UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal
year ended December 31,
2010
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number:
33-03094
MetLife Insurance Company of
Connecticut
(Exact name of registrant as
specified in its charter)
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Connecticut
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06-0566090
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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1300 Hall Boulevard, Bloomfield, Connecticut
(Address of principal
executive offices)
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06002
(Zip Code)
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(860) 656-3000
(Registrants telephone
number, including area code)
Securities registered pursuant to
Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
None
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Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer þ (Do
not check if a smaller reporting company)
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Smaller reporting
company o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
At March 22, 2011, 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 I(1)(a) and (b) of
Form 10-K
and is therefore filing this Form with the reduced disclosure
format.
DOCUMENTS
INCORPORATED BY REFERENCE: NONE
As used in this
Form 10-K,
MICC, the Company, we,
our and us refer to MetLife Insurance
Company of Connecticut, a Connecticut corporation incorporated
in 1863, and its subsidiaries, including MetLife Investors USA
Insurance Company (MLI-USA). MetLife Insurance
Company of Connecticut is a wholly-owned subsidiary of MetLife,
Inc. (MetLife).
Note
Regarding Forward-Looking Statements
This Annual Report on
Form 10-K,
including 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.
Any or all forward-looking statements may turn out to be wrong.
They can be affected by inaccurate assumptions or by known or
unknown risks and uncertainties. Many such factors will be
important in determining the actual future results of MICC and
its subsidiaries. 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 MICCs filings with the U.S. Securities
and Exchange Commission (the SEC). These factors
include: (1) difficult conditions in the global capital
markets; (2) increased volatility and disruption of the
capital and credit markets, which may affect our ability to seek
financing or access our 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 us; (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 our ability to raise capital,
generate fee income and market-related revenue and finance
statutory reserve requirements and may require us to pledge
collateral or make payments related to declines in value of
specified assets; (7) potential liquidity and other risks
resulting from our 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 our mortgage loans;
(11) the impairment of other financial institutions that
could adversely affect our investments or business;
(12) our ability to address unforeseen liabilities, asset
impairments, loss of key contractual relationships, or rating
actions arising from acquisitions or dispositions and to
successfully integrate and manage the growth of acquired
businesses with minimal disruption; (13) economic,
political, currency and other risks relating to our
international operations, including with respect to fluctuations
of exchange rates; (14) downgrades in our 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 our products and establishing the liabilities for our
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, deferred sales inducements, value of
business acquired 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; (25) inability to protect our intellectual
property rights or claims of infringement of the
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intellectual property rights of others, (26) discrepancies
between actual experience and assumptions used in establishing
liabilities related to other contingencies or obligations;
(27) regulatory, legislative or tax changes that may affect
the cost of, or demand for, our 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;
(28) the effects of business disruption or economic
contraction due to terrorism, other hostilities, or natural
catastrophes, including any related impact on our disaster
recovery systems and management continuity planning which could
impair our ability to conduct business effectively;
(29) the effectiveness of our programs and practices in
avoiding giving our associates incentives to take excessive
risks; and (30) other risks and uncertainties described
from time to time in MICCs filings with the SEC.
We do not undertake any obligation to publicly correct or update
any forward-looking statement if we later become aware that such
statement is not likely to be achieved. Please consult any
further disclosures MICC makes on related subjects in reports to
the SEC.
Note
Regarding Reliance on Statements in Our Contracts
In reviewing the agreements included as exhibits to this Annual
Report on
Form 10-K,
please remember that they are included to provide you with
information regarding their terms and are not intended to
provide any other factual or disclosure information about
MetLife Insurance Company of Connecticut, its subsidiaries or
the other parties to the agreements. The agreements contain
representations and warranties by each of the parties to the
applicable agreement. These representations and warranties have
been made solely for the benefit of the other parties to the
applicable agreement and:
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should not in all instances be treated as categorical statements
of fact, but rather as a way of allocating the risk to one of
the parties if those statements prove to be inaccurate;
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have been qualified by disclosures that were made to the other
party in connection with the negotiation of the applicable
agreement, which disclosures are not necessarily reflected in
the agreement;
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may apply standards of materiality in a way that is different
from what may be viewed as material to investors; and
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were made only as of the date of the applicable agreement or
such other date or dates as may be specified in the agreement
and are subject to more recent developments.
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Accordingly, these representations and warranties may not
describe the actual state of affairs as of the date they were
made or at any other time. Additional information about MetLife
Insurance Company of Connecticut and its subsidiaries may be
found elsewhere in this Annual Report on
Form 10-K
and MetLife Insurance Company of Connecticuts other public
filings, which are available without charge through the SEC
website at www.sec.gov.
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Part I
As used in this
Form 10-K,
MICC, the Company, we,
our and us refer to MetLife Insurance
Company of Connecticut, a Connecticut corporation incorporated
in 1863, and its subsidiaries, including MetLife Investors USA
Insurance Company (MLI-USA). MetLife Insurance
Company of Connecticut is a wholly-owned subsidiary of MetLife,
Inc. (MetLife).
MICC is organized into three segments: Retirement Products,
Corporate Benefit Funding and Insurance Products. The segments
are managed separately because they either provide different
products and services, require different strategies or have
different technology requirements. In addition, the Company
reports certain of its 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 segments, various domestic and international
start-up
entities and run-off business, the Companys ancillary
international operations, interest expense related to the
majority of the Companys outstanding debt and expenses
associated with certain legal proceedings and income tax audit
issues. Corporate & Other also includes the
elimination of intersegment amounts, which generally relate to
loans.
Operating revenues derived from any customer did not exceed 10%
of consolidated operating revenues in any of the last three
years. Financial information, including revenues, expenses,
operating earnings, and total assets by segment, is provided in
Note 14 of the Notes to the Consolidated Financial
Statements. Operating revenues and operating earnings are
performance measures that are not based on accounting principles
generally accepted in the United States of America
(GAAP). See Managements Discussion and
Analysis of Financial Condition and Results of Operations
for definitions of such measures.
Sales
Distribution
We market our products and services through various distribution
groups. Our life insurance and retirement products targeted to
individuals are sold via sales forces, comprised of MetLife
employees, in addition to third-party organizations. Our
corporate benefit funding and non-medical health products are
sold via sales forces primarily comprised of MetLife employees.
Our sales employees work with all distribution groups to better
reach and service customers, brokers, consultants and other
intermediaries.
Individual
Distribution
Our individual distribution sales group targets the large
middle-income market, as well as affluent individuals, owners of
small businesses and executives of small- to medium-sized
companies. We have also been successful in selling our products
in various multi-cultural markets.
Retirement Products are sold through our individual distribution
sales group and also through various third-party organizations
such as regional broker-dealers, New York Stock Exchange
brokerage firms, financial planners and banks.
Insurance Products are sold through our individual distribution
sales group and also through various third-party organizations
utilizing two models. In the coverage model, wholesalers sell to
high net worth individuals and small- to medium-sized businesses
through independent general agencies, financial advisors,
consultants, brokerage general agencies and other independent
marketing organizations under contractual arrangements. In
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the point of sale model, wholesalers sell through financial
intermediaries, including regional broker-dealers, brokerage
firms, financial planners and banks.
Group
Distribution
Retirement Products markets its retirement, savings, investment
and payout annuity products and services to sponsors and
advisors of benefit plans of all sizes. These products and
services are offered to private and public pension plans,
collective bargaining units, nonprofit organizations, recipients
of structured settlements and the current and retired members of
these and other institutions.
Corporate Benefit Funding products and services are distributed
through dedicated sales teams and relationship managers located
in offices around the country. In addition, the
retirement & benefits funding organization works with
individual distribution and non-medical health distribution
areas to better reach and service customers, brokers,
consultants and other intermediaries.
Insurance Products distributes its non-medical health products
and services through a sales force that is segmented by the size
of the target customer. Marketing representatives sell either
directly to corporate and other group customers or through an
intermediary, such as a broker or consultant. Voluntary products
are sold through the same sales channels, as well as by
specialists for these products. Employers have been emphasizing
such voluntary products and, as a result, we have increased our
focus on communicating and marketing to such employees in order
to further foster sales of those products.
The individual sales distribution organization is comprised of
three channels: the MetLife distribution channel, a career
agency system, the New England financial distribution channel, a
general agency system, and MetLife Resources, a career agency
system.
Policyholder
Liabilities
We establish, and carry as liabilities, actuarially determined
amounts that are calculated to meet our policy obligations when
a policy matures or is surrendered, an insured dies or becomes
disabled or upon the occurrence of other covered events, or to
provide for future annuity payments. We compute the amounts for
actuarial liabilities reported in our consolidated financial
statements in conformity with GAAP.
In establishing actuarial liabilities for life and non-medical
health insurance policies and annuity contracts, we distinguish
between short duration and long duration contracts. Long
duration contracts primarily consist of traditional whole life,
guaranteed renewable term life, universal life, annuities and
individual disability income and long-term care
(LTC).
We determine actuarial liabilities for long duration contracts
using assumptions based on experience, plus a margin for adverse
deviation for these policies.
Actuarial liabilities for term life, non-participating whole
life, LTC and limited pay contracts such as single premium
immediate individual annuities, structured settlement annuities
and certain group pension annuities are equal to the present
value of future benefit payments and related expenses less the
present value of future net premiums plus premium deficiency
reserves, if any. For limited pay contracts, we also defer the
excess of the gross premium over the net premium and recognize
such excess into income in a constant relationship with
insurance in-force for life insurance contracts and in relation
to anticipated future benefit payments for annuity contracts.
We also establish actuarial liabilities for future policy
benefits (associated with base policies and riders, unearned
mortality charges and future disability benefits), for other
policyholder liabilities (associated with unearned revenues and
claims payable) and for unearned revenue (the unamortized
portion of front-end loads charged). We also establish
liabilities for minimum benefit guarantees relating to certain
annuity contracts and secondary guarantees relating to certain
life policies.
Liabilities for investment-type and universal life-type products
primarily consist of policyholder account balances.
Investment-type products include individual annuity contracts in
the accumulation phase and certain group pension contracts that
have limited or no mortality risk. Universal life-type products
consist of universal and
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variable life contracts and contain group pension contracts. For
universal life-type contracts with front-end loads, we defer the
charge and amortize the unearned revenue using the
products estimated gross profits.
Pursuant to state insurance laws, we establish statutory
reserves, reported as liabilities, to meet our obligations on
our respective policies. These statutory reserves are
established in amounts sufficient to meet policy and contract
obligations, when taken together with expected future premiums
and interest at assumed rates. Statutory reserves generally
differ from actuarial liabilities for future policy benefits
determined using GAAP.
The Connecticut State Insurance Law and regulations require us
to submit to the Connecticut Commissioner of Insurance
(Connecticut Commissioner), or other state insurance
departments, with each annual report, an opinion and memorandum
of a qualified actuary that the statutory reserves
and related actuarial amounts recorded in support of specified
policies and contracts, and the assets supporting such statutory
reserves and related actuarial amounts, make adequate provision
for our statutory liabilities with respect to these obligations.
See Regulation Insurance
Regulation Policy and Contract Reserve Sufficiency
Analysis.
Due to the nature of the underlying risks and the high degree of
uncertainty associated with the determination of actuarial
liabilities, we cannot precisely determine the amounts that will
ultimately be paid with respect to these actuarial liabilities,
and the ultimate amounts may vary from the estimated amounts,
particularly when payments may not occur until well into the
future.
However, we believe our actuarial liabilities for future
benefits are adequate to cover the ultimate benefits required to
be paid to policyholders. We periodically review our estimates
of actuarial liabilities for future benefits and compare them
with our actual experience. We revise estimates, to the extent
permitted or required under GAAP, if we determine that future
expected experience differs from assumptions used in the
development of actuarial liabilities.
Underwriting
and Pricing
Underwriting
Underwriting generally involves an evaluation of applications
for Retirement Products, Corporate Benefit Funding, and
Insurance Products by a professional staff of underwriters and
actuaries, who determine the type and the amount of risk that we
are willing to accept. We employ detailed underwriting policies,
guidelines and procedures designed to assist the underwriter to
properly assess and quantify risks before issuing policies to
qualified applicants or groups.
Insurance underwriting considers not only an applicants
medical history, but also other factors such as financial
profile, foreign travel, vocations and alcohol, drug and tobacco
use. Group underwriting generally evaluates the risk
characteristics of each prospective insured group, although with
certain voluntary products and for certain coverages, members of
a group may be underwritten on an individual basis. We generally
perform our own underwriting; however, certain policies are
reviewed by intermediaries under guidelines established by us.
Generally, we are not obligated to accept any risk or group of
risks from, or to issue a policy or group of policies to, any
employer or intermediary. Requests for coverage are reviewed on
their merits and generally a policy is not issued unless the
particular risk or group has been examined and approved by our
underwriters.
Our remote underwriting offices, intermediaries, as well as our
corporate underwriting office, are periodically reviewed via
continuous on-going internal underwriting audits to maintain
high-standards of underwriting and consistency. Such offices are
also subject to periodic external audits by reinsurers with whom
we do business.
We have established senior level oversight of the underwriting
process that facilitates quality sales and serves the needs of
our customers, while supporting our financial strength and
business objectives. Our goal is to achieve the underwriting,
mortality and morbidity levels reflected in the assumptions in
our product pricing. This is accomplished by determining and
establishing underwriting policies, guidelines, philosophies and
strategies that are competitive and suitable for the customer,
the agent and us.
Subject to very few exceptions, agents in each of the
distribution channels have binding authority for risks which
fall within its published underwriting guidelines. Risks falling
outside the underwriting guidelines may be submitted for
approval to the underwriting department; alternatively, agents
in such a situation may call the
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underwriting department to obtain authorization to bind the risk
themselves. In most states, the Company generally has the right
within a specified period (usually the first 60 days) to
cancel any policy.
Pricing
Pricing has traditionally reflected our corporate underwriting
standards. Product pricing is based on the expected payout of
benefits calculated through the use of assumptions for
mortality, morbidity, expenses, persistency and investment
returns, as well as certain macroeconomic factors, such as
inflation. Investment-oriented products are priced based on
various factors, which may include investment return, expenses,
persistency and optionality. For certain investment oriented
products in the United States (U.S.) and certain
business sold internationally, pricing may include prospective
and retrospective experience rating features. Prospective
experience rating involves the evaluation of past experience for
the purpose of determining future premium rates and all prior
year gains and losses are borne by the Company. Retrospective
experience rating also involves the evaluation of past
experience for the purpose of determining the actual cost of
providing insurance for the customer; however, the contract
includes certain features that allow the Company to recoup
certain losses or distribute certain gains back to the
policyholder based on actual prior years experience.
Products offered by Corporate Benefit Funding are priced
frequently and are very responsive to bond yields, and such
prices include additional margin in periods of market
uncertainty. This business is predominantly illiquid, because a
majority of the policyholders have no contractual rights to cash
values and no options to change the form of the products
benefits. Rates for non-medical health products are based on
anticipated results for the book of business being underwritten.
Renewals are generally reevaluated annually or biannually and
are repriced to reflect actual experience on such products.
Rates for individual life insurance products are highly
regulated and must be approved by the state regulators where the
product is sold. Generally such products are renewed annually
and may include pricing terms that are guaranteed for a certain
period of time. Fixed and variable annuity products are also
highly regulated and approved by the individual state
regulators. Such products generally include penalties for early
withdrawals and policyholder benefit elections to tailor the
form of the products benefits to the needs of the opting
policyholder. The Company periodically reevaluates the costs
associated with such options and will periodically adjust
pricing levels on its guarantees. Further, from time to time,
the Company may also reevaluate the type and level of guarantee
features currently being offered.
We continually review our underwriting and pricing guidelines so
that our policies remain competitive and supportive of our
marketing strategies and profitability goals. The current
economic environment, with its volatility and uncertainty is not
expected to materially impact the pricing of our products.
Reinsurance
Activity
We participate in reinsurance activities in order to limit
losses, minimize exposure to significant risks, and provide
additional capacity for future growth. We enter into various
agreements with reinsurers that cover individual risks, group
risks or defined blocks of business, primarily on a coinsurance,
yearly renewable term, excess or catastrophe excess basis. These
reinsurance agreements spread risk and minimize the effect of
losses. The extent of each risk retained by us depends on our
evaluation of the specific risk, subject, in certain
circumstances, to maximum retention limits based on the
characteristics of coverages. We also cede first dollar
mortality risk under certain contracts. In addition to
reinsuring mortality risk, we reinsure other risks, as well as
specific coverages. We obtain reinsurance for capital
requirement purposes and also when the economic impact of the
reinsurance agreement makes it appropriate to do so.
Under the terms of the reinsurance agreements, the reinsurer
agrees to reimburse us for the ceded amount in the event a claim
is paid. Cessions under reinsurance arrangements do not
discharge our obligations as the primary insurer. In the event
that reinsurers do not meet their obligations under the terms of
the reinsurance agreements, reinsurance balances recoverable
could become uncollectible.
We reinsure our business through a diversified group of
well-capitalized, highly rated reinsurers for both affiliated
and unaffiliated reinsurance. We analyze recent trends in
arbitration and litigation outcomes in disputes, if
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any, with our reinsurers. We monitor ratings and evaluate the
financial strength of our reinsurers by analyzing their
financial statements. In addition, the reinsurance recoverable
balance due from each reinsurer is evaluated as part of the
overall monitoring process. Recoverability of reinsurance
recoverable balances is evaluated based on these analyses. We
generally secure large reinsurance recoverable balances with
various forms of collateral, including secured trusts, funds
withheld accounts and irrevocable letters of credit.
U.S.
Business
For our individual life insurance products, we have historically
reinsured the mortality risk primarily on an excess of retention
basis or a quota share basis. We currently reinsure 90% of the
mortality risk in excess of $1 million for most products
and reinsure up to 90% of the mortality risk for certain other
products. In addition to reinsuring mortality risk as described
above, we may reinsure other risks, as well as specific
coverages. Placement of reinsurance is done primarily on an
automatic basis and also on a facultative basis for risks with
specific characteristics. On a case by case basis, we may retain
up to $5 million per life on single life individual
policies and reinsure 100% of amounts in excess of the amount we
retain. We evaluate our reinsurance programs routinely and may
increase or decrease our retention at any time. We also reinsure
the risk associated with secondary death benefit guarantees on
certain universal life insurance policies to an affiliate.
For other policies within the Insurance Products segment, we
generally retain most of the risk and only cede particular risks
on certain client arrangements.
Our Retirement Products segment reinsures 100% of the living and
death benefit guarantees associated with our variable annuities
issued since 2006 to an affiliated reinsurer and certain
portions of the living and death benefit guarantees associated
with our variable annuities issued prior to 2006 to affiliated
and unaffiliated reinsurers. Under these reinsurance agreements,
we pay a reinsurance premium generally based on fees associated
with the guarantees collected from policyholders, and receive
reimbursement for benefits paid or accrued in excess of account
values, subject to certain limitations. We also reinsure 90% of
our new production of fixed annuities to an affiliated reinsurer.
Our Corporate Benefit Funding segment has periodically engaged
in reinsurance activities, as considered appropriate.
Corporate &
Other
We also reinsure through 100% quota share reinsurance agreements
certain run-off LTC and workers compensation business
written by MetLife Insurance Company of Connecticut.
Catastrophe
Coverage
We have exposure to catastrophes, which could contribute to
significant fluctuations in our results of operations. We use
excess of retention and quota share reinsurance agreements to
provide greater diversification of risk and minimize exposure to
larger risks.
Reinsurance
Recoverables
For information regarding ceded reinsurance recoverable
balances, included in premiums, reinsurance and other
receivables in the consolidated balance sheets, see Note 8
of the Notes to the Consolidated Financial Statements.
Regulation
Insurance
Regulation
MetLife Insurance Company of Connecticut, a Connecticut
domiciled insurer, has all material licenses to transact
insurance business in, and is subject to regulation and
supervision by, all 50 states, the District of Columbia,
Guam, Puerto Rico, the Bahamas, the U.S. Virgin Islands,
and the British Virgin Islands. Each of our insurance companies
is regulated and has all material licenses in each U.S. and
international jurisdiction where it conducts
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insurance business. The extent of such regulation varies, but
most jurisdictions have laws and regulations governing the
financial aspects of insurers, including standards of solvency,
statutory reserves, reinsurance and capital adequacy, and the
business conduct of insurers. In addition, statutes and
regulations usually require the licensing of insurers and their
agents, the approval of policy forms and certain other related
materials and, for certain lines of insurance, the approval of
rates. Such statutes and regulations also prescribe the
permitted types and concentration of investments. New York
Insurance law limits the amount of compensation that insurers
doing business in New York, such as MetLife Insurance
Company of Connecticut, may pay to their agents, as well as the
amount of total expenses, including sales commissions and
marketing expenses, that such insurers may incur in connection
with the sale of life insurance policies and annuity contracts
throughout the U.S.
We are required to file reports, generally including detailed
annual financial statements, with insurance regulatory
authorities in each of the jurisdictions in which our insurance
companies do business, and their operations and accounts are
subject to periodic examination by such authorities. We must
also file, and in many jurisdictions and in some lines of
insurance obtain regulatory approval for, rules, rates and forms
relating to the insurance written in the jurisdictions in which
our insurance companies operate.
State and federal insurance and securities regulatory
authorities and other state law enforcement agencies and
attorneys general from time to time make inquiries regarding our
compliance with insurance, securities and other laws and
regulations regarding the conduct of our insurance and
securities businesses. We cooperate with such inquiries and take
corrective action when warranted. See Note 11 of the Notes
to the Consolidated Financial Statements.
Holding Company Regulation. We are subject to
regulation under the insurance holding company laws of various
jurisdictions. The insurance holding company laws and
regulations vary from jurisdiction to jurisdiction, but
generally require a controlled insurance company (insurers that
are subsidiaries of insurance holding companies) to register
with state regulatory authorities and to file with those
authorities certain reports, including information concerning
their capital structure, ownership, financial condition, certain
intercompany transactions and general business operations.
State insurance statutes also typically place restrictions and
limitations on the amount of dividends or other distributions
payable by insurance company subsidiaries to their parent
companies, as well as on transactions between an insurer and its
affiliates. See Market for Registrants Common
Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
Guaranty Associations and Similar
Arrangements. Most of the jurisdictions in which
our insurance companies are admitted to transact business
require life insurers doing business within the jurisdiction to
participate in guaranty associations, which are organized to pay
certain contractual insurance benefits owed pursuant to
insurance policies issued by impaired, insolvent or failed
insurers. These associations levy assessments, up to prescribed
limits, on all member insurers in a particular state on the
basis of the proportionate share of the premiums written by
member insurers in the lines of business in which the impaired,
insolvent or failed insurer is engaged. Some states permit
member insurers to recover assessments paid through full or
partial premium tax offsets.
In the past five years, the aggregate assessments levied against
us have not been material. We have established liabilities for
guaranty fund assessments that we consider adequate for
assessments with respect to insurers that are currently subject
to insolvency proceedings. See Note 11 of the Notes to the
Consolidated Financial Statements for additional information on
the insolvency assessments.
Statutory Insurance Examination. As part of
their regulatory oversight process, state insurance departments
conduct periodic detailed examinations of the books, records,
accounts, and business practices of insurers domiciled in their
states. State insurance departments also have the authority to
conduct examinations of non-domiciliary insurers that are
licensed in their states. During the three-year period ended
December 31, 2010, we have not received any material
adverse findings resulting from state insurance department
examinations conducted during this three-year period.
Regulatory authorities in a small number of states, Financial
Industry Regulatory Authority (FINRA) and,
occasionally, the U.S. Securities and Exchange Commission
(the SEC), have had investigations or inquiries
9
relating to sales of individual life insurance policies or
annuities or other products by us and our subsidiary, Tower
Square Securities, Inc. (Tower Square). These
investigations often focus on the conduct of particular
financial services representatives and the sale of unregistered
or unsuitable products or the misuse of client assets. Over the
past several years, these and a number of investigations by
other regulatory authorities were resolved for monetary payments
and certain other relief, including restitution payments. We may
continue to resolve investigations in a similar manner.
Policy and Contract Reserve Sufficiency
Analysis. Annually, our U.S. insurance
companies are required to conduct an analysis of the sufficiency
of all statutory reserves. In each case, a qualified actuary
must submit an opinion which states that the statutory reserves,
when considered in light of the assets held with respect to such
reserves, make good and sufficient provision for the associated
contractual obligations and related expenses of the insurer. If
such an opinion cannot be provided, the insurer must set up
additional reserves by moving funds from surplus. Since
inception of this requirement, our insurance companies which are
required by their states of domicile to provide these opinions
have provided such opinions without qualifications.
Surplus and Capital. Our U.S. insurance
companies are subject to the supervision of the regulators in
each jurisdiction in which we are licensed to transact business.
Regulators have discretionary authority, in connection with the
continued licensing of our insurance companies, to limit or
prohibit sales to policyholders if, in their judgment, the
regulators determine that such insurer has not maintained the
minimum surplus or capital or that the further transaction of
business will be hazardous to policyholders. See
Risk-Based Capital.
Risk-Based Capital (RBC). Each of
our U.S. insurance companies that is subject to RBC
requirements reports its RBC based on a formula calculated by
applying factors to various asset, premium and statutory reserve
items, as well as taking into account the risk characteristics
of the insurer. The major categories of risk involved are asset
risk, insurance risk, interest rate risk, market risk and
business risk. The formula is used as an early warning
regulatory tool to identify possible inadequately capitalized
insurers for purposes of initiating regulatory action, and not
as a means to rank insurers generally. State insurance laws
provide insurance regulators the authority to require various
actions by, or take various actions against, insurers whose RBC
ratio does not meet or exceed certain RBC levels. As of the date
of the most recent annual statutory financial statements filed
with insurance regulators, the RBC of each of our
U.S. insurance companies was in excess of those RBC levels.
Statutory Accounting Principles. The National
Association of Insurance Commissioners (NAIC)
provides standardized insurance industry accounting and
reporting guidance through its Accounting Practices and
Procedures Manual (the Manual). However, statutory
accounting principles continue to be established by individual
state laws, regulations and permitted practices. The Connecticut
Insurance Department and the Delaware Department of Insurance
have adopted the Manual with certain modifications for the
preparation of statutory financial statements of insurance
companies domiciled in Connecticut and Delaware, respectively.
Changes to the Manual or modifications by the various state
insurance departments may impact the statutory capital and
surplus of our U.S. insurance companies.
Regulation of Investments. Each of our
U.S. insurance companies is subject to state laws and
regulations that require diversification of our investment
portfolios and limit the amount of investments in certain asset
categories, such as below investment grade fixed income
securities, equity real estate, other equity investments, and
derivatives. Failure to comply with these laws and regulations
would cause investments exceeding regulatory limitations to be
treated as non-admitted assets for purposes of measuring surplus
and, in some instances, would require divestiture of such
non-qualifying investments. We believe that the investments made
by each of our U.S. insurance companies complied, in all
material respects, with such regulations at December 31,
2010.
The so-called Volcker Rule provisions of the
Dodd-Frank Wall Street Reform and Consumer Protection Act
(Dodd-Frank) restrict the ability of affiliates of
insured depository institutions (such as MetLife Bank, National
Association) to engage in proprietary trading or sponsor or
invest in hedge funds or private equity funds. Until various
studies are completed and final regulations are promulgated
pursuant to Dodd-Frank, the full impact of Dodd-Frank on the
investments, investment activities and insurance and annuity
products of the Company remain unclear. See Risk
Factors Various Aspects of Dodd-Frank Could Impact
Our Business Operations, Capital Requirements and Profitability
and Limit Our Growth.
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Federal Initiatives. Although the federal
government generally does not directly regulate the insurance
business, federal initiatives often have an impact on our
business in a variety of ways. See Risk
Factors Various Aspects of Dodd-Frank Could Impact
Our Business Operations, Capital Requirements and Profitability
and Limit Our Growth. From time to time, federal measures
are proposed which may significantly affect the insurance
business. These areas include financial services regulation,
securities regulation, pension regulation, health care
regulation, privacy, tort reform legislation and taxation. In
addition, various forms of direct and indirect federal
regulation of insurance have been proposed from time to time,
including proposals for the establishment of an optional federal
charter for insurance companies. Dodd-Frank established the
Federal Insurance Office within the Department of the Treasury
to collect information about the insurance industry, recommend
prudential standards, and represent the U.S. in dealings
with foreign insurance regulators. See Risk
Factors Our Insurance and Brokerage Businesses Are
Heavily Regulated, and Changes in Regulation May Reduce Our
Profitability and Limit Our Growth.
Securities,
Broker-Dealer and Investment Adviser Regulation
Some of our activities in offering and selling variable
insurance products are subject to extensive regulation under the
federal securities laws administered by the SEC. We issue
variable annuity contracts and variable life insurance policies
through separate accounts that are registered with the SEC as
investment companies under the Investment Company Act of 1940,
as amended (the Investment Company Act). Each
registered separate account is generally divided into
sub-accounts,
each of which invests in an underlying mutual fund which is
itself a registered investment company under the Investment
Company Act. In addition, the variable annuity contracts and
variable life insurance policies issued by the separate accounts
are registered with the SEC under the Securities Act of 1933, as
amended (the Securities Act). Our subsidiary, Tower
Square, is registered with the SEC as a broker-dealer under the
Securities Exchange Act of 1934, as amended (the Exchange
Act), and is a member of, and subject to regulation by,
FINRA. Further, Tower Square is registered as an investment
adviser with the SEC under the Investment Advisers Act of 1940,
as amended (the Investment Advisers Act), and is
also registered as an investment adviser in various states, as
applicable. Certain variable contract separate accounts
sponsored by us are exempt from registration, but may be subject
to other provisions of the federal securities laws.
Federal and state securities regulatory authorities and FINRA
from time to time make inquiries and conduct examinations
regarding our compliance with securities and other laws and
regulations. We cooperate with such inquiries and examinations
and take corrective action when warranted.
Federal and state securities laws and regulations are primarily
intended to protect investors in the securities markets and
generally grant regulatory agencies broad rulemaking and
enforcement powers, including the power to limit or restrict the
conduct of business for failure to comply with such laws and
regulations.
Environmental
Considerations
As an operator of real property, we are subject to extensive
federal, state and local environmental laws and regulations.
Inherent in such operation is also the risk that there may be
potential environmental liabilities and costs in connection with
any required remediation of such properties. In addition, we
hold equity interests in companies that could potentially be
subject to environmental liabilities. We routinely have
environmental assessments performed with respect to real estate
being acquired for investment and real property to be acquired
through foreclosure. We cannot provide assurance that unexpected
environmental liabilities will not arise. However, based on
information currently available to us, we believe that any costs
associated with compliance with environmental laws and
regulations or any remediation of such properties will not have
a material adverse effect on our business, results of operations
or financial condition.
Employee
Retirement Income Security Act of 1974 (ERISA)
Considerations
We provide products and services to certain employee benefit
plans that are subject to ERISA, or the Internal Revenue Code of
1986, as amended (the Code). As such, our activities
are subject to the restrictions imposed by ERISA and the Code,
including the requirement under ERISA that fiduciaries must
perform their duties solely in the interests of ERISA plan
participants and beneficiaries and the requirement under ERISA
and the Code that
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fiduciaries may not cause a covered plan to engage in prohibited
transactions with persons who have certain relationships with
respect to such plans. The applicable provisions of ERISA and
the Code are subject to enforcement by the Department of Labor
(DOL), the Internal Revenue Service
(IRS) and the Pension Benefit Guaranty Corporation.
In John Hancock Mutual Life Insurance Company v.
Harris Trust and Savings Bank (1993), the
U.S. Supreme Court held that certain assets in excess of
amounts necessary to satisfy guaranteed obligations under a
participating group annuity general account contract are
plan assets. Therefore, these assets are subject to
certain fiduciary obligations under ERISA, which requires
fiduciaries to perform their duties solely in the interest of
ERISA plan participants and beneficiaries. On January 5,
2000, the Secretary of Labor issued final regulations
indicating, in cases where an insurer has issued a policy backed
by the insurers general account to or for an employee
benefit plan, the extent to which assets of the insurer
constitute plan assets for purposes of ERISA and the Code. The
regulations apply only with respect to a policy issued by an
insurer on or before December 31, 1998 (Transition
Policy). No person will generally be liable under ERISA or
the Code for conduct occurring prior to July 5, 2001, where
the basis of a claim is that insurance company general account
assets constitute plan assets. An insurer issuing a new policy
that is backed by its general account and is issued to or for an
employee benefit plan after December 31, 1998 will
generally be subject to fiduciary obligations under ERISA,
unless the policy is a guaranteed benefit policy.
The regulations indicate the requirements that must be met so
that assets supporting a Transition Policy will not be
considered plan assets for purposes of ERISA and the Code. These
requirements include detailed disclosures to be made to the
employee benefits plan and the requirement that the insurer must
permit the policyholder to terminate the policy on 90 day
notice and receive without penalty, at the policyholders
option, either (i) the unallocated accumulated fund balance
(which may be subject to market value adjustment) or (ii) a
book value payment of such amount in annual installments with
interest. We have taken and continue to take steps designed to
ensure compliance with these regulations.
Legislative
and Regulatory Developments
Dodd-Frank, enacted in July 2010, effected the most far-reaching
overhaul of financial regulation in the U.S. in decades.
Dodd-Frank also establishes the framework for new regulations
relating to certain investment activities, consumer protection,
derivative transactions, corporate governance and executive
compensation. These changes are particularly relevant to the
Company as an insurer. The potential impact of these changes on
the Company are more fully discussed under Risk
Factors Various Aspects of Dodd-Frank Could Impact
Our Business Operations, Capital Requirements and Profitability
and Limit Our Growth, Risk Factors Our
Insurance and Brokerage Businesses Are Heavily Regulated, and
Changes in Regulation May Reduce Our Profitability and
Limit Our Growth, and Risk Factors 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. The full
impact of Dodd-Frank on us will depend on the numerous
rulemaking initiatives required or permitted by Dodd-Frank and
the various studies mandated by Dodd-Frank, which are scheduled
to be completed over the next few years.
We cannot predict what other proposals may be made, what
legislation may be introduced or enacted or the impact of any
such legislation on our business, results of operations and
financial condition.
Governmental
Responses to Extraordinary Market Conditions
U.S.
Federal Governmental Responses
Dodd-Frank was enacted in response to the recent economic
crisis. See Regulation Legislative and
Regulatory Developments. Actions taken by Congress, the
Federal Reserve Bank of New York, the U.S. Treasury and
other agencies of the U.S. Federal government prior to the
enactment of Dodd-Frank were increasingly aggressive and,
together with a series of interest rate reductions that began in
the second half of 2007, intended to
12
provide liquidity to financial institutions and markets, to
avert a loss of investor confidence in particular troubled
institutions and to prevent or contain the spread of the
financial crisis. These measures included:
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expanding the types of institutions that have access to the
Federal Reserve Bank of New Yorks discount window;
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providing asset guarantees and emergency loans to particular
distressed companies;
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a temporary ban on short selling of shares of certain financial
institutions (including, for a period, MetLife);
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programs intended to reduce the volume of mortgage foreclosures
by modifying the terms of mortgage loans for distressed
borrowers;
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temporarily guaranteeing money market funds; and
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programs to support the mortgage-backed securities market and
mortgage lending.
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Many of the actions outlined above expired or terminated by
mid-2010 or earlier.
In addition to these actions, pursuant to the Emergency Economic
Stabilization Act of 2008 (EESA), enacted in October
2008, the U.S. Treasury injected capital into selected
financial institutions and their holding companies. EESA also
authorized the U.S. Treasury to purchase mortgage-backed
and other securities from financial institutions; this authority
expired in October 2010. Other actions taken to address the
financial crisis included the Commercial Paper Funding Facility
(the CPFF) and the Temporary Liquidity Guarantee
Program (the FDIC Program). In March 2009, MetLife,
Inc. issued $397 million of senior notes guaranteed by the
Federal Deposit Insurance Corporation (FDIC) under
the FDIC Program. The FDIC Program and the CPFF expired in late
2009 and early 2010, respectively. During the period of its
existence, MetLife, Inc. made limited use of the CPFF. MetLife
Short Term Funding LLC, an issuer of commercial paper under a
program supported by funding agreements issued by MetLife
Insurance Company of Connecticut and Metropolitan Life Insurance
Company, used $1,650 million of its available capacity
under the CPFF, and such amount was deposited under the related
funding agreements. No amounts were outstanding under the CPFF
at December 31, 2009.
State
Insurance Regulatory Responses
The NAIC adopted a number of reserve and capital relief
proposals during 2009. The NAIC revisited many of those
adoptions and studied related and additional topics for
potential adoption during 2010.
The NAIC revisited the mortgage experience adjustment factor
(the MEAF) which is utilized in calculating RBC
changes that are assigned to commercial and agricultural
mortgages held by our domestic insurers. The MEAF calculation
includes the ratio of an insurers commercial and
agricultural mortgage default experience to the industry average
commercial and agricultural mortgage default experience and, in
2009, a cap of 125% and a floor of 75% were adopted. The NAIC
adopted during 2010 a cap of 175% and a floor of 80%. As a
result of this revision in MEAF for 2010, the RBC impact on our
U.S. insurance companies is not likely to be material.
In late 2009, the NAIC issued Statement of Statutory Accounting
Principles (SSAP) 10R (SSAP 10R). SSAP
10R increased the amount of deferred tax assets that may be
admitted on a statutory basis. The admission criteria for
realizing the value of deferred tax assets was increased from a
one year to a three year period. Further, the aggregate cap on
deferred tax assets that may be admitted was increased from 10%
to 15% of surplus. These changes increased the capital and
surplus of our U.S. insurance companies, thereby positively
impacting RBC at December 31, 2009. To temper this positive
RBC impact, and as a temporary measure at December 31, 2009
only, a 5% pre-tax RBC charge must be applied to the additional
admitted deferred tax assets generated by SSAP 10R. The adoption
for 2009 had a December 31, 2009 sunset; however, during
2010, the 2009 adoption, including the 5% pre-tax RBC charge,
was extended through December 31, 2011.
In late 2009, following rating agency downgrades of virtually
all residential mortgage-backed securities (RMBS)
from certain vintages, the NAIC engaged PIMCO Advisory
(PIMCO), a provider of investment advisory services,
to analyze approximately 20,000 RMBS held by insurers and
evaluate the likely loss that holders of those securities would
suffer in the event of a default. PIMCOs analysis showed
that the severity of expected losses on those securities
evaluated that are held by our U.S. insurance companies
were significantly less than would be implied by the rating
agencies ratings of such securities. The NAIC incorporated
the results of PIMCOs
13
analysis into the RBC charges assigned to the evaluated
securities, with a beneficial impact on the RBC of our
U.S. insurance companies. The NAIC utilized the solution
again for 2010. The NAIC adopted a similar solution for 2010 for
commercial mortgage-backed securities (CMBS) by
selecting BlackRock Solutions, a provider of investment advisory
services, to assist in the RBC determination process. BlackRock
Solutions will serve as a third-party modeler of the 7,000 CMBS
holding of U.S. insurance companies, including our
U.S. insurance companies. The impact of the implementation
for 2010 of the modeling solution for CMBS is not known at the
current time but the RBC impact on our U.S. insurance
companies is not expected to be material.
Foreign
Governmental and Intergovernmental Responses
In an effort to strengthen the financial condition of key
financial institutions or avert their collapse, and to forestall
or reduce the effects of reduced lending activity, a number of
foreign governments and intergovernmental entities have taken
action to enhance stability and liquidity, reduce risk and
increase regulatory controls and oversight. Foreign government
and intergovernmental responses have been similar to some of
those taken by the U.S. Federal government, including
injecting capital into domestic financial institutions in
exchange for ownership stakes and, in the case of certain
European Union member states such as Greece, Spain, Portugal and
Ireland, providing or making available certain funds and rescue
packages to support the solvency of such countries or financial
institutions, and such responses are intended to achieve similar
goals. We cannot predict whether foreign government
and/or
intergovernmental actions will achieve their intended purpose or
how such actions will impact competition in the financial
services industry.
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 U.S. 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 and our insurance liabilities
are sensitive to changing market factors. 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 the recent recession in the
U.S. ended in June of 2009, the recovery from the recession
has been below historic averages and the unemployment rate is
expected to remain high for some time. In addition, inflation is
expected to remain at low levels for some time. Some economists
believe that some levels of disinflation and deflation risk
remain in the U.S. economy.
Our revenues and net investment income 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
and/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 policy acquisition costs
(DAC) to accelerate and could increase the level of
insurance liabilities we must carry to support those variable
annuities issued with any associated guarantees.
Factors such as consumer spending, business investment,
government spending, the volatility and strength of the capital
markets, and inflation all affect the business and economic
environment and, ultimately, the amount and profitability of our
business. In an economic downturn characterized by higher
unemployment, lower family income, lower corporate earnings,
lower business investment and lower consumer spending, the
demand for our financial and insurance products could be
adversely affected. 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
14
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, Various Aspects of
Dodd-Frank Could Impact Our Business Operations, Capital
Requirements and Profitability and Limit Our Growth,
Our Insurance and Brokerage Businesses Are
Heavily Regulated, and Changes in Regulation May Reduce Our
Profitability and Limit Our Growth and
Competitive Factors May Adversely Affect Our
Market Share and Profitability.
Adverse
Capital and Credit Market Conditions May Significantly Affect
Our Ability to Meet Liquidity Needs, Access to Capital and Cost
of Capital
The capital and credit markets are sometimes subject to periods
of extreme volatility and disruption. Such volatility and
disruption could cause liquidity and credit capacity for certain
issuers to be limited.
We need liquidity to pay our operating expenses, interest on our
debt and dividends on our capital stock, maintain our securities
lending activities and replace certain maturing liabilities.
Without sufficient liquidity, we will be forced to curtail our
operations, and our business will suffer. The principal sources
of our liquidity are insurance premiums, annuity considerations,
deposit funds, and cash flow from our investment portfolio and
assets, consisting mainly of cash or assets that are readily
convertible into cash. Sources of liquidity in normal markets
also include short-term instruments such as funding agreements
and commercial paper. Sources of capital in normal markets
include external borrowings, borrowings from MetLife or other
affiliates and capital contributions from MetLife.
In the event market or other conditions have an adverse impact
on our capital and liquidity beyond expectations and our current
resources do not satisfy our needs, we may have to seek
additional financing. The availability of additional financing
will depend on a variety of factors such as market conditions,
regulatory considerations, the general availability of credit,
the volume of trading activities, the overall availability of
credit to the financial services industry, our credit ratings
and credit capacity, as well as the possibility that customers
or lenders could develop a negative perception of our long- or
short-term financial prospects if we incur large investment
losses or if the level of our business activity decreases due to
a market downturn. Similarly, our access to funds may be
impaired if regulatory authorities or rating agencies take
negative actions against us. Our internal sources of liquidity
may prove to be insufficient and, in such case, we may not be
able to successfully obtain additional financing on favorable
terms, or at all.
Our liquidity requirements may change if, among other things, we
are required to return significant amounts of cash collateral on
short notice under securities lending agreements.
Disruptions, uncertainty or volatility in the capital and credit
markets may also limit our access to capital required to operate
our business. Such market conditions may limit our ability to
replace, in a timely manner, maturing liabilities; satisfy
regulatory capital requirements (under both insurance and
banking laws); and access the capital necessary to grow our
business. As such, we may be forced to delay raising capital,
issue different types of securities than we would otherwise,
less effectively deploy such capital, issue shorter tenor
securities than we prefer, or bear an unattractive cost of
capital which could decrease our profitability and significantly
reduce our financial flexibility. Our results of operations,
financial condition, cash flows and statutory capital position
could be materially adversely affected by disruptions in the
financial markets.
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Actions
of the U.S. Government, Federal Reserve Bank of New York and
Other Governmental and Regulatory Bodies for the Purpose of
Stabilizing and Revitalizing the Financial Markets and
Protecting Investors and Consumers May Not Achieve the Intended
Effect or Could Adversely Affect the Competitive Position of
MetLife, Inc. and Its Subsidiaries, Including Us
In recent years, Congress, the Federal Reserve Bank of New York,
the FDIC, the U.S. Treasury and other agencies of the
U.S. federal government took a number of increasingly
aggressive actions (in addition to continuing a series of
interest rate reductions that began in the second half of
2007) intended to provide liquidity to financial
institutions and markets, to avert a loss of investor confidence
in particular troubled institutions, to prevent or contain the
spread of the financial crisis and to spur economic growth. Most
of these programs have largely run their course or been
discontinued. More likely to be relevant to us is the monetary
policy implemented by the Federal Reserve Board, as well as
Dodd-Frank, which will significantly change financial regulation
in the U.S. in a number of areas that could affect MetLife
and its subsidiaries, including us. Given the large number of
provisions that must be implemented through regulatory action,
we cannot predict what impact 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 the operations of MetLife, Inc. and its affiliates.
See Various Aspects of Dodd-Frank Could Impact
Our Business Operations, Capital Requirements and Profitability
and Limit Our Growth. 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 the Federal Reserve Board will make funds
available, whether Congress will be willing to make the
necessary appropriations, or will instead reduce appropriations,
what the publics sentiment would be towards any such
appropriations, or reductions, 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 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 or burdening 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
Our Insurance and Brokerage Businesses Are
Heavily Regulated, and Changes in Regulation May Reduce Our
Profitability and Limit Our Growth.
Our
Insurance and Brokerage Businesses Are Heavily Regulated, and
Changes in Regulation May Reduce Our Profitability and
Limit Our Growth
Our insurance operations are subject to a wide variety of
insurance and other laws and regulations. See
Business Regulation Insurance
Regulation. State insurance laws regulate most aspects of
our U.S. insurance businesses, and our insurance
subsidiaries are regulated by the insurance departments of the
states in which they are domiciled and the states in which they
are licensed. Our
non-U.S. insurance
operations are principally regulated by insurance regulatory
authorities in the jurisdictions in which they are domiciled or
operate.
State laws in the U.S. grant insurance regulatory
authorities broad administrative powers with respect to, among
other things:
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licensing companies and agents to transact business;
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calculating the value of assets to determine compliance with
statutory requirements;
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mandating certain insurance benefits;
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regulating certain premium rates;
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reviewing and approving policy forms;
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regulating unfair trade and claims practices, including through
the imposition of restrictions on marketing and sales practices,
distribution arrangements and payment of inducements;
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regulating advertising;
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protecting privacy;
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establishing statutory capital and reserve requirements and
solvency standards;
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fixing maximum interest rates on insurance policy loans and
minimum rates for guaranteed crediting rates on life insurance
policies and annuity contracts;
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approving changes in control of insurance companies;
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restricting the payment of dividends and other transactions
between affiliates; and
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regulating the types, amounts and valuation of investments.
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State insurance guaranty associations have the right to assess
insurance companies doing business in their state for funds to
help pay the obligations of insolvent insurance companies to
policyholders and claimants. Because the amount and timing of an
assessment is beyond our control, the liabilities that we have
currently established for these potential liabilities may not be
adequate. See Business Regulation
Insurance Regulation Guaranty Associations and
Similar Arrangements.
State insurance regulators and the NAIC regularly reexamine
existing laws and regulations applicable to insurance companies
and their products. Changes in these laws and regulations, or in
interpretations thereof, are often made for the benefit of the
consumer at the expense of the insurer and, thus, could have a
material adverse effect on our financial condition and results
of operations. Currently, the U.S. federal government does
not directly regulate the business of insurance. However,
Dodd-Frank allows federal regulators to compel state insurance
regulators to liquidate an insolvent insurer under some
circumstances if the state regulators have not acted within a
specific period. It also establishes the Federal Insurance
Office which has the authority to participate in the
negotiations of international insurance agreements with foreign
regulators for the U.S. The Federal Insurance Office also
is authorized to collect information about the insurance
industry and recommend prudential standards.
Federal legislation and administrative policies in several areas
can significantly and adversely affect insurance companies.
These areas include financial services regulation, securities
regulation, pension regulation, health care regulation, privacy,
tort reform legislation and taxation. In addition, various forms
of direct and indirect federal regulation of insurance have been
proposed from time to time, including proposals for the
establishment of an optional federal charter for insurance
companies. Other aspects of our insurance operations could also
be affected by Dodd-Frank. For example, Dodd-Frank imposes new
restrictions on the ability of affiliates of insured depository
institutions (such as MetLife Bank, National Association) to
engage in proprietary trading or sponsor or invest in hedge
funds or private equity funds. See Various
Aspects of Dodd-Frank Could Impact Our Business Operations,
Capital Requirements and Profitability and Limit Our
Growth.
Dodd-Frank also 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.
Our international operations are subject to local laws and
regulations. The authority of our international operations to
conduct business is subject to licensing requirements, permits
and approvals, and these authorizations are subject to
modification and revocation. See Our
International Operations Face Political, Legal, Operational and
Other Risks, Including Exposure to Local and Regional Economic
Conditions, that Could Negatively Affect Those Operations or Our
Profitability.
Compliance with applicable laws and regulations is time
consuming and personnel-intensive, and changes in these laws and
regulations may materially increase our direct and indirect
compliance and other expenses of doing business, thus having a
material adverse effect on our financial condition and results
of operations.
From time to time, regulators raise issues during examinations
or audits of us and our regulated subsidiaries that could, if
determined adversely, have a material impact on us. We cannot
predict whether or when regulatory actions may be taken that
could adversely affect our operations. In addition, the
interpretations of regulations by
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regulators may change and statutes may be enacted with
retroactive impact, particularly in areas such as accounting or
statutory reserve requirements.
We are also subject to other regulations and may in the future
become subject to additional regulations. See
Business Regulation.
Various
Aspects of Dodd-Frank 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 including
possibly its subsidiaries, will be subject to enhanced
prudential standards imposed on systemically significant
financial companies. Enhanced standards will be applied to RBC,
liquidity, leverage (unless another, similar, standard is
appropriate), 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 were determined that MetLife
posed a substantial 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 was applicable to financial holding companies
before Dodd-Frank. These requirements could restrict the amount
of capital available to MetLifes subsidiaries, including
us.
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MetLife, as a bank holding company, will have to meet minimum
leverage ratio and RBC 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 Dodd-Frank. As a subsidiary of a
bank holding company, we, as well as MetLife, Inc., could be
subject to other heightened standards, even if MetLife 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 U.S. 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. In such a liquidation, the holders of such companys
debt could in certain a 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. These provisions could apply to some financial
institutions whose outstanding debt securities we hold in our
investment portfolios. Dodd-Frank also provides for the
assessment of bank holding companies with assets of
$50.0 billion or more, non-bank financial companies
supervised by the Federal Reserve Bank, and other financial
companies with assets of $50.0 billion or more to cover the
costs of liquidating any financial company subject to the new
liquidation
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authority. 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,
which could directly or indirectly affect the funding costs of
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 will require
clearing of certain types of transactions currently traded OTC
and could potentially impose additional costs, including new
capital, reporting and margin requirements and additional
regulation on the Company. Increased margin requirements on our
part and a smaller universe of securities that will qualify as
eligible collateral could reduce our liquidity and require an
increase in our holdings of cash and government securities with
lower yields causing a reduction in income. However, increased
margin requirements and the expanded ability to transfer trades
between our counterparties could reduce our exposure to our
counterparties default. We use derivatives to mitigate a
wide range of risks in connection with its businesses, including
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 our risk
mitigation and expose us to the risk of a default by a
clearinghouse or one of its members. 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 (including customized
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 (hedge funds and private equity funds) that rely on
certain exemptions from the Investment Company Act. Dodd-Frank
provides an exemption for investment activity by a regulated
insurance company or its affiliates 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
U.S. 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 (which has been completed) 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 rulemaking is 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 and
insurance and annuity products of MetLife, Inc. and its
subsidiaries, including us, remains unclear. For example,
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
connected to (either through a fund sponsorship or investor
relationship) 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. Secondary sales of fund interests at
significant discounts by banking institutions and their
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affiliates, which are not fund sponsors but nevertheless are
subject to the divestment requirements of Dodd-Frank, could
reduce the returns realized by investors such as MetLife, Inc.
and its subsidiaries seeking to access liquidity by selling
their fund interests. Reduced income to MetLife, Inc. from such
investment activities could affect its ability to provide
funding to us. In addition, 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. 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.
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The addition of a new regulatory regime over MetLife, Inc. 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 us and our
subsidiaries. Whether such changes would affect our
competitiveness in comparison to other institutions is
uncertain, since it is possible that at least some of our
competitors will be similarly affected. Competitive effects are
possible, however, if 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 Our
Insurance and Brokerage Businesses are Heavily Regulated, and
Changes in Regulation May Reduce Our Profitability and
Limit Our Growth and 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.
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.
The
Resolution of Several Issues Affecting the Financial Services
Industry Could Have a Negative Impact on Our Reported Results or
on Our Relations with Current and Potential
Customers
We will continue to be subject to legal and regulatory actions
in the ordinary course of our business, both in the
U.S. and internationally. This could result in a review of
business sold in the past under previously acceptable market
practices at the time. Regulators are increasingly interested in
the approach that product providers use to select third-party
distributors and to monitor the appropriateness of sales made by
them. In some cases, product providers can be held responsible
for the deficiencies of third-party distributors. As a result of
publicity relating to widespread perceptions of industry abuses,
there have been numerous regulatory inquiries and proposals for
legislative and regulatory reforms.
We Are
Exposed to Significant Financial and Capital Markets Risk Which
May Adversely Affect Our Results of Operations, Financial
Condition and Liquidity, and May Cause Our Net Investment Income
to Vary from Period to Period
We are exposed to significant financial and capital markets
risk, including changes in interest rates, credit spreads,
equity prices, real estate markets, foreign currency exchange
rates, market volatility, the performance of the global economy
in general, the performance of the specific obligors, including
governments, included in our portfolio and other factors outside
our control.
Our exposure to interest rate risk relates primarily to the
market price and cash flow variability associated with changes
in interest rates. Changes in interest rates will impact the net
unrealized gain or loss position of our fixed income investment
portfolio. If long-term interest rates rise dramatically within
a six to twelve month time period, certain of our life insurance
businesses and fixed annuity business may be exposed to
disintermediation risk.
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Disintermediation risk refers to the risk that our policyholders
may surrender their contracts in a rising interest rate
environment, requiring us to liquidate fixed income investments
in an unrealized loss position. Due to the long-term nature of
the liabilities associated with certain of our life insurance
businesses, guaranteed benefits on variable annuities, and
structured settlements, sustained declines in long-term interest
rates may subject us to reinvestment risks and increased hedging
costs. In other situations, declines in interest rates may
result in increasing the duration of certain life insurance
liabilities, creating asset-liability duration mismatches.
Our investment portfolio also contains interest rate sensitive
instruments, such as fixed income securities, which may be
adversely affected by changes in interest rates from
governmental monetary policies, domestic and international
economic and political conditions and other factors beyond our
control. Changes in interest rates will impact both the net
unrealized gain or loss position of our fixed income portfolio
and the rates of return we receive on funds invested. Our
mitigation efforts with respect to interest rate risk are
primarily focused towards maintaining an investment portfolio
with diversified maturities that has a weighted average duration
that is approximately equal to the duration of our estimated
liability cash flow profile. However, our estimate of the
liability cash flow profile may be inaccurate and we may be
forced to liquidate fixed income investments prior to maturity
at a loss in order to cover the cash flow profile of the
liability. Although we take measures to manage the economic
risks of investing in a changing interest rate environment, we
may not be able to mitigate the interest rate risk of our fixed
income investments relative to our liabilities. See also
Changes in Market Interest Rates May
Significantly Affect Our Profitability.
Our exposure to credit spreads primarily relates to market price
volatility and cash flow variability associated with changes in
credit spreads. A widening of credit spreads will adversely
impact both the net unrealized gain or loss position of the
fixed-income investment portfolio, will increase losses
associated with credit-based non-qualifying derivatives where we
assume credit exposure, and, if issuer credit spreads increase
significantly or for an extended period of time, will likely
result in higher
other-than-temporary
impairments. Credit spread tightening will reduce net investment
income associated with new purchases of fixed maturity
securities. In addition, market volatility can make it difficult
to value certain of our securities if trading becomes less
frequent. As such, valuations may include assumptions or
estimates that may have significant period to period changes
which could have a material adverse effect on our results of
operations or financial condition. Credit spreads on both
corporate and structured securities widened significantly during
2008, resulting in continuing depressed pricing. As a result of
improved conditions, credit spreads narrowed in 2009 and changed
to a lesser extent in 2010. If there is a resumption of
significant volatility in the markets, it could cause changes in
credit spreads and defaults and a lack of pricing transparency
which, individually or in tandem, could have a material adverse
effect on our results of operations, financial condition,
liquidity or cash flows through realized investment losses,
impairments, and changes in unrealized loss positions.
Our primary exposure to equity risk relates to the potential for
lower earnings associated with certain of our insurance
businesses where fee income is earned based upon the estimated
fair value of the assets under management. Downturns and
volatility in equity markets can have a material adverse effect
on the revenues and investment returns from our savings and
investment products and services. Because these products and
services generate fees related primarily to the value of assets
under management, a decline in the equity markets could reduce
our revenues from the reduction in the value of the investments
we manage. The retail variable annuity business in particular is
highly sensitive to equity markets, and a sustained weakness in
the equity markets could decrease revenues and earnings in
variable annuity products. Furthermore, certain of our variable
annuity products offer guaranteed benefits which increase our
potential benefit exposure should equity markets decline. We use
derivatives and reinsurance to mitigate the impact of such
increased potential benefit exposures. We are also exposed to
interest rate and equity risk based upon the discount rate and
expected long-term rate of return assumptions associated with
our pension and other postretirement benefit obligations.
Sustained declines in long-term interest rates or equity returns
likely would have a negative effect on the funded status of
these plans. Lastly, we invest a portion of our investments in
public and private equity securities, leveraged buy-out funds,
hedge funds and other private equity funds and the estimated
fair value of such investments may be impacted by downturns or
volatility in equity markets.
Our primary exposure to real estate risk relates to commercial
and agricultural real estate. Our exposure to commercial and
agricultural real estate risk stems from various factors. These
factors include, but are not limited to,
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market conditions including the demand and supply of leasable
commercial space, creditworthiness of tenants and partners,
capital markets volatility and interest rate movements. In
addition, our real estate joint venture development program is
subject to risks, including, but not limited to, reduced
property sales and decreased availability of financing which
could adversely impact the joint venture developments
and/or
operations. The state of the economy and speed of recovery in
fundamental and capital market conditions in the commercial and
agricultural real estate sectors will continue to influence the
performance of our investments in these sectors. These factors
and others beyond our control could have a material adverse
effect on our results of operations, financial condition,
liquidity or cash flows through net investment income, realized
investment losses and levels of valuation allowances.
Our investment portfolio contains investments in government
bonds issued by European nations. Recently, the European Union
member states have experienced above average public debt,
inflation and unemployment as the global economic downturn has
developed. A number of member states are significantly impacted
by the economies of their more influential neighbors, such as
Germany. In addition, financial troubles of one nation can
trigger a domino effect on others. In particular, a number of
large European banks hold significant amounts of sovereign
financial institution debt of other European nations and could
experience difficulties as a result of defaults or declines in
the value of such debt. Our investment portfolio also contains
investments in revenue bonds issued under the auspices of
U.S. states and municipalities and a limited amount of
general obligation bonds of U.S. states and municipalities
(collectively, Municipal Bonds). Recently, certain
U.S. states and municipalities have faced budget deficits
and financial difficulties. There can be no assurance that the
financial difficulties of such U.S. states and
municipalities would not have an adverse impact on our Municipal
Bond portfolio.
Our primary foreign currency exchange risks are described under
Fluctuations in Foreign Currency Exchange
Rates Could Negatively Affect Our Profitability. Changes
in these factors, which are significant risks to us, can affect
our net investment income in any period, and such changes can be
substantial.
A portion of our investments are made in leveraged buy-out
funds, hedge funds and other private equity funds, many of which
make private equity investments. The amount and timing of net
investment income from such investment funds tends to be uneven
as a result of the performance of the underlying investments,
including private equity investments. The timing of
distributions from the funds, which depends on particular events
relating to the underlying investments, as well as the
funds schedules for making distributions and their needs
for cash, can be difficult to predict. As a result, the amount
of net investment income that we record from these investments
can vary substantially from quarter to quarter.
Recovering private equity markets and stabilizing credit and
real estate markets during 2010 had a positive impact on returns
and net investment income on private equity funds, hedge funds
and real estate joint ventures, which are included within other
limited partnership interests and real estate and real estate
joint venture portfolios. Although volatility in most global
financial markets has moderated, if there is a resumption of
significant volatility, it could adversely impact returns and
net investment income on these alternative investment classes.
Continuing challenges include continued weakness in the
U.S. real estate market and increased mortgage loan
delinquencies, investor anxiety over the U.S. and European
economies, rating agency downgrades of various structured
products and financial issuers, unresolved issues with
structured investment vehicles and monoline financial guarantee
insurers, deleveraging of financial institutions and hedge funds
and the continuing recovery in the inter-bank market. If there
is a resumption of significant volatility in the markets, it
could cause changes in interest rates, declines in equity
prices, and the strengthening or weakening of foreign currencies
against the U.S. dollar which, individually or in tandem,
could have a material adverse effect on our results of
operations, financial condition, liquidity or cash flows through
realized investment losses, impairments, increased valuation
allowances and changes in unrealized gain or loss positions.
Changes
in Market Interest Rates May Significantly Affect Our
Profitability
Some of our products, principally traditional whole life
insurance, fixed annuities and guaranteed interest contracts,
expose us to the risk that changes in interest rates will reduce
our investment margin or spread, or the difference
between the amounts that we are required to pay under the
contracts in our general account and the rate of
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return we are able to earn on general account investments
intended to support obligations under the contracts. Our spread
is a key component of our net income.
As interest rates decrease or remain at low levels, we may be
forced to reinvest proceeds from investments that have matured
or have been prepaid or sold at lower yields, reducing our
investment margin. Moreover, borrowers may prepay or redeem the
fixed income securities, commercial or agricultural mortgage
loans and mortgage-backed securities in our investment portfolio
with greater frequency in order to borrow at lower market rates,
which exacerbates this risk. Lowering interest crediting rates
can help offset decreases in investment margins on some
products. However, our ability to lower these rates could be
limited by competition or contractually guaranteed minimum rates
and may not match the timing or magnitude of changes in asset
yields. As a result, our spread could decrease or potentially
become negative. Our expectation for future spreads is an
important component in the amortization of DAC and value of
business acquired (VOBA), and significantly lower
spreads may cause us to accelerate amortization, thereby
reducing net income in the affected reporting period. In
addition, during periods of declining interest rates, life
insurance and annuity products may be relatively more attractive
investments to consumers, resulting in increased premium
payments on products with flexible premium features, repayment
of policy loans and increased persistency, or a higher
percentage of insurance policies remaining in force from year to
year, during a period when our new investments carry lower
returns. A decline in market interest rates could also reduce
our return on investments that do not support particular policy
obligations. Accordingly, declining interest rates may
materially affect our results of operations, financial position
and cash flows and significantly reduce our profitability. We
recognize that a low interest rate environment will adversely
affect our earnings, but we do not believe any such impact will
be material in 2011.
Increases in market interest rates could also negatively affect
our profitability. In periods of rapidly increasing interest
rates, we may not be able to replace, in a timely manner, the
investments in our general account with higher yielding
investments needed to fund the higher crediting rates necessary
to keep interest sensitive products competitive. We, therefore,
may have to accept a lower spread and, thus, lower profitability
or face a decline in sales and greater loss of existing
contracts and related assets. In addition, policy loans,
surrenders and withdrawals may tend to increase as policyholders
seek investments with higher perceived returns as interest rates
rise. This process may result in cash outflows requiring that we
sell investments at a time when the prices of those investments
are adversely affected by the increase in market interest rates,
which may result in realized investment losses. Unanticipated
withdrawals and terminations may cause us to accelerate the
amortization of DAC, VOBA and negative VOBA, which reduces net
income. An increase in market interest rates could also have a
material adverse effect on the value of our investment
portfolio, for example, by decreasing the estimated fair values
of the fixed income securities that comprise a substantial
portion of our investment portfolio. Lastly, an increase in
interest rates could result in decreased fee income associated
with a decline in the value of variable annuity account balances
invested in fixed income funds.
Some
of Our Investments Are Relatively Illiquid and Are in Asset
Classes That Have Been Experiencing Significant Market
Valuation Fluctuations
We hold certain investments that may lack liquidity, such as
privately-placed fixed maturity securities; mortgage loans;
policy loans; equity real estate, including real estate joint
ventures and funds; and other limited partnership interests.
These asset classes represented 27.2% of the carrying value of
our total cash and investments at December 31, 2010. In
recent years, even some of our very high quality investments
experienced reduced liquidity during periods of market
volatility or disruption. If we require significant amounts of
cash on short notice in excess of normal cash requirements or
are required to post or return cash collateral in connection
with our investment portfolio, derivatives transactions or
securities lending program, we may have difficulty selling these
investments in a timely manner, be forced to sell them for less
than we otherwise would have been able to realize, or both. The
reported value of our relatively illiquid types of investments,
our investments in the asset classes described above and, at
times, our high quality, generally liquid asset classes, do not
necessarily reflect the lowest current market price for the
asset. If we were forced to sell certain of our investments in
the global market, there can be no assurance that we will be
able to sell them for the prices at which we have recorded them
and we could be forced to sell them at significantly lower
prices.
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Our
Participation in a Securities Lending Program Subjects Us to
Potential Liquidity and Other Risks
We participate in a securities lending program whereby blocks of
securities, which are included in fixed maturity securities and
short-term investments, are loaned to third parties, primarily
brokerage firms and commercial banks. We generally obtain
collateral in an amount equal to 102% of the estimated fair
value of the loaned securities, which is obtained at the
inception of a loan and maintained at a level greater than or
equal to 100% for the duration of the loan. Returns of loaned
securities by the third parties would require us to return the
collateral associated with such loaned securities. In addition,
in some cases, the maturity of the securities held as invested
collateral (i.e., securities that we have purchased with cash
collateral received from the third parties) may exceed the term
of the related securities on loan and the estimated fair value
may fall below the amount of cash received as collateral and
invested. If we are required to return significant amounts of
cash collateral on short notice and we are forced to sell
securities to meet the return obligation, we may have difficulty
selling such collateral that is invested in securities in a
timely manner, be forced to sell securities in a volatile or
illiquid market for less than we otherwise would have been able
to realize under normal market conditions, or both. In addition,
under stressful capital market and economic conditions,
liquidity broadly deteriorates, which may further restrict our
ability to sell securities. If we decrease the amount of our
securities lending activities over time, the amount of net
investment income generated by these activities will also likely
decline. See Managements Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources Securities
Lending.
Our
Requirements to Pledge Collateral Related to Declines in
Estimated Fair Value of Specified Assets May Adversely Affect
Our Liquidity and Expose Us to Counterparty Credit
Risk
Some of our transactions with financial and other institutions
specify the circumstances under which the parties are required
to pledge collateral related to any decline in the estimated
fair value of the specified assets. The amount of collateral we
may be required to pledge under these agreements may increase
under certain circumstances, which could adversely affect our
liquidity. See Managements Discussion and Analysis
of Financial Condition and Results of Operations
Liquidity and Capital Resources Derivatives and
Collateral and Note 11 of the Notes to the
Consolidated Financial Statements.
Gross
Unrealized Losses on Fixed Maturity and Equity Securities May Be
Realized or Result in Future Impairments, Resulting in a
Reduction in Our Net Income
Fixed maturity and equity securities classified as
available-for-sale
are reported at their estimated fair value. Unrealized gains or
losses on
available-for-sale
securities are recognized as a component of other comprehensive
income (loss) and are, therefore, excluded from net income. Our
gross unrealized losses on fixed maturity and equity securities
available for sale at December 31, 2010 were
$1.2 billion. The portion of the $1.2 billion of gross
unrealized losses for fixed maturity and equity securities where
the estimated fair value has declined and remained below
amortized cost or cost by 20% or more for six months or greater
was $316 million at December 31, 2010. The accumulated
change in estimated fair value of these
available-for-sale
securities is recognized in net income when the gain or loss is
realized upon the sale of the security or in the event that the
decline in estimated fair value is determined to be
other-than-temporary
and an impairment charge is taken. Realized losses or
impairments may have a material adverse effect on our net income
in a particular quarterly or annual period.
The
Determination of the Amount of Allowances and Impairments Taken
on Our Investments is Highly Subjective and Could Materially
Impact Our Results of Operations or Financial
Position
The determination of the amount of allowances and impairments
varies by investment type and is based upon our periodic
evaluation and assessment of known and inherent risks associated
with the respective asset class. Such evaluations and
assessments are revised as conditions change and new information
becomes available. We update our evaluations regularly and
reflect changes in allowances and impairments in net investment
losses as such evaluations are revised. Additional impairments
may need to be taken or allowances provided for in the future.
Furthermore, historical trends may not be indicative of future
impairments or allowances.
For example, the cost of our fixed maturity and equity
securities is adjusted for impairments deemed to be
other-than-temporary.
The assessment of whether impairments have occurred is based on
our
case-by-case
24
evaluation of the underlying reasons for the decline in
estimated fair value. The review of our fixed maturity and
equity securities for impairments includes an analysis of the
total gross unrealized losses by three categories of securities:
(i) securities where the estimated fair value has declined
and remained below cost or amortized cost by less than 20%;
(ii) securities where the estimated fair value has declined
and remained below cost or amortized cost by 20% or more for
less than six months; and (iii) securities where the
estimated fair value has declined and remained below cost or
amortized cost by 20% or more for six months or greater.
Additionally, we consider a wide range of factors about the
security issuer and use our best judgment in evaluating the
cause of the decline in the estimated fair value of the security
and in assessing the prospects for near term recovery. Inherent
in our evaluation of the security are assumptions and estimates
about the operations of the issuer and its future earnings
potential. Considerations in the impairment evaluation process
include, but are not limited to: (i) the length of time and
the extent to which the estimated fair value has been below cost
or amortized cost; (ii) the potential for impairments of
securities when the issuer is experiencing significant financial
difficulties; (iii) the potential for impairments in an
entire industry sector or
sub-sector;
(iv) the potential for impairments in certain economically
depressed geographic locations; (v) the potential for
impairments of securities where the issuer, series of issuers or
industry has suffered a catastrophic type of loss or has
exhausted natural resources; (vi) with respect to fixed
maturity securities, whether we have the intent to sell or will
more likely than not be required to sell a particular security
before recovery of the decline in estimated fair value below
amortized cost; (vii) with respect to equity securities,
whether we have the ability and intent to hold a particular
security for a period of time sufficient to allow for the
recovery of its estimated fair value to an amount at least equal
to its cost; (viii) unfavorable changes in forecasted cash
flows on mortgage-backed and asset-backed securities
(ABS); and (ix) other subjective factors,
including concentrations and information obtained from
regulators and rating agencies.
Defaults
on Our Mortgage Loans and Volatility in Performance May
Adversely Affect Our Profitability
Our mortgage loans face default risk and are principally
collateralized by commercial and agricultural properties. 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
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
December 31, 2010, mortgage loans that were either
delinquent or in the process of foreclosure totaled less than
0.2% 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 results of operations or financial
condition. While we seek to mitigate this risk by having a
broadly diversified portfolio, events or developments that have
a negative effect on any particular geographic region or sector
may have a greater adverse effect on the investment portfolios
to the extent that the portfolios are concentrated. Moreover,
our ability to sell assets relating to such particular groups of
related assets may be limited if other market participants are
seeking to sell at the same time. In addition, legislative
proposals that would allow or require modifications to the terms
of mortgage loans could be enacted. We cannot predict whether
these proposals will be adopted, or what impact, if any, such
proposals or, if enacted, such laws, could have on our business
or investments.
The
Impairment of Other Financial Institutions Could Adversely
Affect Us
We have exposure to many different industries and
counterparties, and routinely execute transactions with
counterparties in the financial services industry, including
brokers and dealers, commercial banks, investment
25
banks, hedge funds and other investment funds and other
institutions. Many of these transactions expose us to credit
risk in the event of default of our counterparty. In addition,
with respect to secured transactions, our credit risk may be
exacerbated when the collateral held by us cannot be realized or
is liquidated at prices not sufficient to recover the full
amount of the loan or derivative exposure due to us. We also
have exposure to these financial institutions in the form of
unsecured debt instruments, non-redeemable and redeemable
preferred securities, derivative transactions, joint venture,
hedge fund and equity investments. Further, potential action by
governments and regulatory bodies in response to the recent
financial crisis or any future disruption affecting the global
banking system and financial markets, such as investment,
nationalization, conservatorship, receivership and other
intervention, whether under existing legal authority or any new
authority that may be created, could negatively impact these
instruments, securities, transactions and investments. There can
be no assurance that any such losses or impairments to the
carrying value of these investments would not materially and
adversely affect our business and results of operations.
We
Face Unforeseen Liabilities, Asset Impairments or Rating Actions
Arising from Acquisitions and Dispositions of Businesses or
Difficulties Integrating and Managing Growth of Such
Businesses
We have engaged in dispositions and acquisitions of businesses
in the past, and expect to continue to do so in the future.
Acquisition and disposition activity exposes us to a number of
risks. There could be unforeseen liabilities or asset
impairments, including goodwill impairments, that arise in
connection with the businesses that we may sell or the
businesses that we may acquire in the future.
In addition, there may be liabilities or asset impairments that
we fail, or are unable, to discover in the course of performing
due diligence investigations on each business that we have
acquired or may acquire. Even for obligations and liabilities
that we do discover during the due diligence process, the
contractual protections we negotiate may not be sufficient to
fully protect us from losses.
Furthermore, the use of our own funds as consideration in any
acquisition would consume capital resources that would no longer
be available for other corporate purposes. We also may not be
able to raise sufficient funds to consummate an acquisition if,
for example, we are unable to sell our securities or close
related bridge credit facilities. Moreover, as a result of
uncertainty and risks associated with potential acquisitions and
dispositions of businesses, rating agencies may take certain
actions with respect to the ratings assigned to MetLife, Inc.
and/or its
subsidiaries.
Our ability to achieve certain benefits we anticipate from any
acquisitions of businesses will depend in large part upon our
ability to successfully integrate such businesses in an
efficient and effective manner. We may not be able to integrate
such businesses smoothly or successfully, and the process may
take longer than expected. The integration of operations and
differences in operational culture may require the dedication of
significant management resources, which may distract
managements attention from
day-to-day
business. If we are unable to successfully integrate the
operations of such acquired businesses, we may be unable to
realize the benefits we expect to achieve as a result of such
acquisitions and our business and results of operations may be
less than expected.
The success with which we are able to integrate acquired
operations, will depend on our ability to manage a variety of
issues, including the following:
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Loss of key personnel or higher than expected employee attrition
rates could adversely affect the performance of the acquired
business and our ability to integrate it successfully.
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Customers of the acquired business may reduce, delay or defer
decisions concerning their use of its products and services as a
result of the acquisition or uncertainty related to the
consummation of the acquisition, including, for example,
potential unfamiliarity with the MetLife brand in regions where
we did not have a market presence prior to the acquisition.
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If the acquired business relies upon independent distributors to
distribute its products, these distributors may not continue to
generate the same volume of business after the acquisition.
Independent distributors may reexamine the scope of their
relationship with the acquired business or us as a result of the
acquisition and decide to curtail or eliminate distribution of
our products.
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Integrating acquired operations with our existing operations may
require us to coordinate geographically separated organizations,
address possible differences in corporate culture and management
philosophies, merge financial processes and risk and compliance
procedures, combine separate information technology platforms
and integrate operations that were previously closely tied to
the former parent of the acquired business or other service
providers.
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In cases where we or an acquired business operates in certain
markets through joint ventures, the acquisition may affect the
continued success and prospects of the joint venture. Our
ability to exercise management control or influence over these
joint venture operations and our investment in them will depend
on the continued cooperation between the joint venture
participants and on the terms of the joint venture agreements,
which allocate control among the joint venture participants. We
may face financial or other exposure in the event that any of
these joint venture partners fail to meet their obligations
under the joint venture, encounter financial difficulty or elect
to alter, modify or terminate the relationship.
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We may incur significant costs in connection with any
acquisition and the related integration. The costs and
liabilities actually incurred in connection with an acquisition
and subsequent integration process may exceed those anticipated.
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The prospects of our business also may be materially and
adversely affected if we are not able to manage the growth of
any acquired business successfully.
Fluctuations
in Foreign Currency Exchange Rates Could Negatively Affect Our
Profitability
We are exposed to risks associated with fluctuations in foreign
currency exchange rates against the U.S. dollar resulting
from our holdings of
non-U.S. dollar
denominated investments, investments in foreign subsidiaries and
net income from foreign operations and issuance of
non-U.S. dollar
denominated instruments, including guaranteed interest contracts
and funding agreements. These risks relate to potential
decreases in estimated fair value and income resulting from a
strengthening or weakening in foreign exchange rates versus the
U.S. dollar. In general, the weakening of foreign
currencies versus the U.S. dollar will adversely affect the
estimated fair value of our
non-U.S. dollar
denominated investments, our investments in foreign
subsidiaries, and our net income from foreign operations.
Although we use foreign currency swaps and forward contracts to
mitigate foreign currency exchange rate risk, we cannot provide
assurance that these methods will be effective or that our
counterparties will perform their obligations. See
Quantitative and Qualitative Disclosures About Market
Risk.
From time to time, various emerging market countries have
experienced severe economic and financial disruptions, including
significant devaluations of their currencies. Our exposure to
foreign exchange rate risk is exacerbated by our investments in
certain emerging markets.
Historically, we have matched substantially all of our foreign
currency liabilities in our foreign subsidiaries with
investments denominated in their respective foreign currency,
which limits the effect of currency exchange rate fluctuation on
local operating results; however, fluctuations in such rates
affect the translation of these results into our
U.S. dollar basis consolidated financial statements.
Although we take certain actions to address this risk, foreign
currency exchange rate fluctuation could materially adversely
affect our reported results due to unhedged positions or the
failure of hedges to effectively offset the impact of the
foreign currency exchange rate fluctuation. See
Quantitative and Qualitative Disclosures About Market
Risk.
Our
International Operations Face Political, Legal, Operational and
Other Risks, Including Exposure to Local and Regional Economic
Conditions, That Could Negatively Affect Those Operations or Our
Profitability
Our international operations face political, legal, operational
and other risks that we do not face in our domestic operations.
We face the risk of discriminatory regulation, nationalization
or expropriation of assets, price controls and exchange controls
or other restrictions that prevent us from transferring funds
from these operations out of the countries in which they operate
or converting local currencies we hold into U.S. dollars or
other currencies. In addition, we rely on local sales forces in
these countries and may encounter labor problems resulting from
workers
27
associations and trade unions in some countries. If our business
model is not successful in a particular country, we may lose all
or most of our investment in building and training the sales
force in that country.
Our operations may require considerable management time, as well
as start-up
expenses for market development before any significant revenues
and earnings are generated. Operations in new foreign markets
may achieve low margins or may be unprofitable, and expansion in
existing markets may be affected by local economic and market
conditions. Therefore, as we expand internationally, we may not
achieve expected operating margins and our results of operations
may be negatively impacted.
A
Downgrade or a Potential Downgrade in Our Financial Strength
Ratings or those of MetLifes Other Insurance Subsidiaries,
or MetLifes Credit Ratings Could Result in a Loss of
Business and Materially Adversely Affect Our Financial Condition
and Results of Operations
Financial strength ratings, which various Nationally Recognized
Statistical Rating Organizations (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 Credit
Watch 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 their analyses 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.
Based on the announcement in February 2010 that MetLife, Inc.
was in discussions to acquire American Life Insurance Company, a
subsidiary of ALICO Holdings LLC, and Delaware American Life
Insurance Company (the Acquisition), in February
2010, Standard & Poors Ratings Services
(S&P) and A.M. Best placed the ratings of
MetLife, Inc. and its subsidiaries on CreditWatch with
negative implications and under review with negative
implications, respectively. Also in connection with the
announcement, in March 2010, Moodys Investors Service
(Moodys) changed the ratings outlook of
MetLife, Inc. and its subsidiaries from stable to
negative outlook. Upon completion of the public
financing transactions related to the Acquisition, in August
2010, S&P affirmed the ratings of MetLife, Inc. and
subsidiaries with a negative outlook, and removed
them from CreditWatch. On November 1, 2010,
upon closing of the Acquisition, S&Ps ratings of
MetLife, Inc. and its other subsidiaries were unaffected. Also
on November 1, 2010, Fitch Ratings affirmed all existing
ratings for MetLife, Inc. and its other
28
subsidiaries. A.M. Best changed the outlook for MetLife,
Inc. and certain of its other subsidiaries, including MetLife
Insurance Company of Connecticut and MLI-USA, to
negative from under review with negative
implications.
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.
An
Inability to Access MetLifes Credit Facilities Could
Result in a Reduction in Our Liquidity and Lead to Downgrades in
Our Credit and Financial Strength Ratings
In October 2010, MetLife entered into two senior unsecured
credit facilities: a three-year $3 billion facility and a
364-day
$1 billion facility, and it also has other facilities which
it enters into in the ordinary course of business. MetLife
relies on its credit facilities as a potential source of
liquidity.
The availability of these facilities to MetLife could be
critical to MetLifes credit and financial strength
ratings, as well as our financial strength ratings and our
ability to meet our obligations as they come due in a market
when alternative sources of credit are tight. The credit
facilities contain certain administrative, reporting, legal and
financial covenants. MetLife must comply with covenants under
its credit facilities, including a requirement to maintain a
specified minimum consolidated net worth.
MetLifes right to make borrowings under these facilities
is subject to the fulfillment of certain important conditions,
including its compliance with all covenants, and its ability to
borrow under these facilities is also subject to the continued
willingness and ability of the lenders that are parties to the
facilities to provide funds. MetLifes failure to comply
with the covenants in the credit facilities or fulfill the
conditions to borrowings, or the failure of lenders to fund
their lending commitments (whether due to insolvency,
illiquidity or other reasons) in the amounts provided for under
the terms of the facilities, would restrict MetLifes
ability to access these credit facilities when needed and,
consequently, could have a material adverse effect on our
financial condition and results of operations.
Defaults,
Downgrades or Other Events Impairing the Carrying Value of Our
Fixed Maturity or Equity Securities Portfolio May Reduce Our
Earnings
We are subject to the risk that the issuers, or guarantors, of
fixed maturity securities we own may default on principal and
interest payments they owe us. We are also subject to the risk
that the underlying collateral within loan-backed securities,
including mortgage-backed securities, may default on principal
and interest payments causing an adverse change in cash flows.
Fixed maturity securities represent a significant portion of our
investment portfolio. The occurrence of a major economic
downturn, acts of corporate malfeasance, widening risk spreads,
or other events that adversely affect the issuers, guarantors or
underlying collateral of these securities could cause the
estimated fair value of our fixed maturity securities portfolio
and our earnings to decline and the default rate of the fixed
maturity securities in our investment portfolio to increase. A
ratings downgrade affecting issuers or guarantors of particular
securities, or similar trends that could worsen the credit
quality of issuers, such as the corporate issuers of securities
in our investment portfolio, could also have a similar effect.
With economic uncertainty, credit quality of issuers or
guarantors could be adversely affected. Similarly, a ratings
downgrade affecting a security we hold could indicate the credit
quality of that security has deteriorated and could increase the
capital we must hold to support that security to maintain our
RBC levels. Any event reducing the estimated fair value of these
securities other than on a temporary basis could have a material
adverse effect on our business, results of operations and
financial condition. Levels of write-downs or impairments are
impacted by our assessment of intent to sell, or whether it is
more likely than not that we will be required to sell, fixed
maturity securities and the intent and ability to hold equity
securities which have declined in value until recovery. If we
determine to reposition or realign portions of the portfolio so
as not to hold certain equity securities, or intend to sell or
determine that it is more likely than not that we will be
required to sell, certain fixed maturity securities in an
unrealized loss position prior to recovery, then we will incur
an
other-than-temporary
impairment charge in the period that the decision was made not
to hold the equity security to recovery, or to sell, or the
determination was made it is more likely than not that we will
be required to sell the fixed maturity security.
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MetLifes
Risk Management Policies and Procedures May Leave Us Exposed to
Unidentified or Unanticipated Risk, Which Could Negatively
Affect Our Business
Management of risk requires, among other things, policies and
procedures to record properly and verify a large number of
transactions and events. MetLife has devoted significant
resources to develop risk management policies and procedures for
itself and its subsidiaries and expects to continue to do so in
the future. Nonetheless, these policies and procedures may not
be comprehensive. Many of MetLifes methods for managing
risk and exposures are based upon the use of observed historical
market behavior or statistics based on historical models. As a
result, these methods may not fully predict future exposures,
which can be significantly greater than historical measures
indicate. Other risk management methods depend upon the
evaluation of information regarding markets, clients,
catastrophe occurrence or other matters that is publicly
available or otherwise accessible. This information may not
always be accurate, complete,
up-to-date
or properly evaluated. See Quantitative and Qualitative
Disclosures About Market Risk.
Reinsurance
May Not Be Available, Affordable or Adequate to Protect Us
Against Losses
As part of our overall risk management strategy, we purchase
reinsurance for certain risks underwritten by our various
business segments. See Business Reinsurance
Activity. While reinsurance agreements generally bind the
reinsurer for the life of the business reinsured at generally
fixed pricing, market conditions beyond our control determine
the availability and cost of the reinsurance protection for new
business. In certain circumstances, the price of reinsurance for
business already reinsured may also increase. Any decrease in
the amount of reinsurance will increase our risk of loss and any
increase in the cost of reinsurance will, absent a decrease in
the amount of reinsurance, reduce our earnings. Accordingly, we
may be forced to incur additional expenses for reinsurance or
may not be able to obtain sufficient reinsurance on acceptable
terms, which could adversely affect our ability to write future
business or result in the assumption of more risk with respect
to those policies we issue.
If the
Counterparties to Our Reinsurance or Indemnification
Arrangements or to the Derivative Instruments We Use to Hedge
Our Business Risks Default or Fail to Perform, We May Be Exposed
to Risks We Had Sought to Mitigate, Which Could Materially
Adversely Affect Our Financial Condition and Results of
Operations
We use reinsurance, indemnification and derivative instruments
to mitigate our risks in various circumstances. In general,
reinsurance does not relieve us of our direct liability to our
policyholders, even when the reinsurer is liable to us.
Accordingly, we bear credit risk with respect to our reinsurers
and indemnitors. We cannot provide assurance that our reinsurers
will pay the reinsurance recoverables owed to us or that
indemnitors will honor their obligations now or in the future or
that they will pay these recoverables on a timely basis. A
reinsurers or indemnitors insolvency, inability or
unwillingness to make payments under the terms of reinsurance
agreements or indemnity agreements with us could have a material
adverse effect on our financial condition and results of
operations.
In addition, we use derivative instruments to hedge various
business risks. We enter into a variety of derivative
instruments, including options, forwards, interest rate, credit
default and currency swaps with a number of counterparties. If
our counterparties fail or refuse to honor their obligations
under these derivative instruments, our hedges of the related
risk will be ineffective. This is a more pronounced risk to us
in view of the stresses suffered by financial institutions over
the past few years. Such failure could have a material adverse
effect on our financial condition and results of operations.
Differences
Between Actual Claims Experience and Underwriting and Reserving
Assumptions May Adversely Affect Our Financial
Results
Our earnings significantly depend upon the extent to which our
actual claims experience is consistent with the assumptions we
use in setting prices for our products and establishing
liabilities for future policy benefits and claims. Our
liabilities for future policy benefits and claims are
established based on estimates by actuaries of how much we will
need to pay for future benefits and claims. For life insurance
and annuity products, we calculate these liabilities based on
many assumptions and estimates, including estimated premiums to
be received over the assumed
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life of the policy, the timing of the event covered by the
insurance policy, the amount of benefits or claims to be paid
and the investment returns on the investments we make with the
premiums we receive.
To the extent that actual claims experience is less favorable
than the underlying assumptions we used in establishing such
liabilities, we could be required to increase our liabilities.
Due to the nature of the underlying risks and the high degree of
uncertainty associated with the determination of liabilities for
future policy benefits and claims, we cannot determine precisely
the amounts which we will ultimately pay to settle our
liabilities. Such amounts may vary from the estimated amounts,
particularly when those payments may not occur until well into
the future. We evaluate our liabilities periodically based on
accounting requirements, which change from time to time, the
assumptions used to establish the liabilities, as well as our
actual experience. We charge or credit changes in our
liabilities to expenses in the period the liabilities are
established or re-estimated. If the liabilities originally
established for future benefit payments prove inadequate, we
must increase them. Such increases could affect earnings
negatively and have a material adverse effect on our business,
results of operations and financial condition.
Catastrophes
May Adversely Impact Liabilities for Policyholder Claims and
Reinsurance Availability
Our life insurance operations are exposed to the risk of
catastrophic mortality, such as a pandemic or other event that
causes a large number of deaths. Significant influenza pandemics
have occurred three times in the last century, but neither the
likelihood, timing, nor the severity of a future pandemic can be
predicted. A significant pandemic could have a major impact on
the global economy or the economies of particular countries or
regions, including travel, trade, tourism, the health system,
food supply, consumption, overall economic output and,
eventually, on the financial markets. In addition, a pandemic
that affected our employees or the employees of our distributors
or of other companies with which we do business could disrupt
our business operations. The effectiveness of external parties,
including governmental and non-governmental organizations, in
combating the spread and severity of such a pandemic could have
a material impact on the losses experienced by us. In our group
insurance operations, a localized event that affects the
workplace of one or more of our group insurance customers could
cause a significant loss due to mortality or morbidity claims.
These events could cause a material adverse effect on our
results of operations in any period and, depending on their
severity, could also materially and adversely affect our
financial condition.
The extent of losses from a catastrophe is a function of both
the total amount of insured exposure in the area affected by the
event and the severity of the event. Most catastrophes are
restricted to small geographic areas; however, hurricanes,
earthquakes and man-made catastrophes may produce significant
damage or loss of life in larger areas, especially those that
are heavily populated. Claims resulting from natural or man-made
catastrophic events could cause substantial volatility in our
financial results for any fiscal quarter or year and could
materially reduce our profitability or harm our financial
condition. Also, catastrophic events could harm the financial
condition of our reinsurers and thereby increase the probability
of default on reinsurance recoveries. Our ability to write new
business could also be affected.
Most of the jurisdictions in which we and our insurance
subsidiaries are admitted to transact business require life
insurers doing business within the jurisdiction to participate
in guaranty associations, which are organized to pay contractual
benefits owed pursuant to insurance policies issued by impaired,
insolvent or failed insurers. These associations levy
assessments, up to prescribed limits, on all member insurers in
a particular state on the basis of the proportionate share of
the premiums written by member insurers in the lines of business
in which the impaired, insolvent or failed insurer is engaged.
Some states permit member insurers to recover assessments paid
through full or partial premium tax offsets. See
Business Regulation Insurance
Regulation Guaranty Associations and Similar
Arrangements.
While in the past five years, the aggregate assessments levied
against us have not been material, it is possible that a large
catastrophic event could render such guaranty funds inadequate
and we may be called upon to contribute additional amounts,
which may have a material impact on our financial condition or
results of operations in a particular period. We have
established liabilities for guaranty fund assessments that we
consider adequate for assessments with respect to insurers that
are currently subject to insolvency proceedings, but additional
liabilities may be necessary. See Note 11 of the Notes to
the Consolidated Financial Statements.
31
Consistent with industry practice and accounting standards, we
establish liabilities for claims arising from a catastrophe only
after assessing the probable losses arising from the event. We
cannot be certain that the liabilities we have established will
be adequate to cover actual claim liabilities. While we attempt
to limit our exposure to acceptable levels, subject to
restrictions imposed by insurance regulatory authorities, a
catastrophic event or multiple catastrophic events could have a
material adverse effect on our business, results of operations
and financial condition.
Our ability to manage this risk and the profitability of our
life insurance business depends in part on our ability to obtain
reinsurance, which may not be available at commercially
acceptable rates in the future. See
Reinsurance May Not Be Available, Affordable
or Adequate to Protect Us Against Losses.
Competitive
Factors May Adversely Affect Our Market Share and
Profitability
Our segments are subject to intense competition. We believe that
this competition is based on a number of factors, including
service, product features, scale, price, financial strength,
claims-paying ratings, credit ratings,
e-business
capabilities and name recognition. We compete with a large
number of other insurers, as well as noninsurance financial
services companies, such as banks, broker-dealers and asset
managers, for individual consumers, employers and other group
customers and agents and other distributors of insurance and
investment products. Some of these companies offer a broader
array of products, have more competitive pricing or more
attractive features in their products or, with respect to other
insurers, have higher claims paying ability ratings. Some may
also have greater financial resources with which to compete.
National banks, which may sell annuity products of life insurers
in some circumstances, also have pre-existing customer bases for
financial services products. Many of our group insurance
products are underwritten annually, and, accordingly, there is a
risk that group purchasers may be able to obtain more favorable
terms from competitors rather than renewing coverage with us.
The effect of competition may, as a result, adversely affect the
persistency of these and other products, as well as our ability
to sell products in the future.
In addition, the investment management and securities brokerage
businesses have relatively few barriers to entry and continually
attract new entrants. Finally, the new requirements imposed on
the financial industry by Dodd-Frank could similarly have
differential effects. See Various Aspects of
Dodd-Frank Could Impact Our Business Operations, Capital
Requirements and Profitability and Limit Our Growth.
Industry
Trends Could Adversely Affect the Profitability of Our
Business
Our segments continue to be influenced by a variety of trends
that affect the insurance industry, including competition with
respect to product features, price, distribution capability,
customer service and information technology. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations. The impact on our
business and on the life insurance industry generally of the
volatility and instability of the financial markets is difficult
to predict, and our business plans, financial condition and
results of operations may be negatively impacted or affected in
other unexpected ways. In addition, the life insurance industry
is subject to state regulation, and, as complex products are
introduced, regulators may refine capital requirements and
introduce new reserving standards. Dodd-Frank and the market
environment in general may also lead to changes in regulation
that may benefit or disadvantage us relative to some of our
competitors. See Our Insurance and Brokerage
Businesses Are Heavily Regulated, and Changes in
Regulation May Reduce Our Profitability and Limit Our
Growth and Competitive Factors May
Adversely Affect Our Market Share and Profitability.
Consolidation
of Distributors of Insurance Products May Adversely Affect the
Insurance Industry and the Profitability of Our
Business
The insurance industry distributes many of its individual
products through other financial institutions such as banks and
broker-dealers. An increase in bank and broker-dealer
consolidation activity may negatively impact the industrys
sales, and such consolidation could increase competition for
access to distributors, result in greater distribution expenses
and impair our ability to market insurance products to our
current customer base or to expand our customer base.
Consolidation of distributors
and/or other
industry changes may also increase the likelihood that
distributors will try to renegotiate the terms of any existing
selling agreements to terms less favorable to us.
32
Our
Valuation of Fixed Maturity, Equity and Other Securities and
Short-Term Investments May Include Methodologies, Estimations
and Assumptions Which Are Subject to Differing Interpretations
and Could Result in Changes to Investment Valuations That May
Materially Adversely Affect Our Results of Operations or
Financial Condition
Fixed maturity, equity, and other securities and short-term
investments which are reported at estimated fair value on the
consolidated balance sheets represent the majority of our total
cash and investments. We have categorized these securities into
a three-level hierarchy, based on the priority of the inputs to
the respective valuation technique.
The fair value hierarchy gives the highest priority to quoted
prices in active markets for identical assets or liabilities
(Level 1) and the lowest priority to unobservable
inputs (Level 3). An asset or liabilitys
classification within the fair value hierarchy is based on the
lowest level of significant input to its valuation. The input
levels are as follows:
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|
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Level 1
|
Unadjusted quoted prices in active markets for identical assets
or liabilities. We define active markets based on average
trading volume for equity securities. The size of the bid/ask
spread is used as an indicator of market activity for fixed
maturity securities.
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Level 2
|
Quoted prices in markets that are not active or inputs that are
observable either directly or indirectly. Level 2 inputs
include quoted prices for similar assets or liabilities other
than quoted prices in Level 1; quoted prices in markets
that are not active; or other significant inputs that are
observable or can be derived principally from or corroborated by
observable market data for substantially the full term of the
assets or liabilities.
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Level 3
|
Unobservable inputs that are supported by little or no market
activity and are significant to the estimated fair value of the
assets or liabilities. Unobservable inputs reflect the reporting
entitys own assumptions about the assumptions that market
participants would use in pricing the asset or liability.
Level 3 assets and liabilities include financial
instruments whose values are determined using pricing models,
discounted cash flow methodologies, or similar techniques, as
well as instruments for which the determination of the estimated
fair value requires significant management judgment or
estimation.
|
At December 31, 2010, 15.0%, 77.6% and 7.4% of these
securities represented Level 1, Level 2 and
Level 3, respectively. The Level 1 securities
primarily consist of certain U.S. Treasury, agency and
government guaranteed fixed maturity securities; exchange-traded
common stock; certain other securities and certain short-term
investments. The Level 2 assets include fixed maturity and
equity securities priced principally through independent pricing
services using observable inputs. These fixed maturity
securities include most U.S. Treasury, agency and
government guaranteed securities, as well as the majority of
U.S. and foreign corporate securities, RMBS, CMBS, state
and political subdivision securities, foreign government
securities, and ABS. Equity securities classified as
Level 2 primarily consist of non-redeemable preferred
securities and certain equity securities where market quotes are
available but are not considered actively traded and are priced
by independent pricing services. We review the valuation
methodologies used by the independent pricing services on an
ongoing basis and ensure that any changes to valuation
methodologies are justified. Level 3 assets include fixed
maturity securities priced principally through independent
non-binding broker quotations or market standard valuation
methodologies using inputs that are not market observable or
cannot be derived principally from or corroborated by observable
market data. Level 3 consists of less liquid fixed maturity
securities with very limited trading activity or where less
price transparency exists around the inputs to the valuation
methodologies including: U.S. and foreign corporate
securities including below investment grade private
placements; RMBS; CMBS; and ABS including all of
those supported by
sub-prime
mortgage loans. Equity securities classified as Level 3
securities consist principally of non-redeemable preferred stock
and common stock of companies that are privately held or
companies for which there has been very limited trading activity
or where less price transparency exists around the inputs to the
valuation.
Prices provided by independent pricing services and independent
non-binding broker quotations can vary widely even for the same
security.
33
The determination of estimated fair values by management in the
absence of quoted market prices is based on: (i) valuation
methodologies; (ii) securities we deem to be comparable;
and (iii) assumptions deemed appropriate given the
circumstances. The fair value estimates are made at a specific
point in time, based on available market information and
judgments about financial instruments, including estimates of
the timing and amounts of expected future cash flows and the
credit standing of the issuer or counterparty. Factors
considered in estimating fair value include: coupon rate,
maturity, estimated duration, call provisions, sinking fund
requirements, credit rating, industry sector of the issuer, and
quoted market prices of comparable securities. The use of
different methodologies and assumptions may have a material
effect on the estimated fair value amounts. During periods of
market disruption including periods of significantly rising or
high interest rates, rapidly widening credit spreads or
illiquidity, it may be difficult to value certain of our
securities, for example
sub-prime
mortgage-backed securities, mortgage-backed securities where the
underlying loans are Alt-A and CMBS, if trading becomes less
frequent
and/or
market data becomes less observable. In times of financial
market disruption, certain asset classes that were in active
markets with significant observable data may become illiquid. In
such cases, more securities may fall to Level 3 and thus
require more subjectivity and management judgment. As such,
valuations may include inputs and assumptions that are less
observable or require greater estimation, as well as valuation
methods which are more sophisticated or require greater
estimation thereby resulting in estimated fair values which may
be greater or less than the amount at which the investments may
be ultimately sold. Further, rapidly changing and unprecedented
credit and equity market conditions could materially impact the
valuation of securities as reported within our consolidated
financial statements and the
period-to-period
changes in estimated fair value could vary significantly.
Decreases in value may have a material adverse effect on our
results of operations or financial condition.
If Our
Business Does Not Perform Well, We May Be Required to Recognize
an Impairment of Our Goodwill or Other Long-Lived Assets or to
Establish a Valuation Allowance Against the Deferred Income Tax
Asset, Which Could Adversely Affect Our Results of Operations or
Financial Condition
The Company was allocated a portion of goodwill balance
representing the excess of the amounts MetLife paid to acquire
subsidiaries and other businesses over the estimated fair value
of their net assets at the date of acquisition. We test goodwill
at least annually for impairment. Impairment testing is
performed based upon estimates of the estimated fair value of
the reporting unit to which the goodwill relates.
The reporting unit is the operating segment or a business one
level below that operating segment if discrete financial
information is prepared and regularly reviewed by management at
that level. The estimated fair value of the reporting unit is
impacted by the performance of the business. The performance of
our businesses may be adversely impacted by prolonged market
declines. If it is determined that the goodwill has been
impaired, we must write down the goodwill by the amount of the
impairment, with a corresponding charge to net income. Such
writedowns could have an adverse effect on our results of
operation or financial position. See Managements
Discussion and Analysis of Financial Condition and Results of
Operations Summary of Critical Accounting
Estimates Goodwill.
Long-lived assets, including assets such as real estate, also
require impairment testing to determine whether changes in
circumstances indicate that we will be unable to recover the
carrying amount of the asset group through future operations of
that asset group or market conditions that will impact the value
of those assets. Such writedowns could have a material adverse
effect on our results of operations or financial position.
Deferred income tax represents the tax effect of the differences
between the book and tax basis of assets and liabilities.
Deferred income tax assets are assessed periodically by
management to determine if they are realizable. Factors in
managements determination include the performance of the
business including the ability to generate future taxable
income. If based on available information, it is more likely
than not that the deferred income tax asset will not be realized
then a valuation allowance must be established with a
corresponding charge to net income. Such charges could have a
material adverse effect on our results of operations or
financial position.
34
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 is dependent principally on investment
returns in excess of the amounts credited to policyholders,
mortality, morbidity, persistency, interest crediting rates,
expenses to administer the business, creditworthiness of
reinsurance counterparties and certain economic variables, such
as inflation. Of these factors, we anticipate 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 is an intangible asset that represents the excess of book
value over the estimated fair value of acquired insurance,
annuity, and investment-type contracts in-force at the
acquisition date. The estimated fair value of the acquired
liabilities is based on actuarially determined projections, by
each block of business, of future policy and contract charges,
premiums, mortality and morbidity, separate account performance,
surrenders, operating expenses, investment returns,
nonperformance risk adjustment and other factors. Actual
experience on the purchased business may vary from these
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. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations Summary of
Critical Accounting Estimates Deferred Policy
Acquisition Costs and Value of Business Acquired for
further consideration of DAC and VOBA.
Changes
in Accounting Standards Issued by the Financial Accounting
Standards Board or Other Standard-Setting Bodies May Adversely
Affect Our Financial Statements
Our financial statements are subject to the application of GAAP,
which is periodically revised
and/or
expanded. Accordingly, from time to time we are required to
adopt new or revised accounting standards issued by recognized
authoritative bodies, including the Financial Accounting
Standards Board. Market conditions have prompted accounting
standard setters to expose new guidance which further interprets
or seeks to revise accounting pronouncements related to
financial instruments, structures or transactions, as well as to
issue new standards expanding disclosures. The impact of
accounting pronouncements that have been issued but not yet
implemented is disclosed in this annual and quarterly reports on
Form 10-K
and
Form 10-Q.
An assessment of proposed standards is not provided as such
proposals are subject to change through the exposure process
and, therefore, the effects on our financial statements cannot
be meaningfully assessed. It is possible that future accounting
standards we are required to adopt could change the current
accounting treatment that we apply to our consolidated financial
statements and that such changes could have a material adverse
effect on our financial condition and results of operations.
35
Changes
in Discount Rate, Expected Rate of Return and Expected
Compensation Increase Assumptions for Pension and Other
Postretirement Benefit Plans For Employees and Retirees of
MetLife and Its Subsidiaries May Result in Increased Expenses
and Reduce Our Profitability
Our allocated pension and other postretirement benefit plan
costs are determined based on a best estimate of future plan
experience. These assumptions are reviewed regularly and include
discount rates, expected rates of return on plan assets and
expected increases in compensation levels and expected medical
inflation. Changes in these assumptions may result in increased
expenses and reduce our profitability.
Guarantees
Within Certain of Our 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 as
implied volatilities increase
and/or
interest rates decrease, 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, 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/or
Harm to Our Reputation
We face a significant risk of litigation and regulatory
investigations and actions in the ordinary course of operating
our businesses, including the risk of class action lawsuits. Our
pending legal and regulatory actions include proceedings
specific to us and others generally applicable to business
practices in the industries in which we operate. In connection
with our insurance operations, plaintiffs lawyers may
bring or are bringing class actions and individual suits
alleging, among other things, issues relating to sales or
underwriting practices, claims payments and procedures, product
design, disclosure, administration, denial or delay of benefits
and breaches of fiduciary or other duties to customers.
Plaintiffs in class action and other lawsuits against us may
seek very large or indeterminate amounts, including punitive and
treble damages, and the damages claimed and the amount of any
probable and estimable liability, if any, may remain unknown for
substantial periods of time. See Note 11 of the Notes to
the Consolidated Financial Statements.
Due to the vagaries of litigation, the outcome of a litigation
matter and the amount or range of potential loss at particular
points in time may normally be difficult to ascertain.
Uncertainties can include how fact finders will evaluate in
their totality documentary evidence and the credibility and
effectiveness of witness 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.
36
On a quarterly and annual basis, we review relevant information
with respect to litigation and contingencies to be reflected in
our consolidated financial statements. The review includes
senior legal and financial personnel. Estimates of possible
losses or ranges of loss for particular matters cannot in the
ordinary course be made with a reasonable degree of certainty.
Liabilities are established when it is probable that a loss has
been incurred and the amount of the loss can be reasonably
estimated. It is possible that some of the matters could require
us to pay damages or make other expenditures or establish
accruals in amounts that could not be estimated at
December 31, 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 announced on July 29, 2010
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 and other insurance carriers. We received the
subpoena on July 30, 2010. We also have received requests
for documents and information from U.S. congressional
committees and members as well as various state regulatory
bodies, including the New York Insurance Department.
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 our retained asset account known
as the Total Control Account (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 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.
We May
Not be Able to Protect Our Intellectual Property and May be
Subject to Infringement Claims
We rely on a combination of contractual rights with third
parties and copyright, trademark, patent and trade secret laws
to establish and protect our intellectual property. Although we
endeavor to protect our rights, third parties may infringe or
misappropriate our intellectual property. We may have to
litigate to enforce and protect our copyrights, trademarks,
patents, trade secrets and know-how or to determine their scope,
validity or enforceability. This would represent a diversion of
resources that may be significant and our efforts may not prove
successful. The inability to secure or protect our intellectual
property assets could have a material adverse effect on our
business and our ability to compete.
We may be subject to claims by third parties for
(i) patent, trademark or copyright infringement,
(ii) breach of copyright, trademark or license usage
rights, or (iii) misappropriation of trade secrets. Any
such claims and any resulting litigation could result in
significant expense and liability for damages. If we were found
to have infringed or misappropriated a third-party patent or
other intellectual property right, we could in some
circumstances be enjoined from providing certain products or
services to our customers or from utilizing and benefiting from
certain methods, processes, copyrights, trademarks, trade
secrets or licenses. Alternatively, we could be required to
enter into costly licensing arrangements with third parties or
implement a costly work around. Any of these scenarios could
have a material adverse effect on our business and results of
operations.
37
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 and will continue to be 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 to certain executives under certain
circumstances, require additional performance and compensation
disclosure, and other requirements. See
Various Aspects of Dodd-Frank 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 requirements and
restrictions, and others Congress or regulators may propose or
implement, 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.
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
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 IRS, the U.S. 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
38
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.
Changes
in U.S. Federal and State Securities Laws and Regulations, and
State Insurance Regulations Regarding Suitability of Annuity
Product Sales, 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 and our
distributors 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. Further, proposals have been
made that the SEC establish a self-regulatory organization with
respect to registered investment advisers, which could increase
the level of regulatory oversight over such investment advisers.
In addition, state insurance regulators are becoming more active
in adopting and enforcing suitability standards with respect to
sales of annuities, both fixed and variable. In particular, the
NAIC has adopted a revised Suitability in Annuity Transactions
Model Regulation (SAT), 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. Several states
have already enacted laws based on the SAT.
We also may be subject to similar laws and regulations in the
foreign countries in which we offer products or conduct other
activities similar to those described above.
Changes
in Tax Laws, Tax Regulations, or Interpretations of Such Laws or
Regulations Could Increase Our Corporate Taxes; Changes in Tax
Laws Could Make Some of Our Products Less Attractive to
Consumers
Changes in tax laws, Treasury and other regulations promulgated
thereunder, or interpretations of such laws or regulations could
increase our corporate taxes. The Obama Administration has
proposed corporate tax changes. Changes in corporate tax rates
could affect the value of deferred tax assets and deferred tax
liabilities. Furthermore, the value of deferred tax assets could
be impacted by future earnings levels.
39
Changes in tax laws could make some of our products less
attractive to consumers. A shift away from life insurance and
annuity contracts and other tax-deferred products would reduce
our income from sales of these products, as well as the assets
upon which we earn investment income. The Obama Administration
has proposed certain changes to individual income tax rates and
rules applicable to certain policies.
We cannot predict whether any tax legislation impacting
corporate taxes or insurance products will be enacted, what the
specific terms of any such legislation will be or whether, if at
all, any legislation would have a material adverse effect on our
financial condition and results of operations.
Changes
to Regulations Under the Employee Retirement Income Security Act
of 1974 Could Adversely Affect Our Distribution Model by
Restricting Our Ability to Provide Customers With
Advice
The prohibited transaction rules of ERISA and the Internal
Revenue Code generally restrict the provision of investment
advice to ERISA plans and participants and Individual Retirement
Accounts (IRAs) if the investment recommendation
results in fees paid to the individual advisor, his or her firm
or their affiliates that vary according to the investment
recommendation chosen. In March 2010, the DOL issued proposed
regulations which provide limited relief from these investment
advice restrictions. If the proposed rules are issued in final
form and no additional relief is provided regarding these
investment advice restrictions, the ability of our broker-dealer
subsidiary, Tower Square and its registered representatives, to
provide investment advice to ERISA plans and participants, and
with respect to IRAs, would likely be significantly restricted.
Also, the fee and revenue arrangements of certain advisory
programs may be required to be revenue neutral, resulting in
potential lost revenues for Tower Square and its affiliates.
Other proposed regulatory initiatives under ERISA also may
negatively impact the current business model of our
broker-dealer subsidiary, Tower Square. In particular, the DOL
issued a proposed regulation in October 2010 that would, if
adopted as proposed, significantly broaden the circumstances
under which a person or entity providing investment advice with
respect to ERISA plans or IRAs would be deemed a fiduciary under
ERISA or the Internal Revenue Code. If adopted, the proposed
regulations may make it easier for the DOL in enforcement
actions, and for plaintiffs attorneys in ERISA litigation,
to attempt to extend fiduciary status to advisors who would not
be deemed fiduciaries under current regulations.
In addition, the DOL has issued a number of regulations recently
that increase the level of disclosure that must be provided to
plan sponsors and participants, and may issue additional such
regulations in 2011. These ERISA disclosure requirements will
likely increase the regulatory and compliance burden upon
MetLife, resulting in increased costs.
We May
Be Unable to Attract and Retain Sales Representatives for Our
Products
We must attract and retain productive sales representatives to
sell our insurance, annuities and investment products. Strong
competition exists among insurers for sales representatives with
demonstrated ability. In addition, there is competition for
representatives with other types of financial services firms,
such as independent broker-dealers.
We compete with other insurers for sales representatives
primarily on the basis of our financial position, support
services and compensation and product features. We continue to
undertake several initiatives to grow our career agency force
while continuing to enhance the efficiency and production of our
existing sales force. We cannot provide assurance that these
initiatives will succeed in attracting and retaining new agents.
Sales of individual insurance, annuities and investment products
and our results of operations and financial condition could be
materially adversely affected if we are unsuccessful in
attracting and retaining agents. See Business
Competition.
40
The
Continued Threat of Terrorism and Ongoing Military Actions May
Adversely Affect the Level of Claim Losses We Incur and the
Value of Our Investment Portfolio
The continued threat of terrorism, both within the U.S. and
abroad, ongoing military and other actions and heightened
security measures in response to these types of threats may
cause significant volatility in global financial markets and
result in loss of life, property damage, additional disruptions
to commerce and reduced economic activity. Some of the assets in
our investment portfolio may be adversely affected by declines
in the credit and equity markets and reduced economic activity
caused by the continued threat of terrorism. We cannot predict
whether, and the extent to which, companies in which we maintain
investments may suffer losses as a result of financial,
commercial or economic disruptions, or how any such disruptions
might affect the ability of those companies to pay interest or
principal on their securities or mortgage loans. The continued
threat of terrorism also could result in increased reinsurance
prices and reduced insurance coverage and potentially cause us
to retain more risk than we otherwise would retain if we were
able to obtain reinsurance at lower prices. Terrorist actions
also could disrupt our operations centers in the U.S. or
abroad. In addition, the occurrence of terrorist actions could
result in higher claims under our insurance policies than
anticipated.
The
Occurrence of Events Unanticipated in MetLifes Disaster
Recovery Systems and Management Continuity Planning Could Impair
Our Ability to Conduct Business Effectively
In the event of a disaster such as a natural catastrophe, an
epidemic, an industrial accident, a blackout, a computer virus,
a terrorist attack or war, or unanticipated problems with our
disaster recovery systems could have a material adverse impact
on our ability to conduct business and on our results of
operations and financial position, particularly if those
problems affect our computer-based data processing,
transmission, storage and retrieval systems and destroy valuable
data. We depend heavily upon computer systems to provide
reliable service. Despite our implementation of a variety of
security measures, our computer systems could be subject to
physical and electronic break-ins, and similar disruptions from
unauthorized tampering. In addition, in the event that a
significant number of our managers were unavailable in the event
of a disaster, our ability to effectively conduct business could
be severely compromised. These interruptions also may interfere
with our suppliers ability to provide goods and services
and our employees ability to perform their job
responsibilities.
Our
Associates May Take Excessive Risks Which Could Negatively
Affect Our Financial Condition and Business
As an insurance enterprise, we are in the business of being paid
to accept certain risks. The associates who conduct our
business, including executive officers and other members of
management, sales managers, investment professionals, product
managers, sales agents, and other associates, do so in part by
making decisions and choices that involve exposing us to risk.
These include decisions such as setting underwriting guidelines
and standards, product design and pricing, determining what
assets to purchase for investment and when to sell them, which
business opportunities to pursue, and other decisions. Although
we endeavor, in the design and implementation of our
compensation programs and practices, to avoid giving our
associates incentives to take excessive risks, associates may
take such risks regardless of the structure of our compensation
programs and practices. Similarly, although we employ controls
and procedures designed to monitor associates business
decisions and prevent us from taking excessive risks, there can
be no assurance that these controls and procedures are or may be
effective. If our associates take excessive risks, the impact of
those risks could have a material adverse effect on our
financial condition or business operations.
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Item 1B.
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Unresolved
Staff Comments
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Not applicable.
41
Our executive office is located in Bloomfield, Connecticut and
is owned by an affiliate.
Management believes that the Companys properties are
suitable and adequate for our current and anticipated business
operations. MetLife arranges for property and casualty coverage
on our properties, taking into consideration our risk exposures
and the cost and availability of commercial coverages, including
deductible loss levels. In connection with its renewal of those
coverages, MetLife has arranged $700 million of property
insurance, including coverage for terrorism, on our real estate
portfolio through May 15, 2011, its renewal date.
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Item 3.
|
Legal
Proceedings
|
See Note 11 of the Notes to the Consolidated Financial
Statements.
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Item 4.
|
(Removed
and Reserved)
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42
Part II
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Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
MetLife Insurance Company of Connecticut has 40,000,000
authorized shares of common stock, 34,595,317 shares of
which were outstanding at December 31, 2010. Of such
outstanding shares, at March 22, 2011, 30,000,000 shares
are owned directly by MetLife and the remaining
4,595,317 shares are owned by MetLife Investors Group, Inc.
There exists no established public trading market for the
Companys common equity.
During the year ended December 31, 2010, MetLife Insurance
Company of Connecticut paid a $330 million dividend to its
stockholders. During the year ended December 31, 2009,
MetLife Insurance Company of Connecticut did not pay a dividend
to its stockholders. The maximum amount of dividends which
MetLife Insurance Company of Connecticut may pay in 2011,
without prior regulatory approval, is $517 million.
Under Connecticut State Insurance Law, MetLife Insurance Company
of Connecticut is permitted, without prior insurance regulatory
clearance, to pay shareholder dividends to its shareholders as
long as the amount of such dividends, when aggregated with all
other dividends in the preceding 12 months, does not exceed
the greater of: (i) 10% of its surplus to policyholders as
of the end of the immediately preceding calendar year; or
(ii) its statutory net gain from operations for the
immediately preceding calendar year. MetLife Insurance Company
of Connecticut will be permitted to pay a dividend in excess of
the greater of such two amounts only if it files notice of its
declaration of such a dividend and the amount thereof with the
Connecticut Commissioner of Insurance (the Connecticut
Commissioner) and the Connecticut Commissioner either
approves the distribution of the dividend or does not disapprove
the payment within 30 days after notice. In addition, any
dividend that exceeds earned surplus (unassigned funds, reduced
by 25% of unrealized appreciation in value or revaluation of
assets or unrealized profits on investments) as of the last
filed annual statutory statement requires insurance regulatory
approval. Under Connecticut State Insurance Law, the Connecticut
Commissioner has broad discretion in determining whether the
financial condition of a stock life insurance company would
support the payment of such dividends to its shareholders.
Under Delaware State Insurance Law, MLI-USA is permitted,
without prior insurance regulatory clearance, to pay a
stockholder dividend to MetLife Insurance Company of Connecticut
as long as the amount of the dividend when aggregated with all
other dividends in the preceding 12 months, does not exceed
the greater of: (i) 10% of its surplus to policyholders as
of the end of the immediately preceding calendar year; or
(ii) its statutory net gain from operations for the
immediately preceding calendar year (excluding realized capital
gains). MLI-USA will be permitted to pay a dividend to MetLife
Insurance Company of Connecticut in excess of the greater of
such two amounts only if it files notice of the declaration of
such a dividend and the amount thereof with the Delaware
Commissioner of Insurance (Delaware Commissioner)
and the Delaware Commissioner either approves the distribution
of the dividend or does not disapprove the distribution within
30 days of its filing. In addition, any dividend that
exceeds earned surplus (defined as unassigned funds) as of the
last filed annual statutory statement requires insurance
regulatory approval. Under Delaware State Insurance Law, the
Delaware Commissioner has broad discretion in determining
whether the financial condition of a stock life insurance
company would support the payment of such dividends to its
stockholders. During the years ended December 31, 2010 and
2009, MLI-USA did not pay dividends to MetLife Insurance Company
of Connecticut. Because MLI-USAs statutory unassigned
funds was negative as of December 31, 2010, MLI-USA cannot
pay any dividends in 2011 without prior regulatory approval.
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Item 6.
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Selected
Financial Data
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Omitted pursuant to General Instruction I(2)(a) of
Form 10-K.
43
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Item 7.
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Managements
Discussion and Analysis of Financial Condition and Results of
Operations
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For purposes of this discussion, MICC, 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 subsidiary of MetLife, Inc.
(MetLife). Managements narrative analysis of
the results of operations is presented pursuant to General
Instruction I(2)(a) of
Form 10-K.
This narrative analysis should be read in conjunction with
Note Regarding Forward-Looking Statements,
Risk Factors, and the Companys consolidated
financial statements included elsewhere herein.
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 accounting
principles generally accepted 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) and net derivative gains (losses);
(ii) less amortization of unearned revenue related to net
investment gains (losses) and net derivative 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) less net
investment income related to contractholder-directed unit-linked
investments.
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 net derivative gains (losses); (iii) less
interest credited to policyholder account balances
(PABs) related to contractholder-directed
unit-linked investments; and (iv) plus scheduled periodic
settlement payments on derivatives that are hedges of PABs but
do not qualify for hedge accounting treatment.
In addition, operating revenues and operating expenses do not
reflect the consolidation of certain securitization entities
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.
In this discussion, we sometimes refer to sales activity for
various products. These sales statistics do not correspond to
revenues under GAAP, but are used as relevant measures of
business activity.
44
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
consolidated financial statements. The most critical estimates
include those used in determining:
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(i)
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the estimated fair value of investments in the absence of quoted
market values;
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(ii)
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investment impairments;
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(iii)
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the recognition of income on certain investment entities and the
application of the consolidation rules to certain investments;
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(iv)
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the estimated fair value of and accounting for freestanding
derivatives and the existence and estimated fair value of
embedded derivatives requiring bifurcation;
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(v)
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the capitalization and amortization of DAC and the establishment
and amortization of VOBA;
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(vi)
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the measurement of goodwill and related impairment, if any;
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(vii)
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the liability for future policyholder benefits and the
accounting for reinsurance contracts;
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(viii)
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accounting for income taxes and the valuation of deferred tax
assets; and
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(ix)
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the liability for litigation and regulatory matters.
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In applying the Companys accounting policies, we make
subjective and complex judgments that frequently require
estimates about matters that are inherently uncertain. Many of
these policies, estimates and related judgments are common in
the insurance and financial services industries; others are
specific to the Companys businesses and operations. Actual
results could differ from these estimates.
Fair
Value
The Company defines fair value as the price that would be
received to sell an asset or paid to transfer a liability (an
exit price) in the principal or most advantageous market for the
asset or liability in an orderly transaction between market
participants on the measurement date. In many cases, the exit
price and the transaction (or entry) price will be the same at
initial recognition. However, in certain cases, the transaction
price may not represent fair value. The fair value of a
liability is based on the amount that would be paid to transfer
a liability to a third party with the same credit standing. It
requires that fair value be a market-based measurement in which
the fair value is determined based on a hypothetical transaction
at the measurement date, considered from the perspective of a
market participant. When quoted prices are not used to determine
fair value of an asset, the Company considers three broad
valuation techniques: (i) the market approach,
(ii) the income approach, and (iii) the cost approach.
The Company determines the most appropriate valuation technique
to use, given what is being measured and the availability of
sufficient inputs. The Company prioritizes the inputs to fair
valuation techniques and allows for the use of unobservable
inputs to the extent that observable inputs are not available.
The Company categorizes its assets and liabilities measured at
estimated fair value into a three-level hierarchy, based on the
priority of the inputs to the respective valuation technique.
The fair value hierarchy gives the highest priority to quoted
prices in active markets for identical assets or liabilities
(Level 1) and the lowest priority to unobservable
inputs (Level 3). An asset or liabilitys
classification within the fair value hierarchy is based on the
lowest level of input to its valuation. The input levels are as
follows:
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Level 1
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Unadjusted quoted prices in active markets for identical assets
or liabilities. The Company defines active markets based on
average trading volume for equity securities. The size of the
bid/ask spread is used as an indicator of market activity for
fixed maturity securities.
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Level 2
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Quoted prices in markets that are not active or inputs that are
observable either directly or indirectly. Level 2 inputs
include quoted prices for similar assets or liabilities other
than quoted prices in Level 1; quoted prices in markets
that are not active; or other significant inputs that are
observable or can be derived principally from or corroborated by
observable market data for substantially the full term of the
assets or liabilities.
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45
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Level 3
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Unobservable inputs that are supported by little or no market
activity and are significant to the estimated fair value of the
assets or liabilities. Unobservable inputs reflect the reporting
entitys own assumptions about the assumptions that market
participants would use in pricing the asset or liability.
Level 3 assets and liabilities include financial
instruments whose values are determined using pricing models,
discounted cash flow methodologies, or similar techniques, as
well as instruments for which the determination of estimated
fair value requires significant management judgment or
estimation.
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Prior to January 1, 2009, the measurement and disclosures
of fair value based on exit price excluded certain items such as
nonfinancial assets and nonfinancial liabilities initially
measured at estimated fair value in a business combination,
reporting units measured at estimated fair value in the first
step of a goodwill impairment test and indefinite-lived
intangible assets measured at estimated fair value for
impairment assessment.
In addition, the Company elected the fair value option
(FVO) for certain of its financial instruments to
better match measurement of assets and liabilities in the
consolidated statements of operations.
Estimated
Fair Value of Investments
The Companys investments in fixed maturity and equity
securities, investments in other securities, and certain
short-term investments are reported at their estimated fair
value. In determining the estimated fair value of these
investments, various methodologies, assumptions and inputs are
utilized, as described further below.
When available, the estimated fair value of securities is based
on quoted prices in active markets that are readily and
regularly obtainable. Generally, these are the most liquid of
the Companys securities holdings and valuation of these
securities does not involve management judgment.
When quoted prices in active markets are not available, the
determination of estimated fair value is based on market
standard valuation methodologies. The market standard valuation
methodologies utilized include: discounted cash flow
methodologies, matrix pricing or other similar techniques. The
inputs to these market standard valuation methodologies include,
but are not limited to: interest rates, credit standing of the
issuer or counterparty, industry sector of the issuer, coupon
rate, call provisions, sinking fund requirements, maturity,
estimated duration and managements assumptions regarding
liquidity and estimated future cash flows. Accordingly, the
estimated fair values are based on available market information
and managements judgments about financial instruments.
The significant inputs to the market standard valuation
methodologies for certain types of securities with reasonable
levels of price transparency are inputs that are observable in
the market or can be derived principally from or corroborated by
observable market data. Such observable inputs include
benchmarking prices for similar assets in active, liquid
markets, quoted prices in markets that are not active and
observable yields and spreads in the market.
When observable inputs are not available, the market standard
valuation methodologies for determining the estimated fair value
of certain types of securities that trade infrequently, and
therefore have little or no price transparency, rely on inputs
that are significant to the estimated fair value that are not
observable in the market or cannot be derived principally from
or corroborated by observable market data. These unobservable
inputs can be based in large part on management judgment or
estimation, and cannot be supported by reference to market
activity. Even though unobservable, these inputs are based on
assumptions deemed appropriate given the circumstances and
consistent with what other market participants would use when
pricing such securities.
Financial markets are susceptible to severe events evidenced by
rapid depreciation in asset values accompanied by a reduction in
asset liquidity. The Companys ability to sell securities,
or the price ultimately realized for these securities, depends
upon the demand and liquidity in the market and increases the
use of judgment in determining the estimated fair value of
certain securities.
46
Investment
Impairments
One of the significant estimates related to
available-for-sale
securities is the evaluation of investments for impairments. The
assessment of whether impairments have occurred is based on our
case-by-case
evaluation of the underlying reasons for the decline in
estimated fair value. The Companys review of its fixed
maturity and equity securities for impairments includes an
analysis of the total gross unrealized losses by three
categories of severity
and/or age
of the gross unrealized loss, as described more fully in
Note 2 of the Notes to the Consolidated Financial
Statements. An extended and severe unrealized loss position on a
fixed maturity security may not have any impact on the ability
of the issuer to service all scheduled interest and principal
payments and the Companys evaluation of recoverability of
all contractual cash flows or the ability to recover an amount
at least equal to its amortized cost based on the present value
of the expected future cash flows to be collected. In contrast,
for certain equity securities, greater weight and consideration
are given by the Company to a decline in estimated fair value
and the likelihood such estimated fair value decline will
recover.
Additionally, we consider a wide range of factors about the
security issuer and use our best judgment in evaluating the
cause of the decline in the estimated fair value of the security
and in assessing the prospects for near- term recovery. Inherent
in our evaluation of the security are assumptions and estimates
about the operations of the issuer and its future earnings
potential. Considerations used by the Company in the impairment
evaluation process include, but are not limited to:
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(i)
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the length of time and the extent to which the estimated fair
value has been below cost or amortized cost;
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(ii)
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the potential for impairments of securities when the issuer is
experiencing significant financial difficulties;
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(iii)
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the potential for impairments in an entire industry sector or
sub-sector;
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(iv)
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the potential for impairments in certain economically depressed
geographic locations;
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(v)
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the potential for impairments of securities where the issuer,
series of issuers or industry has suffered a catastrophic type
of loss or has exhausted natural resources;
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(vi)
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with respect to fixed maturity securities, whether the Company
has the intent to sell or will more likely than not be required
to sell a particular security before recovery of the decline in
estimated fair value below cost or amortized cost;
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(vii)
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with respect to equity securities, whether the Companys
ability and intent to hold the security for a period of time
sufficient to allow for the recovery of its value to an amount
equal to or greater than cost;
|
|
|
(viii)
|
unfavorable changes in projected cash flows on mortgage-backed
and asset-backed securities (ABS); and
|
|
|
(ix)
|
other subjective factors, including concentrations and
information obtained from regulators and rating agencies.
|
The cost of fixed maturity and equity securities is adjusted for
the credit loss component of
Other-Than-Temporary
Impairment (OTTI) in the period in which the
determination is made. When an OTTI of a fixed maturity security
has occurred, the amount of the OTTI recognized in earnings
depends on whether the Company intends to sell the security or
more likely than not will be required to sell the security
before recovery of the decline in estimated fair value below
amortized cost. If the fixed maturity security meets either of
these two criteria, the OTTI recognized in earnings is equal to
the entire difference between the securitys amortized cost
and its estimated fair value at the impairment measurement date.
For OTTI of fixed maturity securities that do not meet either of
these two criteria, the net amount recognized in earnings is
equal to the difference between the amortized cost of the fixed
maturity security and the present value of projected future cash
flows expected to be collected from this security (credit
loss). If the estimated fair value is less than the
present value of projected future cash flows expected to be
collected, this portion of OTTI related to other than credit
factors (noncredit loss) is recorded in other
comprehensive income (loss). For equity securities, the carrying
value of the equity security is impaired to its estimated fair
value, with a corresponding charge to earnings. The Company does
not make any adjustments for subsequent recoveries in value.
47
The determination of the amount of allowances and impairments on
other invested asset classes is highly subjective and is based
upon the Companys periodic evaluation and assessment of
known and inherent risks associated with the respective asset
class. Such evaluations and assessments are revised as
conditions change and new information becomes available.
Recognition
of Income on Certain Investment Entities
The recognition of income on certain investments (e.g.
loan-backed securities, including mortgage-backed and ABS,
certain investment transactions, other securities) is dependent
upon market conditions, which could result in prepayments and
changes in amounts to be earned.
Application
of the Consolidation Rules to Certain Investments
The Company has invested in certain transactions that are VIEs.
These transactions include asset-backed securitizations, hybrid
securities, real estate joint ventures, other limited
partnership interests and limited liability companies. The
Company is required to consolidate those VIEs for which it is
deemed to be the primary beneficiary. The accounting rules for
the determination of when an entity is a VIE and when to
consolidate a VIE are complex. The determination of the
VIEs primary beneficiary requires an evaluation of the
contractual and implied rights and obligations associated with
each partys relationship with or involvement in the
entity, an estimate of the entitys expected losses and
expected residual returns and the allocation of such estimates
to each party involved in the entity. The Company generally uses
a qualitative approach to determine whether it is the primary
beneficiary.
For most VIEs, 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 the primary beneficiary. However, for VIEs
that are investment companies or apply measurement principles
consistent with those utilized by investment companies, the
primary beneficiary is based on a risks and rewards model and is
defined as the entity that will absorb a majority of a
VIEs expected losses, receive a majority of a VIEs
expected residual returns if no single entity absorbs a majority
of expected losses, or both. The Company reassesses its
involvement with VIEs on a quarterly basis. The use of different
methodologies, assumptions and inputs in the determination of
the primary beneficiary could have a material effect on the
amounts presented within the consolidated financial statements.
Derivative
Financial Instruments
The Company enters into freestanding derivative transactions
including swaps, forwards, futures and option contracts to
manage various risks relating to its ongoing business
operations. To a lesser extent, the Company uses credit
derivatives, such as credit default swaps, to synthetically
replicate investment risks and returns which are not readily
available in the cash market.
The estimated fair value of derivatives is determined through
the use of quoted market prices for exchange-traded derivatives
or through the use of pricing models for
over-the-counter
(OTC) derivatives. The determination of estimated
fair value, when quoted market values are not available, is
based on market standard valuation methodologies and inputs that
are assumed to be consistent with what other market participants
would use when pricing the instruments. Derivative valuations
can be affected by changes in interest rates, foreign currency
exchange rates, financial indices, credit spreads, default risk
(including the counterparties to the contract), volatility,
liquidity and changes in estimates and assumptions used in the
pricing models. See Note 3 of the Notes to the Consolidated
Financial Statements for additional details on significant
inputs into the OTC derivative pricing models and credit risk
adjustment.
The accounting for derivatives is complex and interpretations of
the primary accounting guidance continue to evolve in practice.
Judgment is applied in determining the availability and
application of hedge accounting designations and the appropriate
accounting treatment under such accounting guidance. If it was
determined that hedge accounting designations were not
appropriately applied, reported net income could be materially
affected. Differences in judgment as to the availability and
application of hedge accounting designations and the appropriate
accounting treatment may result in a differing impact on the
consolidated financial statements of the Company from that
previously reported. Assessments of hedge effectiveness and
measurements of ineffectiveness of hedging
48
relationships are also subject to interpretations and
estimations and different interpretations or estimates may have
a material effect on the amount reported in net income.
Embedded
Derivatives
The Company issues certain variable annuity products with
guaranteed minimum benefits. These include guaranteed minimum
withdrawal benefits (GMWB), guaranteed minimum
accumulation benefits (GMAB), and certain guaranteed
minimum income benefits (GMIB). GMWB, GMAB and
certain GMIB are embedded derivatives, which are measured at
estimated fair value separately from the host variable annuity
product, with changes in estimated fair value reported in net
derivative gains (losses).
The estimated fair values of these embedded derivatives are
determined based on the present value of projected future
benefits minus the present value of projected future fees. The
projections of future benefits and future fees require capital
market and actuarial assumptions including expectations
concerning policyholder behavior. A risk neutral valuation
methodology is used under which the cash flows from the
guarantees are projected under multiple capital market scenarios
using observable risk free rates. The valuation of these
embedded derivatives also includes an adjustment for the
Companys nonperformance risk and risk margins for
non-capital market inputs. The nonperformance risk adjustment is
determined by taking into consideration publicly available
information relating to spreads in the secondary market for the
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.
The accounting for embedded derivatives is complex and
interpretations of the primary accounting standards continue to
evolve in practice. If interpretations change, there is a risk
that features previously not bifurcated may require bifurcation
and reporting at estimated fair value in the consolidated
financial statements and respective changes in estimated fair
value could materially affect net income.
These guaranteed minimum benefits may be more costly than
expected in volatile or declining equity markets. Market
conditions including, but not limited to, changes in interest
rates, equity indices, market volatility and foreign currency
exchange rates; changes in the Companys nonperformance
risk, 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 described in the preceding paragraphs to an
affiliated reinsurance company. The value of the embedded
derivatives on the ceded risk is determined using a methodology
consistent with that described previously for the guarantees
directly written by the Company.
In addition to ceding risks associated with guarantees that are
accounted for as embedded derivatives, the Company also cedes to
the same affiliated reinsurance company certain directly written
GMIB guarantees that are accounted for as insurance (i.e. not as
embedded derivatives) but where the reinsurance contract
contains an embedded derivative. These embedded derivatives are
included in premiums and other receivables with changes in
estimated fair value reported in net investment gains (losses).
The value of the embedded derivatives on these ceded risks is
determined using a methodology consistent with that described
previously for the guarantees directly written by the Company.
Because the directly written GMIB is not accounted for at fair
value, significant fluctuations in net income may occur as the
change in fair value of the embedded derivative on the ceded
risk is being recorded in net income without a corresponding and
offsetting change in fair value of the directly written GMIB.
As part of its regular review of critical accounting estimates,
the Company periodically assesses inputs for estimating
nonperformance risk 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
49
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 its insurance subsidiaries incorporate 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 income from continuing operations,
net of income tax, with no effect on operating earnings.
Deferred
Policy Acquisition Costs and Value of Business
Acquired
The Company incurs significant costs in connection with
acquiring new and renewal insurance business. Costs that vary
with and relate to the production of new business are deferred
as DAC. Such costs consist principally of commissions and agency
and policy issuance expenses. VOBA is an intangible asset that
represents an excess of book value over the estimated fair value
of acquired insurance, annuity and investment-type contracts
in-force at the acquisition date. The estimated fair value of
the acquired liabilities is based on actuarially determined
projections, by each block of business, of future policy and
contract charges, premiums, mortality and morbidity, separate
account performance, surrenders, operating expenses, investment
returns, nonperformance risk adjustment and other factors.
Actual experience on the purchased business may vary from these
projections. The recovery of DAC and VOBA is dependent upon the
future profitability of the related business. DAC and VOBA are
aggregated in the consolidated financial statements for
reporting purposes.
Note 1 of the Notes to the Consolidated Financial
Statements describes the Companys accounting policy
relating to DAC and VOBA amortization for various types of
contracts.
Separate account rates of return on variable universal life
contracts and variable deferred annuity contracts affect
in-force account balances on such contracts each reporting
period which can result in significant fluctuations in
amortization of DAC and VOBA. The Companys practice to
determine the impact of gross profits resulting from returns on
separate accounts assumes that long-term appreciation in equity
markets is not changed by short-term market fluctuations, but is
only changed when sustained interim deviations are expected. The
Company monitors these events and only changes the assumption
when its long-term expectation changes. The effect of an
increase/(decrease) by 100 basis points in the assumed
future rate of return is reasonably likely to result in a
decrease/(increase) in the DAC and VOBA amortization of
approximately $59 million with an offset to the
Companys unearned revenue liability of approximately
$1 million for this factor.
The Company also periodically reviews other long-term
assumptions underlying the projections of estimated gross
profits. These include investment returns, interest crediting
rates, mortality, persistency, and expenses to administer
business. We annually update assumptions used in the calculation
of estimated gross profits which may have significantly changed.
If the update of assumptions causes expected future gross
profits to increase, DAC and VOBA amortization will decrease,
resulting in a current period increase to earnings. The opposite
result occurs when the assumption update causes expected future
gross profits to decrease.
The Companys most significant assumption updates resulting
in a change to expected future gross profits and the
amortization of DAC and VOBA were due to revisions to expected
future investment returns, expenses, in-force or persistency
assumptions included within the Retirement Products and
Insurance Products segments. During 2010, the amount of net
investment gains (losses), as well as the level of separate
account balances also resulted in significant changes to
expected future gross profits impacting amortization of DAC and
VOBA. The Company expects these assumptions to be the ones most
reasonably likely to cause significant changes in the future.
Changes in these assumptions can be offsetting and the Company
is unable to predict their movement or offsetting impact over
time.
Goodwill
Goodwill is the excess of cost over the estimated fair value of
net assets acquired. Goodwill is not amortized but is tested for
impairment at least annually or more frequently if events or
circumstances, such as adverse changes in the business climate,
indicate that there may be justification for conducting an
interim test.
50
Impairment testing is performed using the fair value approach,
which requires the use of estimates and judgment, at the
reporting unit level. A reporting unit is the
operating segment or a business one level below the operating
segment, if discrete financial information is prepared and
regularly reviewed by management at that level.
For purposes of goodwill impairment testing, if the carrying
value of a reporting unit exceeds its estimated fair value,
there might be an indication of impairment. In such instances,
the implied fair value of the goodwill is determined in the same
manner as the amount of goodwill that would be determined in a
business acquisition. The excess of the carrying value of
goodwill over the implied fair value of goodwill would be
recognized as an impairment and recorded as a charge against net
income.
The key inputs, judgments and assumptions necessary in
determining estimated fair value of the reporting units include
projected operating earnings, current book value, the level of
economic capital required to support the mix of business,
long-term growth rates, comparative market multiples, the
account value of in-force business, projections of new and
renewal business, as well as margins on such business, the level
of interest rates, credit spreads, equity market levels, and the
discount rate that we believe is appropriate for the respective
reporting unit. The estimated fair values of the retirement
products and individual life reporting units are particularly
sensitive to the equity market levels.
We apply significant judgment when determining the estimated
fair value of our reporting units. The valuation methodologies
utilized are subject to key judgments and assumptions that are
sensitive to change. Estimates of fair value are inherently
uncertain and represent only managements reasonable
expectation regarding future developments. These estimates and
the judgments and assumptions upon which the estimates are based
will, in all likelihood, differ in some respects from actual
future results. Declines in the estimated fair value of our
reporting units could result in goodwill impairments in future
periods which could materially adversely affect our results of
operations or financial position.
On an ongoing basis, we evaluate potential triggering events
that may affect the estimated fair value of our reporting units
to assess whether any goodwill impairment exists. Deteriorating
or adverse market conditions for certain reporting units may
have a significant impact on the estimated fair value of these
reporting units and could result in future impairments of
goodwill.
Liability
for Future Policy Benefits
The Company establishes liabilities for amounts payable under
insurance policies, including traditional life insurance,
traditional annuities and non-medical health insurance.
Generally, amounts are payable over an extended period of time
and related liabilities are calculated as the present value of
future expected benefits to be paid reduced by the present value
of future expected premiums. Such liabilities are established
based on methods and underlying assumptions in accordance with
GAAP and applicable actuarial standards. Principal assumptions
used in the establishment of liabilities for future policy
benefits are mortality, morbidity, policy lapse, renewal,
retirement, investment returns, inflation, expenses and other
contingent events as appropriate to the respective product type.
These assumptions are established at the time the policy is
issued and are intended to estimate the experience for the
period the policy benefits are payable. Utilizing these
assumptions, liabilities are established on a block of business
basis. If experience is less favorable than assumptions,
additional liabilities may be required, resulting in a charge to
policyholder benefits and claims.
Future policy benefit liabilities for disabled lives are
estimated using the present value of benefits method and
experience assumptions as to claim terminations, expenses and
interest.
Liabilities for unpaid claims and claim expenses for
workers compensation insurance are included in future
policyholder benefits and represent the amount estimated for
claims that have been reported but not settled and claims
incurred but not reported. Other policy-related balances include
claims that have been reported but not settled and claims
incurred but not reported on life and non-medical health
insurance. Liabilities for unpaid claims are estimated based
upon the Companys historical experience and other
actuarial assumptions that consider the effects of current
developments, anticipated trends and risk management programs.
With respect to workers compensation insurance, such
unpaid claims are reduced for anticipated subrogation.
51
Future policy benefit liabilities for minimum death and income
benefit guarantees relating to certain annuity contracts and
secondary guarantees relating to certain life policies are based
on estimates of the expected value of benefits in excess of the
projected account balance and recognizing the excess ratably
over the accumulation period based on total expected
assessments. Liabilities for universal and variable life
secondary guarantees are determined by estimating the expected
value of death benefits payable when the account balance is
projected to be zero and recognizing those benefits ratably over
the accumulation period based on total expected assessments. The
assumptions used in estimating these liabilities are consistent
with those used for amortizing DAC, and are thus subject to the
same variability and risk.
The Company periodically reviews its estimates of actuarial
liabilities for future policy benefits and compares them with
its actual experience. Differences between actual experience and
the assumptions used in pricing of these policies and guarantees
and in the establishment of the related liabilities result in
variances in profit and could result in losses.
Reinsurance
The Company enters into reinsurance agreements primarily as a
purchaser of reinsurance for its various insurance products and
also as a provider of reinsurance for some insurance products
issued by third parties. Accounting for reinsurance requires
extensive use of assumptions and estimates, particularly related
to the future performance of the underlying business and the
potential impact of counterparty credit risks. The Company
periodically reviews actual and anticipated experience compared
to the aforementioned assumptions used to establish assets and
liabilities relating to ceded and assumed reinsurance and
evaluates the financial strength of counterparties to its
reinsurance agreements using criteria similar to that evaluated
in the security impairment process discussed previously.
Additionally, for each of its reinsurance agreements, the
Company determines whether the agreement provides
indemnification against loss or liability relating to insurance
risk, in accordance with applicable accounting standards. The
Company reviews all contractual features, particularly those
that may limit the amount of insurance risk to which the
reinsurer is subject or features that delay the timely
reimbursement of claims. If the Company determines that a
reinsurance agreement does not expose the reinsurer to a
reasonable possibility of a significant loss from insurance
risk, the Company records the agreement using the deposit method
of accounting.
Income
Taxes
Income taxes represent the net amount of income taxes that the
Company expects to pay to or receive from various taxing
jurisdictions in connection with its operations. The Company
provides for federal, state and foreign income taxes currently
payable, as well as those deferred due to temporary differences
between the financial reporting and tax bases of assets and
liabilities. The Companys accounting for income taxes
represents managements best estimate of various events and
transactions.
Deferred tax assets and liabilities resulting from temporary
differences between the financial reporting and tax bases of
assets and liabilities are measured at the balance sheet date
using enacted tax rates expected to apply to taxable income in
the years the temporary differences are expected to reverse. The
realization of deferred tax assets depends upon the existence of
sufficient taxable income within the carryback or carryforward
periods under the tax law in the applicable tax jurisdiction.
Valuation allowances are established when management determines,
based on available information, that it is more likely than not
that deferred income tax assets will not be realized. Factors in
managements determination consider the performance of the
business including the ability to generate capital gains.
Significant judgment is required in determining whether
valuation allowances should be established, as well as the
amount of such allowances. When making such determination,
consideration is given to, among other things, the following:
|
|
|
|
(i)
|
future taxable income exclusive of reversing temporary
differences and carryforwards;
|
|
|
(ii)
|
future reversals of existing taxable temporary differences;
|
|
|
(iii)
|
taxable income in prior carryback years; and
|
|
|
(iv)
|
tax planning strategies.
|
52
The Company determines whether it is more likely than not that a
tax position will be sustained upon examination by the
appropriate taxing authorities before any part of the benefit is
recorded in the financial statements. A tax position is measured
at the largest amount of benefit that is greater than
50 percent likely of being realized upon settlement. The
Company may be required to change its provision for income taxes
when the ultimate deductibility of certain items is challenged
by taxing authorities or when estimates used in determining
valuation allowances on deferred tax assets significantly
change, or when receipt of new information indicates the need
for adjustment in valuation allowances. Additionally, future
events, such as changes in tax laws, tax regulations, or
interpretations of such laws or regulations, could have an
impact on the provision for income tax and the effective tax
rate. Any such changes could significantly affect the amounts
reported in the consolidated financial statements in the year
these changes occur.
Litigation
Contingencies
The Company is a party to a number of legal actions and is
involved in a number of regulatory investigations. Given the
inherent unpredictability of these matters, it is difficult to
estimate the impact on the Companys financial position.
Liabilities are established when it is probable that a loss has
been incurred and the amount of the loss can be reasonably
estimated. On a quarterly and annual basis, the Company reviews
relevant information with respect to liabilities for litigation,
regulatory investigations and litigation-related contingencies
to be reflected in the Companys consolidated financial
statements. It is possible that an adverse outcome in certain of
the Companys litigation and regulatory investigations, or
the use of different assumptions in the determination of amounts
recorded, could have a material effect upon the Companys
consolidated net income or cash flows in particular quarterly or
annual periods.
Economic
Capital
Economic capital is an internally developed risk capital model,
the purpose of which is to measure the risk in the business and
to provide a basis upon which capital is deployed. The economic
capital model accounts for the unique and specific nature of the
risks inherent in our businesses. As a part of the economic
capital process, a portion of net investment income is credited
to the segments based on the level of allocated equity. This is
in contrast to the standardized regulatory risk-based capital
formula, which is not as refined in its risk calculations with
respect to the nuances of our businesses.
Results
of Operations
Year
Ended December 31, 2010 compared with the Year Ended
December 31, 2009
Overall market conditions have improved compared to conditions a
year ago, positively impacting our results most significantly
through increased net cash flows, improved yields on our
investment portfolio and increased policy fee income as well as
favorable changes in net investment gains (losses) and net
derivative gains (losses). Market penetration continues in our
pension closeout business in the United Kingdom as the number of
sold cases has increased, however the average premium has
declined resulting in a decrease in premium in the current
period of $216 million, before income tax. 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. Sales of our variable annuity products were up
24%, while sales of fixed annuities were down 22%. The unusually
high level of fixed annuity sales experienced in the 2009
53
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
% Change
|
|
|
|
(In millions)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
1,067
|
|
|
$
|
1,312
|
|
|
$
|
(245
|
)
|
|
|
(18.7)
|
%
|
Universal life and investment-type product policy fees
|
|
|
1,639
|
|
|
|
1,380
|
|
|
|
259
|
|
|
|
18.8
|
%
|
Net investment income
|
|
|
3,157
|
|
|
|
2,335
|
|
|
|
822
|
|
|
|
35.2
|
%
|
Other revenues
|
|
|
503
|
|
|
|
598
|
|
|
|
(95
|
)
|
|
|
(15.9)
|
%
|
Net investment gains (losses)
|
|
|
150
|
|
|
|
(835
|
)
|
|
|
985
|
|
|
|
118.0
|
%
|
Net derivative gains (losses)
|
|
|
58
|
|
|
|
(1,031
|
)
|
|
|
1,089
|
|
|
|
105.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
6,574
|
|
|
|
3,759
|
|
|
|
2,815
|
|
|
|
74.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims
|
|
|
1,905
|
|
|
|
2,065
|
|
|
|
(160
|
)
|
|
|
(7.7)
|
%
|
Interest credited to policyholder account balances
|
|
|
1,271
|
|
|
|
1,301
|
|
|
|
(30
|
)
|
|
|
(2.3)
|
%
|
Capitalization of DAC
|
|
|
(978
|
)
|
|
|
(851
|
)
|
|
|
(127
|
)
|
|
|
(14.9)
|
%
|
Amortization of DAC and VOBA
|
|
|
839
|
|
|
|
294
|
|
|
|
545
|
|
|
|
185.4
|
%
|
Interest expense on debt
|
|
|
472
|
|
|
|
71
|
|
|
|
401
|
|
|
|
564.8
|
%
|
Other expenses
|
|
|
1,988
|
|
|
|
1,693
|
|
|
|
295
|
|
|
|
17.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
5,497
|
|
|
|
4,573
|
|
|
|
924
|
|
|
|
20.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income tax
|
|
|
1,077
|
|
|
|
(814
|
)
|
|
|
1,891
|
|
|
|
232.3
|
%
|
Provision for income tax expense (benefit)
|
|
|
320
|
|
|
|
(368
|
)
|
|
|
688
|
|
|
|
187.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
757
|
|
|
$
|
(446
|
)
|
|
$
|
1,203
|
|
|
|
269.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unless otherwise stated, all amounts discussed below are net of
income tax.
During the year ended December 31, 2010, MICCs net
income (loss) increased $1.2 billion to income of
$757 million from a loss of $446 million in 2009. The
change was predominantly due to a $708 million favorable
change in net derivative gains (losses), net of income tax, to
gains of $38 million in 2010 compared to losses of
$670 million in 2009, and a $640 million favorable
change in net investment gains (losses), net of income tax.
Offsetting these $1.3 billion in favorable variances were
unfavorable changes in adjustments related to net derivative and
net investment gains (losses) of $244 million, net of
income tax, principally associated with DAC and VOBA
amortization, resulting in a net favorable variance related to
net derivative and net investment gains (losses), net of related
adjustments and income tax, of $1.1 billion.
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, net
of income tax, risk-adjusted net investment income and
risk-adjusted total return. Our investment portfolio is heavily
weighted toward fixed income investments, with over 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
54
for changes within our specific mix of products and business
segments. In addition, the general account investment portfolio
includes within other securities, contractholder-directed
investments supporting unit-linked variable annuity type
liabilities, which do not qualify for reporting and presentation
as separate account assets. The returns on these investments,
which can vary significantly period to period, include changes
in estimated fair value subsequent to purchase, inure to
contractholders and are offset in earnings by a corresponding
change in PABs through interest credited to PABs.
The composition of the investment portfolio of each business
segment is tailored to the specific characteristics of its
insurance liabilities, causing certain portfolios to be shorter
in duration and others to be longer in duration. Accordingly,
certain portfolios are more heavily weighted in longer duration,
higher yielding fixed maturity securities, or certain sub
sectors of fixed maturity securities, than other portfolios.
Investments are purchased to support our insurance liabilities
and not to generate net investment gains and losses. However,
net investment gains and losses are generated and can change
significantly from period to period, due to changes in external
influences including movements in interest rates, foreign
currencies, credit spreads and equity markets, counterparty
specific factors such as financial performance, credit rating
and collateral valuation, and internal factors such as portfolio
rebalancing that can generate gains and losses. 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.
Freestanding derivatives are used to hedge certain investments
and liabilities. For those hedges not designated as accounting
hedges, changes in these market risks can lead to the
recognition of fair value changes in net derivative gains
(losses) without an offsetting gain or loss recognized in
earnings for the item being hedged even though these are
effective economic hedges. Additionally, we issue liabilities
and purchase assets that contain embedded derivatives whose
changes in estimated fair value are sensitive to changes in
market risks and are also recognized in net derivative gains
(losses).
The favorable variance in net derivative gains (losses) of
$708 million, from losses of $670 million in 2009 to
gains of $38 million in 2010 was primarily driven by a
favorable change in freestanding derivatives of
$418 million, from losses in the prior year of
$466 million to losses in the current year of
$48 million. In addition, a favorable change in embedded
derivatives primarily associated with variable annuity minimum
benefit guarantees of $290 million, from losses in the
prior year of $204 million to gains in the current year of
$86 million, contributed to the improvement in net
derivative gains (losses). The favorable variance in net
investment gains (losses) of $640 million was due primarily
to lower impairments across most asset classes and from a lower
provision for credit losses on mortgage loans.
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 $418 million favorable variance in
freestanding derivatives was primarily attributable to market
factors, including falling long-term and mid-term interest
rates, a stronger recovery in equity markets in the prior year
than the current year, a greater decrease in equity volatility
in the prior year as compared to the current year and widening
corporate credit spreads in the financial services sector,
partially offset by the impact of the strengthening of the
United States (U.S.) dollar. Falling long-term and
mid-term interest rates in the current year compared to rising
long-term and mid-term interest rates in the prior year had a
positive impact of $309 million on our interest rate
derivatives, $39 million of which is attributable to hedges
of variable annuity minimum benefit guarantee liabilities, which
are accounted for as embedded derivatives. In addition, stronger
equity market recovery and lower equity volatility in the prior
year as compared to the current year had a positive impact of
$120 million on our equity derivatives, which we use to
hedge variable annuity minimum benefit guarantees. Widening
corporate credit spreads in the financial services sector had a
positive impact of $39 million on our purchased protection
credit derivatives. These favorable variances were partially
offset by the negative impact of $50 million from the
U.S. dollar strengthening on certain of our foreign
currency derivatives, which are used to hedge
foreign-denominated asset and liability exposures.
Certain variable annuity products with minimum benefit
guarantees contain embedded derivatives that are measured at
estimated fair value separately from the host variable annuity
contract, with changes in estimated fair value reported in net
derivative gains (losses). These embedded derivatives also
include an adjustment for
55
nonperformance risk. The $290 million favorable change in
embedded derivatives was primarily attributable to a favorable
change in ceded affiliated reinsurance assets resulting from
changing market factors, partially offset by an unfavorable
change in related direct liabilities from changing market
factors, include falling long-term and mid-term interest rates,
equity volatility and equity market movements. The favorable
change, from losses in the prior year to gains in the current
year, was primarily driven by a favorable change of
$1.4 billion on ceded reinsurance of certain variable
annuity minimum benefit guarantee risks, net of an unfavorable
change in the adjustment for the reinsurers nonperformance
risk in the current year of $394 million. Falling long-term
and mid-term interest rates in the current year compared to
rising long-term and mid-term interest rates in the prior year
had a negative impact of $629 million on direct variable
annuity minimum benefit guarantee liabilities. A stronger
recovery in the equity markets and decreased equity volatility
in the prior year compared to the current year had a negative
impact of $215 million on direct variable annuity minimum
benefit guarantee liabilities. The unfavorable impacts from
market factors were partially offset by a favorable change
related to the adjustment for nonperformance risk of
$269 million on the related liabilities and a
$159 million favorable change in freestanding derivatives,
including equity, interest rate and foreign currency-related
derivatives that hedge market factors. The aforementioned
unfavorable change in the adjustment for the reinsurers
nonperformance risk in the current year of $394 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
$269 million was net of a $256 million loss related to
a refinement in estimating the spreads used in the adjustment
for nonperformance risk.
Improved or stabilizing market conditions across several
invested asset classes and sectors as compared to the prior year
resulted in decreases in impairments and in net realized losses
from sales and disposals of investments in fixed maturity
securities, equity securities, real estate and real estate joint
ventures and other limited partnership interests. These
decreases, coupled with a decrease in the provision for credit
losses on mortgage loans due to improved market conditions,
resulted in a $640 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 net income (loss). Operating earnings
increased by $91 million to $701 million in 2010 from
$610 million in 2009.
Reconciliation
of net income (loss) to operating earnings
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Net income (loss)
|
|
$
|
757
|
|
|
$
|
(446
|
)
|
Less: Net investment gains (losses)
|
|
|
150
|
|
|
|
(835
|
)
|
Less: Net derivative gains (losses)
|
|
|
58
|
|
|
|
(1,031
|
)
|
Less: Adjustments to net income (loss) (1)
|
|
|
(122
|
)
|
|
|
239
|
|
Less: Provision for income tax (expense) benefit
|
|
|
(30
|
)
|
|
|
571
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
701
|
|
|
$
|
610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See definitions of operating revenues and operating expenses for
the components of such adjustments. |
56
Reconciliation
of GAAP revenues to operating revenues and GAAP expenses to
operating expenses
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Total revenues
|
|
$
|
6,574
|
|
|
$
|
3,759
|
|
Less: Net investment gains (losses)
|
|
|
150
|
|
|
|
(835
|
)
|
Less: Net derivative gains (losses)
|
|
|
58
|
|
|
|
(1,031
|
)
|
Less: Adjustments related to net investment gains (losses) and
net derivative gains (losses)
|
|
|
(1
|
)
|
|
|
(20
|
)
|
Less: Other adjustments to revenues (1)
|
|
|
423
|
|
|
|
(31
|
)
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
$
|
5,944
|
|
|
$
|
5,676
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
$
|
5,497
|
|
|
$
|
4,573
|
|
Less: Adjustments related to net investment gains (losses) and
net derivative gains (losses)
|
|
|
84
|
|
|
|
(311
|
)
|
Less: Other adjustments to expenses (1)
|
|
|
460
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
4,953
|
|
|
$
|
4,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See definitions of operating revenues and operating expenses for
the components of such adjustments. |
Unless otherwise stated, all amounts discussed below are net of
income tax.
The change 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 year, from the impact of a
refinement in the assumptions and methodology used to value a
deposit receivable from an affiliated reinsurance treaty of
$139 million. The improvement in the financial markets was
the primary driver of the increase in operating earnings as
evidenced by higher net investment income and an increase in
average separate account balances, which resulted in an increase
in policy fee income. Interest rate and equity market changes
resulted in a decrease in variable annuity guarantee benefit
costs. Partially offsetting this improvement was an increase in
amortization of DAC, VOBA and deferred sales inducements
(DSI).
The increase in net investment income of $239 million was
due to a $190 million increase from higher yields, and a
$49 million increase from the growth in average invested
assets. Yields were positively impacted by the effects of
recovering private equity markets and stabilizing real estate
markets year over year on other limited partnership interests
and real estate joint ventures. These improvements in yields
were partially offset by decreased yields on fixed maturity
securities from the reinvestment of proceeds from maturities and
sales during this lower interest rate environment. Growth in the
investment portfolio was due to the reinvestment of cash flows
from operations and growth in the securities lending program,
which was primarily invested in fixed maturities securities.
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
$63 million, primarily due to lower average crediting rates
in our domestic funding agreement and fixed annuity businesses.
Certain crediting rates can move consistent with the underlying
market indices, primarily LIBOR rates, which were lower than the
prior year. Interest credited related to the pension closeouts
business increased $17 million as a result of the increase
in the average policyholder liabilities.
A significant increase in average separate account balances is
largely attributable to favorable market performance resulting
from improved market conditions since the second quarter of 2009
and positive net cash flows from the annuity business. This
resulted in higher policy fees and other revenues of
$203 million, most notably in our Retirement Products
segment. The improvement in fees is partially offset by greater
DAC, VOBA and DSI amortization of $99 million. Policy fees
are typically calculated as a percentage of the average assets
in the separate account. DAC, VOBA and DSI amortization is based
on the earnings of the business, which in the retirement
business are derived, in part, from fees earned on separate
account balances.
The positive resolution of certain legal matters increased
operating earnings by $27 million.
57
There was a $38 million increase in variable annuity
guaranteed benefit costs. Costs associated with our annuity
guaranteed benefit liabilities are impacted by equity markets
and interest rate levels to varying degrees. While 2010 and 2009
both experienced equity market improvements, the improvement in
2009 was greater. Interest rate levels declined in the current
year and increased in the prior year. The increase in variable
annuity guaranteed benefit costs was due to an increase in
annuity guaranteed benefit liabilities, net of a decrease in
paid claims. The increase in these liabilities was primarily due
to our annual unlocking of assumptions related to these
liabilities.
Claims experience varied amongst our businesses with a net
unfavorable impact of $21 million to operating earnings
compared to the prior year. While we experienced favorable
mortality in our Insurance Products and Corporate Benefit
Funding segments, such experience was surpassed by an increase
in liabilities due to the continued sales of universal life
secondary guaranteed products. In addition, unfavorable
mortality in our income annuity business contributed to the
decrease in earnings.
Other expenses increased by $191 million, which was mainly
attributable to growth in the business of $151 million,
including higher variable expenses of $91 million, such as
commissions, a portion of which was offset by DAC
capitalization. Additionally, higher market driven expenses of
$36 million, such as letter of credit fees, contributed to
this increase.
Income tax expense for the year ended December 31, 2010 was
$290 million, or 29% of income before provision for income
tax, compared with $203 million, or 25%, for the comparable
2009 period. The Companys 2010 and 2009 effective tax
rates differ from the U.S. statutory rate of 35% primarily
due to the impact of certain permanent tax differences,
including non-taxable investment income and tax credits for
investments in low income housing, in relation to income (loss)
before income tax, as well as certain foreign permanent tax
differences. In 2009 we had a larger benefit of $25 million
as compared to 2010 related to the utilization of tax
preferenced investments which provide tax credits and deductions.
Effects
of Inflation
The Company does not believe that inflation has had a material
effect on its consolidated results of operations, except insofar
as inflation may affect interest rates.
Inflation in the U.S. has remained contained and been in a
general downward trend for an extended period. However, in light
of recent and ongoing aggressive fiscal and monetary stimulus
measures by the U.S. federal government and foreign
governments, it is possible that inflation could increase in the
future. An increase in inflation could affect our business in
several ways. During inflationary periods, the value of fixed
income investments falls which could increase realized and
unrealized losses. Inflation also increases expenses for labor
and other materials, potentially putting pressure on
profitability if such costs cannot be passed through in our
product prices. Prolonged and elevated inflation could adversely
affect the financial markets and the economy generally, and
dispelling it may require governments to pursue a restrictive
fiscal and monetary policy, which could constrain overall
economic activity, inhibit revenue growth and reduce the number
of attractive investment opportunities.
Off-Balance
Sheet Arrangements
Commitments
to Fund Partnership Investments
The Company makes commitments to fund partnership investments in
the normal course of business for the purpose of enhancing the
Companys total return on its investment portfolio. The
amounts of these unfunded commitments were $1.2 billion and
$1.5 billion at December 31, 2010 and 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 certain other mortgage
loan commitments that will be
held-for-investment
in the normal course of business for the purpose of enhancing
the Companys total return on its investment portfolio. The
amounts of these mortgage loan commitments were
$270 million and $131 million at December 31,
2010 and 2009, respectively.
58
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 in the normal course of
business for the purpose of enhancing the Companys total
return on its investment portfolio. The amounts of these
unfunded commitments were $315 million and
$445 million at December 31, 2010 and 2009,
respectively.
There are no other material obligations or liabilities arising
from the commitments to fund partnership investments, mortgage
loans, bank credit facilities and private corporate bond
investment arrangements.
Lease
Commitments
The Company, as lessee, has entered into various lease
agreements for office space.
Other
Commitments
See Other Commitments in Note 11 of the Notes
to the Consolidated Financial Statements.
Guarantees
See Guarantees in Note 11 of the Notes to the
Consolidated Financial Statements.
Liquidity
and Capital Resources
Our business and results of operations are materially affected
by conditions in the global capital markets and the economy,
generally, both in the U.S. and elsewhere around the world.
The global economy and markets are now recovering from a period
of significant stress that began in the second half of 2007 and
substantially increased through the first quarter of 2009. This
disruption adversely affected the financial services industry,
in particular. Consequently, financial institutions paid higher
spreads over benchmark U.S. Treasury securities than before
the market disruption began. The U.S. economy entered a
recession in late 2007. This recession ended in mid-2009, but
the recovery from the recession has been below historic averages
and the unemployment rate is expected to remain high for some
time. Although conditions in the financial markets continued to
materially improve in 2010, 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 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, 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 $1.2 billion
and $1.8 billion at December 31, 2010 and 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 years ended December 31, 2010 and 2009, general
account surrenders and withdrawals from annuity products were
$1.8 billion and $1.6 billion, respectively. In the
Corporate Benefit Funding segment, which includes pension
closeouts, bank-owned life insurance and other fixed annuity
contracts, as well as funding agreements (including funding
agreements with the Federal Home Loan Bank of Boston) 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, $375 million
were subject to credit ratings downgrade triggers that permit
early termination subject to a notice period of 90 days.
59
Securities Lending. Under the Companys
securities lending program, the Company was liable for cash
collateral under its control of $7.1 billion and
$6.2 billion at December 31, 2010 and 2009,
respectively. For further details on the securities lending
program and the related liquidity needs, see Note 2 of the
Notes to the 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 increased the Companys derivative collateral
requirements by $30 million at December 31, 2010.
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 $2.5 billion and
$2.9 billion at December 31, 2010 and 2009,
respectively, which is included in PABs.
Support Agreements. The Company is a party to
capital support commitments with certain of its subsidiaries.
Under these arrangements, the Company, with respect to the
applicable entity, has agreed to cause such entity to meet
specified capital and surplus levels. We anticipate that in the
event that these arrangements place demands upon the Company,
there will be sufficient liquidity and capital to enable the
Company to meet anticipated demands.
Adoption
of New Accounting Pronouncements
See Adoption of New Accounting Pronouncements in
Note 1 of the Notes to the Consolidated Financial
Statements.
Future
Adoption of New Accounting Pronouncements
See Future Adoption of New Accounting Pronouncements
in Note 1 of the Notes to the Consolidated Financial
Statements.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
Risk
Management
The Company must effectively manage, measure and monitor the
market risk associated with its assets and liabilities. It has
developed an integrated process for managing risk, which it
conducts through MetLifes Enterprise Risk Management
Department, MetLifes Asset /Liability Management Unit,
MetLifes Treasury Department and MetLifes Investment
Department along with the management of the business segments.
The Company has established and implemented comprehensive
policies and procedures at both the corporate and business
segment level to minimize the effects of potential market
volatility.
The Company regularly analyzes its exposure to interest rate,
equity market price and foreign currency exchange rate risks. As
a result of that analysis, the Company has determined that the
estimated fair values of certain assets and liabilities are
materially exposed to changes in interest rates, foreign
currency exchange rates and changes in the equity markets.
Enterprise Risk Management. MetLife has
established several financial and non-financial senior
management committees as part of its risk management process.
These committees manage capital and risk positions, approve ALM
strategies and establish appropriate corporate business
standards. Further enhancing its committee structure, during the
second quarter of 2010, MetLife created an Enterprise Risk
Committee made up of the following voting members: the Chief
Financial Officer, the Chief Investment Officer, the President
of U.S. Business, the President of International and the
Chief Risk Officer. This committee is responsible for reviewing
all material risks to the enterprise and deciding on actions, if
necessary, in the event risks exceed desirable targets, taking
into consideration best practices to resolve or mitigate those
risks.
60
MetLife also has a separate Enterprise Risk Management
Department, which is responsible for risk throughout the MetLife
enterprise and reports to MetLifes Chief Risk Officer. The
Enterprise Risk Management Departments primary
responsibilities consist of:
|
|
|
|
|
implementing a corporate risk framework, which outlines the
Companys approach for managing risk on an enterprise-wide
basis;
|
|
|
|
developing policies and procedures for managing, measuring,
monitoring and controlling those risks identified in the
corporate risk framework;
|
|
|
|
establishing appropriate corporate risk tolerance levels;
|
|
|
|
deploying capital on an economic capital basis; and
|
|
|
|
reporting on a periodic basis to the Finance and Risk Committee
of MetLifes Board of Directors; with respect to credit
risk, to the Investment Committee of MetLifes Board of
Directors; and, reporting on various aspects of risks, to
financial and non-financial senior management committees.
|
Asset/Liability Management. The Company
actively manages its assets using an approach that balances
quality, diversification, asset/liability matching, liquidity,
concentration and investment return. The goals of the investment
process are to optimize, net of income tax, risk-adjusted
investment income and risk-adjusted total return while ensuring
that the assets and liabilities are reasonably managed on a cash
flow and duration basis. The ALM process is the shared
responsibility of the Financial Risk Management and
Asset/Liability Management Unit, MetLifes Enterprise Risk
Management, MetLifes Portfolio Management Unit, and the
senior members of MetLifes business segments and is
governed by MetLifes ALM Committees. MetLifes ALM
Committees duties include reviewing and approving target
portfolios, establishing investment guidelines and limits and
providing oversight of the ALM process on a periodic basis. The
directives of the ALM Committees are carried out and monitored
through ALM Working Groups which are set up to manage by product
type. In addition, an ALM Steering Committee oversees the
activities of the underlying ALM Committees.
MetLife establishes target asset portfolios for each major
insurance product, which represent the investment strategies
used to profitably fund its liabilities within acceptable levels
of risk. These strategies are monitored through regular review
of portfolio metrics, such as effective duration, yield curve
sensitivity, convexity, liquidity, asset sector concentration
and credit quality by the ALM Working Groups.
Market
Risk Exposures
The Company has exposure to market risk through its insurance
operations and investment activities. For purposes of this
disclosure, market risk is defined as the risk of
loss resulting from changes in interest rates, foreign currency
exchange rates and equity markets.
Interest Rates. The Companys exposure to
interest rate changes results most significantly from its
holdings of fixed maturity securities, as well as its interest
rate sensitive liabilities and derivatives it uses to hedge its
interest rate risk. The fixed maturity securities include
U.S. and foreign government bonds, securities issued by
government agencies, corporate bonds and mortgage-backed
securities, all of which are mainly exposed to changes in
medium- and long-term interest rates. The interest rate
sensitive liabilities for purposes of this disclosure include
PABs related to certain investment type contracts, and net
embedded derivatives within liability host contracts which have
the same type of interest rate exposure (medium- and long-term
interest rates) as fixed maturity securities. The Company
employs product design, pricing and ALM strategies to reduce the
adverse effects of interest rate movements. Product design and
pricing strategies include the use of surrender charges or
restrictions on withdrawals in some products and the ability to
reset credited rates for certain products. ALM strategies
include the use of derivatives and duration mismatch limits. See
Risk Factors Changes in Market Interest Rates
May Significantly Affect Our Profitability.
Foreign Currency Exchange Rates. The
Companys exposure to fluctuations in foreign currency
exchange rates against the U.S. dollar results from its
holdings in
non-U.S. dollar
denominated fixed maturity securities and certain liabilities,
as well as through its investments in foreign subsidiaries. The
principal currencies that create foreign currency exchange rate
risk in the Companys investment portfolios are the Euro
and the British pound. The
61
principal currencies that create foreign currency risk in the
Companys liabilities are the Euro, the British pound, the
Japanese yen and the Australian dollar which the Company hedges
primarily with foreign currency swaps. Through its investments
in foreign subsidiaries and joint ventures, the Company is
primarily exposed to the British pound. The Company has matched
much of its foreign currency liabilities in its foreign
subsidiaries with their respective foreign currency assets,
thereby reducing its risk to foreign currency exchange rate
fluctuation.
Equity Markets. The Company has exposure to
equity market risk through certain liabilities that involve
long-term guarantees on equity performance such as net embedded
derivatives on variable annuities with guaranteed minimum
benefits, certain PABs along with investments in equity
securities. We manage this risk on an integrated basis with
other risks through our ALM strategies including the dynamic
hedging of certain variable annuity guarantee benefits, as well
as reinsurance in order to limit losses, minimize exposure to
large risks, and provide additional capacity for future growth.
The Company also manages equity market price risk exposure in
its investment portfolio through the use of derivatives. Equity
exposures associated with other limited partnership interests
are excluded from this section as they are not considered
financial instruments under GAAP.
Management
of Market Risk Exposures
The Company uses a variety of strategies to manage interest
rate, foreign currency exchange rate and equity market risk,
including the use of derivative instruments.
Interest Rate Risk Management. To manage
interest rate risk, the Company analyzes interest rate risk
using various models, including multi-scenario cash flow
projection models that forecast cash flows of the liabilities
and their supporting investments, including derivative
instruments. These projections involve evaluating the potential
gain or loss on most of the Companys in-force business
under various increasing and decreasing interest rate
environments. The Connecticut State Insurance Department
regulations require that the Company perform some of these
analyses annually as part of the Companys review of the
sufficiency of its regulatory reserves. For several of its legal
entities, the Company maintains segmented operating and surplus
asset portfolios for the purpose of ALM and the allocation of
investment income to product lines. For each segment, invested
assets greater than or equal to the GAAP liabilities less the
DAC asset and any non-invested assets allocated to the segment
are maintained, with any excess swept to the surplus segment.
The business segments may reflect differences in legal entity,
statutory line of business and any product market characteristic
which may drive a distinct investment strategy with respect to
duration, liquidity or credit quality of the invested assets.
Certain smaller entities make use of unsegmented general
accounts for which the investment strategy reflects the
aggregate characteristics of liabilities in those entities. The
Company measures relative sensitivities of the value of its
assets and liabilities to changes in key assumptions utilizing
Company models. These models reflect specific product
characteristics and include assumptions based on current and
anticipated experience regarding lapse, mortality and interest
crediting rates. In addition, these models include asset cash
flow projections reflecting interest payments, sinking fund
payments, principal payments, bond calls, mortgage prepayments
and defaults.
Common industry metrics, such as duration and convexity, are
also used to measure the relative sensitivity of assets and
liability values to changes in interest rates. In computing the
duration of liabilities, consideration is given to all
policyholder guarantees and to how the Company intends to set
indeterminate policy elements such as interest credits or
dividends. Each asset portfolio has a duration target based on
the liability duration and the investment objectives of that
portfolio. Where a liability cash flow may exceed the maturity
of available assets, as is the case with certain retirement and
non-medical health products, the Company may support such
liabilities with equity investments, derivatives or curve
mismatch strategies.
Foreign Currency Exchange Rate Risk
Management. Foreign currency exchange rate risk
is assumed primarily in three ways: investments in foreign
subsidiaries, purchases of foreign currency denominated
investments in the investment portfolio and the sale of certain
insurance products.
|
|
|
|
|
MetLifes Treasury Department is responsible for managing
the exposure to investments in foreign subsidiaries. Limits to
exposures are established and monitored by MetLifes
Treasury Department and managed by MetLifes Investment
Department.
|
62
|
|
|
|
|
MetLifes Investment Department is responsible for managing
the exposure to foreign currency investments. Exposure limits to
unhedged foreign currency investments are incorporated into the
standing authorizations granted to management by MetLifes
Board of Directors and are reported to MetLifes Board of
Directors on a periodic basis.
|
|
|
|
The lines of business are responsible for establishing limits
and managing any foreign exchange rate exposure caused by the
sale or issuance of insurance products.
|
The Company uses foreign currency swaps and forwards to hedge
its foreign currency denominated fixed income investments, its
equity exposure in subsidiaries and its foreign currency
exposures caused by the sale of insurance products.
Equity Market Risk Management. Equity market
risk exposure through the issuance of variable annuities is
managed by MetLifes Asset/Liability Management Unit in
partnership with MetLifes Investment Department. Equity
market risk is realized through its investment in equity
securities and is managed by MetLifes Investment
Department. MetLife and the Company use derivatives to hedge
their equity exposure both in certain liability guarantees such
as variable annuities with guaranteed minimum benefits and
equity securities. These derivatives include exchange-traded
equity futures, equity index options contracts and equity
variance swaps. The Company also employs reinsurance to manage
these exposures. Under these reinsurance agreements, the Company
pays a reinsurance premium generally based on rider fees
collected from policyholders and receives reimbursements for
benefits paid or accrued in excess of account values, subject to
certain limitations. The Company enters into similar agreements
for new or in-force business depending on market conditions.
Hedging Activities. The Company uses
derivative contracts primarily to hedge a wide range of risks
including interest rate risk, foreign currency risk and equity
risk. Derivative hedges are designed to reduce risk on an
economic basis while considering their impact on accounting
results and GAAP and Statutory capital. The construction of the
Companys derivative hedge programs vary depending on the
type of risk being hedged. Some hedge programs are asset or
liability specific while others are portfolio hedges that reduce
risk related to a group of liabilities or assets. The
Companys use of derivatives by major hedge programs is as
follows:
|
|
|
|
|
Risks Related to Living Guarantee Benefits The
Company uses a wide range of derivative contracts to hedge the
risk associated with variable annuity living guarantee benefits.
These hedges include equity and interest rate futures, interest
rate, currency and equity variance swaps, interest rate and
currency forwards, and interest rate option contracts.
|
|
|
|
Minimum Interest Rate Guarantees For certain Company
liability contracts, the Company provides the contractholder a
guaranteed minimum interest rate. These contracts include
certain fixed annuities and other insurance liabilities. The
Company purchases interest rate floors to reduce risk associated
with these liability guarantees.
|
|
|
|
Reinvestment Risk in Long Duration Liability
Contracts Derivatives are used to hedge interest
rate risk related to certain long duration liability contracts
such as deferred annuities. Hedges include zero coupon interest
rate swaps and swaptions.
|
|
|
|
Foreign Currency Risk The Company uses currency
swaps and forwards to hedge foreign currency risk. These hedges
primarily swap foreign currency denominated bonds or equity
exposures to U.S. dollars.
|
|
|
|
General ALM Hedging Strategies In the ordinary
course of managing the Companys asset/liability risks, the
Company uses interest rate futures, interest rate swaps,
interest rate caps, interest rate floors and inflation swaps.
These hedges are designed to reduce interest rate risk or
inflation risk related to the existing assets or liabilities or
related to expected future cash flows.
|
63
Risk
Measurement: Sensitivity Analysis
The Company measures market risk related to its market sensitive
assets and liabilities based on changes in interest rates,
equity prices and foreign currency exchange rates utilizing a
sensitivity analysis. This analysis estimates the potential
changes in estimated fair value based on a hypothetical 10%
change (increase or decrease) in interest rates, equity market
prices and foreign currency exchange rates. The Company believes
that a 10% change (increase or decrease) in these market rates
and prices is reasonably possible in the near-term. In
performing the analysis summarized below, the Company used
market rates at December 31, 2010. The sensitivity analysis
separately calculates each of the Companys market risk
exposures (interest rate, equity market and foreign currency
exchange rate) relating to its trading and non trading assets
and liabilities. The Company modeled the impact of changes in
market rates and prices on the estimated fair values of its
market sensitive assets and liabilities as follows:
|
|
|
|
|
the net present values of its interest rate sensitive exposures
resulting from a 10% change (increase or decrease) in interest
rates;
|
|
|
|
the U.S. dollar equivalent estimated fair values of the
Companys foreign currency exposures due to a 10% change
(increase or decrease) in foreign currency exchange
rates; and
|
|
|
|
the estimated fair value of its equity positions due to a 10%
change (increase or decrease) in equity market prices.
|
The sensitivity analysis is an estimate and should not be viewed
as predictive of the Companys future financial
performance. The Company cannot ensure that its actual losses in
any particular period will not exceed the amounts indicated in
the table below. Limitations related to this sensitivity
analysis include:
|
|
|
|
|
the market risk information is limited by the assumptions and
parameters established in creating the related sensitivity
analysis, including the impact of prepayment rates on mortgages;
|
|
|
|
for the derivatives that qualify as hedges, the impact on
reported earnings may be materially different from the change in
market values;
|
|
|
|
the analysis excludes other significant real estate holdings and
liabilities pursuant to insurance contracts; and
|
|
|
|
the model assumes that the composition of assets and liabilities
remains unchanged throughout the period.
|
Accordingly, the Company uses such models as tools and not as
substitutes for the experience and judgment of its management.
Based on its analysis of the impact of a 10% change (increase or
decrease) in market rates and prices, the Company has determined
that such a change could have a material adverse effect on the
estimated fair value of certain assets and liabilities from
interest rate, foreign currency exchange rate and equity
exposures. The table below illustrates the potential loss in
estimated fair value for each market risk exposure of the
Companys market sensitive assets and liabilities at
December 31, 2010:
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
(In millions)
|
|
|
Non-trading:
|
|
|
|
|
Interest rate risk
|
|
$
|
1,277
|
|
Foreign currency exchange rate risk
|
|
$
|
38
|
|
Equity market risk
|
|
$
|
78
|
|
64
Sensitivity Analysis: Interest Rates. The
table below provides additional detail regarding the potential
loss in fair value of the Companys trading and non-trading
interest sensitive financial instruments at December 31,
2010 by type of asset or liability:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
Assuming a
|
|
|
|
|
|
|
Estimated
|
|
|
10% Increase
|
|
|
|
Notional
|
|
|
Fair
|
|
|
in the Yield
|
|
|
|
Amount
|
|
|
Value (3)
|
|
|
Curve
|
|
|
|
(In millions)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
|
|
|
|
$
|
44,924
|
|
|
$
|
(995
|
)
|
Equity securities
|
|
|
|
|
|
|
405
|
|
|
|
|
|
Other securities
|
|
|
|
|
|
|
2,247
|
|
|
|
|
|
Mortgage loans, net
|
|
|
|
|
|
|
12,862
|
|
|
|
(48
|
)
|
Policy loans
|
|
|
|
|
|
|
1,260
|
|
|
|
(8
|
)
|
Real estate joint ventures (1)
|
|
|
|
|
|
|
102
|
|
|
|
|
|
Other limited partnership interests (1)
|
|
|
|
|
|
|
116
|
|
|
|
|
|
Short-term investments
|
|
|
|
|
|
|
88
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
1,928
|
|
|
|
|
|
Accrued investment income
|
|
|
|
|
|
|
559
|
|
|
|
|
|
Premiums and other receivables
|
|
|
|
|
|
|
6,164
|
|
|
|
(103
|
)
|
Net embedded derivatives within asset host contracts (2)
|
|
|
|
|
|
|
936
|
|
|
|
(314
|
)
|
Mortgage loan commitments
|
|
$
|
270
|
|
|
|
(2
|
)
|
|
|
(4
|
)
|
Commitments to fund bank credit facilities and private corporate
bond investments
|
|
$
|
315
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
|
|
|
|
|
|
|
$
|
(1,472
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder account balances
|
|
|
|
|
|
$
|
26,061
|
|
|
$
|
188
|
|
Long-term debt affiliated
|
|
|
|
|
|
|
930
|
|
|
|
39
|
|
Payables for collateral under securities loaned and other
transactions
|
|
|
|
|
|
|
8,103
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
294
|
|
|
|
|
|
Net embedded derivatives within liability host contracts (2)
|
|
|
|
|
|
|
259
|
|
|
|
163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
|
|
|
|
|
|
|
$
|
390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
9,102
|
|
|
$
|
406
|
|
|
$
|
(146
|
)
|
Interest rate floors
|
|
$
|
7,986
|
|
|
|
65
|
|
|
|
(11
|
)
|
Interest rate caps
|
|
$
|
7,158
|
|
|
|
28
|
|
|
|
7
|
|
Interest rate futures
|
|
$
|
1,966
|
|
|
|
(2
|
)
|
|
|
4
|
|
Interest rate forwards
|
|
$
|
695
|
|
|
|
(71
|
)
|
|
|
(44
|
)
|
Foreign currency swaps
|
|
$
|
2,561
|
|
|
|
517
|
|
|
|
(4
|
)
|
Foreign currency forwards
|
|
$
|
151
|
|
|
|
3
|
|
|
|
|
|
Credit default swaps
|
|
$
|
1,324
|
|
|
|
(7
|
)
|
|
|
|
|
Credit forwards
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Equity futures
|
|
$
|
93
|
|
|
|
|
|
|
|
|
|
Equity options
|
|
$
|
733
|
|
|
|
77
|
|
|
|
(1
|
)
|
Variance swaps
|
|
$
|
1,081
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivative Instruments
|
|
|
|
|
|
|
|
|
|
$
|
(195
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change
|
|
|
|
|
|
|
|
|
|
$
|
(1,277
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents only those investments accounted for using the cost
method. |
|
(2) |
|
Embedded derivatives are recognized in the consolidated balance
sheet in the same caption as the host contract. |
|
(3) |
|
Separate account assets and liabilities which are interest rate
sensitive are not included herein as any interest rate risk is
borne by the holder of the separate account. |
65
This quantitative measure of risk has increased by
$410 million, or approximately 47% to $1,277 million
at December 31, 2010 from $867 million at
December 31, 2009. The increase in risk is due primarily to
an increase in the duration of the investment portfolio of
$355 million. Additionally, a change in the net base of
assets and liabilities, a change due to the use of derivatives
employed by the company and an increase in embedded derivatives
within asset host contracts contributed to the increase in risk,
$285 million, $128 million and $69 million,
respectively. This was partially offset by a decline in rates
across the long end of the swaps and U.S. Treasury curves
resulting in a decrease of $370 million, and a change in
the net embedded derivatives within liability host contracts of
$80 million. The remainder of the fluctuation is
attributable to numerous immaterial items.
Sensitivity Analysis: Foreign Currency Exchange
Rates. The table below provides additional detail
regarding the potential loss in estimated fair value of the
Companys portfolio due to a 10% change in foreign currency
exchange rates at December 31, 2010 by type of asset or
liability:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
Assuming a
|
|
|
|
|
|
|
Estimated
|
|
|
10% Increase
|
|
|
|
Notional
|
|
|
Fair
|
|
|
in the Foreign
|
|
|
|
Amount
|
|
|
Value (1)
|
|
|
Exchange Rate
|
|
|
|
(In millions)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
|
|
|
|
$
|
44,924
|
|
|
$
|
(80
|
)
|
Equity securities
|
|
|
|
|
|
$
|
405
|
|
|
$
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
|
|
|
|
|
|
|
$
|
(83
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder account balances
|
|
|
|
|
|
$
|
26,061
|
|
|
$
|
181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
|
|
|
|
|
|
|
$
|
181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
9,102
|
|
|
$
|
406
|
|
|
$
|
1
|
|
Interest rate floors
|
|
$
|
7,986
|
|
|
|
65
|
|
|
|
|
|
Interest rate caps
|
|
$
|
7,158
|
|
|
|
28
|
|
|
|
|
|
Interest rate futures
|
|
$
|
1,966
|
|
|
|
(2
|
)
|
|
|
|
|
Interest rate forwards
|
|
$
|
695
|
|
|
|
(71
|
)
|
|
|
|
|
Foreign currency swaps
|
|
$
|
2,561
|
|
|
|
517
|
|
|
|
(150
|
)
|
Foreign currency forwards
|
|
$
|
151
|
|
|
|
3
|
|
|
|
13
|
|
Credit default swaps
|
|
$
|
1,324
|
|
|
|
(7
|
)
|
|
|
|
|
Credit forwards
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Equity futures
|
|
$
|
93
|
|
|
|
|
|
|
|
|
|
Equity options
|
|
$
|
733
|
|
|
|
77
|
|
|
|
|
|
Variance swaps
|
|
$
|
1,081
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivative Instruments
|
|
|
|
|
|
|
|
|
|
$
|
(136
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change
|
|
|
|
|
|
|
|
|
|
$
|
(38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Estimated fair value presented in the table above represents the
estimated fair value of all financial instruments within this
financial statement caption not necessarily those solely subject
to foreign currency exchange risk. |
Foreign currency exchange rate risk decreased by $4 million
to $38 million at December 31, 2010 from
$42 million at December 31, 2009. This decrease was
due to a decrease of $14 million of the foreign exposure
associated with the liabilities with guarantees, and an increase
in fixed maturity and equity securities of $4 million,
partially offset by a decrease of $23 million in the use of
derivatives employed by the Company. The remainder of the
fluctuation is attributable to numerous immaterial items.
66
Sensitivity Analysis: Equity Market
Prices. The table below provides additional
detail regarding the potential loss in estimated fair value of
the Companys portfolio due to a 10% change in equity at
December 31, 2010 by type of asset or liability:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
Assuming a
|
|
|
|
|
|
|
Estimated
|
|
|
10% Increase
|
|
|
|
Notional
|
|
|
Fair
|
|
|
in Equity
|
|
|
|
Amount
|
|
|
Value (1)
|
|
|
Prices
|
|
|
|
(In millions)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
|
|
|
$
|
44,924
|
|
|
$
|
15
|
|
Net embedded derivatives within asset host contracts (2)
|
|
|
|
|
|
|
936
|
|
|
|
(230
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
|
|
|
|
|
|
|
$
|
(215
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder account balances
|
|
|
|
|
|
$
|
26,061
|
|
|
$
|
|
|
Net embedded derivatives within liability host contracts (2)
|
|
|
|
|
|
|
259
|
|
|
|
146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
|
|
|
|
|
|
|
$
|
146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
9,102
|
|
|
$
|
406
|
|
|
$
|
|
|
Interest rate floors
|
|
$
|
7,986
|
|
|
|
65
|
|
|
|
|
|
Interest rate caps
|
|
$
|
7,158
|
|
|
|
28
|
|
|
|
|
|
Interest rate futures
|
|
$
|
1,966
|
|
|
|
(2
|
)
|
|
|
|
|
Interest rate forwards
|
|
$
|
695
|
|
|
|
(71
|
)
|
|
|
|
|
Foreign currency swaps
|
|
$
|
2,561
|
|
|
|
517
|
|
|
|
|
|
Foreign currency forwards
|
|
$
|
151
|
|
|
|
3
|
|
|
|
|
|
Credit default swaps
|
|
$
|
1,324
|
|
|
|
(7
|
)
|
|
|
|
|
Credit forwards
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Equity futures
|
|
$
|
93
|
|
|
|
|
|
|
|
4
|
|
Equity options
|
|
$
|
733
|
|
|
|
77
|
|
|
|
(13
|
)
|
Variance swaps
|
|
$
|
1,081
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivative Instruments
|
|
|
|
|
|
|
|
|
|
$
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change
|
|
|
|
|
|
|
|
|
|
$
|
(78
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Estimated fair value presented in the table above represents the
estimated fair value of all financial instruments within this
financial statement caption not necessarily those solely subject
to equity market risk. |
|
(2) |
|
Embedded derivatives are recognized in the consolidated balance
sheet in the same caption as the host contract. |
Equity price risk decreased by $45 million to
$78 million at December 31, 2010 from
$123 million at December 31, 2009. The decrease in
equity price risk was primarily attributed to change in net
embedded derivatives within liability host contracts of
$90 million and in the use of equity derivatives employed
by the Company to hedge its equity exposures of $16 million
partially offset by an increase in the net embedded derivatives
within assets host contracts of $57 million. The remainder
of the fluctuation is attributable to numerous immaterial items.
67
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
Index to
Consolidated Financial Statements and Schedules
|
|
|
|
|
|
|
Page
|
|
|
|
|
F-1
|
|
Financial Statements at December 31, 2010 and 2009 and for
the Years Ended December 31, 2010, 2009, and 2008:
|
|
|
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
Financial Statement Schedules at December 31, 2010 and 2009
and for the Years Ended December 31, 2010, 2009, and 2008:
|
|
|
|
|
|
|
|
F-134
|
|
|
|
|
F-135
|
|
|
|
|
F-139
|
|
|
|
|
F-141
|
|
68
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
MetLife Insurance Company of Connecticut:
We have audited the accompanying consolidated balance sheets of
MetLife Insurance Company of Connecticut and subsidiaries (the
Company) as of December 31, 2010 and 2009, and
the related consolidated statements of operations,
stockholders equity, and cash flows for each of the three
years in the period ended December 31, 2010. Our audits
also included the financial statement schedules listed in the
Index to the Consolidated Financial Statements and Schedules.
These consolidated financial statements and financial statement
schedules are the responsibility of the Companys
management. Our responsibility is to express an opinion on the
consolidated financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial
statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audits
included consideration of internal control over financial
reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Companys
internal control over financial reporting. Accordingly, we
express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements, assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of
MetLife Insurance Company of Connecticut and subsidiaries as of
December 31, 2010 and 2009, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 2010, in conformity with
accounting principles generally accepted in the United States of
America. Also, in our opinion, such financial statement
schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
As discussed in Note 1, the Company changed its method of
accounting for the recognition and presentation of
other-than-temporary
impairment losses for certain investments as required by
accounting guidance adopted on April 1, 2009, and changed
its method of accounting for certain assets and liabilities to a
fair value measurement approach as required by accounting
guidance adopted on January 1, 2008.
/s/ DELOITTE &
TOUCHE LLP
DELOITTE & TOUCHE LLP
New York, New York
March 23, 2011
F-1
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Consolidated Balance Sheets
December 31, 2010 and 2009
(In millions, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
|
|
|
Fixed maturity securities
available-for-sale,
at estimated fair value (amortized cost: $44,132 and $42,435,
respectively)
|
|
$
|
44,924
|
|
|
$
|
41,275
|
|
Equity securities
available-for-sale,
at estimated fair value (cost: $427 and $494, respectively)
|
|
|
405
|
|
|
|
459
|
|
Other securities, at estimated fair value
|
|
|
2,247
|
|
|
|
938
|
|
Mortgage loans (net of valuation allowances of $87 and $77,
respectively; includes $6,840 and $0, respectively, at estimated
fair value relating to variable interest entities)
|
|
|
12,730
|
|
|
|
4,748
|
|
Policy loans
|
|
|
1,190
|
|
|
|
1,189
|
|
Real estate and real estate joint ventures
|
|
|
501
|
|
|
|
445
|
|
Other limited partnership interests
|
|
|
1,538
|
|
|
|
1,236
|
|
Short-term investments, principally at estimated fair value
|
|
|
1,235
|
|
|
|
1,775
|
|
Other invested assets, principally at estimated fair value
|
|
|
1,716
|
|
|
|
1,498
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
|
66,486
|
|
|
|
53,563
|
|
Cash and cash equivalents, principally at estimated fair value
|
|
|
1,928
|
|
|
|
2,574
|
|
Accrued investment income (includes $31 and $0, respectively,
relating to variable interest entities)
|
|
|
559
|
|
|
|
516
|
|
Premiums, reinsurance and other receivables
|
|
|
17,008
|
|
|
|
13,444
|
|
Deferred policy acquisition costs and value of business acquired
|
|
|
5,099
|
|
|
|
5,244
|
|
Current income tax recoverable
|
|
|
38
|
|
|
|
|
|
Deferred income tax assets
|
|
|
356
|
|
|
|
1,147
|
|
Goodwill
|
|
|
953
|
|
|
|
953
|
|
Other assets
|
|
|
839
|
|
|
|
799
|
|
Separate account assets
|
|
|
61,619
|
|
|
|
49,449
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
154,885
|
|
|
$
|
127,689
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Future policy benefits
|
|
$
|
23,198
|
|
|
$
|
21,621
|
|
Policyholder account balances
|
|
|
39,291
|
|
|
|
37,442
|
|
Other policy-related balances
|
|
|
2,652
|
|
|
|
2,297
|
|
Payables for collateral under securities loaned and other
transactions
|
|
|
8,103
|
|
|
|
7,169
|
|
Long-term debt (includes $6,773 and $0, respectively, at
estimated fair value relating to variable interest entities)
|
|
|
7,568
|
|
|
|
950
|
|
Current income tax payable
|
|
|
|
|
|
|
23
|
|
Other liabilities (includes $31 and $0, respectively, relating
to variable interest entities)
|
|
|
4,503
|
|
|
|
2,177
|
|
Separate account liabilities
|
|
|
61,619
|
|
|
|
49,449
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
146,934
|
|
|
|
121,128
|
|
|
|
|
|
|
|
|
|
|
Contingencies, Commitments and Guarantees (Note 11)
|
|
|
|
|
|
|
|
|
Stockholders Equity
|
|
|
|
|
|
|
|
|
Common stock, par value $2.50 per share; 40,000,000 shares
authorized; 34,595,317 shares issued and outstanding at
December 31, 2010 and 2009
|
|
|
86
|
|
|
|
86
|
|
Additional paid-in capital
|
|
|
6,719
|
|
|
|
6,719
|
|
Retained earnings
|
|
|
934
|
|
|
|
541
|
|
Accumulated other comprehensive income (loss)
|
|
|
212
|
|
|
|
(785
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
7,951
|
|
|
|
6,561
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
154,885
|
|
|
$
|
127,689
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial
statements.
F-2
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Consolidated Statements of
Operations
For the Years Ended December 31, 2010, 2009 and 2008
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
1,067
|
|
|
$
|
1,312
|
|
|
$
|
634
|
|
Universal life and investment-type product policy fees
|
|
|
1,639
|
|
|
|
1,380
|
|
|
|
1,378
|
|
Net investment income
|
|
|
3,157
|
|
|
|
2,335
|
|
|
|
2,494
|
|
Other revenues
|
|
|
503
|
|
|
|
598
|
|
|
|
230
|
|
Net investment gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-than-temporary
impairments on fixed maturity securities
|
|
|
(103
|
)
|
|
|
(552
|
)
|
|
|
(401
|
)
|
Other-than-temporary
impairments on fixed maturity securities transferred to other
comprehensive income (loss)
|
|
|
53
|
|
|
|
165
|
|
|
|
|
|
Other net investment gains (losses)
|
|
|
200
|
|
|
|
(448
|
)
|
|
|
(44
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net investment gains (losses)
|
|
|
150
|
|
|
|
(835
|
)
|
|
|
(445
|
)
|
Net derivative gains (losses)
|
|
|
58
|
|
|
|
(1,031
|
)
|
|
|
994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
6,574
|
|
|
|
3,759
|
|
|
|
5,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims
|
|
|
1,905
|
|
|
|
2,065
|
|
|
|
1,446
|
|
Interest credited to policyholder account balances
|
|
|
1,271
|
|
|
|
1,301
|
|
|
|
1,130
|
|
Other expenses
|
|
|
2,321
|
|
|
|
1,207
|
|
|
|
1,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
5,497
|
|
|
|
4,573
|
|
|
|
4,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income tax
|
|
|
1,077
|
|
|
|
(814
|
)
|
|
|
776
|
|
Provision for income tax expense (benefit)
|
|
|
320
|
|
|
|
(368
|
)
|
|
|
203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
757
|
|
|
$
|
(446
|
)
|
|
$
|
573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial
statements.
F-3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2007
|
|
$
|
86
|
|
|
$
|
6,719
|
|
|
$
|
892
|
|
|
$
|
(361
|
)
|
|
$
|
|
|
|
$
|
12
|
|
|
$
|
7,348
|
|
Dividend paid to MetLife
|
|
|
|
|
|
|
|
|
|
|
(500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(500
|
)
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
573
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on derivative instruments, net of
income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
Unrealized investment gains (losses), net of related offsets and
income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,342
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,342
|
)
|
Foreign currency translation adjustments, net of income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(166
|
)
|
|
|
(166
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,487
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,914
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 (Note 1)
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(446
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(446
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on derivative instruments, net of
income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
(14
|
)
|
Unrealized investment gains (losses), net of related offsets and
income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,103
|
|
|
|
(61
|
)
|
|
|
|
|
|
|
2,042
|
|
Foreign currency translation adjustments, net of income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
86
|
|
|
|
6,719
|
|
|
|
541
|
|
|
|
(593
|
)
|
|
|
(83
|
)
|
|
|
(109
|
)
|
|
|
6,561
|
|
Cumulative effect of change in accounting principle, net of
income tax (Note 1)
|
|
|
|
|
|
|
|
|
|
|
(34
|
)
|
|
|
23
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2010
|
|
|
86
|
|
|
|
6,719
|
|
|
|
507
|
|
|
|
(570
|
)
|
|
|
(72
|
)
|
|
|
(109
|
)
|
|
|
6,561
|
|
Dividend paid to MetLife
|
|
|
|
|
|
|
|
|
|
|
(330
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(330
|
)
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
757
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on derivative instruments, net of
income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(70
|
)
|
|
|
|
|
|
|
|
|
|
|
(70
|
)
|
Unrealized investment gains (losses), net of related offsets and
income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,028
|
|
|
|
21
|
|
|
|
|
|
|
|
1,049
|
|
Foreign currency translation adjustments, net of income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16
|
)
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
$
|
86
|
|
|
$
|
6,719
|
|
|
$
|
934
|
|
|
$
|
388
|
|
|
$
|
(51
|
)
|
|
$
|
(125
|
)
|
|
$
|
7,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial
statements.
F-4
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Consolidated Statements of Cash Flows
For the Years Ended December 31,
2010, 2009 and 2008
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
757
|
|
|
$
|
(446
|
)
|
|
$
|
573
|
|
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expenses
|
|
|
41
|
|
|
|
29
|
|
|
|
29
|
|
Amortization of premiums and accretion of discounts associated
with investments, net
|
|
|
(259
|
)
|
|
|
(198
|
)
|
|
|
(18
|
)
|
(Gains) losses on investments and derivatives and from sales of
businesses, net
|
|
|
(300
|
)
|
|
|
1,866
|
|
|
|
(546
|
)
|
Undistributed equity earnings of real estate joint ventures and
other limited partnership interests
|
|
|
(130
|
)
|
|
|
98
|
|
|
|
97
|
|
Interest credited to policyholder account balances
|
|
|
1,271
|
|
|
|
1,301
|
|
|
|
1,130
|
|
Universal life and investment-type product policy fees
|
|
|
(1,639
|
)
|
|
|
(1,380
|
)
|
|
|
(1,378
|
)
|
Change in other securities
|
|
|
(1,199
|
)
|
|
|
(597
|
)
|
|
|
(218
|
)
|
Change in accrued investment income
|
|
|
31
|
|
|
|
(29
|
)
|
|
|
150
|
|
Change in premiums, reinsurance and other receivables
|
|
|
(3,284
|
)
|
|
|
(2,307
|
)
|
|
|
(2,561
|
)
|
Change in deferred policy acquisition costs, net
|
|
|
(138
|
)
|
|
|
(559
|
)
|
|
|
330
|
|
Change in income tax recoverable (payable)
|
|
|
208
|
|
|
|
(303
|
)
|
|
|
262
|
|
Change in other assets
|
|
|
1,041
|
|
|
|
449
|
|
|
|
598
|
|
Change in insurance-related liabilities and policy-related
balances
|
|
|
1,952
|
|
|
|
1,648
|
|
|
|
997
|
|
Change in other liabilities
|
|
|
2,072
|
|
|
|
(166
|
)
|
|
|
1,176
|
|
Other, net
|
|
|
94
|
|
|
|
32
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
518
|
|
|
|
(562
|
)
|
|
|
659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales, maturities and repayments of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
|
17,748
|
|
|
|
13,076
|
|
|
|
20,183
|
|
Equity securities
|
|
|
131
|
|
|
|
141
|
|
|
|
126
|
|
Mortgage loans
|
|
|
964
|
|
|
|
444
|
|
|
|
522
|
|
Real estate and real estate joint ventures
|
|
|
18
|
|
|
|
4
|
|
|
|
15
|
|
Other limited partnership interests
|
|
|
123
|
|
|
|
142
|
|
|
|
203
|
|
Purchases of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
|
(19,342
|
)
|
|
|
(16,192
|
)
|
|
|
(14,027
|
)
|
Equity securities
|
|
|
(39
|
)
|
|
|
(74
|
)
|
|
|
(65
|
)
|
Mortgage loans
|
|
|
(1,468
|
)
|
|
|
(783
|
)
|
|
|
(621
|
)
|
Real estate and real estate joint ventures
|
|
|
(117
|
)
|
|
|
(31
|
)
|
|
|
(102
|
)
|
Other limited partnership interests
|
|
|
(363
|
)
|
|
|
(203
|
)
|
|
|
(458
|
)
|
Cash received in connection with freestanding derivatives
|
|
|
97
|
|
|
|
239
|
|
|
|
142
|
|
Cash paid in connection with freestanding derivatives
|
|
|
(155
|
)
|
|
|
(449
|
)
|
|
|
(228
|
)
|
Net change in policy loans
|
|
|
(1
|
)
|
|
|
3
|
|
|
|
(279
|
)
|
Net change in short-term investments
|
|
|
554
|
|
|
|
1,445
|
|
|
|
(1,887
|
)
|
Net change in other invested assets
|
|
|
(194
|
)
|
|
|
16
|
|
|
|
531
|
|
Other, net
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(2,044
|
)
|
|
|
(2,224
|
)
|
|
|
4,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder account balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
24,910
|
|
|
|
20,783
|
|
|
|
7,146
|
|
Withdrawals
|
|
|
(23,700
|
)
|
|
|
(20,067
|
)
|
|
|
(5,307
|
)
|
Net change in payables for collateral under securities loaned
and other transactions
|
|
|
934
|
|
|
|
(702
|
)
|
|
|
(2,600
|
)
|
Net change in short-term debt
|
|
|
|
|
|
|
(300
|
)
|
|
|
300
|
|
Long-term debt issued affiliated
|
|
|
|
|
|
|
|
|
|
|
750
|
|
Long-term debt repaid affiliated
|
|
|
(878
|
)
|
|
|
|
|
|
|
(435
|
)
|
Debt issuance costs
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
Financing element on certain derivative instruments
|
|
|
(44
|
)
|
|
|
(53
|
)
|
|
|
(46
|
)
|
Dividends on common stock
|
|
|
(330
|
)
|
|
|
|
|
|
|
(500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
892
|
|
|
|
(339
|
)
|
|
|
(700
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of change in foreign currency exchange rates on cash and
cash equivalents balances
|
|
|
(12
|
)
|
|
|
43
|
|
|
|
(132
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents
|
|
|
(646
|
)
|
|
|
(3,082
|
)
|
|
|
3,882
|
|
Cash and cash equivalents, beginning of year
|
|
|
2,574
|
|
|
|
5,656
|
|
|
|
1,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
1,928
|
|
|
$
|
2,574
|
|
|
$
|
5,656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash paid (received) during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
479
|
|
|
$
|
73
|
|
|
$
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax
|
|
$
|
122
|
|
|
$
|
(63
|
)
|
|
$
|
(48
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash transactions during the year:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate and real estate joint ventures acquired in
satisfaction of debt
|
|
$
|
28
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt issued in exchange for certain other invested
assets
|
|
$
|
45
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial
statements.
F-5
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial Statements
|
|
1.
|
Business,
Basis of Presentation and Summary of Significant Accounting
Policies
|
Business
MICC or the Company refers to MetLife
Insurance Company of Connecticut, a Connecticut corporation
incorporated in 1863, and its subsidiaries, including MetLife
Investors USA Insurance Company (MLI-USA). MetLife
Insurance Company of Connecticut is a subsidiary of MetLife,
Inc. (MetLife). The Company offers individual
annuities, individual life insurance, and institutional
protection and asset accumulation products.
Basis
of Presentation
The accompanying 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.
Certain amounts in the prior years consolidated financial
statements have been reclassified to conform with the 2010
presentation. Such reclassifications include:
|
|
|
|
|
Reclassification from other net investment gains (losses) of
($1,031) million and $994 million to net derivative
gains (losses) in the consolidated statements of operations for
the years ended December 31, 2009 and 2008,
respectively; and
|
|
|
|
Reclassification from net change in other invested assets of
$239 million and $142 million to cash received in
connection with freestanding derivatives and ($449) million
and ($228) million to cash paid in connection with
freestanding derivatives, all within cash flows from investing
activities, in the consolidated statements of cash flows for the
years ended December 31, 2009 and 2008, respectively.
|
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.
Summary
of Significant Accounting Policies and Critical Accounting
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America (GAAP) requires management to adopt
accounting policies and make estimates and assumptions that
affect amounts reported in the consolidated financial statements.
A description of critical estimates is incorporated within the
discussion of the related accounting policies which follows. In
applying these policies, management makes subjective and complex
judgments that frequently require estimates about matters that
are inherently uncertain. Many of these policies, estimates and
related judgments are common in the insurance and financial
services industries; others are specific to the Companys
businesses and operations. Actual results could differ from
these estimates.
Fair
Value
As described below, certain assets and liabilities are measured
at estimated fair value on the Companys consolidated
balance sheets. In addition, the notes to these consolidated
financial statements include further disclosures of estimated
fair values. The Company defines fair value as the price that
would be received to sell an asset or paid to transfer a
liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction
between market participants on the measurement date. In many
cases, the exit price and the transaction (or entry) price will
be the same at initial recognition. However, in certain cases,
the transaction price may not represent fair value. The fair
value of a liability is based on the amount that would be paid
to transfer a liability to a third party with the same credit
standing. It requires that fair value be a market-based
F-6
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
measurement in which the fair value is determined based on a
hypothetical transaction at the measurement date, considered
from the perspective of a market participant. When quoted prices
are not used to determine fair value of an asset, the Company
considers three broad valuation techniques: (i) the market
approach, (ii) the income approach, and (iii) the cost
approach. The Company determines the most appropriate valuation
technique to use, given what is being measured and the
availability of sufficient inputs. The Company prioritizes the
inputs to fair valuation techniques and allows for the use of
unobservable inputs to the extent that observable inputs are not
available. The Company categorizes its assets and liabilities
measured at estimated fair value into a three-level hierarchy,
based on the priority of the inputs to the respective valuation
technique. The fair value hierarchy gives the highest priority
to quoted prices in active markets for identical assets or
liabilities (Level 1) and the lowest priority to
unobservable inputs (Level 3). An asset or liabilitys
classification within the fair value hierarchy is based on the
lowest level of input to its valuation. The input levels are as
follows:
|
|
|
|
Level 1
|
Unadjusted quoted prices in active markets for identical assets
or liabilities. The Company defines active markets based on
average trading volume for equity securities. The size of the
bid/ask spread is used as an indicator of market activity for
fixed maturity securities.
|
|
|
Level 2
|
Quoted prices in markets that are not active or inputs that are
observable either directly or indirectly. Level 2 inputs
include quoted prices for similar assets or liabilities other
than quoted prices in Level 1; quoted prices in markets
that are not active; or other significant inputs that are
observable or can be derived principally from or corroborated by
observable market data for substantially the full term of the
assets or liabilities.
|
|
|
Level 3
|
Unobservable inputs that are supported by little or no market
activity and are significant to the estimated fair value of the
assets or liabilities. Unobservable inputs reflect the reporting
entitys own assumptions about the assumptions that market
participants would use in pricing the asset or liability.
Level 3 assets and liabilities include financial
instruments whose values are determined using pricing models,
discounted cash flow methodologies, or similar techniques, as
well as instruments for which the determination of estimated
fair value requires significant management judgment or
estimation.
|
Prior to January 1, 2009, the measurement and disclosures
of fair value based on exit price excluded certain items such as
nonfinancial assets and nonfinancial liabilities initially
measured at estimated fair value in a business combination,
reporting units measured at estimated fair value in the first
step of a goodwill impairment test and indefinite-lived
intangible assets measured at estimated fair value for
impairment assessment.
In addition, the Company elected the fair value option
(FVO) for certain of its financial instruments to
better match measurement of assets and liabilities in the
consolidated statements of operations.
Investments
The accounting policies for the Companys principal
investments are as follows:
Fixed Maturity and Equity Securities. The
Companys fixed maturity and equity securities are
classified as
available-for-sale
and are reported at their estimated fair value.
Unrealized investment gains and losses on these securities are
recorded as a separate component of other comprehensive income
(loss), net of policyholder-related amounts and deferred income
taxes. All security transactions are recorded on a trade date
basis. Investment gains and losses on sales of securities are
determined on a specific identification basis.
Interest income on fixed maturity securities is recorded when
earned using an effective yield method giving effect to
amortization of premiums and accretion of discounts. Dividends
on equity securities are recorded when declared. These dividends
and interest income are recorded in net investment income.
F-7
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Included within fixed maturity securities are loan-backed
securities including mortgage-backed and asset-backed securities
(ABS). Amortization of the premium or discount from
the purchase of these securities considers the estimated timing
and amount of prepayments of the underlying loans. Actual
prepayment experience is periodically reviewed and effective
yields are recalculated when differences arise between the
prepayments originally anticipated and the actual prepayments
received and currently anticipated. Prepayment assumptions for
single class and multi-class mortgage-backed and ABS are
estimated by management using inputs obtained from third-party
specialists, including broker-dealers, and based on
managements knowledge of the current market. For
credit-sensitive mortgage-backed and ABS and certain
prepayment-sensitive securities, the effective yield is
recalculated on a prospective basis. For all other
mortgage-backed and ABS, the effective yield is recalculated on
a retrospective basis.
The Company periodically evaluates fixed maturity and equity
securities for impairment. The assessment of whether impairments
have occurred is based on managements
case-by-case
evaluation of the underlying reasons for the decline in
estimated fair value. The Companys review of its fixed
maturity and equity securities for impairments includes an
analysis of the total gross unrealized losses by three
categories of severity
and/or age
of the gross unrealized loss, as summarized in Note 2
Aging of Gross Unrealized Loss and OTTI Loss
for Fixed Maturity and Equity Securities
Available-for-Sale.
An extended and severe unrealized loss position on a fixed
maturity security may not have any impact on the ability of the
issuer to service all scheduled interest and principal payments
and the Companys evaluation of recoverability of all
contractual cash flows or the ability to recover an amount at
least equal to its amortized cost based on the present value of
the expected future cash flows to be collected. In contrast, for
certain equity securities, greater weight and consideration are
given by the Company to a decline in market value and the
likelihood such market value decline will recover.
Additionally, management considers a wide range of factors about
the security issuer and uses its best judgment in evaluating the
cause of the decline in the estimated fair value of the security
and in assessing the prospects for near-term recovery. Inherent
in managements evaluation of the security are assumptions
and estimates about the operations of the issuer and its future
earnings potential. Considerations used by the Company in the
impairment evaluation process include, but are not limited to:
(i) the length of time and the extent to which the
estimated fair value has been below cost or amortized cost;
(ii) the potential for impairments of securities when the
issuer is experiencing significant financial difficulties;
(iii) the potential for impairments in an entire industry
sector or
sub-sector;
(iv) the potential for impairments in certain economically
depressed geographic locations; (v) the potential for
impairments of securities where the issuer, series of issuers or
industry has suffered a catastrophic type of loss or has
exhausted natural resources; (vi) with respect to fixed
maturity securities, whether the Company has the intent to sell
or will more likely than not be required to sell a particular
security before the decline in estimated fair value below cost
or amortized cost recovers; (vii) with respect to equity
securities, whether the Companys ability and intent to
hold the security for a period of time sufficient to allow for
the recovery of its estimated fair value to an amount equal to
or greater than cost; (viii) unfavorable changes in
forecasted cash flows on mortgage-backed and ABS; and
(ix) other subjective factors, including concentrations and
information obtained from regulators and rating agencies.
Effective April 1, 2009, the Company prospectively adopted
guidance on the recognition and presentation of
other-than-temporary
impairment (OTTI) losses as described in
Adoption of New Accounting
Pronouncements Financial Instruments. The
guidance requires that an OTTI be recognized in earnings for a
fixed maturity security in an unrealized loss position when it
is anticipated that the amortized cost will not be recovered. In
such situations, the OTTI recognized in earnings is the entire
difference between the fixed maturity securitys amortized
cost and its estimated fair value only when either: (i) the
Company has the intent to sell the fixed maturity security; or
(ii) it is more likely than not that the Company will be
required to sell the fixed maturity security before recovery of
the decline in estimated fair value below amortized cost. If
neither of these two conditions exist, the difference between
the amortized cost of the fixed maturity security and the
F-8
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
present value of projected future cash flows expected to be
collected is recognized as an OTTI in earnings (credit
loss). If the estimated fair value is less than the
present value of projected future cash flows expected to be
collected, this portion of OTTI related to other-than credit
factors (noncredit loss) is recorded in other
comprehensive income (loss). There was no change for equity
securities which, when an OTTI has occurred, continue to be
impaired for the entire difference between the equity
securitys cost and its estimated fair value with a
corresponding charge to earnings. The Company does not make any
adjustments for subsequent recoveries in value.
Prior to the adoption of the OTTI guidance, the Company
recognized in earnings an OTTI for a fixed maturity security in
an unrealized loss position unless it could assert that it had
both the intent and ability to hold the fixed maturity security
for a period of time sufficient to allow for a recovery of
estimated fair value to the securitys amortized cost.
Also, prior to the adoption of this guidance, the entire
difference between the fixed maturity securitys amortized
cost basis and its estimated fair value was recognized in
earnings if it was determined to have an OTTI.
With respect to equity securities, the Company considers in its
OTTI analysis its intent and ability to hold a particular equity
security for a period of time sufficient to allow for the
recovery of its estimated fair value to an amount equal to or
greater than cost. If a sale decision is made for an equity
security and it is not expected to recover to an amount at least
equal to cost prior to the expected time of the sale, the
security will be deemed
other-than-temporarily
impaired in the period that the sale decision was made and an
OTTI loss will be recorded in earnings. When an OTTI loss has
occurred, the OTTI loss is the entire difference between the
equity securitys cost and its estimated fair value with a
corresponding charge to earnings.
With respect to perpetual hybrid securities that have attributes
of both debt and equity, some of which are classified as fixed
maturity securities and some of which are classified as
non-redeemable preferred stock within equity securities, the
Company considers in its OTTI analysis whether there has been
any deterioration in credit of the issuer and the likelihood of
recovery in value of the securities that are in a severe and
extended unrealized loss position. The Company also considers
whether any perpetual hybrid securities, with an unrealized
loss, regardless of credit rating, have deferred any dividend
payments. When an OTTI loss has occurred, the OTTI loss is the
entire difference between the perpetual hybrid securitys
cost and its estimated fair value with a corresponding charge to
earnings.
The Companys methodology and significant inputs used to
determine the amount of the credit loss on fixed maturity
securities under the OTTI guidance are as follows:
|
|
|
|
(i)
|
The Company calculates the recovery value by performing a
discounted cash flow analysis based on the present value of
future cash flows expected to be received. The discount rate is
generally the effective interest rate of the fixed maturity
security prior to impairment.
|
|
|
(ii)
|
When determining the collectability and the period over which
value is expected to recover, the Company applies the same
considerations utilized in its overall impairment evaluation
process which incorporates information regarding the specific
security, fundamentals of the industry and geographic area in
which the security issuer operates, and overall macroeconomic
conditions. Projected future cash flows are estimated using
assumptions derived from managements best estimates of
likely scenario-based outcomes after giving consideration to a
variety of variables that include, but are not limited to:
general payment terms of the security; the likelihood that the
issuer can service the scheduled interest and principal
payments; the quality and amount of any credit enhancements; the
securitys position within the capital structure of the
issuer; possible corporate restructurings or asset sales by the
issuer; and changes to the rating of the security or the issuer
by rating agencies.
|
F-9
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
|
|
|
|
(iii)
|
Additional considerations are made when assessing the unique
features that apply to certain structured securities such as
residential mortgage-backed securities (RMBS),
commercial mortgage-backed securities (CMBS) and
ABS. These additional factors for structured securities include,
but are not limited to: the quality of underlying collateral;
expected prepayment speeds; current and forecasted loss
severity; consideration of the payment terms of the underlying
assets backing a particular security; and the payment priority
within the tranche structure of the security.
|
|
|
(iv)
|
When determining the amount of the credit loss for United States
(U.S.) and foreign corporate securities, foreign
government securities and state and political subdivision
securities, management considers the estimated fair value as the
recovery value when available information does not indicate that
another value is more appropriate. When information is
identified that indicates a recovery value other than estimated
fair value, management considers in the determination of
recovery value the same considerations utilized in its overall
impairment evaluation process which incorporates available
information and managements best estimate of
scenarios-based outcomes regarding the specific security and
issuer; possible corporate restructurings or asset sales by the
issuer; the quality and amount of any credit enhancements; the
securitys position within the capital structure of the
issuer; fundamentals of the industry and geographic area in
which the security issuer operates, and the overall
macroeconomic conditions.
|
The cost or amortized cost of fixed maturity and equity
securities is adjusted for OTTI in the period in which the
determination is made. These impairments are included within net
investment gains (losses). The Company does not change the
revised cost basis for subsequent recoveries in value.
In periods subsequent to the recognition of OTTI on a fixed
maturity security, the Company accounts for the impaired
security as if it had been purchased on the measurement date of
the impairment. Accordingly, the discount (or reduced premium)
based on the new cost basis is accreted into net investment
income over the remaining term of the fixed maturity security in
a prospective manner based on the amount and timing of estimated
future cash flows.
The Company has invested in certain structured transactions that
are VIEs. These structured transactions include asset-backed
securitizations, hybrid securities, real estate joint ventures,
other limited partnership interests and limited liability
companies. The Company consolidates those VIEs for which it is
deemed to be the primary beneficiary. The Company reconsiders
whether it is the primary beneficiary for investments designated
as VIEs on a quarterly basis.
Other Securities. Other securities are stated
at estimated fair value. Other securities include securities for
which the FVO has been elected (FVO Securities). FVO
Securities include certain fixed maturity securities
held-for-investment
by the general account to support asset and liability matching
strategies for certain insurance products. FVO Securities also
include contractholder-directed investments supporting
unit-linked variable annuity type liabilities which do not
qualify for presentation and reporting as separate account
summary total assets and liabilities. These investments are
primarily mutual funds. The investment returns on these
investments inure to contractholders and are offset by a
corresponding change in policyholder account balances through
interest credited to policyholder account balances. Changes in
estimated fair value of other securities subsequent to purchase
are included in net investment income. Interest and dividends
related to other securities are included in net investment
income.
Securities Lending. Securities loaned
transactions, whereby blocks of securities, which are included
in fixed maturity securities and short-term investments, are
loaned to third parties, are treated as financing arrangements
and the associated liability is recorded at the amount of cash
received. At the inception of a loan, the Company obtains
collateral, generally cash, in an amount at least equal to 102%
of the estimated fair value
F-10
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
of the securities loaned and maintains it at a level greater
than or equal to 100% for the duration of the loan. The Company
monitors the estimated fair value of the securities loaned on a
daily basis with additional collateral obtained as necessary.
Substantially all of the Companys securities loaned
transactions are with brokerage firms and commercial banks.
Income and expenses associated with securities loaned
transactions are reported as investment income and investment
expense, respectively, within net investment income.
Mortgage Loans. For the purposes of
determining valuation allowances the Company disaggregates its
mortgage loan investments into two portfolio segments:
(1) commercial, and (2) agricultural.
Mortgage loans are stated at unpaid principal balance, adjusted
for any unamortized premium or discount, deferred fees or
expenses, and net of valuation allowances. Interest income is
accrued on the principal amount of the loan based on the
loans contractual interest rate. Amortization of premiums
and discounts is recorded using the effective yield method.
Interest income, amortization of premiums and discounts and
prepayment fees are reported in net investment income. Interest
ceases to accrue when collection of interest is not considered
probable
and/or when
interest or principal payments are past due as follows:
commercial 60 days; and
agricultural 90 days. When a loan is placed on
non-accrual status, uncollected past due interest is charged-off
against net investment income. Generally, the accrual of
interest income resumes after all delinquent amounts are paid
and management believes all future principal and interest
payments will be collected. Cash receipts on non-accruing loans
are recorded in accordance with the loan agreement as a
reduction of principal
and/or
interest income. Charge-offs occur upon the realization of a
credit loss, typically through foreclosure or after a decision
is made to sell a loan. Gain or loss upon charge-off is
recorded, net of previously established valuation allowances, in
net investment gains (losses). Cash recoveries on principal
amounts previously charged-off are generally recorded as an
increase to the valuation allowance, unless the valuation
allowance adequately provides for expected credit losses; then
the recovery is recorded in net investment gains (losses). Gains
and losses from sales of loans and increases or decreases to
valuation allowances are recorded in net investment gains
(losses).
Mortgage loans are considered to be impaired when it is probable
that, based upon current information and events, the Company
will be unable to collect all amounts due under the contractual
terms of the loan agreement. Specific valuation allowances are
established using the same methodology for both portfolio
segments as the excess carrying value of a loan over either
(i) the present value of expected future cash flows
discounted at the loans original effective interest rate,
(ii) the estimated fair value of the loans underlying
collateral if the loan is in the process of foreclosure or
otherwise collateral dependent, or (iii) the loans
observable market price. A common evaluation framework is used
for establishing non-specific valuation allowances for all loan
portfolio segments; however, a separate non-specific valuation
allowance is calculated and maintained for each loan portfolio
segment that is based on inputs unique to each loan portfolio
segment. Non-specific valuation allowances are established for
pools of loans with similar risk characteristics where a
property-specific or market-specific risk has not been
identified, but for which the Company expects to incur a credit
loss. These evaluations are based upon several loan portfolio
segment-specific factors, including the Companys
experience for loan losses, defaults and loss severity, and loss
expectations for loans with similar risk characteristics. The
Company typically uses ten years, or more, of historical
experience, in these evaluations. These evaluations are revised
as conditions change and new information becomes available.
All commercial and agricultural loans are monitored on an
ongoing basis for potential credit losses. For commercial loans,
these ongoing reviews may include an analysis of the property
financial statements and rent roll, lease rollover analysis,
property inspections, market analysis, estimated valuations of
the underlying collateral,
loan-to-value
ratios, debt service coverage ratios, and tenant
creditworthiness. The monitoring process focuses on higher risk
loans, which include those that are classified as restructured,
F-11
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
potentially delinquent, delinquent or in foreclosure, as well as
loans with higher
loan-to-value
ratios and lower debt service coverage ratios. The monitoring
process for agricultural loans is generally similar, with a
focus on higher risk loans, including reviews on a geographic
and property-type basis. Higher risk commercial and agricultural
loans are reviewed individually on an ongoing basis for
potential credit loss and specific valuation allowances are
established using the methodology described above for all loan
portfolio segments. Quarterly, the remaining loans are reviewed
on a pool basis by aggregating groups of loans that have similar
risk characteristics for potential credit loss, and non-specific
valuation allowances are established as described above using
inputs that are unique to each segment of the loan portfolio.
For commercial loans, the Companys primary credit quality
indicator is the debt service coverage ratio, which compares a
propertys net operating income to amounts needed to
service the principal and interest due under the loan.
Generally, the lower the debt service coverage ratio, the higher
the risk of experiencing a credit loss. The values utilized in
calculating these ratios are developed in connection with the
ongoing review of the commercial loan portfolio and are
routinely updated.
For agricultural loans, the Companys primary credit
quality indicator is the
loan-to-value
ratio.
Loan-to-value
ratios compare the amount of the loan to the estimated fair
value of the underlying collateral. A
loan-to-value
ratio greater than 100% indicates that the loan amount is
greater than the collateral value. A
loan-to-value
ratio of less than 100% indicates an excess of collateral value
over the loan amount. Generally, the higher the
loan-to-value
ratio, the higher the risk of experiencing a credit loss. The
values utilized in calculating these ratios are developed in
connection with the ongoing review of the agricultural loan
portfolio and are routinely updated.
Also included in mortgage loans are commercial mortgage loans
held by consolidated securitization entities (CSEs)
that were consolidated by the Company on January 1, 2010
upon the adoption of new guidance. The Company elected FVO for
these commercial mortgage loans, and thus they are stated at
estimated fair value with changes in estimated fair value
subsequent to consolidation recognized in net investment gains
(losses).
Policy Loans. Policy loans are stated at
unpaid principal balances. Interest income on such loans is
recorded as earned in net investment income using the
contractually agreed upon interest rate. Generally, interest is
capitalized on the policys anniversary date. Valuation
allowances are not established for policy loans, as these loans
are fully collateralized by the cash surrender value of the
underlying insurance policies. Any unpaid principal or interest
on the loan is deducted from the cash surrender value or the
death benefit prior to settlement of the policy.
Real Estate. Real estate
held-for-investment,
including related improvements, is stated at cost less
accumulated depreciation. Depreciation is provided on a
straight-line basis over the estimated useful life of the asset
(typically 20 to 55 years). Rental income is recognized on
a straight-line basis over the term of the respective leases.
The Company classifies a property as
held-for-sale
if it commits to a plan to sell a property within one year and
actively markets the property in its current condition for a
price that is reasonable in comparison to its estimated fair
value. The Company classifies the results of operations and the
gain or loss on sale of a property that either has been disposed
of or classified as
held-for-sale
as discontinued operations, if the ongoing operations of the
property will be eliminated from the ongoing operations of the
Company and if the Company will not have any significant
continuing involvement in the operations of the property after
the sale. Real estate
held-for-sale
is stated at the lower of depreciated cost or estimated fair
value less expected disposition costs. Real estate is not
depreciated while it is classified as
held-for-sale.
The Company periodically reviews its properties
held-for-investment
for impairment and tests properties for recoverability whenever
events or changes in circumstances indicate the carrying amount
of the asset may not be recoverable and the carrying value of
the property exceeds its estimated fair value. Properties whose
carrying values are greater than their undiscounted cash flows
are written down to their estimated fair value, with the
impairment loss included in net investment
F-12
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
gains (losses). Impairment losses are based upon the estimated
fair value of real estate, which is generally computed using the
present value of expected future cash flows from the real estate
discounted at a rate commensurate with the underlying risks.
Real estate acquired upon foreclosure is recorded at the lower
of estimated fair value or the carrying value of the mortgage
loan at the date of foreclosure.
Real Estate Joint Ventures and Other Limited Partnership
Interests. The Company uses the equity method of
accounting for investments in real estate joint ventures and
other limited partnership interests consisting of leveraged
buy-out funds, hedge funds and other private equity funds in
which it has more than a minor equity interest or more than a
minor influence over the joint ventures or partnerships
operations, but does not have a controlling interest and is not
the primary beneficiary. The equity method is also used for such
investments in which the Company has more than a minor influence
or more than a 20% interest. Generally, the Company records its
share of earnings using a three-month lag methodology for
instances where the timely financial information is available
and the contractual right exists to receive such financial
information on a timely basis. The Company uses the cost method
of accounting for investments in real estate joint ventures and
other limited partnership interests in which it has a minor
equity investment and virtually no influence over the joint
ventures or the partnerships operations. The Company
reports the distributions from real estate joint ventures and
other limited partnership interests accounted for under the cost
method and equity in earnings from real estate joint ventures
and other limited partnership interests accounted for under the
equity method in net investment income. In addition to the
investees performing regular evaluations for the impairment of
underlying investments, the Company routinely evaluates its
investments in real estate joint ventures and other limited
partnerships for impairments. The Company considers its cost
method investments for OTTI when the carrying value of real
estate joint ventures and other limited partnership interests
exceeds the net asset value (NAV). The Company takes
into consideration the severity and duration of this excess when
deciding if the cost method investment is
other-than-temporarily
impaired. For equity method investees, the Company considers
financial and other information provided by the investee, other
known information and inherent risks in the underlying
investments, as well as future capital commitments, in
determining whether an impairment has occurred. When an OTTI is
deemed to have occurred, the Company records a realized capital
loss within net investment gains (losses) to record the
investment at its estimated fair value.
Short-term Investments. Short-term investments
include investments with remaining maturities of one year or
less, but greater than three months, at the time of purchase and
are stated at amortized cost, which approximates estimated fair
value, or stated at estimated fair value, if available.
Short-term investments also include investments in affiliated
money market pools.
Other Invested Assets. Other invested assets
consist principally of freestanding derivatives with positive
estimated fair values, tax credit partnerships, leveraged leases
and investments in insurance enterprise joint ventures.
Freestanding derivatives with positive estimated fair values are
described in the derivatives accounting policy which follows.
Leveraged leases are recorded net of non-recourse debt. The
Company participates in lease transactions which are diversified
by industry, asset type and geographic area. The Company
recognizes income on the leveraged leases by applying the
leveraged leases estimated rate of return to the net
investment in the lease. The Company regularly reviews residual
values and impairs them to expected values.
Joint venture investments represent the Companys
investments in entities that engage in insurance underwriting
activities and are accounted for under the equity method.
Tax credit partnerships are established for the purpose of
investing in low-income housing and other social causes, where
the primary return on investment is in the form of income tax
credits and are also accounted for under the equity method or
under the effective yield method. The Company reports the equity
in earnings of joint venture investments and tax credit
partnerships in net investment income.
F-13
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Investments Risks and Uncertainties. The
Companys investments are exposed to four primary sources
of risk: credit, interest rate, liquidity risk, and market
valuation. The financial statement risks, stemming from such
investment risks, are those associated with the determination of
estimated fair values, the diminished ability to sell certain
investments in times of strained market conditions, the
recognition of impairments, the recognition of income on certain
investments and the potential consolidation of VIEs. The use of
different methodologies, assumptions and inputs relating to
these financial statement risks may have a material effect on
the amounts presented within the consolidated financial
statements.
When available, the estimated fair value of the Companys
fixed maturity and equity securities are based on quoted prices
in active markets that are readily and regularly obtainable.
Generally, these are the most liquid of the Companys
securities holdings and valuation of these securities does not
involve management judgment.
When quoted prices in active markets are not available, the
determination of estimated fair value is based on market
standard valuation methodologies. The market standard valuation
methodologies utilized include: discounted cash flow
methodologies, matrix pricing or other similar techniques. The
inputs to these market standard valuation methodologies include,
but are not limited to: interest rates, credit standing of the
issuer or counterparty, industry sector of the issuer, coupon
rate, call provisions, sinking fund requirements, maturity,
estimated duration and managements assumptions regarding
liquidity and estimated future cash flows. Accordingly, the
estimated fair values are based on available market information
and managements judgments about financial instruments.
The significant inputs to the market standard valuation
methodologies for certain types of securities with reasonable
levels of price transparency are inputs that are observable in
the market or can be derived principally from or corroborated by
observable market data. Such observable inputs include
benchmarking prices for similar assets in active, liquid
markets, quoted prices in markets that are not active and
observable yields and spreads in the market.
When observable inputs are not available, the market standard
valuation methodologies for determining the estimated fair value
of certain types of securities that trade infrequently, and
therefore have little or no price transparency, rely on inputs
that are significant to the estimated fair value that are not
observable in the market or cannot be derived principally from
or corroborated by observable market data. These unobservable
inputs can be based in large part on management judgment or
estimation, and cannot be supported by reference to market
activity. Even though unobservable, these inputs are based on
assumptions deemed appropriate given the circumstances and
consistent with what other market participants would use when
pricing such securities.
Financial markets are susceptible to severe events evidenced by
rapid depreciation in asset values accompanied by a reduction in
asset liquidity. The Companys ability to sell securities,
or the price ultimately realized for these securities, depends
upon the demand and liquidity in the market and increases the
use of judgment in determining the estimated fair value of
certain securities.
The determination of the amount of allowances and impairments,
as applicable, is described previously by investment type. The
determination of such allowances and impairments is highly
subjective and is based upon the Companys periodic
evaluation and assessment of known and inherent risks associated
with the respective asset class. Such evaluations and
assessments are revised as conditions change and new information
becomes available.
The recognition of income on certain investments (e.g.
loan-backed securities, including mortgage-backed and ABS,
certain structured investment transactions, and other
securities) is dependent upon market conditions, which could
result in prepayments and changes in amounts to be earned.
The accounting guidance for the determination of when an entity
is a VIE and when to consolidate a VIE is complex and requires
significant management judgment. The determination of the
VIEs primary beneficiary requires an evaluation of the
contractual and implied rights and obligations associated with
each partys relationship with or involvement in the
entity, an estimate of the entitys expected losses and
expected residual returns and the
F-14
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
allocation of such estimates to each party involved in the
entity. The Company generally uses a qualitative approach to
determine whether it is the primary beneficiary.
For most VIEs, 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 the primary beneficiary. However, for VIEs
that are investment companies or apply measurement principles
consistent with those utilized by investment companies, the
primary beneficiary is based on a risks and rewards model and is
defined as the entity that will absorb a majority of a
VIEs expected losses, receive a majority of a VIEs
expected residual returns if no single entity absorbs a majority
of expected losses, or both. The Company reassesses its
involvement with VIEs on a quarterly basis. The use of different
methodologies, assumptions and inputs in the determination of
the primary beneficiary could have a material effect on the
amounts presented within the consolidated financial statements.
Derivative
Financial Instruments
Derivatives are financial instruments whose values are derived
from interest rates, foreign currency exchange rates,
and/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 various
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 derivative 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 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
F-15
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
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.
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 derivative 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 derivative 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 derivative
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 statements 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 derivative gains
(losses). Deferred gains and losses of a derivative recorded in
other comprehensive income (loss) pursuant to the discontinued
cash flow hedge of a forecasted transaction that is no longer
probable are recognized immediately in net derivative 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
derivative gains (losses).
F-16
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
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 derivative 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) or net
investment income. Additionally, the Company may elect to carry
an entire contract on the balance sheet at estimated fair value,
with changes in estimated fair value recognized in the current
period in net investment gains (losses) or net investment income
if that contract contains an embedded derivative that requires
bifurcation.
Cash and
Cash Equivalents
The Company considers all highly liquid investments purchased
with an original or remaining maturity of three months or less
at the date of purchase to be cash equivalents. Cash equivalents
are stated at amortized cost, which approximates estimated fair
value.
Property,
Equipment, Leasehold Improvements and Computer
Software
Property, equipment and leasehold improvements, which are
included in other assets, are stated at cost, less accumulated
depreciation and amortization. Depreciation is determined using
the straight-line method over the estimated useful lives of the
assets, as appropriate. Estimated lives generally range from
five to ten years for leasehold improvements and three to seven
years for all other property and equipment. The net book value
of the property, equipment and leasehold improvements was
insignificant at December 31, 2010 and $2 million at
December 31, 2009.
Computer software, which is included in other assets, is stated
at cost, less accumulated amortization. Purchased software
costs, as well as certain internal and external costs incurred
to develop internal-use computer software during the application
development stage, are capitalized. Such costs are amortized
generally over a four-year period using the straight-line
method. The cost basis of computer software was
$131 million and $102 million at December 31,
2010 and 2009, respectively. Accumulated amortization of
capitalized software was $67 million and $42 million
at December 31, 2010 and 2009, respectively. Related
amortization expense was $25 million, $16 million and
$15 million for the years ended December 31, 2010,
2009 and 2008, respectively.
Deferred
Policy Acquisition Costs (DAC) and Value of Business
Acquired (VOBA)
The Company incurs significant costs in connection with
acquiring new and renewal insurance business. Costs that vary
with and relate to the production of new business are deferred
as DAC. Such costs consist principally of commissions and agency
and policy issuance expenses. VOBA is an intangible asset that
represents the excess of book value over the estimated fair
value of acquired insurance, annuity and investment-type
contracts in force at the acquisition date. The estimated fair
value of the acquired liabilities is based on actuarially
determined projections, by each block of business, of future
policy and contract charges, premiums, mortality and morbidity,
separate account performance, surrenders, operating expenses,
investment returns, nonperformance risk adjustment and other
factors. Actual experience on the purchased business may vary
from these projections. The recovery of DAC and VOBA is
dependent upon the future profitability of the related business.
DAC and VOBA are aggregated in the consolidated financial
statements for reporting purposes.
F-17
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
DAC and VOBA on life insurance or investment-type contracts are
amortized in proportion to gross premiums or gross profits,
depending on the type of contract as described below.
The Company amortizes DAC and VOBA related to non-participating
and non-dividend paying traditional contracts (primarily term
insurance) over the entire premium paying period in proportion
to the present value of actual historic and expected future
gross premiums. The present value of expected premiums is based
upon the premium requirement of each policy and assumptions for
mortality, morbidity, persistency and investment returns at
policy issuance, or policy acquisition (as it relates to VOBA),
that include provisions for adverse deviation and are consistent
with the assumptions used to calculate future policyholder
benefit liabilities. These assumptions are not revised after
policy issuance or acquisition unless the DAC or VOBA balance is
deemed to be unrecoverable from future expected profits. Absent
a premium deficiency, variability in amortization after policy
issuance or acquisition is caused only by variability in premium
volumes.
The Company amortizes DAC and VOBA related to fixed and variable
universal life contracts and fixed and variable deferred annuity
contracts over the estimated lives of the contracts in
proportion to actual and expected future gross profits. The
amortization includes interest based on rates in effect at
inception or acquisition of the contracts. The amount of future
gross profits is dependent principally upon returns in excess of
the amounts credited to policyholders, mortality, persistency,
interest crediting rates, expenses to administer the business,
creditworthiness of reinsurance counterparties, the effect of
any hedges used and certain economic variables, such as
inflation. Of these factors, the Company anticipates that
investment returns, expenses and persistency are reasonably
likely to impact significantly the rate of DAC and VOBA
amortization. Each reporting period, the Company updates the
estimated gross profits with the actual gross profits for that
period. When the actual gross profits change from previously
estimated gross profits, the cumulative DAC and VOBA
amortization is re-estimated and adjusted by a cumulative charge
or credit to current operations. When actual gross profits
exceed those previously estimated, the DAC and VOBA amortization
will increase, resulting in a current period charge to earnings.
The opposite result occurs when the actual gross profits are
below the previously estimated gross profits. Each reporting
period, the Company also updates the actual amount of business
remaining in-force, which impacts expected future gross profits.
When expected future gross profits are below those previously
estimated, the DAC and VOBA amortization will increase,
resulting in a current period charge to earnings. The opposite
result occurs when the expected future gross profits are above
the previously estimated expected future gross profits. Each
period, the Company also reviews the estimated gross profits for
each block of business to determine the recoverability of DAC
and VOBA balances.
Separate account rates of return on variable universal life
contracts and variable deferred annuity contracts affect
in-force account balances on such contracts each reporting
period which can result in significant fluctuations in
amortization of DAC and VOBA. Returns that are higher than the
Companys long-term expectation produce higher account
balances, which increases the Companys future fee
expectations and decreases future benefit payment expectations
on minimum death and living benefit guarantees, resulting in
higher expected future gross profits. The opposite result occurs
when returns are lower than the Companys long-term
expectation. The Companys practice to determine the impact
of gross profits resulting from returns on separate accounts
assumes that long-term appreciation in equity markets is not
changed by short-term market fluctuations, but is only changed
when sustained interim deviations are expected. The Company
monitors these events and only changes the assumption when its
long-term expectation changes.
The Company also periodically reviews other long-term
assumptions underlying the projections of estimated gross
profits. These include investment returns, interest crediting
rates, mortality, persistency and expenses to administer
business. Management annually updates assumptions used in the
calculation of estimated gross profits which may have
significantly changed. If the update of assumptions causes
expected future gross profits to increase, DAC and VOBA
amortization will decrease, resulting in a current period
increase to earnings. The opposite result occurs when the
assumption update causes expected future gross profits to
decrease.
F-18
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Periodically, the Company modifies product benefits, features,
rights or coverages that occur by the exchange of a contract for
a new contract, or by amendment, endorsement, or rider to a
contract, or by election or coverage within a contract. If such
modification, referred to as an internal replacement,
substantially changes the contract, the associated DAC or VOBA
is written off immediately through income and any new deferrable
costs associated with the replacement contract are deferred. If
the modification does not substantially change the contract, the
DAC or VOBA amortization on the original contract will continue
and any acquisition costs associated with the related
modification are expensed.
Sales
Inducements
The Company generally has two different types of sales
inducements which are included in other assets: (i) the
policyholder receives a bonus whereby the policyholders
initial account balance is increased by an amount equal to a
specified percentage of the customers deposit; and
(ii) the policyholder receives a higher interest rate using
a dollar cost averaging method than would have been received
based on the normal general account interest rate credited. The
Company defers sales inducements and amortizes them over the
life of the policy using the same methodology and assumptions
used to amortize DAC. The amortization of sales inducements is
included in policyholder benefits and claims. Each year, or more
frequently if circumstances indicate a potentially significant
recoverability issue exists, the Company reviews the deferred
sales inducements to determine the recoverability of these
balances.
Value of
Distribution Agreements and Customer Relationships
Acquired
Value of distribution agreements (VODA) is reported
in other assets and represents the present value of expected
future profits associated with the expected future business
derived from the distribution agreements. Value of customer
relationships acquired (VOCRA) is also reported in
other assets and represents the present value of the expected
future profits associated with the expected future business
acquired through existing customers of the acquired company or
business. The VODA and VOCRA associated with past acquisitions
are amortized over useful lives ranging from 10 to 30 years
and such amortization is included in other expenses. Each year,
or more frequently if circumstances indicate a potentially
significant recoverability issue exists, the Company reviews
VODA and VOCRA to determine the recoverability of these balances.
Goodwill
Goodwill is the excess of cost over the estimated fair value of
net assets acquired which represents the future economic
benefits arising from such net assets acquired that could not be
individually identified. Goodwill is not amortized but is tested
for impairment at least annually or more frequently if events or
circumstances, such as adverse changes in the business climate,
indicate that there may be justification for conducting an
interim test. The Company performs its annual goodwill
impairment testing during the third quarter of each year based
upon data as of the close of the second quarter. Goodwill
associated with a business acquisition is not tested for
impairment during the year the business is acquired unless there
is a significant identified impairment event.
Impairment testing is performed using the fair value approach,
which requires the use of estimates and judgment, at the
reporting unit level. A reporting unit is the
operating segment or a business one level below the operating
segment, if discrete financial information is prepared and
regularly reviewed by management at that level. For purposes of
goodwill impairment testing, goodwill within
Corporate & Other is allocated to reporting units
within the Companys segments.
For purposes of goodwill impairment testing, if the carrying
value of a reporting unit exceeds its estimated fair value,
there might be an indication of impairment. In such instances,
the implied fair value of the goodwill is determined in the same
manner as the amount of goodwill that would be determined in a
business acquisition. The
F-19
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
excess of the carrying value of goodwill over the implied fair
value of goodwill would be recognized as an impairment and
recorded as a charge against net income.
In performing the Companys goodwill impairment tests, the
estimated fair values of the reporting units are first
determined using a market multiple approach. When further
corroboration is required the Company uses a discounted cash
flow approach. For reporting units which are particularly
sensitive to market assumptions, such as the retirement products
and individual life reporting units, the Company may use
additional valuation methodologies to estimate the reporting
units fair values.
The key inputs, judgments and assumptions necessary in
determining estimated fair value of the reporting units include
projected earnings, current book value, the level of economic
capital required to support the mix of business, long-term
growth rates, comparative market multiples, the account value of
in-force business, projections of new and renewal business, as
well as margins on such business, the level of interest rates,
credit spreads, equity market levels and the discount rate that
the Company believes is appropriate for the respective reporting
unit. The estimated fair values of the retirement products and
individual life reporting units are particularly sensitive to
the equity market levels.
The Company applies significant judgment when determining the
estimated fair value of the Companys reporting units. The
valuation methodologies utilized are subject to key judgments
and assumptions that are sensitive to change. Estimates of fair
value are inherently uncertain and represent only
managements reasonable expectation regarding future
developments. These estimates and the judgments and assumptions
upon which the estimates are based will, in all likelihood,
differ in some respects from actual future results. Declines in
the estimated fair value of the Companys reporting units
could result in goodwill impairments in future periods which
could materially adversely affect the Companys results of
operations or financial position.
During the 2010 impairment tests of goodwill, the Company
concluded that the fair values of all reporting units were in
excess of their carrying values and, therefore, goodwill was not
impaired. On an ongoing basis, the Company evaluates potential
triggering events that may affect the estimated fair value of
the Companys reporting units to assess whether any
goodwill impairment exists. Deteriorating or adverse market
conditions for certain reporting units may have a significant
impact on the estimated fair value of these reporting units and
could result in future impairments of goodwill.
See Note 6 for further consideration of goodwill impairment
testing during 2010.
Liability
for Future Policy Benefits and Policyholder Account
Balances
The Company establishes liabilities for amounts payable under
insurance policies, including traditional life insurance,
traditional annuities and non-medical health insurance.
Generally, amounts are payable over an extended period of time
and related liabilities are calculated as the present value of
future expected benefits to be paid reduced by the present value
of future expected premiums. Such liabilities are established
based on methods and underlying assumptions in accordance with
GAAP and applicable actuarial standards. Principal assumptions
used in the establishment of liabilities for future policy
benefits are mortality, morbidity, policy lapse, renewal,
retirement, investment returns, inflation, expenses and other
contingent events as appropriate to the respective product type.
These assumptions are established at the time the policy is
issued and are intended to estimate the experience for the
period the policy benefits are payable. Utilizing these
assumptions, liabilities are established on a block of business
basis.
Future policy benefit liabilities for non-participating
traditional life insurance policies are equal to the aggregate
of the present value of expected future benefit payments and
related expenses less the present value of expected future net
premiums. Assumptions as to mortality and persistency are based
upon the Companys experience when the basis of the
liability is established. Interest rate assumptions used in
establishing such liabilities range from 3% to 7%.
F-20
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Future policy benefit liabilities for individual and group
traditional fixed annuities after annuitization are equal to the
present value of expected future payments. Interest rate
assumptions used in establishing such liabilities range from 4%
to 9%.
Future policy benefit liabilities for non-medical health
insurance are calculated using the net level premium method and
assumptions as to future morbidity, withdrawals and interest,
which provide a margin for adverse deviation. Interest rate
assumptions used in establishing such liabilities range from 4%
to 7%.
Future policy benefit liabilities for disabled lives are
estimated using the present value of benefits method and
experience assumptions as to claim terminations, expenses and
interest. Interest rate assumptions used in establishing such
liabilities range from 3% to 6%.
Liabilities for unpaid claims and claim expenses for the
Companys workers compensation business are included
in future policyholder benefits and are estimated based upon the
Companys historical experience and other actuarial
assumptions that consider the effects of current developments,
anticipated trends and risk management programs, reduced for
anticipated subrogation. The effects of changes in such
estimated liabilities are included in the results of operations
in the period in which the changes occur.
The Company establishes future policy benefit liabilities for
minimum death and income benefit guarantees relating to certain
annuity contracts and secondary guarantees relating to certain
life policies as follows:
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Guaranteed minimum death benefit (GMDB) liabilities
are determined by estimating the expected value of death
benefits in excess of the projected account balance and
recognizing the excess ratably over the accumulation period
based on total expected assessments. The Company regularly
evaluates estimates used and adjusts the additional liability
balance, with a related charge or credit to benefit expense, if
actual experience or other evidence suggests that earlier
assumptions should be revised. The assumptions used in
estimating the GMDB liabilities are consistent with those used
for amortizing DAC, and are thus subject to the same variability
and risk. The assumptions of investment performance and
volatility are consistent with the historical experience of the
appropriate underlying equity index, such as the
Standard & Poors (S&P) 500
Index. The benefit assumptions used in calculating the
liabilities are based on the average benefits payable over a
range of scenarios.
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Guaranteed minimum income benefits (GMIB)
liabilities are determined by estimating the expected value of
the income benefits in excess of the projected account balance
at any future date of annuitization and recognizing the excess
ratably over the accumulation period based on total expected
assessments. The Company regularly evaluates estimates used and
adjusts the additional liability balance, with a related charge
or credit to benefit expense, if actual experience or other
evidence suggests that earlier assumptions should be revised.
The assumptions used for estimating the GMIB liabilities are
consistent with those used for estimating the GMDB liabilities.
In addition, the calculation of guaranteed annuitization benefit
liabilities incorporates an assumption for the percentage of the
potential annuitizations that may be elected by the
contractholder. Certain GMIBs have settlement features that
result in a portion of that guarantee being accounted for as an
embedded derivative and are recorded in policyholder account
balances as described below.
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Liabilities for universal and variable life secondary guarantees
are determined by estimating the expected value of death
benefits payable when the account balance is projected to be
zero and recognizing those benefits ratably over the
accumulation period based on total expected assessments. The
Company regularly evaluates estimates used and adjusts the
additional liability balances, with a related charge or credit
to benefit expense, if actual experience or other evidence
suggests that earlier assumptions should be revised. The
assumptions used in estimating the secondary guarantee
liabilities are consistent with those used for amortizing DAC,
and are thus subject to the same variability and risk. The
assumptions of investment performance and volatility for
variable
F-21
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
products are consistent with historical S&P experience. The
benefits used in calculating the liabilities are based on the
average benefits payable over a range of scenarios.
The Company establishes policyholder account balances for
guaranteed minimum benefits relating to certain variable annuity
products as follows:
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Guaranteed minimum withdrawal benefits (GMWB)
guarantee the contractholder a return of their purchase payment
via partial withdrawals, even if the account value is reduced to
zero, provided that the contractholders cumulative
withdrawals in a contract year do not exceed a certain limit.
The initial guaranteed withdrawal amount is equal to the initial
benefit base as defined in the contract (typically, the initial
purchase payments plus applicable bonus amounts). The GMWB is an
embedded derivative, which is measured at estimated fair value
separately from the host variable annuity product.
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Guaranteed minimum accumulation benefits (GMAB) and
settlement features in certain GMIB described above provide the
contractholder, after a specified period of time determined at
the time of issuance of the variable annuity contract, with a
minimum accumulation of their purchase payments even if the
account value is reduced to zero. The initial guaranteed
accumulation amount is equal to the initial benefit base as
defined in the contract (typically, the initial purchase
payments plus applicable bonus amounts). The GMAB is an embedded
derivative, which is measured at estimated fair value separately
from the host variable annuity product.
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For GMWB, GMAB and certain GMIB, the initial benefit base is
increased by additional purchase payments made within a certain
time period and decreases by benefits paid
and/or
withdrawal amounts. After a specified period of time, the
benefit base may also increase as a result of an optional reset
as defined in the contract.
GMWB, GMAB and certain GMIB are accounted for as embedded
derivatives with changes in estimated fair value reported in net
derivative gains (losses).
At inception of the GMWB, GMAB and certain GMIB contracts, the
Company attributes to the embedded derivative a portion of the
projected future guarantee fees to be collected from the
policyholder equal to the present value of projected future
guaranteed benefits. Any additional fees represent
excess fees and are reported in universal life and
investment-type product policy fees.
The estimated fair values of these embedded derivatives are then
determined based on the present value of projected future
benefits minus the present value of projected future fees. The
projections of future benefits and future fees require capital
market and actuarial assumptions including expectations
concerning policyholder behavior. A risk neutral valuation
methodology is used under which the cash flows from the
guarantees are projected under multiple capital market scenarios
using observable risk free rates. The valuation of these
embedded derivatives also includes an adjustment for the
Companys nonperformance risk and risk margins for
non-capital market inputs. 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.
These guaranteed minimum benefits 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
F-22
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
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 cedes the risks associated with certain of the GMIB,
GMAB and GMWB guarantees described in the preceding paragraphs
to an affiliated reinsurance company. These reinsurance
contracts contain embedded derivatives which are included in
premiums, reinsurance and other receivables with changes in
estimated fair value reported in net derivative gains (losses).
The value of these embedded derivatives on the ceded risks is
determined using a methodology consistent with that described
previously for the guarantees directly written by the Company.
In addition to ceding risks associated with guarantees that are
accounted for as embedded derivatives, the Company also cedes to
the same affiliated reinsurance company certain directly written
GMIB guarantees that are accounted for as insurance (i.e. not as
embedded derivatives) but where the reinsurance contract
contains an embedded derivative. These embedded derivatives are
included in premiums, reinsurance and other receivables with
changes in estimated fair value reported in net derivative gains
(losses). The value of these embedded derivatives is determined
using a methodology consistent with that described previously
for the guarantees directly written by the Company.
The Company periodically reviews its estimates of actuarial
liabilities for future policy benefits and compares them with
its actual experience. Differences between actual experience and
the assumptions used in pricing these policies and guarantees,
and in the establishment of the related liabilities result in
variances in profit and could result in losses. The effects of
changes in such estimated liabilities are included in the
results of operations in the period in which the changes occur.
Policyholder account balances relate to investment-type
contracts, universal life-type policies and certain guaranteed
minimum benefits. Investment-type contracts principally include
traditional individual fixed annuities in the accumulation phase
and non-variable group annuity contracts. Policyholder account
balances for these contracts are equal to: (i) policy
account values, which consist of an accumulation of gross
premium payments; (ii) credited interest, ranging from 1%
to 12%, less expenses, mortality charges and withdrawals; and
(iii) fair value adjustments relating to business
combinations.
Other
Policy-Related Balances
Other policy-related balances include policy and contract claims
and unearned revenue liabilities.
The liability for policy and contract claims generally relates
to incurred but not reported death, disability, and long-term
care (LTC) claims, as well as claims which have been
reported but not yet settled. The liability for these claims is
based on the Companys estimated ultimate cost of settling
all claims. The Company derives estimates for the development of
incurred but not reported claims principally from actuarial
analyses of historical patterns of claims and claims development
for each line of business. The methods used to determine these
estimates are continually reviewed. Adjustments resulting from
this continuous review process and differences between estimates
and payments for claims are recognized in policyholder benefits
and claims expense in the period in which the estimates are
changed or payments are made.
The unearned revenue liability relates to universal life-type
and investment-type products and represents policy charges for
services to be provided in future periods. The charges are
deferred as unearned revenue and amortized using the
products estimated gross profits, similar to DAC. Such
amortization is recorded in universal life and investment-type
product policy fees.
Recognition
of Insurance Revenue and Related Benefits
Premiums related to traditional life and annuity policies with
life contingencies are recognized as revenues when due from
policyholders. Policyholder benefits and expenses are provided
against such revenues to recognize
F-23
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
profits over the estimated lives of the policies. When premiums
are due over a significantly shorter period than the period over
which benefits are provided, any excess profit is deferred and
recognized into operations in a constant relationship to
insurance in-force or, for annuities, the amount of expected
future policy benefit payments. Premiums related to non-medical
health and disability contracts are recognized on a pro rata
basis over the applicable contract term.
Deposits related to universal life-type and investment-type
products are credited to policyholder account balances. Revenues
from such contracts consist of amounts assessed against
policyholder account balances for mortality, policy
administration and surrender charges and are recorded in
universal life and investment-type product policy fees in the
period in which services are provided. Amounts that are charged
to operations include interest credited and benefit claims
incurred in excess of related policyholder account balances.
Premiums, policy fees, policyholder benefits and expenses are
presented net of reinsurance.
The portion of fees allocated to embedded derivatives described
previously is recognized within net derivative gains (losses) as
part of the estimated fair value of embedded derivatives.
Other
Revenues
Other revenues include, in addition to items described elsewhere
herein, advisory fees, broker-dealer commissions and fees and
administrative service fees. Such fees and commissions are
recognized in the period in which services are performed.
Income
Taxes
MetLife Insurance Company of Connecticut and its includable life
insurance and non-life insurance subsidiaries file a
consolidated U.S. federal income tax return in accordance
with the provisions of the Internal Revenue Code of 1986, as
amended. Non-includable subsidiaries file either separate
individual corporate tax returns or separate consolidated tax
returns.
The Companys accounting for income taxes represents
managements best estimate of various events and
transactions.
Deferred tax assets and liabilities resulting from temporary
differences between the financial reporting and tax bases of
assets and liabilities are measured at the balance sheet date
using enacted tax rates expected to apply to taxable income in
the years the temporary differences are expected to reverse.
The realization of deferred tax assets depends upon the
existence of sufficient taxable income within the carryback or
carryforward periods under the tax law in the applicable tax
jurisdiction. Valuation allowances are established when
management determines, based on available information, that it
is more likely than not that deferred income tax assets will not
be realized. Significant judgment is required in determining
whether valuation allowances should be established, as well as
the amount of such allowances. When making such determination,
consideration is given to, among other things, the following:
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(i)
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future taxable income exclusive of reversing temporary
differences and carryforwards;
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(ii)
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future reversals of existing taxable temporary differences;
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(iii)
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taxable income in prior carryback years; and
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(iv)
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tax planning strategies.
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The Company may be required to change its provision for income
taxes in certain circumstances. Examples of such circumstances
include when the ultimate deductibility of certain items is
challenged by taxing authorities (see Note 10) or when
estimates used in determining valuation allowances on deferred
tax assets significantly change or
F-24
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
when receipt of new information indicates the need for
adjustment in valuation allowances. Additionally, future events,
such as changes in tax laws, tax regulations, or interpretations
of such laws or regulations, could have an impact on the
provision for income tax and the effective tax rate. Any such
changes could significantly affect the amounts reported in the
consolidated financial statements in the year these changes
occur.
The Company determines whether it is more likely than not that a
tax position will be sustained upon examination by the
appropriate taxing authorities before any part of the benefit
can be recorded in the financial statements. A tax position is
measured at the largest amount of benefit that is greater than
50 percent likely of being realized upon settlement.
Unrecognized tax benefits due to tax uncertainties that do not
meet the threshold are included within other liabilities and are
charged to earnings in the period that such determination is
made.
The Company classifies interest recognized as interest expense
and penalties recognized as a component of income tax.
Reinsurance
The Company enters into reinsurance agreements primarily as a
purchaser of reinsurance for its life insurance products and
also as a provider of reinsurance for some insurance products
issued by third parties.
For each of its reinsurance agreements, the Company determines
whether the agreement provides indemnification against loss or
liability relating to insurance risk in accordance with
applicable accounting standards. The Company reviews all
contractual features, particularly those that may limit the
amount of insurance risk to which the reinsurer is subject or
features that delay the timely reimbursement of claims.
For reinsurance of existing in-force blocks of long-duration
contracts that transfer significant insurance risk, the
difference, if any, between the amounts paid (received), and the
liabilities ceded (assumed) related to the underlying contracts
is considered the net cost of reinsurance at the inception of
the reinsurance agreement. The net cost of reinsurance is
recorded as an adjustment to DAC and recognized as a component
of other expenses on a basis consistent with the way the
acquisition costs on the underlying reinsured contracts would be
recognized. Subsequent amounts paid (received) on the
reinsurance of in-force blocks, as well as amounts paid
(received) related to new business, are recorded as ceded
(assumed) premiums and ceded (assumed) future policy benefit
liabilities are established.
The assumptions used to account for long-duration reinsurance
agreements are consistent with those used for the underlying
contracts. Ceded policyholder and contract related liabilities,
other than those currently due, are reported gross on the
balance sheet.
Amounts currently recoverable under reinsurance agreements are
included in premiums, reinsurance and other receivables and
amounts currently payable are included in other liabilities.
Such assets and liabilities relating to reinsurance agreements
with the same reinsurer may be recorded net on the balance
sheet, if a right of offset exists within the reinsurance
agreement. In the event that reinsurers do not meet their
obligations to the Company under the terms of the reinsurance
agreements, reinsurance balances recoverable could become
uncollectible. In such instances, reinsurance recoverable
balances are stated net of allowances for uncollectible
reinsurance.
Premiums, fees and policyholder benefits and claims include
amounts assumed under reinsurance agreements and are net of
reinsurance ceded. Amounts received from reinsurers for policy
administration are reported in other revenues.
If the Company determines that a reinsurance agreement does not
expose the reinsurer to a reasonable possibility of a
significant loss from insurance risk, the Company records the
agreement using the deposit method of accounting. Deposits
received are included in other liabilities and deposits made are
included within premiums, reinsurance and other receivables. As
amounts are paid or received, consistent with the underlying
contracts, the deposit assets or liabilities are adjusted.
Interest on such deposits is recorded as other revenues or other
expenses, as
F-25
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
appropriate. Periodically, the Company evaluates the adequacy of
the expected payments or recoveries and adjusts the deposit
asset or liability through other revenues or other expenses, as
appropriate.
Accounting for reinsurance requires extensive use of assumptions
and estimates, particularly related to the future performance of
the underlying business and the potential impact of counterparty
credit risks. The Company periodically reviews actual and
anticipated experience compared to the aforementioned
assumptions used to establish assets and liabilities relating to
ceded and assumed reinsurance and evaluates the financial
strength of counterparties to its reinsurance agreements using
criteria similar to that evaluated in the security impairment
process discussed previously.
Cessions under reinsurance arrangements do not discharge the
Companys obligations as the primary insurer.
Employee
Benefit Plans
Eligible employees, sales representatives and retirees of the
Company are provided pension, postretirement and postemployment
benefits under plans sponsored and administered by Metropolitan
Life Insurance Company (MLIC), an affiliate of the
Company. The Companys obligation and expense related to
these benefits is limited to the amount of associated expense
allocated from MLIC.
Foreign
Currency
Assets, liabilities and operations of foreign affiliates and
subsidiaries are recorded based on the functional currency of
each entity. The determination of the functional currency is
made based on appropriate economic and management indicators.
The local currencies of foreign operations are the functional
currencies. Assets and liabilities of foreign affiliates and
subsidiaries are translated from the functional currency to
U.S. dollars at the exchange rates in effect at each
year-end and income and expense accounts are translated at the
average rates of exchange prevailing during the year. The
resulting translation adjustments are charged or credited
directly to other comprehensive income or loss, net of
applicable taxes. Gains and losses from foreign currency
transactions, including the effect of re-measurement of monetary
assets and liabilities to the appropriate functional currency,
are reported as part of net investment gains (losses) in the
period in which they occur.
Discontinued
Operations
The results of operations of a component of the Company that
either has been disposed of or is classified as
held-for-sale
are reported in discontinued operations if the operations and
cash flows of the component have been or will be eliminated from
the ongoing operations of the Company as a result of the
disposal transaction and the Company will not have any
significant continuing involvement in the operations of the
component after the disposal transaction.
Litigation
Contingencies
The Company is a party to a number of legal actions and is
involved in a number of regulatory investigations. Given the
inherent unpredictability of these matters, it is difficult to
estimate the impact on the Companys financial position.
Liabilities are established when it is probable that a loss has
been incurred and the amount of the loss can be reasonably
estimated. On a quarterly and annual basis, the Company reviews
relevant information with respect to liabilities for litigation,
regulatory investigations and litigation-related contingencies
to be reflected in the Companys consolidated financial
statements. It is possible that an adverse outcome in certain of
the Companys litigation and regulatory investigations, or
the use of different assumptions in the determination of amounts
recorded, could have a material effect upon the Companys
consolidated net income or cash flows in particular quarterly or
annual periods.
F-26
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Separate
Accounts
Separate accounts are established in conformity with insurance
laws and are generally not chargeable with liabilities that
arise from any other business of the Company. Separate account
assets are subject to general account claims only to the extent
the value of such assets exceeds the separate account
liabilities. Assets within the Companys separate accounts
primarily include: mutual funds, fixed maturity and equity
securities, mortgage loans, derivatives, hedge funds, other
limited partnership interests, short-term investments and cash
and cash equivalents. The Company reports separately, as assets
and liabilities, investments held in separate accounts and
liabilities of the separate accounts if (i) such separate
accounts are legally recognized; (ii) assets supporting the
contract liabilities are legally insulated from the
Companys general account liabilities;
(iii) investments are directed by the contractholder; and
(iv) all investment performance, net of contract fees and
assessments, is passed through to the contractholder. The
Company reports separate account assets meeting such criteria at
their fair value which is based on the estimated fair values of
the underlying assets comprising the portfolios of an individual
separate account. Investment performance (including investment
income, net investment gains (losses) and changes in unrealized
gains (losses)) and the corresponding amounts credited to
contractholders of such separate accounts are offset within the
same line in the consolidated statements of operations. Separate
accounts credited with a contractual investment return are
combined on a
line-by-line
basis with the Companys general account assets,
liabilities, revenues and expenses and the accounting for these
investments is consistent with the methodologies described
herein for similar financial instruments held within the general
account. Unit-linked separate account investments which are
directed by contractholders but do not meet one or more of the
other above criteria are included in other securities.
The Companys revenues reflect fees charged to the separate
accounts, including mortality charges, risk charges, policy
administration fees, investment management fees and surrender
charges.
Adoption
of New Accounting Pronouncements
Financial
Instruments
Effective December 31, 2010, the Company adopted new
guidance regarding disclosures about the credit quality of
financing receivables and valuation allowances for credit losses
including credit quality indicators. Such disclosures must be
disaggregated by portfolio segment or class based on how a
company develops its valuation allowances for credit losses and
how it manages its credit exposure. The Company has provided all
material required disclosures in its consolidated financial
statements. Certain additional disclosures will be required for
reporting periods ending March 31, 2011 and certain
disclosures relating to troubled debt restructurings have been
deferred indefinitely.
Effective July 1, 2010, the Company adopted new guidance
regarding accounting for embedded credit derivatives within
structured securities. 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 whether they require
bifurcation and separate accounting. The adoption of this
guidance did not have an impact on the Companys
consolidated financial statements.
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
F-27
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
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 a quarterly
reassessment, 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 CMBS. The Company also elected FVO 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 year ended December 31, 2010, the Company recorded
$411 million of net investment income on the consolidated
assets, $402 million of interest expense in other expenses
on the related long-term debt and $24 million in net
investment gains (losses) to remeasure the assets and
liabilities at their estimated fair values.
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.
As more fully described in Summary of Significant
Accounting Policies and Critical Accounting Estimates,
effective April 1, 2009, the Company adopted OTTI guidance.
This guidance amends the previously used methodology for
determining whether an OTTI exists for fixed maturity
securities, changes the presentation of OTTI for fixed maturity
securities and requires additional disclosures for OTTI on fixed
maturity and equity securities in interim and annual financial
statements.
The Companys net cumulative effect adjustment of adopting
the OTTI guidance was an increase of $22 million to
retained earnings with a corresponding increase to accumulated
other comprehensive loss to reclassify the noncredit loss
portion of previously recognized OTTI losses on fixed maturity
securities held at April 1, 2009. This cumulative effect
adjustment was comprised of an increase in the amortized cost
basis of fixed maturity securities of $36 million, net of
policyholder related amounts of $2 million and net of
deferred income taxes of $12 million, resulting in the net
cumulative effect adjustment of $22 million. The increase
in the amortized cost basis of fixed maturity securities of
$36 million by sector was as follows:
$17 million ABS, $6 million
U.S. corporate securities and $13 million
CMBS.
As a result of the adoption of the OTTI guidance, the
Companys pre-tax earnings for the year ended
December 31, 2009 increased by $148 million, offset by
an increase in other comprehensive loss representing OTTI
relating to noncredit losses recognized during the year ended
December 31, 2009.
Effective January 1, 2009, the Company adopted guidance on
disclosures about derivative instruments and hedging. This
guidance requires enhanced qualitative disclosures about
objectives and strategies for using derivatives, quantitative
disclosures about fair value amounts of and gains and losses on
derivative instruments and disclosures about credit risk-related
contingent features in derivative agreements. The Company has
provided all of the material disclosures in its consolidated
financial statements.
The following pronouncements relating to financial instruments
had no material impact on the Companys consolidated
financial statements:
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Effective January 1, 2009, the Company adopted
prospectively an update on accounting for transfers of financial
assets and repurchase financing transactions. This update
provides guidance for evaluating whether
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F-28
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
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to account for a transfer of a financial asset and repurchase
financing as a single transaction or as two separate
transactions.
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Effective December 31, 2008, the Company adopted guidance
on the recognition of interest income and impairment on
purchased beneficial interests and beneficial interests that
continue to be held by a transferor in securitized financial
assets. This new guidance more closely aligns the determination
of whether an OTTI has occurred for a beneficial interest in a
securitized financial asset with the original guidance for fixed
maturity securities classified as
available-for-sale
or
held-to-maturity.
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Effective January 1, 2008, the Company adopted guidance
relating to application of the shortcut method of accounting for
derivative instruments and hedging activities. This guidance
permits interest rate swaps to have a non-zero fair value at
inception when applying the shortcut method of assessing hedge
effectiveness as long as the difference between the transaction
price (zero) and the fair value (exit price), as defined by
current accounting guidance on fair value measurements, is
solely attributable to a bid-ask spread. In addition, entities
are not precluded from applying the shortcut method of assessing
hedge effectiveness in a hedging relationship of interest rate
risk involving an interest bearing asset or liability in
situations where the hedged item is not recognized for
accounting purposes until settlement date as long as the period
between trade date and settlement date of the hedged item is
consistent with generally established conventions in the
marketplace.
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Effective January 1, 2008, the Company adopted guidance
that permits a reporting entity to offset fair value amounts
recognized for the right to reclaim cash collateral (a
receivable) or the obligation to return cash collateral (a
payable) against fair value amounts recognized for derivative
instruments executed with the same counterparty under the same
master netting arrangement that have been offset. This guidance
also includes certain terminology modifications. Upon adoption
of this guidance, the Company did not change its accounting
policy of not offsetting fair value amounts recognized for
derivative instruments under master netting arrangements.
|
Business
Combinations and Noncontrolling Interests
Effective January 1, 2009, the Company adopted revised
guidance on business combinations and accounting for
noncontrolling interests in the consolidated financial
statements. Under this guidance:
|
|
|
|
|
All business combinations (whether full, partial or
step acquisitions) result in all assets and
liabilities of an acquired business being recorded at fair
value, with limited exceptions.
|
|
|
|
Acquisition costs are generally expensed as incurred;
restructuring costs associated with a business combination are
generally expensed as incurred subsequent to the acquisition
date.
|
|
|
|
The fair value of the purchase price, including the issuance of
equity securities, is determined on the acquisition date.
|
|
|
|
Assets acquired and liabilities assumed in a business
combination that arise from contingencies are recognized at fair
value if the acquisition date fair value can be reasonably
determined. If the fair value is not estimable, an asset or
liability is recorded if existence or incurrence at the
acquisition date is probable and its amount is reasonably
estimable.
|
|
|
|
Changes in deferred income tax asset valuation allowances and
income tax uncertainties after the acquisition date generally
affect income tax expense.
|
|
|
|
Noncontrolling interests (formerly known as minority
interests) are valued at fair value at the acquisition
date and are presented as equity rather than liabilities.
|
|
|
|
Net income (loss) includes amounts attributable to
noncontrolling interests.
|
F-29
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
|
|
|
|
|
When control is attained on previously noncontrolling interests,
the previously held equity interests are remeasured at fair
value and a gain or loss is recognized.
|
|
|
|
Purchases or sales of equity interests that do not result in a
change in control are accounted for as equity transactions.
|
|
|
|
When control is lost in a partial disposition, realized gains or
losses are recorded on equity ownership sold and the remaining
ownership interest is remeasured and holding gains or losses are
recognized.
|
The adoption of this guidance on a prospective basis did not
have an impact on the Companys consolidated financial
statements. As the Company did not have a minority interest, the
adoption of this guidance, which required retrospective
application of presentation requirements of noncontrolling
interest, did not have an impact on the Companys
consolidated financial statements.
Effective January 1, 2009, the Company adopted
prospectively guidance on determination of the useful life of
intangible assets. This guidance amends the factors that should
be considered in developing renewal or extension assumptions
used to determine the useful life of a recognized intangible
asset. This change is intended to improve the consistency
between the useful life of a recognized intangible asset and the
period of expected future cash flows used to measure the fair
value of the asset. The Company determines useful lives and
provides all of the material disclosures prospectively on
intangible assets acquired on or after January 1, 2009 in
accordance with this guidance.
Fair
Value
Effective January 1, 2010, the Company adopted new guidance
that requires new disclosures about significant transfers into
and/or out
of Levels 1 and 2 of the fair value hierarchy and activity
in Level 3. 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.
Effective January 1, 2008, the Company adopted fair value
measurements guidance which defines fair value, establishes a
consistent framework for measuring fair value, establishes a
fair value hierarchy based on the observability of inputs used
to measure fair value, and requires enhanced disclosures about
fair value measurements and applied this guidance prospectively
to assets and liabilities measured at fair value. The adoption
of this guidance changed the valuation of certain freestanding
derivatives by moving from a mid to bid pricing convention as it
relates to certain volatility inputs, as well as the addition of
liquidity adjustments and adjustments for risks inherent in a
particular input or valuation technique. The adoption of this
guidance also changed the valuation of the Companys
embedded derivatives, most significantly the valuation of
embedded derivatives associated with certain guarantees on
variable annuity contracts. The change in valuation of embedded
derivatives associated with guarantees on annuity contracts
resulted from the incorporation of risk margins associated with
non-capital market inputs and the inclusion of the
Companys nonperformance risk in their valuation. At
January 1, 2008, the impact of adopting the guidance on
assets and liabilities measured at estimated fair value was
$59 million ($38 million, net of income tax) and was
recognized as a change in estimate in the accompanying
consolidated statement of operations where it was presented in
the respective statement of operations caption to which the item
measured at estimated fair value is presented. There were no
significant changes in estimated fair value of items measured at
fair value and reflected in accumulated other comprehensive
income (loss). The addition of risk margins and the
Companys nonperformance risk adjustment in the valuation
of embedded derivatives associated with annuity contracts may
result in significant volatility in the Companys
consolidated net income in future periods. The Company provided
all of the material disclosures in Note 4.
F-30
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
The following pronouncements relating to fair value had no
material impact on the Companys consolidated financial
statements:
|
|
|
|
|
Effective September 30, 2008, the Company adopted guidance
relating to the fair value measurements of financial assets when
the market for those assets is not active. It provides guidance
on how a companys internal cash flow and discount rate
assumptions should be considered in the measurement of fair
value when relevant market data does not exist, how observable
market information in an inactive market affects fair value
measurement and how the use of market quotes should be
considered when assessing the relevance of observable and
unobservable data available to measure fair value.
|
|
|
|
Effective January 1, 2009, the Company implemented fair
value measurements guidance for certain nonfinancial assets and
liabilities that are recorded at fair value on a non-recurring
basis. This guidance applies to such items as:
(i) nonfinancial assets and nonfinancial liabilities
initially measured at estimated fair value in a business
combination; (ii) reporting units measured at estimated
fair value in the first step of a goodwill impairment test; and
(iii) indefinite-lived intangible assets measured at
estimated fair value for impairment assessment.
|
|
|
|
Effective January 1, 2009, the Company adopted
prospectively guidance on issuers accounting for
liabilities measured at fair value with a third-party credit
enhancement. This guidance states that an issuer of a liability
with a third-party credit enhancement should not include the
effect of the credit enhancement in the fair value measurement
of the liability. In addition, it requires disclosures about the
existence of any third-party credit enhancement related to
liabilities that are measured at fair value.
|
|
|
|
Effective April 1, 2009, the Company adopted guidance on:
(i) estimating the fair value of an asset or liability if
there was a significant decrease in the volume and level of
trading activity for these assets or liabilities; and
(ii) identifying transactions that are not orderly. The
Company has provided all of the material disclosures in its
consolidated financial statements.
|
|
|
|
Effective December 31, 2009, the Company adopted guidance
on: (i) measuring the fair value of investments in certain
entities that calculate NAV per share; (ii) how investments
within its scope would be classified in the fair value
hierarchy; and (iii) enhanced disclosure requirements, for
both interim and annual periods, about the nature and risks of
investments measured at fair value on a recurring or
non-recurring basis.
|
|
|
|
Effective December 31, 2009, the Company adopted guidance
on measuring liabilities at fair value. This guidance provides
clarification for measuring fair value in circumstances in which
a quoted price in an active market for the identical liability
is not available. In such circumstances a company is required to
measure fair value using either a valuation technique that uses:
(i) the quoted price of the identical liability when traded
as an asset; or (ii) quoted prices for similar liabilities
or similar liabilities when traded as assets; or
(iii) another valuation technique that is consistent with
the principles of fair value measurement such as an income
approach (e.g., present value technique) or a market approach
(e.g., entry value technique).
|
Other
Pronouncements
Effective April 1, 2009, the Company adopted prospectively
guidance which establishes general standards for accounting and
disclosures of events that occur subsequent to the balance sheet
date but before financial statements are issued or available to
be issued. The Company has provided all of the material
disclosures in its consolidated financial statements.
Effective January 1, 2008, the Company prospectively
adopted guidance on the sale of real estate when the agreement
includes a buy-sell clause. This guidance addresses whether the
existence of a buy-sell arrangement would preclude partial sales
treatment when real estate is sold to a jointly owned entity and
concludes that the
F-31
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
existence of a buy-sell clause does not necessarily preclude
partial sale treatment under current guidance. The adoption of
this guidance did not have a material impact on the
Companys consolidated financial statements.
Future
Adoption of New Accounting Pronouncements
In December 2010, the Financial Accounting Standards Board
(FASB) issued new guidance addressing when a
business combination should be assumed to have occurred for the
purpose of providing pro forma disclosure (Accounting Standards
Update (ASU)
2010-29,
Business Combinations (Topic 805): Disclosure of
Supplementary Pro Forma Information for Business
Combinations). Under the new guidance, if an entity presents
comparative financial statements, the entity should disclose
revenue and earnings of the combined entity as though the
business combination that occurred during the current year had
occurred as of the beginning of the comparable prior annual
reporting period. The guidance also expands the supplemental pro
forma disclosures to include additional narratives. The guidance
is effective for fiscal years beginning on or after
December 15, 2010. The Company will apply the guidance
prospectively on its accounting for future acquisitions and does
not expect the adoption of this guidance to have a material
impact on the Companys consolidated financial statements.
In December 2010, the FASB issued new guidance regarding
goodwill impairment testing (ASU
2010-28,
Intangibles Goodwill and Other (Topic 350): When
to Perform Step 2 of the Goodwill Impairment Test for Reporting
Units with Zero or Negative Carrying Amounts). This guidance
modifies Step 1 of the goodwill impairment test for reporting
units with zero or negative carrying amounts. For those
reporting units, an entity would be required to perform Step 2
of the test if qualitative factors indicate that it is more
likely than not that goodwill impairment exists. 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 October 2010, the FASB issued new guidance regarding
accounting for deferred acquisition costs (ASU
2010-26,
Accounting for Costs Associated with Acquiring or Renewing
Insurance Contracts) effective for the first quarter of
2012. This guidance clarifies the costs that should be deferred
by insurance entities when issuing and renewing insurance
contracts. The guidance also specifies that only costs related
directly to successful acquisition of new or renewal contracts
can be capitalized. All other acquisition-related costs should
be expensed as incurred. 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 contractholder
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.
F-32
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
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 OTTI
loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 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
|
|
$
|
14,860
|
|
|
$
|
816
|
|
|
$
|
302
|
|
|
$
|
|
|
|
$
|
15,374
|
|
|
|
34.2
|
%
|
Foreign corporate securities
|
|
|
8,095
|
|
|
|
502
|
|
|
|
127
|
|
|
|
|
|
|
|
8,470
|
|
|
|
18.8
|
|
U.S. Treasury and agency securities
|
|
|
7,665
|
|
|
|
143
|
|
|
|
132
|
|
|
|
|
|
|
|
7,676
|
|
|
|
17.1
|
|
RMBS
|
|
|
6,803
|
|
|
|
203
|
|
|
|
218
|
|
|
|
79
|
|
|
|
6,709
|
|
|
|
14.9
|
|
CMBS
|
|
|
2,203
|
|
|
|
113
|
|
|
|
39
|
|
|
|
|
|
|
|
2,277
|
|
|
|
5.1
|
|
ABS
|
|
|
1,927
|
|
|
|
44
|
|
|
|
95
|
|
|
|
7
|
|
|
|
1,869
|
|
|
|
4.2
|
|
State and political subdivision securities
|
|
|
1,755
|
|
|
|
22
|
|
|
|
131
|
|
|
|
|
|
|
|
1,646
|
|
|
|
3.7
|
|
Foreign government securities
|
|
|
824
|
|
|
|
81
|
|
|
|
2
|
|
|
|
|
|
|
|
903
|
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities (1), (2)
|
|
$
|
44,132
|
|
|
$
|
1,924
|
|
|
$
|
1,046
|
|
|
$
|
86
|
|
|
$
|
44,924
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock (1)
|
|
$
|
306
|
|
|
$
|
9
|
|
|
$
|
47
|
|
|
$
|
|
|
|
$
|
268
|
|
|
|
66.2
|
%
|
Common stock
|
|
|
121
|
|
|
|
17
|
|
|
|
1
|
|
|
|
|
|
|
|
137
|
|
|
|
33.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities (3)
|
|
$
|
427
|
|
|
$
|
26
|
|
|
$
|
48
|
|
|
$
|
|
|
|
$
|
405
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-33
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (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
|
%
|
Foreign corporate securities
|
|
|
7,292
|
|
|
|
307
|
|
|
|
255
|
|
|
|
6
|
|
|
|
7,338
|
|
|
|
17.8
|
|
U.S. Treasury and agency securities
|
|
|
6,503
|
|
|
|
35
|
|
|
|
281
|
|
|
|
|
|
|
|
6,257
|
|
|
|
15.2
|
|
RMBS
|
|
|
6,183
|
|
|
|
153
|
|
|
|
402
|
|
|
|
82
|
|
|
|
5,852
|
|
|
|
14.2
|
|
CMBS
|
|
|
2,808
|
|
|
|
43
|
|
|
|
216
|
|
|
|
18
|
|
|
|
2,617
|
|
|
|
6.3
|
|
ABS
|
|
|
2,152
|
|
|
|
33
|
|
|
|
163
|
|
|
|
33
|
|
|
|
1,989
|
|
|
|
4.8
|
|
State and political subdivision securities
|
|
|
1,291
|
|
|
|
12
|
|
|
|
124
|
|
|
|
|
|
|
|
1,179
|
|
|
|
2.8
|
|
Foreign government securities
|
|
|
608
|
|
|
|
46
|
|
|
|
9
|
|
|
|
|
|
|
|
645
|
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities (1), (2)
|
|
$
|
42,435
|
|
|
$
|
1,070
|
|
|
$
|
2,089
|
|
|
$
|
141
|
|
|
$
|
41,275
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock (1)
|
|
$
|
351
|
|
|
$
|
10
|
|
|
$
|
55
|
|
|
$
|
|
|
|
$
|
306
|
|
|
|
66.7
|
%
|
Common stock
|
|
|
143
|
|
|
|
11
|
|
|
|
1
|
|
|
|
|
|
|
|
153
|
|
|
|
33.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities (3)
|
|
$
|
494
|
|
|
$
|
21
|
|
|
$
|
56
|
|
|
$
|
|
|
|
$
|
459
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
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: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
Estimated
|
|
|
Estimated
|
|
Classification
|
|
Fair
|
|
|
Fair
|
|
Consolidated Balance Sheets
|
|
Sector Table
|
|
Primary Issuers
|
|
Value
|
|
|
Value
|
|
|
|
|
|
|
|
(In millions)
|
|
|
Equity securities
|
|
Non-redeemable preferred stock
|
|
Non-U.S. financial institutions
|
|
$
|
202
|
|
|
$
|
237
|
|
Equity securities
|
|
Non-redeemable preferred stock
|
|
U.S. financial institutions
|
|
$
|
35
|
|
|
$
|
43
|
|
Fixed maturity securities
|
|
Foreign corporate securities
|
|
Non-U.S. financial institutions
|
|
$
|
450
|
|
|
$
|
580
|
|
Fixed maturity securities
|
|
U.S. corporate securities
|
|
U.S. financial institutions
|
|
$
|
10
|
|
|
$
|
17
|
|
|
|
|
(2) |
|
The Companys holdings in redeemable preferred stock with
stated maturity dates, commonly referred to as capital
securities, were primarily issued by U.S. financial
institutions and have cumulative interest deferral features. The
Company held $645 million and $513 million at
estimated fair value of such securities at December 31,
2010 and 2009, respectively, which are included in the U.S. and
foreign corporate securities sectors within fixed maturity
securities. |
F-34
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
|
|
|
(3) |
|
Equity securities primarily consist of investments in common and
preferred stocks, including certain perpetual hybrid securities
and mutual fund interests. Privately-held equity securities were
$100 million and $82 million at estimated fair value
at December 31, 2010 and 2009, respectively. |
The Company held foreign currency derivatives with notional
amounts of $807 million and $855 million to hedge the
exchange rate risk associated with foreign denominated fixed
maturity securities at December 31, 2010 and 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 certain
structured securities described below held by MetLife Insurance
Company of Connecticut and its domestic insurance subsidiary.
Non-agency RMBS, including RMBS backed by
sub-prime
mortgage loans reported within ABS, CMBS and all other ABS held
by MetLife Insurance Company of Connecticut and its domestic
insurance subsidiary, are presented based on final ratings from
the revised NAIC rating methodologies which became effective
December 31, 2009 for non-agency RMBS, including RMBS
backed by
sub-prime
mortgage loans reported within ABS, and December 31, 2010
for CMBS and the remaining ABS (which may not correspond to
rating agency designations). All NAIC designation (e.g., NAIC
1 6) amounts and percentages presented herein
are based on the revised NAIC methodologies. All rating agency
designation (e.g., Aaa/AAA) amounts and percentages presented
herein are based on rating agency designations without
adjustment for the revised NAIC methodologies described above.
Rating agency designations are based on availability of
applicable ratings from rating agencies on the NAIC acceptable
rating organization list, including Moodys Investors
Service (Moodys), S&P and Fitch Ratings
(Fitch).
The following table presents selected information about certain
fixed maturity securities held by the Company at:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Below investment grade or non-rated fixed maturity securities:
|
|
|
|
|
|
|
|
|
Estimated fair value
|
|
$
|
4,027
|
|
|
$
|
3,866
|
|
Net unrealized gain (loss)
|
|
$
|
(125
|
)
|
|
$
|
(467
|
)
|
Non-income producing fixed maturity securities:
|
|
|
|
|
|
|
|
|
Estimated fair value
|
|
$
|
36
|
|
|
$
|
67
|
|
Net unrealized gain (loss)
|
|
$
|
2
|
|
|
$
|
2
|
|
Concentrations of Credit Risk (Fixed Maturity
Securities) Summary. The
following section contains a summary of the concentrations of
credit risk related to fixed maturity securities holdings.
The Company 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
$7.7 billion and $6.3 billion at December 31,
2010 and 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 an exposure
to any single issuer in excess of 1% of total investments. The
tables below present for all corporate fixed maturity securities
holdings, corporate securities by sector,
U.S. corporate securities
F-35
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
by major industry types, the largest exposure to a single issuer
and the combined holdings in the ten issuers to which it had the
largest exposure at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
Fair
|
|
|
% of
|
|
|
Fair
|
|
|
% of
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Corporate fixed maturity securities by sector:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign corporate fixed maturity securities (1)
|
|
$
|
8,470
|
|
|
|
35.5
|
%
|
|
$
|
7,338
|
|
|
|
32.3
|
%
|
U.S. corporate fixed maturity securities by industry:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
3,893
|
|
|
|
16.3
|
|
|
|
3,507
|
|
|
|
15.4
|
|
Utility
|
|
|
3,379
|
|
|
|
14.2
|
|
|
|
3,328
|
|
|
|
14.6
|
|
Industrial
|
|
|
3,282
|
|
|
|
13.7
|
|
|
|
3,047
|
|
|
|
13.4
|
|
Finance
|
|
|
2,569
|
|
|
|
10.8
|
|
|
|
3,145
|
|
|
|
13.8
|
|
Communications
|
|
|
1,444
|
|
|
|
6.1
|
|
|
|
1,669
|
|
|
|
7.4
|
|
Other
|
|
|
807
|
|
|
|
3.4
|
|
|
|
702
|
|
|
|
3.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
23,844
|
|
|
|
100.0
|
%
|
|
$
|
22,736
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes U.S. dollar-denominated debt obligations of foreign
obligors and other foreign fixed maturity securities. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
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
|
|
$
|
252
|
|
|
|
0.4
|
%
|
|
$
|
204
|
|
|
|
0.4
|
%
|
Holdings in ten issuers with the largest exposures
|
|
$
|
1,683
|
|
|
|
2.5
|
%
|
|
$
|
1,695
|
|
|
|
3.2
|
%
|
F-36
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Concentrations of Credit Risk (Fixed Maturity
Securities) RMBS. The table below
presents the Companys RMBS holdings and portion rated
Aaa/AAA and portion rated NAIC 1 at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
Fair
|
|
|
% of
|
|
|
Fair
|
|
|
% of
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
By security type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass-through securities
|
|
$
|
3,466
|
|
|
|
51.7
|
%
|
|
$
|
2,206
|
|
|
|
37.7
|
%
|
Collateralized mortgage obligations
|
|
|
3,243
|
|
|
|
48.3
|
|
|
|
3,646
|
|
|
|
62.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total RMBS
|
|
$
|
6,709
|
|
|
|
100.0
|
%
|
|
$
|
5,852
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By risk profile:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
$
|
5,080
|
|
|
|
75.7
|
%
|
|
$
|
4,095
|
|
|
|
70.0
|
%
|
Prime
|
|
|
1,023
|
|
|
|
15.3
|
|
|
|
1,118
|
|
|
|
19.1
|
|
Alternative residential mortgage loans
|
|
|
606
|
|
|
|
9.0
|
|
|
|
639
|
|
|
|
10.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total RMBS
|
|
$
|
6,709
|
|
|
|
100.0
|
%
|
|
$
|
5,852
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portion rated Aaa/AAA
|
|
$
|
5,254
|
|
|
|
78.3
|
%
|
|
$
|
4,347
|
|
|
|
74.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portion rated NAIC 1
|
|
$
|
5,618
|
|
|
|
83.7
|
%
|
|
$
|
4,835
|
|
|
|
82.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. 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.
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.
F-37
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
Fair
|
|
|
% of
|
|
|
Fair
|
|
|
% of
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Vintage Year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 & Prior
|
|
$
|
9
|
|
|
|
1.5
|
%
|
|
$
|
15
|
|
|
|
2.3
|
%
|
2005
|
|
|
302
|
|
|
|
49.8
|
|
|
|
336
|
|
|
|
52.6
|
|
2006
|
|
|
88
|
|
|
|
14.6
|
|
|
|
83
|
|
|
|
13.0
|
|
2007
|
|
|
207
|
|
|
|
34.1
|
|
|
|
205
|
|
|
|
32.1
|
|
2008 to 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
606
|
|
|
|
100.0
|
%
|
|
$
|
639
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
Amount
|
|
|
Total
|
|
|
Amount
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Net unrealized gain (loss)
|
|
$
|
(141
|
)
|
|
|
|
|
|
$
|
(235
|
)
|
|
|
|
|
Rated Aa/AA or better
|
|
|
|
|
|
|
1.5
|
%
|
|
|
|
|
|
|
2.3
|
%
|
Rated NAIC 1
|
|
|
|
|
|
|
14.9
|
%
|
|
|
|
|
|
|
16.6
|
%
|
Distribution of holdings at estimated fair
value by collateral type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate mortgage loans collateral
|
|
|
|
|
|
|
96.1
|
%
|
|
|
|
|
|
|
95.6
|
%
|
Hybrid adjustable rate mortgage loans collateral
|
|
|
|
|
|
|
3.9
|
|
|
|
|
|
|
|
4.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Alt-A RMBS
|
|
|
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Concentrations of Credit Risk (Fixed Maturity
Securities) CMBS. The Companys
holdings in CMBS were $2.3 billion and $2.6 billion at
estimated fair value at December 31, 2010 and 2009,
respectively. The Company had no exposure to CMBS index
securities at December 31, 2010 or 2009. The Company held
commercial real estate collateralized debt obligations
securities of $85 million and $70 million at estimated
fair value at December 31, 2010 and 2009, respectively.
F-38
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
The following tables present the Companys holdings of CMBS
by vintage year and certain other selected data at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
Fair
|
|
|
% of
|
|
|
Fair
|
|
|
% of
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Vintage Year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 & Prior
|
|
$
|
947
|
|
|
|
41.6
|
%
|
|
$
|
1,202
|
|
|
|
45.9
|
%
|
2004
|
|
|
442
|
|
|
|
19.4
|
|
|
|
512
|
|
|
|
19.6
|
|
2005
|
|
|
431
|
|
|
|
18.9
|
|
|
|
472
|
|
|
|
18.0
|
|
2006
|
|
|
442
|
|
|
|
19.4
|
|
|
|
407
|
|
|
|
15.6
|
|
2007
|
|
|
15
|
|
|
|
0.7
|
|
|
|
24
|
|
|
|
0.9
|
|
2008 to 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,277
|
|
|
|
100.0
|
%
|
|
$
|
2,617
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
Amount
|
|
|
Total
|
|
|
Amount
|
|
|
Total
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Net unrealized gain (loss)
|
|
$
|
74
|
|
|
|
|
|
|
$
|
(191
|
)
|
|
|
|
|
Rated Aaa/AAA
|
|
|
|
|
|
|
88
|
%
|
|
|
|
|
|
|
83
|
%
|
Rated NAIC 1
|
|
|
|
|
|
|
95
|
%
|
|
|
|
|
|
|
93
|
%
|
The portion rated Aaa/AAA at December 31, 2010 reflects
rating agency designations assigned by nationally recognized
rating agencies including Moodys, S&P, Fitch and
Realpoint, LLC. The portion rated Aaa/AAA at December 31,
2009 reflects rating agency designations 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 $1.9 billion and $2.0 billion at
estimated fair value at December 31, 2010 and 2009,
respectively. The Companys ABS are diversified both by
collateral type and by issuer.
F-39
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
The following table presents the collateral type and certain
other information about ABS held by the Company at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
Fair
|
|
|
% of
|
|
|
Fair
|
|
|
% of
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
By collateral type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card loans
|
|
$
|
753
|
|
|
|
40.3
|
%
|
|
$
|
920
|
|
|
|
46.3
|
%
|
RMBS backed by
sub-prime
mortgage loans
|
|
|
247
|
|
|
|
13.2
|
|
|
|
247
|
|
|
|
12.4
|
|
Student loans
|
|
|
174
|
|
|
|
9.3
|
|
|
|
158
|
|
|
|
7.9
|
|
Automobile loans
|
|
|
98
|
|
|
|
5.3
|
|
|
|
205
|
|
|
|
10.3
|
|
Other loans
|
|
|
597
|
|
|
|
31.9
|
|
|
|
459
|
|
|
|
23.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,869
|
|
|
|
100.0
|
%
|
|
$
|
1,989
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portion rated Aaa/AAA
|
|
$
|
1,251
|
|
|
|
66.9
|
%
|
|
$
|
1,292
|
|
|
|
65.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portion rated NAIC 1
|
|
$
|
1,699
|
|
|
|
90.9
|
%
|
|
$
|
1,767
|
|
|
|
88.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 or 1% of total investments at
December 31, 2010 and 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
|
(In millions)
|
|
|
Due in one year or less
|
|
$
|
1,874
|
|
|
$
|
1,889
|
|
|
$
|
1,023
|
|
|
$
|
1,029
|
|
Due after one year through five years
|
|
|
9,340
|
|
|
|
9,672
|
|
|
|
9,048
|
|
|
|
9,202
|
|
Due after five years through ten years
|
|
|
7,829
|
|
|
|
8,333
|
|
|
|
7,882
|
|
|
|
7,980
|
|
Due after ten years
|
|
|
14,156
|
|
|
|
14,175
|
|
|
|
13,339
|
|
|
|
12,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
33,199
|
|
|
|
34,069
|
|
|
|
31,292
|
|
|
|
30,817
|
|
RMBS, CMBS and ABS
|
|
|
10,933
|
|
|
|
10,855
|
|
|
|
11,143
|
|
|
|
10,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
44,132
|
|
|
$
|
44,924
|
|
|
$
|
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.
Evaluating
Available-for-Sale
Securities for
Other-Than-Temporary
Impairment
As described more fully in Note 1, the Company performs a
regular evaluation, on a
security-by-security
basis, of its
available-for-sale
securities holdings, including fixed maturity securities, equity
securities and perpetual
F-40
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
hybrid securities, in accordance with its impairment policy in
order to evaluate whether such investments are
other-than-temporarily
impaired. As described more fully in Note 1, effective
April 1, 2009, the Company adopted 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.
Net
Unrealized Investment Gains (Losses)
The components of net unrealized investment gains (losses),
included in accumulated other comprehensive income (loss), were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Fixed maturity securities
|
|
$
|
878
|
|
|
$
|
(1,019
|
)
|
|
$
|
(4,755
|
)
|
Fixed maturity securities with noncredit OTTI losses in
accumulated other comprehensive income (loss)
|
|
|
(86
|
)
|
|
|
(141
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
|
792
|
|
|
|
(1,160
|
)
|
|
|
(4,755
|
)
|
Equity securities
|
|
|
(21
|
)
|
|
|
(35
|
)
|
|
|
(199
|
)
|
Derivatives
|
|
|
(109
|
)
|
|
|
(4
|
)
|
|
|
12
|
|
Short-term investments
|
|
|
(2
|
)
|
|
|
(10
|
)
|
|
|
(100
|
)
|
Other
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
657
|
|
|
|
(1,212
|
)
|
|
|
(5,045
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts allocated from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance liability loss recognition
|
|
|
(33
|
)
|
|
|
|
|
|
|
|
|
DAC and VOBA related to noncredit OTTI losses recognized in
accumulated other comprehensive income (loss)
|
|
|
5
|
|
|
|
12
|
|
|
|
|
|
DAC and VOBA
|
|
|
(126
|
)
|
|
|
151
|
|
|
|
916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
(154
|
)
|
|
|
163
|
|
|
|
916
|
|
Deferred income tax benefit (expense) related to noncredit OTTI
losses recognized in accumulated other comprehensive income
(loss)
|
|
|
30
|
|
|
|
46
|
|
|
|
|
|
Deferred income tax benefit (expense)
|
|
|
(196
|
)
|
|
|
327
|
|
|
|
1,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized investment gains (losses)
|
|
$
|
337
|
|
|
$
|
(676
|
)
|
|
$
|
(2,682
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities with noncredit OTTI losses in
accumulated other comprehensive income (loss), as presented
above of ($86) million at December 31, 2010, includes
($141) million recognized prior to January 1, 2010,
($53) million (($44) million, net of DAC) of noncredit
OTTI losses recognized in the year ended December 31, 2010,
$16 million transferred to retained earnings in connection
with the adoption of guidance related to the consolidation of
VIEs (see Note 1) for the year ended December 31,
2010, $28 million related to securities sold during the
year ended December 31, 2010 for which a noncredit OTTI
loss was previously recognized in accumulated other
comprehensive income (loss) and $64 million of subsequent
increases in estimated fair value during the year ended
December 31, 2010 on such securities for which a noncredit
OTTI 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 guidance on the
recognition and presentation of OTTI, ($165) million
F-41
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
(($148) million, net of DAC) of noncredit OTTI losses
recognized in the year ended December 31, 2009 (as more
fully described in Note 1), $6 million related to
securities sold during the year ended December 31, 2009 for
which a noncredit OTTI loss was previously recognized in
accumulated comprehensive income (loss) and $54 million of
subsequent increases in estimated fair value during the year
ended December 31, 2009 on such securities for which a
noncredit OTTI loss was previously recognized in accumulated
other comprehensive income (loss).
The changes in net unrealized investment gains (losses) were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Balance, beginning of period
|
|
$
|
(676
|
)
|
|
$
|
(2,682
|
)
|
|
$
|
(361
|
)
|
Cumulative effect of change in accounting principles, net of
income tax
|
|
|
34
|
|
|
|
(22
|
)
|
|
|
|
|
Fixed maturity securities on which noncredit OTTI losses have
been recognized
|
|
|
39
|
|
|
|
(105
|
)
|
|
|
|
|
Unrealized investment gains (losses) during the year
|
|
|
1,778
|
|
|
|
3,974
|
|
|
|
(4,396
|
)
|
Unrealized investment gains (losses) relating to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance liability gain (loss) recognition
|
|
|
(33
|
)
|
|
|
|
|
|
|
|
|
DAC and VOBA related to noncredit OTTI losses recognized in
accumulated other comprehensive income (loss)
|
|
|
(7
|
)
|
|
|
10
|
|
|
|
|
|
DAC and VOBA
|
|
|
(277
|
)
|
|
|
(765
|
)
|
|
|
823
|
|
Deferred income tax benefit (expense) related to noncredit OTTI
losses recognized in accumulated other comprehensive income
(loss)
|
|
|
(11
|
)
|
|
|
34
|
|
|
|
|
|
Deferred income tax benefit (expense)
|
|
|
(510
|
)
|
|
|
(1,120
|
)
|
|
|
1,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
337
|
|
|
$
|
(676
|
)
|
|
$
|
(2,682
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net unrealized investment gains (losses)
|
|
$
|
1,013
|
|
|
$
|
2,006
|
|
|
$
|
(2,321
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-42
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 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
|
|
$
|
1,956
|
|
|
$
|
56
|
|
|
$
|
1,800
|
|
|
$
|
246
|
|
|
$
|
3,756
|
|
|
$
|
302
|
|
Foreign corporate securities
|
|
|
727
|
|
|
|
24
|
|
|
|
816
|
|
|
|
103
|
|
|
|
1,543
|
|
|
|
127
|
|
U.S. Treasury and agency securities
|
|
|
2,857
|
|
|
|
113
|
|
|
|
85
|
|
|
|
19
|
|
|
|
2,942
|
|
|
|
132
|
|
RMBS
|
|
|
2,228
|
|
|
|
59
|
|
|
|
1,368
|
|
|
|
238
|
|
|
|
3,596
|
|
|
|
297
|
|
CMBS
|
|
|
68
|
|
|
|
1
|
|
|
|
237
|
|
|
|
38
|
|
|
|
305
|
|
|
|
39
|
|
ABS
|
|
|
245
|
|
|
|
5
|
|
|
|
590
|
|
|
|
97
|
|
|
|
835
|
|
|
|
102
|
|
State and political subdivision securities
|
|
|
716
|
|
|
|
36
|
|
|
|
352
|
|
|
|
95
|
|
|
|
1,068
|
|
|
|
131
|
|
Foreign government securities
|
|
|
49
|
|
|
|
1
|
|
|
|
9
|
|
|
|
1
|
|
|
|
58
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
8,846
|
|
|
$
|
295
|
|
|
$
|
5,257
|
|
|
$
|
837
|
|
|
$
|
14,103
|
|
|
$
|
1,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock
|
|
$
|
26
|
|
|
$
|
5
|
|
|
$
|
187
|
|
|
$
|
42
|
|
|
$
|
213
|
|
|
$
|
47
|
|
Common stock
|
|
|
9
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
35
|
|
|
$
|
6
|
|
|
$
|
187
|
|
|
$
|
42
|
|
|
$
|
222
|
|
|
$
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total number of securities in an unrealized loss position
|
|
|
759
|
|
|
|
|
|
|
|
637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-43
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (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
|
|
Foreign corporate securities
|
|
|
759
|
|
|
|
27
|
|
|
|
1,488
|
|
|
|
234
|
|
|
|
2,247
|
|
|
|
261
|
|
U.S. Treasury and agency securities
|
|
|
5,265
|
|
|
|
271
|
|
|
|
26
|
|
|
|
10
|
|
|
|
5,291
|
|
|
|
281
|
|
RMBS
|
|
|
703
|
|
|
|
12
|
|
|
|
1,910
|
|
|
|
472
|
|
|
|
2,613
|
|
|
|
484
|
|
CMBS
|
|
|
334
|
|
|
|
3
|
|
|
|
1,054
|
|
|
|
231
|
|
|
|
1,388
|
|
|
|
234
|
|
ABS
|
|
|
125
|
|
|
|
11
|
|
|
|
821
|
|
|
|
185
|
|
|
|
946
|
|
|
|
196
|
|
State and political subdivision securities
|
|
|
413
|
|
|
|
16
|
|
|
|
433
|
|
|
|
108
|
|
|
|
846
|
|
|
|
124
|
|
Foreign government securities
|
|
|
132
|
|
|
|
4
|
|
|
|
25
|
|
|
|
5
|
|
|
|
157
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
9,895
|
|
|
$
|
431
|
|
|
$
|
10,071
|
|
|
$
|
1,799
|
|
|
$
|
19,966
|
|
|
$
|
2,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock
|
|
$
|
21
|
|
|
$
|
9
|
|
|
$
|
198
|
|
|
$
|
46
|
|
|
$
|
219
|
|
|
$
|
55
|
|
Common stock
|
|
|
3
|
|
|
|
1
|
|
|
|
3
|
|
|
|
|
|
|
|
6
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
24
|
|
|
$
|
10
|
|
|
$
|
201
|
|
|
$
|
46
|
|
|
$
|
225
|
|
|
$
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total number of securities in an unrealized loss position
|
|
|
708
|
|
|
|
|
|
|
|
1,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-44
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Aging
of Gross Unrealized Loss and OTTI Loss for Fixed Maturity and
Equity Securities
Available-for-Sale
The following tables present the cost or amortized cost, gross
unrealized loss, including the portion of OTTI loss on fixed
maturity securities recognized in accumulated other
comprehensive 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
Cost or Amortized Cost
|
|
|
Gross Unrealized Loss
|
|
|
Number of Securities
|
|
|
|
Less than
|
|
|
20% or
|
|
|
Less than
|
|
|
20% or
|
|
|
Less than
|
|
|
20% or
|
|
|
|
20%
|
|
|
more
|
|
|
20%
|
|
|
more
|
|
|
20%
|
|
|
more
|
|
|
|
(In millions, except number of securities)
|
|
|
Fixed Maturity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than six months
|
|
$
|
8,882
|
|
|
$
|
439
|
|
|
$
|
268
|
|
|
$
|
109
|
|
|
|
686
|
|
|
|
43
|
|
Six months or greater but less than nine months
|
|
|
152
|
|
|
|
40
|
|
|
|
6
|
|
|
|
13
|
|
|
|
30
|
|
|
|
10
|
|
Nine months or greater but less than twelve months
|
|
|
48
|
|
|
|
25
|
|
|
|
2
|
|
|
|
11
|
|
|
|
11
|
|
|
|
3
|
|
Twelve months or greater
|
|
|
4,768
|
|
|
|
881
|
|
|
|
450
|
|
|
|
273
|
|
|
|
475
|
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
13,850
|
|
|
$
|
1,385
|
|
|
$
|
726
|
|
|
$
|
406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of amortized cost
|
|
|
|
|
|
|
|
|
|
|
5
|
%
|
|
|
29
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than six months
|
|
$
|
31
|
|
|
$
|
30
|
|
|
$
|
4
|
|
|
$
|
7
|
|
|
|
8
|
|
|
|
12
|
|
Six months or greater but less than nine months
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Nine months or greater but less than twelve months
|
|
|
5
|
|
|
|
7
|
|
|
|
|
|
|
|
2
|
|
|
|
1
|
|
|
|
1
|
|
Twelve months or greater
|
|
|
150
|
|
|
|
44
|
|
|
|
18
|
|
|
|
16
|
|
|
|
12
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
186
|
|
|
$
|
84
|
|
|
$
|
22
|
|
|
$
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of cost
|
|
|
|
|
|
|
|
|
|
|
12
|
%
|
|
|
31
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-45
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
Cost or Amortized Cost
|
|
|
Gross Unrealized Loss
|
|
|
Number of Securities
|
|
|
|
Less than
|
|
|
20% or
|
|
|
Less than
|
|
|
20% or
|
|
|
Less than
|
|
|
20% or
|
|
|
|
20%
|
|
|
more
|
|
|
20%
|
|
|
more
|
|
|
20%
|
|
|
more
|
|
|
|
(In millions, except number of securities)
|
|
|
Fixed Maturity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than six months
|
|
$
|
8,310
|
|
|
$
|
790
|
|
|
$
|
173
|
|
|
$
|
199
|
|
|
|
609
|
|
|
|
74
|
|
Six months or greater but less than nine months
|
|
|
1,084
|
|
|
|
132
|
|
|
|
114
|
|
|
|
37
|
|
|
|
33
|
|
|
|
24
|
|
Nine months or greater but less than twelve months
|
|
|
694
|
|
|
|
362
|
|
|
|
74
|
|
|
|
102
|
|
|
|
30
|
|
|
|
29
|
|
Twelve months or greater
|
|
|
8,478
|
|
|
|
2,346
|
|
|
|
737
|
|
|
|
794
|
|
|
|
867
|
|
|
|
260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
18,566
|
|
|
$
|
3,630
|
|
|
$
|
1,098
|
|
|
$
|
1,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of 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 decreased from $23 million at
December 31, 2009 to $16 million at December 31,
2010. As shown in the section Evaluating
Temporarily Impaired
Available-for-Sale
Securities below, all $16 million of equity
securities with a gross unrealized loss of 20% or more for
twelve months or greater at December 31, 2010 were
financial services industry investment grade non-redeemable
preferred stock, of which 56% were rated A or better.
F-46
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Concentration
of Gross Unrealized Loss and OTTI Loss for Fixed Maturity and
Equity Securities
Available-for-Sale
The Companys gross unrealized losses related to its fixed
maturity and equity securities, including the portion of OTTI
loss on fixed maturity securities recognized in accumulated
other comprehensive income (loss) of $1.2 billion and
$2.3 billion at December 31, 2010 and 2009,
respectively, were concentrated, calculated as a percentage of
gross unrealized loss and OTTI loss, by sector and industry as
follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Sector:
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
|
26
|
%
|
|
|
28
|
%
|
RMBS
|
|
|
25
|
|
|
|
21
|
|
U.S. Treasury and agency securities
|
|
|
11
|
|
|
|
12
|
|
State and political subdivision securities
|
|
|
11
|
|
|
|
5
|
|
Foreign corporate securities
|
|
|
11
|
|
|
|
11
|
|
ABS
|
|
|
9
|
|
|
|
9
|
|
CMBS
|
|
|
3
|
|
|
|
10
|
|
Other
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
Industry:
|
|
|
|
|
|
|
|
|
Mortgage-backed
|
|
|
28
|
%
|
|
|
31
|
%
|
Finance
|
|
|
19
|
|
|
|
22
|
|
U.S. Treasury and agency securities
|
|
|
11
|
|
|
|
12
|
|
State and political subdivision securities
|
|
|
11
|
|
|
|
5
|
|
Asset-backed
|
|
|
9
|
|
|
|
9
|
|
Consumer
|
|
|
5
|
|
|
|
6
|
|
Utility
|
|
|
3
|
|
|
|
4
|
|
Communications
|
|
|
2
|
|
|
|
3
|
|
Industrial
|
|
|
1
|
|
|
|
2
|
|
Transportation
|
|
|
1
|
|
|
|
1
|
|
Other
|
|
|
10
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
F-47
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Evaluating
Temporarily Impaired
Available-for-Sale
Securities
The following table presents the Companys fixed maturity
and equity securities, 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Fixed Maturity
|
|
|
Equity
|
|
|
Fixed Maturity
|
|
|
Equity
|
|
|
|
Securities
|
|
|
Securities
|
|
|
Securities
|
|
|
Securities
|
|
|
|
(In millions, except number of securities)
|
|
|
Number of securities
|
|
|
15
|
|
|
|
|
|
|
|
33
|
|
|
|
|
|
Total gross unrealized loss
|
|
$
|
210
|
|
|
$
|
|
|
|
$
|
510
|
|
|
$
|
|
|
Percentage of total gross unrealized loss
|
|
|
19
|
%
|
|
|
|
%
|
|
|
23
|
%
|
|
|
|
%
|
Fixed maturity and equity securities, each with a gross
unrealized loss greater than $10 million, decreased
$300 million during the year ended December 31, 2010.
The cause of the decline in, or improvement in, gross unrealized
losses for the year ended December 31, 2010, was primarily
attributable to a decrease in interest rates and narrowing of
credit spreads. 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 December 31,
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
|
|
|
|
|
|
% A
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Equity
|
|
|
Unrealized
|
|
|
Non-Redeemable
|
|
|
Unrealized
|
|
|
% of All
|
|
|
Rated or
|
|
|
|
Loss
|
|
|
Loss
|
|
|
Securities
|
|
|
Loss
|
|
|
Preferred Stock
|
|
|
Loss
|
|
|
Industries
|
|
|
Better
|
|
|
|
(In millions)
|
|
|
Less than six months
|
|
$
|
7
|
|
|
$
|
6
|
|
|
|
86
|
%
|
|
$
|
2
|
|
|
|
33
|
%
|
|
$
|
2
|
|
|
|
100
|
%
|
|
|
100
|
%
|
Six months or greater but less than twelve months
|
|
|
3
|
|
|
|
3
|
|
|
|
100
|
%
|
|
|
3
|
|
|
|
100
|
%
|
|
|
3
|
|
|
|
100
|
%
|
|
|
67
|
%
|
Twelve months or greater
|
|
|
16
|
|
|
|
16
|
|
|
|
100
|
%
|
|
|
16
|
|
|
|
100
|
%
|
|
|
16
|
|
|
|
100
|
%
|
|
|
56
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All equity securities with a gross unrealized loss of 20% or more
|
|
$
|
26
|
|
|
$
|
25
|
|
|
|
96
|
%
|
|
$
|
21
|
|
|
|
84
|
%
|
|
$
|
21
|
|
|
|
100
|
%
|
|
|
62
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
F-48
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
considered several factors including whether there has been any
deterioration in credit of the issuer and the likelihood of
recovery in value of non-redeemable preferred stock with a
severe or an extended unrealized loss. The Company also
considered whether any issuers of non-redeemable preferred stock
with an unrealized loss held by the Company, regardless of
credit rating, have deferred any dividend payments. No such
dividend payments had been deferred.
With respect to common stock holdings, the Company considered
the duration and severity of the unrealized losses for
securities in an unrealized loss position of 20% or more; and
the duration of unrealized losses for securities in an
unrealized loss position of less than 20% in an extended
unrealized loss position (i.e., 12 months or greater).
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, 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)
See Evaluating
Available-for-Sale
Securities for
Other-Than-Temporary
Impairment for a discussion of changes in guidance adopted
April 1, 2009 that impacted how fixed maturity security
OTTI losses that are charged to earnings are measured.
F-49
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
The components of net investment gains (losses) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Total gains (losses) on fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OTTI losses recognized
|
|
$
|
(103
|
)
|
|
$
|
(552
|
)
|
|
$
|
(401
|
)
|
Less: Noncredit portion of OTTI losses transferred to and
recognized in other comprehensive income (loss)
|
|
|
53
|
|
|
|
165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net OTTI losses on fixed maturity securities recognized in
earnings
|
|
|
(50
|
)
|
|
|
(387
|
)
|
|
|
(401
|
)
|
Fixed maturity securities net gains (losses) on
sales and disposals
|
|
|
123
|
|
|
|
(115
|
)
|
|
|
(255
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gains (losses) on fixed maturity securities
|
|
|
73
|
|
|
|
(502
|
)
|
|
|
(656
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other net investment gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
28
|
|
|
|
(119
|
)
|
|
|
(60
|
)
|
Mortgage loans
|
|
|
(18
|
)
|
|
|
(32
|
)
|
|
|
(44
|
)
|
Real estate and real estate joint ventures
|
|
|
(21
|
)
|
|
|
(61
|
)
|
|
|
(1
|
)
|
Other limited partnership interests
|
|
|
(13
|
)
|
|
|
(72
|
)
|
|
|
(9
|
)
|
Other investment portfolio gains (losses)
|
|
|
10
|
|
|
|
4
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal investment portfolio gains (losses)
|
|
|
59
|
|
|
|
(782
|
)
|
|
|
(756
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FVO consolidated securitization entities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage loans
|
|
|
758
|
|
|
|
|
|
|
|
|
|
Long-term debt related to commercial mortgage loans
|
|
|
(734
|
)
|
|
|
|
|
|
|
|
|
Other gains (losses)
|
|
|
67
|
|
|
|
(53
|
)
|
|
|
311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal FVO consolidated securitization entities and other
gains (losses)
|
|
|
91
|
|
|
|
(53
|
)
|
|
|
311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net investment gains (losses)
|
|
$
|
150
|
|
|
$
|
(835
|
)
|
|
$
|
(445
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Variable Interest Entities for
discussion of CSEs included in the table above.
See Related Party Investment
Transactions for discussion of affiliated net investment
gains (losses) related to transfers of invested assets to
affiliates.
Gains (losses) from foreign currency transactions included
within net investment gains (losses) and primarily included in
other gains (losses) in the table above were $78 million,
($45) million and $330 million for the years ended
December 31, 2010, 2009 and 2008, respectively.
F-50
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Proceeds from sales or disposals of fixed maturity and equity
securities and the components of fixed maturity and equity
securities net investment gains (losses) were as shown below.
Investment gains and losses on sales of securities are
determined on a specific identification basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
Years Ended December 31,
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
Fixed Maturity Securities
|
|
|
Equity Securities
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
|
|
$
|
12,434
|
|
|
$
|
8,766
|
|
|
$
|
11,450
|
|
|
$
|
109
|
|
|
$
|
113
|
|
|
$
|
76
|
|
|
$
|
12,543
|
|
|
$
|
8,879
|
|
|
$
|
11,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross investment gains
|
|
$
|
244
|
|
|
$
|
180
|
|
|
$
|
126
|
|
|
$
|
31
|
|
|
$
|
6
|
|
|
$
|
15
|
|
|
$
|
275
|
|
|
$
|
186
|
|
|
$
|
141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross investment losses
|
|
|
(121
|
)
|
|
|
(295
|
)
|
|
|
(381
|
)
|
|
|
(1
|
)
|
|
|
(28
|
)
|
|
|
(25
|
)
|
|
|
(122
|
)
|
|
|
(323
|
)
|
|
|
(406
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OTTI losses recognized in earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit-related
|
|
|
(47
|
)
|
|
|
(348
|
)
|
|
|
(366
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(47
|
)
|
|
|
(348
|
)
|
|
|
(366
|
)
|
Other (1)
|
|
|
(3
|
)
|
|
|
(39
|
)
|
|
|
(35
|
)
|
|
|
(2
|
)
|
|
|
(97
|
)
|
|
|
(50
|
)
|
|
|
(5
|
)
|
|
|
(136
|
)
|
|
|
(85
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OTTI losses recognized in earnings
|
|
|
(50
|
)
|
|
|
(387
|
)
|
|
|
(401
|
)
|
|
|
(2
|
)
|
|
|
(97
|
)
|
|
|
(50
|
)
|
|
|
(52
|
)
|
|
|
(484
|
)
|
|
|
(451
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment gains (losses)
|
|
$
|
73
|
|
|
$
|
(502
|
)
|
|
$
|
(656
|
)
|
|
$
|
28
|
|
|
$
|
(119
|
)
|
|
$
|
(60
|
)
|
|
$
|
101
|
|
|
$
|
(621
|
)
|
|
$
|
(716
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
Fixed maturity security OTTI losses recognized in earnings
related to the following sectors and industries within the
U.S. and foreign corporate securities sector:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Sector:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. and foreign corporate securities by industry:
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
$
|
10
|
|
|
$
|
53
|
|
|
$
|
35
|
|
Finance
|
|
|
7
|
|
|
|
84
|
|
|
|
225
|
|
Communications
|
|
|
4
|
|
|
|
88
|
|
|
|
21
|
|
Utility
|
|
|
2
|
|
|
|
6
|
|
|
|
|
|
Industrial
|
|
|
|
|
|
|
18
|
|
|
|
|
|
Other industries
|
|
|
|
|
|
|
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. and foreign corporate securities
|
|
|
23
|
|
|
|
249
|
|
|
|
321
|
|
RMBS
|
|
|
17
|
|
|
|
24
|
|
|
|
|
|
CMBS
|
|
|
8
|
|
|
|
69
|
|
|
|
65
|
|
ABS
|
|
|
2
|
|
|
|
45
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
50
|
|
|
$
|
387
|
|
|
$
|
401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-51
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Equity security OTTI losses recognized in earnings related to
the following sectors and industries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Sector:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
2
|
|
|
$
|
5
|
|
|
$
|
12
|
|
Non-redeemable preferred stock
|
|
|
|
|
|
|
92
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2
|
|
|
$
|
97
|
|
|
$
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industry:
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial services industry:
|
|
|
|
|
|
|
|
|
|
|
|
|
Perpetual hybrid securities
|
|
$
|
|
|
|
$
|
72
|
|
|
$
|
9
|
|
Common and remaining non-redeemable preferred stock
|
|
|
|
|
|
|
3
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial services industry
|
|
|
|
|
|
|
75
|
|
|
|
43
|
|
Other industries
|
|
|
2
|
|
|
|
22
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2
|
|
|
$
|
97
|
|
|
$
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 the respective
time period, for which a portion of the OTTI loss was recognized
in other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Balance, at January 1,
|
|
$
|
213
|
|
|
$
|
|
|
Credit loss component of OTTI loss not reclassified to other
comprehensive income (loss) in the cumulative effect transition
adjustment
|
|
|
|
|
|
|
92
|
|
Additions:
|
|
|
|
|
|
|
|
|
Initial impairments credit loss OTTI recognized on
securities not previously impaired
|
|
|
11
|
|
|
|
97
|
|
Additional impairments credit loss OTTI recognized
on securities previously impaired
|
|
|
10
|
|
|
|
43
|
|
Reductions:
|
|
|
|
|
|
|
|
|
Due to sales (maturities, pay downs or prepayments) during the
period of securities previously credit loss OTTI impaired
|
|
|
(67
|
)
|
|
|
(18
|
)
|
Due to securities de-recognized in connection with the adoption
of new guidance related to the consolidation of VIEs
|
|
|
(100
|
)
|
|
|
|
|
Due to securities impaired to net present value of expected
future cash flows
|
|
|
(1
|
)
|
|
|
|
|
Due to increases in cash flows accretion of previous
credit loss OTTI
|
|
|
(3
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
Balance, at December 31,
|
|
$
|
63
|
|
|
$
|
213
|
|
|
|
|
|
|
|
|
|
|
F-52
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Net
Investment Income
The components of net investment income were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Investment income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
$
|
2,120
|
|
|
$
|
2,094
|
|
|
$
|
2,455
|
|
Equity securities
|
|
|
16
|
|
|
|
27
|
|
|
|
44
|
|
Other securities FVO general account securities
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Mortgage loans
|
|
|
301
|
|
|
|
239
|
|
|
|
255
|
|
Policy loans
|
|
|
67
|
|
|
|
80
|
|
|
|
64
|
|
Real estate and real estate joint ventures
|
|
|
(24
|
)
|
|
|
(120
|
)
|
|
|
11
|
|
Other limited partnership interests
|
|
|
190
|
|
|
|
17
|
|
|
|
(69
|
)
|
Cash, cash equivalents and short-term investments
|
|
|
9
|
|
|
|
16
|
|
|
|
67
|
|
International joint ventures
|
|
|
(6
|
)
|
|
|
(4
|
)
|
|
|
(4
|
)
|
Other
|
|
|
3
|
|
|
|
(2
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
2,676
|
|
|
|
2,347
|
|
|
|
2,822
|
|
Less: Investment expenses
|
|
|
97
|
|
|
|
109
|
|
|
|
307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal, net
|
|
|
2,579
|
|
|
|
2,238
|
|
|
|
2,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other securities FVO contractholder-directed
unit-linked investments
|
|
|
167
|
|
|
|
97
|
|
|
|
(21
|
)
|
FVO consolidated securitization entities Commercial
mortgage loans
|
|
|
411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
578
|
|
|
|
97
|
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
3,157
|
|
|
$
|
2,335
|
|
|
$
|
2,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Variable Interest Entities for
discussion of CSEs included in the table above.
Affiliated investment expenses, included in the table above,
were $56 million, $47 million and $32 million for
the years ended December 31, 2010, 2009 and 2008,
respectively. See Related Party Investment
Transactions for discussion of affiliated net investment
income included in the table above.
Securities
Lending
The Company participates in securities lending programs whereby
blocks of securities, which are included in fixed maturity
securities and short-term investments, are loaned to third
parties, primarily brokerage firms and commercial banks. The
Company generally obtains collateral, generally cash, in an
amount equal to 102% of the estimated fair value of the
securities loaned, which is obtained at the inception of a loan
and maintained at a level greater than or equal to 100% for the
duration of the loan. 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. These transactions are treated as financing
arrangements and the associated liability is recorded at the
amount of the cash received.
F-53
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Elements of the securities lending programs are presented below
at:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Securities on loan:
|
|
|
|
|
|
|
|
|
Amortized cost
|
|
$
|
6,992
|
|
|
$
|
6,173
|
|
Estimated fair value
|
|
$
|
7,054
|
|
|
$
|
6,051
|
|
Aging of cash collateral liability:
|
|
|
|
|
|
|
|
|
Open (1)
|
|
$
|
1,292
|
|
|
$
|
1,325
|
|
Less than thirty days
|
|
|
3,297
|
|
|
|
3,342
|
|
Thirty days or greater but less than sixty days
|
|
|
1,221
|
|
|
|
1,323
|
|
Sixty days or greater but less than ninety days
|
|
|
326
|
|
|
|
|
|
Ninety days or greater
|
|
|
1,002
|
|
|
|
234
|
|
|
|
|
|
|
|
|
|
|
Total cash collateral liability
|
|
$
|
7,138
|
|
|
$
|
6,224
|
|
|
|
|
|
|
|
|
|
|
Reinvestment portfolio estimated fair value
|
|
$
|
6,916
|
|
|
$
|
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 December 31, 2010 was
$1.3 billion, of which $1.2 billion 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 were
primarily U.S. Treasury and agency securities, and very
liquid RMBS. The reinvestment portfolio acquired with the cash
collateral consisted principally of fixed maturity securities
(including RMBS, U.S. corporate, U.S. Treasury and
agency and ABS).
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 and at
carrying value for mortgage loans.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Invested assets on deposit:
|
|
|
|
|
|
|
|
|
Regulatory agencies (1)
|
|
$
|
55
|
|
|
$
|
21
|
|
Invested assets pledged as collateral:
|
|
|
|
|
|
|
|
|
Funding agreements FHLB of Boston (2)
|
|
|
211
|
|
|
|
419
|
|
Funding agreements Farmer Mac (3)
|
|
|
231
|
|
|
|
|
|
Derivative transactions (4)
|
|
|
83
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
Total invested assets on deposit and pledged as collateral
|
|
$
|
580
|
|
|
$
|
458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Company has investment assets on deposit with regulatory
agencies consisting primarily of fixed maturity securities. |
F-54
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
|
|
|
(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. |
|
(3) |
|
The Company has pledged certain agricultural mortgage loans in
connection with funding agreements issued to certain special
purpose entities (SPEs) that have issued securities
guaranteed by the Federal Agricultural Mortgage Corporation
(Farmer Mac). The nature of these Farmer Mac
arrangements is described in Note 7. |
|
(4) |
|
Certain of the Companys invested assets are pledged as
collateral for various derivative transactions as described in
Note 3. |
See also Securities Lending for the
amount of the Companys cash received from and due back to
counterparties pursuant to the Companys securities lending
program. See Variable Interest Entities
for assets of certain CSEs that can only be used to settle
liabilities of such entities.
Other
Securities
The tables below present certain information about the
Companys securities for which the FVO has been elected:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
FVO general account securities
|
|
$
|
7
|
|
|
$
|
7
|
|
FVO contractholder-directed unit-linked investments
|
|
|
2,240
|
|
|
|
931
|
|
|
|
|
|
|
|
|
|
|
Total other securities at estimated fair value
|
|
$
|
2,247
|
|
|
$
|
938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
FVO general account securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2
|
|
Changes in estimated fair value included in net investment income
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
(2
|
)
|
FVO contractholder-directed unit-linked investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
167
|
|
|
$
|
97
|
|
|
$
|
(21
|
)
|
Changes in estimated fair value included in net investment income
|
|
$
|
121
|
|
|
$
|
89
|
|
|
$
|
(19
|
)
|
See Note 1 for discussion of FVO contractholder-directed
unit-linked investments.
F-55
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Mortgage
Loans
Mortgage loans are summarized as follows at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Carrying
|
|
|
% of
|
|
|
Carrying
|
|
|
% of
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage loans
|
|
$
|
4,635
|
|
|
|
36.4
|
%
|
|
$
|
3,620
|
|
|
|
76.2
|
%
|
Agricultural mortgage loans
|
|
|
1,342
|
|
|
|
10.6
|
|
|
|
1,204
|
|
|
|
25.4
|
|
Residential mortgage loans
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
5,977
|
|
|
|
47.0
|
%
|
|
|
4,825
|
|
|
|
101.6
|
%
|
Valuation allowances
|
|
|
(87
|
)
|
|
|
(0.7
|
)
|
|
|
(77
|
)
|
|
|
(1.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal mortgage loans, net
|
|
|
5,890
|
|
|
|
46.3
|
|
|
|
4,748
|
|
|
|
100.0
|
|
Commercial mortgage loans held by consolidated securitization
entities FVO
|
|
|
6,840
|
|
|
|
53.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans, net
|
|
$
|
12,730
|
|
|
|
100.0
|
%
|
|
$
|
4,748
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Variable Interest Entities for
discussion of CSEs included in the table above.
See Related Party Investment
Transactions for discussion of affiliated mortgage loans
included in the table above. The carrying value of such loans
were $199 million and $200 million at
December 31, 2010 and 2009, respectively.
Concentration of Credit Risk The Company
diversifies its mortgage loan portfolio by both geographic
region and property type to reduce the risk of concentration.
The Companys commercial and agricultural mortgage loans
are collateralized by properties primarily located in the United
States. The carrying value of the Companys commercial and
agricultural mortgage loans located in California, New York and
Texas were 28%, 13% and 6%, respectively, of total mortgage
loans (excluding commercial mortgage loans held by CSEs) at
December 31, 2010. Additionally, the Company manages risk
when originating commercial and agricultural mortgage loans by
generally lending only up to 75% of the estimated fair value of
the underlying real estate.
F-56
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
The following tables present the recorded investment in mortgage
loans, by portfolio segment, by method of evaluation of credit
loss, and the related valuation allowances, by type of credit
loss, at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
Commercial
|
|
|
Agricultural
|
|
|
Residential
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Evaluated individually for credit losses
|
|
$
|
23
|
|
|
$
|
23
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
23
|
|
|
$
|
23
|
|
Evaluated collectively for credit losses
|
|
|
4,612
|
|
|
|
3,597
|
|
|
|
1,342
|
|
|
|
1,204
|
|
|
|
|
|
|
|
1
|
|
|
|
5,954
|
|
|
|
4,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans
|
|
|
4,635
|
|
|
|
3,620
|
|
|
|
1,342
|
|
|
|
1,204
|
|
|
|
|
|
|
|
1
|
|
|
|
5,977
|
|
|
|
4,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specific credit losses
|
|
|
23
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
|
|
23
|
|
Non-specifically identified credit losses
|
|
|
61
|
|
|
|
51
|
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
64
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total valuation allowances
|
|
|
84
|
|
|
|
74
|
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
87
|
|
|
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans, net of valuation allowance
|
|
$
|
4,551
|
|
|
$
|
3,546
|
|
|
$
|
1,339
|
|
|
$
|
1,201
|
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
5,890
|
|
|
$
|
4,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables present the changes in the valuation
allowance, by portfolio segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Loan Valuation Allowances
|
|
|
|
Commercial
|
|
|
Agricultural
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Balance at January 1, 2008
|
|
$
|
7
|
|
|
$
|
1
|
|
|
$
|
8
|
|
Provision (release)
|
|
|
74
|
|
|
|
1
|
|
|
|
75
|
|
Charge-offs, net of recoveries
|
|
|
(37
|
)
|
|
|
|
|
|
|
(37
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
44
|
|
|
|
2
|
|
|
|
46
|
|
Provision (release)
|
|
|
35
|
|
|
|
1
|
|
|
|
36
|
|
Charge-offs, net of recoveries
|
|
|
(5
|
)
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
74
|
|
|
|
3
|
|
|
|
77
|
|
Provision (release)
|
|
|
16
|
|
|
|
|
|
|
|
16
|
|
Charge-offs, net of recoveries
|
|
|
(6
|
)
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
$
|
84
|
|
|
$
|
3
|
|
|
$
|
87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Mortgage Loans by Credit Quality
Indicators with Estimated Fair Value: Presented below for
the commercial mortgage loans is the recorded investment, prior
to valuation allowances, by the indicated
F-57
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
loan-to-value
ratio categories and debt service coverage ratio categories and
estimated fair value of such mortgage loans by the indicated
loan-to-value
ratio categories at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
Recorded Investment
|
|
|
|
|
|
|
|
|
|
Debt Service Coverage Ratios
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
> 1.20x
|
|
|
1.00x - 1.20x
|
|
|
< 1.00x
|
|
|
Total
|
|
|
% of Total
|
|
|
Fair Value
|
|
|
% of Total
|
|
|
|
(In millions)
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Loan-to-value
ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 65%
|
|
$
|
2,051
|
|
|
$
|
11
|
|
|
$
|
34
|
|
|
$
|
2,096
|
|
|
|
45.2
|
%
|
|
$
|
2,196
|
|
|
|
47.1
|
%
|
65% to 75%
|
|
|
824
|
|
|
|
99
|
|
|
|
148
|
|
|
|
1,071
|
|
|
|
23.1
|
|
|
|
1,099
|
|
|
|
23.6
|
|
76% to 80%
|
|
|
301
|
|
|
|
29
|
|
|
|
7
|
|
|
|
337
|
|
|
|
7.3
|
|
|
|
347
|
|
|
|
7.4
|
|
Greater than 80%
|
|
|
828
|
|
|
|
163
|
|
|
|
140
|
|
|
|
1,131
|
|
|
|
24.4
|
|
|
|
1,018
|
|
|
|
21.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,004
|
|
|
$
|
302
|
|
|
$
|
329
|
|
|
$
|
4,635
|
|
|
|
100.0
|
%
|
|
$
|
4,660
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural Mortgage Loans by Credit Quality
Indicator: The recorded investment in agricultural mortgage
loans, prior to valuation allowances, by credit quality
indicator, was at:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
Agricultural Mortgage Loans
|
|
|
|
Recorded Investment
|
|
|
% of Total
|
|
|
|
(In millions)
|
|
|
|
|
|
Loan-to-value
ratios:
|
|
|
|
|
|
|
|
|
Less than 65%
|
|
$
|
1,289
|
|
|
|
96.0
|
%
|
65% to 75%
|
|
|
53
|
|
|
|
4.0
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,342
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
Past Due and Interest Accrual Status of Mortgage
Loans. The Company has a high quality, well
performing, mortgage loan portfolio with approximately 99% of
all mortgage loans classified as performing.
Past Due. The Company defines delinquent
mortgage loans consistent with industry practice, when interest
and principal payments are past due as follows: commercial
mortgage loans 60 days past due; and
agricultural mortgage loans 90 days past due.
The recorded investment in mortgage loans, prior to valuation
allowances, past due according to these aging categories, was $0
and $7 million for commercial and agricultural mortgage
loans, respectively, at December 31, 2010; and for all
mortgage loans was $7 million and $10 million at
December 31, 2010 and 2009, respectively.
Accrual Status. Past Due 90 Days or More and Still
Accruing Interest. The Company had no recorded
investment in mortgage loans, prior to valuation allowances,
that were past due 90 days or more and still accruing
interest at December 31, 2010 and $4 million at
December 31, 2009.
Accrual Status. Mortgage Loans in Nonaccrual
Status. The recorded investment in mortgage
loans, prior to valuation allowances, that were in nonaccrual
status was $1 million and $6 million for commercial
and agricultural mortgage loans, respectively, at
December 31, 2010. The Company had no loans 90 days or
more past due that were in nonaccrual status at
December 31, 2009.
F-58
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Impaired Mortgage Loans. The unpaid principal
balance, recorded investment, valuation allowances and carrying
value, net of valuation allowances, for impaired mortgage loans,
by portfolio segment, at December 31, 2010 and for all
impaired mortgage loans at December 31, 2009, were as
follows at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Mortgage Loans
|
|
|
|
|
|
|
Loans without
|
|
|
|
|
|
|
Loans with a Valuation Allowance
|
|
|
a Valuation Allowance
|
|
|
All Impaired Loans
|
|
|
|
Unpaid
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid
|
|
|
|
|
|
Unpaid
|
|
|
|
|
|
|
Principal
|
|
|
Recorded
|
|
|
Valuation
|
|
|
Carrying
|
|
|
Principal
|
|
|
Recorded
|
|
|
Principal
|
|
|
Carrying
|
|
|
|
Balance
|
|
|
Investment
|
|
|
Allowances
|
|
|
Value
|
|
|
Balance
|
|
|
Investment
|
|
|
Balance
|
|
|
Value
|
|
|
|
(In millions)
|
|
|
At December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage loans
|
|
$
|
23
|
|
|
$
|
23
|
|
|
$
|
23
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
23
|
|
|
$
|
|
|
Agricultural mortgage loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
7
|
|
|
|
7
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
23
|
|
|
$
|
23
|
|
|
$
|
23
|
|
|
$
|
|
|
|
$
|
7
|
|
|
$
|
7
|
|
|
$
|
30
|
|
|
$
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans at December 31, 2009
|
|
$
|
24
|
|
|
$
|
24
|
|
|
$
|
24
|
|
|
$
|
|
|
|
$
|
12
|
|
|
$
|
12
|
|
|
$
|
36
|
|
|
$
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid principal balance is generally prior to any charge-off.
The average investment in impaired mortgage loans, and the
related interest income, by portfolio segment, for the year
ended December 31, 2010 and for all mortgage loans for the
years ended December 31, 2009 and 2008, respectively, was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Mortgage Loans
|
|
|
|
Average Investment
|
|
|
Interest Income Recognized
|
|
|
|
|
|
|
Cash Basis
|
|
|
Accrual Basis
|
|
|
|
(In millions)
|
|
|
For the Year Ended December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage loans
|
|
$
|
45
|
|
|
$
|
2
|
|
|
$
|
|
|
Agricultural mortgage loans
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
58
|
|
|
$
|
2
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2009
|
|
$
|
32
|
|
|
$
|
2
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2008
|
|
$
|
42
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
Estate and Real Estate Joint Ventures
Real estate investments by type consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Carrying
|
|
|
% of
|
|
|
Carrying
|
|
|
% of
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Traditional
|
|
$
|
105
|
|
|
|
21.0
|
%
|
|
$
|
82
|
|
|
|
18.4
|
%
|
Real estate joint ventures and funds
|
|
|
368
|
|
|
|
73.4
|
|
|
|
363
|
|
|
|
81.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate and real estate joint ventures
|
|
|
473
|
|
|
|
94.4
|
|
|
|
445
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreclosed
|
|
|
28
|
|
|
|
5.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate and real estate joint ventures
|
|
$
|
501
|
|
|
|
100.0
|
%
|
|
$
|
445
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-59
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
The Company classifies within traditional real estate its
investment in income-producing real estate, which is comprised
primarily of wholly-owned real estate and, to a much lesser
extent, joint ventures with interests in single property
income-producing real estate. The Company classifies within real
estate joint ventures and funds, its investments in joint
ventures with interests in multi-property projects with varying
strategies ranging from the development of properties to the
operation of income-producing properties, as well as its
investments in real estate private equity funds. From time to
time, the Company transfers investments from these joint
ventures to traditional real estate, if the Company retains an
interest in the joint venture after a completed property
commences operations and the Company intends to retain an
interest in the property.
Commercial and agricultural properties acquired through
foreclosure were $28 million for the year ended
December 31, 2010. There were no properties acquired
through foreclosure for the year ended December 31, 2009.
After the Company acquires properties through foreclosure, it
evaluates whether the property is appropriate for retention in
its traditional real estate portfolio. Foreclosed real estate
held at December 31, 2010 includes those properties the
Company has not selected for retention in its traditional real
estate portfolio and which do not meet the criteria to be
classified as
held-for-sale.
The wholly-owned real estate within traditional real estate is
net of accumulated depreciation of $22 million and
$18 million at December 31, 2010 and 2009,
respectively. Related depreciation expense on traditional
wholly-owned real estate was $4 million, $3 million
and $5 million for the years ended December 31, 2010,
2009 and 2008, respectively.
Impairments recognized on real estate and real estate joint
ventures were $20 million and $61 million for the
years ended December 31, 2010, and 2009, respectively.
There were no impairments on real estate and real estate joint
ventures for the year ended December 31, 2008. There were
no real estate
held-for-sale
at December 31, 2010, 2009 or 2008. The carrying value of
non-income producing real estate was $5 million,
$1 million and $1 million at December 31, 2010,
2009 and 2008, respectively.
The Company diversifies its real estate investments by both
geographic region and property type to reduce risk of
concentration. The Companys real estate investments are
primarily located in the United States and, at December 31,
2010, 25%, 23% and 19% were located in Georgia, California, and
New York, respectively.
The Companys real estate investments by property type are
categorized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Carrying
|
|
|
% of
|
|
|
Carrying
|
|
|
% of
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Office
|
|
$
|
253
|
|
|
|
50.4
|
%
|
|
$
|
127
|
|
|
|
28.6
|
%
|
Real estate private equity funds
|
|
|
122
|
|
|
|
24.4
|
|
|
|
96
|
|
|
|
21.6
|
|
Apartments
|
|
|
32
|
|
|
|
6.4
|
|
|
|
72
|
|
|
|
16.2
|
|
Industrial
|
|
|
16
|
|
|
|
3.2
|
|
|
|
25
|
|
|
|
5.6
|
|
Land
|
|
|
14
|
|
|
|
2.8
|
|
|
|
43
|
|
|
|
9.6
|
|
Retail
|
|
|
9
|
|
|
|
1.8
|
|
|
|
16
|
|
|
|
3.6
|
|
Agriculture
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
2.5
|
|
Other
|
|
|
55
|
|
|
|
11.0
|
|
|
|
55
|
|
|
|
12.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate and real estate joint ventures
|
|
$
|
501
|
|
|
|
100.0
|
%
|
|
$
|
445
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-60
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Other
Limited Partnership Interests
The carrying value of other limited partnership interests (which
primarily represent ownership interests in pooled investment
funds that principally make private equity investments in
companies in the United States and overseas) was
$1.5 billion and $1.2 billion at December 31,
2010 and 2009, respectively. Included within other limited
partnership interests were $380 million and
$335 million at December 31, 2010 and 2009,
respectively, of investments in hedge funds. Impairments of
other limited partnership interests, principally cost method
other limited partnership interests, were $11 million,
$66 million and $5 million for the years ended
December 31, 2010, 2009 and 2008, respectively.
Collectively
Significant Equity Method Investments
The Company holds investments in real estate joint ventures,
real estate funds and other limited partnership interests
consisting of leveraged buy-out funds, hedge funds, private
equity funds, joint ventures and other funds. The portion of
these investments accounted for under the equity method had a
carrying value of $1.8 billion as of December 31,
2010. The Companys maximum exposure to loss related to
these equity method investments is limited to the carrying value
of these investments plus unfunded commitments of
$1.0 billion as of December 31, 2010. Except for
certain real estate joint ventures, the Companys
investments in real estate funds and other limited partnership
interests are generally of a passive nature in that the Company
does not participate in the management of the entities.
As further described in Note 1, the Company generally
records its share of earnings in its equity method investments
using a three-month lag methodology and within net investment
income. As of December 31, 2010, aggregate net investment
income from these equity method real estate joint ventures, real
estate funds and other limited partnership interests exceeded
10% of the Companys consolidated pre-tax income (loss)
from continuing operations. Accordingly, the Company is
providing the following aggregated summarized financial data for
such equity method investments. This aggregated summarized
financial data does not represent the Companys
proportionate share of the assets, liabilities, or earnings of
such entities.
As of, and for the year ended December 31, 2010, the
aggregated summarized financial data presented below reflects
the latest available financial information. Aggregate total
assets of these entities totaled $134.3 billion and
$100.3 billion as of December 31, 2010 and 2009,
respectively. Aggregate total liabilities of these entities
totaled $12.7 billion and $9.2 billion as of
December 31, 2010 and 2009, respectively. Aggregate net
income (loss) of these entities totaled $14.0 billion,
$13.4 billion and ($14.5) billion for the years ended
December 31, 2010, 2009 and 2008, respectively. Aggregate
net income (loss) from real estate joint ventures, real estate
funds and other limited partnership interests is primarily
comprised of investment income, including recurring investment
income and realized and unrealized investment gains (losses).
F-61
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Other
Invested Assets
The following table presents the carrying value of the
Companys other invested assets by type at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Carrying
|
|
|
% of
|
|
|
Carrying
|
|
|
% of
|
|
|
|
Value
|
|
|
Total
|
|
|
Value
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Freestanding derivatives with positive fair values
|
|
$
|
1,520
|
|
|
|
88.6
|
%
|
|
$
|
1,470
|
|
|
|
98.1
|
%
|
Tax credit partnerships
|
|
|
92
|
|
|
|
5.3
|
|
|
|
2
|
|
|
|
0.1
|
|
Leveraged leases, net of non-recourse debt
|
|
|
56
|
|
|
|
3.3
|
|
|
|
|
|
|
|
|
|
Joint venture investments
|
|
|
46
|
|
|
|
2.7
|
|
|
|
26
|
|
|
|
1.8
|
|
Other
|
|
|
2
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,716
|
|
|
|
100.0
|
%
|
|
$
|
1,498
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Note 3 for information regarding the freestanding
derivatives with positive estimated fair values. Tax credit
partnerships are established for the purpose of investing in
low-income housing and other social causes, where the primary
return on investment is in the form of income tax credits, and
are accounted for under the equity method or under the effective
yield method. See the following section Leveraged
Leases for the composition of leveraged leases. Joint
venture investments are accounted for under the equity method
and represent the Companys investment in insurance
underwriting joint ventures in China.
Leveraged
Leases
Investment in leveraged leases, included in other invested
assets, consisted of the following:
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
(In millions)
|
|
|
Rental receivables, net
|
|
$
|
92
|
|
Estimated residual values
|
|
|
14
|
|
|
|
|
|
|
Subtotal
|
|
|
106
|
|
Unearned income
|
|
|
(50
|
)
|
|
|
|
|
|
Investment in leveraged leases
|
|
$
|
56
|
|
|
|
|
|
|
The Company did not have any investments in leveraged leases at
December 31, 2009.
The rental receivables set forth above are generally due in
periodic installments. The payment periods were 22 years.
For rental receivables, the Companys primary credit
quality indicator is whether the rental receivable is performing
or non-performing. The Company generally defines non-performing
rental receivables as those that are 90 days or more past
due. The determination of performing or non-performing status is
assessed monthly. As of December 31, 2010, all of the
rental receivables were performing.
The Companys deferred income tax liability related to
leveraged leases was $4 million at December 31, 2010.
There was no net investment income recognized on leverage leases
for the year ended December 31, 2010.
Short-term
Investments
The carrying value of short-term investments, which includes
investments with remaining maturities of one year or less, but
greater than three months, at the time of purchase was
$1.2 billion and $1.8 billion at December 31,
F-62
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
2010 and 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
$935 million and $1.5 billion at December 31,
2010 and 2009, respectively.
Cash
Equivalents
The carrying value of cash equivalents, which includes
investments with an original or remaining maturity of three
months or less, at the time of purchase was $1.8 billion
and $2.4 billion at December 31, 2010 and 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 $1.3 billion and $1.5 billion
at December 31, 2010 and 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. 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. Upon the
adoption of new guidance effective January 1, 2010, the
Company consolidated former QSPEs that are structured as CMBS.
At December 31, 2010, these entities held total assets of
$6,871 million, consisting of $6,840 million of
commercial mortgage loans and $31 million of accrued
investment income. These entities had total liabilities of
$6,804 million, consisting of $6,773 million of
long-term debt and $31 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 $64 million at estimated
fair value at December 31, 2010. The long-term debt
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 $402 million for the year ended
December 31, 2010.
F-63
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
The following table presents the carrying amount and maximum
exposure to loss relating to VIEs for which the Company holds
significant variable interests but is not the primary
beneficiary and which have not been consolidated at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
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)
|
|
$
|
6,709
|
|
|
$
|
6,709
|
|
|
$
|
|
|
|
$
|
|
|
CMBS (2)
|
|
|
2,277
|
|
|
|
2,277
|
|
|
|
|
|
|
|
|
|
ABS (2)
|
|
|
1,869
|
|
|
|
1,869
|
|
|
|
|
|
|
|
|
|
Foreign corporate securities
|
|
|
348
|
|
|
|
348
|
|
|
|
304
|
|
|
|
304
|
|
U.S. corporate securities
|
|
|
336
|
|
|
|
336
|
|
|
|
247
|
|
|
|
247
|
|
Other limited partnership interests
|
|
|
1,192
|
|
|
|
1,992
|
|
|
|
838
|
|
|
|
1,273
|
|
Real estate joint ventures
|
|
|
10
|
|
|
|
35
|
|
|
|
32
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
12,741
|
|
|
$
|
13,566
|
|
|
$
|
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 other
limited partnership interests and real estate joint ventures 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 11, the Company makes commitments to
fund partnership investments in the normal course of business.
Excluding these commitments, the Company did not provide
financial or other support to investees designated as VIEs
during the years ended December 31, 2010, 2009 and 2008.
Related
Party Investment Transactions
At December 31, 2010 and 2009, the Company held
$63 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 (loss)
from these investments was ($2) million, $2 million
and $10 million for the years ended December 31, 2010,
2009 and 2008, respectively.
F-64
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
In the normal course of business, the Company transfers invested
assets, primarily consisting of fixed maturity securities, to
and from affiliates. Invested assets transferred to and from
affiliates, inclusive of amounts related to reinsurance
agreements, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Estimated fair value of invested assets transferred to affiliates
|
|
$
|
582
|
|
|
$
|
717
|
|
|
$
|
27
|
|
Amortized cost of invested assets transferred to affiliates
|
|
$
|
533
|
|
|
$
|
769
|
|
|
$
|
23
|
|
Net investment gains (losses) recognized on invested assets
transferred to affiliates
|
|
$
|
49
|
|
|
$
|
(52
|
)
|
|
$
|
4
|
|
Estimated fair value of assets transferred from affiliates
|
|
$
|
46
|
|
|
$
|
143
|
|
|
$
|
230
|
|
During the year ended December 31, 2009, the Company loaned
$200 million to wholly-owned real estate subsidiaries of an
affiliate, MLIC, which is included in mortgage loans. The
carrying value of these loans was $199 million and
$200 million at December 31, 2010 and 2009,
respectively. Loans of $140 million bear interest at 7.26%
and are due in quarterly principal and interest payments of
$3 million through January 2020. Loans of $60 million
bear interest at 7.01% with quarterly interest only payments of
$1 million through January 2020, when the principal balance
is due. The loans to affiliates are secured by interests in the
real estate subsidiaries, which own operating real estate with a
fair value in excess of the loans. Net investment income from
this investment was $14 million and less than
$1 million for the years ended December 31, 2010 and
2009, respectively.
|
|
3.
|
Derivative
Financial Instruments
|
Accounting
for Derivative Financial Instruments
See Note 1 for a description of the Companys
accounting policies for derivative financial instruments.
See Note 4 for information about the fair value hierarchy
for derivatives.
Primary
Risks Managed by Derivative Financial Instruments
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 gross notional amount,
F-65
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
estimated fair value and primary underlying risk exposure of the
Companys derivative financial instruments, excluding
embedded derivatives, held at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Estimated Fair
|
|
|
|
|
|
Estimated Fair
|
|
Primary Underlying
|
|
|
|
Notional
|
|
|
Value (1)
|
|
|
Notional
|
|
|
Value (1)
|
|
Risk Exposure
|
|
Instrument Type
|
|
Amount
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Amount
|
|
|
Assets
|
|
|
Liabilities
|
|
|
|
|
|
(In millions)
|
|
|
Interest rate
|
|
Interest rate swaps
|
|
$
|
9,102
|
|
|
$
|
658
|
|
|
$
|
252
|
|
|
$
|
5,261
|
|
|
$
|
534
|
|
|
$
|
179
|
|
|
|
Interest rate floors
|
|
|
7,986
|
|
|
|
127
|
|
|
|
62
|
|
|
|
7,986
|
|
|
|
78
|
|
|
|
34
|
|
|
|
Interest rate caps
|
|
|
7,158
|
|
|
|
29
|
|
|
|
1
|
|
|
|
4,003
|
|
|
|
15
|
|
|
|
|
|
|
|
Interest rate futures
|
|
|
1,966
|
|
|
|
5
|
|
|
|
7
|
|
|
|
835
|
|
|
|
2
|
|
|
|
1
|
|
|
|
Interest rate forwards
|
|
|
695
|
|
|
|
|
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency
|
|
Foreign currency swaps
|
|
|
2,561
|
|
|
|
585
|
|
|
|
68
|
|
|
|
2,678
|
|
|
|
689
|
|
|
|
93
|
|
|
|
Foreign currency forwards
|
|
|
151
|
|
|
|
4
|
|
|
|
1
|
|
|
|
79
|
|
|
|
3
|
|
|
|
|
|
Credit
|
|
Credit default swaps
|
|
|
1,324
|
|
|
|
15
|
|
|
|
22
|
|
|
|
966
|
|
|
|
12
|
|
|
|
31
|
|
|
|
Credit forwards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90
|
|
|
|
|
|
|
|
3
|
|
Equity market
|
|
Equity futures
|
|
|
93
|
|
|
|
|
|
|
|
|
|
|
|
81
|
|
|
|
1
|
|
|
|
|
|
|
|
Equity options
|
|
|
733
|
|
|
|
77
|
|
|
|
|
|
|
|
775
|
|
|
|
112
|
|
|
|
|
|
|
|
Variance swaps
|
|
|
1,081
|
|
|
|
20
|
|
|
|
8
|
|
|
|
1,081
|
|
|
|
24
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
32,850
|
|
|
$
|
1,520
|
|
|
$
|
492
|
|
|
$
|
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. |
F-66
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
The following table presents the gross notional amount of
derivative financial instruments by maturity at
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining Life
|
|
|
|
|
|
|
After One Year
|
|
|
After Five Years
|
|
|
|
|
|
|
|
|
|
One Year or
|
|
|
Through Five
|
|
|
Through Ten
|
|
|
After Ten
|
|
|
|
|
|
|
Less
|
|
|
Years
|
|
|
Years
|
|
|
Years
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Interest rate swaps
|
|
$
|
1,007
|
|
|
$
|
2,340
|
|
|
$
|
2,450
|
|
|
$
|
3,305
|
|
|
$
|
9,102
|
|
Interest rate floors
|
|
|
|
|
|
|
4,468
|
|
|
|
3,518
|
|
|
|
|
|
|
|
7,986
|
|
Interest rate caps
|
|
|
1,750
|
|
|
|
4,830
|
|
|
|
578
|
|
|
|
|
|
|
|
7,158
|
|
Interest rate futures
|
|
|
1,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,966
|
|
Interest rate forwards
|
|
|
75
|
|
|
|
585
|
|
|
|
35
|
|
|
|
|
|
|
|
695
|
|
Foreign currency swaps
|
|
|
925
|
|
|
|
1,039
|
|
|
|
328
|
|
|
|
269
|
|
|
|
2,561
|
|
Foreign currency forwards
|
|
|
151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
151
|
|
Credit default swaps
|
|
|
|
|
|
|
1,324
|
|
|
|
|
|
|
|
|
|
|
|
1,324
|
|
Credit forwards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity futures
|
|
|
93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93
|
|
Equity options
|
|
|
127
|
|
|
|
606
|
|
|
|
|
|
|
|
|
|
|
|
733
|
|
Variance swaps
|
|
|
|
|
|
|
519
|
|
|
|
562
|
|
|
|
|
|
|
|
1,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,094
|
|
|
$
|
15,711
|
|
|
$
|
7,471
|
|
|
$
|
3,574
|
|
|
$
|
32,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 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
F-67
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
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.
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
F-68
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
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.
F-69
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Hedging
The following table presents the gross notional amount and
estimated fair value of derivatives designated as hedging
instruments by type of hedge designation at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
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
|
|
$
|
787
|
|
|
$
|
334
|
|
|
$
|
18
|
|
|
$
|
850
|
|
|
$
|
370
|
|
|
$
|
15
|
|
Interest rate swaps
|
|
|
193
|
|
|
|
11
|
|
|
|
15
|
|
|
|
220
|
|
|
|
11
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
980
|
|
|
|
345
|
|
|
|
33
|
|
|
|
1,070
|
|
|
|
381
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency swaps
|
|
|
295
|
|
|
|
15
|
|
|
|
11
|
|
|
|
166
|
|
|
|
15
|
|
|
|
7
|
|
Interest rate swaps
|
|
|
575
|
|
|
|
1
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate forwards
|
|
|
695
|
|
|
|
|
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit forwards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
1,565
|
|
|
|
16
|
|
|
|
127
|
|
|
|
256
|
|
|
|
15
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Qualifying Hedges
|
|
$
|
2,545
|
|
|
$
|
361
|
|
|
$
|
160
|
|
|
$
|
1,326
|
|
|
$
|
396
|
|
|
$
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the gross notional amount and
estimated fair value of derivatives that were not designated or
do not qualify as hedging instruments by derivative type at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
Derivatives Not Designated or Not
|
|
Notional
|
|
|
Fair Value
|
|
|
Notional
|
|
|
Fair Value
|
|
Qualifying as Hedging Instruments
|
|
Amount
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Amount
|
|
|
Assets
|
|
|
Liabilities
|
|
|
|
(In millions)
|
|
|
Interest rate swaps
|
|
$
|
8,334
|
|
|
$
|
646
|
|
|
$
|
192
|
|
|
$
|
5,041
|
|
|
$
|
523
|
|
|
$
|
177
|
|
Interest rate floors
|
|
|
7,986
|
|
|
|
127
|
|
|
|
62
|
|
|
|
7,986
|
|
|
|
78
|
|
|
|
34
|
|
Interest rate caps
|
|
|
7,158
|
|
|
|
29
|
|
|
|
1
|
|
|
|
4,003
|
|
|
|
15
|
|
|
|
|
|
Interest rate futures
|
|
|
1,966
|
|
|
|
5
|
|
|
|
7
|
|
|
|
835
|
|
|
|
2
|
|
|
|
1
|
|
Foreign currency swaps
|
|
|
1,479
|
|
|
|
236
|
|
|
|
39
|
|
|
|
1,662
|
|
|
|
304
|
|
|
|
71
|
|
Foreign currency forwards
|
|
|
151
|
|
|
|
4
|
|
|
|
1
|
|
|
|
79
|
|
|
|
3
|
|
|
|
|
|
Credit default swaps
|
|
|
1,324
|
|
|
|
15
|
|
|
|
22
|
|
|
|
966
|
|
|
|
12
|
|
|
|
31
|
|
Equity futures
|
|
|
93
|
|
|
|
|
|
|
|
|
|
|
|
81
|
|
|
|
1
|
|
|
|
|
|
Equity options
|
|
|
733
|
|
|
|
77
|
|
|
|
|
|
|
|
775
|
|
|
|
112
|
|
|
|
|
|
Variance swaps
|
|
|
1,081
|
|
|
|
20
|
|
|
|
8
|
|
|
|
1,081
|
|
|
|
24
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-designated or non-qualifying derivatives
|
|
$
|
30,305
|
|
|
$
|
1,159
|
|
|
$
|
332
|
|
|
$
|
22,509
|
|
|
$
|
1,074
|
|
|
$
|
320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-70
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Net
Derivative Gains (Losses)
The components of net derivative gains (losses) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Derivatives and hedging gains (losses) (1)
|
|
$
|
(74
|
)
|
|
$
|
(717
|
)
|
|
$
|
558
|
|
Embedded derivatives
|
|
|
132
|
|
|
|
(314
|
)
|
|
|
436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net derivative gains (losses)
|
|
$
|
58
|
|
|
$
|
(1,031
|
)
|
|
$
|
994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes foreign currency transaction gains (losses) on hedged
items in cash flow and non-qualifying hedge relationships, which
are not presented elsewhere in this note. |
The following table presents the settlement payments recorded in
income for the:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Qualifying hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
2
|
|
|
$
|
(1
|
)
|
|
$
|
(2
|
)
|
Interest credited to policyholder account balances
|
|
|
37
|
|
|
|
40
|
|
|
|
6
|
|
Non-qualifying hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net derivative gains (losses)
|
|
|
6
|
|
|
|
(8
|
)
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
45
|
|
|
$
|
31
|
|
|
$
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value Hedges
The Company designates and accounts for the following as fair
value hedges when they have met the requirements of fair value
hedging: (i) interest rate swaps to convert fixed rate
investments to floating rate investments; (ii) interest
rate swaps to convert fixed rate liabilities to floating rate
liabilities; and (iii) foreign currency swaps to hedge the
foreign currency fair value exposure of foreign currency
denominated liabilities.
F-71
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
The Company recognizes gains and losses on derivatives and the
related hedged items in fair value hedges within net derivative
gains (losses). The following table represents the amount of
such net derivative gains (losses) recognized for the years
ended December 31, 2010, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Derivative
|
|
|
|
|
|
Ineffectiveness
|
|
|
|
|
|
Gains (Losses)
|
|
|
Net Derivative Gains
|
|
|
Recognized in
|
|
Derivatives in Fair Value
|
|
|
|
Recognized
|
|
|
(Losses) Recognized
|
|
|
Net Derivative
|
|
Hedging Relationships
|
|
Hedged Items in Fair Value Hedging Relationships
|
|
for Derivatives
|
|
|
for Hedged Items
|
|
|
Gains (Losses)
|
|
|
|
|
|
(In millions)
|
|
|
For the Year Ended December 31, 2010:
|
Interest rate swaps:
|
|
Fixed maturity securities
|
|
$
|
(1
|
)
|
|
$
|
1
|
|
|
$
|
|
|
|
|
Policyholder account balances (1)
|
|
|
(13
|
)
|
|
|
8
|
|
|
|
(5
|
)
|
Foreign currency swaps:
|
|
Foreign-denominated policyholder account balances (2)
|
|
|
(38
|
)
|
|
|
14
|
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(52
|
)
|
|
$
|
23
|
|
|
$
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2009:
|
Interest rate swaps:
|
|
Fixed maturity securities
|
|
$
|
6
|
|
|
$
|
(6
|
)
|
|
$
|
|
|
|
|
Policyholder account balances (1)
|
|
|
(8
|
)
|
|
|
4
|
|
|
|
(4
|
)
|
Foreign currency swaps:
|
|
Foreign-denominated policyholder account balances (2)
|
|
|
111
|
|
|
|
(117
|
)
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
109
|
|
|
$
|
(119
|
)
|
|
$
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2008
|
|
$
|
(87
|
)
|
|
$
|
86
|
|
|
$
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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; (iii) interest rate swaps and
interest rate forwards to hedge the forecasted purchases of
fixed-rate investments; and (iv) interest rate swaps to
convert floating rate investments to fixed rate investments.
For the year ended December 31, 2010, the Company
recognized ($1) million of net derivative gains (losses)
which represented the ineffective portion of all cash flow
hedges. For the years ended December 31, 2009 and 2008, the
Company did not recognize any net derivative 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. In
certain instances, 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. The net
amount reclassified into net derivative gains (losses) for the
year ended December 31, 2010 related to such discontinued
cash flow hedges was insignificant and for the years ended
December 31, 2009 and 2008, there were no amounts
reclassified into net derivative gains (losses). At
December 31, 2010 and 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 six
years and one year, respectively. There were no hedged
forecasted transactions, other than the receipt or payment of
variable interest payments, for the year ended December 31,
2008.
F-72
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
The following table presents the components of accumulated other
comprehensive income (loss), before income tax, related to cash
flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Accumulated other comprehensive income (loss), balance at
January 1,
|
|
$
|
(1
|
)
|
|
$
|
20
|
|
|
$
|
(13
|
)
|
Gains (losses) deferred in other comprehensive income (loss) on
the effective portion of cash flow hedges
|
|
|
(107
|
)
|
|
|
(44
|
)
|
|
|
9
|
|
Amounts reclassified to net derivative gains (losses)
|
|
|
(1
|
)
|
|
|
23
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss), balance at
December 31,
|
|
$
|
(109
|
)
|
|
$
|
(1
|
)
|
|
$
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2010, $2 million of deferred net gains
on derivatives in accumulated other comprehensive income (loss)
was expected to be reclassified to earnings within the next
12 months.
The following table presents the effects of derivatives in cash
flow hedging relationships on the consolidated statements of
operations and the consolidated statements of stockholders
equity for the years ended December 31, 2010, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gains
|
|
|
Amount and Location
|
|
|
|
|
|
|
(Losses) Deferred
|
|
|
of Gains (Losses)
|
|
|
Amount and Location
|
|
|
|
in Accumulated Other
|
|
|
Reclassified from
|
|
|
of Gains (Losses)
|
|
Derivatives in Cash Flow
|
|
Comprehensive Income
|
|
|
Accumulated Other Comprehensive
|
|
|
Recognized in Income (Loss)
|
|
Hedging Relationships
|
|
(Loss) on Derivatives
|
|
|
Income (Loss) into Income (Loss)
|
|
|
on Derivatives
|
|
|
|
|
|
|
|
|
|
(Ineffective Portion and
|
|
|
|
|
|
|
|
|
|
Amount Excluded from
|
|
|
|
(Effective Portion)
|
|
|
(Effective Portion)
|
|
|
Effectiveness Testing)
|
|
|
|
|
|
|
Net Derivative
|
|
|
Net Derivative
|
|
|
|
|
|
|
Gains (Losses)
|
|
|
Gains (Losses)
|
|
|
|
|
|
|
(In millions)
|
|
|
For the Year Ended December 31, 2010:
|
Interest rate swaps
|
|
$
|
(44
|
)
|
|
$
|
|
|
|
$
|
|
|
Foreign currency swaps
|
|
|
(6
|
)
|
|
|
(3
|
)
|
|
|
|
|
Interest rate forwards
|
|
|
(71
|
)
|
|
|
4
|
|
|
|
(1
|
)
|
Credit forwards
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(107
|
)
|
|
$
|
1
|
|
|
$
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2009:
|
Foreign currency swaps
|
|
$
|
(58
|
)
|
|
$
|
(36
|
)
|
|
$
|
|
|
Interest rate forwards
|
|
|
17
|
|
|
|
13
|
|
|
|
|
|
Credit forwards
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(44
|
)
|
|
$
|
(23
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2008:
|
|
|
|
|
|
|
|
|
Foreign currency swaps
|
|
$
|
9
|
|
|
$
|
(24
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-73
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
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 generation; and
(xi) equity options to economically hedge certain invested
assets against adverse changes in equity indices.
F-74
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
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
|
|
|
Net
|
|
|
|
Derivative
|
|
|
Investment
|
|
|
|
Gains (Losses)
|
|
|
Income(1)
|
|
|
|
(In millions)
|
|
|
For the Year Ended December 31, 2010:
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
51
|
|
|
$
|
|
|
Interest rate floors
|
|
|
20
|
|
|
|
|
|
Interest rate caps
|
|
|
(9
|
)
|
|
|
|
|
Interest rate futures
|
|
|
(22
|
)
|
|
|
|
|
Equity futures
|
|
|
(12
|
)
|
|
|
|
|
Foreign currency swaps
|
|
|
(31
|
)
|
|
|
|
|
Foreign currency forwards
|
|
|
2
|
|
|
|
|
|
Equity options
|
|
|
(30
|
)
|
|
|
(7
|
)
|
Interest rate options
|
|
|
(3
|
)
|
|
|
|
|
Interest rate forwards
|
|
|
1
|
|
|
|
|
|
Variance swaps
|
|
|
(6
|
)
|
|
|
|
|
Credit default swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(39
|
)
|
|
$
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2009:
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
(149
|
)
|
|
$
|
|
|
Interest rate floors
|
|
|
(265
|
)
|
|
|
|
|
Interest rate caps
|
|
|
4
|
|
|
|
|
|
Interest rate futures
|
|
|
(37
|
)
|
|
|
|
|
Equity futures
|
|
|
(71
|
)
|
|
|
|
|
Foreign currency swaps
|
|
|
(3
|
)
|
|
|
|
|
Foreign currency forwards
|
|
|
(4
|
)
|
|
|
|
|
Equity options
|
|
|
(121
|
)
|
|
|
(1
|
)
|
Variance swaps
|
|
|
(40
|
)
|
|
|
|
|
Credit default swaps
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(736
|
)
|
|
$
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2008
|
|
$
|
514
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
F-75
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
risk, assuming the value of all referenced credit obligations is
zero, was $912 million and $477 million at
December 31, 2010 and 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 December 31,
2010 and 2009, the Company would have received $13 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 December 31, 2010 and
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
Maximum
|
|
|
|
|
|
|
|
|
Maximum
|
|
|
|
|
|
|
Estimated
|
|
|
Amount
|
|
|
|
|
|
Estimated
|
|
|
Amount
|
|
|
|
|
|
|
Fair Value
|
|
|
of Future
|
|
|
Weighted
|
|
|
Fair Value
|
|
|
of Future
|
|
|
Weighted
|
|
|
|
of Credit
|
|
|
Payments under
|
|
|
Average
|
|
|
of Credit
|
|
|
Payments under
|
|
|
Average
|
|
Rating Agency Designation of Referenced
|
|
Default
|
|
|
Credit Default
|
|
|
Years to
|
|
|
Default
|
|
|
Credit Default
|
|
|
Years to
|
|
Credit Obligations (1)
|
|
Swaps
|
|
|
Swaps (2)
|
|
|
Maturity (3)
|
|
|
Swaps
|
|
|
Swaps (2)
|
|
|
Maturity (3)
|
|
|
|
(In millions)
|
|
|
Aaa/Aa/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single name credit default swaps (corporate)
|
|
$
|
1
|
|
|
$
|
45
|
|
|
|
3.6
|
|
|
$
|
1
|
|
|
$
|
25
|
|
|
|
4.0
|
|
Credit default swaps referencing indices
|
|
|
11
|
|
|
|
679
|
|
|
|
3.7
|
|
|
|
7
|
|
|
|
437
|
|
|
|
3.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
12
|
|
|
|
724
|
|
|
|
3.7
|
|
|
|
8
|
|
|
|
462
|
|
|
|
3.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Baa
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single name credit default swaps (corporate)
|
|
|
|
|
|
|
5
|
|
|
|
3.0
|
|
|
|
|
|
|
|
5
|
|
|
|
4.0
|
|
Credit default swaps referencing indices
|
|
|
1
|
|
|
|
183
|
|
|
|
5.0
|
|
|
|
|
|
|
|
10
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
1
|
|
|
|
188
|
|
|
|
5.0
|
|
|
|
|
|
|
|
15
|
|
|
|
4.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
13
|
|
|
$
|
912
|
|
|
|
4.0
|
|
|
$
|
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 December 31,
2010 and 2009, the Company was obligated to return cash
collateral under its control of $965 million and
$945 million, respectively. This unrestricted
F-76
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
cash collateral is included in cash and cash equivalents or in
short-term investments and the obligation to return it is
included in payables for collateral under securities loaned and
other transactions in the consolidated balance sheets. At
December 31, 2010 and 2009, the Company had also accepted
collateral consisting of various securities with a fair market
value of $3 million and $88 million, respectively,
which were held in separate custodial accounts. The Company is
permitted by contract to sell or repledge this collateral, but
at December 31, 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Fair Value
|
|
Fair Value of Incremental
|
|
|
|
|
of Collateral Provided:
|
|
Collateral Provided Upon:
|
|
|
|
|
|
|
|
|
Downgrade in the
|
|
|
|
|
|
|
One Notch
|
|
Companys Credit Rating
|
|
|
|
|
|
|
Downgrade
|
|
to a Level that Triggers
|
|
|
Estimated
|
|
|
|
in the
|
|
Full Overnight
|
|
|
Fair Value (1) of
|
|
|
|
Companys
|
|
Collateralization or
|
|
|
Derivatives in Net
|
|
Fixed Maturity
|
|
Credit
|
|
Termination
|
|
|
Liability Position
|
|
Securities(2)
|
|
Rating
|
|
of the Derivative Position
|
|
|
(In millions)
|
|
December 31, 2010
|
|
$
|
96
|
|
|
$
|
58
|
|
|
$
|
11
|
|
|
$
|
62
|
|
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 December 31, 2010
and 2009, the Company did not provide any cash collateral. |
Without considering the effect of netting agreements, the
estimated fair value of the Companys
over-the-counter
derivatives with credit-contingent provisions that were in a
gross liability position at December 31, 2010 was
$196 million. At December 31, 2010, the Company
provided securities collateral of $58 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
F-77
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
position at December 31, 2010 would be $138 million.
This amount does not consider gross derivative assets of
$100 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 December 31, 2010 and
2009, the Company did not pledge any securities collateral for
exchange-traded futures. At December 31, 2010 and 2009, the
Company provided cash collateral for exchange-traded futures of
$25 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 GMWBs,
GMABs and certain GMIBs; affiliated reinsurance contracts of
guaranteed minimum benefits related to GMWBs, GMABs and certain
GMIBs; and ceded reinsurance written on a funds withheld basis.
The following table presents the estimated fair value of the
Companys embedded derivatives at:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Net embedded derivatives within asset host contracts:
|
|
|
|
|
|
|
|
|
Ceded guaranteed minimum benefits
|
|
$
|
936
|
|
|
$
|
724
|
|
Options embedded in debt or equity securities
|
|
|
(2
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
Net embedded derivatives within asset host contracts
|
|
$
|
934
|
|
|
$
|
719
|
|
|
|
|
|
|
|
|
|
|
Net embedded derivatives within liability host contracts:
|
|
|
|
|
|
|
|
|
Direct guaranteed minimum benefits
|
|
$
|
254
|
|
|
$
|
290
|
|
Other
|
|
|
5
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
Net embedded derivatives within liability host contracts
|
|
$
|
259
|
|
|
$
|
279
|
|
|
|
|
|
|
|
|
|
|
The following table presents changes in estimated fair value
related to embedded derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Net derivative gains (losses) (1), (2)
|
|
$
|
132
|
|
|
$
|
(314
|
)
|
|
$
|
436
|
|
|
|
|
(1) |
|
The valuation of direct guaranteed minimum benefits includes an
adjustment for nonperformance risk. Included in net derivative
gains (losses), in connection with this adjustment, were gains
(losses) of ($153) million, ($567) million and
$738 million, for the years ended December 31, 2010,
2009 and 2008, respectively. In addition, the valuation of ceded
guaranteed minimum benefits includes an adjustment for
nonperformance risk. Included in net derivatives gains (losses),
in connection with this adjustment, were gains (losses) of
$210 million, $816 million and ($1,145) million,
for the years ended December 31, 2010, 2009 and 2008,
respectively. The net derivative gains (losses) for the year
ended December 31, 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 derivative
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.
F-78
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Assets
and Liabilities Measured at Fair Value
Recurring
Fair Value Measurements
The assets and liabilities measured at estimated fair value on a
recurring basis, including those items for which the Company has
elected the FVO, were determined as described below. These
estimated fair values and their corresponding placement in the
fair value hierarchy are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 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
|
|
$
|
|
|
|
$
|
13,864
|
|
|
$
|
1,510
|
|
|
$
|
15,374
|
|
Foreign corporate securities
|
|
|
|
|
|
|
7,590
|
|
|
|
880
|
|
|
|
8,470
|
|
U.S. Treasury and agency securities
|
|
|
4,616
|
|
|
|
3,026
|
|
|
|
34
|
|
|
|
7,676
|
|
RMBS
|
|
|
|
|
|
|
6,674
|
|
|
|
35
|
|
|
|
6,709
|
|
CMBS
|
|
|
|
|
|
|
2,147
|
|
|
|
130
|
|
|
|
2,277
|
|
ABS
|
|
|
|
|
|
|
1,301
|
|
|
|
568
|
|
|
|
1,869
|
|
State and political subdivision securities
|
|
|
|
|
|
|
1,614
|
|
|
|
32
|
|
|
|
1,646
|
|
Foreign government securities
|
|
|
|
|
|
|
889
|
|
|
|
14
|
|
|
|
903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
|
4,616
|
|
|
|
37,105
|
|
|
|
3,203
|
|
|
|
44,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock
|
|
|
|
|
|
|
54
|
|
|
|
214
|
|
|
|
268
|
|
Common stock
|
|
|
43
|
|
|
|
72
|
|
|
|
22
|
|
|
|
137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
|
43
|
|
|
|
126
|
|
|
|
236
|
|
|
|
405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FVO general account securities
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
7
|
|
FVO contractholder-directed unit-linked investments
|
|
|
2,240
|
|
|
|
|
|
|
|
|
|
|
|
2,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other securities
|
|
|
2,240
|
|
|
|
7
|
|
|
|
|
|
|
|
2,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments (1)
|
|
|
390
|
|
|
|
584
|
|
|
|
173
|
|
|
|
1,147
|
|
Mortgage loans held by consolidated securitization entities
|
|
|
|
|
|
|
6,840
|
|
|
|
|
|
|
|
6,840
|
|
Derivative assets: (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
|
5
|
|
|
|
804
|
|
|
|
10
|
|
|
|
819
|
|
Foreign currency contracts
|
|
|
|
|
|
|
589
|
|
|
|
|
|
|
|
589
|
|
Credit contracts
|
|
|
|
|
|
|
3
|
|
|
|
12
|
|
|
|
15
|
|
Equity market contracts
|
|
|
|
|
|
|
77
|
|
|
|
20
|
|
|
|
97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative assets
|
|
|
5
|
|
|
|
1,473
|
|
|
|
42
|
|
|
|
1,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net embedded derivatives within asset host contracts (3)
|
|
|
|
|
|
|
|
|
|
|
936
|
|
|
|
936
|
|
Separate account assets (4)
|
|
|
76
|
|
|
|
61,410
|
|
|
|
133
|
|
|
|
61,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
7,370
|
|
|
$
|
107,545
|
|
|
$
|
4,723
|
|
|
$
|
119,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities: (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
7
|
|
|
$
|
315
|
|
|
$
|
71
|
|
|
$
|
393
|
|
Foreign currency contracts
|
|
|
|
|
|
|
69
|
|
|
|
|
|
|
|
69
|
|
Credit contracts
|
|
|
|
|
|
|
21
|
|
|
|
1
|
|
|
|
22
|
|
Equity market contracts
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative liabilities
|
|
|
7
|
|
|
|
405
|
|
|
|
80
|
|
|
|
492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net embedded derivatives within liability host contracts (3)
|
|
|
|
|
|
|
|
|
|
|
259
|
|
|
|
259
|
|
Long-term debt of consolidated securitization entities
|
|
|
|
|
|
|
6,773
|
|
|
|
|
|
|
|
6,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
7
|
|
|
$
|
7,178
|
|
|
$
|
339
|
|
|
$
|
7,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Variable Interest Entities in
Note 2 for discussion of CSEs included in the table above.
F-79
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (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
|
|
Foreign corporate securities
|
|
|
|
|
|
|
6,344
|
|
|
|
994
|
|
|
|
7,338
|
|
U.S. Treasury and agency securities
|
|
|
3,972
|
|
|
|
2,252
|
|
|
|
33
|
|
|
|
6,257
|
|
RMBS
|
|
|
|
|
|
|
5,827
|
|
|
|
25
|
|
|
|
5,852
|
|
CMBS
|
|
|
|
|
|
|
2,572
|
|
|
|
45
|
|
|
|
2,617
|
|
ABS
|
|
|
|
|
|
|
1,452
|
|
|
|
537
|
|
|
|
1,989
|
|
State and political subdivision securities
|
|
|
|
|
|
|
1,147
|
|
|
|
32
|
|
|
|
1,179
|
|
Foreign government securities
|
|
|
|
|
|
|
629
|
|
|
|
16
|
|
|
|
645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
|
3,972
|
|
|
|
34,016
|
|
|
|
3,287
|
|
|
|
41,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock
|
|
|
|
|
|
|
48
|
|
|
|
258
|
|
|
|
306
|
|
Common stock
|
|
|
72
|
|
|
|
70
|
|
|
|
11
|
|
|
|
153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
|
72
|
|
|
|
118
|
|
|
|
269
|
|
|
|
459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other 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.), and therefore
are excluded from the tables presented above. |
|
(2) |
|
Derivative assets are presented within other invested assets in
the consolidated balance sheets and derivative liabilities are
presented within other liabilities in the consolidated balance
sheets. The amounts are presented gross in the tables above to
reflect the presentation in the consolidated balance sheets, but
are presented net for |
F-80
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
|
|
|
|
|
purposes of the rollforward in the Fair Value Measurements Using
Significant Unobservable Inputs (Level 3) tables which
follow. |
|
(3) |
|
Net embedded derivatives within asset host contracts are
presented within premiums, reinsurance and other receivables in
the consolidated balance sheets. Net embedded derivatives within
liability host contracts are presented in the consolidated
balance sheets within policyholder account balances and other
liabilities. At December 31, 2010, fixed maturity
securities and equity securities also included embedded
derivatives of $3 million and ($5) million,
respectively. At December 31, 2009, fixed maturity
securities and equity securities included embedded derivatives
of $0 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 methods and assumptions used to estimate the fair value of
financial instruments are summarized as follows:
Fixed
Maturity Securities, Equity Securities, Other Securities and
Short-term Investments
When available, the estimated fair value of the Companys
fixed maturity, equity and other 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
Mortgage loans presented in the tables above consist of
commercial mortgage loans held by CSEs for which the Company has
elected the FVO and which are carried at estimated fair value.
As discussed in Note 1, the
F-81
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Company adopted new guidance effective January 1, 2010 and
consolidated certain securitization entities that hold
commercial mortgage loans. See Valuation
Techniques and Inputs by Level Within the
Three-Level Fair Value Hierarchy by Major Classes of Assets
and Liabilities below for a discussion of the methods and
assumptions used to estimate the fair value of these financial
instruments.
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 to 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 and
ceded variable annuity guarantees, and embedded derivatives
related to funds withheld on ceded reinsurance. Embedded
derivatives are recorded in the consolidated 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
F-82
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
separately from the host variable annuity contract, with changes
in estimated fair value reported in net derivative gains
(losses). These embedded derivatives are classified within
policyholder account balances in the consolidated balance sheets.
The fair value of these guarantees is estimated using the
present value of future benefits minus the present value of
future fees using actuarial and capital market assumptions
related to the projected cash flows over the expected lives of
the contracts. A risk neutral valuation methodology is used
under which the cash flows from the guarantees are projected
under multiple capital market scenarios using observable risk
free rates, 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 above 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 in the consolidated balance sheets with
changes in estimated fair value reported in net derivative 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.
The Company
F-83
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
recognized 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,
Other Securities and Short-term Investments. The estimated
fair value of these embedded derivatives is included, along with
their funds withheld hosts, in other liabilities in the
consolidated balance sheets with changes in estimated fair value
recorded in net derivative 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.
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 is
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, derivatives, other limited
partnership interests, short-term investments and cash and cash
equivalents. See Valuation Techniques and
Inputs by Level Within the Three-Level Fair Value
Hierarchy by Major Classes of Assets and Liabilities below
for a discussion of the methods and assumptions used to estimate
the fair value of these financial instruments.
Long-term
Debt of CSEs
The Company has elected the FVO for the long-term debt of CSEs,
which are carried at estimated fair value. See
Valuation Techniques and Inputs by
Level Within the Three-Level Fair Value Hierarchy by
Major Classes of Assets and Liabilities below for a
discussion of the methods and assumptions used to estimate the
fair value of these financial instruments.
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.
F-84
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Level 1
Measurements:
Fixed
Maturity Securities, Equity Securities, Other Securities and
Short-term Investments
These securities are comprised of U.S. Treasury securities,
exchange traded common stock, exchange traded registered mutual
fund interests included in other securities and short-term money
market securities, including U.S. Treasury bills. Valuation
of these securities is based on unadjusted quoted prices in
active markets that are readily and regularly available.
Contractholder-directed unit-linked investments reported within
other securities include certain registered mutual fund
interests priced using daily NAV provided by the fund managers.
Derivative
Assets and Derivative Liabilities
These assets and liabilities are comprised of exchange-traded
derivatives. Valuation of these assets and liabilities is based
on unadjusted quoted prices in active markets that are readily
and regularly available.
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; and certain
exchange-traded derivatives, including financial futures.
Valuation is based on unadjusted quoted prices in active markets
that are readily and regularly available.
Level 2
Measurements:
Fixed
Maturity Securities, Equity Securities, Other Securities and
Short-term Investments
This level includes fixed maturity securities and equity
securities priced principally by independent pricing services
using observable inputs. Other securities and short-term
investments within this level are of a similar nature and class
to the Level 2 securities described below; accordingly, the
valuation techniques and significant market standard observable
inputs used in their valuation are also similar to those
described below.
U.S. corporate and foreign corporate
securities. These securities are principally
valued using the market and income approaches. Valuation is
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. This level
also includes certain below investment grade privately placed
fixed maturity securities priced by independent pricing services
that use observable inputs.
Structured securities comprised of RMBS, CMBS and
ABS. These securities are principally valued
using the market approach. Valuation is 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, but not limited to:
collateral type, payment terms of the underlying assets, payment
priority within the tranche, structure of the security, deal
performance and vintage of loans.
U.S. Treasury and agency
securities. These securities are principally
valued using the market approach. Valuation is based primarily
on quoted prices in markets that are not active, or using matrix
pricing or other
F-85
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
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
securities. These securities are principally
valued using the market approach. Valuation is 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.
Common and non-redeemable preferred
stock. These securities are principally valued
using the market approach where market quotes are available but
are not considered actively traded. Valuation is based
principally on observable inputs including quoted prices in
markets that are not considered active.
Mortgage
Loans Held by CSEs
These commercial mortgage 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
CSEs to determine the estimated fair value of these commercial
loan portfolios. These market prices are determined principally
by independent pricing services using observable inputs.
Derivative
Assets and Derivative Liabilities
This level includes all types of derivative instruments utilized
by the Company with the exception of exchange-traded derivatives
included within Level 1 and those derivative instruments
with unobservable inputs as described in Level 3. These
derivatives are principally valued using an income approach.
Interest
rate contracts.
Non-option-based 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.
Option-based 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.
Foreign
currency contracts.
Non-option-based 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.
Credit
contracts.
Non-option-based Valuations are based on present
value techniques, which utilize significant inputs that may
include the swap yield curve, credit curves, and recovery rates.
Equity
market contracts.
Non-option-based 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 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.
F-86
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Separate
Account Assets
These assets are comprised of investments 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 without readily determinable fair values
given prices are not published publicly. Valuation of the mutual
funds is based upon quoted prices or reported NAV provided by
the fund managers.
Long-term
Debt of CSEs
The estimated fair value of the long-term debt of the
Companys CSEs is based on 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.
Fixed
Maturity Securities, Equity Securities and Short-term
Investments
This level includes fixed maturity securities and equity
securities priced principally by 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. Short-term investments
within this level are of a similar nature and class to the
Level 3 securities described below; accordingly, the
valuation techniques and significant market standard observable
inputs used in their valuation are also similar to those
described below.
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. 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, 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
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.
F-87
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
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.
Derivative
Assets and Derivative Liabilities
These derivatives are principally valued using an income
approach. Valuations of non-option-based derivatives utilize
present value techniques, whereas valuations of option-based
derivatives utilize option pricing models. These valuation
methodologies generally use the same inputs as described in the
corresponding sections above for Level 2 measurements of
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.
Interest
rate contracts.
Non-option-based Significant unobservable inputs may
include the extrapolation beyond observable limits of the swap
yield curve and LIBOR basis curves.
Option-based Significant unobservable inputs may
include the extrapolation beyond observable limits of the swap
yield curve, LIBOR basis curves, and interest rate volatility.
Foreign
currency contracts.
Non-option-based 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.
Credit
contracts.
Non-option-based Significant unobservable inputs may
include credit correlation, repurchase rates, and the
extrapolation beyond observable limits of the swap yield curve
and credit curves. Certain of these derivatives are valued based
on independent non-binding broker quotations.
Equity
market contracts.
Non-option-based Significant unobservable inputs may
include the extrapolation beyond observable limits of dividend
yield curves.
Option-based 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
F-88
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
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 assets are comprised of investments that are similar in
nature to the fixed maturity securities and equity securities
referred to above. Separate account assets within this level
also include other limited partnership interests. 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.
Transfers
between Levels 1 and 2:
During the year ended December 31, 2010, transfers between
Levels 1 and 2 were not significant.
Transfers
into or out of Level 3:
Overall, transfers into
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 underlying inputs
cannot be observed, current prices are not available,
and/or when
there are significant variances in quoted prices, thereby
affecting transparency. Assets and liabilities are transferred
out of Level 3 when circumstances change such that a
significant input 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 into
and/or out
of any level are assumed to occur at the beginning of the
period. Significant transfers into
and/or out
of Level 3 assets and liabilities for the year ended
December 31, 2010 are summarized below.
F-89
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
During the year ended December 31, 2010, fixed maturity
securities transfers into Level 3 of $370 million
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 private placements included
in U.S. and foreign corporate securities and certain CMBS.
During the year ended December 31, 2010, fixed maturity
securities transfers out of Level 3 of $358 million
and separate account assets transfers out of Level 3 of
$3 million, resulted primarily from increased transparency
of both new issuances that subsequent to issuance and
establishment of trading activity, became priced by independent
pricing services and existing issuances that, over time, the
Company was able to corroborate pricing received from
independent pricing services with observable inputs or increases
in market activity and upgraded credit ratings primarily for
certain U.S. and foreign corporate securities, ABS and CMBS.
A rollforward of all assets and liabilities measured at
estimated fair value on a recurring basis using significant
unobservable (Level 3) inputs is as follows:
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs
(Level 3)
|
|
|
|
|
|
|
Total Realized/Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (Losses) included in:
|
|
|
Purchases,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Sales,
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
|
|
|
|
|
|
Comprehensive
|
|
|
Issuances and
|
|
|
Transfer Into
|
|
|
Transfer Out
|
|
|
Balance,
|
|
|
|
January 1,
|
|
|
Earnings (1), (2)
|
|
|
Income (Loss)
|
|
|
Settlements (3)
|
|
|
Level 3 (4)
|
|
|
of Level 3 (4)
|
|
|
December 31,
|
|
|
|
(In millions)
|
|
|
Year Ended December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
1,605
|
|
|
$
|
2
|
|
|
$
|
79
|
|
|
$
|
(173
|
)
|
|
$
|
147
|
|
|
$
|
(150
|
)
|
|
$
|
1,510
|
|
Foreign corporate securities
|
|
|
994
|
|
|
|
(4
|
)
|
|
|
90
|
|
|
|
(199
|
)
|
|
|
114
|
|
|
|
(115
|
)
|
|
|
880
|
|
U.S. Treasury and agency securities
|
|
|
33
|
|
|
|
|
|
|
|
2
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
34
|
|
RMBS
|
|
|
25
|
|
|
|
|
|
|
|
3
|
|
|
|
(10
|
)
|
|
|
17
|
|
|
|
|
|
|
|
35
|
|
CMBS
|
|
|
45
|
|
|
|
|
|
|
|
21
|
|
|
|
1
|
|
|
|
85
|
|
|
|
(22
|
)
|
|
|
130
|
|
ABS
|
|
|
537
|
|
|
|
(7
|
)
|
|
|
78
|
|
|
|
15
|
|
|
|
4
|
|
|
|
(59
|
)
|
|
|
568
|
|
State and political subdivision securities
|
|
|
32
|
|
|
|
|
|
|
|
4
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(3
|
)
|
|
|
32
|
|
Foreign government securities
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
3
|
|
|
|
(9
|
)
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
3,287
|
|
|
$
|
(9
|
)
|
|
$
|
277
|
|
|
$
|
(364
|
)
|
|
$
|
370
|
|
|
$
|
(358
|
)
|
|
$
|
3,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock
|
|
$
|
258
|
|
|
$
|
15
|
|
|
$
|
6
|
|
|
$
|
(65
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
214
|
|
Common stock
|
|
|
11
|
|
|
|
5
|
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
269
|
|
|
$
|
20
|
|
|
$
|
9
|
|
|
$
|
(62
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
$
|
8
|
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
164
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
173
|
|
Net derivatives: (5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
2
|
|
|
$
|
10
|
|
|
$
|
(71
|
)
|
|
$
|
(2
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(61
|
)
|
Foreign currency contracts
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23
|
)
|
|
|
|
|
Credit contracts
|
|
|
4
|
|
|
|
3
|
|
|
|
13
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
11
|
|
Equity market contracts
|
|
|
18
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net derivatives
|
|
$
|
47
|
|
|
$
|
7
|
|
|
$
|
(58
|
)
|
|
$
|
(11
|
)
|
|
$
|
|
|
|
$
|
(23
|
)
|
|
$
|
(38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Separate account assets (6)
|
|
$
|
153
|
|
|
$
|
(5
|
)
|
|
$
|
|
|
|
$
|
(12
|
)
|
|
$
|
|
|
|
$
|
(3
|
)
|
|
$
|
133
|
|
Net embedded derivatives (7)
|
|
$
|
445
|
|
|
$
|
135
|
|
|
$
|
|
|
|
$
|
97
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
677
|
|
F-90
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs
(Level 3)
|
|
|
|
|
|
|
Total Realized/Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (Losses) included in:
|
|
|
Purchases,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Sales,
|
|
|
Transfer Into
|
|
|
|
|
|
|
|
|
|
Balance,
|
|
|
Earnings
|
|
|
Comprehensive
|
|
|
Issuances and
|
|
|
and/or Out
|
|
|
Balance,
|
|
|
|
|
|
|
January 1,
|
|
|
(1),(2)
|
|
|
Income (Loss)
|
|
|
Settlements (3)
|
|
|
of Level 3 (4)
|
|
|
December 31,
|
|
|
|
|
|
|
(In millions)
|
|
|
Year Ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
1,401
|
|
|
$
|
(114
|
)
|
|
$
|
192
|
|
|
$
|
(172
|
)
|
|
$
|
298
|
|
|
$
|
1,605
|
|
|
|
|
|
Foreign corporate securities
|
|
|
926
|
|
|
|
(95
|
)
|
|
|
334
|
|
|
|
(47
|
)
|
|
|
(124
|
)
|
|
|
994
|
|
|
|
|
|
U.S. Treasury and agency securities
|
|
|
36
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
33
|
|
|
|
|
|
RMBS
|
|
|
62
|
|
|
|
(4
|
)
|
|
|
5
|
|
|
|
(9
|
)
|
|
|
(29
|
)
|
|
|
25
|
|
|
|
|
|
CMBS
|
|
|
116
|
|
|
|
(42
|
)
|
|
|
50
|
|
|
|
(7
|
)
|
|
|
(72
|
)
|
|
|
45
|
|
|
|
|
|
ABS
|
|
|
558
|
|
|
|
(51
|
)
|
|
|
171
|
|
|
|
(138
|
)
|
|
|
(3
|
)
|
|
|
537
|
|
|
|
|
|
State and political subdivision securities
|
|
|
24
|
|
|
|
|
|
|
|
6
|
|
|
|
2
|
|
|
|
|
|
|
|
32
|
|
|
|
|
|
Foreign government securities
|
|
|
10
|
|
|
|
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
6
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
3,133
|
|
|
$
|
(306
|
)
|
|
$
|
758
|
|
|
$
|
(374
|
)
|
|
$
|
76
|
|
|
$
|
3,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock
|
|
$
|
318
|
|
|
$
|
(101
|
)
|
|
$
|
113
|
|
|
$
|
(66
|
)
|
|
$
|
(6
|
)
|
|
$
|
258
|
|
|
|
|
|
Common stock
|
|
|
8
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
4
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
326
|
|
|
$
|
(101
|
)
|
|
$
|
112
|
|
|
$
|
(62
|
)
|
|
$
|
(6
|
)
|
|
$
|
269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other securities
|
|
$
|
50
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(50
|
)
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
Short-term investments
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
8
|
|
|
$
|
|
|
|
$
|
8
|
|
|
|
|
|
Net derivatives (5)
|
|
$
|
309
|
|
|
$
|
(40
|
)
|
|
$
|
(3
|
)
|
|
$
|
(15
|
)
|
|
$
|
(204
|
)
|
|
$
|
47
|
|
|
|
|
|
Separate account assets (6)
|
|
$
|
159
|
|
|
$
|
(7
|
)
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
153
|
|
|
|
|
|
Net embedded derivatives (7)
|
|
$
|
657
|
|
|
$
|
(328
|
)
|
|
$
|
|
|
|
$
|
116
|
|
|
$
|
|
|
|
$
|
445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Realized/Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (Losses) included in:
|
|
|
Purchases,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Sales,
|
|
|
Transfer Into
|
|
|
|
|
|
|
Balance,
|
|
|
Impact of
|
|
|
Balance,
|
|
|
Earnings
|
|
|
Comprehensive
|
|
|
Issuances and
|
|
|
and/or Out
|
|
|
Balance,
|
|
|
|
December 31, 2007
|
|
|
Adoption (8)
|
|
|
January 1,
|
|
|
(1, 2)
|
|
|
Income (Loss)
|
|
|
Settlements (3)
|
|
|
of Level 3 (4)
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
1,645
|
|
|
$
|
|
|
|
$
|
1,645
|
|
|
$
|
(167
|
)
|
|
$
|
(313
|
)
|
|
$
|
101
|
|
|
$
|
135
|
|
|
$
|
1,401
|
|
Foreign corporate securities
|
|
|
1,355
|
|
|
|
|
|
|
|
1,355
|
|
|
|
(12
|
)
|
|
|
(504
|
)
|
|
|
(110
|
)
|
|
|
197
|
|
|
|
926
|
|
U.S. Treasury and agency securities
|
|
|
19
|
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
34
|
|
|
|
(17
|
)
|
|
|
36
|
|
RMBS
|
|
|
323
|
|
|
|
|
|
|
|
323
|
|
|
|
2
|
|
|
|
(46
|
)
|
|
|
(156
|
)
|
|
|
(61
|
)
|
|
|
62
|
|
CMBS
|
|
|
258
|
|
|
|
|
|
|
|
258
|
|
|
|
(66
|
)
|
|
|
(76
|
)
|
|
|
|
|
|
|
|
|
|
|
116
|
|
ABS
|
|
|
925
|
|
|
|
|
|
|
|
925
|
|
|
|
(20
|
)
|
|
|
(254
|
)
|
|
|
(84
|
)
|
|
|
(9
|
)
|
|
|
558
|
|
State and political subdivision securities
|
|
|
44
|
|
|
|
|
|
|
|
44
|
|
|
|
(1
|
)
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
24
|
|
Foreign government securities
|
|
|
33
|
|
|
|
|
|
|
|
33
|
|
|
|
1
|
|
|
|
(2
|
)
|
|
|
(17
|
)
|
|
|
(5
|
)
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
4,602
|
|
|
$
|
|
|
|
$
|
4,602
|
|
|
$
|
(263
|
)
|
|
$
|
(1,214
|
)
|
|
$
|
(232
|
)
|
|
$
|
240
|
|
|
$
|
3,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock
|
|
$
|
521
|
|
|
$
|
|
|
|
$
|
521
|
|
|
$
|
(44
|
)
|
|
$
|
(109
|
)
|
|
$
|
(50
|
)
|
|
$
|
|
|
|
$
|
318
|
|
Common stock
|
|
|
35
|
|
|
|
|
|
|
|
35
|
|
|
|
(4
|
)
|
|
|
(1
|
)
|
|
|
(22
|
)
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
556
|
|
|
$
|
|
|
|
$
|
556
|
|
|
$
|
(48
|
)
|
|
$
|
(110
|
)
|
|
$
|
(72
|
)
|
|
$
|
|
|
|
$
|
326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other securities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
50
|
|
|
$
|
|
|
|
$
|
50
|
|
Net derivatives (5)
|
|
$
|
108
|
|
|
$
|
|
|
|
$
|
108
|
|
|
$
|
266
|
|
|
$
|
|
|
|
$
|
(65
|
)
|
|
$
|
|
|
|
$
|
309
|
|
Separate account assets (6)
|
|
$
|
183
|
|
|
$
|
|
|
|
$
|
183
|
|
|
$
|
(22
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(2
|
)
|
|
$
|
159
|
|
Net embedded derivatives (7)
|
|
$
|
125
|
|
|
$
|
92
|
|
|
$
|
217
|
|
|
$
|
366
|
|
|
$
|
|
|
|
$
|
74
|
|
|
$
|
|
|
|
$
|
657
|
|
F-91
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
|
|
|
(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. |
|
(4) |
|
Total gains and losses (in earnings and other comprehensive
income (loss)) are calculated assuming transfers into and/or out
of Level 3 occurred at the beginning of the period. Items
transferred into 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. |
|
(8) |
|
The impact of adoption of fair value measurement guidance
represents the amount recognized in earnings resulting from a
change in estimate for certain Level 3 financial
instruments held at January 1, 2008. The net impact of
adoption on Level 3 assets and liabilities presented in the
table above was a $92 million increase to net assets. Such
amount was also impacted by a reduction to DAC of
$30 million resulting in a net increase of
$62 million. This increase was offset by a $3 million
reduction in the estimated fair value of Level 2
freestanding derivatives, resulting in a total net impact of
adoption of $59 million. |
F-92
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
The tables below summarize both realized and unrealized gains
and losses 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
|
|
|
Net
|
|
|
|
|
|
|
Investment
|
|
|
Investment
|
|
|
Derivative
|
|
|
|
|
|
|
Income
|
|
|
Gains (Losses)
|
|
|
Gains (Losses)
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Year Ended December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
7
|
|
|
$
|
(5
|
)
|
|
$
|
|
|
|
$
|
2
|
|
Foreign corporate securities
|
|
|
(1
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
(4
|
)
|
RMBS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMBS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABS
|
|
|
1
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
7
|
|
|
$
|
(16
|
)
|
|
$
|
|
|
|
$
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock
|
|
$
|
|
|
|
$
|
15
|
|
|
$
|
|
|
|
$
|
15
|
|
Common stock
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
|
|
|
$
|
20
|
|
|
$
|
|
|
|
$
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1
|
|
Net derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
|
|
|
$
|
|
|
|
$
|
10
|
|
|
$
|
10
|
|
Foreign currency contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit contracts
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
3
|
|
Equity market contracts
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net derivatives
|
|
$
|
|
|
|
$
|
|
|
|
$
|
7
|
|
|
$
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net embedded derivatives
|
|
$
|
|
|
|
$
|
|
|
|
$
|
135
|
|
|
$
|
135
|
|
F-93
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Gains and Losses
|
|
|
|
Classification of Realized/Unrealized
|
|
|
|
Gains (Losses) included in Earnings
|
|
|
|
Net
|
|
|
Net
|
|
|
Net
|
|
|
|
|
|
|
Investment
|
|
|
Investment
|
|
|
Derivative
|
|
|
|
|
|
|
Income
|
|
|
Gains (Losses)
|
|
|
Gains (Losses)
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Year Ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
3
|
|
|
$
|
(117
|
)
|
|
$
|
|
|
|
$
|
(114
|
)
|
Foreign corporate securities
|
|
|
(1
|
)
|
|
|
(94
|
)
|
|
|
|
|
|
|
(95
|
)
|
RMBS
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
(4
|
)
|
CMBS
|
|
|
1
|
|
|
|
(43
|
)
|
|
|
|
|
|
|
(42
|
)
|
ABS
|
|
|
|
|
|
|
(51
|
)
|
|
|
|
|
|
|
(51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
3
|
|
|
$
|
(309
|
)
|
|
$
|
|
|
|
$
|
(306
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock
|
|
$
|
|
|
|
$
|
(101
|
)
|
|
$
|
|
|
|
$
|
(101
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
|
|
|
$
|
(101
|
)
|
|
$
|
|
|
|
$
|
(101
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net derivatives
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(40
|
)
|
|
$
|
(40
|
)
|
Net embedded derivatives
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(328
|
)
|
|
$
|
(328
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Gains and Losses
|
|
|
|
Classification of Realized/Unrealized
|
|
|
|
Gains (Losses) included in Earnings
|
|
|
|
Net
|
|
|
Net
|
|
|
Net
|
|
|
|
|
|
|
Investment
|
|
|
Investment
|
|
|
Derivative
|
|
|
|
|
|
|
Income
|
|
|
Gains (Losses)
|
|
|
Gains (Losses)
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Year Ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
5
|
|
|
$
|
(172
|
)
|
|
$
|
|
|
|
$
|
(167
|
)
|
Foreign corporate securities
|
|
|
(3
|
)
|
|
|
(9
|
)
|
|
|
|
|
|
|
(12
|
)
|
RMBS
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
CMBS
|
|
|
4
|
|
|
|
(70
|
)
|
|
|
|
|
|
|
(66
|
)
|
ABS
|
|
|
|
|
|
|
(20
|
)
|
|
|
|
|
|
|
(20
|
)
|
State and political subdivision securities
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
Foreign government securities
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
6
|
|
|
$
|
(269
|
)
|
|
$
|
|
|
|
$
|
(263
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock
|
|
$
|
|
|
|
$
|
(44
|
)
|
|
$
|
|
|
|
$
|
(44
|
)
|
Common stock
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
|
|
|
$
|
(48
|
)
|
|
$
|
|
|
|
$
|
(48
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net derivatives
|
|
$
|
|
|
|
$
|
|
|
|
$
|
266
|
|
|
$
|
266
|
|
Net embedded derivatives
|
|
$
|
|
|
|
$
|
|
|
|
$
|
366
|
|
|
$
|
366
|
|
F-94
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
The tables below summarize the portion of unrealized gains and
losses, due to changes in estimated fair value, recorded in
earnings for Level 3 assets and liabilities that were still
held at the respective time periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Unrealized Gains (Losses)
|
|
|
|
Relating to Assets and Liabilities Held at
|
|
|
|
December 31, 2010
|
|
|
|
Net
|
|
|
Net
|
|
|
Net
|
|
|
|
|
|
|
Investment
|
|
|
Investment
|
|
|
Derivative
|
|
|
|
|
|
|
Income
|
|
|
Gains (Losses)
|
|
|
Gains (Losses)
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Year Ended December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
6
|
|
|
$
|
(10
|
)
|
|
$
|
|
|
|
$
|
(4
|
)
|
Foreign corporate securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMBS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABS
|
|
|
1
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
7
|
|
|
$
|
(12
|
)
|
|
$
|
|
|
|
$
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1
|
|
Net derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
|
|
|
$
|
|
|
|
$
|
10
|
|
|
$
|
10
|
|
Foreign currency contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit contracts
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
3
|
|
Equity market contracts
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net derivatives
|
|
$
|
|
|
|
$
|
|
|
|
$
|
7
|
|
|
$
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net embedded derivatives
|
|
$
|
|
|
|
$
|
|
|
|
$
|
137
|
|
|
$
|
137
|
|
F-95
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Unrealized Gains (Losses)
|
|
|
|
Relating to Assets and Liabilities Held at
|
|
|
|
December 31, 2009
|
|
|
|
Net
|
|
|
Net
|
|
|
Net
|
|
|
|
|
|
|
Investment
|
|
|
Investment
|
|
|
Derivative
|
|
|
|
|
|
|
Income
|
|
|
Gains (Losses)
|
|
|
Gains (Losses)
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Year Ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
6
|
|
|
$
|
(105
|
)
|
|
$
|
|
|
|
$
|
(99
|
)
|
Foreign corporate securities
|
|
|
(1
|
)
|
|
|
(43
|
)
|
|
|
|
|
|
|
(44
|
)
|
CMBS
|
|
|
1
|
|
|
|
(56
|
)
|
|
|
|
|
|
|
(55
|
)
|
ABS
|
|
|
|
|
|
|
(21
|
)
|
|
|
|
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
6
|
|
|
$
|
(225
|
)
|
|
$
|
|
|
|
$
|
(219
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock
|
|
$
|
|
|
|
$
|
(38
|
)
|
|
$
|
|
|
|
$
|
(38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
|
|
|
$
|
(38
|
)
|
|
$
|
|
|
|
$
|
(38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net derivatives
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(33
|
)
|
|
$
|
(33
|
)
|
Net embedded derivatives
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(332
|
)
|
|
$
|
(332
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Unrealized Gains (Losses)
|
|
|
|
Relating to Assets and Liabilities Held at
|
|
|
|
December 31, 2008
|
|
|
|
Net
|
|
|
Net
|
|
|
Net
|
|
|
|
|
|
|
Investment
|
|
|
Investment
|
|
|
Derivative
|
|
|
|
|
|
|
Income
|
|
|
Gains (Losses)
|
|
|
Gains (Losses)
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Year Ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate securities
|
|
$
|
4
|
|
|
$
|
(139
|
)
|
|
$
|
|
|
|
$
|
(135
|
)
|
Foreign corporate securities
|
|
|
(3
|
)
|
|
|
(6
|
)
|
|
|
|
|
|
|
(9
|
)
|
CMBS
|
|
|
4
|
|
|
|
(69
|
)
|
|
|
|
|
|
|
(65
|
)
|
ABS
|
|
|
|
|
|
|
(16
|
)
|
|
|
|
|
|
|
(16
|
)
|
Foreign government securities
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
$
|
6
|
|
|
$
|
(230
|
)
|
|
$
|
|
|
|
$
|
(224
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock
|
|
$
|
|
|
|
$
|
(29
|
)
|
|
$
|
|
|
|
$
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
$
|
|
|
|
$
|
(29
|
)
|
|
$
|
|
|
|
$
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net derivatives
|
|
$
|
|
|
|
$
|
|
|
|
$
|
233
|
|
|
$
|
233
|
|
Net embedded derivatives
|
|
$
|
|
|
|
$
|
|
|
|
$
|
353
|
|
|
$
|
353
|
|
F-96
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
FVO
Consolidated Securitization Entities
As discussed in Note 1, upon the adoption of new guidance
effective January 1, 2010, the Company elected fair value
accounting for the following assets and liabilities held by
CSEs: commercial mortgage loans and long-term debt. The
following table presents these commercial mortgage loans carried
under the FVO at:
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
(In millions)
|
|
|
Unpaid principal balance
|
|
$
|
6,636
|
|
Excess of estimated fair value over unpaid principal balance
|
|
|
204
|
|
|
|
|
|
|
Carrying value at estimated fair value
|
|
$
|
6,840
|
|
|
|
|
|
|
The following table presents the long-term debt carried under
the FVO related to the commercial mortgage loans at:
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
(In millions)
|
|
|
Contractual principal balance
|
|
$
|
6,541
|
|
Excess of estimated fair value over contractual principal balance
|
|
|
232
|
|
|
|
|
|
|
Carrying value at estimated fair value
|
|
$
|
6,773
|
|
|
|
|
|
|
Interest income on commercial mortgage loans held by CSEs is
recorded in net investment income. Interest expense on long-term
debt of CSEs 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.
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 presented
above. The amounts below relate to certain investments measured
at estimated fair value during the period and still held at the
reporting dates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Estimated
|
|
|
Net
|
|
|
|
|
|
Estimated
|
|
|
Net
|
|
|
|
|
|
Estimated
|
|
|
Net
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Investment
|
|
|
Carrying
|
|
|
Fair
|
|
|
Investment
|
|
|
Carrying
|
|
|
Fair
|
|
|
Investment
|
|
|
|
Value Prior to
|
|
|
Value After
|
|
|
Gains
|
|
|
Value Prior to
|
|
|
Value After
|
|
|
Gains
|
|
|
Value Prior to
|
|
|
Value After
|
|
|
Gains
|
|
|
|
Measurement
|
|
|
Measurement
|
|
|
(Losses)
|
|
|
Measurement
|
|
|
Measurement
|
|
|
(Losses)
|
|
|
Measurement
|
|
|
Measurement
|
|
|
(Losses)
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans, net (1)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
24
|
|
|
$
|
|
|
|
$
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other limited partnership interests (2)
|
|
$
|
33
|
|
|
$
|
22
|
|
|
$
|
(11
|
)
|
|
$
|
110
|
|
|
$
|
44
|
|
|
$
|
(66
|
)
|
|
$
|
11
|
|
|
$
|
6
|
|
|
$
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate joint ventures (3)
|
|
$
|
25
|
|
|
$
|
5
|
|
|
$
|
(20
|
)
|
|
$
|
90
|
|
|
$
|
48
|
|
|
$
|
(42
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
(1) |
|
Mortgage loans The impaired mortgage loans
presented above were written down to their estimated fair values
at the date the impairments were recognized. Estimated fair
values for impaired mortgage loans are based on observable
market prices or, if the loans are in foreclosure or are
otherwise determined to be collateral dependent, on the
estimated fair value of the underlying collateral, or the
present value of the expected future cash flows. Impairments to
estimated fair value represent non-recurring fair value
measurements that have been categorized as Level 3 due to
the lack of price transparency inherent in the limited markets
for such mortgage loans. |
|
(2) |
|
Other limited partnership interests The
impaired investments presented above were accounted for using
the cost method. Impairments on these cost method 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 |
F-97
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
|
|
|
|
|
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 $23 million and
$32 million at December 31, 2010 and 2009,
respectively. |
|
(3) |
|
Real estate joint ventures The impaired
investments presented above were accounted for using the cost
method. Impairments on these cost method 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 $3 million and
$40 million at December 31, 2010 and 2009,
respectively. |
F-98
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Fair
Value of Financial Instruments
Amounts related to the Companys financial instruments that
were not measured at fair value on a recurring basis, were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
Notional
|
|
|
Carrying
|
|
|
Fair
|
|
December 31, 2010
|
|
Amount
|
|
|
Value
|
|
|
Value
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans, net (1)
|
|
|
|
|
|
$
|
5,890
|
|
|
$
|
6,022
|
|
Policy loans
|
|
|
|
|
|
$
|
1,190
|
|
|
$
|
1,260
|
|
Real estate joint ventures (2)
|
|
|
|
|
|
$
|
79
|
|
|
$
|
102
|
|
Other limited partnership interests(2)
|
|
|
|
|
|
$
|
104
|
|
|
$
|
116
|
|
Short-term investments (3)
|
|
|
|
|
|
$
|
88
|
|
|
$
|
88
|
|
Cash and cash equivalents
|
|
|
|
|
|
$
|
1,928
|
|
|
$
|
1,928
|
|
Accrued investment income
|
|
|
|
|
|
$
|
559
|
|
|
$
|
559
|
|
Premiums, reinsurance and other receivables(2)
|
|
|
|
|
|
$
|
5,959
|
|
|
$
|
6,164
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder account balances (2)
|
|
|
|
|
|
$
|
24,622
|
|
|
$
|
26,061
|
|
Payables for collateral under securities loaned and other
transactions
|
|
|
|
|
|
$
|
8,103
|
|
|
$
|
8,103
|
|
Long-term debt (4)
|
|
|
|
|
|
$
|
795
|
|
|
$
|
930
|
|
Other liabilities (2)
|
|
|
|
|
|
$
|
294
|
|
|
$
|
294
|
|
Separate account liabilities (2)
|
|
|
|
|
|
$
|
1,407
|
|
|
$
|
1,407
|
|
Commitments (5)
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loan commitments
|
|
$
|
270
|
|
|
$
|
|
|
|
$
|
(2
|
)
|
Commitments to fund bank credit facilities and private corporate
bond investments
|
|
$
|
315
|
|
|
$
|
|
|
|
$
|
(12
|
)
|
F-99
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
Notional
|
|
|
Carrying
|
|
|
Fair
|
|
December 31, 2009
|
|
Amount
|
|
|
Value
|
|
|
Value
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans, net
|
|
|
|
|
|
$
|
4,748
|
|
|
$
|
4,345
|
|
Policy loans
|
|
|
|
|
|
$
|
1,189
|
|
|
$
|
1,243
|
|
Real estate joint ventures (2)
|
|
|
|
|
|
$
|
64
|
|
|
$
|
62
|
|
Other limited partnership interests (2)
|
|
|
|
|
|
$
|
128
|
|
|
$
|
151
|
|
Short-term investments (3)
|
|
|
|
|
|
$
|
7
|
|
|
$
|
7
|
|
Cash and cash equivalents
|
|
|
|
|
|
$
|
2,574
|
|
|
$
|
2,574
|
|
Accrued investment income
|
|
|
|
|
|
$
|
516
|
|
|
$
|
516
|
|
Premiums, reinsurance and other receivables (2)
|
|
|
|
|
|
$
|
4,582
|
|
|
$
|
4,032
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder account balances (2)
|
|
|
|
|
|
$
|
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 (2)
|
|
|
|
|
|
$
|
188
|
|
|
$
|
188
|
|
Separate account liabilities (2)
|
|
|
|
|
|
$
|
1,367
|
|
|
$
|
1,367
|
|
Commitments (5)
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loan commitments
|
|
$
|
131
|
|
|
$
|
|
|
|
$
|
(5
|
)
|
Commitments to fund bank credit facilities and private corporate
bond investments
|
|
$
|
445
|
|
|
$
|
|
|
|
$
|
(29
|
)
|
|
|
|
(1) |
|
Mortgage loans as presented in the table above differs from the
amount presented in the consolidated balance sheets because this
table does not include commercial mortgage loans held by CSEs. |
|
(2) |
|
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. |
|
(3) |
|
Short-term investments as presented in the tables above differ
from the amounts presented in the consolidated balance sheets
because these tables do not include short-term investments that
meet the definition of a security, which are measured at
estimated fair value on a recurring basis. |
|
(4) |
|
Long-term debt as presented in the table above differs from the
amount presented in the consolidated balance sheet because this
table does not include long-term debt of CSEs. |
|
(5) |
|
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:
The assets and liabilities measured at estimated fair value on a
recurring basis include: fixed maturity securities, equity
securities, other securities, mortgage loans held by CSEs,
derivative assets and liabilities, net embedded derivatives
within asset and liability host contracts, separate account
assets and long-term debt of CSEs. These assets and liabilities
are described in the section Recurring Fair
Value Measurements and, therefore, are excluded from the
tables above. The estimated fair value for these financial
instruments approximates carrying value.
F-100
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Mortgage Loans
The Company originates mortgage loans principally for investment
purposes. These loans are principally carried at amortized cost.
The estimated fair value of mortgage loans is primarily
determined by estimating expected future cash flows and
discounting them using current interest rates for similar
mortgage loans with similar credit risk.
Policy Loans
For policy loans with fixed interest rates, estimated fair
values are determined using a discounted cash flow model applied
to groups of similar policy loans determined by the nature of
the underlying insurance liabilities. Cash flow estimates are
developed applying a weighted-average interest rate to the
outstanding principal balance of the respective group of policy
loans and an estimated average maturity determined through
experience studies of the past performance of policyholder
repayment behavior for similar loans. These cash flows are
discounted using current risk-free interest rates with no
adjustment for borrower credit risk as these loans are fully
collateralized by the cash surrender value of the underlying
insurance policy. The estimated fair value for policy loans with
variable interest rates approximates carrying value due to the
absence of borrower credit risk and the short time period
between interest rate resets, which presents minimal risk of a
material change in estimated fair value due to changes in market
interest rates.
Real Estate Joint Ventures and Other Limited Partnership
Interests
Real estate joint ventures and other limited partnership
interests included in the preceding tables consist of those
investments accounted for using the cost method. The remaining
carrying value recognized in the consolidated balance sheets
represents investments in real estate carried at cost less
accumulated depreciation, 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 real estate joint ventures and
other limited partnership interests accounted for under the cost
method are generally based on the Companys share of the
NAV as provided in the financial statements of the investees. In
certain circumstances, management may adjust the NAV by a
premium or discount when it has sufficient evidence to support
applying such adjustments.
Short-term Investments
Certain short-term investments do not qualify as securities and
are recognized at amortized cost in the consolidated balance
sheets. For these instruments, the Company believes that there
is minimal risk of material changes in interest rates or credit
of the issuer such that estimated fair value approximates
carrying value. In light of recent market conditions, short-term
investments have been monitored to ensure there is sufficient
demand and maintenance of issuer credit quality and the Company
has determined additional adjustment is not required.
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
F-101
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
value. In light of recent market conditions, the Company has
monitored the credit quality of the issuers and has determined
additional adjustment is not required.
Premiums, Reinsurance and Other Receivables
Premiums, reinsurance and other receivables in the preceding
tables are principally comprised of certain amounts recoverable
under reinsurance contracts, amounts on deposit with financial
institutions to facilitate daily settlements related to certain
derivative positions and amounts receivable for securities sold
but not yet settled.
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
tables. 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 tables. The
estimated fair value is determined as the present value of
expected future cash flows under the related contracts, which
were 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.
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 in
Recurring Fair Value Measurements. 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.
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.
Long-term Debt
The estimated fair value of 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. Risk-adjusted discount rates applied to the
expected future cash flows can vary significantly based upon the
specific terms of each individual arrangement, including, but
not limited to: contractual interest rates in relation to
current market rates; the structuring of the arrangement; and
the nature
F-102
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
and observability of the applicable valuation inputs. Use of
different risk-adjusted discount rates could result in different
estimated fair values.
Other Liabilities
Other liabilities included in the tables 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 treaties
accounted for as deposit type treaties. 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 carrying values.
Separate Account Liabilities
Separate account liabilities included in the preceding tables
represent those balances due to policyholders under contracts
that are classified as investment contracts. The remaining
amounts presented in the consolidated balance sheets represent
those contracts classified as insurance contracts, which do not
satisfy the definition of financial instruments.
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 are recognized in the consolidated
balance sheets at an equivalent value of the related separate
account assets. Separate account assets, which equal net
deposits, net investment income and realized and unrealized
investment 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 in the section
Recurring Fair Value
Measurements, the Company believes the value of those
assets approximates the estimated fair value of the related
separate account liabilities.
Mortgage Loan Commitments and Commitments to Fund Bank
Credit Facilities and Private Corporate Bond Investments
The estimated fair values for mortgage loan commitments that
will be held for investment and commitments to fund bank credit
facilities and private corporate bonds that will be held for
investment 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 commitments.
F-103
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
|
|
5.
|
Deferred
Policy Acquisition Costs and Value of Business
Acquired
|
Information regarding DAC and VOBA is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DAC
|
|
|
VOBA
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Balance at January 1, 2008
|
|
$
|
2,252
|
|
|
$
|
2,696
|
|
|
$
|
4,948
|
|
Capitalizations
|
|
|
835
|
|
|
|
|
|
|
|
835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
3,087
|
|
|
|
2,696
|
|
|
|
5,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization related to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment gains (losses)
|
|
|
(190
|
)
|
|
|
(35
|
)
|
|
|
(225
|
)
|
Other expenses
|
|
|
(504
|
)
|
|
|
(434
|
)
|
|
|
(938
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortization
|
|
|
(694
|
)
|
|
|
(469
|
)
|
|
|
(1,163
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized investment gains (losses)
|
|
|
389
|
|
|
|
434
|
|
|
|
823
|
|
Effect of foreign currency translation
|
|
|
(3
|
)
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
2,779
|
|
|
|
2,661
|
|
|
|
5,440
|
|
Capitalizations
|
|
|
851
|
|
|
|
|
|
|
|
851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
3,630
|
|
|
|
2,661
|
|
|
|
6,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization related to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment gains (losses)
|
|
|
225
|
|
|
|
86
|
|
|
|
311
|
|
Other expenses
|
|
|
(408
|
)
|
|
|
(197
|
)
|
|
|
(605
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortization
|
|
|
(183
|
)
|
|
|
(111
|
)
|
|
|
(294
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized investment gains (losses)
|
|
|
(322
|
)
|
|
|
(433
|
)
|
|
|
(755
|
)
|
Effect of foreign currency translation
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
3,127
|
|
|
|
2,117
|
|
|
|
5,244
|
|
Capitalizations
|
|
|
978
|
|
|
|
|
|
|
|
978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
4,105
|
|
|
|
2,117
|
|
|
|
6,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization related to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment gains (losses)
|
|
|
(67
|
)
|
|
|
(17
|
)
|
|
|
(84
|
)
|
Other expenses
|
|
|
(458
|
)
|
|
|
(297
|
)
|
|
|
(755
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortization
|
|
|
(525
|
)
|
|
|
(314
|
)
|
|
|
(839
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized investment gains (losses)
|
|
|
(167
|
)
|
|
|
(117
|
)
|
|
|
(284
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
$
|
3,413
|
|
|
$
|
1,686
|
|
|
$
|
5,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated future amortization expense allocated to other
expenses for the next five years for VOBA is $292 million
in 2011, $250 million in 2012, $201 million in 2013,
$163 million in 2014 and $131 million in 2015.
Amortization of DAC and VOBA is attributed to both investment
gains and losses and to other expenses for the amount of gross
profits originating from transactions other than investment
gains and losses. Unrealized investment gains and losses
represent the amount of DAC and VOBA that would have been
amortized if such gains and losses had been recognized.
F-104
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Information regarding DAC and VOBA by segment and reporting unit
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DAC
|
|
|
VOBA
|
|
|
Total
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Retirement Products
|
|
$
|
1,985
|
|
|
$
|
1,785
|
|
|
$
|
996
|
|
|
$
|
1,275
|
|
|
$
|
2,981
|
|
|
$
|
3,060
|
|
Corporate Benefit Funding
|
|
|
8
|
|
|
|
6
|
|
|
|
1
|
|
|
|
1
|
|
|
|
9
|
|
|
|
7
|
|
Insurance Products
|
|
|
1,329
|
|
|
|
1,292
|
|
|
|
689
|
|
|
|
841
|
|
|
|
2,018
|
|
|
|
2,133
|
|
Corporate & Other
|
|
|
91
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
91
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,413
|
|
|
$
|
3,127
|
|
|
$
|
1,686
|
|
|
$
|
2,117
|
|
|
$
|
5,099
|
|
|
$
|
5,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill is the excess of cost over the estimated fair value of
net assets acquired. Information regarding goodwill by segment
and reporting unit is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Retirement Products
|
|
$
|
219
|
|
|
$
|
219
|
|
Corporate Benefit Funding
|
|
|
307
|
|
|
|
307
|
|
Insurance Products:
|
|
|
|
|
|
|
|
|
Non-medical health
|
|
|
5
|
|
|
|
5
|
|
Individual life
|
|
|
17
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
Total Insurance Products
|
|
|
22
|
|
|
|
22
|
|
Corporate & Other
|
|
|
405
|
|
|
|
405
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
953
|
|
|
$
|
953
|
|
|
|
|
|
|
|
|
|
|
As described in more detail in Note 1, the Company
performed its annual goodwill impairment tests during the third
quarter of 2010 based upon data at June 30, 2010. The tests
indicated that goodwill was not impaired.
Management continues to evaluate current market conditions that
may affect the estimated fair value of the Companys
reporting units to assess whether any goodwill impairment
exists. Continued deteriorating or adverse market conditions for
certain reporting units may have a significant impact on the
estimated fair value of these reporting units and could result
in future impairments of goodwill.
F-105
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Insurance
Liabilities
Insurance liabilities, including affiliated insurance
liabilities on reinsurance assumed and ceded, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future Policy
|
|
|
Policyholder Account
|
|
|
Other Policy-Related
|
|
|
|
Benefits
|
|
|
Balances
|
|
|
Balances
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Retirement Products
|
|
$
|
1,718
|
|
|
$
|
1,435
|
|
|
$
|
20,990
|
|
|
$
|
21,059
|
|
|
$
|
18
|
|
|
$
|
19
|
|
Corporate Benefit Funding
|
|
|
12,991
|
|
|
|
12,697
|
|
|
|
9,452
|
|
|
|
9,393
|
|
|
|
5
|
|
|
|
5
|
|
Insurance Products
|
|
|
3,060
|
|
|
|
2,391
|
|
|
|
6,592
|
|
|
|
6,052
|
|
|
|
2,268
|
|
|
|
1,997
|
|
Corporate & Other
|
|
|
5,429
|
|
|
|
5,098
|
|
|
|
2,257
|
|
|
|
938
|
|
|
|
361
|
|
|
|
276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
23,198
|
|
|
$
|
21,621
|
|
|
$
|
39,291
|
|
|
$
|
37,442
|
|
|
$
|
2,652
|
|
|
$
|
2,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Note 8 for discussion of affiliated reinsurance
liabilities included in the table above.
Value
of Distribution Agreements and Customer Relationships
Acquired
Information regarding VODA and VOCRA, which are reported in
other assets, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Balance at January 1,
|
|
$
|
215
|
|
|
$
|
224
|
|
|
$
|
232
|
|
Amortization
|
|
|
(12
|
)
|
|
|
(9
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
|
|
$
|
203
|
|
|
$
|
215
|
|
|
$
|
224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated future amortization expense allocated to other
expenses for the next five years for VODA and VOCRA is
$13 million in 2011, $15 million in 2012,
$16 million in 2013, $17 million in 2014 and
$17 million in 2015.
Sales
Inducements
Information regarding deferred sales inducements, which are
reported in other assets, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Balance at January 1,
|
|
$
|
493
|
|
|
$
|
422
|
|
|
$
|
403
|
|
Capitalization
|
|
|
100
|
|
|
|
124
|
|
|
|
111
|
|
Amortization
|
|
|
(56
|
)
|
|
|
(53
|
)
|
|
|
(92
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
|
|
$
|
537
|
|
|
$
|
493
|
|
|
$
|
422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Separate
Accounts
Separate account assets and liabilities consist of pass-through
separate accounts totaling $61.6 billion and
$49.4 billion at December 31, 2010 and 2009,
respectively, for which the policyholder assumes all investment
risk.
F-106
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Fees charged to the separate accounts by the Company (including
mortality charges, policy administration fees and surrender
charges) are reflected in the Companys revenues as
universal life and investment-type product policy fees and
totaled $1,085 million, $804 million and
$893 million for the years ended December 31, 2010,
2009 and 2008, respectively.
For the years ended December 31, 2010, 2009 and 2008, there
were no investment gains (losses) on transfers of assets from
the general account to the separate accounts.
Obligations
Under Funding Agreements
The Company issues fixed and floating rate funding agreements,
which are denominated in either U.S. dollars or foreign
currencies, to certain SPEs that have issued either debt
securities or commercial paper for which payment of interest and
principal is secured by such funding agreements. During the
years ended December 31, 2010, 2009 and 2008, the Company
issued $19.1 billion, $14.5 billion and
$2.8 billion, respectively, and repaid $18.6 billion,
$15.3 billion and $1.1 billion, respectively, of such
funding agreements. At December 31, 2010 and 2009, funding
agreements outstanding, which are included in policyholder
account balances, were $6.6 billion and $6.1 billion,
respectively. During the years ended December 31, 2010,
2009 and 2008, interest credited on the funding agreements,
which is included in interest credited to policyholder account
balances, was $78 million, $127 million and
$192 million, respectively.
MICC is a member of the FHLB of Boston and held $70 million
of common stock of the FHLB of Boston at both December 31,
2010 and 2009, which is included in equity securities. MICC has
also entered into funding agreements with the FHLB of Boston in
exchange for cash and for which the FHLB of Boston has been
granted a blanket lien on certain MICC assets, including RMBS,
to collateralize MICCs obligations under the funding
agreements. MICC maintains control over these pledged assets,
and may use, commingle, encumber or dispose of any portion of
the collateral as long as there is no event of default and the
remaining qualified collateral is sufficient to satisfy the
collateral maintenance level. Upon any event of default by MICC,
the FHLB of Bostons recovery on the collateral is limited
to the amount of MICCs liability to the FHLB of Boston.
The amount of MICCs liability for funding agreements with
the FHLB of Boston was $100 million and $326 million
at December 31, 2010 and 2009, respectively, which is
included in policyholder account balances. The advances on these
funding agreements are collateralized by mortgage-backed
securities with estimated fair values of $211 million and
$419 million at December 31, 2010 and 2009,
respectively. During the years ended December 31, 2010,
2009 and 2008, interest credited on the funding agreements,
which is included in interest credited to policyholder account
balances, was $1 million, $6 million and
$15 million, respectively.
During 2010, MICC issued funding agreements to certain SPEs that
have issued debt securities for which payment of interest and
principal is secured by such funding agreements, and such debt
securities are also guaranteed as to payment of interest and
principal by Farmer Mac, a federally chartered instrumentality
of the United States. The obligations under these funding
agreements are secured by a pledge of certain eligible
agricultural real estate mortgage loans and may, under certain
circumstances, be secured by other qualified collateral. The
amount of the Companys liability for funding agreements
issued to such SPEs was $200 million at December 31,
2010, which is included in policyholder account balances. The
obligations under these funding agreements are collateralized by
designated agricultural mortgage loans with a carrying value of
$231 million at December 31, 2010. During the year
ended December 31, 2010, interest credited on the funding
agreements, which is included in interest credited to
policyholder account balances, was $2 million.
F-107
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Liabilities
for Unpaid Claims and Claim Expenses
Information regarding the liabilities for unpaid claims and
claim expenses relating to group accident and non-medical health
policies and contracts, which are reported in future policy
benefits and other policy-related balances, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Balance at January 1,
|
|
$
|
805
|
|
|
$
|
691
|
|
|
$
|
612
|
|
Less: Reinsurance recoverables
|
|
|
706
|
|
|
|
589
|
|
|
|
463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net balance at January 1,
|
|
|
99
|
|
|
|
102
|
|
|
|
149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incurred related to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year
|
|
|
24
|
|
|
|
26
|
|
|
|
8
|
|
Prior years
|
|
|
(12
|
)
|
|
|
(17
|
)
|
|
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total incurred
|
|
|
12
|
|
|
|
9
|
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid related to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(2
|
)
|
Prior years
|
|
|
(10
|
)
|
|
|
(11
|
)
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total paid
|
|
|
(11
|
)
|
|
|
(12
|
)
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net balance at December 31,
|
|
|
100
|
|
|
|
99
|
|
|
|
102
|
|
Add: Reinsurance recoverables
|
|
|
878
|
|
|
|
706
|
|
|
|
589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
|
|
$
|
978
|
|
|
$
|
805
|
|
|
$
|
691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2010, 2009 and 2008, as a result of changes in estimates
of insured events in the respective prior year, claims and claim
adjustment expenses associated with prior years decreased by
$12 million, $17 million and $29 million for the
years ended December 31, 2010, 2009 and 2008, respectively.
In all years presented, the change was due to differences
between the actual benefit periods and expected benefit periods
for disability contracts. In addition, 2008 includes the change
between the actual benefit period and expected benefit period
for LTC contracts. See Note 8 for information on the
reinsurance of LTC business.
Guarantees
The Company issues annuity contracts which may include
contractual guarantees to the contractholder for:
(i) return of no less than total deposits made to the
contract less any partial withdrawals (return of net
deposits); and (ii) the highest contract value on a
specified anniversary date minus any withdrawals following the
contract anniversary, or total deposits made to the contract
less any partial withdrawals plus a minimum return
(anniversary contract value or minimum
return). These guarantees include benefits that are
payable in the event of death or at annuitization.
The Company also issues universal and variable life contracts
where the Company contractually guarantees to the contractholder
a secondary guarantee.
F-108
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Information regarding the types of guarantees relating to
annuity contracts and universal and variable life contracts is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
In the
|
|
|
At
|
|
|
In the
|
|
|
At
|
|
|
|
Event of Death
|
|
|
Annuitization
|
|
|
Event of Death
|
|
|
Annuitization
|
|
|
|
(In millions)
|
|
|
Annuity Contracts (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return of Net Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Separate account value
|
|
$
|
21,840
|
|
|
|
N/A
|
|
|
$
|
15,705
|
|
|
|
N/A
|
|
Net amount at risk (2)
|
|
$
|
415
|
(3)
|
|
|
N/A
|
|
|
$
|
1,018
|
(3)
|
|
|
N/A
|
|
Average attained age of contractholders
|
|
|
62 years
|
|
|
|
N/A
|
|
|
|
62 years
|
|
|
|
N/A
|
|
Anniversary Contract Value or Minimum Return
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Separate account value
|
|
$
|
42,553
|
|
|
$
|
30,613
|
|
|
$
|
35,687
|
|
|
$
|
22,157
|
|
Net amount at risk (2)
|
|
$
|
3,200
|
(3)
|
|
$
|
3,523
|
(4)
|
|
$
|
5,093
|
(3)
|
|
$
|
4,158
|
(4)
|
Average attained age of contractholders
|
|
|
60 years
|
|
|
|
62 years
|
|
|
|
60 years
|
|
|
|
61 years
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Secondary
|
|
|
Secondary
|
|
|
|
Guarantees
|
|
|
Guarantees
|
|
|
|
(In millions)
|
|
|
Universal and Variable Life Contracts (1)
|
|
|
|
|
|
|
|
|
Account value (general and separate account)
|
|
$
|
3,740
|
|
|
$
|
3,805
|
|
Net amount at risk (2)
|
|
$
|
51,639
|
(3)
|
|
$
|
58,134
|
(3)
|
Average attained age of policyholders
|
|
|
59 years
|
|
|
|
58 years
|
|
|
|
|
(1) |
|
The Companys annuity and life contracts with guarantees
may offer more than one type of guarantee in each contract.
Therefore, the amounts listed above may not be mutually
exclusive. |
|
(2) |
|
The net amount at risk is based on the direct and assumed amount
at risk (excluding ceded reinsurance). |
|
(3) |
|
The net amount at risk for guarantees of amounts in the event of
death is defined as the current GMDB in excess of the current
account balance at the balance sheet date. |
|
(4) |
|
The net amount at risk for guarantees of amounts at
annuitization is defined as the present value of the minimum
guaranteed annuity payments available to the contractholder
determined in accordance with the terms of the contract in
excess of the current account balance. |
F-109
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Information regarding the liabilities for guarantees (excluding
base policy liabilities) relating to annuity and universal and
variable life contracts is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Universal and
|
|
|
|
|
|
|
|
|
|
Variable Life
|
|
|
|
|
|
|
Annuity Contracts
|
|
|
Contracts
|
|
|
|
|
|
|
Guaranteed
|
|
|
Guaranteed
|
|
|
|
|
|
|
|
|
|
Death
|
|
|
Annuitization
|
|
|
Secondary
|
|
|
|
|
|
|
Benefits
|
|
|
Benefits
|
|
|
Guarantees
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Direct:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2008
|
|
$
|
30
|
|
|
$
|
45
|
|
|
$
|
65
|
|
|
$
|
140
|
|
Incurred guaranteed benefits
|
|
|
118
|
|
|
|
176
|
|
|
|
43
|
|
|
|
337
|
|
Paid guaranteed benefits
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
98
|
|
|
|
221
|
|
|
|
108
|
|
|
|
427
|
|
Incurred guaranteed benefits
|
|
|
48
|
|
|
|
(6
|
)
|
|
|
187
|
|
|
|
229
|
|
Paid guaranteed benefits
|
|
|
(89
|
)
|
|
|
|
|
|
|
|
|
|
|
(89
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
57
|
|
|
|
215
|
|
|
|
295
|
|
|
|
567
|
|
Incurred guaranteed benefits
|
|
|
52
|
|
|
|
66
|
|
|
|
601
|
|
|
|
719
|
|
Paid guaranteed benefits
|
|
|
(30
|
)
|
|
|
|
|
|
|
|
|
|
|
(30
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
$
|
79
|
|
|
$
|
281
|
|
|
$
|
896
|
|
|
$
|
1,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ceded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2008
|
|
$
|
28
|
|
|
$
|
17
|
|
|
$
|
|
|
|
$
|
45
|
|
Incurred guaranteed benefits
|
|
|
94
|
|
|
|
55
|
|
|
|
|
|
|
|
149
|
|
Paid guaranteed benefits
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
86
|
|
|
|
72
|
|
|
|
|
|
|
|
158
|
|
Incurred guaranteed benefits
|
|
|
38
|
|
|
|
2
|
|
|
|
142
|
|
|
|
182
|
|
Paid guaranteed benefits
|
|
|
(68
|
)
|
|
|
|
|
|
|
|
|
|
|
(68
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
56
|
|
|
|
74
|
|
|
|
142
|
|
|
|
272
|
|
Incurred guaranteed benefits
|
|
|
38
|
|
|
|
23
|
|
|
|
515
|
|
|
|
576
|
|
Paid guaranteed benefits
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
$
|
76
|
|
|
$
|
97
|
|
|
$
|
657
|
|
|
$
|
830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2008
|
|
$
|
2
|
|
|
$
|
28
|
|
|
$
|
65
|
|
|
$
|
95
|
|
Incurred guaranteed benefits
|
|
|
24
|
|
|
|
121
|
|
|
|
43
|
|
|
|
188
|
|
Paid guaranteed benefits
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
12
|
|
|
|
149
|
|
|
|
108
|
|
|
|
269
|
|
Incurred guaranteed benefits
|
|
|
10
|
|
|
|
(8
|
)
|
|
|
45
|
|
|
|
47
|
|
Paid guaranteed benefits
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
1
|
|
|
|
141
|
|
|
|
153
|
|
|
|
295
|
|
Incurred guaranteed benefits
|
|
|
14
|
|
|
|
43
|
|
|
|
86
|
|
|
|
143
|
|
Paid guaranteed benefits
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
$
|
3
|
|
|
$
|
184
|
|
|
$
|
239
|
|
|
$
|
426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-110
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Account balances of contracts with insurance guarantees are
invested in separate account asset classes as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Fund Groupings:
|
|
|
|
|
|
|
|
|
Equity
|
|
$
|
34,207
|
|
|
$
|
27,202
|
|
Balanced
|
|
|
19,552
|
|
|
|
14,693
|
|
Bond
|
|
|
4,330
|
|
|
|
2,682
|
|
Money Market
|
|
|
1,136
|
|
|
|
1,454
|
|
Specialty
|
|
|
1,004
|
|
|
|
824
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
60,229
|
|
|
$
|
46,855
|
|
|
|
|
|
|
|
|
|
|
The Company participates in reinsurance activities in order to
limit losses, minimize exposure to significant risks and provide
additional capacity for future growth.
For its individual life insurance products, the Company has
historically reinsured the mortality risk primarily on an excess
of retention basis or a quota share basis. The Company currently
reinsures 90% of the mortality risk in excess of $1 million
for most products and reinsures up to 90% of the mortality risk
for certain other products. In addition to reinsuring mortality
risk as described above, the Company reinsures other risks, as
well as specific coverages. Placement of reinsurance is done
primarily on an automatic basis and also on a facultative basis
for risks with specified characteristics. On a case by case
basis, the Company may retain up to $5 million per life on
single life individual policies and reinsure 100% of amounts in
excess of the amount the Company retains. The Company evaluates
its reinsurance programs routinely and may increase or decrease
its retention at any time. The Company also reinsures the risk
associated with secondary death benefit guarantees on certain
universal life insurance policies to an affiliate.
For other policies within the Insurance Products segment, the
Company generally retains most of the risk and only cedes
particular risks on certain client arrangements.
The Companys Retirement Products segment reinsures 100% of
the living and death benefit guarantees associated with its
variable annuities issued since 2006 to an affiliated reinsurer
and certain portions of the living and death benefit guarantees
associated with its variable annuities issued prior to 2006 to
affiliated and unaffiliated reinsurers. Under these reinsurance
agreements, the Company pays a reinsurance premium generally
based on fees associated with the guarantees collected from
policyholders, and receives reimbursement for benefits paid or
accrued in excess of account values, subject to certain
limitations. The Company also reinsures 90% of its new
production of fixed annuities to an affiliated reinsurer.
The Companys Corporate Benefit Funding segment
periodically engages in reinsurance activities, as considered
appropriate. The impact of these activities on the financial
results of this segment has not been significant.
The Company also reinsures, through 100% quota share reinsurance
agreements, certain LTC and workers compensation business
written by the Company. These are run-off businesses which have
been included within Corporate & Other.
F-111
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
The Company has exposure to catastrophes, which could contribute
to significant fluctuations in the Companys results of
operations. The Company uses excess of retention and quota share
reinsurance agreements to provide greater diversification of
risk and minimize exposure to larger risks.
The Company reinsures its business through a diversified group
of well-capitalized, highly rated reinsurers. The Company
analyzes recent trends in arbitration and litigation outcomes in
disputes, if any, with its reinsurers. The Company monitors
ratings and evaluates the financial strength of its reinsurers
by analyzing their financial statements. In addition, the
reinsurance recoverable balance due from each reinsurer is
evaluated as part of the overall monitoring process.
Recoverability of reinsurance recoverable balances is evaluated
based on these analyses. The Company generally secures large
reinsurance recoverable balances with various forms of
collateral, including secured trusts, funds withheld accounts
and irrevocable letters of credit. These reinsurance recoverable
balances are stated net of allowances for uncollectible
reinsurance, which at December 31, 2010 and 2009, were
immaterial.
The Company has secured certain reinsurance recoverable balances
with various forms of collateral, including secured trusts,
funds withheld accounts and irrevocable letters of credit. The
Company had $2.9 billion and $2.3 billion of unsecured
unaffiliated reinsurance recoverable balances at
December 31, 2010 and 2009, respectively.
At December 31, 2010, the Company had $6.7 billion of
net unaffiliated ceded reinsurance recoverables. Of this total,
$6.1 billion, or 91%, were with the Companys five
largest unaffiliated ceded reinsurers, including
$2.3 billion of which were unsecured. At December 31,
2009, the Company had $5.9 billion of net unaffiliated
ceded reinsurance recoverables. Of this total,
$5.6 billion, or 95%, were with the Companys five
largest unaffiliated ceded reinsurers, including
$2.0 billion of which were unsecured.
F-112
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
The amounts in the consolidated statements of operations include
the impact of reinsurance. Information regarding the effect of
reinsurance was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Premiums:
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct premiums
|
|
$
|
1,559
|
|
|
$
|
1,782
|
|
|
$
|
1,042
|
|
Reinsurance assumed
|
|
|
13
|
|
|
|
14
|
|
|
|
15
|
|
Reinsurance ceded
|
|
|
(505
|
)
|
|
|
(484
|
)
|
|
|
(423
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums
|
|
$
|
1,067
|
|
|
$
|
1,312
|
|
|
$
|
634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Universal life and investment-type product policy fees:
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct universal life and investment-type product policy fees
|
|
$
|
2,104
|
|
|
$
|
1,681
|
|
|
$
|
1,710
|
|
Reinsurance assumed
|
|
|
120
|
|
|
|
115
|
|
|
|
197
|
|
Reinsurance ceded
|
|
|
(585
|
)
|
|
|
(416
|
)
|
|
|
(529
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net universal life and investment-type product policy fees
|
|
$
|
1,639
|
|
|
$
|
1,380
|
|
|
$
|
1,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct other revenues
|
|
$
|
200
|
|
|
$
|
121
|
|
|
$
|
147
|
|
Reinsurance ceded
|
|
|
303
|
|
|
|
477
|
|
|
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other revenues
|
|
$
|
503
|
|
|
$
|
598
|
|
|
$
|
230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims:
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct policyholder benefits and claims
|
|
$
|
3,708
|
|
|
$
|
3,314
|
|
|
$
|
2,775
|
|
Reinsurance assumed
|
|
|
31
|
|
|
|
10
|
|
|
|
23
|
|
Reinsurance ceded
|
|
|
(1,834
|
)
|
|
|
(1,259
|
)
|
|
|
(1,352
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net policyholder benefits and claims
|
|
$
|
1,905
|
|
|
$
|
2,065
|
|
|
$
|
1,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest credited to policyholder account balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct interest credited to policyholder account balances
|
|
$
|
1,265
|
|
|
$
|
1,270
|
|
|
$
|
1,095
|
|
Reinsurance assumed
|
|
|
64
|
|
|
|
64
|
|
|
|
57
|
|
Reinsurance ceded
|
|
|
(58
|
)
|
|
|
(33
|
)
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest credited to policyholder account balances
|
|
$
|
1,271
|
|
|
$
|
1,301
|
|
|
$
|
1,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct other expenses
|
|
$
|
2,110
|
|
|
$
|
1,034
|
|
|
$
|
1,796
|
|
Reinsurance assumed
|
|
|
90
|
|
|
|
105
|
|
|
|
96
|
|
Reinsurance ceded
|
|
|
121
|
|
|
|
68
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other expenses
|
|
$
|
2,321
|
|
|
$
|
1,207
|
|
|
$
|
1,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-113
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
The amounts in the consolidated balance sheets include the
impact of reinsurance. Information regarding the effect of
reinsurance was as follows at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
|
|
|
Total, Net of
|
|
|
|
Sheet
|
|
|
Assumed
|
|
|
Ceded
|
|
|
Reinsurance
|
|
|
|
(In millions)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums, reinsurance and other receivables
|
|
$
|
17,008
|
|
|
$
|
40
|
|
|
$
|
16,592
|
|
|
$
|
376
|
|
Deferred policy acquisition costs and value of business acquired
|
|
|
5,099
|
|
|
|
164
|
|
|
|
(499
|
)
|
|
|
5,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
22,107
|
|
|
$
|
204
|
|
|
$
|
16,093
|
|
|
$
|
5,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future policy benefits
|
|
$
|
23,198
|
|
|
$
|
87
|
|
|
$
|
|
|
|
$
|
23,111
|
|
Other policy-related balances
|
|
|
2,652
|
|
|
|
1,435
|
|
|
|
543
|
|
|
|
674
|
|
Other liabilities
|
|
|
4,503
|
|
|
|
12
|
|
|
|
3,409
|
|
|
|
1,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
30,353
|
|
|
$
|
1,534
|
|
|
$
|
3,952
|
|
|
$
|
24,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
|
|
|
Total, Net of
|
|
|
|
Sheet
|
|
|
Assumed
|
|
|
Ceded
|
|
|
Reinsurance
|
|
|
|
(In millions)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums, reinsurance and other receivables
|
|
$
|
13,444
|
|
|
$
|
30
|
|
|
$
|
13,135
|
|
|
$
|
279
|
|
Deferred policy acquisition costs and value of business acquired
|
|
|
5,244
|
|
|
|
230
|
|
|
|
(414
|
)
|
|
|
5,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
18,688
|
|
|
$
|
260
|
|
|
$
|
12,721
|
|
|
$
|
5,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future policy benefits
|
|
$
|
21,621
|
|
|
$
|
80
|
|
|
$
|
|
|
|
$
|
21,541
|
|
Other policy-related balances
|
|
|
2,297
|
|
|
|
1,393
|
|
|
|
294
|
|
|
|
610
|
|
Other liabilities
|
|
|
2,177
|
|
|
|
10
|
|
|
|
1,332
|
|
|
|
835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
26,095
|
|
|
$
|
1,483
|
|
|
$
|
1,626
|
|
|
$
|
22,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance agreements that do not expose the Company to a
reasonable possibility of a significant loss from insurance risk
are recorded using the deposit method of accounting. The deposit
assets on ceded reinsurance were $4.7 billion and
$4.6 billion, at December 31, 2010 and 2009,
respectively. There were no deposit liabilities for assumed
reinsurance at December 31, 2010 and 2009.
Related
Party 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, all of which are related parties.
F-114
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Information regarding the effect of affiliated reinsurance
included in the consolidated statements of operations was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Premiums:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance assumed
|
|
$
|
13
|
|
|
$
|
14
|
|
|
$
|
15
|
|
Reinsurance ceded (1)
|
|
|
(191
|
)
|
|
|
(166
|
)
|
|
|
(116
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums
|
|
$
|
(178
|
)
|
|
$
|
(152
|
)
|
|
$
|
(101
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Universal life and investment-type product policy fees:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance assumed
|
|
$
|
120
|
|
|
$
|
115
|
|
|
$
|
197
|
|
Reinsurance ceded (1)
|
|
|
(308
|
)
|
|
|
(168
|
)
|
|
|
(278
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net universal life and investment-type product policy fees
|
|
$
|
(188
|
)
|
|
$
|
(53
|
)
|
|
$
|
(81
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance assumed
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Reinsurance ceded
|
|
|
303
|
|
|
|
477
|
|
|
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other revenues
|
|
$
|
303
|
|
|
$
|
477
|
|
|
$
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance assumed
|
|
$
|
29
|
|
|
$
|
8
|
|
|
$
|
19
|
|
Reinsurance ceded (1)
|
|
|
(343
|
)
|
|
|
(239
|
)
|
|
|
(274
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net policyholder benefits and claims
|
|
$
|
(314
|
)
|
|
$
|
(231
|
)
|
|
$
|
(255
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest credited to policyholder account balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance assumed
|
|
$
|
64
|
|
|
$
|
64
|
|
|
$
|
57
|
|
Reinsurance ceded
|
|
|
(59
|
)
|
|
|
(33
|
)
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest credited to policyholder account balances
|
|
$
|
5
|
|
|
$
|
31
|
|
|
$
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance assumed
|
|
$
|
90
|
|
|
$
|
105
|
|
|
$
|
97
|
|
Reinsurance ceded (1)
|
|
|
152
|
|
|
|
102
|
|
|
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other expenses
|
|
$
|
242
|
|
|
$
|
207
|
|
|
$
|
173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In September 2008, MICCs parent, MetLife, completed a
tax-free split-off of its majority owned subsidiary, Reinsurance
Group of America, Incorporated (RGA). After the
split-off, reinsurance transactions with RGA were no longer
considered affiliated transactions. For purposes of comparison,
the 2008 affiliated transactions with RGA have been removed from
the presentation in the table above. Affiliated transactions
with RGA for the year ended December 31, 2008 include ceded
premiums, ceded fees, ceded benefits and ceded other expenses of
$9 million, $36 million, $47 million and
($1) million, respectively. |
F-115
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Information regarding the effect of affiliated reinsurance
included in the consolidated balance sheets was as follows at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Assumed
|
|
|
Ceded
|
|
|
Assumed
|
|
|
Ceded
|
|
|
|
(In millions)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums, reinsurance and other receivables
|
|
$
|
40
|
|
|
$
|
9,826
|
|
|
$
|
30
|
|
|
$
|
7,157
|
|
Deferred policy acquisition costs and value of business acquired
|
|
|
164
|
|
|
|
(484
|
)
|
|
|
230
|
|
|
|
(399
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
204
|
|
|
$
|
9,342
|
|
|
$
|
260
|
|
|
$
|
6,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future policy benefits
|
|
$
|
41
|
|
|
$
|
|
|
|
$
|
27
|
|
|
$
|
|
|
Other policy-related balances
|
|
|
1,435
|
|
|
|
508
|
|
|
|
1,393
|
|
|
|
284
|
|
Other liabilities
|
|
|
12
|
|
|
|
3,200
|
|
|
|
9
|
|
|
|
1,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
1,488
|
|
|
$
|
3,708
|
|
|
$
|
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 also included within net
derivative gains (losses). The embedded derivatives associated
with the cessions are included within premiums, reinsurance and
other receivables and were assets of $936 million and
$724 million at December 31, 2010 and 2009,
respectively. For the years ended December 31, 2010, 2009
and 2008, net derivative gains (losses) included
($2) million, ($1,456) million, and
$1,685 million, respectively, in changes in fair value of
such embedded derivatives.
MLI-USA cedes two blocks of business to an affiliate 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 $5 million at
December 31, 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
derivative gains (losses), were ($17) million,
($16) million and $27 million at December 31,
2010, 2009 and 2008, respectively. The reinsurance agreement
also includes an experience refund provision, whereby some or
all of the profits on the underlying reinsurance agreement are
returned to MLI-USA from the affiliated reinsurer during the
first several years of the reinsurance agreement. The experience
refund reduced the funds withheld by MLI-USA from the affiliated
reinsurer by $304 million and $180 million at
December 31, 2010 and 2009, respectively, and are
considered unearned revenue, amortized over the life of the
contract using the same assumptions as used for the DAC
associated with the underlying policies. Amortization and
interest of the unearned revenue associated with the experience
refund was $81 million, $36 million and
$38 million at December 31, 2010, 2009 and 2008,
respectively, and is included in universal life and
investment-type product policy fees in the consolidated
statement of operations. At December 31, 2010 and 2009,
unearned revenue related to the experience refund was
$560 million and $337 million, respectively, and is
included in other policy-related balances in the consolidated
balance sheets.
The Company cedes its universal life secondary guarantee
(ULSG) risk to MRSC under certain reinsurance
treaties. These treaties do not expose the Company to a
reasonable possibility of a significant loss from insurance risk
and are recorded using the deposit method of accounting. During
2009, the Company completed a review of various ULSG assumptions
and projections including its regular annual third party
assessment of these treaties and related assumptions. As a
result of projected lower lapse rates and lower interest rates,
the Company refined its
F-116
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
effective yield methodology to include these updated assumptions
and resultant projected cash flows. The deposit receivable
balance for these treaties was increased by $62 million and
$279 million, with a corresponding increase in other
revenues during the years ended December 31, 2010 and 2009,
respectively.
The Company has secured certain reinsurance recoverable balances
with various forms of collateral, including secured trusts,
funds withheld accounts and irrevocable letters of credit. The
Company had $4.4 billion and $4.3 billion of unsecured
affiliated reinsurance recoverable balances at December 31,
2010 and 2009, respectively.
Affiliated reinsurance agreements that do not expose the Company
to a reasonable possibility of a significant loss from insurance
risk are recorded using the deposit method of accounting. The
deposit assets on ceded affiliated reinsurance were
$4.6 billion and $4.4 billion, at December 31,
2010 and 2009, respectively. There were no deposit liabilities
for assumed affiliated reinsurance at December 31, 2010 and
2009.
Long-term debt outstanding was as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Surplus notes, interest rate 8.595%, due 2038
|
|
$
|
750
|
|
|
$
|
750
|
|
Surplus notes, interest rate
6-month
LIBOR plus 1.80%, due 2011
|
|
|
|
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt affiliated
|
|
|
750
|
|
|
|
950
|
|
Long-term debt unaffiliated
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt(1)
|
|
$
|
795
|
|
|
$
|
950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes $6,773 million at December 31, 2010 of
long-term debt relating to CSEs. See Note 2. |
On December 23, 2010, Greater Sandhill I, LLC, an
affiliate of MLI-USA, issued to a third party long-term notes
for $45 million maturing in 2030 with an interest rate of
7.028%. The notes were issued in exchange for certain
investments, which are included in other invested assets.
In December 2009, MetLife Insurance Company of Connecticut
renewed the $200 million surplus note to MetLife Credit
Corporation, originally issued in December 2007, with a new
maturity date of December 2011, and an interest rate of
6-month
LIBOR plus 1.80%. On December 29, 2010, MetLife Insurance
Company of Connecticut repaid the $200 million surplus note
to MetLife Credit Corporation.
In April 2008, MetLife Insurance Company of Connecticut issued a
surplus note with a principal amount of $750 million and an
interest rate of 8.595%, to MetLife Capital Trust X, an
affiliate.
MetLife was the holder of a surplus note issued by MLI-USA in
the amount of $400 million at December 31, 2007. In
June 2008, with approval from the Delaware Commissioner of
Insurance (Delaware Commissioner), MLI-USA repaid
this surplus note of $400 million with accrued interest of
$5 million.
MetLife Investors Group, Inc. (MLIG) was the holder
of two surplus notes issued by MLI-USA in the amounts of
$25 million and $10 million at December 31, 2007.
In June 2008, with approval from the Delaware Commissioner,
MLI-USA repaid these surplus notes of $25 million and
$10 million.
The aggregate maturities of long-term debt at December 31,
2010 were $45 million in 2030 and $750 million in 2038.
Interest expense related to the Companys indebtedness
included in other expenses was $70 million,
$71 million and $72 million for the years ended
December 31, 2010, 2009 and 2008, respectively.
F-117
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Payments of interest and principal on the outstanding surplus
notes may be made only with the prior approval of the insurance
department of the state of domicile.
Short-term
Debt
At both December 31, 2010 and 2009, the Company did not
have any short-term debt. During the years ended
December 31, 2009 and 2008, the weighted average interest
rate on short-term debt was 2.70% and 2.75%, respectively.
During the years ended December 31, 2009 and 2008, the
average daily balance of short-term debt was $83 million
and $67 million, respectively, and was outstanding for an
average of 99 days and 81 days, respectively. The
Company did not have any short-term debt activity in 2010.
The provision for income tax from continuing operations was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
55
|
|
|
$
|
24
|
|
|
$
|
(50
|
)
|
State and local
|
|
|
|
|
|
|
1
|
|
|
|
(2
|
)
|
Foreign
|
|
|
(4
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
51
|
|
|
|
21
|
|
|
|
(52
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
274
|
|
|
|
(380
|
)
|
|
|
260
|
|
Foreign
|
|
|
(5
|
)
|
|
|
(9
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
269
|
|
|
|
(389
|
)
|
|
|
255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
$
|
320
|
|
|
$
|
(368
|
)
|
|
$
|
203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The reconciliation of the income tax provision at the
U.S. statutory rate to the provision for income tax as
reported for continuing operations was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Tax provision at U.S. statutory rate
|
|
$
|
377
|
|
|
$
|
(285
|
)
|
|
$
|
273
|
|
Tax effect of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax-exempt investment income
|
|
|
(67
|
)
|
|
|
(69
|
)
|
|
|
(65
|
)
|
Prior year tax
|
|
|
8
|
|
|
|
(17
|
)
|
|
|
(4
|
)
|
Foreign tax rate differential and change in valuation allowance
|
|
|
7
|
|
|
|
3
|
|
|
|
|
|
State tax, net of federal benefit
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
Tax credits
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
Other, net
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
$
|
320
|
|
|
$
|
(368
|
)
|
|
$
|
203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-118
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Deferred income tax represents the tax effect of the differences
between the book and tax basis of assets and liabilities. Net
deferred income tax assets and liabilities consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
Benefit, reinsurance and other reserves
|
|
$
|
1,298
|
|
|
$
|
1,574
|
|
Net operating loss carryforwards
|
|
|
99
|
|
|
|
111
|
|
Net unrealized investment losses
|
|
|
|
|
|
|
372
|
|
Operating lease reserves
|
|
|
2
|
|
|
|
4
|
|
Capital loss carryforwards
|
|
|
359
|
|
|
|
423
|
|
Investments, including derivatives
|
|
|
297
|
|
|
|
304
|
|
Tax credit carryforwards
|
|
|
167
|
|
|
|
102
|
|
Other
|
|
|
20
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,242
|
|
|
|
2,906
|
|
Less: Valuation allowance
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,238
|
|
|
|
2,906
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
|
|
Net unrealized investment gains
|
|
|
166
|
|
|
|
|
|
DAC and VOBA
|
|
|
1,713
|
|
|
|
1,748
|
|
Other
|
|
|
3
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,882
|
|
|
|
1,759
|
|
|
|
|
|
|
|
|
|
|
Net deferred income tax asset
|
|
$
|
356
|
|
|
$
|
1,147
|
|
|
|
|
|
|
|
|
|
|
Domestic net operating loss carryforwards of $60 million at
December 31, 2010 will expire beginning in 2025. State net
operating loss carryforwards of $44 million at
December 31, 2010 will expire beginning in 2011. Foreign
net operating loss carryforwards of $280 million at
December 31, 2010 have an indefinite expiration. Domestic
capital loss carryforwards of $1,027 million at
December 31, 2010 will expire beginning in 2011. Tax credit
carryforwards of $167 million at December 31, 2010
will expire beginning in 2017.
The Company has recorded a valuation allowance related to tax
benefits of certain state net operating losses. The valuation
allowance reflects managements assessment, based on
available information, that it is more likely than not that the
deferred income tax asset for certain state net operating losses
will not be realized. The tax benefit will be recognized when
management believes that it is more likely than not that these
deferred income tax assets are realizable. In 2010, the Company
recorded an overall increase to the deferred tax valuation
allowance of $4 million.
The Company will file a consolidated tax return with its
includable subsidiaries. Non-includable subsidiaries file either
separate individual corporate tax returns or separate
consolidated tax returns. Under this tax allocation agreement,
the federal income tax will be allocated between the companies
on a separate return basis and adjusted for credits and other
amounts required by such tax allocation agreement.
Pursuant to Internal Revenue Service (IRS) rules,
the Company is excluded from MetLifes life/non-life
consolidated federal tax return for the five years subsequent to
MetLifes July 2005 acquisition of the Company. In 2011,
the Company is expected to join the consolidated return and
become a party to the MetLife tax sharing
F-119
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
agreement. Accordingly, the Companys losses will be
eligible to be included in the consolidated return and the
resulting tax savings to MetLife will generate a payment to the
Company for the losses used.
The Company files income tax returns with the U.S. federal
government and various state and local jurisdictions, as well as
foreign jurisdictions. The Company is under continuous
examination by the IRS and other tax authorities in
jurisdictions in which the Company has significant business
operations. The income tax years under examination vary by
jurisdiction. With a few exceptions, the Company is no longer
subject to U.S. federal, state and local income tax
examinations by tax authorities for years prior to 2005 and is
no longer subject to foreign income tax examinations for the
years prior to 2006. The IRS exam of the next audit cycle,
covering the 2005 and 2006 tax years, began in April 2010.
The Company classifies interest accrued related to unrecognized
tax benefits in interest expense, included within other
expenses, while penalties are included in income tax expense.
At December 31, 2010, 2009 and 2008, the Companys
total amount of unrecognized tax benefits was $38 million,
$44 million and $48 million, respectively, and there
were no amounts of unrecognized tax benefits that would affect
the effective tax rate, if recognized.
The Company does not anticipate any material change in the total
amount of unrecognized tax benefits over the ensuing
12 month period.
A reconciliation of the beginning and ending amount of
unrecognized tax benefits was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Balance at January 1,
|
|
$
|
44
|
|
|
$
|
48
|
|
|
$
|
53
|
|
Additions for tax positions of prior years
|
|
|
1
|
|
|
|
2
|
|
|
|
|
|
Additions for tax positions of current year
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Reductions for tax positions of current year
|
|
|
(7
|
)
|
|
|
(6
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
|
|
$
|
38
|
|
|
$
|
44
|
|
|
$
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the year ended December 31, 2010, the Company
recognized $5 million in interest expense associated with
the liability for unrecognized tax benefits. At
December 31, 2010, the Company had $9 million of
accrued interest associated with the liability for unrecognized
tax benefits, an increase of $5 million from
December 31, 2009. The $5 million increase resulted
from a modification to the cumulative interest due regarding the
liability for unrecognized benefits.
During the year ended December 31, 2009, the Company
recognized less than $1 million in interest expense
associated with the liability for unrecognized tax benefits. At
December 31, 2009, the Company had $4 million of
accrued interest associated with the liability for unrecognized
tax benefits.
During the year ended December 31, 2008, the Company
recognized $1 million in interest expense associated with
the liability for unrecognized tax benefits. At
December 31, 2008, the Company had $4 million of
accrued interest associated with the liability for unrecognized
tax benefits, an increase of $1 million from
December 31, 2007.
The U.S. Treasury Department and the IRS have indicated
that they intend to address through regulations the methodology
to be followed in determining the dividends received deduction
(DRD), related to variable life insurance and
annuity contracts. The DRD reduces the amount of dividend income
subject to tax and is a significant component of the difference
between the actual tax expense and expected amount determined
using the federal statutory tax rate of 35%. Any regulations
that the IRS ultimately proposes for issuance in this area will
be subject to
F-120
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
public notice and comment, at which time insurance companies and
other interested parties will have the opportunity to raise
legal and practical questions about the content, scope and
application of such regulations. As a result, the ultimate
timing and substance of any such regulations are unknown at this
time. For the years ended December 31, 2010 and 2009, the
Company recognized an income tax benefit of $67 million and
$68 million, respectively, related to the separate account
DRD. The 2010 benefit included an expense of $28 million
related to a
true-up of
the 2009 tax return. The 2009 benefit included a benefit of
$16 million related to a
true-up of
the 2008 tax return.
|
|
11.
|
Contingencies,
Commitments and Guarantees
|
Contingencies
Litigation
The Company is a defendant in a number of litigation matters. In
some of the matters, large
and/or
indeterminate amounts, including punitive and treble damages,
are sought. Modern pleading practice in the United States
permits considerable variation in the assertion of monetary
damages or other relief. Jurisdictions may permit claimants not
to specify the monetary damages sought or may permit claimants
to state only that the amount sought is sufficient to invoke the
jurisdiction of the trial court. In addition, jurisdictions may
permit plaintiffs to allege monetary damages in amounts well
exceeding reasonably possible verdicts in the jurisdiction for
similar matters. This variability in pleadings, together with
the actual experience of the Company in litigating or resolving
through settlement numerous claims over an extended period of
time, demonstrates to management that the monetary relief which
may be specified in a lawsuit or claim bears little relevance to
its merits or disposition value.
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 difficult to ascertain.
Uncertainties can include how fact finders will evaluate
documentary evidence and the credibility and effectiveness of
witness 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 December 31, 2010.
Sales Practices Claims. Over the past several
years, 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. Some of the current cases seek substantial
damages, including punitive and treble damages and
attorneys fees. 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. 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. The Company believes adequate provision has been
made in its financial statements for all probable and reasonably
estimable losses for sales practices matters.
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
F-121
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
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. On October 14,
2010, the Second Circuit issued an order denying
defendants petition for rehearing of its appeal. On
October 20, 2010, the defendant paid MetLife Insurance
Company of Connecticut approximately $42 million, which
represents the judgment amount due to MetLife Insurance Company
of Connecticut. This lawsuit is now fully resolved.
Retained Asset Account Matters. The New York
Attorney General announced on July 29, 2010 that his office
had launched a major fraud investigation into the life insurance
industry for practices related to the use of retained asset
accounts as a settlement option for death benefits and that
subpoenas requesting comprehensive data related to retained
asset accounts had been served on MetLife, Inc. and other
insurance carriers. MetLife, Inc. received the subpoena on
July 30, 2010. Metropolitan Life Insurance Company and its
affiliates have received requests for documents and information
from U.S. congressional committees and members as well as
various state regulatory bodies, including the New York
Insurance Department. It is possible that other state and
federal regulators or legislative bodies may pursue similar
investigations or make related inquiries. Management cannot
predict what effect any such investigations might have on the
Companys earnings or the availability of the
Companys retained asset account known as the Total Control
Account (TCA), but management believes that the
Companys financial statements taken as a whole would not
be materially affected. Management believes 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.
Connecticut General Life Insurance Company and MetLife Insurance
Company of Connecticut are engaged in an arbitration proceeding
to determine whether MetLife Insurance Company of Connecticut is
required to refund several million dollars it collected
and/or to
stop submitting certain claims under reinsurance contracts in
which Connecticut General Life Insurance Company reinsured death
benefits payable under certain MetLife Insurance Company of
Connecticut annuities.
A former Tower Square 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 have conducted inquiries. Tower
Square has made remediation to all the affected customers. The
Illinois Securities Division has issued a Statement of
Violations to Tower Square, and Tower Square is conducting
discussions with the Illinois Securities Division.
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 or provide
reasonable ranges of potential losses of all pending
investigations and legal proceedings. 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.
F-122
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Insolvency
Assessments
Most of the jurisdictions in which the Company is admitted to
transact business require insurers doing business within the
jurisdiction to participate in guaranty associations, which are
organized to pay contractual benefits owed pursuant to insurance
policies issued by impaired, insolvent or failed insurers. These
associations levy assessments, up to prescribed limits, on all
member insurers in a particular state on the basis of the
proportionate share of the premiums written by member insurers
in the lines of business in which the impaired, insolvent or
failed insurer engaged. Some states permit member insurers to
recover assessments paid through full or partial premium tax
offsets.
Assets and liabilities held for insolvency assessments were as
follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Other Assets:
|
|
|
|
|
|
|
|
|
Premium tax offset for future undiscounted assessments
|
|
$
|
8
|
|
|
$
|
8
|
|
Premium tax offsets currently available for paid assessments
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9
|
|
|
$
|
9
|
|
|
|
|
|
|
|
|
|
|
Other Liabilities:
|
|
|
|
|
|
|
|
|
Insolvency assessments
|
|
$
|
13
|
|
|
$
|
13
|
|
|
|
|
|
|
|
|
|
|
Assessments levied against the Company were $1 million,
$1 million and less than $1 million for the years
ended December 31, 2010, 2009 and 2008, respectively.
Commitments
Leases
The Company, as lessee, has entered into lease agreements for
office space. Future sublease income is projected to be
insignificant. Future minimum rental income and minimum gross
rental payments relating to these lease agreements are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
Rental
|
|
|
Rental
|
|
|
|
Income
|
|
|
Payments
|
|
|
|
(In millions)
|
|
|
2011
|
|
$
|
10
|
|
|
$
|
6
|
|
2012
|
|
$
|
9
|
|
|
$
|
|
|
2013
|
|
$
|
9
|
|
|
$
|
|
|
2014
|
|
$
|
7
|
|
|
$
|
|
|
2015
|
|
$
|
6
|
|
|
$
|
|
|
Thereafter
|
|
$
|
74
|
|
|
$
|
|
|
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 $1.2 billion and $1.5 billion at
December 31, 2010 and 2009, respectively. The Company
anticipates that these amounts will be invested in partnerships
over the next five years.
F-123
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Mortgage
Loan Commitments
The Company commits to lend funds under mortgage loan
commitments. The amounts of these mortgage loan commitments were
$270 million and $131 million at December 31,
2010 and 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 $315 million and
$445 million at December 31, 2010 and 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 December 31, 2010
and 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 $144 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
In the normal course of its business, the Company has provided
certain indemnities, guarantees and commitments to third parties
pursuant to which it may be required to make payments now or in
the future. In the context of acquisition, disposition,
investment and other transactions, the Company has provided
indemnities and guarantees, including those related to tax,
environmental and other specific liabilities, and other
indemnities and guarantees that are triggered by, among other
things, breaches of representations, warranties or covenants
provided by the Company. In addition, in the normal course of
business, the Company provides indemnifications to
counterparties in contracts with triggers similar to the
foregoing, as well as for certain other liabilities, such as
third-party lawsuits. These obligations are often subject to
time limitations that vary in duration, including contractual
limitations and those that arise by operation of law, such as
applicable statutes of limitation. In some cases, the maximum
potential obligation under the indemnities and guarantees is
subject to a contractual limitation, such as in the case of
MetLife International Insurance Company, Ltd.
(MLII), a former affiliate, discussed below, while
in other cases such limitations are not specified or applicable.
Since certain of these obligations are not subject to
limitations, the Company does not believe that it is possible to
determine the maximum potential amount that could become due
under these guarantees in the future. Management believes that
it is unlikely the Company will have to make any material
payments under these indemnities, guarantees, or commitments.
The Company has provided a guarantee on behalf of MLII that is
triggered if MLII cannot pay claims because of insolvency,
liquidation or rehabilitation. Life insurance coverage in-force,
representing the maximum potential obligation under this
guarantee, was $297 million and $322 million at
December 31, 2010 and 2009, respectively. The Company does
not hold any collateral related to this guarantee, but has a
recorded liability of $1 million that was based on the
total account value of the guaranteed policies plus the amounts
retained per policy at both December 31, 2010 and 2009. The
remainder of the risk was ceded to external reinsurers.
In addition, the Company indemnifies its directors and officers
as provided in its charters and by-laws. Also, the Company
indemnifies its agents for liabilities incurred as a result of
their representation of the Companys interests. Since
these indemnities are generally not subject to limitation with
respect to duration or amount, the Company does not believe that
it is possible to determine the maximum potential amount that
could become due under these indemnities in the future.
F-124
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Common
Stock
The Company has 40,000,000 authorized shares of common stock,
34,595,317 shares of which are outstanding at both
December 31, 2010 and 2009. Of such outstanding shares,
30,000,000 shares are owned directly by MetLife and the
remaining shares are owned by MLIG.
Statutory
Equity and Income
Each insurance companys state of domicile imposes minimum
risk-based capital (RBC) requirements that were
developed by the NAIC. The formulas for determining the amount
of RBC specify various weighting factors that are applied to
financial balances or various levels of activity based on the
perceived degree of risk. Regulatory compliance is determined by
a ratio of total adjusted capital, as defined by the NAIC, to
authorized control level RBC, as defined by the NAIC.
Companies below specific trigger points or ratios are classified
within certain levels, each of which requires specified
corrective action. MetLife Insurance Company of Connecticut and
MLI-USA each exceeded the minimum RBC requirements for all
periods presented herein.
The NAIC has adopted the Codification of Statutory Accounting
Principles (Statutory Codification). Statutory
Codification is intended to standardize regulatory accounting
and reporting to state insurance departments. However, statutory
accounting principles continue to be established by individual
state laws and permitted practices. The Connecticut Insurance
Department and the Delaware Department of Insurance have adopted
Statutory Codification with certain modifications for the
preparation of statutory financial statements of insurance
companies domiciled in Connecticut and Delaware, respectively.
Modifications by the various state insurance departments may
impact the effect of Statutory Codification on the statutory
capital and surplus of MetLife Insurance Company of Connecticut
and MLI-USA.
Statutory accounting principles differ from GAAP primarily by
charging policy acquisition costs to expense as incurred,
establishing future policy benefit liabilities using different
actuarial assumptions, reporting surplus notes as surplus
instead of debt, reporting of reinsurance contracts and valuing
securities on a different basis.
In addition, certain assets are not admitted under statutory
accounting principles and are charged directly to surplus. The
most significant assets not admitted by the Company are net
deferred income tax assets resulting from temporary differences
between statutory accounting principles basis and tax basis not
expected to reverse and become recoverable within three years.
Statutory net income of MetLife Insurance Company of
Connecticut, a Connecticut domiciled insurer, was
$668 million, $81 million and $242 million for
the years ended December 31, 2010, 2009 and 2008,
respectively. Statutory capital and surplus, as filed with the
Connecticut Insurance Department, was $5.1 billion and
$4.9 billion at December 31, 2010 and 2009,
respectively.
Statutory net income (loss) of MLI-USA, a Delaware domiciled
insurer, was $2 million, ($24) million and
($482) million for the years ended December 31, 2010,
2009 and 2008, respectively. Statutory capital and surplus, as
filed with the Delaware Insurance Department, was
$1.5 billion and $1.4 billion at December 31,
2010 and 2009, respectively.
Dividend
Restrictions
Under Connecticut State Insurance Law, MetLife Insurance Company
of Connecticut is permitted, without prior insurance regulatory
clearance, to pay shareholder dividends to its shareholders as
long as the amount of such dividends, when aggregated with all
other dividends in the preceding 12 months, does not exceed
the greater of: (i) 10% of its surplus to policyholders as
of the end of the immediately preceding calendar year; or
(ii) its statutory net gain from operations for the
immediately preceding calendar year. MetLife Insurance Company
of Connecticut
F-125
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
will be permitted to pay a dividend in excess of the greater of
such two amounts only if it files notice of its declaration of
such a dividend and the amount thereof with the Connecticut
Commissioner of Insurance (the Connecticut
Commissioner) and the Connecticut Commissioner either
approves the distribution of the dividend or does not disapprove
the payment within 30 days after notice. In addition, any
dividend that exceeds earned surplus (unassigned funds, reduced
by 25% of unrealized appreciation in value or revaluation of
assets or unrealized profits on investments) as of the last
filed annual statutory statement requires insurance regulatory
approval. Under Connecticut State Insurance Law, the Connecticut
Commissioner has broad discretion in determining whether the
financial condition of a stock life insurance company would
support the payment of such dividends to its shareholders.
During the year ended December 31, 2010, MetLife Insurance
Company of Connecticut paid a dividend of $330 million.
During the year ended December 31, 2009, MetLife Insurance
Company of Connecticut did not pay a dividend. During the year
ended December 31, 2008, MetLife Insurance Company of
Connecticut paid a dividend of $500 million. The maximum
amount of dividends which MetLife Insurance Company of
Connecticut may pay in 2011 without prior regulatory approval is
$517 million.
Under Delaware State Insurance Law, MLI-USA is permitted,
without prior insurance regulatory clearance, to pay a
stockholder dividend to MetLife Insurance Company of Connecticut
as long as the amount of the dividend when aggregated with all
other dividends in the preceding 12 months does not exceed
the greater of: (i) 10% of its surplus to policyholders as
of the end of the immediately preceding calendar year; or
(ii) its statutory net gain from operations for the
immediately preceding calendar year (excluding realized capital
gains). MLI-USA will be permitted to pay a dividend to MetLife
Insurance Company of Connecticut in excess of the greater of
such two amounts only if it files notice of the declaration of
such a dividend and the amount thereof with the Delaware
Commissioner and the Delaware Commissioner either approves the
distribution of the dividend or does not disapprove the
distribution within 30 days of its filing. In addition, any
dividend that exceeds earned surplus (defined as unassigned
funds) as of the last filed annual statutory statement requires
insurance regulatory approval. Under Delaware State Insurance
Law, the Delaware Commissioner has broad discretion in
determining whether the financial condition of a stock life
insurance company would support the payment of such dividends to
its shareholders. During the years ended December 31, 2010,
2009 and 2008, MLI-USA did not pay dividends. Because
MLI-USAs statutory unassigned funds was negative at
December 31, 2010, MLI-USA cannot pay any dividends in 2011
without prior regulatory approval.
F-126
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Other
Comprehensive Income (Loss)
The following table sets forth the reclassification adjustments
required for the years ended December 31, 2010, 2009 and
2008 in other comprehensive income (loss) that are included as
part of net income for the current year that have been reported
as a part of other comprehensive income (loss) in the current or
prior year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Holding gains (losses) on investments arising during the year
|
|
$
|
2,032
|
|
|
$
|
3,365
|
|
|
$
|
(5,022
|
)
|
Income tax effect of holding gains (losses)
|
|
|
(705
|
)
|
|
|
(1,174
|
)
|
|
|
1,760
|
|
Reclassification adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized holding (gains) losses included in current year income
|
|
|
(130
|
)
|
|
|
588
|
|
|
|
674
|
|
Amortization of premiums and accretion of discounts associated
with investments
|
|
|
(85
|
)
|
|
|
(83
|
)
|
|
|
(48
|
)
|
Income tax effect
|
|
|
74
|
|
|
|
(176
|
)
|
|
|
(220
|
)
|
Allocation of holding (gains) losses on investments relating to
other policyholder amounts
|
|
|
(317
|
)
|
|
|
(755
|
)
|
|
|
823
|
|
Income tax effect of allocation of holding (gains) losses to
other policyholder amounts
|
|
|
110
|
|
|
|
263
|
|
|
|
(288
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized investment gains (losses), net of income tax
|
|
|
979
|
|
|
|
2,028
|
|
|
|
(2,321
|
)
|
Foreign currency translation adjustments, net of income tax
|
|
|
(16
|
)
|
|
|
45
|
|
|
|
(166
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), excluding cumulative effect
of change in accounting principle
|
|
|
963
|
|
|
|
2,073
|
|
|
|
(2,487
|
)
|
Cumulative effect of change in accounting principle, net of
income tax expense (benefit) of $18 million,
($12) million and $0 (see Note 1)
|
|
|
34
|
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
$
|
997
|
|
|
$
|
2,051
|
|
|
$
|
(2,487
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-127
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
Information on other expenses was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Compensation
|
|
$
|
283
|
|
|
$
|
148
|
|
|
$
|
118
|
|
Commissions
|
|
|
936
|
|
|
|
796
|
|
|
|
735
|
|
Volume-related costs
|
|
|
130
|
|
|
|
308
|
|
|
|
374
|
|
Affiliated interest costs on ceded reinsurance
|
|
|
162
|
|
|
|
107
|
|
|
|
96
|
|
Capitalization of DAC
|
|
|
(978
|
)
|
|
|
(851
|
)
|
|
|
(835
|
)
|
Amortization of DAC and VOBA
|
|
|
839
|
|
|
|
294
|
|
|
|
1,163
|
|
Interest expense on debt and debt issue costs
|
|
|
472
|
|
|
|
71
|
|
|
|
72
|
|
Premium taxes, licenses & fees
|
|
|
47
|
|
|
|
45
|
|
|
|
38
|
|
Professional services
|
|
|
38
|
|
|
|
17
|
|
|
|
18
|
|
Rent
|
|
|
29
|
|
|
|
3
|
|
|
|
4
|
|
Other
|
|
|
363
|
|
|
|
269
|
|
|
|
150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
$
|
2,321
|
|
|
$
|
1,207
|
|
|
$
|
1,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalization
of DAC and Amortization of DAC and VOBA
See Note 5 for DAC and VOBA by segment and a rollforward of
each including impacts of capitalization and amortization.
Interest
Expense on Debt and Debt Issue Costs
Interest expense on debt and debt issue costs includes interest
expense on debt (See Note 9) and interest expense
related to CSEs of $402 million for the year ended
December 31, 2010, and $0 for both of the years ended
December 31, 2009 and 2008. See Note 2.
Affiliated
Expenses
Commissions, capitalization of DAC and amortization of DAC
include the impact of affiliated reinsurance transactions.
See Notes 8, 9 and 15 for discussion of affiliated expenses
included in the table above.
|
|
14.
|
Business
Segment Information
|
The Companys business is currently divided into three
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 and
corporations, as well as other institutions and their respective
employees, and is organized into two distinct businesses:
Individual Life and Non-Medical Health. Individual Life
insurance products
F-128
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
and services include variable life, universal life, term life
and whole life products. Non-Medical Health includes individual
disability insurance products.
Corporate & Other contains the excess capital not
allocated to the 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 the Companys measure of segment
performance reported below. Operating earnings does not equate
to net income (loss) as determined in accordance with GAAP and
should not be viewed as a substitute for the GAAP measure. 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) and net derivative gains (losses);
(ii) less amortization of unearned revenue related to net
investment gains (losses) and net derivative 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) less net
investment income related to contractholder-directed unit-linked
investments.
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 net derivative gains
(losses); (iii) less interest credited to policyholder
account balances related to contractholder-directed unit-linked
investments; and (iv) 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 entities
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 years ended
December 31, 2010, 2009 and 2008 and at December 31,
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
F-129
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
and specific nature of the risks inherent in MetLifes
businesses. As a part of the economic capital process, a portion
of net investment income is credited to the segments based on
the level of allocated equity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement
|
|
|
Benefit
|
|
|
Insurance
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Total
|
|
Year Ended December 31, 2010
|
|
Products
|
|
|
Funding
|
|
|
Products
|
|
|
& Other
|
|
|
Total
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
240
|
|
|
$
|
643
|
|
|
$
|
184
|
|
|
$
|
|
|
|
$
|
1,067
|
|
|
$
|
|
|
|
$
|
1,067
|
|
Universal life and investment-type product policy fees
|
|
|
1,003
|
|
|
|
29
|
|
|
|
593
|
|
|
|
15
|
|
|
|
1,640
|
|
|
|
(1
|
)
|
|
|
1,639
|
|
Net investment income
|
|
|
939
|
|
|
|
1,102
|
|
|
|
486
|
|
|
|
207
|
|
|
|
2,734
|
|
|
|
423
|
|
|
|
3,157
|
|
Other revenues
|
|
|
337
|
|
|
|
6
|
|
|
|
117
|
|
|
|
43
|
|
|
|
503
|
|
|
|
|
|
|
|
503
|
|
Net investment gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150
|
|
|
|
150
|
|
Net derivative gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
2,519
|
|
|
|
1,780
|
|
|
|
1,380
|
|
|
|
265
|
|
|
|
5,944
|
|
|
|
630
|
|
|
|
6,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims
|
|
|
395
|
|
|
|
1,159
|
|
|
|
321
|
|
|
|
|
|
|
|
1,875
|
|
|
|
30
|
|
|
|
1,905
|
|
Interest credited to policyholder account balances
|
|
|
718
|
|
|
|
193
|
|
|
|
236
|
|
|
|
96
|
|
|
|
1,243
|
|
|
|
28
|
|
|
|
1,271
|
|
Capitalization of DAC
|
|
|
(592
|
)
|
|
|
(4
|
)
|
|
|
(327
|
)
|
|
|
(55
|
)
|
|
|
(978
|
)
|
|
|
|
|
|
|
(978
|
)
|
Amortization of DAC and VOBA
|
|
|
409
|
|
|
|
2
|
|
|
|
337
|
|
|
|
7
|
|
|
|
755
|
|
|
|
84
|
|
|
|
839
|
|
Interest expense on debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70
|
|
|
|
70
|
|
|
|
402
|
|
|
|
472
|
|
Other expenses
|
|
|
1,023
|
|
|
|
36
|
|
|
|
806
|
|
|
|
123
|
|
|
|
1,988
|
|
|
|
|
|
|
|
1,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1,953
|
|
|
|
1,386
|
|
|
|
1,373
|
|
|
|
241
|
|
|
|
4,953
|
|
|
|
544
|
|
|
|
5,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
198
|
|
|
|
139
|
|
|
|
2
|
|
|
|
(49
|
)
|
|
|
290
|
|
|
|
30
|
|
|
|
320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
368
|
|
|
$
|
255
|
|
|
$
|
5
|
|
|
$
|
73
|
|
|
|
701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
630
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
(544
|
)
|
|
|
|
|
|
|
|
|
Provision for income tax (expense) benefit
|
|
|
(30
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss)
|
|
$
|
757
|
|
|
|
|
|
|
$
|
757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement
|
|
|
Benefit
|
|
|
Insurance
|
|
|
Corporate
|
|
|
|
|
At December 31, 2010:
|
|
Products
|
|
|
Funding
|
|
|
Products
|
|
|
& Other
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Total assets
|
|
$
|
87,461
|
|
|
$
|
30,491
|
|
|
$
|
16,296
|
|
|
$
|
20,637
|
|
|
$
|
154,885
|
|
Separate account assets
|
|
$
|
58,917
|
|
|
$
|
1,625
|
|
|
$
|
1,077
|
|
|
$
|
|
|
|
$
|
61,619
|
|
Separate account liabilities
|
|
$
|
58,917
|
|
|
$
|
1,625
|
|
|
$
|
1,077
|
|
|
$
|
|
|
|
$
|
61,619
|
|
F-130
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement
|
|
|
Benefit
|
|
|
Insurance
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Total
|
|
Year Ended December 31, 2009:
|
|
Products
|
|
|
Funding
|
|
|
Products
|
|
|
& Other
|
|
|
Total
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
339
|
|
|
$
|
849
|
|
|
$
|
124
|
|
|
$
|
|
|
|
$
|
1,312
|
|
|
$
|
|
|
|
$
|
1,312
|
|
Universal life and investment-type product policy fees
|
|
|
748
|
|
|
|
29
|
|
|
|
618
|
|
|
|
5
|
|
|
|
1,400
|
|
|
|
(20
|
)
|
|
|
1,380
|
|
Net investment income
|
|
|
884
|
|
|
|
1,061
|
|
|
|
381
|
|
|
|
40
|
|
|
|
2,366
|
|
|
|
(31
|
)
|
|
|
2,335
|
|
Other revenues
|
|
|
264
|
|
|
|
6
|
|
|
|
328
|
|
|
|
|
|
|
|
598
|
|
|
|
|
|
|
|
598
|
|
Net investment gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(835
|
)
|
|
|
(835
|
)
|
Net derivative gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,031
|
)
|
|
|
(1,031
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
2,235
|
|
|
|
1,945
|
|
|
|
1,451
|
|
|
|
45
|
|
|
|
5,676
|
|
|
|
(1,917
|
)
|
|
|
3,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims
|
|
|
420
|
|
|
|
1,360
|
|
|
|
223
|
|
|
|
1
|
|
|
|
2,004
|
|
|
|
61
|
|
|
|
2,065
|
|
Interest credited to policyholder account balances
|
|
|
741
|
|
|
|
265
|
|
|
|
243
|
|
|
|
91
|
|
|
|
1,340
|
|
|
|
(39
|
)
|
|
|
1,301
|
|
Capitalization of DAC
|
|
|
(528
|
)
|
|
|
(2
|
)
|
|
|
(285
|
)
|
|
|
(36
|
)
|
|
|
(851
|
)
|
|
|
|
|
|
|
(851
|
)
|
Amortization of DAC and VOBA
|
|
|
329
|
|
|
|
3
|
|
|
|
271
|
|
|
|
2
|
|
|
|
605
|
|
|
|
(311
|
)
|
|
|
294
|
|
Interest expense on debt
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
69
|
|
|
|
71
|
|
|
|
|
|
|
|
71
|
|
Other expenses
|
|
|
928
|
|
|
|
34
|
|
|
|
648
|
|
|
|
84
|
|
|
|
1,694
|
|
|
|
(1
|
)
|
|
|
1,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1,890
|
|
|
|
1,662
|
|
|
|
1,100
|
|
|
|
211
|
|
|
|
4,863
|
|
|
|
(290
|
)
|
|
|
4,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
121
|
|
|
|
97
|
|
|
|
123
|
|
|
|
(138
|
)
|
|
|
203
|
|
|
|
(571
|
)
|
|
|
(368
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
224
|
|
|
$
|
186
|
|
|
$
|
228
|
|
|
$
|
(28
|
)
|
|
|
610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
(1,917
|
)
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
290
|
|
|
|
|
|
|
|
|
|
Provision for income tax (expense) benefit
|
|
|
571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss)
|
|
$
|
(446
|
)
|
|
|
|
|
|
$
|
(446
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement
|
|
|
Benefit
|
|
|
Insurance
|
|
|
Corporate
|
|
|
|
|
At December 31, 2009:
|
|
Products
|
|
|
Funding
|
|
|
Products
|
|
|
& Other
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Total assets
|
|
$
|
73,840
|
|
|
$
|
28,046
|
|
|
$
|
13,647
|
|
|
$
|
12,156
|
|
|
$
|
127,689
|
|
Separate account assets
|
|
$
|
47,000
|
|
|
$
|
1,502
|
|
|
$
|
947
|
|
|
$
|
|
|
|
$
|
49,449
|
|
Separate account liabilities
|
|
$
|
47,000
|
|
|
$
|
1,502
|
|
|
$
|
947
|
|
|
$
|
|
|
|
$
|
49,449
|
|
F-131
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement
|
|
|
Benefit
|
|
|
Insurance
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Total
|
|
Year Ended December 31, 2008:
|
|
Products
|
|
|
Funding
|
|
|
Products
|
|
|
& Other
|
|
|
Total
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
118
|
|
|
$
|
415
|
|
|
$
|
90
|
|
|
$
|
11
|
|
|
$
|
634
|
|
|
$
|
|
|
|
$
|
634
|
|
Universal life and investment-type product policy fees
|
|
|
831
|
|
|
|
41
|
|
|
|
486
|
|
|
|
3
|
|
|
|
1,361
|
|
|
|
17
|
|
|
|
1,378
|
|
Net investment income
|
|
|
788
|
|
|
|
1,334
|
|
|
|
337
|
|
|
|
59
|
|
|
|
2,518
|
|
|
|
(24
|
)
|
|
|
2,494
|
|
Other revenues
|
|
|
160
|
|
|
|
9
|
|
|
|
55
|
|
|
|
6
|
|
|
|
230
|
|
|
|
|
|
|
|
230
|
|
Net investment gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(445
|
)
|
|
|
(445
|
)
|
Net derivative gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
994
|
|
|
|
994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,897
|
|
|
|
1,799
|
|
|
|
968
|
|
|
|
79
|
|
|
|
4,743
|
|
|
|
542
|
|
|
|
5,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims
|
|
|
384
|
|
|
|
893
|
|
|
|
193
|
|
|
|
29
|
|
|
|
1,499
|
|
|
|
(53
|
)
|
|
|
1,446
|
|
Interest credited to policyholder account balances
|
|
|
479
|
|
|
|
430
|
|
|
|
223
|
|
|
|
(21
|
)
|
|
|
1,111
|
|
|
|
19
|
|
|
|
1,130
|
|
Capitalization of DAC
|
|
|
(474
|
)
|
|
|
(5
|
)
|
|
|
(347
|
)
|
|
|
(9
|
)
|
|
|
(835
|
)
|
|
|
|
|
|
|
(835
|
)
|
Amortization of DAC and VOBA
|
|
|
640
|
|
|
|
13
|
|
|
|
283
|
|
|
|
2
|
|
|
|
938
|
|
|
|
225
|
|
|
|
1,163
|
|
Interest expense on debt
|
|
|
1
|
|
|
|
2
|
|
|
|
|
|
|
|
69
|
|
|
|
72
|
|
|
|
|
|
|
|
72
|
|
Other expenses
|
|
|
769
|
|
|
|
36
|
|
|
|
683
|
|
|
|
45
|
|
|
|
1,533
|
|
|
|
|
|
|
|
1,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1,799
|
|
|
|
1,369
|
|
|
|
1,035
|
|
|
|
115
|
|
|
|
4,318
|
|
|
|
191
|
|
|
|
4,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax expense (benefit)
|
|
|
34
|
|
|
|
150
|
|
|
|
(24
|
)
|
|
|
(79
|
)
|
|
|
81
|
|
|
|
122
|
|
|
|
203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
64
|
|
|
$
|
280
|
|
|
$
|
(43
|
)
|
|
$
|
43
|
|
|
|
344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
542
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
(191
|
)
|
|
|
|
|
|
|
|
|
Provision for income tax (expense) benefit
|
|
|
(122
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss)
|
|
$
|
573
|
|
|
|
|
|
|
$
|
573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 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 years ended
December 31, 2010, 2009 and 2008. Operating revenues from
U.S. operations were $5.2 billion, $4.8 billion
and $4.4 billion for the years ended December 31,
2010, 2009 and 2008, respectively, which represented 87%, 84%
and 92%, respectively, of consolidated operating revenues.
|
|
15.
|
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. For certain of the agreements,
charges are based on various performance measures or
activity-based costing. The bases for such charges are modified
and adjusted by management when necessary or appropriate to
reflect fairly and equitably the actual incidence of cost
incurred by the Company
and/or
affiliate. Expenses and fees incurred with affiliates related to
these agreements, recorded in
F-132
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Notes to the Consolidated Financial
Statements (Continued)
other expenses, were $1.3 billion, $1.1 billion and
$1.0 billion for the years ended December 31, 2010,
2009 and 2008, respectively. The aforementioned expenses and
fees incurred with affiliates were comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Compensation
|
|
$
|
244
|
|
|
$
|
110
|
|
|
$
|
98
|
|
Commissions
|
|
|
561
|
|
|
|
511
|
|
|
|
452
|
|
Volume-related costs
|
|
|
177
|
|
|
|
279
|
|
|
|
331
|
|
Professional services
|
|
|
16
|
|
|
|
|
|
|
|
|
|
Rent
|
|
|
26
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
300
|
|
|
|
200
|
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
$
|
1,324
|
|
|
$
|
1,100
|
|
|
$
|
955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues received from affiliates related to these agreements
were recorded as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
(In millions)
|
|
Universal life and investment-type product policy fees
|
|
$
|
114
|
|
|
$
|
85
|
|
|
$
|
91
|
|
Other revenues
|
|
$
|
101
|
|
|
$
|
71
|
|
|
$
|
65
|
|
The Company had net receivables from affiliates of
$60 million and $46 million at December 31, 2010
and 2009, respectively, related to the items discussed above.
These amounts exclude affiliated reinsurance balances discussed
in Note 8. See Notes 2, 8 and 9 for additional related
party transactions.
F-133
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Schedule I
Consolidated Summary of Investments
Other Than Investments in Related Parties
December 31, 2010
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount at
|
|
|
|
Cost or
|
|
|
Estimated
|
|
|
Which Shown on
|
|
Type of Investments
|
|
Amortized Cost (1)
|
|
|
Fair Value
|
|
|
Balance Sheet
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and agency securities
|
|
$
|
7,665
|
|
|
$
|
7,676
|
|
|
$
|
7,676
|
|
Foreign government securities
|
|
|
824
|
|
|
|
903
|
|
|
|
903
|
|
Public utilities
|
|
|
2,247
|
|
|
|
2,344
|
|
|
|
2,344
|
|
State and political subdivision securities
|
|
|
1,755
|
|
|
|
1,646
|
|
|
|
1,646
|
|
All other corporate bonds
|
|
|
19,558
|
|
|
|
20,395
|
|
|
|
20,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bonds
|
|
|
32,049
|
|
|
|
32,964
|
|
|
|
32,964
|
|
Mortgage-backed and asset-backed securities
|
|
|
10,933
|
|
|
|
10,855
|
|
|
|
10,855
|
|
Redeemable preferred stock
|
|
|
1,150
|
|
|
|
1,105
|
|
|
|
1,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
|
44,132
|
|
|
|
44,924
|
|
|
|
44,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other securities
|
|
|
2,126
|
|
|
|
2,247
|
|
|
|
2,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable preferred stock
|
|
|
306
|
|
|
|
268
|
|
|
|
268
|
|
Common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial, miscellaneous and all other
|
|
|
121
|
|
|
|
137
|
|
|
|
137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
|
427
|
|
|
|
405
|
|
|
|
405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans, net
|
|
|
12,730
|
|
|
|
|
|
|
|
12,730
|
|
Policy loans
|
|
|
1,190
|
|
|
|
|
|
|
|
1,190
|
|
Real estate and real estate joint ventures
|
|
|
473
|
|
|
|
|
|
|
|
473
|
|
Real estate acquired in satisfaction of debt
|
|
|
28
|
|
|
|
|
|
|
|
28
|
|
Other limited partnership interests
|
|
|
1,538
|
|
|
|
|
|
|
|
1,538
|
|
Short-term investments
|
|
|
1,235
|
|
|
|
|
|
|
|
1,235
|
|
Other invested assets
|
|
|
1,716
|
|
|
|
|
|
|
|
1,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
65,595
|
|
|
|
|
|
|
$
|
66,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Companys other securities portfolio is mainly
comprised of fixed maturity and equity securities, including
mutual funds. Cost or amortized cost for fixed maturity
securities and mortgage loans represents original cost reduced
by repayments, valuation allowances and impairments from
other-than-temporary
declines in estimated fair value that are charged to earnings
and adjusted for amortization of premiums or discounts; for
equity securities, cost represents original cost reduced by
impairments from
other-than-temporary
declines in estimated fair value; for real estate, cost
represents original cost reduced by impairments and adjusted for
valuation allowances and depreciation; for real estate joint
ventures and other limited partnership interests cost represents
original cost reduced for
other-than-temporary
impairments or original cost adjusted for equity in earnings and
distributions. |
F-134
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Schedule II
Condensed Financial Information of Registrant
December 31, 2010 and 2009
(In millions, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Condensed Balance Sheets
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
|
|
|
Fixed maturity securities
available-for-sale,
at estimated fair value (amortized cost: $33,974 and $33,325,
respectively)
|
|
$
|
34,300
|
|
|
$
|
32,132
|
|
Equity securities
available-for-sale,
at estimated fair value (cost: $420 and $484, respectively)
|
|
|
396
|
|
|
|
448
|
|
Mortgage loans (net of valuation allowances of $54 and $52,
respectively)
|
|
|
4,698
|
|
|
|
4,122
|
|
Policy loans
|
|
|
1,127
|
|
|
|
1,139
|
|
Real estate and real estate joint ventures
|
|
|
329
|
|
|
|
278
|
|
Other limited partnership interests
|
|
|
1,057
|
|
|
|
925
|
|
Short-term investments, principally at estimated fair value
|
|
|
1,098
|
|
|
|
923
|
|
Investment in subsidiaries
|
|
|
4,658
|
|
|
|
4,131
|
|
Other invested assets, principally at estimated fair value
|
|
|
1,481
|
|
|
|
1,467
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
|
49,144
|
|
|
|
45,565
|
|
Cash and cash equivalents, principally at estimated fair value
|
|
|
1,364
|
|
|
|
1,817
|
|
Accrued investment income
|
|
|
377
|
|
|
|
397
|
|
Premiums, reinsurance and other receivables
|
|
|
6,549
|
|
|
|
5,827
|
|
Receivables from subsidiaries
|
|
|
665
|
|
|
|
627
|
|
Deferred policy acquisition costs and value of business acquired
|
|
|
2,039
|
|
|
|
2,640
|
|
Current income tax recoverable
|
|
|
16
|
|
|
|
|
|
Deferred income tax assets
|
|
|
912
|
|
|
|
1,513
|
|
Goodwill
|
|
|
885
|
|
|
|
885
|
|
Other assets
|
|
|
149
|
|
|
|
162
|
|
Separate account assets
|
|
|
19,184
|
|
|
|
19,491
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
81,284
|
|
|
$
|
78,924
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Future policy benefits
|
|
$
|
19,453
|
|
|
$
|
19,036
|
|
Policyholder account balances
|
|
|
25,837
|
|
|
|
26,127
|
|
Other policy-related balances
|
|
|
485
|
|
|
|
466
|
|
Payables for collateral under securities loaned and other
transactions
|
|
|
6,857
|
|
|
|
5,562
|
|
Long-term debt affiliated
|
|
|
750
|
|
|
|
950
|
|
Current income tax payable
|
|
|
|
|
|
|
7
|
|
Other liabilities
|
|
|
767
|
|
|
|
724
|
|
Separate account liabilities
|
|
|
19,184
|
|
|
|
19,491
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
73,333
|
|
|
|
72,363
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity
|
|
|
|
|
|
|
|
|
Common stock, par value $2.50 per share; 40,000,000 shares
authorized; 34,595,317 shares issued and outstanding at
December 31, 2010 and 2009
|
|
|
86
|
|
|
|
86
|
|
Additional paid-in capital
|
|
|
6,719
|
|
|
|
6,719
|
|
Retained earnings
|
|
|
934
|
|
|
|
541
|
|
Accumulated other comprehensive income (loss)
|
|
|
212
|
|
|
|
(785
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
7,951
|
|
|
|
6,561
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
81,284
|
|
|
$
|
78,924
|
|
|
|
|
|
|
|
|
|
|
F-135
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Schedule II
Condensed Financial Information of Registrant
(Continued)
For the Years Ended December 31, 2010, 2009 and 2008
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Condensed Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
148
|
|
|
$
|
141
|
|
|
$
|
110
|
|
Universal life and investment-type product policy fees
|
|
|
633
|
|
|
|
631
|
|
|
|
741
|
|
Net investment income
|
|
|
2,018
|
|
|
|
1,895
|
|
|
|
2,226
|
|
Equity in earnings from subsidiaries
|
|
|
236
|
|
|
|
(316
|
)
|
|
|
278
|
|
Other revenues
|
|
|
162
|
|
|
|
328
|
|
|
|
60
|
|
Net investment gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-than-temporary
impairments on fixed maturity securities
|
|
|
(97
|
)
|
|
|
(534
|
)
|
|
|
(386
|
)
|
Other-than-temporary
impairments on fixed maturity securities transferred to other
comprehensive income (loss)
|
|
|
47
|
|
|
|
160
|
|
|
|
|
|
Other net investment gains (losses)
|
|
|
152
|
|
|
|
(418
|
)
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net investment gains (losses)
|
|
|
102
|
|
|
|
(792
|
)
|
|
|
(345
|
)
|
Net derivative gains (losses)
|
|
|
(67
|
)
|
|
|
(405
|
)
|
|
|
166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
3,232
|
|
|
|
1,482
|
|
|
|
3,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims
|
|
|
800
|
|
|
|
801
|
|
|
|
682
|
|
Interest credited to policyholder account balances
|
|
|
691
|
|
|
|
801
|
|
|
|
896
|
|
Other expenses
|
|
|
753
|
|
|
|
494
|
|
|
|
1,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
2,244
|
|
|
|
2,096
|
|
|
|
2,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income tax
|
|
|
988
|
|
|
|
(614
|
)
|
|
|
652
|
|
Provision for income tax expense (benefit)
|
|
|
231
|
|
|
|
(168
|
)
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
757
|
|
|
$
|
(446
|
)
|
|
$
|
573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
F-136
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Schedule II
Condensed Financial Information of Registrant
(Continued)
For the Years Ended December 31, 2010, 2009 and 2008
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Condensed Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
1,129
|
|
|
$
|
993
|
|
|
$
|
856
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales, maturities and repayments of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
|
13,203
|
|
|
|
10,125
|
|
|
|
18,221
|
|
Equity securities
|
|
|
127
|
|
|
|
129
|
|
|
|
119
|
|
Mortgage loans
|
|
|
279
|
|
|
|
429
|
|
|
|
458
|
|
Real estate and real estate joint ventures
|
|
|
14
|
|
|
|
3
|
|
|
|
15
|
|
Other limited partnership interests
|
|
|
92
|
|
|
|
94
|
|
|
|
181
|
|
Purchases of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
|
(13,715
|
)
|
|
|
(9,247
|
)
|
|
|
(11,263
|
)
|
Equity securities
|
|
|
(38
|
)
|
|
|
(61
|
)
|
|
|
(65
|
)
|
Mortgage loans
|
|
|
(868
|
)
|
|
|
(531
|
)
|
|
|
(560
|
)
|
Real estate and real estate joint ventures
|
|
|
(80
|
)
|
|
|
(19
|
)
|
|
|
(47
|
)
|
Other limited partnership interests
|
|
|
(204
|
)
|
|
|
(127
|
)
|
|
|
(340
|
)
|
Cash received in connection with freestanding derivatives
|
|
|
93
|
|
|
|
225
|
|
|
|
221
|
|
Cash paid in connection with freestanding derivatives
|
|
|
(102
|
)
|
|
|
(434
|
)
|
|
|
(227
|
)
|
Net change in policy loans
|
|
|
12
|
|
|
|
12
|
|
|
|
(277
|
)
|
Net change in short-term investments
|
|
|
(169
|
)
|
|
|
619
|
|
|
|
(934
|
)
|
Net change in other invested assets
|
|
|
(401
|
)
|
|
|
(941
|
)
|
|
|
(60
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(1,757
|
)
|
|
|
276
|
|
|
|
5,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder account balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
20,496
|
|
|
|
15,236
|
|
|
|
3,275
|
|
Withdrawals
|
|
|
(21,062
|
)
|
|
|
(17,667
|
)
|
|
|
(4,008
|
)
|
Net change in payables for collateral under securities loaned
and other transactions
|
|
|
1,295
|
|
|
|
(1,421
|
)
|
|
|
(2,560
|
)
|
Net change in short-term debt
|
|
|
|
|
|
|
(300
|
)
|
|
|
300
|
|
Long-term debt issued affiliated
|
|
|
|
|
|
|
|
|
|
|
750
|
|
Long-term debt repaid affiliated
|
|
|
(200
|
)
|
|
|
|
|
|
|
|
|
Debt issuance costs
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
Financing element on certain derivative instruments
|
|
|
(24
|
)
|
|
|
(53
|
)
|
|
|
(46
|
)
|
Dividends on common stock
|
|
|
(330
|
)
|
|
|
|
|
|
|
(500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
175
|
|
|
|
(4,205
|
)
|
|
|
(2,797
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents
|
|
|
(453
|
)
|
|
|
(2,936
|
)
|
|
|
3,501
|
|
Cash and cash equivalents, beginning of year
|
|
|
1,817
|
|
|
|
4,753
|
|
|
|
1,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
1,364
|
|
|
$
|
1,817
|
|
|
$
|
4,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash paid (received) during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
74
|
|
|
$
|
73
|
|
|
$
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax
|
|
$
|
98
|
|
|
$
|
76
|
|
|
$
|
(41
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-137
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Schedule II
Notes to the Condensed Financial Information of
Registrant
The condensed financial information of MetLife Insurance Company
of Connecticut (the Parent Company or the
Registrant) should be read in conjunction with the
consolidated financial statements of MetLife Insurance Company
of Connecticut and its subsidiaries and the notes thereto. These
condensed unconsolidated financial statements reflect the
results of operations, financial position and cash flows for the
Parent Company. Investments in subsidiaries are accounted for
using the equity method of accounting.
The preparation of these condensed unconsolidated financial
statements in conformity with accounting principles generally
accepted in the United States of America requires management to
adopt accounting policies and make certain estimates and
assumptions. The most important of these estimates and
assumptions relate to the fair value measurements, the
accounting for goodwill and identifiable intangible assets and
the provision for potential losses that may arise from
litigation and regulatory proceedings and tax audits, which may
affect the amounts reported in the condensed unconsolidated
financial statements and accompanying notes. Actual results
could differ from these estimates.
Certain amounts in the prior years condensed
unconsolidated financial statements have been reclassified to
conform with the 2010 presentation. Such reclassifications
include:
|
|
|
|
|
Reclassification from other net investment gains (losses) of
($405) million and $166 million to net derivative
gains (losses) in the condensed statements of operations for the
years ended December 31, 2009 and 2008,
respectively; and
|
|
|
|
Reclassification from net change in other invested assets of
$225 million and $221 million to cash received in
connection with freestanding derivatives and ($434) million
and ($227) million to cash paid in connection with
freestanding derivatives, all within cash flows from investing
activities, in the condensed statements of cash flows for the
years ended December 31, 2009 and 2008, respectively.
|
The Parent Company has entered into a net worth maintenance
agreement with its indirect subsidiary, MetLife Europe Limited
(MetLife Europe), an Irish company. Under the
agreement, the Parent Company agreed, without limitation as to
amount, to cause MetLife Europe to have capital and surplus
equal to the greater of (a) EURO14 million, or
(b) such amount that will be sufficient to provide solvency
cover equal to 150% of the minimum solvency cover required by
applicable law and regulation, as interpreted and applied by the
Irish Financial Services Regulatory Authority or any successor
body.
The Parent Company has entered into a net worth maintenance
agreement with its indirect subsidiary, MetLife Assurance
Limited (MAL), a United Kingdom company. Under the
agreement, the Parent Company agreed, without limitation as to
amount, to cause MAL to have capital and surplus equal to the
greater of (a) £50 million, (b) such amount that
will be sufficient to provide solvency cover equal to 175% of
MALs capital resources requirement as defined by
applicable law and regulation as required by the Financial
Services Authority of the United Kingdom (the FSA)
or any successor body, or (c) such amount that will be
sufficient to provide solvency cover equal to 125% of MALs
individual capital guidance as defined by applicable law and
regulation as required by the FSA or any successor body.
F-138
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Schedule III
Consolidated
Supplementary Insurance Information
December 31,
2010, 2009 and 2008
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future Policy
|
|
|
|
|
|
|
|
|
|
DAC
|
|
|
Benefits and Other
|
|
|
Policyholder
|
|
|
|
|
|
|
and
|
|
|
Policy-Related
|
|
|
Account
|
|
|
Unearned
|
|
Segment
|
|
VOBA
|
|
|
Balances
|
|
|
Balances
|
|
|
Revenue(1)
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement Products
|
|
$
|
2,981
|
|
|
$
|
1,736
|
|
|
$
|
20,990
|
|
|
$
|
|
|
Corporate Benefit Funding
|
|
|
9
|
|
|
|
12,996
|
|
|
|
9,452
|
|
|
|
|
|
Insurance Products
|
|
|
2,018
|
|
|
|
5,328
|
|
|
|
6,592
|
|
|
|
217
|
|
Corporate & Other
|
|
|
91
|
|
|
|
5,790
|
|
|
|
2,257
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,099
|
|
|
$
|
25,850
|
|
|
$
|
39,291
|
|
|
$
|
262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement Products
|
|
$
|
3,060
|
|
|
$
|
1,454
|
|
|
$
|
21,059
|
|
|
$
|
|
|
Corporate Benefit Funding
|
|
|
7
|
|
|
|
12,702
|
|
|
|
9,393
|
|
|
|
|
|
Insurance Products
|
|
|
2,133
|
|
|
|
4,388
|
|
|
|
6,052
|
|
|
|
286
|
|
Corporate & Other
|
|
|
44
|
|
|
|
5,374
|
|
|
|
938
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,244
|
|
|
$
|
23,918
|
|
|
$
|
37,442
|
|
|
$
|
300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement Products
|
|
$
|
3,171
|
|
|
$
|
1,245
|
|
|
$
|
18,905
|
|
|
$
|
|
|
Corporate Benefit Funding
|
|
|
8
|
|
|
|
12,048
|
|
|
|
12,553
|
|
|
|
|
|
Insurance Products
|
|
|
2,254
|
|
|
|
3,971
|
|
|
|
5,531
|
|
|
|
545
|
|
Corporate & Other
|
|
|
7
|
|
|
|
5,034
|
|
|
|
186
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,440
|
|
|
$
|
22,298
|
|
|
$
|
37,175
|
|
|
$
|
548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts are included within the future policy benefits and other
policy-related balances. |
F-139
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Schedule III
Consolidated Supplementary Insurance Information
(Continued)
December 31, 2010, 2009 and 2008
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of
|
|
|
|
|
|
|
|
|
|
Premium
|
|
|
Net
|
|
|
Policyholder
|
|
|
DAC and VOBA
|
|
|
Other
|
|
|
|
|
|
|
Revenue and
|
|
|
Investment
|
|
|
Benefits and
|
|
|
Charged to
|
|
|
Operating
|
|
|
Premiums Written
|
|
Segment
|
|
Policy Charges
|
|
|
Income
|
|
|
Interest Credited
|
|
|
Other Expenses
|
|
|
Expenses(1)
|
|
|
(Excluding Life)
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement Products
|
|
$
|
1,243
|
|
|
$
|
903
|
|
|
$
|
1,113
|
|
|
$
|
483
|
|
|
$
|
431
|
|
|
$
|
|
|
Corporate Benefit Funding
|
|
|
672
|
|
|
|
1,098
|
|
|
|
1,341
|
|
|
|
2
|
|
|
|
32
|
|
|
|
|
|
Insurance Products
|
|
|
776
|
|
|
|
478
|
|
|
|
557
|
|
|
|
347
|
|
|
|
479
|
|
|
|
5
|
|
Corporate & Other
|
|
|
15
|
|
|
|
678
|
|
|
|
165
|
|
|
|
7
|
|
|
|
540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,706
|
|
|
$
|
3,157
|
|
|
$
|
3,176
|
|
|
$
|
839
|
|
|
$
|
1,482
|
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement Products
|
|
$
|
1,087
|
|
|
$
|
854
|
|
|
$
|
1,161
|
|
|
$
|
77
|
|
|
$
|
399
|
|
|
$
|
|
|
Corporate Benefit Funding
|
|
|
878
|
|
|
|
1,069
|
|
|
|
1,647
|
|
|
|
3
|
|
|
|
34
|
|
|
|
|
|
Insurance Products
|
|
|
722
|
|
|
|
375
|
|
|
|
466
|
|
|
|
213
|
|
|
|
362
|
|
|
|
4
|
|
Corporate & Other
|
|
|
5
|
|
|
|
37
|
|
|
|
92
|
|
|
|
1
|
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,692
|
|
|
$
|
2,335
|
|
|
$
|
3,366
|
|
|
$
|
294
|
|
|
$
|
913
|
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement Products
|
|
$
|
949
|
|
|
$
|
773
|
|
|
$
|
863
|
|
|
$
|
860
|
|
|
$
|
296
|
|
|
$
|
|
|
Corporate Benefit Funding
|
|
|
456
|
|
|
|
1,334
|
|
|
|
1,289
|
|
|
|
13
|
|
|
|
33
|
|
|
|
|
|
Insurance Products
|
|
|
593
|
|
|
|
333
|
|
|
|
416
|
|
|
|
288
|
|
|
|
336
|
|
|
|
5
|
|
Corporate & Other
|
|
|
14
|
|
|
|
54
|
|
|
|
8
|
|
|
|
2
|
|
|
|
105
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,012
|
|
|
$
|
2,494
|
|
|
$
|
2,576
|
|
|
$
|
1,163
|
|
|
$
|
770
|
|
|
$
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes other expenses, excluding amortization of deferred
policy acquisition costs (DAC) and value of business
acquired (VOBA) charged to other expenses. |
F-140
MetLife
Insurance Company of Connecticut
(A Wholly-Owned Subsidiary of MetLife, Inc.)
Schedule IV
Consolidated
Reinsurance
December 31,
2010, 2009 and 2008
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed
|
|
|
|
Gross Amount
|
|
|
Ceded
|
|
|
Assumed
|
|
|
Net Amount
|
|
|
to Net
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance in-force
|
|
$
|
326,366
|
|
|
$
|
289,559
|
|
|
$
|
8,217
|
|
|
$
|
45,024
|
|
|
|
18.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance premium
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance
|
|
$
|
1,310
|
|
|
$
|
263
|
|
|
$
|
13
|
|
|
$
|
1,060
|
|
|
|
1.2
|
%
|
Accident and health
|
|
|
249
|
|
|
|
242
|
|
|
|
|
|
|
|
7
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total insurance premium
|
|
$
|
1,559
|
|
|
$
|
505
|
|
|
$
|
13
|
|
|
$
|
1,067
|
|
|
|
1.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance in-force
|
|
$
|
278,335
|
|
|
$
|
242,647
|
|
|
$
|
9,044
|
|
|
$
|
44,732
|
|
|
|
20.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance premium
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance
|
|
$
|
1,525
|
|
|
$
|
235
|
|
|
$
|
14
|
|
|
$
|
1,304
|
|
|
|
1.1
|
%
|
Accident and health
|
|
|
257
|
|
|
|
249
|
|
|
|
|
|
|
|
8
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total insurance premium
|
|
$
|
1,782
|
|
|
$
|
484
|
|
|
$
|
14
|
|
|
$
|
1,312
|
|
|
|
1.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance in-force
|
|
$
|
226,418
|
|
|
$
|
191,146
|
|
|
$
|
8,800
|
|
|
$
|
44,072
|
|
|
|
20.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance premium
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance
|
|
$
|
779
|
|
|
$
|
181
|
|
|
$
|
15
|
|
|
$
|
613
|
|
|
|
2.4
|
%
|
Accident and health
|
|
|
263
|
|
|
|
242
|
|
|
|
|
|
|
|
21
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total insurance premium
|
|
$
|
1,042
|
|
|
$
|
423
|
|
|
$
|
15
|
|
|
$
|
634
|
|
|
|
2.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2010, reinsurance ceded and
assumed included affiliated transactions for life insurance
in-force of $156,577 million and $8,217 million,
respectively, and life insurance premiums of $191 million
and $13 million, respectively. For the year ended
December 31, 2009, reinsurance ceded and assumed included
affiliated transactions for life insurance in-force of
$120,549 million and $9,044 million, respectively, and
life insurance premiums of $166 million and
$14 million, respectively. For the year ended
December 31, 2008, reinsurance ceded and assumed included
affiliated transactions for life insurance in-force of
$77,679 million and $8,800 million, respectively, and
life insurance premiums of $125 million and
$15 million, respectively.
F-141
|
|
Item 9.
|
Changes
in and Disagreements With Accountants on Accounting and
Financial Disclosure
|
None.
|
|
Item 9A.
|
Controls
and Procedures
|
Management, with the participation of the Chief Executive
Officer and Chief Financial Officer, has evaluated the
effectiveness of the design and operation of the Companys
disclosure controls and procedures as defined in
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 December 31, 2010 that have
materially affected, or are reasonably likely to materially
affect, the Companys internal control over financial
reporting.
Managements
Annual Report on Internal Control Over Financial
Reporting
Management of MetLife Insurance Company of Connecticut and
subsidiaries is responsible for establishing and maintaining
adequate internal control over financial reporting. In
fulfilling this responsibility, estimates and judgments by
management are required to assess the expected benefits and
related costs of control procedures. The objectives of internal
control include providing management with reasonable, but not
absolute, assurance that assets are safeguarded against loss
from unauthorized use or disposition, and that transactions are
executed in accordance with managements authorization and
recorded properly to permit the preparation of consolidated
financial statements in conformity with accounting principles
generally accepted in the United States of America.
Management has documented and evaluated the effectiveness of the
internal control of the Company at December 31, 2010
pertaining to financial reporting in accordance with the
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission.
In the opinion of management, MetLife Insurance Company of
Connecticut maintained effective internal control over financial
reporting at December 31, 2010.
|
|
Item 9B.
|
Other
Information
|
None.
69
Part III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
Omitted pursuant to General Instruction I(2)(c) of
Form 10-K.
|
|
Item 11.
|
Executive
Compensation
|
Omitted pursuant to General Instruction I(2)(c) of
Form 10-K.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
Omitted pursuant to General Instruction I(2)(c) of
Form 10-K.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
Omitted pursuant to General Instruction I(2)(c) of
Form 10-K.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
Deloitte, the independent auditor of MetLife, has served as the
independent auditor of the Company since it was acquired in
2005. Its long-term knowledge of the MetLife group of companies,
combined with its insurance industry expertise, has enabled it
to carry out its audits of the Companys financial
statements with effectiveness and efficiency. Deloitte is a
registered public accounting firm with the Public Company
Accounting Oversight Board (United States) (PCAOB)
as required by the Sarbanes-Oxley Act of 2002
(Sarbanes-Oxley) and the Rules of the PCAOB.
Independent
Auditors Fees for 2010 and 2009 (1)
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
|
(In millions)
|
|
Audit Fees (2)
|
|
$
|
5.62
|
|
|
$
|
5.52
|
|
Audit-Related Fees (3)
|
|
$
|
0.14
|
|
|
$
|
0.12
|
|
Tax Fees (4)
|
|
$
|
|
|
|
$
|
|
|
All Other Fees (5)
|
|
$
|
|
|
|
$
|
|
|
|
|
|
(1) |
|
All fees shown in the table related to services that were
approved by the Audit Committee of MetLife (Audit
Committee). |
|
(2) |
|
Fees for services to perform an audit or review in accordance
with auditing standards of the PCAOB and services that generally
only the Companys independent auditor can reasonably
provide, such as comfort letters, statutory audits, attest
services, consents and assistance with and review of documents
filed with the U.S. Securities and Exchange Commission
(SEC). |
|
(3) |
|
Fees for assurance and related services that are traditionally
performed by the Companys independent auditor, such as
audit and related services for due diligence related to mergers,
acquisitions and divestitures, accounting consultations and
audits in connection with proposed or consummated acquisitions
and divestitures, control reviews, attest services not required
by statute or regulation, and consultation concerning financial
accounting and reporting standards. |
|
(4) |
|
Fees for tax compliance, consultation and planning services. Tax
compliance generally involves preparation of original and
amended tax returns, claims for refunds and tax payment planning
services. Tax consultation and tax planning encompass a diverse
range of services, including assistance in connection with tax
audits and filing appeals, tax advice related to mergers,
acquisitions and divestitures, advice related to requests for
rulings or technical advice from taxing authorities. |
|
(5) |
|
Fees for other types of permitted services. |
70
Approval
of Fees
The Audit Committee approves Deloittes audit and non-audit
services to MetLife and its subsidiaries, including the Company,
in advance as required under Sarbanes-Oxley and SEC rules.
Before the commencement of each fiscal year, the Audit Committee
appoints the independent auditor to perform audit services that
MetLife expects to be performed for the fiscal year and appoints
the auditor to perform audit-related, tax and other permitted
non-audit services. The Audit Committee or a designated member
of the Audit Committee to whom authority has been delegated may,
from time to time, pre-approve additional audit and non-audit
services to be performed by MetLifes independent auditor.
Any pre-approval of services between Audit Committee meetings
must be reported to the full Audit Committee at its next
scheduled meeting.
If the audit, audit-related, tax and other permitted non-audit
fees for a particular period or service exceed the amounts
previously approved, the Audit Committee determines whether or
not to approve the additional fees.
Based on this information, the Audit Committee pre-approves the
audit services that MetLife expects to be performed by the
independent auditor in connection with the audit of the
financial statements of MetLife and its subsidiaries, including
the Company, for the current fiscal year, and the audit-related,
tax and other permitted non-audit services that management of
MetLife may desire to engage the independent auditor to perform
during the twelve month period following such pre-approval. In
addition, the Audit Committee approves the terms of the
engagement letter to be entered into by MetLife with the
independent auditor. The Audit Committee assures the regular
rotation of the audit engagement team partners as required by
law.
71
Part IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
The following documents are filed as part of this report:
1. Financial Statements
The financial statements are listed in the Index to Consolidated
Financial Statements and Schedules on page 68.
2. Financial Statement Schedules
The financial statement schedules are listed in the Index to
Consolidated Financial Statements and Schedules on page 68.
3. Exhibits
The exhibits are listed in the Exhibit Index which begins
on
page E-1.
72
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
March 23, 2011
METLIFE INSURANCE COMPANY OF CONNECTICUT
|
|
|
|
By:
|
/s/ Michael
K. Farrell
|
Name: Michael K. Farrell
|
|
|
|
Title:
|
Chairman of the Board, President
|
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Maria
R. Morris
Maria
R. Morris
|
|
Director
|
|
March 23, 2011
|
|
|
|
|
|
/s/ Robert
E. Sollmann, Jr.
Robert
E. Sollmann, Jr.
|
|
Director
|
|
March 23, 2011
|
|
|
|
|
|
/s/ Michael
K. Farrell
Michael
K. Farrell
|
|
Chairman of the Board, President and Chief Executive Officer
(Principal Executive Officer)
|
|
March 23, 2011
|
|
|
|
|
|
/s/ Stanley
J. Talbi
Stanley
J. Talbi
|
|
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
|
|
March 23, 2011
|
|
|
|
|
|
/s/ Peter
M. Carlson
Peter
M. Carlson
|
|
Executive Vice President and
Chief Accounting Officer
(Principal Accounting Officer)
|
|
March 23, 2011
|
Supplemental Information to be Furnished With Reports Filed
Pursuant to Section 15(d) of the Act by Registrants Which
Have Not Registered Securities Pursuant to Section 12 of
the Act: None.
No annual report to security holders covering the
registrants last fiscal year or proxy material with
respect to any meeting of security holders has been sent, or
will be sent, to security holders.
73
Exhibit Index
(Note Regarding Reliance on Statements in Our Contracts:
In reviewing the agreements included as exhibits to this
Annual Report on
Form 10-K,
please remember that they are included to provide you with
information regarding their terms and are not intended to
provide any other factual or disclosure information about
MetLife Insurance Company of Connecticut, its subsidiaries or
the other parties to the agreements. The agreements contain
representations and warranties by each of the parties to the
applicable agreement. These representations and warranties have
been made solely for the benefit of the other parties to the
applicable agreement and (i) should not in all instances be
treated as categorical statements of fact, but rather as a way
of allocating the risk to one of the parties if those statements
prove to be inaccurate; (ii) have been qualified by
disclosures that were made to the other party in connection with
the negotiation of the applicable agreement, which disclosures
are not necessarily reflected in the agreement; (iii) may
apply standards of materiality in a way that is different from
what may be viewed as material to investors; and (iv) were
made only 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 us may be found elsewhere in this
Annual Report on
Form 10-K
and MetLife Insurance Company of Connecticuts other public
filings, which are available without charge through the
SECs website at www.sec.gov.)
|
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
2
|
.1
|
|
|
Acquisition Agreement between MetLife, Inc. and Citigroup Inc.,
dated as of January 31, 2005 (Incorporated by reference to
Exhibit 2.3 to MetLife, Inc.s Annual Report on
Form 10-K
for the fiscal year ended December 31, 2009)
|
|
3
|
.1
|
|
|
Charter of The Travelers Insurance Company (now MetLife
Insurance Company of Connecticut), as effective October 19,
1994
|
|
3
|
.2
|
|
|
Certificate of Amendment of the Charter as Amended and Restated
of MetLife Insurance Company of Connecticut, as effective
May 1, 2006 (the Certificate of Amendment)
|
|
3
|
.3
|
|
|
Certificate of Correction to the Certificate of Amendment. Filed
April 9, 2007 (Incorporated by reference to
Exhibit 3.3 to MetLife Insurance Company of
Connecticuts Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2007)
|
|
3
|
.4
|
|
|
By-laws of MetLife Insurance Company of Connecticut, as
effective October 20, 1994
|
|
31
|
.1
|
|
|
Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
31
|
.2
|
|
|
Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
32
|
.1
|
|
|
Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|
|
32
|
.2
|
|
|
Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|
E-1