MetLife 2009 Annual Report Download - page 56

Guarantees
In the normal course of its business, the Company has provided certain indemnities, guarantees and commitments to third parties
pursuant to which it may be required to make payments now or in the future. In the context of acquisition, disposition, investment and other
transactions, the Company has provided indemnities and guarantees, including those related to tax, environmental and other specific
liabilities, and other indemnities and guarantees that are triggered by, among other things, breaches of representations, warranties or
covenants provided by the Company. In addition, in the normal course of business, the Company provides indemnifications to counterparties
in contracts with triggers similar to the foregoing, as well as for certain other liabilities, such as third-party lawsuits. These obligations are often
subject to time limitations that vary in duration, including contractual limitations and those that arise by operation of law, such as applicable
statutes of limitation. In some cases, the maximum potential obligation under the indemnities and guarantees is subject to a contractual
limitation ranging from less than $1 million to $800 million, with a cumulative maximum of $1.6 billion, while in other cases such limitations are
not specified or applicable. Since certain of these obligations are not subject to limitations, we do not believe that it is possible to determine
the maximum potential amount that could become due under these guarantees in the future. We believe that it is unlikely the Company will
have to make any material payments under these indemnities, guarantees, or commitments.
In addition, the Company indemnifies its directors and officers as provided in its charters and by-laws. Also, the Company indemnifies its
agents for liabilities incurred as a result of their representation of the Company’s interests. Since these indemnities are generally not subject to
limitation with respect to duration or amount, the Company does not believe that it is possible to determine the maximum potential amount that
could become due under these indemnities in the future.
The Company has also guaranteed minimum investment returns on certain international retirement funds in accordance with local laws.
Since these guarantees are not subject to limitation with respect to duration or amount, the Company does not believe that it is possible to
determine the maximum potential amount that could become due under these guarantees in the future.
During the year ended December 31, 2009, the Company reduced $1 million of previously recorded liabilities related to certain investment
transactions. The Company’s recorded liabilities were $5 million and $6 million at December 31, 2009 and 2008, respectively, for indemnities,
guarantees and commitments.
In connection with synthetically created investment transactions, the Company writes credit default swap obligations that generally require
payment of principal outstanding due in exchange for the referenced credit obligation. If a credit event, as defined by the contract, occurs the
Company’s maximum amount at risk, assuming the value of all referenced credit obligations is zero, was $3.1 billion at December 31, 2009.
However, the Company believes that any actual future losses will be significantly lower than this amount. Additionally, the Company can
terminate these contracts at any time through cash settlement with the counterparty at an amount equal to the then current estimated fair
value of the credit default swaps. At December 31, 2009, the Company would have paid $37 million to terminate all of these contracts.
Other Commitments
MetLife Insurance Company of Connecticut is a member of the FederalHomeLoanBankofBoston(the“FHLBofBoston”)andholds
$70 million of common stock of the FHLB of Boston at both December 31, 2009 and 2008, which is included in equity securities. MetLife
Insurance Company of Connecticut (“MICC”), a subsidiary of the Company has also entered into funding agreements with the FHLB of Boston
whereby MICC has issued such funding agreements in exchange for cash and for which the FHLB of Boston has been granted a blanket lien
on certain MICC assets, including residential mortgage-backed securities, to collateralize MICC’s obligations under the funding agreements.
MICC maintains control over these pledged assets, and may use, commingle, encumber or dispose of any portion of the collateral as long as
there is no event of default and the remaining qualified collateral is sufficient to satisfy the collateral maintenance level. Upon any event of
default by MICC, the FHLB of Boston’s recovery on the collateral is limited to the amount of MICC’s liability to the FHLB of Boston. The amount
of the Company’s liability for funding agreements with the FHLB of Boston was $326 million and $526 million at December 31, 2009 and 2008,
respectively, which is included in policyholder account balances. In addition, at December 31, 2008, MICC had advances of $300 million from
the FHLB of Boston with original maturities of less than one year and therefore, such advances are included in short-term debt. There were no
such advances at December 31, 2009. These advances and the advances on these funding agreements are collateralized by mortgage-
backed securities with estimated fair values of $419 million and $1,284 million at December 31, 2009 and 2008, respectively. During the
years ended December 31, 2009, 2008 and 2007, interest credited on the funding agreements, which are included in interest credited to
policyholder account balances, was $6 million, $15 million and $34 million, respectively.
Metropolitan Life Insurance Company is a member of the Federal Home Loan Bank of New York (the “FHLB of NY”) and holds $742 million
and $830 million of common stock of the FHLB of NY at December 31, 2009 and 2008, respectively, which is included in equity securities.
MLIC has also entered into funding agreements with the FHLB of NY whereby MLIC has issued such funding agreements in exchange for cash
and for which the FHLB of NY has been granted a lien on certain MLIC assets, including residential mortgage-backed securities to collateralize
MLIC’s obligations under the funding agreements. MLIC maintains control over these pledged assets, and may use, commingle, encumber or
dispose of any portion of the collateral as long as there is no event of default and the remaining qualified collateral is sufficient to satisfy the
collateral maintenance level. Upon any event of default by MLIC, the FHLB of NY’s recovery on the collateral is limited to the amount of MLIC’s
liability to the FHLB of NY. The amount of the Company’s liability for funding agreements with the FHLB of NY was $13.7 billion and $15.2 billion
at December 31, 2009 and 2008, respectively, which is included in policyholder account balances. The advances on these agreements are
collateralized by mortgage-backed securities with estimated fair values of $15.1 billion and $17.8 billion at December 31, 2009 and 2008,
respectively. During the years ended December 31, 2009, 2008 and 2007, interest credited on the funding agreements, which are included in
interest credited to policyholder account balances, was $333 million, $229 million and $94 million, respectively.
MetLife Bank is a member of the FHLB of NY and holds $124 million and $89 million of common stock of the FHLB of NY at December 31,
2009 and 2008, respectively, which is included in equity securities. MetLife Bank has also entered into repurchase agreements with the FHLB
of NY whereby MetLife Bank has issued repurchase agreements in exchange for cash and for which the FHLB of NY has been granted a
blanket lien on certain of MetLife Bank’s residential mortgages, mortgage loans held-for-sale, commercial mortgages and mortgage-backed
securities to collateralize MetLife Bank’s obligations under the repurchase agreements. MetLife Bank maintains control over these pledged
assets, and may use, commingle, encumber or dispose of any portion of the collateral as long as there is no event of default and the remaining
qualified collateral is sufficient to satisfy the collateral maintenance level. The repurchase agreements and the related security agreement
represented by this blanket lien provide that upon any event of default by MetLife Bank, the FHLB of NY’s recovery is limited to the amount of
MetLife Bank’s liability under the outstanding repurchase agreements. The amount of MetLife Bank’s liability for repurchase agreements
50 MetLife, Inc.