MetLife 2011 Annual Report Download - page 111

MetLife, Inc.
Notes to the Consolidated Financial Statements — (Continued)
Deposits related to universal life-type and investment-type products are credited to PABs. Revenues from such contracts consist of amounts
assessed against PABs for mortality, policy administration and surrender charges and are recorded in universal life and investment-type product policy
fees in the period in which services are provided. Amounts that are charged to operations include interest credited and benefit claims incurred in excess
of related PABs.
Premiums related to property and casualty contracts are recognized as revenue on a pro rata basis over the applicable contract term. Unearned
premiums, representing the portion of premium written relating to the unexpired coverage, are also included in future policy benefits.
Premiums, policy fees, policyholder benefits and expenses are presented net of reinsurance.
The portion of fees allocated to embedded derivatives described previously is recognized within net derivative gains (losses) as part of the estimated
fair value of embedded derivatives.
Other Revenues
Other revenues include, in addition to items described elsewhere herein, advisory fees, broker-dealer commissions and fees and administrative
service fees. Such fees and commissions are recognized in the period in which services are performed. Other revenues also include changes in
account value relating to corporate-owned life insurance (“COLI”). Under certain COLI contracts, if the Company reports certain unlikely adverse results
in its consolidated financial statements, withdrawals would not be immediately available and would be subject to market value adjustment, which could
result in a reduction of the account value.
Policyholder Dividends
Policyholder dividends are approved annually by the insurance subsidiaries’ boards of directors. The aggregate amount of policyholder dividends is
related to actual interest, mortality, morbidity and expense experience for the year, as well as management’s judgment as to the appropriate level of
statutory surplus to be retained by the insurance subsidiaries.
Income Taxes
MetLife, Inc. and its includable life insurance and non-life insurance subsidiaries file a consolidated U.S. federal income tax return in accordance with
the provisions of the Internal Revenue Code of 1986, as amended (the “Code”). Non-includable subsidiaries file either separate individual corporate tax
returns or separate consolidated tax returns.
The Company’s accounting for income taxes represents management’s best estimate of various events and transactions.
Deferred tax assets and liabilities resulting from temporary differences between the financial reporting and tax bases of assets and liabilities are
measured at the balance sheet date using enacted tax rates expected to apply to taxable income in the years the temporary differences are expected to
reverse.
For U.S. federal income tax purposes, the Company made an election under Section 338 of the Code (the “Section 338 Election”) relating to the
Acquisition. Pursuant to such election, the historical tax basis in the acquired assets and liabilities was adjusted to the fair market value as of the
Acquisition Date resulting in a change to the related deferred income taxes. See Note 15.
The realization of deferred tax assets depends upon the existence of sufficient taxable income within the carryback or carryforward periods under the
tax law in the applicable tax jurisdiction. Valuation allowances are established when management determines, based on available information, that it is
more likely than not that deferred income tax assets will not be realized. Factors in management’s determination include the performance of the
business and its ability to generate capital gains. Significant judgment is required in determining whether valuation allowances should be established, as
well as the amount of such allowances. When making such determination, consideration is given to, among other things, the following:
(i) future taxable income exclusive of reversing temporary differences and carryforwards;
(ii) future reversals of existing taxable temporary differences;
(iii) taxable income in prior carryback years; and
(iv) tax planning strategies.
The Company may be required to change its provision for income taxes in certain circumstances. Examples of such circumstances include when
estimates used in determining valuation allowances on deferred tax assets significantly change or when receipt of new information indicates the need for
adjustment in valuation allowances. Additionally, future events, such as changes in tax laws, tax regulations, or interpretations of such laws or
regulations, could have an impact on the provision for income tax and the effective tax rate. Any such changes could significantly affect the amounts
reported in the consolidated financial statements in the year these changes occur.
The Company determines whether it is more likely than not that a tax position will be sustained upon examination by the appropriate taxing
authorities before any part of the benefit can be recorded in the financial statements. A tax position is measured at the largest amount of benefit that is
greater than 50% likely of being realized upon settlement. Unrecognized tax benefits due to tax uncertainties that do not meet the threshold are included
within other liabilities and are charged to earnings in the period that such determination is made.
The Company classifies interest recognized as interest expense and penalties recognized as a component of income tax.
Reinsurance
The Company enters into reinsurance agreements primarily as a purchaser of reinsurance for its various insurance products and also as a provider of
reinsurance for some insurance products issued by third parties.
For each of its reinsurance agreements, the Company determines whether the agreement provides indemnification against loss or liability relating to
insurance risk in accordance with applicable accounting standards. The Company reviews all contractual features, particularly those that may limit the
amount of insurance risk to which the reinsurer is subject or features that delay the timely reimbursement of claims.
For reinsurance of existing in-force blocks of long-duration contracts that transfer significant insurance risk, the difference, if any, between the
amounts paid (received), and the liabilities ceded (assumed) related to the underlying contracts is considered the net cost of reinsurance at the inception
of the reinsurance agreement. The net cost of reinsurance is recorded as an adjustment to DAC and recognized as a component of other expenses on
a basis consistent with the way the acquisition costs on the underlying reinsured contracts would be recognized. Subsequent amounts paid (received)
on the reinsurance of in-force blocks, as well as amounts paid (received) related to new business, are recorded as ceded (assumed) premiums and
ceded (assumed) future policy benefit liabilities are established.
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