MetLife 2008 Annual Report Download - page 168

4. Derivative Financial Instruments
Types of Derivative Financial Instruments
The following table presents the notional amount and current market or estimated fair value of derivative financial instruments, excluding
embedded derivatives, held at:
Notional
Amount Assets Liabilities Notional Amount Assets Liabilities
Current Market
or Fair Value Current Market or Fair Value
December 31, 2008 December 31, 2007
(In millions)
Interest rate swaps . . . . . . . . . . . . . . . . . . . . . $ 34,060 $ 4,617 $1,468 $ 62,410 $ 784 $ 768
Interestratefloors ..................... 48,517 1,748 — 48,937 621 —
Interestratecaps...................... 24,643 11 — 45,498 50 —
Financialfutures....................... 19,908 45 205 12,302 89 57
Foreign currency swaps . . . . . . . . . . . . . . . . . . 19,438 1,953 1,866 21,201 1,480 1,719
Foreign currency forwards . . . . . . . . . . . . . . . . 5,167 153 129 4,177 76 16
Options ............................ 8,450 3,162 35 6,565 713 1
Financialforwards ..................... 28,176 465 169 11,937 122 2
Credit default swaps . . . . . . . . . . . . . . . . . . . . 5,219 152 69 6,625 58 33
SyntheticGICs ....................... 4,260 — — 3,670 — —
Other.............................. 250 — 101 250 43 —
Total............................. $198,088 $12,306 $4,042 $223,572 $4,036 $2,596
The following table presents the notional amount of derivative financial instruments by maturity at December 31, 2008:
One Year or
Less
After One Year
Through Five
Years
After Five
Years
Through Ten
Years After Ten Years Total
Remaining Life
(In millions)
Interest rate swaps . . . . . . . . . . . . . . . . . . . . . . . $ 2,295 $12,632 $12,809 $ 6,324 $ 34,060
Interestratefloors........................ 15,294 325 32,898 — 48,517
Interestratecaps........................ 590 24,053 — — 24,643
Financialfutures......................... 19,908 — — — 19,908
Foreign currency swaps . . . . . . . . . . . . . . . . . . . . 3,204 7,180 5,981 3,073 19,438
Foreigncurrencyforwards .................. 5,068 99 — — 5,167
Options .............................. 128 2,239 5,419 664 8,450
Financialforwards........................ 16,617 995 8,226 2,338 28,176
Credit default swaps . . . . . . . . . . . . . . . . . . . . . . 163 3,340 1,716 — 5,219
SyntheticGICs.......................... 4,260 — — — 4,260
Other................................ — 250 — — 250
Total............................... $67,527 $51,113 $67,049 $12,399 $198,088
Interest rate swaps are used by the Company primarily to reduce market risks from changes in interest rates and to alter interest rate
exposure arising from mismatches between assets and liabilities (duration mismatches). In an interest rate swap, the Company agrees with
another party to exchange, at specified intervals, the difference between fixed rate and floating rate interest amounts as calculated by
reference to an agreed notional principal amount. These transactions are entered into pursuant to master agreements that provide for a
single net payment to be made by the counterparty at each due date.
The Company commenced the use of inflation swaps during the first quarter of 2008. Inflation swaps are used as an economic hedge to
reduce inflation risk generated from inflation-indexed liabilities. Inflation swaps are included in interest rate swaps in the preceding table.
The Company also enters into basis swaps to better match the cash flows from assets and related liabilities. In a basis swap, both legs
of the swap are floating with each based on a different index. Generally, no cash is exchanged at the outset of the contract and no principal
payments are made by either party. A single net payment is usually made by one counterparty at each due date. Basis swaps are included
in interest rate swaps in the preceding table.
Interest rate caps and floors are used by the Company primarily to protect its floating rate liabilities against rises in interest rates above a
specified level, and against interest rate exposure arising from mismatches between assets and liabilities (duration mismatches), as well as
to protect its minimum rate guarantee liabilities against declines in interest rates below a specified level, respectively.
F-45MetLife, Inc.
MetLife, Inc.
Notes to the Consolidated Financial Statements — (Continued)