MetLife 2008 Annual Report Download - page 113

most commonly 1-month or 3-month LIBOR. MetLife is exposed to interest rate risks, and foreign exchange risk when guaranteeing
payment of interest and return of principal at the contractual maturity date. The Company may invest in floating rate assets, or enter into
floating rate swaps, also tied to external indices, as well as caps to mitigate the impact of changes in market interest rates. The Company
also mitigates its risks by implementing an asset/liability matching policy and seeks to hedge all foreign currency risk through the use of
foreign currency hedges, including cross currency swaps.
Variable & Universal Life. Policyholder account balances are held for general account universal life policies, and the fixed account of
variable life insurance policies. Policyholder account balances are credited interest at a rate set by the Company, and are influenced by
current market rates. These contracts generally have a guaranteed minimum credited rate. The majority of the policyholder account
balances have a minimum credited rate between 3% and 5%.
Annuities. Policyholder account balances are held for fixed deferred annuities and the fixed account portion of variable annuities, for
certain income annuities, and for certain portions of guaranteed benefits. Policyholder account balances are credited interest at a rate set
by the Company, which are influenced by current market rates, and generally have a guaranteed minimum credited rate between 1.5% and
4.0%. See “— Variable Annuity Guarantees.”
International. Policyholder account balances are held largely for fixed income retirement and savings plans in Latin America and to a
lesser degree, amounts for separate account type funds in certain countries in the Latin America, Europe, and Asia Pacific regions that do
not meet the US GAAP definition of separate accounts. Also included are certain liabilities for retirement and savings products sold in
certain countries in the Asia Pacific region that generally are sold with minimum credited rate guarantees. Liabilities for guarantees on
certain variable annuities in the Asia Pacific region are established in accordance with SFAS 133 and are also included within policyholder
account balances. These liabilities are generally impacted by sustained periods of low interest rates, where there are interest rate
guarantees. The Company mitigates its risks by implementing an asset/liability matching policy and by hedging its variable annuity
guarantees. See “— Variable Annuity Guarantees.”
Variable Annuity Guarantees
The Company issues certain variable annuity products with guaranteed minimum benefit that provide the policyholder a minimum return
based on their initial deposit (i.e., the benefit base) less withdrawals. In some cases the benefit base may be increased by additional
deposits, bonus amounts, accruals or market value resets. These Guarantees are accounted for under SOP 03-1 or as embedded
derivatives under SFAS 133 depending on how and when the benefit is paid. Specifically, a guarantee is accounted for under SFAS 133 if a
guarantee is paid without requiring (i) the occurrence of specific insurable event or (ii) the policyholder to annuitize. Alternatively, a
guarantee is accounted for under SOP 03-1 if a guarantee is paid only upon either (i) the occurrence of a specific insurable event or
(ii) upon annuitization. In certain cases, a guarantee may have elements of both SFAS 133 and SOP 03-1 and in such cases the guarantee
is accounted for under a split of the two models.
The net amount at risk (“NAR”) for guarantees can change significantly during periods of sizable and sustained shifts in equity market
performance, increased equity volatility, or changes in interest rates. The NAR disclosed in Note 7 of the Notes to the Consolidated
Financial Statements, represents management’s estimate of the current value of the benefits under these guarantees if they were all
exercised simultaneously as of December 31, 2008 and 2007, respectively. However, there are features, such as deferral periods and
benefits requiring annuitization or death, that limit the amount of benefits that will be payable in the near future. None of the GMIB
guarantees are eligible for a guaranteed annuitization prior to 2011.
Guarantees, including portions thereof, accounted for as embedded derivatives under SFAS 133, are recorded at estimated fair value
and included in policyholder account balances. Guarantees accounted for as embedded derivatives include GMAB, the non life-contingent
portion of GMWB and the portion of certain GMIB that do not require annuitization. For more detail on the determination of estimated fair
value, see Note 24 of the Notes to the Consolidated Financial Statements.
The table below contains the carrying value for guarantees included in policyholder account balances:
2008 2007
December 31,
(In millions)
Individual:
Guaranteedminimumaccumulationbenefit........................................ $ 169 $ 29
Guaranteedminimumwithdrawalbenefit ......................................... 750 80
Guaranteedminimumincomebenefit............................................ 1,043 78
International:
Guaranteedminimumaccumulationbenefit........................................ 271 7
Guaranteedminimumwithdrawalbenefit ......................................... 901 90
Total ................................................................ $3,134 $284
Included in net investment gains (losses) for the year ended December 31, 2008 were losses of $2,677 million in embedded derivatives
related to the change in estimated fair value of the above guarantees. Effective January 1, 2008, the carrying amount of guarantees
accounted for at estimated fair value includes an adjustment for the Company’s own credit. In connection with this adjustment, gains of
$2,994 million are included in the loss of $2,677 million in net investment gains (losses).
The estimated fair value of guarantees accounted for as embedded derivatives can change significantly during periods of sizable and
sustained shifts in equity market performance, equity volatility, interest rates or foreign exchange rates. Additionally, because the estimated
fair value for guarantees accounted for at estimated fair value includes an adjustment for the Company’s own credit, a decrease in the
Company’s credit spreads could cause the value of these liabilities to increase. Conversely, a widening of the Company’s credit spreads
110 MetLife, Inc.