UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
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(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE
QUARTERLY PERIOD ENDED JUNE 30,
2010
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OR
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o
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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
(State or other jurisdiction
of
incorporation or organization)
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06-0566090
(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)
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 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 August 12, 2010, 34,595,317 shares of the
registrants common stock, $2.50 par value per share,
were outstanding, of which 30,000,000 shares were owned
directly by MetLife, Inc. and the remaining
4,595,317 shares were 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 H(1)(a) and (b) of
Form 10-Q
and is, therefore, filing this
Form 10-Q
with the reduced disclosure format.
As used in this
Form 10-Q,
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 Quarterly Report on
Form 10-Q,
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 MetLife Insurance
Company of Connecticuts filings with the
U.S. Securities and Exchange Commission (the
SEC). These factors include: (1) difficult
conditions in the global capital markets; (2) increased
volatility and disruption of the capital and credit markets,
which may affect the Companys ability to seek financing or
access MetLifes credit facilities; (3) uncertainty
about the effectiveness of the U.S. governments
programs to stabilize the financial system, the imposition of
fees relating thereto, or the promulgation of additional
regulations; (4) impact of comprehensive financial services
regulation reform on the Company; (5) exposure to financial
and capital market risk; (6) 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; (7) potential
liquidity and other risks resulting from MICCs
participation in a securities lending program and other
transactions; (8) investment losses and defaults, and
changes to investment valuations; (9) impairments of
goodwill and realized losses or market value impairments to
illiquid assets; (10) defaults on the Companys
mortgage loans; (11) the impairment of other financial
institutions; (12) MICCs ability to address
unforeseen liabilities, asset impairments or rating actions
arising from any future acquisitions, and to successfully
integrate acquired businesses with minimal disruption;
(13) economic, political, currency and other risks relating
to the Companys international operations;
(14) downgrades in MetLife Insurance Company of
Connecticuts and its affiliates claims paying
ability, financial strength or credit ratings;
(15) ineffectiveness of risk management policies and
procedures; (16) availability and effectiveness of
reinsurance or indemnification arrangements, as well as default
or failure of counterparties to perform; (17) 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; (18) catastrophe losses;
(19) heightened competition, including with respect to
pricing, entry of new competitors, consolidation of
distributors, the development of new products by new and
existing competitors, distribution of amounts available under
U.S. government programs, and for personnel;
(20) unanticipated changes in industry trends;
(21) changes in accounting standards, practices
and/or
policies; (22) changes in assumptions related to deferred
policy acquisition costs (DAC), deferred sales
inducements (DSI), value of business acquired
(VOBA) or goodwill; (23) exposure to losses
related to variable annuity guarantee benefits, including from
significant and sustained downturns or extreme volatility in
equity markets, reduced interest rates, unanticipated
policyholder behavior, mortality or longevity, and the
adjustment for nonperformance risk; (24) adverse results or
other consequences from litigation, arbitration or regulatory
investigations;
3
(25) discrepancies between actual experience and
assumptions used in establishing liabilities related to other
contingencies or obligations; (26) regulatory, legislative
or tax changes that may affect the cost of, or demand for, the
Companys products or services, impair the ability of
MetLife and its affiliates to attract and retain talented and
experienced management and other employees, or increase the cost
or administrative burdens of providing benefits to the employees
who conduct our business; (27) the effects of business
disruption or economic contraction due to terrorism, other
hostilities, or natural catastrophes; (28) the
effectiveness of the Companys programs and practices in
avoiding giving its associates incentives to take excessive
risks; and (29) other risks and uncertainties described
from time to time in MetLife Insurance Company of
Connecticuts filings with the SEC.
MetLife Insurance Company of Connecticut does not undertake any
obligation to publicly correct or update any forward-looking
statement if MetLife Insurance Company of Connecticut later
becomes aware that such statement is not likely to be achieved.
Please consult any further disclosures MetLife Insurance Company
of Connecticut 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
Quarterly Report on
Form 10-Q,
please remember that they are included to provide you with
information regarding their terms and are not intended to
provide any other factual or disclosure information about
MetLife 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 Quarterly Report on
Form 10-Q
and MetLife Insurance Company of Connecticuts other public
filings, which are available without charge through the SEC
website at www.sec.gov.
4
Part I
Financial Information
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Item 1.
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Financial
Statements
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MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Interim
Condensed Consolidated Balance Sheets
June 30, 2010 (Unaudited) and
December 31, 2009
(In
millions, except share and per share data)
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June 30, 2010
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December 31, 2009
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Assets
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Investments:
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Fixed maturity securities
available-for-sale,
at estimated fair value (amortized cost: $43,028 and $42,435,
respectively)
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$
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43,848
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$
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41,275
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Equity securities
available-for-sale,
at estimated fair value (cost: $448 and $494, respectively)
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407
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459
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Trading securities, at estimated fair value (cost: $1,375 and
$868, respectively)
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1,379
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938
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Mortgage loans (net of valuation allowances of $93 and $77,
respectively; includes $7,107 and $0, respectively, at estimated
fair value relating to variable interest entities)
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12,111
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4,748
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Policy loans
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1,190
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1,189
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Real estate and real estate joint ventures
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443
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445
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Other limited partnership interests
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1,377
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1,236
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Short-term investments
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1,974
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1,775
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Other invested assets
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1,635
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1,498
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Total investments
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64,364
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53,563
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Cash and cash equivalents
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2,198
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2,574
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Accrued investment income (includes $34 and $0, respectively,
relating to variable interest entities)
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501
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516
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Premiums, reinsurance and other receivables
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16,029
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13,444
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Deferred policy acquisition costs and value of business acquired
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4,920
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5,244
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Deferred income tax assets
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460
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1,147
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Goodwill
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953
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953
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Other assets
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810
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799
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Separate account assets
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49,806
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49,449
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Total assets
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$
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140,041
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$
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127,689
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Liabilities and Stockholders Equity
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Liabilities
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Future policy benefits
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$
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22,352
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$
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21,621
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Policyholder account balances
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38,281
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37,442
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Other policyholder funds
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2,426
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2,297
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Payables for collateral under securities loaned and other
transactions
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7,660
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7,169
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Long-term debt (includes $7,052 and $0, respectively, at
estimated fair value relating to variable interest entities)
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8,002
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950
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Current income tax payable
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21
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23
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Other liabilities (includes $33 and $0, respectively, relating
to variable interest entities)
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3,544
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2,177
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Separate account liabilities
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49,806
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49,449
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Total liabilities
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132,092
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121,128
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Contingencies, Commitments and Guarantees (Note 5)
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Stockholders Equity
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Common stock, par value $2.50 per share; 40,000,000 shares
authorized; 34,595,317 shares issued and outstanding at
June 30, 2010 and December 31, 2009
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86
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86
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Additional paid-in capital
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6,719
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6,719
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Retained earnings
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881
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541
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Accumulated other comprehensive income (loss)
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263
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(785
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)
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Total stockholders equity
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7,949
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6,561
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Total liabilities and stockholders equity
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$
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140,041
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$
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127,689
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See accompanying notes to the interim condensed consolidated
financial statements.
5
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Interim
Condensed Consolidated Statements of Operations
For the Three Months and Six Months Ended
June 30, 2010 and 2009 (Unaudited)
(In
millions)
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Three Months
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Six Months
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Ended
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Ended
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June 30,
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June 30,
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2010
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2009
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2010
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2009
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Revenues
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Premiums
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$
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256
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$
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500
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$
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711
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$
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684
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Universal life and investment-type product policy fees
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407
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299
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776
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583
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Net investment income
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725
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621
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1,515
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1,061
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Other revenues
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103
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306
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213
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375
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Net investment gains (losses):
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Other-than-temporary
impairments on fixed maturity securities
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(19
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)
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(195
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)
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(53
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)
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(316
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)
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Other-than-temporary
impairments on fixed maturity securities transferred to other
comprehensive income (loss)
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7
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77
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23
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77
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Other net investment gains (losses), net
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625
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(610
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)
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372
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(1,089
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)
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Total net investment gains (losses)
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613
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(728
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)
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342
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(1,328
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)
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Total revenues
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2,104
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998
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3,557
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1,375
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Expenses
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Policyholder benefits and claims
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504
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674
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1,198
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1,101
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Interest credited to policyholder account balances
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257
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310
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573
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610
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Other expenses
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839
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178
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1,258
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436
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Total expenses
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1,600
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1,162
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3,029
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2,147
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Income (loss) before provision for income tax
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504
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(164
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)
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528
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(772
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)
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Provision for income tax expense (benefit)
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162
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(68
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)
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154
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(294
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)
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Net income (loss)
|
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$
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342
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$
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(96
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)
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$
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374
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$
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(478
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)
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See accompanying notes to the interim condensed consolidated
financial statements.
6
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Interim
Condensed Consolidated Statements of Stockholders
Equity
For the Six Months Ended June 30, 2010
(Unaudited)
(In
millions)
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Accumulated Other
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Comprehensive Income (Loss)
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Net
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Foreign
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Additional
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Unrealized
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Other-Than-
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Currency
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Common
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Paid-in
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Retained
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Investment
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Temporary
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Translation
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Total
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Stock
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Capital
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Earnings
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Gains (Losses)
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Impairments
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Adjustments
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Equity
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Balance at December 31, 2009
|
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$
|
86
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$
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6,719
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$
|
541
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$
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(593
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)
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$
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(83
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)
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$
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(109
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)
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$
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6,561
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Cumulative effect of change in accounting principle, net of
income tax (Note 1)
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|
|
(34
|
)
|
|
|
23
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2010
|
|
|
86
|
|
|
|
6,719
|
|
|
|
507
|
|
|
|
(570
|
)
|
|
|
(72
|
)
|
|
|
(109
|
)
|
|
|
6,561
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
374
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on derivative instruments, net of
income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
Unrealized investment gains (losses), net of related offsets and
income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,041
|
|
|
|
9
|
|
|
|
|
|
|
|
1,050
|
|
Foreign currency translation adjustments, net of income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52
|
)
|
|
|
(52
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2010
|
|
$
|
86
|
|
|
$
|
6,719
|
|
|
$
|
881
|
|
|
$
|
487
|
|
|
$
|
(63
|
)
|
|
$
|
(161
|
)
|
|
$
|
7,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the interim condensed consolidated
financial statements.
7
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Interim
Condensed Consolidated Statements of Stockholders
Equity (Continued)
For the Six Months Ended June 30, 2009
(Unaudited)
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income (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, 2008
|
|
$
|
86
|
|
|
$
|
6,719
|
|
|
$
|
965
|
|
|
$
|
(2,682
|
)
|
|
$
|
|
|
|
$
|
(154
|
)
|
|
$
|
4,934
|
|
Cumulative effect of change in accounting principle, net of
income tax
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(478
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(478
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on derivative instruments, net of
income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
Unrealized investment gains (losses), net of related offsets and
income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
773
|
|
|
|
(33
|
)
|
|
|
|
|
|
|
740
|
|
Foreign currency translation adjustments, net of income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2009
|
|
$
|
86
|
|
|
$
|
6,719
|
|
|
$
|
509
|
|
|
$
|
(1,914
|
)
|
|
$
|
(55
|
)
|
|
$
|
(104
|
)
|
|
$
|
5,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the interim condensed consolidated
financial statements.
8
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Interim
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2010
and 2009 (Unaudited)
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
519
|
|
|
$
|
(774
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Sales, maturities and repayments of:
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
|
8,500
|
|
|
|
6,425
|
|
Equity securities
|
|
|
109
|
|
|
|
31
|
|
Mortgage loans
|
|
|
437
|
|
|
|
233
|
|
Real estate and real estate joint ventures
|
|
|
9
|
|
|
|
2
|
|
Other limited partnership interests
|
|
|
56
|
|
|
|
96
|
|
Purchases of:
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
|
(9,145
|
)
|
|
|
(8,525
|
)
|
Equity securities
|
|
|
(46
|
)
|
|
|
(26
|
)
|
Mortgage loans
|
|
|
(395
|
)
|
|
|
(74
|
)
|
Real estate and real estate joint ventures
|
|
|
(57
|
)
|
|
|
(23
|
)
|
Other limited partnership interests
|
|
|
(163
|
)
|
|
|
(75
|
)
|
Cash received in connection with freestanding derivatives
|
|
|
48
|
|
|
|
229
|
|
Cash paid in connection with freestanding derivatives
|
|
|
(108
|
)
|
|
|
(271
|
)
|
Net change in policy loans
|
|
|
(1
|
)
|
|
|
9
|
|
Net change in short-term investments
|
|
|
(202
|
)
|
|
|
1,851
|
|
Net change in other invested assets
|
|
|
(39
|
)
|
|
|
(169
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(997
|
)
|
|
|
(287
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Policyholder account balances:
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
12,565
|
|
|
|
11,388
|
|
Withdrawals
|
|
|
(12,604
|
)
|
|
|
(10,861
|
)
|
Net change in payables for collateral under securities loaned
and other transactions
|
|
|
491
|
|
|
|
(1,556
|
)
|
Net change in short-term debt
|
|
|
|
|
|
|
(300
|
)
|
Long-term debt repaid
|
|
|
(311
|
)
|
|
|
|
|
Financing element on certain derivative instruments
|
|
|
(15
|
)
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
126
|
|
|
|
(1,345
|
)
|
|
|
|
|
|
|
|
|
|
Effect of change in foreign currency exchange rates on cash
balances
|
|
|
(24
|
)
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents
|
|
|
(376
|
)
|
|
|
(2,361
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
2,574
|
|
|
|
5,656
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
2,198
|
|
|
$
|
3,295
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Net cash paid (received) during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
245
|
|
|
$
|
39
|
|
|
|
|
|
|
|
|
|
|
Income tax
|
|
$
|
42
|
|
|
$
|
(53
|
)
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the interim condensed consolidated
financial statements.
9
|
|
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.
Basis
of Presentation
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America (GAAP) requires management to adopt
accounting policies and make estimates and assumptions that
affect amounts reported in the interim condensed consolidated
financial statements.
In applying the Companys accounting policies, management
makes subjective and complex judgments that frequently require
estimates about matters that are inherently uncertain. Many of
these policies, estimates and related judgments are common in
the insurance and financial services industries; others are
specific to the Companys businesses and operations. Actual
results could differ from these estimates.
The accompanying interim condensed consolidated financial
statements include the accounts of MetLife Insurance Company of
Connecticut and its subsidiaries, as well as partnerships and
joint ventures in which the Company has control and variable
interest entities (VIEs) for which the Company is
the primary beneficiary. See Adoption of New
Accounting Pronouncements. Intercompany accounts and
transactions have been eliminated.
The Company uses the equity method of accounting for investments
in equity securities in which it has a significant influence or
more than a 20% interest and for real estate joint ventures and
other limited partnership interests in which it has more than a
minor 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 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.
Certain amounts in the prior year periods interim
condensed consolidated financial statements have been
reclassified to conform with the 2010 presentation. Such
reclassifications include $229 million and
($271) million reclassified from net change in other
invested assets to cash received in connection with freestanding
derivatives and cash paid in connection with freestanding
derivatives, respectively, within cash flows from investing
activities in the interim condensed consolidated statement of
cash flows for the six months ended June 30, 2009.
Since the Company is a member of a controlled group of
affiliated companies, its results may not be indicative of those
of a stand-alone entity.
The accompanying interim condensed consolidated financial
statements reflect all adjustments (including normal recurring
adjustments) necessary to present fairly the consolidated
financial position of the Company at June 30, 2010, its
consolidated results of operations for the three months and six
months ended June 30, 2010 and 2009, its consolidated cash
flows for the six months ended June 30, 2010 and 2009, and
its consolidated statements of stockholders equity for the
six months ended June 30, 2010 and 2009, in conformity with
GAAP. Interim results are not necessarily indicative of full
year performance. The December 31, 2009 consolidated
balance sheet data was derived from audited consolidated
financial statements included in MetLife Insurance Company of
Connecticuts Annual Report on
Form 10-K
for the year ended December 31, 2009 (the 2009 Annual
Report) filed with the U.S. Securities and Exchange
Commission, which includes all disclosures required by GAAP.
Therefore, these interim condensed consolidated financial
statements should be read in conjunction with the consolidated
financial statements of the Company included in the 2009 Annual
Report.
10
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Adoption
of New Accounting Pronouncements
Financial
Instruments
Effective January 1, 2010, the Company adopted new guidance
related to financial instrument transfers and consolidation of
VIEs. The financial instrument transfer guidance eliminates the
concept of a qualified special purpose entity
(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
new consolidation guidance changes the definition of the primary
beneficiary, as well as the method of determining whether an
entity is a primary beneficiary of a VIE from a quantitative
model to a qualitative model. Under the new qualitative model,
the entity that has both the ability to direct the most
significant activities of the VIE and the obligation to absorb
losses or receive benefits that could be significant to the VIE
is considered to be the primary beneficiary of the VIE. The
guidance requires reassessment on a quarterly basis, as well as
enhanced disclosures, including the effects of a companys
involvement with VIEs on its financial statements.
As a result of the adoption of this guidance, the Company
consolidated certain former QSPEs that were previously accounted
for as fixed maturity commercial mortgage-backed securities. The
Company also elected the fair value option for all of the
consolidated assets and liabilities of these entities. Upon
consolidation, the Company recorded $6,769 million of
commercial mortgage loans and $6,717 million of long-term
debt based on estimated fair values at January 1, 2010 and
de-recognized $52 million in fixed maturity securities. The
consolidation also resulted in a decrease in retained earnings
of $34 million, net of income tax, and an increase in
accumulated other comprehensive income (loss) of
$34 million, net of income tax, at January 1, 2010.
For the three months and six months ended June 30, 2010,
the Company recorded $105 million and $210 million,
respectively, of net investment income on the consolidated
assets, $101 million and $204 million, respectively,
of interest expense in other expenses on the related long-term
debt, and $10 million and $6 million, respectively, in
net investment gains (losses) to remeasure the assets and
liabilities at their estimated fair values at June 30, 2010.
Also effective January 1, 2010, the Company adopted new
guidance that indefinitely defers the above changes relating to
the Companys interests in entities that have all the
attributes of an investment company or for which it is industry
practice to apply measurement principles for financial reporting
that are consistent with those applied by an investment company.
As a result of the deferral, the above guidance did not apply to
certain real estate joint ventures and other limited partnership
interests held by the Company.
Fair
Value
Effective January 1, 2010, the Company adopted 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 level of disaggregation and inputs
and valuation techniques. The adoption of this guidance did not
have an impact on the Companys consolidated financial
statements.
Future
Adoption of New Accounting Pronouncements
In July 2010, Financial Accounting Standards Board
(FASB) issued new guidance regarding disclosures
about the credit quality of financing receivables and the
allowance for credit losses (ASU
2010-20,
Disclosures about the Credit Quality of Financing Receivables
and the Allowance for Credit Losses). This guidance requires
additional disclosures about the credit quality of financing
receivables, such as aging information and credit quality
indicators. In addition, disclosures must be disaggregated by
portfolio segment or class based on how a company develops its
allowance for credit losses and how it manages its credit
exposure. Most of the requirements are
11
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
effective for the fourth quarter of 2010 with certain additional
disclosures required for the first quarter of 2011. The Company
is currently evaluating the impact of this guidance on its
consolidated financial statements.
In April 2010, the FASB issued new guidance regarding accounting
for investment funds determined to be VIEs (ASU
2010-15,
How Investments Held through Separate Accounts Affect an
Insurers Consolidation Analysis of Those Investments).
Under this guidance, an insurance entity would not be required
to consolidate a voting-interest investment fund when it holds
the majority of the voting interests of the fund through its
separate accounts. In addition, an insurance entity would not
consider the interests held through separate accounts for the
benefit of policyholders in the insurers evaluation of its
economics in a VIE, unless the separate account contract holder
is a related party. The guidance is effective for the first
quarter of 2011. The Company does not expect the adoption of
this new guidance to have a material impact on its consolidated
financial statements.
In March 2010, the FASB issued new guidance regarding accounting
for embedded credit derivatives within structured securities
(ASU
2010-11,
Scope Exception Related to Embedded Credit Derivatives).
This guidance clarifies the type of embedded credit derivative
that is exempt from embedded derivative bifurcation
requirements. Specifically, embedded credit derivatives
resulting only from subordination of one financial instrument to
another continue to qualify for the scope exception. Embedded
credit derivative features other than subordination must be
analyzed to determine if they require bifurcation and separate
accounting. The guidance is effective for the third quarter of
2010. The Company does not expect the adoption of this new
guidance to have a material impact on its consolidated financial
statements.
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 include the noncredit loss component of
other-than-temporary
impairment (OTTI) loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
|
Cost or
|
|
|
Gross Unrealized
|
|
|
Estimated
|
|
|
|
|
|
|
Amortized
|
|
|
|
|
|
Temporary
|
|
|
OTTI
|
|
|
Fair
|
|
|
% of
|
|
|
|
Cost
|
|
|
Gain
|
|
|
Loss
|
|
|
Loss
|
|
|
Value
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Fixed Maturity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
15,229
|
|
|
$
|
806
|
|
|
$
|
372
|
|
|
$
|
|
|
|
$
|
15,663
|
|
|
|
35.7
|
%
|
U.S. Treasury and agency securities
|
|
|
7,947
|
|
|
|
346
|
|
|
|
31
|
|
|
|
|
|
|
|
8,262
|
|
|
|
18.8
|
|
Foreign corporate securities
|
|
|
7,452
|
|
|
|
414
|
|
|
|
210
|
|
|
|
|
|
|
|
7,656
|
|
|
|
17.5
|
|
Residential mortgage-backed securities (RMBS)
|
|
|
5,514
|
|
|
|
253
|
|
|
|
275
|
|
|
|
82
|
|
|
|
5,410
|
|
|
|
12.3
|
|
Commercial mortgage-backed securities (CMBS) (1)
|
|
|
2,504
|
|
|
|
97
|
|
|
|
63
|
|
|
|
(2
|
)
|
|
|
2,540
|
|
|
|
5.8
|
|
Asset-backed securities (ABS)
|
|
|
2,151
|
|
|
|
51
|
|
|
|
132
|
|
|
|
30
|
|
|
|
2,040
|
|
|
|
4.7
|
|
State and political subdivision securities
|
|
|
1,519
|
|
|
|
54
|
|
|
|
83
|
|
|
|
|
|
|
|
1,490
|
|
|
|
3.4
|
|
Foreign government securities
|
|
|
712
|
|
|
|
79
|
|
|
|
4
|
|
|
|
|
|
|
|
787
|
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities (2), (3)
|
|
$
|
43,028
|
|
|
$
|
2,100
|
|
|
$
|
1,170
|
|
|
$
|
110
|
|
|
$
|
43,848
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock (2)
|
|
$
|
294
|
|
|
$
|
7
|
|
|
$
|
61
|
|
|
$
|
|
|
|
$
|
240
|
|
|
|
59.0
|
%
|
Common stock
|
|
|
154
|
|
|
|
15
|
|
|
|
2
|
|
|
|
|
|
|
|
167
|
|
|
|
41.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities (4)
|
|
$
|
448
|
|
|
$
|
22
|
|
|
$
|
63
|
|
|
$
|
|
|
|
$
|
407
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
Cost or
|
|
|
Gross Unrealized
|
|
|
Estimated
|
|
|
|
|
|
|
Amortized
|
|
|
|
|
|
Temporary
|
|
|
OTTI
|
|
|
Fair
|
|
|
% of
|
|
|
|
Cost
|
|
|
Gain
|
|
|
Loss
|
|
|
Loss
|
|
|
Value
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Fixed Maturity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
15,598
|
|
|
$
|
441
|
|
|
$
|
639
|
|
|
$
|
2
|
|
|
$
|
15,398
|
|
|
|
37.3
|
%
|
U.S. Treasury and agency securities
|
|
|
6,503
|
|
|
|
35
|
|
|
|
281
|
|
|
|
|
|
|
|
6,257
|
|
|
|
15.2
|
|
Foreign corporate securities
|
|
|
7,292
|
|
|
|
307
|
|
|
|
255
|
|
|
|
6
|
|
|
|
7,338
|
|
|
|
17.8
|
|
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 (2) ,(3)
|
|
$
|
42,435
|
|
|
$
|
1,070
|
|
|
$
|
2,089
|
|
|
$
|
141
|
|
|
$
|
41,275
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock (2)
|
|
$
|
351
|
|
|
$
|
10
|
|
|
$
|
55
|
|
|
$
|
|
|
|
$
|
306
|
|
|
|
66.7
|
%
|
Common stock
|
|
|
143
|
|
|
|
11
|
|
|
|
1
|
|
|
|
|
|
|
|
153
|
|
|
|
33.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities (4)
|
|
$
|
494
|
|
|
$
|
21
|
|
|
$
|
56
|
|
|
$
|
|
|
|
$
|
459
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
OTTI loss, as presented above, represents the noncredit portion
of OTTI loss that is included in accumulated other comprehensive
income (loss). OTTI loss includes both the initial recognition
of noncredit losses, and the effects of subsequent increases and
decreases in estimated fair value for those fixed maturity
securities that were previously noncredit loss impaired. The
noncredit loss component of OTTI loss for CMBS was in an
unrealized gain position of $2 million at June 30,
2010 due to increases in estimated fair value subsequent to
initial recognition of noncredit losses on such securities. See
also Net Unrealized Investment Gains (Losses). |
|
(2) |
|
Upon acquisition, the Company classifies perpetual securities
that have attributes of both debt and equity as fixed maturity
securities if the security has an interest rate
step-up
feature which, when combined with other qualitative factors,
indicates that the security has more debt-like characteristics.
The Company classifies perpetual securities with an interest
rate step-up
feature which, when combined with other qualitative factors,
indicates that the security has more equity-like
characteristics, 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: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Classification
|
|
June 30, 2010
|
|
December 31, 2009
|
|
|
|
|
|
|
Estimated
|
|
Estimated
|
|
|
|
|
|
|
Fair
|
|
Fair
|
Consolidated Balance Sheets
|
|
Sector Table
|
|
Primary Issuers
|
|
Value
|
|
Value
|
|
|
|
|
|
|
(In millions)
|
|
Equity securities
|
|
Non-redeemable preferred stock
|
|
Non-U.S. financial institutions
|
|
$
|
201
|
|
|
$
|
237
|
|
Equity securities
|
|
Non-redeemable preferred stock
|
|
U.S. financial institutions
|
|
$
|
34
|
|
|
$
|
43
|
|
Fixed maturity securities
|
|
Foreign corporate securities
|
|
Non-U.S. financial institutions
|
|
$
|
575
|
|
|
$
|
580
|
|
Fixed maturity securities
|
|
U.S. corporate securities
|
|
U.S. financial institutions
|
|
$
|
14
|
|
|
$
|
17
|
|
|
|
|
(3) |
|
Redeemable preferred stock with stated maturity dates are
included in the U.S. corporate securities sector within fixed
maturity securities. These securities, commonly referred to as
capital securities, are primarily |
13
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
issued by U.S. financial institutions and have cumulative
interest deferral features. The Company held $525 million
and $513 million at estimated fair value of such securities
at June 30, 2010 and December 31, 2009, respectively. |
|
(4) |
|
Equity securities primarily consist of investments in common and
preferred stocks, including certain perpetual hybrid securities
and mutual fund interests. Privately-held equity securities were
$106 million and $82 million at estimated fair value
at June 30, 2010 and December 31, 2009, respectively. |
The below investment grade and non-income producing amounts
presented below are based on rating agency designations and
equivalent designations of the National Association of Insurance
Commissioners (NAIC), with the exception of
non-agency RMBS held by the Companys domestic insurance
subsidiary. Non-agency RMBS, including RMBS backed by
sub-prime
mortgage loans reported within ABS, held by the Companys
domestic insurance subsidiary are presented based on final
ratings from the revised NAIC rating methodology (i.e., NAIC
1 6) which became effective December 31,
2009 (which may not correspond to rating agency designations).
All NAIC designation amounts and percentages presented herein
are based on the revised NAIC methodology described above. All
rating agency designation (i.e., Aaa/AAA) amounts and
percentages presented herein are based on rating agency
designations without adjustment for the revised NAIC methodology
described above. Rating agency designations (i.e., Aaa/AAA) are
based on availability of applicable ratings from rating agencies
on the NAIC acceptable rating organization list, including
Moodys Investors Service (Moodys),
Standard & Poors Ratings Services (S&P) and
Fitch Ratings (Fitch).
The following table presents selected information about certain
fixed maturity securities held by the Company at:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
(In millions)
|
|
|
Below investment grade or non-rated fixed maturity securities:
|
|
|
|
|
|
|
|
|
Estimated fair value
|
|
$
|
3,773
|
|
|
$
|
3,866
|
|
Net unrealized loss
|
|
$
|
345
|
|
|
$
|
467
|
|
Non-income producing fixed maturity securities:
|
|
|
|
|
|
|
|
|
Estimated fair value
|
|
$
|
32
|
|
|
$
|
67
|
|
Net unrealized gain (loss)
|
|
$
|
(3
|
)
|
|
$
|
2
|
|
Fixed maturity securities credit enhanced by financial guarantor
insurers by sector at estimated fair
value:
|
|
|
|
|
|
|
|
|
State and political subdivision securities
|
|
$
|
506
|
|
|
$
|
493
|
|
U.S. corporate securities
|
|
|
494
|
|
|
|
458
|
|
ABS
|
|
|
95
|
|
|
|
107
|
|
RMBS
|
|
|
9
|
|
|
|
7
|
|
CMBS
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities credit enhanced by financial
guarantor insurers
|
|
$
|
1,107
|
|
|
$
|
1,068
|
|
|
|
|
|
|
|
|
|
|
Ratings of the financial guarantor insurers providing the credit
enhancement:
|
|
|
|
|
|
|
|
|
Portion rated Aa/AA
|
|
|
26
|
%
|
|
|
25
|
%
|
|
|
|
|
|
|
|
|
|
Portion rated Baa/BBB
|
|
|
40
|
%
|
|
|
39
|
%
|
|
|
|
|
|
|
|
|
|
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.
14
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The Company was 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
$8.3 billion and $6.3 billion at June 30, 2010
and December 31, 2009, 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 exposure to
any single issuer in excess of 1% of total investments. The
tables below present the major industry types that comprise the
corporate fixed maturity securities holdings, the largest
exposure to a single issuer and the combined holdings in the ten
issuers to which it had the largest exposure at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
Fair
|
|
|
% of
|
|
|
Fair
|
|
|
% of
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Corporate fixed maturity securities by industry type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign (1)
|
|
$
|
7,656
|
|
|
|
32.8
|
%
|
|
$
|
7,338
|
|
|
|
32.3
|
%
|
Consumer
|
|
|
3,882
|
|
|
|
16.6
|
|
|
|
3,507
|
|
|
|
15.4
|
|
Utility
|
|
|
3,449
|
|
|
|
14.8
|
|
|
|
3,328
|
|
|
|
14.6
|
|
Industrial
|
|
|
3,215
|
|
|
|
13.8
|
|
|
|
3,047
|
|
|
|
13.4
|
|
Finance
|
|
|
2,857
|
|
|
|
12.3
|
|
|
|
3,145
|
|
|
|
13.8
|
|
Communications
|
|
|
1,491
|
|
|
|
6.4
|
|
|
|
1,669
|
|
|
|
7.4
|
|
Other
|
|
|
769
|
|
|
|
3.3
|
|
|
|
702
|
|
|
|
3.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
23,319
|
|
|
|
100.0
|
%
|
|
$
|
22,736
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes U.S. dollar-denominated debt obligations of foreign
obligors and other foreign fixed maturity security investments. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
December 31, 2009
|
|
|
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
|
|
$
|
197
|
|
|
|
0.3
|
%
|
|
$
|
204
|
|
|
|
0.4
|
%
|
Holdings in ten issuers with the largest exposures
|
|
$
|
1,599
|
|
|
|
2.5
|
%
|
|
$
|
1,695
|
|
|
|
3.2
|
%
|
15
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
Fair
|
|
|
% of
|
|
|
Fair
|
|
|
% of
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
By security type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligations
|
|
$
|
3,492
|
|
|
|
64.5
|
%
|
|
$
|
3,646
|
|
|
|
62.3
|
%
|
Pass-through securities
|
|
|
1,918
|
|
|
|
35.5
|
|
|
|
2,206
|
|
|
|
37.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total RMBS
|
|
$
|
5,410
|
|
|
|
100.0
|
%
|
|
$
|
5,852
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By risk profile:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
$
|
3,741
|
|
|
|
69.2
|
%
|
|
$
|
4,095
|
|
|
|
70.0
|
%
|
Prime
|
|
|
1,067
|
|
|
|
19.7
|
|
|
|
1,118
|
|
|
|
19.1
|
|
Alternative residential mortgage loans
|
|
|
602
|
|
|
|
11.1
|
|
|
|
639
|
|
|
|
10.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total RMBS
|
|
$
|
5,410
|
|
|
|
100.0
|
%
|
|
$
|
5,852
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portion rated Aaa/AAA
|
|
$
|
3,937
|
|
|
|
72.8
|
%
|
|
$
|
4,347
|
|
|
|
74.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portion rated NAIC 1
|
|
$
|
4,437
|
|
|
|
82.0
|
%
|
|
$
|
4,835
|
|
|
|
82.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 creditworthy 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.
16
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The following tables present 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
Fair
|
|
|
% of
|
|
|
Fair
|
|
|
% of
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Vintage Year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 & Prior
|
|
$
|
10
|
|
|
|
1.7
|
%
|
|
$
|
15
|
|
|
|
2.3
|
%
|
2005
|
|
|
313
|
|
|
|
52.0
|
|
|
|
336
|
|
|
|
52.6
|
|
2006
|
|
|
80
|
|
|
|
13.3
|
|
|
|
83
|
|
|
|
13.0
|
|
2007
|
|
|
199
|
|
|
|
33.0
|
|
|
|
205
|
|
|
|
32.1
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
602
|
|
|
|
100.0
|
%
|
|
$
|
639
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
December 31, 2009
|
|
|
|
|
% of
|
|
|
|
% of
|
|
|
Amount
|
|
Total
|
|
Amount
|
|
Total
|
|
|
(In millions)
|
|
Net unrealized loss
|
|
$
|
191
|
|
|
|
|
|
|
$
|
235
|
|
|
|
|
|
Rated Aa/AA or better
|
|
|
|
|
|
|
1.7
|
%
|
|
|
|
|
|
|
2.3
|
%
|
Rated NAIC 1
|
|
|
|
|
|
|
14.7
|
%
|
|
|
|
|
|
|
16.6
|
%
|
By collateral type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate mortgage loans collateral
|
|
|
|
|
|
|
95.6
|
%
|
|
|
|
|
|
|
95.6
|
%
|
Hybrid adjustable rate mortgage loans collateral
|
|
|
|
|
|
|
4.4
|
|
|
|
|
|
|
|
4.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Alt-A RMBS
|
|
|
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Concentrations of Credit Risk (Fixed Maturity
Securities) CMBS. The Companys
holdings in CMBS were $2.5 billion and $2.6 billion at
estimated fair value at June 30, 2010 and December 31,
2009, respectively. The Company had no exposure to CMBS index
securities at both June 30, 2010 and December 31,
2009. The Company held commercial real estate collateralized
debt obligations securities of $77 million and
$70 million at estimated fair value at June 30, 2010
and December 31, 2009, respectively.
17
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The following tables present the Companys holdings of CMBS
by rating agency designation and by vintage year at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
Fair
|
|
|
% of
|
|
|
Fair
|
|
|
% of
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
2003 & Prior
|
|
$
|
1,203
|
|
|
|
47.4
|
%
|
|
$
|
1,202
|
|
|
|
45.9
|
%
|
2004
|
|
|
450
|
|
|
|
17.7
|
|
|
|
512
|
|
|
|
19.6
|
|
2005
|
|
|
444
|
|
|
|
17.5
|
|
|
|
472
|
|
|
|
18.0
|
|
2006
|
|
|
426
|
|
|
|
16.8
|
|
|
|
407
|
|
|
|
15.6
|
|
2007
|
|
|
17
|
|
|
|
0.6
|
|
|
|
24
|
|
|
|
0.9
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,540
|
|
|
|
100.0
|
%
|
|
$
|
2,617
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
December 31, 2009
|
|
|
|
|
% of
|
|
|
|
% of
|
|
|
Amount
|
|
Total
|
|
Amount
|
|
Total
|
|
|
|
|
(In millions)
|
|
|
|
Net unrealized gain (loss)
|
|
$
|
36
|
|
|
|
|
|
|
$
|
(191
|
)
|
|
|
|
|
Rated Aaa/AAA
|
|
|
|
|
|
|
91
|
%
|
|
|
|
|
|
|
83
|
%
|
The June 30, 2010 table reflects ratings assigned by
nationally recognized rating agencies including Moodys,
S&P, Fitch and Realpoint, LLC and the December 31,
2009 table reflects ratings assigned by nationally recognized
rating agencies including Moodys, S&P and Fitch.
Concentrations of Credit Risk (Fixed Maturity
Securities) ABS. The Companys
holdings in ABS were $2.0 billion at estimated fair value
at both June 30, 2010 and December 31, 2009. The
Companys ABS are diversified both by collateral type and
by issuer.
18
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The following table presents the collateral type and certain
other information about ABS held by the Company at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
Fair
|
|
|
% of
|
|
|
Fair
|
|
|
% of
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
By collateral type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card loans
|
|
$
|
895
|
|
|
|
43.9
|
%
|
|
$
|
920
|
|
|
|
46.3
|
%
|
RMBS backed by
sub-prime
mortgage loans
|
|
|
245
|
|
|
|
12.0
|
|
|
|
247
|
|
|
|
12.4
|
|
Student loans
|
|
|
218
|
|
|
|
10.7
|
|
|
|
158
|
|
|
|
7.9
|
|
Automobile loans
|
|
|
147
|
|
|
|
7.2
|
|
|
|
205
|
|
|
|
10.3
|
|
Other loans
|
|
|
535
|
|
|
|
26.2
|
|
|
|
459
|
|
|
|
23.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,040
|
|
|
|
100.0
|
%
|
|
$
|
1,989
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portion rated Aaa/AAA
|
|
$
|
1,374
|
|
|
|
67.4
|
%
|
|
$
|
1,292
|
|
|
|
65.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portion rated NAIC 1
|
|
$
|
1,848
|
|
|
|
90.6
|
%
|
|
$
|
1,767
|
|
|
|
88.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMBS backed by
sub-prime
mortgage loans portion credit enhanced by financial
guarantor insurers
|
|
|
|
|
|
|
19.8
|
%
|
|
|
|
|
|
|
20.6
|
%
|
Of the 19.8% and 20.6% credit enhanced, the financial guarantor
insurers were rated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By financial guarantor insurers rated Aa/AA
|
|
|
|
|
|
|
0.9
|
%
|
|
|
|
|
|
|
0.7
|
%
|
By financial guarantor insurers rated A
|
|
|
|
|
|
|
0.3
|
%
|
|
|
|
|
|
|
0.2
|
%
|
Concentrations of Credit Risk (Equity
Securities). The Company was 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 June 30, 2010 and
December 31, 2009.
Maturities of Fixed Maturity Securities. The
amortized cost and estimated fair value of fixed maturity
securities, by contractual maturity date (excluding scheduled
sinking funds), were as follows at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Due in one year or less
|
|
$
|
1,679
|
|
|
$
|
1,693
|
|
|
$
|
1,023
|
|
|
$
|
1,029
|
|
Due after one year through five years
|
|
|
9,610
|
|
|
|
9,861
|
|
|
|
9,048
|
|
|
|
9,202
|
|
Due after five years through ten years
|
|
|
8,033
|
|
|
|
8,439
|
|
|
|
7,882
|
|
|
|
7,980
|
|
Due after ten years
|
|
|
13,537
|
|
|
|
13,865
|
|
|
|
13,339
|
|
|
|
12,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
32,859
|
|
|
|
33,858
|
|
|
|
31,292
|
|
|
|
30,817
|
|
RMBS, CMBS and ABS
|
|
|
10,169
|
|
|
|
9,990
|
|
|
|
11,143
|
|
|
|
10,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
43,028
|
|
|
$
|
43,848
|
|
|
$
|
42,435
|
|
|
$
|
41,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual maturities may differ from contractual maturities due to
the exercise of call or prepayment options. Fixed maturity
securities not due at a single maturity date have been included
in the above table in the year of final contractual maturity.
RMBS, CMBS and ABS are shown separately in the table, as they
are not due at a single maturity.
19
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Evaluating
Available-for-Sale
Securities for
Other-Than-Temporary
Impairment
As described more fully in Note 1 of the Notes to the
Consolidated Financial Statements included in the 2009 Annual
Report, 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 of the Notes to
the Consolidated Financial Statements included in the 2009
Annual Report, 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, among 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 of the Notes to the
Consolidated Financial Statements included in the 2009 Annual
Report. 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.
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.
20
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Net
Unrealized Investment Gains (Losses)
The components of net unrealized investment gains (losses),
included in accumulated other comprehensive income (loss), were
as follows at:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
(In millions)
|
|
|
Fixed maturity securities
|
|
$
|
930
|
|
|
$
|
(1,019
|
)
|
Fixed maturity securities with noncredit OTTI losses in other
comprehensive income (loss)
|
|
|
(110
|
)
|
|
|
(141
|
)
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
|
820
|
|
|
|
(1,160
|
)
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
(41
|
)
|
|
|
(35
|
)
|
Derivatives
|
|
|
25
|
|
|
|
(4
|
)
|
Short-term investments
|
|
|
(14
|
)
|
|
|
(10
|
)
|
Other
|
|
|
(6
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
784
|
|
|
|
(1,212
|
)
|
|
|
|
|
|
|
|
|
|
Amounts allocated from:
|
|
|
|
|
|
|
|
|
Insurance liability loss recognition
|
|
|
(19
|
)
|
|
|
|
|
DAC and VOBA related to noncredit OTTI losses recognized in
other comprehensive income (loss)
|
|
|
11
|
|
|
|
12
|
|
DAC and VOBA
|
|
|
(138
|
)
|
|
|
151
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
(146
|
)
|
|
|
163
|
|
Deferred income tax benefit (expense) related to noncredit OTTI
losses recognized in other comprehensive income (loss)
|
|
|
36
|
|
|
|
46
|
|
Deferred income tax benefit (expense)
|
|
|
(250
|
)
|
|
|
327
|
|
|
|
|
|
|
|
|
|
|
Net unrealized investment gains (losses)
|
|
$
|
424
|
|
|
$
|
(676
|
)
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities with noncredit OTTI losses in
accumulated other comprehensive income (loss), as presented
above, of ($110) million at June 30, 2010, includes
($141) million recognized prior to January 1, 2010,
($7) million and ($23) million ($11 million and
($20) million, net of DAC) of noncredit losses recognized
in the three months and six months ended June 30, 2010,
respectively, and $16 million transferred to retained
earnings in connection with the adoption of new guidance related
to the consolidation of VIEs (see Note 1) for the six
months ended June 30, 2010, $16 million and
$19 million, related to securities sold during the three
months and six months ended June 30, 2010 respectively, for
which a noncredit loss was previously recognized in accumulated
other comprehensive income (loss) and ($8) million and
$19 million of subsequent increases (decreases) in
estimated fair value during the three months and six months
ended June 30, 2010, respectively, on such securities for
which a noncredit loss was previously recognized in accumulated
other comprehensive income (loss).
Fixed maturity securities with noncredit OTTI losses in
accumulated other comprehensive income (loss), as presented
above, of ($141) million at December 31, 2009,
includes ($36) million related to the transition adjustment
recorded in 2009 upon the adoption of new guidance on the
recognition and presentation of OTTI, ($165) million
(($148) million, net of DAC) of noncredit losses recognized
in the year ended December 31, 2009 (as more fully
described in Note 1 of the Notes to the Consolidated
Financial Statements included in the 2009 Annual Report),
$6 million related to securities sold during the year ended
December 31, 2009 for which a noncredit loss was previously
recognized in accumulated comprehensive income (loss) and
$54 million of subsequent increases in
21
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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 income
(loss).
The changes in net unrealized investment gains (losses) were as
follows:
|
|
|
|
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
|
June 30, 2010
|
|
|
|
(In millions)
|
|
|
Balance, beginning of period
|
|
$
|
(676
|
)
|
Cumulative effect of change in accounting principle, net of
income tax
|
|
|
34
|
|
Fixed maturity securities on which noncredit OTTI losses have
been recognized
|
|
|
15
|
|
Unrealized investment gains (losses) during the period
|
|
|
1,929
|
|
Unrealized investment gains (losses) relating to:
|
|
|
|
|
Insurance liability gain (loss) recognition
|
|
|
(19
|
)
|
DAC and VOBA related to noncredit OTTI losses recognized in
other comprehensive income (loss)
|
|
|
(1
|
)
|
DAC and VOBA
|
|
|
(289
|
)
|
Deferred income tax benefit (expense) related to noncredit OTTI
losses recognized in other comprehensive income (loss)
|
|
|
(5
|
)
|
Deferred income tax benefit (expense)
|
|
|
(564
|
)
|
|
|
|
|
|
Balance, end of period
|
|
$
|
424
|
|
|
|
|
|
|
Change in net unrealized investment gains (losses)
|
|
$
|
1,100
|
|
|
|
|
|
|
22
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Continuous
Gross Unrealized Loss and OTTI Loss for Fixed Maturity and
Equity Securities
Available-for-Sale
by Sector
The following tables present the estimated fair value and gross
unrealized loss of the 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 include the noncredit component of OTTI loss.
Fixed maturity securities on which a noncredit OTTI loss has
been recognized in accumulated other comprehensive income (loss)
are categorized by length of time as being less than
12 months or equal to or greater than
12 months in a continuous unrealized loss position
based on the point in time that the estimated fair value
initially declined to below the amortized cost basis and not the
period of time since the unrealized loss was deemed a noncredit
OTTI loss.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
|
|
|
|
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
|
|
$
|
1,077
|
|
|
$
|
48
|
|
|
$
|
2,890
|
|
|
$
|
324
|
|
|
$
|
3,967
|
|
|
$
|
372
|
|
U.S. Treasury and agency securities
|
|
|
774
|
|
|
|
|
|
|
|
624
|
|
|
|
31
|
|
|
|
1,398
|
|
|
|
31
|
|
Foreign corporate securities
|
|
|
690
|
|
|
|
28
|
|
|
|
983
|
|
|
|
182
|
|
|
|
1,673
|
|
|
|
210
|
|
RMBS
|
|
|
39
|
|
|
|
10
|
|
|
|
1,584
|
|
|
|
347
|
|
|
|
1,623
|
|
|
|
357
|
|
CMBS
|
|
|
111
|
|
|
|
|
|
|
|
301
|
|
|
|
61
|
|
|
|
412
|
|
|
|
61
|
|
ABS
|
|
|
228
|
|
|
|
6
|
|
|
|
687
|
|
|
|
156
|
|
|
|
915
|
|
|
|
162
|
|
State and political subdivision securities
|
|
|
111
|
|
|
|
6
|
|
|
|
438
|
|
|
|
77
|
|
|
|
549
|
|
|
|
83
|
|
Foreign government securities
|
|
|
15
|
|
|
|
1
|
|
|
|
13
|
|
|
|
3
|
|
|
|
28
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
3,045
|
|
|
$
|
99
|
|
|
$
|
7,520
|
|
|
$
|
1,181
|
|
|
$
|
10,565
|
|
|
$
|
1,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
206
|
|
|
$
|
61
|
|
|
$
|
207
|
|
|
$
|
61
|
|
Common stock
|
|
|
31
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
31
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
32
|
|
|
$
|
2
|
|
|
$
|
206
|
|
|
$
|
61
|
|
|
$
|
238
|
|
|
$
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total number of securities in an unrealized loss position
|
|
|
471
|
|
|
|
|
|
|
|
837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
U.S. Treasury and agency securities
|
|
|
5,265
|
|
|
|
271
|
|
|
|
26
|
|
|
|
10
|
|
|
|
5,291
|
|
|
|
281
|
|
Foreign corporate securities
|
|
|
759
|
|
|
|
27
|
|
|
|
1,488
|
|
|
|
234
|
|
|
|
2,247
|
|
|
|
261
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (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 income (loss), 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
|
Cost or
|
|
|
Gross
|
|
|
Number of
|
|
|
|
Amortized Cost
|
|
|
Unrealized Loss
|
|
|
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
|
|
$
|
2,621
|
|
|
$
|
596
|
|
|
$
|
52
|
|
|
$
|
154
|
|
|
|
372
|
|
|
|
65
|
|
Six months or greater but less than nine months
|
|
|
421
|
|
|
|
137
|
|
|
|
17
|
|
|
|
41
|
|
|
|
54
|
|
|
|
13
|
|
Nine months or greater but less than twelve months
|
|
|
59
|
|
|
|
24
|
|
|
|
7
|
|
|
|
7
|
|
|
|
7
|
|
|
|
5
|
|
Twelve months or greater
|
|
|
6,533
|
|
|
|
1,454
|
|
|
|
550
|
|
|
|
452
|
|
|
|
601
|
|
|
|
154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,634
|
|
|
$
|
2,211
|
|
|
$
|
626
|
|
|
$
|
654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of amortized cost
|
|
|
|
|
|
|
|
|
|
|
6
|
%
|
|
|
30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than six months
|
|
$
|
31
|
|
|
$
|
88
|
|
|
$
|
1
|
|
|
$
|
24
|
|
|
|
15
|
|
|
|
8
|
|
Six months or greater but less than nine months
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
Nine months or greater but less than twelve months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve months or greater
|
|
|
111
|
|
|
|
70
|
|
|
|
15
|
|
|
|
23
|
|
|
|
12
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
143
|
|
|
$
|
158
|
|
|
$
|
16
|
|
|
$
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of cost
|
|
|
|
|
|
|
|
|
|
|
11
|
%
|
|
|
30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
Cost or
|
|
|
Gross
|
|
|
Number of
|
|
|
|
Amortized Cost
|
|
|
Unrealized Loss
|
|
|
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 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
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities with a gross unrealized loss of 20% or more
for twelve months or greater remained constant at
$23 million at both June 30, 2010 and
December 31, 2009. As shown in the section Evaluating
Temporarily Impaired
Available-for-Sale
Securities below, all $23 million of equity
securities with a gross unrealized loss of 20% or more for
twelve months or greater at June 30, 2010 were financial
services industry investment grade non-redeemable preferred
stock, of which 70% were rated A or better.
26
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (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 income (loss) of $1.3 billion and
$2.3 billion at June 30, 2010 and December 31,
2009, respectively, were concentrated, calculated as a
percentage of gross unrealized loss and OTTI loss, by sector and
industry as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
December 31, 2009
|
|
Sector:
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
|
28
|
%
|
|
|
28
|
%
|
RMBS
|
|
|
26
|
|
|
|
21
|
|
Foreign corporate securities
|
|
|
16
|
|
|
|
11
|
|
ABS
|
|
|
12
|
|
|
|
9
|
|
State and political subdivision securities
|
|
|
6
|
|
|
|
5
|
|
CMBS
|
|
|
5
|
|
|
|
10
|
|
U.S. Treasury and agency securities
|
|
|
3
|
|
|
|
12
|
|
Other
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
Industry:
|
|
|
|
|
|
|
|
|
Mortgage-backed
|
|
|
31
|
%
|
|
|
31
|
%
|
Finance
|
|
|
26
|
|
|
|
22
|
|
Asset-backed
|
|
|
12
|
|
|
|
9
|
|
State and political subdivision securities
|
|
|
6
|
|
|
|
5
|
|
Consumer
|
|
|
6
|
|
|
|
6
|
|
Utility
|
|
|
3
|
|
|
|
4
|
|
Communications
|
|
|
3
|
|
|
|
3
|
|
U.S. Treasury and agency securities
|
|
|
3
|
|
|
|
12
|
|
Industrial
|
|
|
2
|
|
|
|
2
|
|
Other
|
|
|
8
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
Evaluating
Temporarily Impaired
Available-for-Sale
Securities
The following table presents the Companys fixed maturity
and equity securities, each 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
December 31, 2009
|
|
|
Fixed Maturity
|
|
Equity
|
|
Fixed Maturity
|
|
Equity
|
|
|
Securities
|
|
Securities
|
|
Securities
|
|
Securities
|
|
|
(In millions, except number of securities)
|
|
Number of securities
|
|
|
20
|
|
|
|
|
|
|
|
33
|
|
|
|
|
|
Total gross unrealized loss
|
|
$
|
279
|
|
|
$
|
|
|
|
$
|
510
|
|
|
$
|
|
|
Percentage of total gross unrealized loss
|
|
|
22
|
%
|
|
|
|
%
|
|
|
23
|
%
|
|
|
|
%
|
27
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Fixed maturity and equity securities, each with a gross
unrealized loss greater than $10 million, decreased
$231 million during the six months ended June 30,
2010. The cause of the decline in, or improvement in, gross
unrealized losses for the six months ended June 30, 2010,
was primarily attributable to a decrease in interest rates.
These securities were included in the Companys OTTI review
process. Based upon the Companys current evaluation of
these securities and other
available-for-sale
securities in an unrealized loss position in accordance with its
impairment policy, 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 June 30,
2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Equity
|
|
|
Unrealized
|
|
|
Non-Redeemable
|
|
|
Unrealized
|
|
|
% of All
|
|
|
% A Rated
|
|
|
|
Loss
|
|
|
Loss
|
|
|
Securities
|
|
|
Loss
|
|
|
Preferred Stock
|
|
|
Loss
|
|
|
Industries
|
|
|
or Better
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
Less than six months
|
|
$
|
24
|
|
|
$
|
23
|
|
|
|
96
|
%
|
|
$
|
23
|
|
|
|
100
|
%
|
|
$
|
23
|
|
|
|
100
|
%
|
|
|
75
|
%
|
Six months or greater but less than twelve months
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
|
|
|
%
|
Twelve months or greater
|
|
|
23
|
|
|
|
23
|
|
|
|
100
|
%
|
|
|
23
|
|
|
|
100
|
%
|
|
|
23
|
|
|
|
100
|
%
|
|
|
70
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All equity securities with a gross unrealized loss of 20% or more
|
|
$
|
47
|
|
|
$
|
46
|
|
|
|
98
|
%
|
|
$
|
46
|
|
|
|
100
|
%
|
|
$
|
46
|
|
|
|
100
|
%
|
|
|
72
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In connection with the equity securities impairment review
process, the Company evaluated its holdings in non-redeemable
preferred stock, particularly those companies in the financial
services industry. The Company considered several factors
including whether there has been any deterioration in credit of
the issuer and the likelihood of recovery in value of
non-redeemable preferred stock with a severe or an extended
unrealized loss. The Company also considered whether any issuers
of non-redeemable preferred stock with an unrealized loss held
by the Company, regardless of credit rating, have deferred any
dividend payments. No such dividend payments 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 less than 20% in an extended
unrealized loss position (i.e., 12 months or greater).
Future OTTIs will depend primarily on economic fundamentals,
issuer performance (including changes in the present value of
future cash flows expected to be collected), changes in credit
rating, changes in collateral valuation,
28
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
changes in interest rates and changes in credit spreads. If
economic fundamentals and any of the above factors deteriorate,
additional OTTIs may be incurred in upcoming quarters.
Net
Investment Gains (Losses)
As described more fully in Note 1 of the Notes to the
Consolidated Financial Statements included in the 2009 Annual
Report, 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) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Total losses on fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OTTI losses recognized
|
|
$
|
(19
|
)
|
|
$
|
(195
|
)
|
|
$
|
(53
|
)
|
|
$
|
(316
|
)
|
Less: Noncredit portion of OTTI losses transferred to and
recognized in other comprehensive income (loss)
|
|
|
7
|
|
|
|
77
|
|
|
|
23
|
|
|
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net OTTI losses on fixed maturity securities recognized in
earnings
|
|
|
(12
|
)
|
|
|
(118
|
)
|
|
|
(30
|
)
|
|
|
(239
|
)
|
Fixed maturity securities net gains (losses) on
sales and disposals
|
|
|
58
|
|
|
|
(20
|
)
|
|
|
62
|
|
|
|
(60
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total losses on fixed maturity securities
|
|
|
46
|
|
|
|
(138
|
)
|
|
|
32
|
|
|
|
(299
|
)
|
Other net investment gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
20
|
|
|
|
(20
|
)
|
|
|
19
|
|
|
|
(78
|
)
|
Mortgage loans
|
|
|
(7
|
)
|
|
|
(6
|
)
|
|
|
(15
|
)
|
|
|
(20
|
)
|
Commercial mortgage loans held by consolidated securitization
entities fair value option
|
|
|
172
|
|
|
|
|
|
|
|
653
|
|
|
|
|
|
Real estate and real estate joint ventures
|
|
|
(3
|
)
|
|
|
(44
|
)
|
|
|
(19
|
)
|
|
|
(55
|
)
|
Other limited partnership interests
|
|
|
(8
|
)
|
|
|
(16
|
)
|
|
|
(10
|
)
|
|
|
(66
|
)
|
Freestanding derivatives
|
|
|
231
|
|
|
|
(303
|
)
|
|
|
134
|
|
|
|
(481
|
)
|
Embedded derivatives
|
|
|
332
|
|
|
|
(94
|
)
|
|
|
121
|
|
|
|
(278
|
)
|
Long-term debt of consolidated securitization
entities related to mortgage loans fair
value option
|
|
|
(162
|
)
|
|
|
|
|
|
|
(647
|
)
|
|
|
|
|
Other
|
|
|
(8
|
)
|
|
|
(107
|
)
|
|
|
74
|
|
|
|
(51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net investment gains (losses)
|
|
$
|
613
|
|
|
$
|
(728
|
)
|
|
$
|
342
|
|
|
$
|
(1,328
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Variable Interest Entities for
discussion of consolidated securitization entities included in
the table above.
See Note 8 for discussion of affiliated net investment
gains (losses) included in embedded derivatives in the table
above.
29
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (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) were as shown below.
Investment gains and losses on sales of securities are
determined on a specific identification basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Maturity Securities
|
|
|
Equity Securities
|
|
|
Total
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Proceeds
|
|
$
|
3,076
|
|
|
$
|
1,516
|
|
|
$
|
74
|
|
|
$
|
4
|
|
|
$
|
3,150
|
|
|
$
|
1,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross investment gains
|
|
$
|
87
|
|
|
$
|
24
|
|
|
$
|
20
|
|
|
$
|
|
|
|
$
|
107
|
|
|
$
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross investment losses
|
|
|
(29
|
)
|
|
|
(44
|
)
|
|
|
|
|
|
|
(3
|
)
|
|
|
(29
|
)
|
|
|
(47
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OTTI losses recognized in earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit-related
|
|
|
(12
|
)
|
|
|
(108
|
)
|
|
|
|
|
|
|
|
|
|
|
(12
|
)
|
|
|
(108
|
)
|
Other (1)
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
(17
|
)
|
|
|
|
|
|
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OTTI losses recognized in earnings
|
|
|
(12
|
)
|
|
|
(118
|
)
|
|
|
|
|
|
|
(17
|
)
|
|
|
(12
|
)
|
|
|
(135
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment gains (losses)
|
|
$
|
46
|
|
|
$
|
(138
|
)
|
|
$
|
20
|
|
|
$
|
(20
|
)
|
|
$
|
66
|
|
|
$
|
(158
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Maturity Securities
|
|
|
Equity Securities
|
|
|
Total
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Proceeds
|
|
$
|
5,264
|
|
|
$
|
4,774
|
|
|
$
|
79
|
|
|
$
|
12
|
|
|
$
|
5,343
|
|
|
$
|
4,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross investment gains
|
|
$
|
131
|
|
|
$
|
71
|
|
|
$
|
20
|
|
|
$
|
1
|
|
|
$
|
151
|
|
|
$
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross investment losses
|
|
|
(69
|
)
|
|
|
(131
|
)
|
|
|
(1
|
)
|
|
|
(4
|
)
|
|
|
(70
|
)
|
|
|
(135
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OTTI losses recognized in earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit-related
|
|
|
(29
|
)
|
|
|
(222
|
)
|
|
|
|
|
|
|
|
|
|
|
(29
|
)
|
|
|
(222
|
)
|
Other (1)
|
|
|
(1
|
)
|
|
|
(17
|
)
|
|
|
|
|
|
|
(75
|
)
|
|
|
(1
|
)
|
|
|
(92
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OTTI losses recognized in earnings
|
|
|
(30
|
)
|
|
|
(239
|
)
|
|
|
|
|
|
|
(75
|
)
|
|
|
(30
|
)
|
|
|
(314
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment gains (losses)
|
|
$
|
32
|
|
|
$
|
(299
|
)
|
|
$
|
19
|
|
|
$
|
(78
|
)
|
|
$
|
51
|
|
|
$
|
(377
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
30
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Fixed maturity security OTTI losses recognized in earnings
related to the following sectors and industries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Sector:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. and foreign corporate securities by industry:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
$
|
|
|
|
$
|
20
|
|
|
$
|
9
|
|
|
$
|
34
|
|
Communications
|
|
|
|
|
|
|
30
|
|
|
|
3
|
|
|
|
70
|
|
Finance
|
|
|
1
|
|
|
|
16
|
|
|
|
2
|
|
|
|
36
|
|
Industrial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
Utility
|
|
|
2
|
|
|
|
2
|
|
|
|
2
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. and foreign corporate securities
|
|
|
3
|
|
|
|
68
|
|
|
|
16
|
|
|
|
164
|
|
CMBS
|
|
|
6
|
|
|
|
33
|
|
|
|
7
|
|
|
|
35
|
|
RMBS
|
|
|
3
|
|
|
|
3
|
|
|
|
7
|
|
|
|
3
|
|
ABS
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
12
|
|
|
$
|
118
|
|
|
$
|
30
|
|
|
$
|
239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity security OTTI losses recognized in earnings related to
the following sectors and industries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Sector:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock
|
|
$
|
|
|
|
$
|
15
|
|
|
$
|
|
|
|
$
|
71
|
|
Common stock
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
17
|
|
|
$
|
|
|
|
$
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industry:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial services industry:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Perpetual hybrid securities
|
|
$
|
|
|
|
$
|
15
|
|
|
$
|
|
|
|
$
|
51
|
|
Common and remaining non-redeemable preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial services industry
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other industries
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
17
|
|
|
$
|
|
|
|
$
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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
Income (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 June 30,
2010 for which a portion of the OTTI loss was recognized in
other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Balance, beginning of period
|
|
$
|
80
|
|
|
$
|
|
|
|
$
|
213
|
|
|
$
|
|
|
Credit loss component of OTTI loss not reclassified to other
comprehensive income (loss) in the cumulative effect transition
adjustment
|
|
|
|
|
|
|
92
|
|
|
|
|
|
|
|
92
|
|
Additions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial impairments credit loss OTTI recognized on
securities not previously impaired
|
|
|
1
|
|
|
|
67
|
|
|
|
3
|
|
|
|
67
|
|
Additional impairments credit loss OTTI recognized
on securities previously impaired
|
|
|
4
|
|
|
|
5
|
|
|
|
6
|
|
|
|
5
|
|
Reductions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to sales (maturities, pay downs or prepayments) during the
period of securities previously credit loss OTTI impaired
|
|
|
(16
|
)
|
|
|
(5
|
)
|
|
|
(52
|
)
|
|
|
(5
|
)
|
Due to securities de-recognized in connection with the adoption
of new guidance related to the consolidation of VIEs
|
|
|
|
|
|
|
|
|
|
|
(100
|
)
|
|
|
|
|
Due to increases in cash flows accretion of previous
credit loss OTTI
|
|
|
(1
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
68
|
|
|
$
|
159
|
|
|
$
|
68
|
|
|
$
|
159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Net
Investment Income
The components of net investment income were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Fixed maturity securities
|
|
$
|
525
|
|
|
$
|
525
|
|
|
$
|
1,054
|
|
|
$
|
1,036
|
|
Equity securities
|
|
|
7
|
|
|
|
8
|
|
|
|
9
|
|
|
|
15
|
|
Trading securities
|
|
|
(22
|
)
|
|
|
16
|
|
|
|
26
|
|
|
|
7
|
|
Mortgage loans
|
|
|
72
|
|
|
|
58
|
|
|
|
140
|
|
|
|
117
|
|
Commercial mortgage loans held by consolidated securitization
entities
|
|
|
105
|
|
|
|
|
|
|
|
210
|
|
|
|
|
|
Policy loans
|
|
|
17
|
|
|
|
20
|
|
|
|
33
|
|
|
|
41
|
|
Real estate and real estate joint ventures
|
|
|
1
|
|
|
|
(12
|
)
|
|
|
(25
|
)
|
|
|
(58
|
)
|
Other limited partnership interests
|
|
|
34
|
|
|
|
30
|
|
|
|
102
|
|
|
|
(51
|
)
|
Cash, cash equivalents and short-term investments
|
|
|
1
|
|
|
|
4
|
|
|
|
3
|
|
|
|
11
|
|
International joint ventures
|
|
|
(1
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
(1
|
)
|
Other
|
|
|
9
|
|
|
|
|
|
|
|
11
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment income
|
|
|
748
|
|
|
|
649
|
|
|
|
1,561
|
|
|
|
1,116
|
|
Less: Investment expenses
|
|
|
23
|
|
|
|
28
|
|
|
|
46
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
725
|
|
|
$
|
621
|
|
|
$
|
1,515
|
|
|
$
|
1,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Variable Interest Entities for
discussion of consolidated securitization entities included in
the table above.
Affiliated investment expenses, included in the table above,
were $14 million and $27 million for the three months
and six months ended June 30, 2010, respectively, and
$12 million and $23 million for the three months and
six months ended June 30, 2009, 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. These
transactions are treated as financing arrangements and the
associated liability is recorded at the amount of the cash
received. 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.
33
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Elements of the securities lending programs are presented below
at:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
(In millions)
|
|
|
Securities on loan:
|
|
|
|
|
|
|
|
|
Cost or amortized cost
|
|
$
|
6,332
|
|
|
$
|
6,173
|
|
Estimated fair value
|
|
$
|
6,689
|
|
|
$
|
6,051
|
|
Aging of cash collateral liability:
|
|
|
|
|
|
|
|
|
Open (1)
|
|
$
|
1,342
|
|
|
$
|
1,325
|
|
Less than thirty days
|
|
|
3,044
|
|
|
|
3,342
|
|
Thirty days or greater but less than sixty days
|
|
|
1,151
|
|
|
|
1,323
|
|
Sixty days or greater but less than ninety days
|
|
|
120
|
|
|
|
|
|
Ninety days or greater
|
|
|
993
|
|
|
|
234
|
|
|
|
|
|
|
|
|
|
|
Total cash collateral liability
|
|
$
|
6,650
|
|
|
$
|
6,224
|
|
|
|
|
|
|
|
|
|
|
Security collateral on deposit from counterparties
|
|
$
|
171
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Reinvestment portfolio estimated fair value
|
|
$
|
6,265
|
|
|
$
|
5,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 on loan related to
the cash collateral on open at June 30, 2010 was $1,310, of
which $1,214 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 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 U.S. corporate,
U.S. Treasury and agency, ABS and RMBS).
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.
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 securities.
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
(In millions)
|
|
|
Invested assets on deposit:
|
|
|
|
|
|
|
|
|
Regulatory agencies (1)
|
|
$
|
22
|
|
|
$
|
21
|
|
Invested assets pledged as collateral:
|
|
|
|
|
|
|
|
|
Funding agreements FHLB of Boston (2)
|
|
|
408
|
|
|
|
419
|
|
Derivative transactions (3)
|
|
|
42
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
Total invested assets on deposit and pledged as collateral
|
|
$
|
472
|
|
|
$
|
458
|
|
|
|
|
|
|
|
|
|
|
34
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
(1) |
|
The Company had investment assets on deposit with regulatory
agencies consisting primarily of fixed maturity securities. |
|
(2) |
|
The Company has pledged fixed maturity securities in support of
its 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 of the Notes
to the Consolidated Financial Statements included in the 2009
Annual Report. |
|
(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. See
Variable Interest Entities for assets of
certain consolidated securitization entities that can only be
used to settle liabilities of such entities.
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 June 30, 2010 and December 31, 2009, trading
securities at estimated fair value were $1,379 million and
$938 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 (loss) totaled
($22) million and $26 million for the three months and
six months ended June 30, 2010, respectively, and
$16 million and $7 million for the three months and
six months ended June 30, 2009, respectively. Changes in
estimated fair value subsequent to purchase of the trading
securities included within net investment income (loss) were
($38) million and $3 million for the three months and
six months ended June 30, 2010, respectively, and
$51 million and $30 million for the three months and
six months ended June 30, 2009, respectively.
Mortgage
Loans
Mortgage loans, net of valuation allowances, are categorized as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
Carrying
|
|
|
% of
|
|
|
Carrying
|
|
|
% of
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Mortgage loans
held-for-investment,
net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage loans
|
|
$
|
3,769
|
|
|
|
31.1
|
%
|
|
$
|
3,546
|
|
|
|
74.7
|
%
|
Agricultural mortgage loans
|
|
|
1,233
|
|
|
|
10.2
|
|
|
|
1,201
|
|
|
|
25.3
|
|
Consumer loans
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal mortgage loans
held-for-investment,
net
|
|
|
5,002
|
|
|
|
41.3
|
%
|
|
|
4,748
|
|
|
|
100.0
|
%
|
Commercial mortgage loans held by consolidated securitization
entities fair value option
|
|
|
7,107
|
|
|
|
58.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans
held-for-investment,
net
|
|
|
12,109
|
|
|
|
100.0
|
%
|
|
|
4,748
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans
held-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial lower of amortized cost or estimated fair
value
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans, net
|
|
$
|
12,111
|
|
|
|
100.0
|
%
|
|
$
|
4,748
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
See Variable Interest Entities for
discussion of consolidated securitization entities included in
the table above.
Additions to the mortgage valuation allowance charged to net
investment gains (losses) were $7 million and
$16 million for the three months and six months ended
June 30, 2010, respectively, and $5 million and
$18 million for the three months and six months ended
June 30, 2009, respectively.
See Note 2 of the Notes to the Consolidated Financial
Statements in the 2009 Annual Report for discussion of
affiliated mortgage loans included in the table above. Such
loans were $199 million and $200 million at
June 30, 2010 and December 31, 2009, respectively.
Short-term
Investments
The carrying value of short-term investments, which include
investments with remaining maturities of one year or less, but
greater than three months, at the time of acquisition was
$2.0 billion and $1.8 billion at June 30, 2010
and December 31, 2009, respectively. The Company is exposed
to concentrations of credit risk related to securities of the
U.S. government and certain U.S. government agencies
included within short-term investments, which were
$1.4 billion and $1.5 billion at June 30, 2010
and December 31, 2009, respectively.
Cash
Equivalents
The carrying value of cash equivalents, which include
investments with an original or remaining maturity of three
months or less, at the time of acquisition was $2.0 billion
and $2.4 billion at June 30, 2010 and
December 31, 2009, respectively. The Company is exposed to
concentrations of credit risk related to securities of the
U.S. government and certain U.S. government agencies
included within cash equivalents, which were $1.2 billion
and $1.5 billion at June 30, 2010 and
December 31, 2009, respectively.
Variable
Interest Entities
The Company holds investments in certain entities that are VIEs.
In certain instances, the Company holds both the power to direct
the most significant activities of the entity, as well as an
economic interest in the entity and, as such, consistent with
the new guidance described in Note 1, is deemed to be the
primary beneficiary or consolidator of the entity. The following
table presents the total assets and total liabilities relating
to VIEs for which the Company has concluded that it is the
primary beneficiary and which are consolidated in the
Companys financial statements at June 30, 2010 and
December 31, 2009. Creditors or beneficial interest holders
of VIEs where the Company is the primary beneficiary have no
recourse to the general credit of the Company, as the
Companys obligation to the VIEs is limited to the amount
of its committed investment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
December 31, 2009
|
|
|
Total
|
|
Total
|
|
Total
|
|
Total
|
|
|
Assets
|
|
Liabilities
|
|
Assets
|
|
Liabilities
|
|
|
(In millions)
|
|
Consolidated securitization entities (1)
|
|
$
|
7,141
|
|
|
$
|
7,085
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
(1) |
|
As discussed in Note 1, upon the adoption of new guidance
effective January 1, 2010, the Company consolidated former
QSPEs that are structured as CMBS. At June 30, 2010, these
entities held total assets of $7,141 million consisting of
$7,107 million of commercial mortgage loans and
$34 million of accrued investment income. These entities
had total liabilities of $7,085 million, consisting of
$7,052 million of long-term debt and $33 million of
other liabilities. The assets of these entities can only be used
to settle their respective liabilities, and under no
circumstances is the Company or any of its subsidiaries or
affiliates liable for any principal or interest shortfalls,
should any arise. The Companys exposure is limited to that
of its remaining investment in the former QSPEs of
$55 million at estimated fair value at June 30, 2010.
The long-term debt |
36
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
referred to above bears interest at primarily fixed rates
ranging from 2.25% to 5.57%, payable primarily on a monthly
basis and is expected to be repaid over the next 7 years.
Interest expense related to these obligations, included in other
expenses, was $101 million and $204 million for the
three months and six months ended June 30, 2010,
respectively. |
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
|
|
|
Maximum
|
|
|
|
|
|
Maximum
|
|
|
|
Carrying
|
|
|
Exposure
|
|
|
Carrying
|
|
|
Exposure
|
|
|
|
Amount
|
|
|
to Loss (1)
|
|
|
Amount
|
|
|
to Loss (1)
|
|
|
|
(In millions)
|
|
|
Fixed maturity securities
available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMBS (2)
|
|
$
|
5,410
|
|
|
$
|
5,410
|
|
|
$
|
|
|
|
$
|
|
|
CMBS (2)
|
|
|
2,540
|
|
|
|
2,540
|
|
|
|
|
|
|
|
|
|
ABS (2)
|
|
|
2,040
|
|
|
|
2,040
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
|
360
|
|
|
|
360
|
|
|
|
247
|
|
|
|
247
|
|
Foreign corporate securities
|
|
|
293
|
|
|
|
293
|
|
|
|
304
|
|
|
|
304
|
|
Other limited partnership interests
|
|
|
1,006
|
|
|
|
1,869
|
|
|
|
838
|
|
|
|
1,273
|
|
Real estate joint ventures
|
|
|
7
|
|
|
|
35
|
|
|
|
32
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,656
|
|
|
$
|
12,547
|
|
|
$
|
1,421
|
|
|
$
|
1,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The maximum exposure to loss relating to the fixed maturity
securities
available-for-sale
is equal to the carrying amounts or carrying amounts of retained
interests. The maximum exposure to loss relating to the real
estate joint ventures and other limited partnership interests is
equal to the carrying amounts plus any unfunded commitments.
Such a maximum loss would be expected to occur only upon
bankruptcy of the issuer or investee. |
|
(2) |
|
As discussed in Note 1, the Company adopted new guidance
effective January 1, 2010 which eliminated the concept of a
QSPE. As a result, the Company concluded it held variable
interests in RMBS, CMBS and ABS. For these interests, the
Companys involvement is limited to that of a passive
investor. |
As described in Note 5, 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 six months ended June 30, 2010.
Related
Party Investment Transactions
At June 30, 2010 and December 31, 2009, the Company
held $504 million and $285 million, 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 less than $1 million for both
the three months and six months ended June 30, 2010 and
less than $1 million and $1 million for the three
months and six months ended June 30, 2009, respectively.
37
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
In the normal course of business, the Company transfers invested
assets, primarily consisting of fixed maturity securities, to
and from affiliates. Assets transferred to and from affiliates,
inclusive of amounts related to reinsurance agreements, were as
follows:
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
Ended
|
|
|
June 30,
|
|
|
2010
|
|
2009
|
|
|
(In millions)
|
|
Estimated fair value of assets transferred to affiliates
|
|
$
|
445
|
|
|
$
|
|
|
Amortized cost of assets transferred to affiliates
|
|
$
|
406
|
|
|
$
|
|
|
Net investment gains (losses) recognized on transfers
|
|
$
|
39
|
|
|
$
|
|
|
Estimated fair value of assets transferred from affiliates
|
|
$
|
|
|
|
$
|
143
|
|
|
|
3.
|
Derivative
Financial Instruments
|
Accounting
for Derivative Financial Instruments
Derivatives are financial instruments whose values are derived
from interest rates, foreign currency exchange rates, or other
financial indices. Derivatives may be exchange-traded or
contracted in the
over-the-counter
market. The Company uses a variety of derivatives, including
swaps, forwards, futures and option contracts, to manage 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) except for
those in net investment income for economic hedges of equity
method investments in joint ventures. 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
38
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
highly effective in offsetting the designated risk of the hedged
item. Hedge effectiveness is formally assessed at inception and
periodically throughout the life of the designated hedging
relationship. Assessments of hedge effectiveness and
measurements of ineffectiveness are also subject to
interpretation and estimation and different interpretations or
estimates may have a material effect on the amount reported in
net income.
The accounting for derivatives is complex and interpretations of
the primary accounting 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
39
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
(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 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.
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
40
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
fair value and primary underlying risk exposure of the
Companys derivative financial instruments, excluding
embedded derivatives, held at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
Primary Underlying
|
|
|
|
Notional
|
|
|
Fair Value (1)
|
|
|
Notional
|
|
|
Fair Value (1)
|
|
Risk Exposure
|
|
Instrument Type
|
|
Amount
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Amount
|
|
|
Assets
|
|
|
Liabilities
|
|
|
|
|
|
(In millions)
|
|
|
Interest rate
|
|
Interest rate swaps
|
|
$
|
6,342
|
|
|
$
|
696
|
|
|
$
|
232
|
|
|
$
|
5,261
|
|
|
$
|
534
|
|
|
$
|
179
|
|
|
|
Interest rate floors
|
|
|
7,986
|
|
|
|
164
|
|
|
|
72
|
|
|
|
7,986
|
|
|
|
78
|
|
|
|
34
|
|
|
|
Interest rate caps
|
|
|
6,099
|
|
|
|
7
|
|
|
|
1
|
|
|
|
4,003
|
|
|
|
15
|
|
|
|
|
|
|
|
Interest rate futures
|
|
|
971
|
|
|
|
|
|
|
|
|
|
|
|
835
|
|
|
|
2
|
|
|
|
1
|
|
Foreign currency
|
|
Foreign currency swaps
|
|
|
2,607
|
|
|
|
489
|
|
|
|
51
|
|
|
|
2,678
|
|
|
|
689
|
|
|
|
93
|
|
|
|
Foreign currency forwards
|
|
|
154
|
|
|
|
3
|
|
|
|
1
|
|
|
|
79
|
|
|
|
3
|
|
|
|
|
|
Credit
|
|
Credit default swaps
|
|
|
1,351
|
|
|
|
14
|
|
|
|
22
|
|
|
|
966
|
|
|
|
12
|
|
|
|
31
|
|
|
|
Credit forwards
|
|
|
110
|
|
|
|
8
|
|
|
|
2
|
|
|
|
90
|
|
|
|
|
|
|
|
3
|
|
Equity market
|
|
Equity futures
|
|
|
74
|
|
|
|
1
|
|
|
|
|
|
|
|
81
|
|
|
|
1
|
|
|
|
|
|
|
|
Equity options
|
|
|
787
|
|
|
|
157
|
|
|
|
|
|
|
|
775
|
|
|
|
112
|
|
|
|
|
|
|
|
Variance swaps
|
|
|
1,081
|
|
|
|
46
|
|
|
|
|
|
|
|
1,081
|
|
|
|
24
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
27,562
|
|
|
$
|
1,585
|
|
|
$
|
381
|
|
|
$
|
23,835
|
|
|
$
|
1,470
|
|
|
$
|
347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
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, cash flow
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
41
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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 writes covered call options on its portfolio of
U.S. Treasuries as an income generation strategy. In a
covered call transaction, the Company receives a premium at the
inception of the contract in exchange for giving the derivative
counterparty the right to purchase the referenced security from
the Company at a predetermined price. The call option is
covered because the Company owns the referenced
security over the term of the option. Covered call options are
included in interest rate options. The Company utilizes covered
call options 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.
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.
42
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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.
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.
43
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Hedging
The following table presents the notional amount and estimated
fair value of derivatives designated as hedging instruments by
type of hedge designation at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
Notional
|
|
|
Fair Value
|
|
|
Notional
|
|
|
Fair Value
|
|
Derivatives Designated as Hedging Instruments
|
|
Amount
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Amount
|
|
|
Assets
|
|
|
Liabilities
|
|
|
|
(In millions)
|
|
|
Fair Value Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency swaps
|
|
$
|
850
|
|
|
$
|
265
|
|
|
$
|
27
|
|
|
$
|
850
|
|
|
$
|
370
|
|
|
$
|
15
|
|
Interest rate swaps
|
|
|
134
|
|
|
|
14
|
|
|
|
1
|
|
|
|
220
|
|
|
|
11
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
984
|
|
|
|
279
|
|
|
|
28
|
|
|
|
1,070
|
|
|
|
381
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency swaps
|
|
|
246
|
|
|
|
24
|
|
|
|
3
|
|
|
|
166
|
|
|
|
15
|
|
|
|
7
|
|
Interest rate swaps
|
|
|
10
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit forwards
|
|
|
110
|
|
|
|
8
|
|
|
|
2
|
|
|
|
90
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
366
|
|
|
|
34
|
|
|
|
5
|
|
|
|
256
|
|
|
|
15
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Qualifying Hedges
|
|
$
|
1,350
|
|
|
$
|
313
|
|
|
$
|
33
|
|
|
$
|
1,326
|
|
|
$
|
396
|
|
|
$
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the notional amount and estimated
fair value of derivatives that were not designated or do not
qualify as hedging instruments by derivative type at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
Derivatives Not Designated or
|
|
Notional
|
|
|
Fair Value
|
|
|
Notional
|
|
|
Fair Value
|
|
Not Qualifying as Hedging Instruments
|
|
Amount
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Amount
|
|
|
Assets
|
|
|
Liabilities
|
|
|
|
(In millions)
|
|
|
Interest rate swaps
|
|
$
|
6,198
|
|
|
$
|
680
|
|
|
$
|
231
|
|
|
$
|
5,041
|
|
|
$
|
523
|
|
|
$
|
177
|
|
Interest rate floors
|
|
|
7,986
|
|
|
|
164
|
|
|
|
72
|
|
|
|
7,986
|
|
|
|
78
|
|
|
|
34
|
|
Interest rate caps
|
|
|
6,099
|
|
|
|
7
|
|
|
|
1
|
|
|
|
4,003
|
|
|
|
15
|
|
|
|
|
|
Interest rate futures
|
|
|
971
|
|
|
|
|
|
|
|
|
|
|
|
835
|
|
|
|
2
|
|
|
|
1
|
|
Foreign currency swaps
|
|
|
1,511
|
|
|
|
200
|
|
|
|
21
|
|
|
|
1,662
|
|
|
|
304
|
|
|
|
71
|
|
Foreign currency forwards
|
|
|
154
|
|
|
|
3
|
|
|
|
1
|
|
|
|
79
|
|
|
|
3
|
|
|
|
|
|
Credit default swaps
|
|
|
1,351
|
|
|
|
14
|
|
|
|
22
|
|
|
|
966
|
|
|
|
12
|
|
|
|
31
|
|
Equity futures
|
|
|
74
|
|
|
|
1
|
|
|
|
|
|
|
|
81
|
|
|
|
1
|
|
|
|
|
|
Equity options
|
|
|
787
|
|
|
|
157
|
|
|
|
|
|
|
|
775
|
|
|
|
112
|
|
|
|
|
|
Variance swaps
|
|
|
1,081
|
|
|
|
46
|
|
|
|
|
|
|
|
1,081
|
|
|
|
24
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-designated or non-qualifying derivatives
|
|
$
|
26,212
|
|
|
$
|
1,272
|
|
|
$
|
348
|
|
|
$
|
22,509
|
|
|
$
|
1,074
|
|
|
$
|
320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The following table presents the settlement payments recorded in
income for the:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Qualifying hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
(1
|
)
|
Interest credited to policyholder account balances
|
|
|
6
|
|
|
|
9
|
|
|
|
16
|
|
|
|
17
|
|
Non-qualifying hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment gains (losses)
|
|
|
(1
|
)
|
|
|
|
|
|
|
(7
|
)
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6
|
|
|
$
|
9
|
|
|
$
|
10
|
|
|
$
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
45
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (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 three
months and six months ended June 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ineffectiveness
|
|
|
|
|
|
Net Investment Gains
|
|
|
Net Investment Gains
|
|
|
Recognized in Net
|
|
Derivatives in Fair Value
|
|
Hedged Items in Fair Value
|
|
(Losses) Recognized
|
|
|
(Losses) Recognized
|
|
|
Investment Gains
|
|
Hedging Relationships
|
|
Hedging Relationships
|
|
for Derivatives
|
|
|
for Hedged Items
|
|
|
(Losses)
|
|
|
|
|
|
(In millions)
|
|
|
For the Three Months Ended June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps:
|
|
Fixed maturity securities
|
|
$
|
(1
|
)
|
|
$
|
1
|
|
|
$
|
|
|
|
|
Policyholder account balances (1)
|
|
|
4
|
|
|
|
(1
|
)
|
|
|
3
|
|
Foreign currency swaps:
|
|
Foreign-denominated
policyholder account balances (2)
|
|
|
(65
|
)
|
|
|
55
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(62
|
)
|
|
$
|
55
|
|
|
$
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps:
|
|
Fixed maturity securities
|
|
$
|
1
|
|
|
$
|
(1
|
)
|
|
$
|
|
|
|
|
Policyholder account balances (1)
|
|
|
(4
|
)
|
|
|
4
|
|
|
|
|
|
Foreign currency swaps:
|
|
Foreign-denominated
policyholder account balances (2)
|
|
|
94
|
|
|
|
(95
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
91
|
|
|
$
|
(92
|
)
|
|
$
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps:
|
|
Fixed maturity securities
|
|
$
|
(1
|
)
|
|
$
|
1
|
|
|
$
|
|
|
|
|
Policyholder account balances (1)
|
|
|
5
|
|
|
|
(5
|
)
|
|
|
|
|
Foreign currency swaps:
|
|
Foreign-denominated
policyholder account balances (2)
|
|
|
(117
|
)
|
|
|
99
|
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(113
|
)
|
|
$
|
95
|
|
|
$
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps:
|
|
Fixed maturity securities
|
|
$
|
6
|
|
|
$
|
(6
|
)
|
|
$
|
|
|
|
|
Policyholder account balances (1)
|
|
|
(7
|
)
|
|
|
6
|
|
|
|
(1
|
)
|
Foreign currency swaps:
|
|
Foreign-denominated
policyholder account balances (2)
|
|
|
94
|
|
|
|
(94
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
93
|
|
|
$
|
(94
|
)
|
|
$
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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; (ii) interest rate forwards
and credit forwards to lock in the price to be paid for forward
purchases of investments; and (iii) interest rate swaps to
convert floating rate investments to fixed rate investments.
46
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
For the three months and six months ended June 30, 2010,
the Company recognized insignificant net investment losses which
represented the ineffective portion of all cash flow hedges. For
the three months and six months ended June 30, 2009, 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
three months and six months ended June 30, 2010 and 2009,
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. At June 30, 2010 and December 31, 2009, the
maximum length of time over which the Company was hedging its
exposure to variability in future cash flows for forecasted
transactions did not exceed one year.
The following table presents the components of other
comprehensive income (loss), before income tax, related to cash
flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Other comprehensive income (loss), balance at beginning of period
|
|
$
|
4
|
|
|
$
|
17
|
|
|
$
|
(1
|
)
|
|
$
|
20
|
|
Gains (losses) deferred in other comprehensive income (loss) on
the effective portion of cash flow hedges
|
|
|
17
|
|
|
|
(3
|
)
|
|
|
20
|
|
|
|
(46
|
)
|
Amounts reclassified to net investment gains (losses)
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
4
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), balance at end of period
|
|
$
|
23
|
|
|
$
|
12
|
|
|
$
|
23
|
|
|
$
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2010, $2 million of deferred net gains on
derivatives accumulated in other comprehensive income (loss) was
expected to be reclassified to earnings within the next
12 months.
47
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The following table presents the effects of derivatives in cash
flow hedging relationships on the interim condensed consolidated
statements of operations and the interim condensed consolidated
statements of stockholders equity for the three months and
six months ended June 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount and Location of
|
|
|
|
|
|
|
Gains (Losses)
|
|
|
|
Amount of Gains
|
|
|
Reclassified from
|
|
|
|
(Losses) Deferred
|
|
|
Accumulated Other
|
|
|
|
in Accumulated
|
|
|
Comprehensive Income
|
|
|
|
Other Comprehensive
|
|
|
(Loss) into Income
|
|
|
|
Income (Loss) on
|
|
|
Net Investment
|
|
Derivatives in Cash Flow Hedging Relationships
|
|
Derivatives
|
|
|
Gains (Losses)
|
|
|
|
(In millions)
|
|
|
For the Three Months Ended June 30, 2010:
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
1
|
|
|
$
|
|
|
Foreign currency swaps
|
|
|
10
|
|
|
|
(4
|
)
|
Interest rate forwards
|
|
|
|
|
|
|
2
|
|
Credit forwards
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
17
|
|
|
$
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, 2009:
|
|
|
|
|
|
|
|
|
Foreign currency swaps
|
|
$
|
(11
|
)
|
|
$
|
2
|
|
Interest rate forwards
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(3
|
)
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2010:
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
1
|
|
|
$
|
|
|
Foreign currency swaps
|
|
|
10
|
|
|
|
(6
|
)
|
Interest rate forwards
|
|
|
|
|
|
|
2
|
|
Credit forwards
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
20
|
|
|
$
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2009:
|
|
|
|
|
|
|
|
|
Foreign currency swaps
|
|
$
|
(54
|
)
|
|
$
|
(38
|
)
|
Interest rate forwards
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(46
|
)
|
|
$
|
(38
|
)
|
|
|
|
|
|
|
|
|
|
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;
(x) covered call options for income
48
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
generation; and (xi) equity options to economically hedge
certain invested assets against adverse changes in equity
indices.
The following tables present the amount and location of gains
(losses) recognized in income for derivatives that were not
designated or qualifying as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
Net Investment
|
|
|
Net Investment
|
|
|
|
Gains (Losses)
|
|
|
Income (1)
|
|
|
|
(In millions)
|
|
|
For the Three Months Ended June 30, 2010:
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
45
|
|
|
$
|
|
|
Interest rate floors
|
|
|
54
|
|
|
|
|
|
Interest rate caps
|
|
|
(6
|
)
|
|
|
|
|
Interest rate futures
|
|
|
(23
|
)
|
|
|
|
|
Equity futures
|
|
|
4
|
|
|
|
|
|
Foreign currency swaps
|
|
|
(13
|
)
|
|
|
|
|
Foreign currency forwards
|
|
|
9
|
|
|
|
|
|
Equity options
|
|
|
66
|
|
|
|
5
|
|
Interest rate options
|
|
|
(3
|
)
|
|
|
|
|
Variance swaps
|
|
|
38
|
|
|
|
|
|
Credit default swaps
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
172
|
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, 2009:
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
(95
|
)
|
|
$
|
|
|
Interest rate floors
|
|
|
(58
|
)
|
|
|
|
|
Interest rate caps
|
|
|
17
|
|
|
|
|
|
Interest rate futures
|
|
|
(35
|
)
|
|
|
|
|
Equity futures
|
|
|
(60
|
)
|
|
|
|
|
Foreign currency swaps
|
|
|
72
|
|
|
|
|
|
Foreign currency forwards
|
|
|
(6
|
)
|
|
|
|
|
Equity options
|
|
|
(81
|
)
|
|
|
|
|
Interest rate forwards
|
|
|
2
|
|
|
|
|
|
Variance swaps
|
|
|
(13
|
)
|
|
|
|
|
Swap spreadlocks
|
|
|
4
|
|
|
|
|
|
Credit default swaps
|
|
|
(47
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(300
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
49
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
Net Investment
|
|
|
Net Investment
|
|
|
|
Gains (Losses)
|
|
|
Income (1)
|
|
|
|
(In millions)
|
|
|
For the Six Months Ended June 30, 2010:
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
63
|
|
|
$
|
|
|
Interest rate floors
|
|
|
47
|
|
|
|
|
|
Interest rate caps
|
|
|
(14
|
)
|
|
|
|
|
Interest rate futures
|
|
|
(28
|
)
|
|
|
|
|
Equity futures
|
|
|
(1
|
)
|
|
|
|
|
Foreign currency swaps
|
|
|
(57
|
)
|
|
|
|
|
Foreign currency forwards
|
|
|
13
|
|
|
|
|
|
Equity options
|
|
|
43
|
|
|
|
4
|
|
Interest rate options
|
|
|
(3
|
)
|
|
|
|
|
Variance swaps
|
|
|
28
|
|
|
|
|
|
Credit default swaps
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
92
|
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2009:
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
(134
|
)
|
|
$
|
|
|
Interest rate floors
|
|
|
(242
|
)
|
|
|
|
|
Interest rate caps
|
|
|
14
|
|
|
|
|
|
Interest rate futures
|
|
|
(34
|
)
|
|
|
|
|
Equity futures
|
|
|
(35
|
)
|
|
|
|
|
Foreign currency swaps
|
|
|
21
|
|
|
|
|
|
Foreign currency forwards
|
|
|
(2
|
)
|
|
|
|
|
Equity options
|
|
|
(49
|
)
|
|
|
|
|
Interest rate forwards
|
|
|
2
|
|
|
|
|
|
Variance swaps
|
|
|
(19
|
)
|
|
|
|
|
Swap spreadlocks
|
|
|
|
|
|
|
|
|
Credit default swaps
|
|
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(505
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 $887 million and
$477 million at June 30, 2010 and December 31,
2009, 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
50
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
June 30, 2010 and December 31, 2009, the Company would
have received $2 million and $8 million, respectively,
to terminate all of these contracts.
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 June 30, 2010 and
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
|
|
|
Maximum
|
|
|
|
|
|
|
|
|
Maximum
|
|
|
|
|
|
|
Estimated
|
|
|
Amount of
|
|
|
|
|
|
Estimated
|
|
|
Amount of
|
|
|
|
|
|
|
Fair
|
|
|
Future
|
|
|
Weighted
|
|
|
Fair
|
|
|
Future
|
|
|
Weighted
|
|
|
|
Value of
|
|
|
Payments under
|
|
|
Average
|
|
|
Value of
|
|
|
Payments under
|
|
|
Average
|
|
Rating Agency Designation of Referenced
|
|
Credit Default
|
|
|
Credit Default
|
|
|
Years to
|
|
|
Credit 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
|
|
|
$
|
45
|
|
|
|
4.1
|
|
|
$
|
1
|
|
|
$
|
25
|
|
|
|
4.0
|
|
Credit default swaps referencing indices
|
|
|
3
|
|
|
|
679
|
|
|
|
4.2
|
|
|
|
7
|
|
|
|
437
|
|
|
|
3.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
4
|
|
|
|
724
|
|
|
|
4.2
|
|
|
|
8
|
|
|
|
462
|
|
|
|
3.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Baa
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single name credit default swaps (corporate)
|
|
|
|
|
|
|
5
|
|
|
|
3.5
|
|
|
|
|
|
|
|
5
|
|
|
|
4.0
|
|
Credit default swaps referencing indices
|
|
|
(2
|
)
|
|
|
158
|
|
|
|
5.0
|
|
|
|
|
|
|
|
10
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
(2
|
)
|
|
|
163
|
|
|
|
5.0
|
|
|
|
|
|
|
|
15
|
|
|
|
4.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2
|
|
|
$
|
887
|
|
|
|
4.4
|
|
|
$
|
8
|
|
|
$
|
477
|
|
|
|
3.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The rating agency designations are based on availability and the
midpoint of the applicable ratings among Moodys, S&P
and Fitch. If no rating is available from a rating agency, then
an internally developed 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 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 June 30,
2010 and December 31, 2009, the Company was obligated to
return cash collateral under its control of $1,009 million
and $945 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
June 30, 2010 and December 31, 2009, the Company had
also accepted collateral consisting of various securities with a
fair market value of $6 million and $88 million,
respectively, which
51
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
were held in separate custodial accounts. The Company is
permitted by contract to sell or repledge this collateral, but
at June 30, 2010, 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Incremental Collateral
|
|
|
|
|
|
|
Provided Upon:
|
|
|
|
|
|
|
|
|
Downgrade in the
|
|
|
|
|
Estimated
|
|
One Notch
|
|
Companys Credit Rating
|
|
|
|
|
Fair Value of
|
|
Downgrade
|
|
to a Level that Triggers
|
|
|
Estimated
|
|
Collateral
|
|
in the
|
|
Full Overnight
|
|
|
Fair Value (1) of
|
|
Provided
|
|
Companys
|
|
Collateralization or
|
|
|
Derivatives in Net
|
|
Fixed Maturity
|
|
Credit
|
|
Termination
|
|
|
Liability Position
|
|
Securities (2)
|
|
Rating
|
|
of the Derivative Position
|
|
|
(In millions)
|
|
At June 30, 2010
|
|
$
|
53
|
|
|
$
|
23
|
|
|
$
|
|
|
|
$
|
20
|
|
At December 31, 2009
|
|
$
|
42
|
|
|
$
|
|
|
|
$
|
8
|
|
|
$
|
42
|
|
|
|
|
(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 both June 30, 2010 and
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 June 30, 2010 was
$119 million. At June 30, 2010, the Company provided
securities collateral of $23 million in connection with
these derivatives. In the unlikely event that both: (i) the
Companys credit rating was downgraded to a level that
triggers full overnight collateralization or termination of all
derivative positions; and (ii) the Companys netting
agreements were 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 June 30, 2010 would be
$96 million. This amount does not consider gross derivative
assets of $66 million for which the Company has the
contractual right of offset.
The Company also has exchange-traded futures, which may require
the pledging of collateral. At both June 30, 2010 and
December 31, 2009, the Company did not pledge any
securities collateral for exchange-traded futures. At
52
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
June 30, 2010 and December 31, 2009, the Company
provided cash collateral for exchange-traded futures of
$19 million and $18 million, respectively, which is
included in premiums, reinsurance 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 guaranteed
minimum withdrawal benefits (GMWBs), guaranteed
minimum accumulation benefits (GMABs) and certain
guaranteed minimum income benefits (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:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
(In millions)
|
|
|
Net embedded derivatives within asset host contracts:
|
|
|
|
|
|
|
|
|
Ceded guaranteed minimum benefits
|
|
$
|
1,870
|
|
|
$
|
724
|
|
Call options in equity securities
|
|
|
4
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
Net embedded derivatives within asset host contracts
|
|
$
|
1,874
|
|
|
$
|
719
|
|
|
|
|
|
|
|
|
|
|
Net embedded derivatives within liability host contracts:
|
|
|
|
|
|
|
|
|
Direct guaranteed minimum benefits
|
|
$
|
1,179
|
|
|
$
|
290
|
|
Other
|
|
|
79
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
Net embedded derivatives within liability host contracts
|
|
$
|
1,258
|
|
|
$
|
279
|
|
|
|
|
|
|
|
|
|
|
The following table presents changes in estimated fair value
related to embedded derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
Six Months
|
|
|
Ended
|
|
Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
(In millions)
|
|
Net investment gains (losses) (1), (2)
|
|
$
|
332
|
|
|
$
|
(94
|
)
|
|
$
|
121
|
|
|
$
|
(278
|
)
|
|
|
|
(1) |
|
The valuation of direct guaranteed minimum benefits includes an
adjustment for nonperformance risk. Included in net investment
gains (losses), in connection with this adjustment, were gains
(losses) of $125 million and $54 million, for the
three months and six months ended June 30, 2010,
respectively, and gains (losses) of ($539) million and
($310) million, for the three months and six months ended
June 30, 2009, respectively. In addition, the valuation of
ceded guaranteed minimum benefits includes an adjustment for
nonperformance risk. Included in net investment gains (losses),
in connection with this adjustment, were gains (losses) of
($65) million and ($21) million, for the three months
and six months ended June 30, 2010, respectively, and gains
(losses) of $723 million and $370 million, for the
three months and six months ended June 30, 2009,
respectively. The net investment gains (losses) for the three
months and six months ended June 30, 2010 included a gain
of $191 million relating to a refinement for estimating
nonperformance risk in fair value measurements implemented at
June 30, 2010. See Note 4. |
|
(2) |
|
See Note 8 for discussion of affiliated net investment
gains (losses) included in the table above. |
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.
53
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Fair
Value of Financial Instruments
Amounts related to the Companys financial instruments were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
Notional
|
|
|
Carrying
|
|
|
Fair
|
|
June 30, 2010
|
|
Amount
|
|
|
Value
|
|
|
Value
|
|
|
|
(In millions)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
|
|
|
|
$
|
43,848
|
|
|
$
|
43,848
|
|
Equity securities
|
|
|
|
|
|
$
|
407
|
|
|
$
|
407
|
|
Trading securities
|
|
|
|
|
|
$
|
1,379
|
|
|
$
|
1,379
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans
|
|
|
|
|
|
$
|
5,004
|
|
|
$
|
5,118
|
|
Mortgage loans held by consolidated securitization entities
|
|
|
|
|
|
|
7,107
|
|
|
|
7,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans, net
|
|
|
|
|
|
$
|
12,111
|
|
|
$
|
12,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policy loans
|
|
|
|
|
|
$
|
1,190
|
|
|
$
|
1,268
|
|
Real estate joint ventures (1)
|
|
|
|
|
|
$
|
52
|
|
|
$
|
62
|
|
Other limited partnership interests (1)
|
|
|
|
|
|
$
|
109
|
|
|
$
|
144
|
|
Short-term investments
|
|
|
|
|
|
$
|
1,974
|
|
|
$
|
1,974
|
|
Other invested assets: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets: (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
14,690
|
|
|
$
|
867
|
|
|
$
|
867
|
|
Foreign currency contracts
|
|
|
2,367
|
|
|
|
492
|
|
|
|
492
|
|
Credit contracts
|
|
|
993
|
|
|
|
22
|
|
|
|
22
|
|
Equity market contracts
|
|
|
1,935
|
|
|
|
204
|
|
|
|
204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative assets
|
|
$
|
19,985
|
|
|
$
|
1,585
|
|
|
$
|
1,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
$
|
2,198
|
|
|
$
|
2,198
|
|
Accrued investment income
|
|
|
|
|
|
$
|
501
|
|
|
$
|
501
|
|
Premiums, reinsurance and other receivables (1)
|
|
|
|
|
|
$
|
4,666
|
|
|
$
|
4,749
|
|
Separate account assets
|
|
|
|
|
|
$
|
49,806
|
|
|
$
|
49,806
|
|
Net embedded derivatives within asset host contracts (3)
|
|
|
|
|
|
$
|
1,870
|
|
|
$
|
1,870
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder account balances (1)
|
|
|
|
|
|
$
|
23,483
|
|
|
$
|
24,409
|
|
Payables for collateral under securities loaned and other
transactions
|
|
|
|
|
|
$
|
7,660
|
|
|
$
|
7,660
|
|
Long-term debt: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt affiliated
|
|
|
|
|
|
$
|
950
|
|
|
$
|
1,011
|
|
Long-term debt of consolidated securitization entities
|
|
|
|
|
|
|
7,052
|
|
|
|
7,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
|
|
|
$
|
8,002
|
|
|
$
|
8,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities: (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
6,708
|
|
|
$
|
305
|
|
|
$
|
305
|
|
Foreign currency contracts
|
|
|
394
|
|
|
|
52
|
|
|
|
52
|
|
Credit contracts
|
|
|
468
|
|
|
|
24
|
|
|
|
24
|
|
Equity market contracts
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative liabilities
|
|
$
|
7,577
|
|
|
$
|
381
|
|
|
$
|
381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
$
|
341
|
|
|
$
|
341
|
|
Separate account liabilities (1)
|
|
|
|
|
|
$
|
1,233
|
|
|
$
|
1,233
|
|
Net embedded derivatives within liability host contracts (3)
|
|
|
|
|
|
$
|
1,258
|
|
|
$
|
1,258
|
|
Commitments (4)
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loan commitments
|
|
$
|
241
|
|
|
$
|
|
|
|
$
|
(1
|
)
|
Commitments to fund bank credit facilities and private corporate
bond investments
|
|
$
|
591
|
|
|
$
|
|
|
|
$
|
(9
|
)
|
See Note 2 for discussion of consolidated securitization
entities included in the table above.
54
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets (2)
|
|
$
|
16,580
|
|
|
$
|
1,470
|
|
|
$
|
1,470
|
|
Cash and cash equivalents
|
|
|
|
|
|
$
|
2,574
|
|
|
$
|
2,574
|
|
Accrued investment income
|
|
|
|
|
|
$
|
516
|
|
|
$
|
516
|
|
Premiums, reinsurance 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
|
|
|
|
|
|
$
|
950
|
|
|
$
|
1,003
|
|
Other liabilities: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities (2)
|
|
$
|
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
|
)
|
|
|
|
(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) |
|
Derivative assets are presented within other invested assets and
derivative liabilities are presented within other liabilities. |
|
(3) |
|
Net embedded derivatives within asset host contracts are
presented within premiums, reinsurance and other receivables.
Net embedded derivatives within liability host contracts are
presented within policyholder account balances and other
liabilities. At June 30, 2010 and December 31, 2009,
equity securities also included embedded derivatives of
$4 million and ($5) million, respectively. |
55
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
(4) |
|
Commitments are off-balance sheet obligations. Negative
estimated fair values represent off-balance sheet liabilities. |
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. In addition, as
discussed in Note 1, the Company adopted new guidance
effective January 1, 2010 and consolidated certain
securitization entities that hold commercial mortgage loans. The
estimated fair values of these mortgage loans are determined as
follows:
Mortgage Loans. For mortgage loans carried at
amortized cost, estimated fair value was primarily determined by
estimating expected future cash flows and discounting them using
current interest rates for similar mortgage loans with similar
credit risk.
Mortgage Loans Held by Consolidated Securitization
Entities. For commercial mortgage loans held by
the Companys consolidated securitization entities, the
Company has determined that the principal market for these
commercial loan portfolios is the securitization market. The
Company uses the securitization market price of the obligations
of the consolidated securitization entities to determine the
estimated fair value of these commercial loan portfolios, which
is provided primarily by independent pricing services using
observable inputs.
56
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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 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 net asset value (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 venture
investments. 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.
57
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Premiums, Reinsurance and Other Receivables
Premiums, reinsurance 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.
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 on NAVs provided
by the fund manager. 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 to
reflect the nonperformance risk in the liability.
58
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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
nonperformance risk are necessary.
Affiliated Long-term Debt 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.
Long-term Debt Obligations of Consolidated Securitization
Entities The estimated fair value of the
long-term debt obligations of the Companys consolidated
securitization entities are based on their quoted prices when
traded as assets in active markets, or if not available, based
on market standard valuation methodologies, consistent with the
Companys methods and assumptions used to estimate the fair
value of comparable fixed maturity securities.
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.
59
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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 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. GMWBs, GMABs and certain
GMIBs 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
60
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
guarantees are projected under multiple capital market scenarios
using observable risk free rates, currency exchange rates and
observable and estimated implied volatilities.
The valuation of these guarantee liabilities includes
adjustments for nonperformance risk and for a risk margin
related to non-capital market inputs. Both of these adjustments
are captured as components of the spread which, when combined
with the risk free rate, is used to discount the cash flows of
the liability for purposes of determining its fair value.
The nonperformance adjustment is determined by taking into
consideration publicly available information relating to spreads
in the secondary market for MetLifes debt, including
related credit default swaps. These observable spreads are then
adjusted, as necessary, to reflect the priority of these
liabilities and the claims paying ability of the issuing
insurance subsidiaries compared to MetLife.
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, including assumptions of the
amount and cost of capital needed to cover the guarantees. 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
nonperformance risk; and variations in actuarial assumptions
regarding policyholder behavior, mortality 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 that are also accounted for as
embedded derivatives. 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,
reinsurance 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.
As part of its regular review of critical accounting estimates,
the Company periodically assesses inputs for estimating
nonperformance risk (commonly referred to as own
credit) in fair value measurements. During the second
quarter of 2010, the Company completed a study that aggregated
and evaluated data, including historical recovery rates of
insurance companies, as well as policyholder behavior observed
over the past two years as the recent financial crisis evolved.
As a result, at the end of the second quarter of 2010, the
Company refined the way in which it incorporates expected
recovery rates into the nonperformance risk adjustment for
purposes of estimating the fair value of investment-type
contracts and embedded derivatives within insurance contracts.
For the three months ended June 30, 2010, the Company
recognized income of $19 million, net of DAC and income
tax, relating to the change in fair value associated with
nonperformance risk for embedded derivatives within the above
mentioned guaranteed minimum benefit guarantees and associated
reinsurance. The impact included a gain of $60 million, net
of DAC and income tax, relating to implementing the refinement
at June 30, 2010.
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
61
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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 tables
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.
62
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (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, including those items for which the Company has
elected the fair value option, are determined as described in
the preceding section. These estimated fair values and their
corresponding fair value hierarchy are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
|
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
|
|
$
|
|
|
|
$
|
14,054
|
|
|
$
|
1,609
|
|
|
$
|
15,663
|
|
U.S. Treasury and agency securities
|
|
|
5,367
|
|
|
|
2,861
|
|
|
|
34
|
|
|
|
8,262
|
|
Foreign corporate securities
|
|
|
|
|
|
|
6,800
|
|
|
|
856
|
|
|
|
7,656
|
|
RMBS
|
|
|
|
|
|
|
5,343
|
|
|
|
67
|
|
|
|
5,410
|
|
CMBS
|
|
|
|
|
|
|
2,440
|
|
|
|
100
|
|
|
|
2,540
|
|
ABS
|
|
|
|
|
|
|
1,475
|
|
|
|
565
|
|
|
|
2,040
|
|
State and political subdivision securities
|
|
|
|
|
|
|
1,451
|
|
|
|
39
|
|
|
|
1,490
|
|
Foreign government securities
|
|
|
|
|
|
|
780
|
|
|
|
7
|
|
|
|
787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
|
5,367
|
|
|
|
35,204
|
|
|
|
3,277
|
|
|
|
43,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock
|
|
|
|
|
|
|
51
|
|
|
|
189
|
|
|
|
240
|
|
Common stock
|
|
|
53
|
|
|
|
70
|
|
|
|
44
|
|
|
|
167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
|
53
|
|
|
|
121
|
|
|
|
233
|
|
|
|
407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
|
1,373
|
|
|
|
6
|
|
|
|
|
|
|
|
1,379
|
|
Short-term investments (1)
|
|
|
549
|
|
|
|
1,409
|
|
|
|
13
|
|
|
|
1,971
|
|
Mortgage loans held by consolidated securitization entities
|
|
|
|
|
|
|
7,107
|
|
|
|
|
|
|
|
7,107
|
|
Derivative assets: (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
|
|
|
|
857
|
|
|
|
10
|
|
|
|
867
|
|
Foreign currency contracts
|
|
|
|
|
|
|
484
|
|
|
|
8
|
|
|
|
492
|
|
Credit contracts
|
|
|
|
|
|
|
7
|
|
|
|
15
|
|
|
|
22
|
|
Equity market contracts
|
|
|
1
|
|
|
|
157
|
|
|
|
46
|
|
|
|
204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative assets
|
|
|
1
|
|
|
|
1,505
|
|
|
|
79
|
|
|
|
1,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net embedded derivatives within asset host contracts (3)
|
|
|
|
|
|
|
|
|
|
|
1,870
|
|
|
|
1,870
|
|
Separate account assets (4)
|
|
|
77
|
|
|
|
49,589
|
|
|
|
140
|
|
|
|
49,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
7,420
|
|
|
$
|
94,941
|
|
|
$
|
5,612
|
|
|
$
|
107,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities: (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
|
|
|
$
|
304
|
|
|
$
|
1
|
|
|
$
|
305
|
|
Foreign currency contracts
|
|
|
|
|
|
|
52
|
|
|
|
|
|
|
|
52
|
|
Credit contracts
|
|
|
|
|
|
|
19
|
|
|
|
5
|
|
|
|
24
|
|
Equity market contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative liabilities
|
|
|
|
|
|
|
375
|
|
|
|
6
|
|
|
|
381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net embedded derivatives within liability host contracts (3)
|
|
|
|
|
|
|
|
|
|
|
1,258
|
|
|
|
1,258
|
|
Long-term debt of consolidated securitization entities
|
|
|
|
|
|
|
7,052
|
|
|
|
|
|
|
|
7,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
|
|
|
$
|
7,427
|
|
|
$
|
1,264
|
|
|
$
|
8,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
U.S. Treasury and agency securities
|
|
|
3,972
|
|
|
|
2,252
|
|
|
|
33
|
|
|
|
6,257
|
|
Foreign corporate securities
|
|
|
|
|
|
|
6,344
|
|
|
|
994
|
|
|
|
7,338
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
64
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
(3) |
|
Net embedded derivatives within asset host contracts are
presented within premiums, reinsurance and other receivables.
Net embedded derivatives within liability host contracts are
presented within policyholder account balances and other
liabilities. At June 30, 2010 and December 31, 2009,
equity securities also included embedded derivatives of
$4 million and ($5) 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. |
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 most 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 certain 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. Mortgage loans included in
Level 2 include mortgage loans held by consolidated
securitization entities. Mortgage loans held by consolidated
securitization entities are priced using the securitization
market price of the obligations of the consolidated
securitization entities, which are priced principally by
independent pricing services using observable inputs. 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. Long-term
debt of consolidated securitization entities included in this
level includes obligations priced principally by independent
pricing services using observable inputs.
|
|
|
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 included within Level 3
are of a similar nature to these fixed maturity securities. As
it relates to derivatives this category includes: swap
spreadlocks with maturities which extend beyond
|
65
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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, as well as those on the cession of risks associated
with those guarantees to affiliates and embedded derivatives
related to funds withheld on ceded reinsurance.
Valuation
Techniques and Inputs by Level Within the
Three-Level Fair Value Hierarchy by Major Classes of Assets
and Liabilities
A description of the significant valuation techniques and inputs
to the determination of estimated fair value for the more
significant asset and liability classes measured at fair value
on a recurring basis is as follows:
The Company determines the estimated fair value of its
investments using primarily the market approach and the income
approach. The use of quoted prices for identical assets and
matrix pricing or other similar techniques are examples of
market approaches, while the use of discounted cash flow
methodologies is an example of the income approach. The Company
attempts to maximize the use of observable inputs and minimize
the use of unobservable inputs in selecting whether the market
or income approach is used.
While certain investments have been classified as Level 1
from the use of unadjusted quoted prices for identical
investments supported by high volumes of trading activity and
narrow bid/ask spreads, most investments have been classified as
Level 2 because the significant inputs used to measure the
fair value on a recurring basis of the same or similar
investment are market observable or can be corroborated using
market observable information for the full term of the
investment. Level 3 investments include those where
estimated fair values are based on significant unobservable
inputs that are supported by little or no market activity and
may reflect our own assumptions about what factors market
participants would use in pricing these investments.
Level 1
Measurements:
Fixed maturity securities Comprised of
U.S. Treasury securities. Valuation based on unadjusted
quoted prices in active markets that are readily and regularly
available.
Equity securities common stock
Comprised of exchange-traded U.S. and international
common stock. Valuation based on unadjusted quoted prices in
active markets that are readily and regularly available.
Trading securities Comprised of securities
that are similar in nature to the fixed maturity and equity
securities referred to above. Valuation based on unadjusted
quoted prices in active markets that are readily and regularly
available.
Short-term investments Comprised of
short-term money market securities, including U.S. Treasury
bills. Valuation based on unadjusted quoted prices in active
markets that are readily and regularly available.
Derivative assets and derivative liabilities
Comprised of exchange-traded equity and interest rate
futures. Valuation based on unadjusted quoted prices in active
markets that are readily and regularly available.
66
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Separate account assets Comprised of
securities that are similar in nature to the fixed maturity
securities, equity securities and short-term investments
referred to above. Valuation based on unadjusted quoted prices
in active markets that are readily and regularly available.
Level 2
Measurements:
U.S. corporate and foreign corporate fixed maturity
securities These securities are principally
valued using the market and income approaches. Valuation based
primarily on quoted prices in markets that are not active, or
using matrix pricing or other similar techniques that use
standard market observable inputs such as a benchmark yields,
spreads off benchmark yields, new issuances, issuer rating,
duration, and trades of identical or comparable securities.
Investment grade privately placed securities are valued using a
discounted cash flow methodologies using standard market
observable inputs, and inputs derived from, or corroborated by,
market observable data including market yield curve, duration,
call provisions, observable prices and spreads for similar
publicly traded or privately traded issues that incorporate the
credit quality and industry sector of the issuer.
Structured securities comprised of RMBS, CMBS and ABS fixed
maturity securities These securities are
principally valued using the market approach. Valuation based
primarily on matrix pricing or other similar techniques using
standard market inputs including spreads for actively traded
securities, spreads off benchmark yields, expected prepayment
speeds and volumes, current and forecasted loss severity,
rating, weighted average coupon, weighted average maturity,
average delinquency rates, geographic region, debt-service
coverage ratios and issuance-specific information including:
collateral type, payment terms of the underlying assets, payment
priority within the tranche, structure of the security, deal
performance and vintage of loans, etc.
U.S. Treasury and agency fixed maturity
securities These securities are principally
valued using the market approach. Valuation based primarily on
quoted prices in markets that are not active, or using matrix
pricing or other similar techniques using standard market
observable inputs such as benchmark U.S. Treasury yield
curve, the spread off the U.S. Treasury curve for the
identical security and comparable securities that are actively
traded.
Foreign government and state and political subdivision fixed
maturity securities These securities are
principally valued using the market approach. Valuation based
primarily on matrix pricing or other similar techniques using
standard market observable inputs including benchmark
U.S. Treasury or other yields, issuer ratings,
broker-dealer quotes, issuer spreads and reported trades of
similar securities, including those within the same
sub-sector
or with a similar maturity or credit rating.
Equity securities common and non-redeemable
preferred stock These securities are principally
valued using the market approach. Valuation is based principally
on observable inputs including quoted prices in markets that are
not considered active.
Trading securities and short-term investments
Trading securities and short-term investments are of a
similar nature to Level 2 fixed maturity and equity
securities; accordingly the valuation techniques and significant
market standard observable inputs used in their valuation are
similar to those described above for fixed maturity and equity
securities.
Mortgage loans of consolidated securitization
entities These loans are principally valued
using the market approach. The principal market for these
commercial loan portfolios is the securitization market. The
Company uses the quoted securitization market price of the
obligations of the consolidated securitization entities to
determine the estimated fair value of these commercial loan
portfolios.
Non-option based interest rate derivative assets and
derivative liabilities These derivatives are
principally valued using an income approach. Valuations are
based on present value techniques, which utilize significant
inputs that may include the swap yield curve, London Inter-Bank
Offer Rate (LIBOR) basis curves, and repurchase
rates.
67
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Option based interest rate derivative assets and derivative
liabilities These derivatives are principally
valued using an income approach. Valuations are based on option
pricing models, which utilize significant inputs that may
include the swap yield curve, LIBOR basis curves, and interest
rate volatility.
Non-option based foreign currency derivative assets and
derivative liabilities These derivatives are
principally valued using an income approach. Valuations are
based on present value techniques, which utilize significant
inputs that may include the swap yield curve, LIBOR basis
curves, currency spot rates, and cross currency basis curves.
Non-option based credit derivative assets and derivative
liabilities These derivatives are principally
valued using an income approach. Valuations are based on present
value techniques, which utilize significant inputs that may
include the swap yield curve, credit curves, and recovery rates.
Non-option based equity market derivative assets and
derivative liabilities These derivatives are
principally valued using an income approach. Valuations are
based on present value techniques, which utilize significant
inputs that may include the swap yield curve, spot equity index
levels, and dividend yield curves.
Option based equity market derivative assets and derivative
liabilities These derivatives are principally
valued using an income approach. Valuations are based on option
pricing models, which utilize significant inputs that may
include the swap yield curve, spot equity index levels, dividend
yield curves, and equity volatility.
Separate account assets These assets are
comprised of securities that are similar in nature to the fixed
maturity securities, equity securities and short-term
investments referred to above. Also included are certain mutual
funds with non-readily determinable fair values given prices are
not published publicly. Valuation of the mutual funds is based
upon quoted prices or reported NAVs provided by the fund
managers.
Long-term debt obligations of consolidated securitization
entities The estimated fair value of the
long-term debt obligations of the Companys consolidated
securitization entities are based on their quoted prices when
traded as assets in active markets, or if not available, based
on market standard valuation methodologies, consistent with the
Companys methods and assumptions used to estimate the fair
value of comparable fixed maturity securities.
Level 3
Measurements:
In general, investments classified within Level 3 use many
of the same valuation techniques and inputs as described above.
However, if key inputs are unobservable, or if the investments
are less liquid and there is very limited trading activity, the
investments are generally classified as Level 3. The use of
independent non-binding broker quotations to value investments
generally indicates there is a lack of liquidity or the general
lack of transparency in the process to develop the valuation
estimates generally causing these investments to be classified
in Level 3.
U.S. corporate and foreign corporate
securities These securities, including financial
services industry hybrid securities classified within fixed
maturity securities, are principally valued using the market and
income approaches. Valuations are based primarily on matrix
pricing or other similar techniques that utilize unobservable
inputs or cannot be derived principally from, or corroborated
by, observable market data, including illiquidity premiums and
spread adjustments to reflect industry trends or specific
credit-related issues. Valuations may be based on independent
non-binding broker quotations. Generally, below investment grade
privately placed or distressed securities included in this level
are valued using discounted cash flow methodologies which rely
upon significant, unobservable inputs and inputs that cannot be
derived principally from, or corroborated by, observable market
data.
Structured securities comprised of RMBS, CMBS and ABS fixed
maturity securities These securities are
principally valued using the market approach. Valuation is based
primarily on matrix pricing or other similar techniques that
utilize inputs that are unobservable or cannot be derived
principally from, or corroborated by,
68
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
observable market data, or are based on independent non-binding
broker quotations. Below investment grade securities and ABS
supported by
sub-prime
mortgage loans included in this level are valued based on inputs
including quoted prices for identical or similar securities that
are less liquid and based on lower levels of trading activity
than securities classified in Level 2, and certain of these
securities are valued based on independent non-binding broker
quotations.
Foreign government and state and political subdivision fixed
maturity securities These securities are
principally valued using the market approach. Valuation is based
primarily on matrix pricing or other similar techniques, however
these securities are less liquid and certain of the inputs are
based on very limited trading activity.
Equity securities common and non-redeemable
preferred stock These securities, including
privately held securities and financial services industry hybrid
securities classified within equity securities, are principally
valued using the market and income approaches. Valuations are
based primarily on matrix pricing or other similar techniques
using inputs such as comparable credit rating and issuance
structure. Equity securities valuations determined with
discounted cash flow methodologies use inputs such as earnings
multiples based on comparable public companies, and
industry-specific non-earnings based multiples. Certain of these
securities are valued based on independent non-binding broker
quotations.
Non-option based interest rate derivative assets and
derivative liabilities These derivatives are
principally valued using an income approach. Valuations are
based on present value techniques, which generally utilize the
same inputs as described in the section above for Level 2
measurements of non-option based interest rate derivatives.
However, these derivatives result in Level 3 classification
because one or more of the significant inputs are not observable
in the market or cannot be derived principally from, or
corroborated by, observable market data. Significant
unobservable inputs may include the extrapolation beyond
observable limits of the swap yield curve and LIBOR basis curves.
Option based interest rate derivative assets and derivative
liabilities These derivatives are principally
valued using an income approach. Valuations are based on option
pricing models, which generally utilize the same inputs as
described in the section above for Level 2 measurements of
option based interest rate derivatives. However, these
derivatives result in Level 3 classification because one or
more of the significant inputs are not observable in the market
or cannot be derived principally from, or corroborated by,
observable market data. Significant unobservable inputs may
include the extrapolation beyond observable limits of the swap
yield curve, LIBOR basis curves, and interest rate volatility.
Non-option based foreign currency derivative assets and
derivative liabilities These derivatives are
principally valued using an income approach. Valuations are
based on present value techniques, which generally utilize the
same inputs as described in the section above for Level 2
measurements of non-option based foreign currency derivatives.
However, these derivatives result in Level 3 classification
because one or more of the significant inputs are not observable
in the market or cannot be derived principally from, or
corroborated by, observable market data. Significant
unobservable inputs may include the extrapolation beyond
observable limits of the swap yield curve, LIBOR basis curves
and cross currency basis curves. Certain of these derivatives
are valued based on independent non-binding broker quotations.
Non-option based credit derivative assets and derivative
liabilities These derivatives are principally
valued using an income approach. Valuations are based on present
value techniques, which generally utilize the same inputs as
described in the section above for Level 2 measurements of
non-option based credit derivatives. However, these derivatives
result in Level 3 classification because one or more of the
significant inputs are not observable in the market or cannot be
derived principally from, or corroborated by, observable market
data. Significant unobservable inputs may include credit
correlation, repurchase rates and the extrapolation beyond
observable
69
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
limits of the swap yield curve and credit curves. Certain of
these derivatives are valued based on independent non-binding
broker quotations.
Non-option based equity market derivative assets and
derivative liabilities These derivatives are
principally valued using an income approach. Valuations are
based on present value techniques, which generally utilize the
same inputs as described in the section above for Level 2
measurements of non-option based equity market derivatives.
However, these derivatives result in Level 3 classification
because one or more of the significant inputs are not observable
in the market or cannot be derived principally from, or
corroborated by, observable market data. Significant
unobservable inputs may include the extrapolation beyond
observable limits of dividend yield curves.
Option based equity market derivative assets and derivative
liabilities These derivatives are principally
valued using an income approach. Valuations are based on option
pricing models, which generally utilize the same inputs as
described in the section above for Level 2 measurements of
option based equity market derivatives. However, these
derivatives result in Level 3 classification because one or
more of the significant inputs are not observable in the market
or cannot be derived principally from, or corroborated by,
observable market data. Significant unobservable inputs may
include the extrapolation beyond observable limits of dividend
yield curves and equity volatility.
Guaranteed minimum benefit guarantees These
embedded derivatives are principally valued using an income
approach. Valuations are based on option pricing techniques,
which utilize significant inputs that may include swap yield
curve, currency exchange rates and implied volatilities. These
embedded derivatives result in Level 3 classification
because one or more of the significant inputs are not observable
in the market or cannot be derived principally from, or
corroborated by, observable market data. Significant
unobservable inputs generally include: the extrapolation beyond
observable limits of the swap yield curve and implied
volatilities, actuarial assumptions for policyholder behavior
and mortality and the potential variability in policyholder
behavior and mortality, nonperformance risk and cost of capital
for purposes of calculating the risk margin.
Reinsurance ceded on certain guaranteed minimum benefit
guarantees These embedded derivatives are
principally valued using an income approach. Valuations are
based on option pricing techniques, which utilize significant
inputs that may include swap yield curve, currency exchange
rates and implied volatilities. These embedded derivatives
result in Level 3 classification because one or more of the
significant inputs are not observable in the market or cannot be
derived principally from, or corroborated by, observable market
data. Significant unobservable inputs generally include: the
extrapolation beyond observable limits of the swap yield curve
and implied volatilities, actuarial assumptions for policyholder
behavior and mortality and the potential variability in
policyholder behavior and mortality, counterparty credit spreads
and cost of capital for purposes of calculating the risk margin.
Embedded derivatives within funds withheld related to certain
ceded reinsurance These derivatives are
principally valued using an income approach. Valuations are
based on present value techniques, which utilize significant
inputs that may include the swap yield curve and the fair value
of assets within the reference portfolio. These embedded
derivatives result in Level 3 classification because one or
more of the significant inputs are not observable in the market
or cannot be derived principally from, or corroborated by,
observable market data. Significant unobservable inputs
generally include: the fair value of certain assets within the
reference portfolio which are not observable in the market and
cannot be derived principally from, or corroborated by,
observable market data.
Separate account assets These securities
consist of fixed maturity securities and equity securities
referred to above. Separate account assets within this level
also include other limited partnership interests. The estimated
fair value of 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,
70
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
the performance record of the fund manager or other relevant
variables which may impact the exit value of the particular
partnership interest.
A rollforward of all assets and liabilities measured at
estimated fair value on a recurring basis using significant
unobservable (Level 3) inputs for the three months
ended June 30, 2010 and 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs
(Level 3)
|
|
|
|
|
|
|
Total Realized/Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (Losses) included in:
|
|
|
Purchases,
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
|
|
|
|
|
|
Other
|
|
|
Sales,
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of
|
|
|
|
|
|
Comprehensive
|
|
|
Issuances and
|
|
|
Transfer Into
|
|
|
Transfer Out
|
|
|
Balance,
|
|
|
|
Period
|
|
|
Earnings (1), (2)
|
|
|
Income (Loss)
|
|
|
Settlements (3)
|
|
|
Level 3 (4)
|
|
|
of Level 3 (4)
|
|
|
End of Period
|
|
|
|
(In millions)
|
|
|
For the Three Months Ended June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
1,510
|
|
|
$
|
2
|
|
|
$
|
28
|
|
|
$
|
38
|
|
|
$
|
54
|
|
|
$
|
(23
|
)
|
|
$
|
1,609
|
|
U.S. Treasury and agency securities
|
|
|
32
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
|
|
Foreign corporate securities
|
|
|
953
|
|
|
|
4
|
|
|
|
(29
|
)
|
|
|
(100
|
)
|
|
|
66
|
|
|
|
(38
|
)
|
|
|
856
|
|
RMBS
|
|
|
28
|
|
|
|
|
|
|
|
1
|
|
|
|
17
|
|
|
|
21
|
|
|
|
|
|
|
|
67
|
|
CMBS
|
|
|
48
|
|
|
|
1
|
|
|
|
7
|
|
|
|
(5
|
)
|
|
|
73
|
|
|
|
(24
|
)
|
|
|
100
|
|
ABS
|
|
|
521
|
|
|
|
(1
|
)
|
|
|
14
|
|
|
|
27
|
|
|
|
10
|
|
|
|
(6
|
)
|
|
|
565
|
|
State and political subdivision securities
|
|
|
48
|
|
|
|
|
|
|
|
1
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
(8
|
)
|
|
|
39
|
|
Foreign government securities
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
3,147
|
|
|
$
|
6
|
|
|
$
|
24
|
|
|
$
|
(25
|
)
|
|
$
|
224
|
|
|
$
|
(99
|
)
|
|
$
|
3,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock
|
|
$
|
242
|
|
|
$
|
14
|
|
|
$
|
(12
|
)
|
|
$
|
(55
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
189
|
|
Common stock
|
|
|
34
|
|
|
|
4
|
|
|
|
(6
|
)
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
276
|
|
|
$
|
18
|
|
|
$
|
(18
|
)
|
|
$
|
(43
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
12
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
13
|
|
Net derivatives: (5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
6
|
|
|
$
|
5
|
|
|
$
|
|
|
|
$
|
(2
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
9
|
|
Foreign currency contracts
|
|
|
18
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
Credit contracts
|
|
|
7
|
|
|
|
(4
|
)
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
Equity market contracts
|
|
|
7
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net derivatives
|
|
$
|
38
|
|
|
$
|
30
|
|
|
$
|
7
|
|
|
$
|
(2
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Separate account assets (6)
|
|
$
|
146
|
|
|
$
|
(3
|
)
|
|
$
|
|
|
|
$
|
(3
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
140
|
|
Net embedded derivatives (7)
|
|
$
|
258
|
|
|
$
|
333
|
|
|
$
|
|
|
|
$
|
21
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
612
|
|
71
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs
(Level 3)
|
|
|
|
|
|
|
Total Realized/Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (Losses) included in:
|
|
|
Purchases,
|
|
|
|
|
|
|
|
|
|
Balance,
|
|
|
|
|
|
Other
|
|
|
Sales,
|
|
|
Transfer In
|
|
|
|
|
|
|
Beginning of
|
|
|
|
|
|
Comprehensive
|
|
|
Issuances and
|
|
|
and/or Out
|
|
|
Balance,
|
|
|
|
Period
|
|
|
Earnings (1), (2)
|
|
|
Income (Loss)
|
|
|
Settlements (3)
|
|
|
of Level 3 (4)
|
|
|
End of Period
|
|
|
|
(In millions)
|
|
|
For the Three Months Ended
June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
1,537
|
|
|
$
|
1
|
|
|
$
|
86
|
|
|
$
|
16
|
|
|
$
|
(89
|
)
|
|
$
|
1,551
|
|
U.S. Treasury and agency securities
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
|
|
Foreign corporate securities
|
|
|
759
|
|
|
|
(23
|
)
|
|
|
221
|
|
|
|
(16
|
)
|
|
|
(18
|
)
|
|
|
923
|
|
RMBS
|
|
|
48
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
(34
|
)
|
|
|
15
|
|
CMBS
|
|
|
99
|
|
|
|
(12
|
)
|
|
|
19
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
105
|
|
ABS
|
|
|
473
|
|
|
|
2
|
|
|
|
35
|
|
|
|
(20
|
)
|
|
|
(4
|
)
|
|
|
486
|
|
State and political subdivision securities
|
|
|
27
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
32
|
|
Foreign government securities
|
|
|
15
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
2,991
|
|
|
$
|
(27
|
)
|
|
$
|
367
|
|
|
$
|
(21
|
)
|
|
$
|
(145
|
)
|
|
$
|
3,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock
|
|
$
|
216
|
|
|
$
|
(16
|
)
|
|
$
|
70
|
|
|
$
|
(16
|
)
|
|
$
|
|
|
|
$
|
254
|
|
Common stock
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
224
|
|
|
$
|
(16
|
)
|
|
$
|
70
|
|
|
$
|
(17
|
)
|
|
$
|
|
|
|
$
|
261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Short-term investments
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
2
|
|
Net derivatives (5)
|
|
$
|
328
|
|
|
$
|
(87
|
)
|
|
$
|
|
|
|
$
|
16
|
|
|
$
|
16
|
|
|
$
|
273
|
|
Separate account assets (6)
|
|
$
|
142
|
|
|
$
|
5
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
147
|
|
Net embedded derivatives (7)
|
|
$
|
484
|
|
|
$
|
(75
|
)
|
|
$
|
|
|
|
$
|
15
|
|
|
$
|
|
|
|
$
|
424
|
|
72
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (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 six months ended
June 30, 2010 and 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs
(Level 3)
|
|
|
|
|
|
|
Total Realized/Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (Losses) included in:
|
|
|
Purchases,
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
|
|
|
|
|
|
Other
|
|
|
Sales,
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of
|
|
|
|
|
|
Comprehensive
|
|
|
Issuances and
|
|
|
Transfer Into
|
|
|
Transfer Out
|
|
|
Balance,
|
|
|
|
Period
|
|
|
Earnings (1), (2)
|
|
|
Income (Loss)
|
|
|
Settlements (3)
|
|
|
Level 3 (4)
|
|
|
of Level 3 (4)
|
|
|
End of Period
|
|
|
|
(In millions)
|
|
|
For the Six Months
Ended June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
1,605
|
|
|
$
|
5
|
|
|
$
|
67
|
|
|
$
|
(62
|
)
|
|
$
|
76
|
|
|
$
|
(82
|
)
|
|
$
|
1,609
|
|
U.S. Treasury and agency securities
|
|
|
33
|
|
|
|
|
|
|
|
3
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
34
|
|
Foreign corporate securities
|
|
|
994
|
|
|
|
(2
|
)
|
|
|
15
|
|
|
|
(158
|
)
|
|
|
77
|
|
|
|
(70
|
)
|
|
|
856
|
|
RMBS
|
|
|
25
|
|
|
|
|
|
|
|
3
|
|
|
|
17
|
|
|
|
22
|
|
|
|
|
|
|
|
67
|
|
CMBS
|
|
|
45
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
72
|
|
|
|
(27
|
)
|
|
|
100
|
|
ABS
|
|
|
537
|
|
|
|
|
|
|
|
25
|
|
|
|
45
|
|
|
|
9
|
|
|
|
(51
|
)
|
|
|
565
|
|
State and political subdivision securities
|
|
|
32
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
|
|
Foreign government securities
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
3,287
|
|
|
$
|
3
|
|
|
$
|
130
|
|
|
$
|
(160
|
)
|
|
$
|
256
|
|
|
$
|
(239
|
)
|
|
$
|
3,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock
|
|
$
|
258
|
|
|
$
|
14
|
|
|
$
|
(6
|
)
|
|
$
|
(77
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
189
|
|
Common stock
|
|
|
11
|
|
|
|
4
|
|
|
|
1
|
|
|
|
30
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
269
|
|
|
$
|
18
|
|
|
$
|
(5
|
)
|
|
$
|
(47
|
)
|
|
$
|
|
|
|
$
|
(2
|
)
|
|
$
|
233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
$
|
8
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
13
|
|
Net derivatives: (5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
2
|
|
|
$
|
9
|
|
|
$
|
|
|
|
$
|
(2
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
9
|
|
Foreign currency contracts
|
|
|
23
|
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
Credit contracts
|
|
|
4
|
|
|
|
(4
|
)
|
|
|
9
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
Equity market contracts
|
|
|
18
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net derivatives
|
|
$
|
47
|
|
|
$
|
18
|
|
|
$
|
9
|
|
|
$
|
(1
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Separate account assets (6)
|
|
$
|
153
|
|
|
$
|
(3
|
)
|
|
$
|
|
|
|
$
|
(6
|
)
|
|
$
|
|
|
|
$
|
(4
|
)
|
|
$
|
140
|
|
Net embedded derivatives (7)
|
|
$
|
445
|
|
|
$
|
123
|
|
|
$
|
|
|
|
$
|
44
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
612
|
|
73
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs
(Level 3)
|
|
|
|
|
|
|
Total Realized/Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (Losses) included in:
|
|
|
Purchases,
|
|
|
|
|
|
|
|
|
|
Balance,
|
|
|
|
|
|
Other
|
|
|
Sales,
|
|
|
Transfer In
|
|
|
|
|
|
|
Beginning of
|
|
|
|
|
|
Comprehensive
|
|
|
Issuances and
|
|
|
and/or Out
|
|
|
Balance,
|
|
|
|
Period
|
|
|
Earnings (1), (2)
|
|
|
Income (Loss)
|
|
|
Settlements (3)
|
|
|
of Level 3 (4)
|
|
|
End of Period
|
|
|
|
(In millions)
|
|
|
For the Six Months Ended
June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
1,401
|
|
|
$
|
(24
|
)
|
|
$
|
(57
|
)
|
|
$
|
(10
|
)
|
|
$
|
241
|
|
|
$
|
1,551
|
|
U.S. Treasury and agency securities
|
|
|
36
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
33
|
|
Foreign corporate securities
|
|
|
926
|
|
|
|
(66
|
)
|
|
|
194
|
|
|
|
(45
|
)
|
|
|
(86
|
)
|
|
|
923
|
|
RMBS
|
|
|
62
|
|
|
|
(4
|
)
|
|
|
4
|
|
|
|
(17
|
)
|
|
|
(30
|
)
|
|
|
15
|
|
CMBS
|
|
|
116
|
|
|
|
(12
|
)
|
|
|
16
|
|
|
|
(15
|
)
|
|
|
|
|
|
|
105
|
|
ABS
|
|
|
558
|
|
|
|
(20
|
)
|
|
|
(2
|
)
|
|
|
(65
|
)
|
|
|
15
|
|
|
|
486
|
|
State and political subdivision securities
|
|
|
24
|
|
|
|
|
|
|
|
5
|
|
|
|
3
|
|
|
|
|
|
|
|
32
|
|
Foreign government securities
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
6
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
3,133
|
|
|
$
|
(126
|
)
|
|
$
|
158
|
|
|
$
|
(146
|
)
|
|
$
|
146
|
|
|
$
|
3,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock
|
|
$
|
318
|
|
|
$
|
(68
|
)
|
|
$
|
20
|
|
|
$
|
(16
|
)
|
|
$
|
|
|
|
$
|
254
|
|
Common stock
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
326
|
|
|
$
|
(68
|
)
|
|
$
|
20
|
|
|
$
|
(17
|
)
|
|
$
|
|
|
|
$
|
261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
$
|
50
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(50
|
)
|
|
$
|
|
|
|
$
|
|
|
Short-term investments
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
2
|
|
Net derivatives (5)
|
|
$
|
309
|
|
|
$
|
(72
|
)
|
|
$
|
|
|
|
$
|
18
|
|
|
$
|
18
|
|
|
$
|
273
|
|
Separate account assets (6)
|
|
$
|
159
|
|
|
$
|
(10
|
)
|
|
$
|
|
|
|
$
|
(2
|
)
|
|
$
|
|
|
|
$
|
147
|
|
Net embedded derivatives (7)
|
|
$
|
657
|
|
|
$
|
(292
|
)
|
|
$
|
|
|
|
$
|
59
|
|
|
$
|
|
|
|
$
|
424
|
|
|
|
|
(1) |
|
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). |
|
(2) |
|
Interest and dividend accruals, as well as cash interest coupons
and dividends received, are excluded from the rollforward. |
|
(3) |
|
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. |
74
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
(4) |
|
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. |
|
(5) |
|
Freestanding derivative assets and liabilities are presented net
for purposes of the rollforward. |
|
(6) |
|
Investment performance related to separate account assets is
fully offset by corresponding amounts credited to
contractholders whose liability is reflected within separate
account liabilities. |
|
(7) |
|
Embedded derivative assets and liabilities are presented net for
purposes of the rollforward. |
Transfers between Levels 1 and 2 During
the three months and six months ended June 30, 2010,
transfers between Levels 1 and 2 were not significant.
Transfers in or out of Level 3 Overall,
transfers in
and/or out
of Level 3 are attributable to a change in the
observability of inputs. Assets and liabilities are transferred
into Level 3 when a significant input cannot be
corroborated with market observable data. This occurs when
market activity decreases significantly and transparency to
underlying inputs cannot be observed, current prices are not
available, and when there are significant variances in quoted
prices. Assets and liabilities are transferred out of
Level 3 when circumstances change such that significant
inputs can be corroborated with market observable data. This may
be due to a significant increase in market activity, a specific
event, or one or more significant input(s) becoming observable.
Transfers in
and/or out
of any level are assumed to occur at the beginning of the
period. Significant transfers in
and/or out
of Level 3 assets and liabilities for the three months and
six months ended June 30, 2010 are summarized below.
During the three months and six months ended June 30, 2010,
fixed maturity securities transfers into Level 3 of
$224 million and $256 million, respectively, resulted
primarily from current market conditions characterized by a lack
of trading activity, decreased liquidity and credit ratings
downgrades (e.g., from investment grade to below investment
grade). These current market conditions have resulted in
decreased transparency of valuations and an increased use of
broker quotations and unobservable inputs to determine estimated
fair value principally for certain CMBS and private placements
included in U.S. and foreign corporate securities.
During the three months and six months ended June 30, 2010,
fixed maturity securities transfers out of Level 3 of
$99 million and $239 million, respectively, and
separate account assets transfers out of Level 3 of less
than $1 million and $4 million, respectively, resulted
primarily from increased transparency of both new issuances that
subsequent to issuance and establishment of trading activity,
became priced by pricing services and existing issuances that,
over time, the Company was able to corroborate pricing received
from independent pricing services with observable inputs, or
there were increases in market activity and upgraded credit
ratings primarily for certain U.S. and foreign corporate
securities, ABS and CMBS.
75
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The tables below summarize both realized and unrealized gains
and losses for the three months ended June 30, 2010 and
2009 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
|
|
|
|
|
|
|
Income
|
|
|
Gains (Losses)
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
For the Three Months Ended June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
2
|
|
Foreign corporate securities
|
|
|
(1
|
)
|
|
|
5
|
|
|
|
4
|
|
CMBS
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
ABS
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Foreign government securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
1
|
|
|
$
|
5
|
|
|
$
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock
|
|
$
|
|
|
|
$
|
14
|
|
|
$
|
14
|
|
Common stock
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
|
|
|
$
|
18
|
|
|
$
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
|
|
|
$
|
5
|
|
|
$
|
5
|
|
Foreign currency contracts
|
|
|
|
|
|
|
(10
|
)
|
|
|
(10
|
)
|
Credit contracts
|
|
|
|
|
|
|
(4
|
)
|
|
|
(4
|
)
|
Equity market contracts
|
|
|
|
|
|
|
39
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net derivatives
|
|
$
|
|
|
|
$
|
30
|
|
|
$
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net embedded derivatives
|
|
$
|
|
|
|
$
|
333
|
|
|
$
|
333
|
|
76
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Gains and Losses
|
|
|
|
Classification of Realized/Unrealized
|
|
|
|
Gains (Losses) included in Earnings
|
|
|
|
Net
|
|
|
Net
|
|
|
|
|
|
|
Investment
|
|
|
Investment
|
|
|
|
|
|
|
Income
|
|
|
Gains (Losses)
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
For the Three Months Ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
1
|
|
Foreign corporate securities
|
|
|
|
|
|
|
(23
|
)
|
|
|
(23
|
)
|
CMBS
|
|
|
|
|
|
|
(12
|
)
|
|
|
(12
|
)
|
ABS
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
Foreign government securities
|
|
|
|
|
|
|
5
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
1
|
|
|
$
|
(28
|
)
|
|
$
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock
|
|
$
|
|
|
|
$
|
(16
|
)
|
|
$
|
(16
|
)
|
Common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
|
|
|
$
|
(16
|
)
|
|
$
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net derivatives
|
|
$
|
|
|
|
$
|
(87
|
)
|
|
$
|
(87
|
)
|
Net embedded derivatives
|
|
$
|
|
|
|
$
|
(75
|
)
|
|
$
|
(75
|
)
|
77
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The tables below summarize both realized and unrealized gains
and losses for the six months ended June 30, 2010 and 2009
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
|
|
|
|
|
|
|
Income
|
|
|
Gains (Losses)
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
For the Six Months Ended June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
4
|
|
|
$
|
1
|
|
|
$
|
5
|
|
Foreign corporate securities
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(2
|
)
|
RMBS
|
|
|
|
|
|
|
|
|
|
|
|
|
CMBS
|
|
|
|
|
|
|
|
|
|
|
|
|
ABS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
3
|
|
|
$
|
|
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock
|
|
$
|
|
|
|
$
|
14
|
|
|
$
|
14
|
|
Common stock
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
|
|
|
$
|
18
|
|
|
$
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
|
|
|
$
|
9
|
|
|
$
|
9
|
|
Foreign currency contracts
|
|
|
|
|
|
|
(15
|
)
|
|
|
(15
|
)
|
Credit contracts
|
|
|
|
|
|
|
(4
|
)
|
|
|
(4
|
)
|
Equity market contracts
|
|
|
|
|
|
|
28
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net derivatives
|
|
$
|
|
|
|
$
|
18
|
|
|
$
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net embedded derivatives
|
|
$
|
|
|
|
$
|
123
|
|
|
$
|
123
|
|
78
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Gains and Losses
|
|
|
|
Classification of Realized/Unrealized
|
|
|
|
Gains (Losses) included in Earnings
|
|
|
|
Net
|
|
|
Net
|
|
|
|
|
|
|
Investment
|
|
|
Investment
|
|
|
|
|
|
|
Income
|
|
|
Gains (Losses)
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
For the Six Months Ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
3
|
|
|
$
|
(27
|
)
|
|
$
|
(24
|
)
|
Foreign corporate securities
|
|
|
(1
|
)
|
|
|
(65
|
)
|
|
|
(66
|
)
|
RMBS
|
|
|
|
|
|
|
(4
|
)
|
|
|
(4
|
)
|
CMBS
|
|
|
1
|
|
|
|
(13
|
)
|
|
|
(12
|
)
|
ABS
|
|
|
|
|
|
|
(20
|
)
|
|
|
(20
|
)
|
Foreign government securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
3
|
|
|
$
|
(129
|
)
|
|
$
|
(126
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock
|
|
$
|
|
|
|
$
|
(68
|
)
|
|
$
|
(68
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
|
|
|
$
|
(68
|
)
|
|
$
|
(68
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net derivatives
|
|
$
|
|
|
|
$
|
(72
|
)
|
|
$
|
(72
|
)
|
Net embedded derivatives
|
|
$
|
|
|
|
$
|
(292
|
)
|
|
$
|
(292
|
)
|
79
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The tables below summarize the portion of unrealized gains and
losses recorded in earnings for the three months ended
June 30, 2010 and 2009 for Level 3 assets and
liabilities that were still held at June 30, 2010 and 2009,
respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Unrealized Gains (Losses)
|
|
|
|
Relating to Assets and Liabilities Held at
|
|
|
|
June 30, 2010
|
|
|
|
Net
|
|
|
Net
|
|
|
|
|
|
|
Investment
|
|
|
Investment
|
|
|
|
|
|
|
Income
|
|
|
Gains (Losses)
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
For the Three Months Ended June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
2
|
|
|
$
|
(1
|
)
|
|
$
|
1
|
|
Foreign corporate securities
|
|
|
|
|
|
|
|
|
|
|
|
|
CMBS
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
ABS
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Foreign government securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
2
|
|
|
$
|
(1
|
)
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
|
|
|
$
|
6
|
|
|
$
|
6
|
|
Foreign currency contracts
|
|
|
|
|
|
|
(10
|
)
|
|
|
(10
|
)
|
Credit contracts
|
|
|
|
|
|
|
(5
|
)
|
|
|
(5
|
)
|
Equity market contracts
|
|
|
|
|
|
|
38
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net derivatives
|
|
$
|
|
|
|
$
|
29
|
|
|
$
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net embedded derivatives
|
|
$
|
|
|
|
$
|
332
|
|
|
$
|
332
|
|
80
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Unrealized Gains (Losses)
|
|
|
|
Relating to Assets and Liabilities Held at
|
|
|
|
June 30, 2009
|
|
|
|
Net
|
|
|
Net
|
|
|
|
|
|
|
Investment
|
|
|
Investment
|
|
|
|
|
|
|
Income
|
|
|
Gains (Losses)
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
For the Three Months Ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
1
|
|
|
$
|
(6
|
)
|
|
$
|
(5
|
)
|
Foreign corporate securities
|
|
|
|
|
|
|
(19
|
)
|
|
|
(19
|
)
|
CMBS
|
|
|
|
|
|
|
(25
|
)
|
|
|
(25
|
)
|
ABS
|
|
|
|
|
|
|
(15
|
)
|
|
|
(15
|
)
|
Foreign government securities
|
|
|
|
|
|
|
5
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
1
|
|
|
$
|
(60
|
)
|
|
$
|
(59
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net derivatives
|
|
$
|
|
|
|
$
|
(91
|
)
|
|
$
|
(91
|
)
|
Net embedded derivatives
|
|
$
|
|
|
|
$
|
(75
|
)
|
|
$
|
(75
|
)
|
81
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The tables below summarize the portion of unrealized gains and
losses recorded in earnings for the six months ended
June 30, 2010 and 2009 for Level 3 assets and
liabilities that were still held at June 30, 2010 and 2009,
respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Unrealized Gains (Losses)
|
|
|
|
Relating to Assets and Liabilities Held at
|
|
|
|
June 30, 2010
|
|
|
|
Net
|
|
|
Net
|
|
|
|
|
|
|
Investment
|
|
|
Investment
|
|
|
|
|
|
|
Income
|
|
|
Gains (Losses)
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
For the Six Months Ended June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
3
|
|
|
$
|
(4
|
)
|
|
$
|
(1
|
)
|
Foreign corporate securities
|
|
|
(1
|
)
|
|
|
|
|
|
|
(1
|
)
|
CMBS
|
|
|
|
|
|
|
|
|
|
|
|
|
ABS
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
2
|
|
|
$
|
(5
|
)
|
|
$
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
|
|
|
$
|
9
|
|
|
$
|
9
|
|
Foreign currency contracts
|
|
|
|
|
|
|
(15
|
)
|
|
|
(15
|
)
|
Credit contracts
|
|
|
|
|
|
|
(4
|
)
|
|
|
(4
|
)
|
Equity market contracts
|
|
|
|
|
|
|
28
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net derivatives
|
|
$
|
|
|
|
$
|
18
|
|
|
$
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net embedded derivatives
|
|
$
|
|
|
|
$
|
123
|
|
|
$
|
123
|
|
82
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Unrealized Gains (Losses)
|
|
|
|
Relating to Assets and Liabilities Held at
|
|
|
|
June 30, 2009
|
|
|
|
Net
|
|
|
Net
|
|
|
|
|
|
|
Investment
|
|
|
Investment
|
|
|
|
|
|
|
Income
|
|
|
Gains (Losses)
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
For the Six Months Ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
2
|
|
|
$
|
(25
|
)
|
|
$
|
(23
|
)
|
Foreign corporate securities
|
|
|
(1
|
)
|
|
|
(63
|
)
|
|
|
(64
|
)
|
CMBS
|
|
|
1
|
|
|
|
(26
|
)
|
|
|
(25
|
)
|
ABS
|
|
|
|
|
|
|
(36
|
)
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
2
|
|
|
$
|
(150
|
)
|
|
$
|
(148
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock
|
|
$
|
|
|
|
$
|
(19
|
)
|
|
$
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
|
|
|
$
|
(19
|
)
|
|
$
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net derivatives
|
|
$
|
|
|
|
$
|
(73
|
)
|
|
$
|
(73
|
)
|
Net embedded derivatives
|
|
$
|
|
|
|
$
|
(296
|
)
|
|
$
|
(296
|
)
|
Fair
Value Option Consolidated Securitization
Entities
As discussed in Note 1, upon the adoption of new guidance
effective January 1, 2010, the Company has elected fair
value accounting for commercial mortgage loans held by and the
related long-term debt of the consolidated securitization
entities. The following table presents these commercial mortgage
loans carried under the fair value option at:
|
|
|
|
|
|
|
June 30, 2010
|
|
|
|
(In millions)
|
|
|
Unpaid principal balance
|
|
$
|
7,009
|
|
Excess of estimated fair value over unpaid principal balance
|
|
|
98
|
|
|
|
|
|
|
Carrying value at estimated fair value
|
|
$
|
7,107
|
|
|
|
|
|
|
The following table presents the long-term debt carried under
the fair value option related to the commercial mortgage loans
at:
|
|
|
|
|
|
|
June 30, 2010
|
|
|
|
(In millions)
|
|
|
Contractual principal balance
|
|
$
|
6,907
|
|
Excess of estimated fair value over contractual principal balance
|
|
|
145
|
|
|
|
|
|
|
Carrying value at estimated fair value
|
|
$
|
7,052
|
|
|
|
|
|
|
Interest income on commercial mortgage loans held by
consolidated securitization entities is recorded in net
investment income. Interest expense on long-term debt of
consolidated securitization entities is recorded in other
expenses. Gains and losses from initial measurement, subsequent
changes in estimated fair value and gains or losses on sales of
both the commercial mortgage loans and long-term debt are
recognized in net investment gains (losses), which is summarized
in Note 2.
83
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (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 at the
reporting dates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
2010
|
|
2009
|
|
|
|
|
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)
|
|
$
|
23
|
|
|
$
|
23
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Other limited partnership interests (2)
|
|
$
|
24
|
|
|
$
|
17
|
|
|
$
|
(7
|
)
|
|
$
|
36
|
|
|
$
|
20
|
|
|
$
|
(16
|
)
|
Real estate joint ventures (3)
|
|
$
|
7
|
|
|
$
|
3
|
|
|
$
|
(4
|
)
|
|
$
|
93
|
|
|
$
|
49
|
|
|
$
|
(44
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
2010
|
|
2009
|
|
|
|
|
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)
|
|
$
|
31
|
|
|
$
|
23
|
|
|
$
|
(8
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Other limited partnership interests (2)
|
|
$
|
24
|
|
|
$
|
17
|
|
|
$
|
(7
|
)
|
|
$
|
102
|
|
|
$
|
38
|
|
|
$
|
(64
|
)
|
Real estate joint ventures (3)
|
|
$
|
25
|
|
|
$
|
5
|
|
|
$
|
(20
|
)
|
|
$
|
93
|
|
|
$
|
49
|
|
|
$
|
(44
|
)
|
|
|
|
(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 and decreases in previous impairments from
subsequent improvements in 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
$19 million at June 30, 2010. |
84
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
(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 $8 million at
June 30, 2010. |
|
|
5.
|
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 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 June 30, 2010.
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.
85
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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.
Retained Asset Account Matters. MICC offers as
a settlement option under its life insurance policies a retained
asset account for death benefit payments called a Total Control
Account (TCA). When a TCA is established for a
beneficiary, the Company retains the death benefit proceeds in
the general account and pays interest on those proceeds at a
rate set by reference to objective indices. Additionally, the
accounts enjoy a guaranteed minimum interest rate. Beneficiaries
can withdraw all of the funds or a portion of the funds held in
the account at any time.
The New York Attorney General recently announced that his office
had launched a major fraud investigation into the life insurance
industry for practices related to the use of retained asset
accounts and that subpoenas requesting comprehensive data
related to retained asset accounts have been served on MetLife,
Inc. and other insurance carriers. We received the subpoena on
July 30, 2010. It is possible that other state and federal
regulators or legislative bodies may pursue similar
investigations or make related inquiries. We cannot predict what
effect any such investigations might have on our earnings or the
availability of the TCA, but we believe that our financial
statements taken as a whole would not be materially affected. We
believe that any allegations that information about the TCA is
not adequately disclosed or that the accounts are fraudulent or
otherwise violate state or federal laws are without merit.
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
July 20, 2010, the United States Court of Appeals for the
Second Circuit issued an order affirming the district
courts judgment in favor of MetLife Insurance Company of
Connecticut and the district courts order denying
defendants post trial motions. As a final judgment has not
yet been entered in MetLife Insurance Company of
Connecticuts favor 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
customers. The Illinois Securities Division, the
U.S. Postal Inspector, the Internal Revenue Service, 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.
86
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Commitments
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 $1.4 billion and $1.5 billion at
June 30, 2010 and December 31, 2009, 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
$241 million and $131 million at June 30, 2010
and December 31, 2009, respectively.
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 $591 million and
$445 million at June 30, 2010 and December 31,
2009, 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 June 30, 2010 and
December 31, 2009, the Company had agreed to fund up to
$114 million and $126 million, respectively, of cash
upon the request by these affiliates and had transferred
collateral consisting of various securities with a fair market
value of $151 million and $158 million, respectively,
to custody accounts to secure the notes. Each of these
affiliates is permitted by contract to sell or repledge this
collateral.
Guarantees
The Company has provided a guarantee on behalf of MetLife
International Insurance Company, Ltd. (MLII), a
former affiliate, 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 $297 million and
$322 million at June 30, 2010 and December 31,
2009, 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
June 30, 2010 and December 31, 2009. The remainder of
the risk was ceded to external reinsurers.
87
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Information on other expenses was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Compensation
|
|
$
|
47
|
|
|
$
|
39
|
|
|
$
|
91
|
|
|
$
|
70
|
|
Commissions
|
|
|
242
|
|
|
|
229
|
|
|
|
461
|
|
|
|
429
|
|
Interest and debt issue costs
|
|
|
119
|
|
|
|
17
|
|
|
|
244
|
|
|
|
37
|
|
Affiliated interest costs on ceded reinsurance
|
|
|
47
|
|
|
|
34
|
|
|
|
80
|
|
|
|
43
|
|
Capitalization of DAC
|
|
|
(268
|
)
|
|
|
(251
|
)
|
|
|
(498
|
)
|
|
|
(478
|
)
|
Amortization of DAC and VOBA
|
|
|
460
|
|
|
|
(48
|
)
|
|
|
524
|
|
|
|
28
|
|
Rent
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
2
|
|
Insurance tax
|
|
|
12
|
|
|
|
8
|
|
|
|
22
|
|
|
|
18
|
|
Other
|
|
|
180
|
|
|
|
149
|
|
|
|
333
|
|
|
|
287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
$
|
839
|
|
|
$
|
178
|
|
|
$
|
1,258
|
|
|
$
|
436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and Debt Issue Costs
Includes interest expense related to consolidated securitization
entities of $101 million and $204 million, for the
three months and six months ended June 30, 2010,
respectively, and $0 for both the three months and six months
ended June 30, 2009, (see Note 2), and interest
expense on tax audits of $0 and $5 million, for the three
months and six months ended June 30, 2010, respectively,
and $0 for both the three months and six months ended
June 30, 2009.
Affiliated
Expenses
See Note 8 for discussion of affiliated expenses included
in the table above.
|
|
7.
|
Business
Segment Information
|
The Companys business is currently divided into three
operating segments: Retirement Products, Corporate Benefit
Funding and Insurance Products. In addition, the Company reports
certain of its results of 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 and 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.
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
88
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
the Companys measure of segment performance reported
below. Operating earnings does not equate to income (loss) from
continuing operations, net of income tax, or net income (loss)
as determined in accordance with GAAP and should not be viewed
as a substitute for those GAAP measures. The Company believes
the presentation of operating earnings herein as the Company
measures it for management purposes enhances the understanding
of its 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
derivatives that are hedges of investments but do not qualify
for hedge accounting treatment; and (iv) plus income from
discontinued real estate operations, if applicable.
Operating expenses is defined as GAAP expenses (i) less
changes in policyholder benefits associated with asset value
fluctuations related to experience-rated contractholder
liabilities; (ii) less amortization of DAC and VOBA related
to net investment gains (losses); and (iii) plus scheduled
periodic settlement payments on derivatives that are hedges of
policyholder account balances but do not qualify for hedge
accounting treatment.
In addition, operating revenues and operating expenses do not
reflect the consolidation of certain securitization vehicles
that are VIEs as required under GAAP.
Set forth in the tables below is certain financial information
with respect to the Companys segments, as well as
Corporate & Other for the three months and six months
ended June 30, 2010 and 2009. 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.
89
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement
|
|
|
Benefit
|
|
|
Insurance
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Total
|
|
Three Months Ended June 30, 2010
|
|
Products
|
|
|
Funding
|
|
|
Products
|
|
|
& Other
|
|
|
Total
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
90
|
|
|
$
|
126
|
|
|
$
|
38
|
|
|
$
|
2
|
|
|
$
|
256
|
|
|
$
|
|
|
|
$
|
256
|
|
Universal life and investment-type product policy fees
|
|
|
258
|
|
|
|
7
|
|
|
|
136
|
|
|
|
2
|
|
|
|
403
|
|
|
|
4
|
|
|
|
407
|
|
Net investment income
|
|
|
237
|
|
|
|
279
|
|
|
|
118
|
|
|
|
|
|
|
|
634
|
|
|
|
91
|
|
|
|
725
|
|
Other revenues
|
|
|
79
|
|
|
|
1
|
|
|
|
23
|
|
|
|
|
|
|
|
103
|
|
|
|
|
|
|
|
103
|
|
Net investment gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
613
|
|
|
|
613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
664
|
|
|
|
413
|
|
|
|
315
|
|
|
|
4
|
|
|
|
1,396
|
|
|
|
708
|
|
|
|
2,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims
|
|
|
146
|
|
|
|
256
|
|
|
|
89
|
|
|
|
(1
|
)
|
|
|
490
|
|
|
|
14
|
|
|
|
504
|
|
Interest credited to policyholder account balances
|
|
|
182
|
|
|
|
48
|
|
|
|
59
|
|
|
|
(21
|
)
|
|
|
268
|
|
|
|
(11
|
)
|
|
|
257
|
|
Capitalization of DAC
|
|
|
(146
|
)
|
|
|
(1
|
)
|
|
|
(107
|
)
|
|
|
(14
|
)
|
|
|
(268
|
)
|
|
|
|
|
|
|
(268
|
)
|
Amortization of DAC and VOBA
|
|
|
160
|
|
|
|
1
|
|
|
|
68
|
|
|
|
1
|
|
|
|
230
|
|
|
|
230
|
|
|
|
460
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
18
|
|
|
|
101
|
|
|
|
119
|
|
Other expenses
|
|
|
260
|
|
|
|
8
|
|
|
|
226
|
|
|
|
34
|
|
|
|
528
|
|
|
|
|
|
|
|
528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
602
|
|
|
|
312
|
|
|
|
335
|
|
|
|
17
|
|
|
|
1,266
|
|
|
|
334
|
|
|
|
1,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
22
|
|
|
|
34
|
|
|
|
(6
|
)
|
|
|
(20
|
)
|
|
|
30
|
|
|
|
132
|
|
|
|
162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
40
|
|
|
$
|
67
|
|
|
$
|
(14
|
)
|
|
$
|
7
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
708
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
(334
|
)
|
|
|
|
|
|
|
|
|
Provision for income tax (expense) benefit
|
|
|
(132
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
342
|
|
|
|
|
|
|
$
|
342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement
|
|
|
Benefit
|
|
|
Insurance
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Total
|
|
Three Months Ended June 30, 2009
|
|
Products
|
|
|
Funding
|
|
|
Products
|
|
|
& Other
|
|
|
Total
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
73
|
|
|
$
|
398
|
|
|
$
|
29
|
|
|
$
|
|
|
|
$
|
500
|
|
|
$
|
|
|
|
$
|
500
|
|
Universal life and investment-type product policy fees
|
|
|
170
|
|
|
|
15
|
|
|
|
119
|
|
|
|
3
|
|
|
|
307
|
|
|
|
(8
|
)
|
|
|
299
|
|
Net investment income
|
|
|
234
|
|
|
|
281
|
|
|
|
104
|
|
|
|
10
|
|
|
|
629
|
|
|
|
(8
|
)
|
|
|
621
|
|
Other revenues
|
|
|
65
|
|
|
|
1
|
|
|
|
240
|
|
|
|
|
|
|
|
306
|
|
|
|
|
|
|
|
306
|
|
Net investment gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(728
|
)
|
|
|
(728
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
542
|
|
|
|
695
|
|
|
|
492
|
|
|
|
13
|
|
|
|
1,742
|
|
|
|
(744
|
)
|
|
|
998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims
|
|
|
53
|
|
|
|
540
|
|
|
|
58
|
|
|
|
|
|
|
|
651
|
|
|
|
23
|
|
|
|
674
|
|
Interest credited to policyholder account balances
|
|
|
181
|
|
|
|
66
|
|
|
|
59
|
|
|
|
13
|
|
|
|
319
|
|
|
|
(9
|
)
|
|
|
310
|
|
Capitalization of DAC
|
|
|
(154
|
)
|
|
|
(1
|
)
|
|
|
(87
|
)
|
|
|
(9
|
)
|
|
|
(251
|
)
|
|
|
|
|
|
|
(251
|
)
|
Amortization of DAC and VOBA
|
|
|
29
|
|
|
|
1
|
|
|
|
27
|
|
|
|
|
|
|
|
57
|
|
|
|
(105
|
)
|
|
|
(48
|
)
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
17
|
|
|
|
|
|
|
|
17
|
|
Other expenses
|
|
|
254
|
|
|
|
9
|
|
|
|
172
|
|
|
|
23
|
|
|
|
458
|
|
|
|
2
|
|
|
|
460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
363
|
|
|
|
615
|
|
|
|
229
|
|
|
|
44
|
|
|
|
1,251
|
|
|
|
(89
|
)
|
|
|
1,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
63
|
|
|
|
29
|
|
|
|
92
|
|
|
|
(22
|
)
|
|
|
162
|
|
|
|
(230
|
)
|
|
|
(68
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
116
|
|
|
$
|
51
|
|
|
$
|
171
|
|
|
$
|
(9
|
)
|
|
|
329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
(744
|
)
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
89
|
|
|
|
|
|
|
|
|
|
Provision for income tax (expense) benefit
|
|
|
230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(96
|
)
|
|
|
|
|
|
$
|
(96
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement
|
|
|
Benefit
|
|
|
Insurance
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Total
|
|
Six Months Ended June 30, 2010
|
|
Products
|
|
|
Funding
|
|
|
Products
|
|
|
& Other
|
|
|
Total
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
148
|
|
|
$
|
497
|
|
|
$
|
66
|
|
|
$
|
|
|
|
$
|
711
|
|
|
$
|
|
|
|
$
|
711
|
|
Universal life and investment-type product policy fees
|
|
|
485
|
|
|
|
15
|
|
|
|
266
|
|
|
|
7
|
|
|
|
773
|
|
|
|
3
|
|
|
|
776
|
|
Net investment income
|
|
|
466
|
|
|
|
548
|
|
|
|
232
|
|
|
|
83
|
|
|
|
1,329
|
|
|
|
186
|
|
|
|
1,515
|
|
Other revenues
|
|
|
155
|
|
|
|
2
|
|
|
|
56
|
|
|
|
|
|
|
|
213
|
|
|
|
|
|
|
|
213
|
|
Net investment gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
342
|
|
|
|
342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,254
|
|
|
|
1,062
|
|
|
|
620
|
|
|
|
90
|
|
|
|
3,026
|
|
|
|
531
|
|
|
|
3,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims
|
|
|
241
|
|
|
|
755
|
|
|
|
173
|
|
|
|
|
|
|
|
1,169
|
|
|
|
29
|
|
|
|
1,198
|
|
Interest credited to policyholder account balances
|
|
|
364
|
|
|
|
93
|
|
|
|
117
|
|
|
|
24
|
|
|
|
598
|
|
|
|
(25
|
)
|
|
|
573
|
|
Capitalization of DAC
|
|
|
(266
|
)
|
|
|
(2
|
)
|
|
|
(205
|
)
|
|
|
(25
|
)
|
|
|
(498
|
)
|
|
|
|
|
|
|
(498
|
)
|
Amortization of DAC and VOBA
|
|
|
253
|
|
|
|
1
|
|
|
|
139
|
|
|
|
2
|
|
|
|
395
|
|
|
|
129
|
|
|
|
524
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
|
|
|
|
35
|
|
|
|
204
|
|
|
|
239
|
|
Other expenses
|
|
|
479
|
|
|
|
17
|
|
|
|
434
|
|
|
|
63
|
|
|
|
993
|
|
|
|
|
|
|
|
993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1,071
|
|
|
|
864
|
|
|
|
658
|
|
|
|
99
|
|
|
|
2,692
|
|
|
|
337
|
|
|
|
3,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
64
|
|
|
|
68
|
|
|
|
(13
|
)
|
|
|
(34
|
)
|
|
|
85
|
|
|
|
69
|
|
|
|
154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
119
|
|
|
$
|
130
|
|
|
$
|
(25
|
)
|
|
$
|
25
|
|
|
|
249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
531
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
(337
|
)
|
|
|
|
|
|
|
|
|
Provision for income tax (expense) benefit
|
|
|
(69
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
374
|
|
|
|
|
|
|
$
|
374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement
|
|
|
Benefit
|
|
|
Insurance
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Total
|
|
Six Months Ended June 30, 2009
|
|
Products
|
|
|
Funding
|
|
|
Products
|
|
|
& Other
|
|
|
Total
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
149
|
|
|
$
|
481
|
|
|
$
|
54
|
|
|
$
|
|
|
|
$
|
684
|
|
|
$
|
|
|
|
$
|
684
|
|
Universal life and investment-type product policy fees
|
|
|
320
|
|
|
|
20
|
|
|
|
251
|
|
|
|
4
|
|
|
|
595
|
|
|
|
(12
|
)
|
|
|
583
|
|
Net investment income
|
|
|
426
|
|
|
|
523
|
|
|
|
162
|
|
|
|
(30
|
)
|
|
|
1,081
|
|
|
|
(20
|
)
|
|
|
1,061
|
|
Other revenues
|
|
|
121
|
|
|
|
3
|
|
|
|
251
|
|
|
|
|
|
|
|
375
|
|
|
|
|
|
|
|
375
|
|
Net investment gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,328
|
)
|
|
|
(1,328
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,016
|
|
|
|
1,027
|
|
|
|
718
|
|
|
|
(26
|
)
|
|
|
2,735
|
|
|
|
(1,360
|
)
|
|
|
1,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims
|
|
|
200
|
|
|
|
747
|
|
|
|
127
|
|
|
|
|
|
|
|
1,074
|
|
|
|
27
|
|
|
|
1,101
|
|
Interest credited to policyholder account balances
|
|
|
364
|
|
|
|
142
|
|
|
|
116
|
|
|
|
6
|
|
|
|
628
|
|
|
|
(18
|
)
|
|
|
610
|
|
Capitalization of DAC
|
|
|
(298
|
)
|
|
|
(1
|
)
|
|
|
(165
|
)
|
|
|
(14
|
)
|
|
|
(478
|
)
|
|
|
|
|
|
|
(478
|
)
|
Amortization of DAC and VOBA
|
|
|
186
|
|
|
|
2
|
|
|
|
88
|
|
|
|
1
|
|
|
|
277
|
|
|
|
(249
|
)
|
|
|
28
|
|
Interest expense
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
35
|
|
|
|
37
|
|
|
|
|
|
|
|
37
|
|
Other expenses
|
|
|
478
|
|
|
|
17
|
|
|
|
316
|
|
|
|
38
|
|
|
|
849
|
|
|
|
|
|
|
|
849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
930
|
|
|
|
909
|
|
|
|
482
|
|
|
|
66
|
|
|
|
2,387
|
|
|
|
(240
|
)
|
|
|
2,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
30
|
|
|
|
41
|
|
|
|
82
|
|
|
|
(55
|
)
|
|
|
98
|
|
|
|
(392
|
)
|
|
|
(294
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
56
|
|
|
$
|
77
|
|
|
$
|
154
|
|
|
$
|
(37
|
)
|
|
|
250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
(1,360
|
)
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
240
|
|
|
|
|
|
|
|
|
|
Provision for income tax (expense) benefit
|
|
|
392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(478
|
)
|
|
|
|
|
|
$
|
(478
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents total assets with respect to the
Companys segments, as well as Corporate & Other,
at:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
(In millions)
|
|
|
Retirement Products
|
|
$
|
76,373
|
|
|
$
|
73,840
|
|
Corporate Benefit Funding
|
|
|
28,075
|
|
|
|
28,046
|
|
Insurance Products
|
|
|
14,863
|
|
|
|
13,647
|
|
Corporate & Other
|
|
|
20,730
|
|
|
|
12,156
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
140,041
|
|
|
$
|
127,689
|
|
|
|
|
|
|
|
|
|
|
Net investment income is 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
93
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
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.
Operating revenues derived from any customer did not exceed 10%
of consolidated operating revenues for the three months and six
months ended June 30, 2010 and 2009. Operating revenues
from U.S. operations were $1,287 million and
$2,497 million for the three months and six months ended
June 30, 2010, respectively, which represented 92% and 83%,
respectively, of consolidated operating revenues. Operating
revenues from U.S. operations were $1,343 million and
$2,278 million for the three months and six months ended
June 30, 2009, respectively, which represented 77% and 83%,
respectively, of consolidated operating revenues.
|
|
8.
|
Related
Party Transactions
|
Service
Agreements
The Company has entered into various agreements with affiliates
for services necessary to conduct its activities. Typical
services provided under these agreements include management,
policy administrative functions, personnel, investment advice
and distribution services. Expenses and fees incurred with
affiliates related to these agreements, recorded in other
expenses, were $340 million and $638 million for the
three months and six months ended June 30, 2010,
respectively, and $285 million and $559 million for
the three months and six months ended June 30, 2009,
respectively. For the three months and six months ended
June 30, 2010, the aforementioned expenses and fees
incurred with affiliates were comprised of $38 million and
$74 million, respectively, recorded in compensation,
$134 million and $257 million, respectively, recorded
in commissions and $168 million and $307 million,
respectively, recorded in other expenses. For the three months
and six months ended June 30, 2009, the aforementioned
expenses and fees incurred with affiliates were comprised of
$28 million and $58 million, respectively, recorded in
compensation, $152 million and $287 million,
respectively, recorded in commissions and $105 million and
$214 million, respectively, recorded in other expenses.
Revenue received from affiliates related to these agreements and
recorded in other revenues was $24 million and
$47 million for the three months and six months ended
June 30, 2010, respectively, and $17 million and
$30 million for the three months and six months ended
June 30, 2009, respectively. Revenue received from
affiliates related to these agreements and recorded in universal
life and investment-type product policy fees was
$28 million and $54 million for the three months and
six months ended June 30, 2010, respectively, and
$20 million and $36 million for the three months and
six months ended June 30, 2009, respectively. See
Note 2 for expenses related to investment advice under
these agreements, recorded in net investment income.
The Company had net receivables from affiliates of
$54 million and $46 million at June 30, 2010 and
December 31, 2009, respectively, related to the items
discussed above. These amounts exclude affiliated reinsurance
balances discussed below.
Reinsurance
Transactions
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), all of which
are related parties.
94
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Information regarding the effect of affiliated reinsurance
included in the interim condensed consolidated statements of
operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Premiums:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance assumed
|
|
$
|
3
|
|
|
$
|
4
|
|
|
$
|
7
|
|
|
$
|
9
|
|
Reinsurance ceded
|
|
|
(52
|
)
|
|
|
(40
|
)
|
|
|
(111
|
)
|
|
|
(79
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums
|
|
$
|
(49
|
)
|
|
$
|
(36
|
)
|
|
$
|
(104
|
)
|
|
$
|
(70
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Universal life and investment-type product policy fees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance assumed
|
|
$
|
19
|
|
|
$
|
(1
|
)
|
|
$
|
30
|
|
|
$
|
21
|
|
Reinsurance ceded
|
|
|
(72
|
)
|
|
|
(53
|
)
|
|
|
(133
|
)
|
|
|
(86
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net universal life and investment-type product policy fees
|
|
$
|
(53
|
)
|
|
$
|
(54
|
)
|
|
$
|
(103
|
)
|
|
$
|
(65
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance assumed
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Reinsurance ceded
|
|
|
65
|
|
|
|
279
|
|
|
|
139
|
|
|
|
323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other revenues
|
|
$
|
65
|
|
|
$
|
279
|
|
|
$
|
139
|
|
|
$
|
323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance assumed
|
|
$
|
5
|
|
|
$
|
|
|
|
$
|
6
|
|
|
$
|
13
|
|
Reinsurance ceded
|
|
|
(89
|
)
|
|
|
(6
|
)
|
|
|
(173
|
)
|
|
|
(121
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net policyholder benefits and claims
|
|
$
|
(84
|
)
|
|
$
|
(6
|
)
|
|
$
|
(167
|
)
|
|
$
|
(108
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest credited to policyholder account balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance assumed
|
|
$
|
16
|
|
|
$
|
15
|
|
|
$
|
31
|
|
|
$
|
30
|
|
Reinsurance ceded
|
|
|
(12
|
)
|
|
|
(8
|
)
|
|
|
(24
|
)
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest credited to policyholder account balances
|
|
$
|
4
|
|
|
$
|
7
|
|
|
$
|
7
|
|
|
$
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance assumed
|
|
$
|
13
|
|
|
$
|
10
|
|
|
$
|
25
|
|
|
$
|
21
|
|
Reinsurance ceded
|
|
|
36
|
|
|
|
25
|
|
|
|
60
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other expenses
|
|
$
|
49
|
|
|
$
|
35
|
|
|
$
|
85
|
|
|
$
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Information regarding the effect of affiliated reinsurance
included in the consolidated balance sheets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
Assumed
|
|
|
Ceded
|
|
|
Assumed
|
|
|
Ceded
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums, reinsurance and other receivables
|
|
$
|
29
|
|
|
$
|
9,550
|
|
|
$
|
30
|
|
|
$
|
7,157
|
|
Deferred policy acquisition costs and value of business acquired
|
|
|
218
|
|
|
|
(394
|
)
|
|
|
230
|
|
|
|
(399
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
247
|
|
|
$
|
9,156
|
|
|
$
|
260
|
|
|
$
|
6,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future policy benefits
|
|
$
|
28
|
|
|
$
|
|
|
|
$
|
27
|
|
|
$
|
|
|
Other policyholder funds
|
|
|
1,438
|
|
|
|
373
|
|
|
|
1,393
|
|
|
|
284
|
|
Other liabilities
|
|
|
11
|
|
|
|
2,355
|
|
|
|
9
|
|
|
|
1,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
1,477
|
|
|
$
|
2,728
|
|
|
$
|
1,429
|
|
|
$
|
1,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company cedes risks to an 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 included within net
investment gains (losses). The embedded derivatives associated
with the cessions are included within premiums, reinsurance and
other receivables and were assets of $1,870 million and
$724 million at June 30, 2010 and December 31,
2009, respectively. For the three months and six months ended
June 30, 2010 and 2009, net investment gains (losses)
included $1,413 million and $1,047 million,
respectively, and ($626) million and ($1,119) million,
respectively, in changes in fair value of such embedded
derivatives.
MLI-USA cedes two blocks of business to MRV, on a 90%
coinsurance with funds withheld basis. 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
increased the funds withheld balance by $79 million at
June 30, 2010, and decreased the funds withheld balance by
$11 million at December 31, 2009. The changes in fair
value of the embedded derivatives, included in net investment
gains (losses), were ($81) million and ($90) million
for the three months and six months ended June 30, 2010,
respectively, and ($24) million and ($6) million for
the three months and six months ended June 30, 2009,
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 $64 million and $117 million for
the three months and six months ended June 30, 2010,
respectively, and $45 million and $83 million for the
three months and six months ended June 30, 2009,
respectively, and are considered unearned revenue, amortized
over the life of the contract using the same assumptions as used
for the deferred acquisition costs associated with the
underlying policies. Amortization of the unearned revenue
associated with the experience refund was $22 million and
$45 million for the three months and six months ended
June 30, 2010, respectively, and $9 million and
$19 million for the three months and six months ended
June 30, 2009, respectively, and is included in universal
life and investment-type product policy fees in the consolidated
statements of operations. At June 30, 2010 and
December 31, 2009, unearned revenue related to the
experience refund was $418 million and $337 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
96
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited) (Continued)
risk and are recorded using the deposit method of accounting. In
the second quarter of 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. The deposit receivable balance for these
treaties was increased by $8 million and $26 million,
with a corresponding increase in other revenues, for the three
months and six months ended June 30, 2010, respectively,
and by $229 million, with a corresponding increase in other
revenues, for both the three months and six months ended
June 30, 2009.
97
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
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). MetLife Insurance Company of
Connecticut is a subsidiary of MetLife, Inc.
(MetLife). Managements narrative analysis of
the results of operations is presented pursuant to General
Instruction H(2)(a) of
Form 10-Q.
This narrative analysis should be read in conjunction with the
Companys Annual Report on
Form 10-K
for the year ended December 31, 2009 (2009 Annual
Report) filed with the U.S. Securities and Exchange
Commission (SEC), the forward-looking statement
information included below, the Risk Factors set
forth in Part II, Item 1A, and the additional risk
factors referred to therein, and the Companys interim
condensed consolidated financial statements included elsewhere
herein.
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
derivatives that are hedges of investments but do not qualify
for hedge accounting treatment; and (iv) plus income from
discontinued real estate operations, if applicable.
Operating expenses is defined as GAAP expenses (i) less
changes in policyholder benefits associated with asset value
fluctuations related to experience-rated contractholder
liabilities; (ii) less amortization of deferred policy
acquisition costs (DAC) and value of business
acquired (VOBA) related to net investment gains
(losses); and (iii) plus scheduled periodic settlement
payments on derivatives that are hedges of policyholder account
balances but do not qualify for hedge accounting treatment.
In addition, operating revenues and operating expenses do not
reflect the consolidation of certain securitization vehicles
that are variable interest entities (VIEs) as
required under GAAP.
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 Results of Operations.
Business
The Company offers individual annuities, individual life
insurance, and institutional protection and asset accumulation
products. The Companys 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 and 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,
98
universal life, term life and whole life insurance products.
Non-Medical Health includes individual disability insurance
products.
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.
Summary
of Critical Accounting Estimates
The preparation of financial statements in conformity with GAAP
requires management to adopt accounting policies and make
estimates and assumptions that affect amounts reported in the
interim condensed consolidated financial statements. The most
critical estimates include those used in determining:
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(i)
|
the estimated fair value of investments in the absence of quoted
market values;
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(ii)
|
investment impairments;
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(iii)
|
the recognition of income on certain investment entities and the
application of the consolidation rules to certain investments;
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(iv)
|
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)
|
the capitalization and amortization of DAC and the establishment
and amortization of VOBA;
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(vi)
|
the measurement of goodwill and related impairment, if any;
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(vii)
|
the liability for future policyholder benefits and the
accounting for reinsurance contracts;
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(viii)
|
accounting for income taxes and the valuation of deferred tax
assets; and
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(ix)
|
the liability for litigation and regulatory matters.
|
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.
The above critical accounting estimates are described in
Managements Discussion and Analysis of Financial
Condition and Results of Operations Summary of
Critical Accounting Estimates and Note 1 of the Notes
to the Consolidated Financial Statements in the 2009 Annual
Report. Effective January 1, 2010, the Company adopted new
accounting guidance relating to the consolidation of VIEs. See
Note 1 of the Notes to the Interim Condensed Consolidated
Financial Statements. As part of its regular review of critical
accounting estimates, the Company periodically assesses inputs
for estimating nonperformance risk (commonly referred to as
own credit) in fair value measurements. During the
second quarter of 2010, the Company completed a study that
aggregated and evaluated data, including historical recovery
rates of insurance companies as well as policyholder behavior
observed over the past two years as the recent financial crisis
evolved. As a result, at the end of the second quarter of 2010,
the Company refined the manner in which it incorporates expected
recovery rates into the nonperformance risk adjustment for
purposes of estimating the fair value of investment-type
contracts and embedded derivatives within insurance contracts.
The refinement impacted the Companys net income, with no
effect on operating earnings. See Note 4 of the Notes to
the Interim Condensed Consolidated Financial Statements.
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
99
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.
Results
of Operations
Six
Months Ended June 30, 2010 compared with the Six Months
Ended June 30, 2009
Consolidated
Results
As the financial markets continue to recover, we have
experienced a significant improvement in net investment income
and policy fees, as well as a favorable change in net investment
gains (losses). We also continue to experience an increase in
market share and sales in some of our businesses, most notably
in our pension closeout business in the United Kingdom. Premiums
associated with the closeout business can vary significantly
from period to period. These positive factors were somewhat
tempered by the negative impact of the general economic
conditions on the demand and sales of certain of our products.
Our funding agreement products, primarily the London Inter-Bank
Offer Rate (LIBOR)-based contracts, were the most
significantly affected by the general economic conditions. As a
result of companies seeking greater liquidity, investment
managers are refraining from repurchasing the contracts when
they mature and are opting for more liquid investments. 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. In addition, sales of our annuity products were
down 23%, driven by a decline in fixed annuity sales as compared
to the prior period. The unusually high level of fixed annuity
sales experienced in the 2009 period was in response to the
market disruption and dislocation at that time and, as expected,
was not sustained in the current period reflecting the
stabilization of the financial markets.
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Six Months
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Ended
|
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|
June 30,
|
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|
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|
|
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|
2010
|
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|
2009
|
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|
Change
|
|
|
% Change
|
|
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|
(In millions)
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
711
|
|
|
$
|
684
|
|
|
$
|
27
|
|
|
|
3.9
|
%
|
Universal life and investment-type product policy fees
|
|
|
776
|
|
|
|
583
|
|
|
|
193
|
|
|
|
33.1
|
%
|
Net investment income
|
|
|
1,515
|
|
|
|
1,061
|
|
|
|
454
|
|
|
|
42.8
|
%
|
Other revenues
|
|
|
213
|
|
|
|
375
|
|
|
|
(162
|
)
|
|
|
(43.2
|
)%
|
Net investment gains (losses)
|
|
|
342
|
|
|
|
(1,328
|
)
|
|
|
1,670
|
|
|
|
125.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
3,557
|
|
|
|
1,375
|
|
|
|
2,182
|
|
|
|
158.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims
|
|
|
1,198
|
|
|
|
1,101
|
|
|
|
97
|
|
|
|
8.8
|
%
|
Interest credited to policyholder account balances
|
|
|
573
|
|
|
|
610
|
|
|
|
(37
|
)
|
|
|
(6.1
|
)%
|
Capitalization of DAC
|
|
|
(498
|
)
|
|
|
(478
|
)
|
|
|
(20
|
)
|
|
|
(4.2
|
)%
|
Amortization of DAC and VOBA
|
|
|
524
|
|
|
|
28
|
|
|
|
496
|
|
|
|
1771.4
|
%
|
Interest expense
|
|
|
239
|
|
|
|
37
|
|
|
|
202
|
|
|
|
545.9
|
%
|
Other expenses
|
|
|
993
|
|
|
|
849
|
|
|
|
144
|
|
|
|
17.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
3,029
|
|
|
|
2,147
|
|
|
|
882
|
|
|
|
41.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income tax
|
|
|
528
|
|
|
|
(772
|
)
|
|
|
1,300
|
|
|
|
168.4
|
%
|
Provision for income tax expense (benefit)
|
|
|
154
|
|
|
|
(294
|
)
|
|
|
448
|
|
|
|
152.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
374
|
|
|
$
|
(478
|
)
|
|
$
|
852
|
|
|
|
178.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unless otherwise stated, all amounts discussed below are net of
income tax.
100
During the six months ended June 30, 2010, MICCs net
income (loss) increased $852 million to income of
$374 million from a loss of $478 million in the
comparable 2009 period. The change was largely due to a
$1.7 billion favorable change in net investment gains
(losses) before income tax: gains of $342 million in the
six months ended June 30, 2010 compared to losses of
$1.3 billion in the comparable 2009 period. Offsetting this
variance were unfavorable changes in adjustments related to net
investment gains (losses) of $363 million, before income
tax, principally associated with DAC and VOBA amortization and
$457 million of income tax resulting in a total favorable
variance related to net investment gains (losses) of
$850 million.
We manage our investment portfolio using disciplined
Asset/Liability Management (ALM) 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
risk-adjusted net investment income and risk-adjusted total
return. Our investment portfolio is heavily weighted toward
fixed income investments, with over 80% 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 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 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 can change significantly from
period to period, due to changes in external influences,
including movements in interest rates, equity markets, foreign
currencies and credit spreads; counterparty specific factors
such as financial performance, credit rating and collateral
valuation; and internal factors such as portfolio rebalancing.
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 favorable variance in net investment gains (losses) of
$850 million, net of related adjustments, from losses of
$709 million in 2009 to gains of $141 million in 2010,
was primarily driven by a positive change in freestanding
derivatives of $406 million: from losses in the prior year
of $314 million to gains in the current year of
$92 million. In addition, lower impairments and net
realized losses from sales and disposals of investments across
most asset classes coupled with lower additions to the mortgage
loan valuation allowance contributed $262 million to the
improvement. An additional favorable change of
$259 million: from losses in the prior year of
$180 million to gains in the current year of
$79 million, was driven by embedded derivatives primarily
associated with variable annuity minimum benefit guarantees.
We use freestanding interest rate, currency, credit and equity
derivatives to provide economic hedges of certain invested
assets and insurance liabilities, including embedded derivatives
within certain of our variable annuity minimum benefit
guarantees. The $406 million favorable variance in
freestanding derivatives was primarily attributable to market
factors, including falling long-term and mid-term interest
rates, declining equity markets, increased equity volatility and
widening corporate credit spreads. Falling long-term and
mid-term interest rates in the current period compared to rising
interest rates in the prior period had a positive impact of
$302 million on our interest rate derivatives,
$41 million of which is attributable to hedges of variable
annuity minimum benefit guarantees. In addition, declining
equity markets and increased equity volatility in the current
period compared to rising equity markets and decreased equity
volatility in the prior period had a positive impact of
$113 million on our equity derivatives, which we use to
hedge variable annuity minimum benefit guarantees. Widening
corporate credit spreads had a positive impact of
$27 million on our purchased protection credit derivatives.
These favorable variances were offset by the negative impact of
$27 million due to the U.S. dollar strengthening on
certain of our foreign currency derivatives, which are used to
hedge foreign denominated asset and liability exposures.
101
We measure our variable annuity products with minimum benefit
guarantees containing embedded derivatives at fair value
separately from the host variable annuity contract, with changes
in estimated fair value reported in net investment gains
(losses). The estimated fair value of these embedded derivatives
also includes an adjustment for nonperformance risk of the
related liabilities carried at estimated fair value. The
$259 million favorable variance in embedded derivatives was
primarily attributable to gains on ceded reinsurance of variable
annuity minimum benefit guarantees. The favorable change, from
losses in the prior period to gains in the current period, was
primarily driven by $1,405 million of gains on ceded
reinsurance of certain variable annuity minimum benefit
guarantee risks, net of an unfavorable change in the adjustment
for the reinsurers nonperformance risk of
$255 million. This $1,405 million favorable variance
was partially offset by an unfavorable change in variable
annuity minimum benefit guarantee liabilities from market
factors, including falling interest rates, increased equity
volatility and declining equity markets. Falling interest rates
in the current period compared to rising interest rates in the
prior period had a negative impact of $688 million.
Increased equity volatility and declining equity markets in the
current period as compared to decreased equity volatility and
rising equity markets in the prior period had a negative impact
of $422 million. The change in variable annuity minimum
benefit guarantee liabilities due to market factors was
partially offset by a favorable change in the adjustment for
nonperformance risk of $237 million on the related
liabilities and a $154 million favorable change in
freestanding derivatives, including interest rate, equity and
foreign currency-related derivatives, that hedge market factors.
The aforementioned unfavorable change in the adjustment for the
reinsurers nonperformance risk in the current period of
$255 million was net of a $380 million gain related to
a refinement in estimating the spreads used in the adjustment
for nonperformance risk. The aforementioned favorable change in
the adjustment for nonperformance risk on the related
liabilities of $237 million was net of a $256 million
loss related to a refinement in estimating the spreads used in
the adjustment for nonperformance risk.
Improved market conditions across several invested asset classes
and sectors as compared to the prior period resulted in
decreases in impairments and in net realized losses from sales
and disposals of investments in fixed maturity securities,
equity securities, other limited partnership interests and real
estate and real estate joint ventures. These decreases, coupled
with a decrease in the additions to the mortgage loan valuation
allowance, which is also attributed to the improved market
conditions, resulted in a $262 million improvement in net
investment gains (losses).
As more fully described in the discussion of performance
measures above, we use operating earnings, which does not equate
to net income (loss) as determined in accordance with GAAP, to
analyze our performance, evaluate segment performance, and
allocate resources. We believe that 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 the business. Operating earnings should not be viewed
as a substitute for GAAP income (loss), net of income tax.
Operating earnings decreased by $1 million to
$249 million for the first six months of 2010 from
$250 million for the comparable 2009 period.
Reconciliation
of net income (loss) to operating earnings
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Net income (loss)
|
|
$
|
374
|
|
|
$
|
(478
|
)
|
Less: Net investment gains (losses)
|
|
|
342
|
|
|
|
(1,328
|
)
|
Less: Adjustments to net income (loss) (1)
|
|
|
(148
|
)
|
|
|
208
|
|
Less: Provision for income tax (expense) benefit
|
|
|
(69
|
)
|
|
|
392
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
249
|
|
|
$
|
250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See definitions of operating revenues and operating expenses for
the components of such adjustments. |
102
Reconciliation
of GAAP revenues to operating revenues and GAAP expenses to
operating expenses
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Total revenues
|
|
$
|
3,557
|
|
|
$
|
1,375
|
|
Less: Net investment gains (losses)
|
|
|
342
|
|
|
|
(1,328
|
)
|
Less: Adjustments related to net investment gains (losses)
|
|
|
3
|
|
|
|
(12
|
)
|
Less: Other adjustments to revenues (1)
|
|
|
186
|
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
$
|
3,026
|
|
|
$
|
2,735
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
$
|
3,029
|
|
|
$
|
2,147
|
|
Less: Adjustments related to net investment gains (losses)
|
|
|
129
|
|
|
|
(249
|
)
|
Less: Other adjustments to expenses (1)
|
|
|
208
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
2,692
|
|
|
$
|
2,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See definitions of operating revenues and operating expenses for
the components of such adjustments. |
Relative changes in financial markets had divergent impacts on
our financial results. The market improvement from the prior
period resulted in higher net investment income. Such
improvement also drove higher average separate account balances
and, as a result, increased policy fee income. While markets
improved from the prior period, they declined during the second
quarter of 2010, resulting in increased amortization of DAC and
VOBA, which negatively impacted operating earnings. The increase
in DAC and VOBA amortization in the second quarter of 2010 more
than offset the decline in amortization that was previously
recognized as a result of the improving market conditions that
began in the second quarter of 2009 and continued through the
first quarter of 2010. Claims experience varied by business, but
did not, in total, have a significant impact on our operating
earnings.
The decline in operating earnings includes a decrease in other
revenues related to certain affiliated reinsurance treaties. The
most significant impact was in our Insurance Products segment,
which benefited, in the prior period, from the impact of a
refinement in the assumptions and methodology used to value a
deposit receivable from an affiliated reinsurance treaty of
$127 million.
A $161 million increase in net investment income was
primarily the result of increasing yields. The improvement in
yields increased net investment income by $112 million and
growth in average invested assets contributed an additional
$49 million. Yields were positively impacted by the effects
of improving private equity markets, which began in the latter
part of 2009, and stabilizing real estate markets, which began
in the first quarter of 2010, on other limited partnership
interests and real estate joint ventures. Improving market
conditions also drove higher returns in our trading portfolio.
In light of these improving market conditions, we continued to
reposition the accumulated liquidity in our portfolio to longer
duration and higher yielding investments. These improvements in
yield were partially offset by the reinvestment of proceeds from
maturities and sales during this lower interest rate
environment. Growth in the investment portfolio was primarily
due to positive net cash flows, which were reinvested primarily
in fixed maturity securities and mortgage loans, and an
increased allocation to our trading portfolio. Since many of our
products are interest-spread based, higher investment income is
typically offset by higher interest credited expense. However,
interest credited expense decreased $20 million primarily
due to lower crediting rates combined with lower average
policyholder account balances in our domestic funding agreement
business. Certain crediting rates can move consistently with the
underlying market indices, primarily LIBOR rates, which have
decreased significantly since the second quarter of 2009.
Improving financial markets resulted in an increase in our
average separate account balances which generated higher policy
fee income of $116 million, most notably in our Retirement
Products segment.
During the first half of 2010, results reflected increased, or
accelerated, DAC and VOBA amortization of $77 million,
primarily stemming from a decline in the market value of our
separate account balances. A factor that
103
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 during the second
quarter of 2010, resulting in a decrease in the expected future
gross profits, triggering an acceleration of amortization.
Although the market values declined during the second quarter of
2010, the average separate balances remained higher than the
average in the prior year period. In 2009, the increase in the
market value of our separate account balances was due to
improved market conditions, resulting in an increase in the
expected future gross profits and a corresponding lower level of
amortization.
Other expenses increased by $93 million, which was mainly
attributable to business growth of $41 million, as well as
a $25 million increase in market driven expenses, such as
reinsurance costs. Additionally, a $23 million increase in
higher variable expenses, such as commissions and premium taxes,
a portion of which is offset by DAC capitalization, contributed
to this increase.
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. 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 $1.9 billion
and $1.8 billion at June 30, 2010 and
December 31, 2009, respectively. 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.
During the six months ended June 30, 2010 and 2009, general
account surrenders and withdrawals from annuity products were
$729 million and $836 million, respectively. 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 products offered have fixed
maturities or fairly predictable surrenders or withdrawals. Of
the Corporate Benefit Funding liabilities, $438 million
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 $6.7 billion and
$6.2 billion at June 30, 2010 and December 31,
2009, respectively. For further detail on the securities lending
program and the related liquidity needs, see Note 2 of the
Notes to the Interim Condensed Consolidated Financial Statements.
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 no impact on the Companys derivative collateral
requirements at June 30, 2010.
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Short-term Funding Agreements. MetLife Short
Term Funding LLC (Short Term Funding), is an issuer
of commercial paper under a program supported by funding
agreements issued by MetLife Insurance Company of Connecticut
and Metropolitan Life Insurance Company, an affiliate. The
Companys short-term liability under the funding agreement
it issued to Short Term Funding was $2.8 billion and
$2.9 billion at June 30, 2010 and December 31,
2009, respectively, which is included in policyholder account
balances.
Adoption
of New Accounting Pronouncements
See Adoption of New Accounting Pronouncements in
Note 1 of the Notes to the Interim Condensed Consolidated
Financial Statements.
Future
Adoption of New Accounting Pronouncements
See Future Adoption of New Accounting Pronouncements
in Note 1 of the Notes to the Interim Condensed
Consolidated Financial Statements.
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Item 4(T).
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Controls
and Procedures
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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
Rule 15d-15(e)
under the Securities Exchange Act of 1934, as amended
(Exchange Act), 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 June 30, 2010 that have materially
affected, or are reasonably likely to materially affect, the
Companys internal control over financial reporting.
Part II
Other Information
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Item 1.
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Legal
Proceedings
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The following should be read in conjunction with
(i) Part I, Item 3, of the 2009 Annual Report;
(ii) Part II, Item 1, of MetLife Insurance
Company of Connecticuts Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2010; and
(ii) Note 5 of the Notes to the Interim Condensed
Consolidated Financial Statements in Part I of this report.
Retained Asset Account Matters. MICC offers as
a settlement option under its life insurance policies a retained
asset account for death benefit payments called a Total Control
Account (TCA). When a TCA is established for a
beneficiary, the Company retains the death benefit proceeds in
the general account and pays interest on those proceeds at a
rate set by reference to objective indices. Additionally, the
accounts enjoy a guaranteed minimum interest rate. Beneficiaries
can withdraw all of the funds or a portion of the funds held in
the account at any time.
The New York Attorney General recently announced that his office
had launched a major fraud investigation into the life insurance
industry for practices related to the use of retained asset
accounts and that subpoenas requesting comprehensive data
related to retained asset accounts have been served on MetLife,
Inc. and other insurance carriers. We received the subpoena on
July 30, 2010. It is possible that other state and federal
regulators or legislative bodies may pursue similar
investigations or make related inquiries. We cannot predict what
effect any such investigations might have on our earnings or the
availability of the TCA, but we believe that our financial
statements taken as a whole would not be materially affected. We
believe that any allegations that information about the TCA is
not adequately disclosed or that the accounts are fraudulent or
otherwise violate state or federal laws are without merit.
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
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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 July 20, 2010, the United States Court of
Appeals for the Second Circuit issued an order affirming the
district courts judgment in favor of MetLife Insurance
Company of Connecticut and the district courts order
denying defendants post-trial motions. As a final judgment
has not yet been entered in MetLife Insurance Company of
Connecticut s favor and the Company has not collected any
portion of the judgment, the Company has not recognized any
award amount in its consolidated financial statements.
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.
The following should be read in conjunction with and supplements
and amends the factors that may affect the Companys
business or operations described under Risk Factors
in Part I, Item 1A, of the 2009 Annual Report.
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. Stressed conditions, volatility and disruptions in global
capital markets or in particular markets or financial asset
classes can have an adverse effect on us, in part because we
have a large investment portfolio. Disruptions in one market or
asset class can also spread to other markets or asset classes.
Although the disruption in the global financial markets that
began in late 2007 has moderated, not all global financial
markets are functioning normally, and some remain reliant upon
government intervention and liquidity. Upheavals in the
financial markets can also affect our business through their
effects on general levels of economic activity, employment and
customer behavior. Although many economists believe the recent
recession ended in the third quarter of 2009, after a brief
rebound, the recovery has slowed, and the unemployment rate is
expected to remain high for some time. In addition, inflation
has fallen over the last several years and remains at very low
levels. Some economists believe that disinflation and deflation
risk remains in the economy. Our revenues are likely to remain
under pressure in such circumstances and our profit margins
could erode. Also, in the event of extreme prolonged market
events, such as the recent 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
106
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. Group insurance, in particular, is
affected by the higher unemployment rate. 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 precipitated, and may continue to
raise 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,
President Obama Recently Signed a Bill
Providing for Comprehensive Reform of Financial Services
Regulation in the United States, Various Aspects of Which Could
Impact Our Business Operations, Capital Requirements and
Profitability and Limit Our Growth. See also Risk
Factors Our Insurance Businesses Are Heavily
Regulated, and Changes in Regulation May Reduce Our
Profitability and Limit Our Growth and Risk
Factors Competitive Factors May Adversely Affect Our
Market Share and Profitability in the 2009 Annual Report.
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
The Emergency Economic Stabilization Act of 2008
(EESA) gave the U.S. Treasury the authority to,
among other things, purchase up to $700.0 billion of
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, the Federal Reserve Bank of New York, the 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, which expired in early 2010.
The U.S. Treasury 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. Although such actions appear to have provided some
stability to the financial markets, our business and 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 improve further. These programs
have largely run their course or been discontinued. More likely
to be relevant to MetLife, Inc. and its subsidiaries are the
monetary policy by the Federal Reserve Board and the Dodd-Frank
Wall Street Reform and Consumer Protection Act
(Dodd-Frank), which was recently signed by President
Obama and will significantly change financial regulation in the
U.S. in a number of areas that could affect MetLife. We
cannot predict what impact, if any, this could have on our
business, results of operations and financial condition.
It is not certain what effect the enactment of Dodd-Frank will
have on the financial markets, the availability of credit, asset
prices and our operations or investments. See
President Obama Recently Signed a Bill
Providing for Comprehensive Reform of Financial Services
Regulation in the United States, Various Aspects of Which Could
Impact Our Business Operations, Capital Requirements and
Profitability and Limit Our Growth. 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, or legislation that requires loan modifications. If
such legislation is enacted, it could cause loss of principal on
certain of our non-agency prime residential mortgage-backed
security (RMBS) 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 Risk Factors We Are Exposed to
Significant
107
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 in the 2009 Annual Report. 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.
The choices made by the U.S. Treasury, the Federal Reserve
Board and the FDIC in their distribution of funds under EESA and
any future asset purchase or other government programs, as well
as any decisions made regarding the imposition of additional
regulation on large financial institutions may have, over time,
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, benefits under one or
more of the federal governments programs. This could
adversely affect our competitive position. See Risk
Factors Competitive Factors May Adversely Affect Our
Market Share and Profitability in the 2009 Annual Report.
See also New and Impending Compensation and
Corporate Governance Regulations 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 and Risk Factors Our
Insurance Businesses Are Heavily Regulated, and Changes in
Regulation May Reduce Our Profitability and Limit Our
Growth in our 2009 Annual Report.
President Obama Recently Signed a Bill Providing for
Comprehensive Reform of Financial Services Regulation in the
United States, Various Aspects of Which Could Impact Our
Business Operations, Capital Requirements and Profitability and
Limit Our Growth
On July 21, 2010, President Obama signed Dodd-Frank.
Various provisions of Dodd-Frank could affect our business
operations and our profitability and limit our growth. For
example:
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As a large, interconnected bank holding company with assets of
$50 billion or more, or possibly as an otherwise
systemically important financial company, MetLife, Inc.,
including possibly its subsidiaries, will be subject to enhanced
prudential standards imposed on systemically significant
financial companies. Enhanced standards will be applied to
risk-based capital, liquidity, leverage (unless another,
similar, standard is appropriate for the company), resolution
plan and credit exposure reporting, concentration limits, and
risk management. Off-balance sheet activities are required to be
accounted for in meeting capital requirements. In addition, if
it was determined that MetLife, Inc. posed a grave threat to
U.S. financial stability, the applicable federal regulators
would have the right to require it to take one or more other
mitigating actions to reduce that risk, including limiting its
ability to merge with or acquire another company, terminating
activities, restricting its ability to offer financial products
or requiring it to sell assets or off-balance sheet items to
unaffiliated entities. Enhanced standards would also permit, but
not require, regulators to establish requirements with respect
to contingent capital, enhanced public disclosures and short
term debt limits. These standards are described as being more
stringent than those otherwise imposed on bank holding
companies; however, the Federal Reserve Board is permitted to
apply them on an
institution-by-institution
basis, depending on its determination of the institutions
riskiness. In addition, under Dodd-Frank, all bank holding
companies that have elected to be treated as financial holding
companies, such as MetLife, Inc., will be required to be
well capitalized and well managed as
defined by the Federal Reserve Board, on a consolidated basis
and not just at their depository institution(s), a higher
standard than is applicable to financial holding companies under
current law. This requirement could restrict the amount of
capital available to MetLife, Inc.s subsidiaries,
including us.
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MetLife, Inc., as a bank holding company, will have to meet
minimum leverage ratio and risk-based capital requirements on a
consolidated basis to be established by the Federal Reserve
Board that are not less than those applicable to insured
depository institutions under so-called prompt corrective action
regulations as in effect on the date of the enactment of the
legislation. As a subsidiary of a bank holding company, we, as
well as MetLife, Inc., could be subject to other heightened
standards, even if MetLife, Inc. is not deemed to be a
systemically significant company.
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Under the provisions of Dodd-Frank relating to the resolution or
liquidation of certain types of financial institutions,
including bank holding companies, if MetLife, Inc. were to
become insolvent or were in danger of defaulting on its
obligations, it could be compelled to undergo liquidation with
the FDIC as receiver. For this new regime to be applicable, a
number of determinations would have to be made, including that a
default by the affected company would have serious adverse
effects on financial stability in the United States. If the FDIC
were to be appointed as the receiver for such a company, the
liquidation of that company would occur under the provisions of
the new liquidation authority, and not under the Bankruptcy
Code. Although insurance companies will continue to be dissolved
under state law, federal regulators could similarly determine an
insurer poses a serious threat to U.S. stability and compel
liquidation under state regimes. In addition, non-insurer
subsidiaries that are not themselves insurance companies may be
liquidated under the new liquidation authority. Under the new
liquidation authority, the holders of a companys debt
could in certain respects be treated differently than under the
Bankruptcy Code. In particular, unsecured creditors and
shareholders are intended to bear the losses of the company
being liquidated. The FDIC is authorized to establish rules for
the priority of creditors claims and, under certain
circumstances, to treat similarly situated creditors
differently. Although it is not possible to assess the full
impact of the liquidation authority at this time, it could
affect the funding costs of large bank holding companies or
financial companies that might be viewed as systemically
significant, as well as their respective subsidiaries. It could
also lead to an increase in secured financings.
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Dodd-Frank also includes a new framework of regulation of the
Over-The-Counter
(OTC) derivatives markets which could require
clearing of certain types of transactions currently traded
over-the-counter
and potentially impose additional costs, including new capital
and margin requirements and additional regulation on the
Company. Increased margin requirements on our part could reduce
our liquidity and narrow the range of securities in which we
invest. However, increased margin requirements on our
counterparties could reduce our exposure to our
counterparties default. We use derivatives to mitigate the
impact of increased benefit exposures from our annuity products
that offer guaranteed benefits The derivative clearing
requirements of Dodd-Frank could increase the cost of such
mitigation. In addition, we are subject to the risk that hedging
and other management procedures prove ineffective in reducing
the risks to which insurance policies expose us or that
unanticipated policyholder behavior or mortality, combined with
adverse market events, produces economic losses beyond the scope
of the risk management techniques employed. Any such losses
could be increased by any higher costs of writing derivatives or
the potentially greater difficulty in customizing derivatives
that might result from the enactment of Dodd-Frank.
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Dodd-Frank restricts the ability of insured depository
institutions and of companies, such as MetLife, Inc., that
control an insured depository institution and their affiliates,
to engage in proprietary trading and to sponsor or invest in
funds (referred to in the bill as hedge funds and private equity
funds) that rely on certain exemptions from the Investment
Company Act of 1940, as amended (the Investment Company
Act). Dodd-Frank provides an exemption for investment
activity by a regulated insurance company or its affiliate
solely for the general account of such insurance company if such
activity is in compliance with the insurance company investments
laws of the state or jurisdiction in which such company is
domiciled and the appropriate Federal regulators after
consultation with relevant insurance commissioners have not
jointly determined such laws to be insufficient to protect the
safety and soundness of the institution or the financial
stability of the United States. Notwithstanding the foregoing,
the appropriate Federal regulatory authorities are permitted
under the legislation to impose, as part of rulemaking,
additional capital requirements and other restrictions on any
exempted activity. Dodd-Frank provides for a period of study and
rule making during which the effects of the statutory language
may be clarified. Among other considerations, the study is to
assess and include recommendations so as to appropriately
accommodate the business of insurance within an insurance
company subject to regulation in accordance with relevant
insurance company investments laws. While these provisions of
Dodd-Frank are supposed to accommodate the business of
insurance, until the related study and rulemaking are complete,
it is unclear whether we may have to alter any of our future
investment activities to comply.
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Until various studies are completed and final regulations are
promulgated pursuant to Dodd-Frank, the full impact of
Dodd-Frank on the investments and investment activities of
MetLife, Inc. and its subsidiaries
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remain unclear. Besides directly limiting our future investment
activities, Dodd-Frank could potentially negatively impact the
market for, the returns from, or liquidity in, primary and
secondary investments in private equity funds and hedge funds
that are affiliated with an insured depository institution. The
number of sponsors of such funds going forward may diminish,
which may impact our available fund investment opportunities.
Although Dodd-Frank provides for various transition periods for
coming into compliance, fund sponsors that are subject to
Dodd-Frank, and whose funds we have invested in, may have to
spin off their funds business or reduce their ownership stakes
in their funds, thereby potentially impacting our related
investments in such funds. In addition, should such funds be
required or choose to liquidate or sell their underlying assets,
the market value and liquidity of such assets or the broader
related asset classes could negatively be affected, including
securities and real estate assets that MetLife, Inc. and its
subsidiaries hold or may plan to sell. Our existing derivatives
counterparties and the financial institutions subject to
Dodd-Frank in which we have invested also could be negatively
impacted by Dodd-Frank.
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The addition of a new regulatory regime over MetLife and its
subsidiaries, the likelihood of additional regulations, and the
other changes discussed above could require changes to the
operations of MetLife and its subsidiaries, including ours.
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 affected
in a similar manner. In addition, competitive effects on our
business and operations are possible, however, if MetLife, Inc.
were required to pay any new or increased assessments and
capital requirements are imposed, and to the extent any new
prudential supervisory standards are imposed on MetLife, Inc.
but not on its competitors. We cannot predict whether other
proposals will be adopted, or what impact, if any, the adoption
of Dodd-Frank or other proposals and the resulting studies and
regulations could have on our business, financial condition or
results of operations or on our dealings with other financial
companies. See also New and Impending
Compensation and Corporate Governance Regulations Could Hinder
or Prevent MetLife and Its Affiliates From Attracting and
Retaining Management and Other Employees with the Talent and
Experience to Manage and Conduct Our Business Effectively.
Dodd-Frank also creates a new Federal Insurance Office
(FIO) with the U.S. Treasury Department.
Although explicitly not a regulatory body, the FIO may request
documents and information from insurers, has limited subpoena
power and is tasked with studying the potential modernization of
the insurance industry, including possibly a federal charter.
Moreover, Dodd-Frank potentially affects such a wide range of
the activities and markets in which we engage and participate
that it may not be possible to anticipate all of the ways in
which it could affect us. For example, many of our methods for
managing risk and exposures are based upon the use of observed
historical market behavior or statistics based on historical
models. Historical market behavior may be altered by the
enactment of Dodd-Frank. As a result of this enactment and
otherwise, these methods may not fully predict future exposures,
which can be significantly greater than our historical measures
indicate.
Legislative and Regulatory Activity in Health Care and
Other Employee Benefits Could Increase the Costs or
Administrative Burdens of Providing Benefits to Employees Who
Conduct Our Business or Hinder or Prevent MetLife and its
Affiliates From Attracting and Retaining Employees, or Affect
our Profitability As a Provider of Life Insurance, Annuities,
and Non-Medical Health Insurance Benefit Products
The Patient Protection and Affordable Care Act, signed into law
on March 23, 2010, and The Health Care and Education
Reconciliation Act of 2010, signed into law on March 30,
2010 (together, the Health Care Act), may lead to
fundamental changes in the way that employers, including
affiliates of MetLife, provide health care benefits, other
benefits, and other forms of compensation to their employees and
former employees. Among other changes, and subject to various
effective dates, the Health Care Act generally restricts certain
limits on benefits, mandates coverage for certain kinds of care,
extends the required coverage of dependent children through
age 26, eliminates pre-existing condition exclusions or
limitations, requires cost reporting and, in some cases,
requires premium rebates to participants under certain
circumstances, limits coverage waiting periods, establishes
several penalties on employers who fail to offer sufficient
coverage to their full-time employees, and requires employers
under certain circumstances to provide employees with vouchers
to purchase their own health care coverage. The Health Care Act
also provides for increased taxation of high cost
coverage, restricts the tax deductibility of certain
compensation paid by health care and some other insurers,
reduces the tax deductibility of retiree health care costs to
the extent of any retiree prescription drug benefit subsidy
provided to the employer by the federal government, increases
110
Medicare taxes on certain high earners, and establishes health
insurance exchanges for individual purchases of
health insurance.
We depend on employees of MetLife affiliates to conduct our
business. The impact of the Health Care Act on MetLifes
affiliates as employers and on the benefit plans they sponsor
for their employees or retirees and their dependents, whether
those benefits remain competitive or effective in meeting their
business objectives, and our costs to provide such benefits and
our tax liabilities in connection with benefits or compensation,
cannot be predicted. Furthermore, we cannot predict the impact
of choices that will be made by various regulators, including
the U.S. Treasury, the Internal Revenue Service, the United
States Department of Health and Human Services, and state
regulators, to promulgate regulations or guidance, or to make
determinations under or related to the Health Care Act. Either
the Health Care Act or any of these regulatory actions could
adversely affect the ability of MetLife and its affiliates to
attract, retain, and motivate talented associates. They could
also result in increased or unpredictable costs to provide
employee benefits, and could harm our competitive position if
MetLife or its affiliates are subject to fees, penalties, tax
provisions or other limitations in the Health Care Act and our
competitors are not.
The Health Care Act also imposes requirements on us as a
provider of certain products, subject to various effective
dates. It also imposes requirements on the purchasers of certain
of these products. We cannot predict the impact of the Act or of
regulations, guidance or determinations made by various
regulators, on the various products that we offer. Either the
Health Care Act or any of these regulatory actions could
adversely affect our ability to offer certain of these products
in the same manner as we do today. They could also result in
increased or unpredictable costs to provide certain products,
and could harm our competitive position if the Health Care Act
has a disparate impact on our products compared to products
offered by our competitors.
The Preservation of Access to Care for Medicare Beneficiaries
and Pension Relief Act of 2010 also includes certain provisions
for defined benefit pension plan funding relief. These
provisions may impact the likelihood
and/or
timing of corporate plan sponsors terminating their plans
and/or
engaging in transactions to partially or fully transfer pension
obligations to an insurance company. We have issued general
account and separate account group annuity products that enable
a plan sponsor to transfer these risks, often in connection with
the termination of defined benefit pension plans. Consequently,
this legislation could indirectly affect the mix of our
business, with fewer closeouts and more non-guaranteed funding
products, and adversely impact our results of operations.
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 for pools of
loans with similar risk characteristics, such as property types,
or loans having similar
loan-to-value
or ratios and debt service coverage ratios, when based on past
experience, it is probable that a credit event has occurred and
the amount of the loss can be reasonably estimated. These
valuation allowances are based on loan risk characteristics,
historical default rates and loss severities, real estate market
fundamentals and outlook as well as other relevant factors. At
June 30, 2010, loans that were either delinquent or in the
process of foreclosure totaled less than 0.8% 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
111
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.
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.
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.
In February 2010, Fitch Ratings downgraded our ratings by
one-notch. In February 2010, Standard & Poors
Ratings Services (S&P), a Standard &
Poors Financial Services LLC business, and A.M. Best
each placed our ratings on CreditWatch with negative
implications and Under Review with negative
implications, respectively. In March 2010, Moodys
changed our ratings outlook from stable to negative outlook. In
August 2010, S&P removed us from CreditWatch with
negative implications and affirmed our ratings with a
negative outlook. We believe that all the NRSROs
will continue to review the ratings of MetLife, Inc. and its
subsidiaries in light of the acquisition by MetLife, Inc. of
American Life Insurance Company, a subsidiary of ALICO Holdings
LLC, and Delaware American Life Insurance Company (collectively,
the Acquisition). The NRSROs may take further action
at, or in anticipation of, the consummation of the Acquisition.
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.
112
If Our Business Does Not Perform Well or if Actual
Experience Versus Estimates Used in Valuing and Amortizing DAC,
Deferred Sales Inducements (DSI) and VOBA Vary
Significantly, We May Be Required to Accelerate the Amortization
and/or Impair the DAC, DSI 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. Bonus amounts credited to
certain policyholders, either immediately upon receiving a
deposit or as excess interest credits for a period of time, are
referred to as DSI. The recovery of DAC and DSI is
dependent upon the future profitability of the related business.
The amount of future profit or margin is dependent principally
on investment returns in excess of the amounts credited to
policyholders, mortality, morbidity, persistency, interest
crediting rates, dividends paid to policyholders, expenses to
administer the business, creditworthiness of reinsurance
counterparties and certain economic variables, such as
inflation. Of these factors, we anticipate 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 and DSI 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 a charge to income.
Also, as VOBA is amortized similarly to DAC and DSI, 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.
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, and guaranteed minimum income
benefits. 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.
The valuation of certain of the foregoing liabilities (carried
at fair value) includes an adjustment for nonperformance risk
that reflects the credit standing of the issuing entity. This
adjustment, which is not hedged, is based in part on publicly
available information regarding credit spreads related to
MetLifes debt,
113
including credit default swaps. In periods of extreme market
volatility, movements in these credit spreads can have a
significant impact on 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 5 of the Notes to the
Interim Condensed 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 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 June 30,
2010.
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.
The New York Attorney General recently announced that his office
had launched a major fraud investigation into the life insurance
industry for practices related to the use of retained asset
accounts and that subpoenas requesting comprehensive data
related to retained asset accounts have been served on MetLife,
Inc. and other insurance carriers. We received the subpoena on
July 30, 2010. We offer a retained asset account for death
benefit payments called a Total Control Account
(TCA) as a settlement option under our life
insurance policies. When a TCA is established for a beneficiary,
we retain the death benefit proceeds in the general account and
pay interest on those proceeds at a rate set by reference to
objective indices. Additionally, the accounts enjoy a guaranteed
minimum interest rate. Beneficiaries can withdraw all of the
funds or a portion of the funds held in the account at any time.
It is possible that other state and federal regulators or
legislative bodies may pursue similar investigations or make
related inquiries. We cannot predict what effect any such
investigations might have on our earnings or the availability of
the TCA, but we believe that our financial statements taken as a
whole would not be materially affected. We believe that any
allegations that information about the TCA is not adequately
disclosed or that the accounts are fraudulent or violate state
or federal laws are without merit.
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
114
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.
New and Impending Compensation and Corporate Governance
Regulations Could Hinder or Prevent MetLife and Its Affiliates
From Attracting and Retaining Management and Other Employees
with the Talent and Experience to Manage and Conduct Our
Business Effectively
The compensation and corporate governance practices of financial
institutions will become subject to increasing regulation and
scrutiny. Dodd-Frank includes new requirements that will affect
our corporate governance and compensation practices or those of
our affiliates, including some that may lead to additional
requirements for membership on Board committees, require
policies to recover compensation previously paid under certain
circumstances, require additional performance and compensation
disclosure, and other requirements. See
President Obama Recently Signed a Bill
Providing for Comprehensive Reform of Financial Services
Regulation in the United States, Various Aspects of Which Could
Impact Our Business Operations, Capital Requirements and
Profitability and Limit Our Growth. In addition, the
Federal Reserve Board, the FDIC and other U.S. bank
regulators have released guidelines on incentive compensation
that may apply to or impact MetLife, Inc. 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. Other new rules 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 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. A number of changes have
recently been suggested to the laws and regulations that govern
the conduct of our variable insurance products business that
could have a material adverse effect on our financial condition
and results of operations. For example, Dodd-Frank authorizes
the SEC to establish a standard of conduct applicable to brokers
and dealers when providing personalized investment advice to
retail and other customers. This standard of conduct would be to
act in the best interest of the customer without regard to the
financial or other interest of the broker or dealer providing
the advice. In addition, the NAIC has adopted a revised
Suitability in Annuity Transactions Model Regulation, that will,
if enacted by the states, place new responsibilities upon
issuing insurance companies with respect to the suitability of
annuity sales, including responsibilities for training agents.
115
(Note Regarding Reliance on Statements in Our Contracts:
In reviewing the agreements included as exhibits to this
Quarterly Report on
Form 10-Q,
please remember that they are included to provide you with
information regarding their terms and are not intended to
provide any other factual or disclosure information about
MetLife 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 at 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 at 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
Quarterly Report on
Form 10-Q
and MetLife Insurance Company of Connecticuts other public
filings, which are available without charge through the
SECs website at www.sec.gov.)
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Exhibit
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No.
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Description
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31
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.1
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Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
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31
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.2
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Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
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32
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.1
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Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
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32
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.2
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Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
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116
Signatures
Pursuant to the requirements 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.
METLIFE INSURANCE COMPANY OF CONNECTICUT
Name: Peter M. Carlson
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Title:
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Executive Vice-President, Finance Operations and
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Chief Accounting Officer
(Authorized Signatory and Principal Accounting Officer)
Date: August 12, 2010
117
Exhibit Index
(Note Regarding Reliance on Statements in Our Contracts:
In reviewing the agreements included as exhibits to this
Quarterly Report on
Form 10-Q,
please remember that they are included to provide you with
information regarding their terms and are not intended to
provide any other factual or disclosure information about
MetLife 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 at 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 at 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
Quarterly Report on
Form 10-Q
and MetLife Insurance Company of Connecticuts other public
filings, which are available without charge through the
SECs website at www.sec.gov.)
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Exhibit
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No.
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Description
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31
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.1
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Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
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31
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.2
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Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
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32
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.1
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Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
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32
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.2
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Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
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E-1