MetLife 2013 Annual Report Download - page 150

MetLife, Inc.
Notes to the Consolidated Financial Statements — (Continued)
9. Derivatives (continued)
(1) Changes in estimated fair value related to economic hedges of equity method investments in joint ventures; changes in estimated fair value related
to derivatives held in relation to trading portfolios; and changes in estimated fair value related to derivatives held within contractholder-directed unit-
linked investments.
(2) Changes in estimated fair value related to economic hedges of variable annuity guarantees included in future policy benefits.
(3) Changes in estimated fair value related to derivatives held in connection with the Company’s mortgage banking activities prior to the MetLife Bank
Divestiture.
Fair Value Hedges
The Company designates and accounts for the following as fair value hedges when they have met the requirements of fair value hedging: (i) interest
rate swaps to convert fixed rate assets and liabilities to floating rate assets and liabilities; (ii) foreign currency swaps to hedge the foreign currency fair
value exposure of foreign currency denominated assets and liabilities; and (iii) foreign currency forwards to hedge the foreign currency fair value
exposure of foreign currency denominated investments.
The Company recognizes gains and losses on derivatives and the related hedged items in fair value hedges within net derivative gains (losses). The
following table presents the amount of such net derivative gains (losses):
Derivatives in Fair Value
Hedging Relationships Hedged Items in Fair Value Hedging Relationships
Net Derivative
Gains (Losses)
Recognized
for Derivatives
Net Derivative
Gains (Losses)
Recognized for
Hedged Items
Ineffectiveness
Recognized in
Net Derivative
Gains (Losses)
(In millions)
Year Ended December 31, 2013:
Interest rate swaps: Fixed maturity securities $ 42 $ (43) $ (1)
Policyholder liabilities (1) (830) 835 5
Foreign currency swaps: Foreign-denominated fixed maturity securities 13 (12) 1
Foreign-denominated PABs (2) (97) 110 13
Foreign currency forwards: Foreign-denominated fixed maturity securities (109) 102 (7)
Total ............................................................................ $ (981) $ 992 $ 11
Year Ended December 31, 2012:
Interest rate swaps: Fixed maturity securities $ (4) $ — $ (4)
Policyholder liabilities (1) (82) 96 14
Foreign currency swaps: Foreign-denominated fixed maturity securities (1) 1 —
Foreign-denominated PABs (2) 3 (20) (17)
Foreign currency forwards: Foreign-denominated fixed maturity securities (51) 50 (1)
Total ............................................................................ $ (135) $ 127 $ (8)
Year Ended December 31, 2011:
Interest rate swaps: Fixed maturity securities $ (25) $ 22 $ (3)
Policyholder liabilities (1) 1,054 (1,030) 24
Foreign currency swaps: Foreign-denominated fixed maturity securities 1 3 4
Foreign-denominated PABs (2) (24) (25) (49)
Foreign currency forwards: Foreign-denominated fixed maturity securities (25) 25 —
Total ............................................................................ $ 981 $(1,005) $(24)
(1) Fixed rate liabilities reported in PABs or future policy benefits.
(2) Fixed rate or floating rate liabilities.
For the Company’s foreign currency forwards, the change in the fair value of the derivative related to the changes in the difference between the spot
price and the forward price is excluded from the assessment of hedge effectiveness. For all other derivatives, all components of each derivative’s gain or
loss were included in the assessment of hedge effectiveness. For the years ended December 31, 2013, 2012 and 2011, the component of the change
in fair value of derivatives that was excluded from the assessment of hedge effectiveness was ($2) million, ($4) million and ($3) million, respectively.
Cash Flow Hedges
The Company designates and accounts for the following as cash flow hedges when they have met the requirements of cash flow hedging:
(i) interest rate swaps to convert floating rate assets and liabilities to fixed rate assets and liabilities; (ii) foreign currency swaps to hedge the foreign
currency cash flow exposure of foreign currency denominated assets and liabilities; (iii) interest rate forwards and credit forwards to lock in the price to
be paid for forward purchases of investments; (iv) interest rate swaps and interest rate forwards to hedge the forecasted purchases of fixed-rate
investments; and (v) interest rate swaps and interest rate forwards to hedge forecasted fixed-rate borrowings.
In certain instances, the Company discontinued cash flow hedge accounting because the forecasted transactions were no longer probable of
occurring. Because certain of the forecasted transactions also were not probable of occurring within two months of the anticipated date, the Company
reclassified certain amounts from AOCI into net derivative gains (losses). These amounts were ($1) million, $1 million and ($13) million for the years
ended December 31, 2013, 2012 and 2011, respectively.
142 MetLife, Inc.