MetLife 2005 Annual Report Download - page 23

over the prior year. South Korea’s income from continuing operations increased by $26 million, net of income taxes, primarily due to growth in business,
specifically higher sales of its variable universal life product and a larger in-force business. Chile’s income from continuing operations increased by
$8 million primarily due to growth in business, specifically in the new bank distribution channel, as well as an increase in net investment income primarily
due to higher inflation rates. Mexico’s income from continuing operations increased by $8 million, primarily due to tax benefits of $27 million under the
American Jobs Creation Act of 2004, higher net investment earnings, an adjustment to the amortization of DAC for management’s update of
assumptions used to determine estimated gross margins and several other one-time revenue items. These increases in Mexico were substantially offset
by an increase in certain policyholder liabilities caused by unrealized investment losses on the invested assets supporting those liabilities, as well as an
increase in expenses for start up costs for the new Mexican Pension Business (‘‘AFORE’’) and contingency liabilities. Partially offsetting these increases in
income from continuing operations was a decrease in Canada of $13 million, net of income taxes, primarily due to a realignment of economic capital,
offset by the strengthening of the liability on its pension business related to changes in mortality assumptions in the prior year and higher home office and
infrastructure expenditures in support of the segment growth of $16 million, net of income taxes. The remainder of the variance can be attributed to
various other countries. Additionally, $4 million of the increase in income from continuing operations is due to changes in the foreign currency exchange
rates.
Total revenues, excluding net investment gains (losses), increased by $982 million, or 37%, to $3,629 million for the year ended December 31,
2005 from $2,647 million for the comparable 2004 period. The acquisition of Travelers accounted for $377 million of this increase. Excluding the impact
of the Travelers acquisition, total revenues, excluding net investment gains, increased by $605 million, or 23%, over the comparable 2004 period.
Premiums, fees and other revenues increased by $452 million, or 22%, to $2,514 million for the year ended December 31, 2005 from $2,062 million for
the comparable 2004 period. This increase is primarily the result of continued business growth through increased sales and renewal business within
South Korea, Brazil and Taiwan of $216 million, $48 million and $31 million, respectively. Mexico’s premiums, fees and other revenues increased by
$78 million primarily due to increases in the institutional and agency business channels, as well as several one-time other revenue items of $19 million.
Chile’s premiums, fees and other revenues increased by $64 million mainly due to its new bank distribution channel. Net investment income increased by
$153 million, or 26%, to $738 million for the year ended December 31, 2005 from $585 million for the comparable 2004 period. Mexico’s net investment
income increased by $89 million due principally to increases in interest rates and also as a result of an increase in invested assets. Chile’s net investment
income increased by $58 million primarily due to higher inflation rates and an increase in invested assets. Investment valuations and returns on invested
assets in Chile are linked to the inflation rates. South Korea and Taiwan’s net investment income increased by $20 million and $11 million, respectively,
primarily due to an increase in their invested assets. These increases in net investment income were partially offset by a decrease of $21 million due to
the realignment of economic capital. The remainder of the increases in total revenues, excluding net investment gains can be attributed to business
growth and investment income in other countries. Additionally, $221 million of the increase in total revenues, excluding net investment gains (losses), is
due to changes in foreign currency exchange rates.
Total expenses increased by $1,029 million, or 43%, to $3,411 million for the year ended December 31, 2005 from $2,382 million for the
comparable 2004 period. The acquisition of Travelers accounted for $404 million of this increase. Excluding the impact of the Travelers acquisition, total
expenses increased by $625 million, or 26%, over the comparable 2004 period. Policyholder benefits and claims, policyholder dividends and interest
credited to policyholder account balances increased by $451 million, or 26%, to $2,219 million for the year ended December 31, 2005 from
$1,768 million for the comparable 2004 period. Policyholder benefits and claims and dividends in Mexico increased by $177 million primarily due to an
increase in certain policyholder liabilities caused by unrealized investment gains (losses) on the invested assets supporting those liabilities of $110 million,
as well as an increase in interest credited to policyholder accounts of $65 million in line with the net investment income increase in Mexico. South Korea,
Taiwan and Brazil’s policyholder benefits and claims, policyholder dividends and interest credited to policyholder accounts increased by $122 million,
$41 million and $27 million, respectively, commensurate with the business growth discussed above. Chile’s policyholder benefits and claims,
policyholder dividends and interest credited to policyholder accounts increased by $86 million due to the business growth primarily in the bank
distribution channel business, as well as to an increase in the liabilities for annuity benefits, which, like net investment income on related assets, are linked
to the inflation rate. Hong Kong’s policyholder benefits and claims and policyholder dividends increased by $3 million due to higher claims and the
associated increase in liabilities in 2005. These increases were partially offset by a decrease of $10 million in Canada’s policyholder benefits and claims,
policyholder dividends and interest credited to policyholder account balances primarily due to the strengthening of the liability on its pension business
related to changes in mortality assumptions in the prior year. Other expenses increased by $174 million, or 28%, to $788 million for the year ended
December 31, 2005 from $614 million for the comparable 2004 period. South Korea’s other expenses increased by $73 million primarily due to higher
amortization of deferred acquisition costs driven by the rapid growth in the business, a decrease in a payroll tax liability in the prior year resulting from the
resolution of the related tax matter, an accrual for an early retirement program in 2005, as well as additional overhead expenses in line with the growth in
business. Mexico’s other expenses increased by $17 million primarily due to incurred start up costs during the current year associated with the AFORE
operations, an increase in liabilities related to potential employment matters in 2005, an increase in consulting services and a decrease in the prior year of
severance accruals. Partially offsetting these increases in Mexico is a decrease in the amortization of DAC due to an adjustment for management’s
update of assumptions used to determine estimated gross margins. Brazil’s other expenses increased by $28 million, primarily due to growth in business
discussed above including an increase in non-deferrable sales expenses. Chile’s other expenses increased by $24 million due primarily to increases in
non-deferrable expenses for the bank distribution channel of business in 2005. Other expenses at home office also increased by $26 million primarily due
to increased consultant fees for growth initiative projects, an increase in compensation resulting from increased headcount, higher incentive compensa-
tion, as well as higher costs for legal, marketing and other corporate support expenses. The remainder of the increase in total expenses can be attributed
to business growth in other countries. Additionally, a component of the growth in total expenses is due to changes in foreign currency exchange rates of
$202 million.
Year ended December 31, 2004 compared with the year ended December 31, 2003 — International
Income from continuing operations decreased by $11 million, or 5%, to $202 million for the year ended December 31, 2004 from $213 million for
the comparable 2003 period. The prior year includes a $62 million benefit, net of income taxes, from the merger of the Mexican operations and a
reduction in policyholder liabilities resulting from a change in methodology in determining the liability for future policy benefits, a $12 million tax benefit in
Chile related to the merger of two subsidiaries and an $8 million benefit, net of income taxes, related to reinsurance treaties. These increases are partially
offset by a $19 million charge, net of income taxes, in Taiwan related to an increased loss recognition liability due to low interest rates relative to product
guarantees. The prior year also includes a $4 million benefit, net of income taxes, related to the Spanish operations, which were sold in 2003. Excluding
these items, income from continuing operations increased by $56 million, or 38%. A significant component of this increase is attributable to the
application of SOP 03-1 in 2004, which resulted in a $21 million decrease, net of income taxes, in policyholder liabilities in Mexico. The primary driver of
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