MetLife 2006 Annual Report Download - page 92

original effective interest rate, the value of the loan’s collateral if the loan is in the process of foreclosure or otherwise collateral
dependent, or the loan’s market value if the loan is being sold. The Company also establishes allowances for loan losses when a loss
contingency exists for pools of loans with similar characteristics, such as mortgage loans based on similar property types or loan to
value risk factors. A loss contingency exists when the likelihood that a future event will occur is probable based on past events.
Interest income earned on impaired loans is accrued on the principal amount of the loan based on the loan’s contractual interest rate.
However, interest ceases to be accrued for loans on which interest is generally more than 60 days past due and/or where the
collection of interest is not considered probable. Cash receipts on such impaired loans are recorded as a reduction of the recorded
investment. Gains and losses from the sale of loans and changes in valuation allowances are reported in net investment gains
(losses).
Policy Loans. Policy loans are stated at unpaid principal balances. Interest income on such loans is recorded as earned using
the contractually agreed upon interest rate. Generally, interest is capitalized on the policy’s anniversary date.
Real Estate. Real estate held-for-investment, including related improvements, is stated at cost less accumulated depreciation.
Depreciation is provided on a straight-line basis over the estimated useful life of the asset (typically 20 to 55 years). Rental income is
recognized on a straight-line basis over the term of the respective leases. The Company classifies a property as held-for-sale if it
commits to a plan to sell a property within one year and actively markets the property in its current condition for a price that is
reasonable in comparison to its fair value. The Company classifies the results of operations and the gain or loss on sale of a property
that either has been disposed of or classified as held-for-sale as discontinued operations, if the ongoing operations of the property
will be eliminated from the ongoing operations of the Company and if the Company will not have any significant continuing
involvement in the operations of the property after the sale. Real estate held-for-sale is stated at the lower of depreciated cost or fair
value less expected disposition costs. Real estate is not depreciated while it is classified as held-for-sale. The Company periodically
reviews its properties held-for-investment for impairment and tests properties for recoverability whenever events or changes in
circumstances indicate the carrying amount of the asset may not be recoverable and the carrying value of the property exceeds its
fair value. Properties whose carrying values are greater than their undiscounted cash flows are written down to their fair value, with
the impairment loss included in net investment gains (losses). Impairment losses are based upon the estimated fair value of real
estate, which is generally computed using the present value of expected future cash flows from the real estate discounted at a rate
commensurate with the underlying risks. Real estate acquired upon foreclosure of commercial and agricultural mortgage loans is
recorded at the lower of estimated fair value or the carrying value of the mortgage loan at the date of foreclosure.
Real Estate Joint Ventures and Other Limited Partnership Interests. The Company uses the equity method of accounting for
investments in real estate joint ventures and other limited partnership interests in which it has more than a minor equity interest or
more than a minor influence over the joint ventures and partnership’s operations, but does not have a controlling interest and is not
the primary beneficiary. The Company uses the cost method of accounting for real estate joint ventures and other limited partnership
interests in which it has a minor equity investment and virtually no influence over the joint ventures and the partnership’s operations.
In addition to the investees performing regular evaluations for the impairment of underlying investments, the Company routinely
evaluates its investments in real estate joint ventures and limited partnerships for impairments. For its cost method investments it
follows an impairment analysis which is similar to the process followed for its fixed maturity and equity securities as described
previously. For equity method investees, the Company considers financial and other information provided by the investee, other
known information and inherent risks in the underlying investments, as well as future capital commitments, in determining whether an
impairment has occurred. When an other-than-temporary impairment is deemed to have occurred, the Company records a realized
capital loss within net investment gains (losses) to record the investment at its fair value.
Short-term Investments. Short-term investments include investments with remaining maturities of one year or less, but greater
than three months, at the time of acquisition and are stated at amortized cost, which approximates fair value.
Other Invested Assets. Other invested assets consist principally of leveraged leases and funds withheld at interest. 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 recognizes income on the leveraged leases by applying the leveraged
lease’s estimated rate of return to the net investment in the lease. The Company regularly reviews residual values and impairs them to
expected values as needed.
Funds withheld represent amounts contractually withheld by ceding companies in accordance with reinsurance agreements. For
agreements written on a modified coinsurance basis and certain agreements written on a coinsurance basis, assets supporting the
reinsured policies, and equal to the net statutory reserves, are withheld and continue to be legally owned by the ceding companies.
The Company records a funds withheld receivable rather than the underlying investments. The Company recognizes interest on
funds withheld at rates defined by the treaty terms which may be contractually specified or directly related to the investment portfolio
and records it in net investment income.
Other invested assets also include stand-alone derivatives with positive fair values and the fair value of embedded derivatives
related to funds withheld and modified coinsurance contracts.
F-9MetLife, Inc.
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)