MetLife 2010 Annual Report Download - page 61

Due to the nature of the underlying risks and the high degree of uncertainty associated with the determination of actuarial liabilities, the
Company cannot precisely determine the amounts that will ultimately be paid with respect to these actuarial liabilities, and the ultimate
amounts may vary from the estimated amounts, particularly when payments may not occur until well into the future.
However, we believe our actuarial liabilities for future benefits are adequate to cover the ultimate benefits required to be paid to
policyholders. We periodically review our estimates of actuarial liabilities for future benefits and compare them with our actual experience. We
revise estimates, to the extent permitted or required under GAAP, if we determine that future expected experience differs from assumptions
used in the development of actuarial liabilities.
The Company has experienced, and will likely in the future experience, catastrophe losses and possibly acts of terrorism, and turbulent
financial markets that may have an adverse impact on our business, results of operations, and financial condition. Catastrophes can be
caused by various events, including pandemics, hurricanes, windstorms, earthquakes, hail, tornadoes, explosions, severe winter weather
(including snow, freezing water, ice storms and blizzards), fires and man-made events such as terrorist attacks. Due to their nature, we cannot
predict the incidence, timing, severity or amount of losses from catastrophes and acts of terrorism, but we make broad use of catastrophic
and non-catastrophic reinsurance to manage risk from these perils.
Future Policy Benefits
The Company establishes liabilities for amounts payable under insurance policies. Generally, amounts are payable over an extended
period of time and related liabilities are calculated as the present value of expected future benefits to be paid, reduced by the present value of
expected future net premiums. Such liabilities are established based on methods and underlying assumptions in accordance with GAAP and
applicable actuarial standards. Principal assumptions used in the establishment of liabilities for future policy benefits include mortality,
morbidity, policy lapse, renewal, retirement, investment returns, inflation, expenses and other contingent events as appropriate to the
respective product type. These assumptions are established at the time the policy is issued and are intended to estimate the experience for
the period the policy benefits are payable. Utilizing these assumptions, liabilities are established on a block of business basis. If experience is
less favorable than assumed and future losses are projected under loss recognition testing, then additional liabilities may be required,
resulting in a charge to policyholder benefits and claims.
Insurance Products. Future policy benefits are comprised mainly of liabilities for disabled lives under disability waiver of premium policy
provisions, liabilities for survivor income benefit insurance, long-term care (“LTC”) policies, active life policies and premium stabilization and
other contingency liabilities held under participating life insurance contracts. In order to manage risk, the Company has often reinsured a
portion of the mortality risk on new individual life insurance policies. The reinsurance programs are routinely evaluated and this may result in
increases or decreases to existing coverage. The Company entered into various derivative positions, primarily interest rate swaps and
swaptions, to mitigate the risk that investment of premiums received and reinvestment of maturing assets over the life of the policy will be at
rates below those assumed in the original pricing of these contracts.
Retirement Products. Future policy benefits are comprised mainly of liabilities for life-contingent income annuities, supplemental
contracts with and without life contingencies, liabilities for Guaranteed Minimum Death Benefits (“GMDBs”) included in certain annuity
contracts, and a certain portion of guaranteed living benefits. See “— Variable Annuity Guarantees.”
Corporate Benefit Funding. Liabilities are primarily related to structured settlement annuities. There is no interest rate crediting flexibility
on these liabilities. A sustained low interest rate environment could negatively impact earnings as a result. The Company has various
derivative positions, primarily interest rate floors and interest rate swaps, to mitigate the risks associated with such a scenario.
Auto & Home. Future policy benefits include liabilities for unpaid claims and claim expenses for property and casualty insurance and
represent the amount estimated for claims that have been reported but not settled and claims incurred but not reported. Liabilities for unpaid
claims are estimated based upon assumptions such as rates of claim frequencies, levels of severities, inflation, judicial trends, legislative
changes or regulatory decisions. Assumptions are based upon the Company’s historical experience and analyses of historical development
patterns of the relationship of loss adjustment expenses to losses for each line of business, and consider the effects of current developments,
anticipated trends and risk management programs, reduced for anticipated salvage and subrogation.
International. Future policy benefits are held primarily for traditional life and accident and health contracts in Japan, Asia Pacific and
immediate annuities in Latin America. They are also held for total return pass-thru provisions included in certain universal life and savings
products mainly in Japan and Latin America, and traditional life, endowment and annuity contracts sold in various countries in Asia Pacific.
They also include certain liabilities for variable annuity guarantees of minimum death benefits, and longevity guarantees sold in Japan and Asia
Pacific. Finally, in Europe and the Middle East, they also include unearned premium liabilities established for credit insurance contracts
covering death, disability and involuntary loss of employment, as well as traditional life, accident and health and endowment contracts.
Factors impacting these liabilities include sustained periods of lower yields than rates established at issue, lower than expected asset
reinvestment rates, higher than expected lapse rates, asset default and more rapid improvement of mortality levels than anticipated for life
contingent immediate annuities. The Company mitigates its risks by implementing an asset/liability matching policy and through the
development of periodic experience studies. See “— Variable Annuity Guarantees.”
Estimates for the liabilities for unpaid claims and claim expenses are reset as actuarial indications change and these changes in the liability
are reflected in the current results of operation as either favorable or unfavorable development of prior year losses.
Banking, Corporate & Other. Future policy benefits primarily include liabilities for quota-share reinsurance agreements for certain LTC
and workers’ compensation business written by MetLife Insurance Company of Connecticut (“MICC”), prior to its acquisition by MetLife, Inc.
These are run-off businesses that have been included within Banking, Corporate & Other since the acquisition of MICC.
Policyholder Account Balances
Policyholder account balances are generally equal to the account value, which includes accrued interest credited, but exclude the impact
of any applicable surrender charge that may be incurred upon surrender.
Insurance Products. Policyholder account balances are held for death benefit disbursement retained asset accounts, universal life
policies, the fixed account of variable life insurance policies, specialized life insurance products for benefit programs and general account
universal life policies. Policyholder account balances are credited interest at a rate set by the Company, which are influenced by current
market rates. The majority of the policyholder account balances have a guaranteed minimum credited rate between 0.5% and 6.0%. A
sustained low interest rate environment could negatively impact earnings as a result of the minimum credited rate guarantees. The Company
has various derivative positions, primarily interest rate floors, to partially mitigate the risks associated with such a scenario.
58 MetLife, Inc.