MetLife 2007 Annual Report Download - page 103

MetLife, Inc.
Notes to Consolidated Financial Statements
1. Business, Basis of Presentation, and Summary of Significant Accounting Policies
Business
“MetLife” or the “Company” refers to MetLife, Inc., a Delaware corporation incorporated in 1999 (the “Holding Company”), and its
subsidiaries, including Metropolitan Life Insurance Company (“MLIC”). MetLife is a leading provider of insurance and other financial
services with operations throughout the United States and the regions of Latin America, Europe, and Asia Pacific. Through its domestic and
international subsidiaries and affiliates, MetLife offers life insurance, annuities, automobile and homeowners insurance, retail banking and
other financial services to individuals, as well as group insurance, reinsurance and retirement & savings products and services to
corporations and other institutions.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of (i) the Holding Company and its subsidiaries; (ii) part-
nerships and joint ventures in which the Company has control; and (iii) variable interest entities (“VIEs”) for which the Company is deemed to
be the primary beneficiary. Closed block assets, liabilities, revenues and expenses are combined on a line-by-line basis with the assets,
liabilities, revenues and expenses outside the closed block based on the nature of the particular item. See Note 9. Intercompany accounts
and transactions have been eliminated.
The Company uses the equity method of accounting for investments in equity securities in which it has more than a 20% interest and for
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 venture’s or 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 investments in real estate joint ventures and other limited partnership interests in which it
has a minor equity investment and virtually no influence over the joint venture’s or partnership’s operations.
Minority interest related to consolidated entities included in other liabilities was $1.8 billion and $1.4 billion at December 31, 2007 and
2006, respectively.
Certain amounts in the prior year periods’ consolidated financial statements have been reclassified to conform with the 2007 presen-
tation. Such reclassifications include $850 million relating to long-term debt reclassified to collateral financing arrangements on the
consolidated balance sheet at December 31, 2006 and the consolidated statement of cash flow for the year ended December 31,
2006. See Note 11 for a description of the transaction. See also Note 23 for reclassifications related to discontinued operations.
On July 1, 2005, the Holding Company completed the acquisition of The Travelers Insurance Company, excluding certain assets, most
significantly, Primerica, from Citigroup Inc. (“Citigroup”), and substantially all of Citigroup’s international insurance businesses (collectively,
“Travelers”), which is described in Note 2. The acquisition was accounted for using the purchase method of accounting. Travelers’ assets,
liabilities and results of operations were included in the Company’s results beginning July 1, 2005. The accounting policies of Travelers
were conformed to those of MetLife upon acquisition.
Summary of Significant Accounting Policies and Critical Accounting Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
(“GAAP”) requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported in the
consolidated financial statements. The most critical estimates include those used in determining:
i) the fair value of investments in the absence of quoted market values;
ii) investment impairments;
iii) the recognition of income on certain investments;
iv) the application of the consolidation rules to certain investments;
v) the fair value of and accounting for derivatives;
vi) the capitalization and amortization of deferred policy acquisition costs (“DAC”) and the establishment and amortization of
value of business acquired (“VOBA”);
vii) the measurement of goodwill and related impairment, if any;
viii) the liability for future policyholder benefits;
ix) accounting for income taxes and the valuation of deferred tax assets;
x) accounting for reinsurance transactions;
xi) accounting for employee benefit plans; and
xii) the liability for litigation and regulatory matters.
A description of such critical estimates is incorporated within the discussion of the related accounting policies which follow. The
application of purchase accounting requires the use of estimation techniques in determining the fair values of assets acquired and liabilities
assumed — the most significant of which relate to the aforementioned critical estimates. In applying these policies, management makes
subjective and complex judgments that frequently require estimates about matters that are inherently uncertain. Many of these policies,
estimates and related judgments are common in the insurance and financial services industries; others are specific to the Company’s
businesses and operations. Actual results could differ from these estimates.
Investments
The Company’s principal investments are in fixed maturity and equity securities, mortgage and consumer loans, policy loans, real
estate, real estate joint ventures and other limited partnerships, short-term investments, and other invested assets. The accounting
policies related to each are as follows:
Fixed Maturity and Equity Securities. The Company’s fixed maturity and equity securities are classified as available-for-sale,
except for trading securities, and are reported at their estimated fair value. Unrealized investment gains and losses on these securities
are recorded as a separate component of other comprehensive income or loss, net of policyholder related amounts and deferred
F-7MetLife, Inc.