MetLife 2007 Annual Report Download - page 112

(iii) taxable income in prior carryback years; and
(iv) tax planning strategies.
The Company may be required to change its provision for income taxes in certain circumstances. Examples of such circumstances
include when the ultimate deductibility of certain items is challenged by taxing authorities (See also Note 15) or when estimates used in
determining valuation allowances on deferred tax assets significantly change or when receipt of new information indicates the need for
adjustment in valuation allowances. Additionally, future events, such as changes in tax laws, tax regulations, or interpretations of such laws
or regulations, could have an impact on the provision for income tax and the effective tax rate. Any such changes could significantly affect
the amounts reported in the consolidated financial statements in the year these changes occur.
As described more fully in “Adoption of New Accounting Pronouncements”, the Company adopted FIN No. 48, Accounting for
Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109 (“FIN 48”) effective January 1, 2007. Under FIN 48, the
Company determines whether it is more-likely-than-not that a tax position will be sustained upon examination by the appropriate taxing
authorities before any part of the benefit can be recorded in the financial statements. A tax position is measured at the largest amount of
benefit that is greater than 50 percent likely of being realized upon settlement. Unrecognized tax benefits due to tax uncertainties that do
not meet the threshold are included within other liabilities and are charged to earnings in the period that such determination is made.
The Company classifies interest recognized as interest expense and penalties recognized as a component of income tax.
Reinsurance
The Company enters into reinsurance transactions as both a provider and a purchaser of reinsurance for its life and property and
casualty insurance products.
For each of its reinsurance contracts, the Company determines if the contract provides indemnification against loss or liability relating to
insurance risk in accordance with applicable accounting standards. The Company reviews all contractual features, particularly those that
may limit the amount of insurance risk to which the reinsurer is subject or features that delay the timely reimbursement of claims.
For reinsurance of existing in-force blocks of long-duration contracts that transfer significant insurance risk, the difference, if any,
between the amounts paid (received), and the liabilities ceded (assumed) related to the underlying contracts is considered the net cost of
reinsurance at the inception of the contract. The net cost of reinsurance is recorded as an adjustment to DAC and recognized as a
component of other expenses on a basis consistent with the way the acquisition costs on the underlying reinsured contracts would be
recognized. Subsequent amounts paid (received) on the reinsurance of in-force blocks, as well as amounts paid (received) related to new
business, are recorded as ceded (assumed) premiums and ceded (assumed) future policy benefit liabilities are established.
For prospective reinsurance of short-duration contracts that meet the criteria for reinsurance accounting, amounts paid (received) are
recorded as ceded (assumed) premiums and ceded (assumed) unearned premiums and are reflected as a component of premiums and
other receivables (future policy benefits). Such amounts are amortized through earned premiums over the remaining contract period in
proportion to the amount of protection provided. For retroactive reinsurance of short-duration contracts that meet the criteria of
reinsurance accounting, amounts paid (received) in excess of (which do not exceed) the related insurance liabilities ceded (assumed)
are recognized immediately as a loss. Any gains on such retroactive contracts are deferred and recorded in other liabilities. The gains are
amortized primarily using the recovery method.
The assumptions used to account for both long and short-duration reinsurance contracts are consistent with those used for the
underlying contracts. Ceded policyholder and contract related liabilities, other than those currently due, are reported gross on the balance
sheet.
Amounts currently recoverable under reinsurance contracts are included in premiums and other receivables and amounts currently
payable are included in other liabilities. Such assets and liabilities relating to reinsurance contracts with the same reinsurer may be
recorded net on the balance sheet, if a right of offset exists within the reinsurance contract.
Premiums, fees and policyholder benefits and claims include amounts assumed under reinsurance contracts and are net of reinsurance
ceded.
If the Company determines that a reinsurance contract does not expose the reinsurer to a reasonable possibility of a significant loss
from insurance risk, the Company records the contract using the deposit method of accounting. Deposits received are included in other
liabilities and deposits made are included within other assets. As amounts are paid or received, consistent with the underlying contracts,
the deposit assets or liabilities are adjusted. Interest on such deposits is recorded as other revenues or other expenses, as appropriate.
Periodically, the Company evaluates the adequacy of the expected payments or recoveries and adjusts the deposit asset or liability through
other revenues or other expenses, as appropriate.
Amounts received from reinsurers for policy administration are reported in other revenues.
Accounting for reinsurance requires extensive use of assumptions and estimates, particularly related to the future performance of the
underlying business and the potential impact of counterparty credit risks. The Company periodically reviews actual and anticipated
experience compared to the aforementioned assumptions used to establish assets and liabilities relating to ceded and assumed
reinsurance and evaluates the financial strength of counterparties to its reinsurance agreements using criteria similar to that evaluated
in the security impairment process discussed previously.
Separate Accounts
Separate accounts are established in conformity with insurance laws and are generally not chargeable with liabilities that arise from any
other business of the Company. Separate account assets are subject to general account claims only to the extent the value of such assets
exceeds the separate account liabilities. The Company reports separately, as assets and liabilities, investments held in separate accounts
and liabilities of the separate accounts if (i) such separate accounts are legally recognized; (ii) assets supporting the contract liabilities are
legally insulated from the Company’s general account liabilities; (iii) investments are directed by the contractholder; and (iv) all investment
performance, net of contract fees and assessments, is passed through to the contractholder. The Company reports separate account
F-16 MetLife, Inc.
MetLife, Inc.
Notes to Consolidated Financial Statements — (Continued)