MetLife 2005 Annual Report Download - page 76

METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
than the period over which benefits are provided, any excess profit is deferred and recognized into operations in a constant relationship to insurance in-
force or, for annuities, the amount of expected future policy benefit payments.
Premiums related to non-medical health and disability contracts are recognized on a pro rata basis over the applicable contract term.
Deposits related to universal life-type and investment-type products are credited to policyholder account balances. Revenues from such contracts
consist of amounts assessed against policyholder account balances for mortality, policy administration and surrender charges and are recorded in
universal life and investment-type product policy fees in the period in which services are provided. Amounts that are charged to operations include
interest credited and benefit claims incurred in excess of related policyholder account balances.
Premiums related to property and casualty contracts are recognized as revenue on a pro rata basis over the applicable contract term. Unearned
premiums are included in future policy benefits.
Other Revenues
Other revenues include advisory fees, broker/dealer commissions and fees, and administrative service fees. Such fees and commissions are
recognized in the period in which services are performed. Other revenues also include changes in account value relating to corporate-owned life
insurance (‘‘COLI’’). Under certain COLI contracts, if the Company reports certain unlikely adverse results in its consolidated financial statements,
withdrawals would not be immediately available and would be subject to market value adjustment, which could result in a reduction of the account value.
Policyholder Dividends
Policyholder dividends are approved annually by the insurance subsidiaries’ boards of directors. The aggregate amount of policyholder dividends is
related to actual interest, mortality, morbidity and expense experience for the year, as well as management’s judgment as to the appropriate level of
statutory surplus to be retained by the insurance subsidiaries.
Federal Income Taxes
The Holding Company and its includable life insurance and non-life insurance subsidiaries file a consolidated U.S. federal income tax return in
accordance with the provisions of the Internal Revenue Code of 1986, as amended (the ‘‘Code’’). Non-includable subsidiaries file either separate tax
returns or separate consolidated tax returns. The future tax consequences of temporary differences between financial reporting and tax bases of assets
and liabilities are measured at the balance sheet dates and are recorded as deferred income tax assets and liabilities. Valuation allowances are
established when management assesses, based on available information, that it is more likely than not that deferred income tax assets will not be
realized. For federal income tax purposes, the Company has made an election under Internal Revenue Code Section 338 as it relates to the Travelers
acquisition. As a result of this election, the tax basis in the acquired assets and liabilities were adjusted as of the acquisition date resulting in a change to
the related deferred income taxes.
Reinsurance
The Company has reinsured certain of its life insurance and property and casualty insurance contracts with other insurance companies under
various agreements. For reinsurance contracts that transfer sufficient underwriting risk, reinsurance premiums, commissions, expense reimbursements,
benefits and liabilities related to reinsured long-duration contracts are accounted for over the life of the underlying reinsured contracts using assumptions
consistent with those used to account for the underlying contracts. The cost of reinsurance related to short-duration contracts is accounted for over the
reinsurance contract period. Amounts due from reinsurers, for both short- and long-duration arrangements, are estimated based upon assumptions
consistent with those used in establishing the liabilities related to the underlying reinsured contracts. Policy and contract liabilities are reported gross of
reinsurance credits. DAC is reduced by amounts recovered under reinsurance contracts. Amounts received from reinsurers for policy administration are
reported in other revenues.
The Company assumes and retrocedes financial reinsurance contracts, which represent low mortality risk reinsurance treaties. These contracts are
reported as deposits and are included in other assets. The amount of revenue reported on these contracts represents fees and the cost of insurance
under the terms of the reinsurance agreement and is reported in other revenues.
Separate Accounts
Separate accounts are established in conformity with insurance laws and are generally not chargeable with liabilities that arise from any other
business of the Company. Separate account assets are subject to general account claims only to the extent the value of such assets exceeds the
separate account liabilities. Effective with the adoption of Statement of Position 03-1, Accounting and Reporting by Insurance Enterprises for Certain
Nontraditional Long-Duration Contracts and for Separate Accounts (‘‘SOP 03-1’’), on January 1, 2004, the Company reports separately, as assets and
liabilities, investments held in separate accounts and liabilities of the separate accounts if (i) such separate accounts are legally recognized; (ii) assets
supporting the contract liabilities are legally insulated from the Company’s general account liabilities; (iii) investments are directed by the contractholder;
and (iv) all investment performance, net of contact fees and assessments, is passed through to the contractholder. The Company reports separate
account assets meeting such criteria at their fair value. Investment performance (including investment income, net investment gains (losses) and changes
in unrealized gains (losses)) and the corresponding amounts credited to contractholders of such separate accounts are offset within the same line in the
consolidated statements of income. In connection with the adoption of SOP 03-1, separate account assets with a fair value of $1.7 billion were
reclassified to general account investments with a corresponding transfer of separate account liabilities to future policy benefits and policyholder account
balances. See ‘‘— Application of Recent Accounting Pronouncements.’’
The Company’s revenues reflect fees charged to the separate accounts, including mortality charges, risk charges, policy administration fees,
investment management fees and surrender charges. Separate accounts not meeting the above criteria are combined on a line-by-line basis with the
Company’s general account assets, liabilities, revenues and expenses.
Stock-Based Compensation
The Company accounts for stock-based compensation plans using the prospective fair value accounting method prescribed by SFAS No. 123,
Accounting for Stock-Based Compensation (‘‘SFAS 123’’), as amended by SFAS No. 148, Accounting for Stock-Based Compensation — Transition and
MetLife, Inc.
F-14