MetLife 2008 Annual Report Download - page 11

Certain insurance-related liabilities, specifically those associated with guarantees, are tied to market performance, which in times of
depressed investment markets may require management to establish additional liabilities. However, many of the risks associated with these
guarantees are hedged. The turbulent financial markets, sustained over a period of time, may also necessitate management to strengthen
insurance liabilities that are not associated with guarantees. Management does not anticipate significant changes in the underlying trends
that drive underwriting results, with the possible exception of certain trends in the Auto & Home and disability businesses.
Certain expenses may increase due to initiatives such as Operational Excellence. Other charges are also possible as the combination of
the downward pressure on net income coupled with the expectations of the financial markets, may necessitate a review of goodwill
impairment, specifically within the Individual Business. The unusual financial market conditions will also likely cause an increase in the
Company’s pension-related expense and may cause an increase in DAC amortization.
In response to the challenges presented by the unusual economic environment, management continues to focus on disciplined
underwriting, pricing, hedging strategies, as well as focused expense management.
Institutional Business Outlook
Management expects continued growth in premium, fees, and other revenues across the majority of the Institutional businesses.
Revenues in many of the businesses can fluctuate based, in part, on the covered payroll of customers or changes in the amount of
coverage they have purchased for current or former employees. As a result, in periods of high unemployment, revenue may be impacted.
Revenue may also be negatively impacted as a result of customers’ reduction of coverage stemming from benefit plan changes, the
elimination of retiree coverage or customer-related bankruptcies. Revenues in the retirement & savings business may experience some
pressure as the demand for certain of these products can decline during periods of volatile credit and investment markets.
With the expectation of the turbulent financial markets continuing in 2009, management expects to see lower earnings resulting from
depressed levels of net investment income, specifically as previously discussed in the consolidated outlook, which will put downward
pressure on earnings from interest margins in the spread-related businesses. If there is an extended period of sustained, low long-term
market interest rates, it is possible that strengthening certain long-term liabilities could be necessary. Management does not expect to see
significant changes in the underlying trends that drive underwriting results, with the possible exception of the disability business.
Management thinks the level of disability claims is correlated to the unemployment rate and therefore underwriting results in this business
may be impacted if the recession continues to deepen and there is a continued rise in the unemployment rate.
In 2009, management will continue to focus on disciplined underwriting, pricing and aggressively managing expenses, while making
deliberate investments in certain areas that Management expects will create long-term growth opportunities. The unusual financial market
conditions previously mentioned, will also likely cause an increase in the Company’s pension-related expense.
Individual Business Outlook
Management expects 2009 premium, fees and other revenues to be down slightly compared to 2008 results. Individual Business
experienced a significant decline in asset-based fees in annuity and variable life products in the second half of 2008 due to equity market
declines. This depressed level of fee revenue is expected to continue in 2009. However, Individual Business experienced a significant
increase in fourth quarter 2008 fixed annuity sales, which management believes was partially the result of consumers recognizing the
strength of MetLife’s guarantees. While management believes fixed annuity sales will continue to be strong, future sales of all products
could be impacted as the financial services industry adjusts to the economic environment and as anticipated industry consolidation
occurs.
Management believes the investment and capital markets may continue to be turbulent in 2009, which would continue to exert
downward pressure on net income, specifically net investment income as previously discussed in the consolidated outlook.
Certain annuity and life benefit guarantees are tied to market performance, which in times of depressed investment markets, may
require management to establish additional liabilities. However, many of the risks associated with these guarantees are hedged. These
pressures might result in potential modifications to product pricing strategies associated with acceptable returns for the underlying risks
being covered.
Other charges are also possible as the combination of the downward pressure on net income coupled with the expectations of the
financial markets, may necessitate a review of goodwill impairment. The unusual financial market conditions will also likely cause an
increase in the Company’s pension-related expense and may cause an increase in DAC amortization.
Management believes that its disciplined approach to underwriting, pricing, hedging and investment strategies will further strengthen
MetLife’s industry leadership position and mitigate the impacts from the ongoing uncertainty in the investment markets. Additionally,
Management continues to focus on expense management by driving efficiency and productivity gains within the distribution and home
office organizations.
International Business Outlook
Although management expects that premiums, fees and other revenues, on a constant exchange rate basis, will continue to increase
across the regions in 2009, there is a risk of lower product demand as well as higher policy surrenders if the trend of higher unemployment,
decreased individual income levels, and lower corporate earnings continues in 2009. To address this, various distribution channels and
customer service operations initiatives are being implemented to expand relationships with existing distributors, develop new channel
outlets and improve persistency management. In addition, market conditionshaveandmaycontinuetocauseanincreaseinthecostof
related hedging programs and may result in a decrease in fee income from lower assets under management. Furthermore, the responses of
governments and policymakers, in the countries in which the business operates, to the economic circumstances could have an
unpredictable impact on results. Continued volatility in foreign currency exchange rates may adversely impact reported premiums, fees
and other revenues as well as net income. Management continues to evaluate strategies to mitigate this risk.
Management expects continued turbulence in global capital markets during 2009, which may create downward pressure on net
income, specifically net investment income as previously discussed in the consolidated outlook.
In the Asia region, certain annuity benefit guarantees are tied to market performance, which in times of depressed investment markets,
may require management to establish additional liabilities. This exposure may result in modifications to our product pricing strategies in
order to maintain acceptable returns for the underwriting risks being covered. The sufficiency of certain reserves in the Asia region is
8MetLife, Inc.