MetLife 2013 Annual Report Download - page 177

MetLife, Inc.
Notes to the Consolidated Financial Statements — (Continued)
10. Fair Value (continued)
December 31, 2012
Fair Value Hierarchy
Carrying
Value Level 1 Level 2 Level 3
Total
Estimated
Fair Value
(In millions)
Assets
Mortgage loans:
Held-for-investment ....................................................... $ 53,926 $ — $ — $ 57,381 $ 57,381
Held-for-sale ............................................................ 365 — — 365 365
Mortgage loans, net ..................................................... $ 54,291 $ — $ — $ 57,746 $ 57,746
Policy loans ............................................................... $ 11,884 $ — $ 1,690 $ 12,567 $ 14,257
Real estate joint ventures .................................................... $ 113 $ — $ — $ 171 $ 171
Other limited partnership interests .............................................. $ 1,154 $ — $ — $ 1,277 $ 1,277
Other invested assets ....................................................... $ 815 $305 $ 144 $ 366 $ 815
Premiums, reinsurance and other receivables ..................................... $ 3,287 $ — $ 745 $ 2,960 $ 3,705
Other assets .............................................................. $ 260 $ — $ 214 $ 78 $ 292
Liabilities
PABs .................................................................... $149,928 $ — $ — $158,040 $158,040
Bank deposits ............................................................. $ 6,416 $ — $ 2,018 $ 4,398 $ 6,416
Long-term debt ............................................................ $ 16,502 $ — $18,978 $ — $ 18,978
Collateral financing arrangements .............................................. $ 4,196 $ — $ — $ 3,839 $ 3,839
Junior subordinated debt securities ............................................ $ 3,192 $ — $ 3,984 $ — $ 3,984
Other liabilities ............................................................. $ 1,913 $ — $ 673 $ 1,243 $ 1,916
Separate account liabilities ................................................... $ 58,726 $ — $58,726 $ — $ 58,726
The methods, assumptions and significant valuation techniques and inputs used to estimate the fair value of financial instruments are summarized as
follows:
Mortgage Loans
Mortgage loans held-for-investment
For mortgage loans held-for-investment, estimated fair value is primarily determined by estimating expected future cash flows and discounting
them using current interest rates for similar mortgage loans with similar credit risk, or is determined from pricing for similar loans.
Mortgage loans held-for-sale
For mortgage loans held-for-sale, estimated fair value is determined using independent non-binding broker quotations or internal valuation models
using significant unobservable inputs.
Policy Loans
Policy loans with fixed interest rates are classified within Level 3. The estimated fair values for these loans are determined using a discounted cash
flow model applied to groups of similar policy loans determined by the nature of the underlying insurance liabilities. Cash flow estimates are developed
by applying a weighted-average interest rate to the outstanding principal balance of the respective group of policy loans and an estimated average
maturity determined through experience studies of the past performance of policyholder repayment behavior for similar loans. These cash flows are
discounted using current risk-free interest rates with no adjustment for borrower credit risk as these loans are fully collateralized by the cash surrender
value of the underlying insurance policy. Policy loans with variable interest rates are classified within Level 2 and the estimated fair value approximates
carrying value due to the absence of borrower credit risk and the short time period between interest rate resets, which presents minimal risk of a
material change in estimated fair value due to changes in market interest rates.
Real Estate Joint Ventures and Other Limited Partnership Interests
The estimated fair values of these cost method investments are generally based on the Company’s share of the NAV as provided in the financial
statements of the investees. In certain circumstances, management may adjust the NAV by a premium or discount when it has sufficient evidence to
support applying such adjustments.
Other Invested Assets
These other invested assets are principally comprised of various interest-bearing assets held in foreign subsidiaries and certain amounts due under
contractual indemnifications. For the various interest-bearing assets held in foreign subsidiaries, the Company evaluates the specific facts and
circumstances of each instrument to determine the appropriate estimated fair values. These estimated fair values were not materially different from the
recognized carrying values.
Premiums, Reinsurance and Other Receivables
Premiums, reinsurance and other receivables are principally comprised of certain amounts recoverable under reinsurance agreements, amounts on
deposit with financial institutions to facilitate daily settlements related to certain derivatives and amounts receivable for securities sold but not yet settled.
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