Collateral Financing Arrangements

12 Months Ended

Dec. 31, 2021

14. Collateral Financing Arrangement

Information related to the collateral financing arrangement associated with the closed block (see Note 7) was as follows at:


	December 31,
	2021		2020
	(In millions)
Surplus notes outstanding (1)	$	766	$	845
Receivable from unaffiliated financial institution (1)	$	100	$	110
Pledged collateral (2)	$	38	$	41
Assets held in trust (2)	$	1,388	$	1,408

__________________

(1)Carrying value.

(2)Estimated fair value.

Interest expense on the collateral financing arrangement was $11 million, $20 million and $38 million for the years ended December 31, 2021, 2020 and 2019, respectively, which is included in other expenses.

In December 2007, MLIC reinsured a portion of its closed block liabilities to MetLife Reinsurance Company of Charleston (“MRC”), a wholly-owned subsidiary of MetLife, Inc. In connection with this transaction, MRC issued, to investors placed by an unaffiliated financial institution, $2.5 billion in aggregate principal amount of 35-year surplus notes to provide statutory reserve support for the assumed closed block liabilities. Interest on the surplus notes accrues at an annual rate of three-month LIBOR plus 0.55%, payable quarterly. The ability of MRC to make interest and principal payments on the surplus notes is contingent upon South Carolina regulatory approval.

Simultaneously with the issuance of the surplus notes, MetLife, Inc. entered into an agreement with the unaffiliated financial institution, under which MetLife, Inc. is entitled to the interest paid by MRC on the surplus notes of three-month LIBOR plus 0.55% in exchange for the payment of three-month LIBOR plus 1.12%, payable quarterly on such amount as adjusted, as described below. MetLife, Inc. may also be required to pledge collateral or make payments to the unaffiliated financial institution related to any decline in the estimated fair value of the surplus notes. Any such payments are accounted for as a receivable and included in other assets on the Company’s consolidated balance sheets and do not reduce the principal amount outstanding of the surplus notes. Such payments, however, reduce the amount of interest payments due from MetLife, Inc. under the agreement. Any payment received from the unaffiliated financial institution reduces the receivable by an amount equal to such payment and also increases the amount of interest payments due from MetLife, Inc. under the agreement. In addition, the unaffiliated financial institution may be required to pledge collateral to MetLife, Inc. related to any increase in the estimated fair value of the surplus notes.

For the years ended December 31, 2021, 2020 and 2019, following regulatory approval, MRC repurchased $79 million, $148 million and $67 million, respectively, in aggregate principal amount of the surplus notes. Payments made by the Company in 2021, 2020 and 2019 associated with the repurchases were exclusive of accrued interest on the surplus notes. In connection with the repurchases for the years ended December 31, 2021, 2020 and 2019, the Company received payments in the aggregate amount of $10 million, $20 million and $9 million, respectively, from the unaffiliated financial institution, which reduced the amount receivable from the unaffiliated financial institution by the same amounts. No other payments related to an increase or decrease in the estimated fair value of the surplus notes were made by MetLife, Inc. or received from the unaffiliated financial institution for the years ended December 31, 2021, 2020 or 2019.

A majority of the proceeds from the offering of the surplus notes was placed in a trust, which is consolidated by the Company, to support MRC’s statutory obligations associated with the assumed closed block liabilities. For the years ended December 31, 2021 and 2019, MRC transferred $78 million and $2 million, respectively, to the trust out of its general account. For the year ended December 31, 2020, MRC transferred $78 million out of the trust to its general account. The assets are principally invested in fixed maturity securities AFS and are presented as such within the Company’s consolidated balance sheets, with the related income included within net investment income on the Company’s consolidated statements of operations.