MetLife 2007 Annual Report Download - page 70

Gross other postretirement benefit payments for the next ten years, which reflect expected future service where appropriate, and gross
subsidies to be received under the Prescription Drug Act are expected to be as follows:
Gross Prescription Drug Subsidies Net
(In millions)
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $116 $ (14) $102
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $120 $ (15) $105
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $124 $ (16) $109
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $129 $ (16) $113
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $132 $ (17) $115
2013-2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $713 $(100) $613
Insolvency Assessments
Most of the jurisdictions in which the Company is admitted to transact business require insurers doing business within the jurisdiction to
participate in guaranty associations, which are organized to pay contractual benefits owed pursuant to insurance policies issued by
impaired, insolvent or failed insurers. These associations levy assessments, up to prescribed limits, on all member insurers in a particular
state on the basis of the proportionate share of the premiums written by member insurers in the lines of business in which the impaired,
insolvent or failed insurer engaged. Some states permit member insurers to recover assessments paid through full or partial premium tax
offsets. Assets and liabilities held for insolvency assessments are as follows:
2007 2006
December 31,
(In millions)
Other Assets:
Premiumtaxoffsetforfutureundiscountedassessments ............................... $40 $45
Premiumtaxoffsetscurrentlyavailableforpaidassessments............................. 6 7
Receivableforreimbursementofpaidassessments(1) ................................. 7 10
$53 $62
Liability:
Insolvencyassessments .................................................... $74 $90
(1) The Company holds a receivable from the seller of a prior acquisition in accordance with the purchase agreement.
Assessments levied against the Company were ($1) million, $2 million and $4 million for the years ended December 31, 2007, 2006 and
2005, respectively.
Effects of Inflation
The Company does not believe that inflation has had a material effect on its consolidated results of operations, except insofar as
inflation may affect interest rates.
Adoption of New Accounting Pronouncements
Income Taxes
Effective January 1, 2007, the Company adopted FIN 48. FIN 48 clarifies the accounting for uncertainty in income tax recognized in a
company’s financial statements. FIN 48 requires companies to determine whether it is “more likely than not” that a tax position will be
sustained upon examination by the appropriate taxing authorities before any part of the benefit can be recorded in the financial statements.
It also provides guidance on the recognition, measurement, and classification of income tax uncertainties, along with any related interest
and penalties. Previously recorded income tax benefits that no longer meet this standard are required to be charged to earnings in the
period that such determination is made.
As a result of the implementation of FIN 48, the Company recognized a $52 million increase in the liability for unrecognized tax benefits,
a $4 million decrease in the interest liability for unrecognized tax benefits, and a corresponding reduction to the January 1, 2007 balance of
retained earnings of $37 million, net of $11 million of minority interest.
Insurance Contracts
Effective January 1, 2007, the Company adopted SOP 05-1, Accounting by Insurance Enterprises for Deferred Acquisition Costs in
Connection with Modifications or Exchanges of Insurance Contracts. SOP 05-1 which provides guidance on accounting by insurance
enterprises for DAC on internal replacements of insurance and investment contracts other than those specifically described in SFAS
No. 97, Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from
the Sale of Investments. SOP 05-1 defines an internal replacement and is effective for internal replacements occurring in fiscal years
beginning after December 15, 2006. In addition, in February 2007, the American Institute of Certified Public Accountants (“AICPA”) issued
related Technical Practice Aids (“TPAs”) to provide further clarification of SOP 05-1. The TPAs became effective concurrently with the
adoption of SOP 05-1.
As a result of the adoption of SOP 05-1 and the related TPAs, if an internal replacement modification substantially changes a contract,
then the DAC is written off immediately through income and any new deferrable costs associated with the new replacement are deferred. If
a contract modification does not substantially change the contract, the DAC amortization on the original contract will continue and any
acquisition costs associated with the related modification are immediately expensed.
The adoption of SOP 05-1 and the related TPAs resulted in a reduction to DAC and VOBA on January 1, 2007 and an acceleration of the
amortization period relating primarily to the Company’s group life and health insurance contracts that contain certain rate reset provisions.
PriortotheadoptionofSOP05-1,DAConsuchcontractswasamortized over the expected renewable life of the contract. Upon adoption
66 MetLife, Inc.