MetLife 2011 Annual Report Download - page 160

MetLife, Inc.
Notes to the Consolidated Financial Statements — (Continued)
Valuation Techniques and Inputs by Level Within the Three-Level Fair Value Hierarchy by Major Classes of Assets and Liabilities
A description of the significant valuation techniques and inputs to the determination of estimated fair value for the more significant asset and liability
classes measured at fair value on a recurring basis is as follows:
The Company determines the estimated fair value of its investments using primarily the market approach and the income approach. The use of
quoted prices for identical assets and matrix pricing or other similar techniques are examples of market approaches, while the use of discounted cash
flow methodologies is an example of the income approach. The Company attempts to maximize the use of observable inputs and minimize the use of
unobservable inputs in selecting whether the market or income approach is used.
While certain investments have been classified as Level 1 from the use of unadjusted quoted prices for identical investments supported by high
volumes of trading activity and narrow bid/ask spreads, most investments have been classified as Level 2 because the significant inputs used to
measure the fair value on a recurring basis of the same or similar investment are market observable or can be corroborated using market observable
information for the full term of the investment. Level 3 investments include those where estimated fair values are based on significant unobservable
inputs that are supported by little or no market activity and may reflect management’s own assumptions about what factors market participants would
use in pricing these investments.
Level 1 Measurements:
Fixed Maturity Securities, Equity Securities, Trading and Other Securities and Short-term Investments
These securities are comprised of U.S. Treasury and agency securities, foreign government securities, RMBS principally to-be-announced
securities, exchange traded common stock, exchange traded registered mutual fund interests included in trading and other securities and short-term
money market securities, including U.S. Treasury bills. Valuation of these securities is based on unadjusted quoted prices in active markets that are
readily and regularly available. Contractholder-directed unit-linked investments reported within trading and other securities include certain registered
mutual fund interests priced using daily NAV provided by the fund managers.
Derivative Assets and Derivative Liabilities
These assets and liabilities are comprised of exchange-traded derivatives, as well as interest rate forwards to sell certain to-be-announced
securities. Valuation of these assets and liabilities is based on unadjusted quoted prices in active markets that are readily and regularly available.
Separate Account Assets
These assets are comprised of (i) securities that are similar in nature to the fixed maturity securities, equity securities and short-term investments
referred to above; and (ii) certain exchange-traded derivatives, including financial futures and owned options. Valuation of these assets is based on
unadjusted quoted prices in active markets that are readily and regularly available.
Level 2 Measurements:
Fixed Maturity Securities, Equity Securities, Trading and Other Securities and Short-term Investments
This level includes fixed maturity securities and equity securities priced principally by independent pricing services using observable inputs. Trading
and other securities and short-term investments within this level are of a similar nature and class to the Level 2 securities described below.
Contractholder-directed unit-linked investments reported within trading and other securities include certain mutual fund interests without readily
determinable fair values given prices are not published publicly. Valuation of these mutual funds is based upon quoted prices or reported NAV provided
by the fund managers, which were based on observable inputs.
U.S. corporate and foreign corporate securities. These securities are principally valued using the market and income approaches. Valuation is
based primarily on quoted prices in markets that are not active, or using matrix pricing or other similar techniques that use standard market
observable inputs such as benchmark yields, spreads off benchmark yields, new issuances, issuer rating, duration, and trades of identical or
comparable securities. Investment grade privately placed securities are valued using discounted cash flow methodologies using standard market
observable inputs, and inputs derived from, or corroborated by, market observable data including market yield curve, duration, call provisions,
observable prices and spreads for similar publicly traded or privately traded issues that incorporate the credit quality and industry sector of the issuer.
This level also includes certain below investment grade privately placed fixed maturity securities priced by independent pricing services that use
observable inputs.
Structured securities comprised of RMBS, CMBS and ABS. These securities are principally valued using the market approach. Valuation is based
primarily on matrix pricing or other similar techniques using standard market inputs including spreads for actively traded securities, spreads off
benchmark yields, expected prepayment speeds and volumes, current and forecasted loss severity, rating, weighted average coupon, weighted
average maturity, average delinquency rates, geographic region, debt-service coverage ratios and issuance-specific information including, but not
limited to: collateral type, payment terms of the underlying assets, payment priority within the tranche, structure of the security, deal performance and
vintage of loans.
U.S. Treasury and agency securities. These securities are principally valued using the market approach. Valuation is based primarily on quoted
prices in markets that are not active, or using matrix pricing or other similar techniques using standard market observable inputs such as benchmark
U.S. Treasury yield curve, the spread off the U.S. Treasury curve for the identical security and comparable securities that are actively traded.
Foreign government and state and political subdivision securities. These securities are principally valued using the market approach. Valuation is
based primarily on matrix pricing or other similar techniques using standard market observable inputs including benchmark U.S. Treasury or other
yields, issuer ratings, broker-dealer quotes, issuer spreads and reported trades of similar securities, including those within the same sub-sectoror
with a similar maturity or credit rating.
Common and non-redeemable preferred stock. These securities are principally valued using the market approach where market quotes are
available but are not considered actively traded. Valuation is based principally on observable inputs including quoted prices in markets that are not
considered active.
156 MetLife, Inc.