MetLife 2011 Annual Report Download - page 146

MetLife, Inc.
Notes to the Consolidated Financial Statements — (Continued)
market values of those contracts. The Company enters into exchange-traded futures with regulated futures commission merchants that are members of
the exchange. Exchange-traded equity futures are used primarily to hedge liabilities embedded in certain variable annuity products offered by the
Company. The Company utilizes exchange-traded equity futures in non-qualifying hedging relationships.
Equity index options are used by the Company primarily to hedge minimum guarantees embedded in certain variable annuity products offered by the
Company. To hedge against adverse changes in equity indices, the Company enters into contracts to sell the equity index within a limited time at a
contracted price. The contracts will be net settled in cash based on differentials in the indices at the time of exercise and the strike price. Certain of
these contracts may also contain settlement provisions linked to interest rates. In certain instances, the Company may enter into a combination of
transactions to hedge adverse changes in equity indices within a pre-determined range through the purchase and sale of options. Equity index options
are included in equity options in the preceding table. The Company utilizes equity index options in non-qualifying hedging relationships.
Equity variance swaps are used by the Company primarily to hedge minimum guarantees embedded in certain variable annuity products offered by
the Company. In an equity variance swap, the Company agrees with another party to exchange amounts in the future, based on changes in equity
volatility over a defined period. Equity variance swaps are included in variance swaps in the preceding table. The Company utilizes equity variance
swaps in non-qualifying hedging relationships.
Total rate of return swaps (“TRRs”) are swaps whereby the Company agrees with another party to exchange, at specified intervals, the difference
between the economic risk and reward of an asset or a market index and the London Inter-Bank Offered Rate (“LIBOR”), calculated by reference to an
agreed notional principal amount. No cash is exchanged at the outset of the contract. Cash is paid and received over the life of the contract based on
the terms of the swap. These transactions are entered into pursuant to master agreements that provide for a single net payment to be made by the
counterparty at each due date. The Company uses TRRs to hedge its equity market guarantees in certain of its insurance products. TRRs can be used
as hedges or to synthetically create investments. The Company utilizes TRRs in non-qualifying hedging relationships.
Hedging
The following table presents the gross notional amount and estimated fair value of derivatives designated as hedging instruments by type of hedge
designation at:
December 31,
2011 2010
Estimated
Fair
Value
Estimated
Fair
Value
Derivatives Designated as Hedging Instruments Notional Amount Assets Liabilities Notional Amount Assets Liabilities
(In millions)
Fair value hedges:
Foreign currency swaps ......................... $ 3,220 $ 500 $ 98 $ 4,524 $ 907 $ 145
Foreign currency forwards ....................... 1,830 2 10 — — —
Interest rate swaps ............................. 4,580 1,884 92 5,108 823 169
Subtotal .................................... 9,630 2,386 200 9,632 1,730 314
Cash flow hedges:
Foreign currency swaps ......................... 6,370 352 306 5,556 213 347
Interest rate swaps ............................. 3,230 947 — 3,562 102 116
Interest rate forwards ............................ 965 210 — 1,140 — 107
Credit forwards ................................ 20 4 — 90 2 3
Subtotal .................................... 10,585 1,513 306 10,348 317 573
Foreign operations hedges:
Foreign currency forwards ....................... 1,689 53 12 1,935 9 26
Non-derivative hedging instruments ................ — — — 169 — 185
Subtotal .................................... 1,689 53 12 2,104 9 211
Total qualifying hedges ...................... $21,904 $3,952 $518 $22,084 $2,056 $1,098
142 MetLife, Inc.