MetLife 2009 Annual Report Download - page 107

Company as a result of the disposal transaction and the Company will not have any significant continuing involvement in the operations of the
component after the disposal transaction.
Earnings Per Common Share
Basic earnings per common share are computed based on the weighted average number of common shares outstanding during the
period. The difference between the number of shares assumed issued and number of shares assumed purchased represents the dilutive
shares. Diluted earnings per common share include the dilutive effect of the assumed: (i) exercise or issuance of stock-based awards using
the treasury stock method; (ii) settlement of stock purchase contracts underlying common equity units using the treasury stock method; and
(iii) settlement of accelerated common stock repurchase contracts. Under the treasury stock method, exercise or issuance of stock-based
awards and settlement of the stock purchase contracts underlying common equity units is assumed to occur with the proceeds used to
purchase common stock at the average market price for the period. See Notes 14, 18 and 20.
Litigation Contingencies
The Company is a party to a number of legal actions and is involved in a number of regulatory investigations. Given the inherent
unpredictability of these matters, it is difficult to estimate the impact on the Company’s financial position. Liabilities are established when it is
probable that a loss has been incurred and the amount of the loss can be reasonably estimated. On a quarterly and annual basis, the
Company reviews relevant information with respect to liabilities for litigation, regulatory investigations and litigation-related contingencies to
be reflected in the Company’s consolidated financial statements. It is possible that an adverse outcome in certain of the Company’s litigation
and regulatory investigations, or the use of different assumptions in the determination of amounts recorded, could have a material effect upon
the Company’s consolidated net income or cash flows in particular quarterly or annual periods.
Separate Accounts
Separate accounts are established in conformity with insurance laws and are generally not chargeable with liabilities that arise from any
other business of the Company. Separate account assets are subject to general account claims only to the extent the value of such assets
exceeds the separate account liabilities. Assets within the Company’s separate accounts primarily include: mutual funds, fixed maturity and
equity securities, mortgage loans, derivatives, hedge funds, other limited partnership interests, short-term investments and cash and cash
equivalents. The Company reports separately, as assets and liabilities, investments held in separate accounts and liabilities of the separate
accounts if (i) such separate accounts are legally recognized; (ii) assets supporting the contract liabilities are legally insulated from the
Company’s general account liabilities; (iii) investments are directed by the contractholder; and (iv) all investment performance, net of contract
fees and assessments, is passed through to the contractholder. The Company reports separate account assets meeting such criteria at their
fair value which is based on the estimated fair values of the underlying assets comprising the portfolios of an individual separate account.
Investment performance (including investment income, net investment gains (losses) and changes in unrealized gains (losses)) and the
corresponding amounts credited to contractholders of such separate accounts are offset within the same line in the consolidated statements
of operations. Separate accounts not meeting the above criteria are combined on a line-by-line basis with the Company’s general account
assets, liabilities, revenues and expenses and the accounting for these investments is consistent with the methodologies described herein
for similar financial instruments held within the general account.
The Company’s revenues reflect fees charged to the separate accounts, including mortality charges, risk charges, policy administration
fees, investment management fees and surrender charges.
Adoption of New Accounting Pronouncements
Financial Instruments
As more fully described in “Summary of Significant Accounting Policies and Critical Accounting Estimates,” effective April 1, 2009, the
Company adopted new OTTI guidance. This guidance amends the previously used methodology for determining whether an OTTI exists for
fixed maturity securities, changes the presentation of OTTI for fixed maturity securities and requires additional disclosures for OTTI on fixed
maturity and equity securities in interim and annual financial statements.
The Company’s net cumulative effect adjustment of adopting the OTTI guidance was an increase of $76 million to retained earnings with a
corresponding increase to accumulated other comprehensive loss to reclassify the noncredit loss portion of previously recognized OTTI
losses on fixed maturity securities held at April 1, 2009. This cumulative effect adjustment was comprised of an increase in the amortized cost
basis of fixed maturity securities of $126 million, net of policyholder related amounts of $10 million and net of deferred income taxes of
$40 million, resulting in the net cumulative effect adjustment of $76 million. The increase in the amortized cost basis of fixed maturity
securities of $126 million by sector was as follows: $53 million — ABS, $43 million — RMBS, $17 million — U.S. corporate securities and
$13 million — CMBS.
As a result of the adoption of the OTTI guidance, the Company’s pre-tax earnings for the year ended December 31, 2009 increased by
$857 million, offset by an increase in other comprehensive loss representing OTTI relating to noncredit losses recognized during the year
ended December 31, 2009.
Effective January 1, 2009, the Company adopted guidance on disclosures about derivative instruments and hedging. This guidance
requires enhanced qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value
amounts of and gains and losses on derivative instruments and disclosures about credit risk-related contingent features in derivative
agreements. The Company has provided all of the material disclosures in its consolidated financial statements.
The following new pronouncements relating to financial instruments had no material impact on the Company’s consolidated financial
statements:
• Effective January 1, 2009, the Company adopted prospectively an update on accounting for transfers of financial assets and
repurchase financing transactions. This update provides guidance for evaluating whether to account for a transfer of a financial asset
and repurchase financing as a single transaction or as two separate transactions.
F-23MetLife, Inc.
MetLife, Inc.
Notes to the Consolidated Financial Statements — (Continued)