MetLife 2009 Annual Report Download - page 177

Associated with Secondary Guarantees
In May 2007, the Holding Company and MRSC, a wholly-owned subsidiary of the Company, entered into a 30-year collateral financing
arrangement with an unaffiliated financial institution that provides up to $3.5 billion of statutory reserve support for MRSC associated with
reinsurance obligations under intercompany reinsurance agreements. Such statutory reserves are associated with universal life secondary
guarantees and are required under U.S. Valuation of Life Policies Model Regulation (commonly referred to as Regulation A-XXX). At
December 31, 2009 and 2008, $2.8 billion and $2.7 billion, respectively, had been drawn upon under the collateral financing arrangement.
The collateral financing arrangement may be extended by agreement of theHoldingCompanyandtheunaffiliated financial institution on each
anniversary of the closing.
Proceeds from the collateral financing arrangement were placed in trusts to support MRSC’s statutory obligations associated with the
reinsurance of secondary guarantees. The trusts are VIEs which are consolidated by the Company. The unaffiliated financial institution is
entitled to the return on the investment portfolio held by the trusts. At December 31, 2009 and 2008, the Company held assets in trust with an
estimated fair value of $3.2 billion and $2.4 billion, respectively, associated with the collateral financing arrangement. The assets are
principally invested in fixed maturity securities and are presented as such within the Company’s consolidated balance sheets, with the related
income included within net investment income in the Company’s consolidated statements of operations. Interest on the collateral financing
arrangement is included as a component of other expenses.
In connection with the collateral financing arrangement, the Holding Company entered into an agreement with the same unaffiliated
financial institution under which the Holding Company is entitled to the return on the investment portfolio held by the trusts established in
connection with this collateral financing arrangement in exchange for the payment of a stated rate of return to the unaffiliated financial
institution of 3-month LIBOR plus 0.70%, payable quarterly. The Holding Company may also be required to make payments to the unaffiliated
financial institution, for deposit into the trusts, related to any decline in the estimated fair value of the assets held by the trusts, as well as
amounts outstanding upon maturity or early termination of the collateral financing arrangement. During 2009 and 2008, the Holding Company
contributed $360 million and $320 million, respectively, as a result of declines in the estimated fair value of the assets in the trusts.
Cumulatively since May 2007, the Holding Company has contributed a total of $680 million as a result of declines in the estimated fair value of
the assets in the trusts, all of which was deposited into the trusts.
In addition, the Holding Company may be required to pledge collateral to the unaffiliated financial institution under this agreement. At
December 31, 2009 and 2008, the Holding Company had pledged $80 million and $86 million, respectively, under the agreement.
Transaction costs associated with the collateral financing arrangement of $5 million have been capitalized, are included in other assets,
and are being amortized over the period from May 2007, the date the Holding Company entered into the collateral financing arrangement, to
its expiration. Total interest expense related to the collateral financing arrangement was $44 million, $107 million and $84 million for the years
ended December 31, 2009, 2008 and 2007, respectively.
13. Junior Subordinated Debt Securities
Junior Subordinated Debt Securities Underlying Common Equity Units
In June 2005, the Holding Company issued $1,067 million 4.82% Series A and $1,067 million 4.91% Series B junior subordinated debt
securities due no later than February 15, 2039 and February 15, 2040, respectively, for a total of $2,134 million, in exchange for $64 million in
trust common securities of MetLife Capital Trust II (“Series A Trust”) and MetLife Capital Trust III (“Series B Trust”) and together with the Series A
Trust, (the “Capital Trusts”), both subsidiary trusts of MetLife, Inc., and $2,070 million in aggregate cash proceeds from the sale by the
subsidiary trusts of trust preferred securities, constituting part of the common equity units. The subsidiary trusts each issued $1,035 million of
trust preferred securities and $32 million of trust common securities.
In August 2008, the Series A Trust was dissolved and $32 million of the Series A junior subordinated debt securities were returned to the
Holding Company concurrently with the cancellation of the $32 million of trust common securities of the Series A Trust held by MetLife, Inc.
Upon dissolution of the Series A Trust, the remaining $1,035 million of Series A junior subordinated debt securities were distributed to the
holders of the trust preferred securities and such trust preferred securities were cancelled. In connection with the remarketing transaction on
August 15, 2008, the remaining $1,035 million of MetLife, Inc. Series A junior subordinated debt securities were modified, as permitted by
their terms, to be 6.817% senior debt securities, Series A, due August 15, 2018. The Company did not receive any proceeds from the
remarketing. See also Notes 11, 14 and 18.
In February 2009, the Series B Trust was dissolved and $32 million of the Series B junior subordinated debt securities were returned to the
Holding Company concurrently with the cancellation of the $32 million of trust common securities of the Series B Trust held by MetLife, Inc.
Upon dissolution of the Series B Trust, the remaining $1,035 million of Series B junior subordinated debt securities were distributed to the
holders of the trust preferred securities and such trust preferred securities were cancelled. In connection with the remarketing transaction on
February 17, 2009, the remaining $1,035 million of MetLife, Inc. Series B junior subordinated debt securities were modified, as permitted by
their terms, to be 7.717% senior debt securities, Series B, due February 15, 2019. The Company did not receive any proceeds from the
remarketing. See also Notes 11, 14 and 18.
Interest expense on the junior subordinated debt securities underlying the common equity units was $6 million, $84 million and
$104 million for the years ended December 31, 2009, 2008 and 2007, respectively.
F-93MetLife, Inc.
MetLife, Inc.
Notes to the Consolidated Financial Statements — (Continued)