MetLife 2010 Annual Report Download - page 102

Company’s experience for loan losses, defaults and loss severity, and loss expectations for loans with similar risk characteristics.
The Company typically uses ten years, or more, of historical experience, in these evaluations. These evaluations are revised as
conditions change and new information becomes available.
Commercial and Agricultural Mortgage Loans — All commercial and agricultural loans are monitored on an ongoing basis for
potential credit losses. For commercial loans, these ongoing reviews may include an analysis of the property financial statements
and rent roll, lease rollover analysis, property inspections, market analysis, estimated valuations of the underlying collateral,
loan-to-value ratios, debt service coverage ratios, and tenant creditworthiness. The monitoring process focuses on higher risk
loans, which include those that are classified as restructured, potentially delinquent, delinquent or in foreclosure, as well as loans
with higher loan-to-value ratios and lower debt service coverage ratios. The monitoring process for agricultural loans is generally
similar, with a focus on higher risk loans, including reviews on a geographic and property-type basis. Higher risk commercial and
agricultural loans are reviewed individually on an ongoing basis for potential credit loss and specific valuation allowances are
established using the methodology described above for all loan portfolio segments. Quarterly, the remaining loans are reviewed on
a pool basis by aggregating groups of loans that have similar risk characteristics for potential credit loss, and non-specific valuation
allowances are established as described above using inputs that are unique to each segment of the loan portfolio.
For commercial loans, the Company’s primary credit quality indicator is the debt service coverage ratio, which compares a
property’s net operating income to amounts needed to service the principal and interest due under the loan. Generally, the lower the
debt service coverage ratio, the higher the risk of experiencing a credit loss. The values utilized in calculating these ratios are
developed in connection with the ongoing review of the commercial loan portfolio and are routinely updated.
For agricultural loans, the Company’s primary credit qualify indicator is the loan-to-value ratio. Loan-to-value ratios compare the
amount of the loan to the estimated fair value of the underlying collateral. A loan-to-value ratio greater than 100% indicates that the
loan amount is greater than the collateral value. A loan-to-value ratio of less than 100% indicates an excess of collateral value over
the loan amount. Generally, the higher the loan-to-value ratio, the higher the risk of experiencing a credit loss. The values utilized in
calculating these ratios are developed in connection with the ongoing review of the agricultural loan portfolio and are routinely
updated.
Residential Mortgage Loans — The Company’s residential loan portfolio is comprised primarily of closed end, amortizing
residential loans and home equity lines of credit and it does not hold any optional adjustable rate mortgages, sub-prime, or low
teaser rate loans.
In contrast to the commercial and agricultural loan portfolios, residential loans are smaller-balance homogeneous loans that are
collectively evaluated for impairment. Non-specific valuation allowances are established using the evaluation framework described
above for pools of loans with similar risk characteristics from inputs that are unique to the residential segment of the loan portfolio.
Loan specific valuation allowances are only established on residential loans when they have been restructured and are established
using the methodology described above for all loan portfolio segments.
For residential loans, the Company’s primary credit quality indicator is whether the loan is performing or non-performing. The
Company generally defines non-performing residential loans as those that are 90 or more days past due and/or in non-accrual
status. The determination of performing or non-performing status is assessed monthly. Generally, non-performing residential loans
have a higher risk of experiencing a credit loss.
Also included in mortgage loans held-for-investment are commercial mortgage loans held by CSEs that were consolidated by
the Company on January 1, 2010 upon the adoption of new guidance. The Company elected FVO for these commercial mortgage
loans, and thus they are stated at estimated fair value with changes in estimated fair value subsequent to consolidation recognized
in net investment gains (losses).
Mortgage Loans — Mortgage Loans Held-For-Sale. Mortgage loans held-for-sale primarily include residential mortgage loans
which are originated with the intent to sell and for which FVO was elected. These residential mortgage loans are stated at estimated fair
value with subsequent changes in estimated fair value recognized in other revenue. This caption also includes mortgage loans
previously designated as held-for-investment about which the Company has subsequently changed its intention. At the time of transfer
to held-for-sale status, such mortgage loans are recorded at the lower of amortized cost or estimated fair value less expected
disposition costs determined on an individual loan basis. Amortized cost is determined in the same manner as for mortgage loans
held-for-investment as described above. The amount by which amortized cost exceeds estimated fair value, less expected disposition
costs, is recognized in net investment gains (losses).
Policy Loans. Policy loans are stated at unpaid principal balances. Interest income on such loans is recorded as earned in net
investment income using the contractually agreed upon interest rate. Generally, interest is capitalized on the policy’s anniversary date.
Valuation allowances are not established for policy loans, as these loans are fully collateralized by the cash surrender value of the
underlying insurance policies. Any unpaid principal or interest on the loan is deducted from the cash surrender value or the death
benefit prior to settlement of the policy.
Real Estate. Real estate held-for-investment, including related improvements, is stated at cost less accumulated depreciation.
Depreciation is provided on a straight-line basis over the estimated useful life of the asset (typically 20 to 55 years). Rental income is
recognized on a straight-line basis over the term of the respective leases. The Company classifies a property as held-for-sale if it
commits to a plan to sell a property within one year and actively markets the property in its current condition for a price that is
reasonable in comparison to its estimated fair value. The Company classifies the results of operations and the gain or loss on sale of a
property that either has been disposed of or classified as held-for-sale as discontinued operations, if the ongoing operations of the
property will be eliminated from the ongoing operations of the Company and if the Company will not have any significant continuing
involvement in the operations of the property after the sale. Real estate held-for-sale is stated at the lower of depreciated cost or
estimated fair value less expected disposition costs. Real estate is not depreciated while it is classified as held-for-sale. The Company
F-13MetLife, Inc.
MetLife, Inc.
Notes to the Consolidated Financial Statements — (Continued)