MetLife 2009 Annual Report Download - page 37

Banking, Corporate & Other
2008 2007 Change % Change
Years Ended December 31,
(In millions)
Operating Revenues
Premiums .................................................... $ 27 $ 35 $ (8) (22.9)%
Netinvestmentincome............................................ 808 1,428 (620) (43.4)%
Otherrevenues................................................. 184 72 112 155.6%
Totaloperatingrevenues ......................................... 1,019 1,535 (516) (33.6)%
Operating Expenses
Policyholderbenefitsandclaimsandpolicyholderdividends.................... 46 46 — —%
Interestcreditedtopolicyholderaccountbalances.......................... 7 — 7 —%
Interestcreditedtobankdeposits..................................... 166 200 (34) (17.0)%
CapitalizationofDAC............................................. (3) (8) 5 62.5%
AmortizationofDACandVOBA ...................................... 5 11 (6) (54.5)%
Interestexpense................................................ 1,033 875 158 18.1%
Otherexpenses ................................................ 699 328 371 113.1%
Totaloperatingexpenses......................................... 1,953 1,452 501 34.5%
Provisionforincometaxexpense(benefit) ............................... (495) (157) (338) (215.3)%
Operatingearnings .............................................. (439) 240 (679) (282.9)%
Preferredstockdividends.......................................... 125 137 (12) (8.8)%
Operating earnings available to common shareholders . . . . . . . . . . . . . . . . . . . . . . . $ (564) $ 103 $(667) (647.6)%
As a result of the extraordinary market conditions that began in late 2008, we experienced decreasing yields on our other limited
partnership interests and cash, cash equivalents and short-term investments. The decreased yields resulted in a $403 million decrease in
investment results, despite the positive impact of a higher asset base resulting from the investment of a portion of the proceeds from debt
issuances in 2008 and late 2007. These lower investment results were the primary driver of the $667 million decline in operating earnings
available to common shareholders as compared to 2007.
Increases in interest expense, corporate expenses and legal costs also contributed to the decline in operating earnings (loss). Higher
interest expense was the result of the various debt issuances in 2008 and late 2007. The implementation of our Operational Excellence
initiative resulted in higher postemployment related costs. In addition, corporate support expenses, including incentive compensation, rent,
advertising, and information technology costs, were higher than in 2007. Lastly, legal costs were higher due primarily to the commutation of
three asbestos-related excess insurance policies. The increases in these corporate expenses were partially offset by a reduction in deferred
compensation costs.
Banking results improved operating earnings by $21 million primarily due to the acquisitions made by MetLife Bank in 2008. See Note 2 of
the Notes to the Consolidated Financial Statements.
Effects of Inflation
The Company does not believe that inflation has had a material effect on its consolidated results of operations, except insofar as inflation
may affect interest rates.
Inflation in the United States has remained contained and been in a general downtrend for an extended period. However, in light of recent
and ongoing aggressive fiscal and monetary stimulus measures by the U.S. federal government and foreign governments, it is possible that
inflation could increase in the future. An increase in inflation could affect our business in several ways. During inflationary periods, the value of
fixed income investments falls which could increase realized and unrealized losses. Inflation also increases expenses for labor and other
materials, potentially putting pressure on profitability if such costs can not be passed through in our product prices. Inflation could also lead to
increased costs for losses and loss adjustment expenses in our Auto & Home business, which could require us to adjust our pricing to reflect
our expectations for future inflation. If actual inflation exceeds the expectations we use in pricing our policies, the profitability of our Auto &
Home business would be adversely affected. Prolonged and elevated inflation could adversely affect the financial markets and the economy
generally, and dispelling it may require governments to pursue a restrictive fiscal and monetary policy, which could constrain overall economic
activity,inhibitrevenuegrowthandreducethenumberofattractiveinvestmentopportunities.
Investments
Investment Risks. The Company’s primary investment objective is to optimize, net of income tax, risk-adjusted investment income and
risk-adjusted total return while ensuring that assets and liabilities are managed on a cash flow and duration basis. The Company is exposed to
four primary sources of investment risk:
• credit risk, relating to the uncertainty associated with the continued ability of a given obligor to make timely payments of principal and
interest;
• interest rate risk, relating to the market price and cash flow variability associated with changes in market interest rates;
• liquidity risk, relating to the diminished ability to sell certain investments in times of strained market conditions; and
• market valuation risk, relating to the variability in the estimated fair value of investments associated with changes in market factors such
as credit spreads.
The Company manages risk through in-house fundamental analysis of the underlying obligors, issuers, transaction structures and real
estate properties. The Company also manages credit risk, market valuation risk and liquidity risk through industry and issuer diversification
31MetLife, Inc.