MetLife 2007 Annual Report Download - page 33

These aforementioned increases in income from continuing operations were partially offset by the following items:
• A decline in interest margins of $58 million, net of income tax. Interest margins relate primarily to the general account portion of
investment-type products. Management attributed $40 million of this decrease to the deferred annuity business and the remaining
$18 million to other investment-type products. Interest margin is the difference between interest earned and interest credited to
policyholder account balances related to the general account on these businesses. Interest earned approximates net investment
income on invested assets attributed to these businesses with net adjustments for other non-policyholder elements. Interest credited
approximates the amount recorded in interest credited to policyholder account balances. Interest credited to policyholder account
balances is subject to contractual terms, including some minimum guarantees, and may reflect actions by management to respond to
competitive pressures. Interest credited to policyholder account balances tends to move gradually over time to reflect market interest
rate movements, subject to any minimum guarantees, and therefore, generally does not introduce volatility in expense.
• Higher expenses of $52 million, net of income tax. Higher general spending in the current period was partially offset by higher
corporate incentives in the prior year.
• Higher annuity benefits of $30 million, net of income tax, primarily due to higher costs of the guaranteed annuity benefit riders and the
related hedging, and revisions to future policyholder benefits.
• An increase in interest credited to policyholder account balances of $26 million, net of income tax, due primarily to lower amortization
of the excess interest reserves on acquired annuity and universal life blocks of business.
• An increase in policyholder dividends of $18 million, net of income tax, due to growth in the business.
The change in effective tax rates between periods accounts for the remainder of the increase in income from continuing operations.
Revenues
Total revenues, excluding net investment gains (losses), increased by $1,184 million, or 8%, to $15,156 million for the year ended
December 31, 2006 from $13,972 million for the comparable 2005 period. The acquisition of Travelers contributed $1,009 million during
the first six months of 2006 to the period over period increase. Excluding the impact of Travelers, such revenues increased by $175 million,
or 1%, from the comparable 2005 period.
Premiums decreased by $38 million due to a decrease in immediate annuity premiums of $22 million, and a $103 million expected
decline in premiums associated with the Company’s closed block of business, partially offset by growth in premiums from other life
products of $87 million.
Higher universal life and investment-type product policy fees combined with other revenues of $267 million resulted from a combination
of growth in the business and improved overall market performance. Policy fees from variable life and annuity and investment-type products
are typically calculated as a percentage of the average assets in policyholder accounts. The value of these assets can fluctuate depending
on equity performance.
Net investment income decreased by $54 million. Net investment income from the general account portion of investment-type products
decreased by $56 million which was partially offset by an increase of $2 million in other businesses. Management attributed a decrease of
$146 million partially to lower yields in the current year primarily resulting from lower income from securities lending activities, mortgage and
bond prepayment fee income, partially offset by higher corporate joint venture income. In addition, management attributed an increase of
$92 million from growth in the average asset base primarily from equity securities and mortgage loans.
Expenses
Total expenses increased by $534 million, or 4%, to $12,660 million for the year ended December 31, 2006 from $12,126 million for the
comparable 2005 period. The acquisition of Travelers contributed $706 million during the first six months of 2006 to the period over period
increase. Included in the Travelers results was a $33 million increase to the excess mortality liability on specific blocks of life insurance
policies. Excluding the impact of Travelers, total expenses decreased by $172 million, or 1%, from the comparable 2005 period.
Policyholder benefits and claims decreased by $156 million primarily due to a reduction in the closed block-related policyholder
dividend obligation of $105 million driven by higher net investment losses. A reduction of $49 million related to the excess mortality liability
onaspecificblockoflifeinsurancepoliciesthatlapsedorotherwisechangedalsocontributedtothedecrease.Inaddition,policyholder
benefits and claims decreased by $38 million commensurate with the decrease in premiums discussed above. Unfavorable mortality in the
closed block of $99 million was more than offset by favorable mortality in the life products of $109 million, contributing $10 million to the
decrease in policyholder benefits and claims. Partially offsetting these decreases in policyholder benefits and claims was an increase in
annuity benefits of $46 million primarily due to higher costs of the guaranteed annuity benefit riders and the related hedging, and revisions
to future policyholder benefits.
Partially offsetting these decreases, interest credited to policyholder account balances increased by $51 million. Lower amortization of
the excess interest reserves on acquired annuity and universal life blocks of business resulting from higher lapses in the prior period, as
well as an update of assumptions in the current period contributed $40 million to the increase. In addition, interest credited on the general
account portion of investment-type products increased $16 million, while other businesses decreased by $5 million. Of the $16 million
increase on the general account portion of investment-type products, management attributed $37 million to higher crediting rates, partially
offset by $21 million due to lower average policyholder account balances.
Partially offsetting these decreases in total expenses was a $27 million increase in policyholder dividends associated with growth in the
business.
Lower other expenses of $94 million include lower DAC amortization of $174 million resulting from changes in investment gains and
losses of $154 million and $20 million related to management’s update of assumptions used to determine estimated gross margins. The
remaining increase in other expenses was $80 million. The current year included higher general spending of $94 million primarily due to
information technology and travel expenses while the prior year had higher corporate incentives of $39 million related to the Travelers
integration. In addition, the impact of revisions to certain expenses, premium tax, policyholder liabilities and pension and postretirement
liabilities in both periods was a net increase to expenses of $25 million in the current period.
29MetLife, Inc.