MetLife 2008 Annual Report Download - page 119

reduced the interest rate risk by $254 million. Partially offsetting the decline was an increase in the interest rate risk from the use of
derivatives employed by the Company by $2,151 million, primarily related to financial futures and interest rate swaps. Changes in the
duration of the Company’s portfolio also attributed $1,312 million to partially offset the decline in interest rate risk. The inclusion of certain
reinsurance recoverables within premiums and other receivables also increased the interest rate risk by $216 million. The remainder of the
fluctuation is attributable to numerous immaterial items.
In addition to the analysis above, as part of its asset liability management program, the Company also performs an analysis of the
sensitivity to changes in interest rates, including both insurance liabilities and financial instruments. At December 31, 2008, a hypothetical
instantaneous 10% decrease in interest rates applied to the Company’s liabilities, insurance and associated asset portfolios would reduce
the estimated fair value of equity by $962 million.
Sensitivity Analysis; Foreign Currency Exchange Rates. The table below provides additional detail regarding the potential loss in
estimated fair value of the Company’s portfolio due to a 10% change in foreign currency exchange rates at December 31, 2008 by type of
asset or liability:
Notional
Amount Estimated Fair Value(1)
Assuming a
10% Increase
in the Foreign
Exchange Rate
December 31, 2008
(In millions)
Assets
Fixedmaturitysecurities ............................................. $188,251 $(1,586)
Tradingsecurities.................................................. 946 (4)
Mortgage and consumer loans:
Held-for-investment............................................... 48,133 (311)
Held-for-sale ................................................... 2,010 (13)
Mortgageandconsumerloans,net ................................... 50,143 (324)
Policyloans ..................................................... 11,952 (40)
Short-terminvestments.............................................. 13,878 (69)
Cashandcashequivalents............................................ 24,207 (90)
Totalassets ..................................................... $(2,113)
Liabilities
Policyholderaccountbalances ......................................... $102,902 $1,426
Long-termdebt ................................................... 8,155 60
Totalliabilities .................................................... $1,486
Other
Derivative instruments (designated hedges or otherwise)
Interestrateswaps................................................. $34,060 $ 3,149 $ (18)
Interestratefloors ................................................. 48,517 1,748 —
Interestratecaps.................................................. 24,643 11 —
Financialfutures................................................... 19,908 (160) 2
Foreigncurrencyswaps.............................................. 19,438 87 (26)
Foreigncurrencyforwards ............................................ 5,167 24 239
Options ........................................................ 8,450 3,127 (90)
Financialforwards ................................................. 28,176 296 (6)
Creditdefaultswaps................................................ 5,219 83 —
SyntheticGICs ................................................... 4,260 — —
Other.......................................................... 250 (101) —
Totalother..................................................... $ 101
Net change ...................................................... $ (526)
(1) Estimated fair value presented in the table above represents the estimated fair value of all financial instruments within this financial
statement caption not necessarily those solely subject to foreign exchange risk.
Foreign currency exchange rate risk decreased by $185 million, or 26%, to $526 million at December 31, 2008 from $711 million at
December 31, 2007. From December 31, 2007 to December 31, 2008 a decline in the exchange rate of the Euro, British pound, the
Mexican and Chilean pesos versus the U.S. Dollar resulted in the decline of the foreign currency exchange risk on fixed maturity securities
by $446 million. Partially offsetting the decline in foreign currency exchange risk was the exclusion of certain items due to the completion of
the Company’s split-off of its 52% ownership in RGA which accounted for $296 million reduction to the foreign currency risk. In addition,
the foreign currency exchange risk associated with long-term debt declined by $80 million due the weakening of the British pound against
the U.S. dollar. The remainder of the fluctuation is attributable to numerous immaterial items.
116 MetLife, Inc.