MetLife 2004 Annual Report Download - page 42

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The sensitivity analysis performed included the market risk sensitive holdings described above. The Company modeled the impact of changes in
market rates and prices on the fair values of its invested assets, earnings and cash flows as follows:
Fair values. The Company bases its potential change in fair values on an immediate change (increase or decrease) in:
)the net present values of its interest rate sensitive exposures resulting from a 10% change (increase or decrease) in interest rates;
)the U.S. dollar equivalent balances of the Company’s currency exposures due to a 10% change (increase or decrease) in currency exchange
rates; and
)the market value of its equity positions due to a 10% change (increase or decrease) in equity prices.
Earnings and cash flows. MetLife calculates the potential change in earnings and cash flows on the change in its earnings and cash flows over a
one-year period based on an immediate 10% change (increase or decrease) in market rates and equity prices. The following factors were incorporated
into the earnings and cash flows sensitivity analyses:
)the reinvestment of fixed maturity securities;
)the reinvestment of payments and prepayments of principal related to mortgage-backed securities;
)the re-estimation of prepayment rates on mortgage-backed securities for each 10% change (increase or decrease) in the interest rates; and
)the expected turnover (sales) of fixed maturities and equity securities, including the reinvestment of the resulting proceeds.
The sensitivity analysis is an estimate and should not be viewed as predictive of the Company’s future financial performance. The Company cannot
assure that its actual losses in any particular year will not exceed the amounts indicated in the table below. Limitations related to this sensitivity analysis
include:
)the market risk information is limited by the assumptions and parameters established in creating the related sensitivity analysis, including the
impact of prepayment rates on mortgages;
)for derivatives which qualify as hedges, the impact on reported earnings may be materially different from the change in market values;
)the analysis excludes other significant real estate holdings and liabilities pursuant to insurance contracts; and
)the model assumes that the composition of assets and liabilities remains unchanged throughout the year.
Accordingly, the Company uses such models as tools and not substitutes for the experience and judgment of its corporate risk and asset/liability
management personnel.
Based on its analysis of the impact of a 10% change (increase or decrease) in market rates and prices, MetLife has determined that such a change
could have a material adverse effect on the fair value of its interest rate sensitive invested assets. The equity and foreign currency portfolios do not expose
the Company to material market risk.
The table below illustrates the potential loss in fair value of the Company’s interest rate sensitive financial instruments at December 31, 2004. In
addition, the potential loss with respect to the fair value of currency exchange rates and the Company’s equity price sensitive positions at December 31,
2004 is set forth in the table below.
The potential loss in fair value for each market risk exposure of the Company’s portfolio, all of which is non-trading, as of the period indicated was:
December 31, 2004
(Dollars in millions)
Interest rate risk **************************************************************************************** $3,650
Equity price risk **************************************************************************************** $ 167
Foreign currency exchange rate risk *********************************************************************** $ 601
MetLife, Inc. 39