Income Tax

12 Months Ended

Dec. 31, 2012

Income Tax [Abstract]

Income Tax

19.  Income Tax

The provision for income tax from continuing operations was as follows:

	Years Ended December 31,
	2012			2011			2010
	(In millions)
Current:
Federal	$	(29	)	$	(200	)	$	121
State and local		6			(1	)		21
Foreign		846			614			203
Subtotal		823			413			345
Deferred:
Federal		(244	)		2,241			643
State and local		(1	)		(3	)		(7	)
Foreign		(450	)		142			129
Subtotal		(695	)		2,380			765
Provision for income tax expense (benefit)	$	128		$	2,793		$	1,110

The Company’s income (loss) from continuing operations before income tax expense (benefit) from domestic and foreign operations were as follows:

	Years Ended December 31,
	2012			2011		2010
	(In millions)
Income (loss) from continuing operations:
Domestic	$	(1,496	)	$	6,869	$	3,126
Foreign		2,938			2,315		603
Total	$	1,442		$	9,184	$	3,729

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,
	2012			2011			2010
	(In millions)
Tax provision at U.S. statutory rate	$	505		$	3,215		$	1,306
Tax effect of:
Tax-exempt investment income		(256	)		(246	)		(242	)
State and local income tax		(3	)		(4	)		9
Prior year tax		23			(4	)		59
Tax credits		(178	)		(138	)		(82	)
Foreign tax rate differential		(45	)		(41	)		37
Goodwill impairment		408			—			—
Deferred tax benefit of converting Japan branch to subsidiary		(324	)		—			—
Change in valuation allowance		15			16			7
Other, net		(17	)		(5	)		16
Provision for income tax expense (benefit)	$	128		$	2,793		$	1,110

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 at:

	December 31,
	2012			2011
	(In millions)
Deferred income tax assets:
Policyholder liabilities and receivables	$	6,233		$	5,939
Net operating loss carryforwards		1,408			1,595
Employee benefits		1,234			916
Capital loss carryforwards		160			449
Tax credit carryforwards		545			1,692
Litigation-related and government mandated		197			207
Other		484			483
Total gross deferred income tax assets		10,261			11,281
Less: Valuation allowance		368			1,083
Total net deferred income tax assets		9,893			10,198
Deferred income tax liabilities:
Investments, including derivatives		3,149			3,371
Intangibles		2,668			5,309
Net unrealized investment gains		7,854			4,453
DAC		4,775			3,268
Other		140			192
Total deferred income tax liabilities		18,586			16,593
Net deferred income tax asset (liability)	$	(8,693	)	$	(6,395	)

The following table sets forth the domestic, state, and foreign net operating and capital loss carryforwards for tax purposes at December 31, 2012.

	Net Operating Loss Carryforwards				Capital Loss Carryforwards
	Amount		Expiration		Amount		Expiration
	(In millions)				(In millions)
Domestic	$	3,249		Beginning in 2018	$	405		Beginning in 2014
State	$	453		Beginning in 2013	$	—		N/A
Foreign	$	1,438		Beginning in 2013	$	52		Beginning in 2014

Tax credit carryforwards of $545 million at December 31, 2012 will expire beginning in 2017.

For U.S. federal income tax purposes, the Company made an election under Section 338 of the Code (the “Section 338 Election”) relating to the acquisition of American Life. Pursuant to such election, the historical tax basis in the acquired assets and liabilities was adjusted to the fair market value as of the ALICO Acquisition Date resulting in a change to the related deferred income taxes.

See Note 3 for a discussion of branch restructuring in accordance with the Closing Agreement. As of the ALICO Acquisition Date, the Company had established a valuation allowance of $671 million against the amount of U.S. deferred tax assets that was expected to reverse post-branch restructuring of American Life. As of November 1, 2011 the Company finalized American Life’s current and deferred income tax liabilities based upon the determination of the amount of taxes resulting from the Section 338 Election and the corresponding filing of the income tax return. Accordingly, American Life’s current income tax receivable was increased by $12 million and deferred tax assets were reduced by $2 million with a corresponding net decrease to goodwill. The Company also increased the valuation allowance recorded against U.S. deferred tax assets to $720 million. The increase in the valuation allowance of $49 million, with a corresponding increase to goodwill, was a result of changes in estimates and assumptions relating to the reversal of U.S. temporary differences prior to the completion of the anticipated restructuring of American Life’s foreign branches and filing of the income tax return. See Note 23.

In accordance with the Closing Agreement, during 2012, the Company completed certain aspects of its plan to transfer foreign branch assets to various MetLife foreign subsidiaries:

• The Company transferred the business of the Japan branch to a newly formed wholly-owned subsidiary in Japan, MetLife Alico Life Insurance K. K. (“MLKK”);

• The Company transferred the remaining business of the U.K. branch to other wholly-owned subsidiaries; and

• The Company converted the Greek branch to a wholly-owned subsidiary incorporated in Greece.

These completed transactions represent over 90% of the planned restructurings based on branch net equity. Furthermore, the Company expects to complete its restructuring for the remaining branches in 2013.

As a result of these asset transfers and the filing of various foreign branch and U.S. income tax returns, the Company revised the estimate of the valuation allowance required for U.S. deferred tax assets relating to the ongoing restructuring of American Life’s non-U.S. branches. The net reduction in the valuation allowance was primarily due to the following factors:

• Additional U.S. deferred tax assets that more likely than not will not be realizable;

• Additional tax basis in assets as a result of the gain recognized related to the branch restructuring that more likely than not will not be realizable; and

• A reduction in both the gross deferred tax asset and the valuation allowance related to the completion of the Company’s transfer of the Japan, U.K. and Greek branch businesses to wholly-owned subsidiaries.

The following table provides a rollforward of the deferred tax asset valuation allowance associated with the branch restructuring:

	Year Ended December 31, 2012
	Japan			U.K.			Greece			Other Non-U.S. Branches			Total
							(In millions)
Balance, January 1,	$	566		$	3		$	128		$	23		$	720
Income tax expense (benefit)		(1	)		55			(34	)		12			32
Deferred income tax expense (benefit) related to unrealized investment gains (losses)		320			(11	)		(50	)		(10	)		249
Offsetting reduction in gross deferred tax asset related to the branch transfer to subsidiary		(885	)		(47	)		(44	)		—			(976	)
Balance, December 31,	$	—		$	—		$	—		$	25		$	25

During 2012, after conversion of the Japan branch to a subsidiary, MLKK recorded a deferred tax benefit along with a reduction in deferred tax liabilities for investments in the amount of $324 million.

The Company also has recorded a valuation allowance increase related to tax expense of $8 million related to certain foreign capital loss carryforwards, and decreases of $25 million related to certain state and foreign net operating loss carryforwards, and $3 million related to certain other assets. The valuation allowance reflects management’s assessment, based on available information, that it is more likely than not that the deferred income tax asset for certain foreign net operating and capital loss carryforwards, certain state net operating loss carryforwards, certain foreign unrealized losses and certain foreign other assets 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. The aforementioned amounts related to capital loss carryforwards and net operating loss carryforwards impact the consolidated statement of operations. If these losses continue to change thus increasing or decreasing deferred tax assets, the associated valuation allowance will increase or decrease accordingly. The Company does not expect future amounts to be materially different.

The Company has not provided U.S. deferred taxes on cumulative earnings of certain non-U.S. affiliates and associated companies that have been reinvested indefinitely. These earnings relate to ongoing operations and have been reinvested in active non-U.S. business operations. The Company does not intend to repatriate these earnings to fund U.S. operations. Deferred taxes are provided for earnings of non-U.S. affiliates and associated companies when the Company plans to remit those earnings. At December 31, 2012, the Company had not made a provision for U.S. taxes on approximately $2.4 billion of the excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries that are essentially permanent in duration. It is not practicable to estimate the amount of deferred tax liability related to investments in these foreign subsidiaries.

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 and subsidiary. The Company is no longer subject to U.S. federal, state and local, or foreign income tax examinations in major taxing jurisdictions for years prior to 2003, except for 2000 through 2002 where the IRS has disallowed certain tax credits claimed and the Company continues to protest. The IRS audit cycle for the years 2003 through 2006, which began in April 2010, is expected to conclude in 2013.

The Company’s liability for unrecognized tax benefits may increase or decrease in the next 12 months. A reasonable estimate of the increase or decrease cannot be made at this time. However, the Company continues to believe that the ultimate resolution of the pending issues will not result in a material change to its consolidated financial statements, although the resolution of income tax matters could impact the Company’s effective tax rate for a particular future period.

A reconciliation of the beginning and ending amount of unrecognized tax benefits was as follows:

	Years Ended December 31,
	2012			2011			2010
	(In millions)
Balance at January 1,	$	679		$	810		$	773
Additions for tax positions of prior years (1)		105			30			186
Reductions for tax positions of prior years		(82	)		(161	)		(84	)
Additions for tax positions of current year		32			13			13
Reductions for tax positions of current year		(9	)		(8	)		(8	)
Settlements with tax authorities		(15	)		(5	)		(59	)
Lapses of statutes of limitations		(2	)		—			(11	)
Balance at December 31,	$	708		$	679		$	810
Unrecognized tax benefits that, if recognized would impact the effective rate	$	566		$	527		$	536

(1) An increase of $169 million in 2010 resulted from the acquisition of American Life.

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.

Interest was as follows:

	Years Ended December 31,
	2012		2011		2010
	(In millions)
Interest recognized in the consolidated statements of operations	$	2	$	31	$	6
			December 31,
			2012		2011
			(In millions)
Interest included in other liabilities in the consolidated balance sheets			$	237	$	235

The Company had no penalties for the years ended December 31, 2012, 2011 and 2010.

The U.S. Treasury Department and the IRS have indicated that they intend to address through regulations the methodology to be followed in determining the dividends received deduction (“DRD”), related to variable life insurance and annuity contracts. The DRD reduces the amount of dividend income subject to tax and is a significant component of the difference between the actual tax expense and expected amount determined using the federal statutory tax rate of 35%. Any regulations that the IRS ultimately proposes for issuance in this area will be subject to public notice and comment, at which time insurance companies and other interested parties will have the opportunity to raise legal and practical questions about the content, scope and application of such regulations. As a result, the ultimate timing and substance of any such regulations are unknown at this time. For the years ended December 31, 2012 and 2011, the Company recognized an income tax benefit of $152 million and $159 million, respectively, related to the separate account DRD. The 2012 benefit included a benefit of less than $1 million related to a true-up of the 2011 tax return. The 2011 benefit included an expense of $8 million related to a true-up of the 2010 tax return.