MetLife 2010 Annual Report Download - page 116

most significantly the valuation of embedded derivatives associated with certain guarantees on variable annuity contracts. The change in
valuation of embedded derivatives associated with guarantees on annuity contracts resulted from the incorporation of risk margins
associated with non-capital market inputs and the inclusion of the Company’s nonperformance risk in their valuation. At January 1,
2008, the impact of adopting the guidance on assets and liabilities measured at estimated fair value was $30 million ($19 million, net of
income tax) and was recognized as a change in estimate in the accompanying consolidated statement of operations where it was presented
in the respective statement of operations caption to which the item measured at estimated fair value is presented. There were no significant
changes in estimated fair value of items measured at fair value and reflected in accumulated other comprehensive income (loss). The addition
of risk margins and the Company’s nonperformance risk adjustment in the valuation of embedded derivatives associated with annuity
contracts may result in significant volatility in the Company’s consolidated net income in future periods. The Company provided all of the
material disclosures in Note 5.
In February 2007, the Financial Accounting Standards Board (“FASB”) issued guidance related to the FVO for financial assets and financial
liabilities. This guidance permits entities the option to measure most financial instruments and certain other items at fair value at specified
election dates and to recognize related unrealized gains and losses in earnings. The FVO is applied on an instrument-by-instrument basis
upon adoption of the standard, upon the acquisition of an eligible financial asset, financial liability or firm commitment or when certain
specified reconsideration events occur. The fair value election is an irrevocable election. Effective January 1, 2008, the Company elected
FVO on fixed maturity and equity securities backing certain pension products sold in Brazil. Such securities are presented as trading and other
securities in the consolidated balance sheets with subsequent changes in estimated fair value recognized in net investment income.
Previously, these securities were accounted for as available-for-sale securities and unrealized gains and losses on these securities were
recorded as a separate component of accumulated other comprehensive income (loss). The Company’s insurance joint venture in Japan also
elected FVO for certain of its existing single premium deferred annuities and the assets supporting such liabilities. FVO was elected to achieve
improved reporting of the asset/liability matching associated with these products. Adoption of this guidance by the Company and its
Japanese joint venture resulted in an increase in retained earnings of $27 million, net of income tax, at January 1, 2008. The election of FVO
resulted in the reclassification of $10 million, net of income tax, of net unrealized gains from accumulated other comprehensive income (loss)
to retained earnings on January 1, 2008.
The following pronouncements relating to fair value had no material impact on the Company’s consolidated financial statements:
• Effective September 30, 2008, the Company adopted guidance relating to the fair value measurements of financial assets when the
market for those assets is not active. It provides guidance on how a company’s internal cash flow and discount rate assumptions should
be considered in the measurement of fair value when relevant market data does not exist, how observable market information in an
inactive market affects fair value measurement and how the use of market quotes should be considered when assessing the relevance
of observable and unobservable data available to measure fair value.
• Effective January 1, 2009, the Company implemented fair value measurements guidance for certain nonfinancial assets and liabilities
that are recorded at fair value on a non-recurring basis. This guidance applies to such items as: (i) nonfinancial assets and nonfinancial
liabilities initially measured at estimated fair value in a business combination; (ii) reporting units measured at estimated fair value in the
first step of a goodwill impairment test; and (iii) indefinite-lived intangible assets measured at estimated fair value for impairment
assessment.
• Effective January 1, 2009, the Company adopted prospectively guidance on issuer’s accounting for liabilities measured at fair value
with a third-party credit enhancement. This guidance states that an issuer of a liability with a third-party credit enhancement should not
include the effect of the credit enhancement in the fair value measurement of the liability. In addition, it requires disclosures about the
existence of any third-party credit enhancement related to liabilities that are measured at fair value.
• Effective April 1, 2009, the Company adopted guidance on: (i) estimating the fair value of an asset or liability if there was a significant
decrease in the volume and level of trading activity for these assets or liabilities; and (ii) identifying transactions that are not orderly. The
Company has provided all of the material disclosures in its consolidated financial statements.
• Effective December 31, 2009, the Company adopted guidance on: (i) measuring the fair value of investments in certain entities that
calculate NAV per share; (ii) how investments within its scope would be classified in the fair value hierarchy; and (iii) enhanced disclosure
requirements, for both interim and annual periods, about the nature and risks of investments measured at fair value on a recurring or
non-recurring basis.
• Effective December 31, 2009, the Company adopted guidance on measuring liabilities at fair value. This guidance provides clarification
for measuring fair value in circumstances in which a quoted price in an active market for the identical liability is not available. In such
circumstances a company is required to measure fair value using either a valuation technique that uses: (i) the quoted price of the
identical liability when traded as an asset; or (ii) quoted prices for similar liabilities or similar liabilities when traded as assets; or
(iii) another valuation technique that is consistent with the principles of fair value measurement such as an income approach (e.g.,
present value technique) or a market approach (e.g., “entry” value technique).
Defined Benefit and Other Postretirement Plans
Effective December 31, 2009, the Company adopted guidance to enhance the transparency surrounding the types of assets and
associated risks in an employer’s defined benefit pension or other postretirement benefit plans. This guidance requires an employer to
disclose information about the valuation of plan assets similar to that required under other fair value disclosure guidance. The Company
provided all of the material disclosures in its consolidated financial statements.
Other Pronouncements
Effective April 1, 2009, the Company adopted prospectively guidance which establishes general standards for accounting and
disclosures of events that occur subsequent to the balance sheet date but before financial statements are issued or available to be issued.
The Company has provided all of the material disclosures in its consolidated financial statements.
F-27MetLife, Inc.
MetLife, Inc.
Notes to the Consolidated Financial Statements — (Continued)