2018 Vested and expected to vest at December 31, 2018 Exercisable at December 31, 2018 __________________ Shares Under Option Weighted Average Exercise Price 16,009,754 $ 523,946 $ (1,611,987) $ (2,488,045) $ (78,374) $ $ 12,355,294 12,343,714 11,116,386 $ $ 38.77 45.50 33.68 53.63 41.90 36.70 36.70 35.96 Weighted Average Remaining Contractual Term (Years) 3.54 Aggregate Intrinsic Value (1) (In millions) 198 $ 3.56 3.55 3.02 $ $ $ 66 66 64 (1) (2) (3) 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, 2018 of $41.06 and December 31, 2017 of $50.56, as applicable. Expired options were exercisable, but unexercised, as of their expiration date. Forfeited awards were either (a) unvested or unexercisable at the end of the awardholder’s employment, where the awardholder did not meet the criteria for post-employment award continuation; or (b) held by awardholders the Company terminated from employment for cause as defined in the terms of the awards. 314 Table of Contents 15. Equity (continued) MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) 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 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. MetLife bases expected volatility on 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 Company’s binomial lattice model 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. The Company determines dividend yield based on historical dividend distributions compared to the price of the underlying Shares as of the valuation date and held constant over the life of the Stock Option. The Company’s binomial lattice model incorporates the term of the Stock Options, 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 model’s exercise behavior 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: 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, 2018 2017 3.52% 2.02% - 3.40% 3.05% 0.94% - 3.22% 2016 3.90% 0.62% - 2.85% 34.18% 1.43 3.77% 10 6 $45.50 $11.87 34.19% 1.43 2.94% 10 6 $46.85 $12.36 33.58% 1.43 2.58% 10 7 $34.33 $8.27 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 Years Ended December 31, 2018 2017 (In millions) 2016 $ $ $ 24 54 5 $ $ $ 59 116 20 $ $ $ 42 84 15 315 Table of Contents 15. Equity (continued) Performance Shares MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) 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 2016 – 2018 and later performance periods in progress through December 31, 2018, the vested Performance Shares will be multiplied by a performance factor of 0% to 175% that the MetLife, Inc. Compensation Committee will determine in its discretion (subject to MetLife, Inc. meeting threshold performance goals related to its adjusted income or total shareholder return). 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 2015 - 2017 performance period was 46.3%. 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. The 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, 2018 Granted Forfeited (2) Payable (3) Outstanding at December 31, 2018 Vested and expected to vest at December 31, 2018 __________________ Performance Shares Restricted Stock Units Weighted Average Fair Value (1) 46.02 $ Shares 4,033,760 Weighted Average Fair Value (1) 37.17 $ Units 3,304,377 1,405,903 $ (201,146) $ (1,194,283) $ 4,044,234 $ 3,984,022 $ 34.31 40.88 46.34 34.18 34.18 1,446,289 $ (201,914) $ (1,602,483) $ 2,946,269 $ 2,903,433 $ 40.00 38.79 37.04 38.52 38.49 (1) (2) Values for awards outstanding at January 1, 2018, represent weighted average number of awards multiplied by the fair value per Share at December 31, 2017. Otherwise, all values represent weighted average of number of awards multiplied by the fair value per Share at December 31, 2018. Fair value of Restricted Stock Units on December 31, 2018 was equal to Grant Date fair value. Forfeited awards were either (a) unvested or unexercisable at the end of the awardholder’s employment, where the awardholder did not meet the criteria for post-employment award continuation; or (b) held by awardholders the Company terminated from employment for cause as defined in the terms of the awards. (3) Includes both Shares paid and Deferred Shares for later payment. 316 Table of Contents 15. Equity (continued) MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) Performance Share amounts above represent aggregate awards at target, and do not reflect potential increases or decreases that may result from the performance factor. At December 31, 2018, the performance period for the 2016 — 2018 Performance Share grants was completed, but the performance factor had not yet been determined. Included in the immediately preceding table are 1,594,846 outstanding Performance Shares to which the 2016 — 2018 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 MetLife makes payment. 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. Unit Options 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 majority of Unit Options have 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. MetLife, Inc. does not credit them 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. The 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. MetLife, Inc. does not credit Restricted Units with dividend-equivalents for dividends paid on Shares. Accordingly, the estimated fair value of Restricted 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. 317 Table of Contents 15. Equity (continued) MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) The following table presents a summary of Liability Awards activity: Outstanding at January 1, 2018 Granted Exercised Expired (1) Forfeited (2) Paid Outstanding at December 31, 2018 Vested and expected to vest at December 31, 2018 __________________ Unit Options Performance Units Restricted Units 681,012 37,904 (54,361) (118,107) — — 546,448 539,165 688,229 235,076 — — (142,621) (186,085) 594,599 577,005 779,076 392,549 — — (140,321) (362,202) 669,102 651,263 (1) (2) Expired options were exercisable, but unexercised, as of their expiration date. Forfeited awards were either (a) unvested or unexercisable at the end of the awardholder’s employment, where the awardholder did not meet the criteria for post-employment award continuation; or (b) held by awardholders the Company terminated from employment for cause as defined in the terms of the awards. Performance Units amounts above represent aggregate awards at target, and do not reflect potential increases or decreases that may result from the performance factor. At December 31, 2018, the performance period for the 2016 - 2018 Performance Unit grants was completed, but the performance factor had not yet been determined. Included in the immediately preceding table are 212,464 outstanding Performance Units to which the 2016 - 2018 performance factor will be applied. Statutory Equity and Income The states of domicile of MetLife, Inc.’s U.S. insurance subsidiaries each impose risk-based capital (“RBC”) requirements that were developed by the NAIC. American Life does not write business in Delaware or any other U.S. 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 360% and in excess of 390% at December 31, 2018 and 2017, respectively. 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, 2018 and 2017, 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 $4.1 billion and the aggregate actual regulatory capital and surplus of such operations was $11.1 billion as of the date of the most recent required capital adequacy calculation for each jurisdiction. The Company’s foreign insurance operations exceeded the minimum capital and solvency requirements as of the date of the most recent fiscal year-end capital adequacy calculation for each jurisdiction, with immaterial exceptions. 318 Table of Contents 15. Equity (continued) MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) MetLife, Inc.’s insurance subsidiaries prepare statutory-basis financial statements in accordance with statutory accounting practices prescribed or permitted by the insurance department of the state of domicile or applicable foreign jurisdiction. The NAIC has adopted the Codification of Statutory Accounting Principles (“Statutory Codification”). Statutory Codification is intended to standardize regulatory accounting and reporting to state insurance departments. However, statutory accounting principles continue to be established by individual state laws and permitted practices. Modifications by the various state insurance departments may impact the effect of Statutory Codification on the statutory capital and surplus of MetLife, Inc.’s U.S. insurance subsidiaries. Statutory accounting principles differ from GAAP primarily by charging policy acquisition costs to expense as incurred, establishing future policy benefit liabilities using different actuarial assumptions, reporting surplus notes as surplus instead of debt and valuing securities on a different basis. In addition, certain assets are not admitted under statutory accounting principles and are charged directly to surplus. The most significant assets not admitted by the Company are net deferred income tax assets resulting from temporary differences between statutory accounting principles basis and tax basis not expected to reverse and become recoverable within three years. Further, statutory accounting principles do not give recognition to purchase accounting adjustments. MetLife, Inc.’s U.S. insurance subsidiaries have no material state prescribed accounting practices, except as described below. New York has adopted certain prescribed accounting practices, primarily consisting of the continuous Commissioners’ Annuity Reserve Valuation Method, which impacts deferred annuities, and the New York Special Consideration Letter, which mandates certain assumptions in asset adequacy testing. The collective impact of these prescribed accounting practices decreased the statutory capital and surplus of MLIC for the years ended December 31, 2018 and 2017 by $1.2 billion and $1.1 billion, respectively, compared to what capital and surplus would have been had it 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. Statutory net income (loss) was as follows: Company State of Domicile 2018 Years Ended December 31, 2017 (In millions) 2016 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 (3) New England Life Insurance Company (2) Other (4) __________________ New York Delaware Delaware Rhode Island Nebraska Massachusetts Various $ $ $ $ $ 3,656 2,086 N/A 345 76 N/A 16 $ $ $ $ $ 1,982 3,077 $ $ N/A $ 197 164 $ $ N/A $ 11 $ 3,444 341 1,186 171 8 109 (70) (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. In April 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. In April 2018, Metropolitan Tower Life Insurance Company (“MTL”) merged with GALIC (“MTL Merger”). The surviving entity of the merger was MTL, which re-domesticated from Delaware to Nebraska immediately prior to the merger. For the year ended December 31, 2016, MTL’s statutory net income (loss) is as filed with the Delaware Department of Insurance and accordingly, does not include GALIC’s statutory net income (loss) of ($2) million. 319 Table of Contents 15. Equity (continued) MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) (4) In April 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 year ended December 31, 2016, statutory net income (loss) of Brighthouse NY was ($87) million. Statutory capital and surplus was as follows at: Company Metropolitan Life Insurance Company American Life Insurance Company Metropolitan Property and Casualty Insurance Company Metropolitan Tower Life Insurance Company (1) Other __________________ (1) See discussion of MTL Merger above. December 31, 2018 2017 (In millions) $ $ $ $ $ 11,098 4,921 2,322 1,549 106 $ $ $ $ $ 10,384 6,548 2,266 1,751 100 The Company’s U.S. 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. 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 $2.8 billion and $2.7 billion for the years ended December 31, 2018 and 2017, respectively. MRV’s RBC would have triggered a regulatory event without the use of the state prescribed practice. The combined statutory net income (loss) of MetLife, Inc.’s U.S. captive life reinsurance subsidiaries was ($59) million, $2.1 billion and ($344) million for the years ended December 2018, 2017 and 2016, respectively, and the combined statutory capital and surplus, including the aforementioned prescribed practice, was $1.7 billion at both December 31, 2018 and 2017. 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 the actual dividends paid: Company Metropolitan Life Insurance Company American Life Insurance Company Metropolitan Property and Casualty Insurance Company Metropolitan Tower Life Insurance Company (3) General American Life Insurance Company (3) __________________ 2019 2018 Permitted Without Approval (1) Paid (2) (In millions) $ $ $ $ 3,096 $ — $ 171 154 $ $ N/A $ 3,736 3,200 233 191 — $ $ $ $ $ 2017 Paid (2) 2,523 2,200 185 — 1 (1) (2) (3) Reflects dividend amounts that may be paid by the end of 2019 without prior regulatory approval. Reflects all amounts paid, including those where regulatory approval was obtained as required. See discussion of MTL Merger above. 320 Table of Contents 15. Equity (continued) MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) Under the 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 the 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 the Delaware Insurance Code, American Life 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 American Life’s own securities. American Life 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 the Delaware Insurance Code, the Delaware Commissioner has broad discretion in determining whether the financial condition of a stock life insurance company would support the payment of such dividends to its stockholders. Under the Rhode Island Insurance Code, Metropolitan Property and Casualty Insurance Company (“MPC”) is permitted, without prior insurance regulatory clearance, to pay a stockholder dividend to MetLife, Inc. as long as the aggregate amount of all such dividends in any 12 month period does not exceed the lesser of: (i) 10% of its surplus to policyholders as of the end of the immediately preceding calendar year, or (ii) net income, not including realized capital gains, for the immediately preceding calendar year, not including pro rata distributions of MPC’s own securities. In determining whether a dividend is extraordinary, MPC may include carry forward net income from the previous two calendar years, excluding realized capital gains less dividends paid in the second and immediately preceding calendar years. MPC will be permitted to pay a dividend to MetLife, Inc. in excess of the lesser of such two amounts only if it files notice of its intention to declare such a dividend and the amount thereof with the Rhode Island Commissioner of Insurance (the “Rhode Island Commissioner”) and the Rhode Island Commissioner either approves the distribution of the dividend or does not disapprove the distribution within 30 days of its filing. Under the Rhode Island Insurance Code, the Rhode Island Commissioner has broad discretion in determining whether the financial condition of a stock property and casualty insurance company would support the payment of such dividends to its stockholders. 321 Table of Contents 15. Equity (continued) MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) Under the Nebraska Insurance Code, 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 MTL’s own securities. 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 Director of the Nebraska Department of Insurance (the “Nebraska Director”) and the Nebraska 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 as “unassigned funds (surplus)”), excluding unrealized capital gains) as of the immediately preceding calendar year requires insurance regulatory approval. Under the Nebraska Insurance Code, the Nebraska 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 are 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 of Directors. 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 Series A preferred stock and its 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. 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 so-called “dividend stopper” provisions. Further, MetLife, Inc.’s Series A preferred stock and its junior subordinated debentures contain provisions that would 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 Series A preferred stock dividends or interest on junior subordinated debentures are not paid, certain provisions in those instruments (including under “dividend stopper” provisions) 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. 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. MetLife, Inc. is a party to certain RCCs which limit its ability to eliminate these restrictions through the repayment, redemption or purchase of 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 Note 14 for a description of such covenants. 322 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: Unrealized Investment Gains (Losses), Net of Related Offsets (1) Unrealized Gains (Losses) on Derivatives Foreign Currency Translation Adjustments (In millions) Defined Benefit Plans Adjustment Total Balance at December 31, 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 (3) Deferred income tax benefit (expense) Disposal of subsidiary, net of income tax Balance at December 31, 2017 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 Cumulative effects of changes in accounting principles Deferred income tax benefit (expense), cumulative effects of changes in accounting principles Cumulative effects of changes in accounting principles, net of income tax (2) Sale of subsidiary (3) Balance at December 31, 2018 __________________ $ 10,311 $ 1,458 $ (4,950) $ (2,052) $ 800 (338) 10,773 21 (9) 12 10,785 5,392 (1,732) 14,445 (289) 87 (202) (2,286) 800 (1,486) 12,757 (8,735) 1,961 5,983 14 (3) 11 (425) 1,473 1,048 — 344 (100) 1,702 229 (66) 163 1,865 (140) 47 1,772 (1,025) 356 (669) (305) 107 (198) 905 157 (41) 1,021 517 (135) 382 — 210 210 — (476) 114 (5,312) — — — (62) 24 (2,090) 193 (75) 118 (5,312) (1,972) 765 125 (23) 8 (4,422) (1,987) — — — 51 (19) 32 (4,390) (679) 36 (5,033) — — — — 36 36 92 167 (43) 124 28 (10) 18 (1,845) 143 (35) (1,737) 120 (29) 91 — (382) (382) — 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 (9,114) 1,921 234 651 (167) 484 (425) 1,337 912 92 $ 7,042 $ 1,613 $ (4,905) $ (2,028) $ 1,722 (1) (2) (3) See Note 8 for information on offsets to investments related to future policy benefits, DAC, VOBA and DSI, and the policyholder dividend obligation. See Note 1 for further information on adoption of new accounting pronouncements. See Note 3. 323 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 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 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, 2018 2017 2016 (In millions) Consolidated Statements of Operations Locations $ 6 $ 404 $ 78 Net investment gains (losses) (1) (19) — (14) 3 (11) 23 18 — (2) 2 1 — (558) (5) 2 — 1 1 (517) 135 (382) (145) 25 (120) 29 (91) 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) 39 Net investment income (37) Net derivative gains (losses) (101) Discontinued operations (21) 9 (12) 56 Net derivative gains (losses) 12 Net investment income 36 Discontinued operations (1) Net derivative gains (losses) 4 Net investment income 1 Other expenses 4 Discontinued operations (350) Net derivative gains (losses) (2) Net investment income 2 Other expenses 5 Discontinued operations 3 Net derivative gains (losses) 1 Net investment income (229) 66 (163) (199) 6 (193) 75 (118) (293) Total reclassifications, net of income tax $ (484) $ 747 $ __________________ (1) These AOCI components are included in the computation of net periodic benefit costs. See Note 17. 324 Table of Contents MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) 16. Other Revenues and Other Expenses Other Revenues Information on other revenues, which primarily includes fees related to service contracts from customers, was as follows: Year Ended December 31, 2018 (In millions) Prepaid legal plans Fee-based investment management Recordkeeping and administrative services (1) Administrative services-only contracts Other revenue from service contracts from customers Total revenues from service contracts from customers Other Total other revenues (1) Related to products and businesses no longer actively marketed by the Company. Other Expenses Information on other expenses was as follows: 2018 $ $ $ Employee related costs Third party staffing costs 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 (In millions) 3,595 $ 1,693 1,129 307 842 5,387 (3,002) 2,681 (140) 1,129 13,621 3,664 1,703 910 185 758 5,707 (3,254) 2,975 (56) 1,122 13,714 $ $ 296 293 221 205 241 1,256 624 1,880 2016 3,840 1,619 1,007 400 688 5,741 (3,152) 2,718 (269) 1,157 13,749 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. Expenses related to Debt See Notes 12, 13, and 14 for attribution of interest expense by debt issuance and other expenses related to debt transactions. 325 Table of Contents MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) 16. Other Revenues and 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 2018 Years Ended December 31, 2017 Severance (In millions) 2016 $ $ $ 22 63 (62) 23 136 $ $ $ 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, 2018. 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: 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 Year Ended December 31, 2016 Severance Lease and Asset Impairment (In millions) Total $ $ $ 18 — (17) 1 383 $ $ $ 4 1 (4) 1 47 $ $ $ 22 1 (21) 2 430 Certain subsidiaries of MetLife, Inc. sponsor and/or administer a U.S. qualified and various U.S. and non-U.S. nonqualified defined benefit pension plans and other postretirement employee benefit plans covering employees 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. In September 2018, the U.S. qualified and nonqualified defined benefit pension plans were amended, effective January 1, 2023, to provide benefits accruals for all active participants under the cash balance formula and to cease future accruals under the traditional formula. 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. 326 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. and non-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. In September 2018, the U.S. postretirement medical and life insurance benefit plans were amended, effective January 1, 2023, to discontinue the accrual of the employer subsidy credits for eligible employees. 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, 2018 December 31, 2017 Pension Benefits Other Postretirement Benefits Pension Benefits Other Postretirement Benefits U.S. Plans Non- U.S. Plans Total U.S. Plans Non- U.S. Plans Total U.S. Plans (In millions) Non- U.S. Plans Total U.S. Plans Non- U.S. Plans Total Benefit obligations $ 9,580 $ 1,011 $10,591 $ 1,288 $ 36 $ 1,324 $10,500 $ 909 $11,409 $ 1,648 $ 26 $ 1,674 Estimated fair value of plan assets Over (under) funded status Net periodic benefit costs 8,615 333 8,948 1,334 26 1,360 9,371 317 9,688 1,426 8 1,434 $ (965) $ (678) $ (1,643) $ 46 $ (10) $ 36 $ (1,129) $ (592) $ (1,721) $ (222) $ (18) $ (240) $ 176 $ 83 $ 259 $ (66) $ 2 $ (64) $ 267 $ 82 $ 349 $ (12) $ 2 $ (10) 327 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 Plan amendments Net actuarial (gains) losses Acquisition, divestitures, settlements and curtailments 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, 2018 2017 Pension Benefits (1) Other Postretirement Benefits Pension Benefits (1) Other Postretirement Benefits (In millions) $ 11,409 $ 1,674 $ 10,741 $ 1,759 223 391 — (110) (713) (6) (623) 20 6 55 30 (7) (348) 13 (97) (2) 238 429 — — 595 (27) (600) 33 10,591 1,324 11,409 9,688 (423) (5) — 306 (623) 5 8,948 (1,643) $ 135 $ (1,778) (1,643) $ $ $ 2,979 (118) 2,861 10,301 $ $ $ $ $ $ 1,434 (27) 16 32 4 (97) (2) 1,360 36 373 (337) 36 $ $ $ (269) $ (14) (283) $ N/A $ 9,009 968 (30) — 329 (600) 12 9,688 (1,721) $ 59 $ (1,780) (1,721) $ $ $ 2,917 (11) 2,906 10,996 6 76 33 — (95) — (107) 2 1,674 1,386 125 (1) 33 (2) (107) — 1,434 (240) 160 (400) (240) (55) (27) (82) N/A (1) Includes nonqualified unfunded plans, for which the aggregate PBO was $1.1 billion and $1.2 billion at December 31, 2018 and 2017, respectively. 328 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, 2018 2017 2018 2017 PBO Exceeds Estimated Fair Value of Plan Assets ABO Exceeds Estimated Fair Value of Plan Assets $ $ $ 2,021 1,921 301 $ $ $ (In millions) 2,016 1,904 285 $ $ $ 1,999 1,906 280 $ $ $ 1,996 1,890 266 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, 2018 2017 2016 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 __________________ $ 223 391 (1) (533) 182 (3) 259 244 (110) (182) 3 — — (45) $ 6 55 — (71) (34) (20) (64) (248) (7) 34 20 — — (201) (In millions) $ 238 429 4 (516) 195 (1) 349 149 (1) (195) 1 — (30) (76) 6 76 2 (72) — (22) (10) (146) — — 22 — 2 (122) $ $ 272 423 2 (527) 189 — 359 238 (11) (189) — (1) — 37 9 82 19 (75) 10 (6) 39 (124) (41) (10) 6 1 — (168) (129) $ 214 $ (265) $ 273 $ (132) $ 396 $ (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. 329 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 $184 million and ($17) million, and ($34) million and ($11) million, respectively. Assumptions Assumptions used in determining benefit obligations for the U.S. plans were as follows: December 31, 2018 Weighted average discount rate Rate of compensation increase December 31, 2017 Weighted average discount rate Rate of compensation increase Pension Benefits Other Postretirement Benefits 4.35% 2.25% - 8.50% 3.65% 2.25% - 8.50% 4.35% N/A 3.70% N/A Assumptions used in determining net periodic benefit costs for the U.S. plans were as follows: Year Ended December 31, 2018 Weighted average discount rate Weighted average expected rate of return on plan assets Rate of compensation increase 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 Pension Benefits Other Postretirement Benefits 3.65% 5.75% 2.25% - 8.50% 4.30% 6.00% 2.25% - 8.50% 4.13% 6.00% 2.25% - 8.50% 3.70% 5.11% N/A 4.45% 5.36% N/A 4.37% 5.53% 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 2019 is currently anticipated to be 5.75% for U.S. pension benefits and 5.11% for U.S. other postretirement benefits. 330 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, 2018 2017 Before Age 65 Age 65 and older Before Age 65 Age 65 and older 5.4% 3.9% 2080 2.8% 4.2% 2097 5.6% 4.0% 2086 6.6% 4.3% 2098 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, 2018: 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) 5 121 $ $ (4) (102) 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 securities AFS, 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. 331 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, 2018 for the Invested Plans: December 31, 2018 2017 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% —% 82% 18% —% 100% 82% 10% 8% 100% 84% 15% 1% 100% Asset Class Fixed maturity securities AFS 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 AFS. 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. 332 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, 2018 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) $ — $ 3,350 $ 1,314 — — — 1 210 1,525 706 20 33 471 837 88 240 198 590 5,774 195 — 4 1 — — — — — 1 2 — 688 1 $ 3,351 $ — $ 313 $ — $ 1,785 268 837 88 240 199 801 7,301 901 708 38 — — — 1 3 272 155 — 1 — 90 16 29 397 69 914 18 — — — — — — — — — — — — 313 268 90 16 29 398 72 1,186 173 — 1 $ 2,284 $ 5,973 $ 691 $ 8,948 $ 428 $ 932 $ — $ 1,360 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) $ — $ 3,833 $ 1,256 — 35 — 135 7 1,433 797 19 33 528 1,037 134 335 192 388 6,447 177 144 2 1 — — — — — 10 11 3 622 — $ 3,834 $ 20 $ 362 $ — $ 1,784 1,037 169 335 327 405 7,891 977 785 35 269 — — — 8 — 297 154 — 1 6 102 17 28 390 68 973 — 9 — — — — — — — — — — — 382 275 102 17 28 398 68 1,270 154 9 1 $ 2,282 $ 6,770 $ 636 $ 9,688 $ 452 $ 982 $ — $ 1,434 333 Assets Fixed maturity securities AFS: Corporate U.S. government bonds Foreign bonds Federal agencies Municipals Short-term investments Other (1) Total fixed maturity securities AFS Equity securities Other investments Derivative assets Total assets Assets Fixed maturity securities AFS: Corporate U.S. government bonds Foreign bonds Federal agencies Municipals Short-term investments Other (1) Total fixed maturity securities AFS Equity securities Other investments Derivative assets Total assets __________________ Table of Contents MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) 17. Employee Benefit Plans (continued) (1) Other primarily includes money market securities, mortgage-backed securities, collateralized mortgage obligations and ABS. A rollforward of all pension and other postretirement benefit plan assets measured at estimated fair value on a recurring basis using significant unobservable (Level 3) inputs was as follows: Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Pension Benefits Fixed Maturity Securities AFS: Corporate Other (1) Equity Securities Other Investments Derivative Assets (In millions) Balance, January 1, 2017 Realized gains (losses) Unrealized gains (losses) Purchases, sales, issuances and settlements, net Transfers into and/or out of Level 3 Balance, December 31, 2017 Realized gains (losses) Unrealized gains (losses) Purchases, sales, issuances and settlements, net Transfers into and/or out of Level 3 Balance, December 31, 2018 __________________ $ $ $ — $ (10) 10 — 1 1 — — — — 1 $ $ $ $ 9 — — 8 (7) 10 — — (3) (6) 1 $ — $ 637 $ — (12) — (3) $ 622 $ 2 — (4) 5 3 — — — (3) — $ — 23 43 — 688 $ 65 (22) 6 (48) (1) — — — — 1 1 (1) Other includes ABS and collateralized mortgage obligations. For the years ended December 31, 2018 and 2017, 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 2019. The subsidiaries expect to make discretionary contributions to the qualified pension plan of $150 million in 2019. 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 2019. 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 2019 to pay postretirement medical claims. 334 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: 2019 2020 2021 2022 2023 2024-2028 Additional Information Pension Benefits Other Postretirement Benefits (In millions) 620 636 643 661 682 3,596 $ $ $ $ $ $ 85 83 81 82 84 413 $ $ $ $ $ $ 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, $56 million and $58 million for the years ended December 31, 2018, 2017 and 2016, 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 (debited) to the account balances was ($448) million, $1.1 billion and $660 million for the years ended December 31, 2018, 2017 and 2016, 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 $63 million, $72 million and $81 million for the years ended December 31, 2018, 2017 and 2016, respectively. 335 Table of Contents 18. Income Tax MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) The provision for income tax from continuing operations was as follows: Current: U.S. federal U.S. state and local Non-U.S. Subtotal Deferred: U.S. federal Non-U.S. Subtotal Provision for income tax expense (benefit) Years Ended December 31, 2018 2017 2016 (In millions) $ (207) $ 11 932 736 342 101 443 $ 1,179 $ (246) $ 5 891 650 (2,373) 253 (2,120) (1,470) $ 520 3 628 1,151 (827) 369 (458) 693 The Company’s income (loss) from continuing operations before income tax expense (benefit) was as follows: Income (loss) from continuing operations: U.S. Non-U.S. Total Years Ended December 31, 2018 2017 2016 (In millions) $ $ (803) $ 7,110 6,307 $ 684 2,852 3,536 $ $ 185 4,096 4,281 336 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 (21% in 2018; 35% in 2017 and 2016) 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), (6) Other, net (7) 2018 Years Ended December 31, 2017 (In millions) 2016 $ 1,325 $ 1,238 $ 1,498 (35) (29) (197) (284) (79) 335 (2) — 78 67 (67) (97) (27) (278) (102) (95) (8) (540) (1,519) 25 (1,470) $ (69) (86) (13) (270) (98) (332) (9) — — 72 693 Provision for income tax expense (benefit) $ 1,179 $ __________________ (1) (2) (3) (4) (5) (6) (7) As discussed further below, for the year ended December 31, 2018, prior year tax includes a $168 million non-cash benefit related to an uncertain tax position. For the year ended December 31, 2018, foreign tax rate differential includes tax charges of $45 million related to Global Intangible Low-Taxed Income (“GILTI”), $17 million related to a tax adjustment in Chile and $13 million from changes in the valuation of the peso in Argentina. 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, 2018, U.S. Tax Reform impact includes a $468 million tax charge related to the deemed repatriation transition tax, offset by a $390 million tax benefit related to the adjustment of deferred taxes due to the U.S. tax rate change. This excludes $12 million of tax provision at the U.S. statutory rate for a total tax reform charge of $66 million. For the year ended December 31, 2017, 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. For the year ended December 31, 2018, other includes tax charges of $69 million related to the non-deductible loss incurred on the mark-to-market and exchange of FVO Brighthouse Common Stock and $18 million related to a non- deductible Patient Protection and Affordable Care Act excise tax, offset by a tax benefit of $36 million related to a non- cash transfer of assets from a wholly-owned U.K. subsidiary to its U.S. parent. 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 U.S. 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 337 Table of Contents 18. Income Tax (continued) MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) to a participation exemption system by providing corporations a 100% dividends received deduction for dividends distributed by a controlled foreign corporation. To transition to that new system, U.S. Tax Reform imposed 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 Years Ended December 31, 2018 2017 (In millions) (58) $ 468 (402) 66 (124) — (124) $ (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 recorded provisional amounts for certain items for which the income tax accounting is not complete. For these items, the Company recorded a reasonable estimate of the tax effects of U.S. Tax Reform. The estimates were reported as provisional amounts during the measurement period, which did not exceed one year from the date of enactment of U.S. Tax Reform. The Company reflected 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. As of December 31, 2017, the following items were 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 were completed during the measurement period. As a result, the following updates were made to complete the accounting for these items as of December 31, 2018: • • • Deemed Repatriation Transition Tax - The Company recorded a $170 million charge for this item for the year ended December 31, 2017. This charge was 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 was $350 million. In 2018, the IRS issued proposed regulations related to the transition tax. As a result, for the year ended December 31, 2018, the Company recorded a $468 million charge. GILTI - U.S. Tax Reform imposes a minimum tax on GILTI, which is generally the excess income of foreign subsidiaries over a 10% rate of routine return on tangible business assets. For the year ended December 31, 2017, the Company did not record a tax charge for this item. In 2018, the Company established an accounting policy in which it treats taxes due on GILTI as a current-period expense when incurred. Accordingly, for the year ended December 31, 2018, the Company recorded a $45 million tax charge related to this income. 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 recorded an $8 million tax charge, included within the deferred tax revaluation as of December 31, 2017. The Company determined that no additional adjustment was required for the year ended December 31, 2018. 338 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 50% each tax year beginning in 2018, with any remaining balance fully refunded in 2021. 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 6.2%. 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. For the year ended December 31, 2017, the Company recorded a $9 million tax charge, included within the deferred tax revaluation. For the year ended December 31, 2018, the Company determined that no additional adjustment was required. In early 2019, the IRS issued guidance indicating that for years beginning after December 31, 2017, refund payments and credit elect and refund offset transactions due to refundable minimum tax credits will not be subject to sequestration. The Company will incorporate the impacts of this IRS announcement in 2019. Tax Credit Partnerships - The reduction in the federal corporate income tax rate due to U.S. Tax Reform required adjustments for multiple investment portfolios, including tax credit partnerships and tax-advantaged leverage leases. 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. The Company did not receive the necessary investee financial information to determine the impact of U.S. Tax Reform on the tax attributes of its tax credit partnership investments until the third quarter of 2018. Accordingly, prior to the third quarter of 2018, the Company applied prior law to these equity method investments in accordance with SAB 118. For the year ended December 31, 2018, after receiving additional investee information, a reduction in tax credit partnerships’ equity method income of $46 million, net of income tax, was included in net investment income. The tax-advantaged leveraged lease portfolio is valued on an after-tax yield-basis. In 2018, the Company received third party data that was used to complete a comprehensive review of its portfolio to determine the full and complete impact of U.S. Tax Reform on these investments. As a result of this review, a tax benefit of $125 million was recorded for the year ended December 31, 2018. 339 Table of Contents 18. Income Tax (continued) MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) U.S. Tax Reform required the Company to recognize a transition tax on all previously unremitted non-U.S. 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 non-U.S. subsidiaries that are essentially permanent in duration. The amount of deferred tax liability related to the Company’s remaining basis difference in these non-U.S. subsidiaries is $181 million at December 31, 2018. 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, 2018 2017 (In millions) $ 2,887 $ 2,654 104 705 — 1,113 161 191 5,161 169 4,992 2,494 1,256 2,898 3,263 495 512 802 6 1,322 160 657 6,113 189 5,924 2,772 1,321 4,783 3,206 609 10,406 (5,414) $ 12,691 (6,767) $ The Company also has recorded a valuation allowance benefit of $12 million related to certain U.S. state and non-U.S. net operating loss carryforwards for the year ended December 31, 2018. In addition, an $8 million decrease was related to foreign currency exchange rate movement for the year ended December 31, 2018. 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 U.S. state and non-U.S. 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. 340 Table of Contents 18. Income Tax (continued) MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) The following table sets forth the net operating loss carryforwards for tax return purposes at December 31, 2018. Expiration: 2019-2023 2024-2028 2029-2033 2034-2038 Indefinite Net Operating Loss Carryforwards U.S. Federal U.S. State Non-U.S. (In millions) $ $ 1 — 6 — — 7 $ $ — $ — — 140 — 140 $ 67 18 — — 416 501 The following table sets forth the general business credits, foreign tax credits, and other credit carryforwards for tax return purposes at December 31, 2018. Expiration: 2019-2023 2024-2028 2029-2033 2034-2038 Indefinite General Business Credits Tax Credit Carryforwards Foreign Tax Credits (In millions) Other $ $ — $ — 203 1,140 — 1,343 $ — $ 2 — — 23 25 $ — — — — 145 145 The Company files income tax returns with the U.S. federal government and various U.S. state and local jurisdictions, as well as non-U.S. 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 refund claims filed in 2017 with the IRS for 2000 through 2002 to recover tax and interest predominantly related to the disallowance of certain foreign tax credits for which the Company received a statutory notice of deficiency in 2015 and paid the tax thereon. The disallowed foreign tax credits relate to certain non-U.S. investments held by MLIC in support of its life insurance business through a United Kingdom investment subsidiary that was structured as a joint venture until early 2009. For tax years 2003 through 2006, the Company entered into binding agreements with the IRS under which all remaining issues, including the foreign tax credit matter noted above, for these years were resolved. Accordingly, in the fourth quarter of 2018, the Company recorded a non-cash benefit to net income of $349 million, net of tax, comprised of a $168 million tax benefit recorded in provision for income tax expense (benefit) and a $229 million interest benefit ($181 million, net of tax) included in other expenses. For tax years 2000 through 2002 (which are closed to IRS examination except for the refund claim described above) and 2007 through 2009 (which are the subject of the current IRS examination), the Company has established adequate reserves for tax liabilities. The Company continues to pursue final resolution of disallowed foreign tax credits, as well as related issues, for the open tax years in a manner consistent with the final resolution of such issues for 2003 through 2006. Although the final timing and details of any such resolution remain uncertain, and could be affected by many factors, closure with the IRS for tax years 2000 through 2002, and 2007 through 2009, may occur in 2019. In material non-U.S. jurisdictions, the Company is no longer subject to income tax examinations for years prior to 2011. 341 Table of Contents 18. Income Tax (continued) MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) The Company’s overall liability for unrecognized tax benefits may increase or decrease in the next 12 months. For example, federal tax legislation and regulation 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. 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 (2) Additions for tax positions of current year (1) Reductions for tax positions of current year Settlements with tax authorities (3) Balance at December 31, Unrecognized tax benefits that, if recognized, would impact the effective rate __________________ 2018 Years Ended December 31, 2017 (In millions) 2016 $ 1,102 $ 1,146 $ 269 (195) 226 (3) (288) 1,111 1,046 $ $ 70 (101) 33 (3) (43) 1,102 1,073 $ $ $ $ 1,259 24 (112) 23 — (48) 1,146 1,112 (1) (2) (3) The increase in 2018 is primarily related to the deemed repatriation transition tax and the IRS issued proposed regulations. The decrease in 2018 is primarily related to the non-cash benefit from the tax audit settlement discussed above. The decrease in 2018 is primarily related to the tax audit settlement, of which $284 million was reclassified to the current income tax payable account. 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 expense (benefit) recognized on the consolidated statements of operations (1) $ (441) $ 37 $ (41) Years Ended December 31, 2018 2017 2016 (In millions) Interest included in other liabilities on the consolidated balance sheets __________________ December 31, 2018 2017 (In millions) 218 $ 659 $ (1) The decrease in 2018 is primarily related to the tax audit settlement, of which $168 million was recorded in other expenses and $273 million was reclassified to the current income tax payable account. The Company had insignificant penalties for the years ended December 31, 2018, 2017 and 2016. 342 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 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 Net income (loss) available to MetLife, Inc.’s common shareholders Basic Diluted $ $ $ $ $ $ $ $ $ $ $ $ Years Ended December 31, 2018 2017 2016 (In millions, except per share data) 1,005.9 1,069.7 1,100.5 8.0 8.8 8.0 1,013.9 1,078.5 1,108.5 5,128 $ 5,006 $ 3,588 5 141 4,982 4.95 4.91 $ $ $ 10 103 4,893 4.57 4.53 $ $ $ 4 103 3,481 3.16 3.13 — $ (986) $ (2,734) — — $ — $ — $ 5,128 5 141 4,982 4.95 4.91 $ $ $ $ — (986) $ (0.92) $ (0.91) $ 4,020 10 103 3,907 3.65 3.62 $ $ $ $ — (2,734) (2.48) (2.46) 854 4 103 747 0.68 0.67 343 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. Putative or certified class action litigation and other litigation and claims and assessments against the Company, in addition to those discussed below 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, broker-dealer, and taxpayer. The Company also 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, as well as from local and national regulators and government authorities in jurisdictions outside the United States where the Company conducts business. The issues involved in information requests and regulatory matters vary widely, but can include inquiries or investigations concerning the Company’s compliance with applicable insurance and other laws and regulations. The Company cooperates in these inquiries. 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. It is not possible to predict the ultimate outcome of all pending investigations and legal proceedings. 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, 2018. 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. 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. 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 matters where a loss is believed to be reasonably possible, but not probable, the Company has not made an accrual. As of December 31, 2018, the Company estimates the aggregate range of reasonably possible losses in excess of amounts accrued for these matters to be $0 to $550 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. 344 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) __________________ 2018 December 31, 2017 (In millions, except number of claims) 62,522 62,930 2016 $ 3,359 51.4 $ 3,514 48.6 $ 67,223 4,146 50.2 (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. 345 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 United States, assessing relevant trends impacting asbestos liability and considering numerous variables that can affect its asbestos liability exposure on an overall or per claim basis. These variables include bankruptcies of other companies involved in asbestos litigation, legislative and judicial developments, the number of pending claims involving serious disease, the number of new claims filed against it and other defendants and the jurisdictions in which claims are pending. Based upon its regular reevaluation of its exposure from asbestos litigation, MLIC has updated its recorded liability for asbestos-related claims to $502 million at December 31, 2018. 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 principle 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. 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. 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 (the “Ontario Litigation”). 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. In September 2018, the Court of Appeal for Ontario affirmed the lower court’s decision to not certify the sales practices claims in the Ontario Litigation. 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. 346 Table of Contents MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) 20. Contingencies, Commitments and Guarantees (continued) City of Westland Police and Fire Retirement System v. MetLife, Inc., et. al. (S.D.N.Y., filed January 12, 2012) Plaintiff filed this class action on behalf of a class of persons who either purchased MetLife, Inc. common shares between February 9, 2011, and October 6, 2011, or purchased or acquired MetLife, Inc. common stock in the Company’s August 3, 2010 offering or the Company’s March 4, 2011 offering. 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 purportedly been paid to beneficiaries or escheated to the states. Plaintiff seeks unspecified compensatory damages and other relief. The defendants intend to defend this action vigorously. Owens v. Metropolitan Life Insurance Company (N.D. Ga., filed April 17, 2014) Plaintiff filed this class action lawsuit on behalf of persons for whom MLIC established a Total Control Account (“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. 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 parties reached a settlement, which the court approved on January 3, 2019. 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. Plaintiffs assert causes of action for declaratory relief, violation of California’s Unfair Competition Law and Usury Law, and unjust enrichment. Plaintiffs seek 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 appealed this ruling to the United States Court of Appeals for the Ninth Circuit. The Company intends to defend this action vigorously. 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, on behalf of herself and all persons over age 65 who selected a Reduced Pay at Age 65 payment feature on their long-term care insurance policies and whose premium rates were increased after age 65. 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 to dismiss the action. Plaintiff appealed this ruling and the United States Court of Appeals for the Seventh Circuit reversed and remanded the case to the district court for further proceedings. The Company intends to defend this action vigorously. 347 Table of Contents MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) 20. Contingencies, Commitments and Guarantees (continued) 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. Plaintiffs seek unspecified compensatory and punitive damages, as well as other relief. On March 22, 2018, the Court conditionally certified the case as a collective action, requiring that notice be mailed to LTD claims specialists who worked for the Company from February 8, 2014 to the present. The Company intends 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 December 27, 2017) Total Asset Recovery Services (“The Relator”) brought an action under the qui tam provision of the New York False Claims Act (the “Act”) on behalf of itself and the State of New York. The Relator originally filed this action under seal in 2010, and the complaint was unsealed on December 19, 2017. The Relator alleges that MetLife, Inc., MLIC, and several other insurance companies violated the Act by filing false unclaimed property reports with the State of New York from 1986 to 2017, 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 demutualizations in the late 1990s. The Relator seeks treble damages and other relief. The Company intends to defend this action vigorously. Regulatory and Litigation Matters Related to Group Annuity Benefits In 2018, the Company announced that it identified a material weakness in its internal control over financial reporting related to the practices and procedures for estimating reserves for certain group annuity benefits. The Company is exposed to lawsuits and regulatory investigations, and could be exposed to additional legal actions relating to these issues. 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. Regulatory Matters The New York Department of Financial Services examined these issues and other unrelated issues as part of its quinquennial exam and entered into a consent order with MLIC on January 28, 2019. The Division of Enforcement of the SEC is also investigating this issue and several additional regulators have made similar inquiries. It is possible that other jurisdictions may pursue similar investigations or inquiries. In the Matter of MetLife, Inc. (Mass. Sec. Div., filed June 25, 2018) The Enforcement Section of the Massachusetts Securities Division of the Office of the Secretary of the Commonwealth (the “MSD”) filed an administrative complaint in order to commence an adjudicatory proceeding against the Company for alleged violations of Section 101 of the Massachusetts Uniform Securities Act and regulations promulgated thereunder, alleging that the Company made materially misleading statements regarding the sufficiency of its reserves related to group annuity contracts and the effectiveness of its internal control over financial reporting. The Company settled this matter with the MSD on December 18, 2018. Litigation Matters Parchmann v. MetLife, Inc., et. al. (E.D.N.Y., filed February 5, 2018) Plaintiff filed this putative class action seeking to represent a class of persons who purchased MetLife, Inc. common stock from February 27, 2013 through January 29, 2018. 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 financial statements. Plaintiff alleges that MetLife’s practices and procedures for estimating reserves for certain group annuity benefits were inadequate, and that MetLife had inadequate internal control over financial reporting. Plaintiff seeks unspecified compensatory damages and other relief. Defendants intend to defend this action vigorously. 348 Table of Contents MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) 20. Contingencies, Commitments and Guarantees (continued) Roycroft v. MetLife, Inc., et al. (S.D.N.Y., filed June 18, 2018) Plaintiff filed this putative class action on behalf of all persons due benefits under group annuity contracts but who did not receive the entire amount to which they were entitled. Plaintiff asserts claims for unjust enrichment, accounting, and restitution based on allegations that the Company failed to timely pay annuity benefits to certain group annuitants. Plaintiff seeks declaratory and injunctive relief, as well as unspecified compensatory and punitive damages, and other relief. The court dismissed this matter as to all defendants on January 15, 2019. Derivative Action and Demands Kates v. Kandarian, et al. (E.D.N.Y., filed January 18, 2019) A shareholder seeking to sue derivatively on behalf of MetLife, Inc. commenced an action in federal court against members of the MetLife, Inc. Board of Directors. Plaintiff asserts claims for breach of fiduciary duty, gross mismanagement, waste of corporate assets, as well as securities fraud claims. Plaintiff alleges that the defendants disseminated or approved public statements that failed to disclose that MetLife’s practices and procedures for estimating reserves for certain group annuity benefits were inadequate, and that MetLife had inadequate internal control over financial reporting. Plaintiffs allege that because of the defendants’ breaches of duty, MetLife, Inc. has incurred damage to its reputation and has suffered other unspecified damages. The defendants intend to defend this action vigorously. Demands The MetLife, Inc. Board of Directors received five letters, dated March 28, 2018, May 11, 2018, July 16, 2018, December 20, 2018 and February 5, 2019, written on behalf of individual stockholders, demanding that MetLife, Inc. take action against current and former directors and officers for alleged breaches of fiduciary duty and/or investigate, remediate, and recover damages allegedly suffered by the Company as a result of (i) the Company’s allegedly inadequate practices and procedures for estimating reserves for certain group annuity benefits, (ii) the Company’s allegedly inadequate internal controls over financial reporting and corporate governance practices and procedures, and (iii) the alleged dissemination of false or misleading information related to these issues. The MetLife, Inc. Board of Directors appointed a special committee to investigate the allegations set forth in these five letters. Regulatory Inquiry Related to Assumed Variable Annuity Guarantee Reserves In 2018, the Company announced that it identified a material weakness in its internal control over financial reporting related to the calculation of reserves associated with certain variable annuity guarantees assumed from the former operating joint venture in Japan. The Division of Enforcement of the SEC is investigating this issue and the Company has informed other regulators. It is possible that other regulators may pursue similar investigations or inquiries. The Company is exposed to lawsuits and regulatory investigations, and could be exposed to additional legal actions relating to these issues. These may result in payments, including damages, fines, penalties, interest and other amounts assessed or awarded by courts or regulatory authorities under applicable laws or regulations. The Company could incur significant costs in connection with these actions. Insolvency Assessments Many 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 or those that may become impaired, insolvent or fail. These associations levy assessments, up to prescribed limits, on all member insurers in a particular jurisdiction 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. In addition, certain jurisdictions have government owned or controlled organizations providing life, health and property and 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. Some jurisdictions permit member insurers to recover assessments paid through full or partial premium tax offsets. 349 Table of Contents MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) 20. Contingencies, Commitments and Guarantees (continued) Assets and liabilities held for insolvency assessments were as follows: Other Assets: Premium tax offset for future discounted and undiscounted assessments Premium tax offset currently available for paid assessments Total Other Liabilities: Insolvency assessments Commitments Leases December 31, 2018 2017 (In millions) $ $ $ 47 46 93 67 $ $ $ 56 50 106 75 The Company, as lessee, has entered into various lease and sublease agreements for office space and equipment. Future minimum gross rental payments relating to these lease arrangements are as follows: 2019 2020 2021 2022 2023 Thereafter Total Amount (In millions) 292 282 260 224 209 859 2,126 $ $ Operating lease expense was $342 million, $374 million and $383 million for the years ended December 31, 2018, 2017 and 2016, respectively. Total minimum rental payments to be received in the future under non-cancelable subleases were $645 million as of December 31, 2018. Non-cancelable sublease income was $72 million, $46 million and $21 million for the years ended December 31, 2018, 2017 and 2016, respectively.  Mortgage Loan Commitments The Company commits to lend funds under mortgage loan commitments. The amounts of these mortgage loan commitments were $4.0 billion and $3.4 billion at December 31, 2018 and 2017, respectively. Commitments to Fund Partnership Investments, Bank Credit Facilities, Bridge Loans and Private Corporate Bond Investments The Company commits to fund partnership investments and to lend funds under bank credit facilities, bridge loans and private corporate bond investments. The amounts of these unfunded commitments were $7.7 billion and $6.1 billion at December 31, 2018 and 2017, respectively. 350 Table of Contents MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) 20. Contingencies, Commitments and Guarantees (continued) 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 $778 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. The Company also has minimum fund yield requirements on certain pension funds. 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 $7 million and $5 million at December 31, 2018 and 2017, respectively, for indemnities, guarantees and commitments. 351 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 2018 and 2017 are summarized in the table below: 2018 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 2017 Total revenues Total expenses Income (loss) from continuing operations, net of income tax Income (loss) from discontinued operations, net of income tax Net income (loss) Less: Net income (loss) attributable to noncontrolling interests Net income (loss) attributable to MetLife, Inc. Less: Preferred stock dividends Net income (loss) available to MetLife, Inc.’s common shareholders Basic earnings per common share Income (loss) from continuing operations, net of income tax, available to MetLife, Inc.’s common shareholders Income (loss) from discontinued operations, net of income tax, attributable to MetLife, Inc. Net income (loss) attributable to MetLife, Inc. Net income (loss) available to MetLife, Inc.’s common shareholders Diluted earnings per common share Income (loss) from continuing operations, net of income tax, available to MetLife, Inc.’s common shareholders Income (loss) from discontinued operations, net of income tax, attributable to MetLife, Inc. Net income (loss) attributable to MetLife, Inc. Net income (loss) available to MetLife, Inc.’s common shareholders $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Three Months Ended March 31, June 30, September 30, December 31, (In millions, except per share data) 14,805 13,149 1,257 $ $ $ 21,185 20,084 894 $ $ $ 16,289 15,210 915 $ $ $ — $ — $ — $ 1,257 4 1,253 6 1,247 $ $ $ $ $ 1.20 $ — $ 1.21 1.20 $ $ 1.19 $ — $ 1.20 1.19 14,964 13,892 952 (76) 876 3 873 6 867 0.87 (0.07) 0.80 0.80 0.86 (0.07) 0.79 0.79 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 894 3 891 46 845 $ $ $ $ $ 0.83 $ — $ 0.88 0.83 $ $ 0.83 $ — $ 0.87 0.83 15,333 14,315 856 58 914 3 911 46 865 0.76 0.05 0.86 0.81 0.75 0.05 0.85 0.80 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 915 3 912 32 880 $ $ $ $ $ 0.89 $ — $ 0.92 0.89 $ $ 0.88 $ — $ 0.91 0.88 16,171 15,686 883 (968) (85) 6 (91) 6 (97) 0.82 (0.91) (0.09) (0.09) 0.81 (0.90) (0.08) (0.09) $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 15,662 13,191 2,062 — 2,062 (5) 2,067 57 2,010 2.05 — 2.11 2.05 2.04 — 2.09 2.04 15,840 14,879 2,315 — 2,315 (2) 2,317 45 2,272 2.16 — 2.20 2.16 2.14 — 2.18 2.14 352 Table of Contents 22. Subsequent Events Preferred Stock Dividends MetLife, Inc. Notes to the Consolidated Financial Statements — (continued) On February 15, 2019, MetLife, Inc. announced a first quarter 2019 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, 2019. The dividend will be payable on March 15, 2019 to shareholders of record as of February 28, 2019. On February 15, 2019, MetLife, Inc. announced a first quarter 2019 dividend of $29.375 per share, for a total of $15 million, on its Series D preferred stock, and $351.563 per share, for a total of $11 million, on its Series E preferred stock. Both dividends will be payable on March 15, 2019 to shareholders of record as of February 28, 2019. Common Stock Repurchases In 2019, through February 14, 2019, MetLife, Inc. repurchased 1,947,100 shares of its common stock in the open market for $85 million. Common Stock Dividend On January 7, 2019, the MetLife, Inc. Board of Directors declared a first quarter 2019 common stock dividend of $0.42 per share payable on March 13, 2019 to shareholders of record as of February 5, 2019. The Company estimates that the aggregate dividend payment will be $404 million. 353 Table of Contents Types of Investments Fixed maturity securities AFS: Bonds: Foreign government U.S. government and agency Public utilities Municipals All other corporate bonds Total bonds Mortgage-backed and asset-backed securities Redeemable preferred stock Total fixed maturity securities AFS Unit-linked and 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, 2018 (In millions) Cost or Amortized Cost (1) Estimated Fair Value Amount at Which Shown on Balance Sheet $ 56,353 $ 62,288 $ 37,030 12,430 10,376 120,505 236,694 49,006 1,116 286,816 11,809 667 67 102 422 1,258 75,752 9,699 9,653 45 6,613 3,937 18,190 423,772 39,322 13,075 11,533 121,423 247,641 49,471 1,153 298,265 12,616 827 119 91 403 1,440 $ $ 62,288 39,322 13,075 11,533 121,423 247,641 49,471 1,153 298,265 12,616 827 119 91 403 1,440 75,752 9,699 9,653 45 6,613 3,937 18,190 436,210 (1) The Unit-linked and FVO Securities are primarily equity securities (including mutual funds) and fixed maturity securities AFS. Amortized cost for fixed maturity securities AFS 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 premium or accretion of discount; for equity securities, cost represents original cost; 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. 354 Table of Contents MetLife, Inc. Schedule II Condensed Financial Information (Parent Company Only) December 31, 2018 and 2017 (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: $2,745 and $4,520, 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 Junior subordinated debt securities Other liabilities Total liabilities Stockholders’ Equity Preferred stock, par value $0.01 per share; $3,405 and $2,100 aggregate liquidation preference, respectively Common stock, par value $0.01 per share; 3,000,000,000 shares authorized; 1,171,824,242 and 1,168,710,101 shares issued, respectively; 958,613,542 and 1,043,588,396 shares outstanding, respectively Additional paid-in capital Retained earnings Treasury stock, at cost; 213,210,700 and 125,121,705 shares, respectively Accumulated other comprehensive income (loss) Total stockholders’ equity Total liabilities and stockholders’ equity 2018 2017 $ 2,726 $ — 16 87 2,829 376 53 66,567 100 843 $ $ 70,768 $ 9 $ 11,844 1,957 2,456 1,761 18,027 — 12 32,474 28,926 (10,393) 1,722 52,741 $ 70,768 $ 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 See accompanying notes to the condensed financial information. 355 Table of Contents MetLife, Inc. Schedule II Condensed Financial Information — (continued) (Parent Company Only) For the Years Ended December 31, 2018, 2017 and 2016 (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 2018 2017 2016 $ 6,466 $ 7,162 $ 1,833 87 19 (277) (56) 6,239 1,009 — — 158 1,167 5,072 (51) 5,123 141 101 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 Net income (loss) available to common shareholders Comprehensive income (loss) $ $ 4,982 $ (1,494) $ See accompanying notes to the condensed financial information. 356 Table of Contents MetLife, Inc. Schedule II Condensed Financial Information — (continued) (Parent Company Only) For the Years Ended December 31, 2018, 2017 and 2016 (In millions) 2018 2017 2016 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 available-for-sale Purchases of fixed maturity securities available-for-sale 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 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 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) 182 334 516 $ 850 (1,833) 4,470 (86) 147 — 199 3,747 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) (87) 421 334 $ 5,123 $ (6,466) 7,367 277 — — (807) 5,494 9,635 (8,178) 227 (237) — (14) — — 87 (767) 14 (3) 764 (27) (1,759) — (3,992) 1,274 (141) (1,678) (75) (6,398) (140) $ 516 376 $ 357 Table of Contents MetLife, Inc. Schedule II Condensed Financial Information — (continued) (Parent Company Only) For the Years Ended December 31, 2018, 2017 and 2016 (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 Allocation of interest expense to subsidiary Allocation of interest income to subsidiary Brighthouse common stock exchange transaction (Note 3): Reduction of long-term debt Reduction of fair value option securities 2018 2017 2016 1,040 $ 1,096 $ 1,146 (33) $ (1,552) $ 909 1 729 (37) 877 $ (860) $ — $ 3,844 3,844 $ $ — $ — $ — $ 944 1,030 $ $ — $ 17,518 15,655 10,346 15 4 $ $ $ $ $ — $ — $ (569) — 136 (433) 2,652 372 157 — 39 54 — — $ $ $ $ $ $ $ $ $ $ $ 358 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. 2. Investment in Subsidiaries 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, MetLife Reinsurance Company of Delaware (“MRD”) and MRSC, respectively, which were included in payables to subsidiaries at December 31, 2015. The payables were settled for cash in February 2016. 3. Loans to Subsidiaries MetLife, Inc. lends funds as necessary, through credit agreements or otherwise to its subsidiaries, some of which are regulated, to meet their capital requirements or to provide liquidity. 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%. Interest income earned on loans to subsidiaries of $3 million, $44 million and $64 million for the years ended December 31, 2018, 2017 and 2016, respectively, is included in net investment income. 359 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 2018 2017 (Dollars in millions) 3.00% - 6.50% 0.82% - 3.14% 4.96% 2.16% 2020 2019 - - 2046 2021 $ 11,844 $ 14,599 1,957 2,000 $ 13,801 $ 16,599 (1) (2) Range of interest rates and weighted average interest rates are for the year ended December 31, 2018. Net of $79 million and $86 million of unamortized issuance costs and net premiums and discounts at December 31, 2018 and 2017, respectively. See Note 12 of the Notes to the Consolidated Financial Statements. The aggregate maturities of long-term debt at December 31, 2018 for the next five years and thereafter are $728 million in 2019, $750 million in 2020, $1.4 billion in 2021, $500 million in 2022, $1.0 billion in 2023 and $9.5 billion thereafter. Credit Facility – Affiliated 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 IRS 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, 2018. Long-term Debt – Affiliated In June 2016 and March 2016, MetLife, Inc. repaid $204 million and $10 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 May 2018, $500 million in senior notes previously issued by MetLife, Inc. to MLIC and other subsidiaries were redenominated to new 54.6 billion Japanese yen senior notes. The 54.6 billion Japanese yen senior notes mature in December 2021 and bear interest at a rate per annum of 3.14%, payable semi-annually. In April 2018, $500 million in senior notes previously issued by MetLife, Inc. to MLIC and other subsidiaries were redenominated to new 53.7 billion Japanese yen senior notes. The 53.7 billion Japanese yen senior notes mature in July 2021 and bear interest at a rate per annum of 2.97%, payable semi-annually. In March 2018, three senior notes previously issued by MetLife, Inc. to MLIC were redenominated to Japanese yen. A $500 million senior note was redenominated to a new 53.3 billion Japanese yen senior note. The 53.3 billion Japanese yen senior note matures in June 2019 and bears interest at a rate per annum of 1.45%, payable semi-annually. A $250 million senior note was redenominated to a new 26.5 billion Japanese yen senior note. The 26.5 billion Japanese yen senior note matures in October 2019 and bears interest at a rate per annum of 1.72%, payable semi-annually. A $250 million senior note was also redenominated to a new 26.5 billion Japanese yen senior note. The 26.5 billion Japanese yen senior note matures in September 2020 and bears interest at a rate per annum of 0.82%, payable semi-annually. 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. 360 Table of Contents MetLife, Inc. Schedule II Notes to the Condensed Financial Information — (continued) (Parent Company Only) 4. Long-term Debt (continued) See Note 3 for information on the MRD Notes Exchange in 2017. 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 2018 Years Ended December 31, 2017 (In millions) 2016 $ $ 755 $ 45 6 203 1,009 $ 774 112 27 195 1,108 $ $ 811 160 47 134 1,152 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 the Trust. As a result of the exchange, MetLife, Inc. became the sole beneficial owner of the Trust, a SPE, 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. In June 2017, MetLife, Inc. forgave Brighthouse Insurance’s obligation to pay the principal amount of such surplus notes. 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, Missouri Reinsurance, Inc. (“MoRe”), under a retrocession agreement with RGA Reinsurance (Barbados) Inc., 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 variable annuity type liability contracts issued by MEL. 361 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 OTC-bilateral 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, 2018 and 2017, derivative transactions with positive mark- to-market values (in-the-money) were $302 million and $515 million, respectively, and derivative transactions with negative mark-to-market values (out-of-the-money) were $84 million and $126 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 $84 million and $114 million at December 31, 2018 and 2017, respectively. Accordingly, unsecured derivative liabilities guaranteed by MetLife, Inc. were $0 and $12 million at December 31, 2018 and 2017, 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. 362 Table of Contents Segment 2018 U.S. Asia Latin America EMEA MetLife Holdings Corporate & Other Total 2017 U.S. Asia Latin America EMEA MetLife Holdings Corporate & Other Total __________________ MetLife, Inc. Schedule III Consolidated Supplementary Insurance Information December 31, 2018 and 2017 (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) $ 633 $ 72,639 $ 69,002 $ — $ 10,156 1,984 1,622 4,474 26 $18,895 $ 614 9,261 2,050 1,673 4,797 24 $ $ 41,846 10,170 5,357 72,405 1,320 203,737 65,610 39,702 10,397 5,768 73,317 816 $ $ 66,610 5,961 11,712 30,394 14 183,693 70,455 59,702 6,361 13,811 32,176 13 $ $ 86 — 5 586 — 1,945 $ 2,381 36 1,299 119 19 162 — $ $ 677 $ 4,626 — $ 80 — 7 595 — 1,907 2,378 115 24 167 1 719 464 192 — 2,710 24 916 675 454 205 — $18,419 $ 195,610 $ 182,518 $ 682 $ 4,592 $ 2,274 (1) Amounts are included within the future policy benefits, other policy-related balances and policyholder dividend obligation column. (2) Includes premiums received in advance. 363 Table of Contents Segment 2018 U.S. Asia Latin America EMEA MetLife Holdings Corporate & Other Total 2017 U.S. Asia Latin America EMEA MetLife Holdings Corporate & Other Total 2016 U.S. Asia Latin America EMEA MetLife Holdings Corporate & Other Total ______________ MetLife, Inc. Schedule III Consolidated Supplementary Insurance Information — (continued) For the Years Ended December 31, 2018, 2017 and 2016 (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) $ $ $ $ $ $ 29,239 $ 6,703 $ 29,539 $ 477 $ 8,390 3,817 2,587 5,191 118 49,342 24,644 8,352 3,737 2,492 5,603 (326) 44,502 22,490 8,914 3,554 2,442 6,034 (749) $ $ $ $ 3,055 1,194 (195) 5,222 187 16,166 6,201 3,299 1,288 1,157 5,426 (8) 17,363 5,942 2,807 1,133 1,229 5,670 9 $ $ $ $ 6,559 3,057 772 6,662 80 46,669 25,103 6,799 2,973 2,012 7,097 (64) 43,920 22,892 6,916 2,770 2,064 7,521 (629) $ $ $ $ 1,297 209 433 553 6 2,975 459 1,310 224 356 234 98 2,681 471 1,350 184 408 424 (119) $ $ $ $ 3,466 1,903 1,044 909 2,286 2,382 11,990 3,235 1,802 1,111 966 2,550 2,507 12,171 3,244 1,795 1,007 924 3,392 1,892 42,685 $ 16,790 $ 41,534 $ 2,718 $ 12,254 (1) Includes other expenses and policyholder dividends, excluding amortization of DAC and VOBA charged to other expenses. 364 Table of Contents 2018 Life insurance in-force Insurance premium Life insurance (1) Accident & health insurance Property and casualty insurance Total insurance premium 2017 Life insurance in-force Insurance premium Life insurance (1) Accident & health insurance Property and casualty insurance Total insurance premium 2016 Life insurance in-force Insurance premium Life insurance (1) Accident & health insurance Property and casualty insurance Total insurance premium __________________ MetLife, Inc. Schedule IV Consolidated Reinsurance December 31, 2018, 2017 and 2016 (Dollars in millions) Gross Amount Ceded Assumed Net Amount % Amount Assumed to Net $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 4,963,820 26,356 14,166 3,677 44,199 4,594,523 22,379 13,593 3,623 39,595 4,098,780 20,857 13,551 3,567 $ $ $ $ $ $ $ $ 507,589 1,792 515 73 2,380 513,091 1,863 442 71 2,376 481,028 1,614 447 75 $ $ $ $ $ $ $ $ 532,511 1,791 212 18 2,021 581,246 1,531 223 19 1,773 613,693 1,089 257 17 37,975 $ 2,136 $ 1,363 $ 4,988,742 10.7% 26,355 13,863 3,622 43,840 6.8% 1.5% 0.5% 4.6% 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% (1) Includes annuities with life contingencies. 365 Table of Contents Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None. Evaluation of Disclosure Controls and Procedures Item 9A. Controls and Procedures The Company maintains disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act. The Company has designed these controls and procedures to ensure that information the Company is required to disclose in reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to Company management, including the CEO and CFO as appropriate, to allow timely decisions regarding required disclosure. 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 the end of the period covered by this Annual Report on Form 10-K. Based on that evaluation, the CEO and CFO concluded that the disclosure controls and procedures were effective as of December 31, 2018. 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) and 15d-15(f) under the Exchange Act. In fulfilling this responsibility, management’s estimates and judgments must assess the expected benefits and related costs of control procedures. The Company’s internal control objectives include providing management with reasonable, but not absolute, assurance that the Company has safeguarded assets against loss from unauthorized use or disposition, and that the Company has executed transactions in accordance with management’s authorization and recorded them 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 the Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO framework”). In the opinion of management, MetLife, Inc. maintained effective internal control over financial reporting as of December 31, 2018. Deloitte has issued its report on its audit of the effectiveness of internal control over financial reporting, which is included on page 367. Changes in Internal Control Over Financial Reporting Except with respect to our remedial actions described below, the Company did not materially change its internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act during the quarter ended December 31, 2018, and made no changes that it believes are reasonably likely to materially affect, its internal control over financial reporting. Remediation of Material Weaknesses The Company identified the following material weaknesses in the principles associated with both the control activities and information and communication components of the COSO framework as of December 31, 2017 in its annual report on Form 10-K for the year ended December 31, 2017: 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 and Communication). MetLife Holdings 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 (Control Activities). The Company’s remediation steps outlined below strengthened its internal control over financial reporting. As of December 31, 2018, the Company had implemented these enhanced procedures and controls and successfully tested them. As a result, the Company concluded that it had remediated the material weaknesses associated with RIS Group Annuity Reserves and MetLife Holdings Assumed Variable Annuity Guarantee Reserves as of that date. 366 Table of Contents To remediate the material weaknesses identified above, management performed the following actions: RIS Group Annuity Reserves: • • • The Company engaged third party advisors and employees, supervised by MetLife, Inc.’s CRO, to examine and analyze the facts and circumstances giving rise to the material weakness and addressed those findings; The Company changed its accounting procedures, administrative and search practices to identify, contact, and record responses from “unresponsive and missing” plan annuitants and to otherwise locate missing annuitants; and The Company implemented enhanced internal controls associated with timely internal communication and escalation procedures and governance. MetLife Holdings Assumed Variable Annuity Guarantee Reserves: • • The Company engaged third party advisors and employees, supervised by MetLife, Inc.’s Chief Auditor, to examine and analyze the facts and circumstances giving rise to the material weakness, and addressed those findings; and The Company enhanced its reconciliation, analytic controls, and change management to ensure the completeness and accuracy of the assumed reinsurance in-force data. 367 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, 2018, 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, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, 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, 2018, of the Company and our report dated February 21, 2019, 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. /s/ DELOITTE & TOUCHE LLP New York, New York February 21, 2019 368 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’ Experience, Tenure, Independence and Diversity,” “Proposal 1 — Election of Directors For a One-Year Term Ending at the 2020 Annual Meeting of Shareholders — Director Nominees” and “Proposal 1 — Election of Directors For a One-Year Term Ending at the 2020 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 18, 2019, to be filed by MetLife, Inc. with the SEC pursuant to Regulation 14A within 120 days after the year ended December 31, 2018 (the “2019 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 2019 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 https://www.metlife.com/about-us/corporate-governance/corporate-conduct/. 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 2020 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 2020 Annual Meeting of Shareholders — Director Compensation in 2018,” and “Proposal 3 — Advisory Vote to Approve the Compensation Paid to the Company’s Named Executive Officers” in the 2019 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 2019 Proxy Statement. 369 Table of Contents The following table provides information at December 31, 2018, regarding MetLife, Inc.’s equity compensation plans: Equity Compensation Plan Information at December 31, 2018 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) 23,814,156 None 23,814,156 $ Weighted-average Exercise Price of Outstanding Options, Warrants and Rights (2) (b) $ 36.70 — 36.70 (1) Column (a) reflects the following items outstanding as of December 31, 2018: 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, 2018: Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a))(3) (c) 39,004,985 None 39,004,985 12,355,294 2,946,269 7,077,410 1,435,183 23,814,156 • • • 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 related to awards that have become payable in Shares under any plan, but the issuance of which has been deferred. The maximum performance factor for Performance Shares granted in 2016, 2017, and 2018 was 175%. The number of Performance Shares outstanding as of December 31, 2018 at target (100%) performance factor was 4,044,234. 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, 2018, 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. 370 Table of Contents (3) Column (c) reflects the following items outstanding as of December 31, 2018: 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 2018 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 2018 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 5,655,122 23,111,507 4,413,785 6,036,177 4,532,897 4,519,557 19,502,416 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 39,004,985 ______________ (i) (ii) (iii) (iv) (v) Consists 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 371 Table of Contents 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. 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 2019 Proxy Statement. 372 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 2019 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 180. 2. Financial Statement Schedules The financial statement schedules are listed in the Index to Consolidated Financial Statements, Notes and Schedules on page 180. 3. Exhibits The exhibits are listed in the Exhibit Index which begins on page 374. Item 16. Form 10-K Summary None. 373 Table of Contents 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 Exhibit No. Description Plan of Reorganization. Form S-1 File Number 333-91517 Exhibit Filing Date Filed or Furnished Herewith 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 2.1 2.2 2.1 3.1 3.6 10-Q 001-15787 8-K 001-15787 3.1 8-K 001-15787 3.1 10-Q 001-15787 3.7 10-K 001-15787 3.4 10-K 001-15787 3.2 10-K 001-15787 3.3 November 23, 1999 March 29, 2000 August 7, 2017 March 1, 2017 November 7, 2013 April 30, 2015 May 28, 2015 November 5, 2015 March 1, 2017 March 1, 2017 March 1, 2017 8-K 001-15787 8-K 001-15787 3.1 3.1 October 24, 2017 March 22, 2018 374 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 April 29, 2011. 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. 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 October 23, 2017 Certificate of Designations of 5.875% Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series D, of MetLife, Inc., filed with the Secretary of State of Delaware on March 21, 2018. 2.1 2.2 2.3 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 3.10 Table of Contents Exhibit No. 3.11 3.12 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11 Description Certificate of Designations of 5.625% Non-Cumulative Preferred Stock, Series E, of MetLife, Inc., filed with the Secretary of the State of Delaware on May 31, 2018. Incorporated By Reference Form 8-K File Number Exhibit Filing Date 001-15787 3.1 June 4, 2018 Filed or Furnished Herewith Amended and Restated By-Laws of MetLife, Inc., effective September 25, 2018. 8-K 001-15787 Form of Certificate for Common Stock, par value $0.01 per share. S-1/A 333-91517 3.2 4.1 October 1, 2018 March 9, 2000 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 3.7 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 3.8 above). Form of Stock Certificate, Floating Rate Non-Cumulative Preferred Stock, Series A, of MetLife, Inc. 8-A 001-15787 99.6 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 3.4 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 June 10, 2005 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). Form of Stock Certificate, 5.875% Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series D, of MetLife, Inc. Form of Stock Certificate, 5.625% Non-Cumulative Preferred Stock, Series E, of MetLife, Inc. Deposit Agreement, dated June 4, 2018, among the Company, Computershare Inc. and Computershare Trust Company, N.A., as depositary, and the holders from time to time of the depositary receipts described therein. Form of Depositary Receipt, Depositary Shares each representing a 1/1,000th interest in a share of 5.625% Non- Cumulative Preferred Stock, Series E, of MetLife, Inc. 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. 8-K 8-K 8-K 001-15787 001-15787 001-15787 4.1 4.1 4.2 March 22, 2018 June 4, 2018 June 4, 2018 8-K 001-15787 4.3 June 4, 2018 10.1.1 MetLife Policyholder Trust Agreement. S-1 333-91517 10.12 10.1.2 Amendment to MetLife Policyholder Trust Agreement. 10-K 001-15787 10.62 8-K 001-15787 10.1 November 23, 1999 February 27, 2013 December 21, 2016 10.2 10.3 Five-Year Credit Agreement, dated as of August 4, 2017 (“2017 Credit Agreement”), amending and restating the Five-Year Credit Agreement, dated as of May 30, 2014 (“2014 Credit Agreement”), among MetLife, Inc. and MetLife Funding, Inc., as borrowers, and the other parties signatory thereto (The 2017 Credit Agreement is included as Exhibit A to the Second Amendment, dated as of December 20, 2016, to the 2014 Credit Agreement). Purchase Agreement by and among MetLife, Inc. and Massachusetts Mutual Life Insurance Company, dated as of February 28, 2016. 10-Q 001-15787 10.1 May 6, 2016 375 Table of Contents Incorporated By Reference File Number Exhibit Filing Date Filed or Furnished Herewith Exhibit No. 10.4 10.5 10.6 10.7 10.8.1 10.8.2 10.8.3 10.8.4 10.8.5 10.8.6 10.9 10.10 10.11.1 10.11.2 10.12 10.13.1 10.13.2 10.14 10.15 10.16.1 10.16.2 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, Inc. 2015 Non-Management Director Stock Compensation Plan, effective January 1, 2015.* MetLife Non-Management Director Deferred Compensation Plan (as amended and restated, effective January 1, 2005).* Form 8-K S-8 S-8 001-15787 10.1 333-198141 333-214710 4.1 4.1 MetLife, Inc. Director Indemnity Plan (dated and effective July 22, 2008).* 10-K 001-15787 10.94 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 12, 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 Michel Khalaf, effective April 9, 2012.* 10-Q 001-15787 10.15 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.* 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 10.1 10-Q 001-15787 10.1 MetLife Executive Severance Plan (as amended and restated, effective June 14, 2010).* 10-K 001-15787 10.1 MetLife Performance-Based Compensation Recoupment Policy (effective as amended and restated November 1, 2017).* 8-K 001-15787 10.1 MetLife, Inc. 2015 Stock and Incentive Compensation Plan, effective January 1, 2015 (the “2015 SIC Plan”).* S-8 333-198145 4.1 MetLife, Inc. 2005 Stock and Incentive Compensation Plan, effective April 15, 2005 (the “2005 SIC Plan”).* 10-K 001-15787 10.24 MetLife Annual Variable Incentive Plan (effective as amended and restated January 1, 2015).* MetLife International Unit Option Incentive Plan (as amended and restated December 3, 2012).* MetLife International Unit Option Incentive Plan, dated July 21, 2011 (as amended and restated effective February 23, 2011).* MetLife International Restricted Unit Incentive Plan (as amended and restated effective February 11, 2013).* MetLife International Performance Unit Incentive Plan (as amended and restated effective February 11, 2013).* 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).* 8-K 8-K 001-15787 10.11 001-15787 10.11 10-K 001-15787 10.24 8-K 8-K 8-K 8-K 001-15787 10.6 001-15787 10.2 001-15787 10.9 001-15787 10.10 10.16.3 Form of Management Stock Option Agreement under the 2005 SIC Plan (effective as of April 25, 2007).* 10-K 001-15787 10.24 376 August 7, 2017 August 14, 2014 November 18, 2016 February 27, 2014 November 5, 2015 February 25, 2016 February 25, 2016 February 25, 2016 August 5, 2016 August 5, 2016 February 27, 2015 November 6, 2017 August 14, 2014 February 27, 2015 December 11, 2014 February 15, 2013 March 1, 2017 February 15, 2013 February 15, 2013 February 15, 2013 February 15, 2013 February 27, 2013 Filed or Furnished Herewith Table of Contents Exhibit No. 10.16.4 10.16.5 10.16.6 10.16.7 10.16.8 10.16.9 Description Amendment to Stock Option Agreements under the 2005 SIC Plan (effective as of April 25, 2007).* Form of Stock Option Agreement (Ratable Exercisability in Thirds).* Form of Stock Option Agreement (Three-Year “Cliff” Exercisability).* Form 10-K 8-K 8-K Incorporated By Reference File Number 001-15787 Exhibit 10.25 001-15787 10.7 001-15787 10.8 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 (Ratable Exercisability in Thirds), effective January 1, 2016.* 10-K 001-15787 10.101 10.16.10 Form of Stock Option Agreement (Three-Year “Cliff” Exercisability), effective January 1, 2016.* 10-K 001-15787 10.102 10.17.1 10.17.2 10.17.3 10.17.4 10.17.5 10.17.6 10.17.7 10.18.1 10.18.2 10.18.3 10.18.4 10.18.5 10.18.6 10.19.1 10.19.2 Form of Unit Option Agreement (effective February 11, 2013).* Form of Unit Option Agreement (Three-Year “Cliff” Exercisability) (effective February 11, 2013).* Form of Unit Option Agreement (Ratable Exercisability in Thirds).* Form of Unit Option Agreement (Three-Year “Cliff” Exercisability).* 8-K 8-K 8-K 8-K 001-15787 10.12 001-15787 10.13 001-15787 10.9 001-15787 10.10 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 Form of Unit Option Agreement under the MetLife International Unit Option Incentive Plan (effective February 23, 2011).* 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 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 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 (effective February 11, 2013).* Form of Restricted Unit Agreement (Three-Year “Cliff” Period of Restriction; No Code 162(m) Goals) (effective February 11, 2013).* 10-K 001-15787 10.25 8-K 001-15787 10.3 8-K 001-15787 10.4 10-K 001-15787 10.97 10-K 001-15787 10.98 8-K 001-15787 10.3 8-K 8-K 8-K 001-15787 10.4 001-15787 10.7 001-15787 10.8 10.19.3 Form of Restricted Unit Agreement (Ratable Period of Restriction Ends in Thirds; Code Section 162(m) Goals).* 8-K 001-15787 10.5 Filing Date February 27, 2013 December 11, 2014 December 11, 2014 February 27, 2015 February 27, 2015 February 25, 2016 February 25, 2016 February 15, 2013 February 15, 2013 December 11, 2014 December 11, 2014 February 25, 2016 February 25, 2016 March 1, 2017 December 11, 2014 December 11, 2014 February 25, 2016 February 25, 2016 February 20, 2018 February 20, 2018 February 15, 2013 February 15, 2013 December 11, 2014 377 Table of Contents Incorporated By Reference File Number Exhibit Filing Date Filed or Furnished Herewith Form 8-K 001-15787 10.6 Exhibit No. 10.19.4 10.19.5 10.19.6 10.19.7 10.19.8 10.20.1 10.20.2 10.20.3 10.20.4 10.21.1 10.21.2 10.21.3 10.21.4 10.21.5 Description Form of Restricted 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), 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.* 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.* Form of Performance Share Agreement under the 2015 SIC Plan.* 10-K 001-15787 10.99 10-K 001-15787 10.100 8-K 8-K 8-K 001-15787 10.5 001-15787 10.6 001-15787 10.1 Form of Performance Share Agreement under the 2015 SIC Plan, effective January 1, 2016.* 10-K 001-15787 10.95 Form of Performance Share Agreement, effective February 27, 2018.* Form of Performance Share Agreement, effective January 1, 2019. * Form of Performance Unit Agreement (effective February 11, 2013).* Form of Performance Unit Agreement under the 2015 SIC Plan.* 8-K 8-K 8-K 8-K 001-15787 10.1 001-15787 10.1 001-15787 10.3 001-15787 10.2 Form of Performance Unit Agreement under the 2015 SIC Plan, effective January 1, 2016.* 10-K 001-15787 10.96 Form of Performance Unit Agreement, effective February 27, 2018.* Form of Performance Unit Agreement, effective January 1, 2019. * 8-K 8-K 001-15787 10.2 001-15787 10.2 10.22.1 Award Agreement Supplement, effective January 1, 2016.* 10-K 001-15787 10.105 10.22.2 10.23.1 10.23.2 10.23.3 10.23.4 10.23.5 10.23.6 Award Agreement Supplement, effective February 27, 2018.* 8-K 001-15787 10.7 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).* 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 10.73 378 December 11, 2014 February 25, 2016 February 25, 2016 February 20, 2018 February 20, 2018 December 11, 2014 February 25, 2016 February 20, 2018 December 13, 2018 February 15, 2013 December 11, 2014 February 25, 2016 February 20, 2018 December 13, 2018 February 25, 2016 February 20, 2018 February 27, 2013 February 27, 2014 February 27, 2014 February 25, 2016 February 27, 2015 February 25, 2016 Table of Contents Exhibit No. 10.23.7 10.23.8 10.23.9 10.23.10 10.23.11 10.23.12 10.24.2 10.24.3 10.24.4 10.24.5 10.25 10.26.1 10.26.2 10.26.3 10.26.4 10.26.5 10.26.6 Description 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).* Incorporated By Reference Form 10-K File Number 001-15787 Exhibit 10.101 Filing Date February 27, 2013 Filed or Furnished Herewith 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).* 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).* Amendment Number 6 to the MetLife Auxiliary Pension Plan (as amended and restated, effective January 1, 2008), dated March 5, 2018 (effective March 15, 2018).* Amendment Number 8 to the MetLife Auxiliary Retirement Plan (as amended and restated, effective January 1, 2008, formerly referred to as the “MetLife Auxiliary Pension Plan” until March 15, 2018), dated September 4, 2018 (effective March 15, 2018).* 10-K 001-15787 10.61 10-K 001-15787 10.69 10-Q 001-15787 10.9 May 8, 2018 10-Q 001-15787 10.2 10.23.13 Amendment Number Nine to the MetLife Auxiliary Retirement Plan (as amended and restated, effective January 1, 2008), dated September 26, 2018 (effective January 1, 2023).* 10-Q 001-15787 10.3 10.24.1 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.* 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).* 10-K 001-15787 10.71 10-K 001-15787 10.72 8-K 001-15787 10.1 May 4, 2012 Amendment Number Four to the Alico Overseas Pension Plan, dated June 19, 2017, effective July 1, 2017.* 10-Q 001-15787 10.6 MetLife Deferred Compensation Plan For Globally Mobile Employees, effective July 31, 2014, for which Michel Khalaf became eligible July 1, 2017.* 10-Q 001-15787 10.4 Metropolitan Life Auxiliary Savings and Investment Plan (Amended and Restated Effective January 1, 2008).* 10-K 001-15787 10.72 Amendment 1 to the Metropolitan Life Auxiliary Savings and Investment Plan (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).* Amendment Number 5 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 10-Q 001-15787 10.8 May 8, 2018 10.27.1 MetLife Individual Distribution Sales Deferred Compensation Plan, effective January 1, 2010.* S-8 333-198143 4.1 August 14, 2014 379 March 1, 2017 March 1, 2017 March 1, 2017 November 8, 2018 November 8, 2018 March 1, 2017 March 1, 2017 March 1, 2017 November 6, 2017 November 6, 2017 February 27, 2013 February 27, 2015 February 25, 2016 February 27, 2013 February 27, 2014 Table of Contents Incorporated By Reference Form File Number Exhibit Filing Date Filed or Furnished Herewith Exhibit No. 10.27.2 10.27.3 10.27.4 10.27.5 10.27.6 10.28.1 10.28.2 10.28.3 10.28.4 10.29.1 10.29.2 10.29.3 10.29.4 10.29.5 10.29.6 10.29.7 10.29.8 10.29.9 Description Amendment Number One to the MetLife Individual Distribution Sales Deferred Compensation Plan, effective January 1, 2010.* Amendment Number Two to the MetLife Individual Distribution Sales Deferred Compensation Plan, effective January 1, 2011.* 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.* S-8 333-198143 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 MetLife Deferred Compensation Plan for Officers, as amended and restated, effective November 1, 2003.* 10-K 001-15787 10.78 Amendment Number One to the MetLife Deferred Compensation Plan for Officers (as amended and restated as of November 1, 2003), dated May 4, 2005.* Amendment Number Two to the MetLife Deferred Compensation Plan for Officers (as amended and restated as of November 1, 2003, effective December 14, 2005).* Amendment Number Three to the MetLife Deferred Compensation Plan for Officers (as amended and restated as of November 1, 2003, effective February 26, 2007).* 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).* 10-K 001-15787 10.52 10-K 001-15787 10.53 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 August 14, 2014 August 14, 2014 August 14, 2014 August 14, 2014 August 14, 2014 February 27, 2014 February 25, 2016 February 25, 2016 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 10.29.10 Amendment Number Nine to the MetLife Leadership Deferred Compensation Plan, dated December 30, 2014 (effective January 1, 2015).* 10-K 001-15787 10.88 February 27, 2015 380 Table of Contents Incorporated By Reference Form 10-K File Number 001-15787 Exhibit 10.56 Filing Date March 1, 2017 Filed or Furnished Herewith 10-K 001-15787 10.57 March 1, 2017 Exhibit No. 10.29.11 10.29.12 10.29.13 10.29.14 10.30 10.31.1 10.31.2 10.31.3 10.31.4 10.31.5 10.31.6 10.31.7 10.31.8 10.31.9 10.31.10 10.31.11 10.32 10.33.1 10.33.2 10.33.3 10.33.4 10.33.5 Description 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).* Amendment Number Twelve to the MetLife Leadership Deferred Compensation Plan, dated December 19, 2017 (effective January 1, 2017 and April 1, 2017).* Amendment Number Thirteen to the MetLife Leadership Deferred Compensation Plan, dated December 4, 2018 (effective January 1, 2019).* 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”)).* 10-K 001-15787 10.79 10-Q 001-15787 10.2 Amendment Number One to the MPTA, dated December 30, 2014 (effective January 1, 2015).* 10-K 001-15787 10.111 Amendment Number Two to the MPTA, dated March 30, 2016 (effective April 1, 2016).* 10-K 001-15787 10.77 Amendment Number Three to the MPTA, dated June 30, 2016 (effective June 30, 2016).* 10-K 001-15787 10.78 Amendment Number Four to the MPTA, dated October 24, 2016 (effective October 31, 2016).* 10-K 001-15787 10.79 Amendment Number Five to the MPTA, dated November 3, 2016 (effective October 1, 2016).* 10-K 001-15787 10.80 Amendment Number Six to the MPTA, dated July 20, 2017 (effective July 1, 2017).* Amendment Number Seven to the MPTA, dated May 1, 2018 (effective May 1, 2018).* Amendment Number Eight to the MPTA, dated September 6, 2018 (effective October 1, 2018).* Amendment Number Nine to the MPTA, dated November 15, 2018 (effective October 15, 2018).* Amendment Number Ten to the MPTA, dated November 15, 2018 (effective October 15, 2018).* Separation Agreement, Waiver and General Release, dated July 30, 2015, between MetLife Group, Inc. and William J. Wheeler.* 10-Q 001-15787 10.1 Adjustment of certain compensation terms for Michel Khalaf, effective July 1, 2012.* 10-Q 001-15787 10.2 Tax Equalization Agreement dated June 10, 2015 between MetLife, Inc. and Michel Khalaf.* 10-Q 001-15787 10.1 Offer Letter, dated March 25, 2009, between American Life Insurance Company and Michel Khalaf.* 10-K 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, 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.* 10-Q 001-15787 10.5 381 X X X X X X X February 25, 2016 August 8, 2014 February 27, 2015 March 1, 2017 March 1, 2017 March 1, 2017 March 1, 2017 November 5, 2015 November 7, 2012 August 6, 2015 March 1, 2017 November 6, 2017 November 6, 2017 Table of Contents Exhibit No. 10.34.1 10.34.2 10.34.3 10.35 10.36 10.37 10.38 10.39.1 10.39.2 10.39.3 10.39.4 10.39.5 10.39.6 10.39.7 10.40 10.41 21.1 23.1 31.1 31.2 32.1 32.2 Incorporated By Reference File Number Exhibit Filing Date Filed or Furnished Herewith Description 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.* Letter Agreement entered December 15, 2017 between MetLife, Inc. and Christopher Townsend.* Sign-on Payments Letter, dated May 24, 2017, effective July 10, 2017, between MetLife Group, Inc. and Susan Podlogar.* Sign-on Payments Letter, dated June 14, 2017, effective September 11, 2017, between MetLife Group, Inc. and Ramy Tadros.* Separation Agreement, Waiver, And General Release, effective October 4, 2017, between MetLife Group, Inc. and Maria Morris* Separation Agreement and General Release, effective June 12, 2018, between MetLife, Inc. and MetLife Group, Inc. and John C. R. Hele.* Form 8-K 8-K 8-K 001-15787 10.1 001-15787 10.1 001-15787 10.1 10-Q 001-15787 10.1 10-Q 001-15787 10.2 10-K 001-15787 10.123 8-K 001-15787 10.1 Executive Deferred Compensation Plan for Oscar Schmidt, effective July 1, 2009.* 10-Q 001-15787 10.3 Amendment Number One to the Executive Deferred Compensation Plan for Oscar Schmidt (effective July 1, 2009).* Amendment Number Two to the Executive Deferred Compensation Plan for Oscar Schmidt (effective July 1, 2009).* Amendment Number Three to the Executive Deferred Compensation Plan for Oscar Schmidt (effective July 1, 2009).* 10-Q 001-15787 10.4 10-Q 001-15787 10.5 10-Q 001-15787 10.6 Settlement Agreement & General Release, dated November 19, 2013, between MetLife Group, Inc. and Oscar Schmidt.* 10-Q 001-15787 10.7 Letter Agreement, dated April 25, 2018, between MetLife Inc. and Oscar Schmidt.* 10-Q 001-15787 10.8 General Release And Waiver, dated April 27, 2018, between MetLife Group, Inc. and Oscar Schmidt.* 10-Q 001-15787 10.9 May 16, 2012 June 15, 2015 November 21, 2017 November 6, 2017 November 6, 2017 March 1, 2018 June 18, 2018 August 7, 2018 August 7, 2018 August 7, 2018 August 7, 2018 August 7, 2018 August 7, 2018 August 7, 2018 Letter Agreement entered May 4, 2018 between MetLife, Inc. and John McCallion.* 8-K 001-15787 10.1 May 7, 2018 Letter of Understanding, dated August 23, 2018, effective September 1, 2018, with Kishore Ponnavolu.* 10-Q 001-15787 10.1 November 8, 2018 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. X X X X X X X X 101.INS XBRL Instance Document 101.SCH XBRL Taxonomy Extension Schema Document 382 Table of Contents Exhibit No. 101.CAL Description 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 __________ Incorporated By Reference Form File Number Exhibit Filing Date Filed or Furnished Herewith X X X X * Indicates management contracts or compensatory plans or arrangements. 383 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. February 21, 2019 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 /s/ Gerald L. Hassell Gerald L. Hassell /s/ David L. Herzog David L. Herzog /s/ R. Glenn Hubbard R. Glenn Hubbard /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/ Diana McKenzie Diana McKenzie /s/ Denise M. Morrison Denise M. Morrison Date February 21, 2019 February 21, 2019 February 21, 2019 February 21, 2019 February 21, 2019 February 21, 2019 February 21, 2019 February 21, 2019 February 21, 2019 February 21, 2019 February 21, 2019 Title Director Director Director Director Director Director Director Director Director Director Director 384 Table of Contents Signature /s/ Steven A. Kandarian Steven A. Kandarian /s/ John D. McCallion John D. McCallion /s/ William C. O’Donnell William C. 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 February 21, 2019 February 21, 2019 February 21, 2019 385 1701-771616-CS © 2019 MetLife Services and Solutions, LLC 

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