MetLife 2011 Annual Report Download - page 152

MetLife, Inc.
Notes to the Consolidated Financial Statements — (Continued)
(1) Changes in estimated fair value related to economic hedges of equity method investments in joint ventures; changes in estimated fair value related
to derivatives held in relation to trading portfolios; and changes in estimated fair value related to derivatives held within contractholder-directed unit-
linked investments.
(2) Changes in estimated fair value related to economic hedges of variable annuity guarantees included in future policy benefits.
(3) Changes in estimated fair value related to derivatives held in connection with the Company’s mortgage banking activities.
(4) Changes in estimated fair value related to economic hedges of foreign currency exposure associated with the Company’s international subsidiaries.
Credit Derivatives
In connection with synthetically created investment transactions and credit default swaps held in relation to the trading portfolio, the Company writes
credit default swaps for which it receives a premium to insure credit risk. Such credit derivatives are included within the non-qualifying derivatives and
derivatives for purposes other than hedging table. If a credit event occurs, as defined by the contract, the contract may be cash settled or it may be
settled gross by the Company paying the counterparty the specified swap notional amount in exchange for the delivery of par quantities of the
referenced credit obligation. The Company’s maximum amount at risk, assuming the value of all referenced credit obligations is zero, was $7.7 billion
and $5.1 billion at December 31, 2011 and 2010, respectively. The Company can terminate these contracts at any time through cash settlement with
the counterparty at an amount equal to the then current fair value of the credit default swaps. At December 31, 2011, the Company would have paid
$41 million to terminate all of these contracts, and at December 31, 2010, the Company would have received $62 million to terminate all of these
contracts.
The following table presents the estimated fair value, maximum amount of future payments and weighted average years to maturity of written credit
default swaps at:
December 31,
2011 2010
Rating Agency Designation of Referenced
Credit Obligations(1)
Estimated
Fair Value
of Credit
Default
Swaps
Maximum
Amount
of Future
Payments under
Credit Default
Swaps(2)
Weighted
Average
Years to
Maturity(3)
Estimated
Fair Value
of Credit
Default
Swaps
Maximum
Amount
of Future
Payments under
Credit Default
Swaps(2)
Weighted
Average
Years to
Maturity(3)
(In millions)
Aaa/Aa/A
Single name credit default swaps (corporate) .................... $ 5 $ 737 3.5 $ 5 $ 470 3.8
Credit default swaps referencing indices ....................... (1) 2,813 3.0 45 2,928 3.7
Subtotal .............................................. 4 3,550 3.1 50 3,398 3.7
Baa
Single name credit default swaps (corporate) .................... (17) 1,234 4.0 5 735 4.3
Credit default swaps referencing indices ....................... (26) 2,847 4.9 7 931 5.0
Subtotal .............................................. (43) 4,081 4.6 12 1,666 4.7
Ba
Single name credit default swaps (corporate) .................... — 25 3.5 — 25 4.4
Credit default swaps referencing indices ....................... — — — — — —
Subtotal .............................................. — 25 3.5 — 25 4.4
B
Single name credit default swaps (corporate) .................... — — — — — —
Credit default swaps referencing indices ....................... (2) 25 4.8 — — —
Subtotal .............................................. (2) 25 4.8 — — —
Total ............................................... $(41) $7,681 3.9 $62 $5,089 4.1
(1) The rating agency designations are based on availability and the midpoint of the applicable ratings among Moody’s Investors Service, S&P and Fitch
Ratings. If no rating is available from a rating agency, then an internally developed rating is used.
(2) Assumes the value of the referenced credit obligations is zero.
(3) The weighted average years to maturity of the credit default swaps is calculated based on weighted average notional amounts.
The Company has also entered into credit default swaps to purchase credit protection on certain of the referenced credit obligations in the table
above. As a result, the maximum amounts of potential future recoveries available to offset the $7.7 billion and $5.1 billion from the table above were
$115 million and $120 million at December 31, 2011 and 2010, respectively.
148 MetLife, Inc.