MetLife 2002 Annual Report Download - page 12

fees, which increase as the average separate account asset base supporting the underlying minimum death benefits declines. The average separate
account asset base has declined in 2002 in response to poor equity market performance. These increases are partially offset by lower policy fees from
annuity and investment-type products generally resulting from poor equity market performance despite growth in annuity deposits. Management would
expect policy fees from annuity and investment-type products to continue to be adversely impacted while revenues from insurance fees on variable life
products would be expected to rise if average separate account asset levels continue to decline. A $106 million increase in International is largely due to
the acquisition of Hidalgo and the acquisitions in Chile, partially offset by a decrease in Spain due to the cessation of product lines offered through a joint
venture with Banco Santander Central Hispano, S.A., (‘‘Banco Santander’’) in 2001. A $23 million increase in Institutional is principally due to a fee related
to the renegotiation of a portion of a bank-owned life insurance contract, as well as growth in existing business in the group universal life product.
Net investment income increased by $74 million, or 1%, to $11,329 million for the year ended December 31, 2002 from $11,255 million for the
comparable 2001 period. This variance is primarily attributable to increases of (i) $61 million, or 1%, in income from fixed maturities, (ii) $54 million, or
12%, in income from real estate and real estate joint ventures held-for-investment, net of investment expenses and depreciation, (iii) $35 million, or 2%, in
income on mortgage loans on real estate, (iv) $7 million, or 1%, in interest income on policy loans, and (v) lower investment expenses of $9 million, or 4%.
These variances are partially offset by decreases of (i) $47 million, or 17%, in income on cash, cash equivalents and short-term investments,
(ii) $31 million, or 12%, in income on other invested assets, and (iii) $14 million, or 14%, in income from equity securities and other limited partnership
interests.
The increase in income from fixed maturities to $8,092 million in 2002 from $8,031 million in 2001 is largely due to a higher asset base, primarily
resulting from increased cash flows from sales of insurance and the acquisitions in Mexico and Chile. In addition, securities lending income was higher
due to increased activity and a more favorable cost of funds. The increases in income from fixed maturities are partially offset by decreases resulting from
lower reinvestment rates and a decline in bond prepayment fees. The increase in income from real estate and real estate joint ventures held-for-
investment to $513 million in 2002 from $459 million in 2001 is primarily due to the transfer of the Company’s One Madison Avenue, New York property
from a company use property to an investment property in 2002. The increase in income on mortgage loans on real estate to $1,883 million in 2002 from
$1,848 million in 2001 is due primarily to a higher asset base from new loan production, partially offset by lower mortgage rates. The increase in interest
income from policy loans to $543 million in 2002 from $536 million in 2001 is largely due to increased loans outstanding. The decrease in income from
cash, cash equivalents and short-term investments to $232 million in 2002 from $279 million in 2001 is due to declining interest rates coupled with a
decrease in the asset base. The decrease in net investment income from other invested assets to $218 million in 2002 from $249 million in 2001 is
largely due to lower derivative income, partially offset by an increase in reinsurance contracts’ funds withheld at interest. The decline in income from equity
securities and other limited partnership interests to $83 million in 2002 from $97 million in 2001 primarily resulted from lower dividend income from equity
securities, partially offset by higher limited corporate partnership distributions.
The increase in net investment income is attributable to increases in the International, Individual and Reinsurance segments, partially offset by
decreases in Corporate & Other, and the Institutional and Auto & Home segments. A $194 million increase in International is due to a higher asset base
resulting from the acquisitions in Mexico and Chile. Individual increased by $71 million primarily due to higher income from securities lending and limited
corporate partnership distributions, partially offset by lower bond prepayment fee income. The Reinsurance segment increased $31 million largely
resulting from an increase in reinsurance contracts’ funds withheld at interest. The decrease in Corporate & Other of $149 million is due to a lower asset
base, resulting from funding International’s acquisitions in Mexico and Chile, as well as the Company’s common stock repurchases, partially offset by
higher income from securities lending. Institutional decreased $38 million predominantly as a result of decreased limited partnership, equity-linked note
and bond prepayment fee income. Auto & Home decreased $23 million primarily due to lower reinvestment rates.
Other revenues decreased by $130 million, or 9%, to $1,377 million for the year ended December 31, 2002 from $1,507 million for the comparable
2001 period. This variance is primarily attributable to decreases in the Individual, Institutional and Asset Management segments, partially offset by an
increase in Corporate & Other. Individual decreased by $77 million resulting from lower commission and fee income associated with decreased volume in
the broker/dealer and other subsidiaries as a result of the depressed equity markets. A $40 million decrease in Institutional is primarily due to a $73 million
reduction in administrative fees as a result of the Company’s exit from the large market 401(k) business in late 2001, as well as lower fees earned on
investments in separate accounts resulting generally from poor equity market performance. This reduction is partially offset by a $33 million increase in
group insurance due to growth in the administrative service businesses and a settlement received in 2002 related to the Company’s former medical
business. A $32 million decrease in Asset Management is primarily due to the sale of Conning in July 2001. These variances were partially offset by an
increase of $16 million in Corporate & Other principally due to the sale of a company-occupied building and income earned on corporate-owned life
insurance (‘‘COLI’’) purchased during 2002, partially offset by an increase in the elimination of intersegment activity.
The Company’s investment gains and losses are net of related policyholder amounts. The amounts netted against investment gains and losses are
(i) amortization of deferred policy acquisition costs, to the extent that such amortization results from investment gains and losses, (ii) adjustments to
participating contractholder accounts when amounts equal to such investment gains and losses are applied to the contractholder’s accounts, and
(iii) adjustments to the policyholder dividend obligation resulting from investment gains and losses.
Net investment losses increased by $181 million, or 30%, to $784 million for the year ended December 31, 2002 from $603 million for the
comparable 2001 period. This increase reflects total investment losses, before offsets, of $929 million (including gross gains of $2,028 million, gross
losses of $1,469 million, and writedowns of $1,488 million), an increase of $192 million, or 26%, from $737 million in 2001. Offsets include the
amortization of deferred policy acquisition costs of ($5) million and ($25) million in 2002 and 2001, respectively, and changes in the policyholder dividend
obligation of $157 million and $159 million in 2002 and 2001, respectively, and adjustments to participating contracts of ($7) million in 2002. Refer to
‘‘— Investments’’ beginning on page 26 for a discussion of the Company’s investment portfolio.
The Company believes its policy of netting related policyholder amounts against investment gains and losses provides important information in
evaluating its performance. Investment gains and losses are often excluded by investors when evaluating the overall financial performance of insurers.
The Company believes its presentation enables readers to easily exclude investment gains and losses and the related effects on the consolidated
statements of income when evaluating its performance. The Company’s presentation of investment gains and losses, net of policyholder amounts, may
be different from the presentation used by other insurance companies and, therefore, amounts in its consolidated statements of income may not be
comparable to amounts reported by other insurers.
Policyholder benefits and claims increased by $1,069 million, or 6%, to $19,523 million for the year ended December 31, 2002 from $18,454 million
for the comparable 2001 period. This variance is attributable to increases in the International, Institutional and Reinsurance segments, partially offset by a
decrease in the Auto & Home segment. A $699 million increase in International is primarily due to the acquisition of Hidalgo, the acquisitions in Chile and
Brazil, the aforementioned sale of an annuity contract, the restructuring of a Canadian pension contract and business growth in South Korea, Mexico
MetLife, Inc.
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