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Goodwill

12 Months Ended

Dec. 31, 2012

11. 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. Step 1 of the goodwill impairment process requires a comparison of the fair value of a reporting unit to its carrying value. In performing the Company’s goodwill impairment tests, the estimated fair values of the reporting units are first determined using a market multiple valuation approach. When further corroboration is required, the Company uses a discounted cash flow valuation approach. For reporting units which are particularly sensitive to market assumptions, such as the Retail Annuities and Life & Other reporting units, the Company may use additional valuation methodologies to estimate the reporting units’ fair values.

The market multiple valuation approach utilizes market multiples of companies with similar businesses and the projected operating earnings of the reporting unit. The discounted cash flow valuation approach requires judgments about revenues, operating earnings projections, capital market assumptions and discount rates. 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 the Company believes is appropriate for the respective reporting unit. The estimated fair values of the Retail Annuities and Life & Other reporting units are particularly sensitive to equity market levels.

When testing goodwill for impairment, the Company also considers its market capitalization in relation to the aggregate estimated fair value of its reporting units. The Company applies significant judgment when determining the estimated fair value of the Company’s reporting units and when assessing the relationship of market capitalization to the aggregate estimated fair value of its reporting units. As of December 31, 2012, the Company’s market capitalization was below its consolidated book value. The Company reviewed the assumptions used in the valuation of its reporting units and concluded that the assumptions were reasonable. In addition, the Company concluded that the control premium in relation to the lower market environment reflected an amount which management believes is within an acceptable range.

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 management’s 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 Company’s reporting units could result in goodwill impairments in future periods which could materially adversely affect the Company’s results of operations or financial position.

In connection with its annual goodwill impairment testing, the market multiple and discounted cash flow valuation approaches indicated that the fair value of the Retail Annuities reporting unit was below its carrying value. As a result, an actuarial appraisal, which estimates the net worth of the reporting unit, the value of existing business and the value of new business, was also performed. This appraisal also resulted in a fair value of the Retail Annuities reporting unit that was less than the carrying value, indicating a potential for goodwill impairment. The growing concern regarding an extended period of low interest rates was reflected in the fair value estimate, particularly on the returns a market buyer would assume on the fixed income portion of separate account annuity products. In addition, industry-wide inquiries by regulators on the use of affiliated captive reinsurers for off-shore entities to reinsure insurance risks may limit access to this type of capital structure. As a result, a market buyer may discount the ability to fully utilize these structures, which also affected the fair value estimate of the reporting unit. Accordingly, the Company performed Step 2 of the goodwill impairment process, which compares the implied fair value of goodwill with the carrying value of that goodwill in the reporting unit to calculate the amount of goodwill impairment. The Company determined that all of the recorded goodwill associated with the Retail Annuities reporting unit was not recoverable and recorded a non-cash charge of $1.9 billion ($1.6 billion, net of income tax) for the impairment of the entire goodwill balance in the consolidated statements of operations for the year ended December 31, 2012. Of this amount, $1.4 billion was impaired at MetLife, Inc. There was no impact on income taxes.

In addition, the Company performed its annual goodwill impairment tests of its other reporting units and concluded that the fair values of all such reporting units were in excess of their carrying values and, therefore, their goodwill was not impaired.

Information regarding goodwill by segment, as well as Corporate & Other, was as follows:


	Retail			Group, Voluntary & Worksite Benefits		Corporate Benefit Funding		Latin America			Asia (1)			EMEA			Corporate & Other (2)			Unallocated Goodwill			Total
	(In millions)
Balance at January 1, 2010
Goodwill	$	3,125		$	138	$	900	$	214		$	160		$	40		$	470		$	—		$	5,047
Accumulated impairment		—			—		—		—			—			—			—			—			—

Total goodwill, net		3,125			138		900		214			160			40			470			—			5,047
Acquisitions		—			—		—		—			—			—			—			6,959			6,959
Effect of foreign currency translation and other		—			—		—		15			(88	)		(2	)		—			(150	)		(225	)

Balance at December 31, 2010
Goodwill		3,125			138		900		229			72			38			470			6,809			11,781
Accumulated impairment		—			—		—		—			—			—			—			—			—

Total goodwill, net		3,125			138		900		229			72			38			470			6,809			11,781
Goodwill allocation (3)		—			—		—		312			5,163			1,334			—			(6,809	)		—
Acquisitions (4)		—			—		—		—			39			—			—			—			39
Impairments (5)		—			—		—		—			—			—			(65	)		—			(65	)
Effect of foreign currency translation and other		—			—		—		(40	)		259			(39	)		—			—			180

Balance at December 31, 2011
Goodwill		3,125			138		900		501			5,533			1,333			470			—			12,000
Accumulated impairment		—			—		—		—			—			—			(65	)		—			(65	)

Total goodwill, net		3,125			138		900		501			5,533			1,333			405			—			11,935
Acquisitions		—			—		—		—			—			1			—			—			1
Impairments		(1,692	)		—		—		—			—			—			(176	)		—			(1,868	)
Effect of foreign currency translation and other		—			—		—		26			(146	)		5			—			—			(115	)

Balance at December 31, 2012
Goodwill		3,125			138		900		527			5,387			1,339			470			—			11,886
Accumulated impairment		(1,692	)		—		—		—			—			—			(241	)		—			(1,933	)

Total goodwill, net	$	1,433		$	138	$	900	$	527		$	5,387		$	1,339		$	229		$	—		$	9,953

(1)	Includes goodwill of $5.2 billion and $5.4 billion from the Japan operations at December 31, 2012 and 2011, respectively.

(2)

The $405 million of net goodwill in Corporate & Other at December 31, 2011 relates to goodwill acquired as a part of the 2005 Travelers acquisition. For purposes of goodwill impairment testing, the $405 million of Corporate & Other goodwill was allocated to business units of the Retail; Group, Voluntary & Worksite Benefits; and Corporate Benefit Funding segments in the amounts of $210 million, $9 million and $186 million, respectively. The Retail segment amount was further allocated within the segment to the Life & Other and the Annuities reporting units in the amounts of $34 million and $176 million, respectively. As reflected in the table, the $176 million related to the Retail Annuities reporting unit was impaired in the third quarter of 2012.

(3)	Goodwill associated with the ALICO Acquisition was allocated among the Company’s segments in the first quarter of 2011.

(4)	As of November 1, 2011, American Life’s current and deferred income taxes were affected by measurement period adjustments, which resulted in a $39 million increase to the goodwill recorded as part of the ALICO Acquisition related to Japan which is included in the Asia segment. See Note 19.

(5)

In 2011, the Company performed a goodwill impairment test on MetLife Bank, which was a separate reporting unit in Corporate & Other. A comparison of the fair value of the reporting unit, using a market multiple approach, to its carrying value indicated a potential for goodwill impairment. A further comparison of the implied fair value of the reporting unit’s goodwill with its carrying amount indicated that the entire amount of goodwill associated with MetLife Bank was impaired. Consequently, the Company recorded a $65 million goodwill impairment charge that is reflected as a net investment loss for the year ended December 31, 2011.