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