MetLife 2006 Annual Report Download - page 19

Underwriting
Underwriting results are generally the difference between the portion of premium and fee income intended to cover mortality, morbidity
or other insurance costs, less claims incurred, and the change in insurance-related liabilities. Underwriting results are significantly
influenced by mortality, morbidity or other insurance-related experience trends and the reinsurance activity related to certain blocks of
business and, as a result, can fluctuate from period to period. Underwriting results were favorable within the life products in the Individual
segment, as well as in the Reinsurance segment, and in the group life and non-medical health & other products in the Institutional segment.
Retirement & saving’s underwriting results were mixed across several products in the Institutional segment. Underwriting results, excluding
catastrophes, in the Auto & Home segment were favorable for the year ended December 31, 2006, as the combined ratio, excluding
catastrophes, decreased to 82.8% from 86.7% for the year ended December 31, 2005. Underwriting results in the International segment
increased commensurate with the growth in the business for most countries with the exception of Brazil which experienced unfavorable
claim experience and Argentina which experienced improved claim experience.
Other Expenses
Other expenses increased by $1,530 million, or 17%, to $10,797 million for the year ended December 31, 2006 from $9,267 million for
the comparable 2005 period. Excluding the impact of the acquisition of Travelers, which contributed $612 million during the first six months
of 2006 to the year over year increase, other expenses increased by $918 million. The year ended December 31, 2006 includes a
$35 million contribution to the MetLife Foundation. The year ended December 31, 2005 included a $28 million benefit associated with the
reduction of a previously established real estate transfer tax liability related to Metropolitan Life’s demutualization in 2000. Excluding these
items and the acquisition of Travelers, other expenses increased by $855 million from the comparable 2005 period.
The following table provides the change in other expenses by segment, excluding Travelers, and certain transactions as mentioned
above:
$ Change % Change
(In millions)
International ...................................................... $330 39%
Corporate&Other .................................................. 287 33
Reinsurance...................................................... 236 28
Institutional....................................................... 79 9
Auto&Home ..................................................... 17 2
Individual........................................................ (94) (11)
Totalchange ................................................. $855 100%
The International segment contributed to the year over year increase in other expenses primarily due to business growth commensurate
with the increase in revenues discussed above and changes in foreign currency exchange rates. Taiwan’s other expenses increased due to
an increase in amortization of DAC, due to a loss recognition adjustment, refinements associated with the implementation of a new
valuation system and a restructuring charge. Mexico’s other expenses increased due to an increase in commissions commensurate with
the revenue growth, higher DAC amortization, higher expenses related to growth initiatives and additional expenses associated with the
Mexican pension business, partially offset by the unfavorable impact of contingent liabilities that were established in the prior year related
to potential employment matters and which were eliminated in the current year. South Korea’s other expenses increased due to an increase
in DAC amortization and general expenses, partially offset by a decrease in DAC amortization associated with the implementation of a more
refined reserve valuation system. In addition, Brazil’s other expenses increased due to an increase in litigation liabilities. Other expenses
associated with the home office increased due to an increase in expenditures for information technology projects, growth initiative projects
and integration costs, as well as an increase in compensation expense. In addition, expenses were incurred related to the start-up of
operations in Ireland.
Corporate & Other contributed to the year over year variance in other expenses primarily due to higher interest expense, corporate
support expenses, interest credited to bankholder deposits at MetLife Bank, National Association (“MetLife Bank” or “MetLife Bank, N.A.”)
and legal-related costs, partially offset by lower integration costs.
The Reinsurance segment also contributed to the increase in other expenses primarily due to an increase in expenses associated with
DAC, interest expense and minority interest, as well as an increase in compensation, including equity compensation expense and
overhead-related expenses.
The Institutional segment contributed to the year over year increase primarily due to an increase in non-deferrable volume-related
expenses, a charge associated with costs related to the sale of certain small market recordkeeping businesses, a charge associated with
non-deferrable LTC commissions expense and a charge associated with costs related to a previously announced regulatory settlement, all
within the current year, partially offset by the reduction in Travelers-related integration costs, principally incentive accruals and an
adjustment of DAC for certain LTC products.
The Auto & Home segment contributed to the year over year increase primarily due to expenditures related to information technology,
advertising and compensation costs.
Partially offsetting the increases in other expenses was a decrease in the Individual segment. This decrease is primarily due to lower
DAC amortization, partially offset by higher general spending in the current year, despite higher corporate incentives. In addition, the impact
of revisions to certain expenses, premium tax, policyholder liabilities and pension and postretirement liabilities, in both periods, increased
other expenses in the current year period.
Net Income
Income tax expense for the year ended December 31, 2006 was $1,116 million, or 26% of income from continuing operations before
provision for income tax, compared with $1,228 million, or 29%, of such income, for the comparable 2005 period. Excluding the impact of
the acquisition of Travelers, which contributed $126 million during the first six months of 2006, income tax expense was $990 million, or
26%, of income from continuing operations before provision for income tax, compared with $1,228 million, or 29%, of such income, for the
16 MetLife, Inc.