MetLife 2005 Annual Report Download - page 92

METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
4. Derivative Financial Instruments
Types of Derivative Instruments
The following table provides a summary of the notional amounts and current market or fair value of derivative financial instruments held at:
December 31, 2005 December 31, 2004
Current Market or Current Market or
Fair Value Fair Value
Notional Notional
Amount Assets Liabilities Amount Assets Liabilities
(In millions)
Interest rate swaps********************************************** $20,444 $ 653 $ 69 $12,681 $284 $ 22
Interest rate floors*********************************************** 10,975 134 — 3,325 38 —
Interest rate caps *********************************************** 27,990 242 — 7,045 12 —
Financial futures ************************************************ 1,159 12 8 611 — 13
Foreign currency swaps ***************************************** 14,274 527 991 8,214 150 1,302
Foreign currency forwards**************************************** 4,622 64 92 1,013 5 57
Options ******************************************************* 815 356 6 263 37 7
Financial forwards*********************************************** 2,452 13 4 326 — —
Credit default swaps ******************************************** 5,882 13 11 1,897 11 5
Synthetic GICs ************************************************* 5,477 — — 5,869 — —
Other ********************************************************* 250 9 — 450 1 1
Total******************************************************** $94,340 $2,023 $1,181 $41,694 $538 $1,407
The above table does not include notional values for equity futures, equity financial forwards, and equity options. At December 31, 2005 and 2004,
the Company owned 3,305 and 776 equity futures contracts, respectively. Equity futures market values are included in financial futures in the preceding
table. At December 31, 2005 and 2004, the Company owned 213,000 and no equity financial forwards, respectively. Equity financial forwards market
values are included in financial forwards in the preceding table. At December 31, 2005 and 2004, the Company owned 4,720,254 and 493,358 equity
options, respectively. Equity options market values are included in options in the preceding table. The notional amount of $562 million related to equity
options for 2004 has been removed from the above table to conform with the 2005 presentation.
The following table provides a summary of the notional amounts of derivative financial instruments by maturity at December 31, 2005:
Remaining Life
After One After Five
Year Years
One Year or Through Through Ten After Ten
Less Five Years Years Years Total
(In millions)
Interest rate swaps************************************************* $ 5,021 $ 6,955 $ 5,100 $3,368 $20,444
Interest rate floors************************************************** — 325 10,650 — 10,975
Interest rate caps ************************************************** 14,900 13,090 — — 27,990
Financial futures *************************************************** 1,159 — — — 1,159
Foreign currency swaps********************************************* 751 4,811 6,316 2,396 14,274
Foreign currency forwards ******************************************* 4,622 — — — 4,622
Options ********************************************************** 220 594 1 — 815
Financial forwards************************************************** 452 — — 2,000 2,452
Credit default swaps *********************************************** 675 4,931 276 — 5,882
Synthetic GICs **************************************************** 4,751 726 — — 5,477
Other ************************************************************ 250 — — — 250
Total *********************************************************** $32,801 $31,432 $22,343 $7,764 $94,340
Interest rate swaps are used by the Company primarily to reduce market risks from changes in interest rates and to alter interest rate exposure
arising from mismatches between assets and liabilities (duration mismatches). In an interest rate swap, the Company agrees with another party to
exchange, at specified intervals, the difference between fixed rate and floating rate interest amounts as calculated by reference to an agreed notional
principal amount. These transactions are entered into pursuant to master agreements that provide for a single net payment to be made by the
counterparty at each due date.
The Company also enters into basis swaps to better match the cash flows from assets and related liabilities. In a basis swap, both legs of the swap
are floating with each based on a different index. Generally, no cash is exchanged at the outset of the contract and no principal payments are made by
either party. A single net payment is usually made by one counterparty at each due date. Basis swaps are included in interest rate swaps in the preceding
table.
Interest rate caps and floors are used by the Company primarily to protect its floating rate liabilities against rises in interest rates above a specified
level, and against interest rate exposure arising from mismatches between assets and liabilities (duration mismatches), as well as to protect its minimum
rate guarantee liabilities against declines in interest rates below a specified level, respectively.
In exchange-traded interest rate (Treasury and swap) and equity futures transactions, the Company agrees to purchase or sell a specified number of
contracts, the value of which is determined by the different classes of interest rate and equity securities, and to post variation margin on a daily basis in an
amount equal to the difference in the daily market values of those contracts. The Company enters into exchange-traded futures with regulated futures
commission merchants that are members of the exchange.
MetLife, Inc.
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