MetLife 2007 Annual Report Download - page 43

Additionally, a component of the increase in total revenues, excluding net investment gains (losses), was a $128 million increase
associated with foreign currency exchange rate movements.
Expenses
Total expenses increased by $506 million, or 10%, to $5,477 million for the twelve months ended December 31, 2007 from
$4,971 million for the comparable 2006 period.
This increase in total expenses was primarily attributable to an increase of $499 million in policyholder benefits and claims, primarily
associated with a growth in insurance in-force of $179 billion, and an increase of $8 million in interest credited to policyholder account
balances. This increase in interest credited to policyholder account balances was more than offset by an increase in net investment
income. In addition to the in-force growth, favorable mortality in the prior year in the international operations added to the increase in
policyholder benefits and claims.
Other expenses decreased by $1 million due to a $79 million decrease in expenses associated with DAC, including reinsurance
allowances paid, offset by a $41 million increase in interest expense associated with the aforementioned notes offerings by RGA and its
subsidiary and the application of FIN 48, and an $7 million increase in minority interest expense. Included in the $79 million decrease in
expenses associated with DAC was a $113 million reduction of DAC amortization due to the change in the value of embedded derivatives
associated with modified coinsurance arrangements as a result of the impact of widening credit spreads in the U.S. debt markets. An
offsetting increase of $30 million was primarily due to compensation and overhead-related expenses associated with RGA’s international
expansion and general growth in operations, including equity compensation expense.
Additionally, a component of the increase in total expenses, was a $121 million increase associated with foreign currency exchange
rate movements.
Year ended December 31, 2006 compared with the year ended December 31, 2005 — Reinsurance
Net Income
Net income increased by $26 million, or 28%, to $118 million for the year ended December 31, 2006 from $92 million for the
comparable 2005 period.
The increase in net income was attributable to a 12% increase in premiums while policyholder benefits and claims increased by 9%, a
21% increase in net investment income while interest credited to policyholder account balances increased by 15%, and a 14% increase in
other revenues. The increase in premiums, net of the increase in policyholder benefits and claims, added $127 million to net income which
was primarily due to added business in-force from facultative and automatic treaties and renewal premiums on existing blocks of business
in the U.S. and international operations. The increase in policyholder benefits and claims was partially offset by unfavorable mortality and an
increaseintheliabilitiesassociatedwithRGA’sArgentinepensionbusiness,bothintheprior-yearperiod.Theincreaseinnetinvestment
income and interest credited to policyholder account balances added $60 million to net income and was due to growth in the invested
asset base. The increase in invested assets, and net investment income, substantially derived from the issuance of notes and a collateral
financing facility, which increased interest expense within other expenses as described below. The increase in other revenues added
$5 million to net income and was primarily related to an increase in investment product fees on asset-intensive business and financial
reinsurance fees during 2006, partially offset by a decrease in foreign currency transaction gains in the prior-year period.
These increases in net income were partially offset by a $153 million increase in other expenses and a $10 million decrease in net
investment gains (losses), all net of income tax. Additionally, a higher effective tax rate in 2006 reduced net income by $3 million. The
increase in other expenses was primarily related to expenses associated with DAC, including reinsurance allowances paid, interest
expense associated with RGA’s issuance of $850 million 30-year notes to provide long-term collateral for Regulation XXX statutory
reserves in June 2006 and $400 million of junior subordinated notes in December 2005, minority interest expense, and equity
compensation expense.
Revenues
Total revenues, excluding net investment gains (losses), increased by $613 million, or 14%, to $5,146 million for the year ended
December 31, 2006 from $4,533 million for the comparable 2005 period.
The increase in such revenues was primarily associated with growth in premiums of $479 million from new facultative and automatic
treaties and renewal premiums on existing blocks of business in all RGA operating segments, including the U.S., which contributed
$220 million; Asia Pacific, which contributed $138 million; Canada, which contributed $86 million; and Europe and South Africa, which
contributed $35 million. Premium levels were significantly influenced by large transactions and reporting practices of ceding companies
and, as a result, can fluctuate from period to period.
Net investment income increased by $126 million, primarily due to growth in the invested asset base from net proceeds of RGA’s
$850 million 30-year notes offering in June 2006 and $400 million junior subordinated note offering in December 2005, positive operating
cash inflows and additional deposits associated with the coinsurance of annuity products. Investment yields were down slightly compared
to the prior-year period. The increase in net investment income was partially offset by a decrease related to a realignment of economic
capital.
Other revenues increased by $8 million primarily due to an increase in investment product fees on asset-intensive business and
financial reinsurance fees during 2006, partially offset by a decrease in foreign currency transaction gains.
Additionally, a component of the increase in total revenues, excluding net investment gains (losses), was a $36 million increase
associated with foreign currency exchange rate movements.
Expenses
Total expenses increased by $554 million, or 13%, to $4,971 million for the year ended December 31, 2006 from $4,417 million for the
comparable 2005 period.
The increase in total expenses was commensurate with the growth in revenues and was primarily attributable to an increase of
$284 million in policyholder benefits and claims, primarily associated with growth in insurance in-force of $245 billion, and a $34 million
increase in interest credited due to growth in policyholder account balances associated with the coinsurance of annuity products, which is
generally offset by a corresponding increase in net investment income. The increase in policyholder benefits and claims of $284 million was
partially offset by favorable underwriting results in RGA’s international operations in the current year period, unfavorable mortality
39MetLife, Inc.