XNYS:MET MetLife Inc Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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Table of Contents

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-Q

(Mark One)

þ

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2012

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   13-4075851

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

200 Park Avenue, New York, N.Y.   10166-0188

(Address of principal

executive offices)

  (Zip Code)

(212) 578-2211

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

 

þ

  

Accelerated filer

 

¨

Non-accelerated filer

 

¨  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  þ

At May 2, 2012, 1,062,029,784 shares of the registrant’s common stock, $0.01 par value per share, were outstanding.

 

 

 


Table of Contents

Table of Contents

 

          Page  

Part I — Financial Information

  

Item 1.

   Financial Statements (at March 31, 2012 (Unaudited) and December 31, 2011 and for the Three Months Ended March 31, 2012 and 2011 (Unaudited))      5   
  

Interim Condensed Consolidated Balance Sheets

     5   
  

Interim Condensed Consolidated Statements of Operations and Comprehensive Income

     6   
  

Interim Condensed Consolidated Statements of Equity

     7   
  

Interim Condensed Consolidated Statements of Cash Flows

     9   
  

Notes to the Interim Condensed Consolidated Financial Statements

     10   

Item 2.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations      115   

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

     175   

Item 4.

  

Controls and Procedures

     184   

Part II — Other Information

     184   

Item 1.

  

Legal Proceedings

     184   

Item 1A. 

  

Risk Factors

     189   

Item 2. 

  

Unregistered Sales of Equity Securities and Use of Proceeds

     197   

Item 6. 

  

Exhibits

     199   

Signatures

     200   

Exhibit Index

     E-1   

 

2


Table of Contents

As used in this Form 10-Q, “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 Quarterly Report on Form 10-Q, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, may contain or incorporate by reference information that includes or is based upon forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements give expectations or forecasts of future events. These statements can be identified by the fact that they do not relate strictly to historical or current facts. They use words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe” and other words and terms of similar meaning in connection with a discussion of future operating or financial performance. In particular, these include statements relating to future actions, prospective services or products, future performance or results of current and anticipated services or products, sales efforts, expenses, the outcome of contingencies such as legal proceedings, trends in operations and financial results.

Any or all forward-looking statements may turn out to be wrong. They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Many such factors will be important in determining the actual future results of MetLife, Inc., its subsidiaries and affiliates. These statements are based on current expectations and the current economic environment. They involve a number of risks and uncertainties that are difficult to predict. These statements are not guarantees of future performance. Actual results could differ materially from those expressed or implied in the forward-looking statements. Risks, uncertainties, and other factors that might cause such differences include the risks, uncertainties and other factors identified in MetLife, Inc.’s filings with the U.S. Securities and Exchange Commission (the “SEC”). These factors include: (1) difficult conditions in the global capital markets; (2) concerns over U.S. fiscal policy and the trajectory of the national debt of the U.S., as well as rating agency downgrades of U.S. Treasury securities; (3) uncertainty about the effectiveness of governmental and regulatory actions to stabilize the financial system, the imposition of fees relating thereto, or the promulgation of additional regulations; (4) increased volatility and disruption of the capital and credit markets, which may affect our ability to seek financing or access our credit facilities; (5) impact of comprehensive financial services regulation reform on us; (6) economic, political, legal, currency and other risks relating to our international operations, including with respect to fluctuations of exchange rates; (7) exposure to financial and capital market risk, including as a result of the disruption in Europe and possible withdrawal of one or more countries from the Euro zone; (8) changes in general economic conditions, including the performance of financial markets and interest rates, which may affect our ability to raise capital, generate fee income and market-related revenue and finance statutory reserve requirements and may require us to pledge collateral or make payments related to declines in value of specified assets; (9) potential liquidity and other risks resulting from our participation in a securities lending program and other transactions; (10) investment losses and defaults, and changes to investment valuations; (11) impairments of goodwill and realized losses or market value impairments to illiquid assets; (12) defaults on our mortgage loans; (13) the defaults or deteriorating credit of other financial institutions that could adversely affect us; (14) our ability to address unforeseen liabilities, asset impairments, or rating actions arising from acquisitions or dispositions, including our acquisition of American Life Insurance Company and Delaware American Life Insurance Company (collectively, “ALICO”) and to successfully integrate and manage the growth of acquired businesses with minimal disruption; (15) uncertainty with respect to the outcome of the closing agreement entered into with the United States Internal Revenue Service in connection with the acquisition of ALICO; (16) the dilutive impact on our stockholders resulting from the settlement of common equity units issued in connection with the acquisition of ALICO or otherwise; (17) MetLife, Inc.’s primary reliance, as a holding company, on dividends from its subsidiaries to meet debt payment obligations and the applicable regulatory restrictions on the ability of the subsidiaries to pay such dividends; (18) downgrades in our claims paying ability, financial strength or credit ratings; (19) ineffectiveness of risk management policies and procedures; (20) availability and effectiveness of reinsurance or indemnification arrangements, as well as default or failure of counterparties to perform; (21) discrepancies between actual claims experience and assumptions used in setting prices for our products and establishing the liabilities for our obligations for future policy benefits and claims; (22) catastrophe losses; (23) heightened competition, including

 

3


Table of Contents

with respect to pricing, entry of new competitors, consolidation of distributors, the development of new products by new and existing competitors, distribution of amounts available under U.S. government programs, and for personnel; (24) unanticipated changes in industry trends; (25) changes in assumptions related to investment valuations, deferred policy acquisition costs, deferred sales inducements, value of business acquired or goodwill; (26) changes in accounting standards, practices and/or policies; (27) increased expenses relating to pension and postretirement benefit plans, as well as health care and other employee benefits; (28) exposure to losses related to variable annuity guarantee benefits, including from significant and sustained downturns or extreme volatility in equity markets, reduced interest rates, unanticipated policyholder behavior, mortality or longevity, and the adjustment for nonperformance risk; (29) deterioration in the experience of the “closed block” established in connection with the reorganization of Metropolitan Life Insurance Company; (30) adverse results or other consequences from litigation, arbitration or regulatory investigations; (31) inability to protect our intellectual property rights or claims of infringement of the intellectual property rights of others; (32) discrepancies between actual experience and assumptions used in establishing liabilities related to other contingencies or obligations; (33) regulatory, legislative or tax changes relating to our insurance, banking, international, or other operations that may affect the cost of, or demand for, our products or services, or increase the cost or administrative burdens of providing benefits to employees; (34) the effects of business disruption or economic contraction due to disasters such as terrorist attacks, cyberattacks, other hostilities, or natural catastrophes, including any related impact on our disaster recovery systems, cyber- or other information security systems and management continuity planning; (35) the effectiveness of our programs and practices in avoiding giving our associates incentives to take excessive risks; and (36) other risks and uncertainties described from time to time in MetLife, Inc.’s filings with the SEC.

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 SEC.

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 Quarterly Report on Form 10-Q.

 

4


Table of Contents

Part I — Financial Information

Item 1. Financial Statements

MetLife, Inc.

Interim Condensed Consolidated Balance Sheets

March 31, 2012 (Unaudited) and December 31, 2011

(In millions, except share and per share data)

 

     March 31, 2012     December 31, 2011  

Assets

    

Investments:

    

Fixed maturity securities available-for-sale, at estimated fair value (amortized cost: $332,981 and $329,811, respectively; includes $3,296 and $3,225, respectively, relating to variable interest entities)

   $ 354,451      $ 350,271   

Equity securities available-for-sale, at estimated fair value (cost: $3,063 and $3,208, respectively)

     3,043        3,023   

Trading and other securities, at estimated fair value (includes $544 and $473, respectively, of actively traded securities; and $249 and $280, respectively, relating to variable interest entities)

     19,026        18,268   

Mortgage loans:

    

Held-for-investment, principally at amortized cost (net of valuation allowances of $446 and $481, respectively; includes $3,073 and $3,187, respectively, at estimated fair value, relating to variable interest entities)

     56,641        56,915   

Held-for-sale, principally at estimated fair value (includes $9,204 and $10,716, respectively, under the fair value option)

     11,947        15,178   
  

 

 

   

 

 

 

Mortgage loans, net

     68,588        72,093   

Policy loans

     11,896        11,892   

Real estate and real estate joint ventures (includes $10 and $15, respectively, relating to variable interest entities)

     8,472        8,563   

Other limited partnership interests (includes $242 and $259, respectively, relating to variable interest entities)

     6,487        6,378   

Short-term investments, principally at estimated fair value

     11,801        17,310   

Other invested assets, principally at estimated fair value (includes $98 and $98, respectively, relating to variable interest entities)

     20,172        23,581   
  

 

 

   

 

 

 

Total investments

     503,936        511,379   

Cash and cash equivalents, principally at estimated fair value (includes $120 and $176, respectively, relating to variable interest entities)

     18,667        10,461   

Accrued investment income (includes $15 and $16, respectively, relating to variable interest entities)

     4,612        4,344   

Premiums, reinsurance and other receivables (includes $3 and $12, respectively, relating to variable interest entities)

     23,759        22,481   

Deferred policy acquisition costs and value of business acquired

     25,105        24,619   

Goodwill

     11,903        11,935   

Other assets (includes $5 and $5, respectively, relating to variable interest entities)

     9,647        7,984   

Separate account assets

     221,975        203,023   
  

 

 

   

 

 

 

Total assets

   $ 819,604      $ 796,226   
  

 

 

   

 

 

 

Liabilities and Equity

    

Liabilities

    

Future policy benefits

   $ 184,141      $ 184,275   

Policyholder account balances

     220,813        217,700   

Other policy-related balances

     16,029        15,599   

Policyholder dividends payable

     761        774   

Policyholder dividend obligation

     2,700        2,919   

Payables for collateral under securities loaned and other transactions

     32,496        33,716   

Bank deposits

     10,478        10,507   

Short-term debt

     101        686   

Long-term debt (includes $2,916 and $3,068, respectively, at estimated fair value, relating to variable interest entities)

     23,389        23,692   

Collateral financing arrangements

     4,647        4,647   

Junior subordinated debt securities

     3,192        3,192   

Current income tax payable

     239        193   

Deferred income tax liability

     6,375        6,395   

Other liabilities (includes $52 and $60, respectively, relating to variable interest entities; and $8,252 and $7,626, respectively, under the fair value option)

     33,144        30,914   

Separate account liabilities

     221,975        203,023   
  

 

 

   

 

 

 

Total liabilities

     760,480        738,232   
  

 

 

   

 

 

 

Contingencies, Commitments and Guarantees (Note 10)

    

Redeemable noncontrolling interests in partially owned consolidated subsidiaries

     114        105   
  

 

 

   

 

 

 

Equity

    

MetLife, Inc.’s stockholders’ equity:

    

Preferred stock, par value $0.01 per share; 200,000,000 shares authorized: 84,000,000 shares issued and outstanding; $2,100 aggregate liquidation preference

     1        1   

Common stock, par value $0.01 per share; 3,000,000,000 shares authorized; 1,064,057,907 and 1,061,150,915 shares issued at March 31, 2012 and December 31, 2011, respectively; 1,060,864,020 and 1,057,957,028 shares outstanding at March 31, 2012 and December 31, 2011, respectively

     11        11   

Additional paid-in capital

     26,920        26,782   

Retained earnings

     24,640        24,814   

Treasury stock, at cost; 3,193,887 shares at March 31, 2012 and December 31, 2011

     (172     (172

Accumulated other comprehensive income (loss)

     7,266        6,083   
  

 

 

   

 

 

 

Total MetLife, Inc.’s stockholders’ equity

     58,666        57,519   

Noncontrolling interests

     344        370   
  

 

 

   

 

 

 

Total equity

     59,010        57,889   
  

 

 

   

 

 

 

Total liabilities and equity

   $ 819,604      $ 796,226   
  

 

 

   

 

 

 

See accompanying notes to the interim condensed consolidated financial statements.

 

5


Table of Contents

MetLife, Inc.

Interim Condensed Consolidated Statements of Operations and Comprehensive Income

For the Three Months Ended March 31, 2012 and 2011 (Unaudited)

(In millions, except per share data)

 

     Three Months
Ended
March 31,
 
     2012     2011  

Revenues

    

Premiums

   $ 9,129      $ 8,554   

Universal life and investment-type product policy fees

     2,078        1,889   

Net investment income

     6,200        5,313   

Other revenues

     597        566   

Net investment gains (losses):

    

Other-than-temporary impairments on fixed maturity securities

     (135     (132

Other-than-temporary impairments on fixed maturity securities transferred to other comprehensive income (loss)

     2        9   

Other net investment gains (losses)

     23        24   
  

 

 

   

 

 

 

Total net investment gains (losses)

     (110     (99

Net derivative gains (losses)

     (1,978     (315
  

 

 

   

 

 

 

Total revenues

     15,916        15,908   
  

 

 

   

 

 

 

Expenses

    

Policyholder benefits and claims

     9,104        8,237   

Interest credited to policyholder account balances

     2,557        1,924   

Policyholder dividends

     343        372   

Other expenses

     4,321        4,090   
  

 

 

   

 

 

 

Total expenses

     16,325        14,623   
  

 

 

   

 

 

 

Income (loss) from continuing operations before provision for income tax

     (409     1,285   

Provision for income tax expense (benefit)

     (275     361   
  

 

 

   

 

 

 

Income (loss) from continuing operations, net of income tax

     (134     924   

Income (loss) from discontinued operations, net of income tax

     14        (40
  

 

 

   

 

 

 

Net income (loss)

     (120     884   

Less: Net income (loss) attributable to noncontrolling interests

     24        7   
  

 

 

   

 

 

 

Net income (loss) attributable to MetLife, Inc

     (144     877   

Less: Preferred stock dividends

     30        30   

          Preferred stock redemption premium

            146   
  

 

 

   

 

 

 

Net income (loss) available to MetLife, Inc.’s common shareholders

   $ (174   $ 701   
  

 

 

   

 

 

 

Comprehensive income (loss)

   $ 1,054      $ 974   

Less: Comprehensive income (loss) attributable to noncontrolling interest, net of income tax

     15        (2
  

 

 

   

 

 

 

Comprehensive income (loss) attributable to MetLife, Inc

   $ 1,039      $ 976   
  

 

 

   

 

 

 

Income (loss) from continuing operations, net of income tax, available to MetLife, Inc.’s common shareholders per common share:

    

Basic

   $ (0.17   $ 0.70   
  

 

 

   

 

 

 

Diluted

   $ (0.17   $ 0.70   
  

 

 

   

 

 

 

Net income (loss) available to MetLife, Inc.’s common shareholders per common share:

    

Basic

   $ (0.16   $ 0.66   
  

 

 

   

 

 

 

Diluted

   $ (0.16   $ 0.66   
  

 

 

   

 

 

 

See accompanying notes to the interim condensed consolidated financial statements.

 

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Table of Contents

MetLife, Inc.

Interim Condensed Consolidated Statements of Equity

For the Three Months Ended March 31, 2012 (Unaudited)

(In millions)

 

                                  Accumulated Other Comprehensive Income (Loss)                    
    Preferred
Stock
    Common
Stock
    Additional
Paid-in
Capital
    Retained
Earnings
    Treasury
Stock
at Cost
    Net
Unrealized
Investment
Gains (Losses)
    Other-Than-
Temporary
Impairments
    Foreign
Currency
Translation
Adjustments
    Defined
Benefit
Plans
Adjustment
    Total
MetLife, Inc.’s
Stockholders’
Equity
    Noncontrolling
Interests (1)
    Total
Equity
 

Balance at December 31, 2011

  $ 1      $ 11      $ 26,782      $ 24,814      $ (172   $ 9,115      $ (441   $ (648   $ (1,943   $ 57,519      $ 370      $ 57,889   

Stock-based compensation

        138                    138          138   

Dividends on preferred stock

          (30               (30       (30

Change in equity of noncontrolling interests

                        (41     (41

Net income (loss)

          (144               (144     8        (136

Other comprehensive income (loss),

net of income tax

              814        31        313        25        1,183        7        1,190   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2012

  $ 1      $ 11      $ 26,920      $ 24,640      $ (172   $ 9,929      $ (410   $ (335   $ (1,918   $ 58,666      $ 344      $ 59,010   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

(1)

Net income (loss) attributable to noncontrolling interests excludes gains (losses) of redeemable noncontrolling interests in partially owned consolidated subsidiaries of $16 million.

See accompanying notes to the interim condensed consolidated financial statements.

 

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MetLife, Inc.

Interim Condensed Consolidated Statements of Equity — (Continued)

For the Three Months Ended March 31, 2011 (Unaudited)

(In millions)

 

                                  Accumulated Other Comprehensive Income (Loss)                    
    Preferred
Stock
    Common
Stock
    Additional
Paid-in
Capital
    Retained
Earnings
    Treasury
Stock

at Cost
    Net
Unrealized
Investment
Gains (Losses)
    Other-Than-
Temporary
Impairments
    Foreign
Currency
Translation
Adjustments
    Defined
Benefit
Plans
Adjustment
    Total
MetLife, Inc.’s
Stockholders’

Equity
    Noncontrolling
Interests (1)
    Total
Equity
 

Balance at December 31, 2010

  $ 1      $ 10      $ 26,423      $ 21,363      $ (172   $ 3,356      $ (366   $ (541   $ (1,449   $ 48,625      $ 371      $ 48,996   

Cumulative effect of change in accounting principle, net of income tax (Note 1)

          (1,917       132          13          (1,772     (6     (1,778
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at January 1, 2011

    1        10        26,423        19,446        (172     3,488        (366     (528     (1,449     46,853        365        47,218   

Redemption of convertible preferred stock

        (2,805                 (2,805       (2,805

Preferred stock redemption premium

          (146               (146       (146

Common stock issuance — newly issued shares

      1        2,949                    2,950          2,950   

Stock-based compensation

        101                    101          101   

Dividends on preferred stock

          (30               (30       (30

Change in equity of noncontrolling interests

                        36        36   

Net income (loss)

          877                  877        (3     874   

Other comprehensive income (loss), net of income tax

              (360     27        413        19        99        1        100   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2011

  $ 1      $ 11      $ 26,668      $ 20,147      $ (172   $ 3,128      $ (339   $ (115   $ (1,430   $ 47,899      $ 399      $ 48,298   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

 

(1)

Net income (loss) attributable to noncontrolling interests excludes gains (losses) of redeemable noncontrolling interests in partially owned consolidated subsidiaries of $10 million.

See accompanying notes to the interim condensed consolidated financial statements.

 

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MetLife, Inc.

Interim Condensed Consolidated Statements of Cash Flows

For the Three Months Ended March 31, 2012 and 2011 (Unaudited)

(In millions)

 

     Three Months
Ended
March 31,
 
             2012                     2011          

Net cash provided by operating activities

   $ 5,758      $ 3,499   
  

 

 

   

 

 

 

Cash flows from investing activities

    

Sales, maturities and repayments of:

    

Fixed maturity securities

     25,815        25,149   

Equity securities

     166        473   

Mortgage loans

     2,160        2,411   

Real estate and real estate joint ventures

     251        106   

Other limited partnership interests

     188        320   

Purchases of:

    

Fixed maturity securities

     (27,657     (32,954

Equity securities

     (108     (271

Mortgage loans

     (1,802     (2,678

Real estate and real estate joint ventures

     (117     (159

Other limited partnership interests

     (278     (211

Cash received in connection with freestanding derivatives

     417        1,070   

Cash paid in connection with freestanding derivatives

     (1,566     (1,916

Net change in securitized reverse residential mortgage loans

     (561       

Net change in policy loans

     (53     (87

Net change in short-term investments

     5,522        774   

Net change in other invested assets

     (170     (66

Other, net

     (40     (53
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     2,167        (8,092
  

 

 

   

 

 

 

Cash flows from financing activities

    

Policyholder account balances:

    

Deposits

     25,069        25,042   

Withdrawals

     (23,247     (23,363

Net change in payables for collateral under securities loaned and other transactions

     (1,220     1,353   

Net change in bank deposits

     (50     (1,027

Net change in short-term debt

     (585     266   

Long-term debt issued

            280   

Long-term debt repaid

     (349     (249

Net change in liability for securitized reverse residential mortgage loans

     561          

Common stock issued, net of issuance costs

            2,950   

Stock options exercised

     75        47   

Redemption of convertible preferred stock

            (2,805

Preferred stock redemption premium

            (146

Dividends on preferred stock

     (30     (30

Other, net

     16        (56
  

 

 

   

 

 

 

Net cash provided by financing activities

     240        2,262   
  

 

 

   

 

 

 

Effect of change in foreign currency exchange rates on cash and cash equivalents balances

     41        93   
  

 

 

   

 

 

 

Change in cash and cash equivalents

     8,206        (2,238

Cash and cash equivalents, beginning of period

     10,461        13,046   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 18,667      $ 10,808   
  

 

 

   

 

 

 

Cash and cash equivalents, subsidiaries held-for-sale, beginning of period

   $      $ 89   
  

 

 

   

 

 

 

Cash and cash equivalents, subsidiaries held-for-sale, end of period

   $      $ 116   
  

 

 

   

 

 

 

Cash and cash equivalents, from continuing operations, beginning of period

   $ 10,461      $ 12,957   
  

 

 

   

 

 

 

Cash and cash equivalents, from continuing operations, end of period

   $ 18,667      $ 10,692   
  

 

 

   

 

 

 

Supplemental disclosures of cash flow information:

    

Net cash paid during the period for:

    

Interest

   $ 266      $ 333   
  

 

 

   

 

 

 

Income tax

   $ 83      $ 415   
  

 

 

   

 

 

 

Non-cash transactions during the period:

    

Real estate and real estate joint ventures acquired in satisfaction of debt

   $ 123      $   
  

 

 

   

 

 

 

See accompanying notes to the interim condensed consolidated financial statements.

 

9


Table of Contents

MetLife, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited)

1.  Business, Basis of Presentation and Summary of Significant Accounting Policies

Business

“MetLife” or the “Company” refers to MetLife, Inc., a Delaware corporation incorporated in 1999, its subsidiaries and affiliates. MetLife is a leading global provider of insurance, annuities and employee benefit programs throughout the United States, Japan, Latin America, Asia, Europe, the Middle East and Africa. Through its subsidiaries and affiliates, MetLife offers life insurance, annuities, property & casualty insurance, and other financial services to individuals, as well as group insurance and retirement & savings products and services to corporations and other institutions.

MetLife is organized into six segments: Retail Products; Group, Voluntary and Worksite Benefits; Corporate Benefit Funding; and Latin America (collectively, “The Americas”); Asia; and Europe, the Middle East and Africa (“EMEA”). See Note 15 for further information on the reorganization of the Company’s segments in the first quarter of 2012, which was applied retrospectively.

Basis of Presentation

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported in the interim condensed consolidated financial statements.

Certain international subsidiaries have a fiscal year-end of November 30. Accordingly, the Company’s interim condensed consolidated financial statements reflect the assets and liabilities of such subsidiaries as of February 29, 2012 and the operating results of such subsidiaries for the three months ended February 29, 2012 and February 28, 2011.

In applying the Company’s accounting policies, management makes subjective and complex judgments that frequently require estimates about matters that are inherently uncertain. Many of these policies, estimates and related judgments are common in the insurance and financial services industries; others are specific to the Company’s business and operations. Actual results could differ from these estimates.

The accompanying interim condensed 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. 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. See Note 9. Intercompany accounts and transactions have been eliminated.

The Company uses the equity method of accounting for investments in equity securities in which it has a significant influence or more than a 20% interest and for real estate joint ventures and other limited partnership interests in which it has more than a minor ownership interest or more than a minor influence over the joint venture’s or partnership’s operations, but does not have a controlling interest and is not the primary beneficiary. The Company uses the cost method of accounting for investments in real estate joint ventures and other limited partnership interests in which it has a minor equity investment and virtually no influence over the joint venture’s or the partnership’s operations.

Certain amounts in the prior year periods’ interim condensed consolidated financial statements and related footnotes thereto have been reclassified to conform with the 2012 presentation as discussed throughout the Notes to the Interim Condensed Consolidated Financial Statements. See “— Adoption of New Accounting Pronouncements” for discussion of an adoption in the first quarter of 2012, which was retrospectively applied.

 

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Table of Contents

MetLife, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued)

 

The accompanying interim condensed consolidated financial statements reflect all adjustments (including normal recurring adjustments) necessary to present fairly the consolidated financial position of the Company at March 31, 2012, its consolidated results of operations and comprehensive income for the three months ended March 31, 2012 and 2011, its consolidated statements of equity for the three months ended March 31, 2012 and 2011, and its consolidated statements of cash flows for the three months ended March 31, 2012 and 2011, in conformity with GAAP. Interim results are not necessarily indicative of full year performance. The December 31, 2011 consolidated balance sheet data was derived from audited consolidated financial statements included in MetLife, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2011 (the “2011 Annual Report”) filed with the U.S. Securities and Exchange Commission (“SEC”), which include all disclosures required by GAAP. Therefore, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company included in the 2011 Annual Report.

Summary of Significant Accounting Policies and Critical Accounting Estimates

See Note 1 of the Notes to the Consolidated Financial Statements included in the 2011 Annual Report for the Summary of Significant Accounting Policies and Critical Accounting Estimates. Described below are the significant changes to such policies based on the adoption of new guidance.

Deferred Policy Acquisition Costs and Value of Business Acquired

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 deferred as deferred policy acquisition costs (“DAC”). Such costs include: (1) incremental direct costs of contract acquisition, such as commissions, (2) 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, (3) other direct costs essential to contract acquisition that would not have been incurred had a policy not been acquired or renewed, and (4) in limited circumstances, the costs of direct-response advertising whose primary purpose 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.

The Company’s policies relating to the establishment of value of business acquired (“VOBA”), amortization of DAC and VOBA, review of estimated gross margin and profit projections, and internal replacements are described in Note 1 of the Notes to the Consolidated Financial Statements included in the 2011 Annual Report.

Adoption of New Accounting Pronouncements

Effective January 1, 2012, the Company adopted new guidance regarding comprehensive income that defers the effective date pertaining to reclassification adjustments out of accumulated other comprehensive income. The amendments in this guidance are being made to allow the Financial Accounting Standards Board (“FASB”) time to re-deliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented. All other requirements in the new comprehensive income standard are not affected by this guidance, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements on an annual basis.

Effective January 1, 2012, the Company adopted new guidance regarding comprehensive income that provides companies with the option to present the total of comprehensive income, components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or

 

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Table of Contents

MetLife, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued)

 

in two separate but consecutive statements in annual financial statements. The objective of the standard is to increase the prominence of items reported in other comprehensive income and to facilitate convergence of GAAP and International Financial Reporting Standards (“IFRS”). The standard eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendments in this guidance do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified in net income.

Effective January 1, 2012, the Company adopted new guidance on goodwill impairment testing that simplifies how an entity tests goodwill for impairment. This new guidance allows an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value as a basis for determining whether it needs to perform the quantitative two-step goodwill impairment test. Only if an entity determines, based on qualitative assessment, that it is more likely than not that a reporting unit’s fair value is less than its carrying value will it be required to calculate the fair value of the reporting unit. The adoption did not have a material impact on the Company’s consolidated financial statements.

Effective January 1, 2012, the Company adopted new guidance regarding fair value measurements that establishes common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with GAAP and IFRS. Some of the amendments clarify the FASB’s intent on the application of existing fair value measurement requirements. Other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The adoption did not have a material impact on the Company’s consolidated financial statements. See also expanded disclosures in Note 5.

Effective January 1, 2012, the Company adopted new guidance regarding effective control in repurchase agreements. The guidance removes from the assessment of effective control, the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets. The adoption did not have a material impact on the Company’s consolidated financial statements.

Effective January 1, 2012, the Company adopted new guidance regarding accounting for DAC. The guidance specifies that only costs related directly to successful acquisition of new or renewal contracts can be capitalized as DAC; all other acquisition-related costs must be expensed as incurred. Under the new guidance, advertising costs may only be included in DAC if the capitalization criteria in the direct-response advertising guidance in Subtopic 340-20, Other Assets and Deferred Costs—Capitalized Advertising Costs, are met. As a result, certain direct marketing, sales manager compensation and administrative costs previously capitalized by the Company will no longer be deferred.

 

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Table of Contents

MetLife, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued)

 

The following table presents the effects of the retrospective application of the adoption of such new accounting guidance to the Company’s previously reported consolidated balance sheet:

 

     December 31, 2011  
     As Previously
Reported
     Adjustment     As Adjusted  
     (In millions)  

Assets

       

Other invested assets, principally at estimated fair value

   $ 23,628       $ (47   $ 23,581   

Deferred policy acquisition costs and value of business acquired (1)

   $ 27,971       $ (3,352   $ 24,619   

Liabilities

       

Future policy benefits

   $ 184,252       $ 23      $ 184,275   

Deferred income tax liability

   $ 7,535       $ (1,140   $ 6,395   

Equity

       

Retained earnings

   $ 27,289       $ (2,475   $ 24,814   

Accumulated other comprehensive income (loss)

   $ 5,886       $ 197      $ 6,083   

Total MetLife, Inc.’s stockholders’ equity

   $ 59,797       $ (2,278   $ 57,519   

Noncontrolling interests

   $ 374       $ (4   $ 370   

Total equity

   $ 60,171       $ (2,282   $ 57,889   

 

 

 

(1)

Value of business acquired was not impacted by the adoption of this guidance.

 

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Table of Contents

MetLife, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued)

 

The following table presents the effects of the retrospective application of the adoption of such new accounting guidance to the Company’s previously reported consolidated statement of operations and comprehensive income:

 

    Three Months
Ended
March 31, 2011
 
    As Previously
Reported
    Adjustment     As Adjusted  
    (In millions)  

Revenues

     

Net investment income

  $ 5,315 (1)    $ (2   $ 5,313   

Expenses

     

Policyholder benefits and claims

  $ 8,231      $ 6      $ 8,237   

Other expenses

  $ 3,902      $ 188      $ 4,090   

Income (loss) from continuing operations before provision for income tax

  $ 1,481 (1)    $ (196   $ 1,285   

Provision for income tax expense (benefit)

  $ 428      $ (67   $ 361   

Income (loss) from continuing operations, net of income tax

  $ 1,053 (1)    $ (129   $ 924   

Net income (loss)

  $ 1,013      $ (129   $ 884   

Net income (loss) attributable to MetLife, Inc

  $ 1,006      $ (129   $ 877   

Net income (loss) available to MetLife, Inc.’s common shareholders

  $ 830      $ (129   $ 701   

Income (loss) from continuing operations, net of income tax, available to MetLife, Inc.’s common shareholders per common share:

     

Basic

  $ 0.82      $ (0.12   $ 0.70   

Diluted

  $ 0.82      $ (0.12   $ 0.70   

Net income (loss) available to MetLife, Inc.’s common shareholders per common share:

     

Basic

  $ 0.78      $ (0.12   $ 0.66   

Diluted

  $ 0.78      $ (0.12   $ 0.66   

 

 

 

(1)

Amounts in the table above differ from the amounts previously reported in the consolidated statement of operations and comprehensive income due to the inclusion of the impact of discontinued real estate operations of $2 million.

The following table presents the effects of the retrospective application of the adoption of such new accounting guidance to the Company’s previously reported consolidated statement of cash flows:

 

     Three Months
Ended
March 31, 2011
 
     As Previously
Reported
    Adjustment     As Adjusted  
     (In millions)  

Net cash provided by operating activities

   $ 3,501      $ (2   $ 3,499   

Net change in other invested assets

   $ (68   $ 2      $ (66

Future Adoption of New Accounting Pronouncements

In December 2011, the FASB issued new guidance regarding balance sheet offsetting disclosures (Accounting Standards Update (“ASU”) 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities), effective for annual reporting periods beginning on or after January 1, 2013, and interim periods

 

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Table of Contents

MetLife, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued)

 

within those annual periods. The guidance should be applied retrospectively for all comparative periods presented. The amendments in ASU 2011-11 require an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effects of those arrangements on its financial position. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The objective of ASU 2011-11 is to facilitate comparison between those entities that prepare their financial statements on the basis of GAAP and those entities that prepare their financial statements on the basis of IFRS. The Company is currently evaluating the impact of this guidance on its consolidated financial statements and related disclosures.

In December 2011, the FASB issued new guidance regarding derecognition of in substance real estate (ASU 2011-10 Property, Plant and Equipment (Topic 360): Derecognition of in Substance Real Estate — a Scope Clarification (a consensus of the FASB Emerging Issues Task Force), effective for fiscal years, and interim periods within those fiscal years, beginning on or after June 15, 2012. The amendments should be applied prospectively to deconsolidation events occurring after the effective date. Under the amendments in ASU 2011-10, when a parent ceases to have a controlling financial interest in a subsidiary that is in substance real estate as a result of a default on the subsidiary’s nonrecourse debt, the reporting entity should apply the guidance in Subtopic 360-20 to determine whether it should derecognize the in substance real estate. Generally, a reporting entity would not satisfy the requirements to derecognize in substance real estate before the legal transfer of the real estate to the lender and the extinguishment of the related nonrecourse indebtedness. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

In July 2011, the FASB issued new guidance on other expenses (ASU 2011-06, Other Expenses (Topic 720): Fees Paid to the Federal Government by Health Insurers), effective for calendar years beginning after December 31, 2013. The objective of this standard is to address how health insurers should recognize and classify in their income statements fees mandated by the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act. The amendments in this standard specify that the liability for the fee should be estimated and recorded in full once the entity provides qualifying health insurance in the applicable calendar year in which the fee is payable with a corresponding deferred cost that is amortized to expense using the straight-line method of allocation unless another method better allocates the fee over the calendar year that it is payable. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

2.  Acquisitions and Dispositions

2012 Pending Dispositions

In December 2011, MetLife Bank National Association (“MetLife Bank”) and MetLife, Inc. entered into a definitive agreement to sell most of the depository business of MetLife Bank to GE Capital Financial Inc. The transaction is subject to the receipt of regulatory approvals from the Office of the Comptroller of the Currency (the “OCC”), the Federal Deposit Insurance Corporation (the “FDIC”) and the Utah Department of Financial Institutions (the “Utah DFI”) and to the satisfaction of other customary closing conditions. GE Capital Financial Inc. has filed applications with the FDIC and the Utah DFI seeking approval of the assumption of the deposits to be transferred to it, and MetLife Bank has filed applications with the OCC seeking approval to change the composition of substantially all of MetLife Bank’s assets and with the FDIC to terminate MetLife Bank’s FDIC deposit insurance contingent upon certification that MetLife Bank has no remaining deposits (which is dependent on the assumption by GE Capital Financial Inc. of the deposits to be transferred to it). The parties have responded to questions on their applications from the staff of the OCC, the FDIC and the Utah DFI, and are awaiting action by these regulators on their applications. In January 2012, MetLife, Inc. announced it is exiting the business of originating forward residential mortgages. In conjunction with these events, for the three months ended March 31, 2012, the Company recorded a net gain of

 

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Table of Contents

MetLife, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued)

 

$7 million, net of income tax, which included gains on securities and mortgage loans sold, partially offset by impairments on mortgage loans, lease impairments and other employee-related charges. Additionally, in April 2012, MetLife, Inc. announced that it is exiting the reverse mortgage origination business and that it and MetLife Bank entered into a definitive agreement to sell MetLife Bank’s reverse mortgage servicing portfolio. The transaction is subject to certain regulatory approvals and other customary closing conditions. The Company expects to incur additional charges of $77 million to $115 million, net of income tax, during the remainder of 2012, related to exiting these three businesses. The total assets and liabilities recorded in the consolidated balance sheets related to these businesses were approximately $19.5 billion and $18.6 billion at March 31, 2012, respectively, and $19.3 billion and $18.2 billion at December 31, 2011, respectively. These businesses did not qualify for discontinued operations accounting treatment under GAAP.

In November 2011, the Company entered into an agreement to sell its insurance operations in the Caribbean region, Panama and Costa Rica (the “Caribbean Business”). The total assets and liabilities recorded in the consolidated balance sheets related to these insurance operations were $786 million and $625 million at March 31, 2012, respectively, and $859 million and $707 million at December 31, 2011, respectively. The sale is expected to close in the third quarter of 2012, subject to regulatory approval and other customary closing conditions. The results of the Caribbean Business are included in continuing operations.

2010 Acquisition

Contingent Consideration

Related to the 2010 acquisition of American Life Insurance Company (“American Life”), the Company has guaranteed that the fair value of a fund of assets backing certain U.K. unit-linked contracts will have a value of at least £1 per unit on July 1, 2012. If the shortfall between the aggregate guaranteed amount and the fair value of the fund exceeds £106 million (as adjusted for withdrawals), American International Group, Inc. (“AIG”) will pay the difference to the Company and, conversely, if the shortfall at July 1, 2012 is less than £106 million, the Company will pay the difference to AIG. The Company believes that the fair value of the fund will equal or exceed the aggregate guaranteed amount by July 1, 2012. The contingent consideration liability was $121 million at March 31, 2012 and $109 million at December 31, 2011. The increase in the contingent consideration liability amount from December 31, 2011 to March 31, 2012 was recorded in net derivative gains (losses) in the consolidated statement of operations and comprehensive income. See Note 2 of the Notes to the Consolidated Financial Statements included in the 2011 Annual Report.

 

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Table of Contents

MetLife, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued)

 

3.  Investments

Fixed Maturity and Equity Securities Available-for-Sale

Presented below is certain information about fixed maturity and equity securities for the periods shown. The unrealized loss amounts presented below include the noncredit loss component of other-than-temporary impairment (“OTTI”) losses:

 

    March 31, 2012  
    Cost or
Amortized
Cost
    Gross Unrealized     Estimated
Fair
Value
     % of
Total
 
      Gains     Temporary
Losses
    OTTI
Losses
      
    (In millions)  

Fixed Maturity Securities:

            

U.S. corporate securities

  $ 97,827      $ 8,327      $ 881      $      $ 105,273         29.7

Foreign corporate securities

    61,857        4,149        651        1        65,354         18.4   

Foreign government securities

    52,086        3,428        176               55,338         15.6   

U.S. Treasury and agency securities

    37,187        4,316        87               41,416         11.7   

Residential mortgage-backed securities (“RMBS”)

    40,487        2,243        805        646        41,279         11.7   

Commercial mortgage-backed securities (“CMBS”)

    17,980        863        108        3        18,732         5.3   

State and political subdivision securities

    12,425        1,604        113               13,916         3.9   

Asset-backed securities (“ABS”)

    13,132        273        244        18        13,143         3.7   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Total fixed maturity securities

  $ 332,981      $ 25,203      $ 3,065      $ 668      $ 354,451         100.0
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Equity Securities:

            

Common stock

  $ 2,155      $ 109      $ 22      $      $ 2,242         73.7

Non-redeemable preferred stock

    908        48        155               801         26.3   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Total equity securities

  $ 3,063      $ 157      $ 177      $      $ 3,043         100.0
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 
    December 31, 2011  
    Cost or
Amortized
Cost
    Gross Unrealized     Estimated
Fair
Value
     % of
Total
 
      Gains     Temporary
Losses
    OTTI
Losses
      
    (In millions)  

Fixed Maturity Securities:

            

U.S. corporate securities

  $ 98,621      $ 8,544      $ 1,380      $      $ 105,785         30.2

Foreign corporate securities

    61,568        3,789        1,338        1        64,018         18.3   

Foreign government securities

    49,840        3,053        357               52,536         15.0   

U.S. Treasury and agency securities

    34,132        5,882        2               40,012         11.4   

RMBS

    42,092        2,281        1,033        703        42,637         12.2   

CMBS

    18,565        730        218        8        19,069         5.4   

State and political subdivision securities

    11,975        1,416        156               13,235         3.8   

ABS

    13,018        278        305        12        12,979         3.7   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Total fixed maturity securities

  $ 329,811      $ 25,973      $ 4,789      $ 724      $ 350,271         100.0
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Equity Securities:

            

Common stock

  $ 2,219      $ 83      $ 97      $      $ 2,205         72.9

Non-redeemable preferred stock

    989        31        202               818         27.1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Total equity securities

  $ 3,208      $ 114      $ 299      $      $ 3,023         100.0
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

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Table of Contents

MetLife, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued)

 

The Company held non-income producing fixed maturity securities with an estimated fair value of $22 million and $62 million with unrealized gains (losses) of ($9) million and ($19) million at March 31, 2012 and December 31, 2011, respectively.

Concentrations of Credit Risk — Summary. The Company was not exposed to any concentrations of credit risk of any single issuer within its fixed maturity securities and equity securities greater than 10% of the Company’s equity, other than the government and agency securities summarized in the table below at:

 

     March 31, 2012      December 31, 2011  
     Carrying Value (1)  
     (In millions)  

U.S. Treasury and agency securities included in:

     

Fixed maturity securities

   $ 41,416       $ 40,012   

Short-term investments

     10,023         15,775   

Cash equivalents

     3,072         1,748   
  

 

 

    

 

 

 

Total U.S. Treasury and agency securities

   $ 54,511       $ 57,535   
  

 

 

    

 

 

 

Japan government and agency securities included in:

     

Fixed maturity securities

   $ 20,562       $ 21,003   

Short-term investments

     62           

Cash equivalents

     395           
  

 

 

    

 

 

 

Total Japan government and agency securities

   $ 21,019       $ 21,003   
  

 

 

    

 

 

 

 

 

(1)

Represents estimated fair value for fixed maturity securities, and for short-term investments and cash equivalents, estimated fair value or amortized cost, which approximates estimated fair value.

Maturities of Fixed Maturity Securities. The amortized cost and estimated fair value of fixed maturity securities, by contractual maturity date (excluding scheduled sinking funds), were as follows at:

 

     March 31, 2012      December 31, 2011  
     Amortized
Cost
     Estimated
Fair
Value
     Amortized
Cost
     Estimated
Fair
Value
 
            (In millions)         

Due in one year or less

   $ 19,016       $ 19,154       $ 16,747       $ 16,862   

Due after one year through five years

     63,283         65,588         62,819         64,414   

Due after five years through ten years

     82,469         89,080         82,694         88,036   

Due after ten years

     96,614         107,475         93,876         106,274   
  

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal

     261,382         281,297         256,136         275,586   

RMBS, CMBS and ABS

     71,599         73,154         73,675         74,685   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total fixed maturity securities

   $ 332,981       $ 354,451       $ 329,811       $ 350,271   
  

 

 

    

 

 

    

 

 

    

 

 

 

Actual maturities may differ from contractual maturities due to the exercise of call or prepayment options. Fixed maturity securities not due at a single maturity date have been included in the above table in the year of final contractual maturity. RMBS, CMBS and ABS are shown separately in the table, as they are not due at a single maturity.

 

18


Table of Contents

MetLife, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued)

 

Evaluating Available-for-Sale Securities for Other-Than-Temporary Impairment

As described more fully in Note 1 of the Notes to the Consolidated Financial Statements included in the 2011 Annual Report, the Company performs a regular evaluation, on a security-by-security basis, of its available-for-sale securities holdings, including fixed maturity securities, equity securities and perpetual hybrid securities, in accordance with its impairment policy in order to evaluate whether such investments are other-than-temporarily impaired.

Net Unrealized Investment Gains (Losses)

The components of net unrealized investment gains (losses), included in accumulated other comprehensive income (loss), were as follows:

 

    March 31, 2012     December 31, 2011  
    (In millions)  

Fixed maturity securities

  $ 22,011      $ 21,096   

Fixed maturity securities with noncredit OTTI losses in accumulated other comprehensive income (loss)

    (668     (724
 

 

 

   

 

 

 

Total fixed maturity securities

    21,343        20,372   

Equity securities

    5        (167

Derivatives

    1,019        1,514   

Other

    9        72   
 

 

 

   

 

 

 

Subtotal

    22,376        21,791   
 

 

 

   

 

 

 

Amounts allocated from:

   

Insurance liability loss recognition

    (3,454     (3,996

DAC and VOBA related to noncredit OTTI losses recognized in accumulated other comprehensive income (loss)

    41        47   

DAC and VOBA

    (1,820     (1,800

Policyholder dividend obligation

    (2,700     (2,919
 

 

 

   

 

 

 

Subtotal

    (7,933     (8,668

Deferred income tax benefit (expense) related to noncredit OTTI losses recognized in accumulated other comprehensive income (loss)

    217        236   

Deferred income tax benefit (expense)

    (5,150     (4,694
 

 

 

   

 

 

 

Net unrealized investment gains (losses)

    9,510        8,665   

Net unrealized investment gains (losses) attributable to noncontrolling interests

    9        9   
 

 

 

   

 

 

 

Net unrealized investment gains (losses) attributable to MetLife, Inc

  $ 9,519      $ 8,674   
 

 

 

   

 

 

 

 

19


Table of Contents

MetLife, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued)

 

The changes in fixed maturity securities with noncredit OTTI losses included in accumulated other comprehensive income (loss), were as follows:

 

     March 31, 2012     December 31, 2011  
     (In millions)  

Balance, beginning of period

   $ (724   $ (601

Noncredit OTTI losses recognized (1)

     (2     31   

Securities sold with previous noncredit OTTI loss

     50        125   

Subsequent changes in estimated fair value

     8        (279
  

 

 

   

 

 

 

Balance, end of period

   $ (668   $ (724
  

 

 

   

 

 

 

 

 

(1)

Noncredit OTTI losses recognized, net of DAC, were ($8) million and $33 million for the periods ended March 31, 2012 and December 31, 2011, respectively.

The changes in net unrealized investment gains (losses) were as follows:

 

     Three Months
Ended
March 31, 2012
 
     (In millions)  

Balance, beginning of period

   $ 8,674   

Fixed maturity securities on which noncredit OTTI losses have been recognized

     56   

Unrealized investment gains (losses) during the period

     529   

Unrealized investment gains (losses) relating to:

  

Insurance liability gain (loss) recognition

     542   

DAC and VOBA related to noncredit OTTI losses recognized in accumulated other comprehensive income (loss)

     (6

DAC and VOBA

     (20

Policyholder dividend obligation

     219   

Deferred income tax benefit (expense) related to noncredit OTTI losses recognized in accumulated other comprehensive income (loss)

     (19

Deferred income tax benefit (expense)

     (456
  

 

 

 

Net unrealized investment gains (losses)

     9,519   

Net unrealized investment gains (losses) attributable to noncontrolling interests

       
  

 

 

 

Balance, end of period

   $ 9,519   
  

 

 

 

Change in net unrealized investment gains (losses)

   $ 845   

Change in net unrealized investment gains (losses) attributable to noncontrolling interests

       
  

 

 

 

Change in net unrealized investment gains (losses) attributable to MetLife, Inc

   $ 845   
  

 

 

 

 

20


Table of Contents

MetLife, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued)

 

Continuous Gross Unrealized Losses and OTTI Losses for Fixed Maturity and Equity Securities Available-for-Sale by Sector

Presented below is certain information about the estimated fair value and gross unrealized losses of fixed maturity and equity securities in an unrealized loss position. The unrealized loss amounts presented below include the noncredit component of OTTI loss. Fixed maturity securities on which a noncredit OTTI loss has been recognized in accumulated other comprehensive income (loss) are categorized by length of time as being “less than 12 months” or “equal to or greater than 12 months” in a continuous unrealized loss position based on the point in time that the estimated fair value initially declined to below the amortized cost basis and not the period of time since the unrealized loss was deemed a noncredit OTTI loss.

 

     March 31, 2012  
     Less than 12 Months      Equal to or Greater
than 12 Months
     Total  
     Estimated
Fair
Value
     Gross
Unrealized
Losses
     Estimated
Fair
Value
     Gross
Unrealized
Losses
     Estimated
Fair
Value
     Gross
Unrealized
Losses
 
     (In millions, except number of securities)  

Fixed Maturity Securities:

                 

U.S. corporate securities

   $ 10,097       $ 293       $ 4,125       $ 588       $ 14,222       $ 881   

Foreign corporate securities

     8,410         265         4,719         387         13,129         652   

Foreign government securities

     4,831         84         1,322         92         6,153         176   

U.S. Treasury and agency securities

     8,512         83         37         4         8,549         87   

RMBS

     4,698         406         4,565         1,045         9,263         1,451   

CMBS

     1,189         33         714         78         1,903         111   

State and political subdivision securities

     352         5         544         108         896         113   

ABS

     3,810         80         1,343         182         5,153         262   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total fixed maturity securities

   $ 41,899       $ 1,249       $ 17,369       $ 2,484       $ 59,268       $ 3,733   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Equity Securities:

                 

Common stock

   $ 347       $ 22       $ 4       $       $ 351       $ 22   

Non-redeemable preferred stock

     62         9         326         146         388         155   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total equity securities

   $ 409       $ 31       $ 330       $ 146       $ 739       $ 177   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total number of securities in an unrealized loss position

     3,555            1,674            
  

 

 

       

 

 

          

 

21


Table of Contents

MetLife, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued)

 

     December 31, 2011  
     Less than 12 Months      Equal to or Greater
than 12 Months
     Total  
     Estimated
Fair
Value
     Gross
Unrealized
Losses
     Estimated
Fair
Value
     Gross
Unrealized
Losses
     Estimated
Fair
Value
     Gross
Unrealized
Losses
 
     (In millions, except number of securities)  

Fixed Maturity Securities:

                 

U.S. corporate securities

   $ 15,642       $ 590       $ 5,135       $ 790       $ 20,777       $ 1,380   

Foreign corporate securities

     12,618         639         5,957         700         18,575         1,339   

Foreign government securities

     11,227         230         1,799         127         13,026         357   

U.S. Treasury and agency securities

     2,611         1         50         1         2,661         2   

RMBS

     4,040         547         4,724         1,189         8,764         1,736   

CMBS

     2,825         135         678         91         3,503         226   

State and political subdivision securities

     177         2         1,007         154         1,184         156   

ABS

     4,972         103         1,316         214         6,288         317   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total fixed maturity securities

   $ 54,112       $ 2,247       $ 20,666       $ 3,266       $ 74,778       $ 5,513   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Equity Securities:

                 

Common stock

   $ 581       $ 96       $ 5       $ 1       $ 586       $ 97   

Non-redeemable preferred stock

     204         30         370         172         574         202   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total equity securities

   $ 785       $ 126       $ 375       $ 173       $ 1,160       $ 299   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total number of securities in an unrealized loss position

     3,978            1,963            
  

 

 

       

 

 

          

 

22


Table of Contents

MetLife, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued)

 

Aging of Gross Unrealized Losses and OTTI Losses for Fixed Maturity and Equity Securities Available-for-Sale

Presented below is certain information about the aging and severity of gross unrealized losses on fixed maturity and equity securities, including the portion of OTTI loss on fixed maturity securities recognized in accumulated other comprehensive income (loss) at:

 

     March 31, 2012  
     Cost or Amortized Cost      Gross Unrealized Losses     Number of Securities  
     Less than
20%
     20% or
more
     Less than
20%
    20% or
more
    Less than
20%
     20% or
more
 
     (In millions, except number of securities)  

Fixed Maturity Securities:

               

Less than six months

   $ 27,651       $ 971       $ 441      $ 258        2,367         118   

Six months or greater but less than nine months

     11,280         1,549         367        452        820         84   

Nine months or greater but less than twelve months

     3,306         791         149        237        292         43   

Twelve months or greater

     15,271         2,182         1,006        823        1,340         162   
  

 

 

    

 

 

    

 

 

   

 

 

      

Total

   $ 57,508       $ 5,493       $ 1,963      $ 1,770        
  

 

 

    

 

 

    

 

 

   

 

 

      

Percentage of amortized cost

           3     32     
        

 

 

   

 

 

      

Equity Securities:

               

Less than six months

   $ 139       $ 46       $ 5      $ 14        64         16   

Six months or greater but less than nine months

     233         112         17        32        50         7   

Nine months or greater but less than twelve months

     49                 3               17         1   

Twelve months or greater

     114         223         8        98        20         19   
  

 

 

    

 

 

    

 

 

   

 

 

      

Total

   $ 535       $ 381       $ 33      $ 144        
  

 

 

    

 

 

    

 

 

   

 

 

      

Percentage of cost

           6     38     
        

 

 

   

 

 

      

 

23


Table of Contents

MetLife, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued)

 

     December 31, 2011  
     Cost or Amortized Cost      Gross Unrealized Losses     Number of Securities  
     Less than
20%
     20% or
more
     Less than
20%
    20% or
more
    Less than
20%
     20% or
more
 
     (In millions, except number of securities)  

Fixed Maturity Securities:

               

Less than six months

   $ 49,249       $ 4,736       $ 1,346      $ 1,332        3,260         320   

Six months or greater but less than nine months

     4,104         1,049         279        349        375         63   

Nine months or greater but less than twelve months

     1,160         288         55        93        143         14   

Twelve months or greater

     17,590         2,115         1,216        843        1,523         167   
  

 

 

    

 

 

    

 

 

   

 

 

      

Total

   $ 72,103       $ 8,188       $ 2,896      $ 2,617        
  

 

 

    

 

 

    

 

 

   

 

 

      

Percentage of amortized cost

           4     32     
        

 

 

   

 

 

      

Equity Securities:

               

Less than six months

   $ 714       $ 376       $ 64      $ 123        154         42   

Six months or greater but less than nine months

     22         8         2        4        19         3   

Nine months or greater but less than twelve months

     18                 2               8           

Twelve months or greater

     98         223         8        96        24         20   
  

 

 

    

 

 

    

 

 

   

 

 

      

Total

   $ 852       $ 607       $ 76      $ 223        
  

 

 

    

 

 

    

 

 

   

 

 

      

Percentage of cost

           9     37     
        

 

 

   

 

 

      

Equity securities with gross unrealized losses of 20% or more for twelve months or greater increased from $96 million at December 31, 2011 to $98 million at March 31, 2012. As shown in the section “— Evaluating Temporarily Impaired Available-for-Sale Securities” below, all of the equity securities with gross unrealized losses of 20% or more for twelve months or greater at March 31, 2012 were financial services industry investment grade non-redeemable preferred stock, of which 72% were rated A or better.

 

24


Table of Contents

MetLife, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued)

 

Concentration of Gross Unrealized Losses and OTTI Losses for Fixed Maturity and Equity Securities Available-for-Sale

The gross unrealized losses related to fixed maturity and equity securities, including the portion of OTTI losses on fixed maturity securities recognized in accumulated other comprehensive income (loss) were $3.9 billion and $5.8 billion at March 31, 2012 and December 31, 2011, respectively. The concentration, calculated as a percentage of gross unrealized losses (including OTTI losses), by sector and industry was as follows at:

 

     March 31, 2012     December 31, 2011  

Sector:

    

RMBS

     37     30

U.S. corporate securities

     23        24   

Foreign corporate securities

     17        23   

ABS

     7        5   

Foreign government securities

     4        6   

State and political subdivision securities

     3        3   

CMBS

     3        4   

U.S. Treasury and agency securities

     2          

Other

     4        5   
  

 

 

   

 

 

 

Total

     100     100
  

 

 

   

 

 

 

Industry:

    

Mortgage-backed

     40     34

Finance

     20        27   

Utility

     8        8   

Asset-backed

     7        5   

Consumer

     5        6   

Foreign government securities

     4        6   

State and political subdivision securities

     3        3   

Communications

     2        3   

U.S. Treasury and agency securities

     2          

Industrial

     2        2   

Other

     7        6   
  

 

 

   

 

 

 

Total

     100     100
  

 

 

   

 

 

 

Evaluating Temporarily Impaired Available-for-Sale Securities

The following table presents fixed maturity and equity securities, each with gross unrealized losses of greater than $10 million, the number of securities, total gross unrealized losses and percentage of total gross unrealized losses at:

 

     March 31, 2012     December 31, 2011  
     Fixed Maturity
Securities
    Equity
Securities
    Fixed Maturity
Securities
    Equity
Securities
 
     (In millions, except number of securities)  

Number of securities

     59        4        96        8   

Total gross unrealized losses

     1,130      $ 77      $ 1,703      $ 117   

Percentage of total gross unrealized losses

     30     44     31     39

 

25


Table of Contents

MetLife, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued)

 

Fixed maturity and equity securities, each with gross unrealized losses greater than $10 million, decreased $613 million during the three months ended March 31, 2012. The decline in, or improvement in, gross unrealized losses for the three months ended March 31, 2012 was primarily attributable to narrowing credit spreads, partially offset by an increase in interest rates. These securities were included in the Company’s OTTI review process.

As of March 31, 2012, $1.5 billion of unrealized losses were from fixed maturity securities with an unrealized loss position of 20% or more of amortized cost for six months or greater. Of the $1.5 billion, $598 million, or 40%, are related to unrealized losses on investment grade securities. Unrealized losses on investment grade securities are principally related to widening credit spreads or rising interest rates since purchase. Of the $1.5 billion, $914 million, or 60%, are related to unrealized losses on below investment grade securities. Unrealized losses on below investment grade securities are principally related to non-agency RMBS (primarily alternative residential mortgage loans and sub-prime residential mortgage loans), U.S. and foreign corporate securities (primarily utility, financial services and transportation industry securities) and ABS (primarily collateralized debt obligations) and were the result of significantly wider credit spreads resulting from higher risk premiums since purchase, largely due to economic and market uncertainties including concerns over the financial services sector, unemployment levels and valuations of residential real estate supporting non-agency RMBS. See Note 1 of the Notes to the Consolidated Financial Statements included in the 2011 Annual Report for the factors management considers in evaluating these corporate and structured securities. See “— Aging of Gross Unrealized Losses and OTTI Losses for Fixed Maturity and Equity Securities Available-for-Sale” for a discussion of equity securities with an unrealized loss position of 20% or more of cost for 12 months or greater.

In the Company’s impairment review process, the duration and severity of an unrealized loss position for equity securities are given greater weight and consideration than for fixed maturity securities. An extended and severe unrealized loss position on a fixed maturity security may not have any impact on the ability of the issuer to service all scheduled interest and principal payments and the Company’s evaluation of recoverability of all contractual cash flows or the ability to recover an amount at least equal to its amortized cost based on the present value of the expected future cash flows to be collected. In contrast, for an equity security, greater weight and consideration are given by the Company to a decline in market value and the likelihood such market value decline will recover.

The following table presents certain information about the Company’s equity securities available-for-sale with gross unrealized losses of 20% or more at March 31, 2012:

 

          Non-Redeemable Preferred Stock  
    All Equity
Securities
    All Types of
Non-Redeemable
Preferred Stock
    Investment Grade  
        All Industries     Financial Services Industry  
    Gross
Unrealized
Losses
    Gross
Unrealized
Losses
    % of All
Equity
Securities
    Gross
Unrealized
Losses
    % of All
Non-Redeemable
Preferred Stock
    Gross
Unrealized
Losses
    % of All
Industries
    % A
Rated or
Better
 
    (In millions)           (In millions)           (In millions)              

Less than six months

  $ 14      $ 13        93    $ 2        15    $ 2        100      100 

Six months or greater but less than twelve months

    32        32        100      23        72      23        100      30 

Twelve months or greater

    98        98        100      98        100      98        100      72 
 

 

 

   

 

 

     

 

 

     

 

 

     

All equity securities with gross unrealized losses of 20% or more

  $ 144      $ 143        99    $ 123        86    $ 123        100      65 
 

 

 

   

 

 

     

 

 

     

 

 

     

 

26


Table of Contents

MetLife, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued)

 

In connection with the equity securities impairment review process, the Company evaluated its holdings in non-redeemable preferred stock, particularly those in the financial services sector. The Company considered several factors including whether there has been any deterioration in credit of the issuer and the likelihood of recovery in value of non-redeemable preferred stock with a severe or an extended unrealized loss. The Company also considered whether any issuers of non-redeemable preferred stock with an unrealized loss held by the Company, regardless of credit rating, have deferred any dividend payments. No such dividend payments had been deferred.

With respect to common stock holdings, the Company considered the duration and severity of the unrealized losses for securities in an unrealized loss position of 20% or more; and the duration of unrealized losses for securities in an unrealized loss position of less than 20% in an extended unrealized loss position (i.e., 12 months or greater).

Based on the Company’s current evaluation of available-for-sale 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 has concluded that these securities are not other-than-temporarily impaired.

Future OTTIs will depend primarily on economic fundamentals, issuer performance (including changes in the present value of future cash flows expected to be collected), changes in credit ratings, changes in collateral valuation, changes in interest rates and changes in credit spreads. If economic fundamentals or any of the above factors deteriorate, additional OTTIs may be incurred in upcoming quarters.

Trading and Other Securities

The table below presents certain information about the Company’s trading securities that are actively purchased and sold (“Actively Traded Securities”) and other securities for which the fair value option (“FVO”) has been elected at:

 

     March 31, 2012     December 31, 2011  
     (In millions)  

Actively Traded Securities

   $ 544      $ 473   

FVO general account securities

     274        267   

FVO contractholder-directed unit-linked investments

     18,119        17,411   

FVO securities held by CSEs

     89        117   
  

 

 

   

 

 

 

Total trading and other securities — at estimated fair value

   $ 19,026      $ 18,268   
  

 

 

   

 

 

 

Actively Traded Securities — at estimated fair value

   $ 544      $ 473   

Short sale agreement liabilities — at estimated fair value

     (169     (127
  

 

 

   

 

 

 

Net long/short position — at estimated fair value

   $ 375      $ 346   
  

 

 

   

 

 

 

Investments pledged to secure short sale agreement liabilities

   $ 624      $ 558   
  

 

 

   

 

 

 

See Note 1 of the Notes to the Consolidated Financial Statements included in the 2011 Annual Report, for discussion of FVO contractholder-directed unit-linked investments and “— Variable Interest Entities” for discussion of consolidated securitization entities (“CSEs”) included in the table above. See “— Net Investment Income” and “— Net Investment Gains (Losses)” for the net investment income recognized on trading and other securities and the related changes in estimated fair value subsequent to purchase included in earnings for securities still held as of the end of the respective periods.

 

27


Table of Contents

MetLife, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued)

 

Net Investment Gains (Losses)

The components of net investment gains (losses) were as follows:

 

     Three Months
Ended
March 31,
 
         2012             2011      
     (In millions)  

Total gains (losses) on fixed maturity securities:

    

Total OTTI losses recognized

   $ (135   $ (132

Less: Noncredit portion of OTTI losses transferred to and recognized in other comprehensive income (loss)

     2        9   
  

 

 

   

 

 

 

Net OTTI losses on fixed maturity securities recognized in earnings

     (133     (123

Fixed maturity securities — net gains (losses) on sales and disposals (1)

     (7     (40
  

 

 

   

 

 

 

Total gains (losses) on fixed maturity securities

     (140     (163

Other net investment gains (losses):

    

Equity securities

     (9     36   

Trading and other securities — FVO general account securities — changes in estimated fair value subsequent to purchase

     4          

Mortgage loans (1)

     36        47   

Real estate and real estate joint ventures

     (4     1   

Other limited partnership interests

     (2     3   

Other investment portfolio gains (losses)

     (25     4   
  

 

 

   

 

 

 

Subtotal — investment portfolio gains (losses)

     (140     (72
  

 

 

   

 

 

 

FVO CSEs — changes in estimated fair value:

    

Commercial mortgage loans

     6        18   

Securities

            (40

Long-term debt — related to securities

     (11     47   

Other gains (losses) (2)

     35        (52
  

 

 

   

 

 

 

Subtotal FVO CSEs and other gains (losses)

     30        (27
  

 

 

   

 

 

 

Total net investment gains (losses)

   $ (110   $ (99
  

 

 

   

 

 

 

 

 

 

(1)

Net investment gains (losses) for the three months ended March 31, 2012 includes a net gain of $95 million as a result of the pending disposition of certain operations of MetLife Bank, which is comprised of gains on securities and mortgage loans sold of $102 million, partially offset by impairments on mortgage loans of $7 million. See Note 2.

 

(2)

Other gains (losses) includes a loss of $80 million for the three months ended March 31, 2011, related to the sale of the Company’s investment in Mitsui Sumitomo MetLife Insurance Co., Ltd. See Note 2 of the Notes to the Consolidated Financial Statements included in the 2011 Annual Report.

See “— Variable Interest Entities” for discussion of CSEs included in the table above.

Gains (losses) from foreign currency transactions included within net investment gains (losses) were $58 million and $35 million for the three months ended March 31, 2012 and 2011, respectively.

 

28


Table of Contents

MetLife, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued)

 

Proceeds from sales or disposals of fixed maturity and equity securities resulting in a net investment gain (loss) and the components of fixed maturity and equity securities net investment gains (losses) are as shown in the table below. Investment gains and losses on sales of securities are determined on a specific identification basis.

 

     Three Months Ended March 31,  
         2012             2011             2012             2011         2012     2011  
         Fixed Maturity Securities         Equity Securities     Total  
     (In millions)  

Proceeds

   $ 19,394      $ 16,532      $ 125      $ 316      $ 19,519      $ 16,848   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross investment gains

   $ 325      $ 193      $ 10      $ 48      $ 335      $ 241   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross investment losses

     (332     (233     (4     (6     (336     (239
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total OTTI losses recognized in earnings:

            

Credit-related

     (73     (43                   (73     (43

Other (1)

     (60     (80     (15     (6     (75     (86
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total OTTI losses recognized in earnings

     (133     (123     (15     (6     (148     (129
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net investment gains (losses)

   $ (140   $ (163   $ (9   $ 36      $ (149   $ (127
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

 

(1)

Other OTTI losses recognized in earnings include impairments on equity securities, impairments on perpetual hybrid securities classified within fixed maturity securities where the primary reason for the impairment was the severity and/or the duration of an unrealized loss position and fixed maturity securities where there is an intent-to-sell or it is more likely than not that the Company will be required to sell the security before recovery of the decline in estimated fair value.

Fixed maturity security OTTI losses recognized in earnings related to the following sectors and industries within the U.S. and foreign corporate securities sector:

 

     Three Months
Ended
March 31,
 
         2012              2011      
     (In millions)  

Sector:

     

U.S. and foreign corporate securities — by industry:

     

Utility

   $ 38       $ 1   

Finance

     32         1   

Communications

     17         13   

Consumer

     3         2   

Industrial

     1           
  

 

 

    

 

 

 

Total U.S. and foreign corporate securities

     91         17   

CMBS

     30         3   

RMBS (1)

     9         24   

ABS (1)

     2         3   

State and political subdivision securities

     1           

Foreign government securities

             76   
  

 

 

    

 

 

 

Total

   $ 133       $ 123   
  

 

 

    

 

 

 

 

29


Table of Contents

MetLife, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued)

 

 

 

(1)

See Note 3 of the Notes to the Consolidated Financial Statements included in the 2011 Annual Report for discussion of a reclassification from the ABS sector to the RMBS sector for securities backed by sub-prime residential mortgage loans.

Equity security OTTI losses recognized in earnings of $15 million and $6 million for the three months ended March 31, 2012 and 2011, respectively, were all in the common stock sector.

Credit Loss Rollforward

Presented below is a rollforward of the cumulative credit loss component of OTTI loss recognized in earnings on fixed maturity securities still held for which a portion of the OTTI loss was recognized in other comprehensive income (loss):

 

     Three Months
Ended
March 31,
 
         2012             2011      
     (In millions)  

Balance, beginning of period

   $ 471      $ 443   

Additions:

    

Initial impairments — credit loss OTTI recognized on securities not previously impaired

     16        8   

Additional impairments — credit loss OTTI recognized on securities previously impaired

     6        16   

Reductions:

    

Sales, maturities, pay downs and prepayments during the period of securities previously impaired as credit loss OTTI

     (104     (29

Securities impaired to net present value of expected future cash flows

     (8     (44

Increases in cash flows — accretion of previous credit loss OTTI

            (5
  

 

 

   

 

 

 

Balance, end of period

   $ 381      $ 389   
  

 

 

   

 

 

 

 

30


Table of Contents

MetLife, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued)

 

Net Investment Income

The components of net investment income were as follows:

 

     Three Months
Ended
March 31,
 
               2012                           2011             
     (In millions)  

Investment income:

     

Fixed maturity securities

   $ 3,808       $ 3,683   

Equity securities

     32         30   

Trading and other securities — Actively Traded Securities and FVO general account securities (1)

     45         28   

Mortgage loans

     830         759   

Policy loans

     158         160   

Real estate and real estate joint ventures

     178         147   

Other limited partnership interests

     182         243   

Cash, cash equivalents and short-term investments

     36         46   

International joint ventures (2)

     3         (21

Other

     41         (32
  

 

 

    

 

 

 

Subtotal

     5,313         5,043   

Less: Investment expenses

     260         245   
  

 

 

    

 

 

 

Subtotal, net

     5,053         4,798   
  

 

 

    

 

 

 

Trading and other securities — FVO contractholder-directed unit-linked investments (1)

     1,015         419   

Securitized reverse residential mortgage loans

     85           

FVO CSEs:

     

Commercial mortgage loans

     45         95   

Securities

     2         1   
  

 

 

    

 

 

 

Subtotal

     1,147         515   
  

 

 

    

 

 

 

Net investment income

   $ 6,200       $ 5,313   
  

 

 

    

 

 

 

 

 

(1)

Changes in estimated fair value subsequent to purchase for securities still held as of the end of the respective periods included in net investment income were:

 

Actively Traded Securities and FVO general account securities

   $ 29       $ 21   

FVO contractholder-directed unit-linked investments

   $ 877       $ 316   

 

(2)

Amounts are presented net of changes in estimated fair value of derivatives related to economic hedges of the Company’s investment in these equity method international joint venture investments that do not qualify for hedge accounting of $0 and ($23) million for the three months ended March 31, 2012 and 2011, respectively.

See “— Variable Interest Entities” for discussion of CSEs included in the table above.

 

31


Table of Contents

MetLife, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued)

 

Securities Lending

As described more fully in Note 1 of the Notes to the Consolidated Financial Statements included in the 2011 Annual Report, the Company participates in a securities lending program whereby blocks of securities are loaned to third parties. These transactions are treated as financing arrangements and the associated cash collateral received is recorded as a liability. The Company is obligated to return the cash collateral received to its counterparties.

Elements of the securities lending program are presented below at:

 

     March 31, 2012      December 31, 2011  
     (In millions)  

Securities on loan: (1)

     

Amortized cost

   $ 22,033       $ 20,613   

Estimated fair value

   $ 24,629       $ 24,072   

Cash collateral on deposit from counterparties (2)

   $ 25,265       $ 24,223   

Security collateral on deposit from counterparties

   $ 120       $ 371   

Reinvestment portfolio — estimated fair value

   $ 25,208       $ 23,940   

 

 

 

(1)

Included within fixed maturity securities, short-term investments and cash and cash equivalents.

 

(2)

Included within payables for collateral under securities loaned and other transactions.

Security collateral on deposit from counterparties in connection with the securities lending transactions may not be sold or repledged, unless the counterparty is in default, and is not reflected in the interim condensed consolidated financial statements.

Invested Assets on Deposit, Held in Trust and Pledged as Collateral

Invested assets on deposit, held in trust and pledged as collateral are presented in the table below at estimated fair value for cash and cash equivalents, short-term investments, fixed maturity securities, equity securities, and trading and other securities and at carrying value for mortgage loans.

 

     March 31, 2012      December 31, 2011  
     (In millions)  

Invested assets on deposit (1)

   $ 2,621       $ 1,660   

Invested assets held in trust (2)

     10,936         11,135   

Invested assets pledged as collateral (3)

     26,894         29,899   
  

 

 

    

 

 

 

Total invested assets on deposit, held in trust and pledged as collateral

   $ 40,451       $ 42,694   
  

 

 

    

 

 

 

 

 

(1)

The Company has invested assets on deposit with regulatory agencies consisting primarily of cash and cash equivalents, short-term investments, fixed maturity securities and equity securities.

 

(2)

The Company held in trust cash and securities, primarily fixed maturity and equity securities, to satisfy requirements under certain collateral financing agreements and certain reinsurance agreements.

 

(3)

The Company has pledged fixed maturity securities, mortgage loans and cash and cash equivalents in connection with various agreements and transactions, including funding and advances agreements (see Notes 8 and 11 of the Notes to the Consolidated Financial Statements included in the 2011 Annual Report),

 

32


Table of Contents

MetLife, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued)

 

 

collateralized borrowings (see Note 11 of the Notes to the Consolidated Financial Statements included in the 2011 Annual Report), collateral financing arrangements (see Note 12 of the Notes to the Consolidated Financial Statements included in the 2011 Annual Report), derivative transactions (see Note 4), and short sale agreements (see “— Trading and Other Securities”).

Mortgage Loans

Mortgage loans are summarized as follows at:

 

     March 31, 2012     December 31, 2011  
     Carrying
Value
    % of
Total
    Carrying
Value
    % of
Total
 
     (In millions)           (In millions)        

Mortgage loans held-for-investment:

        

Commercial

   $ 40,329        58.8  %    $ 40,440        56.1  % 

Agricultural

     12,946        18.9        13,129        18.2   

Residential

     788        1.2        689        1.0   
  

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal

     54,063        78.9        54,258        75.3   

Valuation allowances

     (446     (0.7     (481     (0.7
  

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal mortgage loans held-for-investment, net

     53,617        78.2        53,777        74.6   

Commercial mortgage loans held by CSEs

     3,024        4.4        3,138        4.4   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total mortgage loans held-for-investment, net

     56,641        82.6        56,915        79.0   
  

 

 

   

 

 

   

 

 

   

 

 

 

Mortgage loans held-for-sale:

        

Residential

     921        1.3        3,064        4.2   

Mortgage loans — lower of amortized cost or estimated fair value

     2,743        4.0        4,462        6.2   

Securitized reverse residential mortgage loans

     8,283        12.1        7,652        10.6   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total mortgage loans held-for-sale

     11,947        17.4        15,178        21.0   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total mortgage loans, net

   $ 68,588        100.0  %    $ 72,093        100.0  % 
  

 

 

   

 

 

   

 

 

   

 

 

 

See “— Variable Interest Entities” for discussion of CSEs included in the table above.

Certain of the Company’s real estate joint ventures have mortgage loans with the Company. The carrying values of such mortgage loans were $284 million and $286 million at March 31, 2012 and December 31, 2011, respectively.

 

33


Table of Contents

MetLife, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued)

 

The following tables present certain information about mortgage loans held-for-investment and valuation allowances, by portfolio segment, at:

 

     Commercial      Agricultural      Residential      Total  
     (In millions)  

March 31, 2012:

           

Mortgage loans:

           

Evaluated individually for credit losses

   $ 113       $ 157       $ 12       $ 282   

Evaluated collectively for credit losses

     40,216         12,789         776         53,781   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total mortgage loans

     40,329         12,946         788         54,063   
  

 

 

    

 

 

    

 

 

    

 

 

 

Valuation allowances:

           

Specific credit losses

     61         43         1         105   

Non-specifically identified credit losses

     307         32         2         341   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total valuation allowances

     368         75         3         446   
  

 

 

    

 

 

    

 

 

    

 

 

 

Mortgage loans, net of valuation allowance

   $ 39,961       $ 12,871       $ 785       $ 53,617   
  

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2011:

           

Mortgage loans:

           

Evaluated individually for credit losses

   $ 96       $ 159       $ 13       $ 268   

Evaluated collectively for credit losses

     40,344         12,970         676         53,990   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total mortgage loans

     40,440         13,129         689         54,258   
  

 

 

    

 

 

    

 

 

    

 

 

 

Valuation allowances:

           

Specific credit losses

     59         45         1         105   

Non-specifically identified credit losses

     339         36         1         376   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total valuation allowances

     398         81         2         481   
  

 

 

    

 

 

    

 

 

    

 

 

 

Mortgage loans, net of valuation allowance

   $ 40,042       $ 13,048       $ 687       $ 53,777   
  

 

 

    

 

 

    

 

 

    

 

 

 

The following tables present the changes in the valuation allowance, by portfolio segment:

 

     Mortgage Loan Valuation Allowances  
     Commercial     Agricultural     Residential     Total  
     (In millions)  

For the Three Months Ended March 31, 2012:

        

Balance, beginning of period

   $ 398      $ 81      $ 2      $ 481   

Provision (release)

     (30     (6     1        (35

Charge-offs, net of recoveries

                            
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of period

   $ 368      $ 75      $ 3      $ 446   
  

 

 

   

 

 

   

 

 

   

 

 

 

For the Three Months Ended March 31, 2011:

        

Balance, beginning of period

   $ 562      $ 88      $ 14      $ 664   

Provision (release)

     (30     (9            (39

Charge-offs, net of recoveries

            (3     (1     (4
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of period

   $ 532      $ 76      $ 13      $ 621   
  

 

 

   

 

 

   

 

 

   

 

 

 

See Note 1 of the Notes to the Consolidated Financial Statements included in the 2011 Annual Report for a discussion of all credit quality indicators presented herein. Recorded investment data presented herein is prior to valuation allowance. Unpaid principal balance data presented herein is generally prior to charge-offs.

 

34


Table of Contents

MetLife, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued)

 

Commercial Mortgage Loans by Credit Quality Indicators with Estimated Fair Value. Presented below is certain information about the credit quality of the commercial mortgage loans held-for-investment at:

 

     Commercial  
     Recorded Investment     Estimated
Fair Value
     % of
Total
 
     Debt Service Coverage Ratios      Total      % of
Total
      
     > 1.20x      1.00x - 1.20x      < 1.00x             
            (In millions)                   (In millions)         

March 31, 2012:

                   

Loan-to-value ratios:

                   

Less than 65%

   $ 26,167       $ 590       $ 538       $ 27,295         67.7   $ 29,059         69.2

65% to 75%

     7,456         232         280         7,968         19.8        8,354         19.9   

76% to 80%

     1,036         111         226         1,373         3.4        1,197         2.8   

Greater than 80%

     2,516         740         437         3,693         9.1        3,411         8.1   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 37,175       $ 1,673       $ 1,481       $ 40,329         100.0   $ 42,021         100.0
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

December 31, 2011:

                   

Loan-to-value ratios:

                   

Less than 65%

   $ 24,983       $ 448       $ 564       $ 25,995         64.3   $ 27,581         65.5

65% to 75%

     8,275         336         386         8,997         22.3        9,387         22.3   

76% to 80%

     1,150         98         226         1,474         3.6        1,473         3.5   

Greater than 80%

     2,714         880         380         3,974         9.8        3,664         8.7   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Total