MetLife 2011 Annual Report Download - page 148

MetLife, Inc.
Notes to the Consolidated Financial Statements — (Continued)
Fair Value Hedges
The Company designates and accounts for the following as fair value hedges when they have met the requirements of fair value hedging: (i) interest
rate swaps to convert fixed rate investments to floating rate investments; (ii) interest rate swaps to convert fixed rate liabilities to floating rate liabilities;
(iii) foreign currency swaps to hedge the foreign currency fair value exposure of foreign currency denominated investments and liabilities; and (iv) foreign
currency forwards to hedge the foreign currency fair value exposure of foreign currency denominated fixed rate investments.
The Company recognizes gains and losses on derivatives and the related hedged items in fair value hedges within net derivative gains (losses). The
following table represents the amount of such net derivative gains (losses):
Derivatives in Fair Value
Hedging Relationships Hedged Items in Fair Value Hedging Relationships
Net Derivative
Gains (Losses)
Recognized for
Derivatives
Net Derivative
Gains (Losses)
Recognized for
Hedged Items
Ineffectiveness
Recognized in
Net Derivative
Gains (Losses)
(In millions)
For the Year Ended December 31, 2011:
Interest rate swaps: Fixed maturity securities .................................... $ (25) $ 22 $ (3)
PABs(1) ................................................. 1,054 (1,030) 24
Foreign currency swaps: Foreign-denominated fixed maturity securities ................... 1 3 4
Foreign-denominated PABs(2) ............................... (24) (25) (49)
Foreign currency forwards: Foreign-denominated fixed maturity securities ................... (25) 25 —
Total ............................................................................ $ 981 $(1,005) $(24)
For the Year Ended December 31, 2010:
Interest rate swaps: Fixed maturity securities .................................... $ (14) $ 16 $ 2
PABs(1) ................................................. 140 (142) (2)
Foreign currency swaps: Foreign-denominated fixed maturity securities ................... 14 (14) —
Foreign-denominated PABs(2) ............................... 9 (20) (11)
Foreign currency forwards: Foreign-denominated fixed maturity securities ................... — — —
Total ............................................................................ $ 149 $ (160) $(11)
For the Year Ended December 31, 2009:
Interest rate swaps: Fixed maturity securities .................................... $ 49 $ (42) $ 7
PABs(1) ................................................. (963) 951 (12)
Foreign currency swaps: Foreign-denominated fixed maturity securities ................... (13) 10 (3)
Foreign-denominated PABs(2) ............................... 462 (449) 13
Foreign currency forwards: Foreign-denominated fixed maturity securities ................... — — —
Total ............................................................................ $ (465) $ 470 $ 5
(1) Fixed rate liabilities.
(2) Fixed rate or floating rate liabilities.
For the Company’s foreign currency forwards, the change in the fair value of the derivative related to the changes in the difference between the spot
price and the forward price is excluded from the assessment of hedge effectiveness. For all other derivatives, all components of each derivative’s gain or
loss were included in the assessment of hedge effectiveness. For the year ended December 31, 2011, ($3) million of the change in fair value of
derivatives was excluded from the assessment of hedge effectiveness. For the years ended December 31, 2010 and 2009, no component of the
change in fair value of derivatives was excluded from the assessment of hedge effectiveness.
Cash Flow Hedges
The Company designates and accounts for the following as cash flow hedges when they have met the requirements of cash flow hedging:
(i) interest rate swaps to convert floating rate investments to fixed rate investments; (ii) interest rate swaps to convert floating rate liabilities to fixed rate
liabilities; (iii) foreign currency swaps to hedge the foreign currency cash flow exposure of foreign currency denominated investments and liabilities;
(iv) interest rate forwards and credit forwards to lock in the price to be paid for forward purchases of investments; (v) interest rate swaps and interest rate
forwards to hedge the forecasted purchases of fixed-rate investments; and (vi) interest rate swaps and interest rate forwards to hedge forecasted fixed-
rate borrowings.
In certain instances, the Company discontinued cash flow hedge accounting because the forecasted transactions did not occur on the anticipated
date, within two months of that date, or were no longer probable of occurring. The net amounts reclassified into net derivative gains (losses) for the years
ended December 31, 2011, 2010 and 2009 related to such discontinued cash flow hedges were gains (losses) of ($13) million, $9 million and ($7)
million, respectively.
At December 31, 2011 and 2010, the maximum length of time over which the Company was hedging its exposure to variability in future cash flows
for forecasted transactions did not exceed nine years and seven years, respectively.
144 MetLife, Inc.