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Reinsurance
 12 Months Ended
Dec. 31, 2016
Reinsurance Disclosures [Abstract]  
Reinsurance
7. Reinsurance
The Company enters into reinsurance agreements primarily as a purchaser of reinsurance for its various insurance products and also as a provider of reinsurance for some insurance products issued by affiliated and unaffiliated companies. The Company participates in reinsurance activities in order to limit losses, minimize exposure to significant risks and provide additional capacity for future growth.
Accounting for reinsurance requires extensive use of assumptions and estimates, particularly related to the future performance of the underlying business and the potential impact of counterparty credit risks. The Company periodically reviews actual and anticipated experience compared to the aforementioned assumptions used to establish assets and liabilities relating to ceded and assumed reinsurance and evaluates the financial strength of counterparties to its reinsurance agreements using criteria similar to that evaluated in the security impairment process discussed in Note 8.
Annuities and Life
For annuities, the Company reinsures portions of the living and death benefit guarantees issued in connection with certain variable annuities to unaffiliated reinsurers. Under these reinsurance agreements, the Company pays a reinsurance premium generally based on fees associated with the guarantees collected from policyholders, and receives reimbursement for benefits paid or accrued in excess of account values, subject to certain limitations. The value of embedded derivatives on the ceded risk is determined using a methodology consistent with the guarantees directly written by the Company with the exception of the input for nonperformance risk that reflects the credit of the reinsurer. The Company reinsures 100% of certain variable annuity risks to an affiliate. The Company also assumes 100% of the living and death benefit guarantees issued in connection with certain variable annuities issued by certain affiliates.
For its life products, the Company has historically reinsured the mortality risk primarily on an excess of retention basis or on a quota share basis. The Company currently reinsures 90% of the mortality risk in excess of $2 million for most products. In addition to reinsuring mortality risk as described above, the Company reinsures other risks, as well as specific coverages. Placement of reinsurance is done primarily on an automatic basis and also on a facultative basis for risks with specified characteristics. On a case by case basis, the Company may retain up to $20 million per life and reinsure 100% of amounts in excess of the amount the Company retains. The Company also reinsures portions of the risk associated with certain whole life policies to an affiliate and assumes certain term life policies and universal life policies with secondary death benefit guarantees issued by an affiliate. The Company evaluates its reinsurance programs routinely and may increase or decrease its retention at any time.
Corporate & Other
The Company reinsures, through 100% quota share reinsurance agreements certain run-off long-term care and workers’ compensation business written by the Company.
Catastrophe Coverage
The Company has exposure to catastrophes which could contribute to significant fluctuations in the Company’s results of operations. The Company uses excess of retention and quota share reinsurance agreements to provide greater diversification of risk and minimize exposure to larger risks.
Reinsurance Recoverables
The Company reinsures its business through a diversified group of well-capitalized reinsurers. The Company analyzes recent trends in arbitration and litigation outcomes in disputes, if any, with its reinsurers. The Company monitors ratings and evaluates the financial strength of its reinsurers by analyzing their financial statements. In addition, the reinsurance recoverable balance due from each reinsurer is evaluated as part of the overall monitoring process. Recoverability of reinsurance recoverable balances is evaluated based on these analyses. The Company generally secures large reinsurance recoverable balances with various forms of collateral, including secured trusts, funds withheld accounts and irrevocable letters of credit. These reinsurance recoverable balances are stated net of allowances for uncollectible reinsurance, which at both December 31, 2016 and 2015, were not significant.
The Company has secured certain reinsurance recoverable balances with various forms of collateral, including secured trusts and funds withheld accounts. The Company had $2.6 billion and $2.4 billion of unsecured unaffiliated reinsurance recoverable balances at December 31, 2016 and 2015, respectively.
At December 31, 2016, the Company had $9.1 billion of net unaffiliated ceded reinsurance recoverables. Of this total, $7.8 billion, or 86%, were with the Company’s five largest unaffiliated ceded reinsurers, including $1.5 billion of net unaffiliated ceded reinsurance recoverables which were unsecured. At December 31, 2015, the Company had $8.5 billion of net unaffiliated ceded reinsurance recoverables. Of this total, $7.4 billion, or 87%, were with the Company’s five largest unaffiliated ceded reinsurers, including $1.5 billion of net unaffiliated ceded reinsurance recoverables which were unsecured.
The amounts on the consolidated statements of operations include the impact of reinsurance. Information regarding the significant effects of reinsurance was as follows:
 
Years Ended December 31,
 
2016

2015

2014
 
(In millions)
Premiums





Direct premiums
$
2,117


$
2,281


$
2,226

Reinsurance assumed
79


297


94

Reinsurance ceded
(1,275
)

(1,145
)

(1,168
)
Net premiums
$
921


$
1,433


$
1,152

Universal life and investment-type product policy fees





Direct universal life and investment-type product policy fees
$
3,476


$
3,607


$
3,610

Reinsurance assumed
129


142


398

Reinsurance ceded
(909
)

(809
)

(815
)
Net universal life and investment-type product policy fees
$
2,696

 
$
2,940

 
$
3,193

Other revenues





Direct other revenues
$
259


$
258


$
259

Reinsurance assumed
87


—


28

Reinsurance ceded
415


246


252

Net other revenues
$
761

 
$
504

 
$
539

Policyholder benefits and claims





Direct policyholder benefits and claims
$
5,909


$
4,807


$
4,797

Reinsurance assumed
128


305


263

Reinsurance ceded
(3,053
)

(2,416
)

(2,296
)
Net policyholder benefits and claims
$
2,984

 
$
2,696

 
$
2,764

Interest credited to policyholder account balances





Direct interest credited to policyholder account balances
$
1,027


$
1,104


$
1,125

Reinsurance assumed
75


78


76

Reinsurance ceded
(145
)

(145
)

(139
)
Net interest credited to policyholder account balances
$
957

 
$
1,037

 
$
1,062

Amortization of deferred policy acquisition costs and value of business acquired
 
 
 
 
 
Direct amortization of deferred policy acquisition costs and value of business acquired
$
(114
)
 
$
630

 
$
958

Reinsurance assumed
148

 
8

 
100

Reinsurance ceded
(206
)
 
(43
)
 
(68
)
Net amortization of deferred policy acquisition costs and value of business acquired
$
(172
)

$
595


$
990

Other expenses
 
 
 
 
 
Direct other expenses
$
1,482


$
1,512


$
1,566

Reinsurance assumed
35


47


6

Reinsurance ceded
221


163


192

Net other expenses
$
1,738

 
$
1,722

 
$
1,764


The amounts on the consolidated balance sheets include the impact of reinsurance. Information regarding the significant effects of reinsurance was as follows at:
 
December 31,
 
2016

2015
 
Direct

Assumed

Ceded

Total
Balance
Sheet

Direct

Assumed

Ceded

Total
Balance
Sheet
 
(In millions)
Assets















Premiums, reinsurance and other receivables
$
1,143


$
23


$
18,935


$
20,101


$
630


$
162


$
21,459


$
22,251

Deferred policy acquisition costs and value of
business acquired
6,020


71


(817
)

5,274


5,467


219


(877
)

4,809

Total assets
$
7,163

 
$
94

 
$
18,118

 
$
25,375

 
$
6,097

 
$
381

 
$
20,582

 
$
27,060

Liabilities















Future policy benefits
$
31,567

 
$
234

 
$
(117
)
 
$
31,684

 
$
28,670

 
$
1,294

 
$
(70
)
 
$
29,894

Policyholder account balances
34,635


952


—


35,587


34,764


897


—


35,661

Other policy-related balances
1,027

 
1,677

 
680

 
3,384

 
990

 
1,804

 
755

 
3,549

Other liabilities
4,466


12


5,669


10,147


2,566


86


5,030


7,682

Total liabilities
$
71,695

 
$
2,875

 
$
6,232

 
$
80,802

 
$
66,990

 
$
4,081

 
$
5,715

 
$
76,786


Effective December 1, 2016, the Company terminated two agreements with an unaffiliated reinsurer which covered 90% of the liabilities on certain participating whole life insurance policies issued between April 1, 2000 and December 31, 2001 by MLIC. This termination resulted in a decrease in other invested assets of $713 million, a decrease in deferred policy acquisition costs and value of business acquired of $95 million, a decrease in future policy benefits of $654 million, and a decrease in other liabilities of $43 million. The Company recognized a loss of approximately $72 million, net of income tax, as a result of this transaction.
Reinsurance agreements that do not expose the Company to a reasonable possibility of a significant loss from insurance risk are recorded using the deposit method of accounting. The deposit assets on reinsurance were $2.0 billion and $6.0 billion at December 31, 2016 and 2015, respectively. The deposit liabilities on reinsurance was $1 million at both December 31, 2016 and 2015.
Related Party Reinsurance Transactions
The Company has reinsurance agreements with certain of MetLife, Inc.’s subsidiaries, including MLIC, MetLife Reinsurance Company of South Carolina, Brighthouse Life Insurance Company of NY (“Brighthouse NY”), General American Life Insurance Company (“GALIC”), MetLife Europe d.a.c., MetLife Reinsurance Company of Vermont (“MRV”), New England Life Insurance Company (“NELICO”), MetLife Reinsurance Company of Delaware (“MRD”), Delaware American Life Insurance Company (“DELAM”) and American Life Insurance Company (“ALICO”), all of which are related parties.
Information regarding the significant effects of affiliated reinsurance included on the consolidated statements of operations was as follows:

Years Ended December 31,

2016

2015

2014

(In millions)
Premiums





Reinsurance assumed
$
34

 
$
227

 
$
55

Reinsurance ceded
(928
)
 
(783
)
 
(830
)
Net premiums
$
(894
)
 
$
(556
)
 
$
(775
)
Universal life and investment-type product policy fees
 
 
 
 
 
Reinsurance assumed
$
129

 
$
142

 
$
291

Reinsurance ceded
(359
)
 
(299
)
 
(361
)
Net universal life and investment-type product policy fees
$
(230
)
 
$
(157
)
 
$
(70
)
Other revenues

 

 

Reinsurance assumed
$
56

 
$
—

 
$
28

Reinsurance ceded
414

 
246

 
252

Net other revenues
$
470

 
$
246

 
$
280

Policyholder benefits and claims

 

 

Reinsurance assumed
$
91

 
$
255

 
$
229

Reinsurance ceded
(1,304
)
 
(925
)
 
(942
)
Net policyholder benefits and claims
$
(1,213
)
 
$
(670
)
 
$
(713
)
Interest credited to policyholder account balances
 
 
 
 
 
Reinsurance assumed
$
75

 
$
78

 
$
76

Reinsurance ceded
(145
)
 
(145
)
 
(139
)
Net interest credited to policyholder account balances
$
(70
)
 
$
(67
)
 
$
(63
)
Amortization of deferred policy acquisition costs and value of business acquired
 
 
 
 
 
Reinsurance assumed
$
49

 
$
24

 
$
90

Reinsurance ceded
(189
)
 
(40
)
 
(63
)
  Net amortization of deferred policy acquisition costs and value of business
$
(140
)
 
$
(16
)
 
$
27

Other expenses
 
 
 
 
 
Reinsurance assumed
$
19

 
$
41

 
$
2

Reinsurance ceded
242

 
186

 
219

Net other expenses
$
261

 
$
227

 
$
221


Information regarding the significant effects of affiliated reinsurance included on the consolidated balance sheets was as follows at:
 
December 31,
 
2016
 
2015
 
Assumed
 
Ceded
 
Assumed
 
Ceded
 
(In millions)
Assets
 
 
 
 
 
 
 
Premiums, reinsurance and other receivables
$
23

 
$
9,661

 
$
129

 
$
12,746

Deferred policy acquisition costs and value of business acquired
71

 
(803
)
 
120

 
(861
)
Total assets
$
94

 
$
8,858

 
$
249

 
$
11,885

Liabilities
 
 
 
 
 
 
 
Future policy benefits
$
213

 
$
(117
)
 
$
630

 
$
(70
)
Policyholder account balances
952

 
—

 
897

 
—

Other policy-related balances
1,677

 
680

 
1,785

 
755

Other liabilities
10

 
5,344

 
27

 
4,691

Total liabilities
$
2,852

 
$
5,907

 
$
3,339

 
$
5,376


The Company assumes risks from affiliates related to guaranteed minimum benefit guarantees written directly by the affiliates. These assumed reinsurance agreements contain embedded derivatives and changes in their estimated fair value are also included within net derivative gains (losses). The embedded derivatives associated with the cessions are included within policyholder account balances and were $952 million and $897 million at December 31, 2016 and 2015, respectively. Net derivative gains (losses) associated with the embedded derivatives were ($45) million, ($59) million and ($541) million for the years ended December 31, 2016, 2015 and 2014, respectively.
The Company ceded two blocks of business to two affiliates on a 90% coinsurance with funds withheld basis. Certain contractual features of these agreements qualify as embedded derivatives, which are separately accounted for at estimated fair value on the Company’s consolidated balance sheets. The embedded derivatives related to the funds withheld associated with these reinsurance agreements are included within other liabilities and increased the funds withheld balance by $285 million and $244 million at December 31, 2016 and 2015, respectively. Net derivative gains (losses) associated with these embedded derivatives were ($41) million, $137 million and ($348) million for the years ended December 31, 2016, 2015 and 2014, respectively.
The Company ceded risks to an affiliate related to guaranteed minimum benefit guarantees written directly by the Company. This ceded reinsurance agreement contains embedded derivatives and changes in their estimated fair value are also included within net derivative gains (losses). The embedded derivatives associated with this cession is included within premiums, reinsurance and other receivables and were $3 million and $4 million at December 31, 2016 and 2015, respectively. Net derivative gains (losses) associated with the embedded derivatives were less than ($1) million, less than $1 million, and $4 million for the years ended December 31, 2016, 2015 and 2014, respectively.
In April 2016, the Company recaptured risks related to certain single premium deferred annuity contracts previously reinsured to MLIC. As a result of this recapture, the significant effects to the Company were an increase in investments and cash and cash equivalents of $4.3 billion and an increase in DAC of $87 million, offset by a decrease in premiums, reinsurance and other receivables of $4.0 billion. The Company recognized a gain of $246 million, net of income tax, as a result of this recapture.
In December 2015, the Company entered into a reinsurance agreement to cede one block of business to MRD on a 90% coinsurance with funds withheld basis. This agreement covers certain term life policies issued in 2015 by the Company. This agreement transfers risk to MRD and, therefore, is accounted for as reinsurance. As a result of the agreement, affiliated reinsurance recoverables, included in premiums, reinsurance and other receivables, were $83 million and $126 million at December 31, 2016 and 2015, respectively. The Company also recorded a funds withheld liability and other reinsurance payables, included in other liabilities, which were $34 million and $79 million at December 31, 2016 and 2015, respectively. The Company’s consolidated statement of operations and comprehensive income (loss) includes a loss for this agreement of $27 million and no income for the years ended December 31, 2016 and 2015, respectively.
In December 2014, the Company entered into a reinsurance agreement to cede two blocks of business to MRD on a 90% coinsurance with funds withheld basis. This agreement covers certain term and certain universal life policies issued in 2014 by the Company. This agreement transfers risk to MRD and, therefore, is accounted for as reinsurance. As a result of the agreement, affiliated reinsurance recoverables, included in premiums, reinsurance and other receivables, were $136 million and $81 million at December 31, 2016 and 2015, respectively. The Company also recorded a funds withheld liability and other reinsurance payables, included in other liabilities, which were $83 million and $23 million at December 31, 2016 and 2015, respectively. The Company’s consolidated statement of operations and comprehensive income (loss) includes a gain for this agreement of $3 million, a loss of $17 million and a loss of less than $1 million for the years ended December 31, 2016, 2015 and 2014, respectively.
The Company has secured certain reinsurance recoverable balances with various forms of collateral, including secured trusts, funds withheld accounts and irrevocable letters of credit. The Company had $2.4 billion and $6.3 billion of unsecured affiliated reinsurance recoverable balances at December 31, 2016 and 2015, respectively.
Affiliated reinsurance agreements that do not expose the Company to a reasonable possibility of a significant loss from insurance risk are recorded using the deposit method of accounting. The deposit assets on affiliated reinsurance were $1.8 billion and $5.8 billion at December 31, 2016 and 2015, respectively. There were no deposit liabilities on affiliated reinsurance at both December 31, 2016 and 2015.