MetLife 2009 Annual Report Download - page 138

variable annuity products offered by the Company. The Company utilizes exchange-traded equity futures in non-qualifying hedging
relationships.
Equity index options are used by the Company primarily to hedge minimum guarantees embedded in certain variable annuity products
offered by the Company. To hedge against adverse changes in equity indices, the Company enters into contracts to sell the equity index
within a limited time at a contracted price. The contracts will be net settled in cash based on differentials in the indices at the time of exercise
and the strike price. In certain instances, the Company may enter into a combination of transactions to hedge adverse changes in equity
indices within a pre-determined range through the purchase and sale of options. Equity index options are included in equity options in the
preceding table. The Company utilizes equity index options in non-qualifying hedging relationships.
Equity variance swaps are used by the Company primarily to hedge minimum guarantees embedded in certain variable annuity products
offered by the Company. In an equity variance swap, the Company agrees with another party to exchange amounts in the future, based on
changesinequityvolatilityoveradefinedperiod.Equityvarianceswapsareincludedinvarianceswapsintheprecedingtable.TheCompany
utilizes equity variance swaps in non-qualifying hedging relationships.
Total rate of return swaps (“TRRs”) are swaps whereby the Company agrees with another party to exchange, at specified intervals, the
difference between the economic risk and reward of an asset or a market index and LIBOR, calculated by reference to an agreed notional
principal amount. No cash is exchanged at the outset of the contract. Cash is paid and received over the life of the contract based on the
terms of the swap. 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 uses TRRs to hedge its equity market guarantees in certain of its insurance products. TRRs can
be used as hedges or to synthetically create investments. The Company utilizes TRRs in non-qualifying hedging relationships.
Hedging
The following table presents the notional amount and estimated fair value of derivatives designated as hedging instruments by type of
hedge designation at:
Derivatives Designated as Hedging Instruments Notional Amount Assets Liabilities Notional Amount Assets Liabilities
Estimated
Fair
Value
Estimated
Fair
Value
2009 2008
December 31,
(In millions)
Fair Value Hedges:
Foreign currency swaps . . . . . . . . . . . . . . . . . . . $ 4,807 $ 854 $132 $ 6,093 $ 467 $ 550
Interest rate swaps . . . . . . . . . . . . . . . . . . . . . . 4,824 500 75 4,141 1,338 153
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,631 1,354 207 10,234 1,805 703
Cash Flow Hedges:
Foreign currency swaps . . . . . . . . . . . . . . . . . . . 4,108 127 347 3,782 463 381
Interestrateswaps...................... 1,740 — 48 286 — 6
Interestrateforwards .................... — — — — — —
Creditforwards ........................ 220 2 6 — — —
Subtotal ........................... 6,068 129 401 4,068 463 387
Foreign Operations Hedges:
Foreign currency forwards . . . . . . . . . . . . . . . . . 1,880 27 13 1,670 32 50
Foreigncurrencyswaps................... — — — 164 1 —
Non-derivative hedging instruments . . . . . . . . . . . — — — 351 — 323
Subtotal ........................... 1,880 27 13 2,185 33 373
Total Qualifying Hedges . . . . . . . . . . . . . . . . . . . . $17,579 $1,510 $621 $16,487 $2,301 $1,463
F-54 MetLife, Inc.
MetLife, Inc.
Notes to the Consolidated Financial Statements — (Continued)