MetLife 2008 Annual Report Download - page 33

The increase in policyholder benefits and claims of $2,720 million included a $128 million decrease related to net investment gains
(losses). Excluding the decrease related to net investment gains (losses), policyholder benefits and claims increased by $2,848 million.
Retirement & savings’ policyholder benefits increased $1,616 million, which was primarily attributable to the group institutional annuity
and structured settlement businesses of $1,448 million and $261 million, respectively. The increase in the group institutional annuity
business was primarily due to the aforementioned increase in premiums and charges of $112 million in the current year due to liability
adjustments in this block of business. In addition, an increase in interest credited on future policyholder benefits contributed to this
increase, which is consistent with the expectations of an aging block of business. The increase in structured settlements was largely due to
the aforementioned increase in premiums, an increase in interest credited on future policyholder benefits and the impact of a favorable
liability refinement in the prior year of $12 million, partially offset by slightly more favorable mortality in the current year. Partially offsetting
these increases was a decrease of $90 million in the income annuity business, primarily attributable to the aforementioned decrease in
premiums, fees and other revenues, partially offset by an increase in interest credited to future policyholder benefits.
Non-medical health & other’s policyholder benefits and claims increased by $736 million. An increase of $650 million was largely due to
the aforementioned growth in the dental, disability, AD&D and IDI businesses. The increase in the disability business was primarily driven by
higher incidence and lower recoveries in the current year. In addition, LTC increased $87 million, which was primarily attributable to
continued business growth, the impact of a separate account reserve strengthening, triggered by weaker investment performance in the
current year and an increase in interest credited on future policyholder benefits. These increases were partially offset by the aforemen-
tioned $74 million shift to deposit liability-type contracts. Included in the disability increase was the favorable impact of a $14 million charge
related to certain liability refinements in the prior year.
Group life’s policyholder benefits and claims increased $496 million, mostly due to increases in the term life, universal life and COLI
products of $429 million, $71 million and $22 million, respectively, partially offset by a decrease of $26 million in life insurance sold to
postretirement benefit plans. The increases in term life and universal life were primarily due to the aforementioned increase in premiums,
fees and other revenues and included the impact of less favorable mortality experience in the current year. The current year mortality
experience was negatively impacted by an unusually high number of large claims in the specialty product areas. An additional component
of the term life increase was the impact of prior year net favorable liability refinements of $12 million. Partially offsetting these increases in
term life was a decrease in interest credited on future policyholder benefits, mainly due to lower crediting rates in the current year. The
increase in the COLI business was primarily due to the aforementioned growth in fee income, partially offset by favorable mortality in the
current year. The decrease in life insurance sold to postretirement benefit plans was primarily due to the aforementioned decrease in
premiums and more favorable mortality in the current year.
Management attributed the decrease of $513 million in interest credited to policyholder account balances to a $856 million decrease
from a decline in average crediting rates, which was largely due to the impact of lower short-term interest rates in the current year, partially
offset by a $343 million increase, solely from growth in the average policyholder account balances, primarily the result of continued growth
in the global GIC and FHLB advances, partially offset by a decline in funding agreement issuances. Management attributes the absence of
funding agreement issuances in 2008 as a direct result of the credit markets. Management believes this trend will continue through the
remainder of 2009.
Lower other expenses of $31 million included a decrease in DAC amortization of $101 million, primarily due to a $61 million charge
associated with the impact of DAC and VOBA amortization, from the implementation of SOP 05-1 in the prior year and an $18 million
decrease mainly due to the impact of amortization refinements in the current year. In addition, the impact of a charge of $14 million relating
to the reimbursement of certain dental claims and a $15 million charge related to the establishment of a liability, both in the prior year,
contributed to the decrease in other expenses. Partially offsetting these decreases were non-deferrable volume related expenses and
corporate support expenses, which increased $40 million. Non-deferrable volume related expenses include those expenses associated
with information technology, compensation, and direct departmental spending. Direct departmental spending includes expenses asso-
ciated with advertising, consultants, travel, printing and postage. Also contributing to the increase was a $29 million charge due to the
impact of revisions to certain pension and postretirement liabilities in the current year, a $17 million expense resulting from fees incurred
related to the cancellation of a portion of a stable value wrap contract, and a $13 million unfavorable impact related to a prior year reduction
of an allowance for doubtful accounts.
Year ended December 31, 2007 compared with the year ended December 31, 2006 — Institutional
Income from Continuing Operations
Income from continuing operations increased $317 million, or 28%, to $1,436 million for the year ended December 31, 2007 from
$1,119 million for the comparable 2006 period.
Included in this increase are higher earnings of $31 million, net of income tax, from lower net investment losses. In addition, higher
earnings of $11 million, net of income tax, resulted from an increase in policyholder benefits and claims related to net investment gains
(losses). Excluding the impact of net investment gains (losses), income from continuing operations increased by $275 million, net of
income tax, as compared to 2006.
Interest margins increased $230 million, net of income tax, as compared to 2006. Management attributes this increase to a $147 million
increase in retirement & savings, a $46 million increase in group life and a $37 million increase in non-medical health & other, respectively,
all net of income tax. Interest margin is the difference between interest earned and interest credited to policyholder account balances.
Interest earned approximates net investment income on investable assets attributed to the segment with minor adjustments related to the
consolidation of certain separate accounts and other minor non-policyholder elements. Interest credited is the amount attributed to
insurance products, recorded in policyholder benefits and claims, and the amount credited to policyholder account balances for
investment-type products, recorded in interest credited to policyholder account balances. Interest credited on insurance products
reflects the 2007 impact of the interest rate assumptions established at issuance or acquisition. Interest credited to policyholder account
balances is subject to contractual terms, including some minimum guarantees. This tends to move gradually over time to reflect market
interest rate movements, and may reflect actions by management to respond to competitive pressures and, therefore, generally does not
introduce volatility in expense.
30 MetLife, Inc.