MetLife 2009 Annual Report Download - page 154

the rollforward in the following tables. At December 31, 2009 and 2008, certain non-derivative hedging instruments of $0 and
$323 million, respectively, which are carried at amortized cost, are included with the liabilities total in Note 4 but are excluded from
derivative liabilities here as they are not derivative instruments.
(4) Net embedded derivatives within asset host contracts are presented within premiums and other receivables. Net embedded derivatives
within liability host contracts are presented primarily within policyholder account balances. At December 31, 2009 and 2008, equity
securities also included embedded derivatives of ($37) million and ($173) million, respectively.
(5) MSRs are presented within other invested assets.
(6) Separate account assets are measured at estimated fair value. Investment performance related to separate account assets is fully offset
by corresponding amounts credited to contractholders whose liability is reflected within separate account liabilities. Separate account
liabilities are set equal to the estimated fair value of separate account assets.
(7) Trading liabilities are presented within other liabilities.
The Company has categorized its assets and liabilities into the three-level fair value hierarchy based upon the priority of the inputs to the
respective valuation technique. The following summarizes the types of assets and liabilities included within the three-level fair value hierarchy
presented in the preceding table.
Level 1 This category includes certain U.S. Treasury, agency and government guaranteed fixed maturity securities, certain foreign
government fixed maturity securities; exchange-traded common stock; certain trading securities; and certain short-term money
market securities. As it relates to derivatives, this level includes exchange-traded equity and interest rate futures, as well as
interest rate forwards to sell certain to be announced securities. Separate account assets classified within this level are similar in
nature to those classified in this level for the general account.
Level 2 This category includes fixed maturity and equity securities priced principally by independent pricing services using observable
inputs. Fixed maturity securities classified as Level 2 include most U.S. Treasury, agency and government guaranteed
securities, as well as the majority of U.S. and foreign corporate securities, RMBS, CMBS, state and political subdivision
securities, foreign government securities and ABS. Equity securities classified as Level 2 securities consist principally of
common stock and non-redeemable preferred stock where market quotes are available but are not considered actively traded.
Short-term investments and trading securities included within Level 2 are of a similar nature to these fixed maturity and equity
securities. Mortgage loans included in Level 2 include residential mortgage loans held-for-sale for which there is readily available
observable pricing for similar loans or securities backed by similar loans and the unobservable adjustments to such prices are
insignificant. As it relates to derivatives, this level includes all types of derivative instruments utilized by the Company with the
exception of exchange-traded futures and interest rate forwards to sell certain to be announced securities included within
Level 1 and those derivative instruments with unobservable inputs as described in Level 3. Separate account assets classified
within this level are generally similar to those classified within this level for the general account, with the exception of certain
mutual funds without readily determinable fair values given prices are not published publicly. Hedge funds and mutual funds
owned by separate accounts are also included within this level. Embedded derivatives classified within this level include
embedded equity derivatives contained in certain funding agreements.
Level 3 This category includes fixed maturity securities priced principally through independent broker quotations or market standard
valuation methodologies using inputs that are not market observable or cannot be derived principally from or corroborated by
observable market data. This level primarily consists of less liquid fixed maturity securities with very limited trading activity or
where less price transparency exists around the inputs to the valuation methodologies including: U.S. and foreign corporate
securities — including below investment grade private placements; RMBS and ABS — including all of those supported by
sub-prime mortgage loans. Equity securities classified as Level 3 securities consist principally of non-redeemable preferred
stock and common stock of companies that are privately held or of companies for which there has been very limited trading
activity or where less price transparency exists around the inputs to the valuation. Short-term investments and trading securities
includedwithinLevel3areofasimilarnaturetothesefixedmaturity and equity securities. Mortgage loans included in Level 3
include residential mortgage loans held-for-sale for which pricing for similar loans or securities backed by similar loans is not
observable and the estimated fair value is determined using unobservable independent broker quotations. As it relates to
derivatives this category includes: swap spreadlocks with maturities which extend beyond observable periods; interest rate
forwards including interest rate lock commitments with certain unobservable inputs, including pull-through rates; equity
variance swaps with unobservable volatility inputs or that are priced via independent broker quotations; foreign currency
swaps which are cancelable and priced through independent broker quotations; interest rate swaps with maturities which
extend beyond the observable portion of the yield curve; credit default swaps based upon baskets of credits having unob-
servable credit correlations, as well as credit default swaps with maturities which extend beyond the observable portion of the
credit curves and credit default swaps priced through independent broker quotations; foreign currency forwards priced via
independent broker quotations or with liquidity adjustments; interest rate caps and floors referencing unobservable yield curves
and/or which include liquidity and volatility adjustments; implied volatility swaps with unobservable volatility inputs; currency
options based upon baskets of currencies having unobservable currency correlations; credit forwards having unobservable
repurchase rates; and equity options with unobservable volatility inputs. Separate account assets classified within this level are
generally similar to those classified within this level for the general account; however, they also include mortgage loans, and
other limited partnership interests. Embedded derivatives classified within this level primarily include embedded derivatives
associated with certain variable annuity guarantees. This category also includes MSRs which are carried at estimated fair value
and have multiple significant unobservable inputs including discount rates, estimates of loan prepayments and servicing costs.
F-70 MetLife, Inc.
MetLife, Inc.
Notes to the Consolidated Financial Statements — (Continued)