MetLife 2004 Annual Report Download - page 35

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Approximately $6,775 million and $7,528 million, or 62.3% and 63.5%, of total asset-backed securities were rated Aaa/AAA by Moody’s or S&P at
December 31, 2004 and 2003, respectively.
Structured Investment Transactions. The Company participates in structured investment transactions, primarily asset securitizations and structured
notes. These transactions enhance the Company’s total return of the investment portfolio principally by generating management fee income on asset
securitizations and by providing equity-based returns on debt securities through structured notes and similar instruments.
The Company sponsors financial asset securitizations of high yield debt securities, investment grade bonds and structured finance securities and
also is the collateral manager and a beneficial interest holder in such transactions. As the collateral manager, the Company earns management fees on
the outstanding securitized asset balance, which are recorded in income as earned. When the Company transfers assets to a bankruptcy-remote SPE
and surrenders control over the transferred assets, the transaction is accounted for as a sale. Gains or losses on securitizations are determined with
reference to the carrying amount of the financial assets transferred, which is allocated to the assets sold and the beneficial interests retained based on
relative fair values at the date of transfer. Beneficial interests in securitizations are carried at fair value in fixed maturities. Income on these beneficial
interests is recognized using the prospective method. The SPEs used to securitize assets are not consolidated by the Company because the Company
has determined that it is not the primary beneficiary of these entities. Prior to the adoption of FIN 46(r), such SPEs were not consolidated because they
did not meet the criteria for consolidation under previous accounting guidance.
The Company purchases or receives beneficial interests in SPEs, which generally acquire financial assets, including corporate equities, debt
securities and purchased options. The Company has not guaranteed the performance, liquidity or obligations of the SPEs and the Company’s exposure
to loss is limited to its carrying value of the beneficial interests in the SPEs. The Company uses the beneficial interests as part of its risk management
strategy, including asset-liability management. These SPEs are not consolidated by the Company because the Company has determined that it is not the
primary beneficiary of these entities based on the framework provided in FIN 46(r). Prior to the adoption of FIN 46(r), such SPEs were not consolidated
because they did not meet the criteria for consolidation under previous accounting guidance. These beneficial interests are generally structured notes,
which are included in fixed maturities, and their income is recognized using the retrospective interest method or the level yield method, as appropriate.
Impairments of these beneficial interests are included in net investment gains (losses).
The Company has sponsored four securitizations with a total of approximately $1,341 million and $1,431 million in financial assets as of
December 31, 2004 and 2003, respectively. The Company’s beneficial interests in these SPEs as of December 31, 2004 and 2003 and the related
investment income for the years ended December 31, 2004, 2003 and 2002 were insignificant.
The Company invests in structured notes and similar type instruments, which generally provide equity-based returns on debt securities. The carrying
value of such investments was approximately $666 million and $880 million at December 31, 2004 and 2003, respectively. The related net investment
income recognized was $45 million, $78 million and $1 million for the years ended December 31, 2004, 2003 and 2002, respectively.
Mortgage and Other Loans
The Company’s mortgage and other loans are principally collateralized by commercial, agricultural and residential properties, as well as automobiles.
Mortgage and other loans comprised 13.6% and 11.8% of the Company’s total cash and invested assets at December 31, 2004 and 2003,
respectively. The carrying value of mortgage and other loans is stated at original cost net of repayments, amortization of premiums, accretion of discounts
and valuation allowances. The following table shows the carrying value of the Company’s mortgage and other loans by type at:
December 31, 2004 December 31, 2003
Carrying % of Carrying % of
Value Total Value Total
(Dollars in millions)
Commercial mortgage loans ********************************************************* $24,990 77.1% $20,300 77.3%
Agricultural mortgage loans ********************************************************** 5,907 18.2 5,327 20.3
Other loans *********************************************************************** 1,509 4.7 622 2.4
Total ********************************************************************* $32,406 100.0% $26,249 100.0%
MetLife, Inc.
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