MetLife 2007 Annual Report Download - page 133

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The following table presents changes in fair value related to derivatives that do not qualify for hedge accounting:
2007 2006 2005
Years Ended December 31,
(In millions)
Net investment gains (losses), excluding embedded derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . $(232) $(685) $299
Policyholderbenefitsandclaims .............................................. $ 7 $ (33) $ 2
Netinvestmentincome(1)................................................... $ 31 $ (40) $(38)
(1) Changes in fair value related to economic hedges of equity method investment in joint ventures that do not qualify for hedge accounting
and changes in fair value related to derivatives held in relation to trading portfolios.
Embedded Derivatives
The Company has certain embedded derivatives that are required to be separated from their host contracts and accounted for as
derivatives. These host contracts include guaranteed minimum withdrawal contracts, guaranteed minimum accumulation contracts and
modified coinsurance contracts.
The following table presents the fair value of the Company’s embedded derivatives at:
2007 2006
December 31,
(In millions)
Embeddedderivativeassets....................................................... $ 72 $180
Embeddedderivativeliabilities...................................................... $980 $169
The following table presents changes in fair value related to embedded derivatives:
2007 2006 2005
Years Ended December 31,
(In millions)
Net investment gains (losses) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(471) $209 $ 69
Interestcreditedtopolicyholderaccountbalances .............................. $ (66) $(80) $(45)
Credit Risk
The Company may be exposed to credit-related losses in the event of nonperformance by counterparties to derivative financial
instruments. Generally, the current credit exposure of the Company’s derivative contracts is limited to the fair value at the reporting date.
The credit exposure of the Company’s derivative transactions is represented by the fair value of contracts with a net positive fair value at the
reporting date.
The Company manages its credit risk related to over-the-counter derivatives by entering into transactions with creditworthy counter-
parties, maintaining collateral arrangements and through the use of master agreements that provide for a single net payment to be made by
one counterparty to another at each due date and upon termination. Because exchange traded futures are effected through regulated
exchanges, and positions are marked to market on a daily basis, the Company has minimal exposure to credit-related losses in the event of
nonperformance by counterparties to such derivative instruments.
The Company enters into various collateral arrangements, which require both the pledging and accepting of collateral in connection
with its derivative instruments. As of December 31, 2007 and 2006, the Company was obligated to return cash collateral under its control
of $833 million and $428 million, respectively. This unrestricted cash collateral is included in cash and cash equivalents and the obligation
to return it is included in payables for collateral under securities loaned and other transactions in the consolidated balance sheets. As of
December 31, 2007 and 2006, the Company had also accepted collateral consisting of various securities with a fair market value of
$678 million and $453 million, respectively, which are held in separate custodial accounts. The Company is permitted by contract to sell or
repledge this collateral, but as of December 31, 2007 and 2006, none of the collateral had been sold or repledged.
As of December 31, 2007 and 2006, the Company provided collateral of $162 million and $80 million, respectively, which is included in
fixed maturity securities in the consolidated balance sheets. In addition, the Company has exchange traded futures, which require the
pledging of collateral. As of December 31, 2007 and 2006, the Company pledged collateral of $167 million and $105 million, respectively,
which is included in fixed maturity securities. The counterparties are permitted by contract to sell or repledge this collateral.
F-37MetLife, Inc.
MetLife, Inc.
Notes to Consolidated Financial Statements — (Continued)