MetLife 2008 Annual Report Download - page 142

Policyholder Dividends
Policyholder dividends are approved annually by the insurance subsidiaries’ boards of directors. The aggregate amount of policyholder
dividends is related to actual interest, mortality, morbidity and expense experience for the year, as well as management’s judgment as to
the appropriate level of statutory surplus to be retained by the insurance subsidiaries.
Income Taxes
The Holding Company and its includable life insurance and non-life insurance subsidiaries file a consolidated U.S. federal income tax
return in accordance with the provisions of the Internal Revenue Code of 1986, as amended (the “Code”). Non-includable subsidiaries file
either separate individual corporate tax returns or separate consolidated tax returns.
The Company’s accounting for income taxes represents management’s best estimate of various events and transactions.
Deferred tax assets and liabilities resulting from temporary differences between the financial reporting and tax bases of assets and
liabilities are measured at the balance sheet date using enacted tax rates expected to apply to taxable income in the years the temporary
differences are expected to reverse.
The realization of deferred tax assets depends upon the existence of sufficient taxable income within the carryback or carryforward
periods under the tax law in the applicable tax jurisdiction. Valuation allowances are established when management determines, based on
available information, that it is more likely than not that deferred income tax assets will not be realized. Significant judgment is required in
determining whether valuation allowances should be established as well as the amount of such allowances. When making such
determination, consideration is given to, among other things, the following:
(i) future taxable income exclusive of reversing temporary differences and carryforwards;
(ii) future reversals of existing taxable temporary differences;
(iii) taxable income in prior carryback years; and
(iv) tax planning strategies.
The Company may be required to change its provision for income taxes in certain circumstances. Examples of such circumstances
include when the ultimate deductibility of certain items is challenged by taxing authorities (See also Note 15) or when estimates used in
determining valuation allowances on deferred tax assets significantly change or when receipt of new information indicates the need for
adjustment in valuation allowances. Additionally, future events, such as changes in tax laws, tax regulations, or interpretations of such laws
or regulations, could have an impact on the provision for income tax and the effective tax rate. Any such changes could significantly affect
the amounts reported in the consolidated financial statements in the year these changes occur.
As described more fully in “Adoption of New Accounting Pronouncements,” the Company adopted FIN No. 48, Accounting for
Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109 (“FIN 48”) effective January 1, 2007. Under FIN 48, the
Company determines whether it is more-likely-than-not that a tax position will be sustained upon examination by the appropriate taxing
authorities before any part of the benefit can be recorded in the financial statements. A tax position is measured at the largest amount of
benefit that is greater than 50 percent likely of being realized upon settlement. Unrecognized tax benefits due to tax uncertainties that do
not meet the threshold are included within other liabilities and are charged to earnings in the period that such determination is made.
The Company classifies interest recognized as interest expense and penalties recognized as a component of income tax.
Reinsurance
The Company enters into reinsurance agreements primarily as a purchaser of reinsurance for its various insurance products and also as
a provider of reinsurance for some insurance products issued by third parties.
For each of its reinsurance agreements, the Company determines if the agreement provides indemnification against loss or liability
relating to insurance risk in accordance with applicable accounting standards. The Company reviews all contractual features, particularly
those that may limit the amount of insurance risk to which the reinsurer is subject or features that delay the timely reimbursement of claims.
For reinsurance of existing in-force blocks of long-duration contracts that transfer significant insurance risk, the difference, if any,
between the amounts paid (received), and the liabilities ceded (assumed) related to the underlying contracts is considered the net cost of
reinsurance at the inception of the reinsurance agreement. The net cost of reinsurance is recorded as an adjustment to DAC and
recognized as a component of other expenses on a basis consistent with the way the acquisition costs on the underlying reinsured
contracts would be recognized. Subsequent amounts paid (received) on the reinsurance of in-force blocks, as well as amounts paid
(received) related to new business, are recorded as ceded (assumed) premiums and ceded (assumed) future policy benefit liabilities are
established.
For prospective reinsurance of short-duration contracts that meet the criteria for reinsurance accounting, amounts paid (received) are
recorded as ceded (assumed) premiums and ceded (assumed) unearned premiums and are reflected as a component of premiums and
other receivables (future policy benefits). Such amounts are amortized through earned premiums over the remaining contract period in
proportion to the amount of protection provided. For retroactive reinsurance of short-duration contracts that meet the criteria of
reinsurance accounting, amounts paid (received) in excess of (which do not exceed) the related insurance liabilities ceded (assumed)
are recognized immediately as a loss. Any gains on such retroactive agreements are deferred and recorded in other liabilities. The gains are
amortized primarily using the recovery method.
The assumptions used to account for both long and short-duration reinsurance agreements are consistent with those used for the
underlying contracts. Ceded policyholder and contract related liabilities, other than those currently due, are reported gross on the balance
sheet.
Amounts currently recoverable under reinsurance agreements are included in premiums and other receivables and amounts currently
payable are included in other liabilities. Such assets and liabilities relating to reinsurance agreements with the same reinsurer may be
recorded net on the balance sheet, if a right of offset exists within the reinsurance agreement.
F-19MetLife, Inc.
MetLife, Inc.
Notes to the Consolidated Financial Statements — (Continued)