MetLife 2003 Annual Report Download - page 72

METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 12 for information regarding certain excess of loss reinsurance agreements providing coverage for risks associated primarily with sales
practices claims.
The amounts in the consolidated statements of income are presented net of reinsurance ceded. The effects of reinsurance were as follows:
Years Ended December 31,
2003 2002 2001
(Dollars in millions)
Direct premiums ************************************************************************ $19,396 $18,439 $16,332
Reinsurance assumed ******************************************************************* 3,706 2,993 2,907
Reinsurance ceded ********************************************************************* (2,429) (2,355) (2,027)
Net premiums ************************************************************************** $20,673 $19,077 $17,212
Reinsurance recoveries netted against policyholder benefits ************************************ $ 2,417 $ 2,886 $ 2,255
Reinsurance recoverables, included in premiums and other receivables, were $4,014 million and $3,918 million at December 31, 2003 and 2002,
respectively, including $1,341 million and $1,348 million, respectively, relating to reinsurance of long-term guaranteed interest contracts and structured
settlement lump sum contracts accounted for as a financing transaction. Reinsurance and ceded commissions payables, included in other liabilities,
were $106 million and $79 million at December 31, 2003 and 2002, respectively.
The following table provides an analysis of the activity in the liability for benefits relating to property and casualty, group accident and non-medical
health policies and contracts:
Years Ended December 31,
2003 2002 2001
(Dollars in millions)
Balance at January 1 ************************************************************* $ 4,885 $ 4,597 $ 4,226
Reinsurance recoverables ******************************************************* (498) (457) (410)
Net balance at January 1 ********************************************************* 4,387 4,140 3,816
Incurred related to:
Current year ****************************************************************** 4,483 4,219 4,182
Prior years ******************************************************************** 45 (81) (84)
4,528 4,138 4,098
Paid related to:
Current year ****************************************************************** (2,676) (2,559) (2,538)
Prior years ******************************************************************** (1,352) (1,332) (1,236)
(4,028) (3,891) (3,774)
Net Balance at December 31 ****************************************************** 4,887 4,387 4,140
Add: Reinsurance recoverables ************************************************** 525 498 457
Balance at December 31********************************************************** $ 5,412 $ 4,885 $ 4,597
6. Closed Block
On the date of demutualization, Metropolitan Life established a closed block for the benefit of holders of certain individual life insurance policies of
Metropolitan Life. Assets have been allocated to the closed block in an amount that has been determined to produce cash flows which, together with
anticipated revenues from the policies included in the closed block, are reasonably expected to be sufficient to support obligations and liabilities relating
to these policies, including, but not limited to, provisions for the payment of claims and certain expenses and taxes, and to provide for the continuation of
policyholder dividend scales in effect for 1999, if the experience underlying such dividend scales continues, and for appropriate adjustments in such
scales if the experience changes. At least annually, the Company compares actual and projected experience against the experience assumed in the
then-current dividend scales. Dividend scales are adjusted periodically to give effect to changes in experience.
The closed block assets, the cash flows generated by the closed block assets and the anticipated revenues from the policies in the closed block will
benefit only the holders of the policies in the closed block. To the extent that, over time, cash flows from the assets allocated to the closed block and
claims and other experience related to the closed block are, in the aggregate, more or less favorable than what was assumed when the closed block was
established, total dividends paid to closed block policyholders in the future may be greater than or less than the total dividends that would have been paid
to these policyholders if the policyholder dividend scales in effect for 1999 had been continued. Any cash flows in excess of amounts assumed will be
available for distribution over time to closed block policyholders and will not be available to stockholders. If the closed block has insufficient funds to make
guaranteed policy benefit payments, such payments will be made from assets outside of the closed block. The closed block will continue in effect as
long as any policy in the closed block remains in-force. The expected life of the closed block is over 100 years.
The Company uses the same accounting principles to account for the participating policies included in the closed block as it used prior to the date
of demutualization. However, the Company establishes a policyholder dividend obligation for earnings that will be paid to policyholders as additional
dividends as described below. The excess of closed block liabilities over closed block assets at the effective date of the demutualization (adjusted to
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