MetLife 2001 Annual Report Download - page 67

METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
of 8.00%. The Holding Company irrevocably guarantees, on a senior and unsecured basis, the payment in full of distributions on the capital securities
and the stated liquidation amount of the capital securities, in each case to the extent of available trust funds. Holders of the capital securities generally
have no voting rights. Capital securities outstanding were $980 million and $972 million, net of unamortized discounts of $26 million and $34 million, at
December 31, 2001 and 2000, respectively.
The MetLife debentures bear interest at an annual rate of 8.00% of the principal amount, payable quarterly in arrears commencing August 15, 2000
and mature on May 15, 2005. These debentures are unsecured. The Holding Company’s right to participate in the distribution of assets of any subsidiary
upon the subsidiary’s liquidation, reorganization or otherwise, is subject to the prior claims of creditors of the subsidiary, except to the extent the Holding
Company may be recognized as a creditor of that subsidiary. Accordingly, the Holding Company’s obligations under the debentures are effectively
subordinated to all existing and future liabilities of its subsidiaries. Interest expense on these instruments is included in other expenses and was
$81 million and $59 million for the years ended December 31, 2001 and 2000, respectively.
GenAmerica Capital I. In June 1997, GenAmerica Corporation (‘‘GenAmerica’’) issued $125 million of 8.525% capital securities through a
wholly-owned subsidiary trust, GenAmerica Capital I. GenAmerica has fully and unconditionally guaranteed, on a subordinated basis, the obligation of the
trust under the capital securities and is obligated to mandatorily redeem the securities on June 30, 2027. GenAmerica may prepay the securities any time
after June 30, 2007. Capital securities outstanding were $118 million, net of unamortized discount of $7 million at December 31, 2001 and 2000.
Interest expense on these instruments is included in other expenses and was $11 million and $6 million for the years ended December 31, 2001 and
2000, respectively.
RGA Capital Trust I. In December 2001, a subsidiary of the Company, RGA, through its wholly-owned trust RGA Capital Trust I (the ‘‘Trust’’)
issued 4,500,000 Preferred Income Equity Redeemable Securities (‘‘PIERS’’) Units. Each PIERS unit consists of (i) a preferred security issued by the
Trust, having a stated liquidation amount of $50 per unit, representing an undivided beneficial ownership interest in the assets of the Trust, which consist
solely of junior subordinated debentures issued by RGA which have a principal amount at maturity of $50 and a stated maturity of March 18, 2051, and
(ii) a warrant to purchase, at any time prior to December 15, 2050, 1.2508 shares of RGA stock at an exercise price of $50. The fair market value of the
warrant on the issuance date was $14.87 and is detachable from the preferred security. RGA fully and unconditionally guarantees, on a subordinated
basis, the obligations of the Trust under the preferred securities. The preferred securities and subordinated debentures were issued at a discount (original
issue discount) to the face or liquidation value of $14.87 per security. The securities will accrete to their $50 face/liquidation value over the life of the
security on a level yield basis. The weighted average effective interest rate on the preferred securities and the subordinated debentures is 8.25% per
annum. Capital securities outstanding at December 31, 2001 were $158 million, net of unamortized discount of $67 million.
11. Commitments and Contingencies
Litigation
Sales Practices Claims
Over the past several years, Metropolitan Life, New England Mutual Life Insurance Company (‘‘New England Mutual’’) and General American Life
Insurance Company (‘‘General American’’) have faced numerous claims, including class action lawsuits, alleging improper marketing and sales of
individual life insurance policies or annuities. These lawsuits are generally referred to as ‘‘sales practices claims.’’
In December 1999, the United States District Court for the Western District of Pennsylvania approved a class action settlement resolving litigation
against Metropolitan Life involving certain alleged sales practices claims. The settlement class includes most of the owners of permanent life insurance
policies and annuity contracts or certificates issued pursuant to individual sales in the United States by Metropolitan Life, Metropolitan Insurance and
Annuity Company or Metropolitan Tower Life Insurance Company between January 1, 1982 and December 31, 1997. The class includes owners of
approximately six million in-force or terminated insurance policies and approximately one million in-force or terminated annuity contracts or certificates.
Implementation of the settlement is substantially completed.
Similar sales practices class actions against New England Mutual, with which Metropolitan Life merged in 1996, and General American, which was
acquired in 2000, have been settled. The New England Mutual case, approved by the United States District Court for the District of Massachusetts in
October 2000, involves approximately 600,000 life insurance policies sold during the period January 1, 1983 through August 31, 1996. Implementation
of the New England Mutual class action settlement is substantially completed. The General American case, approved by the United States District Court
for the Eastern District of Missouri, and affirmed by the appellate court in October 2001, involves approximately 250,000 life insurance policies sold
during the period January 1, 1982 through December 31, 1996. A petition for writ of certiorari to the United States Supreme Court has been filed by
objectors to the settlement. Implementation of the General American class action settlement is proceeding.
Metropolitan Life expects that the total cost of its class action settlement will be approximately $957 million. It is expected that the total cost of the
New England Mutual class action settlement will be approximately $160 million. General American expects that the total cost of its class action settlement
will be approximately $68 million.
Certain class members have opted out of the class action settlements noted above and have brought or continued non-class action sales practices
lawsuits. As of December 31, 2001, there are approximately 420 sales practices lawsuits pending against Metropolitan Life, approximately 40 sales
practices lawsuits pending against New England Mutual and approximately 40 sales practices lawsuits pending against General American. Metropolitan
Life, New England Mutual and General American continue to vigorously defend themselves against these lawsuits. Some individual sales practices claims
have been resolved through settlement, won by dispositive motions, or, in a few instances, have gone to trial. Most of the current cases seek substantial
damages, including in some cases punitive and treble damages and attorneys’ fees. Additional litigation relating to the Company’s marketing and sales of
individual life insurance may be commenced in the future.
The Metropolitan Life class action settlement did not resolve two putative class actions involving sales practices claims filed against Metropolitan Life
in Canada, and these actions remain pending. In October 2001, the United States District Court for the Southern District of New York approved the
settlement of a class action alleging improper sales abroad that was brought against Metropolitan Life, Metropolitan Insurance and Annuity Company,
Metropolitan Tower Life Insurance Company and various individual defendants. No appeal was filed and the settlement is being implemented.
The Company believes adequate provision has been made in its consolidated financial statements for all reasonably probable and estimable losses
for sales practices claims against Metropolitan Life, New England Mutual and General American.
MetLife, Inc.
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