MetLife 2007 Annual Report Download - page 39

and infrastructure initiatives, as well as business growth and higher bank insurance fees, partially offset by a decrease in DAC
amortization related to market performance.
• Mexico by $27 million primarily due to higher expenses related to business growth and the favorable impact in the prior year of
liabilities related to employment matters that were reduced, offset by a decrease in DAC amortization resulting from management’s
update of assumptions used to determine estimated gross profits in both the current and prior years, and a decrease in liabilities
based on a review of outstanding remittances.
• India by $14 million primarily due to headcount increases and growth initiatives, partially offset by the impact of management’s update
of assumptions used to determine estimated gross profits.
• Australia by $12 million primarily due to business growth and changes in foreign currency exchange rates.
• Chile by $12 million primarily due to higher compensation costs, higher spending on infrastructure and marketing programs and
growth, partially offset by a decrease in DAC amortization related to inflation indexing.
• Hong Kong by $11 million due to the acquisition of the remaining 50% interest in MetLife Fubon and the resulting consolidation of the
operation.
• Ireland by $10 million due to additional start-up costs, as well as $5 million of foreign currency transaction losses.
• Brazil by $9 million primarily due to changes in foreign currency exchange rates, partially offset by an increase in litigation liabilities in
the prior year.
• The United Kingdom by $2 million due to changes in foreign currency rates and higher spending on business initiatives, partially offset
by lower DAC amortization resulting from calculation refinements.
Partially offsetting these increases in other expenses were decreases in:
• Taiwan by $118 million primarily due to a one-time increase in DAC amortization in the prior year of $77 million due to a loss
recognition adjustment resulting from low interest rates relative to product guarantees coupled with high persistency rates on certain
blocksofbusiness,anincreaseinDACamortizationintheprioryear associated with the implementation of a new valuation system,
expenses of $17 million in the prior year related the termination of the agency distribution channel and expense reductions
recognized in the current year due to elimination of the agency distribution channel.
• The home office of $4 million primarily due to the elimination of certain intercompany expenses previously charged to the International
Segment, offset by higher spending on growth and infrastructure initiatives.
Decreases in other countries accounted for the remainder of the change.
Changes in foreign currency exchange rates accounted for a $105 million increase in total expenses.
Year ended December 31, 2006 compared with the year ended December 31, 2005 — International
Income from Continuing Operations
Income from continuing operations decreased by $14 million, or 8%, to $172 million for the year ended December 31, 2006 from
$186 million for the comparable 2005 period. The acquisition of Travelers contributed $20 million during the first six months of 2006 to
income from continuing operations, which includes $3 million, net of income tax, of net investment gains. Included in the Travelers results is
an increase to policyholder benefits and claims of $10 million, net of income tax, resulting from the increase in policyholder liabilities due to
higher than expected mortality in Brazil on specific blocks of business written in the Travelers entity since the acquisition, and consistent
with the increase in the existing MetLife entity as described more fully below. Excluding the impact of Travelers, income from continuing
operations decreased by $34 million, or 18%, from the comparable 2005 period. This decrease includes the impact of net investment gains
(losses) of ($17) million, net of income tax. Excluding the impact of Travelers and of net investment gains (losses), income from continuing
operations decreased by $17 million from the comparable 2005 period.
Income from continuing operations decreased in:
• Taiwan by $59 million, net of income tax, due to a loss recognition adjustment (in the form of accelerated DAC amortization) of
$50 million, net of income tax, and restructuring costs of $11 million, net of income tax, partially offset by reserve refinements of
$3 million, net of income tax, associated with the conversion to a new valuation system.
• Canada by $19 million, net of income tax, primarily due to the realignment of economic capital in the prior year.
• Mexico by $12 million, net of income tax, due to an increase in amortization of DAC resulting from management’s update of
assumptions used to determine estimated gross margins in both years, higher operating expenses from the pension business, the
net impact of an adjustment to the liability for experience refunds on a block of business, a decrease in various one-time other
revenue items for which the prior year benefited by $13 million, net of income tax, and the current year benefited by $11 million, net of
income tax, as well as an increase of $27 million in tax due to tax benefits realized in the prior year from the American Jobs Creation
Act of 2004 (“AJCA”).These were partially offset by a decrease in certain policyholder liabilities caused by a decrease in unrealized
investment gains on invested assets supporting those liabilities relative to the prior year, a decrease in policyholder benefits
associated with a large group policy that was not renewed by the policyholder, a benefit in the current year from the elimination of
liabilities for pending claims that were determined to be invalid following a review, the unfavorable impact in the prior year of
contingent liabilities that were established related to potential employment matters in that year and which were eliminated in the
current year as well as overall business growth.
• Brazil by $7 million, net of income tax, primarily due to a $10 million, net of income tax, increase in policyholder benefits and claims
related to an increase in future policyholder benefit liabilities on specific blocks of business. This increase is due to significantly higher
than expected mortality experience, of which a total of $20 million, net of income tax, of additional liabilities were recorded,
$10 million, net of income tax, of which was associated with the acquired Travelers’ business, and of which $10 million, net of income
tax, was related to the existing MetLife entities. Brazil’s income from continuing operations was also impacted by an increase in
litigation liabilities, as well as adverse claim experience in the current year.
• The Company’s investment in Japan by $4 million, net of income tax, due to variability in the hedging program.
• The home office by $49 million primarily due to recorded higher infrastructure expenditures in support of segment growth of
$39 million, net of income tax, as well as a $23 million, net of income tax, contingent tax liability. This was offset by an increase in
income from continuing operations of $13 million, net of income tax, due to a reduction in the amount charged for economic capital.
35MetLife, Inc.