MetLife 2011 Annual Report Download - page 112

MetLife, Inc.
Notes to the Consolidated Financial Statements — (Continued)
For prospective reinsurance of short-duration contracts that meet the criteria for reinsurance accounting, amounts paid (received) are recorded as
ceded (assumed) premiums and ceded (assumed) unearned premiums and are reflected as a component of premiums, reinsurance and other
receivables (future policy benefits). Such amounts are amortized through earned premiums over the remaining contract period in proportion to the
amount of protection provided. For retroactive reinsurance of short-duration contracts that meet the criteria of reinsurance accounting, amounts paid
(received) in excess of (which do not exceed) the related insurance liabilities ceded (assumed) are recognized immediately as a loss. Any gains on such
retroactive agreements are deferred and recorded in other liabilities. The gains are amortized primarily using the recovery method.
The assumptions used to account for both long and short-duration reinsurance agreements are consistent with those used for the underlying
contracts. Ceded policyholder and contract related liabilities, other than those currently due, are reported gross on the balance sheet.
Amounts currently recoverable under reinsurance agreements are included in premiums, reinsurance and other receivables and amounts currently
payable are included in other liabilities. Such assets and liabilities relating to reinsurance agreements with the same reinsurer may be recorded neton
the balance sheet, if a right of offset exists within the reinsurance agreement. In the event that reinsurers do not meet their obligations to the Company
under the terms of the reinsurance agreements, reinsurance balances recoverable could become uncollectible. In such instances, reinsurance
recoverable balances are stated net of allowances for uncollectible reinsurance.
Premiums, fees and policyholder benefits and claims include amounts assumed under reinsurance agreements and are net of reinsurance ceded.
Amounts received from reinsurers for policy administration are reported in other revenues.
If the Company determines that a reinsurance agreement does not expose the reinsurer to a reasonable possibility of a significant loss from
insurance risk, the Company records the agreement using the deposit method of accounting. Deposits received are included in other liabilities and
deposits made are included within premiums, reinsurance and other receivables. As amounts are paid or received, consistent with the underlying
contracts, the deposit assets or liabilities are adjusted. Interest on such deposits is recorded as other revenues or other expenses, as appropriate.
Periodically, the Company evaluates the adequacy of the expected payments or recoveries and adjusts the deposit asset or liability through other
revenues or other expenses, as appropriate.
Accounting for reinsurance requires extensive use of assumptions and estimates, particularly related to the future performance of the underlying
business and the potential impact of counterparty credit risks. The Company periodically reviews actual and anticipated experience compared to the
aforementioned assumptions used to establish assets and liabilities relating to ceded and assumed reinsurance and evaluates the financial strengthof
counterparties to its reinsurance agreements using criteria similar to that evaluated in the security impairment process discussed previously.
Cessions under reinsurance agreements do not discharge the Company’s obligations as the primary insurer.
Employee Benefit Plans
Certain subsidiaries of MetLife, Inc. (the “Subsidiaries”) sponsor and/or administer various plans that provide defined benefit pension and other
postretirement benefits covering eligible employees and sales representatives. Measurement dates used for all of the Subsidiaries’ defined benefit
pension and other postretirement benefit plans correspond with the fiscal year ends of sponsoring Subsidiaries, which are December 31 for
U.S. Subsidiaries and November 30 for most foreign Subsidiaries.
The U.S. pension benefits are provided utilizing either a traditional formula or cash balance formula. The traditional formula provides benefits based
upon years of credited service and either final average or career average earnings. The cash balance formula utilizes hypothetical or notional accounts
which credit participants with benefits equal to a percentage of eligible pay, as well as earnings credits, determined annually based upon the average
annual rate of interest on 30-year U.S. Treasury securities, for each account balance. The non-U.S. pension plans generally provide benefits based
either upon years of credited service and earnings preceding retirement or on points earned on job grades and other factors related to years of service.
The Subsidiaries also provide certain postemployment benefits and certain postretirement medical and life insurance benefits for retired employees.
Employees of the Subsidiaries who were hired prior to 2003 (or, in certain cases, rehired during or after 2003) and meet age and service criteria while
working for one of the Subsidiaries, may become eligible for these other postretirement benefits, at various levels, in accordance with the applicable
plans. Virtually all retirees, or their beneficiaries, contribute a portion of the total cost of postretirement medical benefits. Employees hired after 2003 are
not eligible for any employer subsidy for postretirement medical benefits.
The projected pension benefit obligation (“PBO”) is defined as the actuarially calculated present value of vested and non-vested pension benefits
accrued based on future salary levels. The accumulated pension benefit obligation (“ABO”) is the actuarial present value of vested and non-vested
pension benefits accrued based on current salary levels. Obligations, both PBO and ABO, of the defined benefit pension plans are determined using a
variety of actuarial assumptions, from which actual results may vary, as described below.
The expected postretirement plan benefit obligations (“EPBO”) represent the actuarial present value of all other postretirement benefits expectedto
be paid after retirement to employees and their dependents and is used in measuring the periodic postretirement benefit expense. The accumulated
postretirement plan benefit obligations (“APBO”) represent the actuarial present value of future other postretirement benefits attributed to employee
services rendered through a particular date and is the valuation basis upon which liabilities are established. The APBO is determined using a variety of
actuarial assumptions, from which actual results may vary, as described below.
The Company recognizes the funded status of the PBO for pension plans and the APBO for other postretirement plans for each of its plans in the
consolidated balance sheets. The actuarial gains or losses, prior service costs and credits and the remaining net transition asset or obligation that had
not yet been included in net periodic benefit costs are charged, net of income tax, to accumulated other comprehensive income (loss).
Net periodic benefit cost is determined using management estimates and actuarial assumptions to derive service cost, interest cost, and expected
return on plan assets for a particular year. Net periodic benefit cost also includes the applicable amortization of any prior service cost (credit) arising from
the increase (decrease) in prior years’ benefit costs due to plan amendments or initiation of new plans. These costs are amortized into net periodic
benefit cost over the expected service years of employees whose benefits are affected by such plan amendments. Actual experience related to plan
assets and/or the benefit obligations may differ from that originally assumed when determining net periodic benefit cost for a particular period, resulting
in gains or losses. To the extent such aggregate gains or losses exceed 10 percent of the greater of the benefit obligations or the market-related asset
value of the plans, they are amortized into net periodic benefit cost over the expected service years of employees expected to receive benefits under
the plans.
108 MetLife, Inc.