MetLife 2010 Annual Report Download - page 151

transactions is to hedge against the risk of changes in purchase price due to changes in credit spreads, the Company designates these as
credit forwards. The Company utilizes credit forwards in cash flow hedging relationships.
In exchange-traded equity futures transactions, the Company agrees to purchase or sell a specified number of contracts, the value of
which is determined by the different classes of equity securities, and to post variation margin on a daily basis in an amount equal to the
difference in the daily market values of those contracts. The Company enters into exchange-traded futures with regulated futures commission
merchants that are members of the exchange. Exchange-traded equity futures are used primarily to hedge liabilities embedded in certain
variable annuity products offered by the Company. The Company utilizes exchange-traded equity futures in non-qualifying hedging
relationships.
Equity index options are used by the Company primarily to hedge minimum guarantees embedded in certain variable annuity products
offered by the Company. To hedge against adverse changes in equity indices, the Company enters into contracts to sell the equity index
within a limited time at a contracted price. The contracts will be net settled in cash based on differentials in the indices at the time of exercise
and the strike price. Certain of these contracts may also contain settlement provisions linked to interest rates. In certain instances, the
Company may enter into a combination of transactions to hedge adverse changes in equity indices within a pre-determined range through the
purchase and sale of options. Equity index options are included in equity options in the preceding table. The Company utilizes equity index
options in non-qualifying hedging relationships.
Equity variance swaps are used by the Company primarily to hedge minimum guarantees embedded in certain variable annuity products
offered by the Company. In an equity variance swap, the Company agrees with another party to exchange amounts in the future, based on
changes in equity volatility over a defined period. Equity variance swaps are included in variance swaps in the preceding table. The Company
utilizes equity variance swaps in non-qualifying hedging relationships.
Total rate of return swaps (“TRRs”) are swaps whereby the Company agrees with another party to exchange, at specified intervals, the
difference between the economic risk and reward of an asset or a market index and the London Inter-Bank Offer Rate (“LIBOR”), calculated by
reference to an agreed notional principal amount. No cash is exchanged at the outset of the contract. Cash is paid and received over the life of
the contract based on the terms of the swap. These transactions are entered into pursuant to master agreements that provide for a single net
payment to be made by the counterparty at each due date. The Company uses TRRs to hedge its equity market guarantees in certain of its
insurance products. TRRs can be used as hedges or to synthetically create investments. The Company utilizes TRRs in non-qualifying
hedging relationships.
Hedging
The following table presents the gross notional amount and estimated fair value of derivatives designated as hedging instruments by type
of hedge designation at:
Derivatives Designated as Hedging Instruments Notional Amount Assets Liabilities Notional Amount Assets Liabilities
Estimated
Fair
Value
Estimated
Fair
Value
2010 2009
December 31,
(In millions)
Fair Value Hedges:
Foreigncurrencyswaps ...................... $ 4,524 $ 907 $ 145 $ 4,807 $ 854 $132
Interestrateswaps ......................... 5,108 823 169 4,824 500 75
Subtotal............................... 9,632 1,730 314 9,631 1,354 207
Cash Flow Hedges:
Foreigncurrencyswaps ...................... 5,556 213 347 4,108 127 347
Interestrateswaps ......................... 3,562 102 116 1,740 — 48
Interestrateforwards........................ 1,140 — 107 — — —
Creditforwards............................ 90 2 3 220 2 6
Subtotal............................... 10,348 317 573 6,068 129 401
Foreign Operations Hedges:
Foreigncurrencyforwards..................... 1,935 9 26 1,880 27 13
Non-derivativehedginginstruments............... 169 — 185 — — —
Subtotal............................... 2,104 9 211 1,880 27 13
TotalQualifyingHedges........................ $22,084 $2,056 $1,098 $17,579 $1,510 $621
F-62 MetLife, Inc.
MetLife, Inc.
Notes to the Consolidated Financial Statements — (Continued)