MetLife 2002 Annual Report Download - page 82

METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Deferred income taxes represent the tax effect of the differences between the book and tax bases of assets and liabilities. Net deferred income tax
assets and liabilities consisted of the following:
December 31,
2002 2001
(Dollars in millions)
Deferred income tax assets:
Policyholder liabilities and receivables **************************************************************** $ 3,845 $ 3,727
Net operating losses ****************************************************************************** 322 336
Employee benefits ******************************************************************************** — 123
Litigation related ********************************************************************************** 99 279
Intangible tax asset ******************************************************************************* 199 —
Other******************************************************************************************* 386 438
4,851 4,903
Less: Valuation allowance************************************************************************** 84 114
4,767 4,789
Deferred income tax liabilities:
Investments ************************************************************************************* 1,681 2,157
Deferred policy acquisition costs ******************************************************************** 3,307 2,950
Employee benefits ******************************************************************************** 55 —
Net unrealized investment gains********************************************************************* 1,264 1,079
Other******************************************************************************************* 85 129
6,392 6,315
Net deferred income tax liability *********************************************************************** $(1,625) $(1,526)
Domestic net operating loss carryforwards amount to $656 million at December 31, 2002 and will expire beginning in 2019. Foreign net operating
loss carryforwards amount to $300 million at December 31, 2002 and were generated in various foreign countries with expiration periods of five years to
infinity.
The Company has recorded a valuation allowance related to tax benefits of certain foreign net operating loss carryforwards. The valuation allowance
reflects management’s assessment, based on available information, that it is more likely than not that the deferred income tax asset for certain foreign net
operating loss carryforwards will not be realized. The tax benefit will be recognized when management believes that it is more likely than not that these
deferred income tax assets are realizable.
The Internal Revenue Service has audited the Company for the years through and including 1996. The Company is being audited for the years
1997, 1998 and 1999. The Company believes that any adjustments that might be required for open years will not have a material effect on the
Company’s consolidated financial statements.
15. Reinsurance
The Company’s life insurance operations participate in reinsurance activities in order to limit losses, minimize exposure to large risks, and to provide
additional capacity for future growth. The Company currently reinsures up to 90% of the mortality risk for all new individual life insurance policies that it
writes through its various franchises. This practice was initiated by different franchises for different products starting at various points in time between
1992 and 2000. Risks in excess of $25 million on single life policies and $30 million on survivorship policies are 100% coinsured. In addition, in 1998, the
Company reinsured substantially all of the mortality risk on its universal life policies issued since 1983. RGA retains a maximum of $4 million of coverage
per individual life with respect to its assumed reinsurance business. The company reinsures its business through a diversified group of reinsurers.
Placement of reinsurance is done primarily on an automatic basis and also on a facultative basis for risks of specific characteristics. The Company is
contingently liable with respect to ceded reinsurance should any reinsurer be unable to meet its obligations under these agreements.
In addition to reinsuring mortality risk, the Company reinsures other risks and specific coverages. The Company routinely reinsures certain classes of
risks in order to limit its exposure to particular travel, avocation and lifestyle hazards. The Company has exposure to catastrophes, which are an inherent
risk of the property and casualty business and could contribute to significant fluctuations in the Company’s results of operations. The Company uses
excess of loss and quota share reinsurance arrangements to limit its maximum loss, provide greater diversification of risk and minimize exposure to larger
risks.
The Company has also protected itself through the purchase of combination risk coverage. This reinsurance coverage pools risks from several lines
of business and includes individual and group life claims in excess of $2 million per policy, as well as excess property and casualty losses, among others.
See Note 11 for information regarding certain excess of loss reinsurance agreements providing coverage for risks associated primarily with sales
practices claims.
MetLife, Inc.
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