MetLife 2011 Annual Report Download - page 177

MetLife, Inc.
Notes to the Consolidated Financial Statements — (Continued)
Cash and Cash Equivalents
Due to the short-term maturities of cash and cash equivalents, the Company believes there is minimal risk of material changes in interest rates or
credit of the issuer such that estimated fair value generally approximates carrying value. In light of recent market conditions, cash and cash equivalent
instruments have been monitored to ensure there is sufficient demand and maintenance of issuer credit quality, or sufficient solvency in the case of
depository institutions, and the Company has determined additional adjustment is not required.
Accrued Investment Income
Due to the short term until settlement of accrued investment income, the Company believes there is minimal risk of material changes in interest rates
or credit of the issuer such that estimated fair value approximates carrying value. In light of recent market conditions, the Company has monitored the
credit quality of the issuers and has determined additional adjustment is not required.
Premiums, Reinsurance and Other Receivables
Premiums, reinsurance and other receivables in the preceding table are principally comprised of certain amounts recoverable under reinsurance
agreements, amounts on deposit with financial institutions to facilitate daily settlements related to certain derivative positions and amounts receivable for
securities sold but not yet settled.
Premiums receivable and those amounts recoverable under reinsurance agreements determined to transfer significant risk are not financial
instruments subject to disclosure and thus have been excluded from the amounts presented in the preceding table. Amounts recoverable under ceded
reinsurance agreements, which the Company has determined do not transfer significant risk such that they are accounted for using the deposit method
of accounting, have been included in the preceding table. The estimated fair value is determined as the present value of expected future cash flows,
which were discounted using an interest rate determined to reflect the appropriate credit standing of the assuming counterparty.
The amounts on deposit for derivative settlements essentially represent the equivalent of demand deposit balances and amounts due for securities
sold are generally received over short periods such that the estimated fair value approximates carrying value. In light of recent market conditions, the
Company has monitored the solvency position of the financial institutions and has determined additional adjustments are not required.
Other Assets
Other assets in the preceding table are primarily composed of a receivable for cash paid to an unaffiliated financial institution under the MetLife
Reinsurance Company of Charleston (“MRC”) collateral financing arrangement as described in Note 12. The estimated fair value of the receivable for the
cash paid to the unaffiliated financial institution under the MRC collateral financing arrangement is determined by discounting the expected future cash
flows using a discount rate that reflects the credit rating of the unaffiliated financial institution. The amounts excluded from the preceding table are not
considered financial instruments subject to disclosure.
PABs
PABs in the table above include investment contracts. Embedded derivatives on investment contracts and certain variable annuity guarantees
accounted for as embedded derivatives are included in this caption in the consolidated financial statements but excluded from this caption in the table
above as they are separately presented in “— Recurring Fair Value Measurements.” The remaining difference between the amounts reflected as PABs in
the preceding table and those recognized in the consolidated balance sheets represents those amounts due under contracts that satisfy the definition
of insurance contracts and are not considered financial instruments.
The investment contracts primarily include certain funding agreements, fixed deferred annuities, modified guaranteed annuities, fixed term payout
annuities and total control accounts. The fair values for these investment contracts are estimated by discounting best estimate future cash flows using
current market risk-free interest rates and adding a spread to reflect the nonperformance risk in the liability.
Payables for Collateral Under Securities Loaned and Other Transactions
The estimated fair value for payables for collateral under securities loaned and other transactions approximates carrying value. The related
agreements to loan securities are short-term in nature such that the Company believes there is limited risk of a material change in market interest rates.
Additionally, because borrowers are cross-collateralized by the borrowed securities, the Company believes no additional consideration for changes in
nonperformance risk are necessary.
Bank Deposits
Due to the frequency of interest rate resets on customer bank deposits held in money market accounts, the Company believes that there is minimal
risk of a material change in interest rates such that the estimated fair value approximates carrying value. For time deposits, estimated fair values are
estimated by discounting the expected cash flows to maturity using discount rates based on the LIBOR/swap curve at the date of the valuation. The
Company has taken into consideration the sale price for the pending disposition of most of the depository business of MetLife Bank to determine the
estimated fair value of bank deposits at December 31, 2011. See Note 2.
Short-term and Long-term Debt, Collateral Financing Arrangements and Junior Subordinated Debt Securities
The estimated fair value for short-term debt approximates carrying value due to the short-term nature of these obligations. The determination of
estimated fair values of collateral financing arrangements takes into account valuations obtained from the counterparties to the arrangements, as part of
the collateral management process. The estimated fair values of long-term debt and junior subordinated debt securities are generally determined by
discounting expected future cash flows using market rates currently available for debt with similar remaining maturities and reflecting the credit risk of the
Company, including inputs when available, from actively traded debt of the Company or other companies with similar types of borrowing arrangements.
Risk-adjusted discount rates applied to the expected future cash flows can vary significantly based upon the specific terms of each individual
arrangement, including, but not limited to: subordinated rights, contractual interest rates in relation to current market rates, the structuring of the
arrangement, and the nature and observability of the applicable valuation inputs. Use of different risk-adjusted discount rates could result in different
estimated fair values.
The carrying value of long-term debt presented in the table above differs from the amounts presented in the consolidated balance sheets as it does
not include capital leases which are not required to be disclosed at estimated fair value.
MetLife, Inc. 173