MetLife 2007 Annual Report Download - page 87

Avenue property, the Company has retained rights to existing signage and is leasing space for associates in the property for 20 years with
optional renewal periods through 2205.
Leveraged Leases
Investment in leveraged leases, included in other invested assets, consisted of the following:
2007 2006
December 31,
(In millions)
Rentalreceivables,net................................................... $1,491 $1,055
Estimatedresidualvalues ................................................. 1,881 887
Subtotal........................................................... 3,372 1,942
Unearnedincome ...................................................... (1,313) (694)
Investmentinleveragedleases ............................................ $2,059 $1,248
The Company’s deferred income tax liability related to leveraged leases was $1.0 billion and $670 million at December 31, 2007 and
2006, respectively. The rental receivables set forth above are generally due in periodic installments. The payment periods range from one
to 15 years, but in certain circumstances are as long as 30 years.
The components of net income from investment in leveraged leases are as follows:
2007 2006 2005
Years Ended
December 31,
(In millions)
Income from investment in leveraged leases (included in net investment income). . . . . . . . . . . . . $ 67 $ 51 $ 54
Less:Incometaxexpenseonleveragedleases .................................. (24) (18) (19)
Netincomefrominvestmentinleveragedleases ................................. $43 $33 $35
Other Limited Partnership Interests
The carrying value of other limited partnership interests (which primarily represent ownership interests in pooled investment funds that
make private equity investments in companies in the United States and overseas) was $6.2 billion and $4.8 billion at December 31, 2007
and 2006, respectively. Included within other limited partnership interests at December 31, 2007 and 2006 are $1.6 billion and $1.2 billion,
respectively, of hedge funds. For the years ended December 31, 2007, 2006 and 2005, net investment income from other limited
partnership interests included $89 million, $98 million and $24 million, respectively, related to hedge funds. The Company uses the equity
method of accounting for investments in limited partnership interests in which it has more than a minor interest, has influence over the
partnership’s operating and financial policies, but does not have a controlling interest and is not the primary beneficiary. The Company uses
the cost method for minor interest investments and when it has virtually no influence over the partnership’s operating and financial policies.
The Company’s investments in other limited partnership interests represented 1.8% and 1.4% of cash and invested assets at December 31,
2007 and 2006, respectively.
Management anticipates that investment income and the related yields on other limited partnership interests may decline during 2008
due to increased volatility in the equity and credit markets during 2007.
Some of the Company’s investments in other limited partnership interests meet the definition of a VIE under FIN 46(r). See
“— Composition of Investment Portfolio Results — Variable Interest Entities.”
Other Invested Assets
The Company’s other invested assets consisted principally of leveraged leases of $2.2 billion and $1.3 billion, funds withheld at interest
of $4.5 billion and $4.0 billion, and standalone derivatives with positive fair values and the fair value of embedded derivatives related to
funds withheld and modified coinsurance contracts of $4.1 billion and $2.5 billion at December 31, 2007 and 2006, respectively. The
leveraged leases are recorded net of non-recourse debt. The Company participates in lease transactions, which are diversified by industry,
asset type and geographic area. The Company regularly reviews residual values and writes down residuals to expected values as needed.
Funds withheld represent amounts contractually withheld by ceding companies in accordance with reinsurance agreements. For agree-
ments written on a modified coinsurance basis and certain agreements written on a coinsurance basis, assets supporting the reinsured
policies equal to the net statutory reserves are withheld and continue to be legally owned by the ceding company. Interest accrues to these
funds withheld at rates defined by the treaty terms and may be contractually specified or directly related to the investment portfolio. The
Company’s other invested assets represented 3.7% and 3.2% of cash and invested assets at December 31, 2007 and 2006, respectively.
Derivative Financial Instruments
The Company uses a variety of derivatives, including swaps, forwards, futures and option contracts, to manage its various risks.
Additionally, the Company uses derivatives to synthetically create investments as permitted by its insurance subsidiaries’ Derivatives Use
Plans approved by the applicable state insurance departments.
83MetLife, Inc.