MetLife 2007 Annual Report Download - page 17

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.
Employee Benefit Plans
Certain subsidiaries of the Holding Company (the “Subsidiaries”) sponsor and/or administer pension and other postretirement plans
covering employees who meet specified eligibility requirements. The obligations and expenses associated with these plans require an
extensive use of assumptions such as the discount rate, expected rate of return on plan assets, rate of future compensation increases,
healthcare cost trend rates, as well as assumptions regarding participant demographics such as rate and age of retirements, withdrawal
rates and mortality. Management, in consultation with its external consulting actuarial firm, determines these assumptions based upon a
variety of factors such as historical performance of the plan and its assets, currently available market and industry data, and expected
benefit payout streams. The assumptions used may differ materially from actual results due to, among other factors, changing market and
economic conditions and changes in participant demographics. These differences may have a significant effect on the Company’s
consolidated financial statements and liquidity.
Litigation Contingencies
The Company is a party to a number of legal actions and is involved in a number of regulatory investigations. Given the inherent
unpredictability of these matters, it is difficult to estimate the impact on the Company’s financial position. Liabilities are established when it
is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Liabilities related to certain lawsuits,
including the Company’s asbestos-related liability, are especially difficult to estimate due to the limitation of available data and uncertainty
regarding numerous variables that can affect liability estimates. The data and variables that impact the assumptions used to estimate the
Company’s asbestos-related liability include the number of future claims, the cost to resolve claims, the disease mix and severity of
disease in pending and future claims, the impact of the number of new claims filed in a particular jurisdiction and variations in the law in the
jurisdictions in which claims are filed, the possible impact of tort reform efforts, the willingness of courts to allow plaintiffs to pursue claims
against the Company when exposure to asbestos took place after the dangers of asbestos exposure were well known, and the impact of
any possible future adverse verdicts and their amounts. On a quarterly and annual basis, the Company reviews relevant information with
respect to liabilities for litigation, regulatory investigations and litigation-related contingencies to be reflected in the Company’s consol-
idated financial statements. It is possible that an adverse outcome in certain of the Company’s litigation and regulatory investigations,
including asbestos-related cases, or the use of different assumptions in the determination of amounts recorded could have a material
effect upon the Company’s consolidated net income or cash flows in particular quarterly or annual periods.
Economic Capital
Economic capital is an internally developed risk capital model, the purpose of which is to measure the risk in the business and to provide
a basis upon which capital is deployed. The economic capital model accounts for the unique and specific nature of the risks inherent in
MetLife’s businesses. As a part of the economic capital process, a portion of net investment income is credited to the segments based on
the level of allocated equity. This is in contrast to the standardized regulatory risk-based capital (“RBC”) formula, which is not as refined in
its risk calculations with respect to the nuances of the Company’s businesses.
13MetLife, Inc.