MetLife 2009 Annual Report Download - page 58

benefits, and longevity guarantees sold in the Asia Pacific region. Finally, in the EMEI region, they also include unearned premium liabilities
established for credit insurance contracts covering death, disability and involuntary loss of employment, as well as a small amount of
traditional life and endowment contracts. Factors impacting these liabilities include sustained periods of lower yields than rates established at
issue, lower than expected asset reinvestment rates, asset default and more rapid improvement of mortality levels than anticipated for life
contingent immediate annuities. The Company mitigates its risks by implementing an asset/liability matching policy and through the
development of periodic experience studies. See “— Variable Annuity Guarantees.”
Estimates for the liabilities for unpaid claims and claim expenses are reset as actuarial indications change and these changes in the liability
are reflected in the current results of operation as either favorable or unfavorable development of prior year losses.
Banking, Corporate & Other. Future policy benefits primarily include liabilities for quota-share reinsurance agreements for certain long-
term care and workers’ compensation business written by MICC, a subsidiary of the Company, prior to the acquisition of MICC. These are run-
off businesses that have been included within Banking, Corporate & Other since the acquisition of MICC.
Policyholder Account Balances
Policyholder account balances are generally equal to the account value, which includes accrued interest credited, but exclude the impact
of any applicable surrender charge that may be incurred upon surrender.
Insurance Products. Policyholder account balances are held for death benefit disbursement retained asset accounts, universal life
policies, the fixed account of variable life insurance policies, specialized life insurance products for benefit programs, general account
universal life policies, and the fixed account of variable life insurance policies. Policyholder account balances are credited interest at a rate set
by the Company, which are influenced by current market rates. The majority of the policyholder account balances have a guaranteed minimum
credited rate between 1.5% and 5.0%. A sustained low interest rate environment could negatively impact earnings as a result of the minimum
credited rate guarantees. The Company has various derivative positions, primarily interest rate floors, to partially mitigate the risks associated
with such a scenario.
Retirement Products. Policyholder account balances are held for fixed deferred annuities and the fixed account portion of variable
annuities, for certain income annuities, and for certain portions of guaranteed benefits. Policyholder account balances are credited interest at
a rate set by the Company, which are influenced by current market rates, and generally have a guaranteed minimum credited rate between
1.5% and 4.0%. See “— Variable Annuity Guarantees.”
Corporate Benefit Funding. Policyholder account balances are comprised of funding agreements. Interest crediting rates vary by type of
contract, and can be fixed or variable. Variable interest crediting rates are generally tied to an external index, most commonly 1-month or
3-month LIBOR. MetLife is exposed to interest rate risks, and foreign exchange risk when guaranteeing payment of interest and return of
principal at the contractual maturity date. The Company may invest in floating rate assets, or enter into floating rate swaps, also tied to external
indices, as well as caps to mitigate the impact of changes in market interest rates. The Company also mitigates its risks by implementing an
asset/liability matching policy and seeks to hedge all foreign currency risk through the use of foreign currency hedges, including cross
currency swaps.
International. Policyholder account balances are held largely for fixed income retirement and savings plans in the Latin America region
and to a lesser degree, amounts for separate account type funds in certain countries in the Latin America, Asia Pacific and EMEI regions that
do not meet the U.S. GAAP definition of separate accounts. Also included are certain liabilities for retirement and savings products sold in
certain countries in the Asia Pacific region that generally are sold with minimum credited rate guarantees. Liabilities for guarantees on certain
variable annuities in the Asia Pacific region are established in accordance with derivatives and hedging guidance and are also included within
policyholder account balances. These liabilities are generally impacted by sustained periods of low interest rates, where there are interest rate
guarantees. The Company mitigates its risks by implementing an asset/liability matching policy and by hedging its variable annuity
guarantees. See “— Variable Annuity Guarantees.”
Variable Annuity Guarantees
The Company issues certain variable annuity products with guaranteed minimum benefits that provide the policyholder a minimum return
based on their initial deposit (i.e., the benefit base) less withdrawals. In some cases the benefit base may be increased by additional deposits,
bonus amounts, accruals or market value resets. These guarantees are accounted for as insurance liabilities or as embedded derivatives
dependingonhowandwhenthebenefitispaid.Specifically,aguaranteeisaccountedforasanembeddedderivativeifaguaranteeispaid
without requiring (i) the occurrence of specific insurable event or (ii) the policyholder to annuitize. Alternatively, a guarantee is accounted for as
an insurance liability if the guarantee is paid only upon either (i) the occurrence of a specific insurable event or (ii) upon annuitization. In certain
cases, a guarantee may have elements of both an insurance liability and an embedded derivative and in such cases the guarantee is
accounted for under a split of the two models.
The net amount at risk (“NAR”) for guarantees can change significantly during periods of sizable and sustained shifts in equity market
performance, increased equity volatility, or changes in interest rates. The NAR disclosed in Note 8 of the Notes to the Consolidated Financial
Statements represents management’s estimate of the current value of the benefits under these guarantees if they were all exercised
simultaneously at December 31, 2009 and 2008, respectively. However, there are features, such as deferral periods and benefits requiring
annuitization or death, that limit the amount of benefits that will be payable in the near future. None of the GMIB guarantees are eligible for a
guaranteed annuitization prior to 2011.
Guarantees, including portions thereof, accounted for as embedded derivatives, are recorded at estimated fair value and included in
policyholder account balances. Guarantees accounted for as embedded derivatives include GMAB, the non life-contingent portion of GMWB
and the portion of certain GMIB that do not require annuitization. For more detail on the determination of estimated fair value, see Note 5 of the
Notes to the Consolidated Financial Statements.
52 MetLife, Inc.