e10vq
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 SEPTEMBER 30, 2009
OR
o
  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, NY
(Address of principal executive offices)
  10166-0188
(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 o
 
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 o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
     
Large accelerated filer þ
  Accelerated filer o
Non-accelerated filer o  (Do not check if a smaller reporting company)
  Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o     No þ
 
At November 2, 2009, 818,790,607 shares of the registrant’s common stock, $0.01 par value per share, were outstanding.
 


 

 
Table of Contents
 
         
    Page
 
       
    4  
    4  
    5  
    6  
    8  
    10  
    122  
    240  
    249  
    249  
    249  
    251  
    254  
    255  
    256  
    E-1  
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT


2


Table of Contents

Note Regarding Forward-Looking Statements
 
This Quarterly Report on Form 10-Q, including the 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. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
 
Note Regarding Reliance on Statements in Our Contracts
 
In reviewing the agreements included as exhibits to this Quarterly Report on Form 10-Q, please remember that they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about MetLife, Inc., its subsidiaries or the other parties to the agreements. The agreements contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:
 
  •  should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;
 
  •  have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;
 
  •  may apply standards of materiality in a way that is different from what may be viewed as material to investors; and
 
  •  were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.
 
Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about MetLife, Inc. and its subsidiaries may be found elsewhere in this Quarterly Report on Form 10-Q and MetLife, Inc.’s other public filings, which are available without charge through the U.S. Securities and Exchange Commission website at www.sec.gov.


3


Table of Contents

 
Part I — Financial Information
 
Item 1.   Financial Statements
 
MetLife, Inc.
 
Interim Condensed Consolidated Balance Sheets
September 30, 2009 (Unaudited) and December 31, 2008
 
(In millions, except share and per share data)
 
                 
    September 30, 2009     December 31, 2008  
 
Assets
               
Investments:
               
Fixed maturity securities available-for-sale, at estimated fair value (amortized cost: $225,274 and $209,508, respectively)
  $ 223,896     $ 188,251  
Equity securities available-for-sale, at estimated fair value (cost: $3,349 and $4,131, respectively)
    3,117       3,197  
Trading securities, at estimated fair value (cost: $1,895 and $1,107, respectively)
    1,970       946  
Mortgage and consumer loans:
               
Held-for-investment, at amortized cost (net of valuation allowances of $671 and $304, respectively)
    48,239       49,352  
Held-for-sale, principally at estimated fair value
    2,442       2,012  
                 
Mortgage and consumer loans, net
    50,681       51,364  
Policy loans
    10,001       9,802  
Real estate and real estate joint ventures held-for-investment
    6,982       7,535  
Real estate held-for-sale
    50       51  
Other limited partnership interests
    5,255       6,039  
Short-term investments
    6,861       13,878  
Other invested assets
    13,916       17,248  
                 
Total investments
    322,729       298,311  
Cash and cash equivalents
    15,562       24,207  
Accrued investment income
    3,236       3,061  
Premiums and other receivables
    16,903       16,973  
Deferred policy acquisition costs and value of business acquired
    19,208       20,144  
Current income tax recoverable
    412        
Deferred income tax assets
    535       4,927  
Goodwill
    5,033       5,008  
Other assets
    7,140       7,262  
Assets of subsidiaries held-for-sale
          946  
Separate account assets
    144,434       120,839  
                 
Total assets
  $ 535,192     $ 501,678  
                 
Liabilities and Stockholders’ Equity
               
Liabilities:
               
Future policy benefits
  $ 134,492     $ 130,555  
Policyholder account balances
    147,543       149,805  
Other policyholder funds
    8,549       7,762  
Policyholder dividends payable
    911       1,023  
Short-term debt
    2,131       2,659  
Long-term debt
    13,202       9,667  
Collateral financing arrangements
    5,297       5,192  
Junior subordinated debt securities
    3,191       3,758  
Current income tax payable
          342  
Payables for collateral under securities loaned and other transactions
    24,363       31,059  
Other liabilities
    16,486       14,284  
Liabilities of subsidiaries held-for-sale
          748  
Separate account liabilities
    144,434       120,839  
                 
Total liabilities
    500,599       477,693  
                 
Contingencies, Commitments and Guarantees (Note 12)
               
Stockholders’ Equity:
               
MetLife, Inc.’s stockholders’ equity:
               
Preferred stock, par value $0.01 per share; 200,000,000 shares authorized; 84,000,000 shares issued and outstanding; $2,100 aggregate liquidation preference
    1       1  
Common stock, par value $0.01 per share; 3,000,000,000 shares authorized; 822,359,818 shares and 798,016,664 shares issued at September 30, 2009 and December 31, 2008, respectively; 818,753,139 shares and 793,629,070 shares outstanding at September 30, 2009 and December 31, 2008, respectively
    8       8  
Additional paid-in capital
    16,865       15,811  
Retained earnings
    19,822       22,403  
Treasury stock, at cost; 3,606,679 shares and 4,387,594 shares at September 30, 2009 and
December 31, 2008, respectively
    (194 )     (236 )
Accumulated other comprehensive loss
    (2,234 )     (14,253 )
                 
Total MetLife, Inc.’s stockholders’ equity
    34,268       23,734  
Noncontrolling interests
    325       251  
                 
Total equity
    34,593       23,985  
                 
Total liabilities and stockholders’ equity
  $ 535,192     $ 501,678  
                 
 
See accompanying notes to the interim condensed consolidated financial statements.


4


Table of Contents

MetLife, Inc.
 
Interim Condensed Consolidated Statements of Income
For the Three Months and Nine Months Ended September 30, 2009 and 2008 (Unaudited)
 
(In millions, except per share data)
 
                                 
    Three Months
    Nine Months
 
    Ended
    Ended
 
    September 30,     September 30,  
    2009     2008     2009     2008  
 
Revenues
                               
Premiums
  $ 6,601     $ 6,785     $ 19,299     $ 19,416  
Universal life and investment-type product policy fees
    1,251       1,352       3,650       4,145  
Net investment income
    3,923       4,047       10,914       12,661  
Other revenues
    602       421       1,728       1,141  
Net investment gains (losses):
                               
Other-than-temporary impairments on fixed maturity securities
    (650 )     (748 )     (1,769 )     (961 )
Other-than-temporary impairments on fixed maturity securities transferred to other comprehensive loss
    245             479        
Other net investment gains (losses), net
    (1,734 )     1,494       (5,584 )     620  
                                 
Total net investment gains (losses)
    (2,139 )     746       (6,874 )     (341 )
                                 
Total revenues
    10,238       13,351       28,717       37,022  
                                 
Expenses
                               
Policyholder benefits and claims
    7,173       7,264       20,701       20,426  
Interest credited to policyholder account balances
    1,258       1,129       3,655       3,558  
Policyholder dividends
    439       448       1,297       1,323  
Other expenses
    2,543       2,931       7,576       8,085  
                                 
Total expenses
    11,413       11,772       33,229       33,392  
                                 
Income (loss) from continuing operations before provision for income tax
    (1,175 )     1,579       (4,512 )     3,630  
Provision for income tax expense (benefit)
    (551 )     529       (1,884 )     1,077  
                                 
Income (loss) from continuing operations, net of income tax
    (624 )     1,050       (2,628 )     2,553  
Income (loss) from discontinued operations, net of income tax
    (1 )     (404 )     37       (251 )
                                 
Net income (loss)
    (625 )     646       (2,591 )     2,302  
Less: Net income (loss) attributable to noncontrolling interests
    (5 )     16       (25 )     78  
                                 
Net income (loss) attributable to MetLife, Inc. 
    (620 )     630       (2,566 )     2,224  
Less: Preferred stock dividends
    30       30       91       94  
                                 
Net income (loss) available to MetLife, Inc.’s common shareholders
  $ (650 )   $ 600     $ (2,657 )   $ 2,130  
                                 
Income (loss) from continuing operations, net of income tax, available to MetLife, Inc.’s common shareholders per common share:
                               
Basic
  $ (0.79 )   $ 1.43     $ (3.30 )   $ 3.45  
                                 
Diluted
  $ (0.79 )   $ 1.42     $ (3.30 )   $ 3.39  
                                 
Net income (loss) available to MetLife, Inc.’s common shareholders per common share:
                               
Basic
  $ (0.79 )   $ 0.84     $ (3.25 )   $ 2.97  
                                 
Diluted
  $ (0.79 )   $ 0.83     $ (3.25 )   $ 2.92  
                                 
 
See accompanying notes to the interim condensed consolidated financial statements.


5


Table of Contents

 

MetLife, Inc.
 
Interim Condensed Consolidated Statement of Stockholders’ Equity
For the Nine Months Ended September 30, 2009 (Unaudited)
 
(In millions)
 
                                                                                                 
                                  Accumulated Other Comprehensive Loss                    
                                  Net
                                     
                                  Unrealized
          Foreign
    Defined
    Total
             
                Additional
          Treasury
    Investment
    Other-Than-
    Currency
    Benefit
    MetLife, Inc.’s
             
    Preferred
    Common
    Paid-in
    Retained
    Stock at
    Gains
    Temporary
    Translation
    Plans
    Stockholders’
    Noncontrolling
    Total
 
    Stock     Stock     Capital     Earnings     Cost     (Losses)     Impairments     Adjustments     Adjustment     Equity     Interests     Equity  
 
Balance at December 31, 2008
  $ 1     $ 8     $ 15,811     $ 22,403     $ (236 )   $ (12,564 )   $     $ (246 )   $ (1,443 )   $ 23,734     $ 251     $ 23,985  
Cumulative effect of changes in accounting principle, net of income tax (Note 1)
                            76                       (76 )                                        
Common stock issuance — newly issued shares
                    1,035                                                       1,035               1,035  
Treasury stock transactions, net
                    20               42                                       62               62  
Deferral of stock-based compensation
                    (1 )                                                     (1 )             (1 )
Dividends on preferred stock
                            (91 )                                             (91 )             (91 )
Change in equity of noncontrolling interests
                                                                                    109       109  
Comprehensive income (loss):
                                                                                               
Net loss
                            (2,566 )                                             (2,566 )     (25 )     (2,591 )
Other comprehensive income (loss):
                                                                                               
Unrealized gains (losses) on derivative instruments, net of income tax
                                                                                         
Unrealized investment gains (losses), net of related offsets and income tax
                                            12,092       (251 )                     11,841       (10 )     11,831  
Foreign currency translation adjustments, net of income tax
                                                            134               134               134  
Defined benefit plans adjustment, net of income tax
                                                                    120       120               120  
                                                                                                 
Other comprehensive income (loss)
                                                                            12,095       (10 )     12,085  
                                                                                                 
Comprehensive income (loss)
                                                                            9,529       (35 )     9,494  
                                                                                                 
Balance at September 30, 2009
  $ 1     $ 8     $ 16,865     $ 19,822     $ (194 )   $ (472 )   $ (327 )   $ (112 )   $ (1,323 )   $ 34,268     $ 325     $ 34,593  
                                                                                                 
 
See accompanying notes to the interim condensed consolidated financial statements.


6


Table of Contents

 
MetLife, Inc.

Interim Condensed Consolidated Statement of Stockholders’ Equity
For the Nine Months Ended September 30, 2008 (Unaudited) — (Continued)

(In millions)
 
                                                                                                 
                                  Accumulated Other Comprehensive
                   
                                  Income (Loss)                    
                                  Net
                                     
                                  Unrealized
    Foreign
    Defined
    Total
                   
                Additional
          Treasury
    Investment
    Currency
    Benefit
    MetLife, Inc.’s
    Noncontrolling Interests        
    Preferred
    Common
    Paid-in
    Retained
    Stock
    Gains
    Translation
    Plans
    Stockholders’
    Discontinued
    Continuing
    Total
 
    Stock     Stock     Capital     Earnings     at Cost     (Losses)     Adjustments     Adjustment     Equity     Operations     Operations     Equity  
 
Balance at December 31, 2007
  $ 1     $ 8     $ 17,098     $ 19,884     $ (2,890 )   $ 971     $ 347     $ (240 )   $ 35,179     $ 1,534     $ 272     $ 36,985  
Cumulative effect of changes in accounting principles, net of income tax
                            27               (10 )                     17                       17  
                                                                                                 
Balance at January 1, 2008
    1       8       17,098       19,911       (2,890 )     961       347       (240 )     35,196       1,534       272       37,002  
Treasury stock transactions:
                                                                                               
Acquired in connection with share repurchase agreements (Note 9)
                    450               (1,250 )                             (800 )                     (800 )
Issued to settle stock forward contracts
                    (29 )             1,064                               1,035                       1,035  
Acquired in connection with split-off of subsidiary
                                    (1,318 )                             (1,318 )                     (1,318 )
Other, net
                    (58 )             115                               57                       57  
Deferral of stock-based compensation
                    141                                               141                       141  
Dividends on preferred stock
                            (94 )                                     (94 )                     (94 )
Dividends on subsidiary common stock
                                                                            34               34  
Change in equity of noncontrolling interests
                                                                            (1,409 )     (41 )     (1,450 )
Comprehensive loss:
                                                                                               
Net income (loss)
                            2,224                                       2,224       94       (16 )     2,302  
Other comprehensive loss:
                                                                                               
Unrealized gains (losses) on derivative instruments, net of income tax
                                            135                       135                       135  
Unrealized investment gains (losses), net of related offsets and income tax
                                            (8,448 )                     (8,448 )     (150 )     (7 )     (8,605 )
Foreign currency translation adjustments, net of income tax
                                                    (299 )             (299 )     (107 )             (406 )
Defined benefit plans adjustment, net of income tax
                                                            4       4       4               8  
                                                                                                 
Other comprehensive loss
                                                                    (8,608 )     (253 )     (7 )     (8,868 )
                                                                                                 
Comprehensive loss
                                                                    (6,384 )     (159 )     (23 )     (6,566 )
                                                                                                 
Balance at September 30, 2008
  $ 1     $ 8     $ 17,602     $ 22,041     $ (4,279 )   $ (7,352 )   $ 48     $ (236 )   $ 27,833     $     $ 208     $ 28,041  
                                                                                                 
 
See accompanying notes to the interim condensed consolidated financial statements.


7


Table of Contents

 
MetLife, Inc.
 
Interim Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2009 and 2008 (Unaudited)
 
(In millions)
 
 
                 
    Nine Months
 
    Ended
 
    September 30,  
    2009     2008  
 
Net cash provided by operating activities
  $ 2,718     $ 7,002  
                 
Cash flows from investing activities
               
Sales, maturities and repayments of:
               
Fixed maturity securities
    48,802       74,011  
Equity securities
    1,900       2,466  
Mortgage and consumer loans
    5,145       4,570  
Real estate and real estate joint ventures
    23       147  
Other limited partnership interests
    824       580  
Purchases of:
               
Fixed maturity securities
    (63,363 )     (74,701 )
Equity securities
    (1,543 )     (1,138 )
Mortgage and consumer loans
    (4,204 )     (8,009 )
Real estate and real estate joint ventures
    (466 )     (938 )
Other limited partnership interests
    (570 )     (1,341 )
Net change in short-term investments
    7,022       36  
Net change in other invested assets
    (530 )     (689 )
Net change in policy loans
    (199 )     (405 )
Purchases of businesses, net of cash received of $0 and $313, respectively
          (465 )
Sales of businesses, net of cash disposed of $180 and $0, respectively
    (50 )     (4 )
Disposal of subsidiary
    (19 )     (281 )
Other, net
    (129 )     (96 )
                 
Net cash used in investing activities
    (7,357 )     (6,257 )
                 
Cash flows from financing activities
               
Policyholder account balances:
               
Deposits
    63,597       47,217  
Withdrawals
    (64,382 )     (38,896 )
Net change in short-term debt
    (528 )     439  
Long-term debt issued
    2,625       1,032  
Long-term debt repaid
    (244 )     (217 )
Collateral financing arrangements issued
    105       250  
Cash received in connection with collateral financing arrangement
    400        
Cash paid in connection with collateral financing arrangement
    (400 )     (238 )
Junior subordinated debt securities issued
    500       750  
Debt issuance costs
    (22 )     (10 )
Net change in payables for collateral under securities loaned and other transactions
    (6,696 )     (837 )
Stock options exercised
    6       43  
Common stock issued to settle stock forward contracts
    1,035        
Treasury stock acquired
          (1,250 )
Treasury stock issued to settle stock forward contracts
          1,035  
Dividends on preferred stock
    (91 )     (94 )
Other, net
    (31 )     (16 )
                 
Net cash (used in) provided by financing activities
    (4,126 )     9,208  
                 
Effect of change in foreign currency exchange rates on cash balances
    88       (112 )
                 
Change in cash and cash equivalents
    (8,677 )     9,841  
Cash and cash equivalents, beginning of period
    24,239       10,368  
                 
Cash and cash equivalents, end of period
  $ 15,562     $ 20,209  
                 
 
See accompanying notes to the interim condensed consolidated financial statements.


8


Table of Contents

MetLife, Inc.

Interim Condensed Consolidated Statements of Cash Flows — (Continued)
For the Nine Months Ended September 30, 2009 and 2008 (Unaudited)
 
(In millions)
 
                 
    Nine Months
 
    Ended
 
    September 30,  
    2009     2008  
 
Cash and cash equivalents, subsidiaries held-for-sale, beginning of period
  $ 32     $ 407  
                 
Cash and cash equivalents, subsidiaries held-for-sale, end of period
  $     $ 28  
                 
Cash and cash equivalents, from continuing operations, beginning of period
  $ 24,207     $ 9,961  
                 
Cash and cash equivalents, from continuing operations, end of period
  $ 15,562     $ 20,181  
                 
Supplemental disclosures of cash flow information:
               
Net cash paid during the period for:
               
Interest
  $ 611     $ 677  
                 
Income tax
  $ 298     $ 430  
                 
Non-cash transactions during the period:
               
Business acquisitions:
               
Assets acquired
  $     $ 1,808  
Cash paid
          (778 )
                 
Liabilities assumed
  $     $ 1,030  
                 
Disposal of subsidiary:
               
Assets disposed
  $     $ 22,135  
Less: liabilities disposed
          (20,689 )
                 
Net assets disposed
          1,446  
Add: cash disposed
          270  
Add: transaction costs, including cash paid of $19 and $11, respectively
    2       60  
Less: treasury stock received in common stock exchange
          (1,318 )
                 
Loss on disposal of subsidiary
  $ 2     $ 458  
                 
Remarketing of debt securities:
               
Fixed maturity securities redeemed
  $ 32     $ 32  
                 
Long-term debt issued
  $ 1,035     $ 1,035  
                 
Junior subordinated debt securities redeemed
  $ 1,067     $ 1,067  
                 
Fixed maturity securities received in connection with insurance contract commutation
  $     $ 115  
                 
Real estate and real estate joint ventures acquired in satisfaction of debt
  $ 211     $ 1  
                 
Purchase money mortgage on real estate joint venture sale
  $ 74     $  
                 
 
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 (the “Holding Company”), and its subsidiaries, including Metropolitan Life Insurance Company (“MLIC”). MetLife is a leading provider of insurance, employee benefits and financial services with operations throughout the United States and the Latin America, Europe, and Asia Pacific regions. Through its subsidiaries and affiliates, MetLife offers life insurance, annuities, auto and home insurance, retail banking and other financial services to individuals, as well as group insurance and retirement & savings products and services to corporations and other institutions.
 
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. The most critical estimates include those used in determining:
 
  (i)  the estimated fair value of investments in the absence of quoted market values;
 
  (ii)  investment impairments;
 
  (iii)  the recognition of income on certain investment entities;
 
  (iv)  the application of the consolidation rules to certain investments;
 
  (v)  the existence and estimated fair value of embedded derivatives requiring bifurcation;
 
  (vi)  the estimated fair value of and accounting for derivatives;
 
  (vii)  the capitalization and amortization of deferred policy acquisition costs (“DAC”) and the establishment and amortization of value of business acquired (“VOBA”);
 
  (viii)  the measurement of goodwill and related impairment, if any;
 
  (ix)  the liability for future policyholder benefits;
 
  (x)  accounting for income taxes and the valuation of deferred income tax assets;
 
  (xi)  accounting for reinsurance transactions;
 
  (xii)  accounting for employee benefit plans; and
 
  (xiii)  the liability for litigation and regulatory matters.
 
In applying the Company’s accounting policies, management makes subjective and complex judgments that frequently require estimates about matters that are inherently uncertain. Many of these policies, estimates and related judgments are common in the insurance and financial services industries; others are specific to the Company’s businesses and operations. Actual results could differ from these estimates.
 
The accompanying interim condensed consolidated financial statements include the accounts of the Holding Company and its subsidiaries as well as partnerships and joint ventures in which the Company has control. Closed block assets, liabilities, revenues and expenses are combined on a line-by-line basis with the assets, liabilities, revenues and expenses outside the closed block based on the nature of the particular item. See Note 8. Intercompany accounts and transactions have been eliminated.
 
In addition, the Company has invested in certain structured transactions that are variable interest entities (“VIEs”). These structured transactions include reinsurance trusts, asset-backed securitizations, trust preferred securities, joint ventures, limited partnerships and limited liability companies. The Company is required to


10


Table of Contents

 
MetLife, Inc.
 
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued) 
 
consolidate those VIEs for which it is deemed to be the primary beneficiary. The Company reconsiders whether it is the primary beneficiary for investments designated as VIEs on a quarterly basis.
 
The Company uses the equity method of accounting for investments in equity securities in which it has a significant influence or more than a 20% interest and for real estate joint ventures and other limited partnership interests in which it has more than a minor equity interest or more than a minor influence over the joint venture’s or partnership’s operations, but does not have a controlling interest and is not the primary beneficiary. The Company uses the cost method of accounting for investments in real estate joint ventures and other limited partnership interests in which it has a minor equity investment and virtually no influence over the joint venture’s or the partnership’s operations.
 
Certain amounts in the prior year periods’ interim condensed consolidated financial statements have been reclassified to conform with the 2009 presentation. Such reclassifications include $112 million for the nine months ended September 30, 2008 relating to the effect of change in foreign currency exchange rates on cash balances. These amounts were reclassified from cash flows from operating activities in the consolidated statements of cash flows for the nine months ended September 30, 2008. See also Note 18 for reclassifications related to discontinued operations.
 
The accompanying interim condensed consolidated financial statements reflect all adjustments (including normal recurring adjustments) necessary to state fairly the consolidated financial position of the Company at September 30, 2009, its consolidated results of operations for the three months and nine months ended September 30, 2009 and 2008, its consolidated cash flows for the nine months ended September 30, 2009 and 2008, and its consolidated statements of stockholders’ equity for the nine months ended September 30, 2009 and 2008, in conformity with GAAP. Interim results are not necessarily indicative of full year performance. The December 31, 2008 consolidated balance sheet data was derived from audited consolidated financial statements included in MetLife’s Annual Report on Form 10-K for the year ended December 31, 2008, as amended on Form 8-K on June 12, 2009, (the “2008 Annual Report”) filed with the U.S. Securities and Exchange Commission (“SEC”), which includes all disclosures required by GAAP. Therefore, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company included in the 2008 Annual Report.
 
In June 2009, the Financial Accounting Standards Board (“FASB”) approved FASB Accounting Standards Codification (“Codification”) as the single source of authoritative accounting guidance used in the preparation of financial statements in conformity with GAAP for all non-governmental entities. Codification, which changed the referencing and organization of accounting guidance without modification of existing GAAP, is effective for interim and annual periods ending after September 15, 2009. Since it did not modify existing GAAP, Codification did not have any impact on the Company’s financial condition or results of operations. On the effective date of Codification, substantially all existing non-SEC accounting and reporting standards are superseded and, therefore, are no longer referenced by title in the accompanying interim condensed consolidated financial statements.
 
Adoption of New Accounting Pronouncements
 
Financial Instruments
 
Effective April 1, 2009, the Company adopted new guidance on the recognition and presentation of other-than-temporary impairments (“OTTI guidance”). This guidance amends previously used methodology for determining whether an other-than-temporary impairment (“OTTI”) exists for fixed maturity securities, changes the presentation of OTTI for fixed maturity securities and requires additional disclosures for OTTI on fixed maturity and equity securities in interim and annual financial statements. It requires that an OTTI be recognized in earnings for a fixed maturity security in an unrealized loss position when it is anticipated that the amortized cost will not be recovered. In such situations, the OTTI recognized in earnings is the entire difference between the fixed maturity security’s amortized cost and its fair value only when either: (i) the Company has the intent to sell the fixed


11


Table of Contents

 
MetLife, Inc.
 
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued) 
 
maturity security; or (ii) it is more likely than not that the Company will be required to sell the fixed maturity security before recovery of the decline in fair value below amortized cost. If neither of these two conditions exists, the difference between the amortized cost basis of the fixed maturity security and the present value of projected future cash flows expected to be collected is recognized as an OTTI in earnings (“credit loss”). If the fair value is less than the present value of projected future cash flows expected to be collected, this portion of OTTI related to other-than credit factors (“noncredit loss”) is recorded as other comprehensive income (loss). When an unrealized loss on a fixed maturity security is considered temporary, the Company continues to record the unrealized loss in other comprehensive income (loss) and not in earnings. There was no change for equity securities which, when an OTTI has occurred, continue to be impaired for the entire difference between the equity security’s cost or amortized cost and its fair value with a corresponding charge to earnings.
 
Prior to the adoption of the OTTI guidance, the Company recognized in earnings an OTTI for a fixed maturity security in an unrealized loss position unless it could assert that it had both the intent and ability to hold the fixed maturity security for a period of time sufficient to allow for a recovery of fair value to the security’s amortized cost basis. Also prior to the adoption of this guidance the entire difference between the fixed maturity security’s amortized cost basis and its fair value was recognized in earnings if it was determined to have an OTTI.
 
The Company’s net cumulative effect adjustment of adopting the OTTI guidance was an increase of $76 million to retained earnings with a corresponding increase to accumulated other comprehensive loss to reclassify the noncredit loss portion of previously recognized OTTI losses on fixed maturity securities held at April 1, 2009. This cumulative effect adjustment was comprised of an increase in the amortized cost basis of fixed maturity securities of $126 million, net of policyholder related amounts of $10 million and net of deferred income taxes of $40 million, resulting in the net cumulative effect adjustment of $76 million. The increase in the amortized cost basis of fixed maturity securities of $126 million by sector was as follows: $53 million - asset-backed securities, $43 million — residential mortgage-backed securities, $17 million — U.S. corporate securities, and $13 million — commercial mortgage-backed securities.
 
As a result of the adoption of the OTTI guidance, the Company’s pre-tax earnings for the three months and nine months ended September 30, 2009 increased by $225 million and $441 million, respectively, offset by an increase in other comprehensive loss representing OTTI relating to noncredit losses recognized during the three months and nine months ended September 30, 2009.
 
The enhanced financial statement presentation of the total OTTI loss and the offset for the portion of noncredit OTTI loss transferred to, and recognized in, other comprehensive loss is presented in the consolidated statements of income and stockholders’ equity. The enhanced required disclosures are included in Note 3.
 
Effective April 1, 2009, the Company adopted two updates relating to fair value measurement and disclosure as follows:
 
  •  The first update provides guidance on: (i) estimating the fair value of an asset or liability if there was a significant decrease in the volume and level of trading activity for these assets or liabilities; and (ii) identifying transactions that are not orderly. Further, it requires disclosure in interim financial statements of the inputs and valuation techniques used to measure fair value. The adoption of this update did not have an impact on the Company’s consolidated financial statements. Additionally, the Company has provided all of the material required disclosures in its consolidated financial statements.
 
  •  The second update requires interim financial instrument fair value disclosures similar to those included in annual financial statements. The Company has provided all of the material required disclosures in its consolidated financial statements.
 
Effective January 1, 2009, the Company adopted guidance on disclosures about derivative instruments and hedging. This guidance requires enhanced qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative


12


Table of Contents

 
MetLife, Inc.
 
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued) 
 
instruments, and disclosures about credit risk-related contingent features in derivative agreements. The Company has provided all of the material required disclosures in its consolidated financial statements.
 
Effective January 1, 2009, the Company adopted prospectively an update on accounting for transfers of financial assets and repurchase financing transactions. This update provides guidance for evaluating whether to account for a transfer of a financial asset and repurchase financing as a single transaction or as two separate transactions. At adoption, this guidance did not have an impact on the Company’s consolidated financial statements.
 
Business Combinations and Noncontrolling Interests
 
Effective January 1, 2009, the Company adopted revised guidance on business combinations and accounting for noncontrolling interests in the consolidated financial statements. Under this new guidance:
 
  •  All business combinations (whether full, partial or “step” acquisitions) result in all assets and liabilities of an acquired business being recorded at fair value, with limited exceptions.
 
  •  Acquisition costs are generally expensed as incurred; restructuring costs associated with a business combination are generally expensed as incurred subsequent to the acquisition date.
 
  •  The fair value of the purchase price, including the issuance of equity securities, is determined on the acquisition date.
 
  •  Assets acquired and liabilities assumed in a business combination that arise from contingencies are recognized at fair value if the acquisition-date fair value can be reasonably determined. If the fair value is not estimable, an asset or liability is recorded if existence or incurrence at the acquisition date is probable and its amount is reasonably estimable.
 
  •  Changes in deferred income tax asset valuation allowances and income tax uncertainties after the acquisition date generally affect income tax expense.
 
  •  Noncontrolling interests (formerly known as “minority interests”) are valued at fair value at the acquisition date and are presented as equity rather than liabilities.
 
  •  Net income includes amounts attributable to noncontrolling interests.
 
  •  When control is attained on previously noncontrolling interests, the previously held equity interests are remeasured at fair value and a gain or loss is recognized.
 
  •  Purchases or sales of equity interests that do not result in a change in control are accounted for as equity transactions.
 
  •  When control is lost in a partial disposition, realized gains or losses are recorded on equity ownership sold and the remaining ownership interest is remeasured and holding gains or losses are recognized.
 
The adoption of this guidance on a prospective basis did not have an impact on the Company’s consolidated financial statements. Financial statements and disclosures for periods prior to 2009 reflect the retrospective application of the accounting for noncontrolling interests as required under this guidance.
 
Effective January 1, 2009, the Company adopted prospectively new guidance on the accounting for equity method investments. This guidance addresses a number of issues associated with the impact that business combinations and noncontrolling interest guidance might have on the accounting for equity method investments, including how an equity method investment should initially be measured, how it should be tested for impairment, and how changes in classification from equity method to cost method should be treated. The adoption of this guidance did not have an impact on the Company’s consolidated financial statements.


13


Table of Contents

 
MetLife, Inc.
 
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued) 
 
 
Effective January 1, 2009, the Company adopted prospectively new guidance on accounting for defensive intangible assets. This guidance requires that an acquired defensive intangible asset (i.e., an asset an entity does not intend to actively use, but rather, intends to prevent others from using) be accounted for as a separate unit of accounting at time of acquisition, not combined with the acquirer’s existing intangible assets. In addition, the guidance concludes that a defensive intangible asset may not be considered immediately abandoned following its acquisition or have indefinite life. The adoption of this guidance did not have an impact on the Company’s consolidated financial statements.
 
Effective January 1, 2009, the Company adopted prospectively new guidance on determination of the useful life of intangible assets. This guidance amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. This change is intended to improve the consistency between the useful life of a recognized intangible asset and the period of expected cash flows used to measure the fair value of the asset. The Company determines useful lives and provides all of the material required disclosures prospectively on intangible assets acquired on or after January 1, 2009 in accordance with this guidance. Its adoption did not have an impact on the Company’s consolidated financial statements.
 
Other Pronouncements
 
Effective April 1, 2009, the Company adopted prospectively new guidance which establishes general standards for accounting and disclosures of events that occur subsequent to the balance sheet date but before financial statements are issued or available to be issued. It also requires disclosure of the date through which management has evaluated subsequent events and the basis for that date. The Company has provided required disclosures in its consolidated financial statements.
 
Effective January 1, 2009, the Company implemented fair value measurements guidance for certain nonfinancial assets and liabilities that are recorded at fair value on a non-recurring basis. This guidance applies to such items as: (i) nonfinancial assets and nonfinancial liabilities initially measured at estimated fair value in a business combination; (ii) reporting units measured at estimated fair value in the first step of a goodwill impairment test; and (iii) indefinite-lived intangible assets measured at estimated fair value for impairment assessment. Its adoption did not have an impact on the Company’s consolidated financial statements.
 
Effective January 1, 2009, the Company adopted prospectively guidance on issuer’s accounting for liabilities measured at fair value with a third-party credit enhancement. This guidance concludes that an issuer of a liability with a third-party credit enhancement should not include the effect of the credit enhancement in the fair value measurement of the liability. In addition, it requires disclosures about the existence of any third-party credit enhancement related to liabilities that are measured at fair value. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
 
Effective January 1, 2009, the Company adopted guidance on determining whether an instrument (or embedded feature) is indexed to an entity’s own stock. This guidance provides a framework for evaluating the terms of a particular instrument and whether such terms qualify the instrument as being indexed to an entity’s own stock. The adoption of this guidance did not have an impact on the Company’s consolidated financial statements.
 
Future Adoption of New Accounting Pronouncements
 
In September 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-12, Fair Value Measurements and Disclosures (Topic 820): Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) (“ASU 2009-12”). ASU 2009-12 provides guidance on: (i) measuring the fair value of investments in certain entities that calculate net asset value (“NAV”) per share; (ii) how investments within its scope would be classified in the fair value hierarchy; and (iii) enhanced disclosure requirements, for both interim and annual periods, about the nature and risks of investments measured at fair value on a recurring or non-recurring


14


Table of Contents

 
MetLife, Inc.
 
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued) 
 
basis. The update is effective for the fourth quarter of 2009. The Company is currently evaluating the impact of ASU 2009-12 on its consolidated financial statements.
 
In August 2009, the FASB issued ASU 2009-05, Fair Value Measurements and Disclosures (Topic 820): Measuring Liabilities at Fair Value (“ASU 2009-05”). ASU 2009-05 provides clarification for measuring fair value in circumstances in which a quoted price in an active market for the identical liability is not available. In such circumstances a company is required to measure fair value using either a valuation technique that uses: (i) the quoted price of the identical liability when traded as an asset; or (ii) quoted prices for similar liabilities or similar liabilities when traded as assets; or (iii) another valuation technique that is consistent with the principles of fair value measurement such as an income approach (e.g., present value technique) or a market approach (e.g., “entry” value technique). The update is effective for the fourth quarter of 2009. The Company is currently evaluating the impact of ASU 2009-05 on its consolidated financial statements.
 
In June 2009, the FASB issued additional guidance on financial instrument transfers and evaluation of special purpose entities for consolidation. The guidance must be adopted in the first quarter of 2010.
 
  •  The financial instrument transfer guidance eliminates the concept of a “qualifying special purpose entity,” eliminates the guaranteed mortgage securitization exception, changes the criteria for achieving sale accounting when transferring a financial asset and changes the initial recognition of retained beneficial interests. The guidance also requires additional disclosures about transfers of financial assets, including securitized transactions, as well as a company’s continuing involvement in transferred financial assets. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.
 
  •  The consolidation guidance relating to special purpose entities changes the determination of the primary beneficiary of a VIE from a quantitative model to a qualitative model. Under the new qualitative model, the primary beneficiary must have both the ability to direct the activities of the VIE and the obligation to absorb either losses or gains that could be significant to the VIE. The guidance also changes when reassessment is needed, as well as requires enhanced disclosures, including the effects of a company’s involvement with VIEs on its financial statements. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.
 
In December 2008, the FASB issued new guidance to enhance the transparency surrounding the types of assets and associated risks in an employer’s defined benefit pension or other postretirement benefit plans. Effective for fiscal years ending after December 15, 2009, this guidance requires an employer to disclose information about the valuation of plan assets similar to that required under other fair value disclosure guidance. The Company will provide the required disclosures in the appropriate future annual periods.
 
2.   Acquisitions and Dispositions
 
Disposition of Texas Life Insurance Company
 
On March 2, 2009, the Company sold Cova Corporation (“Cova”), the parent company of Texas Life Insurance Company (“Texas Life”) to a third party for $134 million in cash consideration, excluding $1 million of transaction costs. The net assets sold were $101 million, resulting in a gain on disposal of $32 million, net of income tax. The Company also reclassified $4 million, net of income tax, of the 2009 operations of Texas Life into discontinued operations in the consolidated financial statements. As a result, the Company recognized income from discontinued operations of $36 million, net of income tax, during the first quarter of 2009. See also Note 18.


15


Table of Contents

 
MetLife, Inc.
 
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued) 
 
 
3.   Investments
 
Fixed Maturity and Equity Securities Available-for-Sale
 
The following tables present the cost or amortized cost, gross unrealized gain and loss, estimated fair value of the Company’s fixed maturity and equity securities, and the percentage that each sector represents by the respective total holdings for the periods shown. The unrealized loss amounts presented below at September 30, 2009 include the noncredit loss component of OTTI loss:
 
                                                 
    September 30, 2009  
    Cost or
    Gross Unrealized     Estimated
       
    Amortized
          Temporary
    OTTI
    Fair
    % of
 
    Cost     Gain     Loss     Loss     Value     Total  
    (In millions)  
 
U.S. corporate securities
  $ 71,375     $ 3,416     $ 3,144     $ 5     $ 71,642       32.1 %
Residential mortgage-backed securities
    45,267       1,389       2,849       410       43,397       19.4  
Foreign corporate securities
    35,991       2,021       1,411       9       36,592       16.3  
U.S. Treasury, agency and government guaranteed securities (1)
    24,281       1,468       282             25,467       11.4  
Commercial mortgage-backed securities
    16,615       181       1,247       14       15,535       6.9  
Asset-backed securities
    14,703       198       1,541       109       13,251       5.9  
Foreign government securities
    10,473       1,107       133             11,447       5.1  
State and political subdivision securities
    6,551       282       284             6,549       2.9  
Other fixed maturity securities
    18             2             16        
                                                 
Total fixed maturity securities (2), (3)
  $ 225,274     $ 10,062     $ 10,893     $ 547     $ 223,896       100.0 %
                                                 
Common stock
  $ 1,576     $ 91     $ 31     $     $ 1,636       52.5 %
Non-redeemable preferred stock (2)
    1,773       75       367             1,481       47.5  
                                                 
Total equity securities (4)
  $ 3,349     $ 166     $ 398     $     $ 3,117       100.0 %
                                                 
 


16


Table of Contents

 
MetLife, Inc.
 
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued) 
 
                                         
    December 31, 2008  
    Cost or
                Estimated
       
    Amortized
    Gross Unrealized     Fair
    % of
 
    Cost     Gain     Loss     Value     Total  
    (In millions)  
 
U.S. corporate securities
  $ 72,211     $ 994     $ 9,902     $ 63,303       33.6 %
Residential mortgage-backed securities
    39,995       753       4,720       36,028       19.2  
Foreign corporate securities
    34,798       565       5,684       29,679       15.8  
U.S. Treasury, agency and government guaranteed securities (1)
    17,229       4,082       1       21,310       11.3  
Commercial mortgage-backed securities
    16,079       18       3,453       12,644       6.7  
Asset-backed securities
    14,246       16       3,739       10,523       5.6  
Foreign government securities
    9,474       1,056       377       10,153       5.4  
State and political subdivision securities
    5,419       80       942       4,557       2.4  
Other fixed maturity securities
    57             3       54        
                                         
Total fixed maturity securities (2), (3)
  $ 209,508     $ 7,564     $ 28,821     $ 188,251       100.0 %
                                         
Common stock
  $ 1,778     $ 40     $ 133     $ 1,685       52.7 %
Non-redeemable preferred stock (2)
    2,353       4       845       1,512       47.3  
                                         
Total equity securities (4)
  $ 4,131     $ 44     $ 978     $ 3,197       100.0 %
                                         
 
 
(1) The Company has classified within the U.S. Treasury, agency and government guaranteed securities caption above certain corporate fixed maturity securities issued by U.S. financial institutions that were guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) pursuant to the FDIC’s Temporary Liquidity Guarantee Program (“FDIC Program”) of $560 million and $2 million at estimated fair value with unrealized gains (losses) of $4 million and less than ($1) million at September 30, 2009 and December 31, 2008, respectively.
 
(2) The Company classifies perpetual securities that have attributes of both debt and equity as fixed maturity securities if the security has a punitive interest rate step-up feature, as it believes in most instances this feature will compel the issuer to redeem the security at the specified call date. Perpetual securities that do not have a punitive interest rate step-up feature are classified as non-redeemable preferred stock. Many of such securities have been issued by non-U.S. financial institutions that are accorded Tier 1 and Upper Tier 2 capital treatment by their respective regulatory bodies and are commonly referred to as “perpetual hybrid securities.” The following table presents the perpetual hybrid securities held by the Company at:
 
                         
Classification   September 30, 2009     December 31, 2008  
            Estimated
    Estimated
 
            Fair
    Fair
 
Consolidated Balance Sheets
  Sector Table   Primary Issuers   Value     Value  
            (In millions)  
 
Equity securities
  Non-redeemable preferred stock   Non-U.S. financial institutions   $ 1,136     $ 1,224  
Equity securities
  Non-redeemable preferred stock   U.S. financial institutions   $ 332     $ 288  
Fixed maturity securities
  Foreign corporate securities   Non-U.S. financial institutions   $ 2,719     $ 2,110  
Fixed maturity securities
  U.S. corporate securities   U.S. financial institutions   $ 59     $ 46  
 
 
(3) At September 30, 2009 and December 31, 2008, the Company held $2,457 million and $2,052 million at estimated fair value, respectively, of redeemable preferred stock which have stated maturity dates. These securities, commonly referred to as “capital securities”, are primarily issued by U.S. financial institutions, have cumulative interest deferral features and are included in the U.S. corporate securities sector within fixed maturity securities.

17


Table of Contents

 
MetLife, Inc.
 
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued) 
 
 
(4) Equity securities primarily consist of investments in common and preferred stocks, including certain perpetual hybrid securities, and mutual fund interests. Such securities include common stock of privately held companies with an estimated fair value of $1.1 billion at both September 30, 2009 and December 31, 2008.
 
The following table presents selected information about certain fixed maturity securities held by the Company at:
 
                 
    September 30, 2009     December 31, 2008  
    (In millions)  
 
Below investment grade or non-rated fixed maturity securities:
               
Estimated fair value
  $ 21,391     $ 12,365  
Net unrealized loss
  $ 4,085     $ 5,094  
Non-income producing fixed maturity securities:
               
Estimated fair value
  $ 274     $ 75  
Net unrealized loss
  $ 22     $ 19  
Fixed maturity securities credit enhanced by financial guarantor insurers — by sector — at estimated fair value:
               
State and political subdivision securities
  $ 2,177     $ 2,005  
U.S. corporate securities
    1,736       2,007  
Asset-backed securities
    788       833  
Other
    89       51  
                 
Total fixed maturity securities credit enhanced by financial guarantor insurers
  $ 4,790     $ 4,896  
                 
Ratings of the financial guarantor insurers providing the credit enhancement:
               
Portion rated Aa/AA
    19 %     15 %
                 
Portion rated A
    38 %     %
                 
Portion rated Baa/BBB
    %     68 %
                 
 
Concentrations of Credit Risk (Fixed Maturity Securities) — Summary.  The following section contains a summary of the concentrations of credit risk related to fixed maturity securities holdings.
 
The Company is not exposed to any concentrations of credit risk of any single issuer greater than 10% of the Company’s stockholders’ equity, other than securities of the U.S. government, certain U.S. government agencies, and certain securities guaranteed by the U.S. government. At September 30, 2009 and December 31, 2008, the Company’s holdings in U.S. Treasury, agency and government guaranteed fixed maturity securities at estimated fair value were $25.5 billion and $21.3 billion, respectively. As shown in the sector table above, at both September 30, 2009 and December 31, 2008, the three largest sectors in the Company’s fixed maturity security portfolio were U.S. corporate securities, residential mortgage-backed securities and foreign corporate securities.


18


Table of Contents

 
MetLife, Inc.
 
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued) 
 
 
Concentrations of Credit Risk (Fixed Maturity Securities) — U.S. and Foreign Corporate Securities.  The Company maintains a diversified portfolio of corporate fixed maturity securities across industries and issuers. This portfolio does not have an exposure in any single issuer in excess of 1% of total investments. The tables below present the major industry types that comprise the corporate fixed maturity securities holdings, the amount of holdings in the single largest issuer and the combined holdings in the ten issuers to which it had the largest exposure at:
 
                                 
    September 30, 2009     December 31, 2008  
    Estimated
          Estimated
       
    Fair
    % of
    Fair
    % of
 
    Value     Total     Value     Total  
          (In millions)        
 
Corporate fixed maturity securities — by industry type:
                               
Foreign (1)
  $ 36,592       33.8 %   $ 29,679       32.0 %
Consumer
    16,588       15.3       13,122       14.1  
Industrial
    16,539       15.3       13,324       14.3  
Utility
    14,942       13.8       12,434       13.4  
Finance
    14,188       13.1       14,996       16.1  
Communications
    6,554       6.1       5,714       6.1  
Other
    2,831       2.6       3,713       4.0  
                                 
Total
  $ 108,234       100.0 %   $ 92,982       100.0 %
                                 
 
 
(1) Includes U.S. Dollar-denominated debt obligations of foreign obligors and other fixed maturity securities foreign investments.
 
                                 
    September 30, 2009   December 31, 2008
    Estimated
      Estimated
   
    Fair
  % of Total
  Fair
  % of Total
    Value   Investments   Value   Investments
    (In millions)
 
Concentrations within corporate fixed maturity securities:
                               
Largest exposure to a single issuer
  $ 1,250       0.4 %   $ 1,469       0.5 %
Holdings in top ten issuers
  $ 8,009       2.5 %   $ 8,446       2.8 %


19


Table of Contents

 
MetLife, Inc.
 
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued) 
 
Concentrations of Credit Risk (Fixed Maturity Securities) — Residential Mortgage-Backed Securities.  The Company’s residential mortgage-backed securities consist of the following holdings and portion rated Aaa/AAA at:
 
                                 
    September 30, 2009     December 31, 2008  
    Estimated
          Estimated
       
    Fair
    % of
    Fair
    % of
 
    Value     Total     Value     Total  
          (In millions)        
 
By security type:
                               
Collateralized mortgage obligations
  $ 24,594       56.7 %   $ 26,025       72.2 %
Pass-through securities
    18,803       43.3       10,003       27.8  
                                 
Total residential mortgage-backed securities
  $ 43,397       100.0 %   $ 36,028       100.0 %
                                 
By risk profile:
                               
Agency
  $ 32,851       75.7 %   $ 24,409       67.8 %
Prime
    6,711       15.5       8,254       22.9  
Alternative residential mortgage loans
    3,835       8.8       3,365       9.3  
                                 
Total residential mortgage-backed securities
  $ 43,397       100.0 %   $ 36,028       100.0 %
                                 
Portion rated Aaa/AAA
  $ 35,341       81.4 %   $ 33,265       92.3 %
                                 
 
Collateralized mortgage obligations are a type of mortgage-backed security structured by dividing the cash flows of mortgages into separate pools or tranches of risk that create multiple classes of bonds with varying maturities and priority of payments. Pass-through mortgage-backed securities are a type of asset-backed security that is secured by a mortgage or collection of mortgages. The monthly mortgage payments from homeowners pass from the originating bank through an intermediary, such as a government agency or investment bank, which collects the payments, and for a fee, remits or passes these payments through to the holders of the pass-through securities.
 
The majority of the residential mortgage-backed securities were rated Aaa/AAA by Moody’s Investors Service (“Moody’s”), Standard & Poor’s Ratings Services (“S&P”) or Fitch Ratings (“Fitch”) at September 30, 2009 and December 31, 2008, as presented above. The majority of the agency residential mortgage-backed securities were guaranteed or otherwise supported by the Federal National Mortgage Association (“FNMA”), the Federal Home Loan Mortgage Corporation (“FHLMC”) or the Government National Mortgage Association. In September 2008, the U.S. Treasury announced that FNMA and FHLMC had been placed into conservatorship. Prime residential mortgage lending includes the origination of residential mortgage loans to the most credit-worthy customers with high quality credit profiles. Alternative residential mortgage loans (“Alt-A”) are a classification of mortgage loans where the risk profile of the borrower falls between prime and sub-prime. Sub-prime mortgage lending is the origination of residential mortgage loans to customers with weak credit profiles. During 2009, there were significant ratings downgrades from investment grade to below investment grade for non-agency residential mortgage-backed securities, both Alt-A and prime residential mortgage-backed securities, contributing to the decrease in the percentage of residential mortgage-backed securities with a Aaa/AAA rating of 81.4% at September 30, 2009 as compared to 92.3% at December 31, 2008 as presented above; and contributing to the substantial decrease presented below in the Company’s Alt-A securities holdings rated Aa/AA or better as compared to December 31, 2008. The estimated fair value of Alt-A securities held by the Company by vintage year, net unrealized loss, portion of holdings rated Aa/AA or better by Moody’s, S&P or Fitch, and portion of Alt-A holdings backed by fixed rate collateral or hybrid adjustable rate mortgages (“ARMs”) at September 30, 2009 and December 31, 2008, are presented below. Vintage year refers to the year of origination and not to the year of purchase.


20


Table of Contents

 
MetLife, Inc.
 
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued) 
 
 
The following table presents the Company’s investment in Alt-A residential mortgage-backed securities by vintage year and certain other selected data:
 
                                                                                                 
    Alt-A Residential Mortgage—Backed Securities  
                                              Estimated
    Net
                Hybrid
 
    2003 &
                                        Fair
    Unrealized
    Rated Aa/AA or
    Fixed
    ARM
 
    Prior     2004     2005     2006     2007     2008     2009     Value     Loss     Better     Rate%     %  
    (In millions)  
 
                                                                                                 
September 30, 2009:
                                                                                               
                                                                                                 
Amount
  $ 53     $ 49     $ 1,338     $ 812     $ 781     $     $ 802     $ 3,835     $ 1,570                          
                                                                                                 
Percentage
    1.4%       1.3%       34.9%       21.2%       20.3%       —%       20.9%       100.0%               26.9 %     89.2 %     10.8 %
                                                                                                 
December 31, 2008:
                                                                                               
                                                                                                 
Amount
  $ 113     $ 137     $ 1,493     $ 857     $ 765     $     $     $ 3,365     $ 1,951                          
                                                                                                 
Percentage
    3.3%       4.1%       44.4%       25.5%       22.7%       —%       —%       100.0%               63.4 %     87.9 %     12.1 %
 
Concentrations of Credit Risk (Fixed Maturity Securities) — Commercial Mortgage-Backed Securities.  At September 30, 2009 and December 31, 2008, the Company’s holdings in commercial mortgage-backed securities were $15.5 billion and $12.6 billion, respectively, at estimated fair value. The estimated fair value of such securities held by the Company by vintage year, net unrealized loss, and portion of holdings rated Aaa/AAA by Moody’s, S&P or Fitch at September 30, 2009 and December 31, 2008, are presented below. The rating distribution of the Company’s commercial mortgage-backed securities holdings at September 30, 2009 was as follows: 89% Aaa, 5% Aa, 3% A, 2% Baa, and 1% Ba or below. The rating distribution of the Company’s commercial mortgage-backed securities holdings at December 31, 2008 was as follows: 93% Aaa, 4% Aa, 1% A, 1% Baa, and 1% Ba or below. At September 30, 2009 and December 31, 2008, the Company had no exposure in the Commercial Mortgage-Backed Securities index securities and its holdings of commercial real estate collateralized debt obligations securities were $111 million and $121 million, respectively, at estimated fair value.
 
The following table presents the Company’s investment in commercial mortgage-backed securities by vintage year and certain other selected data:
 
                                                                                 
    Commercial Mortgage—Backed Securities  
                                              Estimated
    Net
       
    2003 &
                                        Fair
    Unrealized
       
    Prior     2004     2005     2006     2007     2008     2009     Value     Loss     Rated Aaa  
    (In millions)  
 
September 30, 2009:
                                                                               
Amount
  $ 7,485     $ 2,538     $ 3,104     $ 1,649     $ 759     $     $     $ 15,535     $ 1,080          
Percentage
    48.2%       16.3%       20.0%       10.6%       4.9%       —%       —%       100.0%               88.9 %
December 31, 2008:
                                                                               
Amount
  $ 5,412     $ 2,457     $ 2,737     $ 1,437     $ 600     $ 1     $     $ 12,644     $ 3,435          
Percentage
    42.8%       19.4%       21.6%       11.4%       4.8%       —%       —%       100.0%               93.2 %
 
Concentrations of Credit Risk (Fixed Maturity Securities) — Asset-Backed Securities.  At September 30, 2009 and December 31, 2008, the Company’s holdings in asset-backed securities were $13.3 billion and $10.5 billion, respectively, at estimated fair value.
 
The Company’s asset-backed securities are diversified both by sector and by issuer. The estimated fair value by collateral type, amount and portion rated Aaa/AAA by Moody’s, S&P or Fitch of such securities held by the Company, and the portion of the asset-backed securities comprised of residential mortgage-backed securities backed by sub-prime mortgage loans credit enhanced by financial guarantor insurers and the related rating of the financial guarantor insurers at September 30, 2009 and December 31, 2008, are presented below.


21


Table of Contents

 
MetLife, Inc.
 
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued) 
 
 
The following table presents the types of and certain other information about asset-backed securities held by the Company at:
 
                                 
    September 30, 2009     December 31, 2008  
    Estimated
          Estimated
       
    Fair
    % of
    Fair
    % of
 
    Value     Total     Value     Total  
          (In millions)        
 
By collateral type:
                               
Credit card loans
  $ 7,455       56.3 %   $ 5,190       49.3 %
Student loans
    1,758       13.3       1,085       10.3  
Automobile loans
    1,035       7.8       1,051       10.0  
Residential mortgage-backed securities backed by sub-prime mortgage loans
    1,027       7.7       1,142       10.9  
Other loans
    1,976       14.9       2,055       19.5  
                                 
Total
  $ 13,251       100.0 %   $ 10,523       100.0 %
                                 
Portion rated Aaa/AAA
  $ 9,638       72.7 %   $ 7,934       75.4 %
                                 
Residential mortgage-backed securities backed by sub-prime mortgage loans — portion that is credit enhanced by financial guarantor insurers
            37.6 %             37.2 %
Of the 37.6% and 37.2% credit enhanced, the financial guarantor insurers are rated as follows:
                               
By financial guarantor insurers rated Aa
            16.3 %             18.8 %
By financial guarantor insurers rated A
            7.6 %             %
By financial guarantor insurers rated Baa
            %             37.3 %
 
Concentrations of Credit Risk (Equity Securities).  The Company is not exposed to any concentrations of credit risk of any single issuer greater than 10% of the Company’s stockholders’ equity in its equity securities holdings.
 
The amortized cost and estimated fair value of fixed maturity securities, by contractual maturity date (excluding scheduled sinking funds), are as follows:
 
                                 
    September 30, 2009     December 31, 2008  
          Estimated
          Estimated
 
    Amortized
    Fair
    Amortized
    Fair
 
    Cost     Value     Cost     Value  
          (In millions)        
 
Due in one year or less
  $ 6,135     $ 6,222     $ 5,556     $ 5,491  
Due after one year through five years
    36,746       37,421       33,604       30,884  
Due after five years through ten years
    40,256       41,258       41,481       36,895  
Due after ten years
    65,552       66,812       58,547       55,786  
                                 
Subtotal
    148,689       151,713       139,188       129,056  
Mortgage-backed and asset-backed securities
    76,585       72,183       70,320       59,195  
                                 
Total fixed maturity securities
  $ 225,274     $ 223,896     $ 209,508     $ 188,251  
                                 
 
Actual maturities may differ from contractual maturities due to the exercise of call or prepayment options. Fixed maturity securities not due at a single maturity date have been included in the above table in the year of final


22


Table of Contents

 
MetLife, Inc.
 
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued) 
 
contractual maturity. Mortgage-backed and asset-backed securities are shown separately in the table, as they are not due at a single maturity.
 
Evaluating Investments for an Other-Than-Temporary Impairment
 
As described more fully in Note 1 of the Notes to the Consolidated Financial Statements included in the 2008 Annual Report, the Company performs a regular evaluation, on a security-by-security basis, of its investment holdings in accordance with its impairment policy in order to evaluate whether such investments are other-than-temporarily impaired.
 
With respect to fixed maturity securities, the Company considers, amongst other criteria, whether it has the intent to sell a particular impaired fixed maturity security. The assessment of the Company’s intent to sell a particular fixed maturity security considers broad portfolio management objectives such as asset/liability duration management, issuer and industry segment exposures, interest rate views and the overall total return focus. In following these portfolio management objectives, changes in facts and circumstances that were present in past reporting periods may trigger a decision to sell securities that were held in prior reporting periods. Decisions to sell are based on current conditions or the Company’s need to shift the portfolio to maintain its portfolio management objectives including liquidity needs or duration targets on asset/liability managed portfolios. The Company attempts to anticipate these types of changes and if a sale decision has been made on an impaired security, the security will be deemed other-than-temporarily impaired in the period that the sale decision was made and an OTTI loss will be recorded in earnings. In certain circumstances, the Company may determine that it does not intend to sell a particular security but that it is more likely than not that it will be required to sell that security before recovery of the decline in fair value below amortized cost. In such instances, the fixed maturity security will be deemed other-than-temporarily impaired in the period during which it was determined more likely than not that the security will be required to be sold and an OTTI loss will be recorded in earnings. If the Company does not have the intent to sell (i.e., has not made the decision to sell) and it does not believe that it is more likely than not that it will be required to sell the security before recovery of its amortized cost, an impairment assessment is made, as described below. If the Company’s estimate of the present value of the expected future cash flows to be received from the security is less than the amortized cost, the security will be deemed other-than-temporarily impaired in the period that such present value of the expected future cash flows falls below amortized cost and this difference, referred to as the credit loss, will be recognized in earnings. Any remaining difference between the present value of the expected future cash flows to be received and the estimated fair value of the security will be recognized as a separate component of other comprehensive loss and is referred to as the noncredit loss. Prior to April 1, 2009, the Company’s assessment of OTTI for fixed maturity securities was performed in the same manner as described below for equity securities.
 
With respect to equity securities, the Company considers in its OTTI analysis its intent and ability to hold a particular equity security for a period of time sufficient to allow for the recovery of its value to an amount equal to or greater than cost. Decisions to sell equity securities are based on current conditions in relation to the same broad portfolio management considerations in a manner consistent with that described above for fixed maturity securities. If a sale decision is made with respect to a particular equity security and that equity security is not expected to recover to an amount at least equal to cost prior to the expected time of the sale, the security will be deemed other-than-temporarily impaired in the period that the sale decision was made and an OTTI loss will be recorded in earnings.
 
With respect to perpetual hybrid securities, some of which are classified as fixed maturity securities and some of which are classified as non-redeemable preferred stock, the Company considers in its OTTI analysis whether there has been any deterioration in credit of the issuer and the likelihood of recovery in value of the securities that are in a severe and extended unrealized loss position. The Company also considers whether any perpetual hybrid securities, with severe unrealized losses, regardless of credit rating, have deferred any dividend payments.


23


Table of Contents

 
MetLife, Inc.
 
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued) 
 
 
Net Unrealized Investment Gains (Losses)
 
The components of net unrealized investment gains (losses), included in accumulated other comprehensive loss, are as follows:
 
                 
    September 30, 2009     December 31, 2008  
    (In millions)  
 
Fixed maturity securities that were temporarily impaired
  $ (831 )   $ (21,246 )
Fixed maturity securities with noncredit OTTI losses in other comprehensive loss
    (547 )      
                 
Total fixed maturity securities
    (1,378 )     (21,246 )
                 
Equity securities
    (232 )     (934 )
Derivatives
    (46 )     (2 )
Other
    79       53  
                 
Subtotal
    (1,577 )     (22,129 )
                 
Amounts allocated from:
               
Insurance liability loss recognition
    (239 )     42  
DAC and VOBA on which noncredit OTTI losses have been recognized
    48        
DAC and VOBA
    475       3,025  
                 
Subtotal
    284       3,067  
Deferred income tax benefit (expense) on which noncredit OTTI losses have been recognized
    172        
Deferred income tax benefit (expense)
    322       6,508  
                 
Net unrealized investment gains (losses)
    (799 )     (12,554 )
Net unrealized investment gains (losses) attributable to noncontrolling interests
          (10 )
                 
Net unrealized investment gains (losses) attributable to MetLife, Inc. 
  $ (799 )   $ (12,564 )
                 
 
Fixed maturity securities with noncredit OTTI losses in other comprehensive loss, as presented above, of $547 million includes $126 million related to the transition adjustment, $245 million and $479 million ($225 million and $441 million, net of DAC) of noncredit losses recognized in the three months and nine months ended September 30, 2009, respectively, and $63 million and $58 million of subsequent increases in estimated fair value during the three months and nine months ended September 30, 2009, respectively, on such securities for which a noncredit loss was previously recognized in other comprehensive loss.
 
The $6.2 billion decrease in the deferred income tax benefit to $322 million at September 30, 2009, was primarily the result of the decrease in net unrealized investment gains (losses), which also is a major contributor to the overall decrease in total deferred income tax assets to $535 million.


24


Table of Contents

 
MetLife, Inc.
 
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued) 
 
 
The changes in net unrealized investment gains (losses) are as follows:
 
         
    Nine Months
 
    Ended
 
    September 30, 2009  
    (In millions)  
 
Balance, end of prior period
  $ (12,564 )
Cumulative effect of change in accounting principle, net of income tax
    (76 )
Fixed maturity securities on which noncredit OTTI losses have been recognized
    (421 )
Unrealized investment gains (losses) during the period
    21,099  
Unrealized investment gains (losses) relating to:
       
Insurance liability gain (loss) recognition
    (281 )
DAC and VOBA on which noncredit OTTI losses have been recognized
    38  
DAC and VOBA
    (2,550 )
Deferred income tax benefit (expense) on which noncredit OTTI losses have been recognized
    132  
Deferred income tax benefit (expense)
    (6,186 )
         
Net unrealized investment gains (losses)
    (809 )
Net unrealized investment gains (losses) attributable to noncontrolling interests
    10  
         
Balance, end of period
  $ (799 )
         
Change in net unrealized investment gains (losses)
  $ 11,755  
Change in net unrealized investment gains (losses) attributable to noncontrolling interests
    10  
         
Change in net unrealized investment gains (losses) attributable to MetLife, Inc.’s common shareholders
  $ 11,765  
         


25


Table of Contents

 
MetLife, Inc.
 
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued) 
 
Continuous Gross Unrealized Loss and OTTI Loss for Fixed Maturity and Equity Securities Available-for-Sale by Sector
 
The following tables present the estimated fair value and gross unrealized loss, of the Company’s fixed maturity and equity securities 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 presented below at September 30, 2009 include the noncredit component of OTTI loss. Fixed maturity securities on which a noncredit OTTI loss has been recognized in accumulated other comprehensive loss are categorized by length of time as being “less than 12 months” or “equal to or greater than 12 months” in a continuous unrealized loss position based on the point in time that the estimated fair value initially declined to below the amortized cost basis and not the period of time since the unrealized loss was deemed a noncredit OTTI loss.
 
                                                 
    September 30, 2009  
          Equal to or Greater
       
    Less than 12 Months     than 12 Months     Total  
    Estimated
    Gross
    Estimated
    Gross
    Estimated
    Gross
 
    Fair
    Unrealized
    Fair
    Unrealized
    Fair
    Unrealized
 
    Value     Loss     Value     Loss     Value     Loss  
    (In millions, except number of securities)  
 
U.S. corporate securities
  $ 3,948     $ 398     $ 20,536     $ 2,751     $ 24,484     $ 3,149  
Residential mortgage-backed securities
    2,587       264       9,463       2,995       12,050       3,259  
Foreign corporate securities
    2,323       194       8,400       1,226       10,723       1,420  
U.S. Treasury, agency and government guaranteed securities
    7,265       282       2             7,267       282  
Commercial mortgage-backed securities
    1,208       19       6,991       1,242       8,199       1,261  
Asset-backed securities
    652       152       6,655       1,498       7,307       1,650  
Foreign government securities
    1,366       45       539       88       1,905       133  
State and political subdivision securities
    184       28       1,894       256       2,078       284  
Other fixed maturity securities
    8       2                   8       2  
                                                 
Total fixed maturity securities
  $ 19,541     $ 1,384     $ 54,480     $ 10,056     $ 74,021     $ 11,440  
                                                 
Common stock
    195       30       10       1       205       31  
Non-redeemable preferred stock
    173       65       924       302       1,097       367  
                                                 
Total equity securities
  $ 368     $ 95     $ 934     $ 303     $ 1,302     $ 398  
                                                 
Total number of securities in an unrealized loss position
    1,453               3,821                          
                                                 
 


26


Table of Contents

 
MetLife, Inc.
 
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued) 
 
                                                 
    December 31, 2008  
          Equal to or Greater
       
    Less than 12 Months     than 12 Months     Total  
    Estimated
    Gross
    Estimated
    Gross
    Estimated
    Gross
 
    Fair
    Unrealized
    Fair
    Unrealized
    Fair
    Unrealized
 
    Value     Loss     Value     Loss     Value     Loss  
    (In millions, except number of securities)  
 
U.S. corporate securities
  $ 30,076     $ 4,479     $ 18,011     $ 5,423     $ 48,087     $ 9,902  
Residential mortgage-backed securities
    10,032       2,711       4,572       2,009       14,604       4,720  
Foreign corporate securities
    15,634       3,157       6,609       2,527       22,243       5,684  
U.S. Treasury, agency and government guaranteed securities
    106       1                   106       1  
Commercial mortgage-backed securities
    9,259       1,665       3,093       1,788       12,352       3,453  
Asset-backed securities
    6,412       1,325       3,777       2,414       10,189       3,739  
Foreign government securities
    2,030       316       403       61       2,433       377  
State and political subdivision securities
    2,035       405       948       537       2,983       942  
Other fixed maturity securities
    20       3       2             22       3  
                                                 
Total fixed maturity securities
  $ 75,604     $ 14,062     $ 37,415     $ 14,759     $ 113,019     $ 28,821  
                                                 
Equity securities
  $ 727     $ 306     $ 978     $ 672     $ 1,705     $ 978  
                                                 
Total number of securities in an unrealized loss position
    9,066               3,539                          
                                                 
 
Aging of Gross Unrealized Loss and OTTI Loss for Fixed Maturity and Equity Securities Available-for-Sale
 
The following tables present the cost or amortized cost, gross unrealized loss, including the portion of OTTI loss on fixed maturity securities recognized in accumulated other comprehensive loss at September 30, 2009, gross unrealized loss as a percentage of cost or amortized cost and number of securities for fixed maturity and equity securities where the estimated fair value had declined and remained below cost or amortized cost by less than 20%, or 20% or more at:
 
                                                 
    September 30, 2009  
    Cost or Amortized Cost     Gross Unrealized Loss     Number of Securities  
    Less than
    20% or
    Less than
    20% or
    Less than
    20% or
 
    20%     more     20%     more     20%     more  
    (In millions, except number of securities)  
 
Fixed Maturity Securities:
                                               
Less than six months
  $ 13,065     $ 1,879     $ 389     $ 540       1,030       144  
Six months or greater but less than nine months
    2,679       1,983       157       640       326       111  
Nine months or greater but less than twelve months
    3,539       6,288       228       2,116       359       372  
Twelve months or greater
    45,870       10,158       3,276       4,094       3,066       666  
                                                 
Total
  $ 65,153     $ 20,308     $ 4,050     $ 7,390                  
                                                 
Percentage of cost or amortized cost
                    6 %     36 %                
                                                 
Equity Securities:
                                               
Less than six months
  $ 44     $ 46     $ 2     $ 13       127       31  
Six months or greater but less than nine months
    32       113       6       45       8       7  
Nine months or greater but less than twelve months
    229       132       29       43       23       16  
Twelve months or greater
    393       711       48       212       69       25  
                                                 
Total
  $ 698     $ 1,002     $ 85     $ 313                  
                                                 
Percentage of cost
                    12 %     31 %                
                                                 

27


Table of Contents

 
MetLife, Inc.
 
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued) 
 
                                                 
    December 31, 2008  
    Cost or Amortized Cost     Gross Unrealized Loss     Number of Securities  
    Less than
    20% or
    Less than
    20% or
    Less than
    20% or
 
    20%     more     20%     more     20%     more  
    (In millions, except number of securities)  
 
Fixed Maturity Securities:
                                               
Less than six months
  $ 32,658     $ 48,114     $ 2,358     $ 17,191       4,566       2,827  
Six months or greater but less than nine months
    14,975       2,180       1,313       1,109       1,314       157  
Nine months or greater but less than twelve months
    16,372       3,700       1,830       2,072       934       260  
Twelve months or greater
    23,191       650       2,533       415       1,809       102  
                                                 
Total
  $ 87,196     $ 54,644     $ 8,034     $ 20,787                  
                                                 
Percentage of cost or amortized cost
                    9 %     38 %                
                                                 
Equity Securities:
                                               
Less than six months
  $ 386     $ 1,190     $ 58     $ 519       351       551  
Six months or greater but less than nine months
    33       413       6       190       8       32  
Nine months or greater but less than twelve months
    3       487             194       5       15  
Twelve months or greater
    171             11             20        
                                                 
Total
  $ 593     $ 2,090     $ 75     $ 903                  
                                                 
Percentage of cost
                    13 %     43 %                
                                                 
 
Concentration of Gross Unrealized Loss and OTTI Loss for Fixed Maturity and Equity Securities Available-for-Sale
 
At September 30, 2009 and December 31, 2008, the Company’s gross unrealized losses related to its fixed maturity and equity securities, including the portion of OTTI loss on fixed maturity securities recognized in accumulated other comprehensive loss at September 30, 2009, of $11.8 billion and $29.8 billion, respectively, were concentrated, calculated as a percentage of gross unrealized loss and OTTI loss, by sector and industry as follows:
 
                 
    September 30, 2009     December 31, 2008  
 
Sector:
               
U.S. corporate securities
    27 %     33 %
Residential mortgage-backed securities
    27       16  
Asset-backed securities
    14       13  
Foreign corporate securities
    12       19  
Commercial mortgage-backed securities
    11       11  
State and political subdivision securities
    2       3  
Foreign government securities
    1       1  
Other
    6       4  
                 
Total
    100 %     100 %
                 
Industry:
               
Mortgage-backed
    38 %     27 %
Finance
    25       24  
Asset-backed
    14       13  
Consumer
    5       11  
Utility
    3       8  
Communications
    2       5  
Industrial
    2       4  
Foreign government
    1       1  
Other
    10       7  
                 
Total
    100 %     100 %
                 


28


Table of Contents

 
MetLife, Inc.
 
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued) 
 
Evaluating Temporarily Impaired Investments
 
The following table presents the gross unrealized loss of greater than $10 million for the Company’s fixed maturity and equity securities at:
 
                 
    September 30, 2009   December 31, 2008
    Fixed Maturity
  Equity
  Fixed Maturity
  Equity
    Securities   Securities   Securities   Securities
    (In millions, except number of securities)
 
Number of securities
  260   15   699   33
Total gross unrealized loss
  $5,341   $248   $14,485   $699
Percentage of gross unrealized loss
  47%   62%   50%   71%
 
The fixed maturity and equity securities, each with a gross unrealized loss greater than $10 million, decreased $4.7 billion and $9.6 billion during the three months and nine months ended September 30, 2009, respectively. These securities were included in the regular evaluation of whether such investments are other-than-temporarily impaired. Based upon the Company’s current evaluation of these securities in accordance with its impairment policy, the cause of the decline being primarily attributable to a rise in market yields caused principally by an extensive widening of credit spreads which resulted from a lack of market liquidity and a short-term market dislocation versus a long-term deterioration in credit quality, and its 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.
 
In the Company’s impairment review process, the duration of, and severity of an unrealized loss position for equity securities, such as unrealized losses of 20% or more for equity securities, is given greater weight and consideration than an unrealized loss position of 20% or more for fixed maturity securities. An extended and severe unrealized loss position on a fixed maturity security may not have any impact on the ability of the issuer to service all scheduled interest and principal payments and the Company’s evaluation of recoverability of all contractual cash flows or the ability to recover an amount at least equal to its amortized cost based on the present value of the expected future cash flows to be collected. In contrast, for an equity security, greater weight and consideration is given by the Company to a decline in market value and the likelihood such market value decline will recover.
 
The following table presents certain information about equity securities available-for-sale with a gross unrealized loss of 20% or more at:
 
                                                                 
    September 30, 2009  
          Non-Redeemable Preferred Stock  
          All Types of
             
    All Equity
    Non-Redeemable
    Investment Grade  
    Securities     Preferred Stock     All Industries     Financial Services Industry  
    Gross
    Gross
    % of All
    Gross
    % of All
    Gross
          % A
 
    Unrealized
    Unrealized
    Equity
    Unrealized
    Non-Redeemable
    Unrealized
    % of All
    Rated or
 
    Loss     Loss     Securities     Loss     Preferred Stock     Loss     Industries     Better  
                      (In millions)                    
 
Less than six months
  $ 13     $ 9       69 %   $ 1       11 %   $ 1       100 %     100 %
More than six months and less than twelve months
    88       88       100 %     57       65 %     51       89 %     88 %
Twelve months or greater
    212       212       100 %     212       100 %     212       100 %     61 %
                                                                 
All equity securities with gross unrealized loss of 20% or more
  $ 313     $ 309       99 %   $ 270       87 %   $ 264       98 %     66 %
                                                                 
 
In connection with the equity securities impairment review process at September 30, 2009, the Company evaluated its holdings in non-redeemable preferred stock, particularly those of financial services companies. The Company considered several factors including whether there has been any deterioration in credit of the issuer and the likelihood of recovery in value of non-redeemable preferred stock with a severe or an extended unrealized loss.


29


Table of Contents

 
MetLife, Inc.
 
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued) 
 
The Company also considered whether any non-redeemable preferred stock with unrealized losses of 20% or more, regardless of credit rating, have deferred any dividend payments. No such dividend payments were deferred.
 
With respect to common stock holdings, the Company considered the duration and severity of the unrealized losses for securities in an unrealized loss position of 20% or more; and the duration of unrealized losses for securities in an unrealized loss position of 20% or less in an extended unrealized loss position (i.e., 12 months or greater).
 
Future other-than-temporary impairments 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 rating, changes in collateral valuation, changes in interest rates, and changes in credit spreads. If economic fundamentals and any of the above factors deteriorate, additional other-than-temporary impairments may be incurred in upcoming quarters.
 
Net Investment Gains (Losses)
 
Effective April 1, 2009, the Company adopted new guidance on the recognition and presentation of OTTI. With the adoption of this guidance, for those fixed maturity securities that are intended to be sold or for which it is more likely than not that the security will be required to be sold before recovery of the decline in fair value below amortized cost, the full OTTI loss from the fair value being less than the amortized cost is recognized in earnings. For those fixed maturity securities which the Company has no intent to sell (i.e., has not made the decision to sell) and the Company believes it is not more likely than not that it will be required to sell prior to recovery of the decline in fair value, and an assessment has been made that the amortized cost will not be fully recovered, only the OTTI credit loss component is recognized in earnings, while the remaining decline in fair value is recognized in accumulated other comprehensive income (loss), not in earnings, as a noncredit OTTI loss. Prior to the adoption of this new guidance, the Company recognized an OTTI loss in earnings for a fixed maturity security in an unrealized loss position unless it could assert that it had both the intent and ability to hold the fixed maturity security for a period of time to allow for a recovery of fair value to the security’s amortized cost basis. There was no change in the impairment methodology for equity securities which, when an OTTI loss has occurred, continue to be impaired for the entire difference between the equity security’s cost and its fair value with a corresponding charge to earnings. The discussion below describes the Company’s methodology and significant inputs used to determine the amount of the credit loss effective April 1, 2009.
 
In order to determine the amount of the credit loss for a fixed maturity security, the Company calculates the recovery value by performing a discounted cash flow analysis based on the present value of future cash flows expected to be received. The discount rate is generally the effective interest rate of the fixed maturity security prior to impairment.
 
When determining the collectability and the period over which the fixed maturity security is expected to recover, the Company applies the same considerations utilized in its overall impairment evaluation process which incorporates information regarding the specific security, fundamentals of the industry and geographic area in which the security issuer operates, and overall macroeconomic conditions. Projected future cash flows are estimated using assumptions derived from management’s best estimates of likely scenario-based outcomes after giving consideration to a variety of variables that include, but are not limited to: general payment terms of the security; the likelihood that the issuer can service the scheduled interest and principal payments; the quality and amount of any credit enhancements; the security’s position within the capital structure of the issuer; possible corporate restructurings or asset sales by the issuer; and changes to the rating of the security or the issuer by rating agencies. Additional considerations are made when assessing the unique features that apply to certain structured securities such as residential mortgage-backed securities, commercial mortgage-backed securities and asset-backed securities. These additional factors for structured securities include, but are not limited to: the quality of underlying collateral; expected prepayment speeds; current and forecasted loss severity; consideration of the


30


Table of Contents

 
MetLife, Inc.
 
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued) 
 
payment terms of the underlying assets backing a particular security; and the payment priority within the tranche structure of the security.
 
The components of net investment gains (losses) are as follows:
 
                                 
    Three Months
    Nine Months
 
    Ended
    Ended
 
    September 30,     September 30,  
    2009     2008     2009     2008  
    (In millions)  
 
Total losses on fixed maturity securities:
                               
Total OTTI losses recognized
  $ (650 )   $ (748 )   $ (1,769 )   $ (961 )
Less: Noncredit portion of OTTI losses transferred to and recognized in other comprehensive loss
    245             479        
                                 
Net OTTI losses on fixed maturity securities recognized in earnings
    (405 )     (748 )     (1,290 )     (961 )
Fixed maturity securities — net gains (losses) on sales and disposals
    (50 )     (170 )     (152 )     (466 )
                                 
Total losses on fixed maturity securities
    (455 )     (918 )     (1,442 )     (1,427 )
                                 
Other net investment gains (losses):
                               
Equity securities
    (53 )     (181 )     (430 )     (191 )
Mortgage and consumer loans
    (129 )     26       (400 )     (36 )
Real estate and real estate joint ventures
    (70 )     1       (163 )     3  
Other limited partnership interests
    (12 )     (16 )     (356 )     (31 )
Freestanding derivatives
    (821 )     1,451       (5,508 )     1,093  
Embedded derivatives
    (586 )     31       1,424       (29 )
Other
    (13 )     352       1       277  
                                 
Total net investment gains (losses)
  $ (2,139 )   $ 746     $ (6,874 )   $ (341 )
                                 
 
Proceeds from sales or disposals of fixed maturity and equity securities and the components of fixed maturity and equity securities net investment gains (losses) are as follows:
 
                                                                 
    Fixed Maturity Securities     Equity Securities  
    Three Months
    Nine Months
    Three Months
    Nine Months
 
    Ended
    Ended
    Ended
    Ended
 
    September 30,     September 30,     September 30,     September 30,  
    2009     2008     2009     2008     2009     2008     2009     2008  
    (In millions)  
 
Proceeds
  $ 11,041     $ 15,441     $ 30,392     $ 42,250     $ 334     $ 1,396     $ 587     $ 2,026  
                                                                 
Gross investment gains
    228       279       773       569       41       265       61       412  
                                                                 
Gross investment losses
    (278 )     (449 )     (925 )     (1,035 )     (58 )     (167 )     (125 )     (207 )
                                                                 
Total OTTI losses recognized in earnings:
                                                               
Credit-related
    (223 )     (593 )     (966 )     (803 )                        
Other (1)
    (182 )     (155 )     (324 )     (158 )     (36 )     (279 )     (366 )     (396 )
                                                                 
Total OTTI losses recognized in earnings
    (405 )     (748 )     (1,290 )     (961 )     (36 )     (279 )     (366 )     (396 )
                                                                 
Net investment gains (losses)
  $ (455 )   $ (918 )   $ (1,442 )   $ (1,427 )   $ (53 )   $ (181 )   $ (430 )   $ (191 )
                                                                 


31


Table of Contents

 
MetLife, Inc.
 
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued) 
 
 
(1) Other OTTI losses recognized in earnings include impairments on equity securities, impairments on perpetual hybrid securities classified within fixed maturity securities where the primary reason for the impairment was the severity and/or the duration of an unrealized loss position, and fixed maturity securities where there is an intent to sell or it is more likely than not that the Company will be required to sell the security before recovery of the decline in fair value.
 
The Company periodically disposes of fixed maturity and equity securities at a loss. Generally, such losses are insignificant in amount or in relation to the cost basis of the investment, are attributable to declines in estimated fair value occurring in the period of the disposition or are as a result of management’s decision to sell securities based on current conditions, or the Company’s need to shift the portfolio to maintain its portfolio management objectives. Investment gains and losses on sales of securities are determined on a specific identification basis.
 
OTTI losses recognized in earnings on fixed maturity and equity securities were $441 million and $1,656 million for the three months and nine months ended September 30, 2009, respectively, and $1,027 million and $1,357 million for the three months and nine months ended September 30, 2008, respectively.
 
  •  Three Months Ended September 30, 2009 compared to the Three Months Ended September 30, 2008 — In the third quarter of 2008, the stress experienced in the global financial markets, caused several financial institutions to enter bankruptcy, enter FDIC receivership or receive significant government capital infusions. The Company incurred fixed maturity and equity securities impairments of $562 million ($482 million on fixed maturity security holdings and $80 million on equity security holdings) related to security holdings on three such financial institutions in the third quarter of 2008. In addition, the Company incurred fixed maturity security impairments of $155 million in the third quarter of 2008 on securities the Company either lacked the intent to hold, or due to extensive credit spread widening, the Company was uncertain of its intent to hold these securities for a period of time sufficient to allow for recovery of the market value decline. Accordingly, impairments on the Company’s financial services industry holdings, and total impairments across all sectors, were higher in the third quarter of 2008 than the third quarter of 2009 as presented in the tables below.
 
  •  Nine Months Ended September 30, 2009 compared to the Nine Months Ended September 30, 2008 — Conversely, impairments for the nine months ended September 2009 were higher than for the nine months ended September 2008, due to increased fixed maturity security impairments across several industry sectors as presented in the tables below, and not as a result of a concentration in the financial services industry sector. Impairments across these several industry sectors increased due to financial restructurings, bankruptcy filings, ratings downgrades, or difficult operating environments of the issuers.
 
While financial services industry impairments were lower in the three and nine months ended September 2009 than the comparable prior periods, financial services industry impairments in the three months and nine months ended September 30, 2009 totaled $275 million and $753 million, comprised of $241 million and $429 million on fixed maturity securities and $34 million and $324 million on equity securities, respectively. These financial services industry impairments included $215 million and $577 million for the three months and nine months ended September 30, 2009, respectively, on perpetual hybrid securities, some classified as fixed maturity securities and some classified as non-redeemable preferred stock, where there had been a deterioration in the credit rating of the issuer to below investment grade and due to a severe and extended unrealized loss position.


32


Table of Contents

 
MetLife, Inc.
 
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued) 
 
Fixed maturity security OTTI losses recognized in earnings of $405 million and $1,290 million for the three months and nine months ended September 30, 2009, respectively, and $748 million and $961 million for the three months and nine months ended September 30, 2008, respectively, related to the following sectors and industries:
 
                                 
    Three Months
    Nine Months
 
    Ended
    Ended
 
    September 30,     September 30,  
    2009     2008     2009     2008  
    (In millions)  
 
U.S. and foreign corporate securities:
                               
Finance
  $ 241     $ 491     $ 429     $ 605  
Communications
    29       32       232       49  
Consumer
    42       12       206       60  
Utility
    8       1       84       2  
Industrial
    7             27        
Other
          177       26       182  
                                 
Total U.S. and foreign corporate securities
    327       713       1,004       898  
Residential mortgage-backed securities
    40             118        
Asset-backed securities
    17       35       111       63  
Commercial mortgage-backed securities
    20             56        
Foreign government securities
    1             1        
                                 
Total
  $ 405     $ 748     $ 1,290     $ 961  
                                 
 
The $36 million and $366 million of equity security OTTI losses recognized in earnings for the three months and nine months ended September 30, 2009, respectively, and $279 million and $396 million for the three months and nine months ended September 30, 2008, respectively, related to the following sectors and industries:
 
                                 
    Three Months
    Nine Months
 
    Ended
    Ended
 
    September 30,     September 30,  
    2009     2008     2009     2008  
    (In millions)  
 
Sector:
                               
Non-redeemable preferred stock
  $ 34     $ 270     $ 314     $ 308  
Common stock (1)
    2       9       52       88  
                                 
Total
  $ 36     $ 279     $ 366     $ 396  
                                 
Industry:
                               
Financial services industry:
                               
Perpetual hybrid securities (2)
  $ 34     $ 84     $ 294     $ 86  
Common and remaining non-redeemable preferred stock
          191       30       245  
                                 
Total financial services industry
    34       275       324       331  
Other
    2       4       42       65  
                                 
Total
  $ 36     $ 279     $ 366     $ 396  
                                 
 
 
(1) With respect to common stock holdings, the Company considered the duration and severity of the securities in an unrealized loss position of 20% or more; and the duration of the securities in an unrealized loss position of 20% or less in an extended unrealized loss position (i.e., 12 months or greater) in determining the other-than-temporary impairment charge for such securities.


33


Table of Contents

 
MetLife, Inc.
 
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued) 
 
 
(2) Impairment due to a deterioration in the credit rating of the issuer to below investment grade and due to a severe and extended unrealized loss position.
 
Credit Loss Rollforward — Rollforward of the Cumulative Credit Loss Component of OTTI Loss Recognized in Earnings on Fixed Maturity Securities Still Held for Which a Portion of the OTTI Loss was Recognized in Other Comprehensive Loss
 
The table below presents a rollforward of the cumulative credit loss component of OTTI loss recognized in earnings on fixed maturity securities still held by the Company at September 30, 2009, for which a portion of the OTTI loss was recognized in other comprehensive loss:
 
                 
    Three Months
    Nine Months
 
    Ended
    Ended
 
    September 30, 2009     September 30, 2009  
    (In millions)  
 
Balance, beginning of period
  $ 380     $  
Credit loss component of OTTI loss not reclassified to other comprehensive loss in the cumulative effect transition adjustment
          230  
Additions:
               
Initial impairments — credit loss OTTI recognized on securities not previously impaired
    53       205  
Additional impairments — credit loss OTTI recognized on securities previously impaired
    50       55  
Reductions:
               
Due to sales (or maturities, pay downs or prepayments) during the period of securities previously credit loss OTTI impaired
    (15 )     (22 )
                 
Balance, end of period
  $ 468     $ 468  
                 


34


Table of Contents

 
MetLife, Inc.
 
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued) 
 
Net Investment Income
 
The components of net investment income are as follows:
 
                                 
    Three Months
    Nine Months
 
    Ended
    Ended
 
    September 30,     September 30,  
    2009     2008     2009     2008  
    (In millions)  
 
Fixed maturity securities
  $ 2,955     $ 3,446     $ 8,709     $ 10,424  
Equity securities
    37       47       130       197  
Trading securities (1)
    163       (95 )     310       (137 )
Mortgage and consumer loans
    677       712       2,055       2,109  
Policy loans
    163       148       481       447  
Real estate and real estate joint ventures (2)
    (25 )     141       (184 )     519  
Other limited partnership interests (3)
    128       (62 )     (53 )     141  
Cash, cash equivalents and short-term investments
    27       101       109       313  
International joint ventures (4)
    (16 )     21       (86 )     16  
Other
    37       83       156       230  
                                 
Total investment income
    4,146       4,542       11,627       14,259  
Less: Investment expenses
    223       495       713       1,598  
                                 
Net investment income
  $ 3,923     $ 4,047     $ 10,914     $ 12,661  
                                 
 
 
(1) Net investment income from trading securities includes interest and dividends earned on trading securities in addition to the net realized gains (losses) and subsequent changes in estimated fair value recognized on trading securities and the short sale agreement liabilities. During the three months and nine months ended September 30, 2008, unfavorable changes in estimated fair value of trading securities, due to volatility in the equity and credit markets, were in excess of interest and dividends earned and net realized gains (losses) on securities sold. The changes in estimated fair value included in net investment income on trading securities are presented in the trading securities section below.
 
(2) Net investment income from wholly-owned real estate was more than offset by losses incurred on real estate joint ventures. Net investment income from real estate joint ventures within the real estate and real estate joint ventures caption represents distributions for investments accounted for under the cost method and equity in earnings for investments accounted for under the equity method. Overall, for the three months and nine months ended September 30, 2009, the net amount recognized were losses of $25 million and $184 million, respectively, resulting primarily from declining property valuations on certain investment funds that carry their real estate at estimated fair value and operating losses incurred on properties that were developed for sale by development joint ventures. The commercial real estate properties underlying these investment funds have experienced declines in estimated fair value driven by capital market factors and deteriorating market conditions, which has led to declining property valuations, while the development joint ventures have experienced fewer property sales due to declining real estate market fundamentals and decreased availability of lending to finance these types of transactions.
 
(3) Net investment income from other limited partnership interests, including hedge funds, represents distributions from other limited partnership interests accounted for under the cost method and equity in earnings from other limited partnership interests accounted for under the equity method. Overall for the nine months ended September 30, 2009, the net amount recognized was a loss of $53 million, resulting principally from losses on equity method investments. Such earnings and losses recognized for other limited partnership interests are impacted by volatility in the equity and credit markets.


35


Table of Contents

 
MetLife, Inc.
 
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued) 
 
 
(4) Amounts are presented net of changes in estimated fair value of derivatives related to economic hedges of these equity method investments that do not qualify for hedge accounting of $1 million and ($115) million for the three months and nine months ended September 30, 2009, respectively, and $33 million and $41 million for the three months and nine months ended September 30, 2008, respectively. The increase in losses on the international joint ventures was driven by these derivatives, which moved from gains in the prior year to losses in the current year. The losses were primarily attributable to losses on equity derivatives (used to hedge embedded derivative risk) due to improving equity markets in the current period, as well as losses on foreign currency derivatives due to the U.S. Dollar weakening against several major foreign currencies.
 
Securities Lending
 
The Company participates in securities lending programs whereby blocks of securities, which are included in fixed maturity securities and short-term investments, are loaned to third parties, primarily major brokerage firms and commercial banks. The Company generally obtains collateral in an amount equal to 102% of the estimated fair value of the securities loaned. Securities loaned under such transactions may be sold or repledged by the transferee. The Company is liable to return to its counterparties the cash collateral under its control. The liability for cash collateral that is due back to the counterparties by aging category is presented below.
 
Elements of the securities lending programs are presented below at:
 
                 
    September 30, 2009     December 31, 2008  
    (In millions)  
 
Securities on loan:
               
Cost or amortized cost
  $ 19,790     $ 20,791  
Estimated fair value
  $ 20,556     $ 22,885  
Aging of cash collateral liability:
               
Open (1)
  $ 2,473     $ 5,118  
Less than thirty days
    9,091       14,711  
Greater than thirty days to sixty days
    5,222       3,471  
Greater than sixty days to ninety days
    1,659        
Greater than ninety days
    2,606        
                 
Total cash collateral liability
  $ 21,051     $ 23,300  
                 
Security collateral on deposit from counterparties
  $ 40     $ 279  
                 
Reinvestment portfolio — estimated fair value
  $ 20,150     $ 19,509  
                 
 
 
(1) Open terms — meaning that the related loaned security could be returned to the Company on the next business day requiring the Company to immediately return the cash collateral.
 
The estimated fair value of the securities related to the cash collateral on open terms at September 30, 2009 has been reduced to $2,389 million from $4,986 million at December 31, 2008. Of the $2,389 million of estimated fair value of the securities related to the cash collateral on open terms at September 30, 2009, $2,222 million, were U.S. Treasury, agency and government guaranteed securities which, if put to the Company, can be immediately sold to satisfy the cash requirements. The remainder of the securities on loan, related to the cash collateral aged less than thirty days to greater than ninety days, are primarily U.S. Treasury, agency and government guaranteed securities, and very liquid residential mortgage-backed securities. The reinvestment portfolio acquired with the cash collateral consisted principally of fixed maturity securities (including residential mortgage-backed, asset-backed, U.S. corporate and foreign corporate securities).


36


Table of Contents

 
MetLife, Inc.
 
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued) 
 
Security collateral on deposit from counterparties in connection with the securities lending transactions may not be sold or repledged, unless the counterparty is in default, and is not reflected in the consolidated financial statements.
 
Assets on Deposit, Held in Trust and Pledged as Collateral
 
The assets on deposit, assets held in trust and assets pledged as collateral are presented in the table below. The amounts presented in the table below are at estimated fair value for cash and cash equivalents, fixed maturity and equity securities and at carrying value for mortgage loans.
 
                 
    September 30, 2009     December 31, 2008  
    (In millions)  
 
Assets on deposit:
               
Regulatory agencies (1)
  $ 1,397     $ 1,282  
Assets held in trust:
               
Collateral financing arrangements (2)
    5,887       4,754  
Reinsurance arrangements (3)
    1,537       1,714  
Assets pledged as collateral:
               
Debt and funding agreements — FHLB of NY (4)
    20,213       20,880  
Debt and funding agreements — FHLB of Boston (4)
    424       1,284  
Funding agreements — Farmer MAC (5)
    2,872       2,875  
Federal Reserve Bank of New York (6)
    2,456       1,577  
Collateral financing arrangements — Holding Company (7)
    76       316  
Derivative transactions (8)
    1,563       1,744  
Short sale agreements (9)
    473       346  
Other
          180  
                 
Total assets on deposit, held in trust and pledged as collateral
  $ 36,898     $ 36,952  
                 
 
 
(1) The Company had investment assets on deposit with regulatory agencies consisting primarily of fixed maturity and equity securities.
 
(2) The Company held in trust cash and securities, primarily fixed maturity and equity securities, to satisfy collateral requirements. The Company has also pledged certain fixed maturity securities in support of the collateral financing arrangements described in Note 10.
 
(3) The Company has pledged certain investments, primarily fixed maturity securities, in connection with certain reinsurance transactions.
 
(4) The Company has pledged fixed maturity securities and mortgage loans in support of its debt and funding agreements with the Federal Home Loan Bank of New York (“FHLB of NY”) and has pledged fixed maturity securities to the Federal Home Loan Bank of Boston (“FHLB of Boston”). The nature of these Federal Home Loan Bank arrangements is described in Note 7 of the Notes to the Consolidated Financial Statements included in the 2008 Annual Report.
 
(5) The Company has pledged certain agricultural real estate mortgage loans in connection with funding agreements with the Federal Agricultural Mortgage Corporation (“Farmer MAC”). The nature of the Farmer MAC arrangements is described in Note 7 of the Notes to the Consolidated Financial Statements included in the 2008 Annual Report.


37


Table of Contents

 
MetLife, Inc.
 
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued) 
 
 
(6) The Company has pledged qualifying mortgage loans and fixed maturity securities in connection with collateralized borrowings from the Federal Reserve Bank of New York’s Term Auction Facility. The nature of the Federal Reserve Bank of New York arrangements is described in Note 9.
 
(7) The Holding Company has pledged certain collateral in support of the collateral financing arrangements described in Note 10.
 
(8) Certain of the Company’s invested assets are pledged as collateral for various derivative transactions as described in Note 4.
 
(9) Certain of the Company’s trading securities and cash and cash equivalents are pledged to secure liabilities associated with short sale agreements in the trading securities portfolio as described in the following section.
 
See also the immediately preceding section “Securities Lending” for the amount of the Company’s cash and invested assets received from and due back to counterparties pursuant to the securities lending program.
 
Trading Securities
 
The Company has trading securities portfolios to support investment strategies that involve the active and frequent purchase and sale of securities, the execution of short sale agreements and asset and liability matching strategies for certain insurance products.
 
Certain information about the Company’s trading securities portfolios is as follows:
 
                 
    September 30, 2009     December 31, 2008  
    (In millions)  
 
Trading securities — at estimated fair value
  $ 1,970     $ 946  
Short sale agreement liabilities (included in other liabilities)
  $ 143     $ 57  
Investments pledged to secure short sale agreement liabilities
  $ 473     $ 346  
 
                                 
    Three Months
    Nine Months
 
    Ended
    Ended
 
    September 30,     September 30,  
    2009     2008     2009     2008  
    (In millions)  
 
Net investment income (1)
  $ 163     $ (95 )   $ 310     $ (137 )
Changes in estimated fair value included in net investment income
  $ 101     $ (105 )   $ 242     $ (149 )
 
 
(1) Includes interest and dividends earned on trading securities, in addition to the net realized gains (losses) and subsequent changes in estimated fair value, recognized on the trading securities and the related short sale agreement liabilities.


38


Table of Contents

 
MetLife, Inc.
 
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued) 
 
 
Mortgage Servicing Rights
 
The following table presents the changes in capitalized mortgage servicing rights (“MSRs”), which are included in other invested assets, at and for the nine months ended September 30, 2009:
 
         
    Carrying Value  
    (In millions)  
 
Fair value, beginning of period
  $ 191  
Acquisition of mortgage servicing rights
    117  
Origination of mortgage servicing rights
    427  
Reduction due to loan payments
    (85 )
Changes in estimated fair value due to:
       
Changes in valuation model inputs or assumptions
    70  
         
Fair value, end of period
  $ 720  
         
 
The Company recognizes the rights to service residential mortgage loans as MSRs. MSRs are either acquired or are generated from the sale of originated residential mortgage loans where the servicing rights are retained by the Company. MSRs are carried at estimated fair value and changes in estimated fair value, primarily due to changes in valuation inputs and assumptions and to the collection of expected cash flows, are reported in other revenues in the period in which the change occurs. See also Note 19 for further information about how the estimated fair value of MSRs is determined and other related information.
 
Variable Interest Entities
 
The following table presents the total assets and total liabilities relating to VIEs for which the Company has concluded that it is the primary beneficiary and which are consolidated in the Company’s financial statements at September 30, 2009 and December 31, 2008. Generally, creditors or beneficial interest holders of VIEs where the Company is the primary beneficiary have no recourse to the general credit of the Company.
 
                                 
    September 30, 2009     December 31, 2008  
    Total
    Total
    Total
    Total
 
    Assets     Liabilities     Assets     Liabilities  
    (In millions)  
 
MRSC collateral financing arrangement (1)
  $ 3,159     $     $ 2,361     $  
Real estate joint ventures (2)
    21       15       26       15  
Other limited partnership interests (3)
    359       87       20       3  
Other invested assets (4)
    29       2       10       3  
                                 
Total
  $ 3,568     $ 104     $ 2,417     $ 21  
                                 
 
 
(1) See Note 10 for a description of the MetLife Reinsurance Company of South Carolina (“MRSC”) collateral financing arrangement. At September 30, 2009 and December 31, 2008, these assets are presented at estimated fair value and consist of the following:
 


39


Table of Contents

 
MetLife, Inc.
 
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued) 
 
                 
    September 30, 2009     December 31, 2008  
    (In millions)  
 
Fixed maturity securities available-for-sale:
               
U.S. corporate securities
  $ 1,069     $ 948  
Asset-backed securities
    857       409  
Residential mortgage-backed securities
    658       561  
Commercial mortgage-backed securities
    345       98  
U.S. Treasury, agency and government guaranteed securities
    100        
Foreign corporate securities
    100       95  
State and political subdivision securities
    21       21  
Foreign government securities
    5       5  
Cash and cash equivalents (including cash held in trust of less than $1 million and $60 million, respectively)
    4       224  
                 
Total
  $ 3,159     $ 2,361  
                 
 
(2) Real estate joint ventures include partnerships and other ventures which engage in the acquisition, development, management and disposal of real estate investments. Upon consolidation, the assets and liabilities are reflected at the VIE’s carrying amounts. At September 30, 2009 and December 31, 2008, the assets consisted of $16 million and $20 million, respectively, of real estate and real estate joint ventures held-for-investment, $4 million and $5 million, respectively, of cash and cash equivalents and $1 million and $1 million, respectively, of other assets. At both September 30, 2009 and December 31, 2008, liabilities consisted of $15 million of other liabilities.
 
(3) Other limited partnership interests include partnerships established for the purpose of investing in public and private debt and equity securities. Upon consolidation, the assets and liabilities are reflected at the VIE’s carrying amounts. At September 30, 2009, the assets consisted of $228 million of other limited partnership interests, $104 million of other invested assets, $12 million of cash and cash equivalents, and $15 million of other assets. At December 31, 2008, the assets of $20 million were included within other limited partnership interests. At September 30, 2009, liabilities of $75 million and $12 million were included within long-term debt and other liabilities, respectively, and at December 31, 2008, liabilities of $3 million were included within other liabilities.
 
(4) Other invested assets include tax-credit partnerships and other investments established for the purpose of investing in low-income housing and other social causes, where the primary return on investment is in the form of tax credits. Upon consolidation, the assets and liabilities are reflected at the VIE’s carrying amounts. At September 30, 2009 and December 31, 2008, the assets of $29 million and $10 million, respectively, were included within other invested assets. At September 30, 2009 and December 31, 2008, the liabilities consisted of $1 million and $2 million, respectively, of long-term debt and $1 million and $1 million, respectively, of other liabilities.

40


Table of Contents

 
MetLife, Inc.
 
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued) 
 
 
The following table presents the carrying amount and maximum exposure to loss relating to VIEs for which the Company holds significant variable interests but is not the primary beneficiary and which have not been consolidated at September 30, 2009 and December 31, 2008:
 
                                 
    September 30, 2009     December 31, 2008  
          Maximum
          Maximum
 
    Carrying
    Exposure
    Carrying
    Exposure
 
    Amount (1)     to Loss (2)     Amount (1)     to Loss (2)  
    (In millions)  
 
Fixed maturity securities available-for-sale:
                               
Foreign corporate securities
  $ 1,212     $ 1,212     $ 1,080     $ 1,080  
U.S. corporate securities
    1,090       1,090       992       992  
Real estate joint ventures
    31       31       32       32  
Other limited partnership interests
    2,350       2,667       3,496       4,004  
Other invested assets
    388       225       318       108  
                                 
Total
  $ 5,071     $ 5,225     $ 5,918     $ 6,216  
                                 
 
 
(1) See Note 1 of the Notes to the Consolidated Financial Statements included in the 2008 Annual Report for further discussion of the Company’s accounting policies with respect to the basis for determining carrying value of these investments.
 
(2) The maximum exposure to loss relating to the fixed maturity securities available-for-sale is equal to the carrying amounts or carrying amounts of retained interests. The maximum exposure to loss relating to the real estate joint ventures and other limited partnership interests is equal to the carrying amounts plus any unfunded commitments. Such a maximum loss would be expected to occur only upon bankruptcy of the issuer or investee. For certain of its investments in other invested assets, the Company’s return is in the form of tax credits which are guaranteed by a creditworthy third party. For such investments, the maximum exposure to loss is equal to the carrying amounts plus any unfunded commitments, reduced by tax credits guaranteed by third parties of $237 million and $278 million at September 30, 2009 and December 31, 2008, respectively.
 
As described in Note 12, the Company makes commitments to fund partnership investments in the normal course of business. Excluding these commitments, the Company did not provide financial or other support to investees designated as VIEs during the nine months ended September 30, 2009.
 
4.   Derivative Financial Instruments
 
Accounting for Derivative Financial Instruments
 
Derivatives are financial instruments whose values are derived from interest rates, foreign currency exchange rates, or other financial indices. Derivatives may be exchange-traded or contracted in the over-the-counter market. The Company uses a variety of derivatives, including swaps, forwards, futures and option contracts, to manage the risk associated with variability in cash flows or changes in estimated fair values related to the Company’s financial instruments. The Company also uses derivative instruments to hedge its currency exposure associated with net investments in certain foreign operations. To a lesser extent, the Company uses credit derivatives, such as credit default swaps, to synthetically replicate investment risks and returns which are not readily available in the cash market. The Company also purchases certain securities, issues certain insurance policies and investment contracts and engages in certain reinsurance contracts that have embedded derivatives.
 
Freestanding derivatives are carried on the Company’s consolidated balance sheet either as assets within other invested assets or as liabilities within other liabilities at estimated fair value as determined through the use of quoted market prices for exchange-traded derivatives and interest rate forwards to sell residential mortgage-backed securities or through the use of pricing models for over-the-counter derivatives. The determination of estimated fair


41


Table of Contents

 
MetLife, Inc.
 
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued) 
 
value, when quoted market values are not available, is based on market standard valuation methodologies and inputs that are assumed to be consistent with what other market participants would use when pricing the instruments. Derivative valuations can be affected by changes in interest rates, foreign currency exchange rates, financial indices, credit spreads, default risk (including the counterparties to the contract), volatility, liquidity and changes in estimates and assumptions used in the pricing models.
 
The significant inputs to the pricing models for most over-the-counter derivatives are inputs that are observable in the market or can be derived principally from or corroborated by observable market data. Significant inputs that are observable generally include: interest rates, foreign currency exchange rates, interest rate curves, credit curves and volatility. However, certain over-the-counter derivatives may rely on inputs that are significant to the estimated fair value that are not observable in the market or cannot be derived principally from or corroborated by observable market data. Significant inputs that are unobservable generally include: independent broker quotes, credit correlation assumptions, references to emerging market currencies and inputs that are outside the observable portion of the interest rate curve, credit curve, volatility or other relevant market measure. These unobservable inputs may involve significant management judgment or estimation. Even though unobservable, these inputs are based on assumptions deemed appropriate given the circumstances and are assumed to be consistent with what other market participants would use when pricing such instruments. Most inputs for over-the-counter derivatives are mid market inputs but, in certain cases, bid level inputs are used when they are deemed more representative of exit value. Market liquidity, as well as the use of different methodologies, assumptions and inputs may have a material effect on the estimated fair values of the Company’s derivatives and could materially affect net income.
 
The credit risk of both the counterparty and the Company are considered in determining the estimated fair value for all over-the-counter derivatives after taking into account the effects of netting agreements and collateral arrangements. Credit risk is monitored and consideration of any potential credit adjustment is based on a net exposure by counterparty. This is due to the existence of netting agreements and collateral arrangements which effectively serve to mitigate credit risk. The Company values its derivative positions using the standard swap curve which includes a credit risk adjustment. This credit risk adjustment is appropriate for those parties that execute trades at pricing levels consistent with the standard swap curve. As the Company and its significant derivative counterparties consistently execute trades at such pricing levels, additional credit risk adjustments are not currently required in the valuation process. The need for such additional credit risk adjustments is monitored by the Company. The Company’s ability to consistently execute at such pricing levels is in part due to the netting agreements and collateral arrangements that are in place with all of its significant derivative counterparties. The evaluation of the requirement to make additional credit risk adjustments is performed by the Company each reporting period.
 
The Company’s policy is to not offset the fair value amounts recognized for derivatives executed with the same counterparty under the same master netting agreement.
 
If a derivative is not designated as an accounting hedge or its use in managing risk does not qualify for hedge accounting, changes in the estimated fair value of the derivative are generally reported in net investment gains (losses) except for those (i) in policyholder benefits and claims for economic hedges of liabilities embedded in certain variable annuity products offered by the Company, (ii) in net investment income for economic hedges of equity method investments in joint ventures, or for all derivatives held in relation to the trading portfolios and (iii) in other revenues for derivatives held in connection with the Company’s mortgage banking activities. The fluctuations in estimated fair value of derivatives which have not been designated for hedge accounting can result in significant volatility in net income.
 
To qualify for hedge accounting, at the inception of the hedging relationship, the Company formally documents its risk management objective and strategy for undertaking the hedging transaction, as well as its designation of the hedge as either (i) a hedge of the estimated fair value of a recognized asset or liability or an unrecognized firm commitment (“fair value hedge”); (ii) a hedge of a forecasted transaction or of the variability of


42


Table of Contents

 
MetLife, Inc.
 
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued) 
 
cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”); or (iii) a hedge of a net investment in a foreign operation. In this documentation, the Company sets forth how the hedging instrument is expected to hedge the designated risks related to the hedged item and sets forth the method that will be used to retrospectively and prospectively assess the hedging instrument’s effectiveness and the method which will be used to measure ineffectiveness. A derivative designated as a hedging instrument must be assessed as being highly effective in offsetting the designated risk of the hedged item. Hedge effectiveness is formally assessed at inception and periodically throughout the life of the designated hedging relationship. Assessments of hedge effectiveness and measurements of ineffectiveness are also subject to interpretation and estimation and different interpretations or estimates may have a material effect on the amount reported in net income.
 
The accounting for derivatives is complex and interpretations of the primary accounting standards continue to evolve in practice. Judgment is applied in determining the availability and application of hedge accounting designations and the appropriate accounting treatment under these accounting standards. If it was determined that hedge accounting designations were not appropriately applied, reported net income could be materially affected. Differences in judgment as to the availability and application of hedge accounting designations and the appropriate accounting treatment may result in a differing impact on the consolidated financial statements of the Company from that previously reported.
 
Under a fair value hedge, changes in the estimated fair value of the hedging derivative, including amounts measured as ineffectiveness, and changes in the estimated fair value of the hedged item related to the designated risk being hedged, are reported within net investment gains (losses). The estimated fair values of the hedging derivatives are exclusive of any accruals that are separately reported in the consolidated statement of income within interest income or interest expense to match the location of the hedged item. However, accruals that are not scheduled to settle until maturity are included in the estimated fair value of derivatives in the consolidated balance sheets.
 
Under a cash flow hedge, changes in the estimated fair value of the hedging derivative measured as effective are reported within other comprehensive income (loss), a separate component of stockholders’ equity, and the deferred gains or losses on the derivative are reclassified into the consolidated statement of income when the Company’s earnings are affected by the variability in cash flows of the hedged item. Changes in the estimated fair value of the hedging instrument measured as ineffectiveness are reported within net investment gains (losses). The estimated fair values of the hedging derivatives are exclusive of any accruals that are separately reported in the consolidated statement of income within interest income or interest expense to match the location of the hedged item. However, accruals that are not scheduled to settle until maturity are included in the estimated fair value of derivatives in the consolidated balance sheets.
 
In a hedge of a net investment in a foreign operation, changes in the estimated fair value of the hedging derivative that are measured as effective are reported within other comprehensive income (loss) consistent with the translation adjustment for the hedged net investment in the foreign operation. Changes in the estimated fair value of the hedging instrument measured as ineffectiveness are reported within net investment gains (losses).
 
The Company discontinues hedge accounting prospectively when: (i) it is determined that the derivative is no longer highly effective in offsetting changes in the estimated fair value or cash flows of a hedged item; (ii) the derivative expires, is sold, terminated, or exercised; (iii) it is no longer probable that the hedged forecasted transaction will occur; (iv) a hedged firm commitment no longer meets the definition of a firm commitment; or (v) the derivative is de-designated as a hedging instrument.
 
When hedge accounting is discontinued because it is determined that the derivative is not highly effective in offsetting changes in the estimated fair value or cash flows of a hedged item, the derivative continues to be carried on the consolidated balance sheet at its estimated fair value, with changes in estimated fair value recognized currently in net investment gains (losses). The carrying value of the hedged recognized asset or liability under a fair value hedge is no longer adjusted for changes in its estimated fair value due to the hedged risk, and the cumulative


43


Table of Contents

 
MetLife, Inc.
 
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued) 
 
adjustment to its carrying value is amortized into income over the remaining life of the hedged item. Provided the hedged forecasted transaction is still probable of occurrence, the changes in estimated fair value of derivatives recorded in other comprehensive income (loss) related to discontinued cash flow hedges are released into the consolidated statement of income when the Company’s earnings are affected by the variability in cash flows of the hedged item.
 
When hedge accounting is discontinued because it is no longer probable that the forecasted transactions will occur by the end of the specified time period or the hedged item no longer meets the definition of a firm commitment, the derivative continues to be carried on the consolidated balance sheet at its estimated fair value, with changes in estimated fair value recognized currently in net investment gains (losses). Any asset or liability associated with a recognized firm commitment is derecognized from the consolidated balance sheet, and recorded currently in net investment gains (losses). Deferred gains and losses of a derivative recorded in other comprehensive income (loss) pursuant to the cash flow hedge of a forecasted transaction are recognized immediately in net investment gains (losses).
 
In all other situations in which hedge accounting is discontinued, the derivative is carried at its estimated fair value on the consolidated balance sheet, with changes in its estimated fair value recognized in the current period as net investment gains (losses).
 
The Company is also a party to financial instruments that contain terms which are deemed to be embedded derivatives. The Company assesses each identified embedded derivative to determine whether it is required to be bifurcated. If the instrument would not be accounted for in its entirety at estimated fair value and it is determined that the terms of the embedded derivative are not clearly and closely related to the economic characteristics of the host contract, and that a separate instrument with the same terms would qualify as a derivative instrument, the embedded derivative is bifurcated from the host contract and accounted for as a freestanding derivative. Such embedded derivatives are carried on the consolidated balance sheet at estimated fair value with the host contract and changes in their estimated fair value are reported currently in net investment gains (losses) or in policyholder benefits and claims. If the Company is unable to properly identify and measure an embedded derivative for separation from its host contract, the entire contract is carried on the balance sheet at estimated fair value, with changes in estimated fair value recognized in the current period in net investment gains (losses) or in policyholder benefits and claims. Additionally, the Company may elect to carry an entire contract on the balance sheet at estimated fair value, with changes in estimated fair value recognized in the current period in net investment gains (losses) or in policyholder benefits and claims if that contract contains an embedded derivative that requires bifurcation. There is a risk that embedded derivatives requiring bifurcation may not be identified and reported at estimated fair value in the consolidated financial statements and that their related changes in estimated fair value could materially affect reported net income.
 
See Note 19 for information about the fair value hierarchy for derivatives.


44


Table of Contents

 
MetLife, Inc.
 
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued) 
 
Primary Risks Managed by Derivative Financial Instruments and Non Derivative Financial Instruments
 
The Company is exposed to various risks relating to its ongoing business operations, including interest rate risk, foreign currency risk, credit risk, and equity market risk. The Company uses a variety of strategies to manage these risks, including the use of derivative instruments. The following table presents the notional amount, estimated fair value, and primary underlying risk exposure of the Company’s derivative financial instruments, excluding embedded derivatives held at:
 
                                                     
        September 30, 2009     December 31, 2008  
              Current Market
          Current Market
 
Primary Underlying
      Notional
    or Fair Value (1)     Notional