MetLife 2010 Annual Report Download - page 112

obligations to the Company under the terms of the reinsurance agreements, reinsurance balances recoverable could become uncollectible.
In such instances, reinsurance recoverable balances are stated net of allowances for uncollectible reinsurance.
Premiums, fees and policyholder benefits and claims include amounts assumed under reinsurance agreements and are net of reinsurance
ceded. Amounts received from reinsurers for policy administration are reported in other revenues.
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. Deposits received are included in other
liabilities and deposits made are included within premiums, reinsurance and other receivables. As amounts are paid or received, consistent
with the underlying contracts, the deposit assets or liabilities are adjusted. Interest on such deposits is recorded as other revenues or other
expenses, as appropriate. Periodically, the Company evaluates the adequacy of the expected payments or recoveries and adjusts the
deposit asset or liability through other revenues or other expenses, as appropriate.
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.
Cessions under reinsurance arrangements do not discharge the Company’s obligations as the primary insurer.
Employee Benefit Plans
Certain subsidiaries of the Holding Company (the “Subsidiaries”) sponsor and/or administer various plans that provide defined benefit
pension and other postretirement benefits covering eligible employees and sales representatives. Measurement dates used for all of the
Subsidiaries’ defined benefit pension and other postretirement benefit plans correspond with the fiscal year ends of sponsoring Subsidiaries,
which are December 31 for U.S. Subsidiaries and November 30 for most foreign Subsidiaries.
Pension benefits are provided utilizing either a traditional formula or cash balance formula. The traditional formula provides benefits based
upon years of credited service and either final average or career average earnings. The cash balance formula utilizes hypothetical or notional
accounts which credit participants with benefits equal to a percentage of eligible pay, as well as earnings credits, determined annually based
upon the average annual rate of interest on 30-year Treasury securities, for each account balance.
The Subsidiaries also provide certain postemployment benefits and certain postretirement medical and life insurance benefits for retired
employees. Employees of the Subsidiaries who were hired prior to 2003 (or, in certain cases, rehired during or after 2003) and meet age and
service criteria while working for one of the Subsidiaries, may become eligible for these other postretirement benefits, at various levels, in
accordance with the applicable plans. Virtually all retirees, or their beneficiaries, contribute a portion of the total cost of postretirement
medical benefits. Employees hired after 2003 are not eligible for any employer subsidy for postretirement medical benefits.
The projected pension benefit obligation (“PBO”) is defined as the actuarially calculated present value of vested and non-vested pension
benefits accrued based on future salary levels. The accumulated pension benefit obligation (“ABO”) is the actuarial present value of vested
and non-vested pension benefits accrued based on current salary levels. Obligations, both PBO and ABO, of the defined benefit pension
plans are determined using a variety of actuarial assumptions, from which actual results may vary, as described below.
The expected postretirement plan benefit obligations (“EPBO”) represents the actuarial present value of all other postretirement benefits
expected to be paid after retirement to employees and their dependents and is used in measuring the periodic postretirement benefit
expense. The accumulated postretirement plan benefit obligations (“APBO”) represents the actuarial present value of future other postre-
tirement benefits attributed to employee services rendered through a particular date and is the valuation basis upon which liabilities are
established. The APBO is determined using a variety of actuarial assumptions, from which actual results may vary, as described below.
The Company recognizes the funded status of the PBO for pension plans and the APBO for other postretirement plans for each of its plans
in the consolidated balance sheets. The actuarial gains or losses, prior service costs and credits and the remaining net transition asset or
obligation that had not yet been included in net periodic benefit costs are charged, net of income tax, to accumulated other comprehensive
income (loss).
Net periodic benefit cost is determined using management estimates and actuarial assumptions to derive service cost, interest cost, and
expected return on plan assets for a particular year. Net periodic benefit cost also includes the applicable amortization of any prior service
cost (credit) arising from the increase (decrease) in prior years’ benefit costs due to plan amendments or initiation of new plans. These costs
are amortized into net periodic benefit cost over the expected service years of employees whose benefits are affected by such plan
amendments. Actual experience related to plan assets and/or the benefit obligations may differ from that originally assumed when
determining net periodic benefit cost for a particular period, resulting in gains or losses. To the extent such aggregate gains or losses
exceed 10 percent of the greater of the benefit obligations or the market-related asset value of the plans, they are amortized into net periodic
benefit cost over the expected service years of employees expected to receive benefits under the plans.
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. Management, in consultation with its external consulting
actuarial firms, determines 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.
The Subsidiaries also sponsor defined contribution savings and investment plans (“SIP”) for substantially all employees under which a
portion of employee contributions is matched. Applicable matching contributions are made each payroll period. Accordingly, the Company
recognizes compensation cost for current matching contributions. As all contributions are transferred currently as earned to the SIP trust, no
liability for matching contributions is recognized in the consolidated balance sheets.
F-23MetLife, Inc.
MetLife, Inc.
Notes to the Consolidated Financial Statements — (Continued)