MetLife 2011 Annual Report Download - page 195

MetLife, Inc.
Notes to the Consolidated Financial Statements — (Continued)
consolidated balance sheets, with the related income included within net investment income in the Company’s consolidated statements of operations.
Interest on the collateral financing arrangement is included as a component of other expenses.
Total interest expense related to the collateral financing arrangement was $35 million, $36 million and $51 million for the years ended December 31,
2011, 2010 and 2009, respectively.
Associated with Secondary Guarantees
In May 2007, MetLife, Inc. and MRSC, a wholly-owned subsidiary of MetLife, Inc., entered into a 30-year collateral financing arrangement with an
unaffiliated financial institution that provides up to $3.5 billion of statutory reserve support for MRSC associated with reinsurance obligations under
intercompany reinsurance agreements. Such statutory reserves are associated with universal life secondary guarantees and are required under
U.S. Valuation of Life Policies Model Regulation (commonly referred to as Regulation A-XXX). At both December 31, 2011 and 2010, $2.8 billion had
been drawn upon under the collateral financing arrangement. Proceeds from the collateral financing arrangement were placed in trusts to support
MRSC’s statutory obligations associated with the reinsurance of secondary guarantees. The trusts are VIEs which are consolidated by the Company.
The unaffiliated financial institution is entitled to the return on the investment portfolio held by the trusts. At both December 31, 2011 and 2010, the
Company held assets in trust with an estimated fair value of $3.3 billion associated with the collateral financing arrangement. The assets are principally
invested in fixed maturity securities and are presented as such within the Company’s consolidated balance sheets, with the related income included
within net investment income in the Company’s consolidated statements of operations. Interest on the collateral financing arrangement is included as a
component of other expenses. The collateral financing arrangement may be extended by agreement of MetLife, Inc. and the unaffiliated financial
institution on each anniversary of the closing.
In connection with the collateral financing arrangement, MetLife, Inc. entered into an agreement with the same unaffiliated financial institution under
which MetLife, Inc. is entitled to the return on the investment portfolio held by the trusts established in connection with this collateral financing
arrangement in exchange for the payment of a stated rate of return to the unaffiliated financial institution of three-month LIBOR plus 0.70%, payable
quarterly. MetLife, Inc. may also be required to make payments to the unaffiliated financial institution, for deposit into the trusts, related to any decline in
the estimated fair value of the assets held by the trusts, as well as amounts outstanding upon maturity or early termination of the collateral financing
arrangement. During 2011 and 2010, no payments were made or received by MetLife, Inc. During 2009, MetLife, Inc. contributed $360 million as a
result of declines in the estimated fair value of the assets in the trusts. Cumulatively, since May 2007, MetLife, Inc. has contributed a total of $680 million
as a result of declines in the estimated fair value of the assets in the trusts, all of which was deposited into the trusts.
In addition, MetLife, Inc. may be required to pledge collateral to the unaffiliated financial institution under this agreement. At December 31, 2011 and
2010, MetLife, Inc. had pledged $92 million and $63 million under the agreement, respectively.
Total interest expense related to the collateral financing arrangement was $29 million, $30 million and $44 million for the years ended December 31,
2011, 2010 and 2009, respectively.
13. Junior Subordinated Debt Securities
Outstanding Junior Subordinated Debt Securities
Outstanding junior subordinated debt securities and trust securities which MetLife, Inc. will exchange for junior subordinated debt securities prior to
redemption or repayment were as follows:
Issuer Issue Date Face Value Interest Rate(2)
Scheduled
Redemption
Date
Interest Rate
Subsequent to
Scheduled
Redemption
Date(3) Final Maturity
Carrying Value
at December 31,
2011 2010
(In millions) (In millions)
MetLife, Inc. July 2009 $ 500 10.750% August 2039 LIBOR + 7.548% August 2069 $ 500 $ 500
MetLife Capital Trust X(1) April 2008 $ 750 9.250% April 2038 LIBOR + 5.540% April 2068 750 750
MetLife Capital Trust IV(1) December 2007 $ 700 7.875% December 2037 LIBOR + 3.960% December 2067 694 694
MetLife, Inc. December 2006 $1,250 6.400% December 2036 LIBOR + 2.205% December 2066 1,248 1,247
$3,192 $3,191
(1) MetLife Capital Trust X and MetLife Capital Trust IV are VIEs which are consolidated in the financial statements of the Company. The securities
issued by these entities are exchangeable surplus trust securities, which will be exchanged for a like amount of MetLife, Inc.’s junior subordinated
debt securities on the scheduled redemption date; mandatorily under certain circumstances, and at any time upon MetLife, Inc. exercising its option
to redeem the securities. The exchangeable surplus trust securities are classified as junior subordinated debt securities for purposes of financial
statement presentation.
(2) Prior to the scheduled redemption date, interest is payable semiannually in arrears.
(3) In the event the securities are not redeemed on or before the scheduled redemption date, interest will accrue after such date at an annual rate of
three-month LIBOR plus a margin, payable quarterly in arrears.
In connection with each of the securities described above, MetLife, Inc. may redeem or may cause the redemption of the securities (i) in whole or in
part, at any time on or after the date five years prior to the scheduled redemption date at their principal amount plus accrued and unpaid interest to, but
excluding, the date of redemption, or (ii) in certain circumstances, in whole or in part, prior to the date five years prior to the scheduled redemption date
at their principal amount plus accrued and unpaid interest to, but excluding, the date of redemption or, if greater, a make-whole price. MetLife, Inc. also
has the right to, and in certain circumstances the requirement to, defer interest payments on the securities for a period up to 10 years. Interest
compounds during such periods of deferral. If interest is deferred for more than five consecutive years, MetLife, Inc. is required to use proceeds from
the sale of its common stock or warrants on common stock to satisfy interest payment obligation. In connection with each of the securities described
above, MetLife, Inc. entered into a separate replacement capital covenant (“RCC”). As part of each RCC, MetLife, Inc. agreed that it will not repay,
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