FORM 10-Q
Table of Contents

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-Q

(Mark One)

  þ

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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2013

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.

 

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 April 30, 2013, 1,095,013,165 shares of the registrant’s common stock, $0.01 par value per share, were outstanding.

 

 

 


Table of Contents

Table of Contents

 

       Page  

Part I — Financial Information

    

Item 1.    Financial Statements (at March  31, 2013 (Unaudited) and December 31, 2012 and for the Three Months Ended March 31, 2013 and 2012 (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:

    

Note 1 — Business, Basis of Presentation and Summary of Significant Accounting Policies

       10   

Note 2 — Segment Information

       12   

Note 3 — Acquisitions and Dispositions

       18   

Note 4 — Insurance

       19   

Note 5 — Closed Block

       21   

Note 6 — Investments

       24   

Note 7 — Derivatives

       40   

Note 8 — Fair Value

       56   

Note 9 — Equity

       83   

Note 10 — Other Expenses

       86   

Note 11 — Employee Benefit Plans

       87   

Note 12 — Earnings Per Common Share

       88   

Note 13 — Contingencies, Commitments and Guarantees

       89   

Note 14 — Subsequent Event

       97   

Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations

       98   

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

       164   

Item 4.    Controls and Procedures

       173   

Part II — Other Information

       173   

Item 1.    Legal Proceedings

       173   

Item 1A.  Risk Factors

       176   

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

       180   

Item 6.    Exhibits

       181   

Signatures

       182   

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) increased volatility and disruption of the capital and credit markets, which may affect our ability to meet liquidity needs and access capital, including through our credit facilities, generate fee income and market-related revenue and finance statutory reserve requirements and may require us to pledge collateral or make payments related to declines in value of specified assets, including assets supporting risks ceded to certain of our captive reinsurers or hedging arrangements associated with those risks; (3) 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; (4) impact of comprehensive financial services regulation reform on us, as a potential non-bank systemically important financial institution, or otherwise; (5) numerous rulemaking initiatives required or permitted by the Dodd-Frank Wall Street Reform and Consumer Protection Act which may impact how we conduct our business, including those compelling the liquidation of certain financial institutions; (6) regulatory, legislative or tax changes relating to our insurance, international, or other operations that may affect the cost of, or demand for, our products or services, or increase the cost or administrative burdens of providing benefits to employees; (7) adverse results or other consequences from litigation, arbitration or regulatory investigations; (8) potential liquidity and other risks resulting from our participation in a securities lending program and other transactions; (9) investment losses and defaults, and changes to investment valuations; (10) changes in assumptions related to investment valuations, deferred policy acquisition costs, deferred sales inducements, value of business acquired or goodwill; (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) economic, political, legal, currency and other risks relating to our international operations, including with respect to fluctuations of exchange rates; (15) downgrades in our claims paying ability, financial strength or credit ratings; (16) a deterioration in the experience of the “closed block” established in connection with the reorganization of Metropolitan Life Insurance Company; (17) availability and effectiveness of reinsurance or indemnification arrangements, as well as any default or failure of counterparties to perform; (18) differences between actual claims experience and underwriting and reserving assumptions; (19) ineffectiveness of risk management policies and procedures; (20) catastrophe losses; (21) increasing cost and limited market capacity for statutory life insurance reserve financings; (22) heightened competition, including with respect to pricing, entry of new competitors, consolidation of distributors, the development of new products by new and existing competitors, and for personnel; (23) 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; (24) 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

 

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businesses with minimal disruption; (25) 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; (26) the dilutive impact on our stockholders resulting from the settlement of our outstanding common equity units; (27) regulatory and other restrictions affecting MetLife, Inc.’s ability to pay dividends and repurchase common stock; (28) 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; (29) the possibility that MetLife, Inc.’s Board of Directors may control the outcome of stockholder votes through the voting provisions of the MetLife Policyholder Trust; (30) changes in accounting standards, practices and/or policies; (31) increased expenses relating to pension and postretirement benefit plans, as well as health care and other employee benefits; (32) inability to protect our intellectual property rights or claims of infringement of the intellectual property rights of others; (33) inability to attract and retain sales representatives; (34) provisions of laws and our incorporation documents may delay, deter or prevent takeovers and corporate combinations involving MetLife; (35) the effects of business disruption or economic contraction due to disasters such as terrorist attacks, cyberattacks, other hostilities, or natural catastrophes, including any related impact on the value of our investment portfolio, our disaster recovery systems, cyber- or other information security systems and management continuity planning; (36) the effectiveness of our programs and practices in avoiding giving our associates incentives to take excessive risks; and (37) 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.

 

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Table of Contents

Part I — Financial Information

Item 1.  Financial Statements

MetLife, Inc.

Interim Condensed Consolidated Balance Sheets

March 31, 2013 (Unaudited) and December 31, 2012

(In millions, except share and per share data)

 

      March 31, 2013       December 31, 2012  

Assets

   

Investments:

   

Fixed maturity securities available-for-sale, at estimated fair value (amortized cost: $342,533 and $340,870, respectively; includes $3,873 and $3,378, respectively, relating to variable interest entities)

  $ 374,294      $ 374,266   

Equity securities available-for-sale, at estimated fair value (cost: $2,898 and $2,838, respectively)

    3,188        2,891   

Fair value option and trading securities, at estimated fair value (includes $792 and $659, respectively, of actively traded securities; and $101 and $112, respectively, relating to variable interest entities)

    16,588        16,348   

Mortgage loans:

   

Held-for-investment, principally at amortized cost (net of valuation allowances of $332 and $347, respectively; includes $2,454 and $2,715, respectively, at estimated fair value, relating to variable interest entities)

    55,343        56,592   

Held-for-sale, principally at estimated fair value (includes $2 and $49, respectively, under the fair value option)

    271        414   
 

 

 

   

 

 

 

Mortgage loans, net

    55,614        57,006   

Policy loans (includes $3 and $0, respectively, relating to variable interest entities)

    11,781        11,884   

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

    9,998        9,918   

Other limited partnership interests (includes $156 and $274, respectively, relating to variable interest entities)

    7,087        6,688   

Short-term investments, principally at estimated fair value (includes $14 and $0, respectively, relating to variable interest entities)

    13,653        16,906   

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

    20,269        21,145   
 

 

 

   

 

 

 

Total investments

    512,472        517,052   

Cash and cash equivalents, principally at estimated fair value (includes $208 and $99, respectively, relating to variable interest entities)

    9,983        15,738   

Accrued investment income (includes $30 and $13, respectively, relating to variable interest entities)

    4,555        4,374   

Premiums, reinsurance and other receivables (includes $20 and $5, respectively, relating to variable interest entities)

    23,052        21,634   

Deferred policy acquisition costs and value of business acquired (includes $299 and $0, respectively, relating to variable interest entities)

    24,645        24,761   

Goodwill

    9,696        9,953   

Other assets (includes $149 and $5, respectively, relating to variable interest entities)

    8,062        7,876   

Separate account assets (includes $1,218 and $0, respectively, relating to variable interest entities)

    249,220        235,393   
 

 

 

   

 

 

 

Total assets

  $ 841,685      $ 836,781   
 

 

 

   

 

 

 

Liabilities and Equity

   

Liabilities

   

Future policy benefits (includes $475 and $0, respectively, relating to variable interest entities)

  $ 190,054      $ 192,351   

Policyholder account balances (includes $71 and $0, respectively, relating to variable interest entities)

    224,044        225,821   

Other policy-related balances (includes $145 and $0, respectively, relating to variable interest entities)

    15,472        15,463   

Policyholder dividends payable

    713        728   

Policyholder dividend obligation

    3,599        3,828   

Payables for collateral under securities loaned and other transactions

    34,215        33,687   

Bank deposits

    —        6,416   

Short-term debt

    100        100   

Long-term debt (includes $2,268 and $2,527, respectively, at estimated fair value, relating to variable interest entities)

    18,721        19,062   

Collateral financing arrangements

    4,196        4,196   

Junior subordinated debt securities

    3,193        3,192   

Current income tax payable

    231        401   

Deferred income tax liability

    8,699        8,693   

Other liabilities (includes $109 and $40, respectively, relating to variable interest entities)

    24,260        22,492   

Separate account liabilities (includes $1,218 and $0, respectively, relating to variable interest entities)

    249,220        235,393   
 

 

 

   

 

 

 

Total liabilities

    776,717        771,823   
 

 

 

   

 

 

 

Contingencies, Commitments and Guarantees (Note 13)

   

Redeemable noncontrolling interests in partially-owned consolidated subsidiaries

    96        121   
 

 

 

   

 

 

 

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

           

Common stock, par value $0.01 per share; 3,000,000,000 shares authorized; 1,097,412,771 and 1,094,880,623 shares issued at March 31, 2013 and December 31, 2012, respectively; 1,094,218,884 and 1,091,686,736 shares outstanding at March 31, 2013 and December 31, 2012, respectively

    11        11   

Additional paid-in capital

    28,072        28,011   

Retained earnings

    25,958        25,205   

Treasury stock, at cost; 3,193,887 shares at March 31, 2013 and December 31, 2012

    (172)        (172)   

Accumulated other comprehensive income (loss)

    10,580        11,397   
 

 

 

   

 

 

 

Total MetLife, Inc.’s stockholders’ equity

    64,450        64,453   

Noncontrolling interests

    422        384   
 

 

 

   

 

 

 

Total equity

    64,872        64,837   
 

 

 

   

 

 

 

Total liabilities and equity

  $ 841,685      $ 836,781   
 

 

 

   

 

 

 

See accompanying notes to the interim condensed consolidated financial statements.

 

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MetLife, Inc.

Interim Condensed Consolidated Statements of Operations and Comprehensive Income

For the Three Months Ended March 31, 2013 and 2012 (Unaudited)

(In millions, except per share data)

 

    Three Months
Ended
March 31,
 
            2013                     2012          

Revenues

   

Premiums

  $ 9,151      $ 9,129   

Universal life and investment-type product policy fees

    2,291        2,078   

Net investment income

    6,077        6,200   

Other revenues

    480        597   

Net investment gains (losses):

   

Other-than-temporary impairments on fixed maturity securities

    (29)        (135)   

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

    (31)         

Other net investment gains (losses)

    374        23   
 

 

 

   

 

 

 

Total net investment gains (losses)

    314        (110)   

Net derivative gains (losses)

    (630)        (1,978)   
 

 

 

   

 

 

 

Total revenues

    17,683        15,916   
 

 

 

   

 

 

 

Expenses

   

Policyholder benefits and claims

    9,395        9,104   

Interest credited to policyholder account balances

    2,590        2,557   

Policyholder dividends

    313        343   

Other expenses

    4,138        4,321   
 

 

 

   

 

 

 

Total expenses

    16,436        16,325   
 

 

 

   

 

 

 

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

    1,247        (409)   

Provision for income tax expense (benefit)

    252        (275)   
 

 

 

   

 

 

 

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

    995        (134)   

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

    (3)        14   
 

 

 

   

 

 

 

Net income (loss)

    992        (120)   

Less: Net income (loss) attributable to noncontrolling interests

          24   
 

 

 

   

 

 

 

Net income (loss) attributable to MetLife, Inc.

    986        (144)   

Less: Preferred stock dividends

    30        30   
 

 

 

   

 

 

 

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

  $ 956      $ (174)   
 

 

 

   

 

 

 

Comprehensive income (loss)

  $ 178      $ 1,054   

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

          15   
 

 

 

   

 

 

 

Comprehensive income (loss) attributable to MetLife, Inc.

  $ 169      $ 1,039   
 

 

 

   

 

 

 

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

   

Basic

  $ 0.87      $ (0.17)   
 

 

 

   

 

 

 

Diluted

  $ 0.87      $ (0.17)   
 

 

 

   

 

 

 

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

   

Basic

  $ 0.87      $ (0.16)   
 

 

 

   

 

 

 

Diluted

  $ 0.87      $ (0.16)   
 

 

 

   

 

 

 

Cash dividends declared per common share

  $ 0.185      $ —   
 

 

 

   

 

 

 

See accompanying notes to the interim condensed consolidated financial statements.

 

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MetLife, Inc.

Interim Condensed Consolidated Statements of Equity

For the Three Months Ended March 31, 2013 (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, 2012

  $     $ 11      $ 28,011      $ 25,205      $ (172)      $ 14,642      $ (223)      $ (533)      $ (2,489)      $ 64,453      $ 384      $ 64,837   

Stock-based compensation

        100                    100          100   

Dividends on preferred stock

          (30)                  (30)          (30)   

Dividends on common stock

          (203)                  (203)          (203)   

Change in equity of noncontrolling interests

        (39)                    (39)        29        (10)   

Net income (loss)

          986                  986              992   

Other comprehensive income (loss), net of income tax

              (241)        59        (672)        37        (817)              (814)   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2013

  $     $ 11      $ 28,072      $ 25,958      $ (172)      $ 14,401      $ (164)      $ (1,205)      $ (2,452)      $ 64,450      $ 422      $ 64,872   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

(1)

Net income (loss) attributable to noncontrolling interests excludes gains (losses) of redeemable noncontrolling interests in partially-owned consolidated subsidiaries of less than $1 million.

See accompanying notes to the interim condensed consolidated financial statements.

 

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MetLife, Inc.

Interim Condensed Consolidated Statements of Equity — (Continued)

For the Three Months Ended March 31, 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

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

Stock-based compensation

        138                    138          138   

Dividends on preferred stock

          (30)                  (30)          (30)   

Change in equity of noncontrolling interests

                        (41)        (41)   

Net income (loss)

          (144)                  (144)              (136)   

Other comprehensive income (loss), net of income tax

              814        31        313        25        1,183             1,190   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2012

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

(1)

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

See accompanying notes to the interim condensed consolidated financial statements.

 

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MetLife, Inc.

Interim Condensed Consolidated Statements of Cash Flows

For the Three Months Ended March 31, 2013 and 2012 (Unaudited)

(In millions)

 

    Three Months
Ended
March 31,
 
            2013                     2012          

Net cash provided by (used in) operating activities

  $ 2,733      $ 5,758   
 

 

 

   

 

 

 

Cash flows from investing activities

   

Sales, maturities and repayments of:

   

Fixed maturity securities

    30,024        25,815   

Equity securities

    249        166   

Mortgage loans

    2,510        2,160   

Real estate and real estate joint ventures

    86        251   

Other limited partnership interests

    225        188   

Purchases of:

   

Fixed maturity securities

    (34,698)        (27,657)   

Equity securities

    (389)        (108)   

Mortgage loans

    (1,764)        (1,802)   

Real estate and real estate joint ventures

    (426)        (117)   

Other limited partnership interests

    (481)        (278)   

Cash received in connection with freestanding derivatives

    330        417   

Cash paid in connection with freestanding derivatives

    (2,428)        (1,566)   

Net change in securitized reverse residential mortgage loans

    —        (561)   

Sales of businesses (1)

    373        —   

Sale of bank deposits

    (6,395)        —   

Net change in policy loans

    (52)        (53)   

Net change in short-term investments

    3,303        5,522   

Net change in other invested assets

    (226)        (170)   

Other, net

    40        (40)   
 

 

 

   

 

 

 

Net cash provided by (used in) investing activities

    (9,719)        2,167   
 

 

 

   

 

 

 

Cash flows from financing activities

   

Policyholder account balances:

   

Deposits

    21,370        25,069   

Withdrawals

    (20,034)        (23,247)   

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

    528        (1,220)   

Net change in bank deposits

          (50)   

Net change in short-term debt

    —        (585)   

Long-term debt repaid

    (240)        (349)   

Net change in liability for securitized reverse residential mortgage loans

    —        561   

Dividends on preferred stock

    (30)        (30)   

Dividends on common stock

    (203)        —   

Other, net

    (75)        91   
 

 

 

   

 

 

 

Net cash provided by (used in) financing activities

    1,324        240   
 

 

 

   

 

 

 

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

    (93)        41   
 

 

 

   

 

 

 

Change in cash and cash equivalents

    (5,755)        8,206   

Cash and cash equivalents, beginning of period

    15,738        10,461   
 

 

 

   

 

 

 

Cash and cash equivalents, end of period

  $ 9,983      $ 18,667   
 

 

 

   

 

 

 

Supplemental disclosures of cash flow information:

   

Net cash paid (received) for:

   

Interest

  $ 264      $ 266   
 

 

 

   

 

 

 

Income tax

  $ 217      $ 83   
 

 

 

   

 

 

 

Non-cash transactions:

   

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

  $ 55      $ 123   
 

 

 

   

 

 

 

 

 

(1)

See Note 3 of the Notes to the Consolidated Financial Statements included in the 2012 Annual Report.

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. 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”).

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

Certain international subsidiaries have a fiscal year-end of November 30. Accordingly, the Company’s interim condensed consolidated financial statements reflect the assets and liabilities of such subsidiaries as of February 28, 2013 and November 30, 2012 and the operating results of such subsidiaries for the three months ended February 28, 2013 and February 29, 2012.

The Company uses the equity method of accounting for investments in equity securities when it has significant influence or at least a 20% interest and for investments in real estate joint ventures and other limited partnership interests (“investees”) when it has more than a minor ownership interest or more than minor influence over the investee’s operations, but does not have a controlling financial interest. The Company generally recognizes its share of the investee’s earnings on a three-month lag in instances where the investee’s financial information is not sufficiently timely or when the investee’s reporting period differs from the Company’s reporting period. The Company uses the cost method of accounting for investments in which it has virtually no influence over the investee’s operations.

Certain amounts in the prior year periods’ interim condensed consolidated financial statements and related footnotes thereto have been reclassified to conform with the 2013 presentation as discussed throughout the Notes to the Interim Condensed Consolidated Financial Statements.

The accompanying interim condensed consolidated financial statements are unaudited and reflect all adjustments (including normal recurring adjustments) necessary to present fairly the consolidated financial position of the Company at March 31, 2013, its consolidated results of operations and comprehensive income for the three months ended March 31, 2013 and 2012, its consolidated statements of equity for the three months ended March 31, 2013 and 2012, and its consolidated statements of cash flows for the three months ended March 31, 2013 and 2012, in conformity with GAAP. Interim results are not necessarily indicative of full year performance. The December 31, 2012 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, 2012, (the “2012 Annual Report”) filed with the U.S. Securities and Exchange Commission (“SEC”), which include all disclosures required by

 

10


Table of Contents

MetLife, Inc.

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

 

GAAP. Therefore, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company included in the 2012 Annual Report.

Adoption of New Accounting Pronouncements

Effective January 1, 2013, the Company adopted new guidance regarding comprehensive income that requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income (loss) (“AOCI”) by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of AOCI by the respective line items of net income but only if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under GAAP that provide additional detail about those amounts. The adoption was prospectively applied and resulted in additional disclosures. See Note 9 for expanded disclosures.

Effective January 1, 2013, the Company adopted new guidance regarding balance sheet offsetting disclosures which requires an entity to disclose information about offsetting and related arrangements for derivatives, including bifurcated embedded derivatives, repurchase and reverse repurchase agreements, and securities borrowing and lending transactions, 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 the guidance 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 International Financial Reporting Standards. The adoption was retrospectively applied and resulted in additional disclosures related to derivatives. See Note 7 for such expanded disclosures.

Future Adoption of New Accounting Pronouncements

In March 2013, the Financial Accounting Standards Board (“FASB”) issued new guidance regarding foreign currency (Accounting Standards Update (“ASU”) 2013-05, Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity), effective prospectively for fiscal years and interim reporting periods within those years beginning after December 15, 2013. The amendments require an entity that ceases to have a controlling financial interest in a subsidiary or group of assets within a foreign entity to apply the guidance in Subtopic 830-30, Foreign Currency Matters — Translation of Financial Statements, to release any related cumulative translation adjustment into net income. Accordingly, the cumulative translation adjustment should be released into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. For an equity method investment that is a foreign entity, the partial sale guidance in section 830-30-40, Derecognition, still applies. As such, a pro rata portion of the cumulative translation adjustment should be released into net income upon a partial sale of such an equity method investment. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

In February 2013, the FASB issued new guidance regarding liabilities (ASU 2013-04, Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date), effective retrospectively for fiscal years beginning after December 15, 2013 and interim periods within those years. The amendments require an entity to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of the guidance is fixed at the reporting date, as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. In addition, the amendments require an entity to disclose the nature and amount of the obligation, as well as other information about the obligations. 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)

 

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

 

2.   Segment Information

MetLife is organized into six segments, reflecting three broad geographic regions: Retail; Group, Voluntary & Worksite Benefits; Corporate Benefit Funding; and Latin America (collectively, the “Americas”); Asia; and EMEA. In addition, the Company reports certain of its results of operations in Corporate & Other, which included MetLife Bank, National Association (“MetLife Bank”) (see Note 3) and other business activities.

As anticipated, in the third quarter of 2012, the Company continued to realign certain products and businesses among its existing segments. Management realigned certain individual disability income and property & casualty products, which were previously reported in the Group, Voluntary & Worksite Benefits segment and began reporting such product results in the Retail segment. In accordance with this realignment, prior period operating earnings for the Retail segment increased by $61 million, net of $19 million of income tax, with a corresponding decrease in the Group, Voluntary & Worksite Benefits segment, for the three months ended March 31, 2012. Management also realigned the businesses in South Asia and India, which were previously reported in the EMEA segment and began reporting such results in the Asia segment. In accordance with this realignment, prior period operating earnings for the Asia segment increased by $4 million, net of $2 million of income tax, with a corresponding decrease in the EMEA segment, for the three months ended March 31, 2012.

Americas

The Americas consists of the following segments:

Retail

The Retail segment offers a broad range of protection products and services and a variety of annuities to individuals and employees of corporations and other institutions, and is organized into two businesses: Life & Other and Annuities. Life & Other insurance products and services include variable life, universal life, term life and whole life products. Additionally, through broker-dealer affiliates, the Company offers a full range of mutual funds and other securities products. Life & Other products and services also include individual disability income products and personal lines property & casualty insurance, including private passenger automobile, homeowners and personal excess liability insurance. Annuities includes a variety of variable and fixed annuities which provide for both asset accumulation and asset distribution needs.

Group, Voluntary & Worksite Benefits

The Group, Voluntary & Worksite Benefits segment offers a broad range of protection products and services to individuals and corporations, as well as other institutions and their respective employees, and is organized into two businesses: Group and Voluntary & Worksite. Group insurance products and services include variable life, universal life and term life products. Group insurance products and services also include dental, group short- and long-term disability and accidental death & dismemberment coverages. The Voluntary & Worksite business includes personal lines property & casualty insurance, including private passenger automobile, homeowners and personal excess liability insurance offered to employees on a voluntary basis. The Voluntary & Worksite business also includes long-term care, prepaid legal plans and critical illness products.

 

12


Table of Contents

MetLife, Inc.

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

 

Corporate Benefit Funding

The Corporate Benefit Funding segment offers a broad range of annuity and investment products, including guaranteed interest products and other stable value products, income annuities, and separate account contracts for the investment management of defined benefit and defined contribution plan assets. This segment also includes certain products to fund postretirement benefits and company-, bank- or trust-owned life insurance used to finance non-qualified benefit programs for executives.

Latin America

The Latin America segment offers a broad range of products to both individuals and corporations, as well as other institutions and their respective employees, which include life insurance, accident and health insurance, group medical, dental, credit insurance, endowment and retirement & savings products written in Latin America. Starting in the first quarter of 2013, the Latin America segment includes U.S. sponsored direct business, comprised of group products sold through sponsoring organizations and affinity groups. Products included are life, dental, group short- and long-term disability, accidental death & dismemberment coverages, property & casualty and critical illness.

Asia

The Asia segment offers a broad range of products to both individuals and corporations, as well as other institutions and their respective employees, which include whole life, term life, variable life, universal life, accident and health insurance, fixed and variable annuities and endowment products.

EMEA

The EMEA segment offers a broad range of products to both individuals and corporations, as well as other institutions and their respective employees, which include life insurance, accident and health insurance, credit insurance, annuities, endowment and retirement & savings products.

Corporate & Other

Corporate & Other contains the excess capital not allocated to the segments, external integration costs, internal resource costs for associates committed to acquisitions, enterprise-wide strategic initiative restructuring charges, and various start-up and certain run-off businesses. Start-up businesses include expatriate benefits insurance, as well as direct and digital marketing products. Corporate & Other also includes assumed reinsurance of certain variable annuity products from the Company’s former operating joint venture in Japan. Under this in-force reinsurance agreement, the Company reinsures living and death benefit guarantees issued in connection with variable annuity products. Additionally, Corporate & Other includes interest expense related to the majority of the Company’s outstanding debt and expenses associated with certain legal proceedings and income tax audit issues. Corporate & Other also includes the elimination of intersegment amounts, which generally relate to intersegment loans, which bear interest rates commensurate with related borrowings.

Financial Measures and Segment Accounting Policies

Operating earnings is the measure of segment profit or loss the Company uses to evaluate segment performance and allocate resources. Consistent with GAAP guidance for segment reporting, operating earnings is the Company’s measure of segment performance and is reported below. Operating earnings should not be viewed as a substitute for income (loss) from continuing operations, net of income tax. The Company believes the presentation of operating earnings as the Company measures it for management purposes enhances the understanding of its performance by highlighting the results of operations and the underlying profitability drivers of the business.

Operating earnings is defined as operating revenues less operating expenses, both net of income tax.

 

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Table of Contents

MetLife, Inc.

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

 

Operating revenues and operating expenses exclude results of discontinued operations and other businesses that have been or will be sold or exited by MetLife, Inc. (“Divested Businesses”). Operating revenues also excludes net investment gains (losses) and net derivative gains (losses). Operating expenses also excludes goodwill impairments.

The following additional adjustments are made to GAAP revenues, in the line items indicated, in calculating operating revenues:

 

   

Universal life and investment-type product policy fees excludes the amortization of unearned revenue related to net investment gains (losses) and net derivative gains (losses) and certain variable annuity guaranteed minimum income benefits (“GMIBs”) fees (“GMIB Fees”);

 

   

Net investment income: (i) includes amounts for scheduled periodic settlement payments and amortization of premium on derivatives that are hedges of investments but do not qualify for hedge accounting treatment, (ii) includes income from discontinued real estate operations, (iii) excludes post-tax operating earnings adjustments relating to insurance joint ventures accounted for under the equity method, (iv) excludes certain amounts related to contractholder-directed unit-linked investments, and (v) excludes certain amounts related to securitization entities that are VIEs consolidated under GAAP; and

 

   

Other revenues are adjusted for settlements of foreign currency earnings hedges.

The following additional adjustments are made to GAAP expenses, in the line items indicated, in calculating operating expenses:

 

   

Policyholder benefits and claims and policyholder dividends excludes: (i) changes in the policyholder dividend obligation related to net investment gains (losses) and net derivative gains (losses), (ii) inflation-indexed benefit adjustments associated with contracts backed by inflation-indexed investments and amounts associated with periodic crediting rate adjustments based on the total return of a contractually referenced pool of assets, (iii) benefits and hedging costs related to GMIBs (“GMIB Costs”), and (iv) market value adjustments associated with surrenders or terminations of contracts (“Market Value Adjustments”);

 

   

Interest credited to policyholder account balances includes adjustments for scheduled periodic settlement payments and amortization of premium on derivatives that are hedges of policyholder account balances (“PABs”) but do not qualify for hedge accounting treatment and excludes amounts related to net investment income earned on contractholder-directed unit-linked investments;

 

   

Amortization of deferred policy acquisition costs (“DAC”) and value of business acquired (“VOBA”) excludes amounts related to: (i) net investment gains (losses) and net derivative gains (losses), (ii) GMIB Fees and GMIB Costs, and (iii) Market Value Adjustments;

 

   

Amortization of negative VOBA excludes amounts related to Market Value Adjustments;

 

   

Interest expense on debt excludes certain amounts related to securitization entities that are VIEs consolidated under GAAP; and

 

   

Other expenses excludes costs related to: (i) noncontrolling interests, (ii) implementation of new insurance regulatory requirements, and (iii) acquisition and integration costs.

Operating earnings also excludes the recognition of certain contingent assets and liabilities that could not be recognized at acquisition or adjusted for during the measurement period under GAAP business combination accounting guidance.

 

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Table of Contents

MetLife, Inc.

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

 

In the third quarter of 2012, MetLife, Inc. began reporting additional MetLife Bank operations as Divested Businesses. See Note 3 of the Notes to the Consolidated Financial Statements included in the 2012 Annual Report. Consequently, prior period results for Corporate & Other have increased by $1 million, net of $0 of income tax, for the three months ended March 31, 2012.

Set forth in the tables below is certain financial information with respect to the Company’s segments, as well as Corporate & Other, for the three months ended March 31, 2013 and 2012. The segment accounting policies are the same as those used to prepare the Company’s consolidated financial statements, except for operating earnings adjustments as defined above. In addition, segment accounting policies include the method of capital allocation described below.

Economic capital is an internally developed risk capital model, the purpose of which is to measure the risk in the business and to provide a basis upon which capital is deployed. The economic capital model accounts for the unique and specific nature of the risks inherent in the Company’s business.

The Company’s economic capital model aligns segment allocated equity with emerging standards and consistent risk principles. Segment net investment income is credited or charged based on the level of allocated equity; however, changes in allocated equity do not impact the Company’s consolidated net investment income, operating earnings or income (loss) from continuing operations, net of income tax.

 

15


Table of Contents

MetLife, Inc.

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

 

    Operating Earnings              
    Americas                                      

Three Months Ended March 31, 2013

        Retail           Group,
Voluntary
  & Worksite  
Benefits
      Corporate  
Benefit
Funding
    Latin
    America    
          Total                 Asia                 EMEA               Corporate    
& Other
         Total            Adjustments       Total
  Consolidated  
 
    (In millions)  

Revenues

                     

Premiums

  $ 1,547      $ 3,874      $ 464      $ 675      $ 6,560      $ 1,998      $ 567      $ 26      $ 9,151      $ —      $ 9,151   

Universal life and investment-type product policy fees

    1,167        180        68        225        1,640        444        91        36        2,211        80        2,291   

Net investment income

    1,961        453        1,435        277        4,126        732        128        146        5,132        945        6,077   

Other revenues

    243        108        73              428        13        27        13        481        (1)        480   

Net investment gains (losses)

    —        —        —        —        —        —        —        —        —        314        314   

Net derivative gains (losses)

    —        —        —        —        —        —        —        —        —        (630)        (630)   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    4,918        4,615        2,040        1,181        12,754        3,187        813        221        16,975        708        17,683   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expenses

                     

Policyholder benefits and claims and policyholder dividends

    2,153        3,640        1,098        554        7,445        1,415        237              9,106        602        9,708   

Interest credited to policyholder account balances

    579        39        343        104        1,065        442        35        12        1,554        1,036        2,590   

Capitalization of DAC

    (374)        (33)        (17)        (105)        (529)        (546)        (177)        (4)        (1,256)        —        (1,256)   

Amortization of DAC and VOBA

    331        34        11        74        450        401        165        —        1,016        (192)        824   

Amortization of negative VOBA

    —        —        —        (1)        (1)        (113)        (17)        —        (131)        (15)        (146)   

Interest expense on debt

    —        —              (1)              —              286        288        33        321   

Other expenses

    1,278        588        143        372        2,381        1,094        448        164        4,087        308        4,395   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

    3,967        4,268        1,580        997        10,812        2,693        692        467        14,664        1,772        16,436   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provision for income tax expense (benefit)

    325        117        161        41        644        161        34        (193)        646        (394)        252   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Operating earnings

  $ 626      $ 230      $ 299      $ 143      $ 1,298      $ 333      $ 87      $ (53)        1,665       
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

Adjustments to:

                     

Total revenues

  

    708       

Total expenses

  

    (1,772)       

Provision for income tax (expense) benefit

  

    394       
                 

 

 

     

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

  

  $ 995        $ 995   
                 

 

 

     

 

 

 

 

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Table of Contents

MetLife, Inc.

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

 

    Operating Earnings              
    Americas                                      

Three Months Ended March 31, 2012

        Retail           Group,
Voluntary
  & Worksite  
Benefits
      Corporate  
Benefit
Funding
    Latin
    America    
          Total                 Asia                 EMEA               Corporate    
& Other
         Total            Adjustments       Total
  Consolidated  
 
    (In millions)  

Revenues

                     

Premiums

  $ 1,624      $ 3,585      $ 507      $ 686      $ 6,402      $ 2,039      $ 652      $ 14      $ 9,107      $ 22      $ 9,129   

Universal life and investment-type product policy fees

    1,114        166        51        196        1,527        362        80        40        2,009        69        2,078   

Net investment income

    1,911        436        1,401        299        4,047        681        157        192        5,077        1,123        6,200   

Other revenues

    209        108        64              386        16        36        14        452        145        597   

Net investment gains (losses)

    —        —        —        —        —        —        —        —        —        (110)        (110)   

Net derivative gains (losses)

    —        —        —        —        —        —        —        —        —        (1,978)        (1,978)   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    4,858        4,295        2,023        1,186        12,362        3,098        925        260        16,645        (729)        15,916   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expenses

                     

Policyholder benefits and claims and policyholder dividends

    2,228        3,313        1,092        592        7,225        1,360        343        11        8,939        508        9,447   

Interest credited to policyholder account balances

    596        42        339        100        1,077        429        33        —        1,539        1,018        2,557   

Capitalization of DAC

    (476)        (31)        (7)        (84)        (598)        (587)        (177)        —        (1,362)        (2)        (1,364)   

Amortization of DAC and VOBA

    404        30        10        55        499        373        146        —        1,018        (304)        714   

Amortization of negative VOBA

    —        —        —        (2)        (2)        (131)        (4)        —        (137)        (18)        (155)   

Interest expense on debt

    —        —                                —        311        315        43        358   

Other expenses

    1,397        575        128        326        2,426        1,191        471        155        4,243        525        4,768   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

    4,149        3,929        1,564        988        10,630        2,636        812        477        14,555        1,770        16,325   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provision for income tax expense (benefit)

    240        123        161        50        574        161        41        (180)        596        (871)        (275)   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Operating earnings

  $ 469      $ 243      $ 298      $ 148      $ 1,158      $ 301      $ 72      $ (37)        1,494       
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

Adjustments to:

                     

Total revenues

  

    (729)       

Total expenses

  

    (1,770)       

Provision for income tax (expense) benefit

  

    871       
                 

 

 

     

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

  

  $ (134)        $ (134)   
                 

 

 

     

 

 

 

 

17


Table of Contents

MetLife, Inc.

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

 

The following table presents total assets with respect to the Company’s segments, as well as Corporate & Other, at:

 

      March 31, 2013       December 31, 2012  
    (In millions)  

Retail

  $ 342,524      $ 332,387   

Group, Voluntary & Worksite Benefits

    45,158        44,138   

Corporate Benefit Funding

    227,839        217,352   

Latin America

    25,640        23,272   

Asia

    124,510        131,138   

EMEA

    23,080        23,474   

Corporate & Other

    52,934        65,020   
 

 

 

   

 

 

 

Total

  $ 841,685      $ 836,781   
 

 

 

   

 

 

 

Net investment income is based upon the actual results of each segment’s specifically identifiable investment portfolio adjusted for allocated equity. Other costs are allocated to each of the segments based upon: (i) a review of the nature of such costs; (ii) time studies analyzing the amount of employee compensation costs incurred by each segment; and (iii) cost estimates included in the Company’s product pricing.

 

3.   Acquisitions and Dispositions

2013 Pending Acquisition

Provida

On February 1, 2013, MetLife, Inc. announced that it has entered into a definitive agreement with Banco Bilbao Vizcaya Argentaria, S.A. (“BBVA”) and BBVA Inversiones Chile S.A. (“BBVA Inversiones,” and, together with BBVA, the “BBVA Sellers”) to acquire Administradora de Fondos de Pensiones Provida S.A. (“Provida”), the largest private pension fund administrator in Chile by assets under management and number of contributors. Under the terms of the agreement, MetLife will conduct a public cash tender offer for all of the outstanding shares of Provida, and the BBVA Sellers have agreed to transfer their 64.3% stake to MetLife. Assuming all publicly-held shares are tendered, the purchase price, which MetLife, Inc. and certain of its subsidiaries will fund from their existing cash balances, would be approximately $2 billion. The transaction is anticipated to close in the third quarter of 2013, subject to receipt of certain regulatory approvals and other customary conditions.

2013 Disposition

MetLife Bank

On January 11, 2013, MetLife Bank and MetLife, Inc. completed the sale of MetLife Bank’s $6.4 billion of deposits to GE Capital Retail Bank for $6.4 billion in net consideration paid. On February 14, 2013, MetLife, Inc. announced that it had received the required approvals from both the Federal Deposit Insurance Corporation and the Board of Governors of the Federal Reserve (the “Federal Reserve Board”) to de-register as a bank holding company.

MetLife Bank has sold or has otherwise committed to exit substantially all of its operations. In conjunction with exiting its businesses (the “MetLife Bank Divestiture”), for the three months ended March 31, 2013 and 2012, the Company recorded net gains (losses) of ($59) million and $7 million, respectively, net of income tax, related to the gain on disposal of the depository business and other costs related to MetLife Bank’s businesses. See Note 3 of the Notes to the Consolidated Financial Statements included in the 2012 Annual Report. The Company expects to incur additional charges of $80 million to $105 million, net of income tax, exclusive of incremental legal settlements, related to exiting MetLife Bank’s businesses. See Note 13.

Each of the businesses that were exited could not be separated from the rest of the MetLife Bank operations since the Company did not separately manage or report the businesses as a reportable segment, operating segment, or reporting unit. As a result, the businesses have not been reported as discontinued operations in the consolidated financial statements.

 

18


Table of Contents

MetLife, Inc.

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

 

2010 Acquisition

American Life Insurance Company

Branch Restructuring

During the first quarter of 2013, and in accordance with the closing agreement, American Life Insurance Company (“American Life”) entered into on March 4, 2010 (the “Closing Agreement”) with the Commissioner of the Internal Revenue Service (see Note 3 of the Notes to the Consolidated Financial Statements included in the 2012 Annual Report), the Company transferred the business of Portugal and Spain to wholly-owned subsidiaries. The deferred tax asset valuation allowance associated with this branch restructuring was reduced from $25 million at December 31, 2012 to $0 at March 31, 2013. For further information, see Note 19 of the Notes to the Consolidated Financial Statements included in the 2012 Annual Report.

A liability of $277 million was recognized in purchase accounting at 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 and revised estimates through March 31, 2013 resulting in a liability of $56 million at March 31, 2013.

Japan Income Tax Refund

In December 2012, the Tokyo District Court ruled in favor of the Japan branch of American Life in a tax case related to the deduction of unrealized foreign exchange losses on certain securities held by American Life prior to its acquisition by MetLife. See Note 3 of the Notes to the Consolidated Financial Statements included in the 2012 Annual Report. During the first quarter of 2013, American Life received a refund of ¥16 billion ($176 million) related to income tax, interest and penalties. Under the indemnification provisions of the stock purchase agreement dated March 7, 2010, as amended, by and among MetLife, Inc., American International Group, Inc. (“AIG”) and AM Holdings LLC (formerly known as ALICO Holdings LLC), MetLife Inc. is required to remit the refund to AIG, net of certain amounts it can retain as a counter claim. The receipt of the refund, net of obligations to AIG with related foreign currency exchange impact and corresponding U.S. tax effects, resulted in a net charge of $24 million in the interim condensed consolidated statements of operations and comprehensive income for the three months ended March 31, 2013, which was comprised of a $154 million charge included in other expenses, an $11 million gain included in other net investment gains (losses) and a $119 million benefit included in provision for income tax expense (benefit).

 

4.   Insurance

Guarantees

As discussed in Notes 1 and 4 of the Notes to the Consolidated Financial Statements included in the 2012 Annual Report, the Company issues variable annuity products with guaranteed minimum benefits. The non-life-contingent portion of guaranteed minimum withdrawal benefits (“GMWBs”) and the portion of certain GMIBs that does not require annuitization are accounted for as embedded derivatives in PABs and are further discussed in Note 7.

The Company also issues annuity contracts that apply a lower rate of funds deposited if the contractholder elects to surrender the contract for cash and a higher rate if the contractholder elects to annuitize (“two tier annuities”). These guarantees include benefits that are payable in the event of death, maturity or at annuitization. Additionally, the Company issues universal and variable life contracts where the Company contractually guarantees to the contractholder a secondary guarantee or a guaranteed paid-up benefit.

Based on the type of guarantee, the Company defines net amount at risk as listed below. These amounts include direct and assumed business, but exclude offsets from hedging or reinsurance, if any.

 

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MetLife, Inc.

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

 

Variable Annuity Guarantees

In the Event of Death

Defined as the guaranteed minimum death benefit less the total contract account value, as of the balance sheet date. It represents the amount of the claim that the Company would incur if death claims were filed on all contracts on the balance sheet date.

At Annuitization

Defined as the amount (if any) that would be required to be added to the total contract account value to purchase a lifetime income stream, based on current annuity rates, equal to the minimum amount provided under the guaranteed benefit. This amount represents the Company’s potential economic exposure to such guarantees in the event all contractholders were to annuitize on the balance sheet date, even though the contracts contain terms that only allow annuitization of the guaranteed amount after the 10th anniversary of the contract, which not all contractholders have achieved.

Two Tier Annuities

Defined as the excess of the upper tier, adjusted for a profit margin, less the lower tier, as of the balance sheet date. These contracts apply a lower rate of funds if the contractholder elects to surrender the contract for cash and a higher rate if the contractholder elects to annuitize.

Universal and Variable Life Contracts

Defined as the guarantee amount less the account value, as of the balance sheet date. It represents the amount of the claim that the Company would incur if death claims were filed on all contracts on the balance sheet date.

Information regarding the types of guarantees relating to annuity contracts and universal and variable life contracts was as follows at:

 

    March 31, 2013     December 31, 2012  
    In the
  Event of Death  
    At
  Annuitization  
    In the
  Event of Death  
    At
  Annuitization  
 
    (In millions)  

Annuity Contracts (1)

       

Variable Annuity Guarantees

       

Total contract account value (2)

  $ 191,877     $ 94,429     $ 184,095     $ 89,137  

Separate account value

  $ 152,741     $ 89,992     $ 143,893     $ 84,354  

Net amount at risk

  $ 6,279     $ 2,978     $ 9,501     $ 4,593  

Average attained age of contractholders

    63 years        64 years        62 years        62 years   

Two Tier Annuities

       

General account value

    N/A      $ 856       N/A      $ 848  

Net amount at risk

    N/A      $ 224       N/A      $ 232  

Average attained age of contractholders

    N/A        52 years        N/A        51 years   

 

20


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MetLife, Inc.

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

 

    March 31, 2013     December 31, 2012  
    Secondary
     Guarantees    
    Paid-Up
     Guarantees    
    Secondary
     Guarantees    
    Paid-Up
     Guarantees    
 
    (In millions)  

Universal and Variable Life Contracts (1)

       

Account value (general and separate account)

  $ 14,743     $ 3,790     $ 14,256     $ 3,828  

Net amount at risk

  $ 187,848     $ 22,835     $ 189,197     $ 23,276  

Average attained age of policyholders

    55 years        60 years        54 years        60 years   

 

 

(1)

The Company’s annuity and life contracts with guarantees may offer more than one type of guarantee in each contract. Therefore, the amounts listed above may not be mutually exclusive.

 

(2)

Includes amounts, which are not reported in the consolidated balance sheets, from assumed reinsurance of certain variable annuity products from the Company’s former operating joint venture in Japan.

 

5.   Closed Block

On April 7, 2000 (the “Demutualization Date”), Metropolitan Life Insurance Company (“MLIC”) converted from a mutual life insurance company to a stock life insurance company and became a wholly-owned subsidiary of MetLife, Inc. The conversion was pursuant to an order by the New York Superintendent of Insurance approving MLIC’s plan of reorganization, as amended (the “Plan”). On the Demutualization Date, MLIC established a closed block for the benefit of holders of certain individual life insurance policies of MLIC.

Experience within the closed block, in particular mortality and investment yields, as well as realized and unrealized gains and losses, directly impact the policyholder dividend obligation. Amortization of the closed block DAC, which resides outside of the closed block, is based upon cumulative actual and expected earnings within the closed block. Accordingly, the Company’s net income continues to be sensitive to the actual performance of the closed block.

Closed block assets, liabilities, revenues and expenses are combined on a line-by-line basis with the assets, liabilities, revenues and expenses outside the closed block based on the nature of the particular item.

 

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MetLife, Inc.

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

 

Information regarding the closed block liabilities and assets designated to the closed block was as follows:

 

        March 31, 2013         December 31, 2012  
    (In millions)  

Closed Block Liabilities

   

Future policy benefits

  $ 42,366      $ 42,586   

Other policy-related balances

    310        298   

Policyholder dividends payable

    480        466   

Policyholder dividend obligation

    3,599        3,828   

Current income tax payable

    14        —   

Other liabilities

    646        602   
 

 

 

   

 

 

 

Total closed block liabilities

    47,415        47,780   
 

 

 

   

 

 

 

Assets Designated to the Closed Block

   

Investments:

   

Fixed maturity securities available-for-sale, at estimated fair value

    30,109        30,546   

Equity securities available-for-sale, at estimated fair value

    91        41   

Mortgage loans

    6,068        6,192   

Policy loans

    4,661        4,670   

Real estate and real estate joint ventures

    460        459   

Other invested assets

    1,198        953   
 

 

 

   

 

 

 

Total investments

    42,587        42,861   

Cash and cash equivalents

    321        381   

Accrued investment income

    506        481   

Premiums, reinsurance and other receivables

    85        107   

Current income tax recoverable

    —         

Deferred income tax assets

    320        319   
 

 

 

   

 

 

 

Total assets designated to the closed block

    43,819        44,151   
 

 

 

   

 

 

 

Excess of closed block liabilities over assets designated to the closed block

    3,596        3,629   
 

 

 

   

 

 

 

Amounts included in AOCI:

   

Unrealized investment gains (losses), net of income tax

    2,714        2,891   

Unrealized gains (losses) on derivatives, net of income tax

    17         

Allocated to policyholder dividend obligation, net of income tax

    (2,339)        (2,488)   
 

 

 

   

 

 

 

Total amounts included in AOCI

    392        412   
 

 

 

   

 

 

 

Maximum future earnings to be recognized from closed block assets and liabilities

  $ 3,988      $ 4,041   
 

 

 

   

 

 

 

Information regarding the closed block policyholder dividend obligation was as follows:

 

    Three Months
Ended
    March 31, 2013    
    Year
Ended
 December 31, 2012 
 
    (In millions)  

Balance, beginning of period

  $ 3,828      $ 2,919   

Change in unrealized investment and derivative gains (losses)

    (229)        909   
 

 

 

   

 

 

 

Balance, end of period

  $ 3,599      $ 3,828   
 

 

 

   

 

 

 

 

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MetLife, Inc.

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

 

Information regarding the closed block revenues and expenses was as follows:

 

    Three Months
Ended
March 31,
 
            2013                     2012          
    (In millions)  

Revenues

   

Premiums

  $ 464      $ 498   

Net investment income

    533        550   

Net investment gains (losses)

          11   

Net derivative gains (losses)

          (9)   
 

 

 

   

 

 

 

Total revenues

    1,008        1,050   
 

 

 

   

 

 

 

Expenses

   

Policyholder benefits and claims

    643        662   

Policyholder dividends

    242        268   

Other expenses

    42        45   
 

 

 

   

 

 

 

Total expenses

    927        975   
 

 

 

   

 

 

 

Revenues, net of expenses before provision for income tax expense (benefit)

    81        75   

Provision for income tax expense (benefit)

    27        27   
 

 

 

   

 

 

 

Revenues, net of expenses and provision for income tax expense (benefit) from continuing operations

    54        48   

Revenues, net of expenses and provision for income tax expense (benefit) from discontinued operations

    —         
 

 

 

   

 

 

 

Revenues, net of expenses and provision for income tax expense (benefit)

  $ 54      $ 52   
 

 

 

   

 

 

 

MLIC charges the closed block with federal income taxes, state and local premium taxes and other additive state or local taxes, as well as investment management expenses relating to the closed block as provided in the Plan. MLIC also charges the closed block for expenses of maintaining the policies included in the closed block.

 

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MetLife, Inc.

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

 

6.   Investments

Fixed Maturity and Equity Securities Available-for-Sale

Fixed Maturity and Equity Securities Available-for-Sale by Sector

The following table presents the fixed maturity and equity securities available-for-sale (“AFS”) by sector. The unrealized loss amounts presented below include the noncredit loss component of other-than-temporary impairments (“OTTI”) losses. Redeemable preferred stock is reported within U.S. corporate and foreign corporate fixed maturity securities and non-redeemable preferred stock is reported within equity securities. Included within fixed maturity securities are structured securities including residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities (“CMBS”) and asset-backed securities (“ABS”).

 

    March 31, 2013     December 31, 2012  
    Cost or
Amortized
Cost
    Gross Unrealized     Estimated
Fair
Value
    Cost or
Amortized
Cost
    Gross Unrealized     Estimated
Fair
Value
 
      Gains     Temporary
Losses
    OTTI
Losses
        Gains     Temporary
Losses
    OTTI
Losses
   
    (In millions)  

Fixed maturity securities:

                   

U.S. corporate

  $ 102,086      $ 11,364      $ 444      $ —      $ 113,006      $ 102,669      $ 11,887      $ 430      $ —      $ 114,126   

Foreign corporate (1)

    61,067        5,322        305        (2)        66,086        61,806        5,654        277        (1)        67,184   

Foreign government

    49,951        5,552        68        —        55,435        51,967        5,440        71        —        57,336   

U.S. Treasury and agency

    49,258        5,229        30        —        54,457        41,874        6,104        11        —        47,967   

RMBS

    34,403        2,391        198        249        36,347        35,666        2,477        315        349        37,479   

CMBS

    17,015        935        53        —        17,897        18,177        1,009        57        —        19,129   

ABS

    15,841        423        137        13        16,114        15,762        404        156        13        15,997   

State and political subdivision

    12,912        2,110        70        —        14,952        12,949        2,169        70        —        15,048   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total fixed maturity securities

  $ 342,533      $ 33,326      $ 1,305      $ 260      $ 374,294      $ 340,870      $ 35,144      $ 1,387      $ 361      $ 374,266   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Equity securities:

                   

Common stock

  $ 1,985      $ 305      $     $ —      $ 2,282      $ 2,034      $ 147      $ 19      $ —      $ 2,162   

Non-redeemable preferred stock

    913        71        78        —        906        804        65        140        —        729   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity securities

  $ 2,898      $ 376      $ 86      $ —      $ 3,188      $ 2,838      $ 212      $ 159      $ —      $ 2,891   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

OTTI losses, as presented above, represent the noncredit portion of OTTI losses that is included in AOCI. OTTI losses include both the initial recognition of noncredit losses, and the effects of subsequent increases and decreases in estimated fair value for those fixed maturity securities that were previously noncredit loss impaired. The noncredit loss component of OTTI losses for foreign corporate securities was in an unrealized gain position of $2 million and $1 million at March 31, 2013 and December 31, 2012, respectively, due to increases in estimated fair value subsequent to initial recognition of noncredit losses on such securities. See also “— Net Unrealized Investment Gains (Losses).”

The Company held non-income producing fixed maturity securities with an estimated fair value of $80 million and $85 million with unrealized gains (losses) of $19 million and $11 million at March 31, 2013 and December 31, 2012, respectively.

 

24


Table of Contents

MetLife, Inc.

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

 

Maturities of Fixed Maturity Securities

The amortized cost and estimated fair value of fixed maturity securities, by contractual maturity date, were as follows at:

 

    March 31, 2013     December 31, 2012  
      Amortized  
Cost
      Estimated  
Fair
Value
      Amortized  
Cost
      Estimated  
Fair
Value
 
    (In millions)  

Due in one year or less

  $ 23,879      $ 24,118      $ 24,177      $ 24,394   

Due after one year through five years

    70,432        74,386        66,973        70,759   

Due after five years through ten years

    80,420        89,648        82,376        91,975   

Due after ten years

    100,543        115,784        97,739        114,533   
 

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal

    275,274        303,936        271,265        301,661   

Structured securities (RMBS, CMBS and ABS)

    67,259        70,358        69,605        72,605   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total fixed maturity securities

  $ 342,533      $ 374,294      $ 340,870      $ 374,266   
 

 

 

   

 

 

   

 

 

   

 

 

 

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

Continuous Gross Unrealized Losses for Fixed Maturity and Equity Securities AFS by Sector

The following table presents the estimated fair value and gross unrealized losses of fixed maturity and equity securities AFS in an unrealized loss position, aggregated by sector and by length of time that the securities have been in a continuous unrealized loss position. The unrealized loss amounts include the noncredit component of OTTI loss.

 

    March 31, 2013     December 31, 2012  
    Less than 12 Months     Equal to or Greater
than 12 Months
    Less than 12 Months     Equal to or Greater
than 12 Months
 
    Estimated
Fair
Value
    Gross
Unrealized
Losses
    Estimated
Fair
Value
    Gross
Unrealized
Losses
    Estimated
Fair
Value
    Gross
Unrealized
Losses
    Estimated
Fair
Value
    Gross
Unrealized
Losses
 
    (In millions, except number of securities)  

Fixed maturity securities:

               

U.S. corporate

  $ 5,868      $ 171      $ 2,663      $ 273      $ 3,799      $ 88      $ 3,695      $ 342   

Foreign corporate

    4,884        146        2,144        157        2,783        96        2,873        180   

Foreign government

    1,428        28        462        40        1,431        22        543        49   

U.S. Treasury and agency

    2,645        30        —        —        1,951        11        —        —   

RMBS

    1,284        42        3,235        405        735        31        4,098        633   

CMBS

    1,440        16        401        37        842        11        577        46   

ABS

    2,356        43        1,015        107        1,920        30        1,410        139   

State and political subdivision

    525        10        243        60        260              251        66   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total fixed maturity securities

  $ 20,430      $ 486      $ 10,163      $ 1,079      $ 13,721      $ 293      $ 13,447      $ 1,455   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Equity securities:

               

Common stock

  $ 67      $     $ 12      $     $ 201      $ 18      $ 14      $  

Non-redeemable preferred stock

    56              274        77        —        —        295        140   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity securities

  $ 123      $     $ 286      $ 78      $ 201      $ 18      $ 309      $ 141   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total number of securities in an unrealized loss position

    2,188          1,070          1,941           1,335     
 

 

 

     

 

 

     

 

 

     

 

 

   

 

25


Table of Contents

MetLife, Inc.

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

 

Evaluation of AFS Securities for OTTI and Evaluating Temporarily Impaired AFS Securities

As described more fully in Notes 1 and 8 of the Notes to the Consolidated Financial Statements included in the 2012 Annual Report, the Company performs a regular evaluation of all investment classes for impairment, 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.

Current Period Evaluation

Based on the Company’s current evaluation of its AFS securities in an unrealized loss position in accordance with its impairment policy, and the Company’s current intentions and assessments (as applicable to the type of security) about holding, selling and any requirements to sell these securities, the Company has concluded that these securities are not other-than-temporarily impaired at March 31, 2013. Future OTTI will depend primarily on economic fundamentals, issuer performance (including changes in the present value of future cash flows expected to be collected), changes in credit ratings, changes in collateral valuation, changes in interest rates and changes in credit spreads. If economic fundamentals deteriorate or if there are adverse changes in the above factors, OTTI may be incurred in upcoming periods.

Gross unrealized losses on fixed maturity securities in an unrealized loss position decreased $183 million during the three months ended March 31, 2013 from $1.7 billion to $1.6 billion. The decline in, or improvement in, gross unrealized losses for the three months ended March 31, 2013, was primarily attributable to narrowing credit spreads, partially offset by an increase in interest rates.

At March 31, 2013, $364 million of the total $1.6 billion of gross unrealized losses were from 116 fixed maturity securities with an unrealized loss position of 20% or more of amortized cost for six months or greater.

Investment Grade Fixed Maturity Securities

Of the $364 million of gross unrealized losses on fixed maturity securities with an unrealized loss of 20% or more of amortized cost for six months or greater, $179 million, or 49%, are related to gross unrealized losses on 51 investment grade fixed maturity securities. Unrealized losses on investment grade fixed maturity securities are principally related to widening credit spreads and, with respect to fixed rate fixed maturity securities, rising interest rates since purchase.

Below Investment Grade Fixed Maturity Securities

Of the $364 million of gross unrealized losses on fixed maturity securities with an unrealized loss of 20% or more of amortized cost for six months or greater, $185 million, or 51%, are related to gross unrealized losses on 65 below investment grade fixed maturity securities. Unrealized losses on below investment grade fixed maturity securities are principally related to non-agency RMBS (primarily alternative residential mortgage loans), ABS (primarily foreign ABS) and foreign government securities (primarily European sovereign bonds) and are the result of significantly wider credit spreads resulting from higher risk premiums since purchase, largely due to economic and market uncertainties including concerns over unemployment levels, sovereign debt levels and valuations of residential real estate supporting non-agency RMBS. Management evaluates foreign government securities based on factors such as expected cash flows and the financial condition and near-term and long-term prospects of the issuer; and evaluates non-agency RMBS and ABS based on actual and projected cash flows after considering the quality of underlying collateral, expected prepayment speeds, current and forecasted loss severity, consideration of the payment terms of the underlying assets backing a particular security, and the payment priority within the tranche structure of the security.

Equity Securities

Equity securities in an unrealized loss position decreased $73 million during the three months ended March 31, 2013 from $159 million to $86 million. Of the $86 million, $54 million were from 10 equity securities with gross unrealized

 

26


Table of Contents

MetLife, Inc.

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

 

losses of 20% or more of cost for 12 months or greater, all of which were financial services industry investment grade non-redeemable preferred stock, of which 65% were rated A, AA, or AAA.

Fair Value Option and Trading Securities

See Note 8 for tables that present the categories of securities that comprise fair value option (“FVO”) and trading securities. See “— Net Investment Income” and “— Net Investment Gains (Losses)” for the net investment income recognized on FVO and trading securities and the related changes in estimated fair value subsequent to purchase included in net investment income and net investment gains (losses) for securities still held as of the end of the respective periods, as applicable.

Mortgage Loans

Mortgage Loans Held-for-Investment and Held-for-Sale by Portfolio Segment

Mortgage loans are summarized as follows at:

 

    March 31, 2013     December 31, 2012  
        Carrying    
Value
    % of
    Total    
        Carrying    
Value
    % of
    Total    
 
    (In millions)           (In millions)        

Mortgage loans held-for-investment:

       

Commercial

  $ 39,605        71.2   %    $ 40,472        71.0   % 

Agricultural

    12,669        22.8        12,843        22.5   

Residential

    994        1.8        958        1.7   
 

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal (1)

    53,268        95.8        54,273        95.2   

Valuation allowances

    (332)        (0.6)        (347)        (0.6)   
 

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal mortgage loans held-for-investment, net

    52,936        95.2        53,926        94.6   

Commercial mortgage loans held by CSEs

    2,407        4.3        2,666        4.7   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total mortgage loans held-for-investment, net

    55,343        99.5        56,592        99.3   
 

 

 

   

 

 

   

 

 

   

 

 

 

Mortgage loans held-for-sale:

       

Residential — FVO

          —        49        0.1   

Mortgage loans — lower of amortized cost or estimated fair value

    269        0.5        365        0.6   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total mortgage loans held-for-sale

    271        0.5        414        0.7   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total mortgage loans, net

  $ 55,614        100.0   %    $ 57,006        100.0   % 
 

 

 

   

 

 

   

 

 

   

 

 

 

 

 

(1)

Purchases of mortgage loans were $50 million for the three months ended March 31, 2013. There were no mortgage loan purchases for the three months ended March 31, 2012.

See “— Variable Interest Entities” for discussion of consolidated securitization entities (“CSEs”).

 

27


Table of Contents

MetLife, Inc.

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

 

Mortgage Loans and Valuation Allowance by Portfolio Segment

The carrying value prior to valuation allowance (“recorded investment”) in mortgage loans held-for-investment, by portfolio segment, by method of evaluation of credit loss, and the related valuation allowances, by type of credit loss, were as follows:

 

    March 31, 2013     December 31, 2012  
    Commercial     Agricultural     Residential           Total           Commercial     Agricultural     Residential           Total        
    (In millions)  

Mortgage loans:

               

Evaluated individually for credit losses

  $ 533      $ 156      $ 14      $ 703      $ 539      $ 181      $ 13      $ 733   

Evaluated collectively for credit losses

    39,072        12,513        980        52,565        39,933        12,662        945        53,540   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total mortgage loans

    39,605        12,669        994        53,268        40,472        12,843        958        54,273   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Valuation allowances:

               

Specific credit losses

    61        19              82        94        21              117   

Non-specifically identified credit losses

    214        35              250        199        31        —        230   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total valuation allowances

    275        54              332        293        52              347   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Mortgage loans, net of valuation allowance

  $ 39,330      $ 12,615      $ 991      $ 52,936      $ 40,179      $ 12,791      $ 956      $ 53,926   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Valuation Allowance Rollforward by Portfolio Segment

The changes in the valuation allowance, by portfolio segment, were as follows:

 

      Commercial         Agricultural         Residential             Total        
    (In millions)  

For the Three Months Ended March 31, 2013:

       

Balance, beginning of period

  $ 293      $ 52      $     $ 347   

Provision (release)

    (18)                    (11)   

Charge-offs, net of recoveries

    —        (4)        —        (4)   
 

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of period

  $ 275      $ 54      $     $ 332   
 

 

 

   

 

 

   

 

 

   

 

 

 

For the Three Months Ended March 31, 2012:

       

Balance, beginning of period

  $ 398      $ 81      $     $ 481   

Provision (release)

    (30)        (6)              (35)   

Charge-offs, net of recoveries

    —        —        —        —   
 

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of period

  $ 368      $ 75      $     $ 446   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

28


Table of Contents

MetLife, Inc.

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

 

Credit Quality of Commercial Mortgage Loans

Information about the credit quality of commercial mortgage loans held-for-investment is presented below at:

 

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

March 31, 2013:

             

Loan-to-value ratios:

             

Less than 65%

  $ 29,872      $ 701      $ 363      $ 30,936        78.1    $ 33,682        79.2 

65% to 75%

    4,864        645        158        5,667        14.3        5,912        13.9   

76% to 80%

    918        297        341        1,556        3.9        1,582        3.7   

Greater than 80%

    1,066        183        197        1,446        3.7        1,342        3.2   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 36,720      $ 1,826      $ 1,059      $ 39,605        100.0    $ 42,518        100.0 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

December 31, 2012:

             

Loan-to-value ratios:

             

Less than 65%

  $ 29,839      $ 730      $ 722      $ 31,291        77.3    $ 33,730        78.3 

65% to 75%

    5,057        672        153        5,882        14.6        6,129        14.2   

76% to 80%

    938        131        316        1,385        3.4        1,436        3.3   

Greater than 80%

    1,085        552        277        1,914        4.7        1,787        4.2   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 36,919      $ 2,085      $ 1,468      $ 40,472        100.0    $ 43,082        100.0 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Credit Quality of Agricultural Mortgage Loans

Information about the credit quality of agricultural mortgage loans held-for-investment is presented below at:

 

    March 31, 2013     December 31, 2012  
    Recorded
     Investment    
    % of
    Total    
    Recorded
     Investment    
    % of
    Total    
 
    (In millions)           (In millions)        

Loan-to-value ratios:

       

Less than 65%

  $ 11,676        92.2    $ 11,908        92.7 

65% to 75%

    679        5.4        590        4.6   

76% to 80%

    79        0.6        92        0.7   

Greater than 80%

    235        1.8        253        2.0   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 12,669        100.0    $ 12,843        100.0 
 

 

 

   

 

 

   

 

 

   

 

 

 

The estimated fair value of agricultural mortgage loans held-for-investment was $13.1 billion and $13.3 billion at March 31, 2013 and December 31, 2012, respectively.

 

29


Table of Contents

MetLife, Inc.

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

 

Credit Quality of Residential Mortgage Loans

Information about the credit quality of residential mortgage loans held-for-investment is presented below at:

 

    March 31, 2013     December 31, 2012  
    Recorded
     Investment    
    % of
    Total    
    Recorded
     Investment    
    % of
    Total    
 
    (In millions)           (In millions)        

Performance indicators:

       

Performing

  $ 967        97.3    $ 929        97.0 

Nonperforming

    27        2.7        29        3.0   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 994        100.0    $ 958        100.0 
 

 

 

   

 

 

   

 

 

   

 

 

 

The estimated fair value of residential mortgage loans held-for-investment was $1.0 billion at both March 31, 2013 and December 31, 2012.

Past Due and Interest Accrual Status of Mortgage Loans

The Company has a high quality, well performing, mortgage loan portfolio, with 99% of all mortgage loans classified as performing at both March 31, 2013 and December 31, 2012. The Company defines delinquent mortgage loans consistent with industry practice, when interest and principal payments are past due as follows: commercial and residential mortgage loans — 60 days; and agricultural mortgage loans — 90 days. The recorded investment in mortgage loans held-for-investment, prior to valuation allowances, past due according to these aging categories, greater than 90 days past due and still accruing interest and in nonaccrual status, by portfolio segment, were as follows at:

 

    Past Due     Greater than 90 Days Past Due
and Still Accruing Interest
    Nonaccrual Status  
    March 31, 2013     December 31, 2012     March 31, 2013     December 31, 2012     March 31, 2013     December 31, 2012  
    (In millions)  

Commercial

  $ —      $     $ —      $ —      $ 223      $ 84   

Agricultural

    105        116        44        53        75        67   

Residential

    27        29        —        —        18        18   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 132      $ 147      $ 44      $ 53      $ 316      $ 169   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

30


Table of Contents

MetLife, Inc.

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

 

Impaired Mortgage Loans

Information regarding impaired mortgage loans held-for-investment, including those modified in a troubled debt restructuring, by portfolio segment, were as follows at:

 

    Loans with a Valuation Allowance     Loans without
a Valuation Allowance
    All Impaired Loans  
    Unpaid
  Principal  
Balance
    Recorded
  Investment   
    Valuation
  Allowances   
      Carrying  
Value
    Unpaid
  Principal  
Balance
    Recorded
  Investment   
    Unpaid
  Principal  
Balance
      Carrying  
Value
 
    (In millions)  

March 31, 2013:

               

Commercial

  $ 261      $ 245      $ 61      $ 184      $ 302      $ 288      $ 563      $ 472   

Agricultural

    91        90        19        71        71        66        162        137   

Residential

    12        12              10                    14        12   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 364      $ 347      $ 82      $ 265      $ 375      $ 356      $ 739      $ 621   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

December 31, 2012:

               

Commercial

  $ 445      $ 436      $ 94      $ 342      $ 103      $ 103      $ 548      $ 445   

Agricultural

    110        107        21        86        79        74        189        160   

Residential

    13        13              11        —        —        13        11   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 568      $ 556      $ 117      $ 439      $ 182      $ 177      $ 750      $ 616   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Unpaid principal balance is generally prior to any charge-offs.

The average recorded investment in impaired mortgage loans held-for-investment, including those modified in a troubled debt restructuring, and the related interest income, which is primarily recognized on a cash basis, by portfolio segment, was:

 

    Impaired Mortgage Loans  
    Average
Recorded  Investment
    Interest
             Income            
 
    (In millions)  

For the Three Months Ended March 31, 2013:

   

Commercial

  $ 536      $  

Agricultural

    169         

Residential

    14        —   
 

 

 

   

 

 

 

Total

  $ 719      $  
 

 

 

   

 

 

 

For the Three Months Ended March 31, 2012:

   

Commercial

  $ 273      $  

Agricultural

    229         

Residential

    14        —   
 

 

 

   

 

 

 

Total

  $ 516      $  
 

 

 

   

 

 

 

Mortgage Loans Modified in a Troubled Debt Restructuring

At March 31, 2013 and 2012, the Company had no mortgage loans modified during the period in a troubled debt restructuring.

During the three months ended March 31, 2013, the Company had no mortgage loans with subsequent payment defaults that were modified in a troubled debt restructuring during the previous 12 months. During the three months ended March 31, 2012, the Company had one agricultural mortgage loan that had a payment default with a carrying value after specific valuation

 

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

 

allowance of $8 million, which was modified as a troubled debt restructuring during the previous 12 months. Payment default is determined in the same manner as delinquency status — when interest and principal payments are past due as described above.

Cash Equivalents

The carrying value of cash equivalents, which includes securities and other investments with an original or remaining maturity of three months or less at the time of purchase, was $6.3 billion and $6.1 billion at March 31, 2013 and December 31, 2012, respectively.

Net Unrealized Investment Gains (Losses)

The components of net unrealized investment gains (losses), included in AOCI, were as follows at:

 

        March 31, 2013          December 31, 2012   
    (In millions)  

Fixed maturity securities

  $ 31,932      $ 33,641   

Fixed maturity securities with noncredit OTTI losses in AOCI

    (260)        (361)   
 

 

 

   

 

 

 

Total fixed maturity securities

    31,672        33,280   

Equity securities

    341        97   

Derivatives

    1,393        1,274   

Other

    (16)        (30)   
 

 

 

   

 

 

 

Subtotal

    33,390        34,621   
 

 

 

   

 

 

 

Amounts allocated from:

   

Insurance liability loss recognition

    (5,613)        (6,049)   

DAC and VOBA related to noncredit OTTI losses recognized in AOCI

          19   

DAC and VOBA

    (2,242)        (2,485)   

Policyholder dividend obligation

    (3,599)        (3,828)   
 

 

 

   

 

 

 

Subtotal

    (11,445)        (12,343)   

Deferred income tax benefit (expense) related to noncredit OTTI losses recognized in AOCI

    87        119   

Deferred income tax benefit (expense)

    (7,788)        (7,973)   
 

 

 

   

 

 

 

Net unrealized investment gains (losses)

    14,244        14,424   

Net unrealized investment gains (losses) attributable to noncontrolling interests

    (7)        (5)   
 

 

 

   

 

 

 

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

  $ 14,237      $ 14,419   
 

 

 

   

 

 

 

The changes in fixed maturity securities with noncredit OTTI losses included in AOCI were as follows:

 

    Three Months
Ended
    March 31, 2013    
    Year
Ended
 December 31, 2012 
 
    (In millions)  

Balance, beginning of period

  $ (361)      $ (724)   

Noncredit OTTI losses and subsequent changes recognized (1)

    31        (29)   

Securities sold with previous noncredit OTTI loss

    54        177   

Subsequent changes in estimated fair value

    16        215   
 

 

 

   

 

 

 

Balance, end of period

  $ (260)      $ (361)   
 

 

 

   

 

 

 

 

 

(1)

Noncredit OTTI losses and subsequent changes recognized, net of DAC, were $24 million and ($21) million for the three months ended March 31, 2013 and year ended December 31, 2012, respectively.

 

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

 

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

 

    Three Months
Ended
    March 31, 2013    
 
    (In millions)  

Balance, beginning of period

  $ 14,419   

Fixed maturity securities on which noncredit OTTI losses have been recognized

    101   

Unrealized investment gains (losses) during the period

    (1,332)   

Unrealized investment gains (losses) relating to:

 

Insurance liability gain (loss) recognition

    436   

DAC and VOBA related to noncredit OTTI losses recognized in AOCI

    (10)   

DAC and VOBA

    243   

Policyholder dividend obligation

    229   

Deferred income tax benefit (expense) related to noncredit OTTI losses recognized in AOCI

    (32)   

Deferred income tax benefit (expense)

    185   
 

 

 

 

Net unrealized investment gains (losses)

    14,239   

Net unrealized investment gains (losses) attributable to noncontrolling interests

    (2)   
 

 

 

 

Balance, end of period

  $ 14,237   
 

 

 

 

Change in net unrealized investment gains (losses)

  $ (180)   

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

    (2)   
 

 

 

 

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

  $ (182)   
 

 

 

 

Concentrations of Credit Risk

Investments in any counterparty that were greater than 10% of the Company’s equity, other than the U.S. government and its agencies, were in fixed income securities of the Japanese and Mexican governments and their agencies with an estimated fair value, at March 31, 2013, of $20.6 billion and $6.6 billion, respectively, and in fixed income securities of the Japanese government and its agencies with an estimated fair value, at December 31, 2012, of $22.4 billion. The Company’s investment in fixed maturity and equity securities to counterparties that primarily conduct business in Japan, including Japan government and agency fixed maturity securities, was $26.6 billion and $28.7 billion at March 31, 2013 and December 31, 2012, respectively.

Securities Lending

The Company participates in a securities lending program. Elements of the securities lending program are presented below at:

 

        March 31, 2013          December 31, 2012   
    (In millions)  

Securities on loan: (1)

   

Amortized cost

  $ 27,034      $ 23,380   

Estimated fair value

  $ 29,605      $ 27,077   

Cash collateral on deposit from counterparties (2)

  $ 30,284      $ 27,727   

Security collateral on deposit from counterparties (3)

  $ 23      $ 104   

Reinvestment portfolio — estimated fair value

  $ 30,776      $ 28,112   

 

 

(1)

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

 

(2)

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

 

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

 

(3)

Security collateral on deposit from counterparties may not be sold or repledged, unless the counterparty is in default, and is not reflected in the consolidated financial statements.

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

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

 

        March 31, 2013          December 31, 2012   
    (In millions)  

Invested assets on deposit (regulatory deposits)

  $ 2,335      $ 2,362   

Invested assets held in trust (collateral financing arrangements and reinsurance agreements)

    11,702        12,434   

Invested assets pledged as collateral (1)

    23,763        23,251   
 

 

 

   

 

 

 

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

  $ 37,800      $ 38,047   
 

 

 

   

 

 

 

 

 

(1)