MetLife 2013 Annual Report Download - page 100

MetLife, Inc.
Notes to the Consolidated Financial Statements — (Continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
The liability for policy and contract claims generally relates to incurred but not reported death, disability, long-term care (“LTC”) and dental claims,
as well as claims which have been reported but not yet settled. The liability for these claims is based on the Company’s estimated ultimate cost of
settling all claims. The Company derives estimates for the development of incurred but not reported claims principally from analyses of historical
patterns of claims by business line. The methods used to determine these estimates are continually reviewed. Adjustments resulting from this
continuous review process and differences between estimates and payments for claims are recognized in policyholder benefits and claims expense
in the period in which the estimates are changed or payments are made.
The unearned revenue liability relates to universal life-type and investment-type products and represents policy charges for services to be provided
in future periods. The charges are deferred as unearned revenue and amortized using the product’s estimated gross profits and margins, similar to
DAC as discussed further herein. Such amortization is recorded in universal life and investment-type product policy fees.
The Company accounts for the prepayment of premiums on its individual life, group life and health contracts as premium received in advance and
applies the cash received to premiums when due.
See “— Deferred Policy Acquisition Costs, Value of Business Acquired and Other Policy-Related Intangibles” for a discussion of negative value of
business acquired.
Recognition of Insurance Revenues and Deposits
Premiums related to traditional life, annuity policies with life contingencies, long-duration accident and health, and credit insurance policies are
recognized as revenues when due from policyholders. Policyholder benefits and expenses are provided to recognize profits over the estimated lives
of the insurance policies. When premiums are due over a significantly shorter period than the period over which benefits are provided, any excess
profit is deferred and recognized into earnings in a constant relationship to insurance in-force or, for annuities, the amount of expected future policy
benefit payments.
Premiums related to short-duration non-medical health and disability, accident and health, and certain credit insurance contracts are recognized
on a pro rata basis over the applicable contract term.
Deposits related to universal life-type and investment-type products are credited to PABs. Revenues from such contracts consist of fees for
mortality, policy administration and surrender charges and are recorded in universal life and investment-type product policy fees in the period in which
services are provided. Amounts that are charged to earnings include interest credited and benefit claims incurred in excess of related PABs.
Premiums related to property and casualty contracts are recognized as revenue on a pro rata basis over the applicable contract term. Unearned
premiums, representing the portion of premium written related to the unexpired coverage, are also included in future policy benefits.
Premiums, policy fees, policyholder benefits and expenses are presented net of reinsurance.
Deferred Policy Acquisition Costs, Value of Business Acquired and Other Policy-Related Intangibles
The Company incurs significant costs in connection with acquiring new and renewal insurance business. Costs that are related directly to the
successful acquisition or renewal of insurance contracts are capitalized as DAC. Such costs include:
‰incremental direct costs of contract acquisition, such as commissions;
‰the portion of an employee’s total compensation and benefits related to time spent selling, underwriting or processing the issuance of new and
renewal insurance business only with respect to actual policies acquired or renewed;
‰other essential direct costs that would not have been incurred had a policy not been acquired or renewed; and
‰in limited circumstances, the costs of direct-response advertising, the primary purpose of which is to elicit sales to customers who could be
shown to have responded specifically to the advertising and that results in probable future benefits.
All other acquisition-related costs, including those related to general advertising and solicitation, market research, agent training, product
development, unsuccessful sales and underwriting efforts, as well as all indirect costs, are expensed as incurred.
92 MetLife, Inc.