XNYS:MET MetLife Inc Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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Form 10-Q
Table of Contents

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-Q

(Mark One)

x

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 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 July 31, 2012, 1,062,250,517 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 June 30, 2012 (Unaudited) and December 31, 2011 and for the Three Months and Six Months Ended June  30, 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      130   

Item 3.

   Quantitative and Qualitative Disclosures About Market Risk      214   

Item 4.

   Controls and Procedures      222   

Part II — Other Information

     222   

Item 1.

  

Legal Proceedings

     222   

Item 1A.

  

Risk Factors

     227   

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

     240   

Item 6.

  

Exhibits

     241   

Signatures

     242   

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 “fiscal cliff” in 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

 

3


Table of Contents

policy benefits and claims; (22) catastrophe losses; (23) heightened competition, including with respect to pricing, entry of new competitors, consolidation of distributors, the development of new products by new and existing competitors, 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

June 30, 2012 (Unaudited) and December 31, 2011

(In millions, except share and per share data)

 

    June 30, 2012     December 31, 2011  

Assets

   

Investments:

   

Fixed maturity securities available-for-sale, at estimated fair value (amortized cost: $338,871 and $329,811, respectively;includes $3,289 and $3,225, respectively, relating to variable interest entities)

  $ 366,339     $ 350,271  

Equity securities available-for-sale, at estimated fair value (cost: $2,973 and $3,208, respectively)

    2,882       3,023  

Trading and other securities, at estimated fair value (includes $535 and $473, respectively, of actively traded securities;and $166 and $280, respectively, relating to variable interest entities)

    18,328       18,268  

Mortgage loans:

   

Held-for-investment, principally at amortized cost (net of valuation allowances of $361 and $481, respectively; includes $2,981 and $3,187, respectively, at estimated fair value, relating to variable interest entities)

    57,201       56,915  

Held-for-sale, principally at estimated fair value (includes $461 and $10,716, respectively, under the fair value option)

    1,740       15,178  
 

 

 

   

 

 

 

Mortgage loans, net

    58,941       72,093  

Policy loans

    11,912       11,892  

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

    8,477       8,563  

Other limited partnership interests (includes $252 and $259, respectively, relating to variable interest entities)

    6,726       6,378  

Short-term investments, principally at estimated fair value

    18,526       17,310  

Other invested assets, principally at estimated fair value (includes $81 and $98, respectively, relating to variable interest entities)

    24,288       23,581  
 

 

 

   

 

 

 

Total investments

    516,419       511,379  

Cash and cash equivalents, principally at estimated fair value (includes $131 and $176, respectively, relating to variable interest entities)

    16,035       10,461  

Accrued investment income (includes $14 and $16, respectively, relating to variable interest entities)

    4,404       4,344  

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

    23,974       22,481  

Deferred policy acquisition costs and value of business acquired

    24,505       24,619  

Goodwill

    11,823       11,935  

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

    7,711       7,984  

Separate account assets

    220,317       203,023  
 

 

 

   

 

 

 

Total assets

  $ 825,188     $ 796,226  
 

 

 

   

 

 

 

Liabilities and Equity

   

Liabilities

   

Future policy benefits

  $ 188,509     $ 184,275  

Policyholder account balances

    225,909       217,700  

Other policy-related balances

    15,664       15,599  

Policyholder dividends payable

    786       774  

Policyholder dividend obligation

    3,369       2,919  

Payables for collateral under securities loaned and other transactions

    40,302       33,716  

Bank deposits

    6,832       10,507  

Short-term debt

    101       686  

Long-term debt (includes $2,821 and $3,068, respectively, at estimated fair value, relating to variable interest entities)

    18,879       23,692  

Collateral financing arrangements

    4,196       4,647  

Junior subordinated debt securities

    3,192       3,192  

Current income tax payable

    310       193  

Deferred income tax liability

    8,603       6,395  

Other liabilities (includes $54 and $60, respectively, relating to variable interest entities; and $257 and $7,626, respectively, under the fair value option)

    25,395       30,914  

Separate account liabilities

    220,317       203,023  
 

 

 

   

 

 

 

Total liabilities

    762,364       738,232  
 

 

 

   

 

 

 

Contingencies, Commitments and Guarantees (Note 11)

   

Redeemable noncontrolling interests in partially owned consolidated subsidiaries

    95       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; 1,065,380,456 and 1,061,150,915 shares issued at June 30, 2012 and December 31, 2011, respectively; 1,062,186,569 and 1,057,957,028 shares outstanding at June 30, 2012 and December 31, 2011, respectively

    11       11  

Additional paid-in capital

    26,927       26,782  

Retained earnings

    26,904       24,814  

Treasury stock, at cost; 3,193,887 shares at June 30, 2012 and December 31, 2011

    (172     (172

Accumulated other comprehensive income (loss)

    8,735       6,083  
 

 

 

   

 

 

 

Total MetLife, Inc.’s stockholders’ equity

    62,406       57,519  

Noncontrolling interests

    323       370  
 

 

 

   

 

 

 

Total equity

    62,729       57,889  
 

 

 

   

 

 

 

Total liabilities and equity

  $ 825,188     $ 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 and Six Months Ended June 30, 2012 and 2011 (Unaudited)

(In millions, except per share data)

 

     Three Months
Ended
June 30,
    Six Months
Ended
June 30,
 
     2012     2011     2012     2011  

Revenues

        

Premiums

   $ 9,161     $ 9,294     $ 18,290     $ 17,848  

Universal life and investment-type product policy fees

     2,097       1,969       4,175       3,858  

Net investment income

     4,719       5,094       10,919       10,406  

Other revenues

     393       592       990       1,158  

Net investment gains (losses):

        

Other-than-temporary impairments on fixed maturity securities

     (118     (298     (253     (430

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

     27       175       29       184  

Other net investment gains (losses)

     27       (32     50       (8
  

 

 

   

 

 

   

 

 

   

 

 

 

Total net investment gains (losses)

     (64     (155     (174     (254

Net derivative gains (losses)

     2,092       352       114       37  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     18,398       17,146       34,314       33,053  
  

 

 

   

 

 

   

 

 

   

 

 

 

Expenses

        

Policyholder benefits and claims

     8,911       9,121       18,015       17,358  

Interest credited to policyholder account balances

     1,022       1,442       3,579       3,366  

Policyholder dividends

     352       374       695       746  

Other expenses

     4,775       4,699       9,096       8,789  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     15,060       15,636       31,385       30,259  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     3,338       1,510       2,929       2,794  

Provision for income tax expense (benefit)

     1,038       448       763       808  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     2,300       1,062       2,166       1,986  

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

     3       31       17       (9
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     2,303       1,093       2,183       1,977  

Less: Net income (loss) attributable to noncontrolling interests

     8       (7     32         
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to MetLife, Inc.

     2,295       1,100       2,151       1,977  

Less: Preferred stock dividends

     31       31       61       61  

         Preferred stock redemption premium

                          146  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 2,264     $ 1,069     $ 2,090     $ 1,770  
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

   $ 3,765     $ 3,351     $ 4,819     $ 4,325  

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

     1       (7     16       (9
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to MetLife, Inc.

   $ 3,764     $ 3,358     $ 4,803     $ 4,334  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

        

Basic

   $ 2.13     $ 0.98     $ 1.95     $ 1.68  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 2.12     $ 0.97     $ 1.93     $ 1.66  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

        

Basic

   $ 2.13     $ 1.01     $ 1.97     $ 1.67  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 2.12     $ 1.00     $ 1.95     $ 1.65  
  

 

 

   

 

 

   

 

 

   

 

 

 

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 Six Months Ended June 30, 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

        145                   145         145  

Dividends on preferred stock

          (61               (61       (61

Change in equity of noncontrolling interests

                        (63     (63

Net income (loss)

          2,151                 2,151       20       2,171  

Other comprehensive income (loss), net of income tax

              2,805       26       (229     50       2,652       (4     2,648  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2012

  $ 1     $ 11     $ 26,927     $ 26,904     $ (172   $ 11,920     $ (415   $ (877   $ (1,893   $ 62,406     $ 323     $ 62,729  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

(1)

Net income (loss) attributable to noncontrolling interests excludes gains (losses) of redeemable noncontrolling interests in partially owned consolidated subsidiaries of $12 million.

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

Interim Condensed Consolidated Statements of Equity — (Continued)

For the Six Months Ended June 30, 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

        147                   147         147  

Dividends on preferred stock

          (61               (61       (61

Change in equity of noncontrolling interests

                        38       38  

Net income (loss)

          1,977                 1,977       (4     1,973  

Other comprehensive income (loss), net of income tax

              1,789       (94     619       43       2,357       (5     2,352  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2011

  $ 1     $ 11     $ 26,714     $ 21,216     $ (172   $ 5,277     $ (460   $ 91     $ (1,406   $ 51,272     $ 394     $ 51,666  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

  

 

 

(1)

Net income (loss) attributable to noncontrolling interests excludes gains (losses) of redeemable noncontrolling interests in partially owned consolidated subsidiaries of $4 million.

See accompanying notes to the interim condensed consolidated financial statements.

 

8


Table of Contents

MetLife, Inc.

Interim Condensed Consolidated Statements of Cash Flows

For the Six Months Ended June 30, 2012 and 2011 (Unaudited)

(In millions)

 

     Six Months
Ended
June 30,
 
             2012                     2011          

Net cash provided by operating activities

   $ 12,102     $ 6,788  
  

 

 

   

 

 

 

Cash flows from investing activities

    

Sales, maturities and repayments of:

    

Fixed maturity securities

     51,495       54,958  

Equity securities

     789       1,027  

Mortgage loans

     4,625       5,152  

Real estate and real estate joint ventures

     544       268  

Other limited partnership interests

     453       676  

Purchases of:

    

Fixed maturity securities

     (61,507     (66,861

Equity securities

     (393     (489

Mortgage loans

     (4,877     (6,686

Real estate and real estate joint ventures

     (279     (417

Other limited partnership interests

     (586     (576

Cash received in connection with freestanding derivatives

     1,011       1,470  

Cash paid in connection with freestanding derivatives

     (1,549     (2,632

Net change in securitized reverse residential mortgage loans

     (1,116       

Sale of interest in joint venture

            269  

Net change in policy loans

     (46     (77

Net change in short-term investments

     (1,037     (2,896

Net change in other invested assets

     (225     (1

Other, net

     (79     (78
  

 

 

   

 

 

 

Net cash used in investing activities

     (12,777     (16,893
  

 

 

   

 

 

 

Cash flows from financing activities

    

Policyholder account balances:

    

Deposits

     49,224       44,671  

Withdrawals

     (44,889     (40,842

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

     6,586       2,807  

Net change in bank deposits

     (3,717     (341

Net change in short-term debt

     (585     (204

Long-term debt issued

            1,221  

Long-term debt repaid

     (1,022     (715

Collateral financing arrangements repaid

     (349       

Cash received in connection with collateral financing arrangements

            100  

Cash paid in connection with collateral financing arrangements

     (44       

Debt issuance costs

            (1

Net change in liability for securitized reverse residential mortgage loans

     1,116         

Common stock issued, net of issuance costs

            2,950  

Stock options exercised

     79       73  

Redemption of convertible preferred stock

            (2,805

Preferred stock redemption premium

            (146

Dividends on preferred stock

     (61     (61

Other, net

     (47     (121
  

 

 

   

 

 

 

Net cash provided by financing activities

     6,291       6,586  
  

 

 

   

 

 

 

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

     (42     146  
  

 

 

   

 

 

 

Change in cash and cash equivalents

     5,574       (3,373

Cash and cash equivalents, beginning of period

     10,461       13,046  
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 16,035     $ 9,673  
  

 

 

   

 

 

 

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

   $      $ 89  
  

 

 

   

 

 

 

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

   $      $ 45  
  

 

 

   

 

 

 

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

   $ 10,461     $ 12,957  
  

 

 

   

 

 

 

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

   $ 16,035     $ 9,628  
  

 

 

   

 

 

 

Supplemental disclosures of cash flow information:

    

Net cash paid during the period for:

    

Interest

   $ 494     $ 834  
  

 

 

   

 

 

 

Income tax

   $ 302     $ 586  
  

 

 

   

 

 

 

Non-cash transactions during the period:

    

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

   $ 221     $ 74  
  

 

 

   

 

 

 

Collateral financing arrangements repaid

   $ 102     $   
  

 

 

   

 

 

 

Redemption of advances agreements in long-term debt (1)

   $ 3,806     $   
  

 

 

   

 

 

 

Issuance of funding agreements in policyholder account balances (1)

   $ 3,806     $   
  

 

 

   

 

 

 

  

 

 

(1)

See Note 2.

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 and the Middle East. 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; Group, Voluntary & Worksite Benefits; Corporate Benefit Funding; and Latin America (collectively, “The Americas”); Asia; and Europe, the Middle East and Africa (“EMEA”). See Note 16 for further information on the reorganization of the Company’s segments in the first quarter of 2012, which was retrospectively applied.

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 May 31, 2012 and November 30, 2011 and the operating results of such subsidiaries for the three months and six months ended May 31, 2012 and 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 accounting pronouncements adopted in the first quarter of 2012, which were 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 June 30, 2012, its consolidated results of operations and comprehensive income for the three months and six months ended June 30, 2012 and 2011, its consolidated statements of equity for the six months ended June 30, 2012 and 2011, and its consolidated statements of cash flows for the six months ended June 30, 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, as revised by MetLife, Inc.’s Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission (“SEC”) on May 23, 2012 (as revised, the “2011 Annual Report”), 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.

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.

On January 1, 2012, the Company adopted new guidance regarding comprehensive income, which was retrospectively applied, 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 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. The Company adopted the two-statement approach for annual financial statements.

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.

 

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Table of Contents

MetLife, Inc.

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

 

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.

On January 1, 2012, the Company adopted new guidance regarding accounting for deferred policy acquisition costs (“DAC”), which was retrospectively applied. 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 statements of operations and comprehensive income:

 

     Three Months
Ended
June 30, 2011
     Six Months
Ended
June 30, 2011
 
     As Previously
Reported
    Adjustment     As Adjusted      As Previously
Reported
    Adjustment     As Adjusted  
     (In millions)  

Revenues

             

Net investment income

   $ 5,096 (1)    $ (2   $ 5,094      $ 10,410 (1)    $ (4   $ 10,406  

Expenses

             

Policyholder benefits and claims

   $ 9,119     $ 2     $ 9,121      $ 17,350     $ 8     $ 17,358  

Other expenses

   $ 4,495     $ 204     $ 4,699      $ 8,397     $ 392     $ 8,789  

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

   $ 1,718 (1)    $ (208   $ 1,510      $ 3,198 (1)    $ (404   $ 2,794  

Provision for income tax expense (benefit)

   $ 519     $ (71   $ 448      $ 946 (1)    $ (138   $ 808  

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

   $ 1,199 (1)    $ (137   $ 1,062      $ 2,252 (1)    $ (266   $ 1,986  

Net income (loss)

   $ 1,230     $ (137   $ 1,093      $ 2,243     $ (266   $ 1,977  

Net income (loss) attributable to MetLife, Inc.

   $ 1,237     $ (137   $ 1,100      $ 2,243     $ (266   $ 1,977  

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

   $ 1,206     $ (137   $ 1,069      $ 2,036     $ (266   $ 1,770  

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

             

Basic

   $ 1.11     $ (0.13   $ 0.98      $ 1.93     $ (0.25   $ 1.68  

Diluted

   $ 1.10     $ (0.13   $ 0.97      $ 1.91     $ (0.25   $ 1.66  

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

             

Basic

   $ 1.14     $ (0.13   $ 1.01      $ 1.92     $ (0.25   $ 1.67  

Diluted

   $ 1.13     $ (0.13   $ 1.00      $ 1.90     $ (0.25   $ 1.65  

 

 

(1)

Amounts in the table above differ from the amounts previously reported in the consolidated statements of operations and comprehensive income due to the inclusion of the impact of discontinued real estate operations of $2 million for the three months ended June 30, 2011 and $3 million (net investment income of $4 million, net of $1 million of income tax) for the six months ended June 30, 2011.

 

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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 cash flows:

 

     Six Months
Ended
June 30, 2011
 
     As Previously
Reported
    Adjustment     As Adjusted  
     (In millions)  

Net cash provided by operating activities

   $ 6,793     $ (5   $ 6,788  

Net change in other invested assets

   $ (6   $ 5     $ (1

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 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: Property, Plant, and Equipment—Real Estate Sales 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.

 

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Table of Contents

MetLife, Inc.

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

 

2. Acquisitions and Dispositions

2012 Pending Dispositions

MetLife Bank

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. (“GE Capital Bank”). The transaction is subject to the receipt of regulatory approvals from the Federal Deposit Insurance Corporation (the “FDIC”) and to the satisfaction of other customary closing conditions. The Utah Department of Financial Institutions has approved the transaction and the Office of the Comptroller of the Currency (the “OCC”) has granted approval of a change in the composition of all or substantially all of MetLife Bank’s assets in connection with the transaction. GE Capital Bank has filed an application with the FDIC seeking approval of the assumption of the deposits to be transferred to it, and MetLife Bank has filed an application 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 Bank of the deposits to be transferred to it). The parties have each responded to questions on their applications from the staff of the FDIC, and GE Capital Bank is in the process of responding to recent additional requests from the FDIC. The parties are awaiting action by the FDIC on their applications. Additionally, in January 2012, MetLife, Inc. announced it was exiting the business of originating forward residential mortgages and, in April 2012, announced it was exiting the businesses of originating and servicing reverse residential mortgages and that it and MetLife Bank entered into a definitive agreement to sell MetLife Bank’s reverse mortgage servicing portfolio.

On June 29, 2012, the Company sold the majority of MetLife Bank’s reverse mortgage servicing rights and related assets and liabilities for $25 million in net consideration. The net assets sold were $127 million, resulting in a loss on disposal of $67 million, net of income tax, for the six months ended June 30, 2012. As a result of this sale, the Company de-recognized $8.7 billion of the associated securitized reverse residential mortgage loans that previously did not qualify as sales, as well as the corresponding liability of $8.7 billion related to these mortgages in the consolidated balance sheet at June 30, 2012. See Note 1 of the Notes to the Consolidated Financial Statements included in the 2011 Annual Report. The remaining loans and corresponding liability are expected to be de-recognized upon transfer of the remaining mortgage servicing rights anticipated in the second half of 2012.

In conjunction with exiting the depository and origination businesses, for the three months and six months ended June 30, 2012, the Company recorded a net loss of $50 million and $43 million, respectively, net of income tax, which included lease impairments, other employee-related charges, impairments on mortgage loans, and gains (losses) on securities and mortgage loans sold. The total assets and liabilities recorded in the consolidated balance sheets related to these businesses were approximately $7.0 billion and $6.2 billion at June 30, 2012, respectively, and $11.3 billion and $10.5 billion at December 31, 2011, respectively.

The Company expects to incur additional charges of $5 million to $50 million, net of income tax, during the remainder of 2012, related to exiting these four businesses. These businesses did not qualify for discontinued operations accounting treatment under GAAP.

MetLife Bank has historically taken advantage of collateralized borrowing opportunities with the Federal Home Loan Bank of New York (“FHLB of NY”). In January 2012, MetLife Bank discontinued taking advances from the FHLB of NY. In April 2012, MetLife Bank transferred cash to Metropolitan Life Insurance Company (“MLIC”) related to $3.8 billion of outstanding advances which had been included in long-term debt, and MLIC assumed the associated obligations under terms similar to those of the transferred advances by issuing funding agreements which are included in policyholder account balances (“PABs”).

 

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Table of Contents

MetLife, Inc.

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

 

Caribbean Business

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 $782 million and $623 million at June 30, 2012, respectively, and $859 million and $707 million at December 31, 2011, respectively. Subsequent to June 30, 2012, regulatory approvals have been received and closings have taken place in approximately half of the jurisdictions. There was no additional gain or loss recorded upon any of the closings. See Note 2 of the Notes to the Consolidated Financial Statements included in the 2011 Annual Report. Sales in the remaining jurisdictions are expected to close in the third quarter of 2012, subject to regulatory approval and other customary closing conditions in each of the jurisdictions. The results of the Caribbean Business are included in continuing operations.

2010 Acquisition

American Life Insurance Company

Contingent Consideration

Related to the 2010 acquisition of American Life Insurance Company (“American Life”), the Company guaranteed that the fair value of a fund of assets backing certain United Kingdom 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. At July 1, 2012, the shortfall between the aggregate guaranteed amount and the fair value of the fund was less than £106 million, resulting in a contingent consideration liability of $108 million at June 30, 2012, which is expected to be settled in the third quarter of 2012. The contingent consideration liability was $109 million at December 31, 2011. The decrease in the contingent consideration liability amount from December 31, 2011 to June 30, 2012 was recorded in net derivative gains (losses) in the interim condensed consolidated statement of operations and comprehensive income. See Note 2 of the Notes to the Consolidated Financial Statements included in the 2011 Annual Report.

Branch Restructuring

During the second quarter of 2012, and in accordance with the closing agreement American Life entered into on March 4, 2010 (the “Closing Agreement”) with the Commissioner of the Internal Revenue Service, the Company transferred the business of the Japan branch to a newly incorporated wholly-owned subsidiary in Japan, MetLife Alico Life Insurance K. K. (“MLKK”). Also during the second quarter of 2012, the Company revised the estimate of the valuation allowance required for U.S. deferred tax assets relating to the ongoing restructuring of American Life’s other non-U.S. branches. As of December 31, 2011 the Company had recorded a valuation allowance related to the branch restructuring of $720 million to reduce the net amount of U.S. deferred tax assets to an amount that is more likely than not realizable. This valuation allowance was reduced to $118 million as of June 30, 2012. The net reduction in the valuation allowance was primarily due to the following factors:

 

   

Additional U.S. deferred tax assets that were determined to be realizable in the second quarter of 2012;

 

   

Additional tax basis in assets as a result of the gain recognized during the second quarter of 2012 related to the branch restructuring that more likely than not will not be realizable; and

 

   

A reduction in both the gross deferred tax asset and the valuation allowance related to the completion of the Company’s transfer of the Japan branch business to MLKK.

 

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Table of Contents

MetLife, Inc.

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

 

The following table provides a rollforward of the deferred tax asset valuation allowance associated with the branch restructuring:

 

     Japan     Other
Non-U.S.
Branches
    Total  
     (In millions)  

Balance, beginning of period

   $ 566     $ 154     $ 720  

Income tax expense (benefit)

     10       (11     (1

Deferred income tax expense (benefit) related to unrealized investment gains (losses)

     320       (25     295  

Offsetting reduction in gross deferred tax asset related to the branch transfer to subsidiary

     (896            (896
  

 

 

   

 

 

   

 

 

 

Balance, end of period

   $      $ 118     $ 118  
  

 

 

   

 

 

   

 

 

 

A liability of $277 million was recognized in purchase accounting as of November 1, 2010 for the anticipated and estimated costs associated with restructuring American Life’s foreign branches into subsidiaries in connection with the Closing Agreement. This liability has been reduced based on payments through June 30, 2012. In addition, based on revised estimates of anticipated costs, this liability was reduced by $35 million for both the three months and six months ended June 30, 2012, which was recorded as a reduction in other expenses in the interim condensed consolidated statements of operations and comprehensive income, resulting in a liability of $120 million at June 30, 2012.

 

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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:

 

    June 30, 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

  $ 101,275     $ 9,941     $ 843     $      $ 110,373       30.1

Foreign corporate securities

    59,878       4,116       648       1       63,345       17.3  

Foreign government securities

    51,582       4,780       169              56,193       15.3  

U.S. Treasury and agency securities

    41,217       6,629       5              47,841       13.1  

Residential mortgage-backed securities (“RMBS”)

    40,077       2,378       726       665       41,064       11.2  

Commercial mortgage-backed securities (“CMBS”)

    18,270       850       103              19,017       5.2  

State and political subdivision securities

    12,744       1,962       92              14,614       4.0  

Asset-backed securities (“ABS”)

    13,828       294       217       13       13,892       3.8  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total fixed maturity securities

  $ 338,871     $ 30,950     $ 2,803     $ 679     $ 366,339       100.0
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Equity Securities:

           

Common stock

  $ 2,060     $ 95     $ 61     $      $ 2,094       72.7

Non-redeemable preferred stock

    913       35       160              788       27.3  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity securities

  $ 2,973     $ 130     $ 221     $      $ 2,882       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
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

18


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 $50 million and $62 million with unrealized gains (losses) of $0 and ($19) million at June 30, 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:

 

     June 30, 2012      December 31, 2011  
     Carrying Value (1)  
     (In millions)  

U.S. Treasury and agency securities included in:

     

Fixed maturity securities

   $ 47,841      $ 40,012  

Short-term investments

     15,860        15,775  

Cash equivalents

     2,266        1,748  
  

 

 

    

 

 

 

Total U.S. Treasury and agency securities

   $ 65,967      $ 57,535  
  

 

 

    

 

 

 

Japan government and agency securities included in:

     

Fixed maturity securities

   $ 21,746      $ 21,003  

Cash equivalents

     29        —     
  

 

 

    

 

 

 

Total Japan government and agency securities

   $ 21,775      $ 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:

 

     June 30, 2012      December 31, 2011  
     Amortized
Cost
     Estimated
Fair
Value
     Amortized
Cost
     Estimated
Fair
Value
 
     (In millions)  

Due in one year or less

   $ 18,012      $ 18,173      $ 16,747      $ 16,862  

Due after one year through five years

     70,897        73,297        62,819        64,414  

Due after five years through ten years

     80,653        88,403        82,694        88,036  

Due after ten years

     97,134        112,493        93,876        106,274  
  

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal

     266,696        292,366        256,136        275,586  

RMBS, CMBS and ABS

     72,175        73,973        73,675        74,685  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total fixed maturity securities

   $ 338,871      $ 366,339      $ 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.

 

19


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 at:

 

     June 30, 2012     December 31, 2011  
     (In millions)  

Fixed maturity securities

   $ 28,068     $ 21,096  

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

     (679     (724
  

 

 

   

 

 

 

Total fixed maturity securities

     27,389       20,372  

Equity securities

     (52     (167

Derivatives

     1,832       1,514  

Other

     31       72  
  

 

 

   

 

 

 

Subtotal

     29,200       21,791  
  

 

 

   

 

 

 

Amounts allocated from:

    

Insurance liability loss recognition

     (5,669     (3,996

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

     42       47  

DAC and VOBA

     (2,205     (1,800

Policyholder dividend obligation

     (3,369     (2,919
  

 

 

   

 

 

 

Subtotal

     (11,201     (8,668

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

     222       236  

Deferred income tax benefit (expense)

     (6,722     (4,694
  

 

 

   

 

 

 

Net unrealized investment gains (losses)

     11,499       8,665  

Net unrealized investment gains (losses) attributable to noncontrolling interests

     6       9  
  

 

 

   

 

 

 

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

   $ 11,505     $ 8,674  
  

 

 

   

 

 

 

 

20


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:

 

     Six Months
Ended
June 30, 2012
    Year
Ended
December 31,  2011
 
     (In millions)  

Balance, beginning of period

   $ (724   $ (601

Noncredit OTTI losses recognized (1)

     (29     31  

Securities sold with previous noncredit OTTI loss

     76       125  

Subsequent changes in estimated fair value

     (2     (279
  

 

 

   

 

 

 

Balance, end of period

   $ (679   $ (724
  

 

 

   

 

 

 

 

 

(1)

Noncredit OTTI losses recognized, net of DAC, were ($61) million and $33 million for the six months ended June 30, 2012 and year ended December 31, 2011, respectively.

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

 

     Six Months
Ended
June 30, 2012
 
     (In millions)  

Balance, beginning of period

   $ 8,674  

Fixed maturity securities on which noncredit OTTI losses have been recognized

     45  

Unrealized investment gains (losses) during the period

     7,364  

Unrealized investment gains (losses) relating to:

  

Insurance liability gain (loss) recognition

     (1,673

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

     (5

DAC and VOBA

     (405

Policyholder dividend obligation

     (450

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

     (14

Deferred income tax benefit (expense)

     (2,028
  

 

 

 

Net unrealized investment gains (losses)

     11,508  

Net unrealized investment gains (losses) attributable to noncontrolling interests

     (3
  

 

 

 

Balance, end of period

   $ 11,505  
  

 

 

 

Change in net unrealized investment gains (losses)

   $ 2,834  

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

     (3
  

 

 

 

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

   $ 2,831  
  

 

 

 

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

 

21


Table of Contents

MetLife, Inc.

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

 

“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.

 

     June 30, 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

   $ 9,639      $ 276      $ 4,461      $ 567      $ 14,100      $ 843  

Foreign corporate securities

     7,694        279        3,733        370        11,427        649  

Foreign government securities

     1,811        97        784        72        2,595        169  

U.S. Treasury and agency securities

     13,208        5                        13,208        5  

RMBS

     2,532        342        4,734        1,049        7,266        1,391  

CMBS

     1,159        28        775        75        1,934        103  

State and political subdivision securities

     339        4        415        88        754        92  

ABS

     3,484        62        1,513        168        4,997        230  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total fixed maturity securities

   $ 39,866      $ 1,093      $ 16,415      $ 2,389      $ 56,281      $ 3,482  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Equity Securities:

                 

Common stock

   $ 527      $ 59      $ 20      $ 2      $ 547      $ 61  

Non-redeemable preferred stock

     38        11        312        149        350        160  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total equity securities

   $ 565      $ 70      $ 332      $ 151      $ 897      $ 221  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total number of securities in an unrealized loss position

     3,191           1,646           
  

 

 

       

 

 

          

 

     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:

 

    June 30, 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

  $ 30,061     $ 1,073     $ 340     $ 272       2,142       125  

Six months or greater but less than nine months

    2,582       337       110       98       276       51  

Nine months or greater but less than twelve months

    7,520       1,256       354       397       567       72  

Twelve months or greater

    14,401       2,533       1,009       902       1,314       180  
 

 

 

   

 

 

   

 

 

   

 

 

     

Total

  $ 54,564     $ 5,199     $ 1,813     $ 1,669      
 

 

 

   

 

 

   

 

 

   

 

 

     

Percentage of amortized cost

        3     32    
     

 

 

   

 

 

     

Equity Securities:

           

Less than six months

  $ 333     $ 72     $ 24     $ 19       118       33  

Six months or greater but less than nine months

    84       43       8       12       10       2  

Nine months or greater but less than twelve months

    148       112       19       34       32       7  

Twelve months or greater

    103       223       5       100       22       15  
 

 

 

   

 

 

   

 

 

   

 

 

     

Total

  $ 668     $ 450     $ 56     $ 165      
 

 

 

   

 

 

   

 

 

   

 

 

     

Percentage of cost

        8     37    
     

 

 

   

 

 

     

 

    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    
     

 

 

   

 

 

     

 

23


Table of Contents

MetLife, Inc.

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

 

Equity securities with gross unrealized losses of 20% or more for twelve months or greater increased from $96 million at December 31, 2011 to $100 million at June 30, 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 June 30, 2012 were financial services industry investment grade non-redeemable preferred stock, of which 75% were rated A or better.

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 $3.7 billion and $5.8 billion at June 30, 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:

 

     June 30, 2012     December 31, 2011  

Sector:

    

RMBS

     38     30

U.S. corporate securities

     23       24  

Foreign corporate securities

     17       23  

ABS

     6       5  

Foreign government securities

     5       6  

CMBS

     3       4  

State and political subdivision securities

     2       3  

Other

     6       5  
  

 

 

   

 

 

 

Total

     100     100
  

 

 

   

 

 

 

Industry:

    

Mortgage-backed

     41     34

Finance

     20       27  

Utility

     7       8  

Asset-backed

     6       5  

Consumer

     6       6  

Foreign government securities

     5       6  

Communications

     3       3  

State and political subdivision securities

     2       3  

Industrial

     2       2  

Other

     8       6  
  

 

 

   

 

 

 

Total

     100     100
  

 

 

   

 

 

 

 

24


Table of Contents

MetLife, Inc.

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

 

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:

 

     June 30, 2012     December 31, 2011  
     Fixed Maturity
Securities
    Equity
Securities
    Fixed Maturity
Securities
    Equity
Securities
 
     (In millions, except number of securities)  

Number of securities

     56       6       96       8  

Total gross unrealized losses

   $ 1,049     $ 99     $ 1,703     $ 117  

Percentage of total gross unrealized losses

     30     45     31     39

Fixed maturity and equity securities, each with gross unrealized losses greater than $10 million, decreased $672 million during the six months ended June 30, 2012. The decline in, or improvement in, gross unrealized losses for the six months ended June 30, 2012 was primarily attributable to a decrease in interest rates and narrowing credit spreads. These securities were included in the Company’s OTTI review process.

As of June 30, 2012, $1.4 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 $1.4 billion, $572 million, or 41%, was related to unrealized losses on investment grade securities. Unrealized losses on investment grade securities were principally related to widening credit spreads or rising interest rates since purchase. Of the $1.4 billion, $825 million, or 59%, was related to unrealized losses on below investment grade securities. Unrealized losses on below investment grade securities were 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 and financial services 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.

 

25


Table of Contents

MetLife, Inc.

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

 

The following table presents certain information about the Company’s equity securities available-for-sale with gross unrealized losses of 20% or more at June 30, 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

  $ 19     $ 10       53   $ 7       70   $ 7       100     86

Six months or greater but less than twelve months

    46       46       100     27       59     27       100     37

Twelve months or greater

    100       100       100     100       100     100       100     75
 

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

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

  $ 165     $ 156       95   $ 134       86   $ 134       100     68
 

 

 

     

 

 

   

 

 

     

 

 

     

 

 

 

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.

 

26


Table of Contents

MetLife, Inc.

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

 

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:

 

     June 30, 2012     December 31, 2011  
     (In millions)  

Actively Traded Securities

   $ 535     $ 473  

FVO general account securities

     264       267  

FVO contractholder-directed unit-linked investments

     17,459       17,411  

FVO securities held by CSEs

     70       117  
  

 

 

   

 

 

 

Total trading and other securities — at estimated fair value

   $ 18,328     $ 18,268  
  

 

 

   

 

 

 

Actively Traded Securities — at estimated fair value

   $ 535     $ 473  

Short sale agreement liabilities — at estimated fair value

     (140     (127
  

 

 

   

 

 

 

Net long/short position — at estimated fair value

   $ 395     $ 346  
  

 

 

   

 

 

 

Investments pledged to secure short sale agreement liabilities

   $ 601     $ 558  
  

 

 

   

 

 

 

See Note 1 of the Notes to the Consolidated Financial Statements included in the 2011 Annual Report for a discussion of FVO contractholder-directed unit-linked investments and “— Variable Interest Entities” for a 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

June 30,
    Six Months
Ended
June 30,
 
     2012     2011     2012     2011  
     (In millions)  

Total gains (losses) on fixed maturity securities:

        

Total OTTI losses recognized

   $ (118   $ (298   $ (253   $ (430

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

     27       175       29       184  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net OTTI losses on fixed maturity securities recognized in earnings

     (91     (123     (224     (246

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

     73       18       66       (22
  

 

 

   

 

 

   

 

 

   

 

 

 

Total gains (losses) on fixed maturity securities

     (18     (105     (158     (268
  

 

 

   

 

 

   

 

 

   

 

 

 

Other net investment gains (losses):

        

Equity securities

     19       (70     10       (34

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

     (1            3         

Mortgage loans (1)

     13       68       49       115  

Real estate and real estate joint ventures

     (16     4       (20     5  

Other limited partnership interests

     (9     5       (11     8  

Other investment portfolio gains (losses)

     (10     (6     (35     (2
  

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal — investment portfolio gains (losses)

     (22     (104     (162     (176
  

 

 

   

 

 

   

 

 

   

 

 

 

FVO CSEs — changes in estimated fair value:

        

Commercial mortgage loans

     (7     7       (1     25  

Securities

            39              (1

Long-term debt — related to commercial mortgage loans

     10       (8     10       (8

Long-term debt — related to securities

     1       (54     (10     (7

Other gains (losses) (2)

     (46     (35     (11     (87
  

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal FVO CSEs and other gains (losses)

     (42     (51     (12     (78
  

 

 

   

 

 

   

 

 

   

 

 

 

Total net investment gains (losses)

   $ (64   $ (155   $ (174   $ (254
  

 

 

   

 

 

   

 

 

   

 

 

 

 

 

(1)

Net investment gains (losses) for the three months and six months ended June 30, 2012 includes a net gain (loss) of ($35) million and $60 million, respectively, as a result of the pending disposition of certain operations of MetLife Bank, which is comprised of gains (losses) on securities and mortgage loans sold of ($27) million and $75 million, and impairments on mortgage loans of ($8) million and ($15) million, for the three months and six months ended June 30, 2012, respectively. See Note 2.

 

(2)

Other gains (losses) for the three months and six months ended June 30, 2011 includes a loss of $7 million and $87 million, respectively, related to the sale of the Company’s investment in Mitsui Sumitomo MetLife Insurance Co., Ltd (“MSI MetLife”). 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 $25 million and $83 million for the three months and six months ended June 30, 2012, respectively, and ($49) million and ($14) million for the three months and six months ended June 30, 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 tables below. Investment gains and losses on sales of securities are determined on a specific identification basis.

 

    Three Months Ended June 30,  
        2012             2011             2012             2011         2012     2011  
    Fixed Maturity Securities     Equity Securities     Total  
    (In millions)  

Proceeds

  $ 15,625     $ 19,316     $ 238     $ 489     $ 15,863     $ 19,805  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross investment gains

  $ 225     $ 235     $ 23     $ 26     $ 248     $ 261  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross investment losses

    (152     (217     (2     (49     (154     (266
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total OTTI losses recognized in earnings:

           

Credit-related

    (68     (70                   (68     (70

Other (1)

    (23     (53     (2     (47     (25     (100
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total OTTI losses recognized in earnings

    (91     (123     (2     (47     (93     (170
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net investment gains (losses)

  $ (18   $ (105   $ 19     $ (70   $ 1     $ (175
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

    Six Months Ended June 30,  
        2012             2011             2012             2011         2012     2011  
    Fixed Maturity Securities     Equity Securities     Total  
    (In millions)  

Proceeds

  $ 35,019     $ 35,848     $ 363     $ 805     $ 35,382     $ 36,653  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross investment gains

  $ 550     $ 428     $ 33     $ 74     $ 583     $ 502  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross investment losses

    (484     (450     (6     (55     (490     (505
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total OTTI losses recognized in earnings:

           

Credit-related

    (141     (113                   (141     (113

Other (1)

    (83     (133     (17     (53     (100     (186
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total OTTI losses recognized in earnings

    (224     (246     (17     (53     (241     (299
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net investment gains (losses)

  $ (158   $ (268   $ 10     $ (34   $ (148   $ (302
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

(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.

 

29


Table of Contents

MetLife, Inc.

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

 

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
June 30,
     Six Months
Ended

June 30,
 
     2012      2011      2012      2011  
     (In millions)  

Sector:

           

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

           

Utility

   $ 13      $       $ 51      $ 1  

Finance

             40        32        41  

Communications

     1        1        18        14  

Consumer

     9        27        12        29  

Industrial

                     1          

Other industries

     6                6          
  

 

 

    

 

 

    

 

 

    

 

 

 

Total U.S. and foreign corporate securities

     29        68        120        85  

CMBS

     20                50        3  

RMBS (1)

     37        42        46        66  

ABS (1)

     5                7        3  

State and political subdivision securities

                     1          

Foreign government securities

             13                89  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 91      $ 123      $ 224      $ 246  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

 

(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 related to the following sectors and industries:

 

     Three Months
Ended
June 30,
     Six Months
Ended
June 30,
 
     2012      2011      2012      2011  
     (In millions)  

Sector:

           

Common stock

   $ 2      $ 9      $ 17      $ 15  

Non-redeemable preferred stock

             38                38  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 2      $ 47      $ 17      $ 53  
  

 

 

    

 

 

    

 

 

    

 

 

 

Industry:

           

Financial services industry — perpetual hybrid securities

   $       $ 38      $       $ 38  

Other industries

     2        9        17        15  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 2      $ 47      $ 17      $ 53  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

30


Table of Contents

MetLife, Inc.

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

 

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

June  30,
    Six Months
Ended

June 30,
 
     2012     2011     2012     2011  
     (In millions)  

Balance, beginning of period

   $ 381     $ 389     $ 471     $ 443  

Additions:

        

Initial impairments — credit loss OTTI on securities not previously impaired

     21       18       37       26  

Additional impairments — credit loss OTTI on securities previously impaired

     20       24       26       40  

Reductions:

        

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

     (15     (26     (119     (55

Securities impaired to net present value of expected future cash flows

     (15            (23     (44

Increases in cash flows — accretion of previous credit loss OTTI

     (1     (4     (1     (9
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of period

   $ 391     $ 401     $ 391     $ 401  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Investment Income

The components of net investment income were as follows:

 

     Three Months
Ended
June 30,
    Six Months
Ended
June 30,
 
     2012     2011     2012      2011  
     (In millions)  

Investment income:

         

Fixed maturity securities

   $ 3,737     $ 3,791     $ 7,545      $ 7,474  

Equity securities

     38       48       70        78  

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

     (1     16       44        44  

Mortgage loans

     764       766       1,594        1,525  

Policy loans

     156       160       314        320  

Real estate and real estate joint ventures

     280       187       457        333  

Other limited partnership interests

     266       159       448        402  

Cash, cash equivalents and short-term investments

     39       44       75        90  

International joint ventures (2)

     1       7       4        (14

Other

     80       101       121        69  
  

 

 

   

 

 

   

 

 

    

 

 

 

Subtotal

     5,360       5,279       10,672        10,321  

Less: Investment expenses

     258       249       517        494  
  

 

 

   

 

 

   

 

 

    

 

 

 

Subtotal, net

     5,102       5,030       10,155        9,827  
  

 

 

   

 

 

   

 

 

    

 

 

 

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

     (517     (32     498        387  

Securitized reverse residential mortgage loans

     89              174          

FVO CSEs:

         

Commercial mortgage loans

     44       96       89        191  

Securities

     1              3        1  
  

 

 

   

 

 

   

 

 

    

 

 

 

Subtotal

     (383     64       764        579  
  

 

 

   

 

 

   

 

 

    

 

 

 

Net investment income

   $ 4,719     $ 5,094     $ 10,919      $ 10,406