MetLife 2010 Annual Report Download - page 197

(1) The Holding Company is a guarantor under this agreement.
(2) See also Note 24.
As a result of the offerings of certain senior notes (see “— Senior Notes — Other”) and common stock (see Note 18), the commitment
letter for a $5.0 billion senior credit facility, which the Holding Company signed to partially finance the Acquisition, was terminated. During
March 2010, the Holding Company paid $28 million in fees related to this senior credit facility, all of which were expensed during the year
ended December 31, 2010. See Note 19.
12. Collateral Financing Arrangements
Associated with the Closed Block
In December 2007, MLIC reinsured a portion of its closed block liabilities to MRC, a wholly-owned subsidiary of the Company. In
connection with this transaction, MRC issued, to investors placed by an unaffiliated financial institution, $2.5 billion in aggregate principal
amount of 35-year surplus notes to provide statutory reserve support for the assumed closed block liabilities. Interest on the surplus notes
accrues at an annual rate of 3-month LIBOR plus 0.55%, payable quarterly. The ability of MRC to make interest and principal payments on the
surplus notes is contingent upon South Carolina regulatory approval. At both December 31, 2010 and 2009, the amount of the surplus notes
outstanding was $2.5 billion.
Simultaneous with the issuance of the surplus notes, the Holding Company entered into an agreement with the unaffiliated financial
institution, under which the Holding Company is entitled to the interest paid by MRC on the surplus notes of 3-month LIBOR plus 0.55% in
exchange for the payment of 3-month LIBOR plus 1.12%, payable quarterly on such amount as adjusted, as described below. The Holding
Company may also be required to pledge collateral or make payments to the unaffiliated financial institution related to any decline in the
estimated fair value of the surplus notes. Any such payments would be accounted for as a receivable and included in other assets on the
Company’s consolidated balance sheets and would not reduce the principal amount outstanding of the surplus notes. Such payments would,
however, reduce the amount of interest payments due from the Holding Company under the agreement. Any payment received from the
unaffiliated financial institution would reduce the receivable by an amount equal to such payment and would also increase the amount of
interest payments due from the Holding Company under the agreement. In addition, the unaffiliated financial institution may be required to
pledge collateral to the Holding Company related to any increase in the estimated fair value of the surplus notes. During 2008, the Holding
Company paid an aggregate of $800 million to the unaffiliated financial institution relating to declines in the estimated fair value of the surplus
notes. The Holding Company did not receive any payments from the unaffiliated financial institution during 2008. During 2009, on a net basis,
the Holding Company received $375 million from the unaffiliated financial institution related to changes in the estimated fair value of the
surplus notes. No payments were made or received by the Holding Company during 2010. Since the closing of the collateral financing
arrangement in December 2007, on a net basis, the Holding Company has paid $425 million to the unaffiliated financial institution related to
changes in the estimated fair value of the surplus notes. In addition, at December 31, 2008, the Holding Company had pledged collateral with
an estimated fair value of $230 million to the unaffiliated financial institution. At December 31, 2009, the Holding Company had no collateral
pledged to the unaffiliated financial institution in connection with this agreement. At December 31, 2010, the Holding Company had pledged
collateral with an estimated fair value of $49 million to the unaffiliated financial institution. The Holding Company may also be required to make
a payment to the unaffiliated financial institution in connection with any early termination of this agreement.
A majority of the proceeds from the offering of the surplus notes was placed in a trust, which is consolidated by the Company, to support
MRC’s statutory obligations associated with the assumed closed block liabilities. During 2007, MRC deposited $2.0 billion into the trust, from
the proceeds of the surplus notes issued in 2007. During 2008, MRC deposited an additional $314 million into the trust. No amount was
deposited into the trust during 2009. During 2010, MRC transferred $497 million out of the trust. At December 31, 2010 and 2009, the
estimated fair value of assets held in trust by the Company was $2.0 billion and $2.4 billion, respectively. The assets are principally invested in
fixed maturity securities and are presented as such within the Company’s consolidated balance sheets, with the related income included
within net investment income in the Company’s consolidated statements of operations. Interest on the collateral financing arrangement is
included as a component of other expenses.
Total interest expense related to the collateral financing arrangement was $36 million, $51 million and $117 million for the years ended
December 31, 2010, 2009 and 2008, respectively.
Associated with Secondary Guarantees
In May 2007, the Holding Company and MRSC, a wholly-owned subsidiary of the Company, entered into a 30-year collateral financing
arrangement with an unaffiliated financial institution that provides up to $3.5 billion of statutory reserve support for MRSC associated with
reinsurance obligations under intercompany reinsurance agreements. Such statutory reserves are associated with universal life secondary
guarantees and are required under U.S. Valuation of Life Policies Model Regulation (commonly referred to as Regulation A-XXX). At both
December 31, 2010 and 2009, $2.8 billion had been drawn upon under the collateral financing arrangement. The collateral financing
arrangement may be extended by agreement of the Holding Company and the unaffiliated financial institution on each anniversary of the
closing.
Proceeds from the collateral financing arrangement were placed in trusts to support MRSC’s statutory obligations associated with the
reinsurance of secondary guarantees. The trusts are VIEs which are consolidated by the Company. The unaffiliated financial institution is
entitled to the return on the investment portfolio held by the trusts. At December 31, 2010 and 2009, the Company held assets in trust with an
estimated fair value of $3.3 billion and $3.2 billion, respectively, associated with the collateral financing arrangement. The assets are
principally invested in fixed maturity securities and are presented as such within the Company’s consolidated balance sheets, with the related
income included within net investment income in the Company’s consolidated statements of operations. Interest on the collateral financing
arrangement is included as a component of other expenses.
F-108 MetLife, Inc.
MetLife, Inc.
Notes to the Consolidated Financial Statements — (Continued)