MetLife 2010 Annual Report Download - page 166

public companies, and industry-specific non-earnings based multiples. Certain of these securities are valued based on independent
non-binding broker quotations.
Mortgage Loans
Mortgage loans include residential mortgage loans held-for-sale for which pricing for similar loans or securities backed by similar loans is
not observable and the estimated fair value is determined using unobservable independent broker quotations or valuation models.
MSRs
MSRs, which are valued using an income approach, are carried at estimated fair value and have multiple significant unobservable inputs
including assumptions regarding estimates of discount rates, loan prepayments and servicing costs. Sales of MSRs tend to occur in private
transactions where the precise terms and conditions of the sales are typically not readily available and observable market valuations are
limited. As such, the Company relies primarily on a discounted cash flow model to estimate the fair value of the MSRs. The model requires
inputs such as type of loan (fixed vs. variable and agency vs. other), age of loan, loan interest rates and current market interest rates that are
generally observable. The model also requires the use of unobservable inputs including assumptions regarding estimates of discount rates,
loan prepayments and servicing costs.
Derivative Assets and Derivative Liabilities
These derivatives are principally valued using an income approach. Valuations of non-option-based derivatives utilize present value
techniques, whereas valuations of option-based derivatives utilize option pricing models. These valuation methodologies generally use the
same inputs as described in the corresponding sections above for Level 2 measurements of derivatives. However, these derivatives result in
Level 3 classification because one or more of the significant inputs are not observable in the market or cannot be derived principally from, or
corroborated by, observable market data.
Interest rate contracts.
Non-option-based — Significant unobservable inputs may include pull through rates on interest rate lock commitments and the
extrapolation beyond observable limits of the swap yield curve and LIBOR basis curves.
Option-based — Significant unobservable inputs may include the extrapolation beyond observable limits of the swap yield curve, LIBOR
basis curves, and interest rate volatility.
Foreign currency contracts.
Non-option-based — Significant unobservable inputs may include the extrapolation beyond observable limits of the swap yield curve,
LIBOR basis curves and cross currency basis curves. Certain of these derivatives are valued based on independent non-binding broker
quotations.
Option-based — Significant unobservable inputs may include currency correlation and the extrapolation beyond observable limits of the
swap yield curve, LIBOR basis curves, cross currency basis curves and currency volatility.
Credit contracts.
Non-option-based — Significant unobservable inputs may include credit correlation, repurchase rates, and the extrapolation beyond
observable limits of the swap yield curve and credit curves. Certain of these derivatives are valued based on independent non-binding broker
quotations.
Equity market contracts.
Non-option-based — Significant unobservable inputs may include the extrapolation beyond observable limits of dividend yield curves.
Option-based — Significant unobservable inputs may include the extrapolation beyond observable limits of dividend yield curves and
equity volatility. Certain of these derivatives are valued based on independent non-binding broker quotations.
Guaranteed Minimum Benefit Guarantees
These embedded derivatives are principally valued using an income approach. Valuations are based on option pricing techniques, which
utilize significant inputs that may include swap yield curve, currency exchange rates and implied volatilities. These embedded derivatives
result in Level 3 classification because one or more of the significant inputs are not observable in the market or cannot be derived principally
from, or corroborated by, observable market data. Significant unobservable inputs generally include: the extrapolation beyond observable
limits of the swap yield curve and implied volatilities, actuarial assumptions for policyholder behavior and mortality and the potential variability
in policyholder behavior and mortality, nonperformance risk and cost of capital for purposes of calculating the risk margin.
Reinsurance Ceded on Certain Guaranteed Minimum Benefit Guarantees
These embedded derivatives are principally valued using an income approach. Valuations are based on option pricing techniques, which
utilize significant inputs that may include swap yield curve, currency exchange rates and implied volatilities. These embedded derivatives
result in Level 3 classification because one or more of the significant inputs are not observable in the market or cannot be derived principally
from, or corroborated by, observable market data. Significant unobservable inputs generally include: the extrapolation beyond observable
limits of the swap yield curve and implied volatilities, actuarial assumptions for policyholder behavior and mortality and the potential variability
in policyholder behavior and mortality, counterparty credit spreads and cost of capital for purposes of calculating the risk margin.
Embedded Derivatives Within Funds Withheld Related to Certain Ceded Reinsurance
These derivatives are principally valued usinganincomeapproach.Valuationsarebasedonpresentvaluetechniques,whichutilize
significant inputs that may include the swap yield curve and the fair value of assets within the reference portfolio. These embedded derivatives
result in Level 3 classification because one or more of the significant inputs are not observable in the market or cannot be derived principally
from, or corroborated by, observable market data. Significant unobservable inputs generally include: the fair value of certain assets within the
F-77MetLife, Inc.
MetLife, Inc.
Notes to the Consolidated Financial Statements — (Continued)