MetLife 2008 Annual Report Download - page 140

Future policy benefit liabilities for non-medical health insurance are calculated using the net level premium method and assumptions as
to future morbidity, withdrawals and interest, which provide a margin for adverse deviation. Interest rates assumptions used in establishing
such liabilities range from 4% to 7% for domestic business and 2% to 10% for international business.
Future policy benefit liabilities for disabled lives are estimated using the present value of benefits method and experience assumptions
as to claim terminations, expenses and interest. Interest rates assumptions used in establishing such liabilities range from 3% to 8% for
domestic business and 2% to 10% for international business.
Liabilities for unpaid claims and claim expenses for property and casualty insurance are included in future policyholder benefits and
represent the amount estimated for claims that have been reported but not settled and claims incurred but not reported. Liabilities for
unpaid claims are estimated based upon the Company’s historical experience and other actuarial assumptions that consider the effects of
current developments, anticipated trends and risk management programs, reduced for anticipated salvage and subrogation. The effects of
changes in such estimated liabilities are included in the results of operations in the period in which the changes occur.
The Company establishes future policy benefit liabilities for minimum death and income benefit guarantees relating to certain annuity
contracts and secondary and paid-up guarantees relating to certain life policies as follows:
• Guaranteed minimum death benefit (“GMDB”) liabilities are determined by estimating the expected value of death benefits in excess
of the projected account balance and recognizing the excess ratably over the accumulation period based on total expected
assessments. The Company regularly evaluates estimates used and adjusts the additional liability balance, with a related charge or
credit to benefit expense, if actual experience or other evidence suggests that earlier assumptions should be revised. The
assumptions used in estimating the GMDB liabilities are consistent with those used for amortizing DAC, and are thus subject to
the same variability and risk. The assumptions of investment performance and volatility are consistent with the historical experience of
theStandard&Poor’s(“S&P”)500Index.Thebenefitassumptionsusedincalculatingtheliabilitiesarebasedontheaveragebenefits
payable over a range of scenarios.
• Guaranteed minimum income benefit (“GMIB”) liabilities are determined by estimating the expected value of the income benefits in
excess of the projected account balance at any future date of annuitization and recognizing the excess ratably over the accumulation
period based on total expected assessments. The Company regularly evaluates estimates used and adjusts the additional liability
balance, with a related charge or credit to benefit expense, if actual experience or other evidence suggests that earlier assumptions
should be revised. The assumptions used for estimating the GMIB liabilities are consistent with those used for estimating the GMDB
liabilities. In addition, the calculation of guaranteed annuitization benefit liabilities incorporates an assumption for the percentage of
the potential annuitizations that may be elected by the contractholder. Certain GMIBs have settlement features that result in a portion
of that guarantee being accounted for as an embedded derivative and are recorded in policyholder account balances as described
below.
Liabilities for universal and variable life secondary guarantees and paid-up guarantees are determined by estimating the expected value
of death benefits payable when the account balance is projected to be zero and recognizing those benefits ratably over the accumulation
period based on total expected assessments. The Company regularly evaluates estimates used and adjusts the additional liability
balances, with a related charge or credit to benefit expense, if actual experience or other evidence suggests that earlier assumptions
should be revised. The assumptions used in estimating the secondary and paid-up guarantee liabilities are consistent with those used for
amortizing DAC, and are thus subject to the same variability and risk. The assumptions of investment performance and volatility for variable
products are consistent with historical S&P experience. The benefits used in calculating the liabilities are based on the average benefits
payable over a range of scenarios.
The Company establishes policyholder account balances for guaranteed minimum benefit riders relating to certain variable annuity
products as follows:
• Guaranteed minimum withdrawal benefit riders (“GMWB”) guarantee the contractholder a return of their purchase payment via partial
withdrawals, even if the account value is reduced to zero, provided that the contractholder’s cumulative withdrawals in a contract
year do not exceed a certain limit. The initial guaranteed withdrawal amount is equal to the initial benefit base as defined in the
contract (typically, the initial purchase payments plus applicable bonus amounts). The GMWB is an embedded derivative, which is
measured at estimated fair value separately from the host variable annuity product.
• Guaranteed minimum accumulation benefit riders (“GMAB”) provide the contractholder, after a specified period of time determined at
the time of issuance of the variable annuity contract, with a minimum accumulation of their purchase payments even if the account
value is reduced to zero. The initial guaranteed accumulation amount is equal to the initial benefit base as defined in the contract
(typically, the initial purchase payments plus applicable bonus amounts). The GMAB is an embedded derivative, which is measured at
estimated fair value separately from the host variable annuity product.
For GMWB, GMAB and certain GMIB, the initial benefit base is increased by additional purchase payments made within a certain time
period and decreases by benefits paid and/or withdrawal amounts. After a specified period of time, the benefit base may also increase as a
result of an optional reset as defined in the contract.
At the inception, the GMWB, GMAB and certain GMIB are accounted for as embedded derivatives with changes in estimated fair value
reported in net investment gains (losses).
The Company attributes to the embedded derivative a portion of the expected future rider fees to be collected from the policyholder
equal to the present value of expected future guaranteed benefits. Any additional fees represent “excess” fees and are reported in universal
life and investment-type product policy fees.
The fair value for these riders is estimated using the present value of future benefits minus the present value of future fees using
actuarial and capital market assumptions related to the projected cash flows over the expected lives of the contracts. The projections of
future benefits and future fees require capital market and actuarial assumptions including expectations concerning policyholder behavior. A
risk neutral valuation methodology is used under which the cash flows from the riders are projected under multiple capital market scenarios
F-17MetLife, Inc.
MetLife, Inc.
Notes to the Consolidated Financial Statements — (Continued)