10-Q 1 d574216d10q.htm 10-Q 10-Q
Table of Contents

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-Q

 

(Mark One)   

þ

   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2013
or

¨

   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM                    TO

Commission file number: 001-15787

 

 

MetLife, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware   13-4075851

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

200 Park Avenue, New York, N.Y.   10166-0188
(Address of principal executive offices)   (Zip Code)

(212) 578-2211

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨

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  þ    No  ¨

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.

 

Large accelerated filer þ      Accelerated filer ¨
Non-accelerated filer ¨     (Do not check if a smaller reporting company)    Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  þ

At July 31, 2013, 1,097,145,355 shares of the registrant’s common stock, $0.01 par value per share, were outstanding.

 

 

 


Table of Contents

Table of Contents

 

     Page  

Part I — Financial Information

  

Item 1.    Financial Statements (at June  30, 2013 (Unaudited) and December 31, 2012 and for the Three Months and Six Months Ended June 30, 2013 and 2012 (Unaudited))

     5   

Interim Condensed Consolidated Balance Sheets

     5   

Interim Condensed Consolidated Statements of Operations and Comprehensive Income

     6   

Interim Condensed Consolidated Statements of Equity

     7   

Interim Condensed Consolidated Statements of Cash Flows

     9   

Notes to the Interim Condensed Consolidated Financial Statements:

  

Note 1 — Business, Basis of Presentation and Summary of Significant Accounting Policies

     10   

Note 2 — Segment Information

     12   

Note 3 — Acquisitions and Disposition

     21   

Note 4 — Insurance

     23   

Note 5 — Closed Block

     24   

Note 6 — Investments

     27   

Note 7 — Derivatives

     45   

Note 8 — Fair Value

     62   

Note 9 — Goodwill

     97   

Note 10 — Equity

     98   

Note 11 — Other Expenses

     101   

Note 12 — Employee Benefit Plans

     102   

Note 13 — Earnings Per Common Share

     103   

Note 14 — Contingencies, Commitments and Guarantees

     104   

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

     113   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     199   

Item 4. Controls and Procedures

     207   

Part II — Other Information

     207   

Item 1. Legal Proceedings

     207   

Item 1A.Risk Factors

     210   

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     219   

Item 5. Other Information

     220   

Item 6. Exhibits

     222   

Signatures

     223   

Exhibit Index

     E-1   

 

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As used in this Form 10-Q, “MetLife,” the “Company,” “we,” “our” and “us” refer to MetLife, Inc., a Delaware corporation incorporated in 1999, its subsidiaries and affiliates.

Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q, including Management’s 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 MetLife, Inc., its subsidiaries and affiliates. These statements are based on current expectations and the current economic environment. They involve a number of risks and uncertainties that are difficult to predict. These statements are not guarantees of future performance. Actual results could differ materially from those expressed or implied in the forward-looking statements. Risks, uncertainties, and other factors that might cause such differences include the risks, uncertainties and other factors identified in MetLife, Inc.’s 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 meet liquidity needs and access capital, including through our credit facilities, 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, including assets supporting risks ceded to certain of our captive reinsurers or hedging arrangements associated with those risks; (3) exposure to financial and capital market risks, including as a result of the disruption in Europe and possible withdrawal of one or more countries from the Euro zone; (4) impact of comprehensive financial services regulation reform on us, as a potential non-bank systemically important financial institution, or otherwise; (5) numerous rulemaking initiatives required or permitted by the Dodd-Frank Wall Street Reform and Consumer Protection Act which may impact how we conduct our business, including those compelling the liquidation of certain financial institutions; (6) regulatory, legislative or tax changes relating to our insurance, international, or other operations that may affect the cost of, or demand for, our products or services, or increase the cost or administrative burdens of providing benefits to employees; (7) adverse results or other consequences from litigation, arbitration or regulatory investigations; (8) potential liquidity and other risks resulting from our participation in a securities lending program and other transactions; (9) investment losses and defaults, and changes to investment valuations; (10) changes in assumptions related to investment valuations, deferred policy acquisition costs, deferred sales inducements, value of business acquired or goodwill; (11) impairments of goodwill and realized losses or market value impairments to illiquid assets; (12) defaults on our mortgage loans; (13) the defaults or deteriorating credit of other financial institutions that could adversely affect us; (14) economic, political, legal, currency and other risks relating to our international operations, including with respect to fluctuations of exchange rates; (15) downgrades in our claims paying ability, financial strength or credit ratings; (16) a deterioration in the experience of the “closed block” established in connection with the reorganization of Metropolitan Life Insurance Company; (17) availability and effectiveness of reinsurance or indemnification arrangements, as well as any default or failure of counterparties to perform; (18) differences between actual claims experience and underwriting and reserving assumptions; (19) ineffectiveness of risk management policies and procedures; (20) catastrophe losses; (21) increasing cost and limited market capacity for statutory life insurance reserve financings; (22) heightened competition, including with respect to pricing, entry of new competitors, consolidation of distributors, the development of new products by new and existing competitors, and for

 

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personnel; (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) our ability to address unforeseen liabilities, asset impairments, or rating actions arising from acquisitions or dispositions, including our acquisition of American Life Insurance Company and Delaware American Life Insurance Company (collectively, “ALICO”) and to successfully integrate and manage the growth of acquired businesses with minimal disruption; (25) uncertainty with respect to the outcome of the closing agreement entered into with the United States Internal Revenue Service in connection with the acquisition of ALICO; (26) the dilutive impact on our stockholders resulting from the settlement of our outstanding common equity units; (27) regulatory and other restrictions affecting MetLife, Inc.’s ability to pay dividends and repurchase common stock; (28) MetLife, Inc.’s primary reliance, as a holding company, on dividends from its subsidiaries to meet debt payment obligations and the applicable regulatory restrictions on the ability of the subsidiaries to pay such dividends; (29) the possibility that MetLife, Inc.’s Board of Directors may control the outcome of stockholder votes through the voting provisions of the MetLife Policyholder Trust; (30) changes in accounting standards, practices and/or policies; (31) increased expenses relating to pension and postretirement benefit plans, as well as health care and other employee benefits; (32) inability to protect our intellectual property rights or claims of infringement of the intellectual property rights of others; (33) inability to attract and retain sales representatives; (34) provisions of laws and our incorporation documents may delay, deter or prevent takeovers and corporate combinations involving MetLife; (35) the effects of business disruption or economic contraction due to disasters such as terrorist attacks, cyberattacks, other hostilities, or natural catastrophes, including any related impact on the value of our investment portfolio, our disaster recovery systems, cyber- or other information security systems and management continuity planning; (36) the effectiveness of our programs and practices in avoiding giving our associates incentives to take excessive risks; and (37) other risks and uncertainties described from time to time in MetLife, Inc.’s filings with the SEC.

MetLife, Inc. does not undertake any obligation to publicly correct or update any forward-looking statement if MetLife, Inc. later becomes aware that such statement is not likely to be achieved. Please consult any further disclosures MetLife, Inc. makes on related subjects in reports to the SEC.

Note Regarding Reliance on Statements in Our Contracts

See “Exhibit Index — Note Regarding Reliance on Statements in Our Contracts” for information regarding agreements included as exhibits to this Quarterly Report on Form 10-Q.

 

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Part I — Financial Information

Item 1. Financial Statements

MetLife, Inc.

Interim Condensed Consolidated Balance Sheets

June 30, 2013 (Unaudited) and December 31, 2012

(In millions, except share and per share data)

 

        June 30, 2013           December 31, 2012    

Assets

   

Investments:

   

Fixed maturity securities available-for-sale, at estimated fair value (amortized cost: $335,626 and $340,870, respectively; includes $4,064 and $3,378, respectively, relating to variable interest entities)

  $             356,514      $                   374,266   

Equity securities available-for-sale, at estimated fair value (cost: $2,922 and $2,838, respectively)

    3,231        2,891   

Fair value option and trading securities, at estimated fair value (includes $744 and $659, respectively, of actively traded securities; and $92 and $112, respectively, relating to variable interest entities)

    16,110        16,348   

Mortgage loans:

   

Held-for-investment, principally at amortized cost (net of valuation allowances of $302 and $347, respectively; includes $2,316 and $2,715, respectively, at estimated fair value, relating to variable interest entities)

    55,636        56,592   

Held-for-sale, principally at estimated fair value (includes $0 and $49, respectively, under the fair value option)

    —        414   
 

 

 

   

 

 

 

Mortgage loans, net

    55,636        57,006   

Policy loans (includes $3 and $0, respectively, relating to variable interest entities)

    11,722        11,884   

Real estate and real estate joint ventures (includes $9 and $10, respectively, relating to variable interest entities)

    9,886        9,918   

Other limited partnership interests (includes $159 and $274, respectively, relating to variable interest entities)

    7,197        6,688   

Short-term investments, principally at estimated fair value (includes $13 and $0, respectively, relating to variable interest entities)

    12,990        16,906   

Other invested assets, principally at estimated fair value (includes $78 and $81, respectively, relating to variable interest entities)

    17,920        21,145   
 

 

 

   

 

 

 

Total investments

    491,206        517,052   

Cash and cash equivalents, principally at estimated fair value (includes $54 and $99, respectively, relating to variable interest entities)

    9,184        15,738   

Accrued investment income (includes $26 and $13, respectively, relating to variable interest entities)

    4,357        4,374   

Premiums, reinsurance and other receivables (includes $16 and $5, respectively, relating to variable interest entities)

    23,283        21,634   

Deferred policy acquisition costs and value of business acquired (includes $265 and $0, respectively, relating to variable interest entities)

    24,782        24,761   

Goodwill

    9,447        9,953   

Other assets (includes $142 and $5, respectively, relating to variable interest entities)

    7,830        7,876   

Separate account assets (includes $1,096 and $0, respectively, relating to variable interest entities)

    245,573        235,393   
 

 

 

   

 

 

 

Total assets

  $ 815,662      $ 836,781   
 

 

 

   

 

 

 

Liabilities and Equity

   

Liabilities

   

Future policy benefits (includes $458 and $0, respectively, relating to variable interest entities)

  $ 184,697      $ 192,351   

Policyholder account balances (includes $66 and $0, respectively, relating to variable interest entities)

    215,195        225,821   

Other policy-related balances (includes $129 and $0, respectively, relating to variable interest entities)

    15,279        15,463   

Policyholder dividends payable

    750        728   

Policyholder dividend obligation

    2,273        3,828   

Payables for collateral under securities loaned and other transactions

    33,247        33,687   

Bank deposits

    —        6,416   

Short-term debt

    100        100   

Long-term debt (includes $2,126 and $2,527, respectively, at estimated fair value, relating to variable interest entities)

    18,577        19,062   

Collateral financing arrangements

    4,196        4,196   

Junior subordinated debt securities

    3,193        3,192   

Current income tax payable

    111        401   

Deferred income tax liability

    6,602        8,693   

Other liabilities (includes $90 and $40, respectively, relating to variable interest entities)

    25,331        22,492   

Separate account liabilities (includes $1,096 and $0, respectively, relating to variable interest entities)

    245,573        235,393   
 

 

 

   

 

 

 

Total liabilities

    755,124        771,823   
 

 

 

   

 

 

 

Contingencies, Commitments and Guarantees (Note 14)

   

Redeemable noncontrolling interests in partially-owned consolidated subsidiaries

    130        121   
 

 

 

   

 

 

 

Equity

   

MetLife, Inc.’s stockholders’ equity:

   

Preferred stock, par value $0.01 per share; 200,000,000 shares authorized: 84,000,000 shares issued and outstanding; $2,100 aggregate liquidation preference

           

Common stock, par value $0.01 per share; 3,000,000,000 shares authorized; 1,099,795,436 and 1,094,880,623 shares issued at June 30, 2013 and December 31, 2012, respectively; 1,096,601,549 and 1,091,686,736 shares outstanding at June 30, 2013 and December 31, 2012, respectively

    11        11   

Additional paid-in capital

    28,137        28,011   

Retained earnings

    25,824        25,205   

Treasury stock, at cost; 3,193,887 shares at June 30, 2013 and December 31, 2012

    (172)        (172)    

Accumulated other comprehensive income (loss)

    6,202        11,397   
 

 

 

   

 

 

 

Total MetLife, Inc.’s stockholders’ equity

    60,003        64,453   

Noncontrolling interests

    405        384   
 

 

 

   

 

 

 

Total equity

    60,408        64,837   
 

 

 

   

 

 

 

Total liabilities and equity

  $ 815,662      $ 836,781   
 

 

 

   

 

 

 

See accompanying notes to the interim condensed consolidated financial statements.

 

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MetLife, Inc.

Interim Condensed Consolidated Statements of Operations and Comprehensive Income

For the Three Months and Six Months Ended June 30, 2013 and 2012 (Unaudited)

(In millions, except per share data)

 

                                                                           
     Three Months
Ended
June 30,
     Six Months
Ended
June 30,
 
     2013      2012      2013      2012  

Revenues

           

Premiums

   $ 9,158       $ 9,161       $ 18,309       $ 18,290   

Universal life and investment-type product policy fees

     2,371         2,097         4,662         4,175   

Net investment income

     5,282         4,719         11,359         10,919   

Other revenues

     490         393         970         990   

Net investment gains (losses):

           

Other-than-temporary impairments on fixed maturity securities

     (35)         (118)         (64)         (253)   

Other-than-temporary impairments on fixed maturity securities transferred to other comprehensive income (loss)

     (4)         27         (35)         29   

Other net investment gains (losses)

     149         27         523         50   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total net investment gains (losses)

     110         (64)         424         (174)   

Net derivative gains (losses)

     (1,690)         2,092         (2,320)         114   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues

     15,721         18,398         33,404         34,314   
  

 

 

    

 

 

    

 

 

    

 

 

 

Expenses

           

Policyholder benefits and claims

     8,960         8,911         18,355         18,015   

Interest credited to policyholder account balances

     1,846         1,022         4,436         3,579   

Policyholder dividends

     329         352         642         695   

Other expenses

     4,025         4,775         8,163         9,096   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total expenses

     15,160         15,060         31,596         31,385   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income (loss) from continuing operations before provision for income tax

     561         3,338         1,808         2,929   

Provision for income tax expense (benefit)

     53         1,038         305         763   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income (loss) from continuing operations, net of income tax

     508         2,300         1,503         2,166   

Income (loss) from discontinued operations, net of income tax

                   (1)         17   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income (loss)

     510         2,303         1,502         2,183   

Less: Net income (loss) attributable to noncontrolling interests

                   14         32   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income (loss) attributable to MetLife, Inc.

     502         2,295         1,488         2,151   

Less: Preferred stock dividends

     31         31         61         61   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income (loss) available to MetLife, Inc.’s common shareholders

   $ 471       $ 2,264       $ 1,427       $ 2,090   
  

 

 

    

 

 

    

 

 

    

 

 

 

Comprehensive income (loss)

   $ (3,881)       $ 3,765       $ (3,703)       $ 4,819   

Less: Comprehensive income (loss) attributable to noncontrolling interests, net of income tax

     (5)                       16   
  

 

 

    

 

 

    

 

 

    

 

 

 

Comprehensive income (loss) attributable to MetLife, Inc.

   $ (3,876)       $ 3,764       $ (3,707)       $ 4,803   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income (loss) from continuing operations, net of income tax, available to MetLife, Inc.’s common shareholders per common share:

           

Basic

   $ 0.43       $ 2.13       $ 1.30       $ 1.95   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted

   $ 0.43       $ 2.12       $ 1.29       $ 1.93   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income (loss) available to MetLife, Inc.’s common shareholders per common share:

           

Basic

   $ 0.43       $ 2.13       $ 1.30       $ 1.97   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted

   $ 0.43       $ 2.12       $ 1.29       $ 1.95   
  

 

 

    

 

 

    

 

 

    

 

 

 

Cash dividends declared per common share

   $ 0.550       $      $ 0.735       $  
  

 

 

    

 

 

    

 

 

    

 

 

 

See accompanying notes to the interim condensed consolidated financial statements.

 

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MetLife, Inc.

Interim Condensed Consolidated Statements of Equity

For the Six Months Ended June 30, 2013 (Unaudited)

(In millions)

 

                                  Accumulated Other Comprehensive Income (Loss)                    
    Preferred
Stock
    Common
Stock
    Additional
Paid-in
Capital
    Retained
Earnings
    Treasury
Stock
at Cost
    Net
Unrealized
Investment
Gains (Losses)
    Other-Than-
Temporary
Impairments
    Foreign
Currency
Translation
Adjustments
    Defined
Benefit
Plans
Adjustment
    Total
MetLife, Inc.’s
Stockholders’
Equity
    Noncontrolling
Interests (1)
    Total
Equity
 

Balance at December 31, 2012

  $     $ 11      $ 28,011      $ 25,205      $ (172)      $ 14,642      $ (223)      $ (533)      $ (2,489)      $ 64,453      $ 384      $ 64,837   

Stock-based compensation

        165                    165          165   

Dividends on preferred stock

          (61)                  (61)          (61)   

Dividends on common stock

          (808)                  (808)          (808)   

Change in equity of noncontrolling interests

        (39)                    (39)        17        (22)   

Net income (loss)

          1,488                  1,488        14        1,502   

Other comprehensive income (loss), net of income tax

              (4,025)        49        (1,292)        73        (5,195)        (10)        (5,205)   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2013

  $     $ 11      $ 28,137      $ 25,824      $ (172)      $ 10,617      $ (174)      $ (1,825)      $ (2,416)      $ 60,003      $ 405      $ 60,408   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

  

 

 

(1) Net income (loss) attributable to noncontrolling interests excludes gains (losses) of redeemable noncontrolling interests in partially-owned consolidated subsidiaries of less than $1 million.

See accompanying notes to the interim condensed consolidated financial statements.

 

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MetLife, Inc.

Interim Condensed Consolidated Statements of Equity — (Continued)

For the Six Months Ended June 30, 2012 (Unaudited)

(In millions)

 

                                  Accumulated Other Comprehensive Income (Loss)                    
    Preferred
Stock
    Common
Stock
    Additional
Paid-in
Capital
    Retained
Earnings
    Treasury
Stock
at Cost
    Net
Unrealized
Investment
Gains (Losses)
    Other-Than-
Temporary
Impairments
    Foreign
Currency
Translation
Adjustments
    Defined
Benefit
Plans
Adjustment
    Total
MetLife, Inc.’s
Stockholders’
Equity
    Noncontrolling
Interests (1)
    Total
Equity
 

Balance at December 31, 2011

  $     $ 11      $ 26,782      $ 24,814      $ (172)      $ 9,115      $ (441)      $ (648)      $ (1,943)      $ 57,519      $ 370      $ 57,889   

Stock-based compensation

        145                    145          145   

Dividends on preferred stock

          (61)                  (61)          (61)   

Change in equity of noncontrolling interests

                        (63)        (63)   

Net income (loss)

          2,151                  2,151        20        2,171   

Other comprehensive income (loss), net of income tax

              2,805        26        (229)        50        2,652        (4)        2,648   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2012

  $         1      $         11      $     26,927      $     26,904      $     (172)      $     11,920      $     (415)      $     (877)      $     (1,893)      $     62,406      $     323      $     62,729   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

(1) Net income (loss) attributable to noncontrolling interests excludes gains (losses) of redeemable noncontrolling interests in partially-owned consolidated subsidiaries of $12 million.

See accompanying notes to the interim condensed consolidated financial statements.

 

8


Table of Contents

MetLife, Inc.

Interim Condensed Consolidated Statements of Cash Flows

For the Six Months Ended June 30, 2013 and 2012 (Unaudited)

(In millions)

 

     Six Months
Ended
June 30,
 
         2013              2012      

Net cash provided by (used in) operating activities

   $ 7,314       $ 12,102   
  

 

 

    

 

 

 

Cash flows from investing activities

     

Sales, maturities and repayments of:

     

Fixed maturity securities

     64,674         51,495   

Equity securities

     449         789   

Mortgage loans

     5,033         4,625   

Real estate and real estate joint ventures

     271         544   

Other limited partnership interests

     510         453   

Purchases of:

     

Fixed maturity securities

     (65,745)         (61,507)   

Equity securities

     (644)         (393)   

Mortgage loans

     (4,826)         (4,877)   

Real estate and real estate joint ventures

     (721)         (279)   

Other limited partnership interests

     (926)         (586)   

Cash received in connection with freestanding derivatives

     777         1,011   

Cash paid in connection with freestanding derivatives

     (4,300)         (1,549)   

Net change in securitized reverse residential mortgage loans

     —         (1,116)   

Sales of businesses (1)

     373         —   

Sale of bank deposits

     (6,395)         —   

Net change in policy loans

     (111)         (46)   

Net change in short-term investments

     3,880         (1,037)   

Net change in other invested assets

     (174)         (225)   

Other, net

     22         (79)   
  

 

 

    

 

 

 

Net cash provided by (used in) investing activities

     (7,853)         (12,777)   
  

 

 

    

 

 

 

Cash flows from financing activities

     

Policyholder account balances:

     

Deposits

     41,507         49,224   

Withdrawals

     (45,852)         (44,889)   

Net change in payables for collateral under securities loaned and other transactions

     (440)         6,586   

Net change in bank deposits

            (3,717)   

Net change in short-term debt

     —         (585)   

Long-term debt repaid

     (356)         (1,022)   

Collateral financing arrangements repaid

     —         (349)   

Cash received (paid) in connection with collateral financing arrangements

     —         (44)   

Net change in liability for securitized reverse residential mortgage loans

     —         1,116   

Dividends on preferred stock

     (61)         (61)   

Dividends on common stock

     (505)         —   

Other, net

     (91)         32   
  

 

 

    

 

 

 

Net cash provided by (used in) financing activities

     (5,790)         6,291   
  

 

 

    

 

 

 

Effect of change in foreign currency exchange rates on cash and cash equivalents balances

     (225)         (42)   
  

 

 

    

 

 

 

Change in cash and cash equivalents

     (6,554)         5,574   

Cash and cash equivalents, beginning of period

     15,738         10,461   
  

 

 

    

 

 

 

Cash and cash equivalents, end of period

   $ 9,184       $ 16,035   
  

 

 

    

 

 

 

Supplemental disclosures of cash flow information:

     

Net cash paid (received) for:

     

Interest

   $ 618       $ 494   
  

 

 

    

 

 

 

Income tax

   $ 444       $ 302   
  

 

 

    

 

 

 

Non-cash transactions:

     

Real estate and real estate joint ventures acquired in satisfaction of debt

   $ 55       $ 221   
  

 

 

    

 

 

 

Collateral financing arrangements repaid

   $ —       $ 102   
  

 

 

    

 

 

 

Redemption of advances agreements in long-term debt (1)

   $ —       $ 3,806   
  

 

 

    

 

 

 

Issuance of funding agreements in policyholder account balances (1)

   $ —       $ 3,806   
  

 

 

    

 

 

 

Dividends on common stock declared and unpaid

   $ 303       $ —   
  

 

 

    

 

 

 

  

 

(1) See Note 3 of the Notes to the Consolidated Financial Statements included in the 2012 Annual Report.

See accompanying notes to the interim condensed consolidated financial statements.

 

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Table of Contents

MetLife, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited)

1. Business, Basis of Presentation and Summary of Significant Accounting Policies

Business

“MetLife” or the “Company” refers to MetLife, Inc., a Delaware corporation incorporated in 1999, its subsidiaries and affiliates. MetLife is a leading global provider of insurance, annuities and employee benefit programs throughout the United States, Japan, Latin America, Asia, Europe and the Middle East. MetLife offers life insurance, annuities, property & casualty insurance, and other financial services to individuals, as well as group insurance and retirement & savings products and services to corporations and other institutions.

MetLife is organized into six segments: Retail; Group, Voluntary & Worksite Benefits; Corporate Benefit Funding; and Latin America (collectively, the “Americas”); Asia; and Europe, the Middle East and Africa (“EMEA”).

Basis of Presentation

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported in the interim condensed consolidated financial statements. In applying these policies and estimates, management makes subjective and complex judgments that frequently require assumptions 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 Company’s business and operations. Actual results could differ from estimates.

The accompanying interim condensed consolidated financial statements include the accounts of MetLife, Inc. 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. Intercompany accounts and transactions have been eliminated.

Certain international subsidiaries have a fiscal year-end of November 30. Accordingly, the Company’s interim condensed consolidated financial statements reflect the assets and liabilities of such subsidiaries as of May 31, 2013 and November 30, 2012 and the operating results of such subsidiaries for the three months and six months ended May 31, 2013 and 2012.

The Company uses the equity method of accounting for investments in equity securities when it has significant influence or at least a 20% interest and for investments in real estate joint ventures and other limited partnership interests (“investees”) when it has more than a minor ownership interest or more than minor influence over the investee’s operations, but does not have a controlling financial interest. The Company generally recognizes its share of the investee’s earnings on a three-month lag in instances where the investee’s financial information is not sufficiently timely or when the investee’s reporting period differs from the Company’s reporting period. The Company uses the cost method of accounting for investments in which it has virtually no influence over the investee’s operations.

Certain amounts in the prior year periods’ interim condensed consolidated financial statements and related footnotes thereto have been reclassified to conform with the 2013 presentation as discussed throughout the Notes to the Interim Condensed Consolidated Financial Statements.

The accompanying interim condensed consolidated financial statements are unaudited and reflect all adjustments (including normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented in conformity with GAAP. Interim results are not necessarily indicative of full year performance. The December 31, 2012 consolidated balance sheet data was

 

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Table of Contents

MetLife, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued)

 

derived from audited consolidated financial statements included in MetLife, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2012 (the “2012 Annual Report”), filed with the U.S. Securities and Exchange Commission (“SEC”), which include all disclosures required by GAAP. Therefore, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company included in the 2012 Annual Report.

Adoption of New Accounting Pronouncements

Effective January 1, 2013, the Company adopted new guidance regarding comprehensive income that requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income (loss) (“AOCI”) by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of AOCI by the respective line items of net income but only if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under GAAP that provide additional detail about those amounts. The adoption was prospectively applied and resulted in additional disclosures in Note 10.

Effective January 1, 2013, the Company adopted new guidance regarding balance sheet offsetting disclosures which requires an entity to disclose information about offsetting and related arrangements for derivatives, including bifurcated embedded derivatives, repurchase and reverse repurchase agreements, and securities borrowing and lending transactions, to enable users of its financial statements to understand the effects of those arrangements on its financial position. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The adoption was retrospectively applied and resulted in additional disclosures related to derivatives in Note 7.

Future Adoption of New Accounting Pronouncements

In July 2013, the Financial Accounting Standards Board (“FASB”) issued new guidance regarding derivatives (Accounting Standards Update (“ASU”) 2013-10, Derivatives and Hedging (Topic 815): Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate (“OIS”)) as a Benchmark Interest Rate for Hedge Accounting Purposes), effective prospectively for qualifying new or redesignated hedging relationships entered into on or after July 17, 2013. The amendments permit the Fed Funds Effective Swap Rate (or OIS) to be used as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815, in addition to the United States Treasury and London Inter-Bank Offered Rate (“LIBOR”). Also, the amendments remove the restriction on using different benchmark rates for similar hedges. The Company has adopted this new guidance in July 2013. The new guidance will not have a material impact on the consolidated financial statements upon adoption, but may impact the selection of benchmark interest rates for hedging relationships in the future.

In March 2013, the FASB issued new guidance regarding foreign currency (ASU 2013-05, Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity), effective prospectively for fiscal years and interim reporting periods within those years beginning after December 15, 2013. The amendments require an entity that ceases to have a controlling financial interest in a subsidiary or group of assets within a foreign entity to apply the guidance in Subtopic 830-30, Foreign Currency Matters — Translation of Financial Statements, to release any related cumulative translation adjustment into net income. Accordingly, the cumulative translation adjustment should be released into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. For an equity method investment that is a foreign entity, the partial sale guidance

 

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Table of Contents

MetLife, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued)

 

in section 830-30-40, Derecognition, still applies. As such, a pro rata portion of the cumulative translation adjustment should be released into net income upon a partial sale of such an equity method investment. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

In February 2013, the FASB issued new guidance regarding liabilities (ASU 2013-04, Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date), effective retrospectively for fiscal years beginning after December 15, 2013 and interim periods within those years. The amendments require an entity to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of the guidance is fixed at the reporting date, as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. In addition, the amendments require an entity to disclose the nature and amount of the obligation, as well as other information about the obligations. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

In July 2011, the FASB issued new guidance on other expenses (ASU 2011-06, Other Expenses (Topic 720): Fees Paid to the Federal Government by Health Insurers), effective for calendar years beginning after December 31, 2013. The objective of this standard is to address how health insurers should recognize and classify in their income statements fees mandated by the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act. The amendments in this standard specify that the liability for the fee should be estimated and recorded in full once the entity provides qualifying health insurance in the applicable calendar year in which the fee is payable with a corresponding deferred cost that is amortized to expense using the straight-line method of allocation unless another method better allocates the fee over the calendar year that it is payable. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

2. Segment Information

MetLife is organized into six segments, reflecting three broad geographic regions: Retail; Group, Voluntary & Worksite Benefits; Corporate Benefit Funding; and Latin America (collectively, the “Americas”); Asia; and EMEA. In addition, the Company reports certain of its results of operations in Corporate & Other, which includes MetLife Bank, National Association (“MetLife Bank”) (see Note 3) and other business activities.

As anticipated, in the third quarter of 2012, the Company continued to realign certain products and businesses among its existing segments. Management realigned certain individual disability income and property & casualty products, which were previously reported in the Group, Voluntary & Worksite Benefits segment and began reporting such product results in the Retail segment. In accordance with this realignment, prior period operating earnings for the Retail segment increased by $28 million, net of $6 million of income tax, and $89 million, net of $25 million of income tax, with a corresponding decrease in the Group, Voluntary & Worksite Benefits segment, for the three months and six months ended June 30, 2012, respectively. Management also realigned the businesses in South Asia and India, which were previously reported in the EMEA segment and began reporting such results in the Asia segment. In accordance with this realignment, prior period operating earnings for the Asia segment increased by $4 million, net of $2 million of income tax, and $8 million, net of $4 million of income tax, with a corresponding decrease in the EMEA segment, for the three months and six months ended June 30, 2012, respectively.

 

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Table of Contents

MetLife, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued)

 

Americas

The Americas consists of the following segments:

  Retail

The Retail segment offers a broad range of protection products and services and a variety of annuities to individuals and employees of corporations and other institutions, and is organized into two businesses: Life & Other and Annuities. Life & Other insurance products and services include variable life, universal life, term life and whole life products. Additionally, through broker-dealer affiliates, the Company offers a full range of mutual funds and other securities products. Life & Other products and services also include individual disability income products and personal lines property & casualty insurance, including private passenger automobile, homeowners and personal excess liability insurance. Annuities includes a variety of variable and fixed annuities which provide for both asset accumulation and asset distribution needs.

  Group, Voluntary & Worksite Benefits

The Group, Voluntary & Worksite Benefits segment 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 businesses: Group and Voluntary & Worksite. Group insurance products and services include variable life, universal life and term life products. Group insurance products and services also include dental, group short- and long-term disability and accidental death & dismemberment coverages. The Voluntary & Worksite business includes personal lines property & casualty insurance, including private passenger automobile, homeowners and personal excess liability insurance offered to employees on a voluntary basis. The Voluntary & Worksite business also includes long-term care, prepaid legal plans and critical illness products.

  Corporate Benefit Funding

The Corporate Benefit Funding segment offers a broad range of annuity and investment products, including guaranteed interest products and other stable value products, income annuities, and separate account contracts for the investment management of defined benefit and defined contribution plan assets. This segment also includes certain products to fund postretirement benefits and company-, bank- or trust-owned life insurance used to finance non-qualified benefit programs for executives.

  Latin America

The Latin America segment offers a broad range of products to both individuals and corporations, as well as other institutions and their respective employees, which include life insurance, accident and health insurance, group medical, dental, credit insurance, endowment and retirement & savings products written in Latin America. Starting in the first quarter of 2013, the Latin America segment includes U.S. sponsored direct business, comprised of group products sold through sponsoring organizations and affinity groups. Products included are life, dental, group short- and long-term disability, accidental death & dismemberment coverages, property & casualty and critical illness.

Asia

The Asia segment offers a broad range of products to both individuals and corporations, as well as other institutions and their respective employees, which include whole life, term life, variable life, universal life, accident and health insurance, fixed and variable annuities and endowment products.

 

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Table of Contents

MetLife, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued)

 

EMEA

The EMEA segment offers a broad range of products to both individuals and corporations, as well as other institutions and their respective employees, which include life insurance, accident and health insurance, credit insurance, annuities, endowment and retirement & savings products.

Corporate & Other

Corporate & Other contains the excess capital not allocated to the segments, external integration costs, internal resource costs for associates committed to acquisitions, enterprise-wide strategic initiative restructuring charges, and various start-up and certain run-off businesses. Start-up businesses include expatriate benefits insurance, as well as direct and digital marketing products. Corporate & Other also includes assumed reinsurance of certain variable annuity products from the Company’s former operating joint venture in Japan. Under this in-force reinsurance agreement, the Company reinsures living and death benefit guarantees issued in connection with variable annuity products. Additionally, Corporate & Other includes interest expense related to the majority of the Company’s 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 intersegment loans, which bear interest rates commensurate with related borrowings.

Financial Measures and Segment Accounting Policies

Operating earnings is the measure of segment profit or loss the Company uses to evaluate segment performance and allocate resources. Consistent with GAAP guidance for segment reporting, operating earnings is the Company’s measure of segment performance and is reported below. Operating earnings should not be viewed as a substitute for income (loss) from continuing operations, net of income tax. The Company believes the presentation of operating earnings as the Company measures it for management purposes enhances the understanding of its performance by highlighting the results of operations and the underlying profitability drivers of the business.

Operating earnings is defined as operating revenues less operating expenses, both net of income tax.

Operating revenues and operating expenses exclude results of discontinued operations and other businesses that have been or will be sold or exited by MetLife (“Divested Businesses”). Operating revenues also excludes net investment gains (losses) and net derivative gains (losses). Operating expenses also excludes goodwill impairments.

The following additional adjustments are made to GAAP revenues, in the line items indicated, in calculating operating revenues:

 

   

Universal life and investment-type product policy fees excludes the amortization of unearned revenue related to net investment gains (losses) and net derivative gains (losses) and certain variable annuity guaranteed minimum income benefits (“GMIBs”) fees (“GMIB Fees”);

 

   

Net investment income: (i) includes amounts for scheduled periodic settlement payments and amortization of premium on derivatives that are hedges of investments or that are used to replicate certain investments, but do not qualify for hedge accounting treatment, (ii) includes income from discontinued real estate operations, (iii) excludes post-tax operating earnings adjustments relating to insurance joint ventures accounted for under the equity method, (iv) excludes certain amounts related to contractholder-directed unit-linked investments, and (v) excludes certain amounts related to securitization entities that are VIEs consolidated under GAAP; and

 

   

Other revenues are adjusted for settlements of foreign currency earnings hedges.

 

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Table of Contents

MetLife, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued)

 

The following additional adjustments are made to GAAP expenses, in the line items indicated, in calculating operating expenses:

 

   

Policyholder benefits and claims and policyholder dividends excludes: (i) changes in the policyholder dividend obligation related to net investment gains (losses) and net derivative gains (losses), (ii) inflation-indexed benefit adjustments associated with contracts backed by inflation-indexed investments and amounts associated with periodic crediting rate adjustments based on the total return of a contractually referenced pool of assets, (iii) benefits and hedging costs related to GMIBs (“GMIB Costs”), and (iv) market value adjustments associated with surrenders or terminations of contracts (“Market Value Adjustments”);

 

   

Interest credited to policyholder account balances includes adjustments for scheduled periodic settlement payments and amortization of premium on derivatives that are hedges of policyholder account balances (“PABs”) but do not qualify for hedge accounting treatment and excludes amounts related to net investment income earned on contractholder-directed unit-linked investments;

 

   

Amortization of deferred policy acquisition costs (“DAC”) and value of business acquired (“VOBA”) excludes amounts related to: (i) net investment gains (losses) and net derivative gains (losses), (ii) GMIB Fees and GMIB Costs, and (iii) Market Value Adjustments;

 

   

Amortization of negative VOBA excludes amounts related to Market Value Adjustments;

 

   

Interest expense on debt excludes certain amounts related to securitization entities that are VIEs consolidated under GAAP; and

 

   

Other expenses excludes costs related to: (i) noncontrolling interests, (ii) implementation of new insurance regulatory requirements, and (iii) acquisition and integration costs.

Operating earnings also excludes the recognition of certain contingent assets and liabilities that could not be recognized at acquisition or adjusted for during the measurement period under GAAP business combination accounting guidance.

In the third quarter of 2012, MetLife began reporting additional MetLife Bank operations as Divested Businesses. See Note 3 of the Notes to the Consolidated Financial Statements included in the 2012 Annual Report. Consequently, prior period results for Corporate & Other have increased by $6 million, net of $5 million of income tax, and $7 million, net of $5 million of income tax, for the three months and six months ended June 30, 2012, respectively.

Set forth in the tables below is certain financial information with respect to the Company’s segments, as well as Corporate & Other, for the three months and six months ended June 30, 2013 and 2012. The segment accounting policies are the same as those used to prepare the Company’s consolidated financial statements, except for operating earnings adjustments as defined above. In addition, segment accounting policies include the method of capital allocation described below.

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 the Company’s business.

 

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Table of Contents

MetLife, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued)

 

The Company’s economic capital model aligns segment allocated equity with emerging standards and consistent risk principles. Segment net investment income is credited or charged based on the level of allocated equity; however, changes in allocated equity do not impact the Company’s consolidated net investment income, operating earnings or income (loss) from continuing operations, net of income tax.

Net investment income is based upon the actual results of each segment’s specifically identifiable investment 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 Company’s product pricing.

 

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Table of Contents

MetLife, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued)

 

 

    Operating Earnings              
    Americas                                      

Three Months Ended June 30, 2013

      Retail         Group,
Voluntary
 & Worksite 
Benefits
     Corporate 
Benefit
Funding
    Latin
  America  
        Total             Asia             EMEA           Corporate  
& Other
        Total           Adjustments       Total
 Consolidated 
 
    (In millions)  

Revenues

                     

Premiums

    $    1,581        $  3,797        $      503        $      710        $      6,591        $  1,980        $      558        $      28        $  9,157      $       $  9,158   

Universal life and investment-type product policy fees

    1,238        170        65        235        1,708        442        96        35        2,281        90        2,371   

Net investment income

    1,987        472        1,443        281        4,183        723        120        78        5,104        178        5,282   

Other revenues

    257        105        67              434        28        34              500        (10)        490   

Net investment gains (losses)

    —        —        —        —        —        —        —        —        —        110        110   

Net derivative gains (losses)

    —        —        —        —        —        —        —        —        —        (1,690)        (1,690)   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    5,063        4,544        2,078        1,231        12,916        3,173        808        145        17,042        (1,321)        15,721   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expenses

                     

Policyholder benefits and claims and policyholder dividends

    2,272        3,514        1,110        601        7,497        1,433        256        18        9,204        85        9,289   

Interest credited to policyholder account balances

    589        39        305        103        1,036        437        37        11        1,521        325        1,846   

Capitalization of DAC

    (344)        (35)        (6)        (108)        (493)        (522)        (192)        (5)        (1,212)        —        (1,212)   

Amortization of DAC and VOBA

    396        33              83        518        392        195        —        1,105        (147)         958   

Amortization of negative VOBA

    —        —        —        —        —        (113)        (11)        —        (124)        (14)        (138)   

Interest expense on debt

                                  —        (1)         283        287        34        321   

Other expenses

    1,265        578        121        390        2,354        1,054        460        146        4,014        82        4,096   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

    4,179        4,130        1,538        1,070        10,917        2,681        744        453        14,795        365        15,160   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provision for income tax expense (benefit)

    303        139        190        36        668        162        (4)         (203)        623        (570)        53   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Operating earnings

    $581      $ 275      $ 350      $ 125      $ 1,331      $ 330      $ 68      $ (105)        1,624       
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

Adjustments to:

                     

Total revenues

  

    (1,321)       

Total expenses

  

    (365)       

Provision for income tax (expense) benefit

  

    570       
                 

 

 

     

Income (loss) from continuing operations, net of income tax

  

  $ 508        $ 508   
                 

 

 

     

 

 

 

 

17


Table of Contents

MetLife, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued)

 

    Operating Earnings              
    Americas                                      

Three Months Ended June 30, 2012

      Retail         Group,
Voluntary
 & Worksite 
Benefits
     Corporate 
Benefit
Funding
    Latin
  America  
        Total             Asia             EMEA           Corporate  
& Other
        Total           Adjustments       Total
 Consolidated 
 
    (In millions)  

Revenues

                     

Premiums

  $     1,576      $     3,683      $       523      $       652      $       6,434      $     2,064      $       627      $         14      $         9,139      $         22      $         9,161   

Universal life and investment-type product policy fees

    1,119        165        57        196        1,537        352        71        39        1,999        98        2,097   

Net investment income

    1,894        439        1,431        283        4,047        760        127        238        5,172        (453)        4,719   

Other revenues

    217        112        65              397        (3)        27              426        (33)        393   

Net investment gains (losses)

    —        —        —        —        —        —        —        —        —        (64)        (64)   

Net derivative gains (losses)

    —        —        —        —        —        —        —        —        —        2,092        2,092   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    4,806        4,399        2,076        1,134        12,415        3,173        852        296        16,736        1,662        18,398   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expenses

                     

Policyholder benefits and claims and policyholder dividends

    2,212        3,391        1,131        568        7,302        1,435        343        52        9,132        131        9,263   

Interest credited to policyholder account balances

    590        43        338        90        1,061        426        26        12        1,525        (503)        1,022   

Capitalization of DAC

    (446)        (33)        (8)        (71)        (558)        (555)        (200)        —        (1,313)        (2)        (1,315)   

Amortization of DAC and VOBA

    477        28              54        563        419        180        —        1,162        317        1,479   

Amortization of negative VOBA

    —        —        —        (1)        (1)        (128)        (35)        —        (164)        (17)        (181)   

Interest expense on debt

    —        —              —                          290        297        45        342   

Other expenses

    1,355        570        120        323        2,368        1,153        422        108        4,051        399        4,450   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

    4,188        3,999        1,587        963        10,737        2,754        737        462        14,690        370        15,060   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provision for income tax expense (benefit)

    210        133        171        36        550        140        37        (144)        583        455        1,038   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Operating earnings

  $ 408      $ 267      $ 318      $ 135      $ 1,128      $ 279      $ 78      $ (22)        1,463       
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

Adjustments to:

                     

Total revenues

  

    1,662       

Total expenses

  

    (370)       

Provision for income tax (expense) benefit

  

    (455)       
                 

 

 

     

Income (loss) from continuing operations, net of income tax

  

  $ 2,300        $ 2,300   
                 

 

 

     

 

 

 

 

18


Table of Contents

MetLife, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued)

 

    Operating Earnings              
    Americas                                      

Six Months Ended June 30, 2013

      Retail         Group,
Voluntary
 & Worksite 
Benefits
     Corporate 
Benefit
Funding
    Latin
  America  
        Total             Asia             EMEA           Corporate  
& Other
        Total           Adjustments       Total
 Consolidated 
 
    (In millions)  

Revenues

                     

Premiums

  $     3,128      $     7,671      $       967      $     1,385      $     13,151      $       3,978      $       1,125      $           54      $     18,308      $             1      $     18,309   

Universal life and investment-type product policy fees

    2,405        350        133        460        3,348        886        187        71        4,492        170        4,662   

Net investment income

    3,948        925        2,878        558        8,309        1,455        248        224        10,236        1,123        11,359   

Other revenues

    500        213        140              862        41        61        17        981        (11)         970   

Net investment gains (losses)

    —        —        —        —        —        —        —        —        —        424        424   

Net derivative gains (losses)

    —        —        —        —        —        —        —        —        —        (2,320)         (2,320)    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    9,981        9,159        4,118        2,412        25,670        6,360        1,621        366        34,017        (613)         33,404   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expenses

                     

Policyholder benefits and claims and policyholder dividends

    4,425        7,154        2,208        1,155        14,942        2,848        493        27        18,310        687        18,997   

Interest credited to policyholder account balances

    1,168        78        648        207        2,101        879        72        23        3,075        1,361        4,436   

Capitalization of DAC

    (718)        (68)        (23)        (213)        (1,022)        (1,068)        (369)        (9)        (2,468)        —        (2,468)   

Amortization of DAC and VOBA

    727        67        17        157        968        793        360        —        2,121        (339)         1,782   

Amortization of negative VOBA

    —        —        —        (1)         (1)        (226)        (28)        —        (255)        (29)        (284)   

Interest expense on debt

                      —              —        —        569        575        67        642   

Other expenses

    2,543        1,166        264        762        4,735        2,148        908        310        8,101        390        8,491   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

    8,146        8,398        3,118        2,067        21,729        5,374        1,436        920        29,459        2,137        31,596   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provision for income tax expense (benefit)

    628        256        351        77        1,312        323        30        (396)        1,269        (964)        305   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Operating earnings

  $ 1,207      $ 505      $ 649      $ 268      $ 2,629      $ 663      $ 155      $ (158)        3,289       
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

Adjustments to:

                     

Total revenues

  

    (613)       

Total expenses

  

    (2,137)       

Provision for income tax (expense) benefit

  

    964       
                 

 

 

     

Income (loss) from continuing operations, net of income tax

  

  $ 1,503        $ 1,503   
                 

 

 

     

 

 

 

 

19


Table of Contents

MetLife, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued)

 

    Operating Earnings              
    Americas                                      

Six Months Ended June 30, 2012

  Retail     Group,
Voluntary
& Worksite
Benefits
    Corporate
Benefit
Funding
    Latin
America
    Total     Asia     EMEA     Corporate
& Other
    Total     Adjustments     Total
Consolidated
 
    (In millions)  

Revenues

                     

Premiums

  $     3,200      $     7,268      $     1,030      $     1,338      $     12,836      $       4,103      $     1,279      $           28      $     18,246      $           44      $     18,290   

Universal life and investment-type product policy fees

    2,233        331        108        392        3,064        714        151        79        4,008        167        4,175   

Net investment income

    3,805        875        2,832        582        8,094        1,441        284        430        10,249        670        10,919   

Other revenues

    426        220        129              783        13        63        19        878        112        990   

Net investment gains (losses)

    —        —        —        —        —        —        —        —        —        (174)        (174)   

Net derivative gains (losses)

    —        —        —        —        —        —        —        —        —        114        114   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    9,664        8,694        4,099        2,320        24,777        6,271        1,777        556        33,381        933        34,314   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expenses

                     

Policyholder benefits and claims and policyholder dividends

    4,440        6,704        2,223        1,160        14,527        2,795        686        63        18,071        639        18,710   

Interest credited to policyholder account balances

    1,186        85        677        190        2,138        855        59        12        3,064        515        3,579   

Capitalization of DAC

    (922)        (64)        (15)        (155)        (1,156)        (1,142)        (377)        —        (2,675)        (4)        (2,679)   

Amortization of DAC and VOBA

    881        58        14        109        1,062        792        326        —        2,180        13        2,193   

Amortization of negative VOBA

    —        —        —        (3)        (3)        (259)        (39)        —        (301)        (35)        (336)   

Interest expense on debt

    —        —                                      601        612        88        700   

Other expenses

    2,752        1,145        248        649        4,794        2,344        893        263        8,294        924        9,218   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

    8,337        7,928        3,151        1,951        21,367        5,390        1,549        939        29,245        2,140        31,385   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provision for income tax expense (benefit)

    450        256        332        86        1,124        301        78        (324)        1,179        (416)        763   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Operating earnings

  $ 877      $ 510      $ 616      $ 283      $ 2,286      $ 580      $ 150      $ (59)        2,957       
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

Adjustments to:

  

     

Total revenues

  

    933       

Total expenses

  

    (2,140)       

Provision for income tax (expense) benefit

  

    416       
                 

 

 

     

Income (loss) from continuing operations, net of income tax

  

  $ 2,166        $ 2,166   
                 

 

 

     

 

 

 

 

20


Table of Contents

MetLife, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued)

 

The following table presents total assets with respect to the Company’s segments, as well as Corporate & Other, at:

 

                                                       
     June 30, 2013      December 31, 2012  
     (In millions)  

Retail

   $ 336,021      $ 332,387  

Group, Voluntary & Worksite Benefits

     43,441        44,138  

Corporate Benefit Funding

     219,978        217,352  

Latin America

     23,300        23,272  

Asia

     118,197        131,138  

EMEA

     23,293        23,474  

Corporate & Other

     51,432        65,020  
  

 

 

    

 

 

 

Total

   $     815,662      $     836,781  
  

 

 

    

 

 

 

3. Acquisitions and Disposition

2013 Pending Acquisition

  Provida

On February 1, 2013, MetLife, Inc. announced that it has entered into a definitive agreement with Banco Bilbao Vizcaya Argentaria, S.A. (“BBVA”) and BBVA Inversiones Chile S.A. (together with BBVA, the “BBVA Sellers”) to acquire Administradora de Fondos de Pensiones Provida S.A. (“Provida”), the largest private pension fund administrator in Chile by assets under management and number of contributors. Under the terms of the agreement, MetLife will conduct a public cash tender offer for all of the outstanding shares of Provida, and the BBVA Sellers have agreed to transfer their 64.3% stake to MetLife. Assuming all publicly-held shares are tendered, the purchase price, which MetLife, Inc. and certain of its subsidiaries will fund from their existing cash balances, would be approximately $2.1 billion. The transaction is anticipated to close in the fourth quarter of 2013, subject to the satisfaction of certain customary conditions.

2013 Disposition

  MetLife Bank

On January 11, 2013, MetLife Bank and MetLife, Inc. completed the sale of MetLife Bank’s $6.4 billion of deposits to GE Capital Retail Bank for $6.4 billion in net consideration paid. On February 14, 2013, MetLife, Inc. announced that it had received the required approvals from both the Federal Deposit Insurance Corporation and the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) to de-register as a bank holding company. Subsequently, MetLife Bank terminated its deposit insurance and MetLife, Inc. de-registered as a bank holding company.

MetLife Bank has sold or has otherwise committed to exit substantially all of its operations. In conjunction with exiting its businesses (the “MetLife Bank Divestiture”), the Company recorded net losses of $15 million and $74 million, net of income tax, for the three months and six months ended June 30, 2013, respectively, related to the gain on disposal of the depository business and other costs related to MetLife Bank’s businesses. For the three months and six months ended June 30, 2012, the Company recorded net losses of $117 million and $110 million, respectively, net of income tax, related to the loss on disposal of mortgage servicing rights

 

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MetLife, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued)

 

(“MSRs”), gains (losses) on securities and mortgage loans sold, and other costs related to MetLife Bank’s businesses. See Note 3 of the Notes to the Consolidated Financial Statements included in the 2012 Annual Report. The Company expects to incur additional charges of $65 million to $90 million, net of income tax, exclusive of incremental legal settlements, related to the MetLife Bank Divestiture. See Note 14.

Each of the businesses that were exited could not be separated from the rest of the MetLife Bank operations since the Company did not separately manage the businesses as a reportable segment, operating segment, or reporting unit. As a result, the businesses have not been reported as discontinued operations in the consolidated financial statements.

2010 Acquisition

  American Life Insurance Company

  Branch Restructuring

During the first quarter of 2013, and in accordance with the closing agreement, American Life Insurance Company (“American Life”) entered into on March 4, 2010 (the “Closing Agreement”) with the Commissioner of the Internal Revenue Service (see Note 3 of the Notes to the Consolidated Financial Statements included in the 2012 Annual Report), the Company transferred the business of American Life in Portugal and Spain to wholly-owned subsidiaries. The deferred tax asset valuation allowance associated with this branch restructuring was reduced from $25 million at December 31, 2012 to $0 at June 30, 2013. For further information, see Note 19 of the Notes to the Consolidated Financial Statements included in the 2012 Annual Report.

A liability of $277 million was recognized in purchase accounting at November 1, 2010 for the anticipated and estimated costs associated with restructuring American Life’s foreign branches into subsidiaries in connection with the Closing Agreement. This liability has been reduced based on payments and revised estimates through June 30, 2013 resulting in a liability of $48 million at June 30, 2013.

  Japan Income Tax Refund

In December 2012, the Tokyo District Court ruled in favor of the Japan branch of American Life in a tax case related to the deduction of unrealized foreign exchange losses on certain securities held by American Life prior to its acquisition by MetLife. See Note 3 of the Notes to the Consolidated Financial Statements included in the 2012 Annual Report. During the first quarter of 2013, American Life received a refund of ¥16 billion ($176 million) related to income tax, interest and penalties. Under the indemnification provisions of the stock purchase agreement dated March 7, 2010, as amended, by and among MetLife, Inc., American International Group, Inc. (“AIG”) and AM Holdings LLC (formerly known as ALICO Holdings LLC), MetLife, Inc. has remitted the refund to AIG, net of certain amounts it can retain as a counter claim. The receipt of the refund, net of obligations to AIG with related foreign currency exchange impact and corresponding U.S. tax effects, resulted in a net charge of $16 million in the interim condensed consolidated statements of operations and comprehensive income for the six months ended June 30, 2013, which was comprised of a $154 million charge included in other expenses, a $19 million gain included in other net investment gains (losses) and a $119 million benefit included in provision for income tax expense (benefit).

 

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MetLife, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued)

 

4. Insurance

Guarantees

As discussed in Notes 1 and 4 of the Notes to the Consolidated Financial Statements included in the 2012 Annual Report, the Company issues variable annuity products with guaranteed minimum benefits. The non-life-contingent portion of guaranteed minimum withdrawal benefits (“GMWBs”) and the portion of certain GMIBs that does not require annuitization are accounted for as embedded derivatives in PABs and are further discussed in Note 7.

The Company also issues annuity contracts that apply a lower rate of funds deposited if the contractholder elects to surrender the contract for cash and a higher rate if the contractholder elects to annuitize (“two tier annuities”). These guarantees include benefits that are payable in the event of death, maturity or at annuitization. Additionally, the Company issues universal and variable life contracts where the Company contractually guarantees to the contractholder a secondary guarantee or a guaranteed paid-up benefit.

Based on the type of guarantee, the Company defines net amount at risk as listed below. These amounts include direct and assumed business, but exclude offsets from hedging or reinsurance, if any.

  Variable Annuity Guarantees

  In the Event of Death

Defined as the guaranteed minimum death benefit less the total contract account value, as of the balance sheet date. It represents the amount of the claim that the Company would incur if death claims were filed on all contracts on the balance sheet date.

  At Annuitization

Defined as the amount (if any) that would be required to be added to the total contract account value to purchase a lifetime income stream, based on current annuity rates, equal to the minimum amount provided under the guaranteed benefit. This amount represents the Company’s potential economic exposure to such guarantees in the event all contractholders were to annuitize on the balance sheet date, even though the contracts contain terms that only allow annuitization of the guaranteed amount after the 10th anniversary of the contract, which not all contractholders have achieved.

  Two Tier Annuities

Defined as the excess of the upper tier, adjusted for a profit margin, less the lower tier, as of the balance sheet date. These contracts apply a lower rate of funds if the contractholder elects to surrender the contract for cash and a higher rate if the contractholder elects to annuitize.

  Universal and Variable Life Contracts

Defined as the guarantee amount less the account value, as of the balance sheet date. It represents the amount of the claim that the Company would incur if death claims were filed on all contracts on the balance sheet date.

 

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MetLife, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued)

 

Information regarding the types of guarantees relating to annuity contracts and universal and variable life contracts was as follows at:

 

     June 30, 2013      December 31, 2012  
      In the
    Event of Death    
     At
     Annuitization    
     In the
    Event of Death    
     At
     Annuitization    
 
     (In millions)  

Annuity Contracts (1)

           

Variable Annuity Guarantees

           

Total contract account value (2)

   $     188,810      $     92,875      $     184,095      $     89,137  

Separate account value

   $ 151,039      $ 88,730      $ 143,893      $ 84,354  

Net amount at risk

   $ 6,744      $ 3,585      $ 9,501      $ 4,593  

Average attained age of contractholders

     63 years           64 years           62 years           62 years     

Two Tier Annuities

           

General account value

     N/A       $ 854        N/A       $ 848  

Net amount at risk

     N/A       $ 221        N/A       $ 232  

Average attained age of contractholders

     N/A         52 years         N/A         51 years   
     June 30, 2013      December 31, 2012  
     Secondary
Guarantees
     Paid-Up
Guarantees
     Secondary
Guarantees
     Paid-Up
Guarantees
 
     (In millions)  

Universal and Variable Life Contracts (1)

           

Account value (general and separate account)

   $ 15,201      $ 3,757      $ 14,256      $ 3,828  

Net amount at risk

   $ 186,976      $ 22,440      $ 189,197      $ 23,276  

Average attained age of policyholders

     55 years           60 years           54 years           60 years     

 

 

 

(1) The Company’s 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) Includes amounts, which are not reported in the consolidated balance sheets, from assumed reinsurance of certain variable annuity products from the Company’s former operating joint venture in Japan.

5. Closed Block

On April 7, 2000 (the “Demutualization Date”), Metropolitan Life Insurance Company (“MLIC”) converted from a mutual life insurance company to a stock life insurance company and became a wholly-owned subsidiary of MetLife, Inc. The conversion was pursuant to an order by the New York Superintendent of Insurance approving MLIC’s plan of reorganization, as amended (the “Plan”). On the Demutualization Date, MLIC established a closed block for the benefit of holders of certain individual life insurance policies of MLIC.

Experience within the closed block, in particular mortality and investment yields, as well as realized and unrealized gains and losses, directly impact the policyholder dividend obligation. Amortization of the closed block DAC, which resides outside of the closed block, is based upon cumulative actual and expected earnings within the closed block. Accordingly, the Company’s net income continues to be sensitive to the actual performance of the closed block.

 

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MetLife, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued)

 

Closed block assets, liabilities, revenues and expenses are combined on a line-by-line basis with the assets, liabilities, revenues and expenses outside the closed block based on the nature of the particular item.

Information regarding the closed block liabilities and assets designated to the closed block was as follows:

 

         June 30, 2013            December 31, 2012    
     (In millions)  

Closed Block Liabilities

     

Future policy benefits

   $         42,228       $         42,586   

Other policy-related balances

     284         298   

Policyholder dividends payable

     489         466   

Policyholder dividend obligation

     2,273         3,828   

Current income tax payable

     21         —   

Other liabilities

     635         602   
  

 

 

    

 

 

 

Total closed block liabilities

     45,930         47,780   
  

 

 

    

 

 

 

Assets Designated to the Closed Block

     

Investments:

     

Fixed maturity securities available-for-sale, at estimated fair value

     28,725         30,546   

Equity securities available-for-sale, at estimated fair value

     94         41   

Mortgage loans

     6,243         6,192   

Policy loans

     4,670         4,670   

Real estate and real estate joint ventures

     463         459   

Other invested assets

     963         953   
  

 

 

    

 

 

 

Total investments

     41,158         42,861   

Cash and cash equivalents

     302         381   

Accrued investment income

     492         481   

Premiums, reinsurance and other receivables

     87         107   

Current income tax recoverable

     —          

Deferred income tax assets

     324         319   
  

 

 

    

 

 

 

Total assets designated to the closed block

     42,363         44,151   
  

 

 

    

 

 

 

Excess of closed block liabilities over assets designated to the closed block

     3,567         3,629   
  

 

 

    

 

 

 

Amounts included in AOCI:

     

Unrealized investment gains (losses), net of income tax

     1,825         2,891   

Unrealized gains (losses) on derivatives, net of income tax

     15          

Allocated to policyholder dividend obligation, net of income tax

     (1,477)         (2,488)   
  

 

 

    

 

 

 

Total amounts included in AOCI

     363         412   
  

 

 

    

 

 

 

Maximum future earnings to be recognized from closed block assets and liabilities

   $ 3,930       $ 4,041   
  

 

 

    

 

 

 

 

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MetLife, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued)

 

Information regarding the closed block policyholder dividend obligation was as follows:

 

     Six Months
Ended
    June 30, 2013    
    Year
Ended
  December  31, 2012  
 
     (In millions)  

Balance, beginning of period

   $             3,828      $             2,919   

Change in unrealized investment and derivative gains (losses)

     (1,555 )       909   
  

 

 

   

 

 

 

Balance, end of period

   $ 2,273      $ 3,828   
  

 

 

   

 

 

 

Information regarding the closed block revenues and expenses was as follows:

 

      Three Months
Ended
June 30,
     Six Months
Ended
June 30,
 
      2013      2012      2013      2012  
     (In millions)  

Revenues

           

Premiums

   $         489       $         528       $         953       $         1,026   

Net investment income

     529         539         1,062         1,089   

Net investment gains (losses)

     24         13         27         24   

Net derivative gains (losses)

            11         15          
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues

     1,049         1,091         2,057         2,141   
  

 

 

    

 

 

    

 

 

    

 

 

 

Expenses

           

Policyholder benefits and claims

     669         700         1,312         1,362   

Policyholder dividends

     247         275         489         543   

Other expenses

     43         46         85         91   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total expenses

     959         1,021         1,886         1,996   
  

 

 

    

 

 

    

 

 

    

 

 

 

Revenues, net of expenses before provision for income tax expense (benefit)

     90         70         171         145   

Provision for income tax expense (benefit)

     33         25         60         52   
  

 

 

    

 

 

    

 

 

    

 

 

 

Revenues, net of expenses and provision for income tax expense (benefit) from continuing operations

     57         45         111         93   

Revenues, net of expenses and provision for income tax expense (benefit) from discontinued operations

     —         —         —          
  

 

 

    

 

 

    

 

 

    

 

 

 

Revenues, net of expenses and provision for income tax expense (benefit)

   $ 57       $ 45       $ 111       $ 97   
  

 

 

    

 

 

    

 

 

    

 

 

 

MLIC charges the closed block with federal income taxes, state and local premium taxes and other additive state or local taxes, as well as investment management expenses relating to the closed block as provided in the Plan. MLIC also charges the closed block for expenses of maintaining the policies included in the closed block.

 

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MetLife, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued)

 

6. Investments

Fixed Maturity and Equity Securities Available-for-Sale

   Fixed Maturity and Equity Securities Available-for-Sale by Sector

The following table presents the fixed maturity and equity securities available-for-sale (“AFS”) by sector. The unrealized loss amounts presented below include the noncredit loss component of other-than-temporary impairments (“OTTI”) losses. Redeemable preferred stock is reported within U.S. corporate and foreign corporate fixed maturity securities and non-redeemable preferred stock is reported within equity securities. Included within fixed maturity securities are structured securities including residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities (“CMBS”) and asset-backed securities (“ABS”).

 

    June 30, 2013     December 31, 2012  
     Cost or
 Amortized 
Cost
    Gross Unrealized      Estimated 
Fair
Value
    Cost or
 Amortized 
Cost
    Gross Unrealized      Estimated  
Fair
Value
 
         Gains        Temporary 
Losses
    OTTI
  Losses  
          Gains        Temporary 
Losses
    OTTI
  Losses  
   
    (In millions)  

Fixed maturity securities:

                   

U.S. corporate

  $     101,627      $     8,398      $     1,017      $ —      $ 109,008     $ 102,669      $ 11,887      $ 430      $ —      $ 114,126   

Foreign corporate (1)

    60,928        3,893        636        (1 )       64,186       61,806        5,654        277        (1 )       67,184   

Foreign government

    48,199        4,373        275        —        52,297       51,967        5,440        71        —        57,336   

U.S. Treasury and agency

    44,254        3,683        511       —        47,426       41,874        6,104        11        —        47,967   

RMBS

    35,295        1,848        436        266        36,441       35,666        2,477        315        349        37,479   

CMBS

    16,680        757        174        —        17,263       18,177        1,009        57        —        19,129   

ABS

    15,502        332        167        12        15,655       15,762        404        156        13        15,997   

State and political subdivision

    13,141        1,276        179        —        14,238       12,949        2,169        70        —        15,048   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total fixed maturity securities

  $ 335,626      $ 24,560      $ 3,395      $       277      $     356,514     $     340,870      $     35,144      $     1,387      $       361      $     374,266   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Equity securities:

                   

Common stock

  $ 1,895      $ 344      $     $ —      $ 2,231     $ 2,034      $ 147      $ 19      $ —      $ 2,162   

Non-redeemable preferred stock

    1,027        59        86        —        1,000       804        65        140        —        729   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity securities

  $ 2,922      $ 403      $ 94      $ —      $ 3,231     $ 2,838      $ 212      $ 159      $ —      $ 2,891   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

 

(1) OTTI losses, as presented above, represent the noncredit portion of OTTI losses that is included in AOCI. OTTI losses include both the initial recognition of noncredit losses, and the effects of subsequent increases and decreases in estimated fair value for those fixed maturity securities that were previously noncredit loss impaired. The noncredit loss component of OTTI losses for foreign corporate securities was in an unrealized gain position of $1 million at both June 30, 2013 and December 31, 2012, due to increases in estimated fair value subsequent to initial recognition of noncredit losses on such securities. See also “— Net Unrealized Investment Gains (Losses).”

 

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MetLife, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued)

 

The Company held non-income producing fixed maturity securities with an estimated fair value of $69 million and $85 million with unrealized gains (losses) of $22 million and $11 million at June 30, 2013 and December 31, 2012, respectively.

  Maturities of Fixed Maturity Securities

The amortized cost and estimated fair value of fixed maturity securities, by contractual maturity date, were as follows at:

 

     June 30, 2013      December 31, 2012  
     Amortized
Cost
     Estimated
Fair

Value
     Amortized
Cost
     Estimated
Fair

Value
 
     (In millions)  

Due in one year or less

   $ 20,433       $ 20,684       $ 24,177       $ 24,394   

Due after one year through five years

     69,684         73,065         66,973         70,759   

Due after five years through ten years

     77,693         84,144         82,376         91,975   

Due after ten years

     100,339         109,262         97,739         114,533   
  

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal

     268,149         287,155         271,265         301,661   

Structured securities (RMBS, CMBS and ABS)

     67,477         69,359         69,605         72,605   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total fixed maturity securities

   $   335,626       $   356,514       $   340,870       $   374,266   
  

 

 

    

 

 

    

 

 

    

 

 

 

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 presented in the year of final contractual maturity. RMBS, CMBS and ABS are shown separately, as they are not due at a single maturity.

 

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MetLife, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued)

 

  Continuous Gross Unrealized Losses for Fixed Maturity and Equity Securities AFS by Sector

The following table presents the estimated fair value and gross unrealized losses of fixed maturity and equity securities AFS 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 include the noncredit component of OTTI loss.

 

    June 30, 2013     December 31, 2012  
    Less than 12 Months     Equal to or Greater
than 12 Months
    Less than 12 Months     Equal to or Greater
than 12 Months
 
      Estimated  
Fair

Value
    Gross
  Unrealized  
Losses
      Estimated  
Fair

Value
    Gross
  Unrealized  
Losses
      Estimated  
Fair

Value
    Gross
  Unrealized  
Losses
      Estimated  
Fair

Value
    Gross
  Unrealized  
Losses
 
    (In millions, except number of securities)  

Fixed maturity securities:

               

U.S. corporate

  $ 15,848      $ 749      $ 2,291      $ 268      $ 3,799      $ 88      $ 3,695      $ 342   

Foreign corporate

    11,417        486        1,602        149        2,783        96        2,873        180   

Foreign government

    5,802        237        290        38        1,431        22        543        49   

U.S. Treasury and agency

    16,198       511        —        —        1,951        11        —        —   

RMBS

    9,711        288        2,531        414        735        31        4,098        633   

CMBS

    3,198        149        278        25        842        11        577        46   

ABS

    3,797        88        919        91        1,920        30        1,410        139   

State and political subdivision

    2,043        124        226        55        260              251        66   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total fixed maturity securities

  $   68,014      $   2,632      $   8,137      $   1,040      $   13,721      $ 293      $   13,447      $   1,455   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Equity securities:

               

Common stock

  $ 70      $     $ 16      $     $ 201      $ 18      $ 14      $  

Non-redeemable preferred stock

    379        18        250        68        —        —        295        140   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity securities

  $ 449      $ 25      $ 266      $ 69      $ 201      $ 18      $ 309      $ 141   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total number of securities in an unrealized loss position

    4,443          886          1,941          1,335     
 

 

 

     

 

 

     

 

 

     

 

 

   

Evaluation of AFS Securities for OTTI and Evaluating Temporarily Impaired AFS Securities

As described more fully in Notes 1 and 8 of the Notes to the Consolidated Financial Statements included in the 2012 Annual Report, the Company performs a regular evaluation of all investment classes for impairment, including fixed maturity securities, equity securities and perpetual hybrid securities, in accordance with its impairment policy, in order to evaluate whether such investments are other-than-temporarily impaired.

 

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MetLife, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued)

 

Current Period Evaluation

Based on the Company’s current evaluation of its AFS securities in an unrealized loss position in accordance with its impairment policy, and the Company’s 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 at June 30, 2013. Future OTTI 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 ratings, changes in collateral valuation, changes in interest rates and changes in credit spreads. If economic fundamentals deteriorate or if there are adverse changes in the above factors, OTTI may be incurred in upcoming periods.

Gross unrealized losses on fixed maturity securities in an unrealized loss position increased $2.0 billion during the six months ended June 30, 2013 from $1.7 billion to $3.7 billion. The increase in gross unrealized losses for the six months ended June 30, 2013, was primarily attributable to an increase in interest rates and widening credit spreads.

At June 30, 2013, $266 million of the total $3.7 billion of gross unrealized losses were from 90 fixed maturity securities with an unrealized loss position of 20% or more of amortized cost for six months or greater.

Investment Grade Fixed Maturity Securities

Of the $266 million of gross unrealized losses on fixed maturity securities with an unrealized loss of 20% or more of amortized cost for six months or greater, $104 million, or 39%, are related to gross unrealized losses on 42 investment grade fixed maturity securities. Unrealized losses on investment grade fixed maturity securities are principally related to widening credit spreads and, with respect to fixed rate fixed maturity securities, rising interest rates since purchase.

Below Investment Grade Fixed Maturity Securities

Of the $266 million of gross unrealized losses on fixed maturity securities with an unrealized loss of 20% or more of amortized cost for six months or greater, $162 million, or 61%, are related to gross unrealized losses on 48 below investment grade fixed maturity securities. Unrealized losses on below investment grade fixed maturity securities are principally related to non-agency RMBS (primarily alternative residential mortgage loans), ABS (primarily foreign ABS) and foreign government securities (primarily European sovereign bonds) and are the result of significantly wider credit spreads resulting from higher risk premiums since purchase, largely due to economic and market uncertainties including concerns over unemployment levels, sovereign debt levels and valuations of residential real estate supporting non-agency RMBS. Management evaluates foreign government securities based on factors such as expected cash flows and the financial condition and near-term and long-term prospects of the issuer; and evaluates non-agency RMBS and ABS based on actual and projected cash flows after considering 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.

Equity Securities

Equity securities in an unrealized loss position decreased $65 million during the six months ended June 30, 2013 from $159 million to $94 million. Of the $94 million, $50 million were from 10 equity securities with gross unrealized losses of 20% or more of cost for 12 months or greater, all of which were financial services industry investment grade non-redeemable preferred stock, of which 64% were rated A, AA, or AAA.

 

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MetLife, Inc.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) — (Continued)

 

Fair Value Option and Trading Securities

See Note 8 for tables that present the categories of securities that comprise fair value option (“FVO”) and trading securities. See “— Net Investment Income” and “— Net Investment Gains (Losses)” for the net investment income recognized on FVO and trading securities and the related changes in estimated fair value subsequent to purchase included in net investment income and net investment gains (losses) for securities still held as of the end of the respective periods, as applicable.

Mortgage Loans

  Mortgage Loans Held-for-Investment and Held-for-Sale by Portfolio Segment

Mortgage loans are summarized as follows at:

 

     June 30, 2013     December 31, 2012  
       Carrying  
Value
     % of
  Total  
      Carrying  
Value
     % of
  Total  
 
     (In millions)            (In millions)         

Mortgage loans held-for-investment:

          

Commercial

   $ 39,110         70.3    $ 40,472         71.0 

Agricultural

     12,669         22.8         12,843         22.5   

Residential

     1,741         3.1         958         1.7   
  

 

 

    

 

 

   

 

 

    

 

 

 

Subtotal (1)

     53,520         96.2         54,273         95.2   

Valuation allowances

     (302)         (0.5)        (347)         (0.6)   
  

 

 

    

 

 

   

 

 

    

 

 

 

Subtotal mortgage loans held-for-investment, net

     53,218         95.7         53,926         94.6   

Residential — FVO

     150         0.2         —         —   

Commercial mortgage loans held by CSEs

     2,268         4.1         2,666         4.7   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total mortgage loans held-for-investment, net

     55,636         100.0         56,592         99.3   
  

 

 

    

 

 

   

 

 

    

 

 

 

Mortgage loans held for sale

     —         —         414         0.7   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total mortgage loans, net

   $   55,636             100.0    $   57,006             100.0