MetLife 2009 Annual Report Download - page 20

funds include claims that have been reported but not settled and claims incurred but not reported on life and non-medical health insurance.
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.
Future policy benefit liabilities for minimum death and income benefit guarantees relating to certain annuity contracts and secondary and
paid-up guarantees relating to certain life policies are based on estimates of the expected value of benefits in excess of the projected account
balance and recognizing the excess ratably over the accumulation period based on total expected assessments. Liabilities for universal and
variable life secondary guarantees and paid-up guarantees are determined by estimating the expected value of death benefits payable when
the account balance is projected to be zero and recognizing those benefits ratably over the accumulation period based on total expected
assessments. The assumptions used in estimating these liabilities are consistent with those used for amortizing DAC, and are thus subject to
the same variability and risk. The assumptions of investment performance and volatility for variable products are consistent with historical S&P
experience.
The Company periodically reviews its estimates of actuarial liabilities for future policy benefits and compares them with its actual
experience. Differences between actual experience and the assumptions used in pricing of these policies and guarantees and in the
establishment of the related liabilities result in variances in profit and could result in losses. The effects of changes in such estimated liabilities
are included in the results of operations in the period in which the changes occur.
Reinsurance
The Company enters into reinsurance agreements primarily as a purchaser of reinsurance for its various insurance products and also as a
provider of reinsurance for some insurance products issued by third parties. Accounting for reinsurance requires extensive use of
assumptions and estimates, particularly related to the future performance of the underlying business and the potential impact of counterparty
credit risks. The Company periodically reviews actual and anticipated experience compared to the aforementioned assumptions used to
establish assets and liabilities relating to ceded and assumed reinsurance and evaluates the financial strength of counterparties to its
reinsurance agreements using criteria similar to that evaluated in the security impairment process discussed previously. Additionally, for each
of its reinsurance agreements, the Company determines if the agreement provides indemnification against loss or liability relating to insurance
risk, in accordance with applicable accounting standards. The Company reviews all contractual features, particularly those that may limit the
amount of insurance risk to which the reinsurer is subject or features that delay the timely reimbursement of claims. If the Company determines
that a reinsurance agreement does not expose the reinsurer to a reasonable possibility of a significant loss from insurance risk, the Company
records the agreement using the deposit method of accounting.
Income Taxes
Income taxes represent the net amount of income taxes that the Company expects to pay to or receive from various taxing jurisdictions in
connection with its operations. The Company provides for federal, state and foreign income taxes currently payable, as well as those deferred
due to temporary differences between the financial reporting and tax bases of assets and liabilities. The Company’s accounting for income
taxes represents management’s best estimate of various events and transactions.
Deferred tax assets and liabilities resulting from temporary differences between the financial reporting and tax bases of assets and
liabilities are measured at the balance sheet date using enacted tax rates expected to apply to taxable income in the years the temporary
differences are expected to reverse. The realization of deferred tax assets depends upon the existence of sufficient taxable income within the
carryback or carryforward periods under the tax law in the applicable tax jurisdiction. Valuation allowances are established when management
determines, based on available information, that it is more likely than not that deferred income tax assets will not be realized. Factors in
management’s determination consider the performance of the business including the ability to generate capital gains. Significant judgment is
required in determining whether valuation allowances should be established, as well as the amount of such allowances. When making such
determination, consideration is given to, among other things, the following:
(i) future taxable income exclusive of reversing temporary differences and carryforwards;
(ii) future reversals of existing taxable temporary differences;
(iii) taxable income in prior carryback years; and
(iv) tax planning strategies.
The Company determines whether it is more likely than not that a tax position will be sustained upon examination by the appropriate taxing
authorities before any part of the benefit is recorded in the financial statements. A tax position is measured at the largest amount of benefit that
is greater than 50 percent likely of being realized upon settlement. The Company may be required to change its provision for income taxes
when the ultimate deductibility of certain items is challenged by taxing authorities or when estimates used in determining valuation allowances
on deferred tax assets significantly change, or when receipt of new information indicates the need for adjustment in valuation allowances.
Additionally, future events, such as changes in tax laws, tax regulations, or interpretations of such laws or regulations, could have an impact
on the provision for income tax and the effective tax rate. Any such changes could significantly affect the amounts reported in the
consolidated financial statements in the year these changes occur.
Employee Benefit Plans
Certain subsidiaries of the Holding Company (the “Subsidiaries”) sponsor and/or administer pension and other postretirement benefit
plans covering employees who meet specified eligibility requirements. The obligations and expenses associated with these plans require an
extensive use of assumptions such as the discount rate, expected rate of return on plan assets, rate of future compensation increases,
healthcare cost trend rates, as well as assumptions regarding participant demographics such as rate and age of retirements, withdrawal rates
and mortality. In consultation with our external consulting actuarial firm, we determine these assumptions based upon a variety of factors such
as historical performance of the plan and its assets, currently available market and industry data, and expected benefit payout streams. The
assumptions used may differ materially from actual results due to, among other factors, changing market and economic conditions and
changes in participant demographics. These differences may have a significant effect on the Company’s consolidated financial statements
and liquidity.
14 MetLife, Inc.