MetLife 2009 Annual Report Download - page 102

would be determined in a business acquisition. The excess of the carrying value of goodwill over the implied fair value of goodwill is
recognized as an impairment and recorded as a charge against net income.
In performing its goodwill impairment tests, when we believe meaningful comparable market data are available, the estimated fair values of
the reporting units are determined using a market multiple approach. When relevant comparables are not available, the Company uses a
discounted cash flow model. For reporting units which are particularly sensitive to market assumptions, such as the retirement products and
individual life reporting units, the Company may corroborate its estimated fair values by using additional valuation methodologies.
The key inputs, judgments and assumptions necessary in determining estimated fair value include projected earnings, current book value
(with and without accumulated other comprehensive income), the level of economic capital required to support the mix of business, long term
growth rates, comparative market multiples, the account value of in-force business, projections of new and renewal business, as well as
margins on such business, the level of interest rates, credit spreads, equity market levels and the discount rate we believe appropriate to the
risk associated with the respective reporting unit. The estimated fair value of the retirement products and individual life reporting units are
particularly sensitive to the equity market levels.
When testing goodwill for impairment, we also consider the Company’s market capitalization in relation to its book value.
We apply significant judgment when determining the estimated fair value of the Company’s reporting units and when assessing the
relationship of market capitalization to the estimated fair value of its reporting units and their book value. The valuation methodologies utilized
are subject to key judgments and assumptions that are sensitive to change. Estimates of fair value are inherently uncertain and represent only
management’s reasonable expectation regarding future developments. These estimates and the judgments and assumptions upon which the
estimates are based will, in all likelihood, differ in some respects from actual future results. Declines in the estimated fair value of the
Company’s reporting units could result in goodwill impairments in future periods which could materially adversely affect the Company’s
resultsofoperationsorfinancialposition.
During our 2009 impairment tests of goodwill, we concluded that the fair values of all reporting units were in excess of their carrying values
and, therefore, goodwill was not impaired. However, we continue to evaluate current market conditions that may affect the estimated fair
value of the Company’s reporting units to assess whether any goodwill impairment exists. Deteriorating or adverse market conditions for
certain reporting units may have a significant impact on the estimated fair value of these reporting units and could result in future impairments
of goodwill.
See Note 7 for further consideration of goodwill impairment testing during 2009.
Liability for Future Policy Benefits and Policyholder Account Balances
The Company establishes liabilities for amounts payable under insurance policies, including traditional life insurance, traditional annuities
and non-medical health insurance. Generally, amounts are payable over an extended period of time and related liabilities are calculated as the
present value of future expected benefits to be paid reduced by the present value of future expected premiums. Such liabilities are
established based on methods and underlying assumptions in accordance with GAAP and applicable actuarial standards. Principal
assumptions used in the establishment of liabilities for future policy benefits are mortality, morbidity, policy lapse, renewal, retirement,
disability incidence, disability terminations, investment returns, inflation, expenses and other contingent events as appropriate to the
respective product type. Utilizing these assumptions, liabilities are established on a block of business basis.
Future policy benefit liabilities for participating traditional life insurance policies are equal to the aggregate of (i) net level premium reserves
for death and endowment policy benefits (calculated based upon the non-forfeiture interest rate, ranging from 3% to 7% for domestic
business and 3% to 12% for international business, and mortality rates guaranteed in calculating the cash surrender values described in such
contracts); and (ii) the liability for terminal dividends.
Future policy benefits for non-participating traditional life insurance policies are equal to the aggregate of the present value of expected
future benefit payments and related expenses less the present value of expected future net premiums. Assumptions as to mortality and
persistency are based upon the Company’s experience when the basis of the liability is established. Interest rate assumptions for the
aggregate future policy benefit liabilities range from 2% to 8% for domestic business and 2% to 12% for international business.
Participating business represented approximately 6% and 8% of the Company’s life insurance in-force, and 13% and 14% of the number of
life insurance policies in-force, at December 31, 2009 and 2008, respectively. Participating policies represented approximately 28% and
28%, 27% and 27%, and 31% and 30% of gross and net life insurance premiums for the years ended December 31, 2009, 2008 and 2007,
respectively.
Future policy benefit liabilities for individual and group traditional fixed annuities after annuitization are equal to the present value of
expected future payments. Interest rate assumptions used in establishing such liabilities range from 2% to 11% for domestic business and 4%
to 18% for international business.
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 rate assumptions used in establishing such
liabilities range from 4% to 7% for domestic business and 2% to 9% 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 rate assumptions used in establishing such liabilities range from 3% to 8% for domestic
business and 2% to 9% 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.
F-18 MetLife, Inc.
MetLife, Inc.
Notes to the Consolidated Financial Statements — (Continued)