UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal
year ended December 31,
2009
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number
33-03094
MetLife Insurance Company of
Connecticut
(Exact name of registrant as
specified in its charter)
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Connecticut
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06-0566090
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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1300 Hall Boulevard, Bloomfield, Connecticut
(Address of principal
executive offices)
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06002
(Zip Code)
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(860) 656-3000
(Registrants telephone
number, including area code)
Securities registered pursuant to
Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the
Act: None
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Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. Yes þ No 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 o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, 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):
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Large accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer þ (Do
not check if a smaller reporting company)
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Smaller reporting
company o
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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 March 23, 2010, 34,595,317 shares of the
registrants common stock, $2.50 par value per share,
were outstanding, of which 30,000,000 shares are owned
directly by MetLife, Inc. and the remaining
4,595,317 shares are owned by MetLife Investors Group,
Inc., a wholly-owned subsidiary of MetLife, Inc.
REDUCED
DISCLOSURE FORMAT
The registrant meets the conditions set forth in General
Instruction I(1)(a) and (b) of
Form 10-K
and is therefore filing this Form with the reduced disclosure
format.
DOCUMENTS
INCORPORATED BY REFERENCE: NONE
As used in this
Form 10-K,
MICC, the Company, we,
our and us refer to MetLife Insurance
Company of Connecticut, a Connecticut corporation incorporated
in 1863, and its subsidiaries, including MetLife Investors USA
Insurance Company (MLI-USA). MetLife Insurance
Company of Connecticut is a wholly-owned subsidiary of MetLife,
Inc. (MetLife).
Note
Regarding Forward-Looking Statements
This Annual Report on
Form 10-K,
including the Managements 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
Managements Discussion and Analysis of Financial
Condition and Results of Operations.
Any or all forward-looking statements may turn out to be wrong.
They can be affected by inaccurate assumptions or by known or
unknown risks and uncertainties. Many such factors will be
important in determining MICCs actual future results.
These statements are based on current expectations and the
current economic environment. They involve a number of risks and
uncertainties that are difficult to predict. These statements
are not guarantees of future performance. Actual results could
differ materially from those expressed or implied in the
forward-looking statements. Risks, uncertainties, and other
factors that might cause such differences include the risks,
uncertainties and other factors identified in filings with the
U.S. Securities and Exchange Commission (the
SEC). These factors include: (i) difficult and
adverse conditions in the global and domestic capital and credit
markets; (ii) continued volatility and further
deterioration of the capital and credit markets, which may
affect the Companys ability to seek financing;
(iii) uncertainty about the effectiveness of the
U.S. governments plan to stabilize the financial
system by injecting capital into financial institutions,
purchasing large amounts of illiquid, mortgage-backed and other
securities from financial institutions, or otherwise;
(iv) exposure to financial and capital market risk;
(v) changes in general economic conditions, including the
performance of financial markets and interest rates, which may
affect the Companys ability to raise capital, generate fee
income and market-related revenue and finance statutory reserve
requirements and may require the Company to pledge collateral or
make payments related to declines in value of specified assets;
(vi) potential liquidity and other risks resulting from
MICCs participation in a securities lending program and
other transactions; (vii) investment losses and defaults,
and changes to investment valuations; (viii) impairments of
goodwill and realized losses or market value impairments to
illiquid assets; (ix) defaults on the Companys
mortgage loans; (x) the impairment of other financial
institutions; (xi) MICCs ability to identify and
consummate on successful terms any future acquisitions, and to
successfully integrate acquired businesses with minimal
disruption; (xii) economic, political, currency and other
risks relating to the Companys international operations;
(xiii) downgrades in MetLife Insurance Company of
Connecticuts and its affiliates claims paying
ability, financial strength or credit ratings;
(xiv) ineffectiveness of risk management policies and
procedures, including with respect to guaranteed benefits (which
may be affected by fair value adjustments arising from changes
in our own credit spread) on certain of the Companys
variable annuity products; (xv) availability and
effectiveness of reinsurance or indemnification arrangements;
(xvi) discrepancies between actual claims experience and
assumptions used in setting prices for the Companys
products and establishing the liabilities for the Companys
obligations for future policy benefits and claims;
(xvii) catastrophe losses; (xviii) heightened
competition, including with respect to pricing, entry of new
competitors, consolidation of distributors, the development of
new products by new and existing competitors and for personnel;
(xix) unanticipated changes in industry trends;
(xx) changes in accounting standards, practices
and/or
policies; (xxi) changes in assumptions related to deferred
policy acquisition costs (DAC), value of business
acquired (VOBA) or goodwill; (xxii) adverse
results or other consequences from litigation, arbitration or
regulatory investigations; (xxiii) discrepancies between
actual experience and assumptions used in establishing
liabilities related to other contingencies or obligations;
(xxiv) regulatory, legislative or tax changes that may
affect the cost of, or demand for, the Companys products
or services; (xxv) the effects of business disruption or
economic
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contraction due to terrorism, other hostilities, or natural
catastrophes; (xxvi) the effectiveness of the
Companys programs and practices in avoiding giving its
associates incentives to take excessive risks; and
(xxvii) other risks and uncertainties described from time
to time in filings with the SEC.
MICC does not undertake any obligation to publicly correct or
update any forward-looking statement if MICC later becomes aware
that such statement is not likely to be achieved. Please consult
any further disclosures MICC makes on related subjects in
reports to the SEC.
Note
Regarding Reliance on Statements in Our Contracts
In reviewing the agreements included as exhibits to this Annual
Report on
Form 10-K,
please remember that they are included to provide you with
information regarding their terms and are not intended to
provide any other factual or disclosure information about
MetLife Insurance Company of Connecticut, 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:
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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;
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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;
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may apply standards of materiality in a way that is different
from what may be viewed as material to investors; and
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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.
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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
Insurance Company of Connecticut and its subsidiaries may be
found elsewhere in this Annual Report on
Form 10-K
and other public filings, which are available without charge
through the SEC website at www.sec.gov.
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Part I
As used in this
Form 10-K,
MICC, the Company, we,
our and us refer to MetLife Insurance
Company of Connecticut, a Connecticut corporation incorporated
in 1863, and its subsidiaries, including MetLife Investors USA
Insurance Company (MLI-USA). MetLife Insurance
Company of Connecticut is a wholly-owned subsidiary of MetLife,
Inc. (MetLife).
During 2009, the Company realigned its former institutional and
individual businesses into three operating segments: Retirement
Products, Corporate Benefit Funding and Insurance Products. The
segments are managed separately because they either provide
different products and services, require different strategies or
have different technology requirements. In addition, the Company
reports certain of its operations in Corporate & Other.
Retirement Products offers asset accumulation and income
products, including a wide variety of annuities. Corporate
Benefit Funding offers pension risk solutions, structured
settlements, stable value & investment products and
other benefit funding products. Insurance Products offers a
broad range of protection products and services to individuals,
corporations and other institutions, and is organized into two
businesses: Individual Life and Non-Medical Health. Individual
Life includes variable life, universal life, term life and whole
life insurance products. Non-Medical Health includes individual
disability insurance products.
Corporate & Other contains the excess capital not
allocated to the business segments, various domestic and
international
start-up
entities and run-off business, the Companys ancillary
international operations, interest expense related to the
majority of the Companys outstanding debt and expenses
associated with certain legal proceedings and income tax audit
issues. Corporate & Other also includes the
elimination of intersegment amounts, which generally relate to
loans.
Revenues derived from any customer did not exceed 10% of
consolidated revenues in any of the last three years. Financial
information by segment is provided in Note 14 of the Notes
to the Consolidated Financial Statements.
Sales
Distribution
We market our products and services through various distribution
groups. Our life insurance and retirement products targeted to
individuals are sold via sales forces, comprised of MetLife
employees, in addition to third-party organizations. Our
corporate benefit funding and non-medical health insurance
products are sold via sales forces primarily comprised of
MetLife employees. Our sales employees work with all
distribution groups to better reach and service customers,
brokers, consultants and other intermediaries.
Individual
Sales Distribution
Our individual distribution targets the large middle-income
market, as well as affluent individuals, owners of small
businesses and executives of small- to medium-sized companies.
We have also been successful in selling our products in various
multi-cultural markets.
Retirement Products are sold through our individual sales
distribution organization and also through various third-party
organizations such as regional broker-dealers, New York Stock
Exchange brokerage firms, financial planners and banks.
Insurance Products are sold through our individual sales
distribution organization and also through various third-party
organizations. Wholesalers sell to high net worth individuals
and small- to medium-sized businesses through independent
general agencies, financial advisors, consultants, brokerage
general agencies and other independent marketing organizations
under contractual arrangements. Wholesalers sell through
financial intermediaries, including regional broker-dealers,
brokerage firms, financial planners and banks.
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Group
Sales Distribution
Retirement Products markets its retirement, savings, investment
and payout annuity products and services to sponsors and
advisors of benefit plans of all sizes. These products and
services are offered to private and public pension plans,
collective bargaining units, nonprofit organizations, recipients
of structured settlements and the current and retired members of
these and other institutions.
Corporate Benefit Funding products and services are distributed
through dedicated sales teams and relationship managers located
in offices around the country. In addition, the
retirement & benefits funding organization works with
individual distribution and non-medical health insurance
distribution areas to better reach and service customers,
brokers, consultants and other intermediaries.
Insurance Products distributes its non-medical health insurance
products and services through a sales force that is segmented by
the size of the target customer. Marketing representatives sell
either directly to corporate and other group customers or
through an intermediary, such as a broker or consultant.
Voluntary products are sold through the same sales channels, as
well as by specialists for these products. Employers have been
emphasizing such voluntary products and, as a result, we have
increased our focus on communicating and marketing to such
employees in order to further foster sales of those products.
The individual sales distribution organization is comprised of
three channels: the MetLife distribution channel, a career
agency system, the New England financial distribution channel, a
general agency system, and MetLife Resources, a career agency
system.
Policyholder
Liabilities
We establish, and carry as liabilities, actuarially determined
amounts that are calculated to meet our policy obligations when
a policy matures or is surrendered, an insured dies or becomes
disabled or upon the occurrence of other covered events, or to
provide for future annuity payments. We compute the amounts for
actuarial liabilities reported in our consolidated financial
statements in conformity with accounting principles generally
accepted in the United States of America (GAAP).
In establishing actuarial liabilities for life and non-medical
health insurance policies and annuity contracts, we distinguish
between short duration and long duration contracts. Long
duration contracts primarily consist of traditional whole life,
guaranteed renewable term life, universal life, annuities and
individual disability income and long-term care
(LTC).
We determine actuarial liabilities for long duration contracts
using assumptions based on experience, plus a margin for adverse
deviation for these policies.
Actuarial liabilities for term life, non-participating whole
life, LTC and limited pay contracts such as single premium
immediate individual annuities, structured settlement annuities
and certain group pension annuities are equal to the present
value of future benefit payments and related expenses less the
present value of future net premiums plus premium deficiency
reserves, if any. For limited pay contracts, we also defer the
excess of the gross premium over the net premium and recognize
such excess into income in a constant relationship with
insurance in-force for life insurance contracts and in relation
to anticipated future benefit payments for annuity contracts.
We also establish actuarial liabilities for future policy
benefits (associated with base policies and riders, unearned
mortality charges and future disability benefits), for other
policyholder liabilities (associated with unearned revenues and
claims payable) and for unearned revenue (the unamortized
portion of front-end loads charged). We also establish
liabilities for minimum benefit guarantees relating to certain
annuity contracts and secondary guarantees relating to certain
life policies.
Liabilities for investment-type and universal life-type products
primarily consist of policyholder account balances.
Investment-type products include individual annuity contracts in
the accumulation phase and certain group pension contracts that
have limited or no mortality risk. Universal life-type products
consist of universal and variable life contracts and contain
group pension contracts. For universal life-type contracts with
front-end loads, we defer the charge and amortize the unearned
revenue using the products estimated gross profits.
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Pursuant to state insurance laws, we establish statutory
reserves, reported as liabilities, to meet our obligations on
our respective policies. These statutory reserves are
established in amounts sufficient to meet policy and contract
obligations, when taken together with expected future premiums
and interest at assumed rates. Statutory reserves generally
differ from actuarial liabilities for future policy benefits
determined using GAAP.
The Connecticut State Insurance Law and regulations require us
to submit to the Connecticut Commissioner of Insurance
(Connecticut Commissioner), or other state insurance
departments, with an annual report, an opinion and memorandum of
a qualified actuary that the statutory reserves and
related actuarial amounts recorded in support of specified
policies and contracts, and the assets supporting such statutory
reserves and related actuarial amounts, make adequate provision
for our statutory liabilities with respect to these obligations.
See Regulation Insurance
Regulation Policy and Contract Reserve Sufficiency
Analysis.
Due to the nature of the underlying risks and the high degree of
uncertainty associated with the determination of our actuarial
liabilities, we cannot precisely determine the amounts we will
ultimately pay with respect to these actuarial liabilities, and
the ultimate amounts may vary from the estimated amounts,
particularly when payments may not occur until well into the
future.
However, we believe our actuarial liabilities for future
benefits are adequate to cover the ultimate benefits required to
be paid to policyholders. We periodically review our estimates
of actuarial liabilities for future benefits and compare them
with our actual experience. We revise estimates, to the extent
permitted or required under GAAP, if we determine that future
expected experience differs from assumptions used in the
development of actuarial liabilities.
Underwriting
and Pricing
Underwriting
Underwriting generally involves an evaluation of applications
for Retirement Products, Corporate Benefit Funding, and
Insurance Products by a professional staff of underwriters and
actuaries, who determine the type and the amount of risk that we
are willing to accept. We employ detailed underwriting policies,
guidelines and procedures designed to assist the underwriter to
properly assess and quantify risks before issuing policies to
qualified applicants or groups.
Insurance underwriting considers not only an applicants
medical history, but also other factors such as financial
profile, foreign travel, vocations and alcohol, drug and tobacco
use. Group underwriting generally evaluates the risk
characteristics of each prospective insured group, although with
certain voluntary products, employees may be underwritten on an
individual basis. We generally perform our own underwriting;
however, certain policies are reviewed by intermediaries under
guidelines established by us. Generally, we are not obligated to
accept any risk or group of risks from, or to issue a policy or
group of policies to, any employer or intermediary. Requests for
coverage are reviewed on their merits and generally a policy is
not issued unless the particular risk or group has been examined
and approved by our underwriters.
Our remote underwriting offices, intermediaries, as well as our
corporate underwriting office are periodically reviewed via
continuous on-going internal underwriting audits to maintain
high-standards of underwriting and consistency across the
Company. Such offices are also subject to periodic external
audits by reinsurers with whom we do business.
We have established senior level oversight of the underwriting
process that facilitates quality sales and serves the needs of
our customers, while supporting our financial strength and
business objectives. Our goal is to achieve the underwriting,
mortality and morbidity levels reflected in the assumptions in
our product pricing. This is accomplished by determining and
establishing underwriting policies, guidelines, philosophies and
strategies that are competitive and suitable for the customer,
the agent and us.
Subject to very few exceptions, agents in each of the
distribution channels have binding authority for risks which
fall within its published underwriting guidelines. Risks falling
outside the underwriting guidelines may be submitted for
approval to the underwriting department; alternatively, agents
in such a situation may call the
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underwriting department to obtain authorization to bind the risk
themselves. In most states, the Company generally has the right
within a specified period (usually the first 60 days) to
cancel any policy.
Pricing
Pricing has traditionally reflected our corporate underwriting
standards. Product pricing is based on the expected payout of
benefits calculated through the use of assumptions for
mortality, morbidity, expenses, persistency and investment
returns, as well as certain macroeconomic factors, such as
inflation. Investment-oriented products are priced based on
various factors, which may include investment return, expenses,
persistency and optionality. For certain investment oriented
products in the U.S. and certain business sold
internationally, pricing may include prospective and
retrospective experience rating features. Prospective experience
rating involves the evaluation of past experience for the
purpose of determining future premium rates and all prior year
gains and losses are borne by the Company. Retrospective
experience rating also involves the evaluation of past
experience for the purpose of determining the actual cost of
providing insurance for the customer; however, the contract
includes certain features that allow the Company to recoup
certain losses or distribute certain gains back to the
policyholder based on actual prior years experience.
Products offered by Corporate Benefit Funding are priced
frequently and are very responsive to bond yields, and such
prices include additional margin in periods of market
uncertainty. This business is predominantly illiquid, because
policyholders have no contractual rights to cash values and no
options to change the form of the products benefits. Rates
for non-medical health products are based on anticipated results
for the book of business being underwritten. Renewals are
generally reevaluated annually or biannually and are repriced to
reflect actual experience on such products.
Rates for individual life insurance products are highly
regulated and must be approved by the state regulators where the
product is sold. Generally such products are renewed annually
and may include pricing terms that are guaranteed for a certain
period of time. Fixed and variable annuity products are also
highly regulated and approved by the individual state
regulators. Such products generally include penalties for early
withdrawals and policyholder benefit elections to tailor the
form of the products benefits to the needs of the opting
policyholder. The Company periodically reevaluates the costs
associated with such options and will periodically adjust
pricing levels on its guarantees. Further, the Company from time
to time may also reevaluate the type and level of guarantee
features currently being offered.
We continually review our underwriting and pricing guidelines so
that our policies remain competitive and supportive of our
marketing strategies and profitability goals. The current
economic environment, with its volatility and uncertainty is not
expected to materially impact the pricing of our products.
Reinsurance
Activity
We enter into various agreements with reinsurers that cover
individual risks, group risks or defined blocks of business,
primarily on a coinsurance, yearly renewable term, excess or
catastrophe excess basis. These reinsurance agreements spread
risk and minimize the effect of losses. The extent of each risk
retained by us depends on our evaluation of the specific risk,
subject, in certain circumstances, to maximum retention limits
based on the characteristics of coverages. We also cede first
dollar mortality risk under certain contracts. In addition to
reinsuring mortality risk, we reinsure other risks, as well as
specific coverages. We routinely reinsure certain classes of
risks in order to limit our exposure to particular travel,
avocation and lifestyle hazards. We obtain reinsurance for
capital requirement purposes and also when the economic impact
of the reinsurance agreement makes it appropriate to do so.
Under the terms of the reinsurance agreements, the reinsurer
agrees to reimburse us for the ceded amount in the event a claim
is paid. However, we remain liable to our policyholders with
respect to ceded reinsurance should any reinsurer be unable to
meet its obligations under these agreements. Since we bear the
risk of nonpayment by one or more of our reinsurers, we
primarily cede reinsurance to well-capitalized, highly rated
reinsurers. We analyze recent trends in arbitration and
litigation outcomes in disputes, if any, with our reinsurers. We
monitor ratings and evaluate the financial strength of our
reinsurers by analyzing their financial statements. In addition,
the reinsurance recoverable balance due from each reinsurer is
evaluated as part of the overall monitoring process. We
generally
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secure large reinsurance recoverable balances with various forms
of collateral, including secured trusts, funds withheld accounts
and irrevocable letters of credit.
We reinsure our business through a diversified group of
reinsurers for both affiliated and unaffiliated reinsurance. In
the event that reinsurers do not meet their obligations under
the terms of the reinsurance agreements, reinsurance balances
recoverable could become uncollectible. Cessions under
reinsurance arrangements do not discharge our obligations as the
primary insurer.
Our Insurance Products segment participates in reinsurance
activities in order to limit losses, minimize exposure to
significant risks, and provide additional capacity for future
growth. For our individual life insurance products, we have
historically reinsured the mortality risk primarily on an excess
of retention basis or a quota share basis. Until 2005, we
reinsured up to 90% of the mortality risk for all new individual
life insurance policies. During 2005, we changed our retention
practices for certain individual life insurance policies. Under
the new retention guidelines, we reinsure up to 90% of the
mortality risk in excess of $1 million. Retention limits
remain unchanged for other new individual life insurance
policies. Policies reinsured in years prior to 2005 remain
reinsured under the original reinsurance agreements. On a case
by case basis, we may retain up to $5 million per life on
single life individual policies and reinsure 100% of amounts in
excess of our retention limits. We evaluate our reinsurance
programs routinely and may increase or decrease our retention at
any time. Placement of reinsurance is done primarily on an
automatic basis and also on a facultative basis for risks with
specific characteristics. We also reinsure the risk associated
with secondary death benefit guarantees on certain universal
life insurance policies to an affiliate.
For other policies within the Insurance Products segment, we
generally retain most of the risk and only cede particular risks
on certain client arrangements.
Our Retirement Products segment reinsures 100% of the living and
death benefit guarantees associated with our variable annuities
issued since 2006 to an affiliated reinsurer and certain
portions of the living and death benefit guarantees associated
with our variable annuities issued prior to 2006 to affiliated
and unaffiliated reinsurers. Under these reinsurance agreements,
we pay a reinsurance premium generally based on fees associated
with the guarantees collected from policyholders, and receive
reimbursement for benefits paid or accrued in excess of account
values, subject to certain limitations. We also reinsure 90% of
our new production of fixed annuities to an affiliated
reinsurer. We enter into similar agreements for new or in-force
business depending on market conditions.
Our Corporate Benefit Funding segment has periodically engaged
in reinsurance activities, as considered appropriate.
We also reinsure through 100% quota share reinsurance agreements
certain LTC and workers compensation business written by
the Company.
We have exposure to catastrophes, which could contribute to
significant fluctuations in our results of operations. We use
excess of retention and quota share reinsurance arrangements to
provide greater diversification of risk and minimize exposure to
larger risks.
For information regarding ceded reinsurance recoverable
balances, included in premiums and other receivables in the
consolidated balance sheets, see Note 8 of the Notes to the
Consolidated Financial Statements.
Regulation
Insurance
Regulation
MetLife Insurance Company of Connecticut, a Connecticut
domiciled insurer, is licensed to transact insurance business
in, and is subject to regulation and supervision by, all
50 states, the District of Columbia, Guam, Puerto Rico, the
Bahamas, the U.S. Virgin Islands, and the British Virgin
Islands. Each of our insurance companies is licensed and
regulated in all U.S. and international jurisdictions where
they conduct insurance business. The extent of such regulation
varies, but most jurisdictions have laws and regulations
governing the financial aspects of insurers, including standards
of solvency, statutory reserves, reinsurance and capital
adequacy, and the business conduct of insurers. In addition,
statutes and regulations usually require the licensing of
insurers and their agents,
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the approval of policy forms and certain other related materials
and, for certain lines of insurance, the approval of rates. Such
statutes and regulations also prescribe the permitted types and
concentration of investments.
We are required to file reports, generally including detailed
annual financial statements, with insurance regulatory
authorities in each of the jurisdictions in which our insurance
companies do business, and their operations and accounts are
subject to periodic examination by such authorities. We must
also file, and in many jurisdictions and in some lines of
insurance obtain regulatory approval for, rules, rates and forms
relating to the insurance written in the jurisdictions in which
our insurance companies operate.
State and federal insurance and securities regulatory
authorities and other state law enforcement agencies and
attorneys general from time to time make inquiries regarding our
compliance with insurance, securities and other laws and
regulations regarding the conduct of our insurance and
securities businesses. We cooperate with such inquiries and take
corrective action when warranted. See Note 11 of the Notes
to the Consolidated Financial Statements.
Holding Company Regulation. We are subject to
regulation under the insurance holding company laws of various
jurisdictions. The insurance holding company laws and
regulations vary from jurisdiction to jurisdiction, but
generally require a controlled insurance company (insurers that
are subsidiaries of insurance holding companies) to register
with state regulatory authorities and to file with those
authorities certain reports, including information concerning
their capital structure, ownership, financial condition, certain
intercompany transactions and general business operations.
State insurance statutes also typically place restrictions and
limitations on the amount of dividends or other distributions
payable by insurance company subsidiaries to their parent
companies, as well as on transactions between an insurer and its
affiliates. See Market for Registrants
Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities.
Guaranty Associations and Similar
Arrangements. Most of the jurisdictions in which
our insurance companies are admitted to transact business
require life insurers doing business within the jurisdiction to
participate in guaranty associations, which are organized to pay
certain contractual insurance benefits owed pursuant to
insurance policies issued by impaired, insolvent or failed
insurers. These associations levy assessments, up to prescribed
limits, on all member insurers in a particular state on the
basis of the proportionate share of the premiums written by
member insurers in the lines of business in which the impaired,
insolvent or failed insurer is engaged. Some states permit
member insurers to recover assessments paid through full or
partial premium tax offsets.
In the past five years, the aggregate assessments levied against
us have not been material. We have established liabilities for
guaranty fund assessments that we consider adequate for
assessments with respect to insurers that are currently subject
to insolvency proceedings. See Note 11 of the Notes to the
Consolidated Financial Statements for additional information on
the insolvency assessments.
Statutory Insurance Examination. As part of
their regulatory oversight process, state insurance departments
conduct periodic detailed examinations of the books, records,
accounts, and business practices of insurers domiciled in their
states. State insurance departments also have the authority to
conduct examinations of non-domiciliary insurers that are
licensed in their states. During the three-year period ended
December 31, 2009, we have not received any material
adverse findings resulting from state insurance department
examinations conducted during this three-year period.
Regulatory authorities in a small number of states and Financial
Industry Regulatory Authority (FINRA) have had
investigations or inquiries relating to sales of individual life
insurance policies or annuities or other products by us and our
subsidiary, Tower Square Securities, Inc. (Tower
Square). Over the past several years, these and a number
of investigations by other regulatory authorities were resolved
for monetary payments and certain other relief. We may continue
to resolve investigations in a similar manner. See Note 11
of the Notes to the Consolidated Financial Statements.
Policy and Contract Reserve Sufficiency
Analysis. Annually, our U.S. insurance
companies are required to conduct an analysis of the sufficiency
of all statutory reserves. In each case, a qualified actuary
must submit an
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opinion which states that the statutory reserves, when
considered in light of the assets held with respect to such
reserves, make good and sufficient provision for the associated
contractual obligations and related expenses of the insurer. If
such an opinion cannot be provided, the insurer must set up
additional reserves by moving funds from surplus. Since
inception of this requirement, the Companys insurance
subsidiaries which are required by their states of domicile to
provide these opinions have provided such opinions without
qualifications.
Surplus and Capital. Our U.S. insurance
companies are subject to the supervision of the regulators in
each jurisdiction in which we are licensed to transact insurance
business. Regulators have discretionary authority, in connection
with the continued licensing of our insurance companies, to
limit or prohibit sales to policyholders if, in their judgment,
the regulators determine that such insurer has not maintained
the minimum surplus or capital or that the further transaction
of business will be hazardous to policyholders. See
Risk-Based Capital.
Risk-Based Capital (RBC). Each of
our U.S. insurance companies is subject to RBC requirements
and reports its RBC based on a formula calculated by applying
factors to various asset, premium and statutory reserve items,
as well as taking into account the risk characteristics of the
insurer. The major categories of risk involved are asset risk,
insurance risk, interest rate risk, market risk and business
risk. The formula is used as an early warning regulatory tool to
identify possible inadequately capitalized insurers for purposes
of initiating regulatory action, and not as a means to rank
insurers generally. State insurance laws provide insurance
regulators the authority to require various actions by, or take
various actions against, insurers whose RBC ratio does not meet
or exceed certain RBC levels. As of the date of the most recent
annual statutory financial statements filed with insurance
regulators, the RBC of each of our insurance companies was in
excess of those RBC levels.
The National Association of Insurance Commissioners
(NAIC) provides standardized insurance industry
accounting and reporting guidance through its Accounting
Practices and Procedures Manual (the Manual).
However, statutory accounting principles continue to be
established by individual state laws, regulations and permitted
practices. The Connecticut Insurance Department and the Delaware
Department of Insurance have adopted the Manual with certain
modifications for the preparation of statutory financial
statements of insurance companies domiciled in Connecticut and
Delaware, respectively. Changes to the Manual or modifications
by the various state insurance departments may impact the effect
of Codification on the statutory capital and surplus of our
insurance companies.
Regulation of Investments. Each of our
U.S. insurance companies is subject to state laws and
regulations that require diversification of our investment
portfolios and limit the amount of investments in certain asset
categories, such as below investment grade fixed income
securities, equity real estate, other equity investments, and
derivatives. Failure to comply with these laws and regulations
would cause investments exceeding regulatory limitations to be
treated as non-admitted assets for purposes of measuring
surplus, and, in some instances, would require divestiture of
such non-qualifying investments. We believe that the investments
made by the Company complied, in all material respects, with
such regulations at December 31, 2009.
Federal Initiatives. Although the federal
government generally does not directly regulate the insurance
business, federal initiatives often have an impact on our
business in a variety of ways. From time to time, federal
measures are proposed which may significantly affect the
insurance business. In addition, various forms of direct and
indirect federal regulation of insurance have been proposed from
time to time, including proposals for the establishment of an
optional federal charter for insurance companies. As part of a
proposed comprehensive reform of financial services regulation,
Congress is considering the creation of an office within the
federal government to collect information about the insurance
industry, recommend prudential standards, and represent the
United States in dealings with foreign insurance regulators. See
Risk Factors Our Insurance Businesses Are
Heavily Regulated, and Changes in Regulation May Reduce Our
Profitability and Limit Our Growth.
Legislative Developments. As part of their
proposed financial services regulatory reform legislation, the
Obama Administration and Congress have made various proposals
that would change the capital and liquidity requirements, credit
exposure concentrations and similar prudential matters for bank
holding companies, banks and other financial firms. For example:
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Federal banking regulatory agencies have issued a joint policy
statement on funding and liquidity risk management that applies
to MetLife as a bank holding company.
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The proposals under consideration in Congress include special
regulatory and insolvency regimes, including even higher capital
and liquidity standards, for financial institutions that are
deemed to be systemically significant. These insolvency regimes
could vary from the resolution regimes currently applicable to
some subsidiaries of such companies and could include
assessments on financial companies to provide for a systemic
resolution fund.
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The Obama administration, members of Congress and Federal
banking regulators have suggested new or increased taxes or
assessments on banks and financial firms to mitigate the costs
to taxpayers of various government programs established to
address the financial crisis and to offset the costs of
potential future crisis.
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The proposed legislation also includes new conditions on the
writing and trading of certain standardized and non-standardized
derivatives.
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We cannot predict what other proposals may be made, what
legislation may be introduced or enacted or the impact of any
such legislation on our business, results of operations,
financial condition or our dealings with other financial
institutions. See Risk Factors Our Insurance
Businesses Are Heavily Regulated, and Changes in
Regulation May Reduce Our Profitability and Limit Our
Growth.
Governmental
Responses to Extraordinary Market Conditions
U.S. Federal Governmental
Responses. Throughout 2008 and continuing in
2009, Congress, the Federal Reserve Bank of New York, the
U.S. Treasury and other agencies of the Federal government
took a number of increasingly aggressive actions (in addition to
continuing a series of interest rate reductions that began in
the second half of 2007) intended to provide liquidity to
financial institutions and markets, to avert a loss of investor
confidence in particular troubled institutions and to prevent or
contain the spread of the financial crisis. These measures
included:
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expanding the types of institutions that have access to the
Federal Reserve Bank of New Yorks discount window;
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providing asset guarantees and emergency loans to particular
distressed companies;
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a temporary ban on short selling of shares of certain financial
institutions;
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programs intended to reduce the volume of mortgage foreclosures
by modifying the terms of mortgage loans for distressed
borrowers;
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temporarily guaranteeing money market funds; and
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programs to support the mortgage-backed securities market and
mortgage lending.
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In addition to these actions, pursuant to the Emergency Economic
Stabilization Act of 2008 (EESA), enacted in October
2008, the U.S. Treasury injected capital into selected
financial institutions and their holding companies. EESA also
authorizes the U.S. Treasury to purchase mortgage-backed
and other securities from financial institutions as part of the
overall $700 billion available for the purpose of
stabilizing the financial markets. The Federal government, the
Federal Reserve Bank of New York, Federal Deposit Insurance
Corporation (FDIC) and other governmental and
regulatory bodies also took other actions to address the
financial crisis. For example, the Federal Reserve Bank of New
York made funds available to commercial and financial companies
under a number of programs, including the Commercial Paper
Funding Facility (the CPFF). The CPFF expired in
early 2010. During the period of its existence, MetLife Short
Term Funding LLC, an issuer of commercial paper under a program
supported by funding agreements issued by the Company and
Metropolitan Life Insurance Company, used $1,650 million of
its available capacity under the CPFF, and such amount was
deposited under the related funding agreements. No amounts were
outstanding under the CPFF at December 31, 2009.
In February 2009, the Treasury Department outlined a financial
stability plan with additional measures to provide capital
relief to institutions holding troubled assets, including a
capital assistance program for banks that have undergone a
stress test (the Capital Assistance
Program) and a public-private investment fund to purchase
troubled assets from financial institutions. MetLife took part
in the stress test and was advised by the Federal
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Reserve in May 2009 that, based on the stress tests
economic scenarios and methodology, MetLife had adequate capital
to sustain a further deterioration in the economy. The choices
made by the U.S. Treasury in its distribution of amounts
available under the EESA, the Capital Assistance Program and
other programs could have the effect of supporting some aspects
of the financial services industry more than others or providing
advantages to some of our competitors. See Risk
Factors Competitive Factors May Adversely Affect Our
Market Share and Profitability.
In addition to the various measures to foster liquidity and
recapitalize the banking sector, the Federal government also
passed the American Recovery and Reinvestment Act in February
2009 that provided for nearly $790 billion in additional
federal spending, tax cuts and federal aid intended to spur
economic activity.
We and some or all of our affiliates may be eligible to sell
assets to the U.S. Treasury under one or more of the
programs established under EESA, and some of their assets may be
among those the U.S. Treasury or the public-private
investment partnership proposed by the U.S. Treasury offers
to purchase, either directly or through auction. We and our
affiliates may also be able to purchase assets under some of
these programs, including the public-private investment program
and the Term Asset-Backed Securities Loan Facility, which
provides funding for the purchase of specified types of
asset-backed securities (ABS).
State Insurance Regulatory Responses. In
January 2009, the NAIC considered, but declined, a number of
reserve and capital relief proposals made by the American
Council of Life Insurers (the ACLI), acting on
behalf of its member companies. However, notwithstanding that
NAIC action, insurance companies had the right to approach the
insurance regulator in their respective state of domicile and
request relief. MetLife Insurance Company of Connecticut and its
domestic insurance subsidiary, requested and were granted
relief, resulting in a beneficial impact on reserves and
capital. During the latter part of 2009, the NAIC adopted a
number of reserve and capital relief proposals made by the ACLI,
acting on behalf of its member companies. These changes
superseded the actions described above and have generally
resulted in lower statutory reserve and capital requirements,
effective December 31, 2009, for life insurance companies.
We cannot quantify or project the impact on the competitive
landscape of the reserve and capital relief granted or any
subsequent regulatory relief that may be granted.
In late 2009, following rating agency downgrades of virtually
all residential mortgage-backed securities (RMBS)
from certain vintages, the NAIC engaged The Pacific Investment
Management Company, LLC (PIMCO), a well-known
investment management firm, to analyze approximately 20,000
residential mortgage-backed securities held by insurers and
evaluate the likely loss that holders of those securities would
suffer in the event of a default. PIMCOs analysis showed
that the severity of expected losses on those securities
evaluated that are held by us and our domestic insurance
subsidiary was significantly less than would be implied by the
rating agencies ratings of such securities. The NAIC
incorporated the results of PIMCOs analysis into the
risk-based capital charges assigned to the evaluated securities,
with a beneficial impact on the risk-based capital to MetLife
Insurance Company of Connecticut and its domestic insurance
subsidiary.
In late 2009, the NAIC approved an adjustment, for year-end 2009
only, to the mortgage experience adjustment factor
(MEAF), which is utilized in calculating the RBC
charges that are assigned to commercial and agricultural
mortgages held by MetLife Insurance Company of Connecticut and
its domestic insurance subsidiary. The MEAF calculation includes
the ratio of an insurers commercial and agricultural
mortgage default experience to the industry average commercial
and agricultural mortgage default experience and, prior to the
adjustment, had a cap of 350% and a floor of 50% of an
industry-wide base factor. As a result of the adjustment, the
minimum adjustment factor was raised from 50% to 75% and the
maximum adjustment factor was lowered from 350% to 125%, based
on an insurers actual experience. As a result of our
experience and the increase in the floor, the corresponding RBC
charges of MetLife Insurance Company of Connecticut and its
domestic insurance subsidiary increased. It is our understanding
that the Capital Adequacy Task Force of the NAIC will monitor
market conditions and progress on proposals that may result in
modifying or extending the proposal beyond 2009. There can be no
assurance that the short-term adjustment will continue beyond
2009.
In late 2009, the NAIC issued Statement of Statutory Accounting
Principles (SSAP) 10R (SSAP 10R). SSAP
10R increased the amount of deferred tax assets that may be
admitted on a statutory basis. The admission criteria for
realizing the value of deferred tax assets was increased from a
one year to a three year period. Further, the aggregate cap on
deferred tax assets that may be admitted was increased from 10%
to 15% of surplus. These changes increased the capital and
surplus of MetLife Insurance Company of Connecticut and its
domestic insurance
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subsidiary, thereby positively impacting RBC at
December 31, 2009. To temper this positive RBC impact, and
as a temporary measure at December 31, 2009 only, a 5%
pre-tax RBC charge must be applied to the additional admitted
deferred tax assets generated by SSAP 10R.
Foreign Governmental Responses. In an effort
to strengthen the financial condition of key financial
institutions or avert their collapse, and to forestall or reduce
the effects of reduced lending activity, a number of foreign
governments have also taken actions similar to some of those
taken by the U.S. Federal government, including injecting
capital into domestic financial institutions in exchange for
ownership stakes. We cannot predict whether these actions will
achieve their intended purpose or how they will impact
competition in the financial services industry.
Broker-Dealer
and Securities Regulation
Some of our activities in offering and selling variable
insurance products are subject to extensive regulation under the
federal securities laws administered by the SEC. We issue
variable annuity contracts and variable life insurance policies
through separate accounts that are registered with the SEC as
investment companies under the Investment Company Act of 1940,
as amended (the Investment Company Act). Each
registered separate account is generally divided into
sub-accounts,
each of which invests in an underlying mutual fund which is
itself a registered investment company under the Investment
Company Act. In addition, the variable annuity contracts and
variable life insurance policies issued by the separate accounts
are registered with the SEC under the Securities Act of 1933, as
amended (the Securities Act). Our subsidiary, Tower
Square, is registered with the SEC as a broker-dealer under the
Securities Exchange Act of 1934, as amended (the Exchange
Act), and is a member of, and subject to regulation by,
FINRA. Further, Tower Square is registered as an investment
adviser with the SEC under the Investment Advisers Act of 1940,
as amended (the Investment Advisers Act), and is
also registered as an investment adviser in various states, as
applicable.
Federal and state securities regulatory authorities and FINRA
from time to time make inquiries and conduct examinations
regarding our compliance with securities and other laws and
regulations. We cooperate with such inquiries and examinations
and take corrective action when warranted.
Federal and state securities laws and regulations are primarily
intended to protect investors in the securities markets and
generally grant regulatory agencies broad rulemaking and
enforcement powers, including the power to limit or restrict the
conduct of business for failure to comply with such laws and
regulations.
Environmental
Considerations
As an operator of real property, we are subject to extensive
federal, state and local environmental laws and regulations.
Inherent in such operation is also the risk that there may be
potential environmental liabilities and costs in connection with
any required remediation of such properties. In addition, we
hold equity interests in companies that could potentially be
subject to environmental liabilities. We routinely have
environmental assessments performed with respect to real estate
being acquired for investment and real property to be acquired
through foreclosure. We cannot provide assurance that unexpected
environmental liabilities will not arise. However, based on
information currently available to us, we believe that any costs
associated with compliance with environmental laws and
regulations or any remediation of such properties will not have
a material adverse effect on our business, results of operations
or financial condition.
Employee
Retirement Income Security Act of 1974 (ERISA)
Considerations
We provide products and services to certain employee benefit
plans that are subject to ERISA, or the Internal Revenue Code of
1986, as amended (the Code). As such, our activities
are subject to the restrictions imposed by ERISA and the Code,
including the requirement under ERISA that fiduciaries must
perform their duties solely in the interests of ERISA plan
participants and beneficiaries and the requirement under ERISA
and the Code that fiduciaries may not cause a covered plan to
engage in prohibited transactions with persons who have certain
relationships with respect to such plans. The applicable
provisions of ERISA and the Code are subject to enforcement by
the Department of Labor, the Internal Revenue Service and the
Pension Benefit Guaranty Corporation (PBGC).
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In John Hancock Mutual Life Insurance Company v.
Harris Trust and Savings Bank (1993), the
U.S. Supreme Court held that certain assets in excess of
amounts necessary to satisfy guaranteed obligations under a
participating group annuity general account contract are
plan assets. Therefore, these assets are subject to
certain fiduciary obligations under ERISA, which requires
fiduciaries to perform their duties solely in the interest of
ERISA plan participants and beneficiaries. On January 5,
2000, the Secretary of Labor issued final regulations
indicating, in cases where an insurer has issued a policy backed
by the insurers general account to or for an employee
benefit plan, the extent to which assets of the insurer
constitute plan assets for purposes of ERISA and the Code. The
regulations apply only with respect to a policy issued by an
insurer on or before December 31, 1998 (Transition
Policy). No person will generally be liable under ERISA or
the Code for conduct occurring prior to July 5, 2001, where
the basis of a claim is that insurance company general account
assets constitute plan assets. An insurer issuing a new policy
that is backed by its general account and is issued to or for an
employee benefit plan after December 31, 1998 will
generally be subject to fiduciary obligations under ERISA,
unless the policy is a guaranteed benefit policy.
The regulations indicate the requirements that must be met so
that assets supporting a Transition Policy will not be
considered plan assets for purposes of ERISA and the Code. These
requirements include detailed disclosures to be made to the
employee benefits plan and the requirement that the insurer must
permit the policyholder to terminate the policy on 90 day
notice and receive without penalty, at the policyholders
option, either (i) the unallocated accumulated fund balance
(which may be subject to market value adjustment) or (ii) a
book value payment of such amount in annual installments with
interest. We have taken and continue to take steps designed to
ensure compliance with these regulations.
Company
Ratings
Insurer financial strength ratings represent the opinions of
rating agencies, including A.M. Best Company
(A.M. Best), Fitch Ratings (Fitch),
Moodys Investors Service (Moodys) and
Standard & Poors Ratings Services
(S&P), regarding the ability of an insurance
company to meet its financial obligations to policyholders and
contractholders.
Rating
Stability Indicators
Rating agencies use an outlook statement of
positive, stable, negative
or developing to indicate a medium- or long-term
trend in credit fundamentals which, if continued, may lead to a
rating change. A rating may have a stable outlook to
indicate that the rating is not expected to change; however, a
stable rating does not preclude a rating agency from
changing a rating at any time, without notice. Certain rating
agencies assign rating modifiers such as CreditWatch
or Under Review to indicate their opinion regarding
the potential direction of a rating. These ratings modifiers are
generally assigned in connection with certain events such as
potential mergers and acquisitions, or material changes in a
companys results, in order for the rating agencies to
perform its analysis to fully determine the rating implications
of the event. See Risk Factors A Downgrade or
a Potential Downgrade in Our Financial Strength Ratings or those
of MetLifes Other Insurance Subsidiaries, or
MetLifes Credit Ratings Could Result in a Loss of Business
and Materially Adversely Affect Our Financial Condition and
Results of Operations.
Rating
Actions
Throughout 2009, A.M. Best, Fitch, Moodys, and
S&P maintained its outlook for the U.S. life insurance
sector as negative. We believe the rating agencies have
heightened the level of scrutiny that they apply to such
institutions, increased the frequency and scope of their credit
reviews, and have requested additional information from the
companies that they rate. In December 2009 and February 2010,
Moodys and Fitch, respectively, downgraded by one notch
the insurer financial strength assigned to MICC and its
insurance subsidiary and each raised the rating outlook from
negative to stable. Further, in
March 2010, Moodys revised MetLife Insurance Company
of Connecticut and its domestic insurance subsidiarys
outlook to negative upon MetLife, Inc.s announcement of a
definitive agreement to acquire American Life Insurance Company.
In February 2010, S&P and A.M. Best each placed the
ratings of MetLife Insurance Company of Connecticut and its
domestic insurance subsidiary on CreditWatch with negative
implications and Under Review with negative
implications, respectively, based on MetLife, Inc.s
disclosure of the acquisition discussed above. MetLife Insurance
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Company of Connecticut and its domestic insurance
subsidiarys financial strength ratings at the date of this
filing are listed in the tables below:
Insurer
Financial Strength Ratings
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A.M. Best (1)*
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Fitch (2)
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Moodys (3)**
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S&P (4)***
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MetLife Insurance Company of Connecticut
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A+
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AA−
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Aa3
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AA−
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MetLife Investors USA Insurance Company
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A+
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AA−
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Aa3
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AA−
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Under Review with negative implications |
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Negative outlook |
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CreditWatch negative |
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A.M. Best financial strength ratings range from A++
(superior) to S (Suspended). A Rating of
A+ is in the superior category. |
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Fitch insurer financial strength ratings range from AAA
(exceptionally strong) to C (ceased or interrupted
payments imminent). A + or −
may be appended to ratings from AA to
CCC to indicate relative position within a category.
A rating of AA is in the very strong
category. |
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Moodys insurance financial strength ratings range from
Aaa (exceptional) to C (extremely poor).
A numeric modifier may be appended to ratings from
Aa to Caa to indicate relative position
within a category, with 1 being the highest and 3 being the
lowest. A rating of Aa is in the
excellent category. |
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S&P long-term insurer financial strength ratings range from
AAA (extremely strong) to R (under regulatory
supervision). A + or − may
be appended to ratings from AA to CCC to
indicate relative position within a category. A rating of
AA is in the very strong category. |
The foregoing insurer financial strength ratings reflect each
rating agencys opinion of MetLife Insurance Company of
Connecticuts and its domestic insurance subsidiarys
financial characteristics with respect to their ability to pay
obligations under insurance policies and contracts in accordance
with their terms. Insurer financial strength ratings are not
statements of fact nor are they recommendations to purchase,
hold or sell any security, contract or policy. Each rating
should be evaluated independently of any other rating.
A ratings downgrade (or the potential for such a downgrade) of
MetLife Insurance Company of Connecticut or its domestic
insurance subsidiary could potentially, among other things,
increase the number of policies surrendered and withdrawals by
policyholders of cash values from their policies, adversely
affect relationships with broker-dealers, banks, agents,
wholesalers and other distributors of our products and services,
negatively impact new sales, and adversely affect our ability to
compete and thereby have a material adverse effect on our
business, results of operations and financial condition.
Difficult
Conditions in the Global Capital Markets and the Economy
Generally May Materially Adversely Affect Our Business and
Results of Operations and These Conditions May Not Improve in
the Near Future
Our business and results of operations are materially affected
by conditions in the global capital markets and the economy
generally, both in the United States and elsewhere around the
world. The stress experienced by global capital markets that
began in the second half of 2007 continued and substantially
increased during 2008 and into 2009. Concerns over the
availability and cost of credit, the U.S. mortgage market,
geopolitical issues, energy costs, inflation and a declining
real estate market in the United States contributed to increased
volatility and diminished expectations for the economy and the
markets in the near term. These factors, combined with declining
business and consumer confidence and increased unemployment,
precipitated a recession. Most economists believe this recession
ended in the third quarter of 2009, when positive growth
returned, and now expect positive growth will continue in 2010.
However, the expected recovery is weaker than normal, and the
unemployment rate is expected to remain high for some time. In
addition, the fixed-income markets have experienced a period of
extreme volatility which negatively impacted market liquidity
conditions. Initially, the concerns on the part of market
participants were focused on the
sub-prime
segment of the mortgage-backed securities market. However, these
concerns expanded to include a broad range of mortgage- and
asset-backed and other fixed income securities,
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including those rated investment grade, the U.S. and
international credit and interbank money markets generally, and
a wide range of financial institutions and markets, asset
classes and sectors. Securities that are less liquid are more
difficult to value and have less opportunity for disposal.
Domestic and international equity markets have also experienced
heightened volatility and turmoil, with issuers (such as our
company) that have exposure to the real estate, mortgage and
credit markets particularly affected. These events and continued
market upheavals may have an adverse effect on us, in part
because we have a large investment portfolio and are also
dependent upon customer behavior. Our revenues are likely to
decline in such circumstances and our profit margins could
erode. In addition, in the event of extreme prolonged market
events, such as the global credit crisis, we could incur
significant capital or operating losses. Even in the absence of
a market downturn, we are exposed to substantial risk of loss
due to market volatility.
We are a significant writer of variable annuity products. The
account values of these products decrease as a result of
downturns in capital markets. Decreases in account values reduce
the fees generated by our variable annuity products, cause the
amortization of deferred acquisition costs to accelerate and
could increase the level of liabilities we must carry to support
those variable annuities issued with any associated guarantees.
Factors such as consumer spending, business investment,
government spending, the volatility and strength of the capital
markets, and inflation all affect the business and economic
environment and, ultimately, the amount and profitability of our
business. In an economic downturn characterized by higher
unemployment, lower family income, lower corporate earnings,
lower business investment and lower consumer spending, the
demand for our financial and insurance products could be
adversely affected. In addition, we may experience an elevated
incidence of claims and lapses or surrenders of policies. Our
policyholders may choose to defer paying insurance premiums or
stop paying insurance premiums altogether. Adverse changes in
the economy could affect earnings negatively and could have a
material adverse effect on our business, results of operations
and financial condition. The recent market turmoil has also
raised the possibility of legislative, regulatory and
governmental actions. We cannot predict whether or when such
actions may occur, or what impact, if any, such actions could
have on our business, results of operations and financial
condition. See Actions of the
U.S. Government, Federal Reserve Bank of New York and Other
Governmental and Regulatory Bodies for the Purpose of
Stabilizing and Revitalizing the Financial Markets and
Protecting Investors and Consumers May Not Achieve the Intended
Effect or Could Adversely Affect the Competitive Position of
MetLife, Inc. and its Subsidiaries, Including Us,
Our Insurance Businesses Are Heavily
Regulated, and Changes in Regulation May Reduce Our
Profitability and Limit Our Growth and
Competitive Factors May Adversely Affect Our
Market Share and Profitability.
Adverse
Capital and Credit Market Conditions May Significantly Affect
Our Ability to Meet Liquidity Needs, Access to Capital and Cost
of Capital
The capital and credit markets are sometimes subject to periods
of extreme volatility and disruption. Such volatility and
disruption could cause liquidity and credit capacity for certain
issuers to be limited.
We need liquidity to pay our operating expenses, interest on our
debt and dividends on our capital stock, maintain our securities
lending activities and replace certain maturing liabilities.
Without sufficient liquidity, we will be forced to curtail our
operations, and our business will suffer. The principal sources
of our liquidity are insurance premiums, annuity considerations,
deposit funds and cash flow from our investment portfolio and
assets, consisting mainly of cash or assets that are readily
convertible into cash. Sources of liquidity in normal markets
also include short-term instruments such as repurchase
agreements and commercial paper. Sources of capital also include
borrowings from MetLife or other affiliates and capital
contributions from MetLife.
In the event market or other conditions have an adverse impact
on our capital and liquidity beyond expectations and our current
resources do not satisfy our needs, we may have to seek
additional financing. The availability of additional financing
will depend on a variety of factors such as market conditions,
regulatory considerations, the general availability of credit,
the volume of trading activities, the overall availability of
credit to the financial services industry, our credit ratings
and credit capacity, as well as the possibility that customers
or lenders could develop a negative perception of our long- or
short-term financial prospects if we incur large investment
losses or if the level of our business activity decreased due to
a market downturn. Similarly, our access to funds may be
impaired if regulatory authorities or rating agencies take
negative actions against us. Our internal sources of
16
liquidity may prove to be insufficient, and in such case, we may
not be able to successfully obtain additional financing on
favorable terms, or at all.
Our liquidity requirements may change if, among other things, we
are required to return significant amounts of cash collateral on
short notice under securities lending agreements.
Disruptions, uncertainty or volatility in the capital and credit
markets may also limit our access to capital required to operate
our business. Such market conditions may limit our ability to
replace, in a timely manner, maturing liabilities; satisfy
statutory capital requirements; and access the capital necessary
to grow our business. As such, we may be forced to delay raising
capital, issue different types of securities than we would
otherwise, less effectively deploy such capital, issue shorter
tenor securities than we prefer, or bear an unattractive cost of
capital which could decrease our profitability and significantly
reduce our financial flexibility. Our results of operations,
financial condition, cash flows and statutory capital position
could be materially adversely affected by disruptions in the
financial markets.
Actions
of the U.S. Government, Federal Reserve Bank of New York and
Other Governmental and Regulatory Bodies for the Purpose of
Stabilizing and Revitalizing the Financial Markets and
Protecting Investors and Consumers May Not Achieve the Intended
Effect or Could Adversely Affect the Competitive Position of
MetLife, Inc. and its Subsidiaries, Including Us
In response to the financial crises affecting the banking system
and financial markets and going concern threats to investment
banks and other financial institutions, on October 3, 2008,
President Bush signed the EESA into law. Pursuant to EESA, the
U.S. Treasury has the authority to, among other things,
purchase up to $700 billion of mortgage-backed and other
securities (including newly issued preferred shares and
subordinated debt) from financial institutions for the purpose
of stabilizing the financial markets. The U.S. federal
government, Federal Reserve Bank of New York, the FDIC and other
governmental and regulatory bodies have taken or are considering
taking other actions to address the financial crisis. For
example, the Federal Reserve Bank of New York made funds
available to commercial and financial companies under a number
of programs, including the CPFF, which expired in early 2010.
The U.S. Treasury has established programs based in part on
EESA and in part on the separate authority of the Federal
Reserve Board and the FDIC, to foster purchases from and by
banks, insurance companies and other financial institutions of
certain kinds of assets for which valuations have been low and
markets weak. Some of the programs established by governmental
and regulatory bodies have recently been discontinued or will be
in the near term. We cannot predict what impact, if any, this
could have on our business, results of operations and financial
condition.
Although such actions appear to have provided some stability to
the financial markets, our business, financial condition and
results of operations could be materially and adversely affected
to the extent that credit availability and prices for financial
assets revert to their low levels of late 2008 and early 2009 or
do not continue to improve. Furthermore, Congress has
considered, and may consider in the future, legislative
proposals that could impact the estimated fair value of mortgage
loans, such as legislation that would permit bankruptcy courts
to rewrite the terms of a mortgage contract, including reducing
the principal balance of mortgage loans owed by bankrupt
borrowers. If such legislation is enacted, it could cause loss
of principal on certain of our non-agency prime residential
mortgage backed security holdings and could cause a ratings
downgrade in such holdings which, in turn, would cause an
increase in unrealized losses on such securities and increase
the risk-based capital that we must hold to support such
securities. See We Are Exposed to Significant
Financial and Capital Markets Risk Which May Adversely Affect
Our Results of Operations, Financial Condition and Liquidity,
and Our Net Investment Income Can Vary from Period to
Period. We cannot predict whether the funds made available
by the U.S. federal government and its agencies will be
enough to continue stabilizing or to further revive the
financial markets or, if additional amounts are necessary,
whether Congress will be willing to make the necessary
appropriations, what the publics sentiment would be
towards any such appropriations, or what additional requirements
or conditions might be imposed on the use of any such additional
funds.
President Obama has proposed a Financial Crisis
Responsibility Fee which would be imposed on financial
firms with more than $50 billion in consolidated assets.
The fee is intended to recover the cost of the Troubled Assets
Relief Program established under EESA, which the Obama
Administration currently estimates will be
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$117 billion. The fee would be imposed annually on covered
financial firms for at least ten years and possibly longer. As a
bank holding company with more than $50 billion of
consolidated assets, MetLife appears to be subject to the
proposed fee. Full details of the proposed fee, the companies
subject to it, and the manner in which it would be assessed have
not yet been released, so we cannot estimate its financial
impact on us. However, it is possible that the proposed fee
could have a material adverse impact on our results of
operations.
The choices made by the U.S. Treasury, the Federal Reserve
Board and the FDIC in their distribution of amounts available
under EESA and any of the proposed new asset purchase programs
could have the effect of supporting some aspects of the
financial services industry more than others. Some of our
competitors have received, or may in the future receive, funding
under one or more of the federal governments capital
infusion programs. This could adversely affect our competitive
position. See Competitive Factors May
Adversely Affect Our Market Share and Profitability.
See also Our Insurance Businesses Are Heavily
Regulated, and Changes in Regulation May Reduce Our
Profitability and Limit Our Growth.
Our
Insurance Businesses Are Heavily Regulated, and Changes in
Regulation May Reduce Our Profitability and Limit Our
Growth
Our insurance operations are subject to a wide variety of
insurance and other laws and regulations. See
Business Regulation Insurance
Regulation. State insurance laws regulate most aspects of
our U.S. insurance businesses, and our insurance
subsidiaries are regulated by the insurance departments of the
states in which they are domiciled and the states in which they
are licensed. Our
non-U.S. insurance
operations are principally regulated by insurance regulatory
authorities in the jurisdictions in which they are domiciled and
operate.
State laws in the United States grant insurance regulatory
authorities broad administrative powers with respect to, among
other things:
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licensing companies and agents to transact business;
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calculating the value of assets to determine compliance with
statutory requirements;
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mandating certain insurance benefits;
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regulating certain premium rates;
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reviewing and approving policy forms;
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regulating unfair trade and claims practices, including through
the imposition of restrictions on marketing and sales practices,
distribution arrangements and payment of inducements;
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regulating advertising;
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protecting privacy;
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establishing statutory capital and reserve requirements and
solvency standards;
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fixing maximum interest rates on insurance policy loans and
minimum rates for guaranteed crediting rates on life insurance
policies and annuity contracts;
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approving changes in control of insurance companies;
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restricting the payment of dividends and other transactions
between affiliates; and
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regulating the types, amounts and valuation of investments.
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State insurance guaranty associations have the right to assess
insurance companies doing business in their state for funds to
help pay the obligations of insolvent insurance companies to
policyholders and claimants. Because the amount and timing of an
assessment is beyond our control, the liabilities that we have
currently established for these potential liabilities may not be
adequate. See Business Regulation
Insurance Regulation Guaranty Associations and
Similar Arrangements.
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State insurance regulators and the NAIC regularly re-examine
existing laws and regulations applicable to insurance companies
and their products. Changes in these laws and regulations, or in
interpretations thereof, are often made for the benefit of the
consumer at the expense of the insurer and, thus, could have a
material adverse effect on our financial condition and results
of operations.
The NAIC and several states legislatures have considered
the need for regulations
and/or laws
to address agent or broker practices that have been the focus of
investigations of broker compensation in the State of New York
and in other jurisdictions. The NAIC adopted a Compensation
Disclosure Amendment to its Producers Licensing Model Act which,
if adopted by the states, would require disclosure by agents or
brokers to customers that insurers will compensate such agents
or brokers for the placement of insurance and documented
acknowledgement of this arrangement in cases where the customer
also compensates the agent or broker. Several states have
enacted laws similar to the NAIC amendment. Others have enacted
laws or proposed disclosure regulations which, under differing
circumstances, require disclosure of specific compensation
earned by a producer on the sale of an insurance or annuity
product. We cannot predict how many states may promulgate the
NAIC amendment or alternative regulations or the extent to which
these regulations may have a material adverse impact on our
business.
Currently, the U.S. federal government does not directly
regulate the business of insurance. However, federal legislation
and administrative policies in several areas can significantly
and adversely affect insurance companies. These areas include
financial services regulation, securities regulation, pension
regulation, health care regulation, privacy, tort reform
legislation and taxation. In addition, various forms of direct
and indirect federal regulation of insurance have been proposed
from time to time, including proposals for the establishment of
an optional federal charter for insurance companies. As part of
a proposed comprehensive reform of financial services
regulation, Congress is considering the creation of an office
within the federal government to collect information about the
insurance industry, recommend prudential standards, and
represent the United States in dealings with foreign insurance
regulators.
Other aspects of financial services regulatory reform proposals
that have been considered could affect our business. For example:
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The Obama Administration and Congress have made various
proposals that would change the capital and liquidity
requirements, credit exposure concentrations and similar
prudential matters for bank holding companies, banks and other
financial firms.
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Federal banking regulatory agencies have issued a joint policy
statement on funding and liquidity risk management that applies
to MetLife as a bank holding company.
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The proposals under consideration in Congress include special
regulatory and insolvency regimes, including even higher capital
and liquidity standards, for financial institutions that are
deemed to be systemically significant. These insolvency regimes
could vary from the resolution regimes currently applicable to
some subsidiaries of such companies and could include
assessments on financial companies to provide for a systemic
resolution fund.
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The Obama Administration, members of Congress and Federal
banking regulators have suggested new or increased taxes or
assessments on banks and financial firms to mitigate the costs
to taxpayers of various government programs established to
address the financial crisis and to offset the costs of
potential future crises. See Actions of the
U.S. Government, Federal Reserve Bank of New York and Other
Governmental and Regulatory Bodies for the Purpose of
Stabilizing and Revitalizing the Financial Markets and
Protecting Investors and Consumers May Not Achieve the Intended
Effect or Could Adversely Affect the Competitive Position of
MetLife, Inc. and its Subsidiaries, Including Us.
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The proposed legislation also includes new conditions on the
writing and trading of certain standardized and non-standardized
derivatives.
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The creation of an additional supervisor with authority over
MetLife, Inc. and its subsidiaries, the likelihood of additional
regulations, and the other changes discussed above could require
changes to MetLifes operations. Whether such changes would
affect our competitiveness in comparison to other institutions
is uncertain, since it is possible that at least some of our
competitors will be similarly affected. Competitive effects are
possible, however, if
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MetLife, Inc. were required to pay any new or increased taxes,
or if it were determined to be systemically significant and were
subjected to higher capital and liquidity requirements and
generally stricter prudential supervisory standards as a result.
It is unclear at present whether systemically significant
institutions will be helped or hurt competitively if such
additional requirements are imposed. We cannot predict whether
these or other proposals will be adopted, or what impact, if
any, such proposals or, if enacted, such laws, could have on our
business, financial condition or results of operations or on our
dealings with other financial institutions.
Compliance with applicable laws and regulations is time
consuming and personnel-intensive, and changes in these laws and
regulations may materially increase our direct and indirect
compliance and other expenses of doing business, thus having a
material adverse effect on our financial condition and results
of operations.
From time to time, regulators raise issues during examinations
or audits of MICC and its subsidiaries that could, if determined
adversely, have a material impact on us. We cannot predict
whether or when regulatory actions may be taken that could
adversely affect our operations. In addition, the
interpretations of regulations by regulators may change and
statutes may be enacted with retroactive impact, particularly in
areas such as accounting or statutory reserve requirements.
We are also subject to other regulations and may in the future
become subject to additional regulations. See
Business Regulation.
We Are
Exposed to Significant Financial and Capital Markets Risk Which
May Adversely Affect Our Results of Operations, Financial
Condition and Liquidity, and Our Net Investment Income Can Vary
from Period to Period
We are exposed to significant financial and capital markets
risk, including changes in interest rates, credit spreads,
equity prices, real estate markets, foreign currency exchange
rates, market volatility, the performance of the economy in
general, the performance of the specific obligors included in
our portfolio and other factors outside our control. Our
exposure to interest rate risk relates primarily to the market
price and cash flow variability associated with changes in
interest rates. A rise in interest rates will increase the net
unrealized loss position of our fixed income investment
portfolio and, if long-term interest rates rise dramatically
within a six to twelve month time period, certain of our life
insurance businesses may be exposed to disintermediation risk.
Disintermediation risk refers to the risk that our policyholders
may surrender their contracts in a rising interest rate
environment, requiring us to liquidate fixed income investments
in an unrealized loss position. Due to the long-term nature of
the liabilities associated with certain of our life insurance
businesses, guaranteed benefits on variable annuities, and
structured settlements, sustained declines in long-term interest
rates may subject us to reinvestment risks and increased hedging
costs. In other situations, declines in interest rates may
result in increasing the duration of certain life insurance
liabilities, creating asset-liability duration mismatches. Our
investment portfolio also contains interest rate sensitive
instruments, such as fixed income securities, which may be
adversely affected by changes in interest rates from
governmental monetary policies, domestic and international
economic and political conditions and other factors beyond our
control. A rise in interest rates would increase the net
unrealized loss position of our fixed income investment
portfolio, offset by our ability to earn higher rates of return
on funds reinvested. Conversely, a decline in interest rates
would decrease the net unrealized loss position of our fixed
income investment portfolio, offset by lower rates of return on
funds reinvested. Our mitigation efforts with respect to
interest rate risk are primarily focused towards maintaining an
investment portfolio with diversified maturities that has a
weighted average duration that is approximately equal to the
duration of our estimated liability cash flow profile. However,
our estimate of the liability cash flow profile may be
inaccurate and we may be forced to liquidate fixed income
investments prior to maturity at a loss in order to cover the
liability. Although we take measures to manage the economic
risks of investing in a changing interest rate environment, we
may not be able to mitigate the interest rate risk of our fixed
income investments relative to our liabilities. See also
Changes in Market Interest Rates May
Significantly Affect Our Profitability.
Our exposure to credit spreads primarily relates to market price
and cash flow variability associated with changes in credit
spreads. A widening of credit spreads will increase the net
unrealized loss position of the fixed-income investment
portfolio, will increase losses associated with credit based
non-qualifying derivatives where we assume credit exposure, and,
if issuer credit spreads increase significantly or for an
extended period of time, would
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likely result in higher
other-than-temporary
impairments (OTTI). Credit spread tightening will
reduce net investment income associated with new purchases of
fixed maturity securities. In addition, market volatility can
make it difficult to value certain of our securities if trading
becomes less frequent. As such, valuations may include
assumptions or estimates that may have significant period to
period changes which could have a material adverse effect on our
consolidated results of operations or financial condition.
Credit spreads on both corporate and structured securities
widened significantly during 2008, resulting in continuing
depressed pricing. As a result of improved conditions, credit
spreads narrowed in 2009. If there is a resumption of
significant volatility in the markets, it could cause changes in
credit spreads and defaults and a lack of pricing transparency
which, individually or in tandem, could have a material adverse
effect on our consolidated results of operations, financial
condition, liquidity or cash flows through realized investment
losses, impairments, and changes in unrealized loss positions.
See also Guarantees Within Certain of Our
Variable Annuity Guarantee Benefits that Protect Policyholders
Against Significant Downturns in Equity Markets May Increase the
Volatility of Our Results Related to the Inclusion of an Own
Credit Adjustment in the Estimated Fair Value of the Liability
for These Guaranteed Benefits.
Our primary exposure to equity risk relates to the potential for
lower earnings associated with certain of our insurance
businesses where fee income is earned based upon the estimated
fair value of the assets under management. Equity market
downturns and volatility may discourage purchases of separate
account products, such as variable annuities and variable life
insurance that have underlying mutual funds with returns linked
to the performance of the equity markets, and may cause some of
our existing customers to withdraw cash values or reduce
investments in those products. In addition, downturns and
volatility in equity markets can have a material adverse effect
on the revenues and returns from our savings and investment
products and services. Because these products and services
depend on fees related primarily to the value of assets under
management, a decline in the equity markets could reduce our
revenues by reducing the value of the investments we manage. The
retail annuity business in particular is highly sensitive to
equity markets, and a sustained weakness in the equity markets
could decrease revenues and earnings in variable annuity
products. Furthermore, certain of our annuity products offer
guaranteed benefits which increase our potential benefit
exposure should equity markets decline. The Company uses
derivatives to mitigate the impact of such increased potential
benefit exposures. We are also exposed to interest rate and
equity risk based upon the discount rate and expected long-term
rate of return assumptions associated with our pension and other
postretirement benefit obligations. Sustained declines in
long-term interest rates or equity returns likely would have a
negative effect on the funded status of these plans.
We also provide certain guarantees within some of our products
that protect policyholders against significant downturns in the
equity markets. For example, we offer variable annuity products
with guaranteed features, such as death benefits, withdrawal
benefits, and minimum accumulation and income benefits. In
volatile or declining equity market conditions, we may need to
increase liabilities for future policy benefits and policyholder
account balances, negatively affecting our net income. The
Company uses derivatives to mitigate the impact of volatile or
declining equity market conditions. A decline in equity markets
also may reduce the estimated fair value of the investments
supporting our pension and post retirement benefit plan
obligations, changing the funded status of such plans, and
adversely affect our results of operations. Lastly, we invest a
portion of our investments in equity securities, leveraged
buy-out funds, hedge funds and other private equity funds and
the estimated fair value of such investments may be impacted by
downturns or volatility in equity markets.
Our primary exposure to real estate risk relates to commercial
and agricultural real estate. Our exposure to commercial and
agricultural real estate risk stems from various factors. These
factors include, but are not limited to, market conditions
including the demand and supply of space, creditworthiness of
tenants and partners, capital markets volatility and the
inherent interest rate movement. Recently, a significantly
weakened economic environment has led to declining commercial
real estate tenant demand, increasing vacancy rates and
declining property incomes. In addition, capital market
conditions and accessibility of financing have prompted an
increase in the risk premiums assessed in the sector. These
trends have resulted in decreases in the value of our equity
commercial real estate holdings, and deterioration in the value
of the collateral securing our commercial mortgages. In
addition, our real estate joint venture development program is
subject to risks including, but not limited to, reduced property
sales and decreased availability of financing which could
adversely impact the joint venture developments
and/or
operations. The state of the economy and speed of recovery in
fundamental and capital market conditions in the commercial and
agricultural real estate sectors will continue to influence the
performance of our
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investments in these sectors. These factors and others beyond
our control could have a material adverse effect on our
consolidated results of operations, financial condition,
liquidity or cash flows through net investment income, realized
investment losses and impairments.
Our primary foreign currency exchange risks are described under
Fluctuations in Foreign Currency Exchange
Rates and Foreign Securities Markets Could Negatively Affect Our
Profitability. Significant declines in equity prices,
changes in U.S. interest rates, changes in credit spreads,
and changes in foreign currency exchange rates could have a
material adverse effect on our consolidated results of
operations, financial condition or liquidity. Changes in these
factors, which are significant risks to us, can affect our net
investment income in any period, and such changes can be
substantial.
A portion of our investments are made in leveraged buy-out
funds, hedge funds and other private equity funds reported
within other limited partnership interests, many of which make
private equity investments. The amount and timing of net
investment income from such investment funds tends to be uneven
as a result of the performance of the underlying investments,
including private equity investments. The timing of
distributions from the funds, which depends on particular events
relating to the underlying investments, as well as the
funds schedules for making distributions and their needs
for cash, can be difficult to predict. As a result, the amount
of net investment income that we record from these investments
can vary substantially from quarter to quarter. Recent equity,
real estate and credit market volatility have further reduced
net investment income and related yields for these types of
investments and we may continue to experience reduced net
investment income due to continued volatility in the equity,
real estate and credit markets in 2010.
In 2009, the disruption in the global financial markets
moderated, although not all markets are functioning normally and
many remain reliant upon government investments and liquidity.
Continuing challenges include continued weakness in the
U.S. real estate market and increased mortgage loan
delinquencies, investor anxiety over the U.S. economy,
rating agency downgrades of various structured products and
financial issuers, unresolved issues with structured investment
vehicles and monoline financial guarantee insurers, deleveraging
of financial institutions and hedge funds and a serious
dislocation in the inter-bank market. If there is a resumption
of significant volatility in the markets, it could cause changes
in interest rates, declines in equity prices, and the
strengthening or weakening of foreign currencies against the
U.S. Dollar which, individually or in tandem, could have a
material adverse effect on our consolidated results of
operations, financial condition, liquidity or cash flows through
realized investment losses, impairments, and changes in
unrealized loss positions.
Changes
in Market Interest Rates May Significantly Affect Our
Profitability
Some of our products, principally traditional whole life
insurance, fixed annuities and guaranteed interest contracts,
expose us to the risk that changes in interest rates will reduce
our spread, or the difference between the amounts
that we are required to pay under the contracts in our general
account and the rate of return we are able to earn on general
account investments intended to support obligations under the
contracts. Our spread is a key component of our net income.
As interest rates decrease or remain at low levels, we may be
forced to reinvest proceeds from investments that have matured
or have been prepaid or sold at lower yields, reducing our
investment margin. Moreover, borrowers may prepay or redeem the
fixed-income securities, commercial or agricultural mortgage
loans and mortgage-backed securities in our investment portfolio
with greater frequency in order to borrow at lower market rates,
which exacerbates this risk. Lowering interest crediting rates
can help offset decreases in investment margins on some
products. However, our ability to lower these rates could be
limited by competition or contractually guaranteed minimum rates
and may not match the timing or magnitude of changes in asset
yields. As a result, our spread could decrease or potentially
become negative. Our expectation for future spreads is an
important component in the amortization of DAC and VOBA and
significantly lower spreads may cause us to accelerate
amortization, thereby reducing net income in the affected
reporting period. In addition, during periods of declining
interest rates, life insurance and annuity products may be
relatively more attractive investments to consumers, resulting
in increased premium payments on products with flexible premium
features, repayment of policy loans and increased persistency,
or a higher percentage of insurance policies remaining in-force
from year to year, during a period when our new investments
carry lower returns. A decline in market interest rates could
also reduce our return on
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investments that do not support particular policy obligations.
Accordingly, declining interest rates may materially adversely
affect our results of operations, financial position and cash
flows and significantly reduce our profitability.
Increases in market interest rates could also negatively affect
our profitability. In periods of rapidly increasing interest
rates, we may not be able to replace, in a timely manner, the
investments in our general account with higher yielding
investments needed to fund the higher crediting rates necessary
to keep interest sensitive products competitive. We, therefore,
may have to accept a lower spread and, thus, lower profitability
or face a decline in sales and greater loss of existing
contracts and related assets. In addition, policy loans,
surrenders and withdrawals may tend to increase as policyholders
seek investments with higher perceived returns as interest rates
rise. This process may result in cash outflows requiring that we
sell investments at a time when the prices of those investments
are adversely affected by the increase in market interest rates,
which may result in realized investment losses. Unanticipated
withdrawals and terminations may cause us to accelerate the
amortization of DAC and VOBA, which would increase our current
expenses and reduce net income. An increase in market interest
rates could also have a material adverse effect on the value of
our investment portfolio, for example, by decreasing the
estimated fair values of the fixed income securities that
comprise a substantial portion of our investment portfolio.
Lastly, an increase in interest rates could result in decreased
fee income associated with a decline in the value of variable
annuity account balances invested in fixed income funds.
Some
of Our Investments Are Relatively Illiquid and Are in Asset
Classes that Have Been Experiencing Significant Market Valuation
Fluctuations
We hold certain investments that may lack liquidity, such as
privately placed fixed maturity securities; mortgage loans;
policy loans; equity real estate, including real estate joint
ventures and funds; and other limited partnership interests.
These asset classes represented 26.6% of the carrying value of
our total cash and investments at December 31, 2009. Even
some of our very high quality investments have been more
illiquid as a result of the current market conditions.
If we require significant amounts of cash on short notice in
excess of normal cash requirements or are required to post or
return cash collateral in connection with our investment
portfolio, derivatives transactions or securities lending
program, we may have difficulty selling these investments in a
timely manner, be forced to sell them for less than we otherwise
would have been able to realize, or both.
The reported value of our relatively illiquid types of
investments, our investments in the asset classes described
above and, at times, our high quality, generally liquid asset
classes, do not necessarily reflect the lowest current market
price for the asset. If we were forced to sell certain of our
investments in the current market, there can be no assurance
that we will be able to sell them for the prices at which we
have recorded them and we could be forced to sell them at
significantly lower prices.
Our
Participation in a Securities Lending Program Subjects Us to
Potential Liquidity and Other Risks
We participate in a securities lending program whereby blocks of
securities, which are included in fixed maturity securities and
short-term investments, are loaned to third parties, primarily
brokerage firms and commercial banks. We generally obtain
collateral in an amount equal to 102% of the estimated fair
value of the loaned securities, which is obtained at the
inception of a loan and maintained at a level greater than or
equal to 100% for the duration of the loan. In limited
instances, during the extraordinary market events beginning in
the fourth quarter of 2008 and through part of 2009, we accepted
collateral less than 102% at the inception of certain loans, but
never less than 100%, of the estimated fair value of such loaned
securities. At December 31, 2009, we had no loans
outstanding where we had accepted at the inception of the loan
collateral less than 102%, of the estimated fair value of such
loaned securities. See Managements Discussion and
Analysis of Financial Condition and Results of
Operations Liquidity and Capital
Resources Securities Lending.
Returns of loaned securities by the third parties would require
us to return the cash collateral associated with such loaned
securities. In addition, in some cases, the maturity of the
securities held as invested collateral (i.e., securities that we
have purchased with cash received from the third parties) may
exceed the term of the related securities on loan and the
estimated fair value may fall below the amount of cash received
as collateral and invested.
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If we are required to return significant amounts of cash
collateral on short notice and we are forced to sell securities
to meet the return obligation, we may have difficulty selling
such collateral that is invested in securities in a timely
manner, be forced to sell securities in a volatile or illiquid
market for less than we otherwise would have been able to
realize under normal market conditions, or both. In addition,
under stressful capital market and economic conditions, such as
those conditions we experienced during 2008 and 2009, liquidity
broadly deteriorates, which may further restrict our ability to
sell securities.
If we decrease the amount of our securities lending activities
over time, the amount of investment income generated by these
activities will also likely decline.
Our
Requirements to Pledge Collateral Related to Declines in
Estimated Fair Value of Specified Assets May Adversely Affect
Our Liquidity and Expose Us to Counterparty Credit
Risk
Some of our transactions with financial and other institutions
specify the circumstances under which the parties are required
to pledge collateral related to any decline in the estimated
fair value of the specified assets. The amount of collateral we
may be required to pledge under these transactions may increase
under certain circumstances, which could adversely affect our
liquidity.
Gross
Unrealized Losses on Fixed Maturity and Equity Securities May be
Realized or Result in Future Impairments, Resulting in a
Reduction in Our Net Income
Fixed maturity and equity securities classified as
available-for-sale
are reported at their estimated fair value. Unrealized gains or
losses on
available-for-sale
securities are recognized as a component of other comprehensive
income (loss) and are, therefore, excluded from net income. Our
gross unrealized losses on fixed maturity and equity securities
at December 31, 2009 were $2.3 billion. The portion of
the $2.3 billion of gross unrealized losses for fixed
maturity and equity securities where the estimated fair value
has declined and remained below amortized cost or cost by 20% or
more for six months or greater was $964 million at
December 31, 2009. The accumulated change in estimated fair
value of these
available-for-sale
securities is recognized in net income when the gain or loss is
realized upon the sale of the security or in the event that the
decline in estimated fair value is determined to be
other-than-temporary
and an impairment charge is taken. Realized losses or
impairments may have a material adverse effect on our net income
in a particular quarterly or annual period.
The
Determination of the Amount of Allowances and Impairments Taken
on Our Investments is Highly Subjective and Could Materially
Impact Our Results of Operations or Financial
Position
The determination of the amount of allowances and impairments
varies by investment type and is based upon our periodic
evaluation and assessment of known and inherent risks associated
with the respective asset class. Such evaluations and
assessments are revised as conditions change and new information
becomes available. We update our evaluations regularly and
reflect changes in allowances and impairments in net investment
losses as such evaluations are revised. There can be no
assurance that we have accurately assessed the level of
impairments taken and allowances provided as reflected in our
consolidated financial statements. Furthermore, additional
impairments may need to be taken or allowances provided for in
the future. Historical trends may not be indicative of future
impairments or allowances.
For example, the cost of our fixed maturity and equity
securities is adjusted for impairments deemed to be
other-than-temporary
that are charged to earnings in the period in which the
determination is made. The assessment of whether impairments
have occurred is based on our
case-by-case
evaluation of the underlying reasons for the decline in
estimated fair value. The review of our fixed maturity and
equity securities for impairments includes an analysis of the
total gross unrealized losses by three categories of securities:
(i) securities where the estimated fair value has declined
and remained below cost or amortized cost by less than 20%;
(ii) securities where the estimated fair value has declined
and remained below cost or amortized cost by 20% or more for
less than six months; and (iii) securities where the
estimated fair value has declined and remained below cost or
amortized cost by 20% or more for six months or greater.
Additionally, we consider a wide range of factors about the
security issuer and use our best judgment in evaluating the
cause of the decline in the estimated fair value of the security
and in assessing the prospects for near-
24
term recovery. Inherent in our evaluation of the security are
assumptions and estimates about the operations of the issuer and
its future earnings potential. Considerations in the impairment
evaluation process include, but are not limited to: (i) the
length of time and the extent to which the estimated fair value
has been below cost or amortized cost; (ii) the potential
for impairments of securities when the issuer is experiencing
significant financial difficulties; (iii) the potential for
impairments in an entire industry sector or
sub-sector;
(iv) the potential for impairments in certain economically
depressed geographic locations; (v) the potential for
impairments of securities where the issuer, series of issuers or
industry has suffered a catastrophic type of loss or has
exhausted natural resources; (vi) with respect to fixed
maturity securities, whether we have the intent to sell or will
more likely than not be required to sell a particular security
before recovery of the decline in estimated fair value below
cost or amortized cost; (vii) with respect to equity
securities, whether we have the ability and intent to hold a
particular security for a period of time sufficient to allow for
the recovery of its estimated fair value to an amount at least
equal to its cost; (viii) unfavorable changes in forecasted
cash flows on mortgage-backed and asset-backed securities; and
(ix) other subjective factors, including concentrations and
information obtained from regulators and rating agencies.
Defaults
on Our Mortgage Loans and Volatility in Performance May
Adversely Affect Our Profitability
Our mortgage loans face default risk and are principally
collateralized by commercial and agricultural properties. The
carrying value of mortgage loans is stated at original cost net
of repayments, amortization of premiums, accretion of discounts
and valuation allowances. We establish valuation allowances for
estimated impairments at the balance sheet date. Such valuation
allowances are based on the excess carrying value of the loan
over the present value of expected future cash flows discounted
at the loans original effective interest rate, the
estimated fair value of the loans collateral if the loan
is in the process of foreclosure or otherwise collateral
dependent, or the loans observable market price. We also
establish valuation allowances for loan losses when a loss
contingency exists for pools of loans with similar
characteristics, such as mortgage loans based on similar
property types or loans having similar
loan-to-value
or similar debt service coverage factors. At December 31,
2009, loans that were either delinquent or in the process of
foreclosure totaled less than 0.5% of our mortgage loan
investments. The performance of our mortgage loan investments,
however, may fluctuate in the future. In addition, substantially
all of our mortgage loans
held-for-investment
have balloon payment maturities. An increase in the default rate
of our mortgage loan investments could have a material adverse
effect on our business, results of operations and financial
condition through realized investment losses or increases in our
valuation allowances.
Further, any geographic or sector concentration of our mortgage
loans may have adverse effects on our investment portfolios and
consequently on our consolidated results of operations or
financial condition. While we seek to mitigate this risk by
having a broadly diversified portfolio, events or developments
that have a negative effect on any particular geographic region
or sector may have a greater adverse effect on the investment
portfolios to the extent that the portfolios are concentrated.
Moreover, our ability to sell assets relating to such particular
groups of related assets may be limited if other market
participants are seeking to sell at the same time. In addition,
legislative proposals that would allow or require modifications
to the terms of mortgage loans could be enacted. We cannot
predict whether these proposals will be adopted, or what impact,
if any, such proposals or, if enacted, such laws, could have on
our business or investments.
The
Impairment of Other Financial Institutions Could Adversely
Affect Us
We have exposure to many different industries and
counterparties, and routinely execute transactions with
counterparties in the financial services industry, including
brokers and dealers, commercial banks, investment banks, hedge
funds and other investment funds and other institutions. Many of
these transactions expose us to credit risk in the event of
default of our counterparty. In addition, with respect to
secured transactions, our credit risk may be exacerbated when
the collateral held by us cannot be realized or is liquidated at
prices not sufficient to recover the full amount of the loan or
derivative exposure due to us. We also have exposure to these
financial institutions in the form of unsecured debt
instruments, non-redeemable and redeemable preferred securities,
derivative transactions and equity investments. Further,
potential action by governments and regulatory bodies in
response to the financial crisis affecting the global banking
system and financial markets, such as investment,
nationalization, conservatorship, receivership and other
intervention, whether under existing legal authority or any new
authority that may be created, could negatively impact these
instruments, securities, transactions and
25
investments. There can be no assurance that any such losses or
impairments to the carrying value of these investments would not
materially and adversely affect our business and results of
operations.
We
Face Unforeseen Liabilities or Asset Impairments or Rating
Actions Arising from Possible Acquisitions and Dispositions of
Businesses or Difficulties Integrating Such
Businesses
We have engaged in dispositions and acquisitions of businesses
in the past, and may continue to do so in the future. There
could be unforeseen liabilities or asset impairments, including
goodwill impairments, that arise in connection with the
businesses that we may sell or the businesses that we may
acquire in the future. In addition, there may be liabilities or
asset impairments that we fail, or are unable, to discover in
the course of performing due diligence investigations on each
business that we have acquired or may acquire. Furthermore, the
use of our own funds as consideration in any acquisition would
consume capital resources that would no longer be available for
other corporate purposes. Moreover, as a result of uncertainty
and risks associated with potential acquisitions and
dispositions of businesses, rating agencies may take certain
actions with respect to the ratings assigned to MetLife, Inc.
and/or its
subsidiaries. See Business Company
Ratings Rating Actions.
Our ability to achieve certain benefits we anticipate from any
acquisitions of businesses will depend in large part upon our
ability to successfully integrate such businesses in an
efficient and effective manner. We may not be able to integrate
such businesses smoothly or successfully, and the process may
take longer than expected. The integration of operations may
require the dedication of significant management resources,
which may distract managements attention from
day-to-day
business. If we are unable to successfully integrate the
operations of such acquired businesses, we may be unable to
realize the benefits we expect to achieve as a result of such
acquisitions and our business and results of operations may be
less than expected.
Fluctuations
in Foreign Currency Exchange Rates and Foreign Securities
Markets Could Negatively Affect Our Profitability
We are exposed to risks associated with fluctuations in foreign
currency exchange rates against the U.S. Dollar resulting
from our holdings of
non-U.S. Dollar
denominated investments, issuance of
non-U.S. Dollar
denominated instruments including global funding agreements,
investments in foreign subsidiaries and net income from foreign
operations and issuance of
non-U.S. Dollar
denominated instruments, including guaranteed interest contracts
and funding agreements. These risks relate to potential
decreases in estimated fair value and income resulting from a
strengthening or weakening in foreign exchange rates versus the
U.S. Dollar. In general, the weakening of foreign
currencies versus the U.S. Dollar will adversely affect the
estimated fair value of our
non-U.S. Dollar
denominated investments and our investments in foreign
subsidiaries. Although we use foreign currency swaps and forward
contracts to mitigate foreign currency exchange rate risk, we
cannot provide assurance that these methods will be effective or
that our counterparties will perform their obligations. See
Quantitative and Qualitative Disclosures About Market
Risk.
From time to time, various emerging market countries have
experienced severe economic and financial disruptions, including
significant devaluations of their currencies. Our exposure to
foreign exchange rate risk is exacerbated by our investments in
certain emerging markets.
We have matched substantially all of our foreign currency
liabilities in our foreign subsidiaries with investments
denominated in their respective foreign currency, which limits
the effect of currency exchange rate fluctuation on local
operating results; however, fluctuations in such rates affect
the translation of these results into our U.S. Dollar basis
consolidated financial statements. Although we take certain
actions to address this risk, foreign currency exchange rate
fluctuation could materially adversely affect our reported
results due to unhedged positions or the failure of hedges to
effectively offset the impact of the foreign currency exchange
rate fluctuation. See Quantitative and Qualitative
Disclosures About Market Risk.
Our
International Operations Face Political, Legal, Operational and
Other Risks that Could Negatively Affect Those Operations or Our
Profitability
Our international operations face political, legal, operational
and other risks that we do not face in our domestic operations.
We face the risk of discriminatory regulation, nationalization
or expropriation of assets, price controls
26
and exchange controls or other restrictions that prevent us from
transferring funds from these operations out of the countries in
which they operate or converting local currencies we hold into
U.S. Dollars or other currencies. In addition, we rely on
local sales forces in these countries and may encounter labor
problems resulting from workers associations and trade
unions in some countries. If our business model is not
successful in a particular country, we may lose all or most of
our investment in building and training the sales force in that
country.
Our operations may require considerable management time, as well
as start-up
expenses for market development before any significant revenues
and earnings are generated. Operations in new foreign markets
may achieve low margins or may be unprofitable, and expansion in
existing markets may be affected by local economic and market
conditions. Therefore, as we expand internationally, we may not
achieve expected operating margins and our results of operations
may be negatively impacted.
A
Downgrade or a Potential Downgrade in Our Financial Strength
Ratings or those of MetLifes Other Insurance Subsidiaries,
or MetLifes Credit Ratings Could Result in a Loss of
Business and Materially Adversely Affect Our Financial Condition
and Results of Operations
Financial strength ratings, which various Nationally Recognized
Statistical Rating Organizations (each, an NRSRO)
publish as indicators of an insurance companys ability to
meet contractholder and policyholder obligations, are important
to maintaining public confidence in our products, our ability to
market our products and our competitive position. See
Business Company Ratings Insurer
Financial Strength Ratings.
Downgrades in our financial strength ratings could have a
material adverse effect on our financial condition and results
of operations in many ways, including:
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reducing new sales of insurance products, annuities and other
investment products;
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adversely affecting our relationships with our sales force and
independent sales intermediaries;
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materially increasing the number or amount of policy surrenders
and withdrawals by contractholders and policyholders;
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requiring us to reduce prices for many of our products and
services to remain competitive; and
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adversely affecting our ability to obtain reinsurance at
reasonable prices or at all.
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In view of the difficulties experienced during 2008 and 2009 by
many financial institutions, including our competitors in the
insurance industry, we believe it is possible that the NRSROs
will continue to heighten the level of scrutiny that they apply
to such institutions, will continue to increase the frequency
and scope of their credit reviews, will continue to request
additional information from the companies that they rate, and
may adjust upward the capital and other requirements employed in
the NRSRO models for maintenance of certain ratings levels.
Rating agencies use an outlook statement of
positive, stable, negative
or developing to indicate a medium- or long-term
trend in credit fundamentals which, if continued, may lead to a
ratings change. A rating may have a stable outlook
to indicate that the rating is not expected to change; however,
a stable rating does not preclude a rating agency
from changing a rating at any time, without notice. Certain
rating agencies assign rating modifiers such as
CreditWatch or Under Review to indicate
their opinion regarding the potential direction of a rating.
These ratings modifiers are generally assigned in connection
with certain events such as potential mergers and acquisitions,
or material changes in a companys results, in order for
the rating agencies to perform its analysis to fully determine
the rating implications of the event. Certain rating agencies
have recently implemented rating actions, including downgrades,
outlook changes and modifiers, for MetLife, Inc.s and
certain of its subsidiaries insurer financial strength and
credit ratings. See Business Company
Ratings Rating Actions.
We cannot predict what actions rating agencies may take, or what
actions we may take in response to the actions of rating
agencies, which could adversely affect our business. As with
other companies in the financial services industry, our ratings
could be downgraded at any time and without any notice by any
NRSRO.
27
An
Inability to Access MetLifes Credit Facilities Could
Result in a Reduction in Our Liquidity and Lead to Downgrades in
Our Credit and Financial Strength Ratings
MetLife has a $2.85 billion five-year revolving credit
facility that matures in June 2012, as well as other facilities
which it enters into in the ordinary course of business.
The availability of these facilities to MetLife could be
critical to MetLifes credit and financial strength
ratings, as well as our financial strength ratings and our
ability to meet our obligations as they come due in a market
when alternative sources of credit are tight. The credit
facilities contain certain administrative, reporting, legal and
financial covenants. MetLife must comply with covenants under
its credit facilities (including the $2.85 billion
five-year revolving credit facility), including a requirement to
maintain a specified minimum consolidated net worth.
MetLifes right to make borrowings under these facilities
is subject to the fulfillment of certain important conditions,
including its compliance with all covenants, and its ability to
borrow under these facilities is also subject to the continued
willingness and ability of the lenders that are parties to the
facilities to provide funds. MetLifes failure to comply
with the covenants in the credit facilities or fulfill the
conditions to borrowings, or the failure of lenders to fund
their lending commitments (whether due to insolvency,
illiquidity or other reasons) in the amounts provided for under
the terms of the facilities, would restrict MetLifes
ability to access these credit facilities when needed and,
consequently, could have a material adverse effect on our
financial condition and results of operations.
Defaults,
Downgrades or Other Events Impairing the Carrying Value of Our
Fixed Maturity or Equity Securities Portfolio May Reduce Our
Earnings
We are subject to the risk that the issuers, or guarantors, of
fixed maturity securities we own may default on principal and
interest payments they owe us. We are also subject to the risk
that the underlying collateral within loan-backed securities,
including mortgage-backed securities, may default on principal
and interest payments causing an adverse change in cash flows
paid to our investment. Fixed maturity securities represent a
significant portion of our investment portfolio. The occurrence
of a major economic downturn (such as the downturn in the
economy during late 2008 and 2009), acts of corporate
malfeasance, widening risk spreads, or other events that
adversely affect the issuers, guarantors or underlying
collateral of these securities could cause the estimated fair
value of our fixed maturity securities portfolio and our
earnings to decline and the default rate of the fixed maturity
securities in our investment portfolio to increase. A ratings
downgrade affecting issuers or guarantors of particular
securities, or similar trends that could worsen the credit
quality of issuers, such as the corporate issuers of securities
in our investment portfolio, could also have a similar effect.
With economic uncertainty, credit quality of issuers or
guarantors could be adversely affected. Similarly, a ratings
downgrade affecting asset-backed securities we hold could
indicate the credit quality of that security has deteriorated
and could increase the capital we must hold to support that
security to maintain our risk-based capital levels. Any event
reducing the estimated fair value of these securities other than
on a temporary basis could have a material adverse effect on our
business, results of operations and financial condition. Levels
of writedowns or impairments are impacted by our assessment of
intent to sell, or whether it is more likely than not that we
will be required to sell, fixed maturity securities and the
intent and ability to hold equity securities which have declined
in value until recovery. If we determine to reposition or
realign portions of the portfolio so as not to hold certain
equity securities, or intend to sell or determine that it is
more likely than not that we will be required to sell, certain
fixed maturity securities in an unrealized loss position prior
to recovery, then we will incur an OTTI charge in the period
that the decision was made not to hold the equity security to
recovery, or to sell, or the determination was made it is more
likely than not that we will be required to sell the fixed
maturity security.
MetLifes
Risk Management Policies and Procedures May Leave Us Exposed to
Unidentified or Unanticipated Risk, Which Could Negatively
Affect Our Business
Management of risk requires, among other things, policies and
procedures to record properly and verify a large number of
transactions and events. MetLife has devoted significant
resources to develop risk management policies and procedures for
itself and its subsidiaries and expects to continue to do so in
the future. Nonetheless, these policies and procedures may not
be comprehensive. Many of MetLifes methods for managing
risk and exposures are based upon the use of observed historical
market behavior or statistics based on historical models. As a
result,
28
these methods may not fully predict future exposures, which can
be significantly greater than historical measures indicate.
Other risk management methods depend upon the evaluation of
information regarding markets, clients, catastrophe occurrence
or other matters that is publicly available or otherwise
accessible. This information may not always be accurate,
complete,
up-to-date
or properly evaluated. See Quantitative and Qualitative
Disclosures About Market Risk.
Reinsurance
May Not Be Available, Affordable or Adequate to Protect Us
Against Losses
As part of our overall risk management strategy, we purchase
reinsurance for certain risks underwritten by our various
business segments. See Business Reinsurance
Activity. While reinsurance agreements generally bind the
reinsurer for the life of the business reinsured at generally
fixed pricing, market conditions beyond our control determine
the availability and cost of the reinsurance protection for new
business. In certain circumstances, the price of reinsurance for
business already reinsured may also increase. Any decrease in
the amount of reinsurance will increase our risk of loss and any
increase in the cost of reinsurance will, absent a decrease in
the amount of reinsurance, reduce our earnings. Accordingly, we
may be forced to incur additional expenses for reinsurance or
may not be able to obtain sufficient reinsurance on acceptable
terms, which could adversely affect our ability to write future
business or result in the assumption of more risk with respect
to those policies we issue.
If the
Counterparties to Our Reinsurance or Indemnification
Arrangements or to the Derivative Instruments We Use to Hedge
Our Business Risks Default or Fail to Perform, We May Be Exposed
to Risks We Had Sought to Mitigate, Which Could Materially
Adversely Affect Our Financial Condition and Results of
Operations
We use reinsurance, indemnification and derivative instruments
to mitigate our risks in various circumstances. In general,
reinsurance does not relieve us of our direct liability to our
policyholders, even when the reinsurer is liable to us.
Accordingly, we bear credit risk with respect to our reinsurers
and indemnitors. We cannot provide assurance that our reinsurers
will pay the reinsurance recoverables owed to us or that
indemnitors will honor their obligations now or in the future or
that they will pay these recoverables on a timely basis. A
reinsurers or indemnitors insolvency, inability or
unwillingness to make payments under the terms of reinsurance
agreements or indemnity agreements with us could have a material
adverse effect on our financial condition and results of
operations.
In addition, we use derivative instruments to hedge various
business risks. We enter into a variety of derivative
instruments, including options, forwards, interest rate, credit
default and currency swaps with a number of counterparties. If
our counterparties fail or refuse to honor their obligations
under these derivative instruments, our hedges of the related
risk will be ineffective. This is a more pronounced risk to us
in view of the stresses suffered by financial institutions over
the past two years. Such failure could have a material adverse
effect on our financial condition and results of operations.
Differences
Between Actual Claims Experience and Underwriting and Reserving
Assumptions May Adversely Affect Our Financial
Results
Our earnings significantly depend upon the extent to which our
actual claims experience is consistent with the assumptions we
use in setting prices for our products and establishing
liabilities for future policy benefits and claims. Our
liabilities for future policy benefits and claims are
established based on estimates by actuaries of how much we will
need to pay for future benefits and claims. For life insurance
and annuity products, we calculate these liabilities based on
many assumptions and estimates, including estimated premiums to
be received over the assumed life of the policy, the timing of
the event covered by the insurance policy, the amount of
benefits or claims to be paid and the investment returns on the
investments we make with the premiums we receive. To the extent
that actual claims experience is less favorable than the
underlying assumptions we used in establishing such liabilities,
we could be required to increase our liabilities.
Due to the nature of the underlying risks and the high degree of
uncertainty associated with the determination of liabilities for
future policy benefits and claims, we cannot determine precisely
the amounts which we will ultimately pay to settle our
liabilities. Such amounts may vary from the estimated amounts,
particularly when those
29
payments may not occur until well into the future. We evaluate
our liabilities periodically based on changes in the assumptions
used to establish the liabilities, as well as our actual
experience. We charge or credit changes in our liabilities to
expenses in the period the liabilities are established or
re-estimated. If the liabilities originally established for
future benefit payments prove inadequate, we must increase them.
Such increases could affect earnings negatively and have a
material adverse effect on our business, results of operations
and financial condition.
Catastrophes
May Adversely Impact Liabilities for Policyholder Claims and
Reinsurance Availability
Our life insurance operations are exposed to the risk of
catastrophic mortality, such as a pandemic or other event that
causes a large number of deaths. Significant influenza pandemics
have occurred three times in the last century, but neither the
likelihood, timing, nor the severity of a future pandemic can be
predicted. A significant pandemic could have a major impact on
the global economy or the economies of particular countries or
regions, including travel, trade, tourism, the health system,
food supply, consumption, overall economic output and,
eventually, on the financial markets. In addition, a pandemic
that affected our employees or the employees of our distributors
or of other companies with which we do business could disrupt
our business operations. The effectiveness of external parties,
including governmental and non-governmental organizations, in
combating the spread and severity of such a pandemic could have
a material impact on the losses experienced by us. In our group
insurance operations, a localized event that affects the
workplace of one or more of our group insurance customers could
cause a significant loss due to mortality or morbidity claims.
These events could cause a material adverse effect on our
results of operations in any period and, depending on their
severity, could also materially and adversely affect our
financial condition.
The extent of losses from a catastrophe is a function of both
the total amount of insured exposure in the area affected by the
event and the severity of the event. Most catastrophes are
restricted to small geographic areas; however, pandemics,
hurricanes, earthquakes and man-made catastrophes may produce
significant damage or loss of life in larger areas, especially
those that are heavily populated. Claims resulting from natural
or man-made catastrophic events could cause substantial
volatility in our financial results for any fiscal quarter or
year and could materially reduce our profitability or harm our
financial condition. Also, catastrophic events could harm the
financial condition of our reinsurers and thereby increase the
probability of default on reinsurance recoveries. Our ability to
write new business could also be affected.
Most of the jurisdictions in which we and our insurance
subsidiaries are admitted to transact business require life
insurers doing business within the jurisdiction to participate
in guaranty associations, which are organized to pay contractual
benefits owed pursuant to insurance policies issued by impaired,
insolvent or failed insurers. These associations levy
assessments, up to prescribed limits, on all member insurers in
a particular state on the basis of the proportionate share of
the premiums written by member insurers in the lines of business
in which the impaired, insolvent or failed insurer is engaged.
Some states permit member insurers to recover assessments paid
through full or partial premium tax offsets. See
Business Regulation Insurance
Regulation Guaranty Associations and Similar
Arrangements.
While in the past five years, the aggregate assessments levied
against us have not been material, it is possible that a large
catastrophic event could render such guaranty funds inadequate
and we may be called upon to contribute additional amounts,
which may have a material impact on our financial condition or
results of operations in a particular period. We have
established liabilities for guaranty fund assessments that we
consider adequate for assessments with respect to insurers that
are currently subject to insolvency proceedings, but additional
liabilities may be necessary. See Note 11 of the Notes to
the Consolidated Financial Statements.
Consistent with industry practice and accounting standards, we
establish liabilities for claims arising from a catastrophe only
after assessing the probable losses arising from the event. We
cannot be certain that the liabilities we have established will
be adequate to cover actual claim liabilities. While we attempt
to limit our exposure to acceptable levels, subject to
restrictions imposed by insurance regulatory authorities, a
catastrophic event or multiple catastrophic events could have a
material adverse effect on our business, results of operations
and financial condition.
30
Our ability to manage this risk and the profitability of our
life insurance businesses depends in part on our ability to
obtain reinsurance, which may not be available at commercially
acceptable rates in the future. See
Reinsurance May Not Be Available, Affordable
or Adequate to Protect Us Against Losses.
Competitive
Factors May Adversely Affect Our Market Share and
Profitability
Our business segments are subject to intense competition. We
believe that this competition is based on a number of factors,
including service, product features, scale, price, financial
strength, claims-paying ratings, credit ratings,
e-business
capabilities and name recognition. We compete with a large
number of other insurers, as well as non-insurance financial
services companies, such as banks, broker-dealers and asset
managers, for individual consumers, employers and other group
customers and agents and other distributors of insurance and
investment products. Some of these companies offer a broader
array of products, have more competitive pricing or more
attractive features in their products or, with respect to other
insurers, have higher claims paying ability ratings. Some may
also have greater financial resources with which to compete.
National banks, which may sell annuity products of life insurers
in some circumstances, also have pre-existing customer bases for
financial services products.
Many of our group insurance products are underwritten annually,
and, accordingly, there is a risk that group purchasers may be
able to obtain more favorable terms from competitors rather than
renewing coverage with us. The effect of competition may, as a
result, adversely affect the persistency of these and other
products, as well as our ability to sell products in the future.
In addition, the investment management and securities brokerage
businesses have relatively few barriers to entry and continually
attract new entrants.
Finally, the choices made by the U.S. Treasury in the
administration of EESA and in its distribution of amounts
available thereunder could have the effect of supporting some
parts of the financial system more than others. See
Actions of the U.S. Government, Federal
Reserve Bank of New York and Other Governmental and Regulatory
Bodies for the Purpose of Stabilizing and Revitalizing the
Financial Markets and Protecting Investors and Consumers May Not
Achieve the Intended Effect or Could Adversely Affect the
Competitive Position of MetLife, Inc. and its Subsidiaries,
Including Us.
Industry
Trends Could Adversely Affect the Profitability of Our
Business
Our business continues to be influenced by a variety of trends
that affect the insurance industry, including competition with
respect to product features, price, distribution capability,
customer service and information technology. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations. The impact on our
business and on the life insurance industry generally of the
volatility and instability of the financial markets is difficult
to predict, and our business plans, financial condition and
results of operations may be negatively impacted or affected in
other unexpected ways. In addition, the life insurance industry
is subject to state regulation, and, as complex products are
introduced, regulators may refine capital requirements and
introduce new reserving standards. Furthermore, regulators have
undertaken market and sales practices reviews of several markets
or products, including variable annuities and group products.
The market environment may also lead to changes in regulation
that may benefit or disadvantage us relative to some of our
competitors. See Competitive Factors May
Adversely Affect Our Market Share and Profitability.
Consolidation
of Distributors of Insurance Products May Adversely Affect the
Insurance Industry and the Profitability of Our
Business
The insurance industry distributes many of its individual
products through other financial institutions such as banks and
broker-dealers. An increase in bank and broker-dealer
consolidation activity may negatively impact the industrys
sales, and such consolidation could increase competition for
access to distributors, result in greater distribution expenses
and impair our ability to market insurance products to our
current customer base or to expand our customer base.
Consolidation of distributors
and/or other
industry changes may also increase the likelihood that
distributors will try to renegotiate the terms of any existing
selling agreements to terms less favorable to us.
31
Our
Investments are Reflected Within the Consolidated Financial
Statements Utilizing Different Accounting Bases and Accordingly
We May Have Recognized Differences, Which May Be Significant,
Between Cost and Estimated Fair Value in our Consolidated
Financial Statements
Our principal investments are in fixed maturity and equity
securities, trading securities, short-term investments, and
mortgage loans, policy loans, real estate, real estate joint
ventures and other limited partnership interests and other
invested assets. The carrying value of such investments is as
follows:
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Fixed maturity and equity securities are classified as
available-for-sale
and are reported at their estimated fair value. Unrealized
investment gains and losses are recorded as a separate component
of other comprehensive income (loss), net of policyholder
related amounts and deferred income taxes.
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Trading securities are recorded at estimated fair value with
subsequent changes in estimated fair value recognized in net
investment income.
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Short-term investments include investments with remaining
maturities of one year or less, but greater than three months,
at the time of acquisition. Short-term investments that meet the
definition of a security are stated at estimated fair value, and
short-term investments that do not meet the definition of a
security are stated at amortized cost, which approximates
estimated fair value.
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The carrying value of mortgage loans is stated at original cost
net of repayments, amortization of premiums, accretion of
discounts and valuation allowances.
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Policy loans are stated at unpaid principal balances.
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Real estate
held-for-investment,
including related improvements, is stated at cost, less
accumulated depreciation.
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Real estate joint ventures and other limited partnership
interests in which we have more than a minor equity interest or
more than a minor influence over the joint ventures or
partnerships operations, but where we do not have a
controlling interest and are not the primary beneficiary, are
carried using the equity method of accounting. We use the cost
method of accounting for investments in real estate joint
ventures and other limited partnership interests in which we
have a minor equity investment and virtually no influence over
the joint ventures or the partnerships operations.
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Other invested assets consist principally of freestanding
derivatives with positive estimated fair values. Freestanding
derivatives are carried at estimated fair value with changes in
estimated fair value reflected in income for both non-qualifying
derivatives and derivatives in fair value hedging relationships.
Changes in estimated fair value of derivatives in cash flow
hedging relationships are reflected as a separate component of
other comprehensive income (loss).
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Investments not carried at estimated fair value in our
consolidated financial statements principally,
mortgage loans
held-for-investment,
policy loans, real estate, real estate joint ventures and other
limited partnerships may have estimated fair values
which are substantially higher or lower than the carrying value
reflected in our consolidated financial statements. Each of
these asset classes is regularly evaluated for impairment under
the accounting guidance appropriate to the respective asset
class.
Our
Valuation of Fixed Maturity, Equity and Trading Securities and
Short-Term Investments May Include Methodologies, Estimations
and Assumptions Which Are Subject to Differing Interpretations
and Could Result in Changes to Investment Valuations that May
Materially Adversely Affect Our Results of Operations or
Financial Condition
Fixed maturity, equity and trading securities and short-term
investments which are reported at estimated fair value on the
consolidated balance sheets represent the majority of our total
cash and investments. We have categorized these securities into
a three-level hierarchy, based on the priority of the inputs to
the respective valuation technique. The fair value hierarchy
gives the highest priority to quoted prices in active markets
for identical assets or liabilities (Level 1) and the
lowest priority to unobservable inputs (Level 3). An asset
or liabilitys classification
32
within the fair value hierarchy is based on the lowest level of
significant input to its valuation. The input levels are as
follows:
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Level 1
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Unadjusted quoted prices in active markets for identical assets
or liabilities. We define active markets based on average
trading volume for equity securities. The size of the bid/ask
spread is used as an indicator of market activity for fixed
maturity securities.
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Level 2
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Quoted prices in markets that are not active or inputs that are
observable either directly or indirectly. Level 2 inputs
include quoted prices for similar assets or liabilities other
than quoted prices in Level 1; quoted prices in markets
that are not active; or other inputs that are observable or can
be derived principally from or corroborated by observable market
data for substantially the full term of the assets or
liabilities.
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Level 3
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Unobservable inputs that are supported by little or no market
activity and are significant to the fair value of the assets or
liabilities. Unobservable inputs reflect the reporting
entitys own assumptions about the assumptions that market
participants would use in pricing the asset or liability.
Level 3 assets and liabilities include financial
instruments whose values are determined using pricing models,
discounted cash flow methodologies, or similar techniques, as
well as instruments for which the determination of fair value
requires significant management judgment or estimation.
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For information on our securities classified in Levels 1, 2
and 3, see Note 4 of the Notes to the Consolidated
Financial Statements. The Level 1 securities primarily
consist of certain U.S. Treasury, agency and government
guaranteed fixed maturity securities; exchange-traded common
stock; certain trading securities and certain short-term
investments. The Level 2 assets include fixed maturity and
equity securities priced principally through independent pricing
services using observable inputs. These fixed maturity
securities include most U.S. Treasury, agency and
government guaranteed securities, as well as the majority of
U.S. and foreign corporate securities, RMBS, commercial
mortgage-backed securities (CMBS), state and
political subdivision securities, foreign government securities,
and ABS. Equity securities classified as Level 2 primarily
consist of non-redeemable preferred securities and certain
equity securities where market quotes are available but are not
considered actively traded and are priced by independent pricing
services. We review the valuation methodologies used by the
independent pricing services on an ongoing basis and ensure that
any changes to valuation methodologies are justified.
Level 3 assets include fixed maturity securities priced
principally through independent non-binding broker quotations or
market standard valuation methodologies using inputs that are
not market observable or cannot be derived principally from or
corroborated by observable market data. Level 3 consists of
less liquid fixed maturity securities with very limited trading
activity or where less price transparency exists around the
inputs to the valuation methodologies including: U.S. and
foreign corporate securities including below
investment grade private placements; RMBS; CMBS; and
ABS including all of those supported by
sub-prime
mortgage loans. Equity securities classified as Level 3
securities consist principally of non-redeemable preferred stock
and common stock of companies that are privately held or
companies for which there has been very limited trading activity
or where less price transparency exists around the inputs to the
valuation.
Prices provided by independent pricing services and independent
non-binding broker quotations can vary widely even for the same
security.
The determination of estimated fair values by management in the
absence of quoted market prices is based on: (i) valuation
methodologies; (ii) securities we deem to be comparable;
and (iii) assumptions deemed appropriate given the
circumstances. The fair value estimates are made at a specific
point in time, based on available market information and
judgments about financial instruments, including estimates of
the timing and amounts of expected future cash flows and the
credit standing of the issuer or counterparty. Factors
considered in estimating fair value include: coupon rate,
maturity, estimated duration, call provisions, sinking fund
requirements, credit rating, industry sector of the issuer, and
quoted market prices of comparable securities. The use of
different methodologies and assumptions may have a material
effect on the estimated fair value amounts.
During periods of market disruption including periods of
significantly rising or high interest rates, rapidly widening
credit spreads or illiquidity, it may be difficult to value
certain of our securities, for example
sub-prime
mortgage-backed securities, mortgage-backed securities where the
underlying loans are alternative residential
33
mortgage loans (Alt-A) and CMBS, if trading becomes
less frequent
and/or
market data becomes less observable. In times of financial
market disruption, certain asset classes that were in active
markets with significant observable data may become illiquid. In
such cases, more securities may fall to Level 3 and thus
require more subjectivity and management judgment. As such,
valuations may include inputs and assumptions that are less
observable or require greater estimation, as well as valuation
methods which are more sophisticated or require greater
estimation thereby resulting in estimated fair values which may
be greater or less than the amount at which the investments may
be ultimately sold. Further, rapidly changing and unprecedented
credit and equity market conditions could materially impact the
valuation of securities as reported within our consolidated
financial statements and the
period-to-period
changes in estimated fair value could vary significantly.
Decreases in value may have a material adverse effect on our
results of operations or financial condition.
If Our
Business Does Not Perform Well, We May Be Required to Recognize
an Impairment of Our Goodwill or Other Long-Lived Assets or to
Establish a Valuation Allowance Against the Deferred Income Tax
Asset, Which Could Adversely Affect Our Results of Operations or
Financial Condition
The Company was allocated a portion of goodwill balance
representing the excess of the amounts MetLife paid to acquire
subsidiaries and other businesses over the estimated fair value
of their net assets at the date of acquisition. We test goodwill
at least annually for impairment. Impairment testing is
performed based upon estimates of the estimated fair value of
the reporting unit to which the goodwill relates.
The reporting unit is the operating segment or a business one
level below that operating segment if discrete financial
information is prepared and regularly reviewed by management at
that level. The estimated fair value of the reporting unit is
impacted by the performance of the business. The performance of
our businesses may be adversely impacted by prolonged market
declines. If it is determined that the goodwill has been
impaired, we must write down the goodwill by the amount of the
impairment, with a corresponding charge to net income. Such
writedowns could have a material adverse effect on our results
of operations or financial position. See Managements
Discussion and Analysis of Financial Condition and Results of
Operations Summary of Critical Accounting
Estimates Goodwill.
Long-lived assets, including assets such as real estate, also
require impairment testing to determine whether changes in
circumstances indicate that we will be unable to recover the
carrying amount of the asset group through future operations of
that asset group or market conditions that will impact the value
of those assets. Such write downs could have a material adverse
effect on our results of operations or financial position.
Deferred income tax represents the tax effect of the differences
between the book and tax basis of assets and liabilities.
Deferred income tax assets are assessed periodically by
management to determine if they are realizable. Factors in
managements determination include the performance of the
business including the ability to generate future taxable
income. If based on available information, it is more likely
than not that the deferred income tax asset will not be realized
then a valuation allowance must be established with a
corresponding charge to net income. Such charges could have a
material adverse effect on our results of operations or
financial position.
Further or continued deterioration of financial market
conditions could result in a decrease in the expected future
earnings of our reporting units, which could lead to an
impairment of some or all of the goodwill associated with them
in future periods. Such deterioration could also result in the
impairment of long-lived assets and the establishment of a
valuation allowance on our deferred income tax assets.
If Our
Business Does Not Perform Well or if Actual Experience Versus
Estimates Used in Valuing and Amortizing DAC and VOBA Vary
Significantly, We May Be Required to Accelerate the Amortization
and/or Impair the DAC and VOBA Which Could Adversely Affect Our
Results of Operations or Financial Condition
We incur significant costs in connection with acquiring new and
renewal business. Those costs that vary with and are primarily
related to the production of new and renewal business are
deferred and referred to as DAC. The recovery of DAC is
dependent upon the future profitability of the related business.
The amount of future profit is dependent principally on
investment returns in excess of the amounts credited to
policyholders, mortality, morbidity, persistency, interest
crediting rates, expenses to administer the business,
creditworthiness of reinsurance counterparties and certain
economic variables, such as inflation. Of these factors, we
anticipate
34
that investment returns are most likely to impact the rate of
amortization of such costs. The aforementioned factors enter
into managements estimates of gross profits, which
generally are used to amortize such costs. If the estimates of
gross profits were overstated, then the amortization of such
costs would be accelerated in the period the actual experience
is known and would result in a charge to income. Significant or
sustained equity market declines could result in an acceleration
of amortization of the DAC related to variable annuity and
variable universal life contracts, resulting in a charge to
income. Such adjustments could have a material adverse effect on
our results of operations or financial condition.
VOBA reflects the estimated fair value of in-force contracts in
a life insurance company acquisition and represents the portion
of the purchase price that is allocated to the value of the
right to receive future cash flows from the insurance and
annuity contracts in-force at the acquisition date. VOBA is
based on actuarially determined projections. Actual experience
may vary from the projections. Revisions to estimates result in
changes to the amounts expensed in the reporting period in which
the revisions are made and could result in an impairment and a
charge to income. Also, as VOBA is amortized similarly to DAC,
an acceleration of the amortization of VOBA would occur if the
estimates of gross profits were overstated. Accordingly, the
amortization of such costs would be accelerated in the period in
which the actual experience is known and would result in a
charge to net income. Significant or sustained equity market
declines could result in an acceleration of amortization of the
VOBA related to variable annuity and variable universal life
contracts, resulting in a charge to income. Such adjustments
could have a material adverse effect on our results of
operations or financial condition.
See Managements Discussion and Analysis of Financial
Condition and Results of Operations Summary of
Critical Accounting Estimates Deferred Policy
Acquisition Costs and Value of Business Acquired for
further consideration of DAC and VOBA.
Changes
in Accounting Standards Issued by the Financial Accounting
Standards Board or Other
Standard-Setting
Bodies May Adversely Affect Our Financial
Statements
Our financial statements are subject to the application of GAAP,
which is periodically revised
and/or
expanded. Accordingly, from time to time we are required to
adopt new or revised accounting standards issued by recognized
authoritative bodies, including the Financial Accounting
Standards Board. Market conditions have prompted accounting
standard setters to expose new guidance which further interprets
or seeks to revise accounting pronouncements related to
financial instruments, structures or transactions, as well as to
issue new standards expanding disclosures. The impact of
accounting pronouncements that have been issued but not yet
implemented is disclosed in our annual and quarterly reports on
Form 10-K
and
Form 10-Q.
An assessment of proposed standards is not provided as such
proposals are subject to change through the exposure process
and, therefore, the effects on our financial statements cannot
be meaningfully assessed. It is possible that future accounting
standards we are required to adopt could change the current
accounting treatment that we apply to our consolidated financial
statements and that such changes could have a material adverse
effect on our financial condition and results of operations.
Changes
in Discount Rate, Expected Rate of Return and Expected
Compensation Increase Assumptions for Pension and Other
Postretirement Benefit Plans For Employees and Retirees of
MetLife and its Subsidiaries May Result in Increased Expenses
and Reduce Our Profitability
Our allocated pension and other postretirement benefit plan
costs are determined based on a best estimate of future plan
experience. These assumptions are reviewed regularly and include
discount rates, expected rates of return on plan assets and
expected increases in compensation levels and expected medical
inflation. Changes in these assumptions may result in increased
expenses and reduce our profitability.
Guarantees
Within Certain of Our Variable Annuity Guarantee Benefits that
Protect Policyholders Against Significant Downturns in Equity
Markets May Increase the Volatility of Our Results Related to
the Inclusion of an Own Credit Adjustment in the Estimated Fair
Value of the Liability for These Guaranteed
Benefits
In determining the valuation of certain variable annuity
guarantee benefit liabilities that are carried at estimated fair
value, we must consider our own credit standing, which is not
hedged. A decrease in our own credit
35
spread could cause the value of these liabilities to increase,
resulting in a reduction to net income. An increase in our own
credit spread could cause the value of these liabilities to
decrease, resulting in an increase to net income. Because this
credit adjustment is determined, at least in part, by taking
into consideration publicly available information relating to
our publicly-traded debt, the overall condition of fixed income
markets may impact this adjustment. The credit premium implied
in our publicly-traded debt, instruments may not always
necessarily reflect our actual credit rating or our claims
paying ability. Recently, the fixed income markets have
experienced a period of extreme volatility which has impacted
market liquidity and credit spreads. An increase in credit
default swap spreads has at times been even more pronounced than
in the fixed income cash markets. In a broad based market
downturn, an increase in our own credit spread could result in
net income being relatively flat when a deterioration in other
market inputs required for the estimate of fair value would
otherwise result in a significant reduction in net income. The
inclusion of our own credit standing in this case has the effect
of muting the actual net income losses recognized. In subsequent
periods, if our credit spreads improve relative to the overall
market, we could have a reduction of net income in an overall
improving market.
Guarantees
Within Certain of Our Products that Protect Policyholders
Against Significant Downturns in Equity Markets May Decrease Our
Earnings, Increase the Volatility of Our Results if Hedging or
Risk Management Strategies Prove Ineffective, Result in Higher
Hedging Costs and Expose Us to Increased Counterparty
Risk
Certain of our variable annuity products include guaranteed
benefits. These include guaranteed death benefits, guaranteed
withdrawal benefits, lifetime withdrawal guarantees, guaranteed
minimum accumulation benefits (GMAB), and guaranteed
minimum income benefits (GMIB). Periods of
significant and sustained downturns in equity markets, increased
equity volatility, or reduced interest rates could result in an
increase in the valuation of the future policy benefit or
policyholder account balance liabilities associated with such
products, resulting in a reduction to net income. We use
reinsurance in combination with derivative instruments to
mitigate the liability exposure and the volatility of net income
associated with these liabilities, and while we believe that
these and other actions have mitigated the risks related to
these benefits, we remain liable for the guaranteed benefits in
the event that reinsurers or derivative counterparties are
unable or unwilling to pay. In addition, we are subject to the
risk that hedging and other management procedures prove
ineffective or that unanticipated policyholder behavior or
mortality, combined with adverse market events, produces
economic losses beyond the scope of the risk management
techniques employed. These, individually or collectively, may
have a material adverse effect on net income, financial
condition or liquidity. We are also subject to the risk that the
cost of hedging these guaranteed minimum benefits increases,
resulting in a reduction to net income.
Litigation
and Regulatory Investigations Are Increasingly Common in Our
Businesses and May Result in Significant Financial Losses and
Harm to Our Reputation
We face a significant risk of litigation and regulatory
investigations and actions in the ordinary course of operating
our businesses, including the risk of class action lawsuits. Our
pending legal and regulatory actions include proceedings
specific to us and others generally applicable to business
practices in the industries in which we operate. In connection
with our insurance operations, plaintiffs lawyers may
bring or are bringing class actions and individual suits
alleging, among other things, issues relating to sales or
underwriting practices, claims payments and procedures, product
design, disclosure, administration, denial or delay of benefits
and breaches of fiduciary or other duties to customers.
Plaintiffs in class action and other lawsuits against us may
seek very large or indeterminate amounts, including punitive and
treble damages, and the damages claimed and the amount of any
probable and estimable liability, if any, may remain unknown for
substantial periods of time. See Note 11 of the Notes to
the Consolidated Financial Statements.
Due to the vagaries of litigation, the outcome of a litigation
matter and the amount or range of potential loss at particular
points in time may be inherently impossible to ascertain with
any degree of certainty. Inherent uncertainties can include how
fact finders will view individually and in their totality
documentary evidence, the credibility and effectiveness of
witnesses testimony, and how trial and appellate courts
will apply the law in the context of the pleadings or evidence
presented, whether by motion practice, or at trial or on appeal.
Disposition
36
valuations are also subject to the uncertainty of how opposing
parties and their counsel will themselves view the relevant
evidence and applicable law.
On a quarterly and annual basis, we review relevant information
with respect to litigation and contingencies to be reflected in
our consolidated financial statements. The review includes
senior legal and financial personnel. Estimates of possible
losses or ranges of loss for particular matters cannot in the
ordinary course be made with a reasonable degree of certainty.
Liabilities are established when it is probable that a loss has
been incurred and the amount of the loss can be reasonably
estimated. It is possible that some of the matters could require
us to pay damages or make other expenditures or establish
accruals in amounts that could not be estimated at
December 31, 2009.
We are also subject to various regulatory inquiries, such as
information requests, subpoenas and books and record
examinations, from state and federal regulators and other
authorities. A substantial legal liability or a significant
regulatory action against us could have a material adverse
effect on our business, financial condition and results of
operations. Moreover, even if we ultimately prevail in the
litigation, regulatory action or investigation, we could suffer
significant reputational harm, which could have a material
adverse effect on our business, financial condition and results
of operations, including our ability to attract new customers
and retain our current customers.
We cannot give assurance that current claims, litigation,
unasserted claims probable of assertion, investigations and
other proceedings against us will not have a material adverse
effect on our business, financial condition or results of
operations. It is also possible that related or unrelated
claims, litigation, unasserted claims probable of assertion,
investigations and proceedings may be commenced in the future,
and we could become subject to further investigations and have
lawsuits filed or enforcement actions initiated against us. In
addition, increased regulatory scrutiny and any resulting
investigations or proceedings could result in new legal actions
and precedents and industry-wide regulations that could
adversely affect our business, financial condition and results
of operations.
Proposals
to Regulate Compensation, if Implemented, Could Hinder or
Prevent Us From Attracting and Retaining Management and Other
Employees with the Talent and Experience to Manage and Conduct
Our Business Effectively
Congress is considering the possibility of regulating the
compensation that financial institutions may provide to their
executive officers and other employees. In addition, the Federal
Reserve Board and the FDIC have proposed guidelines on incentive
compensation that, if adopted, may apply to or impact MetLife as
a bank holding company. These restrictions could hinder or
prevent us from attracting and retaining management and other
employees with the talent and experience to manage and conduct
our business effectively. They could also limit our tax
deductions for certain compensation paid to executive employees
in excess of specified amounts. We may also be subject to
requirements and restrictions on our business if we participate
in some of the programs established in whole or in part under
EESA.
Changes
in U.S. Federal and State Securities Laws and Regulations May
Affect Our Operations and Our Profitability
Federal and state securities laws and regulations apply to
insurance products that are also securities,
including variable annuity contracts and variable life insurance
policies. As a result, our activities in offering and selling
variable insurance contracts and policies are subject to
extensive regulation under these securities laws. We issue
variable annuity contracts and variable life insurance policies
through separate accounts that are registered with the SEC as
investment companies under the Investment Company Act. Each
registered separate account is generally divided into
sub-accounts,
each of which invests in an underlying mutual fund which is
itself a registered investment company under the Investment
Company Act. In addition, the variable annuity contracts and
variable life insurance policies issued by the separate accounts
are registered with the SEC under the Securities Act. Our
subsidiary, Tower Square, is registered with the SEC as a
broker-dealer under the Exchange Act, and is a member of, and
subject to regulation by, FINRA. Further, Tower Square is
registered as an investment adviser with the SEC under the
Investment Advisers Act of 1940, and is also registered as an
investment adviser in various states.
Federal and state securities laws and regulations are primarily
intended to ensure the integrity of the financial markets and to
protect investors in the securities markets, as well as protect
investment advisory or brokerage
37
clients. These laws and regulations generally grant regulatory
agencies broad rulemaking and enforcement powers, including the
power to limit or restrict the conduct of business for failure
to comply with the securities laws and regulations. Changes to
these laws or regulations that restrict the conduct of our
business could have a material adverse effect on our financial
condition and results of operations. In particular, changes in
the regulations governing the registration and distribution of
variable insurance products, such as changes in the regulatory
standards for suitability of variable annuity contracts or
variable life insurance policies, or changes in the standard of
care which sales representatives owe to their customers with
respect to the sale of variable insurance products, could have
such a material adverse effect.
Changes
in Tax Laws, Tax Regulations, or Interpretations of Such Laws or
Regulations Could Increase Our Corporate Taxes; Changes in Tax
Laws Could Make Some of Our Products Less Attractive to
Consumers
Changes in tax laws, Treasury and other regulations promulgated
thereunder, or interpretations of such laws or regulations could
increase our corporate taxes. The Obama Administration has
proposed corporate tax changes. Changes in corporate tax rates
could affect the value of deferred tax assets and deferred tax
liabilities. Furthermore, the value of deferred tax assets could
be impacted by future earnings levels.
Changes in tax laws could make some of our products less
attractive to consumers. A shift away from life insurance and
annuity contracts and other tax-deferred products would reduce
our income from sales of these products, as well as the assets
upon which we earn investment income. The Obama Administration
has proposed certain changes to individual income tax rates and
rules applicable to certain policies.
We cannot predict whether any tax legislation impacting
corporate taxes or insurance products will be enacted, what the
specific terms of any such legislation will be or whether, if at
all, any legislation would have a material adverse effect on our
financial condition and results of operations.
We May
be Unable to Attract and Retain Sales Representatives for Our
Products
We must attract and retain productive sales representatives to
sell our insurance, annuities and investment products. Strong
competition exists among insurers for sales representatives with
demonstrated ability. In addition, there is competition for
representatives with other types of financial services firms,
such as independent broker-dealers. We compete with other
insurers for sales representatives primarily on the basis of our
financial position, support services and compensation and
product features. We continue to undertake several initiatives
to grow our career agency force while continuing to enhance the
efficiency and production of our existing sales force. We cannot
provide assurance that these initiatives will succeed in
attracting and retaining new agents. Sales of individual
insurance, annuities and investment products and our results of
operations and financial condition could be materially adversely
affected if we are unsuccessful in attracting and retaining
agents.
The
Continued Threat of Terrorism and Ongoing Military Actions May
Adversely Affect the Level of Claim Losses We Incur and the
Value of Our Investment Portfolio
The continued threat of terrorism, both within the United States
and abroad, ongoing military and other actions and heightened
security measures in response to these types of threats may
cause significant volatility in global financial markets and
result in loss of life, property damage, additional disruptions
to commerce and reduced economic activity. Some of the assets in
our investment portfolio may be adversely affected by declines
in the credit and equity markets and reduced economic activity
caused by the continued threat of terrorism. We cannot predict
whether, and the extent to which, companies in which we maintain
investments may suffer losses as a result of financial,
commercial or economic disruptions, or how any such disruptions
might affect the ability of those companies to pay interest or
principal on their securities or mortgage loans. The continued
threat of terrorism also could result in increased reinsurance
prices and reduced insurance coverage and potentially cause us
to retain more risk than we otherwise would retain if we were
able to obtain reinsurance at lower prices. Terrorist actions
also could disrupt our operations centers in the United States
or abroad. In addition, the occurrence of terrorist actions
could result in higher claims under our insurance policies than
anticipated. See Difficult Conditions in the
Global
38
Capital Markets and the Economy Generally May Materially
Adversely Affect Our Business and Results of Operations and
These Conditions May Not Improve in the Near Future.
The
Occurrence of Events Unanticipated In MetLifes Disaster
Recovery Systems and Management Continuity Planning Could Impair
Our Ability to Conduct Business Effectively
In the event of a disaster such as a natural catastrophe, an
epidemic, an industrial accident, a blackout, a computer virus,
a terrorist attack or war, unanticipated problems with our
disaster recovery systems could have a material adverse impact
on our ability to conduct business and on our results of
operations and financial position, particularly if those
problems affect our computer-based data processing,
transmission, storage and retrieval systems and destroy valuable
data. We depend heavily upon computer systems to provide
reliable service. Despite our implementation of a variety of
security measures, our computer systems could be subject to
physical and electronic break-ins, and similar disruptions from
unauthorized tampering. In addition, in the event that a
significant number of our managers were unavailable in the event
of a disaster, our ability to effectively conduct business could
be severely compromised. These interruptions also may interfere
with our suppliers ability to provide goods and services
and our employees ability to perform their job
responsibilities.
Our
Associates May Take Excessive Risks Which Could Negatively
Affect Our Financial Condition and Business
As an insurance enterprise, we are in the business of being paid
to accept certain risks. The associates who conduct our
business, including executive officers and other members of
management, sales managers, investment professionals, product
managers, and other associates, do so in part by making
decisions and choices that involve exposing us to risk. These
include decisions such as setting underwriting guidelines and
standards, product design and pricing, determining what assets
to purchase for investment and when to sell them, which business
opportunities to pursue, and other decisions. Although we
endeavor, in the design and implementation of our compensation
programs and practices, to avoid giving our associates
incentives to take excessive risks, associates may take such
risks regardless of the structure of our compensation programs
and practices. Similarly, although we employ controls and
procedures designed to monitor associates business
decisions and prevent us from taking excessive risks, there can
be no assurance that these controls and procedures are or may be
effective. If our associates take excessive risks, the impact of
those risks could have a material adverse effect on our
financial condition or business operations.
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Item 1B.
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Unresolved
Staff Comments
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Not applicable.
Our executive office is located in Bloomfield, Connecticut and
is owned by an affiliate.
Management believes that the Companys properties are
suitable and adequate for our current and anticipated business
operations. MetLife arranges for property and casualty coverage
on our properties, taking into consideration our risk exposures
and the cost and availability of commercial coverages, including
deductible loss levels. In connection with its renewal of those
coverages, MetLife has arranged $700 million of property
coverage including coverage for terrorism on its real estate
portfolio, including our real estate portfolio, through
May 15, 2010, its renewal date.
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Item 3.
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Legal
Proceedings
|
See Note 11 of the Notes to the Consolidated Financial
Statements.
39
Part II
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Item 5.
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Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
MetLife Insurance Company of Connecticut has 40,000,000
authorized shares of common stock, 34,595,317 shares of
which were outstanding at December 31, 2009. Of such
outstanding shares, at March 23, 2010,
30,000,000 shares are owned directly by MetLife and the
remaining 4,595,317 shares are owned by MetLife Investors
Group, Inc. There exists no established public trading market
for the Companys common equity.
During the year ended December 31, 2009, MetLife Insurance
Company of Connecticut did not pay a dividend to its
stockholders. During the year ended December 31, 2008,
MetLife Insurance Company of Connecticut paid a dividend of
$500 million. The maximum amount of dividends which MetLife
Insurance Company of Connecticut may pay to its stockholders in
2010, without prior regulatory approval, is $659 million.
Under Connecticut State Insurance Law, MetLife Insurance Company
of Connecticut is permitted, without prior insurance regulatory
clearance, to pay stockholder dividends to its stockholders as
long as the amount of such dividends, when aggregated with all
other dividends in the preceding 12 months, does not exceed
the greater of: (i) 10% of its surplus to policyholders as
of the end of the immediately preceding calendar year; or
(ii) its statutory net gain from operations for the
immediately preceding calendar year. MetLife Insurance Company
of Connecticut will be permitted to pay a dividend in excess of
the greater of such two amounts only if it files notice of its
declaration of such a dividend and the amount thereof with the
Connecticut Commissioner and the Connecticut Commissioner does
not disapprove the payment within 30 days after notice. In
addition, any dividend that exceeds earned surplus (unassigned
funds, reduced by 25% of unrealized appreciation in value or
revaluation of assets or unrealized profits on investments) as
of the last filed annual statutory statement requires insurance
regulatory approval. Under Connecticut State Insurance Law, the
Connecticut Commissioner has broad discretion in determining
whether the financial condition of a stock life insurance
company would support the payment of such dividends to its
shareholders.
Under Delaware State Insurance Law, MLI-USA is permitted,
without prior insurance regulatory clearance, to pay a
stockholder dividend to its parent as long as the amount of the
dividend when aggregated with all other dividends in the
preceding 12 months, does not exceed the greater of:
(i) 10% of its surplus to policyholders as of the end of
the immediately preceding calendar year; or (ii) its
statutory net gain from operations for the immediately preceding
calendar year (excluding realized capital gains). MLI-USA will
be permitted to pay a dividend to MetLife Insurance Company of
Connecticut in excess of the greater of such two amounts only if
it files notice of the declaration of such a dividend and the
amount thereof with the Delaware Commissioner of Insurance
(Delaware Commissioner) and the Delaware
Commissioner does not disapprove the distribution within
30 days of its filing. In addition, any dividend that
exceeds earned surplus (defined as unassigned funds) as of the
last filed annual statutory statement requires insurance
regulatory approval. Under Delaware State Insurance Law, the
Delaware Commissioner has broad discretion in determining
whether the financial condition of a stock life insurance
company would support the payment of such dividends to its
stockholders. During the years ended December 31, 2009, and
2008, MLI-USA did not pay dividends to MetLife Insurance Company
of Connecticut. Because MLI-USAs statutory unassigned
funds was negative as of December 31, 2009, MLI-USA cannot
pay any dividends in 2010 without prior regulatory approval.
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Item 6.
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Selected
Financial Data
|
Omitted pursuant to General Instruction I(2)(a) of
Form 10-K.
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Item 7.
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Managements
Discussion and Analysis of Financial Condition and Results of
Operations
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For purposes of this discussion, MICC or the
Company refers to MetLife Insurance Company of
Connecticut, a Connecticut corporation incorporated in 1863, and
its subsidiaries, including MetLife Investors USA Insurance
Company (MLI-USA). Managements narrative
analysis of the results of operations is presented pursuant to
General Instruction I(2)(a) of
Form 10-K.
This narrative analysis should be read in conjunction with
Note Regarding Forward-Looking Statements,
Risk Factors, and the Companys consolidated
financial statements included elsewhere herein.
40
This narrative analysis may contain or incorporate by reference
information that includes or is based upon forward-looking
statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements give
expectations or forecasts of future events. These statements can
be identified by the fact that they do not relate strictly to
historical or current facts. They use words such as
anticipate, estimate,
expect, project, intend,
plan, believe and other words and terms
of similar meaning in connection with a discussion of future
operating or financial performance. In particular, these include
statements relating to future actions, prospective services or
products, future performance or results of current and
anticipated services or products, sales efforts, expenses, the
outcome of contingencies such as legal proceedings, trends in
operations and financial results. Any or all forward-looking
statements may turn out to be wrong. Actual results could differ
materially from those expressed or implied in the
forward-looking statements. See Note Regarding
Forward-Looking Statements.
The following discussion includes references to our performance
measure operating earnings that is not based on generally
accepted accounting principles in the United States of America
(GAAP). Operating earnings is the measure of segment
profit or loss we use to evaluate segment performance and
allocate resources and, consistent with GAAP accounting guidance
for segment reporting, is our measure of segment performance.
Operating earnings is defined as operating revenues less
operating expenses, net of income tax.
Operating revenues is defined as GAAP revenues: (i) less
net investment gains (losses), (ii) less amortization of
unearned revenue related to net investment gains (losses),
(iii) plus scheduled periodic settlement payments on
derivative instruments that are hedges of investments but do not
qualify for hedge accounting treatment, (iv) plus income
from discontinued real estate operations, if applicable, and
(v) plus, for operating joint ventures reported under the
equity method of accounting, the aforementioned adjustments and
those identified in the definition of operating expenses, net of
income tax, if applicable to these joint ventures.
Operating expenses is defined as GAAP expenses: (i) less
changes in experience-rated contractholder liabilities due to
asset value fluctuations, (ii) less costs related to
business combinations (since January 1, 2009),
(iii) less amortization of DAC and VOBA related to net
investment gains (losses), and (iv) plus scheduled periodic
settlement payments on derivative instruments that are hedges of
policyholder account balances but do not qualify for hedge
accounting treatment.
We believe the presentation of operating earnings, as we measure
it for management purposes, enhances the understanding of our
performance by highlighting the results of operations and the
underlying profitability drivers of our businesses. Operating
earnings should not be viewed as a substitute for GAAP net
income (loss). Reconciliations of operating earnings to GAAP net
income (loss), the most directly comparable GAAP measure, is
included in Consolidated Results of
Operations.
Summary
of Critical Accounting Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to adopt accounting policies and
make estimates and assumptions that affect amounts reported in
the consolidated financial statements. The most critical
estimates include those used in determining:
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(i)
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the estimated fair value of investments in the absence of quoted
market values;
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(ii)
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investment impairments;
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(iii)
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the recognition of income on certain investment entities and the
application of the consolidation rules to certain investments;
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(iv)
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the estimated fair value of and accounting for freestanding
derivatives and the existence and estimated fair value of
embedded derivatives requiring bifurcation;
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(v)
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the capitalization and amortization of DAC and the establishment
and amortization of VOBA;
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(vi)
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the measurement of goodwill and related impairment, if any;
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(vii)
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the liability for future policyholder benefits and the
accounting for reinsurance contracts;
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41
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(viii)
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accounting for income taxes and the valuation of deferred tax
assets;
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(ix)
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the liability for litigation and regulatory matters.
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In applying the Companys accounting policies, we make
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 Companys businesses and operations. Actual
results could differ from these estimates.
Fair
Value
The Company defines fair value as the price that would be
received to sell an asset or paid to transfer a liability (an
exit price) in the principal or most advantageous market for the
asset or liability in an orderly transaction between market
participants on the measurement date. In many cases, the exit
price and the transaction (or entry) price will be the same at
initial recognition. However, in certain cases, the transaction
price may not represent fair value. The fair value of a
liability is based on the amount that would be paid to transfer
a liability to a third-party with the same credit standing. It
requires that fair value be a market-based measurement in which
the fair value is determined based on a hypothetical transaction
at the measurement date, considered from the perspective of a
market participant. When quoted prices are not used to determine
fair value, the Company considers three broad valuation
techniques: (i) the market approach, (ii) the income
approach, and (iii) the cost approach. The Company
determines the most appropriate valuation technique to use,
given what is being measured and the availability of sufficient
inputs. The Company prioritizes the inputs to fair valuation
techniques and allows for the use of unobservable inputs to the
extent that observable inputs are not available. The Company
categorizes its assets and liabilities measured at estimated
fair value into a three-level hierarchy, based on the priority
of the inputs to the respective valuation technique. The fair
value hierarchy gives the highest priority to quoted prices in
active markets for identical assets or liabilities
(Level 1) and the lowest priority to unobservable
inputs (Level 3). An asset or liabilitys
classification within the fair value hierarchy is based on the
lowest level of input to its valuation. The input levels are as
follows:
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Level 1
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Unadjusted quoted prices in active markets for identical assets
or liabilities. The Company defines active markets based on
average trading volume for equity securities. The size of the
bid/ask spread is used as an indicator of market activity for
fixed maturity securities.
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Level 2
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Quoted prices in markets that are not active or inputs that are
observable either directly or indirectly. Level 2 inputs
include quoted prices for similar assets or liabilities other
than quoted prices in Level 1; quoted prices in markets
that are not active; or other significant inputs that are
observable or can be derived principally from or corroborated by
observable market data for substantially the full term of the
assets or liabilities.
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Level 3
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Unobservable inputs that are supported by little or no market
activity and are significant to the estimated fair value of the
assets or liabilities. Unobservable inputs reflect the reporting
entitys own assumptions about the assumptions that market
participants would use in pricing the asset or liability.
Level 3 assets and liabilities include financial
instruments whose values are determined using pricing models,
discounted cash flow methodologies, or similar techniques, as
well as instruments for which the determination of estimated
fair value requires significant management judgment or
estimation.
|
Prior to January 1, 2009, the measurement and disclosures
of fair value based on exit price excluded certain items such as
nonfinancial assets and nonfinancial liabilities initially
measured at estimated fair value in a business combination,
reporting units measured at estimated fair value in the first
step of a goodwill impairment test and indefinite-lived
intangible assets measured at estimated fair value for
impairment assessment.
Estimated
Fair Value of Investments
The Companys investments in fixed maturity and equity
securities, investments in trading securities, and certain
short-term investments are reported at their estimated fair
value. In determining the estimated fair value of these
investments, various methodologies, assumptions and inputs are
utilized, as described further below.
42
When available, the estimated fair value of securities is based
on quoted prices in active markets that are readily and
regularly obtainable. Generally, these are the most liquid of
the Companys securities holdings and valuation of these
securities does not involve management judgment.
When quoted prices in active markets are not available, the
determination of estimated fair value is based on market
standard valuation methodologies. The market standard valuation
methodologies utilized include: discounted cash flow
methodologies, matrix pricing or other similar techniques. The
inputs to these market standard valuation methodologies include,
but are not limited to: interest rates, credit standing of the
issuer or counterparty, industry sector of the issuer, coupon
rate, call provisions, sinking fund requirements, maturity,
estimated duration and managements assumptions regarding
liquidity and estimated future cash flows. Accordingly, the
estimated fair values are based on available market information
and managements judgments about financial instruments.
The significant inputs to the market standard valuation
methodologies for certain types of securities with reasonable
levels of price transparency are inputs that are observable in
the market or can be derived principally from or corroborated by
observable market data. Such observable inputs include
benchmarking prices for similar assets in active, liquid
markets, quoted prices in markets that are not active and
observable yields and spreads in the market.
When observable inputs are not available, the market standard
valuation methodologies for determining the estimated fair value
of certain types of securities that trade infrequently, and
therefore have little or no price transparency, rely on inputs
that are significant to the estimated fair value that are not
observable in the market or cannot be derived principally from
or corroborated by observable market data. These unobservable
inputs can be based in large part on management judgment or
estimation, and cannot be supported by reference to market
activity. Even though unobservable, these inputs are based on
assumptions deemed appropriate given the circumstances and
consistent with what other market participants would use when
pricing such securities.
Financial markets are susceptible to severe events evidenced by
rapid depreciation in asset values accompanied by a reduction in
asset liquidity. The Companys ability to sell securities,
or the price ultimately realized for these securities, depends
upon the demand and liquidity in the market and increases the
use of judgment in determining the estimated fair value of
certain securities.
Investment
Impairments
One of the significant estimates related to
available-for-sale
securities is the evaluation of investments for impairments. As
described more fully in Note 1 of the Notes to the
Consolidated Financial Statements, effective April 1, 2009,
the Company adopted new OTTI guidance that amends the
methodology for determining for fixed maturity securities
whether an OTTI exists, and for certain fixed maturity
securities, changes how the amount of the
other-than-temporary
loss that is charged to earnings is determined. There was no
change in the OTTI methodology for equity securities. The
discussion presented below incorporates the new OTTI guidance
adopted April 1, 2009.
The assessment of whether impairments have occurred is based on
our
case-by-case
evaluation of the underlying reasons for the decline in
estimated fair value. The Companys review of its fixed
maturity and equity securities for impairments includes an
analysis of the total gross unrealized losses by three
categories of securities: (i) securities where the
estimated fair value had declined and remained below cost or
amortized cost by less than 20%; (ii) securities where the
estimated fair value had declined and remained below cost or
amortized cost by 20% or more for less than six months; and
(iii) securities where the estimated fair value had
declined and remained below cost or amortized cost by 20% or
more for six months or greater. 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 Companys
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 certain equity
securities, greater weight and consideration are given by the
Company to a decline in estimated fair value and the likelihood
such estimated fair value decline will recover.
Additionally, we consider a wide range of factors about the
security issuer and use our best judgment in evaluating the
cause of the decline in the estimated fair value of the security
and in assessing the prospects for near-
43
term recovery. Inherent in our evaluation of the security are
assumptions and estimates about the operations of the issuer and
its future earnings potential. Considerations used by the
Company in the impairment evaluation process include, but are
not limited to:
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(i)
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the length of time and the extent to which the estimated fair
value has been below cost or amortized cost;
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(ii)
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the potential for impairments of securities when the issuer is
experiencing significant financial difficulties;
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(iii)
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the potential for impairments in an entire industry sector or
sub-sector;
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(iv)
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the potential for impairments in certain economically depressed
geographic locations;
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(v)
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the potential for impairments of securities where the issuer,
series of issuers or industry has suffered a catastrophic type
of loss or has exhausted natural resources;
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(vi)
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with respect to fixed maturity securities, whether the Company
has the intent to sell or will more likely than not be required
to sell a particular security before recovery of the decline in
estimated fair value below cost or amortized cost;
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(vii)
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with respect to equity securities, whether the Companys
ability and intent to hold the security for a period of time
sufficient to allow for the recovery of its value to an amount
equal to or greater than cost;
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(viii)
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unfavorable changes in forecasted cash flows on mortgage-backed
and asset-backed securities; and
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(ix)
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other subjective factors, including concentrations and
information obtained from regulators and rating agencies.
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The cost or amortized cost of fixed maturity and cost of equity
securities is adjusted for the credit loss component of OTTI in
the period in which the determination is made. When an OTTI of a
fixed maturity security has occurred, the amount of the OTTI
recognized in earnings depends on whether the Company intends to
sell the security or more likely than not will be required to
sell the security before recovery of its amortized cost basis.
If the fixed maturity security meets either of these two
criteria, the OTTI recognized in earnings is equal to the entire
difference between the securitys amortized cost basis and
its estimated fair value at the impairment measurement date. For
OTTI of fixed maturity securities that do not meet either of
these two criteria, the net amount recognized in earnings is
equal to the difference between the amortized cost of the fixed
maturity security and the present value of projected future cash
flows to be collected from this security. Any difference between
the estimated fair value and the present value of the expected
future cash flows of the security at the impairment measurement
date is recorded in other comprehensive income (loss). For
equity securities, the carrying value of the equity security is
impaired to its estimated fair value, with a corresponding
charge to earnings. The Company does not change the revised cost
basis for subsequent recoveries in value.
The determination of the amount of allowances and impairments on
other invested asset classes is highly subjective and is based
upon the Companys periodic evaluation and assessment of
known and inherent risks associated with the respective asset
class. Such evaluations and assessments are revised as
conditions change and new information becomes available.
Recognition
of Income on Certain Investment Entities
The recognition of income on certain investments (e.g.
loan-backed securities, including mortgage-backed and
asset-backed securities, certain investment transactions,
trading securities, etc.) is dependent upon market conditions,
which could result in prepayments and changes in amounts to be
earned.
Application
of the Consolidation Rules to Certain Investments
The Company has invested in certain transactions that are
variable interest entities (VIEs). These
transactions include reinsurance trusts, asset-backed
securitizations, joint ventures, limited partnerships and
limited liability companies. The Company is required to
consolidate those VIEs for which it is deemed to be the primary
beneficiary. The accounting rules for the determination of when
an entity is a VIE and when to
44
consolidate a VIE are complex. The determination of the
VIEs primary beneficiary requires an evaluation of the
contractual rights and obligations associated with each party
involved in the entity, an estimate of the entitys
expected losses and expected residual returns and the allocation
of such estimates to each party involved in the entity. The
primary beneficiary is defined as the entity that will absorb a
majority of a VIEs expected losses, receive a majority of
a VIEs expected residual returns if no single entity
absorbs a majority of expected losses, or both.
When assessing the expected losses to determine the primary
beneficiary for structured investment products such as
asset-backed securitizations and collateralized debt
obligations, the Company uses historical default probabilities
based on the credit rating of each issuer and other inputs
including maturity dates, industry classifications and
geographic location. Using computational algorithms, the
analysis simulates default scenarios resulting in a range of
expected losses and the probability associated with each
occurrence. For other investment structures such as joint
ventures, limited partnerships and limited liability companies,
the Company takes into consideration the design of the VIE and
generally uses a qualitative approach to determine if it is the
primary beneficiary. This approach includes an analysis of all
contractual and implied rights and obligations held by all
parties including profit and loss allocations, repayment or
residual value guarantees, put and call options and other
derivative instruments. If the primary beneficiary of a VIE can
not be identified using this qualitative approach, the Company
calculates the expected losses and expected residual returns of
the VIE using a probability-weighted cash flow model. The use of
different methodologies, assumptions and inputs in the
determination of the primary beneficiary could have a material
effect on the amounts presented within the consolidated
financial statements.
Derivative
Financial Instruments
The Company enters into freestanding derivative transactions
including swaps, forwards, futures and option contracts to
manage various risks relating to its ongoing business
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 estimated fair value of derivatives is determined through
the use of quoted market prices for exchange-traded derivatives
or through the use of pricing models for
over-the-counter
derivatives. The determination of estimated fair 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.
See Note 4 of the Notes to the Consolidated Financial
Statements for additional details on significant inputs into the
over-the-counter
derivative pricing models and credit risk adjustment.
The accounting for derivatives is complex and interpretations of
the primary accounting guidance continue to evolve in practice.
Judgment is applied in determining the availability and
application of hedge accounting designations and the appropriate
accounting treatment under such accounting guidance. 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. Assessments of hedge effectiveness and
measurements of ineffectiveness of hedging relationships are
also subject to interpretations and estimations and different
interpretations or estimates may have a material effect on the
amount reported in net income.
Embedded
Derivatives
The Company issues certain variable annuity products with
guaranteed minimum benefits. These include guaranteed minimum
withdrawal benefits (GMWB), GMAB, and certain GMIB.
GMWB, GMAB and certain GMIB are embedded derivatives, which are
measured at estimated fair value separately from the host
variable annuity product, with changes in estimated fair value
reported in net investment gains (losses).
45
The estimated fair values for these embedded derivatives are
determined based on the present value of projected future
benefits minus the present value of projected future fees. The
projections of future benefits and future fees require capital
market and actuarial assumptions including expectations
concerning policyholder behavior. A risk neutral valuation
methodology is used under which the cash flows from the
guarantees are projected under multiple capital market scenarios
using observable risk free rates. Beginning in 2008, the
valuation of these embedded derivatives includes an adjustment
for the Companys own credit and risk margins for
non-capital market inputs. The Companys own credit
adjustment is determined taking into consideration publicly
available information relating to the Companys debt, as
well as its claims paying ability. Risk margins are established
to capture the non-capital market risks of the instrument which
represent the additional compensation a market participant would
require to assume the risks related to the uncertainties of such
actuarial assumptions as annuitization, premium persistency,
partial withdrawal and surrenders. The establishment of risk
margins requires the use of significant management judgment.
These guarantees may be more costly than expected in volatile or
declining equity markets. Market conditions including, but not
limited to, changes in interest rates, equity indices, market
volatility and foreign currency exchange rates; changes in the
Companys own credit standing; and variations in actuarial
assumptions regarding policyholder behavior, and risk margins
related to non-capital market inputs may result in significant
fluctuations in the estimated fair value of the guarantees that
could materially affect net income.
The Company ceded the risk associated with certain of the GMIB,
GMAB and GMWB described in the preceding paragraphs to an
affiliated reinsurance company. The value of these embedded
derivatives is determined using a methodology consistent with
that described previously for the guarantees directly written by
the Company.
In addition to ceding risks associated with guarantees that are
accounted for as embedded derivatives, the Company also cedes to
the same affiliated reinsurance company certain directly written
GMIB guarantees that are accounted for as insurance (i.e. not as
embedded derivatives) but where the reinsurance contract
contains an embedded derivative. These embedded derivatives are
included in premiums and other receivables with changes in
estimated fair value reported in net investment gains (losses).
The value of the embedded derivatives on these ceded risks is
determined using a methodology consistent with that described
previously for the guarantees directly written by the Company.
Because the directly written GMIB is not accounted for at fair
value, significant fluctuations in net income may occur as the
change in fair value of the embedded derivative on the ceded
risk is being recorded in net income without a corresponding and
offsetting change in fair value of the directly written GMIB.
The accounting for embedded derivatives is complex and
interpretations of the primary accounting standards continue to
evolve in practice. If interpretations change, there is a risk
that features previously not bifurcated may require bifurcation
and reporting at estimated fair value in the consolidated
financial statements and respective changes in estimated fair
value could materially affect net income.
Deferred
Policy Acquisition Costs and Value of Business
Acquired
The Company incurs significant costs in connection with
acquiring new and renewal insurance business. Costs that vary
with and relate to the production of new business are deferred
as DAC. Such costs consist principally of commissions and agency
and policy issuance expenses. VOBA is an intangible asset that
represents the present value of future profits embedded in
acquired insurance annuity and investment type
contracts. VOBA is based on actuarially determined projections,
by each block of business, of future policy and contract
charges, premiums, mortality and morbidity, separate account
performance, surrenders, operating expenses, investment returns
and other factors. Actual experience on the purchased business
may vary from these projections. The recovery of DAC and VOBA is
dependent upon the future profitability of the related business.
DAC and VOBA are aggregated in the financial statements for
reporting purposes.
Note 1 of the Notes to the Consolidated Financial
Statements describes the Companys accounting policy
relating to DAC and VOBA amortization for various types of
contracts.
Separate account rates of return on variable universal life
contracts and variable deferred annuity contracts affect
in-force account balances on such contracts each reporting
period which can result in significant fluctuations
46
in amortization of DAC and VOBA. The Companys practice to
determine the impact of gross profits resulting from returns on
separate accounts assumes that long-term appreciation in equity
markets is not changed by short-term market fluctuations, but is
only changed when sustained interim deviations are expected. The
Company monitors these changes and only changes the assumption
when its long-term expectation changes. The effect of an
increase/(decrease) by 100 basis points in the assumed
future rate of return is reasonably likely to result in a
decrease/(increase) in the DAC and VOBA amortization of
approximately $65 million without any offset to the
Companys unearned revenue liability for this factor.
The Company also reviews periodically other long-term
assumptions underlying the projections of estimated gross
profits. These include investment returns, interest crediting
rates, mortality, persistency, and expenses to administer
business. We annually update assumptions used in the calculation
of estimated gross profits which may have significantly changed.
If the update of assumptions causes expected future gross
profits to increase, DAC and VOBA amortization will decrease,
resulting in a current period increase to earnings. The opposite
result occurs when the assumption update causes expected future
gross profits to decrease.
Over the last several years, the Companys most significant
assumption updates resulting in a change to expected future
gross profits and the amortization of DAC and VOBA have been
updated due to revisions to expected future investment returns,
expenses, in-force or persistency assumptions included within
the Retirement Products and Insurance Products segments. During
2009, the amount of net investment gains (losses), as well as
the level of separate account balances also resulted in
significant changes to expected future gross profits impacting
amortization of DAC and VOBA. The Company expects these
assumptions to be the ones most reasonably likely to cause
significant changes in the future. Changes in these assumptions
can be offsetting and the Company is unable to predict their
movement or offsetting impact over time.
Goodwill
Goodwill is the excess of cost over the estimated fair value of
net assets acquired. Goodwill is not amortized but is tested for
impairment at least annually or more frequently if events or
circumstances, such as adverse changes in the business climate,
indicate that there may be justification for conducting an
interim test. We perform our annual goodwill impairment testing
during the third quarter of each year based upon data as of the
close of the second quarter.
Impairment testing is performed using the fair value approach,
which requires the use of estimates and judgment, at the
reporting unit level. A reporting unit is the
operating segment or a business one level below the operating
segment, if discrete financial information is prepared and
regularly reviewed by management at that level. For purposes of
goodwill impairment testing, goodwill within
Corporate & Other is allocated to reporting units
within our business segments.
For purposes of goodwill impairment testing, if the carrying
value of a reporting unit exceeds its estimated fair value,
there might be an indication of impairment. In such instances,
the implied fair value of the goodwill is determined in the same
manner as the amount of goodwill that would be determined in a
business acquisition. The excess of the carrying value of
goodwill over the implied fair value of goodwill is recognized
as an impairment and recorded as a charge against net income.
In performing our goodwill impairment tests, when we believe
meaningful comparable market data are available, the estimated
fair values of the reporting units are determined using a market
multiple approach. When relevant comparables are not available,
we use a discounted cash flow model. For reporting units which
are particularly sensitive to market assumptions, such as the
retirement products and individual life reporting units, we may
corroborate our estimated fair values by using additional
valuation methodologies.
The key inputs, judgments and assumptions necessary in
determining estimated fair value include projected operating
earnings, current book value (with and without accumulated other
comprehensive income), the level of economic capital required to
support the mix of business, long term growth rates, comparative
market multiples, the account value of in-force business,
projections of new and renewal business, as well as margins on
such business, the level of interest rates, credit spreads,
equity market levels, and the discount rate we believe
appropriate to the
47
risk associated with the respective reporting unit. The
estimated fair value of the retirement products and individual
life reporting units are particularly sensitive to the equity
market levels.
We apply significant judgment when determining the estimated
fair value of our reporting units. The valuation methodologies
utilized are subject to key judgments and assumptions that are
sensitive to change. Estimates of fair value are inherently
uncertain and represent only managements reasonable
expectation regarding future developments. These estimates and
the judgments and assumptions upon which the estimates are based
will, in all likelihood, differ in some respects from actual
future results. Declines in the estimated fair value of our
reporting units could result in goodwill impairments in future
periods which could materially adversely affect our results of
operations or financial position.
During our 2009 impairment tests of goodwill, we concluded that
the fair values of all reporting units were in excess of their
carrying values and, therefore, goodwill was not impaired.
However, we continue to evaluate current market conditions that
may affect the estimated fair value of our reporting units to
assess whether any goodwill impairment exists. Deteriorating or
adverse market conditions for certain reporting units may have a
significant impact on the estimated fair value of these
reporting units and could result in future impairments of
goodwill. See Note 6 of the Notes to the Consolidated
Financial Statements for further consideration of goodwill
impairment testing during 2009.
Liability
for Future Policy Benefits
The Company establishes liabilities for amounts payable under
insurance policies, including traditional life insurance,
traditional annuities and non-medical health insurance.
Generally, amounts are payable over an extended period of time
and related liabilities are calculated as the present value of
future expected benefits to be paid reduced by the present value
of future expected premiums. Such liabilities are established
based on methods and underlying assumptions in accordance with
GAAP and applicable actuarial standards. Principal assumptions
used in the establishment of liabilities for future policy
benefits are mortality, morbidity, policy lapse, renewal,
retirement, investment returns, inflation, expenses and other
contingent events as appropriate to the respective product type.
These assumptions are established at the time the policy is
issued and are intended to estimate the experience for the
period the policy benefits are payable. Utilizing these
assumptions, liabilities are established on a block of business
basis. If experience is less favorable than assumptions,
additional liabilities may be required, resulting in a charge to
policyholder benefits and claims.
Future policy benefit liabilities for disabled lives are
estimated using the present value of benefits method and
experience assumptions as to claim terminations, expenses and
interest.
Liabilities for unpaid claims and claim expenses for
workers compensation insurance are included in future
policyholder benefits and represent the amount estimated for
claims that have been reported but not settled and claims
incurred but not reported. Other policyholder funds include
claims that have been reported but not settled and claims
incurred but not reported on life and non-medical health
insurance. Liabilities for unpaid claims are estimated based
upon the Companys historical experience and other
actuarial assumptions that consider the effects of current
developments, anticipated trends and risk management programs.
With respect to workers compensation insurance, such
unpaid claims are reduced for anticipated subrogation. The
effects of changes in such estimated liabilities are included in
the results of operations in the period in which the changes
occur.
Future policy benefit liabilities for minimum death and income
benefit guarantees relating to certain annuity contracts and
secondary guarantees relating to certain life policies are based
on estimates of the expected value of benefits in excess of the
projected account balance and recognizing the excess ratably
over the accumulation period based on total expected
assessments. Liabilities for universal and variable life
secondary guarantees are determined by estimating the expected
value of death benefits payable when the account balance is
projected to be zero and recognizing those benefits ratably over
the accumulation period based on total expected assessments. The
assumptions used in estimating these liabilities are consistent
with those used for amortizing DAC, and are thus subject to the
same variability and risk.
The Company periodically reviews its estimates of actuarial
liabilities for future policy benefits and compares them with
its actual experience. Differences between actual experience and
the assumptions used in pricing of these
48
policies and guarantees and in the establishment of the related
liabilities result in variances in profit and could result in
losses. The effects of changes in such estimated liabilities are
included in the results of operations in the period in which the
changes occur.
Reinsurance
The Company enters into reinsurance agreements primarily as a
purchaser of reinsurance for its various insurance products and
also as a provider of reinsurance for some insurance products
issued by third parties. Accounting for reinsurance requires
extensive use of assumptions and estimates, particularly related
to the future performance of the underlying business and the
potential impact of counterparty credit risks. The Company
periodically reviews actual and anticipated experience compared
to the aforementioned assumptions used to establish assets and
liabilities relating to ceded and assumed reinsurance and
evaluates the financial strength of counterparties to its
reinsurance agreements using criteria similar to that evaluated
in the security impairment process discussed previously.
Additionally, for each of its reinsurance agreements, the
Company determines if the agreement provides indemnification
against loss or liability relating to insurance risk, in
accordance with applicable accounting standards. The Company
reviews all contractual features, particularly those that may
limit the amount of insurance risk to which the reinsurer is
subject or features that delay the timely reimbursement of
claims. If the Company determines that a reinsurance agreement
does not expose the reinsurer to a reasonable possibility of a
significant loss from insurance risk, the Company records the
agreement using the deposit method of accounting.
Income
Taxes
Income taxes represent the net amount of income taxes that the
Company expects to pay to or receive from various taxing
jurisdictions in connection with its operations. The Company
provides for federal, state and foreign income taxes currently
payable, as well as those deferred due to temporary differences
between the financial reporting and tax bases of assets and
liabilities. The Companys accounting for income taxes
represents managements best estimate of various events and
transactions.
Deferred tax assets and liabilities resulting from temporary
differences between the financial reporting and tax bases of
assets and liabilities are measured at the balance sheet date
using enacted tax rates expected to apply to taxable income in
the years the temporary differences are expected to reverse. The
realization of deferred tax assets depends upon the existence of
sufficient taxable income within the carryback or carryforward
periods under the tax law in the applicable tax jurisdiction.
Valuation allowances are established when management determines,
based on available information, that it is more likely than not
that deferred income tax assets will not be realized. Factors in
managements determination consider the performance of the
business including the ability to generate capital gains.
Significant judgment is required in determining whether
valuation allowances should be established, as well as the
amount of such allowances. When making such determination,
consideration is given to, among other things, the following:
|
|
|
|
(i)
|
future taxable income exclusive of reversing temporary
differences and carryforwards;
|
|
|
(ii)
|
future reversals of existing taxable temporary differences;
|
|
|
(iii)
|
taxable income in prior carryback years; and
|
|
|
(iv)
|
tax planning strategies.
|
The Company determines whether it is more likely than not that a
tax position will be sustained upon examination by the
appropriate taxing authorities before any part of the benefit is
recorded in the financial statements. A tax position is measured
at the largest amount of benefit that is greater than
50 percent likely of being realized upon settlement. The
Company may be required to change its provision for income taxes
when the ultimate deductibility of certain items is challenged
by taxing authorities or when estimates used in determining
valuation allowances on deferred tax assets significantly
change, or when receipt of new information indicates the need
for adjustment in valuation allowances. Additionally, future
events, such as changes in tax laws, tax regulations, or
interpretations of such laws or regulations, could have an
impact on the provision for income tax and the effective tax
rate. Any such changes could significantly affect the amounts
reported in the consolidated financial statements in the year
these changes occur.
49
Litigation
Contingencies
The Company is a party to a number of legal actions and is
involved in a number of regulatory investigations. Given the
inherent unpredictability of these matters, it is difficult to
estimate the impact on the Companys financial position.
Liabilities are established when it is probable that a loss has
been incurred and the amount of the loss can be reasonably
estimated. On a quarterly and annual basis, the Company reviews
relevant information with respect to liabilities for litigation,
regulatory investigations and litigation-related contingencies
to be reflected in the Companys consolidated financial
statements. It is possible that an adverse outcome in certain of
the Companys litigation and regulatory investigations, or
the use of different assumptions in the determination of amounts
recorded, could have a material effect upon the Companys
consolidated net income or cash flows in particular quarterly or
annual periods.
Economic
Capital
Economic capital is an internally developed risk capital model,
the purpose of which is to measure the risk in the business and
to provide a basis upon which capital is deployed. The economic
capital model accounts for the unique and specific nature of the
risks inherent in MetLifes businesses. As a part of the
economic capital process, a portion of net investment income is
credited to the segments based on the level of allocated equity.
This is in contrast to the standardized regulatory risk-based
capital formula, which is not as refined in its risk
calculations with respect to the nuances of the Companys
businesses.
Consolidated
Results of Operations
Year
Ended December 31, 2009 compared with the Year Ended
December 31, 2008
The U.S. and global financial markets experienced
extraordinary dislocations during late 2008 through early 2009,
with the U.S. economy entering a recession in January 2008.
The economic crisis and the resulting recession have had an
adverse effect on our financial results, as well as the
financial services industry. Most economists believe the
recession ended in the third quarter of 2009 when positive
growth returned and now expect positive growth to continue
through 2010. Despite the challenging environment, a flight to
quality during the year contributed to an improvement in sales
in both our domestic fixed and variable annuity products, as
well as a reduction in surrenders and withdrawals. We also saw
an increase in market share, especially in the UK closeouts and
structured settlement businesses, where we experienced increases
in premiums of 105% and 88%, respectively. Market conditions
also contributed to a lower demand for several of our
investment-type products. The decrease in sales of these
investment-type products is not necessarily evident in our
results of operations as the transactions related to these
products are recorded through the balance sheet. Our funding
agreement products, primarily the London Inter-Bank Offer Rate
(LIBOR) based contracts, experienced the most
significant impact from the volatile market conditions. As
companies seek greater liquidity, investment managers are
refraining from repurchasing the contracts when they mature and
are opting for more liquid investments. In addition,
50
unfavorable market conditions continued to impact the demand for
global guaranteed interest contracts, a type of funding
agreement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
% Change
|
|
|
|
(In millions)
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
1,312
|
|
|
$
|
634
|
|
|
$
|
678
|
|
|
|
106.9
|
%
|
Universal life and investment-type product policy fees
|
|
|
1,380
|
|
|
|
1,378
|
|
|
|
2
|
|
|
|
0.1
|
%
|
Net investment income
|
|
|
2,335
|
|
|
|
2,494
|
|
|
|
(159
|
)
|
|
|
(6.4)
|
%
|
Other revenues
|
|
|
598
|
|
|
|
230
|
|
|
|
368
|
|
|
|
160.0
|
%
|
Net investment gains (losses)
|
|
|
(1,866
|
)
|
|
|
549
|
|
|
|
(2,415
|
)
|
|
|
(439.9)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
3,759
|
|
|
|
5,285
|
|
|
|
(1,526
|
)
|
|
|
(28.9)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims
|
|
|
2,065
|
|
|
|
1,446
|
|
|
|
619
|
|
|
|
42.8
|
%
|
Interest credited to policyholder account balances
|
|
|
1,301
|
|
|
|
1,130
|
|
|
|
171
|
|
|
|
15.1
|
%
|
Capitalization of DAC
|
|
|
(851
|
)
|
|
|
(835
|
)
|
|
|
(16
|
)
|
|
|
(1.9)
|
%
|
Amortization of DAC and VOBA
|
|
|
294
|
|
|
|
1,163
|
|
|
|
(869
|
)
|
|
|
(74.7)
|
%
|
Interest expense
|
|
|
71
|
|
|
|
72
|
|
|
|
(1
|
)
|
|
|
(1.4)
|
%
|
Other expenses
|
|
|
1,693
|
|
|
|
1,533
|
|
|
|
160
|
|
|
|
10.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
4,573
|
|
|
|
4,509
|
|
|
|
64
|
|
|
|
1.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income tax
|
|
|
(814
|
)
|
|
|
776
|
|
|
|
(1,590
|
)
|
|
|
(204.9)
|
%
|
Provision for income tax expense (benefit)
|
|
|
(368
|
)
|
|
|
203
|
|
|
|
(571
|
)
|
|
|
(281.3)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(446
|
)
|
|
$
|
573
|
|
|
$
|
(1,019
|
)
|
|
|
(177.8)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unless otherwise stated, all amounts are net of income tax.
During the year ended December 31, 2009, MICCs net
income (loss) decreased $1.0 billion to a loss of
$446 million from income of $573 million in the
comparable 2008 period. The year over year change is
predominantly due to a $1.2 billion unfavorable change in
net investment gains (losses), net of related adjustments.
We manage our investment portfolio using disciplined
asset/liability management principles, focusing on cash flow and
duration to support our current and future liabilities. Our
intent is to match the timing and amount of liability cash
outflows with invested assets that have cash inflows of
comparable timing and amount, while optimizing, net of income
tax, risk-adjusted net investment income and risk-adjusted total
return. Our investment portfolio is heavily weighted toward
fixed income investments, with over 85% of our portfolio
invested in fixed maturity securities and mortgage loans. These
securities and loans have varying maturities and other
characteristics which cause them to be generally well suited for
matching the cash flow and duration of our insurance
liabilities. Other invested asset classes including, but not
limited to, equity securities, other limited partnership
interests and real estate and real estate joint ventures provide
additional diversification and opportunity for long term yield
enhancement in addition to supporting the cash flow and duration
objectives of our investment portfolio. We also use derivatives
as an integral part of our management of the investment
portfolio to hedge certain risks, including changes in interest
rates, foreign currencies, credit spreads and equity market
levels. Additional considerations for our investment portfolio
include current and expected market conditions and expectations
for changes within our unique mix of products and business
segments. Investments are purchased to support our insurance
liabilities and not to generate net investment gains and losses.
However, net investment gains and losses are generated and can
change significantly from period to period, due to changes in
external influences including movements in interest rates,
foreign currencies and credit spreads, counterparty specific
factors such as financial performance, credit rating and
collateral valuation, and internal factors such as portfolio
rebalancing that can generate gains and losses.
51
As an investor in the fixed income, equity security, mortgage
loan and certain other invested asset classes, we are exposed to
the above stated risks, which can lead to both impairments and
credit-related losses.
The unfavorable variance in net investment gains (losses) of
$1.2 billion, net of related adjustments, was primarily
driven by losses on freestanding derivatives, embedded
derivatives associated with ceded reinsurance of variable
annuity minimum benefit guarantees, partially offset by gains on
direct variable annuity minimum benefit guarantees and decreased
losses on fixed maturity securities. The negative change in
freestanding derivatives, from gains in the prior year to losses
in the current year, was primarily attributable to the effect of
rising interest rates on certain interest rate sensitive
derivatives that are economic hedges of certain invested assets
and insurance liabilities, the weakening of the U.S. Dollar
on foreign currency sensitive derivatives and equity market and
interest rate derivatives that are economic hedges of embedded
derivatives. The unfavorable change in embedded derivatives,
from gains in the prior year to losses in the current year, was
driven primarily by losses on ceded reinsurance of variable
annuity minimum benefit guarantees, net of a positive impact
from the reinsurers credit spread narrowing. The current
year losses on these embedded derivatives were partially offset
by gains on directly written variable annuity minimum benefit
guarantees, which were net of losses attributable to a narrowing
of MICCs own credit spread. Losses on those freestanding
derivatives hedging certain of the directly written variable
annuity minimum benefit guarantees partially offset the change
in the liabilities attributable to market factors, excluding the
adjustment for the change in MICCs own credit spread,
which is not hedged. The decrease in losses on fixed maturity
securities is primarily attributable to both lower net losses on
sales of fixed maturity securities and decreased impairments.
As more fully described in the discussion of performance
measures above, operating earnings is the measure of segment
profit or loss we use to evaluate performance and allocate
resources. Consistent with GAAP accounting guidance for segment
reporting, it is our measure of performance, as reported below.
Operating earnings is not determined in accordance with GAAP and
should not be viewed as a substitute for GAAP net income (loss).
We believe that the presentation of operating earnings enhances
the understanding of our performance by highlighting the results
of operations and the underlying profitability drivers of the
business. Operating earnings increased by $266 million to
$610 million in 2009 from $344 million in 2008.
Reconciliation
of net income (loss) to operating earnings
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Net income (loss)
|
|
$
|
(446
|
)
|
|
$
|
573
|
|
Less: Net investment gains (losses)
|
|
|
(1,866
|
)
|
|
|
549
|
|
Less: Other adjustments
|
|
|
239
|
|
|
|
(198
|
)
|
Less: Provision for income tax (expense) benefit
|
|
|
571
|
|
|
|
(122
|
)
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
610
|
|
|
$
|
344
|
|
|
|
|
|
|
|
|
|
|
52
Reconciliation
of GAAP revenues to operating revenues and GAAP expenses to
operating expenses
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Total revenues
|
|
$
|
3,759
|
|
|
$
|
5,285
|
|
Less: Net investment gains (losses)
|
|
|
(1,866
|
)
|
|
|
549
|
|
Less: Adjustments related to net investment gains (losses)
|
|
|
(20
|
)
|
|
|
17
|
|
Less: Other adjustments to revenues
|
|
|
(31
|
)
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
$
|
5,676
|
|
|
$
|
4,743
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
$
|
4,573
|
|
|
$
|
4,509
|
|
Less: Adjustments related to net investment gains (losses)
|
|
|
(311
|
)
|
|
|
225
|
|
Less: Other adjustments to expenses
|
|
|
21
|
|
|
|
(34
|
)
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
4,863
|
|
|
$
|
4,318
|
|
|
|
|
|
|
|
|
|
|
The increase in operating earnings was primarily driven by both
positive and negative impacts of the volatile market conditions,
which resulted in lower amortization of DAC, VOBA and deferred
sales inducements (DSI), and a reduction in net
investment income. The impact of an affiliated reinsurance
treaty also was a significant contributor to the year over year
increase in operating earnings. Mortality and morbidity
experience did not have a material impact on operating earnings.
The market improvement, which began in the second quarter of
2009, was a key factor in the determination of our expected
future gross profits, the increase of which triggered a
$241 million decrease in DAC, VOBA and DSI amortization,
most significantly in the Retirement Products segment. The 2008
results reflected increased, or accelerated, amortization
primarily stemming from a decline in the market value of our
separate account balances. A factor that determines the amount
of amortization is expected future earnings, which in the
annuity business are derived, in part, from fees earned on
separate account balances. The market value of our separate
account balances declined significantly in 2008, resulting in a
decrease in the expected future gross profits, triggering an
acceleration of amortization in 2008. Beginning in the second
quarter of 2009, the market conditions began to improve and the
market value of separate account balances began to increase,
resulting in an increase in the expected future gross profits
and a corresponding lower level of amortization in 2009.
Although the market value of our separate account balances has
improved, the average market value of the balances remain below
our prior year average and, as a result, income recorded
predominantly in universal life and investment-type product
policy fees decreased by $61 million in our Retirement
Products segment. Equity market improvement, higher interest
rates and the annual unlocking of future market expectations had
a positive impact on operating earnings by decreasing guaranteed
annuity benefit costs by $95 million in our Retirement
Products segment.
The volatile market conditions contributed to a
$103 million decline in net investment income as our
portfolio experienced decreasing yields, including the effects
of our higher quality, more liquid, but lower yielding
investment position in response to the extraordinary market
conditions. The impact of declining yields caused a
$161 million decrease in net investment income, which was
partially offset by an increase of $58 million due to
growth in average invested assets. The decrease in yields
resulted from the disruption and dislocation in the global
financial markets experienced in 2008, which continued, but
moderated in 2009. The adverse yield impact was concentrated in
real estate joint ventures, cash, cash equivalents and
short-term investments, and mortgage loans. In addition, income
earned on our securities lending program decreased, primarily
due to the smaller size of the program in the current year.
Equity markets experienced some recovery in 2009, which led to
improved yields on other limited partnership interests, as well
as favorable results on our trading securities portfolio. The
increase in average invested assets was due to increased cash
flows from the sales of fixed annuity products and more
customers electing the fixed option on variable annuity sales,
which were reinvested primarily in fixed maturity securities and
mortgage loans.
As many of our products are interest-spread based, the change in
net investment income is typically offset by interest credited
expenses on our investment and insurance products. However, we
experienced an increase of $149 million in interest
credited expenses during a period in which we recognized lower
net investment income.
53
This increase stems primarily from our Retirement Products
segment and our business in Ireland, which is included in
Corporate & Other. In the Retirement Products segment,
an increase of $170 million was predominantly due to the
impact of $4.9 billion in growth of our fixed annuity
policyholder account balances, resulting from higher fixed sales
and more customers electing the fixed option on variable annuity
sales. The increase was also, due in part, to the impact of
higher average crediting rates on fixed annuities. Our Ireland
unit-linked policyholder liabilities are tied directly to our
trading portfolio and as a result, we recognized an increase of
$73 million in interest credited expenses. In our Corporate
Benefit Funding segment, the growth in structured settlements
and UK closeouts resulted in a slight increase in interest
credited expense; however, this was more than offset by a
$107 million decrease in interest credited expense driven
by a $2 billion decline in our funding agreement
policyholder account balances coupled with a decrease in the
interest crediting rates.
The favorable change in operating earnings includes increases in
other revenues related to certain affiliated reinsurance
treaties. The most significant impact was in our Insurance
Products segment, which benefited from the impact of a
refinement in the assumptions and methodology used to value a
deposit receivable from an affiliated reinsurance treaty of
$182 million. Our Retirement Products segment recognized an
increase of $74 million from fees earned on ceded reserves
related to an affiliated reinsurance treaty.
Higher universal life and investment-type product policy fees
contributed $86 million to the increase in operating
earnings, reflecting the growth we experienced in our Insurance
Product segments universal life fixed products.
Business growth was the primary driver of our $104 million
increase in other expenses. The positive impact of Operational
Excellence, MetLifes enterprise-wide cost reduction and
revenue enhancement initiative, was more than offset by expense
increases attributable to business growth. This increase
includes higher variable costs, such as commissions and premium
taxes, a portion of which is offset in DAC capitalization.
Effects
of Inflation
The Company does not believe that inflation has had a material
effect on its consolidated results of operations, except insofar
as inflation may affect interest rates.
Inflation in the United States has remained contained and been
in a general downtrend for an extended period. However, in light
of recent and ongoing aggressive fiscal and monetary stimulus
measures by the U.S. federal government and foreign
governments, it is possible that inflation could increase in the
future. An increase in inflation could affect our business in
several ways. During inflationary periods, the value of fixed
income investments falls which could increase realized and
unrealized losses. Inflation also increases expenses for labor
and other materials, potentially putting pressure on
profitability if such costs can not be passed through in our
product prices. Prolonged and elevated inflation could adversely
affect the financial markets and the economy generally, and
dispelling it may require governments to pursue a restrictive
fiscal and monetary policy, which could constrain overall
economic activity, inhibit revenue growth and reduce the number
of attractive investment opportunities.
Off-Balance
Sheet Arrangements
Commitments
to Fund Partnership Investments
The Company makes commitments to fund partnership investments in
the normal course of business for the purpose of enhancing the
Companys total return on its investment portfolio. The
amounts of these unfunded commitments were $1.5 billion and
$1.6 billion at December 31, 2009 and 2008,
respectively. Once funded, those commitments are classified in
the consolidated balance sheet according to their nature as
other limited partnership interests, real estate joint ventures
or other invested assets. The Company anticipates that these
amounts will be invested in partnerships over the next five
years. There are no other obligations or liabilities arising
from such arrangements that are reasonably likely to become
material.
54
Mortgage
Loan Commitments
The Company commits to lend funds under mortgage loan
commitments. The amounts of these mortgage loan commitments were
$131 million and $231 million at December 31,
2009 and 2008, respectively. The purpose of these loans is to
enhance the Companys total return on its investment
portfolio. There are no other obligations or liabilities arising
from such arrangements that are reasonably likely to become
material.
Commitments
to Fund Bank Credit Facilities and Private Corporate Bond
Investments
The Company commits to lend funds under bank credit facilities
and private corporate bond investments. The amounts of these
unfunded commitments were $445 million and
$332 million at December 31, 2009 and 2008,
respectively. The purpose of these commitments is to enhance the
Companys total return on its investment portfolio. There
are no other obligations or liabilities arising from such
arrangements that are reasonably likely to become material.
Lease
Commitments
The Company, as lessee, has entered into various lease
agreements for office space.
Other
Commitments
The Company has entered into collateral arrangements with
affiliates, which require the transfer of collateral in
connection with secured demand notes. At December 31, 2009
and 2008, the Company had agreed to fund up to $126 million
and $135 million, respectively, of cash upon the request by
these affiliates and had transferred collateral consisting of
various securities with a fair market value of $158 million
and $160 million, respectively, to custody accounts to
secure the notes. Each of these affiliates is permitted by
contract to sell or repledge this collateral.
MICC is a member of the Federal Home Loan Bank of Boston (the
FHLB of Boston) and holds $70 million of common
stock of the FHLB of Boston at both December 31, 2009 and
2008, which is included in equity securities. MICC has also
entered into funding agreements with the FHLB of Boston whereby
MICC has issued such funding agreements in exchange for cash and
for which the FHLB of Boston has been granted a blanket lien on
certain MICC assets, including residential mortgage-backed
securities, to collateralize MICCs obligations under the
funding agreements. MICC maintains control over these pledged
assets, and may use, commingle, encumber or dispose of any
portion of the collateral as long as there is no event of
default and the remaining qualified collateral is sufficient to
satisfy the collateral maintenance level. Upon any event of
default by MICC, the FHLB of Bostons recovery on the
collateral is limited to the amount of MICCs liability to
the FHLB of Boston. The amount of MICCs liability for
funding agreements with the FHLB of Boston was $326 million
and $526 million at December 31, 2009 and 2008,
respectively, which is included in policyholder account
balances. In addition, at December 31, 2008, the Company
had advances of $300 million from the FHLB of Boston with
original maturities of less than one year and therefore, such
advances are included in short-term debt. There were no such
advances at December 31, 2009. These advances and the
advances on these funding agreements are collateralized by
mortgage-backed securities with estimated fair values of
$419 million and $1,284 million at December 31,
2009 and 2008, respectively. During the years ended
December 31, 2009, 2008 and 2007, interest credited on the
funding agreements, which are included in interest credited to
policyholder account balances, was $6 million,
$15 million and $34 million, respectively.
Guarantees
In the normal course of its business, the Company has provided
certain indemnities, guarantees and commitments to third parties
pursuant to which it may be required to make payments now or in
the future. In the context of acquisition, disposition,
investment and other transactions, the Company has provided
indemnities and guarantees, including those related to tax,
environmental and other specific liabilities, and other
indemnities and guarantees that are triggered by, among other
things, breaches of representations, warranties or covenants
provided by the Company. In addition, in the normal course of
business, the Company provides indemnifications to
counterparties in contracts with triggers similar to the
foregoing, as well as for certain other liabilities, such as
third party lawsuits. These obligations are often subject to
time limitations that vary in duration, including contractual
55
limitations and those that arise by operation of law, such as
applicable statutes of limitation. In some cases, the maximum
potential obligation under the indemnities and guarantees is
subject to a contractual limitation, such as in the case of
MetLife International Insurance Company, Ltd.
(MLII), a former affiliate, discussed below, while
in other cases such limitations are not specified or applicable.
Since certain of these obligations are not subject to
limitations, the Company does not believe that it is possible to
determine the maximum potential amount that could become due
under these guarantees in the future. Management believes that
it is unlikely the Company will have to make any material
payments under these indemnities, guarantees, or commitments.
The Company has provided a guarantee on behalf of MLII that is
triggered if MLII cannot pay claims because of insolvency,
liquidation or rehabilitation. During the second quarter of
2007, MLII was sold to a third party. Life insurance coverage
in-force, representing the maximum potential obligation under
this guarantee, was $322 million and $347 million at
December 31, 2009 and 2008, respectively. The Company does
not hold any collateral related to this guarantee, but has
recorded a liability of $1 million that was based on the
total account value of the guaranteed policies plus the amounts
retained per policy at both December 31, 2009 and 2008. The
remainder of the risk was ceded to external reinsurers.
In addition, the Company indemnifies its directors and officers
as provided in its charters and by-laws. Also, the Company
indemnifies its agents for liabilities incurred as a result of
their representation of the Companys interests. Since
these indemnities are generally not subject to limitation with
respect to duration or amount, the Company does not believe that
it is possible to determine the maximum potential amount that
could become due under these indemnities in the future.
In connection with synthetically created investment
transactions, the Company writes credit default swap obligations
that generally require payment of principal outstanding due in
exchange for the referenced credit obligation. If a credit
event, as defined by the contract, occurs the Companys
maximum amount at risk, assuming the value of all referenced
credit obligations is zero, was $477 million and
$277 million at December 31, 2009 and 2008,
respectively. However, the Company believes that any actual
future losses will be significantly lower than this amount.
Additionally, the Company can terminate these contracts at any
time through cash settlement with the counterparty at an amount
equal to the then current estimated fair value of the credit
default swaps. At December 31, 2009, the Company would have
received $8 million to terminate these contracts. At
December 31, 2008, the Company would have paid
$3 million to terminate these contracts.
Collateral
for Securities Lending
The Company has non-cash collateral for securities lending on
deposit from customers, which cannot be sold or repledged, and
which has not been recorded on its consolidated balance sheets.
There was no collateral at December 31, 2009. The amount of
this collateral was $153 million at December 31, 2008.
Liquidity
and Capital Resources
Beginning in September 2008, the global financial markets
experienced unprecedented disruption, adversely affecting the
business environment in general, as well as financial services
companies in particular. The U.S. economy entered a
recession in January 2008 and most economists believe this
recession ended in the third quarter of 2009 when positive
growth returned. Most economists now expect positive growth to
continue through 2010. Conditions in the financial markets have
materially improved, but financial institutions may have to pay
higher spreads over benchmark U.S. Treasury securities than
before the market disruption began. There is still some
uncertainty as to whether the stressed conditions that prevailed
during the market disruption could recur, which could affect the
Companys ability to meet liquidity needs and obtain
capital.
Liquidity Management. Based upon the strength
of its franchise, diversification of its businesses and strong
financial fundamentals, we continue to believe that the Company
has ample liquidity to meet business requirements under current
market conditions and unlikely but reasonably possible stress
scenarios. The Companys short-term liquidity position
(cash, and cash equivalents and short-term investments,
excluding cash collateral received under the Companys
securities lending program that has been reinvested in cash,
cash equivalents, short-term investments and publicly-traded
securities and cash collateral received from counterparties in
connection with derivative instruments) was $1.8 billion
and $6.1 billion at December 31, 2009 and 2008,
respectively. This
56
reduction in short-term liquidity reflects the continued
improvement in market conditions during the year ended
December 31, 2009. During 2009, the Company invested a
portion of its short-term liquidity position in longer term,
high quality, more liquid asset types such as government
securities and agency residential mortgage-backed securities. We
continuously monitor and adjust our liquidity and capital plans
for the Company in light of changing needs and opportunities.
Insurance Liabilities. The Companys
principal cash outflows primarily relate to the liabilities
associated with its various life insurance, annuity and group
pension products, operating expenses and income tax, as well as
principal and interest on its outstanding debt obligations.
Liabilities arising from its insurance activities primarily
relate to benefit payments under the aforementioned products, as
well as payments for policy surrenders, withdrawals and loans.
For annuity or deposit type products, surrender or lapse product
behavior differs somewhat by segment. In the Retirement Products
segment, which includes individual annuities, lapses and
surrenders tend to occur in the normal course of business. In
the year ended December 31, 2009, both fixed and variable
annuities in the Retirement Products segment experienced
positive net flows and a decline in lapse rates. In the
Corporate Benefit Funding segment, which includes pension
closeouts, bank owned life insurance, other fixed annuity
contracts, as well as funding agreements and other capital
market products, most of the business has fixed maturities or
fairly predictable surrenders or withdrawals. With regard to
Corporate Benefit Funding liabilities that provide customers
with limited liquidity rights, at December 31, 2009 there
was one $50 million funding agreement that could be put
back to the Company after a period of 90 days notice. An
additional $480 million of Corporate Benefit Funding
liabilities were subject to credit ratings downgrade triggers
that permit early termination subject to a notice period of
90 days.
Securities Lending. Under the Companys
securities lending program, the Company was liable for cash
collateral under its control of $6.2 billion and
$6.4 billion at December 31, 2009 and 2008,
respectively.
Derivatives and Collateral. The Company
pledges collateral to, and has collateral pledged to it by,
counterparties under the Companys current derivative
transactions. With respect to derivative transactions with
credit ratings downgrade triggers, a two-notch downgrade would
have impacted the Companys derivative collateral
requirements by $12 million at December 31, 2009.
Global Funding Sources. MetLife Short Term
Funding LLC, the issuer of commercial paper under a program
supported by funding agreements issued by the Company and
Metropolitan Life Insurance Company, was accepted in October
2008 for the Federal Reserves CPFF and could issue a
maximum amount of $3.8 billion under the CPFF. The CPFF was
intended to improve liquidity in short-term funding markets by
increasing the availability of term commercial paper funding to
issuers and by providing greater assurance to both issuers and
investors that firms will be able to rollover their maturing
commercial paper. At December 31, 2009, MetLife Short Term
Funding LLC had no drawdown under its CPFF capacity, compared to
$1,650 million at December 31, 2008. The
Companys liability under the funding agreement it issued
to MetLife Short Term Funding LLC was $2.9 billion and
$2.4 billion at December 31, 2009 and 2008,
respectively. The CPFF program expired on February 1, 2010.
Adoption
of New Accounting Pronouncements
See Note 1 of the Notes to the Consolidated Financial
Statements for discussion on the adoption of new accounting
pronouncements.
Future
Adoption of New Accounting Pronouncements
See Note 1 of the Notes to the Consolidated Financial
Statements for discussion on the future adoption of new
accounting pronouncements.
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Item 7A.
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Quantitative
and Qualitative Disclosures About Market Risk
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Risk
Management
The Company must effectively measure and monitor the market risk
associated with its assets and liabilities. It has developed an
integrated process for managing risk, which it conducts through
MetLifes Enterprise Risk Management Department,
MetLifes Asset Liability Management Unit, MetLifes
Treasury Department and
57
MetLifes Investment Department along with the management
of the business segments. The Company has established and
implemented comprehensive policies and procedures at both the
corporate and business segment level to minimize the effects of
potential market volatility.
The Company regularly analyzes its exposure to interest rate,
equity market price and foreign currency exchange rate risks. As
a result of that analysis, the Company has determined that the
estimated fair value of certain assets and liabilities are
materially exposed to changes in interest rates, foreign
currency exchange rates and changes in the equity markets.
Enterprise Risk Management. MetLife has
established several financial and non-financial senior
management committees as part of its risk management process.
These committees manage capital and risk positions, approve
asset/liability management strategies and establish appropriate
corporate business standards for the enterprise.
MetLife also has a separate Enterprise Risk Management
Department, which is responsible for risk throughout the MetLife
enterprise and reports to MetLifes Chief Risk Officer. The
Enterprise Risk Management Departments primary
responsibilities consist of:
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implementing a MetLife, Inc. Board of Directors approved
corporate risk framework, which outlines the Companys
approach for managing risk on an enterprise-wide basis;
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developing policies and procedures for managing, measuring,
monitoring and controlling those risks identified in the
corporate risk framework;
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establishing appropriate corporate risk tolerance levels;
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deploying capital on an economic capital basis; and
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reporting on a periodic basis to MetLifes Finance and
MetLifes Risk Policy Committee of MetLifes Board of
Directors and various financial and non-financial senior
management committees.
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The Company does not expect any material changes to be made to
its risk management practices in 2010.
Asset/Liability Management
(ALM). The Company actively manages
its assets using an approach that balances quality,
diversification, asset/liability matching, liquidity, allocation
and investment return. The goals of the investment process are
to optimize, net of income tax, risk-adjusted investment income
and risk-adjusted total return while ensuring that the assets
and liabilities are reasonably managed on a cash flow and
duration basis. The asset/liability management process is the
shared responsibility of MetLifes Financial Risk
Management and MetLifes Asset/Liability Management Unit,
MetLifes Enterprise Risk Management, MetLifes
Portfolio Management Unit, and the senior members of
MetLifes operating business segments and is governed by
MetLifes ALM Committee. MetLifes ALM
Committees duties include reviewing and approving target
portfolios, establishing investment guidelines and limits and
providing oversight of the asset/liability management process on
a periodic basis. The directives of the ALM Committee are
carried out and monitored through ALM Working Groups which are
set up to manage by product type.
MetLife establishes target asset portfolios for each major
insurance product, which represent the investment strategies
used to profitably fund its liabilities within acceptable levels
of risk. These strategies are monitored through regular review
of portfolio metrics, such as effective duration, yield curve
sensitivity, convexity, liquidity, asset sector concentration
and credit quality by the ALM Working Groups.
Market
Risk Exposures
The Company has exposure to market risk through its insurance
operations and investment activities. For purposes of this
disclosure, market risk is defined as the risk of
loss resulting from changes in interest rates, equity market
prices and foreign currency exchange rates.
Interest Rates. The Companys exposure to
interest rate changes results most significantly from its
holdings of fixed maturity securities, as well as its interest
rate sensitive liabilities and derivatives it uses to hedge its
interest rate risk. The fixed maturity securities include
U.S. and foreign government bonds, securities issued by
government agencies, corporate bonds and mortgage-backed
securities, all of which are mainly exposed to changes in
medium-
58
and long-term interest rates. The interest rate sensitive
liabilities for purposes of this disclosure include policyholder
account balances related to certain investment type contracts
and net embedded derivatives within liability host contracts
which have the same type of interest rate exposure (medium- and
long-term interest rates) as fixed maturity securities. The
Company employs product design, pricing and asset/liability
management strategies to reduce the adverse effects of interest
rate movements. Product design and pricing strategies include
the use of surrender charges or restrictions on withdrawals in
some products and the ability to reset credited rates for
certain products. Asset/liability management strategies include
the use of derivatives and duration mismatch limits. See
Risk Factors Changes in Market Interest Rates
May Significantly Affect Our Profitability.
Foreign Currency Exchange Rates. The
Companys exposure to fluctuations in foreign currency
exchange rates against the U.S. Dollar results from its
holdings in
non-U.S. Dollar
denominated fixed maturity securities, certain liabilities, as
well as through its investments in foreign subsidiaries. The
principal currencies that create foreign currency exchange rate
risk in the Companys investment portfolios are the Euro
and the British pound. The principal currencies that create
foreign currency exchange risk in the Companys liabilities
are the Euro, the British pound, the Japanese yen and the
Australian dollar which the Company hedges primarily with
foreign currency swaps. Through its investments in foreign
subsidiaries and joint ventures, the Company is primarily
exposed to the British pound. The Company has matched much of
its foreign currency liabilities in its foreign subsidiaries
with their respective foreign currency assets, thereby reducing
its risk to foreign currency exchange rate fluctuation.
Equity Prices. The Company has exposure to
equity prices through certain liabilities that involve long-term
guarantees on equity performance such as variable annuities with
guaranteed minimum benefits, certain policyholder account
balances along with investments in equity securities. We manage
this risk on an integrated basis with other risks through our
asset/liability management strategies including the dynamic
hedging of certain variable annuity guarantee benefits, as well
as reinsurance in order to limit losses, minimize exposure to
large risks, and provide additional capacity for future growth.
The Company also manages equity market price risk incurred in
its investment portfolio through the use of derivatives. Equity
exposures associated with other limited partnership interests
are excluded from this section as they are not considered
financial instruments under generally accepted accounting
principles.
Management
of Market Risk Exposures
The Company uses a variety of strategies to manage interest
rate, foreign currency exchange rate and equity price risk,
including the use of derivative instruments.
Interest Rate Risk Management. To manage
interest rate risk, the Company analyzes interest rate risk
using various models, including multi-scenario cash flow
projection models that forecast cash flows of the liabilities
and their supporting investments, including derivative
instruments. These projections involve evaluating the potential
gain or loss on most of the Companys in-force business
under various increasing and decreasing interest rate
environments. The Connecticut State Insurance Department
regulations require that the Company perform some of these
analyses annually as part of the Companys review of the
sufficiency of its regulatory reserves. For several of its legal
entities, the Company maintains segmented operating and surplus
asset portfolios for the purpose of ALM and the allocation of
investment income to product lines. For each segment, invested
assets greater than or equal to the GAAP liabilities less the
DAC asset and any non-invested assets allocated to the segment
are maintained, with any excess swept to the surplus segment.
The operating segments may reflect differences in legal entity,
statutory line of business and any product market characteristic
which may drive a distinct investment strategy with respect to
duration, liquidity or credit quality of the invested assets.
Certain smaller entities make use of unsegmented general
accounts for which the investment strategy reflects the
aggregate characteristics of liabilities in those entities. The
Company measures relative sensitivities of the value of its
assets and liabilities to changes in key assumptions utilizing
Company models. These models reflect specific product
characteristics and include assumptions based on current and
anticipated experience regarding lapse, mortality and interest
crediting rates. In addition, these models include asset cash
flow projections reflecting interest payments, sinking fund
payments, principal payments, bond calls, mortgage prepayments
and defaults.
Common industry metrics, such as duration and convexity, are
also used to measure the relative sensitivity of assets and
liability values to changes in interest rates. In computing the
duration of liabilities, consideration is given
59
to all policyholder guarantees and to how the Company intends to
set indeterminate policy elements such as interest credits or
dividends. Each asset portfolio has a duration target based on
the liability duration and the investment objectives of that
portfolio. Where a liability cash flow may exceed the maturity
of available assets, as is the case with certain retirement and
non-medical health products, the Company may support such
liabilities with equity investments, derivatives or curve
mismatch strategies.
Foreign Currency Exchange Rate Risk
Management. Foreign currency exchange rate risk
is assumed primarily in three ways: investments in foreign
subsidiaries, purchases of foreign currency denominated
investments in the investment portfolio and the sale of certain
insurance products.
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MetLifes Treasury Department is responsible for managing
the exposure to investments in foreign subsidiaries. Limits to
exposures are established and monitored by MetLifes
Treasury Department and managed by MetLifes Investment
Department.
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MetLifes Investment Department is responsible for managing
the exposure to foreign currency investments. Exposure limits to
unhedged foreign currency investments are incorporated into the
standing authorizations granted to management by MetLifes
Board of Directors and are reported to MetLifes Board of
Directors on a periodic basis.
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The lines of business are responsible for establishing limits
and managing any foreign exchange rate exposure caused by the
sale or issuance of insurance products.
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The Company uses foreign currency swaps and forwards to hedge
its foreign currency denominated fixed income investments, its
equity exposure in subsidiaries and its foreign currency
exposures caused by the sale of insurance products.
Equity Price Risk Management. Equity price
risk incurred through the issuance of variable annuities is
managed by the MetLifes Asset/Liability Management Unit in
partnership with MetLifes Investment Department. Equity
price risk is also incurred through its investment in equity
securities and is managed by MetLifes Investment
Department. MetLife and the Company use derivatives to hedge
their equity exposure both in certain liability guarantees such
as variable annuities with guaranteed minimum benefits and
equity securities. These derivatives include exchange-traded
equity futures and equity index options contracts. The
Companys derivative hedges performed effectively through
the extreme movements in the equity markets during the latter
part of 2008. The Company also employs reinsurance to manage
these exposures. Under these reinsurance agreements, the Company
pays a reinsurance premium generally based on rider fees
collected from policyholders and receives reimbursements for
benefits paid or accrued in excess of account values, subject to
certain limitations. The Company enters into similar agreements
for new or in-force business depending on market conditions.
Hedging Activities. The Company uses
derivative contracts primarily to hedge a wide range of risks
including interest rate risk, foreign currency risk, equity
risk, and equity volatility risk. Derivative hedges are designed
to reduce risk on an economic basis while considering their
impact on accounting results and GAAP and Statutory capital. The
construction of the Companys derivative hedge programs
vary depending on the type of risk being hedged. Some hedge
programs are asset or liability specific while others are
portfolio hedges that reduce risk related to a group of
liabilities or assets. The Companys use of derivatives by
major hedge programs is as follows:
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Risks Related to Living Guarantee Benefits The
Company uses a wide range of derivative contracts to hedge the
risk associated with variable annuity living guarantee benefits.
These hedges include equity and interest rate futures, interest
rate, currency and equity variance swaps, interest rate and
currency forwards, and interest rate option contracts.
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Minimum Interest Rate Guarantees For certain Company
liability contracts, the Company provides the contractholder a
guaranteed minimum interest rate. These contracts include
certain fixed annuities and other insurance liabilities. The
Company purchases interest rate floors to reduce risk associated
with these liability guarantees.
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Reinvestment Risk in Long Duration Liability Contracts
Derivatives are used to hedge interest rate risk
related to certain long duration liability contracts such as
long-term care. Hedges include zero coupon interest rate swaps
and swaptions.
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Foreign Currency Risk The Company uses currency
swaps and forwards to hedge foreign currency risk. These hedges
primarily swap foreign currency denominated bonds or equity
exposures to U.S. Dollars.
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General ALM Hedging Strategies In the ordinary
course of managing the Companys asset/liability risks, the
Company uses interest rate futures, interest rate swaps,
interest rate caps, interest rate floors and inflation swaps.
These hedges are designed to reduce interest rate risk or
inflation risk related to the existing assets or liabilities or
related to expected future cash flows.
|
Risk
Measurement: Sensitivity Analysis
The Company measures market risk related to its market sensitive
assets and liabilities based on changes in interest rates,
equity market prices and foreign currency exchange rates
utilizing a sensitivity analysis. This analysis estimates the
potential changes in estimated fair value based on a
hypothetical 10% change (increase or decrease) in interest
rates, equity market prices and foreign currency exchange rates.
The Company believes that a 10% change (increase or decrease) in
these market rates and prices is reasonably possible in the
near-term. In performing the analysis summarized below, the
Company used market rates at December 31, 2009. The
sensitivity analysis separately calculates each of the
Companys market risk exposures (interest rate, equity
price and foreign currency exchange rate) relating to its
trading and non trading assets and liabilities. The Company
modeled the impact of changes in market rates and prices on the
estimated fair values of its market sensitive assets and
liabilities as follows:
|
|
|
|
|
the net present values of its interest rate sensitive exposures
resulting from a 10% change (increase or decrease) in interest
rates;
|
|
|
|
the U.S. Dollar equivalent estimated fair values of the
Companys foreign currency exposures due to a 10% change
(increase or decrease) in foreign currency exchange
rates; and
|
|
|
|
the estimated fair value of its equity positions due to a 10%
change (increase or decrease) in equity market prices.
|
The sensitivity analysis is an estimate and should not be viewed
as predictive of the Companys future financial
performance. The Company cannot ensure that its actual losses in
any particular period will not exceed the amounts indicated in
the table below. Limitations related to this sensitivity
analysis include:
|
|
|
|
|
the market risk information is limited by the assumptions and
parameters established in creating the related sensitivity
analysis, including the impact of prepayment rates on mortgages;
|
|
|
|
the derivatives that qualify as hedges, the impact on reported
earnings may be materially different from the change in market
values;
|
|
|
|
the analysis excludes other significant real estate holdings and
liabilities pursuant to insurance contracts; and
|
|
|
|
the model assumes that the composition of assets and liabilities
remains unchanged throughout the period.
|
Accordingly, the Company uses such models as tools and not as
substitutes for the experience and judgment of its management.
Based on its analysis of the impact of a 10% change (increase or
decrease) in market rates and prices, the Company has determined
that such a change could have a material adverse effect on the
estimated fair value of certain assets and liabilities from
interest rate, foreign currency exchange rate and equity market
exposures. The table below illustrates the potential loss in
estimated fair value for each market risk exposure of the
Companys market sensitive assets and liabilities at
December 31, 2009:
|
|
|
|
|
|
|
December 31, 2009
|
|
|
(In millions)
|
|
Non-trading:
|
|
|
|
|
Interest rate risk
|
|
$
|
866
|
|
Foreign currency exchange rate risk
|
|
$
|
42
|
|
Equity price risk
|
|
$
|
123
|
|
Trading:
|
|
|
|
|
Interest rate risk
|
|
$
|
1
|
|
61
Sensitivity Analysis: Interest Rates. The
table below provides additional detail regarding the potential
loss in fair value of the Companys trading and non-trading
interest sensitive financial instruments at December 31,
2009 by type of asset or liability:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
Assuming a
|
|
|
|
|
|
|
Estimated
|
|
|
10% Increase
|
|
|
|
Notional
|
|
|
Fair
|
|
|
in the Yield
|
|
|
|
Amount
|
|
|
Value (3)
|
|
|
Curve
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
|
|
|
|
$
|
41,275
|
|
|
$
|
(773
|
)
|
Equity securities
|
|
|
|
|
|
|
459
|
|
|
|
|
|
Trading securities
|
|
|
|
|
|
|
938
|
|
|
|
(1
|
)
|
Mortgage loans, net
|
|
|
|
|
|
|
4,345
|
|
|
|
(22
|
)
|
Policy loans
|
|
|
|
|
|
|
1,243
|
|
|
|
(9
|
)
|
Real estate joint ventures (1)
|
|
|
|
|
|
|
62
|
|
|
|
|
|
Other limited partnership interests (1)
|
|
|
|
|
|
|
151
|
|
|
|
|
|
Short-term investments
|
|
|
|
|
|
|
1,775
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
2,574
|
|
|
|
|
|
Accrued investment income
|
|
|
|
|
|
|
516
|
|
|
|
|
|
Premiums and other receivables
|
|
|
|
|
|
|
4,032
|
|
|
|
(79
|
)
|
Net embedded derivatives within asset host contracts (2)
|
|
|
|
|
|
|
724
|
|
|
|
(245
|
)
|
Mortgage loan commitments
|
|
$
|
131
|
|
|
|
(5
|
)
|
|
|
|
|
Commitments to fund bank credit facilities and private corporate
bond investments
|
|
$
|
445
|
|
|
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
|
|
|
|
|
|
|
$
|
(1,129
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder account balances
|
|
|
|
|
|
$
|
24,233
|
|
|
$
|
209
|
|
Long-term debt affiliated
|
|
|
|
|
|
|
1,003
|
|
|
|
36
|
|
Payables for collateral under securities loaned and other
transactions
|
|
|
|
|
|
|
7,169
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
188
|
|
|
|
|
|
Net embedded derivatives within liability host contracts (2)
|
|
|
|
|
|
|
279
|
|
|
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
|
|
|
|
|
|
|
$
|
328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
5,261
|
|
|
$
|
355
|
|
|
$
|
(61
|
)
|
Interest rate floors
|
|
$
|
7,986
|
|
|
|
44
|
|
|
|
(7
|
)
|
Interest rate caps
|
|
$
|
4,003
|
|
|
|
15
|
|
|
|
6
|
|
Interest rate futures
|
|
$
|
835
|
|
|
|
1
|
|
|
|
6
|
|
Foreign currency swaps
|
|
$
|
2,678
|
|
|
|
596
|
|
|
|
|
|
Foreign currency forwards
|
|
$
|
79
|
|
|
|
3
|
|
|
|
(6
|
)
|
Credit default swaps
|
|
$
|
966
|
|
|
|
(19
|
)
|
|
|
|
|
Credit forwards
|
|
$
|
90
|
|
|
|
(3
|
)
|
|
|
|
|
Equity futures
|
|
$
|
81
|
|
|
|
1
|
|
|
|
|
|
Equity options
|
|
$
|
775
|
|
|
|
112
|
|
|
|
(4
|
)
|
Variance swaps
|
|
$
|
1,081
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivative Instruments
|
|
|
|
|
|
|
|
|
|
$
|
(66
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change
|
|
|
|
|
|
|
|
|
|
$
|
(867
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents only those investments accounted for using the cost
method. |
|
(2) |
|
Embedded derivatives are recognized in the consolidated balance
sheet in the same caption as the host contract. |
|
(3) |
|
Separate account assets and liabilities which are interest rate
sensitive are not included herein as any interest rate risk is
borne by the holder of the separate account. |
62
This quantitative measure of risk has increased by
$312 million, or approximately 56% to $867 million at
December 31, 2009 from $555 million at
December 31, 2008. The interest rate risk increased due to
an increase in rates across the long end of the swaps and
treasury curves resulting in an increase of $281 million.
In addition, an increase in embedded derivatives within asset
host contracts as they moved further away from the interest rate
floors and a change in the asset base contributed to the
increase, $88 million and $38 million, respectively.
This was partially offset by an decrease of $97 million due
to the use of derivatives employed by the company and a change
in the long-term debt of $27 million due to an improvement
in spreads. The remainder of the fluctuation is attributable to
numerous immaterial items.
Sensitivity Analysis: Foreign Currency Exchange
Rates. The table below provides additional detail
regarding the potential loss in fair value of the Companys
portfolio due to a 10% change in foreign currency exchange rates
at December 31, 2009 by type of asset or liability:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
Assuming a
|
|
|
|
|
|
|
Estimated
|
|
|
10% Decrease
|
|
|
|
Notional
|
|
|
Fair
|
|
|
in the Foreign
|
|
|
|
Amount
|
|
|
Value (1)
|
|
|
Exchange Rate
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
|
|
|
|
$
|
41,275
|
|
|
$
|
(79
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
|
|
|
|
|
|
|
$
|
(79
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder account balances
|
|
|
|
|
|
$
|
24,233
|
|
|
$
|
195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
|
|
|
|
|
|
|
$
|
195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
5,261
|
|
|
$
|
355
|
|
|
$
|
1
|
|
Interest rate floors
|
|
$
|
7,986
|
|
|
|
44
|
|
|
|
|
|
Interest rate caps
|
|
$
|
4,003
|
|
|
|
15
|
|
|
|
|
|
Interest rate futures
|
|
$
|
835
|
|
|
|
1
|
|
|
|
|
|
Foreign currency swaps
|
|
$
|
2,678
|
|
|
|
596
|
|
|
|
(167
|
)
|
Foreign currency forwards
|
|
$
|
79
|
|
|
|
3
|
|
|
|
8
|
|
Credit default swaps
|
|
$
|
966
|
|
|
|
(19
|
)
|
|
|
|
|
Credit forwards
|
|
$
|
90
|
|
|
|
(3
|
)
|
|
|
|
|
Equity futures
|
|
$
|
81
|
|
|
|
1
|
|
|
|
|
|
Equity options
|
|
$
|
775
|
|
|
|
112
|
|
|
|
|
|
Variance swaps
|
|
$
|
1,081
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivative Instruments
|
|
|
|
|
|
|
|
|
|
$
|
(158
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change
|
|
|
|
|
|
|
|
|
|
$
|
(42
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Estimated fair value presented in the table above represents the
fair value of all financial instruments within this financial
statement caption not necessarily those solely subject to
foreign exchange risk. |
Foreign currency exchange rate risk increased by
$36 million to $42 million at December 31, 2009
from $6 million at December 31, 2008. This increase
was due to a decrease of $107 million of the foreign
exposure associated with the liabilities with guarantees, an
increase in fixed maturity securities of $20 million,
partially offset by a decrease of $91 million in the use of
derivatives employed by the Company. The remainder of the
fluctuation is attributable to numerous immaterial items.
63
Sensitivity Analysis: Equity Prices. The table
below provides additional detail regarding the potential loss in
fair value of the Companys portfolio due to a 10% change
in equity at December 31, 2009 by type of asset or
liability:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
Assuming a
|
|
|
|
|
|
|
Estimated
|
|
|
10% Increase
|
|
|
|
Notional
|
|
|
Fair
|
|
|
in Equity
|
|
|
|
Amount
|
|
|
Value (1)
|
|
|
Prices
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
|
|
|
$
|
459
|
|
|
$
|
20
|
|
Net embedded derivatives within asset host contracts (2)
|
|
|
|
|
|
|
724
|
|
|
|
(173
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
|
|
|
|
|
|
|
$
|
(153
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder account balances
|
|
|
|
|
|
$
|
24,233
|
|
|
$
|
|
|
Net embedded derivatives within asset host contracts (2)
|
|
|
|
|
|
|
279
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
|
|
|
|
|
|
|
$
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
5,261
|
|
|
$
|
355
|
|
|
$
|
|
|
Interest rate floors
|
|
$
|
7,986
|
|
|
|
44
|
|
|
|
|
|
Interest rate caps
|
|
$
|
4,003
|
|
|
|
15
|
|
|
|
|
|
Interest rate futures
|
|
$
|
835
|
|
|
|
1
|
|
|
|
|
|
Foreign currency swaps
|
|
$
|
2,678
|
|
|
|
596
|
|
|
|
|
|
Foreign currency forwards
|
|
$
|
79
|
|
|
|
3
|
|
|
|
|
|
Credit default swaps
|
|
$
|
966
|
|
|
|
(19
|
)
|
|
|
|
|
Credit forwards
|
|
$
|
90
|
|
|
|
(3
|
)
|
|
|
|
|
Equity futures
|
|
$
|
81
|
|
|
|
1
|
|
|
|
(5
|
)
|
Equity options
|
|
$
|
775
|
|
|
|
112
|
|
|
|
(21
|
)
|
Variance swaps
|
|
$
|
1,081
|
|
|
|
18
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivative Instruments
|
|
|
|
|
|
|
|
|
|
$
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change
|
|
|
|
|
|
|
|
|
|
$
|
(123
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Estimated fair value presented in the table above represents the
fair value of all financial instruments within this financial
statement caption not necessarily those solely subject to
foreign exchange risk. |
|
(2) |
|
Embedded derivatives are recognized in the consolidated balance
sheet in the same caption as the host contract. |
Equity price risk increased by $89 million to
$123 million at December 31, 2009 from
$34 million at December 31, 2008. The increase in
equity price risk was primarily attributed to change in net
embedded derivatives within liabilities host contracts of
$119 million partially offset by the use of equity
derivatives employed by the Company to hedge its equity
exposures of $38 million. The remainder of the fluctuation
is attributable to numerous immaterial items.
64
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
Index to
the Consolidated Financial Statements and Schedules
|
|
|
|
|
|
|
Page
|
|
|
|
|
F-1
|
|
Financial Statements at December 31, 2009 and 2008 and for
the Years Ended December 31, 2009, 2008 and 2007:
|
|
|
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
Financial Statement Schedules at December 31, 2009 and 2008
and for the Years Ended December 31, 2009, 2008 and 2007:
|
|
|
|
|
|
|
|
F-115
|
|
|
|
|
F-116
|
|
|
|
|
F-120
|
|
|
|
|
F-122
|
|
65
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
MetLife Insurance Company of Connecticut
We have audited the accompanying consolidated balance sheets of
MetLife Insurance Company of Connecticut and subsidiaries (the
Company) as of December 31, 2009 and 2008, and
the related consolidated statements of operations,
stockholders equity, and cash flows for each of the three
years in the period ended December 31, 2009. Our audits
also included the financial statement schedules listed in the
Index to Consolidated Financial Statements and Schedules. These
consolidated financial statements and financial statement
schedules are the responsibility of the Companys
management. Our responsibility is to express an opinion on the
consolidated financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial
statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audits
included consideration of internal control over financial
reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Companys
internal control over financial reporting. Accordingly, we
express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements, assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of
MetLife Insurance Company of Connecticut and subsidiaries as of
December 31, 2009 and 2008, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 2009, in conformity with
accounting principles generally accepted in the United States of
America. Also, in our opinion, such financial statement
schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
As discussed in Note 1, the Company changed its method of
accounting for the recognition and presentation of
other-than-temporary
impairment losses for certain investments as required by
accounting guidance adopted on April 1, 2009, changed its
method of accounting for certain assets and liabilities to a
fair value measurement approach as required by accounting
guidance adopted on January 1, 2008, and changed its method
of accounting for deferred acquisition costs as required by
accounting guidance adopted on January 1, 2007.
/s/ DELOITTE &
TOUCHE LLP
New York, New York
March 24, 2010
F-1
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Consolidated Balance Sheets
December 31, 2009 and 2008
(In millions, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
|
|
|
Fixed maturity securities
available-for-sale,
at estimated fair value (amortized cost: $42,435 and $39,601,
respectively)
|
|
$
|
41,275
|
|
|
$
|
34,846
|
|
Equity securities
available-for-sale,
at estimated fair value (cost: $494 and $673, respectively)
|
|
|
459
|
|
|
|
474
|
|
Trading securities, at estimated fair value (cost: $868 and
$251, respectively)
|
|
|
938
|
|
|
|
232
|
|
Mortgage loans (net of valuation allowances of $77 and $46,
respectively)
|
|
|
4,748
|
|
|
|
4,447
|
|
Policy loans
|
|
|
1,189
|
|
|
|
1,192
|
|
Real estate and real estate joint ventures
|
|
|
445
|
|
|
|
608
|
|
Other limited partnership interests
|
|
|
1,236
|
|
|
|
1,249
|
|
Short-term investments
|
|
|
1,775
|
|
|
|
3,127
|
|
Other invested assets
|
|
|
1,498
|
|
|
|
2,297
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
|
53,563
|
|
|
|
48,472
|
|
Cash and cash equivalents
|
|
|
2,574
|
|
|
|
5,656
|
|
Accrued investment income
|
|
|
516
|
|
|
|
487
|
|
Premiums and other receivables
|
|
|
13,444
|
|
|
|
12,463
|
|
Deferred policy acquisition costs and value of business acquired
|
|
|
5,244
|
|
|
|
5,440
|
|
Current income tax recoverable
|
|
|
|
|
|
|
66
|
|
Deferred income tax assets
|
|
|
1,147
|
|
|
|
1,843
|
|
Goodwill
|
|
|
953
|
|
|
|
953
|
|
Other assets
|
|
|
799
|
|
|
|
752
|
|
Separate account assets
|
|
|
49,449
|
|
|
|
35,892
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
127,689
|
|
|
$
|
112,024
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Future policy benefits
|
|
$
|
21,621
|
|
|
$
|
20,213
|
|
Policyholder account balances
|
|
|
37,442
|
|
|
|
37,175
|
|
Other policyholder funds
|
|
|
2,297
|
|
|
|
2,085
|
|
Payables for collateral under securities loaned and other
transactions
|
|
|
7,169
|
|
|
|
7,871
|
|
Short-term debt
|
|
|
|
|
|
|
300
|
|
Long-term debt affiliated
|
|
|
950
|
|
|
|
950
|
|
Current income tax payable
|
|
|
23
|
|
|
|
|
|
Other liabilities
|
|
|
2,177
|
|
|
|
2,604
|
|
Separate account liabilities
|
|
|
49,449
|
|
|
|
35,892
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
121,128
|
|
|
|
107,090
|
|
|
|
|
|
|
|
|
|
|
Contingencies, Commitments and Guarantees (Note 11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity
|
|
|
|
|
|
|
|
|
Common stock, par value $2.50 per share; 40,000,000 shares
authorized; 34,595,317 shares issued and outstanding at
December 31, 2009 and 2008
|
|
|
86
|
|
|
|
86
|
|
Additional paid-in capital
|
|
|
6,719
|
|
|
|
6,719
|
|
Retained earnings
|
|
|
541
|
|
|
|
965
|
|
Accumulated other comprehensive loss
|
|
|
(785
|
)
|
|
|
(2,836
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
6,561
|
|
|
|
4,934
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
127,689
|
|
|
$
|
112,024
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial
statements.
F-2
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Consolidated Statements of
Operations
For the Years Ended December 31, 2009, 2008 and 2007
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
1,312
|
|
|
$
|
634
|
|
|
$
|
353
|
|
Universal life and investment-type product policy fees
|
|
|
1,380
|
|
|
|
1,378
|
|
|
|
1,411
|
|
Net investment income
|
|
|
2,335
|
|
|
|
2,494
|
|
|
|
2,893
|
|
Other revenues
|
|
|
598
|
|
|
|
230
|
|
|
|
251
|
|
Net investment gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-than-temporary
impairments on fixed maturity securities
|
|
|
(552
|
)
|
|
|
(401
|
)
|
|
|
(28
|
)
|
Other-than-temporary
impairments on fixed maturity securities transferred to other
comprehensive loss
|
|
|
165
|
|
|
|
|
|
|
|
|
|
Other net investment gains (losses), net
|
|
|
(1,479
|
)
|
|
|
950
|
|
|
|
(114
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net investment gains (losses)
|
|
|
(1,866
|
)
|
|
|
549
|
|
|
|
(142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
3,759
|
|
|
|
5,285
|
|
|
|
4,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims
|
|
|
2,065
|
|
|
|
1,446
|
|
|
|
978
|
|
Interest credited to policyholder account balances
|
|
|
1,301
|
|
|
|
1,130
|
|
|
|
1,299
|
|
Other expenses
|
|
|
1,207
|
|
|
|
1,933
|
|
|
|
1,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
4,573
|
|
|
|
4,509
|
|
|
|
3,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before provision for
income tax
|
|
|
(814
|
)
|
|
|
776
|
|
|
|
1,043
|
|
Provision for income tax expense (benefit)
|
|
|
(368
|
)
|
|
|
203
|
|
|
|
303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of income tax
|
|
|
(446
|
)
|
|
|
573
|
|
|
|
740
|
|
Income (loss) from discontinued operations, net of income tax
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(446
|
)
|
|
$
|
573
|
|
|
$
|
744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial
statements.
F-3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Unrealized
|
|
|
Other-Than-
|
|
|
Currency
|
|
|
|
|
|
|
Common
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Investment
|
|
|
Temporary
|
|
|
Translation
|
|
|
Total
|
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Gains (Losses)
|
|
|
Impairments
|
|
|
Adjustments
|
|
|
Equity
|
|
|
Balance at December 31, 2006
|
|
$
|
86
|
|
|
$
|
7,123
|
|
|
$
|
520
|
|
|
$
|
(314
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
7,415
|
|
Cumulative effect of change in accounting principle, net of
income tax (Note 1)
|
|
|
|
|
|
|
|
|
|
|
(86
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(86
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2007
|
|
|
86
|
|
|
|
7,123
|
|
|
|
434
|
|
|
|
(314
|
)
|
|
|
|
|
|
|
|
|
|
|
7,329
|
|
Dividend paid to MetLife
|
|
|
|
|
|
|
(404
|
)
|
|
|
(286
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(690
|
)
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
744
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on derivative instruments, net of
income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
Unrealized investment gains (losses), net of related offsets and
income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45
|
)
|
|
|
|
|
|
|
|
|
|
|
(45
|
)
|
Foreign currency translation adjustments, net of income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
86
|
|
|
|
6,719
|
|
|
|
892
|
|
|
|
(361
|
)
|
|
|
|
|
|
|
12
|
|
|
|
7,348
|
|
Dividend paid to MetLife
|
|
|
|
|
|
|
|
|
|
|
(500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(500
|
)
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
573
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on derivative instruments, net of
income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
Unrealized investment gains (losses), net of related offsets and
income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,342
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,342
|
)
|
Foreign currency translation adjustments, net of income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(166
|
)
|
|
|
(166
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,487
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,914
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
86
|
|
|
|
6,719
|
|
|
|
965
|
|
|
|
(2,682
|
)
|
|
|
|
|
|
|
(154
|
)
|
|
|
4,934
|
|
Cumulative effect of changes in accounting principle, net of
income tax (Note 1)
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(446
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(446
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on derivative instruments, net of
income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
(14
|
)
|
Unrealized investment gains (losses), net of related offsets and
income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,103
|
|
|
|
(61
|
)
|
|
|
|
|
|
|
2,042
|
|
Foreign currency translation adjustments, net of income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
86
|
|
|
$
|
6,719
|
|
|
$
|
541
|
|
|
$
|
(593
|
)
|
|
$
|
(83
|
)
|
|
$
|
(109
|
)
|
|
$
|
6,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial
statements.
F-4
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Consolidated Statements of Cash Flows
For the Years Ended December 31,
2009, 2008 and 2007
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(446
|
)
|
|
$
|
573
|
|
|
$
|
744
|
|
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expenses
|
|
|
29
|
|
|
|
29
|
|
|
|
26
|
|
Amortization of premiums and accretion of discounts associated
with investments, net
|
|
|
(198
|
)
|
|
|
(18
|
)
|
|
|
11
|
|
(Gains) losses from sales of investments and businesses, net
|
|
|
1,866
|
|
|
|
(546
|
)
|
|
|
145
|
|
Gain from recapture of ceded reinsurance
|
|
|
|
|
|
|
|
|
|
|
(22
|
)
|
Undistributed equity earnings of real estate joint ventures and
other limited partnership interests
|
|
|
98
|
|
|
|
97
|
|
|
|
(121
|
)
|
Interest credited to policyholder account balances
|
|
|
1,301
|
|
|
|
1,130
|
|
|
|
1,299
|
|
Universal life and investment-type product policy fees
|
|
|
(1,380
|
)
|
|
|
(1,378
|
)
|
|
|
(1,411
|
)
|
Change in accrued investment income
|
|
|
(29
|
)
|
|
|
150
|
|
|
|
(35
|
)
|
Change in premiums and other receivables
|
|
|
(2,307
|
)
|
|
|
(2,561
|
)
|
|
|
360
|
|
Change in deferred policy acquisition costs, net
|
|
|
(559
|
)
|
|
|
330
|
|
|
|
61
|
|
Change in insurance-related liabilities
|
|
|
1,648
|
|
|
|
997
|
|
|
|
71
|
|
Change in trading securities
|
|
|
(597
|
)
|
|
|
(218
|
)
|
|
|
|
|
Change in income tax recoverable (payable)
|
|
|
(303
|
)
|
|
|
262
|
|
|
|
308
|
|
Change in other assets
|
|
|
449
|
|
|
|
598
|
|
|
|
675
|
|
Change in other liabilities
|
|
|
(166
|
)
|
|
|
1,176
|
|
|
|
234
|
|
Other, net
|
|
|
32
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(562
|
)
|
|
|
659
|
|
|
|
2,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales, maturities and repayments of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
|
13,076
|
|
|
|
20,183
|
|
|
|
21,546
|
|
Equity securities
|
|
|
141
|
|
|
|
126
|
|
|
|
146
|
|
Mortgage loans
|
|
|
444
|
|
|
|
522
|
|
|
|
1,208
|
|
Real estate and real estate joint ventures
|
|
|
4
|
|
|
|
15
|
|
|
|
155
|
|
Other limited partnership interests
|
|
|
142
|
|
|
|
203
|
|
|
|
465
|
|
Purchases of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
|
(16,192
|
)
|
|
|
(14,027
|
)
|
|
|
(19,365
|
)
|
Equity securities
|
|
|
(74
|
)
|
|
|
(65
|
)
|
|
|
(357
|
)
|
Mortgage loans
|
|
|
(783
|
)
|
|
|
(621
|
)
|
|
|
(2,030
|
)
|
Real estate and real estate joint ventures
|
|
|
(31
|
)
|
|
|
(102
|
)
|
|
|
(458
|
)
|
Other limited partnership interests
|
|
|
(203
|
)
|
|
|
(458
|
)
|
|
|
(515
|
)
|
Net change in short-term investments
|
|
|
1,445
|
|
|
|
(1,887
|
)
|
|
|
(558
|
)
|
Net change in other invested assets
|
|
|
(194
|
)
|
|
|
445
|
|
|
|
(175
|
)
|
Net change in policy loans
|
|
|
3
|
|
|
|
(279
|
)
|
|
|
5
|
|
Other, net
|
|
|
(2
|
)
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(2,224
|
)
|
|
|
4,055
|
|
|
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder account balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
20,783
|
|
|
|
7,146
|
|
|
|
11,395
|
|
Withdrawals
|
|
|
(20,067
|
)
|
|
|
(5,307
|
)
|
|
|
(13,563
|
)
|
Net change in payables for collateral under securities loaned
and other transactions
|
|
|
(702
|
)
|
|
|
(2,600
|
)
|
|
|
1,316
|
|
Net change in short-term debt
|
|
|
(300
|
)
|
|
|
300
|
|
|
|
|
|
Long-term debt issued affiliated
|
|
|
|
|
|
|
750
|
|
|
|
200
|
|
Long-term debt repaid affiliated
|
|
|
|
|
|
|
(435
|
)
|
|
|
|
|
Debt issuance costs
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
Financing element on certain derivative instruments
|
|
|
(53
|
)
|
|
|
(46
|
)
|
|
|
33
|
|
Dividends on common stock
|
|
|
|
|
|
|
(500
|
)
|
|
|
(690
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(339
|
)
|
|
|
(700
|
)
|
|
|
(1,309
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of change in foreign currency exchange rates on cash
balances
|
|
|
43
|
|
|
|
(132
|
)
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents
|
|
|
(3,082
|
)
|
|
|
3,882
|
|
|
|
1,125
|
|
Cash and cash equivalents, beginning of year
|
|
|
5,656
|
|
|
|
1,774
|
|
|
|
649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
2,574
|
|
|
$
|
5,656
|
|
|
$
|
1,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash paid (received) during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
73
|
|
|
$
|
64
|
|
|
$
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax
|
|
$
|
(63
|
)
|
|
$
|
(48
|
)
|
|
$
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash transactions during the year:
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution of equity securities to MetLife Foundation
|
|
$
|
|
|
|
$
|
|
|
|
$
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial
statements.
F-5
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements
|
|
1.
|
Business,
Basis of Presentation and Summary of Significant Accounting
Policies
|
Business
MICC or the Company refers to MetLife
Insurance Company of Connecticut, a Connecticut corporation
incorporated in 1863, and its subsidiaries, including MetLife
Investors USA Insurance Company (MLI-USA). MetLife
Insurance Company of Connecticut is a subsidiary of MetLife,
Inc. (MetLife). The Company offers individual
annuities, individual life insurance, and institutional
protection and asset accumulation products.
During 2009, the Company realigned its former institutional and
individual businesses into three operating segments: Retirement
Products, Corporate Benefit Funding and Insurance Products. The
segments are managed separately because they either provide
different products and services, require different strategies or
have different technology requirements. In addition, the Company
reports certain of its operations in Corporate &
Other. See Note 14 for further business segment information.
Basis
of Presentation
The accompanying consolidated financial statements include the
accounts of MetLife Insurance Company of Connecticut and its
subsidiaries, partnerships and joint ventures in which the
Company has control. Intercompany accounts and transactions have
been eliminated.
Certain amounts in the prior year periods consolidated
financial statements have been reclassified to conform with the
2009 presentation.
Summary
of Significant Accounting Policies and Critical Accounting
Estimates
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 consolidated financial statements.
A description of critical estimates is incorporated within the
discussion of the related accounting policies which follows. In
applying these 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 Companys
businesses and operations. Actual results could differ from
these estimates.
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 changed the referencing
and organization of accounting guidance without modification of
existing GAAP. Since it did not modify existing GAAP,
Codification did not have any impact on the Companys
financial condition or results of operations. On the effective
date of Codification, substantially all existing non-SEC
accounting and reporting standards were superseded and,
therefore, are no longer referenced by title in the accompanying
consolidated financial statements.
Fair
Value
As described below, certain assets and liabilities are measured
at estimated fair value on the Companys consolidated
balance sheets. In addition, the notes to these consolidated
financial statements include further disclosures of estimated
fair values. The Company defines fair value as the price that
would be received to sell an asset or paid to transfer a
liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction
between market participants on the measurement date. In many
cases, the exit price and the transaction (or entry) price will
be the same at initial recognition. However, in certain cases,
the
F-6
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
transaction price may not represent fair value. The fair value
of a liability is based on the amount that would be paid to
transfer a liability to a third-party with the same credit
standing. It requires that fair value be a market-based
measurement in which the fair value is determined based on a
hypothetical transaction at the measurement date, considered
from the perspective of a market participant. When quoted prices
are not used to determine fair value the Company considers three
broad valuation techniques: (i) the market approach;
(ii) the income approach; and (iii) the cost approach.
The Company determines the most appropriate valuation technique
to use, given what is being measured and the availability of
sufficient inputs. The Company prioritizes the inputs to fair
valuation techniques and allows for the use of unobservable
inputs to the extent that observable inputs are not available.
The Company categorizes its assets and liabilities measured at
estimated fair value into a three-level hierarchy, based on the
priority of the inputs to the respective valuation technique.
The fair value hierarchy gives the highest priority to quoted
prices in active markets for identical assets or liabilities
(Level 1) and the lowest priority to unobservable
inputs (Level 3). An asset or liabilitys
classification within the fair value hierarchy is based on the
lowest level of input to its valuation. The input levels are as
follows:
|
|
|
|
Level 1
|
Unadjusted quoted prices in active markets for identical assets
or liabilities. The Company defines active markets based on
average trading volume for equity securities. The size of the
bid/ask spread is used as an indicator of market activity for
fixed maturity securities.
|
|
|
Level 2
|
Quoted prices in markets that are not active or inputs that are
observable either directly or indirectly. Level 2 inputs
include quoted prices for similar assets or liabilities other
than quoted prices in Level 1; quoted prices in markets
that are not active; or other significant inputs that are
observable or can be derived principally from or corroborated by
observable market data for substantially the full term of the
assets or liabilities.
|
|
|
Level 3
|
Unobservable inputs that are supported by little or no market
activity and are significant to the estimated fair value of the
assets or liabilities. Unobservable inputs reflect the reporting
entitys own assumptions about the assumptions that market
participants would use in pricing the asset or liability.
Level 3 assets and liabilities include financial
instruments whose values are determined using pricing models,
discounted cash flow methodologies, or similar techniques, as
well as instruments for which the determination of estimated
fair value requires significant management judgment or
estimation.
|
Prior to January 1, 2009, the measurement and disclosures
of fair value based on exit price excluded certain items such as
nonfinancial assets and nonfinancial liabilities initially
measured at estimated fair value in a business combination,
reporting units measured at estimated fair value in the first
step of a goodwill impairment test and indefinite-lived
intangible assets measured at estimated fair value for
impairment assessment.
Investments
The accounting policies for the Companys principal
investments are as follows:
Fixed Maturity and Equity Securities. The
Companys fixed maturity and equity securities are
classified as
available-for-sale
and are reported at their estimated fair value.
Unrealized investment gains and losses on these securities are
recorded as a separate component of other comprehensive income
(loss), net of policyholder related amounts and deferred income
taxes. All security transactions are recorded on a trade date
basis. Investment gains and losses on sales of securities are
determined on a specific identification basis.
Interest income on fixed maturity securities is recorded when
earned using an effective yield method giving effect to
amortization of premiums and accretion of discounts. Dividends
on equity securities are recorded when declared. These dividends
and interest income are recorded in net investment income.
F-7
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Included within fixed maturity securities are loan-backed
securities including mortgage-backed and asset-backed
securities. Amortization of the premium or discount from the
purchase of these securities considers the estimated timing and
amount of prepayments of the underlying loans. Actual prepayment
experience is periodically reviewed and effective yields are
recalculated when differences arise between the prepayments
originally anticipated and the actual prepayments received and
currently anticipated. Prepayment assumptions for single class
and multi-class mortgage-backed and asset-backed securities are
estimated by management using inputs obtained from third-party
specialists, including broker-dealers, and based on
managements knowledge of the current market. For
credit-sensitive mortgage-backed and asset-backed securities and
certain prepayment-sensitive securities, the effective yield is
recalculated on a prospective basis. For all other
mortgage-backed and asset-backed securities, the effective yield
is recalculated on a retrospective basis.
The Company periodically evaluates fixed maturity and equity
securities for impairment. The assessment of whether impairments
have occurred is based on managements
case-by-case
evaluation of the underlying reasons for the decline in
estimated fair value. The Companys review of its fixed
maturity and equity securities for impairments includes an
analysis of the total gross unrealized losses by three
categories of securities: (i) securities where the
estimated fair value had declined and remained below cost or
amortized cost by less than 20%; (ii) securities where the
estimated fair value had declined and remained below cost or
amortized cost by 20% or more for less than six months; and
(iii) securities where the estimated fair value had
declined and remained below cost or amortized cost by 20% or
more for six months or greater. 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 Companys
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 certain equity
securities, greater weight and consideration are given by the
Company to a decline in market value and the likelihood such
market value decline will recover. See also Note 2.
Additionally, management considers a wide range of factors about
the security issuer and uses its best judgment in evaluating the
cause of the decline in the estimated fair value of the security
and in assessing the prospects for near-term recovery. Inherent
in managements evaluation of the security are assumptions
and estimates about the operations of the issuer and its future
earnings potential. Considerations used by the Company in the
impairment evaluation process include, but are not limited to:
(i) the length of time and the extent to which the
estimated fair value has been below cost or amortized cost;
(ii) the potential for impairments of securities when the
issuer is experiencing significant financial difficulties;
(iii) the potential for impairments in an entire industry
sector or
sub-sector;
(iv) the potential for impairments in certain economically
depressed geographic locations; (v) the potential for
impairments of securities where the issuer, series of issuers or
industry has suffered a catastrophic type of loss or has
exhausted natural resources; (vi) with respect to fixed
maturity securities, whether the Company has the intent to sell
or will more likely than not be required to sell a particular
security before the decline in estimated fair value below cost
or amortized cost recovers; (vii) with respect to equity
securities, whether the Companys ability and intent to
hold the security for a period of time sufficient to allow for
the recovery of its estimated fair value to an amount equal to
or greater than cost; (viii) unfavorable changes in
forecasted cash flows on mortgage-backed and asset-backed
securities; and (ix) other subjective factors, including
concentrations and information obtained from regulators and
rating agencies.
Effective April 1, 2009, the Company prospectively adopted
new guidance on the recognition and presentation of
other-than-temporary
impairment (OTTI) losses as described in
Adoption of New Accounting Pronouncements
Financial Instruments. The new guidance 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
F-8
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
difference between the fixed maturity securitys amortized
cost and its estimated fair value only when either: (i) the
Company has the intent to sell the fixed 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 estimated 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 estimated fair value is less than the
present value of projected future cash flows expected to be
collected, this portion of OTTI related to other-than credit
factors (noncredit loss) is recorded as other
comprehensive income (loss). There was no change for equity
securities which, when an OTTI has occurred, continue to be
impaired for the entire difference between the equity
securitys cost and its estimated fair value with a
corresponding charge to earnings.
Prior to the adoption of the new 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
estimated fair value to the securitys amortized cost
basis. Also, prior to the adoption of this guidance, the entire
difference between the fixed maturity securitys amortized
cost basis and its estimated fair value was recognized in
earnings if it was determined to have an OTTI.
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 estimated fair value to an amount equal to or
greater than cost. If a sale decision is made for an equity
security and it 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. When an OTTI loss has
occurred, the OTTI loss is the entire difference between the
equity securitys cost and its estimated fair value with a
corresponding charge to earnings.
With respect to perpetual hybrid securities that have attributes
of both debt and equity, some of which are classified as fixed
maturity securities and some of which are classified as
non-redeemable preferred stock within equity securities, 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 an unrealized
loss, regardless of credit rating, have deferred any dividend
payments. When an OTTI loss has occurred, the OTTI loss is the
entire difference between the perpetual hybrid securitys
cost and its estimated fair value with a corresponding charge to
earnings.
Upon adoption of the new OTTI guidance, the Companys
methodology and significant inputs used to determine the amount
of the credit loss are as follows:
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(i)
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The Company calculates the recovery value of fixed maturity
securities 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.
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(ii)
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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 managements
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 securitys position within the capital
structure of the issuer; possible
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F-9
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
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corporate restructurings or asset sales by the issuer; and
changes to the rating of the security or the issuer by rating
agencies.
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(iii)
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Additional considerations are made when assessing the unique
features that apply to certain structured securities such as
residential mortgage-backed securities (RMBS),
commercial mortgage-backed securities (CMBS) and
asset-backed securities (ABS). 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 payment terms of the underlying assets backing a particular
security; and the payment priority within the tranche structure
of the security.
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(iv)
|
When determining the amount of the credit loss for U.S. and
foreign corporate securities, foreign government securities and
state and political subdivision securities, management considers
the estimated fair value as the recovery value when available
information does not indicate that another value is more
appropriate. When information is identified that indicates a
recovery value other than estimated fair value, management
considers in the determination of recovery value the same
considerations utilized in its overall impairment evaluation
process which incorporates available information and
managements best estimate of scenarios-based outcomes
regarding the specific security and issuer; possible corporate
restructurings or asset sales by the issuer; the quality and
amount of any credit enhancements; the securitys position
within the capital structure of the issuer; fundamentals of the
industry and geographic area in which the security issuer
operates, and the overall macroeconomic conditions.
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The cost or amortized cost of fixed maturity and equity
securities is adjusted for OTTI in the period in which the
determination is made. These impairments are included within net
investment gains (losses). The Company does not change the
revised cost basis for subsequent recoveries in value.
In periods subsequent to the recognition of OTTI on a fixed
maturity security, the Company accounts for the impaired
security as if it had been purchased on the measurement date of
the impairment. Accordingly, the discount (or reduced premium)
based on the new cost basis is accreted into net investment
income over the remaining term of the fixed maturity security in
a prospective manner based on the amount and timing of estimated
future cash flows.
The Company has invested in certain structured transactions that
are variable interest entities (VIEs). These
structured transactions include asset-backed securitizations,
hybrid securities, joint ventures, limited partnerships and
limited liability companies. The Company consolidates 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.
Trading Securities. The Companys trading
securities portfolio, principally consisting of fixed maturity
and equity securities, supports investment strategies that
involve the active and frequent purchase and sale of securities,
and supports asset and liability matching strategies for certain
insurance products. Trading securities are presented at
estimated fair value with subsequent changes in estimated fair
value recognized in net investment income. Related dividends and
investment income are also included in net investment income.
Securities Lending. Securities loaned
transactions, whereby blocks of securities, which are included
in fixed maturity securities and short-term investments, are
loaned to third parties, are treated as financing arrangements
and the associated liability is recorded at the amount of cash
received. The Company generally obtains collateral in an amount
equal to 102% of the estimated fair value of the securities
loaned. The Company monitors the estimated fair value of the
securities loaned on a daily basis with additional collateral
obtained as necessary. Substantially all of the Companys
securities loaned transactions are with brokerage
F-10
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
firms and commercial banks. Income and expenses associated with
securities loaned transactions are reported as investment income
and investment expense, respectively, within net investment
income.
Mortgage Loans. Mortgage loans are stated at
unpaid principal balance, adjusted for any unamortized premium
or discount, deferred fees or expenses, net of valuation
allowances. Interest income is accrued on the principal amount
of the loan based on the loans contractual interest rate.
Amortization of premiums and discounts is recorded using the
effective yield method. Interest income, amortization of
premiums and discounts and prepayment fees are reported in net
investment income. Loans are considered to be impaired when it
is probable that, based upon current information and events, the
Company will be unable to collect all amounts due under the
contractual terms of the loan agreement. Based on the facts and
circumstances of the individual loans being impaired, loan
specific valuation allowances are established for the excess
carrying value of the loan over either: (i) the present
value of expected future cash flows discounted at the
loans original effective interest rate; (ii) the
estimated fair value of the loans underlying collateral if
the loan is in the process of foreclosure or otherwise
collateral dependent; or (iii) the loans observable
market price. The Company also establishes allowances for loan
losses for pools of loans with similar characteristics, such as
mortgage loans based on similar property types, similar
loan-to-value,
or similar debt service coverage ratio factors when, based on
past experience, it is probable that a credit event has occurred
and the amount of the loss can be reasonably estimated. Interest
income earned on impaired loans is accrued on the principal
amount of the loan based on the loans contractual interest
rate. However, interest ceases to accrue for loans on which
interest is generally more than 60 days past due
and/or when
the collection of interest is not considered probable. Cash
receipts on such impaired loans are recorded in accordance with
the loan agreement as a reduction of principal
and/or as
interest income. Gains and losses from the sale of loans and
changes in valuation allowances are reported in net investment
gains (losses).
Policy Loans. Policy loans are stated at
unpaid principal balances. Interest income on such loans is
recorded as earned in investment income using the contractually
agreed upon interest rate. Generally, interest is capitalized on
the policys anniversary date.
Real Estate. Real estate
held-for-investment,
including related improvements, is stated at cost less
accumulated depreciation. Depreciation is provided on a
straight-line basis over the estimated useful life of the asset
(typically 20 to 55 years). Rental income is recognized on
a straight-line basis over the term of the respective leases.
The Company classifies a property as
held-for-sale
if it commits to a plan to sell a property within one year and
actively markets the property in its current condition for a
price that is reasonable in comparison to its estimated fair
value. The Company classifies the results of operations and the
gain or loss on sale of a property that either has been disposed
of or classified as
held-for-sale
as discontinued operations, if the ongoing operations of the
property will be eliminated from the ongoing operations of the
Company and if the Company will not have any significant
continuing involvement in the operations of the property after
the sale. Real estate
held-for-sale
is stated at the lower of depreciated cost or estimated fair
value less expected disposition costs. Real estate is not
depreciated while it is classified as
held-for-sale.
The Company periodically reviews its properties
held-for-investment
for impairment and tests properties for recoverability whenever
events or changes in circumstances indicate the carrying amount
of the asset may not be recoverable and the carrying value of
the property exceeds its estimated fair value. Properties whose
carrying values are greater than their undiscounted cash flows
are written down to their estimated fair value, with the
impairment loss included in net investment gains (losses).
Impairment losses are based upon the estimated fair value of
real estate, which is generally computed using the present value
of expected future cash flows from the real estate discounted at
a rate commensurate with the underlying risks. Real estate
acquired upon foreclosure is recorded at the lower of estimated
fair value or the carrying value of the mortgage loan at the
date of foreclosure.
F-11
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Real Estate Joint Ventures and Other Limited Partnership
Interests. The Company uses the equity method of
accounting for investments in real estate joint ventures and
other limited partnership interests consisting of leveraged
buy-out funds, hedge funds and other private equity funds in
which it has more than a minor equity interest or more than a
minor influence over the joint ventures or partnerships
operations, but does not have a controlling interest and is not
the primary beneficiary. The equity method is also used for such
investments in which the Company has significant influence or
more than a 20% interest. For certain of those joint ventures
the Company records its share of earnings using a three-month
lag methodology for all instances where the timely financial
information is available and the contractual right exists to
receive such financial information. 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 ventures or the partnerships operations. The Company
reports the distributions from real estate joint ventures and
other limited partnership interests accounted for under the cost
method and equity in earnings from real estate joint ventures
and other limited partnership interests accounted for under the
equity method in net investment income. In addition to the
investees performing regular evaluations for the impairment of
underlying investments, the Company routinely evaluates its
investments in real estate joint ventures and other limited
partnerships for impairments. The Company considers its cost
method investments for OTTI when the carrying value of real
estate joint ventures and other limited partnership interests
exceeds the net asset value (NAV). The Company takes
into consideration the severity and duration of this excess when
deciding if the cost method investment is
other-than-temporarily
impaired. For equity method investees, the Company considers
financial and other information provided by the investee, other
known information and inherent risks in the underlying
investments, as well as future capital commitments, in
determining whether an impairment has occurred. When an OTTI is
deemed to have occurred, the Company records a realized capital
loss within net investment gains (losses) to record the
investment at its estimated fair value.
Short-term Investments. Short-term investments
include investments with remaining maturities of one year or
less, but greater than three months, at the time of acquisition
and are stated at amortized cost, which approximates estimated
fair value, or stated at estimated fair value, if available.
Short-term investments also include investments in affiliated
money market pools.
Other Invested Assets. Other invested assets
consist principally of freestanding derivatives with positive
estimated fair values, investments in insurance enterprise joint
ventures and tax credit partnerships.
Freestanding derivatives with positive estimated fair values are
described in the derivatives accounting policy which follows.
Joint venture investments represent the Companys
investments in entities that engage in insurance underwriting
activities and are accounted for on the equity method. Tax
credit partnerships are 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 and are also
accounted for under the equity method or under the effective
yield method. The Company reports the equity in earnings of
joint venture investments and tax credit partnerships in net
investment income.
The Companys investments are exposed to four primary
sources of risk: credit, interest rate, liquidity risk, and
market valuation. The financial statement risks, stemming from
such investment risks, are those associated with the
determination of estimated fair values, the diminished ability
to sell certain investments in times of strained market
conditions, the recognition of impairments, the recognition of
income on certain investments and the potential consolidation of
VIEs. The use of different methodologies, assumptions and inputs
relating to these financial statement risks may have a material
effect on the amounts presented within the consolidated
financial statements.
F-12
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
When available, the estimated fair value of the Companys
fixed maturity and equity securities are based on quoted prices
in active markets that are readily and regularly obtainable.
Generally, these are the most liquid of the Companys
securities holdings and valuation of these securities does not
involve management judgment.
When quoted prices in active markets are not available, the
determination of estimated fair value is based on market
standard valuation methodologies. The market standard valuation
methodologies utilized include: discounted cash flow
methodologies, matrix pricing or other similar techniques. The
inputs to these market standard valuation methodologies include,
but are not limited to: interest rates, credit standing of the
issuer or counterparty, industry sector of the issuer, coupon
rate, call provisions, sinking fund requirements, maturity,
estimated duration and managements assumptions regarding
liquidity and estimated future cash flows. Accordingly, the
estimated fair values are based on available market information
and managements judgments about financial instruments.
The significant inputs to the market standard valuation
methodologies for certain types of securities with reasonable
levels of price transparency are inputs that are observable in
the market or can be derived principally from or corroborated by
observable market data. Such observable inputs include
benchmarking prices for similar assets in active, liquid
markets, quoted prices in markets that are not active and
observable yields and spreads in the market.
When observable inputs are not available, the market standard
valuation methodologies for determining the estimated fair value
of certain types of securities that trade infrequently, and
therefore have little or no price transparency, rely on inputs
that are significant to the estimated fair value that are not
observable in the market or cannot be derived principally from
or corroborated by observable market data. These unobservable
inputs can be based in large part on management judgment or
estimation, and cannot be supported by reference to market
activity. Even though unobservable, these inputs are based on
assumptions deemed appropriate given the circumstances and
consistent with what other market participants would use when
pricing such securities.
Financial markets are susceptible to severe events evidenced by
rapid depreciation in asset values accompanied by a reduction in
asset liquidity. The Companys ability to sell securities,
or the price ultimately realized for these securities, depends
upon the demand and liquidity in the market and increases the
use of judgment in determining the estimated fair value of
certain securities.
The determination of the amount of allowances and impairments,
as applicable, is described previously by investment type. The
determination of such allowances and impairments is highly
subjective and is based upon the Companys periodic
evaluation and assessment of known and inherent risks associated
with the respective asset class. Such evaluations and
assessments are revised as conditions change and new information
becomes available.
The recognition of income on certain investments (e.g.
loan-backed securities, including mortgage-backed and
asset-backed securities, certain structured investment
transactions, trading securities, etc.) is dependent upon market
conditions, which could result in prepayments and changes in
amounts to be earned.
The accounting rules for the determination of when an entity is
a VIE and when to consolidate a VIE are complex. The
determination of the VIEs primary beneficiary requires an
evaluation of the contractual and implied rights and obligations
associated with each partys relationship with or
involvement in the entity, an estimate of the entitys
expected losses and expected residual returns and the allocation
of such estimates to each party involved in the entity. The
primary beneficiary is defined as the entity that will absorb a
majority of a VIEs expected losses, receive a majority of
a VIEs expected residual returns if no single entity
absorbs a majority of expected losses, or both.
When assessing the expected losses to determine the primary
beneficiary for structured investment products such as
asset-backed securitizations and collateralized debt
obligations, the Company uses historical default probabilities
based on the credit rating of each issuer and other inputs
including maturity dates, industry
F-13
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
classifications and geographic location. Using computational
algorithms, the analysis simulates default scenarios resulting
in a range of expected losses and the probability associated
with each occurrence. For other investment structures such as
hybrid securities, joint ventures, limited partnerships and
limited liability companies, the Company takes into
consideration the design of the VIE and generally uses a
qualitative approach to determine if it is the primary
beneficiary. This approach includes an analysis of all
contractual and implied rights and obligations held by all
parties including profit and loss allocations, repayment or
residual value guarantees, put and call options and other
derivative instruments. If the primary beneficiary of a VIE can
not be identified using this qualitative approach, the Company
calculates the expected losses and expected residual returns of
the VIE using a probability-weighted cash flow model. The use of
different methodologies, assumptions and inputs in the
determination of the primary beneficiary could have a material
effect on the amounts presented within the consolidated
financial statements.
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 risks
relating to its ongoing business. 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 Companys
consolidated balance sheets 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 or through the use
of pricing models for
over-the-counter
derivatives. The determination of estimated fair 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 Company does 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). 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 (fair value hedge); or (ii) a hedge
of a forecasted transaction or of the variability of cash flows
to be received or paid related to a recognized asset or
liability (cash flow hedge). 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 instruments 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.
F-14
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
The accounting for derivatives is complex and interpretations of
the primary accounting guidance continue to evolve in practice.
Judgment is applied in determining the availability and
application of hedge accounting designations and the appropriate
accounting treatment under such accounting guidance. 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 in 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 operations 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 operations when the Companys 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 operations 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.
The Company discontinues hedge accounting prospectively when:
(i) it is determined that the derivative is no longer
highly effective in offsetting changes in the estimated fair
value or cash flows of a hedged item; (ii) the derivative
expires, is sold, terminated, or exercised; (iii) it is no
longer probable that the hedged forecasted transaction will
occur; or (iv) the derivative is de-designated as a hedging
instrument.
When hedge accounting is discontinued because it is determined
that the derivative is not highly effective in offsetting
changes in the estimated fair value or cash flows of a hedged
item, the derivative continues to be carried in the consolidated
balance sheets 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 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 operations when the Companys
earnings are affected by the variability in cash flows of the
hedged item.
When hedge accounting is discontinued because it is no longer
probable that the forecasted transactions will occur on the
anticipated date or within two months of that date, the
derivative continues to be carried in the consolidated balance
sheets at its estimated fair value, with changes in estimated
fair value recognized currently in net investment gains
(losses). Deferred gains and losses of a derivative recorded in
other comprehensive income (loss) pursuant to the discontinued
cash flow hedge of a forecasted transaction that is no longer
probable 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 in the consolidated balance sheets, 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
F-15
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
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
in the consolidated balance sheets at estimated fair value with
the host contract and changes in their estimated fair value are
generally reported in net investment gains (losses). If the
Company is unable to properly identify and measure an embedded
derivative for separation from its host contract, the entire
contract is carried on the balance sheet at estimated fair
value, with changes in estimated fair value recognized in the
current period in net investment gains (losses). 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) 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.
Cash and
Cash Equivalents
The Company considers all highly liquid investments purchased
with an original or remaining maturity of three months or less
at the date of purchase to be cash equivalents.
Property,
Equipment, Leasehold Improvements and Computer
Software
Property, equipment and leasehold improvements, which are
included in other assets, are stated at cost, less accumulated
depreciation and amortization. Depreciation is determined using
the straight-line method over the estimated useful lives of the
assets, as appropriate. Estimated lives generally range from
five to ten years for leasehold improvements and three to seven
years for all other property and equipment. The net book value
of the property, equipment and leasehold improvements was
$2 million and less than $1 million at
December 31, 2009 and 2008, respectively.
Computer software, which is included in other assets, is stated
at cost, less accumulated amortization. Purchased software
costs, as well as certain internal and external costs incurred
to develop internal-use computer software during the application
development stage, are capitalized. Such costs are amortized
generally over a four-year period using the straight-line
method. The cost basis of computer software was
$102 million and $76 million at December 31, 2009
and 2008, respectively. Accumulated amortization of capitalized
software was $42 million and $26 million at
December 31, 2009 and 2008, respectively. Related
amortization expense was $16 million, $15 million and
$11 million for the years ended December 31, 2009,
2008 and 2007, respectively.
Deferred
Policy Acquisition Costs and Value of Business
Acquired
The Company incurs significant costs in connection with
acquiring new and renewal insurance business. Costs that vary
with and relate to the production of new business are deferred
as deferred policy acquisition costs (DAC). Such
costs consist principally of commissions and agency and policy
issuance expenses. Value of business acquired (VOBA)
is an intangible asset that represents the present value of
future profits embedded in acquired insurance annuity and
investment type contracts. VOBA is based on
actuarially determined projections, by each block of business,
of future policy and contract charges, premiums, mortality and
morbidity, separate account performance, surrenders, operating
expenses, investment returns and other factors. Actual
experience on the purchased business may vary from these
projections. The recovery of DAC and VOBA is dependent upon the
future profitability of the related business. DAC and VOBA are
aggregated in the financial statements for reporting purposes.
DAC and VOBA on life insurance or investment-type contracts are
amortized in proportion to gross premiums or gross profits,
depending on the type of contract as described below.
F-16
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
The Company amortizes DAC and VOBA related to non-participating
and non-dividend paying traditional contracts (primarily term
insurance) over the entire premium paying period in proportion
to the present value of actual historic and expected future
gross premiums. The present value of expected premiums is based
upon the premium requirement of each policy and assumptions for
mortality, morbidity, persistency and investment returns at
policy issuance, or policy acquisition, as it relates to VOBA,
that include provisions for adverse deviation and are consistent
with the assumptions used to calculate future policyholder
benefit liabilities. These assumptions are not revised after
policy issuance or acquisition unless the DAC or VOBA balance is
deemed to be unrecoverable from future expected profits. Absent
a premium deficiency, variability in amortization after policy
issuance or acquisition is caused only by variability in premium
volumes.
The Company amortizes DAC and VOBA related to fixed and variable
universal life contracts and fixed and variable deferred annuity
contracts over the estimated lives of the contracts in
proportion to actual and expected future gross profits. The
amortization includes interest based on rates in effect at
inception or acquisition of the contracts. The amount of future
gross profits is dependent principally upon returns in excess of
the amounts credited to policyholders, mortality, persistency,
interest crediting rates, expenses to administer the business,
creditworthiness of reinsurance counterparties, the effect of
any hedges used and certain economic variables, such as
inflation. Of these factors, the Company anticipates that
investment returns, expenses and persistency are reasonably
likely to impact significantly the rate of DAC and VOBA
amortization. Each reporting period, the Company updates the
estimated gross profits with the actual gross profits for that
period. When the actual gross profits change from previously
estimated gross profits, the cumulative DAC and VOBA
amortization is re-estimated and adjusted by a cumulative charge
or credit to current operations. When actual gross profits
exceed those previously estimated, the DAC and VOBA amortization
will increase, resulting in a current period charge to earnings.
The opposite result occurs when the actual gross profits are
below the previously estimated gross profits. Each reporting
period, the Company also updates the actual amount of business
remaining in-force, which impacts expected future gross profits.
When expected future gross profits are below those previously
estimated, the DAC and VOBA amortization will increase,
resulting in a current period charge to earnings. The opposite
result occurs when the expected future gross profits are above
the previously estimated expected future gross profits. Each
period, the Company also reviews the estimated gross profits for
each block of business to determine the recoverability of DAC
and VOBA balances.
Separate account rates of return on variable universal life
contracts and variable deferred annuity contracts affect
in-force account balances on such contracts each reporting
period which can result in significant fluctuations in
amortization of DAC and VOBA. Returns that are higher than the
Companys long-term expectation produce higher account
balances, which increases the Companys future fee
expectations and decreases future benefit payment expectations
on minimum death and living benefit guarantees, resulting in
higher expected future gross profits. The opposite result occurs
when returns are lower than the Companys long-term
expectation. The Companys practice to determine the impact
of gross profits resulting from returns on separate accounts
assumes that long-term appreciation in equity markets is not
changed by short-term market fluctuations, but is only changed
when sustained interim deviations are expected. The Company
monitors these changes and only changes the assumption when its
long-term expectation changes.
The Company also reviews periodically other long-term
assumptions underlying the projections of estimated gross
profits. These include investment returns, interest crediting
rates, mortality, persistency and expenses to administer
business. Management annually updates assumptions used in the
calculation of estimated gross profits which may have
significantly changed. If the update of assumptions causes
expected future gross profits to increase, DAC and VOBA
amortization will decrease, resulting in a current period
increase to earnings. The opposite result occurs when the
assumption update causes expected future gross profits to
decrease.
Periodically, the Company modifies product benefits, features,
rights or coverages that occur by the exchange of a contract for
a new contract, or by amendment, endorsement, or rider to a
contract, or by election or coverage
F-17
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
within a contract. If such modification, referred to as an
internal replacement, substantially changes the contract, the
associated DAC is written off immediately through income and any
new deferrable costs associated with the replacement contract
are deferred. If the modification does not substantially change
the contract, the DAC amortization on the original contract will
continue and any acquisition costs associated with the related
modification are expensed.
Sales
Inducements
The Company has two different types of sales inducements which
are included in other assets: (i) the policyholder receives
a bonus whereby the policyholders initial account balance
is increased by an amount equal to a specified percentage of the
customers deposit; and (ii) the policyholder receives
a higher interest rate using a dollar cost averaging method than
would have been received based on the normal general account
interest rate credited. The Company defers sales inducements and
amortizes them over the life of the policy using the same
methodology and assumptions used to amortize DAC. The
amortization of sales inducements is included in policyholder
benefits and claims. Each year the Company reviews the deferred
sales inducements to determine the recoverability of these
balances.
Value of
Distribution Agreements and Customer Relationships
Acquired
Value of distribution agreements (VODA) is reported
in other assets and represents the present value of future
profits associated with the expected future business derived
from the distribution agreements. Value of customer
relationships acquired (VOCRA) is also reported in
other assets and represents the present value of the expected
future profits associated with the expected future business
acquired through existing customers of the acquired company or
business. The VODA and VOCRA associated with past acquisitions
are amortized over useful life ranging from 10 to 30 years
and such amortization is included in other expenses. Each year
the Company reviews VODA and VOCRA to determine the
recoverability of these balances.
Goodwill
Goodwill is the excess of cost over the estimated fair value of
net assets acquired. Goodwill is not amortized but is tested for
impairment at least annually or more frequently if events or
circumstances, such as adverse changes in the business climate,
indicate that there may be justification for conducting an
interim test. The Company performs its annual goodwill
impairment testing during the third quarter of each year based
upon data as of the close of the second quarter.
Impairment testing is performed using the fair value approach,
which requires the use of estimates and judgment, at the
reporting unit level. A reporting unit is the
operating segment or a business one level below the operating
segment, if discrete financial information is prepared and
regularly reviewed by management at that level. For purposes of
goodwill impairment testing, goodwill within
Corporate & Other is allocated to reporting units
within the Companys business segments.
For purposes of goodwill impairment testing, if the carrying
value of a reporting unit exceeds its estimated fair value,
there might be an indication of impairment. In such instances,
the implied fair value of the goodwill is determined in the same
manner as the amount of goodwill would be determined in a
business acquisition. The excess of the carrying value of
goodwill over the implied fair value of goodwill is recognized
as an impairment and recorded as a charge against net income.
In performing its goodwill impairment tests, when management
believes meaningful comparable market data are available, the
estimated fair values of the reporting units are determined
using a market multiple approach. When relevant comparables are
not available, the Company uses a discounted cash flow model.
For reporting units
F-18
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
which are particularly sensitive to market assumptions, such as
the retirement products and individual life reporting units, the
Company may corroborate its estimated fair values by using
additional valuation methodologies.
The key inputs, judgments and assumptions necessary in
determining estimated fair value include projected earnings,
current book value (with and without accumulated other
comprehensive income), the level of economic capital required to
support the mix of business, long term growth rates, comparative
market multiples, the account value of in-force business,
projections of new and renewal business, as well as margins on
such business, the level of interest rates, credit spreads,
equity market levels and the discount rate management believes
appropriate to the risk associated with the respective reporting
unit. The estimated fair value of the retirement products and
individual life reporting units are particularly sensitive to
the equity market levels.
Management applies significant judgment when determining the
estimated fair value of the Companys reporting units. The
valuation methodologies utilized are subject to key judgments
and assumptions that are sensitive to change. Estimates of fair
value are inherently uncertain and represent only
managements reasonable expectation regarding future
developments. These estimates and the judgments and assumptions
upon which the estimates are based will, in all likelihood,
differ in some respects from actual future results. Declines in
the estimated fair value of the Companys reporting units
could result in goodwill impairments in future periods which
could materially adversely affect the Companys results of
operations or financial position.
During our 2009 impairment tests of goodwill, management
concluded that the fair values of all reporting units were in
excess of their carrying values and, therefore, goodwill was not
impaired. However, management continues to evaluate current
market conditions that may affect the estimated fair value of
the Companys reporting units to assess whether any
goodwill impairment exists. Deteriorating or adverse market
conditions for certain reporting units may have a significant
impact on the estimated fair value of these reporting units and
could result in future impairments of goodwill.
See Note 6 for further consideration of goodwill impairment
testing during 2009.
Liability
for Future Policy Benefits and Policyholder Account
Balances
The Company establishes liabilities for amounts payable under
insurance policies, including traditional life insurance,
traditional annuities and non-medical health insurance.
Generally, amounts are payable over an extended period of time
and related liabilities are calculated as the present value of
future expected benefits to be paid reduced by the present value
of future expected premiums. Such liabilities are established
based on methods and underlying assumptions in accordance with
GAAP and applicable actuarial standards. Principal assumptions
used in the establishment of liabilities for future policy
benefits are mortality, morbidity, policy lapse, renewal,
retirement, investment returns, inflation, expenses and other
contingent events as appropriate to the respective product type.
Utilizing these assumptions, liabilities are established on a
block of business basis.
Future policy benefit liabilities for non-participating
traditional life insurance policies are equal to the aggregate
of the present value of expected future benefit payments and
related expenses less the present value of expected future net
premiums. Assumptions as to mortality and persistency are based
upon the Companys experience when the basis of the
liability is established. Interest rate assumptions for future
policy benefit liabilities on non-participating traditional life
insurance range from 3% to 7%.
Future policy benefit liabilities for individual and group
traditional fixed annuities after annuitization are equal to the
present value of expected future payments. Interest rate
assumptions used in establishing such liabilities range from 4%
to 9%.
Future policy benefit liabilities for non-medical health
insurance are calculated using the net level premium method and
assumptions as to future morbidity, withdrawals and interest,
which provide a margin for adverse deviation. Interest rate
assumptions used in establishing such liabilities range from 4%
to 7%.
F-19
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Future policy benefit liabilities for disabled lives are
estimated using the present value of benefits method and
experience assumptions as to claim terminations, expenses and
interest. Interest rate assumptions used in establishing such
liabilities range from 3% to 6%.
Liabilities for unpaid claims and claim expenses for the
Companys workers compensation business are included
in future policyholder benefits and are estimated based upon the
Companys historical experience and other actuarial
assumptions that consider the effects of current developments,
anticipated trends and risk management programs, reduced for
anticipated subrogation. The effects of changes in such
estimated liabilities are included in the results of operations
in the period in which the changes occur.
The Company establishes future policy benefit liabilities for
minimum death and income benefit guarantees relating to certain
annuity contracts and secondary guarantees relating to certain
life policies as follows:
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Guaranteed minimum death benefit (GMDB) liabilities
are determined by estimating the expected value of death
benefits in excess of the projected account balance and
recognizing the excess ratably over the accumulation period
based on total expected assessments. The Company regularly
evaluates estimates used and adjusts the additional liability
balance, with a related charge or credit to benefit expense, if
actual experience or other evidence suggests that earlier
assumptions should be revised. The assumptions used in
estimating the GMDB liabilities are consistent with those used
for amortizing DAC, and are thus subject to the same variability
and risk. The assumptions of investment performance and
volatility are consistent with the historical experience of the
Standard & Poors (S&P) 500
Index. The benefit assumptions used in calculating the
liabilities are based on the average benefits payable over a
range of scenarios.
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Guaranteed minimum income benefit (GMIB) liabilities
are determined by estimating the expected value of the income
benefits in excess of the projected account balance at any
future date of annuitization and recognizing the excess ratably
over the accumulation period based on total expected
assessments. The Company regularly evaluates estimates used and
adjusts the additional liability balance, with a related charge
or credit to benefit expense, if actual experience or other
evidence suggests that earlier assumptions should be revised.
The assumptions used for estimating the GMIB liabilities are
consistent with those used for estimating the GMDB liabilities.
In addition, the calculation of guaranteed annuitization benefit
liabilities incorporates an assumption for the percentage of the
potential annuitizations that may be elected by the
contractholder. Certain GMIBs have settlement features that
result in a portion of that guarantee being accounted for as an
embedded derivative and are recorded in policyholder account
balances as described below.
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Liabilities for universal and variable life secondary guarantees
are determined by estimating the expected value of death
benefits payable when the account balance is projected to be
zero and recognizing those benefits ratably over the
accumulation period based on total expected assessments. The
Company regularly evaluates estimates used and adjusts the
additional liability balances, with a related charge or credit
to benefit expense, if actual experience or other evidence
suggests that earlier assumptions should be revised. The
assumptions used in estimating the secondary guarantee
liabilities are consistent with those used for amortizing DAC,
and are thus subject to the same variability and risk. The
assumptions of investment performance and volatility for
variable products are consistent with historical S&P
experience. The benefits used in calculating the liabilities are
based on the average benefits payable over a range of scenarios.
The Company establishes policyholder account balances for
guaranteed minimum benefits relating to certain variable annuity
products as follows:
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Guaranteed minimum withdrawal benefits (GMWB)
guarantee the contractholder a return of their purchase payment
via partial withdrawals, even if the account value is reduced to
zero, provided that the contractholders cumulative
withdrawals in a contract year do not exceed a certain limit.
The initial guaranteed withdrawal amount is equal to the initial
benefit base as defined in the contract (typically, the
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F-20
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
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initial purchase payments plus applicable bonus amounts). The
GMWB is an embedded derivative, which is measured at estimated
fair value separately from the host variable annuity product.
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Guaranteed minimum accumulation benefits (GMAB) and
settlement features in certain GMIB described above provide the
contractholder, after a specified period of time determined at
the time of issuance of the variable annuity contract, with a
minimum accumulation of their purchase payments even if the
account value is reduced to zero. The initial guaranteed
accumulation amount is equal to the initial benefit base as
defined in the contract (typically, the initial purchase
payments plus applicable bonus amounts). The GMAB is an embedded
derivative, which is measured at estimated fair value separately
from the host variable annuity product.
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For GMWB, GMAB and certain GMIB, the initial benefit base is
increased by additional purchase payments made within a certain
time period and decreases by benefits paid
and/or
withdrawal amounts. After a specified period of time, the
benefit base may also increase as a result of an optional reset
as defined in the contract.
GMWB, GMAB and certain GMIB are accounted for as embedded
derivatives with changes in estimated fair value reported in net
investment gains (losses).
At inception of the GMWB, GMAB and certain GMIB contracts, the
Company attributes to the embedded derivative a portion of the
projected future guarantee fees to be collected from the
policyholder equal to the present value of projected future
guaranteed benefits. Any additional fees represent
excess fees and are reported in universal life and
investment-type product policy fees.
The fair values for these embedded derivatives are then
estimated based on the present value of projected future
benefits minus the present value of projected future fees. The
projections of future benefits and future fees require capital
market and actuarial assumptions including expectations
concerning policyholder behavior. A risk neutral valuation
methodology is used under which the cash flows from the
guarantees are projected under multiple capital market scenarios
using observable risk free rates. Beginning in 2008, the
valuation of these embedded derivatives includes an adjustment
for the Companys own credit and risk margins for
non-capital market inputs. The Companys own credit
adjustment is determined taking into consideration publicly
available information relating to the Companys debt, as
well as its claims paying ability. Risk margins are established
to capture the non-capital market risks of the instrument which
represent the additional compensation a market participant would
require to assume the risks related to the uncertainties of such
actuarial assumptions as annuitization, premium persistency,
partial withdrawal and surrenders. The establishment of risk
margins requires the use of significant management judgment.
These guarantees may be more costly than expected in volatile or
declining equity markets. Market conditions including, but not
limited to, changes in interest rates, equity indices, market
volatility and foreign currency exchange rates; changes in the
Companys own credit standing; and variations in actuarial
assumptions regarding policyholder behavior, and risk margins
related to non-capital market inputs may result in significant
fluctuations in the estimated fair value of the guarantees that
could materially affect net income.
The Company cedes the risks associated with certain of the GMIB,
GMAB and GMWB guarantees described in the preceding paragraphs
to an affiliated reinsurance company. These reinsurance
contracts contain embedded derivatives which are included in
premiums and other receivables with changes in estimated fair
value reported in net investment gains (losses). The value of
these embedded derivatives on the ceded risks is determined
using a methodology consistent with that described previously
for the guarantees directly written by the Company.
In addition to ceding risks associated with guarantees that are
accounted for as embedded derivatives, the Company also cedes to
the same affiliated reinsurance company certain directly written
GMIB guarantees that are accounted for as insurance (i.e. not as
embedded derivatives) but where the reinsurance contract
contains an embedded derivative. These embedded derivatives are
included in premiums and other receivables with changes in
F-21
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
estimated fair value reported in net investment gains (losses).
The value of these embedded derivatives is determined using a
methodology consistent with that described previously for the
guarantees directly written by the Company.
The Company periodically reviews its estimates of actuarial
liabilities for future policy benefits and compares them with
its actual experience. Differences between actual experience and
the assumptions used in pricing these policies and guarantees,
and in the establishment of the related liabilities result in
variances in profit and could result in losses. The effects of
changes in such estimated liabilities are included in the
results of operations in the period in which the changes occur.
Policyholder account balances relate to investment-type
contracts, universal life-type policies and certain guaranteed
minimum benefits. Investment-type contracts principally include
traditional individual fixed annuities in the accumulation phase
and non-variable group annuity contracts. Policyholder account
balances for these contracts are equal to: (i) policy
account values, which consist of an accumulation of gross
premium payments; (ii) credited interest, ranging from 1%
to 12%, less expenses, mortality charges and withdrawals; and
(iii) fair value adjustments relating to business
combinations.
Other
Policyholder Funds
Other policyholder funds include policy and contract claims and
unearned revenue liabilities.
The liability for policy and contract claims generally relates
to incurred but not reported death, disability, and long-term
care (LTC), as well as claims which have been
reported but not yet settled. The liability for these claims is
based on the Companys estimated ultimate cost of settling
all claims. The Company derives estimates for the development of
incurred but not reported claims principally from actuarial
analyses of historical patterns of claims and claims development
for each line of business. The methods used to determine these
estimates are continually reviewed. Adjustments resulting from
this continuous review process and differences between estimates
and payments for claims are recognized in policyholder benefits
and claims expense in the period in which the estimates are
changed or payments are made.
The unearned revenue liability relates to universal life-type
and investment-type products and represents policy charges for
services to be provided in future periods. The charges are
deferred as unearned revenue and amortized using the
products estimated gross profits, similar to DAC. Such
amortization is recorded in universal life and investment-type
product policy fees.
Recognition
of Insurance Revenue and Related Benefits
Premiums related to traditional life and annuity policies with
life contingencies are recognized as revenues when due from
policyholders. Policyholder benefits and expenses are provided
against such revenues to recognize profits over the estimated
lives of the policies. When premiums are due over a
significantly shorter period than the period over which benefits
are provided, any excess profit is deferred and recognized into
operations in a constant relationship to insurance in-force or,
for annuities, the amount of expected future policy benefit
payments. Premiums related to non-medical health and disability
contracts are recognized on a pro rata basis over the applicable
contract term.
Deposits related to universal life-type and investment-type
products are credited to policyholder account balances. Revenues
from such contracts consist of amounts assessed against
policyholder account balances for mortality, policy
administration and surrender charges and are recorded in
universal life and investment-type product policy fees in the
period in which services are provided. Amounts that are charged
to operations include interest credited and benefit claims
incurred in excess of related policyholder account balances.
F-22
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Premiums related to workers compensation contracts are
recognized as revenue on a pro rata basis over the applicable
contract term.
Premiums, policy fees, policyholder benefits and expenses are
presented net of reinsurance.
The portion of fees allocated to embedded derivatives described
previously is recognized within net investment gains (losses) as
part of the estimated fair value of embedded derivatives.
Other
Revenues
Other revenues include, in addition to items described elsewhere
herein, advisory fees, broker-dealer commissions and fees and
administrative service fees. Such fees and commissions are
recognized in the period in which services are performed.
Income
Taxes
The Company files a consolidated U.S. federal income tax
return with its includable subsidiaries in accordance with the
provisions of the Internal Revenue Code of 1986, as amended.
Non-includable subsidiaries file either separate individual
corporate tax returns or separate consolidated tax returns.
The Companys accounting for income taxes represents
managements best estimate of various events and
transactions.
Deferred tax assets and liabilities resulting from temporary
differences between the financial reporting and tax bases of
assets and liabilities are measured at the balance sheet date
using enacted tax rates expected to apply to taxable income in
the years the temporary differences are expected to reverse.
The realization of deferred tax assets depends upon the
existence of sufficient taxable income within the carryback or
carryforward periods under the tax law in the applicable tax
jurisdiction. Valuation allowances are established when
management determines, based on available information, that it
is more likely than not that deferred income tax assets will not
be realized. Significant judgment is required in determining
whether valuation allowances should be established, as well as
the amount of such allowances. When making such determination,
consideration is given to, among other things, the following:
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(i)
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future taxable income exclusive of reversing temporary
differences and carryforwards;
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(ii)
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future reversals of existing taxable temporary differences;
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(iii)
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taxable income in prior carryback years; and
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(iv)
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tax planning strategies.
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The Company may be required to change its provision for income
taxes in certain circumstances. Examples of such circumstances
include when the ultimate deductibility of certain items is
challenged by taxing authorities (See also Note 10) or
when estimates used in determining valuation allowances on
deferred tax assets significantly change or when receipt of new
information indicates the need for adjustment in valuation
allowances. Additionally, future events, such as changes in tax
laws, tax regulations, or interpretations of such laws or
regulations, could have an impact on the provision for income
tax and the effective tax rate. Any such changes could
significantly affect the amounts reported in the consolidated
financial statements in the year these changes occur.
The Company determines whether it is more-likely-than-not that a
tax position will be sustained upon examination by the
appropriate taxing authorities before any part of the benefit
can be recorded in the financial statements. A tax position is
measured at the largest amount of benefit that is greater than
50 percent likely of being realized upon settlement.
Unrecognized tax benefits due to tax uncertainties that do not
meet the threshold are included within other liabilities and are
charged to earnings in the period that such determination is
made.
F-23
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
The Company classifies interest recognized as interest expense
and penalties recognized as a component of income tax.
Reinsurance
The Company enters into reinsurance agreements primarily as a
purchaser of reinsurance for its life insurance products and
also as a provider of reinsurance for some insurance products
issued by third parties.
For each of its reinsurance agreements, the Company determines
if the agreement provides indemnification against loss or
liability relating to insurance risk in accordance with
applicable accounting standards. The Company reviews all
contractual features, particularly those that may limit the
amount of insurance risk to which the reinsurer is subject or
features that delay the timely reimbursement of claims.
For reinsurance of existing in-force blocks of long-duration
contracts that transfer significant insurance risk, the
difference, if any, between the amounts paid (received), and the
liabilities ceded (assumed) related to the underlying contracts
is considered the net cost of reinsurance at the inception of
the reinsurance agreement. The net cost of reinsurance is
recorded as an adjustment to DAC and recognized as a component
of other expenses on a basis consistent with the way the
acquisition costs on the underlying reinsured contracts would be
recognized. Subsequent amounts paid (received) on the
reinsurance of in-force blocks, as well as amounts paid
(received) related to new business, are recorded as ceded
(assumed) premiums and ceded (assumed) future policy benefit
liabilities are established.
The assumptions used to account for long-duration reinsurance
agreements are consistent with those used for the underlying
contracts. Ceded policyholder and contract related liabilities,
other than those currently due, are reported gross on the
balance sheet.
Amounts currently recoverable under reinsurance agreements are
included in premiums and other receivables and amounts currently
payable are included in other liabilities. Such assets and
liabilities relating to reinsurance agreements with the same
reinsurer may be recorded net on the balance sheet, if a right
of offset exists within the reinsurance agreement. In the event
that reinsurers do not meet their obligations to the Company
under the terms of the reinsurance agreements, reinsurance
balances recoverable could become uncollectible. In such
instances, reinsurance recoverable balances are stated net of
allowances for uncollectible reinsurance.
Premiums, fees and policyholder benefits and claims include
amounts assumed under reinsurance agreements and are net of
reinsurance ceded. Amounts received from reinsurers for policy
administration are reported in other revenues.
If the Company determines that a reinsurance agreement does not
expose the reinsurer to a reasonable possibility of a
significant loss from insurance risk, the Company records the
agreement using the deposit method of accounting. Deposits
received are included in other liabilities and deposits made are
included within premiums and other receivables. As amounts are
paid or received, consistent with the underlying contracts, the
deposit assets or liabilities are adjusted. Interest on such
deposits is recorded as other revenues or other expenses, as
appropriate. Periodically, the Company evaluates the adequacy of
the expected payments or recoveries and adjusts the deposit
asset or liability through other revenues or other expenses, as
appropriate.
Accounting for reinsurance requires extensive use of assumptions
and estimates, particularly related to the future performance of
the underlying business and the potential impact of counterparty
credit risks. The Company periodically reviews actual and
anticipated experience compared to the aforementioned
assumptions used to establish assets and liabilities relating to
ceded and assumed reinsurance and evaluates the financial
strength of counterparties to its reinsurance agreements using
criteria similar to that evaluated in the security impairment
process discussed previously.
Cessions under reinsurance arrangements do not discharge the
Companys obligations as the primary insurer.
F-24
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Employee
Benefit Plans
Eligible employees, sales representatives and retirees of the
Company are provided pension, postretirement and postemployment
benefits under plans sponsored and administered by Metropolitan
Life Insurance Company (MLIC), an affiliate of the
Company. The Companys obligation and expense related to
these benefits is limited to the amount of associated expense
allocated from MLIC.
Foreign
Currency
Balance sheet accounts of foreign operations are translated at
the exchange rates in effect at each year-end and income and
expense accounts are translated at the average rates of exchange
prevailing during the year. The local currencies of foreign
operations generally are the functional currencies unless the
local economy is highly inflationary. Translation adjustments
are charged or credited directly to other comprehensive income
or loss. Gains and losses from foreign currency transactions are
reported as net investment gains (losses) in the period in which
they occur.
Discontinued
Operations
The results of operations of a component of the Company that
either has been disposed of or is classified as
held-for-sale
are reported in discontinued operations if the operations and
cash flows of the component have been or will be eliminated from
the ongoing operations of the Company as a result of the
disposal transaction and the Company will not have any
significant continuing involvement in the operations of the
component after the disposal transaction.
Litigation
Contingencies
The Company is a party to a number of legal actions and is
involved in a number of regulatory investigations. Given the
inherent unpredictability of these matters, it is difficult to
estimate the impact on the Companys financial position.
Liabilities are established when it is probable that a loss has
been incurred and the amount of the loss can be reasonably
estimated. On a quarterly and annual basis, the Company reviews
relevant information with respect to liabilities for litigation,
regulatory investigations and litigation-related contingencies
to be reflected in the Companys consolidated financial
statements. It is possible that an adverse outcome in certain of
the Companys litigation and regulatory investigations, or
the use of different assumptions in the determination of amounts
recorded, could have a material effect upon the Companys
consolidated net income or cash flows in particular quarterly or
annual periods.
Separate
Accounts
Separate accounts are established in conformity with insurance
laws and are generally not chargeable with liabilities that
arise from any other business of the Company. Separate account
assets are subject to general account claims only to the extent
the value of such assets exceeds the separate account
liabilities. Assets within the Companys separate accounts
primarily include: mutual funds, fixed maturity and equity
securities, mortgage loans, derivatives, hedge funds, other
limited partnership interests, short-term investments and cash
and cash equivalents. The Company reports separately, as assets
and liabilities, investments held in separate accounts and
liabilities of the separate accounts if (i) such separate
accounts are legally recognized; (ii) assets supporting the
contract liabilities are legally insulated from the
Companys general account liabilities;
(iii) investments are directed by the contractholder; and
(iv) all investment performance, net of contract fees and
assessments, is passed through to the contractholder. The
Company reports separate account assets meeting such criteria at
their fair value which is based on the estimated fair values of
the underlying assets comprising the portfolios of an individual
separate account. Investment performance (including investment
income, net investment gains (losses) and changes in unrealized
gains (losses)) and the corresponding amounts credited to
contractholders of such separate accounts are
F-25
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
offset within the same line in the consolidated statements of
operations. Separate accounts not meeting the above criteria are
combined on a
line-by-line
basis with the Companys general account assets,
liabilities, revenues and expenses and the accounting for these
investments is consistent with the methodologies described
herein for similar financial instruments held within the general
account.
The Companys revenues reflect fees charged to the separate
accounts, including mortality charges, risk charges, policy
administration fees, investment management fees and surrender
charges.
Adoption
of New Accounting Pronouncements
Financial
Instruments
As more fully described in Summary of Significant
Accounting Policies and Critical Accounting Estimates,
effective April 1, 2009, the Company adopted new OTTI
guidance. This guidance amends the previously used methodology
for determining whether an 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.
The Companys net cumulative effect adjustment of adopting
the OTTI guidance was an increase of $22 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 $36 million, net of
policyholder related amounts of $2 million and net of
deferred income taxes of $12 million, resulting in the net
cumulative effect adjustment of $22 million. The increase
in the amortized cost basis of fixed maturity securities of
$36 million by sector was as follows:
$17 million ABS, $6 million
U.S. corporate securities and $13 million
CMBS.
As a result of the adoption of the OTTI guidance, the
Companys pre-tax earnings for the year ended
December 31, 2009 increased by $148 million, offset by
an increase in other comprehensive loss representing OTTI
relating to noncredit losses recognized during the year ended
December 31, 2009.
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 instruments and disclosures about credit risk-related
contingent features in derivative agreements. The Company has
provided all of the material disclosures in its consolidated
financial statements.
The following new pronouncements relating to financial
instruments had no material impact on the Companys
consolidated financial statements:
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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.
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Effective December 31, 2008, the Company adopted new
guidance on the recognition of interest income and impairment on
purchased beneficial interests and beneficial interests that
continue to be held by a transferor in securitized financial
assets. This new guidance more closely aligns the determination
of whether an OTTI has occurred for a beneficial interest in a
securitized financial asset with the original guidance for fixed
maturity securities classified as
available-for-sale
or
held-to-maturity.
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Effective January 1, 2008, the Company adopted new guidance
relating to application of the shortcut method of accounting for
derivative instruments and hedging activities. This guidance
permits interest rate swaps to
|
F-26
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
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have a non-zero fair value at inception when applying the
shortcut method of assessing hedge effectiveness as long as the
difference between the transaction price (zero) and the fair
value (exit price), as defined by current accounting guidance on
fair value measurements, is solely attributable to a bid-ask
spread. In addition, entities are not precluded from applying
the shortcut method of assessing hedge effectiveness in a
hedging relationship of interest rate risk involving an interest
bearing asset or liability in situations where the hedged item
is not recognized for accounting purposes until settlement date
as long as the period between trade date and settlement date of
the hedged item is consistent with generally established
conventions in the marketplace.
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Effective January 1, 2008, the Company adopted new guidance
that permits a reporting entity to offset fair value amounts
recognized for the right to reclaim cash collateral (a
receivable) or the obligation to return cash collateral (a
payable) against fair value amounts recognized for derivative
instruments executed with the same counterparty under the same
master netting arrangement that have been offset. This new
guidance also includes certain terminology modifications. Upon
adoption of this guidance, the Company did not change its
accounting policy of not offsetting fair value amounts
recognized for derivative instruments under master netting
arrangements.
|
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:
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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.
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Acquisition costs are generally expensed as incurred;
restructuring costs associated with a business combination are
generally expensed as incurred subsequent to the acquisition
date.
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The fair value of the purchase price, including the issuance of
equity securities, is determined on the acquisition date.
|
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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.
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Changes in deferred income tax asset valuation allowances and
income tax uncertainties after the acquisition date generally
affect income tax expense.
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Noncontrolling interests (formerly known as minority
interests) are valued at fair value at the acquisition
date and are presented as equity rather than liabilities.
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Net income (loss) includes amounts attributable to
noncontrolling interests.
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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.
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Purchases or sales of equity interests that do not result in a
change in control are accounted for as equity transactions.
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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 Companys consolidated financial
statements. As the Company did not have a minority interest, the
adoption of this guidance, which required
F-27
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
retrospective application of presentation requirements of
noncontrolling interest, did not have an impact on the
Companys 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 future cash flows used to
measure the fair value of the asset. The Company determines
useful lives and provides all of the material disclosures
prospectively on intangible assets acquired on or after
January 1, 2009 in accordance with this guidance.
Fair
Value
Effective January 1, 2008, the Company adopted new fair
value measurements guidance which defines fair value,
establishes a consistent framework for measuring fair value,
establishes a fair value hierarchy based on the observability of
inputs used to measure fair value, and requires enhanced
disclosures about fair value measurements and applied this
guidance prospectively to assets and liabilities measured at
fair value. The adoption of this guidance changed the valuation
of certain freestanding derivatives by moving from a mid to bid
pricing convention as it relates to certain volatility inputs,
as well as the addition of liquidity adjustments and adjustments
for risks inherent in a particular input or valuation technique.
The adoption of this guidance also changed the valuation of the
Companys embedded derivatives, most significantly the
valuation of embedded derivatives associated with certain
guarantees on variable annuity contracts. The change in
valuation of embedded derivatives associated with guarantees on
annuity contracts resulted from the incorporation of risk
margins associated with non-capital market inputs and the
inclusion of the Companys own credit standing in their
valuation. At January 1, 2008, the impact of adopting the
guidance on assets and liabilities measured at estimated fair
value was $59 million ($38 million, net of income tax)
and was recognized as a change in estimate in the accompanying
consolidated statement of operations where it was presented in
the respective statement of operations caption to which the item
measured at estimated fair value is presented. There were no
significant changes in estimated fair value of items measured at
fair value and reflected in accumulated other comprehensive
income (loss). The addition of risk margins and the
Companys own credit spread in the valuation of embedded
derivatives associated with annuity contracts may result in
significant volatility in the Companys consolidated net
income in future periods. The Company provided all of the
material disclosures in Note 4.
Effective April 1, 2009, the Company adopted new 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. The
Company has provided all of the material disclosures in its
consolidated financial statements. This adoption did not have
any other material impact on the Companys consolidated
financial statements.
The following new pronouncements relating to fair value had no
material impact on the Companys consolidated financial
statements:
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In February 2007, the FASB issued guidance related to the fair
value option for financial assets and financial liabilities.
This guidance permits entities the option to measure most
financial instruments and certain other items at fair value at
specified election dates and to recognize related unrealized
gains and losses in earnings. The fair value option is applied
on an
instrument-by-instrument
basis upon adoption of the standard, upon the acquisition of an
eligible financial asset, financial liability or firm commitment
or when certain specified reconsideration events occur. The fair
value election is an irrevocable election. Effective
January 1, 2008, the Company did not elect the fair value
option for any instruments.
|
F-28
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
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Effective September 30, 2008, the Company adopted new
guidance relating to the fair value measurements of financial
assets when the market for those assets is not active. It
provides guidance on how a companys internal cash flow and
discount rate assumptions should be considered in the
measurement of fair value when relevant market data does not
exist, how observable market information in an inactive market
affects fair value measurement and how the use of market quotes
should be considered when assessing the relevance of observable
and unobservable data available to measure fair value.
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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.
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Effective January 1, 2009, the Company adopted
prospectively guidance on issuers accounting for
liabilities measured at fair value with a third-party credit
enhancement. This guidance states 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.
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Effective December 31, 2009, the Company adopted new
guidance on: (i) measuring the fair value of investments in
certain entities that calculate 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 basis.
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Effective December 31, 2009, the Company adopted new
guidance on measuring liabilities at fair value. This guidance
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).
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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. The Company has provided all of the
required disclosures in its consolidated financial statements.
Effective December 31, 2008, the Company adopted new
guidance relating to disclosures by public entities about
transfers of financial assets and interests in VIEs. This
guidance requires additional qualitative and quantitative
disclosures about a transferors continuing involvement in
transferred financial assets and involvement in VIEs. The exact
nature of the additional required VIE disclosures vary and
depend on whether or not the VIE is a qualifying special purpose
entity (QSPE). For VIEs that are QSPEs, the
additional disclosures are only required for a non-transferor
sponsor holding a variable interest or a non-transferor servicer
holding a significant variable interest. For VIEs that are not
QSPEs, the additional disclosures are only required if the
Company is the primary beneficiary, and if not the primary
beneficiary, only if the Company holds a significant variable
interest in the VIE or is its sponsor. The Company provided all
of the material disclosures in its consolidated financial
statements.
F-29
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Effective January 1, 2007, the Company adopted new guidance
on accounting by insurance enterprises for DAC on internal
replacements of insurance and investment contracts other than
those specifically described in guidance relating to accounting
and reporting by insurance enterprises for long-duration
contracts and for realized gains and losses from the sale of
investments. As a result of the adoption of the new guidance, if
an internal replacement modification substantially changes a
contract, then the DAC is written off immediately through income
and any new deferrable costs associated with the new replacement
are deferred. If a contract modification does not substantially
change the contract, the DAC amortization on the original
contract will continue and any acquisition costs associated with
the related modification are immediately expensed. The adoption
of this guidance resulted in a reduction to DAC and VOBA on
January 1, 2007 and an acceleration of the amortization
period relating primarily to the Companys group life and
health insurance contracts that contain certain rate reset
provisions. Prior to the adoption, DAC on such contracts was
amortized over the expected renewable life of the contract. Upon
adoption, DAC on such contracts is to be amortized over the rate
reset period. The impact as of January 1, 2007 was a
cumulative effect adjustment of $86 million, net of income
tax of $46 million, which was recorded as a reduction to
retained earnings.
The following new pronouncements had no material impact on the
Companys consolidated financial statements:
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Effective January 1, 2008, the Company prospectively
adopted new guidance on the sale of real estate when the
agreement includes a buy-sell clause. This guidance addresses
whether the existence of a buy-sell arrangement would preclude
partial sales treatment when real estate is sold to a jointly
owned entity and concludes that the existence of a buy-sell
clause does not necessarily preclude partial sale treatment
under current guidance.
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Effective January 1, 2007, the Company adopted new guidance
on income taxes. This guidance clarifies the accounting for
uncertainty in income tax recognized in a companys
financial statements. It requires companies to determine whether
it is more likely than not that a tax position will
be sustained upon examination by the appropriate taxing
authorities before any part of the benefit can be recorded in
the financial statements. It also provides guidance on the
recognition, measurement and classification of income tax
uncertainties, along with any related interest and penalties.
Previously recorded income tax benefits that no longer meet this
standard are required to be charged to earnings in the period
that such determination is made.
|
Future
Adoption of New Accounting Pronouncements
In January 2010, the FASB issued new guidance that requires new
disclosures about significant transfers in
and/or out
of Levels 1 and 2 of the fair value hierarchy and activity
in Level 3 (Accounting Standards Update (ASU)
2010-06,
Fair Value Measurements and Disclosures (Topic 820):
Improving Disclosures about Fair Value Measurements). In
addition, this guidance provides clarification of existing
disclosure requirements about (a) level of disaggregation
and (b) inputs and valuation techniques. The update is
effective for the first quarter of 2010. The Company is
currently evaluating the impact of this guidance on its
consolidated financial statements.
In June 2009, the FASB issued additional guidance related to
financial instrument transfers (ASU
2009-16,
Transfers and Servicing (Topic 860): Accounting for Transfers
of Financial Assets) and evaluation of VIEs for
consolidation (ASU
2009-17,
Consolidations (Topic 810): Improvements to Financial
Reporting by Enterprises Involved with Variable Interest
Entities). The guidance is effective for the first quarter
of 2010:
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The financial instrument transfer guidance eliminates the
concept of a QSPE, 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
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F-30
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
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companys continuing involvement in transferred financial
assets. The Company does not expect the adoption of the new
guidance to have a material impact on the Companys
consolidated financial statements.
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The consolidation guidance relating to VIEs 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 companys involvement with VIEs on its financial
statements. The Company does not expect the adoption of the new
guidance to have a material impact on the Companys
consolidated financial statements. Subsequently, this guidance
was indefinitely deferred for an interest in an entity that has
the attributes of an investment company or for which it is
industry practice to apply measurement principles for financial
reporting purposes that are consistent with those followed by
investment companies (ASU
2010-10,
Consolidation (Topic 810): Amendments to Statement 167 for
Certain Investment Funds).
|
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
Companys 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 December 31, 2009 include the noncredit
loss component of OTTI loss:
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December 31, 2009
|
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Cost or
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Gross Unrealized
|
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Estimated
|
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Amortized
|
|
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Temporary
|
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OTTI
|
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Fair
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% of
|
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Cost
|
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Gain
|
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Loss
|
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Loss
|
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Value
|
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Total
|
|
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(In millions)
|
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Fixed Maturity Securities:
|
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U.S. corporate securities
|
|
$
|
15,598
|
|
|
$
|
441
|
|
|
$
|
639
|
|
|
$
|
2
|
|
|
$
|
15,398
|
|
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37.3
|
%
|
Foreign corporate securities
|
|
|
7,292
|
|
|
|
307
|
|
|
|
255
|
|
|
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6
|
|
|
|
7,338
|
|
|
|
17.8
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U.S. Treasury and agency securities
|
|
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6,503
|
|
|
|
35
|
|
|
|
281
|
|
|
|
|
|
|
|
6,257
|
|
|
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15.2
|
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RMBS
|
|
|
6,183
|
|
|
|
153
|
|
|
|
402
|
|
|
|
82
|
|
|
|
5,852
|
|
|
|
14.2
|
|
CMBS
|
|
|
2,808
|
|
|
|
43
|
|
|
|
216
|
|
|
|
18
|
|
|
|
2,617
|
|
|
|
6.3
|
|
ABS
|
|
|
2,152
|
|
|
|
33
|
|
|
|
163
|
|
|
|
33
|
|
|
|
1,989
|
|
|
|
4.8
|
|
State and political subdivision securities
|
|
|
1,291
|
|
|
|
12
|
|
|
|
124
|
|
|
|
|
|
|
|
1,179
|
|
|
|
2.8
|
|
Foreign government securities
|
|
|
608
|
|
|
|
46
|
|
|
|
9
|
|
|
|
|
|
|
|
645
|
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities (1), (2)
|
|
$
|
42,435
|
|
|
$
|
1,070
|
|
|
$
|
2,089
|
|
|
$
|
141
|
|
|
$
|
41,275
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock (1)
|
|
$
|
351
|
|
|
$
|
10
|
|
|
$
|
55
|
|
|
$
|
|
|
|
$
|
306
|
|
|
|
66.7
|
%
|
Common stock
|
|
|
143
|
|
|
|
11
|
|
|
|
1
|
|
|
|
|
|
|
|
153
|
|
|
|
33.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities (3)
|
|
$
|
494
|
|
|
$
|
21
|
|
|
$
|
56
|
|
|
$
|
|
|
|
$
|
459
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-31
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
Cost or
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
Amortized
|
|
|
Gross Unrealized
|
|
|
Fair
|
|
|
% of
|
|
|
|
Cost
|
|
|
Gain
|
|
|
Loss
|
|
|
Value
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Fixed Maturity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
15,440
|
|
|
$
|
126
|
|
|
$
|
2,335
|
|
|
$
|
13,231
|
|
|
|
38.0
|
%
|
Foreign corporate securities
|
|
|
6,157
|
|
|
|
41
|
|
|
|
1,136
|
|
|
|
5,062
|
|
|
|
14.5
|
|
U.S. Treasury and agency securities
|
|
|
3,407
|
|
|
|
926
|
|
|
|
|
|
|
|
4,333
|
|
|
|
12.4
|
|
RMBS
|
|
|
7,901
|
|
|
|
124
|
|
|
|
932
|
|
|
|
7,093
|
|
|
|
20.4
|
|
CMBS
|
|
|
2,933
|
|
|
|
6
|
|
|
|
665
|
|
|
|
2,274
|
|
|
|
6.5
|
|
ABS
|
|
|
2,429
|
|
|
|
1
|
|
|
|
703
|
|
|
|
1,727
|
|
|
|
5.0
|
|
State and political subdivision securities
|
|
|
880
|
|
|
|
2
|
|
|
|
225
|
|
|
|
657
|
|
|
|
1.9
|
|
Foreign government securities
|
|
|
454
|
|
|
|
48
|
|
|
|
33
|
|
|
|
469
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities (1), (2)
|
|
$
|
39,601
|
|
|
$
|
1,274
|
|
|
$
|
6,029
|
|
|
$
|
34,846
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock (1)
|
|
$
|
551
|
|
|
$
|
1
|
|
|
$
|
196
|
|
|
$
|
356
|
|
|
|
75.1
|
%
|
Common stock
|
|
|
122
|
|
|
|
1
|
|
|
|
5
|
|
|
|
118
|
|
|
|
24.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities (3)
|
|
$
|
673
|
|
|
$
|
2
|
|
|
$
|
201
|
|
|
$
|
474
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
At time of acquisition, 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 equity securities within
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: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
Estimated
|
|
Estimated
|
Classification
|
|
Fair
|
|
Fair
|
Consolidated Balance Sheets
|
|
Sector Table
|
|
Primary Issuers
|
|
Value
|
|
Value
|
|
|
|
|
|
|
(In millions)
|
|
Equity securities
|
|
Non-redeemable preferred stock
|
|
Non-U.S. financial institutions
|
|
$
|
237
|
|
|
$
|
304
|
|
Equity securities
|
|
Non-redeemable preferred stock
|
|
U.S. financial institutions
|
|
$
|
43
|
|
|
$
|
52
|
|
Fixed maturity securities
|
|
Foreign corporate securities
|
|
Non-U.S. financial institutions
|
|
$
|
580
|
|
|
$
|
425
|
|
Fixed maturity securities
|
|
U.S. corporate securities
|
|
U.S. financial institutions
|
|
$
|
17
|
|
|
$
|
16
|
|
|
|
|
(2) |
|
The Company held $513 million and $385 million at
estimated fair value of redeemable preferred stock which have
stated maturity dates at December 31, 2009 and 2008,
respectively. 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. |
|
(3) |
|
Equity securities primarily consist of investments in common and
preferred stocks, including certain perpetual hybrid securities
and mutual fund interests. Privately-held equity securities
represented $82 million and $102 million at estimated
fair value at December 31, 2009 and 2008, respectively. |
F-32
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
The Company held foreign currency derivatives with notional
amounts of $855 million and $883 million to hedge the
exchange rate risk associated with foreign denominated fixed
maturity securities at December 31, 2009 and 2008,
respectively.
The following table presents selected information about certain
fixed maturity securities held by the Company at:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Below investment grade or non-rated fixed maturity securities
(1):
|
|
|
|
|
|
|
|
|
Estimated fair value
|
|
$
|
3,866
|
|
|
$
|
2,559
|
|
Net unrealized loss
|
|
$
|
467
|
|
|
$
|
1,130
|
|
Non-income producing fixed maturity securities (1):
|
|
|
|
|
|
|
|
|
Estimated fair value
|
|
$
|
67
|
|
|
$
|
17
|
|
Net unrealized gain (loss)
|
|
$
|
2
|
|
|
$
|
(2
|
)
|
Fixed maturity securities credit enhanced by financial guarantor
insurers by sector at estimated fair
value:
|
|
|
|
|
|
|
|
|
State and political subdivision securities
|
|
$
|
493
|
|
|
$
|
415
|
|
U.S. corporate securities
|
|
|
458
|
|
|
|
525
|
|
ABS
|
|
|
107
|
|
|
|
145
|
|
RMBS
|
|
|
7
|
|
|
|
8
|
|
CMBS
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities credit enhanced by financial
guarantor insurers
|
|
$
|
1,068
|
|
|
$
|
1,096
|
|
|
|
|
|
|
|
|
|
|
Ratings of the financial guarantor insurers providing the credit
enhancement:
|
|
|
|
|
|
|
|
|
Portion rated Aa/AA
|
|
|
25
|
%
|
|
|
20
|
%
|
|
|
|
|
|
|
|
|
|
Portion rated A
|
|
|
|
%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
Portion rated Baa/BBB
|
|
|
39
|
%
|
|
|
65
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Based on rating agency designations and equivalent ratings of
the National Association of Insurance Commissioners
(NAIC), with the exception of non-agency RMBS held
by MetLife Insurance Company of Connecticut and its domestic
insurance subsidiary, MLI-USA. Non-agency RMBS held by MetLife
Insurance Company of Connecticut and its domestic insurance
subsidiary, MLI-USA, at December 31, 2009 are included
based on final ratings from the revised NAIC rating methodology
which became effective December 31, 2009 (which may not
correspond to rating agency designations). |
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 Companys
stockholders equity, other than securities of the
U.S. government and certain U.S. government agencies.
The Companys holdings in U.S. Treasury and agency
fixed maturity securities at estimated fair value were
$6.3 billion and $4.3 billion at December 31,
2009 and 2008, respectively.
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
to any single issuer in excess of 1% of total investments. The
tables below
F-33
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
present the major industry types that comprise the corporate
fixed maturity securities holdings, the largest exposure to a
single issuer and the combined holdings in the ten issuers to
which it had the largest exposure at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
Fair
|
|
|
% of
|
|
|
Fair
|
|
|
% of
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Corporate fixed maturity securities by industry type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign (1)
|
|
$
|
7,338
|
|
|
|
32.3
|
%
|
|
$
|
5,062
|
|
|
|
27.6
|
%
|
Consumer
|
|
|
3,507
|
|
|
|
15.4
|
|
|
|
2,666
|
|
|
|
14.6
|
|
Utility
|
|
|
3,328
|
|
|
|
14.6
|
|
|
|
2,810
|
|
|
|
15.4
|
|
Finance
|
|
|
3,145
|
|
|
|
13.8
|
|
|
|
3,397
|
|
|
|
18.6
|
|
Industrial
|
|
|
3,047
|
|
|
|
13.4
|
|
|
|
1,775
|
|
|
|
9.7
|
|
Communications
|
|
|
1,669
|
|
|
|
7.4
|
|
|
|
1,305
|
|
|
|
7.1
|
|
Other
|
|
|
702
|
|
|
|
3.1
|
|
|
|
1,278
|
|
|
|
7.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
22,736
|
|
|
|
100.0
|
%
|
|
$
|
18,293
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes U.S. Dollar-denominated debt obligations of foreign
obligors and other foreign fixed maturity security investments. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2009
|
|
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
|
|
$
|
204
|
|
|
|
0.4
|
%
|
|
$
|
313
|
|
|
|
0.6
|
%
|
Holdings in ten issuers with the largest exposures
|
|
$
|
1,695
|
|
|
|
3.2
|
%
|
|
$
|
1,732
|
|
|
|
3.6
|
%
|
F-34
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Concentrations of Credit Risk (Fixed Maturity
Securities) RMBS. The table below
presents the Companys RMBS holdings and portion rated
Aaa/AAA and portion rated NAIC 1 at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
Fair
|
|
|
% of
|
|
|
Fair
|
|
|
% of
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
By security type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligations
|
|
$
|
3,646
|
|
|
|
62.3
|
%
|
|
$
|
5,028
|
|
|
|
70.9
|
%
|
Pass-through securities
|
|
|
2,206
|
|
|
|
37.7
|
|
|
|
2,065
|
|
|
|
29.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total RMBS
|
|
$
|
5,852
|
|
|
|
100.0
|
%
|
|
$
|
7,093
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By risk profile:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
$
|
4,095
|
|
|
|
70.0
|
%
|
|
$
|
4,856
|
|
|
|
68.4
|
%
|
Prime
|
|
|
1,118
|
|
|
|
19.1
|
|
|
|
1,531
|
|
|
|
21.6
|
|
Alternative residential mortgage loans
|
|
|
639
|
|
|
|
10.9
|
|
|
|
706
|
|
|
|
10.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total RMBS
|
|
$
|
5,852
|
|
|
|
100.0
|
%
|
|
$
|
7,093
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portion rated Aaa/AAA (1)
|
|
$
|
4,347
|
|
|
|
74.3
|
%
|
|
$
|
6,514
|
|
|
|
91.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portion rated NAIC 1 (2)
|
|
$
|
4,835
|
|
|
|
82.6
|
%
|
|
$
|
6,753
|
|
|
|
95.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Based on rating agency designations, without adjustment for the
revised NAIC methodology which became effective
December 31, 2009. |
|
(2) |
|
Based on rating agency designations and equivalent ratings of
the NAIC, with the exception of non-agency RMBS held by MetLife
Insurance Company of Connecticut and its domestic insurance
subsidiary, MLI-USA. Non-agency RMBS held by MetLife Insurance
Company of Connecticut and its domestic insurance subsidiary,
MLI-USA, at December 31, 2009 are included based on final
ratings from the revised NAIC rating methodology which became
effective December 31, 2009 (which may not correspond to
rating agency designations). |
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.
Prime residential mortgage lending includes the origination of
residential mortgage loans to the most credit-worthy borrowers
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 borrowers with weak credit profiles. During 2009, there
were significant ratings downgrades from investment grade to
below investment grade for non-agency RMBS, both Alt-A and prime
RMBS, contributing to the decrease in the percentage of RMBS
with a Aaa/AAA rating to 74.3% at December 31, 2009 as
compared to 91.8% at December 31, 2008, and a decrease in
RMBS with a rating of NAIC 1 to 82.6% at December 31, 2009
as compared to 95.2% at December 31, 2008. These downgrades
also contributed to the substantial decrease presented below in
the Companys Alt-A securities holdings rated Aa/AA or
better or rated NAIC 1 as compared to December 31, 2008.
F-35
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
The following table presents the Companys investment in
Alt-A RMBS by vintage year (vintage year refers to the year of
origination and not to the year of purchase) and certain other
selected data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
Fair
|
|
|
% of
|
|
|
Fair
|
|
|
% of
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Vintage Year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 & Prior
|
|
$
|
15
|
|
|
|
2.3
|
%
|
|
$
|
51
|
|
|
|
7.2
|
%
|
2005
|
|
|
336
|
|
|
|
52.6
|
|
|
|
387
|
|
|
|
54.8
|
|
2006
|
|
|
83
|
|
|
|
13.0
|
|
|
|
102
|
|
|
|
14.5
|
|
2007
|
|
|
205
|
|
|
|
32.1
|
|
|
|
166
|
|
|
|
23.5
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
639
|
|
|
|
100.0
|
%
|
|
$
|
706
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
Amount
|
|
|
Total
|
|
|
Amount
|
|
|
Total
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Net unrealized loss
|
|
$
|
235
|
|
|
|
|
|
|
$
|
376
|
|
|
|
|
|
Rated Aa/AA or better (1)
|
|
|
|
|
|
|
2.3
|
%
|
|
|
|
|
|
|
64.9
|
%
|
Rated NAIC 1 (2)
|
|
|
|
|
|
|
16.6
|
%
|
|
|
|
|
|
|
66.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
|
|
|
|
|
95.6
|
%
|
|
|
|
|
|
|
96.4
|
%
|
Hybrid ARM
|
|
|
|
|
|
|
4.4
|
|
|
|
|
|
|
|
3.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Alt-A RMBS
|
|
|
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Based on rating agency designations, without adjustment for the
revised NAIC methodology which became effective
December 31, 2009. |
|
(2) |
|
Based on rating agency designations and equivalent ratings of
the NAIC, with the exception of non-agency RMBS held by MetLife
Insurance Company of Connecticut and its domestic insurance
subsidiary, MLI-USA. Non-agency RMBS held by MetLife Insurance
Company of Connecticut and its domestic insurance subsidiary,
MLI-USA, at December 31, 2009 are included based on final
ratings from the revised NAIC rating methodology which became
effective December 31, 2009 (which may not correspond to
rating agency designations). |
Concentrations of Credit Risk (Fixed Maturity
Securities) CMBS. The Companys
holdings in CMBS were $2.6 billion and $2.3 billion at
estimated fair value at December 31, 2009 and 2008,
respectively. The Company had no exposure to CMBS index
securities and holdings of commercial real estate collateralized
debt obligations securities had an estimated fair value of
$70 million and $74 million at December 31, 2009
and 2008, respectively.
F-36
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
The following table presents the Companys holdings of CMBS
by vintage year and certain other selected data at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
Fair
|
|
|
% of
|
|
|
Fair
|
|
|
% of
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Vintage Year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 & Prior
|
|
$
|
1,202
|
|
|
|
45.9
|
%
|
|
$
|
915
|
|
|
|
40.2
|
%
|
2004
|
|
|
512
|
|
|
|
19.6
|
|
|
|
559
|
|
|
|
24.6
|
|
2005
|
|
|
472
|
|
|
|
18.0
|
|
|
|
438
|
|
|
|
19.3
|
|
2006
|
|
|
407
|
|
|
|
15.6
|
|
|
|
341
|
|
|
|
15.0
|
|
2007
|
|
|
24
|
|
|
|
0.9
|
|
|
|
21
|
|
|
|
0.9
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,617
|
|
|
|
100.0
|
%
|
|
$
|
2,274
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2009
|
|
2008
|
|
|
|
|
% of
|
|
|
|
% of
|
|
|
Amount
|
|
Total
|
|
Amount
|
|
Total
|
|
|
(In millions)
|
|
Net unrealized loss
|
|
$
|
191
|
|
|
|
|
|
|
$
|
659
|
|
|
|
|
|
Rated Aaa/AAA
|
|
|
|
|
|
|
83
|
%
|
|
|
|
|
|
|
90
|
%
|
Concentrations of Credit Risk (Fixed Maturity
Securities) ABS. The Companys
holdings in ABS were $2.0 billion and $1.7 billion at
estimated fair value at December 31, 2009 and 2008,
respectively. The Companys ABS are diversified both by
sector and by issuer.
F-37
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
The following table presents the types of and certain other
information about ABS held by the Company at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
Fair
|
|
|
% of
|
|
|
Fair
|
|
|
% of
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
By collateral type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card loans
|
|
$
|
920
|
|
|
|
46.3
|
%
|
|
$
|
706
|
|
|
|
40.9
|
%
|
RMBS backed by
sub-prime
mortgage loans
|
|
|
247
|
|
|
|
12.4
|
|
|
|
335
|
|
|
|
19.4
|
|
Automobile loans
|
|
|
205
|
|
|
|
10.3
|
|
|
|
206
|
|
|
|
11.9
|
|
Student loans
|
|
|
158
|
|
|
|
7.9
|
|
|
|
100
|
|
|
|
5.8
|
|
Other loans
|
|
|
459
|
|
|
|
23.1
|
|
|
|
380
|
|
|
|
22.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,989
|
|
|
|
100.0
|
%
|
|
$
|
1,727
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portion rated Aaa/AAA (1)
|
|
$
|
1,292
|
|
|
|
65.0
|
%
|
|
$
|
1,110
|
|
|
|
64.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portion rated NAIC 1 (2)
|
|
$
|
1,767
|
|
|
|
88.8
|
%
|
|
$
|
1,512
|
|
|
|
87.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMBS backed by
sub-prime
mortgage loans portion credit enhanced by financial
guarantor insurers
|
|
|
|
|
|
|
20.6
|
%
|
|
|
|
|
|
|
18.0
|
%
|
Of the 20.6% and 18.0% credit enhanced, the financial guarantor
insurers were rated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By financial guarantor insurers rated Aa/AA
|
|
|
|
|
|
|
0.7
|
%
|
|
|
|
|
|
|
1.0
|
%
|
By financial guarantor insurers rated A
|
|
|
|
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
%
|
By financial guarantor insurers rated Baa/BBB
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
52.1
|
%
|
|
|
|
(1) |
|
Based on rating agency designations, without adjustment for the
revised NAIC methodology which became effective
December 31, 2009. |
|
(2) |
|
Based on rating agency designations and equivalent ratings of
the NAIC, with the exception of non-agency RMBS backed by
sub-prime
mortgage loans held by MetLife Insurance Company of Connecticut
and its domestic insurance subsidiary, MLI-USA. Non-agency RMBS
backed by
sub-prime
mortgage loans held by MetLife Insurance Company of Connecticut
and its domestic insurance subsidiary, MLI-USA, at
December 31, 2009 are included based on final ratings from
the revised NAIC rating methodology which became effective
December 31, 2009 (which may not correspond to rating
agency designations). |
Concentrations of Credit Risk (Equity
Securities). The Company is not exposed to any
concentrations of credit risk in its equity securities holdings
of any single issuer greater than 10% of the Companys
stockholders equity at December 31, 2009 and 2008.
F-38
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Maturities of Fixed Maturity Securities. The
amortized cost and estimated fair value of fixed maturity
securities, by contractual maturity date (excluding scheduled
sinking funds), are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
|
(In millions)
|
|
|
Due in one year or less
|
|
$
|
1,023
|
|
|
$
|
1,029
|
|
|
$
|
993
|
|
|
$
|
966
|
|
Due after one year through five years
|
|
|
9,048
|
|
|
|
9,202
|
|
|
|
6,337
|
|
|
|
5,755
|
|
Due after five years through ten years
|
|
|
7,882
|
|
|
|
7,980
|
|
|
|
7,329
|
|
|
|
6,195
|
|
Due after ten years
|
|
|
13,339
|
|
|
|
12,606
|
|
|
|
11,679
|
|
|
|
10,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
31,292
|
|
|
|
30,817
|
|
|
|
26,338
|
|
|
|
23,752
|
|
RMBS, CMBS and ABS
|
|
|
11,143
|
|
|
|
10,458
|
|
|
|
13,263
|
|
|
|
11,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
42,435
|
|
|
$
|
41,275
|
|
|
$
|
39,601
|
|
|
$
|
34,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual maturities may differ from contractual maturities due to
the exercise of call or prepayment options. Fixed maturity
securities not due at a single maturity date have been included
in the above table in the year of final contractual maturity.
RMBS, CMBS and ABS are shown separately in the table, as they
are not due at a single maturity.
Evaluating
Available-for-Sale
Securities for
Other-Than-Temporary
Impairment
As described more fully in Note 1, the Company performs a
regular evaluation, on a
security-by-security
basis, of its
available-for-sale
securities holdings in accordance with its impairment policy in
order to evaluate whether such investments are
other-than-temporarily
impaired. As described more fully in Note 1, effective
April 1, 2009, the Company adopted new OTTI guidance that
amends the methodology for determining for fixed maturity
securities whether an OTTI exists, and for certain fixed
maturity securities, changes how the amount of the OTTI loss
that is charged to earnings is determined. There was no change
in the OTTI methodology for equity securities.
With respect to fixed maturity securities, the Company
considers, amongst other impairment criteria, whether it has the
intent to sell a particular impaired fixed maturity security.
The Companys intent to sell a particular impaired 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
Companys 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 estimated 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 in Note 1. Prior to April 1, 2009,
the Companys assessment of OTTI for fixed maturity
securities was performed in the same manner as described below
for equity securities.
F-39
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
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.
With respect to perpetual hybrid securities, some of which are
classified as fixed maturity securities and some of which are
classified as equity securities, within 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 an
unrealized loss, regardless of credit rating, have deferred any
dividend payments.
Net
Unrealized Investment Gains (Losses)
The components of net unrealized investment gains (losses),
included in accumulated other comprehensive income (loss), are
as follows at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Fixed maturity securities that were temporarily impaired
|
|
$
|
(1,019
|
)
|
|
$
|
(4,755
|
)
|
|
$
|
(593
|
)
|
Fixed maturity securities with noncredit OTTI losses in other
comprehensive loss
|
|
|
(141
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
|
(1,160
|
)
|
|
|
(4,755
|
)
|
|
|
(593
|
)
|
Equity securities
|
|
|
(35
|
)
|
|
|
(199
|
)
|
|
|
(40
|
)
|
Derivatives
|
|
|
(4
|
)
|
|
|
12
|
|
|
|
(16
|
)
|
Short-term investments
|
|
|
(10
|
)
|
|
|
(100
|
)
|
|
|
|
|
Other
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
(1,212
|
)
|
|
|
(5,045
|
)
|
|
|
(649
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts allocated from:
|
|
|
|
|
|
|
|
|
|
|
|
|
DAC and VOBA on which noncredit OTTI losses have been recognized
|
|
|
12
|
|
|
|
|
|
|
|
|
|
DAC and VOBA
|
|
|
151
|
|
|
|
916
|
|
|
|
93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
163
|
|
|
|
916
|
|
|
|
93
|
|
Deferred income tax benefit (expense) on which noncredit OTTI
losses have been recognized
|
|
|
46
|
|
|
|
|
|
|
|
|
|
Deferred income tax benefit (expense)
|
|
|
327
|
|
|
|
1,447
|
|
|
|
195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized investment gains (losses)
|
|
$
|
(676
|
)
|
|
$
|
(2,682
|
)
|
|
$
|
(361
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities with noncredit OTTI losses in
accumulated other comprehensive loss, as presented above of
$141 million, includes $36 million related to the
transition adjustment, $165 million ($148 million, net
of DAC) of noncredit losses recognized in the year ended
December 31, 2009 and $60 million of subsequent
increases in estimated fair value during the year ended
December 31, 2009 on such securities for which a noncredit
loss was previously recognized in accumulated other
comprehensive loss.
F-40
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
The changes in net unrealized investment gains (losses) are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Balance, beginning of period
|
|
$
|
(2,682
|
)
|
|
$
|
(361
|
)
|
|
$
|
(314
|
)
|
Cumulative effect of changes in accounting principle, net of
income tax
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
Fixed maturity securities on which noncredit OTTI losses have
been recognized
|
|
|
(105
|
)
|
|
|
|
|
|
|
|
|
Unrealized investment gains (losses) during the year
|
|
|
3,974
|
|
|
|
(4,396
|
)
|
|
|
(98
|
)
|
Unrealized investment gains (losses) relating to:
|
|
|
|
|
|
|
|
|
|
|
|
|
DAC and VOBA on which noncredit OTTI losses have been recognized
|
|
|
10
|
|
|
|
|
|
|
|
|
|
DAC and VOBA
|
|
|
(765
|
)
|
|
|
823
|
|
|
|
27
|
|
Deferred income tax benefit (expense) on which noncredit OTTI
losses have been recognized
|
|
|
34
|
|
|
|
|
|
|
|
|
|
Deferred income tax benefit (expense)
|
|
|
(1,120
|
)
|
|
|
1,252
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
(676
|
)
|
|
$
|
(2,682
|
)
|
|
$
|
(361
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net unrealized investment gains (losses)
|
|
$
|
2,006
|
|
|
$
|
(2,321
|
)
|
|
$
|
(47
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Companys 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 December 31, 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
F-41
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 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)
|
|
|
Fixed Maturity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
2,164
|
|
|
$
|
87
|
|
|
$
|
4,314
|
|
|
$
|
554
|
|
|
$
|
6,478
|
|
|
$
|
641
|
|
Foreign corporate securities
|
|
|
759
|
|
|
|
27
|
|
|
|
1,488
|
|
|
|
234
|
|
|
|
2,247
|
|
|
|
261
|
|
U.S. Treasury and agency securities
|
|
|
5,265
|
|
|
|
271
|
|
|
|
26
|
|
|
|
10
|
|
|
|
5,291
|
|
|
|
281
|
|
RMBS
|
|
|
703
|
|
|
|
12
|
|
|
|
1,910
|
|
|
|
472
|
|
|
|
2,613
|
|
|
|
484
|
|
CMBS
|
|
|
334
|
|
|
|
3
|
|
|
|
1,054
|
|
|
|
231
|
|
|
|
1,388
|
|
|
|
234
|
|
ABS
|
|
|
125
|
|
|
|
11
|
|
|
|
821
|
|
|
|
185
|
|
|
|
946
|
|
|
|
196
|
|
State and political subdivision securities
|
|
|
413
|
|
|
|
16
|
|
|
|
433
|
|
|
|
108
|
|
|
|
846
|
|
|
|
124
|
|
Foreign government securities
|
|
|
132
|
|
|
|
4
|
|
|
|
25
|
|
|
|
5
|
|
|
|
157
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
9,895
|
|
|
$
|
431
|
|
|
$
|
10,071
|
|
|
$
|
1,799
|
|
|
$
|
19,966
|
|
|
$
|
2,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock
|
|
$
|
21
|
|
|
$
|
9
|
|
|
$
|
198
|
|
|
$
|
46
|
|
|
$
|
219
|
|
|
$
|
55
|
|
Common stock
|
|
|
3
|
|
|
|
1
|
|
|
|
3
|
|
|
|
|
|
|
|
6
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
24
|
|
|
$
|
10
|
|
|
$
|
201
|
|
|
$
|
46
|
|
|
$
|
225
|
|
|
$
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total number of securities in an unrealized loss position
|
|
|
708
|
|
|
|
|
|
|
|
1,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
Fixed Maturity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
6,302
|
|
|
$
|
1,001
|
|
|
$
|
4,823
|
|
|
$
|
1,334
|
|
|
$
|
11,125
|
|
|
$
|
2,335
|
|
Foreign corporate securities
|
|
|
2,684
|
|
|
|
517
|
|
|
|
1,530
|
|
|
|
619
|
|
|
|
4,214
|
|
|
|
1,136
|
|
U.S. Treasury and agency securities
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
|
|
|
|
|
|
RMBS
|
|
|
1,740
|
|
|
|
501
|
|
|
|
934
|
|
|
|
431
|
|
|
|
2,674
|
|
|
|
932
|
|
CMBS
|
|
|
1,485
|
|
|
|
289
|
|
|
|
679
|
|
|
|
376
|
|
|
|
2,164
|
|
|
|
665
|
|
ABS
|
|
|
961
|
|
|
|
221
|
|
|
|
699
|
|
|
|
482
|
|
|
|
1,660
|
|
|
|
703
|
|
State and political subdivision securities
|
|
|
348
|
|
|
|
91
|
|
|
|
220
|
|
|
|
134
|
|
|
|
568
|
|
|
|
225
|
|
Foreign government securities
|
|
|
229
|
|
|
|
21
|
|
|
|
20
|
|
|
|
12
|
|
|
|
249
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
13,783
|
|
|
$
|
2,641
|
|
|
$
|
8,905
|
|
|
$
|
3,388
|
|
|
$
|
22,688
|
|
|
$
|
6,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
$
|
124
|
|
|
$
|
59
|
|
|
$
|
191
|
|
|
$
|
142
|
|
|
$
|
315
|
|
|
$
|
201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total number of securities in an unrealized loss position
|
|
|
2,634
|
|
|
|
|
|
|
|
1,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-42
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
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 December 31, 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 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
|
|
$
|
8,310
|
|
|
$
|
790
|
|
|
$
|
173
|
|
|
$
|
199
|
|
|
|
609
|
|
|
|
74
|
|
Six months or greater but less than nine months
|
|
|
1,084
|
|
|
|
132
|
|
|
|
114
|
|
|
|
37
|
|
|
|
33
|
|
|
|
24
|
|
Nine months or greater but less than twelve months
|
|
|
694
|
|
|
|
362
|
|
|
|
74
|
|
|
|
102
|
|
|
|
30
|
|
|
|
29
|
|
Twelve months or greater
|
|
|
8,478
|
|
|
|
2,346
|
|
|
|
737
|
|
|
|
794
|
|
|
|
867
|
|
|
|
260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
18,566
|
|
|
$
|
3,630
|
|
|
$
|
1,098
|
|
|
$
|
1,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of cost or amortized cost
|
|
|
|
|
|
|
|
|
|
|
6
|
%
|
|
|
31
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than six months
|
|
$
|
3
|
|
|
$
|
9
|
|
|
$
|
|
|
|
$
|
3
|
|
|
|
7
|
|
|
|
3
|
|
Six months or greater but less than nine months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months or greater but less than twelve months
|
|
|
10
|
|
|
|
20
|
|
|
|
1
|
|
|
|
8
|
|
|
|
2
|
|
|
|
3
|
|
Twelve months or greater
|
|
|
161
|
|
|
|
78
|
|
|
|
21
|
|
|
|
23
|
|
|
|
17
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
174
|
|
|
$
|
107
|
|
|
$
|
22
|
|
|
$
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of cost
|
|
|
|
|
|
|
|
|
|
|
13
|
%
|
|
|
32
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-43
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (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
|
|
$
|
5,444
|
|
|
$
|
9,799
|
|
|
$
|
392
|
|
|
$
|
3,547
|
|
|
|
1,314
|
|
|
|
1,089
|
|
Six months or greater but less than nine months
|
|
|
2,737
|
|
|
|
542
|
|
|
|
213
|
|
|
|
271
|
|
|
|
349
|
|
|
|
54
|
|
Nine months or greater but less than twelve months
|
|
|
3,554
|
|
|
|
810
|
|
|
|
392
|
|
|
|
470
|
|
|
|
342
|
|
|
|
95
|
|
Twelve months or greater
|
|
|
5,639
|
|
|
|
192
|
|
|
|
614
|
|
|
|
130
|
|
|
|
642
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
17,374
|
|
|
$
|
11,343
|
|
|
$
|
1,611
|
|
|
$
|
4,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of cost or amortized cost
|
|
|
|
|
|
|
|
|
|
|
9
|
%
|
|
|
39
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than six months
|
|
$
|
23
|
|
|
$
|
298
|
|
|
$
|
3
|
|
|
$
|
130
|
|
|
|
13
|
|
|
|
50
|
|
Six months or greater but less than nine months
|
|
|
18
|
|
|
|
53
|
|
|
|
3
|
|
|
|
20
|
|
|
|
2
|
|
|
|
5
|
|
Nine months or greater but less than twelve months
|
|
|
|
|
|
|
102
|
|
|
|
|
|
|
|
43
|
|
|
|
|
|
|
|
9
|
|
Twelve months or greater
|
|
|
22
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
63
|
|
|
$
|
453
|
|
|
$
|
8
|
|
|
$
|
193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of cost
|
|
|
|
|
|
|
|
|
|
|
13
|
%
|
|
|
43
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities with a gross unrealized loss of 20% or more
for twelve months or greater increased from none at
December 31, 2008 to $23 million at December 31,
2009. As shown in the section below Evaluating
Temporarily Impaired Available for Sale Securities,
the $23 million of equity securities with a gross
unrealized loss of 20% or more for twelve months or greater at
December 31, 2009 were investment grade non-redeemable
preferred stock, all of which were financial services industry
investment grade non-redeemable preferred stock, of which 28%
were rated A or better.
F-44
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Concentration
of Gross Unrealized Loss and OTTI Loss for Fixed Maturity and
Equity Securities
Available-for-Sale
The Companys 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 December 31, 2009, of
$2.3 billion and $6.2 billion at December 31,
2009 and 2008, respectively, were concentrated, calculated as a
percentage of gross unrealized loss and OTTI loss, by sector and
industry as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Sector:
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
|
28
|
%
|
|
|
37
|
%
|
RMBS
|
|
|
21
|
|
|
|
15
|
|
U.S. Treasury and agency securities
|
|
|
12
|
|
|
|
|
|
Foreign corporate securities
|
|
|
11
|
|
|
|
18
|
|
CMBS
|
|
|
10
|
|
|
|
11
|
|
ABS
|
|
|
9
|
|
|
|
11
|
|
State and political subdivision securities
|
|
|
5
|
|
|
|
4
|
|
Other
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
Industry:
|
|
|
|
|
|
|
|
|
Mortgage-backed
|
|
|
31
|
%
|
|
|
26
|
%
|
Finance
|
|
|
22
|
|
|
|
25
|
|
U.S. Treasury and agency securities
|
|
|
12
|
|
|
|
|
|
Asset-backed
|
|
|
9
|
|
|
|
11
|
|
Consumer
|
|
|
6
|
|
|
|
10
|
|
State and political subdivision securities
|
|
|
5
|
|
|
|
4
|
|
Utility
|
|
|
4
|
|
|
|
9
|
|
Communications
|
|
|
3
|
|
|
|
7
|
|
Industrial
|
|
|
2
|
|
|
|
4
|
|
Other
|
|
|
6
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
F-45
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Evaluating
Temporarily Impaired
Available-for-Sale
Securities
The following table presents the Companys fixed maturity
and equity securities with a gross unrealized loss of greater
than $10 million, the number of securities, total gross
unrealized loss and percentage of total gross unrealized loss at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2009
|
|
2008
|
|
|
Fixed
|
|
|
|
Fixed
|
|
|
|
|
Maturity
|
|
Equity
|
|
Maturity
|
|
Equity
|
|
|
Securities
|
|
Securities
|
|
Securities
|
|
Securities
|
|
|
(In millions, except number of securities)
|
|
Number of securities
|
|
|
33
|
|
|
|
|
|
|
|
103
|
|
|
|
6
|
|
Total gross unrealized loss
|
|
$
|
510
|
|
|
$
|
|
|
|
$
|
1,758
|
|
|
$
|
84
|
|
Percentage of total gross unrealized loss
|
|
|
23
|
%
|
|
|
|
%
|
|
|
29
|
%
|
|
|
42
|
%
|
The fixed maturity and equity securities, each with a gross
unrealized loss greater than $10 million, decreased
$1,332 million during the year ended December 31,
2009. These securities were included in the Companys OTTI
review process. Based upon the Companys current evaluation
of these securities in accordance with its impairment policy,
the cause of the decline in, or improvement in, gross unrealized
losses for the year ended December 31, 2009 being primarily
attributable to improving market conditions, including narrowing
of credit spreads reflecting an improvement in liquidity and the
Companys 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 Companys impairment review process, the duration
and severity of an unrealized loss position for equity
securities is given greater weight and consideration than for
fixed maturity securities. An extended and severe unrealized
loss position on a fixed maturity security may not have any
impact on the ability of the issuer to service all scheduled
interest and principal payments and the Companys
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 the
Companys equity securities
available-for-sale
with a gross unrealized loss of 20% or more at December 31,
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
|
|
|
|
Loss
|
|
|
Loss
|
|
|
Securities
|
|
|
Loss
|
|
|
Preferred Stock
|
|
|
Loss
|
|
|
Industries
|
|
|
or Better
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
Less than six months
|
|
$
|
3
|
|
|
$
|
1
|
|
|
|
33
|
%
|
|
$
|
1
|
|
|
|
100
|
%
|
|
$
|
1
|
|
|
|
100
|
%
|
|
|
|
%
|
Six months or greater but less than twelve months
|
|
|
8
|
|
|
|
8
|
|
|
|
100
|
%
|
|
|
8
|
|
|
|
100
|
%
|
|
|
8
|
|
|
|
100
|
%
|
|
|
100
|
%
|
Twelve months or greater
|
|
|
23
|
|
|
|
23
|
|
|
|
100
|
%
|
|
|
23
|
|
|
|
100
|
%
|
|
|
23
|
|
|
|
100
|
%
|
|
|
28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All equity securities with a gross unrealized loss of 20% or more
|
|
$
|
34
|
|
|
$
|
32
|
|
|
|
94
|
%
|
|
$
|
32
|
|
|
|
100
|
%
|
|
$
|
32
|
|
|
|
100
|
%
|
|
|
44
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In connection with the equity securities impairment review
process at December 31, 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.
F-46
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
The Company also considered whether any non-redeemable preferred
stock with an unrealized loss, 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)
As described more fully in Note 1, effective April 1,
2009, the Company adopted new guidance on the recognition and
presentation of OTTI that amends the methodology to determine
for fixed maturity securities whether an OTTI exists, and for
certain fixed maturity securities, changes how OTTI losses that
are charged to earnings are measured. There was no change in the
methodology for identification and measurement of OTTI losses
charged to earnings for impaired equity securities.
The components of net investment gains (losses) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Total losses on fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OTTI losses recognized
|
|
$
|
(552
|
)
|
|
$
|
(401
|
)
|
|
$
|
(28
|
)
|
Less: Noncredit portion of OTTI losses transferred to and
recognized in other comprehensive loss
|
|
|
165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net OTTI losses on fixed maturity securities recognized in
earnings
|
|
|
(387
|
)
|
|
|
(401
|
)
|
|
|
(28
|
)
|
Fixed maturity securities net gains (losses) on
sales and disposals
|
|
|
(115
|
)
|
|
|
(255
|
)
|
|
|
(244
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total losses on fixed maturity securities
|
|
|
(502
|
)
|
|
|
(656
|
)
|
|
|
(272
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other net investment gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
(119
|
)
|
|
|
(60
|
)
|
|
|
15
|
|
Mortgage loans
|
|
|
(32
|
)
|
|
|
(44
|
)
|
|
|
(2
|
)
|
Real estate and real estate joint ventures
|
|
|
(61
|
)
|
|
|
(1
|
)
|
|
|
1
|
|
Other limited partnership interests
|
|
|
(72
|
)
|
|
|
(9
|
)
|
|
|
(19
|
)
|
Freestanding derivatives
|
|
|
(717
|
)
|
|
|
558
|
|
|
|
189
|
|
Embedded derivatives
|
|
|
(314
|
)
|
|
|
436
|
|
|
|
116
|
|
Other
|
|
|
(49
|
)
|
|
|
325
|
|
|
|
(170
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net investment gains (losses)
|
|
$
|
(1,866
|
)
|
|
$
|
549
|
|
|
$
|
(142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Note 8 for discussion of affiliated net investment
gains (losses) included in embedded derivatives in the table
above.
F-47
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
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
|
|
|
Total
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
|
|
$
|
8,766
|
|
|
$
|
11,450
|
|
|
$
|
14,693
|
|
|
$
|
113
|
|
|
$
|
76
|
|
|
$
|
133
|
|
|
$
|
8,879
|
|
|
$
|
11,526
|
|
|
$
|
14,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross investment gains
|
|
$
|
180
|
|
|
$
|
126
|
|
|
$
|
120
|
|
|
$
|
6
|
|
|
$
|
15
|
|
|
$
|
26
|
|
|
$
|
186
|
|
|
$
|
141
|
|
|
$
|
146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross investment losses
|
|
|
(295
|
)
|
|
|
(381
|
)
|
|
|
(364
|
)
|
|
|
(28
|
)
|
|
|
(25
|
)
|
|
|
(9
|
)
|
|
|
(323
|
)
|
|
|
(406
|
)
|
|
|
(373
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OTTI losses recognized in earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit-related
|
|
|
(348
|
)
|
|
|
(366
|
)
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(348
|
)
|
|
|
(366
|
)
|
|
|
(20
|
)
|
Other (1)
|
|
|
(39
|
)
|
|
|
(35
|
)
|
|
|
(8
|
)
|
|
|
(97
|
)
|
|
|
(50
|
)
|
|
|
(2
|
)
|
|
|
(136
|
)
|
|
|
(85
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OTTI losses recognized in earnings
|
|
|
(387
|
)
|
|
|
(401
|
)
|
|
|
(28
|
)
|
|
|
(97
|
)
|
|
|
(50
|
)
|
|
|
(2
|
)
|
|
|
(484
|
)
|
|
|
(451
|
)
|
|
|
(30
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment gains (losses)
|
|
$
|
(502
|
)
|
|
$
|
(656
|
)
|
|
$
|
(272
|
)
|
|
$
|
(119
|
)
|
|
$
|
(60
|
)
|
|
$
|
15
|
|
|
$
|
(621
|
)
|
|
$
|
(716
|
)
|
|
$
|
(257
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Other OTTI losses recognized in earnings include impairments on
equity securities, impairments on perpetual hybrid securities
classified within fixed maturity securities where the primary
reason for the impairment was the severity and/or the duration
of an unrealized loss position and fixed maturity securities
where there is an intent to sell or it is more likely than not
that the Company will be required to sell the security before
recovery of the decline in estimated fair value. |
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
managements decision to sell securities based on current
conditions, or the Companys 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.
Fixed maturity security OTTI losses recognized in earnings
relates to the following sectors and industries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
U.S. and foreign corporate securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Communications
|
|
$
|
88
|
|
|
$
|
21
|
|
|
$
|
|
|
Finance
|
|
|
84
|
|
|
|
225
|
|
|
|
8
|
|
Consumer
|
|
|
53
|
|
|
|
35
|
|
|
|
|
|
Industrial
|
|
|
18
|
|
|
|
|
|
|
|
2
|
|
Utility
|
|
|
6
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
40
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. and foreign corporate securities
|
|
|
249
|
|
|
|
321
|
|
|
|
27
|
|
CMBS
|
|
|
69
|
|
|
|
65
|
|
|
|
|
|
ABS
|
|
|
45
|
|
|
|
15
|
|
|
|
1
|
|
RMBS
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
387
|
|
|
$
|
401
|
|
|
$
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-48
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Equity security OTTI losses recognized in earnings relates to
the following sectors and industries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Sector:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock
|
|
$
|
92
|
|
|
$
|
38
|
|
|
$
|
|
|
Common stock
|
|
|
5
|
|
|
|
12
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
97
|
|
|
$
|
50
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industry:
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial services industry:
|
|
|
|
|
|
|
|
|
|
|
|
|
Perpetual hybrid securities
|
|
$
|
72
|
|
|
$
|
9
|
|
|
$
|
|
|
Common and remaining non-redeemable preferred stock
|
|
|
3
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial services industry
|
|
|
75
|
|
|
|
43
|
|
|
|
|
|
Other
|
|
|
22
|
|
|
|
7
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
97
|
|
|
$
|
50
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
December 31, 2009 for which a portion of the OTTI loss was
recognized in other comprehensive loss:
|
|
|
|
|
|
|
Year Ended December 31, 2009
|
|
|
|
(In millions)
|
|
|
Balance, beginning of period
|
|
$
|
|
|
Credit loss component of OTTI loss not reclassified to other
comprehensive loss in the cumulative effect transition adjustment
|
|
|
92
|
|
Additions:
|
|
|
|
|
Initial impairments credit loss OTTI recognized on
securities not previously impaired
|
|
|
97
|
|
Additional impairments credit loss OTTI recognized
on securities previously impaired
|
|
|
43
|
|
Reductions:
|
|
|
|
|
Due to sales (or maturities, pay downs or prepayments) during
the period of securities previously credit loss OTTI impaired
|
|
|
(18
|
)
|
Due to increases in cash flows accretion of previous
credit loss OTTI
|
|
|
(1
|
)
|
|
|
|
|
|
Balance, end of period
|
|
$
|
213
|
|
|
|
|
|
|
F-49
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Net
Investment Income
The components of net investment income are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Fixed maturity securities
|
|
$
|
2,094
|
|
|
$
|
2,455
|
|
|
$
|
2,803
|
|
Equity securities
|
|
|
27
|
|
|
|
44
|
|
|
|
45
|
|
Trading securities
|
|
|
97
|
|
|
|
(19
|
)
|
|
|
|
|
Mortgage loans
|
|
|
239
|
|
|
|
255
|
|
|
|
263
|
|
Policy loans
|
|
|
80
|
|
|
|
64
|
|
|
|
53
|
|
Real estate and real estate joint ventures
|
|
|
(120
|
)
|
|
|
11
|
|
|
|
81
|
|
Other limited partnership interests
|
|
|
17
|
|
|
|
(69
|
)
|
|
|
164
|
|
Cash, cash equivalents and short-term investments
|
|
|
16
|
|
|
|
67
|
|
|
|
104
|
|
International joint ventures
|
|
|
(4
|
)
|
|
|
(4
|
)
|
|
|
(4
|
)
|
Other
|
|
|
(2
|
)
|
|
|
(3
|
)
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment income
|
|
|
2,444
|
|
|
|
2,801
|
|
|
|
3,520
|
|
Less: Investment expenses
|
|
|
109
|
|
|
|
307
|
|
|
|
627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
2,335
|
|
|
$
|
2,494
|
|
|
$
|
2,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliated investment expenses, included in the table above,
were $47 million, $32 million and $36 million for
the years ended December 31, 2009, 2008 and 2007,
respectively. See Related Party Investment
Transactions for discussion of affiliated net investment
income related to short-term investments included in the table
above.
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 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
amounts of which by aging category are presented below.
F-50
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Elements of the securities lending programs are presented below
at:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Securities on loan:
|
|
|
|
|
|
|
|
|
Cost or amortized cost
|
|
$
|
6,173
|
|
|
$
|
5,638
|
|
Estimated fair value
|
|
$
|
6,051
|
|
|
$
|
6,346
|
|
Aging of cash collateral liability:
|
|
|
|
|
|
|
|
|
Open (1)
|
|
$
|
1,325
|
|
|
$
|
1,222
|
|
Less than thirty days
|
|
|
3,342
|
|
|
|
4,284
|
|
Thirty days or greater but less than sixty days
|
|
|
1,323
|
|
|
|
901
|
|
Sixty days or greater but less than ninety days
|
|
|
|
|
|
|
|
|
Ninety days or greater
|
|
|
234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash collateral liability
|
|
$
|
6,224
|
|
|
$
|
6,407
|
|
|
|
|
|
|
|
|
|
|
Security collateral on deposit from counterparties
|
|
$
|
|
|
|
$
|
153
|
|
|
|
|
|
|
|
|
|
|
Reinvestment portfolio estimated fair value
|
|
$
|
5,686
|
|
|
$
|
4,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Open 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 at December 31, 2009 has increased to
$1,291 million from $1,196 million at
December 31, 2008. Of the $1,291 million of estimated
fair value of the securities related to the cash collateral on
open at December 31, 2009, $1,257 million were
U.S. Treasury and agency 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 ninety days
or greater, was primarily U.S. Treasury and agency
securities, and very liquid RMBS. The reinvestment portfolio
acquired with the cash collateral consisted principally of fixed
maturity securities (including RMBS, ABS, U.S. corporate
and foreign corporate securities).
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.
F-51
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Invested
Assets on Deposit and Pledged as Collateral
The invested assets on deposit and invested 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 and fixed maturity and equity
securities.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Invested assets on deposit:
|
|
|
|
|
|
|
|
|
Regulatory agencies (1)
|
|
$
|
21
|
|
|
$
|
23
|
|
Invested assets pledged as collateral:
|
|
|
|
|
|
|
|
|
Debt and funding agreements FHLB of Boston (2)
|
|
|
419
|
|
|
|
1,284
|
|
Derivative transactions (3)
|
|
|
18
|
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
Total invested assets on deposit and pledged as collateral
|
|
$
|
458
|
|
|
$
|
1,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Company had investment assets on deposit with regulatory
agencies consisting primarily of fixed maturity and equity
securities. |
|
(2) |
|
The Company has pledged fixed maturity securities in support of
its debt and funding agreements with the Federal Home Loan Bank
of Boston (FHLB of Boston). The nature of these
Federal Home Loan Bank arrangements is described in Note 7. |
|
(3) |
|
Certain of the Companys invested assets are pledged as
collateral for various derivative transactions as described in
Note 3. |
See also the immediately preceding section Securities
Lending for the amount of the Companys 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 and asset and liability matching
strategies for certain insurance products.
At December 31, 2009 and 2008, trading securities at
estimated fair value were $938 million and
$232 million, respectively.
Interest and dividends earned on trading securities, in addition
to the net realized gains (losses) and changes in estimated fair
value subsequent to purchase, recognized on the trading
securities included within net investment income totaled
$97 million and ($19) million for the years ended
December 31, 2009 and 2008, respectively. Changes in
estimated fair value subsequent to purchase of the trading
securities included within net investment income were
$90 million and ($21) million for the years ended
December 31, 2009 and 2008, respectively. As the Company
established its trading securities portfolios in 2008, there was
no net investment income from such securities for the year ended
December 31, 2007.
F-52
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Mortgage
Loans
Mortgage loans are categorized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Carrying
|
|
|
% of
|
|
|
Carrying
|
|
|
% of
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Mortgage loans
held-for-investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage loans
|
|
$
|
3,620
|
|
|
|
75.0
|
%
|
|
$
|
3,301
|
|
|
|
73.4
|
%
|
Agricultural mortgage loans
|
|
|
1,204
|
|
|
|
25.0
|
|
|
|
1,185
|
|
|
|
26.4
|
|
Consumer loans
|
|
|
1
|
|
|
|
|
|
|
|
7
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans
held-for-investment
|
|
|
4,825
|
|
|
|
100.0
|
%
|
|
|
4,493
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Valuation allowances
|
|
|
77
|
|
|
|
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans, net
|
|
$
|
4,748
|
|
|
|
|
|
|
$
|
4,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Related Party Investment
Transactions for discussion of affiliated mortgage loans
included in the table above.
Mortgage Loans by Geographic Region and Property
Type The Company diversifies its mortgage loans
by both geographic region and property type to reduce risk of
concentration. Mortgage loans are collateralized by properties
primarily located in the United States. The carrying value of
the Companys mortgage loans located in California, New
York and Florida were 27%, 12% and 7% at December 31, 2009,
respectively. Generally, the Company, as the lender, only loans
up to 75% of the purchase price of the underlying real estate.
Commercial mortgage loans at December 31, 2009 and 2008
were $3,620 million and $3,301 million, respectively,
or 75.0% and 73.4%, respectively, of total mortgage loans prior
to valuation allowances. Net of valuation allowances, commercial
F-53
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
mortgage loans were $3,546 million and $3,257 million,
respectively, at December 31, 2009 and 2008 and there was
diversity across geographic regions and property types as shown
below at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Carrying
|
|
|
% of
|
|
|
Carrying
|
|
|
% of
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South Atlantic
|
|
$
|
909
|
|
|
|
25.6
|
%
|
|
$
|
842
|
|
|
|
25.9
|
%
|
Pacific
|
|
|
879
|
|
|
|
24.8
|
|
|
|
753
|
|
|
|
23.1
|
|
Middle Atlantic
|
|
|
678
|
|
|
|
19.1
|
|
|
|
516
|
|
|
|
15.8
|
|
New England
|
|
|
398
|
|
|
|
11.2
|
|
|
|
412
|
|
|
|
12.6
|
|
West South Central
|
|
|
220
|
|
|
|
6.2
|
|
|
|
264
|
|
|
|
8.1
|
|
East North Central
|
|
|
177
|
|
|
|
5.0
|
|
|
|
152
|
|
|
|
4.7
|
|
East South Central
|
|
|
108
|
|
|
|
3.1
|
|
|
|
130
|
|
|
|
4.0
|
|
Mountain
|
|
|
66
|
|
|
|
1.9
|
|
|
|
67
|
|
|
|
2.1
|
|
International
|
|
|
57
|
|
|
|
1.6
|
|
|
|
59
|
|
|
|
1.8
|
|
West North Central
|
|
|
14
|
|
|
|
0.4
|
|
|
|
22
|
|
|
|
0.7
|
|
Other
|
|
|
40
|
|
|
|
1.1
|
|
|
|
40
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,546
|
|
|
|
100.0
|
%
|
|
$
|
3,257
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property Type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
|
|
$
|
1,406
|
|
|
|
39.6
|
%
|
|
$
|
1,188
|
|
|
|
36.5
|
%
|
Retail
|
|
|
901
|
|
|
|
25.4
|
|
|
|
760
|
|
|
|
23.3
|
|
Apartments
|
|
|
521
|
|
|
|
14.7
|
|
|
|
553
|
|
|
|
17.0
|
|
Hotel
|
|
|
375
|
|
|
|
10.6
|
|
|
|
396
|
|
|
|
12.2
|
|
Industrial
|
|
|
127
|
|
|
|
3.6
|
|
|
|
151
|
|
|
|
4.6
|
|
Other
|
|
|
216
|
|
|
|
6.1
|
|
|
|
209
|
|
|
|
6.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,546
|
|
|
|
100.0
|
%
|
|
$
|
3,257
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information regarding valuation allowances on mortgage loans
held-for-investment
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Balance, January 1,
|
|
$
|
46
|
|
|
$
|
8
|
|
|
$
|
6
|
|
Additions
|
|
|
36
|
|
|
|
75
|
|
|
|
7
|
|
Deductions
|
|
|
(5
|
)
|
|
|
(37
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31,
|
|
$
|
77
|
|
|
$
|
46
|
|
|
$
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-54
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Impaired mortgage loans
held-for-investment
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Impaired loans with valuation allowances
|
|
$
|
24
|
|
|
$
|
24
|
|
Impaired loans without valuation allowances
|
|
|
12
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
36
|
|
|
|
26
|
|
Less: Valuation allowances on impaired loans
|
|
|
24
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
Impaired loans, net
|
|
$
|
12
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
Information about impaired loans, restructured loans, loans
90 days or more past due and loans in foreclosure is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Impaired loans average investment during the period
|
|
$
|
32
|
|
|
$
|
42
|
|
|
$
|
21
|
|
Impaired loans interest income
recognized accrual basis
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
3
|
|
Impaired loans interest income
recognized cash basis
|
|
$
|
2
|
|
|
$
|
1
|
|
|
$
|
1
|
|
Restructured loans amount
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Restructured loans interest income recognized
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Loans 90 days or more past due, interest still
accruing amortized cost
|
|
$
|
4
|
|
|
$
|
|
|
|
$
|
|
|
Loans 90 days or more past due, interest no longer
accruing amortized cost
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Loans in foreclosure amortized cost
|
|
$
|
6
|
|
|
$
|
1
|
|
|
$
|
|
|
Real
Estate Holdings
Real estate holdings by type consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Carrying
|
|
|
% of
|
|
|
Carrying
|
|
|
% of
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Real estate
|
|
$
|
88
|
|
|
|
19.8
|
%
|
|
$
|
86
|
|
|
|
14.1
|
%
|
Accumulated depreciation
|
|
|
(17
|
)
|
|
|
(3.8
|
)
|
|
|
(16
|
)
|
|
|
(2.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net real estate
|
|
|
71
|
|
|
|
16.0
|
|
|
|
70
|
|
|
|
11.5
|
|
Real estate joint ventures and funds
|
|
|
374
|
|
|
|
84.0
|
|
|
|
538
|
|
|
|
88.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate holdings
|
|
$
|
445
|
|
|
|
100.0
|
%
|
|
$
|
608
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related depreciation expense on real estate was $3 million,
$5 million and $8 million for the years ended
December 31, 2009, 2008 and 2007, respectively. There was
no depreciation expense related to discontinued operations for
the years ended December 31, 2009, 2008 and 2007.
The Company did not own real estate
held-for-sale
at December 31, 2009 or 2008. Impairments of real estate
and real estate joint ventures were $61 million for the
year ended December 31, 2009. There were no impairments of
real estate and real estate joint ventures for the years ended
December 31, 2008 and 2007. The carrying value of non-
F-55
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
income producing real estate was $1 million at
December 31, 2009 and 2008. The Company did not own real
estate acquired in satisfaction of debt at December 31,
2009 and 2008.
The Company diversifies its real estate holdings by both
geographic region and property type to reduce risk of
concentration. The Companys real estate holdings are
primarily located in the United States, and at December 31,
2009, 23%, 21%, 16% were located in California, New York and
Georgia, respectively.
Real estate holdings were categorized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Carrying
|
|
|
% of
|
|
|
Carrying
|
|
|
% of
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Office
|
|
$
|
127
|
|
|
|
28.6
|
%
|
|
$
|
252
|
|
|
|
41.5
|
%
|
Real estate investment funds
|
|
|
96
|
|
|
|
21.6
|
|
|
|
138
|
|
|
|
22.7
|
|
Apartments
|
|
|
72
|
|
|
|
16.2
|
|
|
|
100
|
|
|
|
16.4
|
|
Land
|
|
|
43
|
|
|
|
9.6
|
|
|
|
32
|
|
|
|
5.3
|
|
Industrial
|
|
|
25
|
|
|
|
5.6
|
|
|
|
|
|
|
|
|
|
Retail
|
|
|
16
|
|
|
|
3.6
|
|
|
|
17
|
|
|
|
2.8
|
|
Agriculture
|
|
|
11
|
|
|
|
2.5
|
|
|
|
14
|
|
|
|
2.3
|
|
Other
|
|
|
55
|
|
|
|
12.3
|
|
|
|
55
|
|
|
|
9.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate holdings
|
|
$
|
445
|
|
|
|
100.0
|
%
|
|
$
|
608
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Limited Partnership Interests
The carrying value of other limited partnership interests (which
primarily represent ownership interests in pooled investment
funds that principally make private equity investments in
companies in the United States and overseas) was
$1.2 billion at both December 31, 2009 and 2008.
Included within other limited partnership interests were
$335 million and $340 million at December 31,
2009 and 2008, respectively, of investments in hedge funds.
Impairments of other limited partnership interests, principally
cost method other limited partnership interests, were
$66 million, $5 million and $2 million for the
years ended December 31, 2009, 2008 and 2007, respectively.
Other
Invested Assets
The following table presents the carrying value of the
Companys other invested assets by type at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Carrying
|
|
|
% of
|
|
|
Carrying
|
|
|
% of
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Freestanding derivatives with positive fair values
|
|
$
|
1,470
|
|
|
|
98.1
|
%
|
|
$
|
2,258
|
|
|
|
98.3
|
%
|
Joint venture investments
|
|
|
26
|
|
|
|
1.8
|
|
|
|
31
|
|
|
|
1.3
|
|
Tax credit partnerships
|
|
|
2
|
|
|
|
0.1
|
|
|
|
4
|
|
|
|
0.2
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,498
|
|
|
|
100.0
|
%
|
|
$
|
2,297
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Note 3 for information regarding the freestanding
derivatives with positive estimated fair values. Joint venture
investments are accounted for on the equity method and represent
the Companys investment in insurance
F-56
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
underwriting joint ventures in China. Tax credit partnerships
are 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, and are accounted for
under the equity method or under the effective yield method.
Variable
Interest Entities
The Company invests in certain entities that are VIEs, as a
passive investor holding a limited partnership interest, or as a
sponsor or debt holder. 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 December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Maximum
|
|
|
|
|
|
Maximum
|
|
|
|
Carrying
|
|
|
Exposure
|
|
|
Carrying
|
|
|
Exposure
|
|
|
|
Amount
|
|
|
to Loss (1)
|
|
|
Amount
|
|
|
to Loss (1)
|
|
|
|
(In millions)
|
|
|
Other limited partnership interests
|
|
$
|
838
|
|
|
$
|
1,273
|
|
|
$
|
672
|
|
|
$
|
1,060
|
|
Fixed maturity securities
available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign corporate securities
|
|
|
304
|
|
|
|
304
|
|
|
|
152
|
|
|
|
152
|
|
U.S. corporate securities
|
|
|
247
|
|
|
|
247
|
|
|
|
182
|
|
|
|
182
|
|
Real estate joint ventures
|
|
|
32
|
|
|
|
39
|
|
|
|
41
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,421
|
|
|
$
|
1,863
|
|
|
$
|
1,047
|
|
|
$
|
1,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
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. 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. Such a maximum loss would be expected to occur only
upon bankruptcy of the issuer or investee. |
As described in Note 11, 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 years ended December 31, 2009, 2008 and 2007.
Related
Party Investment Transactions
At December 31, 2009 and 2008, the Company held
$285 million and $1.6 billion, respectively, in the
Metropolitan Money Market Pool and the MetLife Intermediate
Income Pool which are affiliated partnerships. These amounts are
included in short-term investments. Net investment income from
these investments was $2 million, $10 million and
$25 million for the years ended December 31, 2009,
2008 and 2007, respectively.
F-57
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
In the normal course of business, the Company transfers invested
assets, primarily consisting of fixed maturity securities, to
and from affiliates. Transfers of invested assets are done at
estimated fair value with net investment gains (losses)
recognized by the affiliate initiating the transfer. Invested
assets transferred to and from affiliates, inclusive of amounts
related to reinsurance agreements, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Estimated fair value of invested assets transferred to affiliates
|
|
$
|
717
|
|
|
$
|
27
|
|
|
$
|
628
|
|
Amortized cost of invested assets transferred to affiliates
|
|
$
|
769
|
|
|
$
|
23
|
|
|
$
|
629
|
|
Net investment gains (losses) recognized on transfers to
affiliates
|
|
$
|
(52
|
)
|
|
$
|
4
|
|
|
$
|
(1
|
)
|
Estimated fair value of invested assets transferred from
affiliates
|
|
$
|
143
|
|
|
$
|
230
|
|
|
$
|
836
|
|
During the year ended December 31, 2009, the Company loaned
$200 million to wholly-owned real estate subsidiaries of an
affiliate, MLIC, which is included in mortgage loans. Loans of
$140 million bear interest at 7.26% and are due in
quarterly principal and interest payments of $3 million
through January 2020. Loans of $60 million bear interest at
7.01% with quarterly interest only payments of $1 million
through January 2020, when the principal balance is due. The
loans to affiliates are secured by interests in the real estate
subsidiaries, which own operating real estate with a value in
excess of the loans.
|
|
3.
|
Derivative
Financial Instruments
|
Accounting
for Derivative Financial Instruments
See Note 1 for a description of the Companys
accounting policies for derivative financial instruments.
See Note 4 for information about the fair value hierarchy
for derivatives.
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
F-58
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
fair value and primary underlying risk exposure of the
Companys derivative financial instruments, excluding
embedded derivatives held at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
Fair
|
|
|
|
|
|
Fair
|
|
Primary Underlying
|
|
|
|
Notional
|
|
|
Value (1)
|
|
|
Notional
|
|
|
Value (1)
|
|
Risk Exposure
|
|
Instrument Type
|
|
Amount
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Amount
|
|
|
Assets
|
|
|
Liabilities
|
|
|
|
|
|
(In millions)
|
|
|
Interest rate
|
|
Interest rate swaps
|
|
$
|
5,261
|
|
|
$
|
534
|
|
|
$
|
179
|
|
|
$
|
7,074
|
|
|
$
|
736
|
|
|
$
|
347
|
|
|
|
Interest rate floors
|
|
|
7,986
|
|
|
|
78
|
|
|
|
34
|
|
|
|
12,071
|
|
|
|
494
|
|
|
|
|
|
|
|
Interest rate caps
|
|
|
4,003
|
|
|
|
15
|
|
|
|
|
|
|
|
3,513
|
|
|
|
1
|
|
|
|
|
|
|
|
Interest rate futures
|
|
|
835
|
|
|
|
2
|
|
|
|
1
|
|
|
|
1,064
|
|
|
|
4
|
|
|
|
11
|
|
Foreign currency
|
|
Foreign currency swaps
|
|
|
2,678
|
|
|
|
689
|
|
|
|
93
|
|
|
|
3,771
|
|
|
|
699
|
|
|
|
219
|
|
|
|
Foreign currency forwards
|
|
|
79
|
|
|
|
3
|
|
|
|
|
|
|
|
92
|
|
|
|
|
|
|
|
9
|
|
Credit
|
|
Swap spreadlocks
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
208
|
|
|
|
|
|
|
|
8
|
|
|
|
Credit default swaps
|
|
|
966
|
|
|
|
12
|
|
|
|
31
|
|
|
|
648
|
|
|
|
19
|
|
|
|
8
|
|
|
|
Credit forwards
|
|
|
90
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity market
|
|
Equity futures
|
|
|
81
|
|
|
|
1
|
|
|
|
|
|
|
|
370
|
|
|
|
|
|
|
|
5
|
|
|
|
Equity options
|
|
|
775
|
|
|
|
112
|
|
|
|
|
|
|
|
813
|
|
|
|
248
|
|
|
|
|
|
|
|
Variance swaps
|
|
|
1,081
|
|
|
|
24
|
|
|
|
6
|
|
|
|
1,081
|
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
23,835
|
|
|
$
|
1,470
|
|
|
$
|
347
|
|
|
$
|
30,705
|
|
|
$
|
2,258
|
|
|
$
|
607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The estimated fair value of all derivatives in an asset position
is reported within other invested assets in the consolidated
balance sheets and the estimated fair value of all derivatives
in a liability position is reported within other liabilities in
the consolidated balance sheets. |
The following table presents the notional amount of derivative
financial instruments by maturity at December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining Life
|
|
|
|
|
|
|
After One Year
|
|
|
After Five Years
|
|
|
|
|
|
|
|
|
|
One Year or
|
|
|
Through Five
|
|
|
Through Ten
|
|
|
After Ten
|
|
|
|
|
|
|
Less
|
|
|
Years
|
|
|
Years
|
|
|
Years
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Interest rate swaps
|
|
$
|
442
|
|
|
$
|
2,612
|
|
|
$
|
933
|
|
|
$
|
1,274
|
|
|
$
|
5,261
|
|
Interest rate floors
|
|
|
|
|
|
|
|
|
|
|
7,986
|
|
|
|
|
|
|
|
7,986
|
|
Interest rate caps
|
|
|
3
|
|
|
|
4,000
|
|
|
|
|
|
|
|
|
|
|
|
4,003
|
|
Interest rate futures
|
|
|
835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
835
|
|
Foreign currency swaps
|
|
|
145
|
|
|
|
1,878
|
|
|
|
399
|
|
|
|
256
|
|
|
|
2,678
|
|
Foreign currency forwards
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79
|
|
Credit default swaps
|
|
|
|
|
|
|
928
|
|
|
|
38
|
|
|
|
|
|
|
|
966
|
|
Credit forwards
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90
|
|
Equity futures
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81
|
|
Equity options
|
|
|
121
|
|
|
|
577
|
|
|
|
77
|
|
|
|
|
|
|
|
775
|
|
Variance swaps
|
|
|
|
|
|
|
519
|
|
|
|
562
|
|
|
|
|
|
|
|
1,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,796
|
|
|
$
|
10,514
|
|
|
$
|
9,995
|
|
|
$
|
1,530
|
|
|
$
|
23,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-59
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Interest rate swaps are used by the Company primarily to reduce
market risks from changes in interest rates and to alter
interest rate exposure arising from mismatches between assets
and liabilities (duration mismatches). In an interest rate swap,
the Company agrees with another party to exchange, at specified
intervals, the difference between fixed rate and floating rate
interest amounts as calculated by reference to an agreed
notional principal amount. These transactions are entered into
pursuant to master agreements that provide for a single net
payment to be made by the counterparty at each due date. The
Company utilizes interest rate swaps in fair value and
non-qualifying hedging relationships.
The Company also enters into basis swaps to better match the
cash flows from assets and related liabilities. In a basis swap,
both legs of the swap are floating with each based on a
different index. Generally, no cash is exchanged at the outset
of the contract and no principal payments are made by either
party. A single net payment is usually made by one counterparty
at each due date. Basis swaps are included in interest rate
swaps in the preceding table. The Company utilizes basis swaps
in non-qualifying hedging relationships.
Inflation swaps are used as an economic hedge to reduce
inflation risk generated from inflation-indexed liabilities.
Inflation swaps are included in interest rate swaps in the
preceding table. The Company utilizes inflation swaps in
non-qualifying hedging relationships.
Implied volatility swaps are used by the Company primarily as
economic hedges of interest rate risk associated with the
Companys investments in mortgage-backed securities. In an
implied volatility swap, the Company exchanges fixed payments
for floating payments that are linked to certain market
volatility measures. If implied volatility rises, the floating
payments that the Company receives will increase, and if implied
volatility falls, the floating payments that the Company
receives will decrease. Implied volatility swaps are included in
interest rate swaps in the preceding table. The Company utilizes
implied volatility swaps in non-qualifying hedging relationships.
The Company purchases interest rate caps and floors primarily to
protect its floating rate liabilities against rises in interest
rates above a specified level, and against interest rate
exposure arising from mismatches between assets and liabilities
(duration mismatches), as well as to protect its minimum rate
guarantee liabilities against declines in interest rates below a
specified level, respectively. In certain instances, the Company
locks in the economic impact of existing purchased caps and
floors by entering into offsetting written caps and floors. The
Company utilizes interest rate caps and floors in non-qualifying
hedging relationships.
In exchange-traded interest rate (Treasury and swap) futures
transactions, the Company agrees to purchase or sell a specified
number of contracts, the value of which is determined by the
different classes of interest rate securities, and to post
variation margin on a daily basis in an amount equal to the
difference in the daily market values of those contracts. The
Company enters into exchange-traded futures with regulated
futures commission merchants that are members of the exchange.
Exchange-traded interest rate (Treasury and swap) futures are
used primarily to hedge mismatches between the duration of
assets in a portfolio and the duration of liabilities supported
by those assets, to hedge against changes in value of securities
the Company owns or anticipates acquiring and to hedge against
changes in interest rates on anticipated liability issuances by
replicating Treasury or swap curve performance. The Company
utilizes exchange-traded interest rate futures in non-qualifying
hedging relationships.
The Company enters into interest rate forwards to buy and sell
securities. The price is agreed upon at the time of the contract
and payment for such a contract is made at a specified future
date. The Company utilizes interest rate forwards in cash flow
and non-qualifying hedging relationships.
Foreign currency derivatives, including foreign currency swaps
and foreign currency forwards are used by the Company to reduce
the risk from fluctuations in foreign currency exchange rates
associated with its assets and liabilities denominated in
foreign currencies.
F-60
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
In a foreign currency swap transaction, the Company agrees with
another party to exchange, at specified intervals, the
difference between one currency and another at a fixed exchange
rate, generally set at inception, calculated by reference to an
agreed upon principal amount. The principal amount of each
currency is exchanged at the inception and termination of the
currency swap by each party. The Company utilizes foreign
currency swaps in fair value, cash flow, and non-qualifying
hedging relationships.
In a foreign currency forward transaction, the Company agrees
with another party to deliver a specified amount of an
identified currency at a specified future date. The price is
agreed upon at the time of the contract and payment for such a
contract is made in a different currency at the specified future
date. The Company utilizes foreign currency forwards in
non-qualifying hedging relationships.
Swap spreadlocks are used by the Company to hedge invested
assets on an economic basis against the risk of changes in
credit spreads. Swap spreadlocks are forward transactions
between two parties whose underlying reference index is a
forward starting interest rate swap where the Company agrees to
pay a coupon based on a predetermined reference swap spread in
exchange for receiving a coupon based on a floating rate. The
Company has the option to cash settle with the counterparty in
lieu of maintaining the swap after the effective date. The
Company utilizes swap spreadlocks in non-qualifying hedging
relationships.
Certain credit default swaps are used by the Company to hedge
against credit-related changes in the value of its investments
and to diversify its credit risk exposure in certain portfolios.
In a credit default swap transaction, the Company agrees with
another party, at specified intervals, to pay a premium to hedge
credit risk. If a credit event, as defined by the contract,
occurs, generally the contract will require the swap to be
settled gross by the delivery of par quantities of the
referenced investment equal to the specified swap notional in
exchange for the payment of cash amounts by the counterparty
equal to the par value of the investment surrendered. The
Company utilizes credit default swaps in non-qualifying hedging
relationships.
Credit default swaps are also used to synthetically create
investments that are either more expensive to acquire or
otherwise unavailable in the cash markets. These transactions
are a combination of a derivative and a cash instrument such as
a U.S. Treasury or agency security. These credit default
swaps are not designated as hedging instruments.
The Company enters into forwards to lock in the price to be paid
for forward purchases of certain securities. The price is agreed
upon at the time of the contract and payment for the contract is
made at a specified future date. When the primary purpose of
entering into these transactions is to hedge against the risk of
changes in purchase price due to changes in credit spreads, the
Company designates these as credit forwards. The Company
utilizes credit forwards in cash flow hedging relationships.
In exchange-traded equity futures transactions, the Company
agrees to purchase or sell a specified number of contracts, the
value of which is determined by the different classes of equity
securities, and to post variation margin on a daily basis in an
amount equal to the difference in the daily market values of
those contracts. The Company enters into exchange-traded futures
with regulated futures commission merchants that are members of
the exchange. Exchange-traded equity futures are used primarily
to hedge liabilities embedded in certain variable annuity
products offered by the Company. The Company utilizes
exchange-traded equity futures in non-qualifying hedging
relationships.
Equity index options are used by the Company primarily to hedge
minimum guarantees embedded in certain variable annuity products
offered by the Company. To hedge against adverse changes in
equity indices, the Company enters into contracts to sell the
equity index within a limited time at a contracted price. The
contracts will be net settled in cash based on differentials in
the indices at the time of exercise and the strike price. In
certain instances, the Company may enter into a combination of
transactions to hedge adverse changes in equity indices within a
pre-determined range through the purchase and sale of options.
Equity index options are included in equity options in the
preceding table. The Company utilizes equity index options in
non-qualifying hedging relationships.
F-61
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Equity variance swaps are used by the Company primarily to hedge
minimum guarantees embedded in certain variable annuity products
offered by the Company. In an equity variance swap, the Company
agrees with another party to exchange amounts in the future,
based on changes in equity volatility over a defined period.
Equity variance swaps are included in variance swaps in the
preceding table. The Company utilizes equity variance swaps in
non-qualifying hedging relationships.
Hedging
The following table presents the notional amount and estimated
fair value of derivatives designated as hedging instruments by
type of hedge designation at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
Fair
|
|
|
|
|
|
Fair
|
|
|
|
Notional
|
|
|
Value
|
|
|
Notional
|
|
|
Value
|
|
Derivatives Designated as Hedging Instruments
|
|
Amount
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Amount
|
|
|
Assets
|
|
|
Liabilities
|
|
|
|
(In millions)
|
|
|
Fair Value Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency swaps
|
|
$
|
850
|
|
|
$
|
370
|
|
|
$
|
15
|
|
|
$
|
707
|
|
|
$
|
68
|
|
|
$
|
133
|
|
Interest rate swaps
|
|
|
220
|
|
|
|
11
|
|
|
|
2
|
|
|
|
138
|
|
|
|
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
1,070
|
|
|
|
381
|
|
|
|
17
|
|
|
|
845
|
|
|
|
68
|
|
|
|
161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency swaps
|
|
|
166
|
|
|
|
15
|
|
|
|
7
|
|
|
|
486
|
|
|
|
91
|
|
|
|
|
|
Credit forwards
|
|
|
90
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
256
|
|
|
|
15
|
|
|
|
10
|
|
|
|
486
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Qualifying Hedges
|
|
$
|
1,326
|
|
|
$
|
396
|
|
|
$
|
27
|
|
|
$
|
1,331
|
|
|
$
|
159
|
|
|
$
|
161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-62
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
The following table presents the notional amount and estimated
fair value of derivatives that are not designated or do not
qualify as hedging instruments by derivative type at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
Fair
|
|
|
|
|
|
Fair
|
|
Derivatives Not Designated or Not
|
|
Notional
|
|
|
Value
|
|
|
Notional
|
|
|
Value
|
|
Qualifying as Hedging Instruments
|
|
Amount
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Amount
|
|
|
Assets
|
|
|
Liabilities
|
|
|
|
(In millions)
|
|
|
Interest rate swaps
|
|
$
|
5,041
|
|
|
$
|
523
|
|
|
$
|
177
|
|
|
$
|
6,936
|
|
|
$
|
736
|
|
|
$
|
319
|
|
Interest rate floors
|
|
|
7,986
|
|
|
|
78
|
|
|
|
34
|
|
|
|
12,071
|
|
|
|
494
|
|
|
|
|
|
Interest rate caps
|
|
|
4,003
|
|
|
|
15
|
|
|
|
|
|
|
|
3,513
|
|
|
|
1
|
|
|
|
|
|
Interest rate futures
|
|
|
835
|
|
|
|
2
|
|
|
|
1
|
|
|
|
1,064
|
|
|
|
4
|
|
|
|
11
|
|
Foreign currency swaps
|
|
|
1,662
|
|
|
|
304
|
|
|
|
71
|
|
|
|
2,578
|
|
|
|
540
|
|
|
|
86
|
|
Foreign currency forwards
|
|
|
79
|
|
|
|
3
|
|
|
|
|
|
|
|
92
|
|
|
|
|
|
|
|
9
|
|
Swap spreadlocks
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
208
|
|
|
|
|
|
|
|
8
|
|
Credit default swaps
|
|
|
966
|
|
|
|
12
|
|
|
|
31
|
|
|
|
648
|
|
|
|
19
|
|
|
|
8
|
|
Equity futures
|
|
|
81
|
|
|
|
1
|
|
|
|
|
|
|
|
370
|
|
|
|
|
|
|
|
5
|
|
Equity options
|
|
|
775
|
|
|
|
112
|
|
|
|
|
|
|
|
813
|
|
|
|
248
|
|
|
|
|
|
Variance swaps
|
|
|
1,081
|
|
|
|
24
|
|
|
|
6
|
|
|
|
1,081
|
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-designated or non-qualifying derivatives
|
|
$
|
22,509
|
|
|
$
|
1,074
|
|
|
$
|
320
|
|
|
$
|
29,374
|
|
|
$
|
2,099
|
|
|
$
|
446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the settlement payments recorded in
income for the:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Qualifying hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
(1
|
)
|
|
$
|
(2
|
)
|
|
$
|
|
|
Interest credited to policyholder account balances
|
|
|
40
|
|
|
|
6
|
|
|
|
(6
|
)
|
Non-qualifying hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment gains (losses)
|
|
|
(8
|
)
|
|
|
43
|
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
31
|
|
|
$
|
47
|
|
|
$
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value Hedges
The Company designates and accounts for the following as fair
value hedges when they have met the requirements of fair value
hedging: (i) interest rate swaps to convert fixed rate
investments to floating rate investments; (ii) interest
rate swaps to convert fixed rate liabilities to floating rate
liabilities; and (iii) foreign currency swaps to hedge the
foreign currency fair value exposure of foreign currency
denominated liabilities.
F-63
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
The Company recognizes gains and losses on derivatives and the
related hedged items in fair value hedges within net investment
gains (losses). The following table represents the amount of
such net investment gains (losses) recognized for the years
ended December 31, 2009, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Investment
|
|
|
|
|
|
Ineffectiveness
|
|
|
|
|
|
Gains (Losses)
|
|
|
Net Investment Gains
|
|
|
Recognized in
|
|
Derivatives in Fair Value
|
|
Hedged Items in Fair Value
|
|
Recognized
|
|
|
(Losses) Recognized
|
|
|
Net Investment
|
|
Hedging Relationships
|
|
Hedging Relationships
|
|
for Derivatives
|
|
|
for Hedged Items
|
|
|
Gains (Losses)
|
|
|
|
|
|
(In millions)
|
|
|
For the Year Ended December 31, 2009:
|
Interest rate swaps:
|
|
Fixed maturity securities
|
|
$
|
6
|
|
|
$
|
(6
|
)
|
|
$
|
|
|
|
|
Policyholder account balances (1)
|
|
|
(8
|
)
|
|
|
4
|
|
|
|
(4
|
)
|
Foreign currency swaps:
|
|
Foreign-denominated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
policyholder account balances (2)
|
|
|
111
|
|
|
|
(117
|
)
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
109
|
|
|
$
|
(119
|
)
|
|
$
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2008
|
|
$
|
(87
|
)
|
|
$
|
86
|
|
|
$
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2007
|
|
$
|
18
|
|
|
$
|
(20
|
)
|
|
$
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Fixed rate liabilities |
|
(2) |
|
Fixed rate or floating rate liabilities |
All components of each derivatives gain or loss were
included in the assessment of hedge effectiveness.
Cash
Flow Hedges
The Company designates and accounts for the following as cash
flow hedges when they have met the requirements of cash flow
hedging: (i) foreign currency swaps to hedge the foreign
currency cash flow exposure of foreign currency denominated
investments and liabilities; and (ii) interest rate
forwards and credit forwards to lock in the price to be paid for
forward purchases of investments.
For the years ended December 31, 2009, 2008 and 2007, the
Company did not recognize any net investment gains (losses)
which represented the ineffective portion of all cash flow
hedges. All components of each derivatives gain or loss
were included in the assessment of hedge effectiveness. For the
years ended December 31, 2009, 2008 and 2007, there were no
instances in which the Company discontinued cash flow hedge
accounting because the forecasted transactions did not occur on
the anticipated date or within two months of that date. As of
December 31, 2009, the maximum length of time over which
the Company is hedging its exposure to variability in future
cash flows for forecasted transactions does not exceed one year.
There were no hedged forecasted transactions, other than the
receipt or payment of variable interest payments for the years
ended December 31, 2008 and 2007.
The following table presents the components of other
comprehensive income (loss), before income tax, related to cash
flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Other comprehensive income (loss), balance at January 1,
|
|
$
|
20
|
|
|
$
|
(13
|
)
|
|
$
|
(9
|
)
|
Gains (losses) deferred in other comprehensive income (loss) on
the effective portion of cash flow hedges
|
|
|
(44
|
)
|
|
|
9
|
|
|
|
39
|
|
Amounts reclassified to net investment gains (losses)
|
|
|
23
|
|
|
|
24
|
|
|
|
(43
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), balance at December 31,
|
|
$
|
(1
|
)
|
|
$
|
20
|
|
|
$
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-64
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
At December 31, 2009, $4 million of deferred net
losses on derivatives accumulated in other comprehensive income
(loss) is expected to be reclassified to earnings within the
next 12 months.
The following table presents the effects of derivatives in cash
flow hedging relationships on the consolidated statements of
operations and the consolidated statements of stockholders
equity for the years ended December 31, 2009, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount and Location
|
|
|
|
|
|
|
of Gains (Losses)
|
|
|
|
Amount of Gains
|
|
|
Reclassified from
|
|
|
|
(Losses) Deferred
|
|
|
Accumulated Other Comprehensive
|
|
|
|
in Accumulated Other
|
|
|
Income (Loss) into Income (Loss)
|
|
Derivatives in Cash Flow
|
|
Comprehensive Income
|
|
|
Net Investment
|
|
Hedging Relationships
|
|
(Loss) on Derivatives
|
|
|
Gains (Losses)
|
|
|
|
(In millions)
|
|
|
For the Year Ended December 31, 2009:
|
|
|
|
|
|
|
|
|
Foreign currency swaps
|
|
$
|
(58
|
)
|
|
$
|
(36
|
)
|
Interest rate forwards
|
|
|
17
|
|
|
|
13
|
|
Credit forwards
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(44
|
)
|
|
$
|
(23
|
)
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2008:
|
|
|
|
|
|
|
|
|
Foreign currency swaps
|
|
$
|
9
|
|
|
$
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9
|
|
|
$
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2007:
|
|
|
|
|
|
|
|
|
Foreign currency swaps
|
|
$
|
39
|
|
|
$
|
43
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
39
|
|
|
$
|
43
|
|
|
|
|
|
|
|
|
|
|
Non-Qualifying
Derivatives and Derivatives for Purposes Other Than
Hedging
The Company enters into the following derivatives that do not
qualify for hedge accounting or for purposes other than hedging:
(i) interest rate swaps, implied volatility swaps, caps and
floors, and interest rate futures to economically hedge its
exposure to interest rates; (ii) foreign currency forwards
and swaps to economically hedge its exposure to adverse
movements in exchange rates; (iii) credit default swaps to
economically hedge exposure to adverse movements in credit;
(iv) equity futures, equity index options, interest rate
futures and equity variance swaps to economically hedge
liabilities embedded in certain variable annuity products;
(v) swap spreadlocks to economically hedge invested assets
against the risk of changes in credit spreads; (vi) credit
default swaps to synthetically create investments;
(vii) interest rate forwards to buy and sell securities to
economically hedge its exposure to interest rates;
(viii) basis swaps to better match the cash flows of assets
and related liabilities; (ix) inflation swaps to reduce
risk generated from inflation-indexed liabilities; and
(x) equity options to economically hedge certain invested
assets against adverse changes in equity indices.
F-65
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
The following table presents the amount and location of gains
(losses) recognized in income for derivatives that are not
designated or qualifying as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
Net
|
|
|
|
Investment
|
|
|
Investment
|
|
|
|
Gains (Losses)
|
|
|
Income (1)
|
|
|
|
(In millions)
|
|
|
For the Year Ended December 31, 2009:
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
(149
|
)
|
|
$
|
|
|
Interest rate floors
|
|
|
(265
|
)
|
|
|
|
|
Interest rate caps
|
|
|
4
|
|
|
|
|
|
Interest rate futures
|
|
|
(37
|
)
|
|
|
|
|
Equity futures
|
|
|
(71
|
)
|
|
|
|
|
Foreign currency swaps
|
|
|
(3
|
)
|
|
|
|
|
Foreign currency forwards
|
|
|
(4
|
)
|
|
|
|
|
Equity options
|
|
|
(121
|
)
|
|
|
(1
|
)
|
Variance swaps
|
|
|
(40
|
)
|
|
|
|
|
Credit default swaps
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(736
|
)
|
|
$
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2008
|
|
$
|
514
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2007
|
|
$
|
112
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Changes in estimated fair value related to economic hedges of
equity method investments in joint ventures. |
Credit
Derivatives
In connection with synthetically created investment
transactions, the Company writes credit default swaps for which
it receives a premium to insure credit risk. Such credit
derivatives are included within the non-qualifying derivatives
and derivatives for purposes other than hedging table. If a
credit event occurs, as defined by the contract, generally the
contract will require the Company to pay the counterparty the
specified swap notional amount in exchange for the delivery of
par quantities of the referenced credit obligation. The
Companys maximum amount at risk, assuming the value of all
referenced credit obligations is zero, was $477 million and
$277 million at December 31, 2009 and 2008,
respectively. The Company can terminate these contracts at any
time through cash settlement with the counterparty at an amount
equal to the then current fair value of the credit default
swaps. At December 31, 2009, the Company would have
received $8 million to terminate all of these contracts,
and at December 31, 2008, the Company would have paid
$3 million to terminate all of these contracts.
F-66
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
The following table presents the estimated fair value, maximum
amount of future payments and weighted average years to maturity
of written credit default swaps at December 31, 2009 and
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Maximum
|
|
|
|
|
|
|
|
|
Maximum
|
|
|
|
|
|
|
Estimated
|
|
|
Amount
|
|
|
|
|
|
Estimated
|
|
|
Amount of
|
|
|
|
|
|
|
Fair
|
|
|
of Future
|
|
|
Weighted
|
|
|
Fair
|
|
|
Future
|
|
|
Weighted
|
|
|
|
Value of Credit
|
|
|
Payments under
|
|
|
Average
|
|
|
Value of Credit
|
|
|
Payments under
|
|
|
Average
|
|
Rating Agency Designation of Referenced
|
|
Default
|
|
|
Credit Default
|
|
|
Years to
|
|
|
Default
|
|
|
Credit Default
|
|
|
Years to
|
|
Credit Obligations (1)
|
|
Swaps
|
|
|
Swaps (2)
|
|
|
Maturity (3)
|
|
|
Swaps
|
|
|
Swaps (2)
|
|
|
Maturity (3)
|
|
|
|
(In millions)
|
|
|
Aaa/Aa/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single name credit default swaps (corporate)
|
|
$
|
1
|
|
|
$
|
25
|
|
|
|
4.0
|
|
|
$
|
|
|
|
$
|
25
|
|
|
|
5.0
|
|
Credit default swaps referencing indices
|
|
|
7
|
|
|
|
437
|
|
|
|
3.5
|
|
|
|
(2
|
)
|
|
|
222
|
|
|
|
4.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
8
|
|
|
|
462
|
|
|
|
3.5
|
|
|
|
(2
|
)
|
|
|
247
|
|
|
|
4.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Baa
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single name credit default swaps (corporate)
|
|
|
|
|
|
|
5
|
|
|
|
4.0
|
|
|
|
|
|
|
|
10
|
|
|
|
5.0
|
|
Credit default swaps referencing indices
|
|
|
|
|
|
|
10
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
|
|
|
|
15
|
|
|
|
4.7
|
|
|
|
|
|
|
|
10
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ba
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single name credit default swaps (corporate)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
20
|
|
|
|
0.7
|
|
Credit default swaps referencing indices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
20
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single name credit default swaps (corporate)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit default swaps referencing indices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Caa and lower
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single name credit default swaps (corporate)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit default swaps referencing indices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In or near default
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single name credit default swaps (corporate)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit default swaps referencing indices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8
|
|
|
$
|
477
|
|
|
|
3.5
|
|
|
$
|
(3
|
)
|
|
$
|
277
|
|
|
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The rating agency designations are based on availability and the
midpoint of the applicable ratings among Moodys Investors
Service, S&P and Fitch Ratings. If no rating is available
from a rating agency, then the MetLife rating is used. |
|
(2) |
|
Assumes the value of the referenced credit obligations is zero. |
|
(3) |
|
The weighted average years to maturity of the credit default
swaps is calculated based on weighted average notional amounts. |
Credit
Risk on Freestanding Derivatives
The Company may be exposed to credit-related losses in the event
of nonperformance by counterparties to derivative financial
instruments. Generally, the current credit exposure of the
Companys derivative contracts is
F-67
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
limited to the net positive estimated fair value of derivative
contracts at the reporting date after taking into consideration
the existence of netting agreements and any collateral received
pursuant to credit support annexes.
The Company manages its credit risk related to
over-the-counter
derivatives by entering into transactions with creditworthy
counterparties, maintaining collateral arrangements and through
the use of master agreements that provide for a single net
payment to be made by one counterparty to another at each due
date and upon termination. Because exchange-traded futures are
effected through regulated exchanges, and positions are marked
to market on a daily basis, the Company has minimal exposure to
credit-related losses in the event of nonperformance by
counterparties to such derivative instruments. See Note 4
for a description of the impact of credit risk on the valuation
of derivative instruments.
The Company enters into various collateral arrangements, which
require both the pledging and accepting of collateral in
connection with its derivative instruments. At December 31,
2009 and 2008, the Company was obligated to return cash
collateral under its control of $945 million and
$1,464 million, respectively. This unrestricted cash
collateral is included in cash and cash equivalents or in
short-term investments and the obligation to return it is
included in payables for collateral under securities loaned and
other transactions in the consolidated balance sheets. At
December 31, 2009 and 2008, the Company had also accepted
collateral consisting of various securities with a fair market
value of $88 million and $215 million, respectively,
which are held in separate custodial accounts. The Company is
permitted by contract to sell or repledge this collateral, but
at December 31, 2009, none of the collateral had been sold
or repledged.
The Companys collateral arrangements for its
over-the-counter
derivatives generally require the counterparty in a net
liability position, after considering the effect of netting
agreements, to pledge collateral when the fair value of that
counterpartys derivatives reaches a pre-determined
threshold. Certain of these arrangements also include
credit-contingent provisions that provide for a reduction of
these thresholds (on a sliding scale that converges toward zero)
in the event of downgrades in the credit ratings of the Company
and/or the
counterparty. In addition, certain of the Companys netting
agreements for derivative instruments contain provisions that
require the Company to maintain a specific investment grade
credit rating from at least one of the major credit rating
agencies. If the Companys credit ratings were to fall
below that specific investment grade credit rating, it would be
in violation of these provisions, and the counterparties to the
derivative instruments could request immediate payment or demand
immediate and ongoing full overnight collateralization on
derivative instruments that are in a net liability position
after considering the effect of netting agreements.
The following table presents the estimated fair value of the
Companys
over-the-counter
derivatives that are in a net liability position after
considering the effect of netting agreements, together with the
estimated fair value and balance sheet location of the
collateral pledged. The table also presents the incremental
collateral that the Company would be required to provide if
there was a one notch downgrade in the Companys credit
rating at the reporting date or if the Companys credit
rating sustained a downgrade to a level that triggered full
overnight collateralization or termination of the derivative
position at the reporting date. Derivatives that are not subject
to collateral agreements are not included in the scope of this
table.
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
Estimated
|
|
|
Fair Value (1) of
|
|
Fair Value of
|
|
|
Derivatives in Net
|
|
Collateral
|
|
|
Liability Position
|
|
Provided
|
|
Fair Value of Incremental Collateral
|
December 31, 2009
|
|
December 31, 2009
|
|
Provided Upon:
|
|
|
|
|
|
|
Downgrade in the
|
|
|
|
|
One Notch
|
|
Companys Credit Rating
|
|
|
|
|
Downgrade
|
|
to a Level that Triggers
|
|
|
|
|
in the
|
|
Full Overnight
|
|
|
|
|
Companys
|
|
Collateralization or
|
|
|
Fixed Maturity
|
|
Credit
|
|
Termination
|
|
|
Securities (2)
|
|
Rating
|
|
of the Derivative Position
|
(In millions)
|
|
$42
|
|
$
|
|
|
|
$
|
8
|
|
|
$
|
42
|
|
F-68
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
|
|
|
(1) |
|
After taking into consideration the existence of netting
agreements. |
|
(2) |
|
Included in fixed maturity securities in the consolidated
balance sheets. The counterparties are permitted by contract to
sell or repledge this collateral. At December 31, 2009, the
Company did not provide any cash collateral. |
Without considering the effect of netting agreements, the
estimated fair value of the Companys
over-the-counter
derivatives with credit-contingent provisions that were in a
gross liability position at December 31, 2009 was
$99 million. At December 31, 2009, the Company did not
provide any securities collateral in connection with these
derivatives. In the unlikely event that both: (i) the
Companys credit rating is downgraded to a level that
triggers full overnight collateralization or termination of all
derivative positions; and (ii) the Companys netting
agreements are deemed to be legally unenforceable, then the
additional collateral that the Company would be required to
provide to its counterparties in connection with its derivatives
in a gross liability position at December 31, 2009 would be
$99 million. This amount does not consider gross derivative
assets of $57 million for which the Company has the
contractual right of offset.
At December 31, 2008, the Company provided securities
collateral for various arrangements in connection with
derivative instruments of $7 million, which is included in
fixed maturity securities. The counterparties are permitted by
contract to sell or repledge this collateral.
The Company also has exchange-traded futures, which require the
pledging of collateral. At December 31, 2009, the Company
did not pledge any securities collateral for exchange-traded
futures. At December 31, 2008, the Company pledged
securities collateral for exchange-traded futures of
$26 million, which is included in fixed maturity
securities. The counterparties are permitted by contract to sell
or repledge this collateral. At December 31, 2009 and 2008,
the Company provided cash collateral for exchange-traded futures
of $18 million and $33 million, respectively, which is
included in premiums and other receivables.
Embedded
Derivatives
The Company has certain embedded derivatives that are required
to be separated from their host contracts and accounted for as
derivatives. These host contracts principally include: variable
annuities with guaranteed minimum benefits, including GMWBs,
GMABs and certain GMIBs; affiliated reinsurance contracts of
guaranteed minimum benefits related to GMWBs, GMABs and certain
GMIBs; and ceded reinsurance written on a funds withheld basis.
The following table presents the estimated fair value of the
Companys embedded derivatives at:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Net embedded derivatives within asset host contracts:
|
|
|
|
|
|
|
|
|
Ceded guaranteed minimum benefits
|
|
$
|
724
|
|
|
$
|
2,062
|
|
Call options in equity securities
|
|
|
(5
|
)
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
Net embedded derivatives within asset host contracts
|
|
$
|
719
|
|
|
$
|
2,026
|
|
|
|
|
|
|
|
|
|
|
Net embedded derivatives within liability host contracts:
|
|
|
|
|
|
|
|
|
Direct guaranteed minimum benefits
|
|
$
|
290
|
|
|
$
|
1,432
|
|
Other
|
|
|
(11
|
)
|
|
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
Net embedded derivatives within liability host contracts
|
|
$
|
279
|
|
|
$
|
1,405
|
|
|
|
|
|
|
|
|
|
|
F-69
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
The following table presents changes in estimated fair value
related to embedded derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
(In millions)
|
|
Net investment gains (losses) (1), (2)
|
|
$
|
(314
|
)
|
|
$
|
436
|
|
|
$
|
116
|
|
|
|
|
(1) |
|
Effective January 1, 2008, the valuation of the
Companys guaranteed minimum benefits includes an
adjustment for the Companys own credit. Included in net
investment gains (losses) for the years ended December 31,
2009 and 2008 were gains (losses) of ($567) million and
$738 million, respectively, in connection with this
adjustment. |
|
(2) |
|
See Note 8 for discussion of affiliated net investment
gains (losses) included in the table above. |
Effective January 1, 2008, the Company prospectively
adopted the provisions of fair value measurement guidance.
Considerable judgment is often required in interpreting market
data to develop estimates of fair value and the use of different
assumptions or valuation methodologies may have a material
effect on the estimated fair value amounts.
F-70
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Fair
Value of Financial Instruments
Amounts related to the Companys financial instruments are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
Notional
|
|
Carrying
|
|
Fair
|
December 31, 2009
|
|
Amount
|
|
Value
|
|
Value
|
|
|
(In millions)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
|
|
|
|
$
|
41,275
|
|
|
$
|
41,275
|
|
Equity securities
|
|
|
|
|
|
$
|
459
|
|
|
$
|
459
|
|
Trading securities
|
|
|
|
|
|
$
|
938
|
|
|
$
|
938
|
|
Mortgage loans
|
|
|
|
|
|
$
|
4,748
|
|
|
$
|
4,345
|
|
Policy loans
|
|
|
|
|
|
$
|
1,189
|
|
|
$
|
1,243
|
|
Real estate joint ventures (1)
|
|
|
|
|
|
$
|
64
|
|
|
$
|
62
|
|
Other limited partnership interests (1)
|
|
|
|
|
|
$
|
128
|
|
|
$
|
151
|
|
Short-term investments
|
|
|
|
|
|
$
|
1,775
|
|
|
$
|
1,775
|
|
Other invested assets (2)
|
|
$
|
16,580
|
|
|
$
|
1,470
|
|
|
$
|
1,470
|
|
Cash and cash equivalents
|
|
|
|
|
|
$
|
2,574
|
|
|
$
|
2,574
|
|
Accrued investment income
|
|
|
|
|
|
$
|
516
|
|
|
$
|
516
|
|
Premiums and other receivables (1)
|
|
|
|
|
|
$
|
4,582
|
|
|
$
|
4,032
|
|
Separate account assets
|
|
|
|
|
|
$
|
49,449
|
|
|
$
|
49,449
|
|
Net embedded derivatives within asset host contracts (3)
|
|
|
|
|
|
$
|
724
|
|
|
$
|
724
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder account balances (1)
|
|
|
|
|
|
$
|
24,591
|
|
|
$
|
24,233
|
|
Payables for collateral under securities loaned and other
transactions
|
|
|
|
|
|
$
|
7,169
|
|
|
$
|
7,169
|
|
Long-term debt affiliated
|
|
|
|
|
|
$
|
950
|
|
|
$
|
1,003
|
|
Other liabilities: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
7,255
|
|
|
$
|
347
|
|
|
$
|
347
|
|
Other
|
|
|
|
|
|
$
|
188
|
|
|
$
|
188
|
|
Separate account liabilities (1)
|
|
|
|
|
|
$
|
1,367
|
|
|
$
|
1,367
|
|
Net embedded derivatives within liability host contracts (3)
|
|
|
|
|
|
$
|
279
|
|
|
$
|
279
|
|
Commitments (4)
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loan commitments
|
|
$
|
131
|
|
|
$
|
|
|
|
$
|
(5
|
)
|
Commitments to fund bank credit facilities and private corporate
bond investments
|
|
$
|
445
|
|
|
$
|
|
|
|
$
|
(29
|
)
|
F-71
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
Notional
|
|
Carrying
|
|
Fair
|
December 31, 2008
|
|
Amount
|
|
Value
|
|
Value
|
|
|
(In millions)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
|
|
|
|
$
|
34,846
|
|
|
$
|
34,846
|
|
Equity securities
|
|
|
|
|
|
$
|
474
|
|
|
$
|
474
|
|
Trading securities
|
|
|
|
|
|
$
|
232
|
|
|
$
|
232
|
|
Mortgage loans
|
|
|
|
|
|
$
|
4,447
|
|
|
$
|
4,252
|
|
Policy loans
|
|
|
|
|
|
$
|
1,192
|
|
|
$
|
1,296
|
|
Real estate joint ventures (1)
|
|
|
|
|
|
$
|
92
|
|
|
$
|
103
|
|
Other limited partnership interests (1)
|
|
|
|
|
|
$
|
189
|
|
|
$
|
247
|
|
Short-term investments
|
|
|
|
|
|
$
|
3,127
|
|
|
$
|
3,127
|
|
Other invested assets (2)
|
|
$
|
21,395
|
|
|
$
|
2,258
|
|
|
$
|
2,258
|
|
Cash and cash equivalents
|
|
|
|
|
|
$
|
5,656
|
|
|
$
|
5,656
|
|
Accrued investment income
|
|
|
|
|
|
$
|
487
|
|
|
$
|
487
|
|
Premiums and other receivables (1)
|
|
|
|
|
|
$
|
3,171
|
|
|
$
|
2,700
|
|
Separate account assets
|
|
|
|
|
|
$
|
35,892
|
|
|
$
|
35,892
|
|
Net embedded derivatives within asset host contracts (3)
|
|
|
|
|
|
$
|
2,062
|
|
|
$
|
2,062
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder account balances (1)
|
|
|
|
|
|
$
|
26,316
|
|
|
$
|
23,937
|
|
Payables for collateral under securities loaned and other
transactions
|
|
|
|
|
|
$
|
7,871
|
|
|
$
|
7,871
|
|
Short-term debt
|
|
|
|
|
|
$
|
300
|
|
|
$
|
300
|
|
Long-term debt affiliated
|
|
|
|
|
|
$
|
950
|
|
|
$
|
671
|
|
Other liabilities: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
9,310
|
|
|
$
|
607
|
|
|
$
|
607
|
|
Other
|
|
|
|
|
|
$
|
158
|
|
|
$
|
158
|
|
Separate account liabilities (1)
|
|
|
|
|
|
$
|
1,181
|
|
|
$
|
1,181
|
|
Net embedded derivatives within liability host contracts (3)
|
|
|
|
|
|
$
|
1,405
|
|
|
$
|
1,405
|
|
Commitments (4)
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loan commitments
|
|
$
|
231
|
|
|
$
|
|
|
|
$
|
(15
|
)
|
Commitments to fund bank credit facilities and private corporate
bond investments
|
|
$
|
332
|
|
|
$
|
|
|
|
$
|
(101
|
)
|
|
|
|
(1) |
|
Carrying values presented herein differ from those presented in
the consolidated balance sheets because certain items within the
respective financial statement caption are not considered
financial instruments. Financial statement captions excluded
from the table above are not considered financial instruments. |
|
(2) |
|
Other invested assets is comprised of freestanding derivatives
with positive estimated fair values. |
|
(3) |
|
Net embedded derivatives within asset host contracts are
presented within premiums and other receivables. Net embedded
derivatives within liability host contracts are presented within
policyholder account balances and other liabilities. At
December 31, 2009 and 2008, equity securities also included
embedded derivatives of ($5) million and
($36) million, respectively. |
|
(4) |
|
Commitments are off-balance sheet obligations. Negative
estimated fair values represent off-balance sheet liabilities. |
F-72
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
The methods and assumptions used to estimate the fair value of
financial instruments are summarized as follows:
Fixed Maturity Securities, Equity Securities and Trading
Securities When available, the estimated fair
value of the Companys fixed maturity, equity and trading
securities are based on quoted prices in active markets that are
readily and regularly obtainable. Generally, these are the most
liquid of the Companys securities holdings and valuation
of these securities does not involve management judgment.
When quoted prices in active markets are not available, the
determination of estimated fair value is based on market
standard valuation methodologies. The market standard valuation
methodologies utilized include: discounted cash flow
methodologies, matrix pricing or other similar techniques. The
inputs in applying these market standard valuation methodologies
include, but are not limited to: interest rates, credit standing
of the issuer or counterparty, industry sector of the issuer,
coupon rate, call provisions, sinking fund requirements,
maturity and managements assumptions regarding estimated
duration, liquidity and estimated future cash flows.
Accordingly, the estimated fair values are based on available
market information and managements judgments about
financial instruments.
The significant inputs to the market standard valuation
methodologies for certain types of securities with reasonable
levels of price transparency are inputs that are observable in
the market or can be derived principally from or corroborated by
observable market data. Such observable inputs include
benchmarking prices for similar assets in active markets, quoted
prices in markets that are not active and observable yields and
spreads in the market.
When observable inputs are not available, the market standard
valuation methodologies for determining the estimated fair value
of certain types of securities that trade infrequently, and
therefore have little or no price transparency, rely on inputs
that are significant to the estimated fair value that are not
observable in the market or cannot be derived principally from
or corroborated by observable market data. These unobservable
inputs can be based in large part on management judgment or
estimation, and cannot be supported by reference to market
activity. Even though unobservable, these inputs are assumed to
be consistent with what other market participants would use when
pricing such securities and are considered appropriate given the
circumstances.
The use of different methodologies, assumptions and inputs may
have a material effect on the estimated fair values of the
Companys securities holdings.
Mortgage Loans The Company originates
mortgage loans principally for investment purposes. These loans
are primarily carried at amortized cost. The estimated fair
value of mortgage loans is primarily determined by estimating
expected future cash flows and discounting them using current
interest rates for similar mortgage loans with similar credit
risk.
Policy Loans For policy loans with fixed
interest rates, estimated fair values are determined using a
discounted cash flow model applied to groups of similar policy
loans determined by the nature of the underlying insurance
liabilities. Cash flow estimates are developed applying a
weighted-average interest rate to the outstanding principal
balance of the respective group of policy loans and an estimated
average maturity determined through experience studies of the
past performance of policyholder repayment behavior for similar
loans. These cash flows are discounted using current risk-free
interest rates with no adjustment for borrower credit risk as
these loans are fully collateralized by the cash surrender value
of the underlying insurance policy. The estimated fair value for
policy loans with variable interest rates approximates carrying
value due to the absence of borrower credit risk and the short
time period between interest rate resets, which presents minimal
risk of a material change in estimated fair value due to changes
in market interest rates.
Real Estate Joint Ventures and Other Limited Partnership
Interests Real estate joint ventures and other
limited partnership interests included in the preceding tables
consist of those investments accounted for using the cost
method. The remaining carrying value recognized in the
consolidated balance sheets represents investments in
F-73
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
real estate or real estate joint ventures and other limited
partnership interests accounted for using the equity method,
which do not meet the definition of financial instruments for
which fair value is required to be disclosed.
The estimated fair values for other limited partnership
interests and real estate joint ventures accounted for under the
cost method are generally based on the Companys share of
the NAV as provided in the financial statements of the
investees. In certain circumstances, management may adjust the
NAV by a premium or discount when it has sufficient evidence to
support applying such adjustments.
Short-term Investments Certain short-term
investments do not qualify as securities and are recognized at
amortized cost in the consolidated balance sheets. For these
instruments, the Company believes that there is minimal risk of
material changes in interest rates or credit of the issuer such
that estimated fair value approximates carrying value. In light
of recent market conditions, short-term investments have been
monitored to ensure there is sufficient demand and maintenance
of issuer credit quality and the Company has determined
additional adjustment is not required. Short-term investments
that meet the definition of a security are recognized at
estimated fair value in the consolidated balance sheets in the
same manner described above for similar instruments that are
classified within captions of other major investment classes.
Other Invested Assets Other invested assets
in the consolidated balance sheets are principally comprised of
freestanding derivatives with positive estimated fair values,
investments in tax credit partnerships and joint ventures.
Investments in tax credit partnerships and joint venture
investments, which are accounted for under the equity method or
under the effective yield method, are not financial instruments
subject to fair value disclosure. Accordingly, they have been
excluded from the preceding table.
The estimated fair value of derivatives with
positive and negative estimated fair values is
described in the section labeled Derivatives which
follows.
Cash and Cash Equivalents Due to the
short-term maturities of cash and cash equivalents, the Company
believes there is minimal risk of material changes in interest
rates or credit of the issuer such that estimated fair value
generally approximates carrying value. In light of recent market
conditions, cash and cash equivalent instruments have been
monitored to ensure there is sufficient demand and maintenance
of issuer credit quality, or sufficient solvency in the case of
depository institutions, and the Company has determined
additional adjustment is not required.
Accrued Investment Income Due to the short
term until settlement of accrued investment income, the Company
believes there is minimal risk of material changes in interest
rates or credit of the issuer such that estimated fair value
approximates carrying value. In light of recent market
conditions, the Company has monitored the credit quality of the
issuers and has determined additional adjustment is not required.
Premiums and Other Receivables Premiums and
other receivables in the consolidated balance sheets are
principally comprised of premiums due and unpaid for insurance
contracts, amounts recoverable under reinsurance contracts,
amounts on deposit with financial institutions to facilitate
daily settlements related to certain derivative positions,
amounts receivable for securities sold but not yet settled, fees
and general operating receivables and embedded derivatives
related to the ceded reinsurance of certain variable annuity
guarantees.
Premiums receivable and those amounts recoverable under
reinsurance treaties determined to transfer sufficient risk are
not financial instruments subject to disclosure and thus have
been excluded from the amounts presented in the preceding table.
Amounts recoverable under ceded reinsurance contracts, which the
Company has determined do not transfer sufficient risk such that
they are accounted for using the deposit method of accounting,
have been included in the preceding table with the estimated
fair value determined as the present value of expected future
cash flows under the related contracts discounted using an
interest rate determined to reflect the appropriate credit
standing of the assuming counterparty.
F-74
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
The amounts on deposit for derivative settlements essentially
represent the equivalent of demand deposit balances and amounts
due for securities sold are generally received over short
periods such that the estimated fair value approximates carrying
value. In light of recent market conditions, the Company has
monitored the solvency position of the financial institutions
and has determined additional adjustments are not required.
Embedded derivatives recognized in connection with ceded
reinsurance of certain variable annuity guarantees are included
in this caption in the consolidated financial statements but
excluded from this caption in the preceding table as they are
separately presented. The estimated fair value of these embedded
derivatives is described in the section labeled Embedded
Derivatives within Asset and Liability Host Contracts
which follows.
Separate Account Assets Separate account
assets are carried at estimated fair value and reported as a
summarized total on the consolidated balance sheets. The
estimated fair value of separate account assets are based on the
estimated fair value of the underlying assets owned by the
separate account. Assets within the Companys separate
accounts include: mutual funds, fixed maturity securities,
equity securities, other limited partnership interests,
short-term investments and cash and cash equivalents. The
estimated fair value of mutual funds is based upon quoted prices
or reported NAVs provided by the fund manager. Accounting
guidance effective for December 31, 2009 clarified how
investments that use NAV as a practical expedient for their fair
value measurement are classified in the fair value hierarchy. As
a result, the Company has included certain mutual funds in the
amount of $48.9 billion in Level 2 of the fair value
hierarchy which were previously included in Level 1. The
estimated fair values of fixed maturity securities, equity
securities, short-term investments and cash and cash equivalents
held by separate accounts are determined on a basis consistent
with the methodologies described herein for similar financial
instruments held within the general account. Other limited
partnership interests are valued giving consideration to the
value of the underlying holdings of the partnerships and by
applying a premium or discount, if appropriate, for factors such
as liquidity, bid/ask spreads, the performance record of the
fund manager or other relevant variables which may impact the
exit value of the particular partnership interest.
Policyholder Account Balances Policyholder
account balances in the tables above include investment
contracts. Embedded derivatives on investment contracts and
certain variable annuity guarantees accounted for as embedded
derivatives are included in this caption in the consolidated
financial statements but excluded from this caption in the
tables above as they are separately presented therein. The
remaining difference between the amounts reflected as
policyholder account balances in the preceding table and those
recognized in the consolidated balance sheets represents those
amounts due under contracts that satisfy the definition of
insurance contracts and are not considered financial instruments.
The investment contracts primarily include certain funding
agreements, fixed deferred annuities, modified guaranteed
annuities, fixed term payout annuities, and total control
accounts. The fair values for these investment contracts are
estimated by discounting best estimate future cash flows using
current market risk-free interest rates and adding a spread for
the Companys own credit which is determined using publicly
available information relating to the Companys debt, as
well as its claims paying ability.
Short-term and Affiliated Long-term Debt The
estimated fair value for short-term debt approximates carrying
value due to the short-term nature of these obligations. The
estimated fair value of affiliated long-term debt is generally
determined by discounting expected future cash flows using
market rates currently available for debt with similar terms,
remaining maturities and reflecting the credit risk of the
Company including inputs, when available, from actively traded
debt of other companies with similar types of borrowing
arrangements.
Payables for Collateral Under Securities Loaned and Other
Transactions The estimated fair value for
payables for collateral under securities loaned and other
transactions approximates carrying value. The related agreements
to loan securities are short-term in nature such that the
Company believes there is limited risk of a material change in
market interest rates. Additionally, because borrowers are
cross-collateralized by the borrowed securities, the Company
believes no additional consideration for changes in its own
credit are necessary.
F-75
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Other Liabilities Other liabilities in the
consolidated balance sheets are principally comprised of
freestanding derivatives with negative estimated fair values;
taxes payable; obligations for employee-related benefits;
interest due on the Companys debt obligations; amounts due
for securities purchased but not yet settled; funds withheld
under ceded reinsurance contracts and, when applicable, their
associated embedded derivatives; and general operating accruals
and payables.
The estimated fair value of derivatives with
positive and negative estimated fair values and
embedded derivatives within asset and liability host contracts
are described in the sections labeled Derivatives
and Embedded Derivatives within Asset and Liability Host
Contracts which follow.
The remaining other amounts included in the table above reflect
those other liabilities that satisfy the definition of financial
instruments subject to disclosure. These items consist primarily
of interest payable; amounts due for securities purchased but
not yet settled; and funds withheld under reinsurance contracts
recognized using the deposit method of accounting. The Company
evaluates the specific terms, facts and circumstances of each
instrument to determine the appropriate estimated fair values,
which were not materially different from the recognized carrying
values.
Separate Account Liabilities Separate account
liabilities included in the table above represent those balances
due to policyholders under contracts that are classified as
investment contracts. The difference between the separate
account liabilities reflected above and the amounts presented in
the consolidated balance sheets represents those contracts
classified as insurance contracts which do not satisfy the
criteria of financial instruments for which estimated fair value
is to be disclosed.
Separate account liabilities classified as investment contracts
primarily represent variable annuities with no significant
mortality risk to the Company such that the death benefit is
equal to the account balance and certain contracts that provide
for benefit funding.
Separate account liabilities, whether related to investment or
insurance contracts, are recognized in the consolidated balance
sheets at an equivalent summary total of the separate account
assets. Separate account assets, which equal net deposits, net
investment income and realized and unrealized capital gains and
losses, are fully offset by corresponding amounts credited to
the contractholders liability which is reflected in
separate account liabilities. Since separate account liabilities
are fully funded by cash flows from the separate account assets
which are recognized at estimated fair value as described above,
the Company believes the value of those assets approximates the
estimated fair value of the related separate account liabilities.
Derivatives The estimated fair value of
derivatives is determined through the use of quoted market
prices for exchange-traded derivatives or through the use of
pricing models for
over-the-counter
derivatives. The determination of estimated fair 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
F-76
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
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.
The credit risk of both the counterparty and the Company are
considered in determining the estimated fair value for all
over-the-counter
derivatives, and any potential credit adjustment is based on the
net exposure by counterparty after taking into account the
effects of netting agreements and collateral arrangements. The
Company values its derivative positions using the standard swap
curve which includes a spread over the risk free rate. This
credit spread 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 Companys 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.
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 Companys
derivatives and could materially affect net income.
Embedded Derivatives within Asset and Liability Host
Contracts Embedded derivatives principally
include certain direct, assumed and ceded variable annuity
guarantees, and embedded derivatives related to funds withheld
on ceded reinsurance. Embedded derivatives are recorded in the
financial statements at estimated fair value with changes in
estimated fair value reported in net income.
The Company issues certain variable annuity products with
guaranteed minimum benefit guarantees. GMWB, GMAB and certain
GMIB are embedded derivatives, which are measured at estimated
fair value separately from the host variable annuity contract,
with changes in estimated fair value reported in net investment
gains (losses). These embedded derivatives are classified within
policyholder account balances. The fair value for these
guarantees are estimated using the present value of future
benefits minus the present value of future fees using actuarial
and capital market assumptions related to the projected cash
flows over the expected lives of the contracts. A risk neutral
valuation methodology is used under which the cash flows from
the guarantees are projected under multiple capital market
scenarios using observable risk free rates. The valuation of
these guarantees includes an adjustment for the Companys
own credit and risk margins for non-capital market inputs. The
Companys own credit adjustment is determined taking into
consideration publicly available information relating to the
Companys debt, as well as its claims paying ability. Risk
margins are established to capture the non-capital market risks
of the instrument which represent the additional compensation a
market participant would require to assume the risks related to
the uncertainties of such actuarial assumptions as
annuitization, premium persistency, partial withdrawal and
surrenders. The establishment of risk margins requires the use
of significant management judgment. These guarantees may be more
costly than expected in volatile or declining equity markets.
Market conditions including, but not limited to, changes in
interest rates, equity indices, market volatility and foreign
currency exchange rates; changes in the Companys own
credit standing; and variations in actuarial assumptions
regarding policyholder behavior and risk margins related to
non-capital market inputs may result in significant fluctuations
in the estimated fair value of the guarantees that could
materially affect net income.
The Company ceded the risk associated with certain of the GMIB,
GMAB and GMWB guarantees described in the preceding paragraph to
an affiliated reinsurance company. These reinsurance contracts
contain embedded derivatives which are included in premiums and
other receivables with changes in estimated fair value reported
in net investment gains (losses). The value of the embedded
derivatives on the ceded risk is determined using a methodology
consistent with that described previously for the guarantees
directly written by the Company.
F-77
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
In addition to ceding risks associated with guarantees that are
accounted for as embedded derivatives, the Company also cedes,
to the same affiliated reinsurance company, certain directly
written GMIB guarantees that are accounted for as insurance
(i.e. not as embedded derivatives) but where the reinsurance
contract contains an embedded derivative. These embedded
derivatives are included in premiums and other receivables with
changes in estimated fair value reported in net investment gains
(losses). The value of the embedded derivatives on these ceded
risks is determined using a methodology consistent with that
described previously for the guarantees directly written by the
Company. Because the direct guarantee is not accounted for at
fair value, significant fluctuations in net income may occur as
the change in fair value of the embedded derivative on the ceded
risk is being recorded in net income without a corresponding and
offsetting change in fair value of the direct guarantee.
The estimated fair value of the embedded derivatives within
funds withheld related to certain ceded reinsurance is
determined based on the change in estimated fair value of the
underlying assets held by the Company in a reference portfolio
backing the funds withheld liability. The estimated fair value
of the underlying assets is determined as described above in
Fixed Maturity Securities, Equity Securities and Trading
Securities and Short-term Investments. The
estimated fair value of these embedded derivatives is included,
along with their funds withheld hosts, in other liabilities with
changes in estimated fair value recorded in net investment gains
(losses). Changes in the credit spreads on the underlying
assets, interest rates and market volatility may result in
significant fluctuations in the estimated fair value of these
embedded derivatives that could materially affect net income.
Mortgage Loan Commitments and Commitments to Fund Bank
Credit Facilities and Private Corporate Bond Investments
The estimated fair values for mortgage loan
commitments and commitments to fund bank credit facilities and
private corporate bond investments reflected in the above table
represent the difference between the discounted expected future
cash flows using interest rates that incorporate current credit
risk for similar instruments on the reporting date and the
principal amounts of the original commitments.
F-78
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Assets
and Liabilities Measured at Fair Value
Recurring
Fair Value Measurements
The assets and liabilities measured at estimated fair value on a
recurring basis are determined as described in the preceding
section. These estimated fair values and their corresponding
fair value hierarchy are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
|
|
|
Significant
|
|
|
Total
|
|
|
|
Identical Assets
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
Estimated
|
|
|
|
and Liabilities
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
|
Fair
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Value
|
|
|
|
(In millions)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
|
|
|
$
|
13,793
|
|
|
$
|
1,605
|
|
|
$
|
15,398
|
|
Foreign corporate securities
|
|
|
|
|
|
|
6,344
|
|
|
|
994
|
|
|
|
7,338
|
|
U.S. Treasury and agency securities
|
|
|
3,972
|
|
|
|
2,252
|
|
|
|
33
|
|
|
|
6,257
|
|
RMBS
|
|
|
|
|
|
|
5,827
|
|
|
|
25
|
|
|
|
5,852
|
|
CMBS
|
|
|
|
|
|
|
2,572
|
|
|
|
45
|
|
|
|
2,617
|
|
ABS
|
|
|
|
|
|
|
1,452
|
|
|
|
537
|
|
|
|
1,989
|
|
State and political subdivision securities
|
|
|
|
|
|
|
1,147
|
|
|
|
32
|
|
|
|
1,179
|
|
Foreign government securities
|
|
|
|
|
|
|
629
|
|
|
|
16
|
|
|
|
645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
|
3,972
|
|
|
|
34,016
|
|
|
|
3,287
|
|
|
|
41,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock
|
|
|
|
|
|
|
48
|
|
|
|
258
|
|
|
|
306
|
|
Common stock
|
|
|
72
|
|
|
|
70
|
|
|
|
11
|
|
|
|
153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
|
72
|
|
|
|
118
|
|
|
|
269
|
|
|
|
459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
|
931
|
|
|
|
7
|
|
|
|
|
|
|
|
938
|
|
Short-term investments (1)
|
|
|
1,057
|
|
|
|
703
|
|
|
|
8
|
|
|
|
1,768
|
|
Derivative assets (2)
|
|
|
3
|
|
|
|
1,410
|
|
|
|
57
|
|
|
|
1,470
|
|
Net embedded derivatives within asset host contracts (3)
|
|
|
|
|
|
|
|
|
|
|
724
|
|
|
|
724
|
|
Separate account assets (4)
|
|
|
69
|
|
|
|
49,227
|
|
|
|
153
|
|
|
|
49,449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
6,104
|
|
|
$
|
85,481
|
|
|
$
|
4,498
|
|
|
$
|
96,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities (2)
|
|
$
|
1
|
|
|
$
|
336
|
|
|
$
|
10
|
|
|
$
|
347
|
|
Net embedded derivatives within liability host contracts (3)
|
|
|
|
|
|
|
|
|
|
|
279
|
|
|
|
279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
1
|
|
|
$
|
336
|
|
|
$
|
289
|
|
|
$
|
626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-79
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
|
|
|
Significant
|
|
|
Total
|
|
|
|
Identical Assets
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
Estimated
|
|
|
|
and Liabilities
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
|
Fair
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Value
|
|
|
|
(In millions)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
|
|
|
$
|
11,830
|
|
|
$
|
1,401
|
|
|
$
|
13,231
|
|
Foreign corporate securities
|
|
|
|
|
|
|
4,136
|
|
|
|
926
|
|
|
|
5,062
|
|
U.S. Treasury and agency securities
|
|
|
2,107
|
|
|
|
2,190
|
|
|
|
36
|
|
|
|
4,333
|
|
RMBS
|
|
|
|
|
|
|
7,031
|
|
|
|
62
|
|
|
|
7,093
|
|
CMBS
|
|
|
|
|
|
|
2,158
|
|
|
|
116
|
|
|
|
2,274
|
|
ABS
|
|
|
|
|
|
|
1,169
|
|
|
|
558
|
|
|
|
1,727
|
|
State and political subdivision securities
|
|
|
|
|
|
|
633
|
|
|
|
24
|
|
|
|
657
|
|
Foreign government securities
|
|
|
|
|
|
|
459
|
|
|
|
10
|
|
|
|
469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
|
2,107
|
|
|
|
29,606
|
|
|
|
3,133
|
|
|
|
34,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock
|
|
|
|
|
|
|
38
|
|
|
|
318
|
|
|
|
356
|
|
Common stock
|
|
|
40
|
|
|
|
70
|
|
|
|
8
|
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
|
40
|
|
|
|
108
|
|
|
|
326
|
|
|
|
474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
|
176
|
|
|
|
6
|
|
|
|
50
|
|
|
|
232
|
|
Short-term investments (1)
|
|
|
1,171
|
|
|
|
1,952
|
|
|
|
|
|
|
|
3,123
|
|
Derivative assets (2)
|
|
|
4
|
|
|
|
1,928
|
|
|
|
326
|
|
|
|
2,258
|
|
Net embedded derivatives within asset host contracts (3)
|
|
|
|
|
|
|
|
|
|
|
2,062
|
|
|
|
2,062
|
|
Separate account assets (4)
|
|
|
35,567
|
|
|
|
166
|
|
|
|
159
|
|
|
|
35,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
39,065
|
|
|
$
|
33,766
|
|
|
$
|
6,056
|
|
|
$
|
78,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities (2)
|
|
$
|
16
|
|
|
$
|
574
|
|
|
$
|
17
|
|
|
$
|
607
|
|
Net embedded derivatives within liability host contracts (3)
|
|
|
|
|
|
|
|
|
|
|
1,405
|
|
|
|
1,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
16
|
|
|
$
|
574
|
|
|
$
|
1,422
|
|
|
$
|
2,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Short-term investments as presented in the tables above differ
from the amounts presented in the consolidated balance sheets
because certain short-term investments are not measured at
estimated fair value (e.g. time deposits, etc.). |
|
(2) |
|
Derivative assets are presented within other invested assets and
derivative liabilities are presented within other liabilities.
The amounts are presented gross in the tables above to reflect
the presentation in the consolidated balance sheets, but are
presented net for purposes of the rollforward in the following
tables. |
|
(3) |
|
Net embedded derivatives within asset host contracts are
presented within premiums and other receivables. Net embedded
derivatives within liability host contracts are presented within
policyholder account balances and other liabilities. At
December 31, 2009 and 2008, equity securities also included
embedded derivatives of ($5) million and
($36) million, respectively. |
|
(4) |
|
Separate account assets are measured at estimated fair value.
Investment performance related to separate account assets is
fully offset by corresponding amounts credited to
contractholders whose liability is reflected within separate
account liabilities. Separate account liabilities are set equal
to the estimated fair value of separate account assets. |
F-80
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
The Company has categorized its assets and liabilities into the
three-level fair value hierarchy based upon the priority of the
inputs to the respective valuation technique. The following
summarizes the types of assets and liabilities included within
the three-level fair value hierarchy presented in the preceding
table.
|
|
|
|
Level 1
|
This category includes certain U.S. Treasury and agency
fixed maturity securities; exchange-traded common stock; trading
securities and certain short-term money market securities. As it
relates to derivatives, this level includes exchange-traded
equity and interest rate futures. Separate account assets
classified within this level are similar in nature to those
classified in this level for the general account.
|
|
|
Level 2
|
This category includes fixed maturity and equity securities
priced principally by independent pricing services using
observable inputs. Fixed maturity securities classified as
Level 2 include most U.S. Treasury and agency
securities, as well as the majority of U.S. and foreign
corporate securities, RMBS, CMBS, state and political
subdivision securities, foreign government securities, and ABS.
Equity securities classified as Level 2 securities consist
principally of common stock and non-redeemable preferred stock
where market quotes are available but are not considered
actively traded. Short-term investments and trading securities
included within Level 2 are of a similar nature to these
fixed maturity and equity securities. As it relates to
derivatives, this level includes all types of derivative
instruments utilized by the Company with the exception of
exchange-traded futures included within Level 1 and those
derivative instruments with unobservable inputs as described in
Level 3. Separate account assets classified within this
level are generally similar to those classified within this
level for the general account, with the exception of certain
mutual funds without readily determinable fair values given
prices are not published publicly.
|
|
|
Level 3
|
This category includes fixed maturity securities priced
principally through independent broker quotations or market
standard valuation methodologies using inputs that are not
market observable or cannot be derived principally from or
corroborated by observable market data. This level primarily
consists of less liquid fixed maturity securities with very
limited trading activity or where less price transparency exists
around the inputs to the valuation methodologies including:
U.S. and foreign corporate securities including
below investment grade private placements; CMBS; and
ABS including all of those supported by
sub-prime
mortgage loans. Equity securities classified as Level 3
securities consist principally of non-redeemable preferred stock
and common stock of companies that are privately held or of
companies for which there has been very limited trading activity
or where less price transparency exists around the inputs to the
valuation. Short-term investments and trading securities
included within Level 3 are of a similar nature to these
fixed maturity and equity securities. As it relates to
derivatives, this category includes: swap spreadlocks with
maturities which extend beyond observable periods; equity
variance swaps with unobservable volatility inputs or that are
priced via independent broker quotations; foreign currency swaps
priced through independent broker quotations; interest rate
swaps with maturities which extend beyond the observable portion
of the yield curve; credit default swaps based upon baskets of
credits having unobservable credit correlations; equity options
with unobservable volatility inputs; implied volatility swaps
with unobservable volatility inputs; credit forwards having
unobservable repurchase rates and interest rate caps referencing
unobservable yield curves
and/or which
include liquidity and volatility adjustments. Separate account
assets classified within this level are generally similar to
those classified within this level for the general account;
however, they also include other limited partnership interests.
Embedded derivatives classified within this level include
embedded derivatives associated with certain variable annuity
guarantees and embedded derivatives related to funds withheld on
ceded reinsurance.
|
F-81
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
A rollforward of all assets and liabilities measured at
estimated fair value on a recurring basis using significant
unobservable (Level 3) inputs for the years ended
December 31, 2009 and 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs
(Level 3) (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Realized/Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (Losses) included in:
|
|
|
Purchases,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Sales,
|
|
|
Transfer In
|
|
|
|
|
|
|
Balance,
|
|
|
Impact of
|
|
|
Balance,
|
|
|
|
|
|
Comprehensive
|
|
|
Issuances and
|
|
|
and/or Out
|
|
|
Balance,
|
|
|
|
December 31, 2007
|
|
|
Adoption (2)
|
|
|
January 1,
|
|
|
Earnings (3, 4)
|
|
|
Income (Loss)
|
|
|
Settlements (5)
|
|
|
of Level 3 (6)
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
|
|
|
|
|
|
|
|
$
|
1,401
|
|
|
$
|
(114
|
)
|
|
$
|
192
|
|
|
$
|
(172
|
)
|
|
$
|
298
|
|
|
$
|
1,605
|
|
Foreign corporate securities
|
|
|
|
|
|
|
|
|
|
|
926
|
|
|
|
(95
|
)
|
|
|
334
|
|
|
|
(47
|
)
|
|
|
(124
|
)
|
|
|
994
|
|
U.S. Treasury and agency securities
|
|
|
|
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
33
|
|
RMBS
|
|
|
|
|
|
|
|
|
|
|
62
|
|
|
|
(4
|
)
|
|
|
5
|
|
|
|
(9
|
)
|
|
|
(29
|
)
|
|
|
25
|
|
CMBS
|
|
|
|
|
|
|
|
|
|
|
116
|
|
|
|
(42
|
)
|
|
|
50
|
|
|
|
(7
|
)
|
|
|
(72
|
)
|
|
|
45
|
|
ABS
|
|
|
|
|
|
|
|
|
|
|
558
|
|
|
|
(51
|
)
|
|
|
171
|
|
|
|
(138
|
)
|
|
|
(3
|
)
|
|
|
537
|
|
State and political subdivision securities
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
6
|
|
|
|
2
|
|
|
|
|
|
|
|
32
|
|
Foreign government securities
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
6
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
|
|
|
|
|
|
|
|
$
|
3,133
|
|
|
$
|
(306
|
)
|
|
$
|
758
|
|
|
$
|
(374
|
)
|
|
$
|
76
|
|
|
$
|
3,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock
|
|
|
|
|
|
|
|
|
|
$
|
318
|
|
|
$
|
(101
|
)
|
|
$
|
113
|
|
|
$
|
(66
|
)
|
|
$
|
(6
|
)
|
|
$
|
258
|
|
Common stock
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
4
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
|
|
|
|
|
|
|
|
$
|
326
|
|
|
$
|
(101
|
)
|
|
$
|
112
|
|
|
$
|
(62
|
)
|
|
$
|
(6
|
)
|
|
$
|
269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
|
|
|
|
|
|
|
|
$
|
50
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(50
|
)
|
|
$
|
|
|
|
$
|
|
|
Short-term investments
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
8
|
|
|
$
|
|
|
|
$
|
8
|
|
Net derivatives (7)
|
|
|
|
|
|
|
|
|
|
$
|
309
|
|
|
$
|
(40
|
)
|
|
$
|
(3
|
)
|
|
$
|
(15
|
)
|
|
$
|
(204
|
)
|
|
$
|
47
|
|
Separate account assets (8)
|
|
|
|
|
|
|
|
|
|
$
|
159
|
|
|
$
|
(7
|
)
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
153
|
|
Net embedded derivatives (9)
|
|
|
|
|
|
|
|
|
|
$
|
657
|
|
|
$
|
(328
|
)
|
|
$
|
|
|
|
$
|
116
|
|
|
$
|
|
|
|
$
|
445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
1,645
|
|
|
$
|
|
|
|
$
|
1,645
|
|
|
$
|
(167
|
)
|
|
$
|
(313
|
)
|
|
$
|
101
|
|
|
$
|
135
|
|
|
$
|
1,401
|
|
Foreign corporate securities
|
|
|
1,355
|
|
|
|
|
|
|
|
1,355
|
|
|
|
(12
|
)
|
|
|
(504
|
)
|
|
|
(110
|
)
|
|
|
197
|
|
|
|
926
|
|
U.S. Treasury and agency securities
|
|
|
19
|
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
34
|
|
|
|
(17
|
)
|
|
|
36
|
|
RMBS
|
|
|
323
|
|
|
|
|
|
|
|
323
|
|
|
|
2
|
|
|
|
(46
|
)
|
|
|
(156
|
)
|
|
|
(61
|
)
|
|
|
62
|
|
CMBS
|
|
|
258
|
|
|
|
|
|
|
|
258
|
|
|
|
(66
|
)
|
|
|
(76
|
)
|
|
|
|
|
|
|
|
|
|
|
116
|
|
ABS
|
|
|
925
|
|
|
|
|
|
|
|
925
|
|
|
|
(20
|
)
|
|
|
(254
|
)
|
|
|
(84
|
)
|
|
|
(9
|
)
|
|
|
558
|
|
State and political subdivision securities
|
|
|
44
|
|
|
|
|
|
|
|
44
|
|
|
|
(1
|
)
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
24
|
|
Foreign government securities
|
|
|
33
|
|
|
|
|
|
|
|
33
|
|
|
|
1
|
|
|
|
(2
|
)
|
|
|
(17
|
)
|
|
|
(5
|
)
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
4,602
|
|
|
$
|
|
|
|
$
|
4,602
|
|
|
$
|
(263
|
)
|
|
$
|
(1,214
|
)
|
|
$
|
(232
|
)
|
|
$
|
240
|
|
|
$
|
3,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock
|
|
$
|
521
|
|
|
$
|
|
|
|
$
|
521
|
|
|
$
|
(44
|
)
|
|
$
|
(109
|
)
|
|
$
|
(50
|
)
|
|
$
|
|
|
|
$
|
318
|
|
Common stock
|
|
|
35
|
|
|
|
|
|
|
|
35
|
|
|
|
(4
|
)
|
|
|
(1
|
)
|
|
|
(22
|
)
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
556
|
|
|
$
|
|
|
|
$
|
556
|
|
|
$
|
(48
|
)
|
|
$
|
(110
|
)
|
|
$
|
(72
|
)
|
|
$
|
|
|
|
$
|
326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
50
|
|
|
$
|
|
|
|
$
|
50
|
|
Net derivatives (7)
|
|
$
|
108
|
|
|
$
|
|
|
|
$
|
108
|
|
|
$
|
266
|
|
|
$
|
|
|
|
$
|
(65
|
)
|
|
$
|
|
|
|
$
|
309
|
|
Separate account assets (8)
|
|
$
|
183
|
|
|
$
|
|
|
|
$
|
183
|
|
|
$
|
(22
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(2
|
)
|
|
$
|
159
|
|
Net embedded derivatives (9)
|
|
$
|
125
|
|
|
$
|
92
|
|
|
$
|
217
|
|
|
$
|
366
|
|
|
$
|
|
|
|
$
|
74
|
|
|
$
|
|
|
|
$
|
657
|
|
|
|
|
(1) |
|
Amounts presented do not reflect any associated hedging
activities. Actual earnings associated with Level 3,
inclusive of hedging activities, could differ materially. |
|
(2) |
|
Impact of adoption of fair value measurement guidance represents
the amount recognized in earnings as a change in estimate
associated with Level 3 financial instruments held at
January 1, 2008. Such amount was offset by a reduction to
DAC of $30 million resulting in a net impact of
$62 million. This net impact of |
F-82
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
|
|
|
|
|
$62 million along with a $3 million reduction in the
estimated fair value of Level 2 freestanding derivatives
resulted in a total net impact of adoption of $59 million. |
|
(3) |
|
Amortization of premium/discount is included within net
investment income which is reported within the earnings caption
of total gains (losses). Impairments charged to earnings are
included within net investment gains (losses) which are reported
within the earnings caption of total gains (losses). Lapses
associated with embedded derivatives are included with the
earnings caption of total gains (losses). |
|
(4) |
|
Interest and dividend accruals, as well as cash interest coupons
and dividends received, are excluded from the rollforward. |
|
(5) |
|
The amount reported within purchases, sales, issuances and
settlements is the purchase/issuance price (for purchases and
issuances) and the sales/settlement proceeds (for sales and
settlements) based upon the actual date purchased/issued or
sold/settled. Items purchased/issued and sold/settled in the
same period are excluded from the rollforward. For embedded
derivatives, attributed fees are included within this caption
along with settlements, if any. |
|
(6) |
|
Total gains and losses (in earnings and other comprehensive
income (loss)) are calculated assuming transfers in and/or out
of Level 3 occurred at the beginning of the period. Items
transferred in and out in the same period are excluded from the
rollforward. |
|
(7) |
|
Freestanding derivative assets and liabilities are presented net
for purposes of the rollforward. |
|
(8) |
|
Investment performance related to separate account assets is
fully offset by corresponding amounts credited to
contractholders whose liability is reflected within separate
account liabilities. |
|
(9) |
|
Embedded derivative assets and liabilities are presented net for
purposes of the rollforward. |
The tables below summarize both realized and unrealized gains
and losses for the years ended December 31, 2009 and 2008
due to changes in estimated fair value recorded in earnings for
Level 3 assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Gains and Losses
|
|
|
|
Classification of Realized/Unrealized Gains
|
|
|
|
(Losses) included in Earnings
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
Net
|
|
|
Investment
|
|
|
|
|
|
|
Investment
|
|
|
Gains
|
|
|
|
|
|
|
Income
|
|
|
(Losses)
|
|
|
Total
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
For the Year Ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
3
|
|
|
$
|
(117
|
)
|
|
$
|
(114
|
)
|
Foreign corporate securities
|
|
|
(1
|
)
|
|
|
(94
|
)
|
|
|
(95
|
)
|
RMBS
|
|
|
|
|
|
|
(4
|
)
|
|
|
(4
|
)
|
CMBS
|
|
|
1
|
|
|
|
(43
|
)
|
|
|
(42
|
)
|
ABS
|
|
|
|
|
|
|
(51
|
)
|
|
|
(51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
3
|
|
|
$
|
(309
|
)
|
|
$
|
(306
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock
|
|
$
|
|
|
|
$
|
(101
|
)
|
|
$
|
(101
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
|
|
|
$
|
(101
|
)
|
|
$
|
(101
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net derivatives
|
|
$
|
|
|
|
$
|
(40
|
)
|
|
$
|
(40
|
)
|
Net embedded derivatives
|
|
$
|
|
|
|
$
|
(328
|
)
|
|
$
|
(328
|
)
|
F-83
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Gains and Losses
|
|
|
|
Classification of Realized/Unrealized Gains
|
|
|
|
(Losses) included in Earnings
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
Net
|
|
|
Investment
|
|
|
|
|
|
|
Investment
|
|
|
Gains
|
|
|
|
|
|
|
Income
|
|
|
(Losses)
|
|
|
Total
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
For the Year Ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
5
|
|
|
$
|
(172
|
)
|
|
$
|
(167
|
)
|
Foreign corporate securities
|
|
|
(3
|
)
|
|
|
(9
|
)
|
|
|
(12
|
)
|
RMBS
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
CMBS
|
|
|
4
|
|
|
|
(70
|
)
|
|
|
(66
|
)
|
ABS
|
|
|
|
|
|
|
(20
|
)
|
|
|
(20
|
)
|
State and political subdivision securities
|
|
|
(1
|
)
|
|
|
|
|
|
|
(1
|
)
|
Foreign government securities
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
6
|
|
|
$
|
(269
|
)
|
|
$
|
(263
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock
|
|
$
|
|
|
|
$
|
(44
|
)
|
|
$
|
(44
|
)
|
Common stock
|
|
|
|
|
|
|
(4
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
|
|
|
$
|
(48
|
)
|
|
$
|
(48
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net derivatives
|
|
$
|
|
|
|
$
|
266
|
|
|
$
|
266
|
|
Net embedded derivatives
|
|
$
|
|
|
|
$
|
366
|
|
|
$
|
366
|
|
F-84
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
The tables below summarize the portion of unrealized gains and
losses recorded in earnings for the years ended
December 31, 2009 and 2008 for Level 3 assets and
liabilities that were still held at December 31, 2009 and
2008, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Unrealized Gains (Losses)
|
|
|
|
Relating to Assets and Liabilities Held at
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
Net
|
|
|
Investment
|
|
|
|
|
|
|
Investment
|
|
|
Gains
|
|
|
|
|
|
|
Income
|
|
|
(Losses)
|
|
|
Total
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
For the Year Ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
6
|
|
|
$
|
(105
|
)
|
|
$
|
(99
|
)
|
Foreign corporate securities
|
|
|
(1
|
)
|
|
|
(43
|
)
|
|
|
(44
|
)
|
CMBS
|
|
|
1
|
|
|
|
(56
|
)
|
|
|
(55
|
)
|
ABS
|
|
|
|
|
|
|
(21
|
)
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
6
|
|
|
$
|
(225
|
)
|
|
$
|
(219
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock
|
|
$
|
|
|
|
$
|
(38
|
)
|
|
$
|
(38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
|
|
|
$
|
(38
|
)
|
|
$
|
(38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net derivatives
|
|
$
|
|
|
|
$
|
(33
|
)
|
|
$
|
(33
|
)
|
Net embedded derivatives
|
|
$
|
|
|
|
$
|
(332
|
)
|
|
$
|
(332
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Unrealized Gains (Losses)
|
|
|
|
Relating to Assets and Liabilities Held at
|
|
|
|
December 31, 2008
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
Net
|
|
|
Investment
|
|
|
|
|
|
|
Investment
|
|
|
Gains
|
|
|
|
|
|
|
Income
|
|
|
(Losses)
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
For the Year Ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
4
|
|
|
$
|
(139
|
)
|
|
$
|
(135
|
)
|
Foreign corporate securities
|
|
|
(3
|
)
|
|
|
(6
|
)
|
|
|
(9
|
)
|
CMBS
|
|
|
4
|
|
|
|
(69
|
)
|
|
|
(65
|
)
|
ABS
|
|
|
|
|
|
|
(16
|
)
|
|
|
(16
|
)
|
Foreign government securities
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
6
|
|
|
$
|
(230
|
)
|
|
$
|
(224
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock
|
|
$
|
|
|
|
$
|
(29
|
)
|
|
$
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
|
|
|
$
|
(29
|
)
|
|
$
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net derivatives
|
|
$
|
|
|
|
$
|
233
|
|
|
$
|
233
|
|
Net embedded derivatives
|
|
$
|
|
|
|
$
|
353
|
|
|
$
|
353
|
|
F-85
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Non-Recurring
Fair Value Measurements
Certain assets are measured at estimated fair value on a
non-recurring basis and are not included in the tables above.
The amounts below relate to certain investments measured at
estimated fair value during the period and still held as of the
reporting dates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
|
|
|
Value Prior to
|
|
|
Value After
|
|
|
Gains
|
|
|
Value Prior to
|
|
|
Value After
|
|
|
Gains
|
|
|
|
Impairment
|
|
|
Impairment
|
|
|
(Losses)
|
|
|
Impairment
|
|
|
Impairment
|
|
|
(Losses)
|
|
|
|
(In millions)
|
|
|
Mortgage loans (1)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
24
|
|
|
$
|
|
|
|
$
|
(24
|
)
|
Other limited partnership interests (2)
|
|
$
|
110
|
|
|
$
|
44
|
|
|
$
|
(66
|
)
|
|
$
|
11
|
|
|
$
|
6
|
|
|
$
|
(5
|
)
|
Real estate joint ventures (3)
|
|
$
|
90
|
|
|
$
|
48
|
|
|
$
|
(42
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
(1) |
|
Mortgage Loans The impaired mortgage loans
presented above were written down to their estimated fair values
at the date the impairments were recognized. Estimated fair
values for impaired mortgage loans are based on observable
market prices or, if the loans are in foreclosure or are
otherwise determined to be collateral dependent, on the
estimated fair value of the underlying collateral, or the
present value of the expected future cash flows. Impairments to
estimated fair value represent non-recurring fair value
measurements that have been categorized as Level 3 due to
the lack of price transparency inherent in the limited markets
for such mortgage loans. |
|
(2) |
|
Other Limited Partnership Interests The
impaired investments presented above were accounted for using
the cost basis. Impairments on these cost basis investments were
recognized at estimated fair value determined from information
provided in the financial statements of the underlying entities
in the period in which the impairment was incurred. These
impairments to estimated fair value represent non-recurring fair
value measurements that have been classified as Level 3 due
to the limited activity and price transparency inherent in the
market for such investments. This category includes several
private equity and debt funds that typically invest primarily in
a diversified pool of investments across certain investment
strategies including domestic and international leveraged buyout
funds; power, energy, timber and infrastructure development
funds; venture capital funds; below investment grade debt and
mezzanine debt funds. The estimated fair values of these
investments have been determined using the NAV of the
Companys ownership interest in the partners capital.
Distributions from these investments will be generated from
investment gains, from operating income from the underlying
investments of the funds, and from liquidation of the underlying
assets of the funds. It is estimated that the underlying assets
of the funds will be liquidated over the next 2 to
10 years. Unfunded commitments for these investments were
$32 million as of December 31, 2009. |
|
(3) |
|
Real Estate Joint Ventures The impaired
investments presented above were accounted for using the cost
basis. Impairments on these cost basis investments were
recognized at estimated fair value determined from information
provided in the financial statements of the underlying entities
in the period in which the impairment was incurred. These
impairments to estimated fair value represent non-recurring fair
value measurements that have been classified as Level 3 due
to the limited activity and price transparency inherent in the
market for such investments. This category includes several real
estate funds that typically invest primarily in commercial real
estate. The estimated fair values of these investments have been
determined using the NAV of the Companys ownership
interest in the partners capital. Distributions from these
investments will be generated from investment gains, from
operating income from the underlying investments of the funds,
and from liquidation of the underlying assets of the funds. It
is estimated that the underlying assets of the funds will be
liquidated over the next 2 to 10 years. Unfunded
commitments for these investments were $40 million as of
December 31, 2009. |
F-86
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
|
|
5.
|
Deferred
Policy Acquisition Costs and Value of Business
Acquired
|
Information regarding DAC and VOBA is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DAC
|
|
|
VOBA
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Balance at January 1, 2007
|
|
$
|
1,991
|
|
|
$
|
3,120
|
|
|
$
|
5,111
|
|
Effect of adoption of new accounting principle
|
|
|
(7
|
)
|
|
|
(125
|
)
|
|
|
(132
|
)
|
Capitalizations
|
|
|
682
|
|
|
|
|
|
|
|
682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
2,666
|
|
|
|
2,995
|
|
|
|
5,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Amortization related to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment gains (losses)
|
|
|
44
|
|
|
|
(16
|
)
|
|
|
28
|
|
Other expenses
|
|
|
388
|
|
|
|
324
|
|
|
|
712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortization
|
|
|
432
|
|
|
|
308
|
|
|
|
740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Unrealized investment gains (losses)
|
|
|
(18
|
)
|
|
|
(9
|
)
|
|
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
2,252
|
|
|
|
2,696
|
|
|
|
4,948
|
|
Capitalizations
|
|
|
835
|
|
|
|
|
|
|
|
835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
3,087
|
|
|
|
2,696
|
|
|
|
5,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Amortization related to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment gains (losses)
|
|
|
190
|
|
|
|
35
|
|
|
|
225
|
|
Other expenses
|
|
|
504
|
|
|
|
434
|
|
|
|
938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortization
|
|
|
694
|
|
|
|
469
|
|
|
|
1,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Unrealized investment gains (losses)
|
|
|
(389
|
)
|
|
|
(434
|
)
|
|
|
(823
|
)
|
Less: Other
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
2,779
|
|
|
|
2,661
|
|
|
|
5,440
|
|
Capitalizations
|
|
|
851
|
|
|
|
|
|
|
|
851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
3,630
|
|
|
|
2,661
|
|
|
|
6,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Amortization related to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment gains (losses)
|
|
|
(225
|
)
|
|
|
(86
|
)
|
|
|
(311
|
)
|
Other expenses
|
|
|
408
|
|
|
|
197
|
|
|
|
605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortization
|
|
|
183
|
|
|
|
111
|
|
|
|
294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Unrealized investment gains (losses)
|
|
|
322
|
|
|
|
433
|
|
|
|
755
|
|
Less: Other
|
|
|
(2
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
3,127
|
|
|
$
|
2,117
|
|
|
$
|
5,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated future amortization expense allocated to other
expenses for the next five years for VOBA is $319 million
in 2010, $282 million in 2011, $244 million in 2012,
$200 million in 2013, and $163 million in 2014.
Amortization of DAC and VOBA is attributed to both investment
gains and losses and to other expenses for the amount of gross
profits originating from transactions other than investment
gains and losses. Unrealized investment gains and losses
represent the amount of DAC and VOBA that would have been
amortized if such gains and losses had been recognized.
F-87
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Information regarding DAC and VOBA by segment and reporting unit
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DAC
|
|
|
VOBA
|
|
|
Total
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Retirement Products
|
|
$
|
1,785
|
|
|
$
|
1,416
|
|
|
$
|
1,275
|
|
|
$
|
1,755
|
|
|
$
|
3,060
|
|
|
$
|
3,171
|
|
Corporate Benefit Funding
|
|
|
6
|
|
|
|
5
|
|
|
|
1
|
|
|
|
3
|
|
|
|
7
|
|
|
|
8
|
|
Insurance Products
|
|
|
1,292
|
|
|
|
1,351
|
|
|
|
841
|
|
|
|
903
|
|
|
|
2,133
|
|
|
|
2,254
|
|
Corporate & Other
|
|
|
44
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
44
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,127
|
|
|
$
|
2,779
|
|
|
$
|
2,117
|
|
|
$
|
2,661
|
|
|
$
|
5,244
|
|
|
$
|
5,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill is the excess of cost over the estimated fair value of
net assets acquired. Information regarding goodwill by segment
and reporting unit is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Retirement Products
|
|
$
|
219
|
|
|
$
|
219
|
|
Corporate Benefit Funding
|
|
|
307
|
|
|
|
307
|
|
Insurance Products:
|
|
|
|
|
|
|
|
|
Non-medical health
|
|
|
5
|
|
|
|
5
|
|
Individual life
|
|
|
17
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
Total Insurance Products
|
|
|
22
|
|
|
|
22
|
|
Corporate & Other
|
|
|
405
|
|
|
|
405
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
953
|
|
|
$
|
953
|
|
|
|
|
|
|
|
|
|
|
As described in more detail in Note 1, the Company
performed its annual goodwill impairment tests during the third
quarter of 2009 based upon data at June 30, 2009 that
indicated that goodwill was not impaired. During the fourth
quarter of 2009, the Company realigned its reportable segments.
See Notes 1 and 14. The 2009 annual goodwill impairment
tests were based on the segment structure in existence prior to
such realignment. The realignment did not significantly change
the reporting units for goodwill impairment testing purposes and
management concluded that no additional tests were required at
December 31, 2009.
Previously, due to economic conditions, the sustained low level
of equity markets, declining market capitalizations in the
insurance industry and lower operating earnings projections,
particularly in individual annuity and variable &
universal life reporting units, management performed an interim
goodwill impairment test at December 31, 2008 and again,
for certain reporting units most affected by the current
economic environment at March 31, 2009. Based upon the
tests performed, management concluded no impairment of goodwill
had occurred for any of the Companys reporting units at
March 31, 2009 and December 31, 2008.
Management continues to evaluate current market conditions that
may affect the estimated fair value of the Companys
reporting units to assess whether any goodwill impairment
exists. Continued deteriorating or adverse market conditions for
certain reporting units may have a significant impact on the
estimated fair value of these reporting units and could result
in future impairments of goodwill.
F-88
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Insurance
Liabilities
Insurance liabilities, including affiliated insurance
liabilities on reinsurance assumed and ceded, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future Policy
|
|
|
|
|
|
|
|
|
|
Benefits
|
|
|
Policyholder Account Balances
|
|
|
Other Policyholder Funds
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Retirement Products
|
|
$
|
1,435
|
|
|
$
|
1,215
|
|
|
$
|
21,059
|
|
|
$
|
18,905
|
|
|
$
|
19
|
|
|
$
|
30
|
|
Corporate Benefit Funding
|
|
|
12,697
|
|
|
|
12,043
|
|
|
|
9,393
|
|
|
|
12,553
|
|
|
|
5
|
|
|
|
5
|
|
Insurance Products
|
|
|
2,391
|
|
|
|
2,123
|
|
|
|
6,052
|
|
|
|
5,531
|
|
|
|
1,997
|
|
|
|
1,848
|
|
Corporate & Other
|
|
|
5,098
|
|
|
|
4,832
|
|
|
|
938
|
|
|
|
186
|
|
|
|
276
|
|
|
|
202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
21,621
|
|
|
$
|
20,213
|
|
|
$
|
37,442
|
|
|
$
|
37,175
|
|
|
$
|
2,297
|
|
|
$
|
2,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Note 8 for discussion of affiliated reinsurance
liabilities included in the table above.
Value
of Distribution Agreements and Customer Relationships
Acquired
Information regarding the VODA and VOCRA, which are reported in
other assets, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Balance at January 1,
|
|
$
|
224
|
|
|
$
|
232
|
|
|
$
|
237
|
|
Amortization
|
|
|
(9
|
)
|
|
|
(8
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
|
|
$
|
215
|
|
|
$
|
224
|
|
|
$
|
232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated future amortization expense allocated to other
expenses for the next five years for VODA and VOCRA is
$11 million in 2010, $13 million in 2011,
$15 million in 2012, $16 million in 2013 and
$17 million in 2014.
Sales
Inducements
Information regarding deferred sales inducements, which are
reported in other assets, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Balance at January 1,
|
|
$
|
422
|
|
|
$
|
403
|
|
|
$
|
330
|
|
Capitalization
|
|
|
124
|
|
|
|
111
|
|
|
|
124
|
|
Amortization
|
|
|
(53
|
)
|
|
|
(92
|
)
|
|
|
(51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
|
|
$
|
493
|
|
|
$
|
422
|
|
|
$
|
403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Separate
Accounts
Separate account assets and liabilities consist of pass-through
separate accounts totaling $49.4 billion and
$35.9 billion at December 31, 2009 and 2008,
respectively, for which the policyholder assumes all investment
risk.
F-89
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Fees charged to the separate accounts by the Company (including
mortality charges, policy administration fees and surrender
charges) are reflected in the Companys revenues as
universal life and investment-type product policy fees and
totaled $804 million, $893 million and
$947 million for the years ended December 31, 2009,
2008 and 2007, respectively.
For the years ended December 31, 2009, 2008 and 2007, there
were no investment gains (losses) on transfers of assets from
the general account to the separate accounts.
Obligations
Under Funding Agreements
The Company issues fixed and floating rate funding agreements,
which are denominated in either U.S. Dollars or foreign
currencies, to an SPE that has issued debt securities for which
payment of interest and principal is secured by such funding
agreements. During the year ended December 31, 2009, there
were no new issuances of funding agreements under this program
and the Company repaid $1.3 billion of such funding
agreements. During the years ended December 31, 2008 and
2007, the Company issued $54 million and $653 million,
respectively, and repaid $678 million and
$616 million, respectively, of such funding agreements. At
December 31, 2009 and 2008, funding agreements outstanding,
which are included in policyholder account balances, were
$3.1 billion and $4.2 billion, respectively. During
the years ended December 31, 2009, 2008 and 2007, interest
credited on the funding agreements, which are included in
interest credited to policyholder account balances, was
$109 million, $189 million and $230 million,
respectively.
MICC is a member of the FHLB of Boston and holds
$70 million of common stock of the FHLB of Boston at both
December 31, 2009 and 2008, which is included in equity
securities. MICC has also entered into funding agreements with
the FHLB of Boston whereby MICC has issued such funding
agreements in exchange for cash and for which the FHLB of Boston
has been granted a blanket lien on certain MICC assets,
including RMBS, to collateralize MICCs obligations under
the funding agreements. MICC maintains control over these
pledged assets, and may use, commingle, encumber or dispose of
any portion of the collateral as long as there is no event of
default and the remaining qualified collateral is sufficient to
satisfy the collateral maintenance level. Upon any event of
default by MICC, the FHLB of Bostons recovery on the
collateral is limited to the amount of MICCs liability to
the FHLB of Boston. The amount of MICCs liability for
funding agreements with the FHLB of Boston was $326 million
and $526 million at December 31, 2009 and 2008,
respectively, which is included in policyholder account
balances. In addition, at December 31, 2008, MICC had
advances of $300 million from the FHLB of Boston with
original maturities of less than one year and therefore, such
advances are included in short-term debt. There were no such
advances at December 31, 2009. These advances and the
advances on these funding agreements are collateralized by
mortgage-backed securities with estimated fair values of
$419 million and $1,284 million at December 31,
2009 and 2008, respectively. During the years ended
December 31, 2009, 2008 and 2007, interest credited on the
funding agreements, which are included in interest credited to
policyholder account balances, was $6 million,
$15 million and $34 million, respectively.
F-90
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Liabilities
for Unpaid Claims and Claim Expenses
Information regarding the liabilities for unpaid claims and
claim expenses relating to group accident and non-medical health
policies and contracts, which are reported in future policy
benefits and other policy holder funds, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Balance at January 1,
|
|
$
|
691
|
|
|
$
|
612
|
|
|
$
|
551
|
|
Less: Reinsurance recoverables
|
|
|
(589
|
)
|
|
|
(463
|
)
|
|
|
(403
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net balance at January 1,
|
|
|
102
|
|
|
|
149
|
|
|
|
148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incurred related to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year
|
|
|
26
|
|
|
|
8
|
|
|
|
32
|
|
Prior years
|
|
|
(17
|
)
|
|
|
(29
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
(21
|
)
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid related to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
(2
|
)
|
Prior years
|
|
|
(11
|
)
|
|
|
(24
|
)
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12
|
)
|
|
|
(26
|
)
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net balance at December 31,
|
|
|
99
|
|
|
|
102
|
|
|
|
149
|
|
Add: Reinsurance recoverables
|
|
|
706
|
|
|
|
589
|
|
|
|
463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
|
|
$
|
805
|
|
|
$
|
691
|
|
|
$
|
612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2009, 2008 and 2007, as a result of changes in estimates
of insured events in the respective prior year, claims and claim
adjustment expenses associated with prior years decreased by
$17 million, $29 million and $5 million for the
years ended December 31, 2009, 2008 and 2007, respectively.
In all years presented, the change was due to differences
between the actual benefit periods and expected benefit periods
for disability contracts. In addition, 2008 and 2007 includes
the change between the actual benefit period and expected
benefit period for LTC contracts. See Note 8 for
information on the reinsurance of LTC business.
Guarantees
The Company issues annuity contracts which may include
contractual guarantees to the contractholder for:
(i) return of no less than total deposits made to the
contract less any partial withdrawals (return of net
deposits); and (ii) the highest contract value on a
specified anniversary date minus any withdrawals following the
contract anniversary, or total deposits made to the contract
less any partial withdrawals plus a minimum return
(anniversary contract value or minimum
return).
The Company also issues universal and variable life contracts
where the Company contractually guarantees to the contractholder
a secondary guarantee.
F-91
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Information regarding the types of guarantees relating to
annuity contracts and universal and variable life contracts is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
In the
|
|
|
At
|
|
|
In the
|
|
|
At
|
|
|
|
Event of Death
|
|
|
Annuitization
|
|
|
Event of Death
|
|
|
Annuitization
|
|
|
|
(In millions)
|
|
|
Annuity Contracts (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return of Net Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Separate account value
|
|
$
|
15,705
|
|
|
|
N/A
|
|
|
$
|
9,721
|
|
|
|
N/A
|
|
Net amount at risk (2)
|
|
$
|
1,018
|
(3)
|
|
|
N/A
|
|
|
$
|
2,813
|
(3)
|
|
|
N/A
|
|
Average attained age of contractholders
|
|
|
62 years
|
|
|
|
N/A
|
|
|
|
62 years
|
|
|
|
N/A
|
|
Anniversary Contract Value or Minimum Return
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Separate account value
|
|
$
|
35,687
|
|
|
$
|
22,157
|
|
|
$
|
27,572
|
|
|
$
|
13,217
|
|
Net amount at risk (2)
|
|
$
|
5,093
|
(3)
|
|
$
|
4,158
|
(4)
|
|
$
|
9,876
|
(3)
|
|
$
|
6,323
|
(4)
|
Average attained age of contractholders
|
|
|
60 years
|
|
|
|
61 years
|
|
|
|
58 years
|
|
|
|
61 years
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Secondary
|
|
|
Secondary
|
|
|
|
Guarantees
|
|
|
Guarantees
|
|
|
|
(In millions)
|
|
|
Universal and Variable Life Contracts (1)
|
|
|
|
|
|
|
|
|
Account value (general and separate account)
|
|
$
|
3,805
|
|
|
$
|
2,917
|
|
Net amount at risk (2)
|
|
$
|
58,134
|
(3)
|
|
$
|
43,237
|
(3)
|
Average attained age of policyholders
|
|
|
58 years
|
|
|
|
58 years
|
|
|
|
|
(1) |
|
The Companys annuity and life contracts with guarantees
may offer more than one type of guarantee in each contract.
Therefore, the amounts listed above may not be mutually
exclusive. |
|
(2) |
|
The net amount at risk is based on the direct amount at risk
(excluding reinsurance). |
|
(3) |
|
The net amount at risk for guarantees of amounts in the event of
death is defined as the current GMDB in excess of the current
account balance at the balance sheet date. |
|
(4) |
|
The net amount at risk for guarantees of amounts at
annuitization is defined as the present value of the minimum
guaranteed annuity payments available to the contractholder
determined in accordance with the terms of the contract in
excess of the current account balance. |
F-92
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Information regarding the liabilities for guarantees (excluding
base policy liabilities) relating to annuity and universal and
variable life contracts is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Universal and
|
|
|
|
|
|
|
|
|
|
Variable Life
|
|
|
|
|
|
|
Annuity Contracts
|
|
|
Contracts
|
|
|
|
|
|
|
Guaranteed
|
|
|
Guaranteed
|
|
|
|
|
|
|
|
|
|
Death
|
|
|
Annuitization
|
|
|
Secondary
|
|
|
|
|
|
|
Benefits
|
|
|
Benefits
|
|
|
Guarantees
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Direct:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2007
|
|
$
|
24
|
|
|
$
|
17
|
|
|
$
|
31
|
|
|
$
|
72
|
|
Incurred guaranteed benefits
|
|
|
16
|
|
|
|
28
|
|
|
|
34
|
|
|
|
78
|
|
Paid guaranteed benefits
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
30
|
|
|
|
45
|
|
|
|
65
|
|
|
|
140
|
|
Incurred guaranteed benefits
|
|
|
118
|
|
|
|
176
|
|
|
|
43
|
|
|
|
337
|
|
Paid guaranteed benefits
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
98
|
|
|
|
221
|
|
|
|
108
|
|
|
|
427
|
|
Incurred guaranteed benefits
|
|
|
48
|
|
|
|
(6
|
)
|
|
|
187
|
|
|
|
229
|
|
Paid guaranteed benefits
|
|
|
(89
|
)
|
|
|
|
|
|
|
|
|
|
|
(89
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
57
|
|
|
$
|
215
|
|
|
$
|
295
|
|
|
$
|
567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ceded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2007
|
|
$
|
24
|
|
|
$
|
17
|
|
|
$
|
|
|
|
$
|
41
|
|
Incurred guaranteed benefits
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
Paid guaranteed benefits
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
28
|
|
|
|
17
|
|
|
|
|
|
|
|
45
|
|
Incurred guaranteed benefits
|
|
|
94
|
|
|
|
55
|
|
|
|
|
|
|
|
149
|
|
Paid guaranteed benefits
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
86
|
|
|
|
72
|
|
|
|
|
|
|
|
158
|
|
Incurred guaranteed benefits
|
|
|
38
|
|
|
|
2
|
|
|
|
142
|
|
|
|
182
|
|
Paid guaranteed benefits
|
|
|
(68
|
)
|
|
|
|
|
|
|
|
|
|
|
(68
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
56
|
|
|
$
|
74
|
|
|
$
|
142
|
|
|
$
|
272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2007
|
|
$
|
|
|
|
$
|
|
|
|
$
|
31
|
|
|
$
|
31
|
|
Incurred guaranteed benefits
|
|
|
6
|
|
|
|
28
|
|
|
|
34
|
|
|
|
68
|
|
Paid guaranteed benefits
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
2
|
|
|
|
28
|
|
|
|
65
|
|
|
|
95
|
|
Incurred guaranteed benefits
|
|
|
24
|
|
|
|
121
|
|
|
|
43
|
|
|
|
188
|
|
Paid guaranteed benefits
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
12
|
|
|
|
149
|
|
|
|
108
|
|
|
|
269
|
|
Incurred guaranteed benefits
|
|
|
10
|
|
|
|
(8
|
)
|
|
|
45
|
|
|
|
47
|
|
Paid guaranteed benefits
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
1
|
|
|
$
|
141
|
|
|
$
|
153
|
|
|
$
|
295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-93
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Account balances of contracts with insurance guarantees are
invested in separate account asset classes as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Fund Groupings:
|
|
|
|
|
|
|
|
|
Equity
|
|
$
|
27,202
|
|
|
$
|
21,738
|
|
Balanced
|
|
|
14,693
|
|
|
|
6,971
|
|
Bond
|
|
|
2,682
|
|
|
|
2,280
|
|
Money Market
|
|
|
1,454
|
|
|
|
1,715
|
|
Specialty
|
|
|
824
|
|
|
|
228
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
46,855
|
|
|
$
|
32,932
|
|
|
|
|
|
|
|
|
|
|
The Companys Insurance Products segment participates in
reinsurance activities in order to limit losses, minimize
exposure to significant risks and provide additional capacity
for future growth.
For its individual life insurance products, the Company has
historically reinsured the mortality risk primarily on an excess
of retention basis or a quota share basis. Until 2005, the
Company reinsured up to 90% of the mortality risk for all new
individual life insurance policies. During 2005, the Company
changed its retention practices for certain individual life
insurance policies. Under the new retention guidelines, the
Company reinsures up to 90% of the mortality risk in excess of
$1 million. Retention limits remain unchanged for other new
individual life insurance policies. Policies reinsured in years
prior to 2005 remain reinsured under the original reinsurance
agreements. On a case by case basis, the Company may retain up
to $5 million per life on single life individual policies
and reinsure 100% of amounts in excess of the Companys
retention limits. The Company evaluates its reinsurance programs
routinely and may increase or decrease its retention at any
time. Placement of reinsurance is done primarily on an automatic
basis and also on a facultative basis for risks with specific
characteristics. In addition to reinsuring mortality risk as
described above, the Company reinsures other risks, as well as
specific coverages. The Company routinely reinsures certain
classes of risks in order to limit its exposure to particular
travel, avocation and lifestyle hazards. The Company also
reinsures the risk associated with secondary death benefit
guarantees on certain universal life insurance policies to an
affiliate.
For other policies within the Insurance Products segment, the
Company generally retains most of the risk and only cedes
particular risks on certain client arrangements.
The Companys Retirement Products segment reinsures 100% of
the living and death benefit guarantees associated with its
variable annuities issued since 2006 to an affiliated reinsurer
and certain portions of the living and death benefit guarantees
associated with its variable annuities issued prior to 2006 to
affiliated and unaffiliated reinsurers. Under these reinsurance
agreements, the Company pays a reinsurance premium generally
based on fees associated with the guarantees collected from
policyholders, and receives reimbursement for benefits paid or
accrued in excess of account values, subject to certain
limitations. The Company also reinsures 90% of its new
production of fixed annuities to an affiliated reinsurer. The
Company enters into similar agreements for new or in-force
business depending on market conditions.
The Companys Corporate Benefit Funding segment has
periodically engaged in reinsurance activities, as considered
appropriate. The impact of these activities on the financial
results of these segments has not been significant.
The Company also reinsures, through 100% quota share reinsurance
agreements, certain LTC and workers compensation business
written by the Company. These are run-off businesses which have
been included within Corporate & Other.
F-94
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
The Company has exposure to catastrophes, which could contribute
to significant fluctuations in the Companys results of
operations. The Company uses excess of retention and quota share
reinsurance arrangements to provide greater diversification of
risk and minimize exposure to larger risks.
The Company reinsures its business through a diversified group
of reinsurers and periodically monitors collectibility of
reinsurance balances. These reinsurance recoverable balances are
stated net of allowances for uncollectible reinsurance, which as
of December 31, 2009 and 2008, were immaterial.
The Company analyzes recent trends in arbitration and litigation
outcomes in disputes, if any, with its reinsurers. The Company
monitors ratings and evaluates the financial strength of the
Companys reinsurers by analyzing their financial
statements. In addition, the reinsurance recoverable balance due
from each reinsurer is evaluated as part of the overall
monitoring process. Recoverability of reinsurance recoverable
balances is evaluated based on these analyses.
The Company has secured certain reinsurance recoverable balances
with various forms of collateral, including secured trusts,
funds withheld accounts and irrevocable letters of credit. At
December 31, 2009, the Company had $2.3 billion of
unsecured unaffiliated reinsurance recoverable balances.
At December 31, 2009, the Company had $5.9 billion of
net unaffiliated ceded reinsurance recoverables. Of this total,
$5.6 billion, or 95%, were with the Companys five
largest unaffiliated ceded reinsurers, including
$2.0 billion of which were unsecured.
The amounts in the consolidated statements of operations include
the impact of reinsurance. Information regarding the effect of
reinsurance is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Premiums:
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct premiums
|
|
$
|
1,782
|
|
|
$
|
1,042
|
|
|
$
|
654
|
|
Reinsurance assumed
|
|
|
14
|
|
|
|
15
|
|
|
|
17
|
|
Reinsurance ceded
|
|
|
(484
|
)
|
|
|
(423
|
)
|
|
|
(318
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums
|
|
$
|
1,312
|
|
|
$
|
634
|
|
|
$
|
353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Universal life and investment-type product policy fees:
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct universal life and investment-type product policy fees
|
|
$
|
1,681
|
|
|
$
|
1,710
|
|
|
$
|
1,680
|
|
Reinsurance assumed
|
|
|
115
|
|
|
|
197
|
|
|
|
119
|
|
Reinsurance ceded
|
|
|
(416
|
)
|
|
|
(529
|
)
|
|
|
(388
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net universal life and investment-type product policy fees
|
|
$
|
1,380
|
|
|
$
|
1,378
|
|
|
$
|
1,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims:
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct policyholder benefits and claims
|
|
$
|
3,314
|
|
|
$
|
2,775
|
|
|
$
|
1,722
|
|
Reinsurance assumed
|
|
|
10
|
|
|
|
23
|
|
|
|
22
|
|
Reinsurance ceded
|
|
|
(1,259
|
)
|
|
|
(1,352
|
)
|
|
|
(766
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net policyholder benefits and claims
|
|
$
|
2,065
|
|
|
$
|
1,446
|
|
|
$
|
978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-95
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
The amounts in the consolidated balance sheets include the
impact of reinsurance. Information regarding the effect of
reinsurance is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
|
|
|
Total, Net of
|
|
|
|
Sheet
|
|
|
Assumed
|
|
|
Ceded
|
|
|
Reinsurance
|
|
|
|
(In millions)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums and other receivables
|
|
$
|
13,444
|
|
|
$
|
30
|
|
|
$
|
13,135
|
|
|
$
|
279
|
|
Deferred policy acquisition costs and value of business acquired
|
|
|
5,244
|
|
|
|
230
|
|
|
|
(414
|
)
|
|
|
5,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
18,688
|
|
|
$
|
260
|
|
|
$
|
12,721
|
|
|
$
|
5,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future policy benefits
|
|
$
|
21,621
|
|
|
$
|
80
|
|
|
$
|
|
|
|
$
|
21,541
|
|
Policyholder account balances
|
|
|
37,442
|
|
|
|
|
|
|
|
|
|
|
|
37,442
|
|
Other policyholder funds
|
|
|
2,297
|
|
|
|
1,393
|
|
|
|
294
|
|
|
|
610
|
|
Other liabilities
|
|
|
2,177
|
|
|
|
10
|
|
|
|
1,332
|
|
|
|
835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
63,537
|
|
|
$
|
1,483
|
|
|
$
|
1,626
|
|
|
$
|
60,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
|
|
|
Total, Net of
|
|
|
|
Sheet
|
|
|
Assumed
|
|
|
Ceded
|
|
|
Reinsurance
|
|
|
|
(In millions)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums and other receivables
|
|
$
|
12,463
|
|
|
$
|
48
|
|
|
$
|
12,073
|
|
|
$
|
342
|
|
Deferred policy acquisition costs and value of business acquired
|
|
|
5,440
|
|
|
|
312
|
|
|
|
(292
|
)
|
|
|
5,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
17,903
|
|
|
$
|
360
|
|
|
$
|
11,781
|
|
|
$
|
5,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future policy benefits
|
|
$
|
20,213
|
|
|
$
|
87
|
|
|
$
|
|
|
|
$
|
20,126
|
|
Policyholder account balances
|
|
|
37,175
|
|
|
|
|
|
|
|
(19
|
)
|
|
|
37,194
|
|
Other policyholder funds
|
|
|
2,085
|
|
|
|
1,369
|
|
|
|
172
|
|
|
|
544
|
|
Other liabilities
|
|
|
2,604
|
|
|
|
10
|
|
|
|
1,061
|
|
|
|
1,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
62,077
|
|
|
$
|
1,466
|
|
|
$
|
1,214
|
|
|
$
|
59,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has reinsurance agreements with certain MetLife
subsidiaries, including MLIC, MetLife Reinsurance Company of
South Carolina (MRSC), Exeter Reassurance Company,
Ltd., General American Life Insurance Company and MetLife
Reinsurance Company of Vermont (MRV). The Company
had a reinsurance agreement with Mitsui Sumitomo MetLife
Insurance Co., Ltd., an affiliate; however, effective
December 31, 2008 this arrangement was modified via a
novation as explained in detail below.
F-96
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Information regarding the effect of affiliated reinsurance
included in the consolidated statements of operations is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Premiums:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance assumed
|
|
$
|
14
|
|
|
$
|
15
|
|
|
$
|
17
|
|
Reinsurance ceded (1)
|
|
|
(166
|
)
|
|
|
(116
|
)
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums
|
|
$
|
(152
|
)
|
|
$
|
(101
|
)
|
|
$
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Universal life and investment-type product policy fees:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance assumed
|
|
$
|
115
|
|
|
$
|
197
|
|
|
$
|
119
|
|
Reinsurance ceded (1)
|
|
|
(168
|
)
|
|
|
(278
|
)
|
|
|
(166
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net universal life and investment-type product policy fees
|
|
$
|
(53
|
)
|
|
$
|
(81
|
)
|
|
$
|
(47
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance assumed
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Reinsurance ceded
|
|
|
477
|
|
|
|
83
|
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other revenues
|
|
$
|
477
|
|
|
$
|
83
|
|
|
$
|
85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance assumed
|
|
$
|
8
|
|
|
$
|
19
|
|
|
$
|
18
|
|
Reinsurance ceded (1)
|
|
|
(239
|
)
|
|
|
(274
|
)
|
|
|
(43
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net policyholder benefits and claims
|
|
$
|
(231
|
)
|
|
$
|
(255
|
)
|
|
$
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest credited to policyholder account balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance assumed
|
|
$
|
64
|
|
|
$
|
57
|
|
|
$
|
53
|
|
Reinsurance ceded
|
|
|
(33
|
)
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest credited to policyholder account balances
|
|
$
|
31
|
|
|
$
|
35
|
|
|
$
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance assumed
|
|
$
|
105
|
|
|
$
|
97
|
|
|
$
|
39
|
|
Reinsurance ceded (1)
|
|
|
102
|
|
|
|
76
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other expenses
|
|
$
|
207
|
|
|
$
|
173
|
|
|
$
|
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In September 2008, MICCs parent, MetLife, completed a
tax-free split-off of its majority owned subsidiary, Reinsurance
Group of America, Incorporated (RGA). After the
split-off, reinsurance transactions with RGA were no longer
considered affiliated transactions. For purposes of comparison,
the 2008 affiliated transactions with RGA have been removed from
the presentation in the table above. Affiliated transactions
with RGA at December 31, 2008 include ceded premiums, ceded
fees, ceded benefits and ceded interest costs of
$9 million, $36 million, $47 million and
($1) million, respectively, and at December 31, 2007
include ceded premiums, ceded fees, ceded benefits and ceded
interest costs of $12 million, $50 million,
$52 million and ($2) million, respectively. |
F-97
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Information regarding the effect of affiliated reinsurance
included in the consolidated balance sheets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Assumed
|
|
|
Ceded
|
|
|
Assumed
|
|
|
Ceded
|
|
|
|
(In millions)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums and other receivables
|
|
$
|
30
|
|
|
$
|
7,157
|
|
|
$
|
34
|
|
|
$
|
6,547
|
|
Deferred policy acquisition costs and value of business acquired
|
|
|
230
|
|
|
|
(399
|
)
|
|
|
312
|
|
|
|
(279
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
260
|
|
|
$
|
6,758
|
|
|
$
|
346
|
|
|
$
|
6,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future policy benefits
|
|
$
|
27
|
|
|
$
|
|
|
|
$
|
25
|
|
|
$
|
|
|
Other policyholder funds
|
|
|
1,393
|
|
|
|
284
|
|
|
|
1,368
|
|
|
|
168
|
|
Other liabilities
|
|
|
9
|
|
|
|
1,150
|
|
|
|
8
|
|
|
|
890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
1,429
|
|
|
$
|
1,434
|
|
|
$
|
1,401
|
|
|
$
|
1,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company had assumed, under a reinsurance contract, risks
related to guaranteed minimum benefit guarantees issued in
connection with certain variable annuity products from a joint
venture owned by an affiliate of the Company. These risks were
retroceded in full to another affiliate under a retrocessional
agreement resulting in no impact on net investment gains
(losses). Effective December 31, 2008, the retrocession was
recaptured by the Company and a novation agreement was executed
whereby, the affiliated retrocessionaire assumed the business
directly from the joint venture. As a result of this recapture
and the related novation, the Company no longer assumes from the
joint venture or cedes to the affiliate any risks related to
these guaranteed minimum benefit guarantees. Upon the recapture
and simultaneous novation, the embedded derivative asset of
approximately $626 million associated with the retrocession
was settled by transferring the embedded derivative liability
associated with the assumption from the joint venture to the new
reinsurer. As per the terms of the recapture and novation
agreement, the amounts were offset resulting in no net gain or
loss. For the years ended December 31, 2008 and 2007, net
investment gains (losses) included $170 million and
($113) million, respectively, in changes in fair value of
such embedded derivatives. For the years ended December 31,
2008 and 2007, $64 million and $42 million,
respectively, of bifurcation fees associated with the embedded
derivatives were included in net investment gains (losses).
The Company has also ceded risks to another affiliate related to
guaranteed minimum benefit guarantees written directly by the
Company. These ceded reinsurance agreements contain embedded
derivatives and changes in their fair value are also included
within net investment gains (losses). The embedded derivatives
associated with the cessions are included within premiums and
other receivables and were assets of $724 million and
$2,042 million at December 31, 2009 and 2008,
respectively. For the years ended December 31, 2009, 2008
and 2007, net investment gains (losses) included
($1,456) million, $1,685 million, and
$276 million, respectively, in changes in fair value of
such embedded derivatives, as well as the associated bifurcation
fees.
Effective December 20, 2007, MLI-USA recaptured two ceded
blocks of business (the Recaptured Business) from
Exeter. The Recaptured Business consisted of two blocks of
universal life secondary guarantee risk, one assumed from GALIC,
and the other written by MLI-USA. The recapture resulted in a
pre-tax gain of $22 million for the year ended
December 31, 2007. Concurrent with the recapture, the same
business was ceded to MRV. The cession does not transfer risk to
MRV and is therefore accounted for under the deposit method.
Effective December 31, 2007, MLI-USA entered into a
reinsurance agreement to cede two blocks of business to MRV, on
a 90% coinsurance with funds withheld basis. The agreement was
amended in 2009 to include policies
F-98
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
issued by MLI-USA through December 31, 2009. Certain
contractual features of this agreement qualify as embedded
derivatives, which are separately accounted for at estimated
fair value on the Companys consolidated balance sheet. The
embedded derivative related to the funds withheld associated
with this reinsurance agreement is included within other
liabilities and reduced the funds withheld balance by
$11 million and $27 million at December 31, 2009
and 2008, respectively. The changes in fair value of the
embedded derivatives, included in net investment gains (losses),
were ($16) million and $27 million at
December 31, 2009 and 2008, respectively. The reinsurance
agreement also includes an experience refund provision, whereby
some or all of the profits on the underlying reinsurance
agreement are returned to MLI-USA from MRV during the first
several years of the reinsurance agreement. The experience
refund reduced the funds withheld by MLI-USA from MRV by
$180 million and $259 million at December 31,
2009 and 2008, respectively, and are considered unearned revenue
and amortized over the life of the contract using the same
assumption basis as the deferred acquisition cost in the
underlying policies. The amortization of the unearned revenue
associated with the experience refund was $36 million and
$38 million at December 31, 2009 and 2008,
respectively, and is included in universal life and
investment-type product policy fees in the consolidated
statement of operations. At December 31, 2009 and 2008, the
unearned revenue related to the experience refund was
$337 million and $221 million, respectively, and is
included in other policyholder funds in the consolidated balance
sheet.
The Company cedes its universal life secondary guarantee
(ULSG) risk to MRSC under certain reinsurance
treaties. These treaties do not expose the Company to a
reasonable possibility of a significant loss from insurance risk
and are recorded using the deposit method of accounting. During
2009, the Company completed a review of various ULSG assumptions
and projections including its regular annual third party
assessment of these treaties and related assumptions. As a
result of projected lower lapse rates and lower interest rates,
the Company refined its effective yield methodology to include
these updated assumptions and resultant projected cash flows.
Due to the refinement of the methodology, the deposit receivable
balance for these treaties was increased by $279 million,
with a corresponding increase in other revenue during the year
ended December 31, 2009.
The Company has secured certain reinsurance recoverable balances
with various forms of collateral, including secured trusts,
funds withheld accounts and irrevocable letters of credit. At
December 31, 2009, the Company had $4.3 billion of
unsecured affiliated reinsurance recoverable balances.
Long-term affiliated debt and short-term debt
outstanding is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Surplus notes, interest rate 8.595%, due 2038
|
|
$
|
750
|
|
|
$
|
750
|
|
Surplus notes, interest rate
3-month
LIBOR plus 1.15%, maturity date 2009
|
|
|
|
|
|
|
200
|
|
Surplus notes, interest rate
6-month
LIBOR plus 1.80%, maturity date 2011
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt affiliated
|
|
|
950
|
|
|
|
950
|
|
Total short-term debt
|
|
|
|
|
|
|
300
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
950
|
|
|
$
|
1,250
|
|
|
|
|
|
|
|
|
|
|
On December 21, 2009, MetLife Insurance Company of
Connecticut renewed the $200 million surplus note to
MetLife Credit Corporation, originally issued in December 2007,
with a new maturity date of December 2011, and an interest rate
of 6-month
LIBOR plus 1.80%.
In April 2008, MetLife Insurance Company of Connecticut issued a
surplus note with a principal amount of $750 million and an
interest rate of 8.595%, to MetLife Capital Trust X, an
affiliate.
F-99
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
MetLife was the holder of a surplus note issued by MLI-USA in
the amount of $400 million at December 31, 2007. In
June 2008, with approval from the Delaware Commissioner of
Insurance (Delaware Commissioner), MLI-USA repaid
this surplus note of $400 million with accrued interest of
$5 million.
MetLife Investors Group, Inc. (MLIG) was the holder
of two surplus notes issued by MLI-USA in the amounts of
$25 million and $10 million at December 31, 2007.
In June 2008, with approval from the Delaware Commissioner,
MLI-USA repaid these surplus notes of $25 million and
$10 million.
The aggregate maturities of long-term debt at December 31,
2009 were $200 million in 2011 and $750 million in
2038.
Interest expense related to the Companys indebtedness,
included in other expenses, was $71 million,
$72 million and $33 million for the years ended
December 31, 2009, 2008 and 2007, respectively.
Payments of interest and principal on these outstanding surplus
notes may be made only with the prior approval of the insurance
department of the state of domicile.
Short-term
Debt
At December 31, 2009, the Company did not have any
short-term debt. At December 31, 2008, short-term debt was
$300 million, which consisted of MetLife Insurance Company
of Connecticuts liability for collateralized borrowings
from the FHLB of Boston with original maturities of less than
one year. During the years ended December 31, 2009 and
2008, the weighed average interest rate on short-term debt was
2.70% and 2.75%, respectively. During the years ended
December 31, 2009 and 2008, the average daily balance of
short-term debt was $83 million and $67 million,
respectively, and was outstanding for an average of 99 days
and 81 days, respectively.
The provision for income tax from continuing operations is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
24
|
|
|
$
|
(50
|
)
|
|
$
|
9
|
|
State and local
|
|
|
1
|
|
|
|
(2
|
)
|
|
|
4
|
|
Foreign
|
|
|
(4
|
)
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
21
|
|
|
|
(52
|
)
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(380
|
)
|
|
|
260
|
|
|
|
306
|
|
Foreign
|
|
|
(9
|
)
|
|
|
(5
|
)
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
(389
|
)
|
|
|
255
|
|
|
|
289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
$
|
(368
|
)
|
|
$
|
203
|
|
|
$
|
303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-100
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
The reconciliation of the income tax provision at the
U.S. statutory rate to the provision for income tax as
reported for continuing operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Tax provision at U.S. statutory rate
|
|
$
|
(285
|
)
|
|
$
|
273
|
|
|
$
|
365
|
|
Tax effect of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax-exempt investment income
|
|
|
(69
|
)
|
|
|
(65
|
)
|
|
|
(65
|
)
|
Prior year tax
|
|
|
(17
|
)
|
|
|
(4
|
)
|
|
|
9
|
|
Foreign tax rate differential and change in valuation allowance
|
|
|
3
|
|
|
|
|
|
|
|
(7
|
)
|
State tax, net of federal benefit
|
|
|
|
|
|
|
(1
|
)
|
|
|
3
|
|
Other, net
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
$
|
(368
|
)
|
|
$
|
203
|
|
|
$
|
303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax represents the tax effect of the differences
between the book and tax basis of assets and liabilities. Net
deferred income tax assets and liabilities consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
Benefit, reinsurance and other reserves
|
|
$
|
1,574
|
|
|
$
|
1,548
|
|
Net operating loss carryforwards
|
|
|
111
|
|
|
|
94
|
|
Net unrealized investment losses
|
|
|
372
|
|
|
|
1,447
|
|
Operating lease reserves
|
|
|
4
|
|
|
|
8
|
|
Capital loss carryforwards
|
|
|
423
|
|
|
|
269
|
|
Investments, including derivatives
|
|
|
304
|
|
|
|
|
|
Tax credit carryforwards
|
|
|
102
|
|
|
|
45
|
|
Other
|
|
|
16
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,906
|
|
|
|
3,435
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
|
|
Investments, including derivatives
|
|
|
|
|
|
|
113
|
|
DAC and VOBA
|
|
|
1,748
|
|
|
|
1,479
|
|
Other
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,759
|
|
|
|
1,592
|
|
|
|
|
|
|
|
|
|
|
Net deferred income tax asset
|
|
$
|
1,147
|
|
|
$
|
1,843
|
|
|
|
|
|
|
|
|
|
|
Domestic net operating loss carryforwards amount to
$189 million at December 31, 2009 and will expire
beginning in 2025. Foreign net operating loss carryforwards
amount to $168 million at December 31, 2009 with
indefinite expiration. Capital loss carryforwards amount to
$1,209 million at December 31, 2009 and will expire
beginning in 2010. Tax credit carryforwards amount to
$102 million at December 31, 2009 and will expire
beginning in 2017.
The Company has not established a valuation allowance against
the deferred tax asset of $372 million recognized in
connection with unrealized losses at December 31, 2009. A
valuation allowance was not considered
F-101
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
necessary based upon the Companys intent and ability to
hold such securities until their recovery or maturity and the
existence of tax-planning strategies that include sources of
future taxable income against which such losses could be offset.
The Company will file a consolidated tax return with its
includable subsidiaries. Non-includable subsidiaries file either
separate individual corporate tax returns or separate
consolidated tax returns. Under this tax allocation agreement,
the federal income tax will be allocated between the companies
on a separate return basis and adjusted for credits and other
amounts required by such tax allocation agreement.
Pursuant to Internal Revenue Service (IRS) rules,
the Company is excluded from MetLifes life/non-life
consolidated federal tax return for the five years subsequent to
MetLifes July 2005 acquisition of the Company. In 2011,
the Company is expected to join the consolidated return and
become a party to the MetLife tax sharing agreement.
Accordingly, the Companys losses will be eligible to be
included in the consolidated return and the resulting tax
savings to MetLife will generate a payment to the Company for
the losses used.
The Company files income tax returns with the U.S. federal
government and various state and local jurisdictions, as well as
foreign jurisdictions. The Company is under continuous
examination by the IRS and other tax authorities in
jurisdictions in which the Company has significant business
operations. The income tax years under examination vary by
jurisdiction. With a few exceptions, the Company is no longer
subject to U.S. federal, state and local income tax
examinations by tax authorities for years prior to 2005 and is
no longer subject to foreign income tax examinations for the
years prior to 2006. The IRS exam of the next audit cycle,
covering the 2005 tax year, is expected to begin in early 2010.
The Company classifies interest accrued related to unrecognized
tax benefits in interest expense, while penalties are included
within income tax expense.
At December 31, 2007, the Companys total amount of
unrecognized tax benefits was $53 million and there were no
amounts of unrecognized tax benefits that would affect the
effective tax rate, if recognized. The total amount of
unrecognized tax benefits decreased by $11 million from
January 1, 2007 primarily due to a settlement reached with
the IRS with respect to a post-sale purchase price adjustment.
As a result of the settlement, an item within the liability for
unrecognized tax benefits in the amount of $6 million, was
reclassified to deferred income tax payable.
At December 31, 2009 and 2008, the Companys total
amount of unrecognized tax benefits was $44 million and
$48 million, respectively, and there were no amounts of
unrecognized tax benefits that would affect the effective tax
rate, if recognized.
The Company does not anticipate any material change in the total
amount of unrecognized tax benefits over the ensuing
12 month period.
A reconciliation of the beginning and ending amount of
unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Balance at beginning of the period
|
|
$
|
48
|
|
|
$
|
53
|
|
|
$
|
64
|
|
Additions for tax positions of prior years
|
|
|
2
|
|
|
|
|
|
|
|
|
|
Reductions for tax positions of prior years
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
Additions for tax positions of current year
|
|
|
|
|
|
|
2
|
|
|
|
5
|
|
Reductions for tax positions of current year
|
|
|
(6
|
)
|
|
|
(7
|
)
|
|
|
(8
|
)
|
Settlements with tax authorities
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of the period
|
|
$
|
44
|
|
|
$
|
48
|
|
|
$
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-102
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
During the year ended December 31, 2007, the Company
recognized $2 million in interest expense associated with
the liability for unrecognized tax benefits. At
December 31, 2007, the Company had $3 million of
accrued interest associated with the liability for unrecognized
tax benefits, an increase of $2 million from
January 1, 2007.
During the year ended December 31, 2008, the Company
recognized $1 million in interest expense associated with
the liability for unrecognized tax benefits. At
December 31, 2008, the Company had $4 million of
accrued interest associated with the liability for unrecognized
tax benefits, an increase of $1 million from
December 31, 2007.
During the year ended December 31, 2009, the Company
recognized less than $1 million in interest expense
associated with the liability for unrecognized tax benefits. At
December 31, 2009, the Company had $4 million of
accrued interest associated with the liability for unrecognized
tax benefits.
The U.S. Treasury Department and the IRS have indicated
that they intend to address through regulations the methodology
to be followed in determining the dividends received deduction
(DRD), related to variable life insurance and
annuity contracts. The DRD reduces the amount of dividend income
subject to tax and is a significant component of the difference
between the actual tax expense and expected amount determined
using the federal statutory tax rate of 35%. Any regulations
that the IRS ultimately proposes for issuance in this area will
be subject to public notice and comment, at which time insurance
companies and other interested parties will have the opportunity
to raise legal and practical questions about the content, scope
and application of such regulations. As a result, the ultimate
timing and substance of any such regulations are unknown at this
time. For the years ended December 31, 2009 and 2008, the
Company recognized an income tax benefit of $68 million and
$64 million, respectively, related to the separate account
DRD. The 2009 benefit included a benefit of $16 million
related to a
true-up of
the prior year tax return.
|
|
11.
|
Contingencies,
Commitments and Guarantees
|
Contingencies
Litigation
The Company is a defendant in a number of litigation matters. In
some of the matters, large
and/or
indeterminate amounts, including punitive and treble damages,
are sought. Modern pleading practice in the United States
permits considerable variation in the assertion of monetary
damages or other relief. Jurisdictions may permit claimants not
to specify the monetary damages sought or may permit claimants
to state only that the amount sought is sufficient to invoke the
jurisdiction of the trial court. In addition, jurisdictions may
permit plaintiffs to allege monetary damages in amounts well
exceeding reasonably possible verdicts in the jurisdiction for
similar matters. This variability in pleadings, together with
the actual experience of the Company in litigating or resolving
through settlement numerous claims over an extended period of
time, demonstrate to management that the monetary relief which
may be specified in a lawsuit or claim bears little relevance to
its merits or disposition value. Thus, unless stated below, the
specific monetary relief sought is not noted.
Due to the vagaries of litigation, the outcome of a litigation
matter and the amount or range of potential loss at particular
points in time may normally be inherently impossible to
ascertain with any degree of certainty. Inherent uncertainties
can include how fact finders will view individually and in their
totality documentary evidence, the credibility and effectiveness
of witnesses testimony, and how trial and appellate courts
will apply the law in the context of the pleadings or evidence
presented, whether by motion practice, or at trial or on appeal.
Disposition valuations are also subject to the uncertainty of
how opposing parties and their counsel will themselves view the
relevant evidence and applicable law.
On a quarterly and annual basis, the Company reviews relevant
information with respect to litigation and contingencies to be
reflected in the Companys consolidated financial
statements. The review includes senior legal
F-103
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
and financial personnel. Estimates of possible losses or ranges
of loss for particular matters cannot in the ordinary course be
made with a reasonable degree of certainty. Liabilities are
established when it is probable that a loss has been incurred
and the amount of the loss can be reasonably estimated. It is
possible that some of the matters could require the Company to
pay damages or make other expenditures or establish accruals in
amounts that could not be estimated at December 31, 2009.
The Company has faced numerous claims, including class action
lawsuits, alleging improper marketing or sales of individual
life insurance policies, annuities, mutual funds or other
products. The Company continues to vigorously defend against the
claims in all pending matters. Some sales practices claims have
been resolved through settlement. Other sales practices claims
have been won by dispositive motions or have gone to trial. Most
of the current cases seek substantial damages, including in some
cases punitive and treble damages and attorneys fees.
Additional litigation relating to the Companys marketing
and sales of individual life insurance, annuities, mutual funds
or other products may be commenced in the future.
Travelers Ins. Co., et al. v. Banc of America Securities
LLC (S.D.N.Y., filed December 13, 2001). On
January 6, 2009, after a jury trial, the district court
entered a judgment in favor of The Travelers Insurance Company,
now known as MetLife Insurance Company of Connecticut, in the
amount of approximately $42 million in connection with
securities and common law claims against the defendant. On
May 14, 2009, the district court issued an opinion and
order denying the defendants post judgment motion seeking
a judgment in its favor or, in the alternative, a new trial. On
June 3, 2009, the defendant filed a notice of appeal from
the January 6, 2009 judgment and the May 14, 2009
opinion and order. As it is possible that the judgment could be
affected during appellate practice, and the Company has not
collected any portion of the judgment, the Company has not
recognized any award amount in its consolidated financial
statements.
A former Tower Square Securities financial services
representative is alleged to have misappropriated funds from 40
customers. The Illinois Securities Division, the
U.S. Postal Inspector, the IRS, FINRA and the
U.S. Attorneys Office are conducting inquiries.
Various litigation, claims and assessments against the Company,
in addition to those discussed previously and those otherwise
provided for in the Companys consolidated financial
statements, have arisen in the course of the Companys
business, including, but not limited to, in connection with its
activities as an insurer, employer, investor, investment advisor
and taxpayer. Further, state insurance regulatory authorities
and other federal and state authorities regularly make inquiries
and conduct investigations concerning the Companys
compliance with applicable insurance and other laws and
regulations.
It is not possible to predict the ultimate outcome of all
pending investigations and legal proceedings or provide
reasonable ranges of potential losses. In some of the matters
referred to previously, large
and/or
indeterminate amounts, including punitive and treble damages,
are sought. Although in light of these considerations it is
possible that an adverse outcome in certain cases could have a
material adverse effect upon the Companys financial
position, based on information currently known by the
Companys management, in its opinion, the outcomes of such
pending investigations and legal proceedings are not likely to
have such an effect. However, given the large
and/or
indeterminate amounts sought in certain of these matters and the
inherent unpredictability of litigation, it is possible that an
adverse outcome in certain matters could, from time to time,
have a material adverse effect on the Companys
consolidated net income or cash flows in particular quarterly or
annual periods.
Insolvency
Assessments
Most of the jurisdictions in which the Company is admitted to
transact business require insurers doing business within the
jurisdiction to participate in guaranty associations, which are
organized to pay contractual benefits owed pursuant to insurance
policies issued by impaired, insolvent or failed insurers. These
associations levy assessments, up to prescribed limits, on all
member insurers in a particular state on the basis of the
proportionate share of the
F-104
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
premiums written by member insurers in the lines of business in
which the impaired, insolvent or failed insurer engaged. Some
states permit member insurers to recover assessments paid
through full or partial premium tax offsets. Assets and
liabilities held for insolvency assessments are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Other Assets:
|
|
|
|
|
|
|
|
|
Premium tax offset for future undiscounted assessments
|
|
$
|
8
|
|
|
$
|
6
|
|
Premium tax offsets currently available for paid assessments
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9
|
|
|
$
|
7
|
|
|
|
|
|
|
|
|
|
|
Other Liabilities:
|
|
|
|
|
|
|
|
|
Insolvency assessments
|
|
$
|
13
|
|
|
$
|
10
|
|
|
|
|
|
|
|
|
|
|
Assessments levied against the Company were $1 million,
less than $1 million and less than $1 million for the
years ended December 31, 2009, 2008 and 2007, respectively.
Commitments
Leases
The Company, as lessee, has entered into lease agreements for
office space. Future sublease income is projected to be
insignificant. Future minimum rental income and minimum gross
rental payments relating to these lease agreements are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Rental
|
|
Rental
|
|
|
Income
|
|
Payments
|
|
|
(In millions)
|
|
2010
|
|
$
|
3
|
|
|
$
|
6
|
|
2011
|
|
$
|
3
|
|
|
$
|
6
|
|
2012
|
|
$
|
3
|
|
|
$
|
|
|
2013
|
|
$
|
3
|
|
|
$
|
|
|
2014
|
|
$
|
3
|
|
|
$
|
|
|
Thereafter
|
|
$
|
73
|
|
|
$
|
|
|
Commitments
to Fund Partnership Investments
The Company makes commitments to fund partnership investments in
the normal course of business. The amounts of these unfunded
commitments were $1.5 billion and $1.6 billion at
December 31, 2009 and 2008, respectively. The Company
anticipates that these amounts will be invested in partnerships
over the next five years.
Mortgage
Loan Commitments
The Company commits to lend funds under mortgage loan
commitments. The amounts of these mortgage loan commitments were
$131 million and $231 million at December 31,
2009 and 2008, respectively.
F-105
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Commitments
to Fund Bank Credit Facilities and Private Corporate Bond
Investments
The Company commits to lend funds under bank credit facilities
and private corporate bond investments. The amounts of these
unfunded commitments were $445 million and
$332 million at December 31, 2009 and 2008,
respectively.
Other
Commitments
The Company has entered into collateral arrangements with
affiliates, which require the transfer of collateral in
connection with secured demand notes. At December 31, 2009
and 2008, the Company had agreed to fund up to $126 million
and $135 million, respectively, of cash upon the request by
these affiliates and had transferred collateral consisting of
various securities with a fair market value of $158 million
and $160 million, respectively, to custody accounts to
secure the notes. Each of these affiliates is permitted by
contract to sell or repledge this collateral.
Guarantees
In the normal course of its business, the Company has provided
certain indemnities, guarantees and commitments to third parties
pursuant to which it may be required to make payments now or in
the future. In the context of acquisition, disposition,
investment and other transactions, the Company has provided
indemnities and guarantees, including those related to tax,
environmental and other specific liabilities, and other
indemnities and guarantees that are triggered by, among other
things, breaches of representations, warranties or covenants
provided by the Company. In addition, in the normal course of
business, the Company provides indemnifications to
counterparties in contracts with triggers similar to the
foregoing, as well as for certain other liabilities, such as
third-party lawsuits. These obligations are often subject to
time limitations that vary in duration, including contractual
limitations and those that arise by operation of law, such as
applicable statutes of limitation. In some cases, the maximum
potential obligation under the indemnities and guarantees is
subject to a contractual limitation, such as in the case of
MetLife International Insurance Company, Ltd.
(MLII), a former affiliate, discussed below, while
in other cases such limitations are not specified or applicable.
Since certain of these obligations are not subject to
limitations, the Company does not believe that it is possible to
determine the maximum potential amount that could become due
under these guarantees in the future. Management believes that
it is unlikely the Company will have to make any material
payments under these indemnities, guarantees, or commitments.
The Company has provided a guarantee on behalf of MLII that is
triggered if MLII cannot pay claims because of insolvency,
liquidation or rehabilitation. Life insurance coverage in-force,
representing the maximum potential obligation under this
guarantee, was $322 million and $347 million at
December 31, 2009 and 2008, respectively. The Company does
not hold any collateral related to this guarantee, but has a
recorded liability of $1 million that was based on the
total account value of the guaranteed policies plus the amounts
retained per policy at both December 31, 2009 and 2008. The
remainder of the risk was ceded to external reinsurers.
In addition, the Company indemnifies its directors and officers
as provided in its charters and by-laws. Also, the Company
indemnifies its agents for liabilities incurred as a result of
their representation of the Companys interests. Since
these indemnities are generally not subject to limitation with
respect to duration or amount, the Company does not believe that
it is possible to determine the maximum potential amount that
could become due under these indemnities in the future.
F-106
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Common
Stock
The Company has 40,000,000 authorized shares of common stock,
34,595,317 shares of which are outstanding at both
December 31, 2009 and 2008. Of such outstanding shares,
30,000,000 shares are owned directly by MetLife and the
remaining shares are owned by MLIG.
Statutory
Equity and Income
Each insurance companys state of domicile imposes minimum
risk-based capital (RBC) requirements that were
developed by the NAIC. The formulas for determining the amount
of RBC specify various weighting factors that are applied to
financial balances or various levels of activity based on the
perceived degree of risk. Regulatory compliance is determined by
a ratio of total adjusted capital, as defined by the NAIC, to
authorized control level RBC, as defined by the NAIC.
Companies below specific trigger points or ratios are classified
within certain levels, each of which requires specified
corrective action. MetLife Insurance Company of Connecticut and
MLI-USA each
exceeded the minimum RBC requirements for all periods presented
herein.
The NAIC has adopted the Codification of Statutory Accounting
Principles (Statutory Codification). Statutory
Codification is intended to standardize regulatory accounting
and reporting to state insurance departments. However, statutory
accounting principles continue to be established by individual
state laws and permitted practices. The Connecticut Insurance
Department and the Delaware Department of Insurance have adopted
Statutory Codification with certain modifications for the
preparation of statutory financial statements of insurance
companies domiciled in Connecticut and Delaware, respectively.
Modifications by the various state insurance departments may
impact the effect of Statutory Codification on the statutory
capital and surplus of MetLife Insurance Company of Connecticut
and MLI-USA.
Statutory accounting principles differ from GAAP primarily by
charging policy acquisition costs to expense as incurred,
establishing future policy benefit liabilities using different
actuarial assumptions, reporting surplus notes as surplus
instead of debt, reporting of reinsurance contracts and valuing
securities on a different basis.
In addition, certain assets are not admitted under statutory
accounting principles and are charged directly to surplus. The
most significant assets not admitted by the Company are net
deferred income tax assets resulting from temporary differences
between statutory accounting principles basis and tax basis not
expected to reverse and become recoverable within three years.
Statutory net income of MetLife Insurance Company of
Connecticut, a Connecticut domiciled insurer, was
$81 million, $242 million and $1,101 million for
the years ended December 31, 2009, 2008 and 2007,
respectively. Statutory capital and surplus, as filed with the
Connecticut Insurance Department, was $4.9 billion and
$5.5 billion at December 31, 2009 and 2008,
respectively.
Statutory net loss of MLI-USA, a Delaware domiciled insurer, was
$24 million, $482 million and $1,106 million for
the years ended December 31, 2009, 2008 and 2007,
respectively. Statutory capital and surplus, as filed with the
Delaware Insurance Department, was $1,406 million and
$761 million at December 31, 2009 and 2008,
respectively.
Dividend
Restrictions
Under Connecticut State Insurance Law, MetLife Insurance Company
of Connecticut is permitted, without prior insurance regulatory
clearance, to pay stockholder dividends to its stockholders as
long as the amount of such dividends, when aggregated with all
other dividends in the preceding 12 months, does not exceed
the greater of: (i) 10% of its surplus to policyholders as
of the end of the immediately preceding calendar year; or
(ii) its statutory net gain from operations for the
immediately preceding calendar year. MetLife Insurance Company
of Connecticut
F-107
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
will be permitted to pay a dividend in excess of the greater of
such two amounts only if it files notice of its declaration of
such a dividend and the amount thereof with the Connecticut
Commissioner of Insurance (the Connecticut
Commissioner) and the Connecticut Commissioner does not
disapprove the payment within 30 days after notice. In
addition, any dividend that exceeds earned surplus (unassigned
funds, reduced by 25% of unrealized appreciation in value or
revaluation of assets or unrealized profits on investments) as
of the last filed annual statutory statement requires insurance
regulatory approval. Under Connecticut State Insurance Law, the
Connecticut Commissioner has broad discretion in determining
whether the financial condition of a stock life insurance
company would support the payment of such dividends to its
shareholders. During the year ended December 31, 2009,
MetLife Insurance Company of Connecticut did not pay a dividend
to its stockholders. During the years ended December 31,
2008 and 2007, MetLife Insurance Company of Connecticut paid a
dividend of $500 million and $690 million,
respectively. Of the $690 million, $404 million was a
return of capital as approved by the insurance regulator. The
maximum amount of dividends which MetLife Insurance Company of
Connecticut may pay to its stockholders in 2010 without prior
regulatory approval is $659 million.
Under Delaware State Insurance Law, MLI-USA is permitted,
without prior insurance regulatory clearance, to pay a
stockholder dividend to its parent as long as the amount of the
dividend when aggregated with all other dividends in the
preceding 12 months, does not exceed the greater of:
(i) 10% of its surplus to policyholders as of the end of
the immediately preceding calendar year; or (ii) its
statutory net gain from operations for the immediately preceding
calendar year (excluding realized capital gains). MLI-USA will
be permitted to pay a dividend to MetLife Insurance Company of
Connecticut in excess of the greater of such two amounts only if
it files notice of the declaration of such a dividend and the
amount thereof with the Delaware Commissioner and the Delaware
Commissioner does not disapprove the distribution within
30 days of its filing. In addition, any dividend that
exceeds earned surplus (defined as unassigned funds) as of the
last filed annual statutory statement requires insurance
regulatory approval. Under Delaware State Insurance Law, the
Delaware Commissioner has broad discretion in determining
whether the financial condition of a stock life insurance
company would support the payment of such dividends to its
stockholders. During the years ended December 31, 2009,
2008 and 2007,
MLI-USA did
not pay dividends to MetLife Insurance Company of Connecticut.
Because MLI-USAs statutory unassigned funds was negative
as of December 31, 2009, MLI-USA cannot pay any dividends
in 2010 without prior regulatory approval.
F-108
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Other
Comprehensive Income (Loss)
The following table sets forth the reclassification adjustments
required for the years ended December 31, 2009, 2008 and
2007 in other comprehensive income (loss) that are included as
part of net income for the current year that have been reported
as a part of other comprehensive income (loss) in the current or
prior year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Holding gains (losses) on investments arising during the year
|
|
$
|
3,365
|
|
|
$
|
(5,022
|
)
|
|
$
|
(358
|
)
|
Income tax effect of holding gains (losses)
|
|
|
(1,174
|
)
|
|
|
1,760
|
|
|
|
122
|
|
Reclassification adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized holding (gains) losses included in current year income
|
|
|
588
|
|
|
|
674
|
|
|
|
260
|
|
Amortization of premiums and accretion of discounts associated
with investments
|
|
|
(83
|
)
|
|
|
(48
|
)
|
|
|
|
|
Income tax effect
|
|
|
(176
|
)
|
|
|
(220
|
)
|
|
|
(88
|
)
|
Allocation of holding (gains) losses on investments relating to
other policyholder amounts
|
|
|
(755
|
)
|
|
|
823
|
|
|
|
27
|
|
Income tax effect of allocation of holding (gains) losses to
other policyholder amounts
|
|
|
263
|
|
|
|
(288
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized investment gains (losses), net of income tax
|
|
|
2,028
|
|
|
|
(2,321
|
)
|
|
|
(47
|
)
|
Foreign currency translation adjustment, net of income tax
|
|
|
45
|
|
|
|
(166
|
)
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), excluding cumulative effect
of change in accounting principle
|
|
|
2,073
|
|
|
|
(2,487
|
)
|
|
|
(35
|
)
|
Cumulative effect of change in accounting principle, net of
income tax of $12 million, effective April 1, 2009
(See Note 1)
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
$
|
2,051
|
|
|
$
|
(2,487
|
)
|
|
$
|
(35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information on other expenses is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Compensation
|
|
$
|
148
|
|
|
$
|
118
|
|
|
$
|
121
|
|
Commissions
|
|
|
794
|
|
|
|
733
|
|
|
|
633
|
|
Interest and debt issue costs
|
|
|
72
|
|
|
|
74
|
|
|
|
35
|
|
Affiliated interest costs on ceded reinsurance
|
|
|
107
|
|
|
|
96
|
|
|
|
31
|
|
Amortization of DAC and VOBA
|
|
|
294
|
|
|
|
1,163
|
|
|
|
740
|
|
Capitalization of DAC
|
|
|
(851
|
)
|
|
|
(835
|
)
|
|
|
(682
|
)
|
Rent
|
|
|
4
|
|
|
|
4
|
|
|
|
5
|
|
Insurance tax
|
|
|
45
|
|
|
|
38
|
|
|
|
44
|
|
Other
|
|
|
594
|
|
|
|
542
|
|
|
|
519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
$
|
1,207
|
|
|
$
|
1,933
|
|
|
$
|
1,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-109
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Interest
and Debt Issue Costs
Interest and debt issue costs include interest expense on debt
(see Note 9) and interest on tax audits.
Amortization
and Capitalization of DAC and VOBA
See Note 5 for deferred acquisition costs by segment and a
rollforward of deferred acquisition costs including impacts of
amortization and capitalization.
Affiliated
Expenses
Commissions, amortization of DAC and capitalization of DAC
include the impact of affiliated reinsurance transactions.
See Notes 8, 9 and 16 for discussion of affiliated expenses
included in the table above.
|
|
14.
|
Business
Segment Information
|
As described in Note 1, during 2009, the Company realigned
its former institutional and individual businesses into three
operating segments: Retirement Products, Corporate Benefit
Funding and Insurance Products segments. In addition, the
Company reports certain of its operations in
Corporate & Other.
Retirement Products offers asset accumulation and income
products, including a wide variety of annuities. Corporate
Benefit Funding offers pension risk solutions, structured
settlements, stable value & investment products and
other benefit funding products. Insurance Products offers a
broad range of protection products and services to individuals,
corporations and other institutions, and is organized into two
distinct businesses: Individual Life and Non-Medical Health.
Individual Life includes variable life, universal life, term
life and whole life insurance products. Non-Medical Health
includes individual disability insurance products.
Corporate & Other contains the excess capital not
allocated to the business segments, various domestic and
international
start-up
entities and run-off business, the Companys ancillary
international operations, interest expense related to the
majority of the Companys outstanding debt and expenses
associated with certain legal proceedings and income tax audit
issues. Corporate & Other also includes the
elimination of intersegment amounts, which generally relate to
intersegment loans, which bear interest rates commensurate with
related borrowings.
Operating earnings is the measure of segment profit or loss the
Company uses to evaluate segment performance and allocate
resources. Consistent with GAAP accounting guidance for segment
reporting, it is the Companys measure of segment
performance reported below. Operating earnings is not determined
in accordance with GAAP and should not be viewed as a substitute
for GAAP income (loss) from continuing operations, net of income
tax. However, the Company believes the presentation of operating
earnings herein as we measure it for management purposes
enhances the understanding of segment performance by
highlighting the results from operations and the underlying
profitability drivers of the businesses.
Operating earnings is defined as operating revenues less
operating expenses, net of income tax.
Operating revenues is defined as GAAP revenues (i) less net
investment gains (losses), (ii) less amortization of
unearned revenue related to net investment gains (losses),
(iii) plus scheduled periodic settlement payments on
derivative instruments that are hedges of investments but do not
qualify for hedge accounting treatment, (iv) plus income
from discontinued real estate operations, if applicable, and
(v) plus, for operating joint ventures reported under the
equity method of accounting, the aforementioned adjustments and
those identified in the definition of operating expenses, net of
income tax, if applicable to these joint ventures.
Operating expenses is defined as GAAP expenses (i) less
changes in experience-rated contractholder liabilities due to
asset value fluctuations, (ii) less costs related to
business combinations (since January 1, 2009),
(iii) less
F-110
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
amortization of DAC and VOBA related to net investment gains
(losses) and (iv) plus scheduled periodic settlement
payments on derivative instruments that are hedges of
policyholder account balances but do not qualify for hedge
accounting treatment.
Set forth in the tables below is certain financial information
with respect to the Companys segments, as well as
Corporate & Other for the years ended
December 31, 2009, 2008 and 2007 and at December 31,
2009 and 2008. The accounting policies of the segments are the
same as those of the Company, except for the method of capital
allocation and the accounting for gains (losses) from
intercompany sales, which are eliminated in consolidation.
Economic capital is an internally developed risk capital model,
the purpose of which is to measure the risk in the business and
to provide a basis upon which capital is deployed. The economic
capital model accounts for the unique and specific nature of the
risks inherent in MetLifes businesses. As a part of the
economic capital process, a portion of net investment income is
credited to the segments based on the level of allocated equity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement
|
|
|
Benefit
|
|
|
Insurance
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Total
|
|
Year Ended December 31, 2009:
|
|
Products
|
|
|
Funding
|
|
|
Products
|
|
|
& Other
|
|
|
Total
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
339
|
|
|
$
|
849
|
|
|
$
|
124
|
|
|
$
|
|
|
|
$
|
1,312
|
|
|
$
|
|
|
|
$
|
1,312
|
|
Universal life and investment-type product policy fees
|
|
|
748
|
|
|
|
29
|
|
|
|
618
|
|
|
|
5
|
|
|
|
1,400
|
|
|
|
(20
|
)
|
|
|
1,380
|
|
Net investment income
|
|
|
884
|
|
|
|
1,061
|
|
|
|
381
|
|
|
|
40
|
|
|
|
2,366
|
|
|
|
(31
|
)
|
|
|
2,335
|
|
Other revenues
|
|
|
264
|
|
|
|
6
|
|
|
|
328
|
|
|
|
|
|
|
|
598
|
|
|
|
|
|
|
|
598
|
|
Net investment gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,866
|
)
|
|
|
(1,866
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
2,235
|
|
|
|
1,945
|
|
|
|
1,451
|
|
|
|
45
|
|
|
|
5,676
|
|
|
|
(1,917
|
)
|
|
|
3,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims
|
|
|
420
|
|
|
|
1,360
|
|
|
|
223
|
|
|
|
1
|
|
|
|
2,004
|
|
|
|
61
|
|
|
|
2,065
|
|
Interest credited to policyholder account balances
|
|
|
741
|
|
|
|
265
|
|
|
|
243
|
|
|
|
91
|
|
|
|
1,340
|
|
|
|
(39
|
)
|
|
|
1,301
|
|
Capitalization of DAC
|
|
|
(528
|
)
|
|
|
(2
|
)
|
|
|
(285
|
)
|
|
|
(36
|
)
|
|
|
(851
|
)
|
|
|
|
|
|
|
(851
|
)
|
Amortization of DAC and VOBA
|
|
|
329
|
|
|
|
3
|
|
|
|
271
|
|
|
|
2
|
|
|
|
605
|
|
|
|
(311
|
)
|
|
|
294
|
|
Interest expense
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
69
|
|
|
|
71
|
|
|
|
|
|
|
|
71
|
|
Other expenses
|
|
|
928
|
|
|
|
34
|
|
|
|
648
|
|
|
|
84
|
|
|
|
1,694
|
|
|
|
(1
|
)
|
|
|
1,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefits and expenses
|
|
|
1,890
|
|
|
|
1,662
|
|
|
|
1,100
|
|
|
|
211
|
|
|
|
4,863
|
|
|
|
(290
|
)
|
|
|
4,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
121
|
|
|
|
97
|
|
|
|
123
|
|
|
|
(138
|
)
|
|
|
203
|
|
|
|
(571
|
)
|
|
|
(368
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
224
|
|
|
$
|
186
|
|
|
$
|
228
|
|
|
$
|
(28
|
)
|
|
|
610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
(1,917
|
)
|
|
|
|
|
|
|
|
|
Total benefits and expenses
|
|
|
290
|
|
|
|
|
|
|
|
|
|
Provision for income tax (expense) benefit
|
|
|
571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of income tax
|
|
$
|
(446
|
)
|
|
|
|
|
|
$
|
(446
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement
|
|
|
Benefit
|
|
|
Insurance
|
|
|
Corporate
|
|
|
|
|
At December 31, 2009:
|
|
Products
|
|
|
Funding
|
|
|
Products
|
|
|
& Other
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Total assets
|
|
$
|
73,840
|
|
|
$
|
28,046
|
|
|
$
|
13,647
|
|
|
$
|
12,156
|
|
|
$
|
127,689
|
|
Separate account assets
|
|
$
|
47,000
|
|
|
$
|
1,502
|
|
|
$
|
947
|
|
|
$
|
|
|
|
$
|
49,449
|
|
Separate account liabilities
|
|
$
|
47,000
|
|
|
$
|
1,502
|
|
|
$
|
947
|
|
|
$
|
|
|
|
$
|
49,449
|
|
F-111
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement
|
|
|
Benefit
|
|
|
Insurance
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Total
|
|
Year Ended December 31, 2008:
|
|
Products
|
|
|
Funding
|
|
|
Products
|
|
|
& Other
|
|
|
Total
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
118
|
|
|
$
|
415
|
|
|
$
|
90
|
|
|
$
|
11
|
|
|
$
|
634
|
|
|
$
|
|
|
|
$
|
634
|
|
Universal life and investment-type product policy fees
|
|
|
831
|
|
|
|
41
|
|
|
|
486
|
|
|
|
3
|
|
|
|
1,361
|
|
|
|
17
|
|
|
|
1,378
|
|
Net investment income
|
|
|
788
|
|
|
|
1,334
|
|
|
|
337
|
|
|
|
59
|
|
|
|
2,518
|
|
|
|
(24
|
)
|
|
|
2,494
|
|
Other revenues
|
|
|
160
|
|
|
|
9
|
|
|
|
55
|
|
|
|
6
|
|
|
|
230
|
|
|
|
|
|
|
|
230
|
|
Net investment gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
549
|
|
|
|
549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,897
|
|
|
|
1,799
|
|
|
|
968
|
|
|
|
79
|
|
|
|
4,743
|
|
|
|
542
|
|
|
|
5,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims
|
|
|
384
|
|
|
|
893
|
|
|
|
193
|
|
|
|
29
|
|
|
|
1,499
|
|
|
|
(53
|
)
|
|
|
1,446
|
|
Interest credited to policyholder account balances
|
|
|
479
|
|
|
|
430
|
|
|
|
223
|
|
|
|
(21
|
)
|
|
|
1,111
|
|
|
|
19
|
|
|
|
1,130
|
|
Capitalization of DAC
|
|
|
(474
|
)
|
|
|
(5
|
)
|
|
|
(347
|
)
|
|
|
(9
|
)
|
|
|
(835
|
)
|
|
|
|
|
|
|
(835
|
)
|
Amortization of DAC and VOBA
|
|
|
640
|
|
|
|
13
|
|
|
|
283
|
|
|
|
2
|
|
|
|
938
|
|
|
|
225
|
|
|
|
1,163
|
|
Interest expense
|
|
|
1
|
|
|
|
2
|
|
|
|
|
|
|
|
69
|
|
|
|
72
|
|
|
|
|
|
|
|
72
|
|
Other expenses
|
|
|
769
|
|
|
|
36
|
|
|
|
683
|
|
|
|
45
|
|
|
|
1,533
|
|
|
|
|
|
|
|
1,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefits and expenses
|
|
|
1,799
|
|
|
|
1,369
|
|
|
|
1,035
|
|
|
|
115
|
|
|
|
4,318
|
|
|
|
191
|
|
|
|
4,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
34
|
|
|
|
150
|
|
|
|
(24
|
)
|
|
|
(79
|
)
|
|
|
81
|
|
|
|
122
|
|
|
|
203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
64
|
|
|
$
|
280
|
|
|
$
|
(43
|
)
|
|
$
|
43
|
|
|
|
344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
542
|
|
|
|
|
|
|
|
|
|
Total benefits and expenses
|
|
|
(191
|
)
|
|
|
|
|
|
|
|
|
Provision for income tax (expense) benefit
|
|
|
(122
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of income
tax
|
|
$
|
573
|
|
|
|
|
|
|
$
|
573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement
|
|
|
Benefit
|
|
|
Insurance
|
|
|
Corporate
|
|
|
|
|
At December 31, 2008:
|
|
Products
|
|
|
Funding
|
|
|
Products
|
|
|
& Other
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Total assets
|
|
$
|
57,743
|
|
|
$
|
28,796
|
|
|
$
|
12,217
|
|
|
$
|
13,268
|
|
|
$
|
112,024
|
|
Separate account assets
|
|
$
|
33,763
|
|
|
$
|
1,398
|
|
|
$
|
731
|
|
|
$
|
|
|
|
$
|
35,892
|
|
Separate account liabilities
|
|
$
|
33,763
|
|
|
$
|
1,398
|
|
|
$
|
731
|
|
|
$
|
|
|
|
$
|
35,892
|
|
F-112
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement
|
|
|
Benefit
|
|
|
Insurance
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Total
|
|
Year Ended December 31, 2007:
|
|
Products
|
|
|
Funding
|
|
|
Products
|
|
|
& Other
|
|
|
Total
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
136
|
|
|
$
|
25
|
|
|
$
|
168
|
|
|
$
|
24
|
|
|
$
|
353
|
|
|
$
|
|
|
|
$
|
353
|
|
Universal life and investment-type product policy fees
|
|
|
885
|
|
|
|
39
|
|
|
|
496
|
|
|
|
2
|
|
|
|
1,422
|
|
|
|
(11
|
)
|
|
|
1,411
|
|
Net investment income
|
|
|
801
|
|
|
|
1,528
|
|
|
|
320
|
|
|
|
293
|
|
|
|
2,942
|
|
|
|
(49
|
)
|
|
|
2,893
|
|
Other revenues
|
|
|
173
|
|
|
|
14
|
|
|
|
64
|
|
|
|
|
|
|
|
251
|
|
|
|
|
|
|
|
251
|
|
Net investment gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(142
|
)
|
|
|
(142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,995
|
|
|
|
1,606
|
|
|
|
1,048
|
|
|
|
319
|
|
|
|
4,968
|
|
|
|
(202
|
)
|
|
|
4,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims
|
|
|
239
|
|
|
|
492
|
|
|
|
239
|
|
|
|
33
|
|
|
|
1,003
|
|
|
|
(25
|
)
|
|
|
978
|
|
Interest credited to policyholder account balances
|
|
|
447
|
|
|
|
604
|
|
|
|
214
|
|
|
|
|
|
|
|
1,265
|
|
|
|
34
|
|
|
|
1,299
|
|
Capitalization of DAC
|
|
|
(493
|
)
|
|
|
(8
|
)
|
|
|
(179
|
)
|
|
|
(2
|
)
|
|
|
(682
|
)
|
|
|
|
|
|
|
(682
|
)
|
Amortization of DAC and VOBA
|
|
|
475
|
|
|
|
23
|
|
|
|
214
|
|
|
|
|
|
|
|
712
|
|
|
|
28
|
|
|
|
740
|
|
Interest expense
|
|
|
2
|
|
|
|
|
|
|
|
1
|
|
|
|
30
|
|
|
|
33
|
|
|
|
|
|
|
|
33
|
|
Other expenses
|
|
|
798
|
|
|
|
33
|
|
|
|
485
|
|
|
|
39
|
|
|
|
1,355
|
|
|
|
|
|
|
|
1,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefits and expenses
|
|
|
1,468
|
|
|
|
1,144
|
|
|
|
974
|
|
|
|
100
|
|
|
|
3,686
|
|
|
|
37
|
|
|
|
3,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
187
|
|
|
|
158
|
|
|
|
27
|
|
|
|
17
|
|
|
|
389
|
|
|
|
(86
|
)
|
|
|
303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
340
|
|
|
$
|
304
|
|
|
$
|
47
|
|
|
$
|
202
|
|
|
|
893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
(202
|
)
|
|
|
|
|
|
|
|
|
Total benefits and expenses
|
|
|
(37
|
)
|
|
|
|
|
|
|
|
|
Provision for income tax (expense) benefit
|
|
|
86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of income
tax
|
|
$
|
740
|
|
|
|
|
|
|
$
|
740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income and net investment gains (losses) are
based upon the actual results of each segments
specifically identifiable asset portfolio adjusted for allocated
equity. Other costs are allocated to each of the segments based
upon: (i) a review of the nature of such costs;
(ii) time studies analyzing the amount of employee
compensation costs incurred by each segment; and (iii) cost
estimates included in the Companys product pricing.
Revenues derived from any customer did not exceed 10% of
consolidated revenues for the years ended December 31,
2009, 2008 and 2007. Revenues from U.S. operations were
$2.9 billion and $4.9 billion for the years ended
December 31, 2009 and 2008, respectively, which represented
76% and 92%, respectively, of consolidated revenues.
Substantially all of the Companys revenue originated in
the U.S. for the year ended December 31, 2007.
|
|
15.
|
Discontinued
Operations
|
The Company actively manages its real estate portfolio with the
objective of maximizing earnings through selective acquisitions
and dispositions. Income related to real estate classified as
held-for-sale
or sold is presented in discontinued operations. These assets
are carried at the lower of depreciated cost or estimated fair
value less expected disposition costs.
The Company did not have any discontinued operations for either
of the years ended December 31, 2009 or 2008. In the
Corporate Benefit Funding segment, the Company had net
investment income of $1 million, net investment gains of
$5 million and income tax of $2 million related to
discontinued operations, resulting in income from discontinued
operations of $4 million, net of income tax, for the year
ended December 31, 2007.
F-113
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
|
|
16.
|
Related
Party Transactions
|
Service
Agreements
The Company has entered into a master service agreement with
MLIC which provides administrative, accounting, legal and
similar services to the Company. MLIC charged the Company
$338 million, $256 million and $271 million,
included in other expenses, for services performed under the
master service agreement for the years ended December 31,
2009, 2008 and 2007, respectively.
The Company has entered into a service agreement with MetLife
Group, Inc. (MetLife Group), a wholly owned
subsidiary of MetLife, under which MetLife Group provides
personnel services, as needed, to support the activities of the
Company. MetLife Group charged the Company $113 million,
$108 million and $107 million, included in other
expenses, for services performed under the service agreement for
the years ended December 31, 2009, 2008 and 2007,
respectively.
The Company has entered into marketing agreements with several
affiliates (Distributors), in which the Distributors
agree to sell, on the Companys behalf, insurance products
through authorized retailers. The Company agrees to compensate
the Distributors for the sale and servicing of such insurance
products in accordance with the terms of the agreements. The
Distributors charged the Company $149 million,
$148 million and $117 million, included in other
expenses, for the years ended December 31, 2009, 2008 and
2007, respectively.
The Company has entered into a distribution service agreement
with MetLife Investors Distribution Company (MDC),
in which MDC agrees to sell, on the Companys behalf,
insurance products through authorized retailers. The Company
agrees to compensate MDC for the sale and servicing of such
insurance products in accordance with the terms of the
agreement. MDC charged the Company $499 million,
$442 million and $517 million, included in other
expenses, for the years ended December 31, 2009, 2008 and
2007, respectively. In addition, the Company has entered into
service agreements with MDC, in which the Company agrees to
provide certain administrative services to MDC. MDC agrees to
compensate the Company for the administrative services provided
in accordance with the terms of the agreements. The Company
received fee revenue of $71 million, $65 million and
$62 million, included in other revenues, for the years
ended December 31, 2009, 2008 and 2007, respectively.
The Company has entered into a global service agreement with
MetLife Services and Solutions, LLC (MetLife
Services) which provides financial control and reporting
processes, as well as procurement services to support the
activities of the Company. MetLife Services charged the Company
$1 million included in other expenses, for services
performed under the global service agreement for both years
ended December 31, 2009 and 2008. The Company did not incur
any such expenses for the year ended December 31, 2007.
The Company has entered into an investment service agreement
with several affiliates (Advisors), in which the
Advisors provide investment advisory and administrative services
to registered investment companies which serve as investment
vehicles for certain insurance contracts issued by the Company.
Under the terms of the agreement, the net profit or loss of the
Advisors is allocated to the Company resulting in revenue of
$85 million, $91 million and $90 million included
in universal life and investment-type product policy fees, for
the years ended December 31, 2009, 2008 and 2007,
respectively.
The Company had net receivables from affiliates of
$46 million and $92 million at December 31, 2009
and 2008, respectively, related to the items discussed above.
These amounts exclude affiliated reinsurance balances discussed
in Note 8. See Notes 2, 8 and 9 for additional related
party transactions.
The Company evaluated the recognition and disclosure of
subsequent events for its December 31, 2009 consolidated
financial statements.
F-114
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Schedule I
Consolidated
Summary of Investments
Other Than Investments in Related Parties
December 31, 2009
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
Amount at
|
|
|
|
Cost or
|
|
|
Fair
|
|
|
Which Shown on
|
|
Type of Investments
|
|
Amortized Cost (1)
|
|
|
Value
|
|
|
Balance Sheet
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and agency securities
|
|
$
|
6,503
|
|
|
$
|
6,257
|
|
|
$
|
6,257
|
|
Foreign government securities
|
|
|
608
|
|
|
|
645
|
|
|
|
645
|
|
Public utilities
|
|
|
2,380
|
|
|
|
2,396
|
|
|
|
2,396
|
|
State and political subdivision securities
|
|
|
1,291
|
|
|
|
1,179
|
|
|
|
1,179
|
|
All other corporate bonds
|
|
|
19,186
|
|
|
|
19,230
|
|
|
|
19,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bonds
|
|
|
29,968
|
|
|
|
29,707
|
|
|
|
29,707
|
|
Mortgage-backed and asset-backed securities
|
|
|
11,143
|
|
|
|
10,458
|
|
|
|
10,458
|
|
Redeemable preferred stock
|
|
|
1,324
|
|
|
|
1,110
|
|
|
|
1,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
|
42,435
|
|
|
|
41,275
|
|
|
|
41,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
|
868
|
|
|
|
938
|
|
|
|
938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock
|
|
|
351
|
|
|
|
306
|
|
|
|
306
|
|
Common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial, miscellaneous and all other
|
|
|
143
|
|
|
|
153
|
|
|
|
153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
|
494
|
|
|
|
459
|
|
|
|
459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans
|
|
|
4,748
|
|
|
|
|
|
|
|
4,748
|
|
Policy loans
|
|
|
1,189
|
|
|
|
|
|
|
|
1,189
|
|
Real estate and real estate joint ventures
|
|
|
445
|
|
|
|
|
|
|
|
445
|
|
Other limited partnership interests
|
|
|
1,236
|
|
|
|
|
|
|
|
1,236
|
|
Short-term investments
|
|
|
1,775
|
|
|
|
|
|
|
|
1,775
|
|
Other invested assets
|
|
|
1,498
|
|
|
|
|
|
|
|
1,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
54,688
|
|
|
|
|
|
|
$
|
53,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Companys trading securities portfolio is mainly
comprised of fixed maturity and equity securities. Cost or
amortized cost for fixed maturity securities and mortgage loans
represents original cost reduced by repayments, valuation
allowances and impairments from
other-than-temporary
declines in estimated fair value that are charged to earnings
and adjusted for amortization of premiums or discounts; for
equity securities, cost represents original cost reduced by
impairments from
other-than-temporary
declines in estimated fair value; for real estate, cost
represents original cost reduced by impairments and adjusted for
valuation allowances and depreciation; for real estate joint
ventures and other limited partnership interests cost represents
original cost reduced for
other-than-temporary
impairments or original cost adjusted for equity in earnings and
distributions. |
F-115
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Schedule II
Condensed
Financial Information of Registrant
December 31, 2009 and 2008
(In millions, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Condensed Balance Sheets
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
|
|
|
Fixed maturity securities
available-for-sale,
at estimated fair value (amortized cost: $33,325 and $34,567,
respectively)
|
|
$
|
32,132
|
|
|
$
|
30,172
|
|
Equity securities
available-for-sale,
at estimated fair value (cost: $484 and $662, respectively)
|
|
|
448
|
|
|
|
467
|
|
Trading securities, at estimated fair value (cost: $0 and $50,
respectively)
|
|
|
|
|
|
|
50
|
|
Mortgage loans (net of valuation allowances of $52 and $19,
respectively)
|
|
|
4,122
|
|
|
|
4,060
|
|
Policy loans
|
|
|
1,139
|
|
|
|
1,151
|
|
Real estate and real estate joint ventures
|
|
|
278
|
|
|
|
367
|
|
Other limited partnership interests
|
|
|
925
|
|
|
|
947
|
|
Short-term investments
|
|
|
923
|
|
|
|
1,539
|
|
Investment in subsidiaries
|
|
|
4,131
|
|
|
|
3,411
|
|
Other invested assets
|
|
|
1,467
|
|
|
|
2,136
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
|
45,565
|
|
|
|
44,300
|
|
Cash and cash equivalents
|
|
|
1,817
|
|
|
|
4,753
|
|
Accrued investment income
|
|
|
397
|
|
|
|
421
|
|
Premiums and other receivables
|
|
|
5,827
|
|
|
|
5,501
|
|
Receivables from subsidiaries
|
|
|
627
|
|
|
|
348
|
|
Deferred policy acquisition costs and value of business acquired
|
|
|
2,640
|
|
|
|
3,344
|
|
Deferred income tax assets
|
|
|
1,513
|
|
|
|
2,272
|
|
Goodwill
|
|
|
885
|
|
|
|
885
|
|
Other assets
|
|
|
162
|
|
|
|
167
|
|
Separate account assets
|
|
|
19,491
|
|
|
|
17,375
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
78,924
|
|
|
$
|
79,366
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Future policy benefits
|
|
$
|
19,036
|
|
|
$
|
18,993
|
|
Policyholder account balances
|
|
|
26,127
|
|
|
|
28,283
|
|
Other policyholder funds
|
|
|
466
|
|
|
|
415
|
|
Payables for collateral under securities loaned and other
transactions
|
|
|
5,562
|
|
|
|
6,983
|
|
Short-term debt
|
|
|
|
|
|
|
300
|
|
Long-term debt affiliated
|
|
|
950
|
|
|
|
950
|
|
Current income tax payable
|
|
|
7
|
|
|
|
64
|
|
Other liabilities
|
|
|
724
|
|
|
|
1,069
|
|
Separate account liabilities
|
|
|
19,491
|
|
|
|
17,375
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
72,363
|
|
|
|
74,432
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity
|
|
|
|
|
|
|
|
|
Common stock, par value $2.50 per share; 40,000,000 shares
authorized; 34,595,317 shares issued and outstanding at
December 31, 2009 and 2008, respectively
|
|
|
86
|
|
|
|
86
|
|
Additional paid-in capital
|
|
|
6,719
|
|
|
|
6,719
|
|
Retained earnings
|
|
|
541
|
|
|
|
965
|
|
Accumulated other comprehensive loss
|
|
|
(785
|
)
|
|
|
(2,836
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
6,561
|
|
|
|
4,934
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
78,924
|
|
|
$
|
79,366
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the condensed financial information.
F-116
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Schedule II
Condensed Financial Information of Registrant
(Continued)
For the Years Ended December 31, 2009, 2008 and 2007
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Condensed Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
141
|
|
|
$
|
110
|
|
|
$
|
177
|
|
Universal life and investment-type product policy fees
|
|
|
631
|
|
|
|
741
|
|
|
|
841
|
|
Net investment income
|
|
|
1,895
|
|
|
|
2,226
|
|
|
|
2,588
|
|
Equity in earnings from subsidiaries
|
|
|
(316
|
)
|
|
|
278
|
|
|
|
248
|
|
Other income
|
|
|
328
|
|
|
|
60
|
|
|
|
66
|
|
Net investment gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-than-temporary
impairments on fixed maturity securities
|
|
|
(534
|
)
|
|
|
(386
|
)
|
|
|
(28
|
)
|
Other-than-temporary
impairments on fixed maturity securities transferred to other
comprehensive loss
|
|
|
160
|
|
|
|
|
|
|
|
|
|
Other net investment gains (losses), net
|
|
|
(823
|
)
|
|
|
207
|
|
|
|
(317
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net investment gains (losses)
|
|
|
(1,197
|
)
|
|
|
(179
|
)
|
|
|
(345
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,482
|
|
|
|
3,236
|
|
|
|
3,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims
|
|
|
801
|
|
|
|
682
|
|
|
|
741
|
|
Interest credited to policyholder account balances
|
|
|
801
|
|
|
|
896
|
|
|
|
1,057
|
|
Other expenses
|
|
|
494
|
|
|
|
1,006
|
|
|
|
796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
2,096
|
|
|
|
2,584
|
|
|
|
2,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before provision for
income tax
|
|
|
(614
|
)
|
|
|
652
|
|
|
|
981
|
|
Provision for income tax expense (benefit)
|
|
|
(168
|
)
|
|
|
79
|
|
|
|
241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(446
|
)
|
|
|
573
|
|
|
|
740
|
|
Income (loss) from discontinued operations, net of income tax
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(446
|
)
|
|
$
|
573
|
|
|
$
|
744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the condensed financial information.
F-117
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Schedule II
Condensed Financial Information of Registrant
(Continued)
For the Years Ended December 31, 2009, 2008 and 2007
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Condensed Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
993
|
|
|
$
|
856
|
|
|
$
|
2,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales, maturities and repayments of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
|
10,125
|
|
|
|
18,221
|
|
|
|
19,995
|
|
Equity securities
|
|
|
129
|
|
|
|
119
|
|
|
|
172
|
|
Mortgage loans
|
|
|
429
|
|
|
|
458
|
|
|
|
1,103
|
|
Real estate and real estate joint ventures
|
|
|
3
|
|
|
|
15
|
|
|
|
117
|
|
Other limited partnership interests
|
|
|
94
|
|
|
|
181
|
|
|
|
423
|
|
Purchases of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
|
(9,247
|
)
|
|
|
(11,263
|
)
|
|
|
(17,608
|
)
|
Equity securities
|
|
|
(61
|
)
|
|
|
(65
|
)
|
|
|
(277
|
)
|
Mortgage loans
|
|
|
(531
|
)
|
|
|
(560
|
)
|
|
|
(1,996
|
)
|
Real estate and real estate joint ventures
|
|
|
(19
|
)
|
|
|
(47
|
)
|
|
|
(241
|
)
|
Other limited partnership interests
|
|
|
(127
|
)
|
|
|
(340
|
)
|
|
|
(325
|
)
|
Net change in short-term investments
|
|
|
619
|
|
|
|
(934
|
)
|
|
|
(320
|
)
|
Net change in other invested assets
|
|
|
(1,150
|
)
|
|
|
(66
|
)
|
|
|
(984
|
)
|
Net change in policy loans
|
|
|
12
|
|
|
|
(277
|
)
|
|
|
6
|
|
Other, net
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
|
276
|
|
|
|
5,442
|
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder account balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
15,236
|
|
|
|
3,275
|
|
|
|
2,830
|
|
Withdrawals
|
|
|
(17,667
|
)
|
|
|
(4,008
|
)
|
|
|
(5,330
|
)
|
Net change in payables for collateral under securities loaned
and other transactions
|
|
|
(1,421
|
)
|
|
|
(2,560
|
)
|
|
|
1,288
|
|
Net change in short-term debt
|
|
|
(300
|
)
|
|
|
300
|
|
|
|
|
|
Long-term debt issued affiliated
|
|
|
|
|
|
|
750
|
|
|
|
200
|
|
Debt issuance costs
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
Financing element on certain derivative instruments
|
|
|
(53
|
)
|
|
|
(46
|
)
|
|
|
33
|
|
Dividends on common stock
|
|
|
|
|
|
|
(500
|
)
|
|
|
(690
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(4,205
|
)
|
|
|
(2,797
|
)
|
|
|
(1,669
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents
|
|
|
(2,936
|
)
|
|
|
3,501
|
|
|
|
731
|
|
Cash and cash equivalents, beginning of year
|
|
|
4,753
|
|
|
|
1,252
|
|
|
|
521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
1,817
|
|
|
$
|
4,753
|
|
|
$
|
1,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash paid (received) during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
73
|
|
|
$
|
44
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax
|
|
$
|
76
|
|
|
$
|
(41
|
)
|
|
$
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash transactions during the year:
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution of equity securities to MetLife Foundation
|
|
$
|
|
|
|
$
|
|
|
|
$
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the condensed financial information.
F-118
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Schedule II
Notes to
the Condensed Financial Information of Registrant
The condensed financial information of MetLife Insurance Company
of Connecticut (the Registrant) should be read in
conjunction with the Consolidated Financial Statements of
MetLife Insurance Company of Connecticut and subsidiaries and
the notes thereto. These condensed unconsolidated financial
statements reflect the results of operations, financial position
and cash flows for the Registrant. Investments in subsidiaries
are accounted for using the equity method of accounting.
The condensed unconsolidated financial statements are prepared
in conformity with accounting principles generally accepted in
the United States of America except as stated previously which
also requires management to make certain estimates and
assumptions. The most important of these estimates and
assumptions relate to the fair value measurements, the
accounting for goodwill and identifiable intangible assets and
the provision for potential losses that may arise from
litigation and regulatory proceedings and tax audits, which may
affect the amounts reported in the condensed unconsolidated
financial statements and accompanying notes. Actual results
could differ materially from these estimates.
F-119
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Schedule III
Consolidated
Supplementary Insurance Information
December 31, 2009, 2008 and 2007
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DAC
|
|
|
Future Policy
|
|
|
Policyholder
|
|
|
|
|
|
|
and
|
|
|
Benefits and Other
|
|
|
Account
|
|
|
Unearned
|
|
Segment
|
|
VOBA
|
|
|
Policyholder Funds
|
|
|
Balances
|
|
|
Revenue (1)
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement Products
|
|
$
|
3,060
|
|
|
$
|
1,454
|
|
|
$
|
21,059
|
|
|
$
|
|
|
Corporate Benefit Funding
|
|
|
7
|
|
|
|
12,702
|
|
|
|
9,393
|
|
|
|
|
|
Insurance Products
|
|
|
2,133
|
|
|
|
4,388
|
|
|
|
6,052
|
|
|
|
286
|
|
Corporate & Other
|
|
|
44
|
|
|
|
5,374
|
|
|
|
938
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,244
|
|
|
$
|
23,918
|
|
|
$
|
37,442
|
|
|
$
|
300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement Products
|
|
$
|
3,171
|
|
|
$
|
1,245
|
|
|
$
|
18,905
|
|
|
$
|
|
|
Corporate Benefit Funding
|
|
|
8
|
|
|
|
12,048
|
|
|
|
12,553
|
|
|
|
|
|
Insurance Products
|
|
|
2,254
|
|
|
|
3,971
|
|
|
|
5,531
|
|
|
|
545
|
|
Corporate & Other
|
|
|
7
|
|
|
|
5,034
|
|
|
|
186
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,440
|
|
|
$
|
22,298
|
|
|
$
|
37,175
|
|
|
$
|
548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement Products
|
|
$
|
2,983
|
|
|
$
|
979
|
|
|
$
|
15,059
|
|
|
$
|
|
|
Corporate Benefit Funding
|
|
|
16
|
|
|
|
12,044
|
|
|
|
13,543
|
|
|
|
|
|
Insurance Products
|
|
|
1,947
|
|
|
|
3,569
|
|
|
|
5,041
|
|
|
|
342
|
|
Corporate & Other
|
|
|
2
|
|
|
|
4,761
|
|
|
|
172
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,948
|
|
|
$
|
21,353
|
|
|
$
|
33,815
|
|
|
$
|
343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts are included within the future policy benefits and other
policyholder funds. |
F-120
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Schedule III
Consolidated Supplementary Insurance Information
(Continued)
December 31, 2009, 2008 and 2007
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of
|
|
|
|
|
|
|
|
|
|
Premium
|
|
|
Net
|
|
|
Policyholder
|
|
|
DAC and VOBA
|
|
|
Other
|
|
|
|
|
|
|
Revenue and
|
|
|
Investment
|
|
|
Benefits and
|
|
|
Charged to
|
|
|
Operating
|
|
|
Premiums Written
|
|
Segment
|
|
Policy Charges
|
|
|
Income
|
|
|
Interest Credited
|
|
|
Other Expenses
|
|
|
Expenses (1)
|
|
|
(Excluding Life)
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement Products
|
|
$
|
1,087
|
|
|
$
|
854
|
|
|
$
|
1,161
|
|
|
$
|
77
|
|
|
$
|
399
|
|
|
$
|
|
|
Corporate Benefit Funding
|
|
|
878
|
|
|
|
1,069
|
|
|
|
1,647
|
|
|
|
3
|
|
|
|
34
|
|
|
|
|
|
Insurance Products
|
|
|
722
|
|
|
|
375
|
|
|
|
466
|
|
|
|
213
|
|
|
|
362
|
|
|
|
4
|
|
Corporate & Other
|
|
|
5
|
|
|
|
37
|
|
|
|
92
|
|
|
|
1
|
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,692
|
|
|
$
|
2,335
|
|
|
$
|
3,366
|
|
|
$
|
294
|
|
|
$
|
913
|
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement Products
|
|
$
|
949
|
|
|
$
|
773
|
|
|
$
|
863
|
|
|
$
|
860
|
|
|
$
|
296
|
|
|
$
|
|
|
Corporate Benefit Funding
|
|
|
456
|
|
|
|
1,334
|
|
|
|
1,289
|
|
|
|
13
|
|
|
|
33
|
|
|
|
|
|
Insurance Products
|
|
|
593
|
|
|
|
333
|
|
|
|
416
|
|
|
|
288
|
|
|
|
336
|
|
|
|
5
|
|
Corporate & Other
|
|
|
14
|
|
|
|
54
|
|
|
|
8
|
|
|
|
2
|
|
|
|
105
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,012
|
|
|
$
|
2,494
|
|
|
$
|
2,576
|
|
|
$
|
1,163
|
|
|
$
|
770
|
|
|
$
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement Products
|
|
$
|
1,021
|
|
|
$
|
783
|
|
|
$
|
686
|
|
|
$
|
524
|
|
|
$
|
306
|
|
|
$
|
|
|
Corporate Benefit Funding
|
|
|
64
|
|
|
|
1,497
|
|
|
|
1,105
|
|
|
|
23
|
|
|
|
25
|
|
|
|
|
|
Insurance Products
|
|
|
653
|
|
|
|
320
|
|
|
|
453
|
|
|
|
193
|
|
|
|
308
|
|
|
|
7
|
|
Corporate & Other
|
|
|
26
|
|
|
|
293
|
|
|
|
33
|
|
|
|
|
|
|
|
67
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,764
|
|
|
$
|
2,893
|
|
|
$
|
2,277
|
|
|
$
|
740
|
|
|
$
|
706
|
|
|
$
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes other expenses, excluding amortization of DAC and VOBA
charged to other expenses. |
F-121
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Schedule IV
Consolidated
Reinsurance
December 31, 2009, 2008 and 2007
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed
|
|
|
|
Gross Amount
|
|
|
Ceded
|
|
|
Assumed
|
|
|
Net Amount
|
|
|
to Net
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance in-force
|
|
$
|
278,335
|
|
|
$
|
242,647
|
|
|
$
|
9,044
|
|
|
$
|
44,732
|
|
|
|
20.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance premium
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance
|
|
$
|
1,525
|
|
|
$
|
235
|
|
|
$
|
14
|
|
|
$
|
1,304
|
|
|
|
1.1
|
%
|
Accident and health
|
|
|
257
|
|
|
|
249
|
|
|
|
|
|
|
|
8
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total insurance premium
|
|
$
|
1,782
|
|
|
$
|
484
|
|
|
$
|
14
|
|
|
$
|
1,312
|
|
|
|
1.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance in-force
|
|
$
|
226,418
|
|
|
$
|
191,146
|
|
|
$
|
8,800
|
|
|
$
|
44,072
|
|
|
|
20.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance premium
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance
|
|
$
|
779
|
|
|
$
|
181
|
|
|
$
|
15
|
|
|
$
|
613
|
|
|
|
2.4
|
%
|
Accident and health
|
|
|
263
|
|
|
|
242
|
|
|
|
|
|
|
|
21
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total insurance premium
|
|
$
|
1,042
|
|
|
$
|
423
|
|
|
$
|
15
|
|
|
$
|
634
|
|
|
|
2.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance in-force
|
|
$
|
189,630
|
|
|
$
|
152,943
|
|
|
$
|
13,934
|
|
|
$
|
50,621
|
|
|
|
27.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance premium
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance
|
|
$
|
384
|
|
|
$
|
82
|
|
|
$
|
17
|
|
|
$
|
319
|
|
|
|
5.3
|
%
|
Accident and health
|
|
|
270
|
|
|
|
236
|
|
|
|
|
|
|
|
34
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total insurance premium
|
|
$
|
654
|
|
|
$
|
318
|
|
|
$
|
17
|
|
|
$
|
353
|
|
|
|
4.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2009, reinsurance ceded and
assumed included affiliated transactions for life insurance
in-force of $120,549 million and $9,044 million,
respectively, and life insurance premiums of $166 million
and $14 million, respectively. For the year ended
December 31, 2008, reinsurance ceded and assumed included
affiliated transactions for life insurance in-force of
$77,679 million and $8,800 million, respectively, and
life insurance premiums of $125 million and
$15 million, respectively. For the year ended
December 31, 2007, reinsurance ceded and assumed included
affiliated transactions for life insurance in-force of
$48,852 million and $13,934 million, respectively, and
life insurance premiums of $32 million and
$17 million, respectively.
F-122
|
|
Item 9.
|
Changes
in and Disagreements With Accountants on Accounting and
Financial Disclosure
|
None.
|
|
Item 9A(T).
|
Controls
and Procedures
|
Management, with the participation of the Chief Executive
Officer and Chief Financial Officer, has evaluated the
effectiveness of the design and operation of the Companys
disclosure controls and procedures as defined in Exchange Act
Rule 15d-15(e)
as of the end of the period covered by this report. Based on
that evaluation, the Chief Executive Officer and Chief Financial
Officer have concluded that these disclosure controls and
procedures are effective.
There were no changes to the Companys internal control
over financial reporting as defined in Exchange Act
Rule 15d-15(f)
during the quarter ended December 31, 2009 that have
materially affected, or are reasonably likely to materially
affect, the Companys internal control over financial
reporting.
Managements
Annual Report on Internal Control Over Financial
Reporting
Management of MetLife Insurance Company of Connecticut and
subsidiaries is responsible for establishing and maintaining
adequate internal control over financial reporting. In
fulfilling this responsibility, estimates and judgments by
management are required to assess the expected benefits and
related costs of control procedures. The objectives of internal
control include providing management with reasonable, but not
absolute, assurance that assets are safeguarded against loss
from unauthorized use or disposition, and that transactions are
executed in accordance with managements authorization and
recorded properly to permit the preparation of consolidated
financial statements in conformity with GAAP.
Financial management has documented and evaluated the
effectiveness of the internal control of the Company at
December 31, 2009 pertaining to financial reporting in
accordance with the criteria established in Internal
Control Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission.
In the opinion of management, MetLife Insurance Company of
Connecticut maintained effective internal control over financial
reporting at December 31, 2009.
This Annual Report on
Form 10-K
for the year ended December 31, 2009 does not include an
attestation report of Deloitte & Touche LLP, the
Companys independent registered public accounting firm
(Deloitte), regarding internal control over
financial reporting. Managements report was not subject to
attestation by Deloitte pursuant to temporary rules of the
Securities and Exchange Commission that permit MetLife Insurance
Company of Connecticut to provide only managements report
in this Annual Report.
Deloitte has audited the consolidated financial statements and
consolidated financial statement schedules included in this
Annual Report on
Form 10-K
for the year ended December 31, 2009. The Report of the
Independent Registered Public Accounting Firm on their audit of
the consolidated financial statements and consolidated financial
statement schedules is included at
page F-1.
|
|
Item 9B.
|
Other
Information
|
None.
66
Part III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
Omitted pursuant to General Instruction I(2)(c) of
Form 10-K.
|
|
Item 11.
|
Executive
Compensation
|
Omitted pursuant to General Instruction I(2)(c) of
Form 10-K.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
Omitted pursuant to General Instruction I(2)(c) of
Form 10-K.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
Omitted pursuant to General Instruction I(2)(c) of
Form 10-K.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
Independent
Auditors Fees for 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Audit Fees (1)
|
|
$
|
5.52
|
|
|
$
|
5.95
|
|
Audit-Related Fees (2)
|
|
$
|
0.12
|
|
|
$
|
0.11
|
|
Tax Fees (3)
|
|
$
|
|
|
|
$
|
0.02
|
|
All Other Fees (4)
|
|
$
|
|
|
|
$
|
|
|
|
|
|
(1) |
|
Fees for services to perform an audit or review in accordance
with auditing standards of the Public Company Accounting
Oversight Board and services that generally only the
Companys independent auditor can reasonably provide, such
as comfort letters, statutory audits, attest services, consents
and assistance with and review of documents filed with the U.S.
Securities and Exchange Commission (SEC). |
|
(2) |
|
Fees for assurance and related services that are traditionally
performed by the Companys independent auditor, such as
audit and related services for due diligence related to mergers
and acquisitions, accounting consultations and audits in
connection with proposed or consummated acquisitions, control
reviews, attest services not required by statute or regulation,
and consultation concerning financial accounting and reporting
standards. |
|
(3) |
|
Fees for tax compliance, consultation and planning services. Tax
compliance generally involves preparation of original and
amended tax returns, claims for refunds and tax payment planning
services. Tax consultation and tax planning encompass a diverse
range of services, including assistance in connection with tax
audits and filing appeals, tax advice related to mergers and
acquisitions, advice related to employee benefit plans and
requests for rulings or technical advice from taxing authorities. |
|
(4) |
|
Fees for other types of permitted services. |
Approval
of Fees
The Audit Committee of MetLife (Audit Committee)
approves the provision of audit and non-audit services to
MetLife and its subsidiaries, including the Company, in advance
as required under the Sarbanes-Oxley Act of 2002 and SEC rules.
Under procedures adopted by the Audit Committee, the Audit
Committee reviews, on an annual basis, a schedule of particular
audit services that MetLife expects to be performed in the next
fiscal year for MetLife and its subsidiaries, including the
Company, and an estimated amount of fees for each particular
audit service. The Audit Committee also reviews a schedule of
audit-related, tax and other permitted non-audit services that
the independent auditor may be engaged to perform during the
next fiscal year and an estimated amount of fees
67
for each of those services, as well as information on
pre-approved services provided by the independent auditor in the
current year.
Based on this information, the Audit Committee pre-approves the
audit services that MetLife expects to be performed by the
independent auditor in connection with the audit of
MetLifes and its subsidiaries financial statements
for the next fiscal year, and the audit-related, tax and other
permitted non-audit services that management may desire to
engage the independent auditor to perform during the next fiscal
year. In addition, the Audit Committee approves the terms of the
engagement letter to be entered into by MetLife with the
independent auditor. All of the fees set forth in the table
above have been pre-approved by the Audit Committee in
accordance with its pre-approval procedures.
If, during the course of the year, the audit, audit-related, tax
and other permitted non-audit fees exceed the previous estimates
provided to the Audit Committee, the Audit Committee determines
whether or not to approve the additional fees. The Audit
Committee or a designated member of the Audit Committee to whom
authority has been delegated may, from time to time, pre-approve
additional audit and non-audit services to be performed by the
independent auditor.
68
Part IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
The following documents are filed as part of this report:
1. Financial Statements
The financial statements are listed in the Index to Consolidated
Financial Statements and Schedules on page 65.
2. Financial Statement Schedules
The financial statement schedules are listed in the Index to
Consolidated Financial Statements and Schedules on page 65.
3. Exhibits
The exhibits are listed in the Exhibit Index which begins
on
page E-1.
69
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
March 24, 2010
METLIFE INSURANCE COMPANY OF CONNECTICUT
|
|
|
|
By:
|
/s/ Michael
K. Farrell
|
Name: Michael K. Farrell
|
|
|
|
Title:
|
Chairman of the Board, President
and Chief Executive Officer
|
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Maria
R. Morris
Maria
R. Morris
|
|
Director
|
|
March 24, 2010
|
|
|
|
|
|
/s/ Robert
E. Sollmann, Jr.
Robert
E. Sollmann, Jr.
|
|
Director
|
|
March 24, 2010
|
|
|
|
|
|
/s/ Michael
K. Farrell
Michael
K. Farrell
|
|
Chairman of the Board, President and Chief Executive Officer
(Principal Executive Officer)
|
|
March 24, 2010
|
|
|
|
|
|
/s/ Stanley
J. Talbi
Stanley
J. Talbi
|
|
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
|
|
March 24, 2010
|
|
|
|
|
|
/s/ Peter
M. Carlson
Peter
M. Carlson
|
|
Executive Vice President and Chief Accounting Officer
(Principal Accounting Officer)
|
|
March 24, 2010
|
Supplemental Information to be Furnished With Reports Filed
Pursuant to Section 15(d) of the Act by Registrants Which
Have Not Registered Securities Pursuant to Section 12 of
the Act: None.
No annual report to security holders covering the
registrants last fiscal year or proxy material with
respect to any meeting of security holders has been sent, or
will be sent, to security holders.
70
Exhibit Index
(Note Regarding Reliance on Statements in Our
Contracts: In reviewing the agreements included
as exhibits to this Annual Report on
Form 10-K,
please remember that they are included to provide you with
information regarding their terms and are not intended to
provide any other factual or disclosure information about
MetLife Insurance Company of Connecticut, 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 (i) should not in all instances be
treated as categorical statements of fact, but rather as a way
of allocating the risk to one of the parties if those statements
prove to be inaccurate; (ii) have been qualified by
disclosures that were made to the other party in connection with
the negotiation of the applicable agreement, which disclosures
are not necessarily reflected in the agreement; (iii) may
apply standards of materiality in a way that is different from
what may be viewed as material to investors; and (iv) were
made only as of the date of the applicable agreement or such
other date or dates as may be specified in the agreement and are
subject to more recent developments. Accordingly, these
representations and warranties may not describe the actual state
of affairs as of the date they were made or at any other time.
Additional information about MetLife Insurance Company of
Connecticut and its subsidiaries may be found elsewhere in this
Annual Report on
Form 10-K
and MetLife Insurance Company of Connecticuts other public
filings, which are available without charge through the
SECs website at www.sec.gov.)
|
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
No.
|
|
Description
|
|
|
|
|
2
|
.1
|
|
|
Acquisition Agreement between MetLife, Inc. and Citigroup Inc.,
dated as of January 31, 2005 (Incorporated by reference to
Exhibit 2.3 to MetLife, Inc.s Annual Report on
Form 10-K
for the fiscal year ended December 31, 2009)
|
|
|
|
3
|
.1
|
|
|
Charter of The Travelers Insurance Company (now MetLife
Insurance Company of Connecticut), as effective October 19,
1994 (Incorporated by reference to Exhibit 3.1 to MetLife
Insurance Company of Connecticuts Annual Report on
Form 10-K
for the fiscal year ended December 31, 2005 (the 2005
Annual Report))
|
|
|
|
3
|
.2
|
|
|
Certificate of Amendment of the Charter as Amended and Restated
of MetLife Insurance Company of Connecticut, as effective
May 1, 2006 (the Certificate of Amendment)
(Incorporated by reference to Exhibit 3.2 to the 2005
Annual Report)
|
|
|
|
3
|
.3
|
|
|
Certificate of Correction to the Certificate of Amendment. Filed
April 9, 2007 (Incorporated by reference to
Exhibit 3.3 to MetLife Insurance Company of
Connecticuts Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2007)
|
|
|
|
3
|
.4
|
|
|
By-laws of MetLife Insurance Company of Connecticut, as
effective October 20, 1994 (Incorporated by reference to
Exhibit 3.3 to the 2005 Annual Report)
|
|
|
|
31
|
.1
|
|
|
Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
31
|
.2
|
|
|
Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
32
|
.1
|
|
|
Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
32
|
.2
|
|
|
Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
E-1