MetLife 2012 Annual Report Download - page 107

MetLife, Inc.
Notes to the Consolidated Financial Statements — (Continued)
approval and other customary closing conditions in each of the jurisdictions. The results of the Caribbean Business are included in continuing
operations.
2012 Disposition
American Life U.K. Assumption Reinsurance
During July 2012, the Company completed the disposal, through a ceded assumption reinsurance agreement, of certain closed blocks of business
in the United Kingdom (“U.K.”), to a third party. Simultaneously, the Company recaptured from the third party the indemnity reinsurance agreement
related to this business, previously reinsured as of July 1, 2011. These transactions resulted in a decrease in both insurance and reinsurance assets
and liabilities of $4.1 billion. The Company recognized a gain of $25 million, net of income tax, on the transactions for the year ended
December 31, 2012, which was recorded in net investment gains (losses) in the consolidated statement of operations.
2011 Dispositions
MSI MetLife
On April 1, 2011, the Company sold its 50% interest in Mitsui Sumitomo MetLife Insurance Co., Ltd. (“MSI MetLife”), a Japan domiciled life insurance
company, to its joint venture partner, MS&AD Insurance Group Holdings, Inc. (“MS&AD”), for $269 million (¥22.5 billion) in cash consideration, less
$4 million (¥310 million) to reimburse MS&AD for specific expenses incurred related to the transaction. The accumulated other comprehensive losses in
the foreign currency translation adjustment component of equity resulting from the hedges of the Company’s investment in the joint venture of
$46 million, net of income tax, were released upon sale but did not impact net income for the year ended December 31, 2011 as such losses were
considered in the overall impairment evaluation of the investment prior to the sale. During the years ended December 31, 2011 and 2010, the Company
recorded losses of $57 million and $136 million, net of income tax, respectively, in net investment gains (losses) within the consolidated statementsof
operations related to the sale. The Company’s operating earnings relating to its investment in MSI MetLife were included in the Asia segment.
MetLife Taiwan
On November 1, 2011, the Company sold its wholly-owned subsidiary, MetLife Taiwan Insurance Company Limited (“MetLife Taiwan”) for
$180 million in cash consideration. The net assets sold were $282 million, resulting in a loss on disposal of $64 million, net of income tax, recorded in
discontinued operations, for the year ended December 31, 2011. Income (loss) from the operations of MetLife Taiwan of $20 million and $22 million,
net of income tax, for the years ended December 31, 2011 and 2010, respectively, was also recorded in discontinued operations. See “—Discontinued
Operations” below.
2010 Acquisition of ALICO
Description of Transaction
On November 1, 2010 (the “ALICO Acquisition Date”), MetLife, Inc. acquired all of the issued and outstanding capital stock of American Life
Insurance Company (“American Life”) from AM Holdings LLC (formerly known as ALICO Holdings LLC) (“AM Holdings”), a subsidiary of American
International Group, Inc. (“AIG”), and Delaware American Life Insurance Company (“DelAm”) from AIG (American Life, together with DelAm, collectively,
“ALICO”) (the “ALICO Acquisition”) for a total purchase price of $16.4 billion. The ALICO Acquisition significantly broadened the Company’s
diversification by product, distribution and geography, meaningfully accelerated MetLife’s global growth strategy, and provides the opportunity to build
an international franchise leveraging the key strengths of ALICO.
The $7.2 billion cash portion of the purchase price was funded through the issuance of common stock as described in Note 16, fixed and floating
rate senior debt as described in Note 12 as well as cash on hand. The securities issued to AM Holdings included (a) 78,239,712 shares of MetLife,
Inc.’s common stock; (b) 6,857,000 shares of Series B Contingent Convertible Junior Participating Non-Cumulative Perpetual Preferred Stock (the
“convertible preferred stock”) of MetLife, Inc.; and (c) 40 million common equity units of MetLife, Inc. with an aggregate stated amount at issuance of
$3.0 billion, initially consisting of (i) three purchase contracts (the “Series C Purchase Contracts,” the “Series D Purchase Contracts” and the “Series E
Purchase Contracts” and, together, the “Purchase Contracts”), obligating the holder to purchase, on specified future settlement dates, a variable
number of shares of MetLife, Inc.’s common stock for a fixed price; and (ii) an interest in each of three series of debt securities (the “Series C Debt
Securities,” the “Series D Debt Securities” and the “Series E Debt Securities,” and, together, the “Debt Securities”) issued by MetLife, Inc. Distributions
on the common equity units will be made quarterly, through contract payments on the Purchase Contracts and interest payments on the Debt
Securities, initially at an aggregate annual rate of 5.00% (an average annual rate of 3.02% on the Purchase Contracts and an average annual rate of
1.98% on the Debt Securities) as described in Note 15.
Contingent Consideration
The Company guaranteed that the fair value of a fund of assets backing certain U.K. unit-linked contracts would have a value of at least £1 per unit
on July 1, 2012. If the shortfall between the aggregate guaranteed amount and the fair value of the fund exceeded £106 million (as adjusted for
withdrawals), AIG would pay the difference to the Company and, conversely, if the shortfall at July 1, 2012 was less than £106 million, the Company
would pay the difference to AIG. At July 1, 2012, the shortfall between the aggregate guaranteed amount and the fair value of the fund was less than
£106 million, resulting in a payment of $108 million by the Company to AIG during the third quarter of 2012. The contingent consideration liability was
$109 million at December 31, 2011. The decrease in the contingent consideration liability amount from December 31, 2011 to the date of settlement
was recorded in net derivative gains (losses) in the consolidated statement of operations.
Branch Restructuring
On March 4, 2010, American Life entered into a closing agreement (the “Closing Agreement”) with the Commissioner of the Internal Revenue
Service (“IRS”) with respect to a U.S. withholding tax issue arising as a result of payments made by its foreign branches. The Closing Agreement
provides that American Life’s foreign branches will not be required to withhold U.S. income tax on the income portion of payments made pursuant to
American Life’s life insurance and annuity contracts (“Covered Payments”) for any tax periods beginning on January 1, 2005 and ending on
December 31, 2013 (the “Deferral Period”). The Closing Agreement required that American Life submit a plan to the IRS within 90 days after the close of
the ALICO Acquisition, indicating the steps American Life would take (on a country by country basis) to ensure that no substantial amount of
MetLife, Inc. 101