MetLife 2006 Annual Report Download - page 75

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Leveraged Leases
Investment in leveraged leases, included in other invested assets, consisted of the following:
2006 2005
December 31,
(In millions)
Rentalreceivables,net........................................................ $1,055 $ 991
Estimatedresidualvalues ...................................................... 887 735
Subtotal................................................................ 1,942 1,726
Unearnedincome ........................................................... (694) (645)
Investmentinleveragedleases ................................................. $1,248 $1,081
The Company’s deferred income tax liability related to leveraged leases was $670 million and $679 million at December 31, 2006 and
2005, respectively. The rental receivables set forth above are generally due in periodic installments. The payment periods generally range
from one to 15 years, but in certain circumstances are as long as 30 years.
The components of net income from investment in leveraged leases are as follows:
2006 2005 2004
Years Ended
December 31,
(In millions)
Incomefrominvestmentinleveragedleases(includedinnetinvestmentincome) ................. $51 $54 $26
Incometaxexpenseonleveragedleases........................................... (18) (19) (9)
Netincomefromleveragedleases ............................................... $33 $35 $17
Other Limited Partnership Interests
The carrying value of other limited partnership interests (which primarily represent ownership interests in pooled investment funds that
make private equity investments in companies in the United States and overseas) was $4.8 billion and $4.3 billion at December 31, 2006
and 2005, respectively. The Company uses the equity method of accounting for investments in limited partnership interests in which it has
more than a minor interest, has influence over the partnership’s operating and financial policies, but does not have a controlling interest and
is not the primary beneficiary. The Company uses the cost method for minor interest investments and when it has virtually no influence over
the partnership’s operating and financial policies. The Company’s investments in other limited partnership interests represented 1.4% of
cash and invested assets at both December 31, 2006 and 2005.
Some of the Company’s investments in other limited partnership interests meet the definition of a VIE under FIN 46(r). See “— Variable
Interest Entities.”
Other Invested Assets
The Company’s other invested assets consisted principally of leveraged leases of $1.3 billion and $1.1 billion, funds withheld at interest
of $4.0 billion and $3.5 billion, and standalone derivatives with positive fair values and the fair value of embedded derivatives related to
funds withheld and modified coinsurance contracts of $2.5 billion and $2.0 billion at December 31, 2006 and 2005, respectively. The
leveraged leases are recorded net of non-recourse debt. The Company participates in lease transactions, which are diversified by industry,
asset type and geographic area. The Company regularly reviews residual values and writes down residuals to expected values as needed.
Funds withheld represent amounts contractually withheld by ceding companies in accordance with reinsurance agreements. For agree-
ments written on a modified coinsurance basis and certain agreements written on a coinsurance basis, assets supporting the reinsured
policies equal to the net statutory reserves are withheld and continue to be legally owned by the ceding company. Interest accrues to these
funds withheld at rates defined by the treaty terms and may be contractually specified or directly related to the investment portfolio. The
Company’s other invested assets represented 3.1% and 2.6% of cash and invested assets at December 31, 2006 and 2005, respectively.
Derivative Financial Instruments
The Company uses a variety of derivatives, including swaps, forwards, futures and option contracts, to manage its various risks.
Additionally, the Company enters into income generation and synthetically created investment transactions as permitted by its insurance
subsidiaries’ Derivatives Use Plans approved by the applicable state insurance departments.
72 MetLife, Inc.